Libra Automotives Private Limited vs Bmw India Private Limited & Anr

,

Sanjeev Narula, J",

The present Petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as „the Act‟) has been filed",

seeking appointment of a sole Arbitrator for adjudicating the disputes alleged to have arisen under the Agreements executed between the Petitioner,

and Respondent Nos. 1 and 2.,

Brief Background,

The Petitioner is a company incorporated under the Companies Act, 1956 and has been engaged in the business of purchasing and selling BMW",

automobiles and associated products (""BMW Group products"") under various agreements with the Respondents.",

Respondent No.1, BMW India Private Limited (""BMW India""), is engaged in the business of manufacturing, assembling, wholesaling cars to various",

dealers on principal to principal basis and authorizing them to sell BMW Group Products to end customers.,

Respondent No. 2, BMW India Financial Services Private Limited is licensed as a Non-Banking Financial Corporation under the Reserve Bank of",

India Act, 1934. It provides financing services to the dealers appointed by Respondent No.1, for the purposes of establishing and running its dealership",

business.,

The relevant facts are that Petitioner was appointed as a dealer of the BMW Group Products in terms of various agreements executed between the,

Petitioner and the Respondent Nos. 1 and 2, including the Principal dealership agreement dated 1st January 2018 executed between the Petitioner and",

Respondent No. 1 (""Dealership Agreement""). In addition to the Dealership Agreement, Petitioner has also executed the following ancillary",

agreements with Respondent No. 1:,

(i) Novation dated 12th April 2016, to the Letter of Intent dated 21st December 2015 (“Novated LoIâ€​);",

(ii) Interim Dealer Agreement dated 19th May 2016 (""Interim Dealer Agreement"") extended on 13th January 2017 till 31st March 2017.",

(iii) Deferred Payment Facility Agreement dated 21st June 2016 (""DPA"");",

and,

(iv) Hypothecation Deed dated 20th June 2016.,

Apart from above mentioned agreements executed with Respondent No. 1, Petitioner has also entered into financing agreements with Respondent",

No. 2 for the purposes of carrying out its exclusive business of dealership in BMW Group Products. The details of such agreements are:,

(i) Floorplan Financing Agreement dated 21st June 2016 (""Floor Agreement""); •",

(ii) Spare Parts Financing Agreement dated 11th July 2016 (""Spare Agreement""); and",

(iii) Hypothecation Deeds dated 21st June 2016 and 11th July 2016 (""Hypothecation Deeds"").",

These agreements executed between the Parties are collectively referred to as ""the Agreements"".",

In accordance with the terms of the Agreements, Petitioner furnished a bank guarantee dated 21st June 2016 worth INR 7 Crores (""Bank",

Guarantee""), jointly in favour of Respondent Nos. 1 and 2. This was later extended vide letters dated 14th June 2017 and 21st June 2018 and",

subsequently the Bank Guarantee was encashed on 2nd November 2018.,

The limited prayer in the present petition is for appointment of a Sole Arbitrator for adjudication of the disputes that have arisen between the,

Petitioner and the Respondents in relation with the Agreements. Petitioner contends that the Respondents have acted in a totally unfair and whimsical,

manner in the performance of the Agreements and have committed breaches having failed to adhere to the terms of the Agreements. The demands,

raised by Respondents are unreasonable and unsubstantiated. The Petitioner has invoked the arbitration clause under the Agreements, vide letter",

dated 24th January 2019 and 28th January 2019 and has requested the Respondents to either agree to appointment of a common Arbitrator to decide,

all the disputes in a tripartite arbitration or approach the Delhi International Arbitration Centre for appointment of a sole Arbitrator. Despite the receipt,

of the notice, the Respondents have failed to convey their consent/objection for the appointment of the Arbitrator, thereby constraining the Petitioner",

to approach this Court by way of present petition.,

Findings and Analysis,

The present petition is wholly misconceived and untenable in law for the reasons discussed hereinafter.,

The relationship between the Petitioner and Respondents is not in dispute. It is also not in controversy that disputes and differences have arisen,

between the parties, inasmuch as Respondent Nos. 1 and 2 have filed Petitions under Section 9 of the Act being a) O.M.P. (I) (COMM) No. 25 of",

2019 and b) OMP (I) (COMM) No. 9 of 2019. Both the Parties hold each other responsible for breach of the Agreement and have monetary claims.,

There is thus no denying of the fact that the parties have to now take recourse to the dispute resolution mechanism for adjudication of their claims and,

counter claims arising out of or in relation to the Agreements in question. Therefore, the question before the Court is whether the prayer in the present",

petition can be allowed in the facts and circumstances of the present case.,

The factual narrative clearly discloses that there are two separate and distinct set of agreements between the parties. The Petitioner had entered,

into a Dealership Agreement dated 1st January 2018 only with Respondent No. 1 and in that regard, several other Agreements were executed, as",

enumerated in para 5 above. For the purpose of financing, Petitioner executed separate and distinct agreements enumerated in para 6 above. The",

principal financing agreements dated 21st June 2016 and other inter related agreements are executed between the Petitioner and Respondent No. 2,

only and Respondent No. 1 is not a party thereto.,

Significantly, the arbitration clauses in “the agreementsâ€​ are separate and distinct, and this becomes evident from the following tabulation:-",

Agreement,Arbitration Clause

Dealership

Agreement

(Executed

between

Petitioner and

Respondent

No. 1)","""13.5.2 Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity, effect

and interpretation thereof or termination, shall be referred to and finally resolved by arbitration administered by the Singapore

International Arbitration Centre (""SIAC"") in accordance with the Arbitration Rules of the SingaporeI nternational Arbitration Centre

(""SIAC Rules'') for the time being in force, which rules are deemed to be incorporated by reference in this clause.

13.5.2 In deviation to the SIAC Rules, the number of arbitrators shall be three.E ach Party shall appoint one arbitrator. The two

arbitrators nominated by the parties to the arbitration shall nominate the chairman of the arbitral tribunal. The Emergency Arbitrator

Provisions shall not apply. Any compulsory production of documents by a Party shall be limited to the documents on which that Party

specifically relies in its submissions. No discovery shall be conducted between the Parties.

13.5.3 All arbitral proceedings I sessions shall be conducted in Delhi. The language of the arbitration proceedings shall be English.

Interim

Dealer

Agreement

(Executed

between

Petitioner and

Respondent

No. 1)","""13.4 Law, jurisdiction and dispute resolution 13.4.2 All disputes, difference, disagreements, controversies or claims arising out of or in

connection with this Agreement shall be settled amicably through consultation between the Parties. If the Parties fail to reach an

amicable settlement within 15 days or a written request for such consultation being served by either Party on the other, all such

disputes and differences arising out of or in relation to this Agreement including the validity, effect and interpretation thereof, shall be

resolved by Arbitration by three Arbitrators, one each to be appointed by the Parties and the third Arbitrator to be appointed by the two

Arbitrators so appointed, or in the absence of agreement between them within 15 days, by the President of the Indian Arbitration

Council, Delhi.

13.4.3 Arbitration proceedings shall be in English and will be conducted in accordance with the Indian Arbitration and Conciliation act

1996 and the rules made thereunder and/or any amendments thereof (the ""Rules"").

13.4.4 The arbitration shall be conducted in New Delhi only and the language of the arbitration shall be English.

13.4. 6 In connection with the arbitration, the courts at Delhi will have exclusive jurisdiction of enforcement of the Award, and/or

applications for interim reliefs. However, BMW may, at its, option, file proceedings in any other court of competent jurisdiction.

Deferred

Payment

Facility

Agreement

(DPA)

(Executed

between

Petitioner and

Respondent

No. 1)","""18. LAW AND JURISDICTION

[. . .]

18.2 All disputes, differences, disagreements, controversies or claims arising out of or in connection with this Deferred Payment facility

Agreement shall be settled amicable through consultation between the Parties. If the Parties fail to reach an amicable settlement within

15 days of a written request for such consultation being served by either Party on the other, all such disputes and differences arising

out of or in relation to this Deferred Payment Facility Agreement, including the validity, effect and interpretation thereof, shall be

resolved by Arbitration by three Arbitrators, one each to be appointed by the Parties and the third Arbitrator to be appointed by the two

Arbitrators so appointed, or in absence of agreement between them within 15 days, by the President of the Indian Arbitration Council

Delhi.

18.3 Arbitration proceedings shall be in English ,. and will be conducted in accordance with the Indian Arbitration and Conciliation Act

1996 and the rules made thereunder and/or any amendments therof (the ""Rules'').

18.4 The arbitration shall be conducted in New Delhi only and the language of the arbitration shall be English.

Floorplan

Agreement

(Executed

between

Petitioner and

Respondent

No. 2)","""ARTICLE 23

LIQUIDATED DAMAGES ON DEFAULTED AMOUNTS

In case of default in Repayment on their respective due dates, the Dealer shall pay on the defaulted amounts, liquidated damages for

the period of default. Liquidated damages shall be payable in the manner and on the due dates specified in Schedule I.

Spare

Agreement

(Executed

between

Petitioner and

Respondent

No. 2)","""ARTICLE 24 ARBITRATION Any dispute, controversy or claim arising out of or relatingt o this Financing Agreement or any related

agreement or other documents or the validity, interpretation, breach or termination thereof (""Dispute""), including claims seeking redress

or asserting rights under applicable law, shall be resolved and finally settled in accordance with the provisions of the Arbitration and

Conciliation Act, 1996 as may be amended from time to time or its reenactment (the ""Arbitration Act""). The Parties consent to a single

consolidated arbitration of all Disputes that may at the time exist. The arbitral tribunal shall be composed of one arbitrator to be

appointed by the BMW Financial Services. Thea rbitration proceedings shall be conducted in the English language and any documents

not in English submitted by any party shall be accompanied by an English translation. The arbitration shall be conducted in Delhi/New

Delhi. The arbitral tribunal shall determine in dispute in accordance the law of India, without giving effect to any conflict of law rules or

other rules that might render such law inapplicable or unavailable, and shall apply this Agreement according to its terms. The Parties

agree to be bound by any award or other resulting from any arbitration conducted hereunder. The arbitral tribunal shall award the

prevailing party, as determined by such arbitral tribunal, all its costs and fees. For the purpose of this Agreement, the expression 'costs

and fees ' shall mean and include all reasonable pre-award expenses of the arbitration including the arbitrator's fees, administrative

fees, travel expenses, out-of pocket expenses such as copying and telephone, court costs and lawyers' fees, The Parties hereto agree

to be bound by any award or order including the arbitral tribunal in the manner laid out hereinabove.

Hypothecation

Deed dated

20.06.2016

(Executed

between

Petitioner and

Respondent

No.1 and 2)","""44. All disputes, differences, disagreements, controversies or claims arising out of or in connection with this Deed shall be settled

amicable through consultation between the Parties. If the Parties fail to reach an amicable settlement within 15 days of a written

request for such consultation being served by either Party on the other, all such disputes and differences arising out of or in relation to

this Deed, including the validity, effect and interpretation thereof, shall be resolved by Arbitration by three Arbitrators, one each to be

appointed by the Parties and the third Arbitrator to be appointed by the two Arbitrators so appointed, or in absence of agreement

between them within 15 days, by the President of the Indian Arbitration Council, Delhi.

Arbitration proceedings be conducted in accordance with the Indian Arbitration and Conciliation Act, 1996 and the rules made

thereunder and/or any amendments thereof (the ""Rules'').

[ .. .} 48. In connection with the arbitration, the Courts at Delhi will have exclusive jurisdiction for enforcement of the Award, and/or

application for interim reliefs.[ ... }

Hypothecation

Deed dated

11.07.2016

(Executed

between

Petitioner and

Respondent

No.1 and 2)","42. In the event of any dispute or differences arising under this Deed including any dispute as to any amount outstanding, the real

meaning or purport hereof ""Dispute'') such Dispute shall be finally resolved by arbitration. Such arbitration shall be conducted in

accordance with the provisions of the (Indian) Arbitration and Conciliation Act 1996 or any amendment or reenactment thereof by a

single arbitrator to be appointed by the Lender. The venue of arbitration shall be at New Delhi and the arbitration shall be conducted in

English Language.

Hypothecation

Deed dated

21.06.2016

(Executed

between

Petitioner and

Respondent

No. 1 and 2)","""45. In the event of any dispute or differences arising under this Deed including any dispute as to any amount outstanding, the real

meaning or purport hereof (""Dispute"") such Dispute shall be finally resolved by arbitration. Such arbitration shall be conducted in

accordance with the provisions of the (Indian) Arbitration and Conciliation Act 1996 or any amendment or reenactment thereof by a

single arbitrator to be appointed by the Lender. The venue of arbitration shall be at as decided by the Lender and the arbitration shall be

conducted in English Language.

procedure under any of the Arbitration Agreements. The Petitioner has rather called upon the Respondents to agree to an arbitration mechanism,

contrary to the agreed procedure prescribed under the Agreement. The invocation is thus contrary to the contract and wholly misconceived.,

The judgment relied upon by the Petitioner in P. R Shah (supra) is also not applicable to the facts of the present case. In the said judgment, the",

Court had noted that the provision for arbitration as provided in the two arbitration agreements were different. Under one agreement, the dispute arose",

between the member and a non-member and under the other agreement, dispute was between two members. The Appellant therein, contended that",

there could not be a common Arbitration with regard to a claim or dispute by a member against another member and a non-member, as under the",

relevant byelaws, the arbitration mechanism was separate and distinct. However, the Court taking note of the fact that the relevant byelaws of the",

Bombay Stock Exchange permitted a single arbitration in respect of a members and non-members, upheld the appointment of a composite Arbitral",

Tribunal.,

This becomes evident from the following paragraphs of the said judgment:-,

“16. The appellant contends that as the provisions for arbitration are different in regard to a dispute between a member and a non-member and in,

regard to a dispute between two members, there cannot be a common arbitration in regard to a claim or dispute by a member against another member",

and a non-member. It is pointed out that in regard to the arbitration in the case of a non-member, the reference is to three arbitrators, each party",

appointing one arbitrator and the Executive Director of the Exchange appointing the third arbitrator, one of the three arbitrators being a non-member",

(vide Bye-law 249). On the other hand, in the case of a dispute between a member with another member, the matter is referred to the Arbitration",

Committee of the Exchange and the said Committee will appoint a three-member tribunal, known as the lower Bench (vide Bye-law 285); and in",

regard to such arbitration between a member and another member, an appeal is available from the lower Bench of the Arbitration Committee to the",

Arbitration Committee constituted by the governing Board. In the case of a dispute between a member and a non-member, no such institutional appeal",

is available. The appellant contends that the valuable right of appeal was denied by holding a joint arbitration against the appellant and the second,

respondent.,

In this case, the first respondent had a claim for Rs 36,98,354.73 jointly against the second respondent and the appellant. According to the first",

respondent, it entered into the transaction with the second respondent on the instructions of the appellant and on the understanding that the appellant",

will also be liable and in fact, the appellant accepting its liability, had also paid Rs 13 lakhs as part-payment. It is not disputed that the appellant and the",

second respondent were closely held family companies managed by the same person (Ms Kanan C. Sheth). According to the appellant the share,

holdings in the appellant was Kanan C. Seth: 1,05,000 shares, Chetan M. Sheth: 45,000 shares and Jasumati P. Shah: 1,50,000 shares and the",

shareholdings in the second respondent Company was Kanan C. Sheth: 100 shares and Chetan M. Sheth: 100 shares.,

If A had a claim against B and C, and there was an arbitration agreement between A and B but there was no arbitration agreement between A",

and C, it might not be possible to have a joint arbitration against B and C. A cannot make a claim against C in an arbitration against B, on the ground",

that the claim was being made jointly against B and C, as C was not a party to the arbitration agreement. But if A had a claim against B and C and if",

A had an arbitration agreement with B and A also had a separate arbitration agreement with C, there is no reason why A cannot have a joint",

arbitration against B and C. Obviously, having an arbitration between A and B and another arbitration between A and C in regard to the same claim",

would lead to conflicting decisions. In such a case, to deny the benefit of a single arbitration against B and C on the ground that the arbitration",

agreements against B and C are different, would lead to multiplicity of proceedings, conflicting decisions and cause injustice. It would be proper and",

just to say that when A has a claim jointly against B and C, and when there are provisions for arbitration in respect of both B and C, there can be a",

single arbitration.,

In this case though the arbitration in respect of a non-member is under Bye-law 248 and arbitration in respect of the members is under Bye-law,

282, as the Exchange has permitted a single arbitration against both, there could be no impediment for a single arbitration. It is this principle that has",

been applied by the learned Single Judge, and affirmed by the Division Bench. As the first respondent had a single claim against the second",

respondent and the appellant and as there was provision for arbitration in regard to both of them, and as the Exchange had permitted a common",

arbitration, it is not possible to accept the contention of the appellant that there could not be a common arbitration against the appellant and the second",

respondent.â€​,

Thus, the aforenoted judgment is distinguished and not applicable to the facts of the present case.",

The Court while exercising its power under Section 11 of the Act, cannot recast the terms of the Contract and direct the parties to go for a",

composite arbitration contrary to the procedure prescribed under the arbitration clause provided in distinct arbitration agreements. The overlapping of,

the issues does not mean that the arbitration proceedings under the two respective contracts cannot commence and continue independently.,

Fundamental feature of an arbitration agreement is that there is an understanding between the parties to adopt alternate mechanism for the,

adjudication of the future disputes that arise between them. The law does not prescribe any standard form of arbitration agreement and the parties are,

free to agree upon a procedure and designate the private forum where the parties would like to go in case the disputes and differences arise between,

them. Thus, there is to be consensus ad-idem between the parties regarding the choice of the forum. The Supreme Court in certain judgments, has",

held that in certain exceptional circumstances the Court has a power to make an appointment of the Arbitrator, notwithstanding the choice of the",

specified forum agreed between the parties. However, at the first instance, the effort of the Court would be to ensure that the parties adhere to the",

choice of the Arbitrator or to the mechanism for constituting the Arbitral Tribunal as envisaged by the Arbitration Agreement. It is also noteworthy,

that, the Supreme Court in Indian Oil Corporation Ltd. v. Raja Transport Pvt. Ltd., (2009) 8 SCC 52,0 Union of India v. Singh Builders Syndicate,",

(2009) 4 SCC 523, Northern Eastern Railway v. Triple Engineering, (2014) 9 SCC 288 and Union of India v. BESCO, AIR 2017 SC 162,8 has",

expressed the opinion that where an application under Section 11(6) of the Act is filed, the procedure for appointment of an arbitrator prescribed in the",

agreement, be given effect to and the Court ought not to appoint an independent arbitrator without resorting to the inbuilt mechanism as agreed",

between the parties. Parties were conscious of the terms of the agreement and they willingly and consciously agreed for the arbitral procedure,

envisaged under the agreement without any reservation. Petitioner is now suggesting that the agreed choice of forum should be ignored and that part,

of the Agreements should be severed and further Respondent should tow it‟s line and agree to the Arbitral Tribunal contrary to what has been,

provided in the Contracts. This cannot be permitted and thus the relief claimed in the present petition for appointment of a common arbitrator cannot,

be granted. There is no merit in the present petition and the same is dismissed. No order as to costs.,

It is however clarified that the dismissal of the present petition does not preclude the Petitioner or the Respondents from exercise their remedy under,

the relevant provisions of the agreement for invoking the arbitration clause and seeking the appointment of the Arbitral Tribunal in accordance with the,

mechanism provided under the Agreements,