M RATNAVARMA PADIVAL vs BALLAL AND PADIVAL TILES & ORS

The petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as ''the Act'' for short, by

Mr.M Ratnavarma Padival S/o late M Nemiraja Padival against M/s.Ballal and Padival Tiles & others, a partnership firm, which was engaged in

the business of manufacture and sale of Tiles of Mangalore.

The two families represented by as many as 17 partners executed a Deed of Partnership on 01.06.2002, a copy of which is placed on record,

at Annexure-A.

The relevant clause about the consequences upon death of a partner and arbitration clause, are clauses 17 & 20 of the said agreement, which

are quoted below, for ready reference:

Death of Partners:

If during the continuance of the Firm, any Partner dies, or becomes insolvent or becomes unsound in mind, the surviving Partners may

take any one of the legal heir or heirs of the deceased, insolvent or unsound Partner in his/her place and continue the said business

without dissolution of the Partnership Firm, upon the same, terms and conditions as are embodied herein. In the event, the legal heir

or heirs does (do) not wish to join the Firm, the amount standing to the credit of such deceased, insolvent or unsound Partner shall be

paid to such legal representative(s) as may be fixed by the Arbitrator appointed by them mutually in installments or in one lumpsum

together with interest at the same rate as mentioned in Clause 11 supra till the date of full settlement, within a period of one year from

that date. The first of such installments shall be paid within a period of six months from the date of death or insolvency or unsoundness

of such Partner.

Arbitration:

All disputes or question of disputes which may be arising out of the Partnership affairs or as to interpretation, operation or

enforcement of terms of this Partnership Deed between the Partners or their legal representative(s) shall be referred to Arbitration as

per the Provisions of Arbitration & Reconciliation Act for the time being in force. No Partner shall be entitled to take any dispute to

the Court of Law without first referring to Arbitration as mentioned supra.

The arbitrable dispute arose between the parties upon death of one of the partners namely, Mr.Gunapala Padival, who represented the estate of

Mrs.M Ratnamma Padival, at Serial No.9 in the list of partners. Mr.Gunapala Padival expired on 22.10.2004 and consequently, representing his

interest, the present petitioner Mr.M Ratnavarma Padival, raised certain disputes and in terms of the aforesaid clause of the Agreement, he served

notice, for appointment of arbitrator vide Annexure-F dated 17.03.2015.

The parties have however, thereafter failed to appoint the Sole Arbitrator, for deciding the dispute between the parties under the said

agreement.

The learned counsel for the respondents, sought to rely upon a decision of the Hon''ble Supreme Court, in the decision of DEUTSCHE POST

BANK HOME FINANCE LIMITED v. TADURI SRIDHAR & ANOTHER, reported in (2011) 11 SCC 375, and submitted that the

consequences of death of the said person could also result in payment of amount lying in credit of the said partner representing the estate of Mrs.M

Ratnamma Padival and therefore the present petitioner cannot seek appointment of an Arbitrator.

Having heard the learned counsel for parties, this court is of the opinion that the said objection of the learned counsel for the respondents is not

sustainable, in view of the amendment in law of the Arbitration and Conciliation Act by Act No.3/2016 with effect from 23.10.2015 by insertion of

sub-section (6)(a) and (6)(b) in Section 11 of the Act which has been dealt with by this Court in recent decision in the case of N K

DEVELOPERS PRIVATE LIMITED v. CONCORD INDIA LIMITED (C M P No.98/2008 DD 26.10.2017). In the said decision, this Court

held as under:

I have heard both the learned counsels and this petition is being disposed of now finally by consent of both the learned counsels

dealing with their contentions raised at the bar by both sides.

Admittedly, an arbitrable dispute exists between the parties who are Real Estate Developers and the agreement between the

parties to the dispute contains the Arbitration Clause also. The Clause 12.4.1 of the Memorandum of Understanding dated

16.08.1999 between the two parties namely N.K.Developers and Concord India Ltd. is reproduced below for ready reference:

That in the event of any question or dispute arising under, in connection with, incidental to and/or interpretation or scope of this

MOU which is not agreed upon in consultation with each other, shall be referred to the Indian Council of Arbitration in accordance

with the Arbitration and Conciliation Act, 1996.

Mr.Suraj Govinda Raj, the learned counsel appearing for the Respondent Concord India Ltd., relied upon certain judgments to

contend that the aforesaid Arbitration Clause between the parties required the parties to go before the Indian Council for Arbitration

(ICA) and therefore, the petitioner without first approaching the ICA and that Institution having failed to appoint an Arbitrator, the

petitioner could not approach this Court for appointment of the Arbitrator under Section 11(6) of the Act. He mainly relied upon the

decisions of the Supreme Court in the following cases:-

i) Iron & Steel Co. Ltd. -vs- Tiwari Road Lines (2007) 5 SCC 703,

ii) National Highways Authority of India and Another -vs- Bumihiway DDB Ltd. (JV) and Others (2006) 10 SCC 763 and

iii) Walter Bau AG, Legal Successor, of the original contractor, Dyckerhoff and Widmann A.G. -vs- Municipal Corporation of

Greater Mumbai and Another (2015) 3 SCC 800.

A brief of these cases is as under:

i) In Iron & Steel Co. Ltd. case (supra), the Hon''ble Supreme Court held has under:

In the present case there being an agreed procedure for resolution of disputes by arbitration in accordance with the Rules of

Arbitration of the Indian Council of Arbitration, Sections 11(3), (4) and (5) can have no application. Furthermore, the respondent did

not make any effort to have the dispute settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of

Arbitration. On the contraty, it straightaway moved an application under Section 11. Since the parties here had agreed on a

procedure for appointing an arbitrator for settling the dispute by arbitration as contemplated by Section 11(2) and there is no

allegation that any one of the contingencies enumerated in Section 11(6) clause (a) or (b) or (c) had occurred, the application moved

by the respondent was clearly not maintainable and the Court had no jurisdiction to entertain such an application and pass any order.

ii) In National Highways Authority of India''s case (supra), the Hon''ble Supreme Court has held that unless the mechanism/procedure

for appointment of the substitute arbitrator fails or the mechanism/procedure is not exhausted, the court cannot assume jurisdiction

under Section 11(6) of the Act. The relevant para-44 is quoted below for ready reference:

44..........Unless respondent No.2 failed to exercise its jurisdiction, the High Court could not assume jurisdiction under Section 11(6)

of the Act. Respondent No.1 has wrongly invoked the jurisdiction of this Court without first following the procedure agreed to

between the parties. Thus no cause of action had arisen in the facts of the case to seek the appointment from the High Court under

Section 11(6) of the Act and thus the said petition was premature. The High Court also is not correct in relying on the contention of

the respondent No.1 that in case one of the arbitrators is retired Chief Justice, the Presiding Arbitrator should be at least a retired

Chief Justice or a retired Judge of a High Court with considerable experience. It was submitted by learned Solicitor General

appearing for the appellants that the said finding of the High Court is self contradictory inasmuch as if the Presiding Arbitrator is a

retired Judge of the High Court and one of the arbitrators is a retired Chief Justice of the High Court, the member of hierarchy is

upset. Even otherwise, there does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge the

Presiding Arbitrator also has to be a retired Judge. The parties have entered into a contract after fully understanding the import of the

terms so agreed to from which there cannot be any deviation. The Courts have held that the parties are required to comply with the

procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong.

iii) In Walter Bau AG''s case, the learned Single Judge of Hon''ble Supreme Court while dealing with the petition under Section 11(6)

of the Act held that a strict compliance with the agreement procedure by parties and institutions nominated in agreement is necessary

and the appointment of the Arbitrator as fait accompli, does not bar/oust jurisdiction of Court unless it is in compliance with

agreement procedure. The relevant para- 10 of the order of the said judgment is quoted below for ready reference:

Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under

Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6)

cannot be countenanced in law. In the present case, the agreed upon procedure between the parties contemplated the appointment of

the arbitrator by second party within 30 days of receipt of a notice from the first party. While the decision in Datar Switchgears Ltd.

(supra) may have introduced some flexibility in the time frame agreed upon by the parties by extending it till a point of time anterior to

the filing of the application under Section 11(6) of the Arbitration Act, it cannot be lost sight of that in the present case the

appointment of Shri Justice A.D. Mane is clearly contrary to the provisions of the Rules governing the appointment of Arbitrators by

ICADR, which the parties had agreed to abide in the matter of such appointment. The option given to the respondent Corporation to

go beyond the panel submitted by the ICADR and to appoint any person of its choice was clearly not in the contemplation of the

parties. If that be so, obviously, the appointment of Shri Justice A.D. Mane is non-est in law. Such an appointment, therefore, will not

inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the

present proceeding is not maintainable in law. The appointment of Shri Justice A.D. Mane made beyond 30 days of the receipt of

notice by the petitioner, though may appear to be in conformity with the law laid down in Datar Switchgears Ltd. (supra), is clearly

contrary to the agreed procedure which required the appointment made by the respondent Corporation to be from the panel

submitted by the ICADR. The said appointment, therefore, is clearly invalid in law.

It may be noticed here that all these judgments relied upon by the learned counsel for the Respondent were prior to the amendment

of Section 11 of the Act effected by Act No.3 of 2016 w.e.f. 23.10.2015.

On the other hand, Mr.Udaya Holla, Senior counsel appearing with Mr.Vivek Holla, for the petitioner-N.K.Developers Pvt. Ltd.

submitted that firstly, no such objection has ever been raised by the Respondent in the present petition filed way back in the year

2008, though a Statement of Objections has been filed by them and except baldly saying therein that the procedure has not been

followed by the petitioner, the Respondent has never contended that this Court has no jurisdiction to appoint an Arbitrator under

Section 11 of the Act, and secondly, the learned Senior counsel urged that Section 11 of the Act of 1996 stands amended recently

by Act No.3 of 2016 w.e.f. 23.10.2015 and those newly inserted provisions of subsections (6-A) and (6-B) in Section 11 now

provide that notwithstanding any judgment, decree or order of any Court, the High Court or Supreme Court, while considering any

application under sub-sections (4), (5) or (6) of Section 11 of the Act shall confine to the examination of the existence of an

arbitration agreement. The said subsections (6-A) and (6-B) inserted by Act No.3 of 2016 w.e.f. 23.10.2015 are quoted below for

ready reference:

(6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or

subsection (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of

the existence of an arbitration agreement.

(6-B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of

this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.

The aforesaid Sub-sections (6-A) and (6-B) inserted in Section 11 of the Act, 1996 were clearly brought on the statute book to

undo the effect of the aforecited Supreme Court decisions and the said Arbitration and Conciliation (Amendment) Bill, 2015 was

enacted on the basis of the recommendations, 246th Report of the Law Commission of India. The brief look into the object behind

effecting said amendments is opportune here. The said 246th Report of the Law Commission of India submitted in August, 2014 by

its Chairman Sri Ajit Prakash Shah, Former Chief Justice of Delhi High Court and it undertook painstakingly a review of the

deficiencies pointed out and recommendations contained in 176th Report on the ''''Arbitration and Conciliation (Amendment) Bill,

2001'' and the recommendations of Justice Saraf Committee. The Ministry of Law and Justice issued a Consultation Paper on 8th

April, 2010 inviting suggestions from eminent lawyers, judges, industry members, institutions and various stakeholders and after

several National Conferences across the country and after taking such suggestions into account, the Law Commission was asked to

undertake a study of the amendments proposed in the said Act and consequently the following important recommendations for

amendment of Section 11 of the Act in 246th Report of the Law Commission of India deserve a mention here. Proposed

amendments of Section 11 are quoted below from the said Report of Law Commission of India for ready reference:

In section 11,

(i) In sub section (4), sub clause (b), after the words ""by the"" delete ""Chief Justice"" and add words ""High Court"" and after the words

designated by"" delete the word ""him"" and add the word ""it"".

(ii) In sub section (5), after the words ""by the"" delete ""Chief Justice"" and add words ""High Court"" and after the words ""designated by

delete the word ""him"" and add the word ""it"".

(iii) In sub section (6), sub clause (c), after the words ""may request the"" delete ""Chief Justice"" and add words ""High Court"" and after

the words ""designated by"" delete the word ""him"" and add the word ""it"".

(iv) after sub section (6), insert sub section ""(6A) An appointment by the High Court or the person or institution designated by it

under sub-section (4) or sub section (5) or sub section (6) shall not be made only if the High Court finds that the arbitration

agreement does not exist or is null and void,

Explanation 1 : If the High Court is prima facie satisfied regarding the existence of an arbitration agreement, it shall refer the parties to

arbitration and leave the final determination of the existence of the arbitration agreement to the arbitral tribunal in accordance with

section 16, which shall decide the same as a preliminary issue.

Explanation 2 : For the removal of any doubt, it is clarified that reference by the High Court to any person or institution designated by

it shall not be regarded as a delegation of judicial power.

Explanation 3: The High Court may take steps to encourage the parties to refer the disputes to institutionalised arbitration by a

professional Indian or International Arbitral Institute.

[NOTE: The proposed section 11 (6A) envisages the same process of determination as is reflected in the proposed amendment to

section 8. Explanation 2 envisages that reference by the High Court to any person or institution designated by it shall not be regarded

as a delegation of judicial power. Explanation 3 has been inserted with the hope and expectation that High Courts would encourage

the parties to refer the disputes to institutionalize arbitration by a professional Indian or international arbitral institute.]

(v) In sub section (7), after the words ""or sub section (6)"" add the words ""or sub section (6A)"" and after the words ""to the"" delete the

words ""Chief Justice or the"" and add the words ""High Court is final where an arbitral tribunal has been appointed or a"" and after the

words ""person or institution"" add the words ""has been"" and after the words ""designated by"" delete the words ""him is final"" and insert

the words ""the High Court, and no appeal, including letters patent appeal, shall lie against such order.

[NOTE : This amendment ensures that

a) an affirmative judicial finding regarding the existence of the arbitration agreement; and (b) the administrative act of appointing the

arbitrator are final and nonappealabe].

Besides the aforesaid Law Commission recommendations, one independent Institute for Public Research studies known as PRS

Legislative Research also gave its comments on the aforesaid Amendment Bill, 2015 and in so far as the appointment of Arbitrators

by the Court in exercise of its power under Section 11 of the Act is concerned, their comments are also worth noticing and they are

as under:-

Powers of Court to refer a party to arbitration if agreement exists: Under the Act, if any matter that is brought before a Court is the

subject of an arbitration agreement, parties will be referred to arbitration.

The Bill states that this power of referral is to be exercised by a Court even if there is a previous court judgment to the contrary. The

Court must refer the parties to arbitration unless it thinks that a valid arbitration agreement does not exist.

Appointment of Arbitrators: The Act permits parties to appoint arbitrators. If they are unable to appoint arbitrators within 30 days,

the matter is referred to the Court to make such appointments.

The Bill states that, at this stage, the Court must confine itself to the examination of the existence of a valid arbitration agreement.

The aforesaid legislative exercise was undertaken by the Parliament with a view to further expedite the process of alternate

dispute resolution through the mechanism of arbitration under the Act of 1996 and all the requisite amendments effected in the Act,

1996 are geared with the object to achieve not only expedition, but, also to meet the international expectations on the international

arbitration also governed by our Act of 1996 enacted on the UNCITRAL Model Arbitration Law.

LORD MUSTILL in the Foreword to the Book by O.P.MALHOTRA, Law and Practice of Arbitration (1st Edn, 2002,

LexisNexis) said like this for Court''s role in arbitration proceedings:

First, there is the Central importance of a harmonious relation between the courts and the arbitral process. This has always involved

a delicate balance, since the urge of any judge is to see justice done, and to put right injustice wherever he or she finds it; and if it is

found in an arbitration, why then the judge feels the need to intervene. On the other side, those active in the world of arbitration stress

its voluntary nature, and urge that it is wrong in principle for the courts to concern themselves with disputes which the parties have

formally chosen to withdraw from them, quite apart from the waste of time and expense caused by gratutitous judicial interference. To

a degree both views were right, and remain so; the problem has been to give proper weight to each of them. It was an unhappy

feature of discourse on arbitration in the century just past that the legitimate arguments which could be advanced in favour of one or

another came to be expressed, in some instances at least, with quite unnecessary vigour.

Fortunately, in recent years wiser counsels have prevailed, and it has, I believe, generally come to be recognized on both sides of the

procedural divide that the courts must be partners, not superiors or antagonists, in a process which is vital to commerce at home or

abroad....

In view of the aforesaid legal position, this Court is of the view that the objections raised by the learned counsel for the

Respondent are not maintainable and sustainable. Not only because no such objections have been pleaded and raised before this

Court either in the Statement of Objections or otherwise in the reply to the notice served by the petitioner on the respondent seeking

an appointment of the Arbitrator, but also in view of the recent amendment in law by insertion of subsections (6-A) and (6-B) in

Section 11 of the Act, which not only confers positive and over-riding powers upon this Court but also at the same time an obligation

to confine their examination of the existence of a valid Arbitration Agreement between the parties and to see that the arbitration

proceedings are not unnecessarily delayed on the basis of such technical objections.

The failure on the part of the Respondent-Company itself to take the petitioner through the arbitration proceedings to the ICA,

now does not entitle it to raise this objection at the fag end after eight years of pendency of the present application before this Court

under Section 11 of the Act and it can be inferred therefore that the said procedure agreed between the parties to approach ICA had

failed and which itself has largely defeated the very purpose of expeditious disposal of the disputes through the mechanism of

Alternative Dispute Resolution (ADR) provided under the Act and agreed to by the parties.

Sub-sections (6-A) and (6-B) now not only mandate the Court while dealing with application filed under Section 11 of the Act to

confine its examination to the existence of a valid Arbitration Agreement which undisputedly exists in the present case and thus, the

jurisdiction of this Court to appoint the Arbitrator in view of agreed Arbitration Agreement is not ousted at all. The failure of parties to

appoint ICA or any other Arbitrator through the Institution of Indian Arbitration Centre can certainly be construed to be the failure of

the parties, enabling any one of them to apply to this Court under Section 11(6) of the Act. Therefore, the said objection of the

Respondent-Company deserves to be overruled and this Court is of the opinion that this Court has the jurisdiction to appoint the

Arbitrator under Section 11 of the Act in the present case, at this stage.

The judgments relied upon by the learned counsel for Respondent on the provisions as they existed prior to the amendment of

Act No.3 of 2016 w.e.f. 23.10.2015 are therefore of no help to the Respondent-Company. Those judgments only delineate that the

procedure agreed upon between the parties for appointment of Arbitrator should be followed. That legal position, even if held

applicable in the present case, has exhausted itself and the agreed mode of approaching the Indian Council of Arbitration at this

belated stage is not an option for which this Court should either relegate the parties or refuse to appoint Arbitrator under Section

11(6) of the Act. Moreover, the amendment in law removes the rigour of those precedents.

In view of the aforesaid legal position and an arbitrable dispute and an arbitration clause admittedly existing between the parties, the matter

deserves to be referred to an Arbitrator to be appointed by this Court under Section 11 of the Act. By consent of both the learned counsel

Mr.Moosa Kunhi Nayarmoole, Former District Judge, is appointed as Arbitrator, who shall undertake the arbitration proceedings in accordance

with law. All the contentions and claims/counter claims on merits by both the parties are kept open, to be determined by the learned Arbitrator.

A copy of this order be sent to the Arbitration Centre, Khanija Bhavan, Bengaluru for proceeding further in the matter on administrative side

and also to Sri Moosa Kunhi Nayarmoole, Former District Judge at the address available with the said Arbitration Centre, Bengaluru.

C M P is accordingly disposed of.