M/s Actiongroup Associates vs Beml Limited

A. P. Lavande, J.—By this application u/s 11(6) of the Arbitration and Conciliation Act, 1996 ("the Act" for short), the applicant seeks reference of the disputes between the parties to an arbitrator. It is the case of the applicant that the applicant entered into an agreement dated 7.3.2008 for supply of ore with the respondents on certain terms and conditions. The said agreement contains following arbitration clause:-

All disputes or differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by friendly negotiations between the parties. If no settlement can be reached, the case in dispute shall then be submitted for arbitration as per provision of "Indian Arbitration Act" as amended from time to time. The venue of the arbitration shall be in India and the proceedings shall be conducted in English only. The award shall be binding on the parties except for the matter, which is specifically under arbitration the parties shall continue to perform the respective obligations under this contract including without limitation, all payment obligations.

Thereafter another agreement dated 17.3.2008 was entered into between the parties which also contained similar arbitration clause. The disputes arose between the applicant on one side and the respondents on the other side. By notice dated 3.5.2010, applicant called upon the respondents to pay an amount of Rs. 1,42,23,632/-(Rupees one crore forty two lakhs twenty three thousand six hundred thirty two only) along with interest thereon at the rate of 15% per annum and also damages to the tune of Rs. 12,50,00,000/-( Rupees twelve crores fifty lakhs only) for the loss of credibility and goodwill and mental agony and further amount of Rs. 15,00,00,000/-(Rupees fifteen crores only) and also called upon them to appoint an arbitrator. According to the applicant an amount of Rs. 1,42,23,652/-(Rupees one crore forty two lakhs twenty three thousand six hundred fifty two only) was due and payable by the respondents to the applicant in terms of the agreement dated 7.3.2008 and 17.3.2008 entered into between the parties. The respondents disputed the claim of the applicant. By reply dated 2.9.2010 respondent no.1 denied the claim made by the applicant. No reply was sent by respondent no.2.

Since the respondents failed either to pay or to appoint an arbitrator, the applicant has filed present application u/s 11 of the Act. On behalf of the respondent no.2 reply has been filed stating that there is no dispute existing between the applicant and respondent no.1 It is further case of the respondent no.2 that proceedings are pending before the Company Law Board, Chennai, and on account of the disputes between the parties all the records have been seized by the company.

Reply has been filed on behalf of respondent no.1. It is the case of respondent no.1 as disclosed in the reply that in terms of two agreements dated 7.3.2008 and 17.3.2008 respondent no.1 has paid excess amount of Rs. 1,27,76,368/-( Rupees one crore twenty seven lakhs seventy six thousand three hundred sixty eight only) to the applicant. According to respondent no.1 the material produced by the applicant establishes that an excess payment to the extent of above referred amount has been made by respondent no.1 to the applicant. The applicant has filed an affidavit in rejoinder dated 11.8.2011 disputing the claim made by respondent no.1 that excess payment has been made to the applicant.

Mr. Singbal, learned Advocate appearing for applicant submitted that two agreements dated 7.3.2008 and 17.3.2008 admittedly have an arbitration clause and in view of the serious disputes arising under the two agreements the disputes are liable to be referred to an arbitrator to be appointed by this Court. According to Mr. Singbal, materials placed on record in the present proceedings do not conclusively establish that excess payment of Rs. 1,27,76,368/-( Rupees one crore twenty seven lakhs seventy six thousand three hundred sixty eight only) has been made by respondent no.1 to the applicant. Placing reliance upon the judgment of the Apex Court in the case of Nandan Biomatrix Limited Vs. D-1 Oils Limited, , Mr. Singbal submitted that the disputes between the parties are liable to be referred to an arbitrator to be appointed by this Court.

Mr. Sriranga, learned Counsel placing reliance upon the Constitution Bench judgment of Apex Court in the Case of S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, and in the Case of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., submitted that since record discloses that the excess payment has been made by respondent no.1 to the applicant in terms of the agreements dated 7.3.2008 and 17.3.2008, there is no live dispute between the parties which is required to be adjudicated by the arbitrator. Learned Counsel therefore submitted that no case has been made out for referring the disputes, between the applicant and the respondent no.1, to an arbitrator.

Mr. Karpe appearing on behalf of respondent no.2 reiterated the stand taken in reply filed on behalf of the respondent no.2 and submitted that no case has been made out for reference of the disputes between the parties to an arbitrator.

I have carefully considered the rival submissions, perused the record and the judgments cited.

In the case of Patel Engineering Ltd (supra), the Apex

Court in para 38 has observed thus:-

It is necessary to define what exactly the Chief Justice, approached with an application u/s 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, 7 as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator u/s 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral tribunal.

In Boghara Polyfab Pvt. Ltd (supra) the Apex Court after considering the Constitution Bench judgment in the case of Patel Engineering Ltd and another observed thus in para 17:-

Where the intervention of the court is sought for appointment of an Arbitral Tribunal u/s 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application u/s 11 of the Act into three categories, that is

(i) issues which the Chief Justice or his Designate is bound to decide;

(ii) issues which he can also decide, that is issues which he may choose to decide; and

(iii) issues which should be left to the Arbitral Tribunal to

decide.

17.1 The issues (first category) which Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has

approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied u/s 11 of the Act, is a party to such an agreement.

17.2 The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are:

(a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

17.3 The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

It is clear from the scheme of the Act as explained by this Court in SBP & Co., that in regard to issues falling under the second category, if raised in any application u/s 11 of the Act, the Chief Justice/his designate may decide them, if necessary by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his Designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.

In the present case there is no serious dispute that two agreements dated 7.3.2008 and 17.3.2008 entered into between the parties contain an arbitration clause.

In the case of Boghara Polyfab Pvt. Ltd, the Apex Court after considering various judgments including Constitution Bench judgment in the case of Patel Engineering has held that in an application u/s 11 of the Act issues which Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied u/s 11 of the Act, is a party to such an agreement.

The Apex Court has further held that Chief Justice/his designate may choose either to decide or leave them to the decision of the Arbitral Tribunal the following issues:

(a) whether the claim is a dead or long barred claim or

12 a live claim.

(b) whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

The Apex Court has further held that the Chief Justice/his designate should leave following issues exclusively to Arbitral Tribunal:

(i) Whether a claim made falls within the arbitration clause,

(ii) merits or any claim involved in the arbitration.

Thus the Apex Court has held that whether there is arbitration agreement or not, whether the party has approached the appropriate High Court and the party who has applied u/s 11 of the Act is a party to such an agreement has to be decided by the Chief Justice/his designate. The two agreements, contain an arbitration clause and the applicant as well as respondents are parties to the arbitration agreement. Obviously, therefore, the application filed by the applicant before this Court is maintainable. In so far as the submission made on behalf of respondent no.1 that actually respondent no. 1 has

made an excess payment to the applicant is concerned, I am not inclined to go into this aspect and I would prefer to leave this matter to the arbitrator.

In so far as respondent no. 2 is concerned the defence which has been taken in reply would not denude me from referring the dispute to an arbitrator.

In view of the above, I am of the considered opinion that disputes between the parties deserve to be referred to an arbitrator. Accordingly Justice G. F. Couto, at Panaji, Former Judge of this Court is appointed as arbitrator in respect of the disputes arising between the parties. Fees of the arbitrator shall be borne by all the three parties i.e the applicant, respondent no.1 and respondent no.2 in equal shares. The application stands disposed of.