NEUTRAL CITATION
C/ARBI.P/183/2021 ORDER DATED: 03/11/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/PETN. UNDER ARBITRATION ACT NO. 183 of 2021
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JAYANTIBHAI CHELABHAI PRAJAPATI
Versus
SARDAR SAROVAR NARMADA NIGAM LIMITED
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Appearance:
MR SP MAJMUDAR(3456) for the Petitioner(s) No. 1
MR N R DESAI(6504) for the Petitioner(s) No. 1
MR SANJAY A MEHTA(469) for the Respondent(s) No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
AGARWAL
Date : 03/11/2023
ORAL ORDER
1. The instant petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 has been filed seeking for appointment of Arbitrator pursuant to the arbitration clause in the Lease Agreement dated 14.07.2008. To examine the claim of the petitioner for appointment of Arbitrator, certain relevant facts of the case are to be noted at this juncture.
2. The petitioner herein has entered into a Lease Agreement with the respondent - Sardar Sarovar Narmada Nigam Limited (in short 'the respondent herein') on 14.07.2008 on a token monthly rent of Rs.1,000/- to Rs.2,357/-, for a period of thirty Page 1 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined years. As per the conditions of the lease, the lessee was required to obtain development permission within six months and complete construction within two years thereafter. It is stated in the petition that after execution of the agreement, initially possession of the subject property was not handed over to the petitioner and it was given only on 04.07.2009. The initial six months time-line was already expired and no objection had been raised by the respondent for not obtaining development permission within the said time. It seems that on 24.09.2010, a notice was served upon the petitioner invoking Clause 13 of the Lease Deed to terminate the agreement on the premise that the petitioner had failed to comply the terms and conditions of the Lease Deed, i.e. seeking time bound approval for development permission within six months of the execution of the Sale Deed or Lease Deed and further the development had not been carried out within two years of the execution of the said deed. By order dated 25.03.2011, the respondent had terminated the Lease Agreement dated 14.07.2008 with the petitioner.
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3. A writ petition, namely Special Civil Application No.4753 of 2011 had been filed by the petitioner challenging the termination and seeking for stay of the dispossession. On 06.08.2014, the writ petition was dismissed. Special Leave Petition (C) No.30517 of 2014 had been heard on 20.11.2014 when while issuing notice to the respondent, interim order staying dispossession of the petitioner was granted. The Special Leave Petition, however, has been finally disposed of vide order dated 11.01.2018. A perusal of the order passed by the Apex Court indicates that it has refused to interfere in the order passed by the High Court in dismissing the writ petition and the order of rejection of representation by the respondent, namely Ahmedabad Urban Development Authority, under the interim order passed by the Apex Court. However, out of the deposits made by the petitioner to the tune of Rs.1 Crore, under the Lease Agreement, forfeiting Rs.25,00,000/-, Rs.75,00,000/- was directed to be refunded without any interest.
4. It seems that after dismissal of the Special Leave Petition, on 19.08.2019, the petitioner sent a Page 3 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined notice under Section 21 of the Arbitration Act, 1996, calling the respondent to appoint an Arbitrator seeking for resolution of the dispute arising out of the Lease Agreement. It is submitted by the learned counsel for the petitioner that the petitioner is seeking arbitration for recovery of loss which he suffered on account of fault of the respondent. The contention is that the subject land was inundated and as such project could not be started within the stipulated time. The details of the loss suffered by the petitioner has been appended with the notice sent to the respondent under Section 21 of the Arbitration Act, 1996.
5. The learned counsel for the respondent, on the other hand, would submit that there exists no arbitrable dispute between the parties. The delay caused in carrying out the construction of the development project was attributable to the petitioner and in view of the adjudication by the High Court on the validity of the termination of contract, nothing survived for adjudication by an Page 4 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined Arbitrator. The contention is that the present petition seeking appointment of arbitrator is nothing but an after-thought to extract money from the respondent.
6. In rejoinder, Shri S.P.Majmudar, learned counsel for the petitioner placing the decisions of the Apex Court in M/s.Duro Felguera S.A. vs. M/s.Gangavaram Port Limited - (2017) 9 SCC 729 and Mayavati Trading Private Limited vs. Pradyuat Deb Burman - (2019) 8 SCC 714 would submit that with the insertion of Section 11(6-A) by Amendment Act, 2015, with effect from 23.10.2015, it is clear that at the referral stage, the Court in exercise of power under Section 11(6) of the Arbitration Act, 1996, cannot make any inquiry on the arbitrability of the dispute. It has to confine to the examination of the existence of an arbitration agreement. The submission is that any other inquiry is outside the scope of jurisdiction of this Court. Section 6-A inserted by 2015 Amendment has been omitted by the Act 33 of 2019, but it is intimated that assent of President on Page 5 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined the said amendment has not been accorded till date, giving effect to the amendment.
7. To deal with the submissions of the learned counsels for the parties, we are required to note the relevant provisions in Section 11(6) of the Arbitration Act, 1996. Sub-section (6-A) of Section 11 pressed into service by the counsel for the petitioner is also to be extracted hereinunder :-
"11. Appointment of arbitrators. ** ** ** (6) Where, under an appointment procedure agreed upon by the parties,--
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request 1[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court]to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
[(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, Page 6 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement."
8. The position of law as to the extent of inquiry, i.e. the standard of scrutiny to examine the non-arbitrability of a claim has been settled by the Apex Court with the recent decision in NTPC Limited vs. SPML Infra Limited - 2023 SCC Online SC 389. It is held therein that the limited scope of judicial scrutiny at the pre-referral stage is navigated through the test of prima facie review, which is not to be confused with the merits of the case put up by the parties which has to be established before the Arbitral Tribunal. It is restricted to the subject matter of suit being prima facie arbitrable under a valid arbitration agreement. Prima facie means that the assertions on these aspects are bona fide. Prima facie examination is not full review but a primary first review to weed out manifestly and ex-facie non- existent and invalid arbitration agreements and non- arbitrable disputes. The prima facie review at the referral stage is to cut the dead wood and trim off Page 7 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined the said branches in a straight forward cases where dismissal is bare-faced and pellucid and when on the facts and law the litigation must stop at the first stage. At this stage, the Court should not get lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini trial.
9. Referring to the various previous decisions pertaining to the field, the Apex Court has crystallized the position of law that the pre- referral jurisdiction of the Courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The eye of needle principle propounded in paragraphs 25, 26, 27 and 28 in the decision of the Apex Court is relevant to be extracted hereinunder :-
"25. Eye of the Needle: The above-referred precedents crystallize the position of law that the pre-referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement.
These are matters which require a thorough examination by the referral court. The Page 8 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined secondary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute.
26. As a general rule and a principle, the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral court may reject claims which are manifestly and ex-facie non-arbitrable. Explaining this position, flowing from the principles laid down in Vidya Drolia (supra), this Court in a subsequent decision in Nortel Networks (supra) held:
"45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute..."
27. The standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral courts must not undertake a full review of the contested facts; they must only be confined to a primary first review and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bona fide or not. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim Page 9 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined is non-arbitrable. On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration.
28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non- arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator, as explained in DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd."
10. From the above, it is clear that the referral Courts may make a prima facie scrutiny as to the existence of the dispute, which may be arbitrated before the Tribunal.
11. Applying the above principles, in the facts of the instant case, as noted hereinabove, the lease agreement was terminated by the respondents vide Page 10 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined order dated 25.03.2011 and the proceedings challenging the termination order have been brought to their logical conclusion with the dismissal of the Special Leave Petition filed by the petitioner herein vide judgment and order dated 11.01.2018. The grievance raised by the petitioner that the petitioner could not develop the plot in question for the fault of the respondent was considered by the writ court in the judgment and order dated 06.08.2014, in Special Civil Application No.4753 of 2011 filed by the petitioner challenging the termination order. It was held by this Court that the petitioner was in clear breach of terms and conditions of the lease deed and, as such, there was no option before the respondent but to terminate the lease deed. The petitioner was allotted the land in question for developing tourism activity in the larger public interest and not for setting up a club for the use of the select individuals and their families with private motive. By proposing to set up a club, the petitioner had moved away from the very object for which the lease was granted by the Page 11 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined respondent Nigam.
12. In light of the above findings returned by the High Court, which has not been upturned by the Apex Court in the Special Leave Petition filed by the petitioner, it is more than evident that the claim of the petitioner that he suffered loss on account of the allotted land being inundated is off the record.
13. As noted hereinabove, there is no such statement on the record. The submission of the learned counsel for the petitioner during the course of argument that the losses suffered by the petitioner because of the land being inundated is not supported by even in the averments made in the notice under Section 21 of the Arbitration Act, 1996. Once it is held by the High Court that it is not feasible to permit the petitioner to continue with the lease deed as the breach committed by the petitioner goes to the very root of the matter and that the respondent was completely justified in terminating the same, no arbitrable dispute could be said to have Page 12 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined been survived between the parties. Filing of the instant arbitration petition is nothing but an afterthought. In case the dispute is referred to the arbitrator, it would result in harassment of the respondent Nigam as it would result in not only wasteful expenditure of the public money but also would be a futile exercise.
14. From the prima facie scrutiny into the matter of non-arbitrability of the claim, this Court reaches at an irresistible conclusion that the claim of the petitioner is not a bona fide one. There is not even a slightest doubt that the claims are ex-facie meritless, frivolous and dishonest litigation, and are manifestly non-arbitrable.
15. Having reached at the above conclusion, we may go through the above noted decisions relied by the counsel for the petitioner to assert that in view of Sub-section (6-A), the High Court while considering the application under Sub-section (6) of Section 11 shall confine to the examination of the existence of Page 13 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined an arbitration agreement only and no inquiry as to the non-arbitrability of the dispute can be made. We may note that the decision in the case of Mayavati Trading (supra) has been noted by the Apex Court in NTPC Limited (supra) while crystallizing the position of law, formulating the principle of eye of the needle. The observations in paragraph 10 of the decision in Mayavati Trading (supra) relied by the learned counsel for the petitioner has been noted in paragraph 21 in NTPC Limited (supra) as under :-
"21. It did not take much time for this Court to reverse the approach in Antique Art Exports (supra). A three-judge bench in Mayavati Trading (supra) expressly overruled the above-referred decision in Antique Art Exports, observing that:
"10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment, as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA."Page 14 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023
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16. It was further noted that entire case law on the subject was considered by a three Judge bench of the Apex Court in Vidya Drolia vs. Durga Trading Corporation - (2021) 2 SCC 1 and an overreaching principle with respect to the pre-referral jurisdiction under Section 11(6) of the Act was laid down therein. Some of the observations of the Apex Court noted in the forgoing paragraphs of this judgment are pertaining to observations made in the case of Vidya Drolia (supra), as to the prima facie review at the referral stage. In view of the law laid down by the Apex Court in the above extracted paragraphs of the judgment in NTPC Limited (supra), the position of law stands crystallized. The arguments of learned counsel for the petitioner based on the reading of Sub-section (6-A) of Section 11 of the Arbitration Act, 1996, are, thus, liable to be dismissed as misconceived. No other point has been pressed.
17. Having reached at the conclusion that the claims of the petitioners are manifestly and ex- facie non-arbitrable, the present petition is liable Page 15 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023 NEUTRAL CITATION C/ARBI.P/183/2021 ORDER DATED: 03/11/2023 undefined to be dismissed being a frivolous and dishonest litigation. The application stands dismissed, as such. Notice stands discharged.
(SUNITA AGARWAL, CJ ) GAURAV J THAKER Page 16 of 16 Downloaded on : Wed Nov 08 20:36:17 IST 2023