M/s. Hosmat Hospitals Pvt. Ltd. vs Mr. S. Devaraj Iyer, Representing M/s. Kalyan Tile Company, M/s. Kalyan Tile Co.

A.N. Venugopala Gowda, J.—This petition u/s 11(6) and (8) of the Arbitration and Conciliation Act, 1996 (for short ''the Act''), is to appoint an arbitrator to adjudicate the dispute between the Petitioner and the Respondents, arising out of an agreement dated 26.04.2006.

The relevant facts which emerge from the record of the case are as under:

The Petitioner is a company registered under the Companies Act, rendering a charitable and commercial activity of treating the patients, more particularly, those suffering from Ortho and Neuro problems. Adjacent to the Petitioner''s property, there is an office building of Indian Telephone Industries Limited (ITI Limited), Government of India owned company, which had called for tender for giving the property bearing No. 45/1, Magarath Road, Bangalore, on rental basis and the Petitioner is the successful tenderer and now a lessee of the said property belonging to ITI Limited. After entering into an agreement of lease with ITI Limited, the Petitioner has established a neurological centre to provide treatment and health care to the persons, who suffers from neurological disorder and has established Hosmat Foundation.

According to the Petitioner, the 1st Respondent represented that, ITI Limited is interested to sell the property bearing No. 45/1, Magarath Road, Bangalore and he will undertake the liasioning work for the purpose of selling of the said property to the Petitioner and after negotiations, it was agreed and finalized that, the Petitioner shall pay Rs. 75,00,000/- being the fee payable for undertaking the said liasioning work and as per the demand made by the 1st Respondent, an advance payment of Rs. 25,00,000/- was made by cheque bearing No. 198422, drawn on UTI Bank, Bangalore and that, the parties entered into a service agreement on 26.04.2006 and that the 2nd Respondent, represented by the 1st Respondent, has encashed the cheque. The Petitioner contends that, the Respondent agreed to return the money back with interest, in the event of the Respondent''s failure to get the said property sold in favour of the Petitioner.

The Petitioner contends that, the Respondent has not been successful in getting the property negotiated with the ITI Limited for sale in favour of the Petitioner and in view of the failure of the Respondent, in terms of Clause 9 of the agreement, the Respondents were called upon to retur Rs. 25,00,000/- together with interest at 24%, on 31.07.2010. Though the Respondents received the notice, did not respond and hence, another notice dated 11.12.2010 was issued demanding the Respondents to pay the said amount with interest, for which also, there was no response from the Respondents. In the notice dated 31.07.2010, the Petitioner terminated the agreement in terms of Clause 9 and demanded the Respondents to return Rs. 25,00,000/- liasioning fees, together with interest at 24% and invoked Clause 12 of the agreement, which provided for adjudication of the dispute and nominated Sri B.S. Ramakanth as sole arbitrator to adjudicate the dispute.

The Petitioner contends that, the Respondent did not reply to either of the notices nor concurred in the appointment of Sri B.S. Ramakanth as sole arbitrator nor appointed their arbitrator. The Petitioner has claimed that, it is entitled to re cover Rs. 25, 00,000/- together with interest from the Respondents, paid pursuant to the said service agreement.

The 1st Respondent has filed statement of objections, wherein, it has been contended that, inclusion of the 2nd Respondent M/s. Kalyan Tile Company is incorrect and patently mischievous, as the 2nd Respondent did not deal with the Petitioner nor was it a party to the transactions and therefore, is an unnecessary and improper party to the proceeding, inasmuch as, the 2nd Respondent being not a signatory to the agreement, had no privity of contract with the Petitioner. Without prejudice to the said contention, the 1st Respondent has admitted the execution of the agreement dated 26.04.2006 to render the service and also the receipt of Rs. 25,00,000/-. It has been contended that, the petition is not maintainable and is barred by limitation and that, the dispute has ceased to exist. It has been further stated that, the agreement having been executed on 26.04.2006 for a period of 6 months as specified under Clause 8, the agreement has expired on 25.10.2006 and hence is unenforceable. Referring to Clause 20 of the agreement, it has been stated that, time was the essence of the agreement and the question of extension of 6 months contemplated under the agreement would not arise and the agreement having expired on 25.10.2006, dispute does not survive for consideration and sought dismissal of the petition.

The Petitioner has filed rejoinder statement, wherein, by and large, the Petitioner has reiterated what is stated in the petition.

Having regard to the pleadings and the contentions urged by Sri L.M. Chidanandayya, learned Counsel appearing for the Petitioner and Sri S.M. Prashanth Chandra, learned Counsel appearing for the 1st Respondent, the questions which arise for consideration are:

Whether there exists a valid arbitration agreement between the parties?

Whether there exists a live claim between the parties?

In view of the decision in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, the Designated Judge has to consider the claim of both the parties to the matter and pass the order. Existence of an arbitration agreement between the parties to the petition is a condition precedent for exercise of the power u/s 11(6) of the Act. The matters to be considered are: (1) existence of arbitration agreement, (2) territorial jurisdiction, (3) whether there are live issues to be referred to the arbitrator, and (4) whether the application is filed within the period of limitation prescribed by the law.

Sri S.N. Prashanth Chandra, learned Counsel appearing for the 1st Respondent, does not dispute the existence of arbitration agreement as per Clause 12 of the service agreement dated 26.04.2006 and this Court having territorial jurisdiction in the matter. The opposition to the petition is on the ground that, there is no ''live issue'' to be referred to the arbitrator and that this petition as being ''barred by limitation''.

There is no dispute with regard to Petitioner and the 1st Respondent entering into service agreement dated 26.04.2006. The 1st Respondent has represented the 2nd Respondent in the matter of entering into the said agreement with the Petitioner. Hence, the contention that there is no privity of contract between the 2nd Respondent and the Petitioner and that, the 2nd Respondent is not a necessary party and the petition is bad for mis-joinder of parties, more particularly 2nd Respondent, is untenable and stands overruled, inasmuch as, the 1st Respondent has represented the 2nd Respondent, while entering into the service agreement dated 26.04.2006.

A petition for arbitration can be made only when a dispute arises between the parties to the agreement and such dispute gives rise to live issues. As to what is the ''meaning'' and nature of ''dispute'' has been summed up by Mustiil and Boyd in their treatise on arbitration law, titled, "Law and Practice of Commercial Arbitration, 1982", as follows:

A dispute means that there may be a difference of opinion as to the future performance of a contract. For example, one party may be denying that, any further performance is due. on the ground that the contract has been discharged by repudiation or frustration or it may be a common ground that the contract is subsisting, but the parties may be in a dispute about whether a particular act would constitute a valid performance, or whether one party is entitled to give a particular order, or exercise an option in a particular way. If the parties stand their ground in such a situation, a time will come when it is too late for the right view to prevail one party will irremediably be in the wrong and serious financial loss is likely to ensue. All this can be prevented if the parties can mount arbitration with sufficient speed to enable them to know the true position under the contract before the time for performance has finally expired.

Indisputedly, after entering into the service agreement on 26.04.2C06 and having received Rs. 25,00,000/- from the Petitioner, the Respondents did not show any readiness or willingness in the matter of performance of the terms, conditions and obligations undertaken in the agreement. The term of the agreement was for a period of 6 months from the date of signing and further renewal requiring consent of both the parties. There is no automatic termination of the said agreement. Clause 10 is with regard to contract being governed by and interpreted in accordance with law in India.

It is not the case of the Respondents that, despite their readiness and willingness on their part to perform the contract agreed to in the agreement dated 26.04.2006, the Petitioner committed the default. Indisputedly, the Respondents did not even respond in any manner to the notices dated 31.07.2010 and 11.12.2010 of the Petitioner. The Respondents have not repudiated in any manner the service agreement dated 26.04.2006, till the statement of objections was filed to this petition on 12.04.2011. In the circumstances, it is not possible to agree with the contention raised on behalf of the Respondents that, the service agreement stood novated and rescinded with the expiry of 6 months period and that the matter has become ''stale''.

The dispute with regard to subject matter of the agreement having arisen between the parties with the issue of notice dated 31.07.2010 by the Petitioner and there being no mutual satisfaction arrived at between the parries as regard the dispute in hand, the claim is not ''barred by limitation'' and thus, there is ''a live issue'' subsisting between the parties, requiring its resolution by having recourse to arbitration, as has been agreed to by the parties as per Clause 12 of the service agreement.

In the result, the petition stands allowed.

Sri B.S. Ramakanth, Retd. District and Sessions Judge, is appointed as sole arbitrator to decide the disputes between the parties arising out of service agreement, referred to supra.

The Registry is directed to forward a copy of this order along with a copy of the petition to Sri B.S. Ramakanth, for information and necessary action.