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TMI Blog2019 (1) TMI 1810X X X X Extracts X X X X X X X X Extracts X X X X ..... rder on the petitioner for supply of refractories/refractory materials. 5. In terms of a purchase order dated 12th March, 2015, the petitioner was required to supply one set of refractories for coke oven battery No. 6 consisting of silica bricks, fire clay bricks and mortars at a price of US$ 7,933,094/- only for the respondent and/or its nominated consignee. The petitioner was required to manufacture the said refractories and deliver them on FOB Mumbai basis as per Incoterms 2010. 6. The said purchase order dated 12th March, 2015, inter alia, contains an arbitration clause and/or arbitration clauses, and the same are set out hereinbelow for ease of reference: "Clause 8.4 Applicable law and dispute settlement The Buyer and the Seller agree that any dispute or difference, which may arise out or in connection with this order, shall be amicably settled through mutual discussion. In case Buyer and Contractor fail to reach an agreement on any dispute, controversy, interpretation of any terms, claim arising out of or in connection with this order or the breach, termination shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Arbitration & Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner to the extent that the petitioner could supply materials and/or products to Arcelor Mittal Companies worldwide only through the respondent and not otherwise. It is alleged that the petitioner had acted in derogation of such exclusive agreement. The petitioner, however, had denied existence of any such arrangement and/or agreement between the parties. The petitioner has referred to an order passed by this Court on 17th February, 2017 in G.A. No. 117 of 2017 filed by this respondent, along with two others as co-plaintiffs, in the suit claiming diverse reliefs. In the said order, it was observed, at the interlocutory stage, that there is no prohibition clause in the contract in respect of the supplies made by the petitioner to the plaintiffs and the plaintiffs were directed to release the past and the present dues to each of the vendors in accordance with the directions contained in such order. The petitioner initially filed an interlocutory application being G.A. No. 2210 of 2017 praying, inter alia, for an order directing the respondent to pay the aforesaid sum of Rs. 2,96,09,916/- along with interest which, however, was not allowed since the petitioner did not raise any counte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the frame of the suit cannot be a consideration for not appointing an arbitrator for the disputes arising out of the said purchase order. The law requires the Court to be satisfied only with the existence of the arbitration agreement. The respondent does not dispute the existence of the arbitration clause. Accordingly, an arbitrator ought to be appointed. 11. Per contra, Mr. S.K. Kapoor, the learned Senior Counsel appearing for the respondent submits that having regard to the frame of the suit, the dispute cannot be referred to arbitration. The dispute sought to be raised by the petitioner cannot be decided in isolation. The causes of action of the plaintiffs against the defendant in the suit are for breach of agreement and the claim of the petitioner cannot be severed and tried separately. The disputes are interconnected. The plaintiffs have categorically stated in the plaint that the present petitioner is not entitled to directly negotiate with the Arcelor Mittal Companies or to effect direct supply to such companies bypassing the plaintiffs in disregarding to the existing arrangement thereby procuring a breach of contract. The plaintiffs have alleged that the defendants, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit; and thereby acted in violation of the binding contractual obligation between the parties. This is an important factor which the court is required to take into consideration before deciding as to whether the dispute shall be referred to arbitration. 13. Mr. Kapoor has relied on the aforementioned set of facts to contend that since the purchase order dated 12th March 2015 is relevant to the main dispute in the suit, the dispute regarding the purchase order cannot be separated from the suit and tried separately. If this is done, it may result in bifurcation of the subject matter as well as result in different and contrary decisions. In this regard, it is submitted that the principles enshrined in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. reported in (2003) 5 SCC 531 would apply to the present situation. In this context, reliance is also placed on India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd. reported in (2007) 5 SCC 510 (paragraphs 21-22) and Tulip Hotels Pvt. Ltd. v. Trade Wings Ltd. reported in (2010) 2 ArbLR 286. 14. Mr. Kapoor submits that the disputes cannot be bifurcated. The entire dispute has to be considered holistically and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. and Ors. reported in 2011 (5) SCC 532 (paragraph 29) for the proposition that "whether a party has waived his right to seek arbitration and subjected himself to the jurisdiction of the court, depends upon the conduct of such party in the suit". In this context, reference has also been made to the principles of waiver and estoppel enshrined in section 4 of the Act. In addition, the learned Senior Counsel has relied upon the following decisions - i) Mussammat Gulab Koer v. Badshah Bahadur reported in 10 CLJ 420 : 13 CWN 1197; ii) Mani Lal Guzrati v. Harendra Lal Roy reported in (1910) 12 CLJ 556; iii) Scarf v. Jardine reported in 1882 (7) AC 345; iv) Jai Singh v. Union of India and Ors. reported in 1977 (1) SCC 1; 16. The respondent has also contended that this petition ought to be dismissed right at the outset on the ground of fraud since the written statement filed in the suit has not been disclosed by the petitioner in the petition. Reliance is placed on Mumbai International Airport vs. M/s. Golden Chariot Airport & Anr. reported in 2010 (10) SCC 422 wherein it is stated that "an action at law is not a game of chess" a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial authority is required to satisfy itself that the action brought constitutes matters which are the subject of an arbitration agreement. In the instant case, the causes of action pleaded in the plaint against the petitioner are not the subject matter of any arbitration agreement. Accordingly, the reference to Section 8 of the Arbitration and Conciliation Act is misconceived. Moreover, the reference to Sukanya Holdings (supra) would be of no relevance as Sukanya Holdings (supra) deals with bifurcation of claims and subject matter of disputes whereas in the instant case the dispute with regard to the purchase order is an independent cause of action and has no bearing to the cause of action as pleaded in the suit. Mr. Saha submits that there is no arbitration agreement amongst all the parties to the suit aggregating 45 in number comprising of the three plaintiffs on the one hand and the 42 defendants including the petitioner herein on the other hand. The decision in Sukanya Holdings (supra) shows that in respect of few of the parties there is an arbitration agreement. 19. The essential question arising for consideration in this application is whether the petitioner is entitled to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Law and Justice for examination and Report. The said Committee, submitted its Report to the Parliament on 4th August, 2005, wherein the Committee recommended that since many provisions of the said Bill were contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering its recommendations. Accordingly, the said Bill was withdrawn from the Rajya Sabha. 3. On a reference made again in pursuance of the above, the Law Commission examined and submitted its 246th Report on "Amendments to the Arbitration and Conciliation Act, 1996" in August, 2014 and recommended various amendments in the Act. The proposed amendments to the Act would facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more user-friendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases. 4. As India has been ranked at 178 out of 189 nations in the world in contract enforcement, it is high time that urgent steps are taken to facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seven-Judge Constitution Bench has laid down the considerations for appointment of an arbitrator by the Chief Justice or designate in paragraphs 37, 39 and 47 which state:- "37. ....... There have been cases where claims for appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the period of the contract has come to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the concerned party had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the concerned arbitration clause at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f their mutual rights and obligation or by receiving the final payment without objection. 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." 25. In a fairly recent decision of the Hon'ble Supreme Court in Duro Felguera, S.A. Vs. Gangavaram Port Limited reported at (2017) 9 SCC 729, it was observed that the position of law as laid down in SBP & Co. (supra) and Boghara Polyfab (supra) shall continue till the amendment was brought about in 2015 and "after the amendment, all that the courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected". 26. The scope and extent of the power of the High Court and the Supreme Court u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the parties as it would disentitle such party to apply to the court for reference of the dispute to arbitration. The doctrine of election in this context would mean the choice of forum. The Civil Court ordinarily has plenary jurisdiction to decide all civil disputes. The parties by agreement cannot confer a jurisdiction on a civil court which it otherwise does not possess. However, the parties may in an agreement decide the choice of forum. In the instant case, the parties have agreed to decide their dispute arising out of the purchase order to be resolved in arbitration. In a given situation where notwithstanding the existence of arbitration agreement, if a party approaches a civil court and the other party does not object to the jurisdiction of such civil court on the ground of lack of jurisdiction due to agreed choice of forum, the party forfeits or loses its right to question the jurisdiction of the civil court later on after the said party surrenders to the jurisdiction of that court. The submission of jurisdiction to that court would disqualify a party from seeking a remedy in a different forum as he has acted in derogation of agreed procedure. This is what Section 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination at the threshold would prevent multiplicity of litigation and would even prevent futile exercise of proceedings before the arbitral tribunal. 84. The issue of whether the courts are empowered to review the existence and validity of the arbitration agreement prior to reference is more controversial. A majority of the countries admit to the positive effect of kompetenz kompetenz principle, which requires that the arbitral tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement will not prevent the arbitral tribunal from proceeding with hearing and ruling upon its jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute would be permissible without waiting for the outcome of any court action aimed at deciding the issue of the jurisdiction. The negative effect of the kompetenz kompetenz principle is that arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the court, when there is action to enforce or set aside the arbitral award. Where the dispute is not before an arbitral tribunal, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrator. The plaintiff in their wisdom may frame a suit with multiple parties and multiple causes of action but such of the parties in the suit whose agreements with the plaintiffs contain arbitration clauses and are desirous of seeking independent reference of their dispute to arbitration cannot be prevented from seeking such reference, particularly in view of the language of Section 11(6A) of the Act. The considerations for Section 8 and Section 11 of the Act are entirely different. 34. The scheme of the Arbitration Act, 1940 and the 1996 Act before the recent amendment has been considered in Kalpana Kothary v. Sudha Yadav reported at (2002) 1 SCC 203, where it is observed - "8......... In striking contrast to the said scheme underlying the provisions of the 1940 Act, in the new 1996 Act, there is no provision corresponding to Section 34 of the old Act and Section 8 of the Act mandates that the Judicial Authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paragraph containing the relied upon observations: "The law permits the parties to a contract to include in it as one of its terms an agreement to refer to arbitration disputes which may arise in connection with it, and the court of England enforce such a reference by staying legal proceedings in respect of any matter agreed to be referred "if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission." Arbitration Act, 1889, sec. 4. Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen The next question is whether the dispute is one which falls within the terms of the arbitration clause. Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative. Finally, the nature of the dispute being ascertained, it having been held to fall within the terms of the arbitration clause, and the clause having been found to be still effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmenced or continued, we are of the view that an application under section 11 or section 15(2) of the Act, for appointment of an arbitrator, will not be barred by pendency of an application under Section 8 of the Act in any suit, nor will the Designate of the Chief Justice be precluded from considering and disposing of an application under Section 11 or 15(2) of the Act." (emphasis supplied) 37. The expression "first statement on the substance of the dispute" came up for consideration before the Hon'ble Supreme Court in Rashtriya Ispat Nigam Ltd. v. Verma Transport Co. reported in (2006) 7 SCC 275. It is stated therein: "The expression 'first statement on the substance of the dispute' contained in Section 8(1) of the Act must be contra-distinguished with the expression 'written statement'. It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, needed is a finding on the part of the judicial authority that the party has waived his right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments to Section 8(1) have been introduced by the 2015 Amendments - (i) the relevant "party" that is entitled to apply seeking reference to arbitration has been clarified/amplified to include persons claiming "through or under" such a party to the arbitration agreement; (ii) scope of examination by the judicial authority is restricted to a finding whether "no valid arbitration agreement exists" and the nature of examination by the judicial authority is clarified to be on a "prima facie" basis; (iii) the cut-off date by which an application under Section 8 is to be presented has been defined to mean "the date of" submitting the first statement on the substance of the dispute; and (iv) the amendments are expressed to apply notwithstanding any prior judicial precedent. The proviso to Section 8(2) has been added to allow a party that does not possess the original or certified copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call upon the other party to produce the same." (Ref: Justice R.S. Bachawat's Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to the appointment of an arbitrator in the present case, amongst others, appears to be the filing of written statement by the respondent in the suit. This is, in view of the aforesaid discussion, not a relevant consideration for appointment of an arbitrator under Section 11 of the Act. 44. In view of the amendment and Duro Felguera (supra), all the questions which could have been decided by the Court previously in an application under Section 11 of the Arbitration and Conciliation Act, 1996 have been taken away and the Court is now denuded of its jurisdiction to decide such questions which otherwise were available to the Court under the unamended Act as indicated in SBP & Co. (supra) and Boghara Polyfab (supra). Even under the unamended provisions, the consistent view of the Court is to have minimum supervisory jurisdiction over the arbitral tribunal. This has now received a statutory recognition in various amended provisions carried out in 1996 Act, one of which is Section 11(6A). 45. Under such circumstances, the application is allowed. 46. Hon'ble Justice Jayanta Kumar Biswas (Retired), a former Judge of this Court, is appointed as the sole arbitrator. The Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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