M/S. ACE Engineering Academy/ ACE Engineering Education India Pvt. Ltd.Vs Kailas Sarala

Heard Mr. K.S. Suneel, learned counsel representing M/s. Chandrasen Law Offices, learned counsel for the petitioner and Mr. Sharad Sanghi, learned counsel for the respondent.

The present Arbitration Application is filed under Sections - 11 (5) and 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act, 1996’) for appointment of an arbitrator to resolve the disputes between the parties.

CASE OF THE PETITIONER:

i) The petitioner and respondent have entered into a service agreement dated 12.12.2019 on the specific terms and condition mentioned therein for providing services. The said agreement is for a period of five (05) years commencing from 12.12.2019. Thereafter, they have also entered into another service agreement dated 25.06.2020 on the specific terms and conditions agreed therein for providing services. The petitioner paid an amount of Rs.11,66,310/-towards advance and Rs.4,00,000/- towards monthly payment for the period from January, 2021 to August, 2021 to the respondent.

ii) The petitioner herein is service receiver and the respondent is service provider. In the said agreement, it is specifically mentioned that the petitioner - service receiver is a reputed organization/company and a nationally renowned institute with a prime motto of imparting quality education among engineering students and moulding them to crack competitive examinations of ESE, GATE, PSUs, and other competitive exams relating to engineering and in this regard the service receiver desires to obtain the services of the Service Provider, and the service provider to render such services on the terms and conditions set forth in the said agreement.

iii) According to the petitioner, there are arbitral disputes between the petitioner and the respondent with regard to the said agreements. Therefore, it has invoked Clause - 14 of the said service agreement dated 25.06.2020 by way of issuing notice dated 08.11.2021 proposing the names of three (03) retired District Judges to resolve the disputes. Despite receiving and acknowledging the said notice, the respondent did not respond to it. Therefore, the petitioner herein has filed the present arbitration application seeking appointment of an Arbitrator to resolve the said disputes.

CONTENTION OF THE RESPONDET:

The respondent filed counter contending that the service agreement dated 12.12.2019 is the principal agreement and there is no arbitration clause in the said agreement. The contents of the said agreement prevails over the subsequent service agreement dated 25.06.2020. Therefore, the petitioner is not entitled for appointment of an Arbitrator.

Learned counsel for the petitioner would submit that the petitioner and respondent have entered into service agreement dated 25.06.2020 considering all the factors, which are specifically mentioned therein. The respondent terminated the agreement unilaterally for which the petitioner did not accept. Then, the petitioner vide letters dated 01.09.2021 and 23.09.2021, informed the respondent to settle the matter amicably. But, there was no response from the petitioner. Therefore, the respondent cannot oppose the present application seeking appointment of an arbitrator.

On the other hand, Mr. Sharad Sanghi, learned counsel for the respondent, would submit that the first agreement dated 12.12.2019 will prevail over the second agreement dated 25.06.2020. Clause - 12 of the said service agreement dated 12.12.2019 deals with ‘entire agreement’, and it says that the agreement contains the entire agreement between the parties and the understandings pertaining to the services of the Service Receiver by the Service provider and shall be amended or modified only by written instrument signed by both the parties and the parties agree that in the event any article or part thereof is held to be unenforceable or invalid then the said article or part shall be struck and the remaining provision shall remain in full force and effect. He has also placed on the decisions rendered by the Hon’ble Supreme Court in Radha Sundar Dutta v. Mohd. Jahadur Rahim AIR 1959 SC 24 and Kaivelikkal Ambunhi (dead) by L.Rs. v. H. Ganesh Bhandary AIR 1995 SC 2491.

In Radha Sundar Dutta AIR 1959 SC 24, it was held that rule of interpretation that if there be admissible two constructions of a document, one of which will give effect to all the clauses therein while the other will render one or more of them nugatory, it is the former that should be adopted on the principle expressed in the maxim " ut res magis valeat quam per-eat ". It was further held that there is a conflict between the earlier clause and the later clauses, and it is not possible to give effect to all of them, then the rule of construction is well-established that it is the earlier clause that must override the later clauses and not vice versa.

In Forbes v. Git (1922) 1 AC 256 = AIR 1921 PC 209] it was held that if in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant and the earlier clause prevails. In this case, two clauses cannot be reconciled and the earlier provision in the deed prevails over the later.

In the aforesaid case, it was a settlement of Chaukidar, whereas in the present case, it is a service agreement between the parties for providing services. They have entered into the aforesaid agreement dated 12.12.2019 and later on 25.06.2020 on the specific terms and conditions mentioned therein. According to the petitioner, there is arbitral dispute between the parties. Therefore, the aforesaid facts are different to the facts of the present case.

In Kaivelikkal Ambunhi AIR 1995 SC 2491, it was interpretation of the contents of the Will deed. Therefore, the facts of the said case are also different to the facts of the present case.

The contention of learned counsel for the respondent that agreement dated 12.12.2019 is not an arbitration agreement, no arbitration clause subsists, therefore, the present application, on the basis of the said agreement, dated 12.12.2019, is not maintainable cannot be accepted. The petitioner had filed the present application seeking appointment of arbitrator under Clause - 14 of the Service Agreement dated 25.06.2020.

In the service agreement dated 25.06.2020, Clause - 14 deals with ‘arbitration’ and the same is extracted as under:

“In case of disputes or differences arising between the parties hereof, the same shall be subject matter of Arbitration under the Arbitration and Conciliation Act, 1996 and any subsequent related amendments thereto unless settled amicably between the parties hereto referred to Arbitration. The Arbitration Proceedings shall be at Hyderabad. The decision of the Arbitrator on the Dispute shall be Final and binding on the Parties. The arbitrator shall be appointed by issuing a notice to other party mentioning the name and place of arbitration. If the other party intends to change the arbitrator, he/she shall convey the same within a period 15 days from the date of receipt of notice and not later in any manner. If the sole arbitrator could not be appointed within a period of forty five days by both the parties then the matter may be referred to concerned court having jurisdiction to appoint the arbitrator.”

According to the petitioner, there are arbitral disputes between the petitioner and respondent with regard to the aforesaid service provided by the respondent. The respondent has discontinued the services to the petitioner by terminating the agreement unilaterally for which the petitioner did not accept. Then, the petitioner vide letters dated 01.09.2021 and 23.09.2021, informed the respondent to settle the matter amicably. But, there was no response from the petitioner. On account of discontinuation of services by the respondents, the petitioner institution suffered severe damage. Therefore, the respondent is liable to pay an amount of Rs.45,66,310/- viz., Rs.15,66,310/- paid by the petitioner as advance monthly amount and Rs.30,00,000/- towards damages for termination of agreement unilaterally along with interest @ 18% per annum thereon. The aforesaid facts would reveal that there are arbitral disputes between the petitioner and the respondent.

After 2015 amendment to the Arbitration and Conciliation Act, 1996, the scope under Sections - 11 (5) and 11 (6) of the Act, 1996 is very limited. The said fact was also considered by the Apex Court in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 and the relevant paragraph of the same is extracted hereunder:

“244. Before we part, the conclusions reached, with respect to Question 1, are:

244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.

244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood.

244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.

244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above i.e. “when in doubt, do refer”.

244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only:

244.5.1. Whether the arbitration agreement was in writing? or

244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.?

244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled?

244.5.4. On rare occasions, whether the subject-matter of dispute is arbitrable?”

In Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15 SCC 678, the Apex Court considered with regard to the inter-connected agreements and principal agreement amongst such inter-connected agreements, and also relevancy of the same, for determination of such inter-connectivity and also common purpose of the agreement. It was held that the said aspects are to be considered by an Arbitrator not by the High Court while deciding an application under Section - 11 (6) of the Act, 1996.

In light of the aforesaid discussion and the law laid down by the Supreme Court, the present arbitration application is allowed. Accordingly, Mr. Mangari Rajender, Retired District Judge, Villa No.142, Keerthi Richmond Villa, Sun City, Hyderabad - 500 086, is appointed as the sole arbitrator to resolve the disputes between the parties.

As a sequel, the miscellaneous applications, if any, pending in the Arbitration Application shall stand closed.