HON'BLE SRI JUSTICE J.SREENIVAS RAO
ARB.APPL.No.184 OF 2022
ORDER:
This Arbitration Application is filed under Section 11 (5) and (6) of Arbitration and Conciliation Act, 1996, R/w Scheme for Appointment of Arbitrator, 1996 (for short 'the Act') to appoint Arbitrator to adjudicate the dispute between the applicant and respondent.
2. Factual Matrix:
2.1 The applicant is engaged in the field of Education, Development of Educational content and facilitating enhancement of knowledge and efficiency of students by providing computer based teaching and learning materials. The applicant provides its products and services for internet based teaching and coaching as well as computer based teaching and coaching in class room scenario. Respondent is a private limited company and it runs a School by name School of Global Education at Sushanti kunj, Kurji Pataliputra Road, Patna-800010. Applicant submits that respondent approached and requested to provide its products and services for using the same in the said school and accordingly they 2 entered into School-Academic consulting Agreement dated 14.10.2017 ('Agreement' for brevity). As per Clause-4 of the Agreement, applicant was retained as a consultant and academic advisor by respondent to perform the services set out in Annexure-1. Clause 12 of Agreement deals with the terms of payment for the services provided by the applicant to the respondent set out in Annexure II of the Agreement. Clause 17 deals with payments to be made to the applicant by the respondents within 30 days from the date of invoice failing which respondent is obligated to pay interest at the rate of 18% p.a. from the date of which the amount become due. Clause 20(f) of the Agreement states that if any disputes arising out of the Agreement shall be adjudicated by the Sole Arbitrator mutually agreed by the parties. Clause 20(g) says that the Courts at Hyderabad alone have exclusive jurisdiction.
2.2 The applicant further submits that pursuant to the said Agreement, the applicant installed its computer system and also provided other requisite hardware such as uninterrupted power system (UPS), speakers and cabinet for digitized classroom teaching and coaching etc., and the applicant fulfilled its obligation in terms of Agreement completely 3 without any complaint. The applicant raised invoices, however the respondent failed to make payments in terms of Agreement. The last payment made by the respondent is an amount of Rs.1,24,630/- on 29.06.2020. An amount of Rs.57,83,974/- was due to be paid by respondent. Respondent issued cheques to the applicant dated 28.08.2018, 12.12.2019, 01.01.2020, 29.01.2020, 19.02.2020, 06.03.2020, 18.03.2020, 27.04.2020, respectively and the said cheques were dishonored. Thereafter, the applicant issued a notice dated 31.08.2020, calling upon respondents to make payment of the said amounts along with interest at the rate of 18% per annum within 7 days. In spite of receiving said notice, respondent had neither paid the amount nor given any reply. The applicant had also terminated the Agreement between the parties. As per the Agreement total amount due to be paid by respondent is Rs.1,28,87,504/- to the applicant.
2.3 The applicant further submits that they had issued notice dated 26.02.2021, invoking the arbitration clause nominating a sole arbitrator and informed the respondent to give his consent. The respondent issued reply notice on 09.03.2021, stating that no amount is due and calling upon 4 the applicant to withdraw the notice dated 26.02.2021. Hence, the applicant filed the present application invoking the provisions of the Act seeking appointment of a sole arbitrator. 2.4 Respondent filed counter contending that the application filed by the applicant is not maintainable under law and this Court does not have jurisdiction to adjudicate the present application and the competent jurisdiction lies at Patna, Bihar. He further contended that the applicant fraudulently created the Agreement for the purpose of extorting money from the respondent. He further contended that the Agreement relied by the applicant is created, forged and fabricated document. According to the said document, the stamp papers were purchased on 20.01.2018 at Patna, Bihar whereas the date of execution of Agreement is 14.10.2017 i.e., four months prior to purchase of the stamp paper and the witness signatures bear the date i.e., 26.01.2018 which is a public holiday as the day being Republic Day and the above said aspects clearly reveals that the Agreement relied by the applicant is fabricated document. He further submitted that the seat and venue of arbitration was agreed between the parties to be at Patna, Bihar, however, applicant in the Agreement deceitfully omitted the "seat" of arbitration and 5 inserted a clause only stating that the 'venue' of the arbitration at Hyderabad, contrary to what was agreed between the parties. He also submitted that the applicant basing on the fraudulent Agreement claiming huge amounts of Rs.1,28,87,504/-, though the respondent is not liable to pay any amount, respondent issued reply notice dated 23.10.2020, to the legal notice dated 31.08.2020, denying the claim made by the applicant. It is further stated that respondent issued reply notice dated 09.03.2021, to the notice issued by applicant dated 26.02.2021, seeking consent for appointment of arbitrator on the ground that the Agreement relied by the applicant itself is fabricated and basing on the same, applicant is not entitled for seeking appointment of arbitrator. The application filed by the applicant is not maintainable and the same is liable to be dismissed.
2.5. The applicant filed reply wherein it is stated that the stamp paper was purchased by respondent on 20.01.2018 and Agreement was signed at Hyderabad on 26.01.2018, the date of Agreement was mentioned as 14.10.2017, as that was the date from which both the parties intended that the Agreement has to come into effect. Pursuant to the said agreement, the respondent made a few payments to the applicant and 6 thereafter not chosen to pay further amounts. The respondent has admitted the execution of the Agreement in its reply dated 09.03.2021 and also acted upon the same. Hence, the respondent is not entitled to contend that the Agreement is forged, fabricated and created document. He further stated that the dispute raised with regard to execution and genuinety of the Agreement can be adjudicated by the arbitral Tribunal.
3. Heard Sri Ch. Pushyam Kiran, learned counsel for the applicant and Dibyanshu Pandey, learned counsel representing Sri Mahesh Raje, learned counsel for the respondent.
4. Learned counsel for the applicant contended that the applicant as well as respondent have entered School-Academic Consulting Agreement dated 14.10.2017 and both the parties have signed on 26.01.2018. As per the terms and conditions of the Agreement, the applicant installed its computer systems with the content agreed upon and requisite hardware such as uninterrupted power systems(UPS), speakers and cabinet for digitized classroom teaching and coaching etc., and fulfilled all obligations in terms of the Agreement. The applicant raised invoice for the supplies made and services provided to the respondent and an amount of Rs.57,83,947/-, was due to be 7 paid by respondent. The respondent issued cheques for the said amount and the same were dishonored. On 31.08.2020, the applicant issued notice calling upon respondent to pay the said amount with interest @18% p.a. and also terminated the Agreement. In spite of the same, respondent had neither replied nor made the payment. Thereafter, the applicant issued legal notice on 26.02.2021, invoking the arbitration clause 20(f) of the Agreement wherein it was mentioned that the respondent is liable to pay an amount of Rs.1,28,87,504/-, and to resolve the dispute between the parties, the applicant nominated retired judge of High Court and informed the respondent to give consent. In response to the same, respondent issued reply legal notice on 09.03.2021, denying the claim made by the applicant stating that as per Section 11 of the Act, the appointment of arbitrator could be done only by mutual consent of the parties and the appointment of sole arbitrator by the applicant is not legally valid. 4.1 He further contended that the respondent has not denied the execution of the Agreement dated 14.10.2017 which was signed by both the parties on 26.01.2018 in the reply notice. However, para 1 of reply notice mentioned one Agreement i.e., School-Academic consultant Agreement dated 20.01.2018 8 though there is no such Agreement between the parties except one Agreement i.e, 14.10.2017. Respondent had not filed the said document before this court nor pleaded in the counter. 4.2 He also contended that respondent filed counter contrary to the averments made in the reply notice contending that Agreement dated 14.10.2017, which was signed on 26.10.2018, is fabricated and forged document and the same is not permissible under law and pendency of the criminal cases filed by the applicant invoking provisions of 138 of Negotiable Instruments Act before Chief Metropolitan Magistrate, New Delhi are nothing to do with the present application. The applicant rightly invoked the Arbitration Clause 20(f) under the Agreement and filed the present application and the same is very much maintainable under law.
4.3 The specific contention of the applicant is that respondent is due an amount of Rs.57,83,974/- and he is liable to pay the same along with interest @18% p.a and the total amounts comes to Rs.1,28,87,504/-, on the other hand respondent denied the same stating that he is not liable to pay the amounts and the said objections/disputes raised by the parties are disputed questions of facts and the same have to 9 be resolved by the arbitratral Tribunal after considering the contentions of the respective parties and evidence which is going to be adduced by both the parties only.
4.4 In support of his contention, he relied upon the judgment of Vidya Drolia and Ors Vs. Durga Trading Corporation and Ors 1 and Komirishetty Shravani Vs. Indana Geetha and Ors 2.
5. Per contra, learned counsel for respondent contended that Agreement dated 14.10.2017, relied by the applicant is forged, fabricated document and basing on the said document the applicant is not entitled to seek appointment of sole arbitrator, unless and until the applicant establishes that the Agreement relied by the applicant is genuine. In the absence of the same, applicant is not entitled to invoke the provisions of the Act seeking appointment of arbitrator. 5.1 In the reply notice dated 09.03.2021, respondent specifically mentioned that the actual Agreement between the parties is 20.01.2018 and the Agreement relied by the applicant dated 14.07.2018 is fabricated document and the said Agreement dated 20.01.2018 is in the custody of the 1 2021 2 SCC 1 2 2022 6 ALD 474 10 applicant only. He further contended that the applicant already initiated the proceedings invoking the provisions of Section 138 of Negotiable Instruments Act and filed Criminal Cases before Chief Metropolitan Magistrate, New Delhi and the present application is not maintainable, especially this Court is not having jurisdiction to adjudicate the application and as per the Agreement the competent Courts jurisdiction lies at Patna, hence the petitioner is not entitled to relief sought in this Application.
5.2 In support of his contention he relied upon the judgement of Hon'ble Supreme Court in Avitel Post Studioz Ltd and Ors. Vs. HSBC PI Holdings (Mauritius) Limited (Civil Appeal No.5145 of 2016) dated 19.08.2020.
6. Having considered the rival submissions made by respective parties and upon perusal of the material available on record following point arises for consideration.
i. Whether the arbitration application filed by applicant seeking appointment of sole arbitrator for dissolution of the dispute invoking provisions of Section 11(5 and 6) of Act is maintainable under law?
ii. To what relief?
Point Nos. (i) and (ii) 6.1 As per the pleadings and the documents filed by the 11 applicant in support of the application, it reveals that the applicant and respondent entered into Agreement and applicant installed its computer system and also provided other material to respondent school and the applicant raised invoices for an amount of Rs.57,83,974/-. It further appears from the record that the respondent issued cheques to the applicant dated 28.08.2018, 12.12.2019, 01.01.2020, 29.01.2020, 19.02.2020, 06.03.2020, 18.03.2020, 27.04.2020, respectively and the said cheques were dishonored and the applicant initiated proceedings invoking the provisions of Section 138 of Negotiable Instruments Act and filed Criminal Cases before Chief Metropolitan Magistrate, New Delhi and the said cases were numbered as CC. Nos. 6182, 6188, 6189, 6226, 7508, 7509 of 2020 and the same are pending.
6.2. As per the pleadings, the applicant filed this application seeking appointment of sole arbitrator basing on the Agreement dated 14.10.2017. The specific contention of the applicant is that he complied all the terms and conditions of the Agreements by providing all the material to the respondent and they issued invoice claiming Rs.57,83,974/-. When the respondent failed to pay the said amount, the applicant issued 12 notice on 31.08.2020, to respondent calling upon to pay the said amount along with the interest @18% p.a. When the respondents failed to pay the same, the applicant issued notice dated 26.02.2021, invoking arbitration clause i.e., clause 20(f) of the agreement which reads as follows:
Arbitration: Any dispute arising out of this Agreement or in any manner touching upon it, the same shall be settled through arbitration under the provisions of the Arbitration and Conciliation Act, 1996 with all statutory amendments and updates, by a sole arbitrator to be appointed mutually by NEIPL and SCHOOL. The venue of arbitration shall be Hyderabad and shall be conducted in English.
6.3 Respondent issued reply notice on 09.03.2021, denying the allegation made by the applicant. The specific contention of the applicant is that respondent has to pay an amount of Rs.1,28,87,504/- and in spite of several demands made by applicant, respondent had not paid the said amount and as per the clause 20(f) of the Agreement, if any dispute arises between the parties, they shall be settled through arbitration. As per the clause (g) of the Agreement, the Courts at Hyderabad alone have exclusive jurisdiction. Whereas the specific contention of the learned counsel for the respondent that the applicant filed the present application basing on the fabricated Agreement dated 14.10.2017 and unless and until the applicant prove that the Agreement dated 14.10.2017 is 13 genuine, he is not entitled to seek relief under the provisions of the Act.
7. In Vidya Drolia and Ors V (supra) the Hon'ble Apex Court held that whenever there is a doubt regarding the dispute, the Courts shall refer the matter to arbitration which reads as follows:
86. The courts at the referral stage do not perform ministerial functions. They exercise and perform judicial functions when they decide objections in terms of Sections 8 and 11 of the Arbitration Act. Section 8 prescribes the courts to refer the parties to arbitration, if the action brought is the subject of an arbitration Agreement, unless it finds that prima facie no valid arbitration Agreement exists. Examining the term 'prima facie', in Nirmala J. Jhala v. State of Gujarat and Another, this Court had noted:
"48.Aprima facie case does not mean a case proved to the hilt but a case which can be said to be established if the evidence which is led in support of the case were [to be] believed. While determining whether a prima facie case had been made out or not the relevant consideration is whether on the evidence led it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence."
Prima facie case in the context of Section 8 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 the suit being prima facie arbitrable under a valid arbitration Agreement. Prima facie case means that the assertions on these aspects are bona fide. When read with the principles of separation and competence-competence and Section 34 of the Arbitration Act, referral court without getting bogged- down would compel the parties to abide unless there are good and substantial reasons to the contrary.
87. 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 14 prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straight forward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. Only when the court is certain that no valid arbitration Agreement exists or the disputes/subject matter are not arbitrable, the application under Section 8 would be rejected. 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. This necessarily reflects on the nature of the jurisdiction exercised by the court and in this context, the observations of B.N. Srikrishna, J. of 'plainly arguable' case in Shin-Etsu Chemical Co. Ltd. are of importance and relevance. Similar views are expressed by this Court in Vimal Kishore Shah wherein the test applied at the pre-arbitration stage was whether there is a "good arguable case" for the existence of an arbitration Agreement. The test of "good arguable case" has been elaborated by the England and Wales High Court in Silver Dry Bulk Company Limited v. Homer Hulbert Maritime Company Limited, in the following words:
"Good arguable case" is an expression which has been hallowed by long usage, but it means different things in different contexts. For the purpose of an application under Section 18, I would hold that what must be shown is a case which is somewhat more than merely arguable, but need not be one which appears more likely than not to succeed. It shall use the term "good arguable case" in that sense. It represents a relatively low threshold which retains flexibility for the Court to do what is just, while excluding those cases where the jurisdictional merits were so low that reluctant respondents ought not to be put to the expense and trouble of having to decide how to deal with arbitral proceedings where it was very likely that the tribunal had no jurisdiction. In this connection it is important to remember that crossing the threshold of "good arguable case" means that the Court has power to make one of the orders listed in Section 18(3). It remains for consideration whether it should do so as a matter of discretion."
Appropriate at this stage would be a reference to the judgment of the Delhi High Court in NCC Ltd. v. Indian Oil Corporation Ltd., wherein it has been held as under:
"59.1 In my view, the scope of examination as to whether or not the claims lodged are Notified Claims has narrowed down considerably in view of the language of Section 11(6A) 15 of the 1996 Act. To my mind, once the Court is persuaded that it has jurisdiction to entertain a Section 11 petition all that is required to examine is as to whether or not an arbitration Agreement exists between the parties which is relatable to the dispute at hand. The latter part of the exercise adverted to above, which involves correlating the dispute with the arbitration Agreement obtaining between the parties, is an aspect which is implicitly embedded in sub-section (6A) of Section 11 of the 1996 Act, which, otherwise, requires the Court to confine its examination only to the existence of the arbitration Agreement. Therefore, if on a bare perusal of the Agreement it is found that a particular dispute is not relatable to the arbitration Agreement, then, perhaps, the Court may decline the relief sought for by a party in a Section 11 petition. However, if there is a contestation with regard to the issue as to whether the dispute falls within the realm of the arbitration Agreement, then, the best course would be to allow the arbitrator to form a view in the matter.
59.2 Thus, unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned court hearing the Section 11 petition should follow the more conservative course of allowing parties to have their say before the arbitral tribunal."
89. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the arbitral tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a rule to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the arbitral tribunal and violate the legislative scheme allocating jurisdiction between the courts and the arbitral tribunal. Centralisation of litigation with the arbitral tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes.
95. Accordingly, we hold that the expression 'existence of an arbitration Agreement' in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration Agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration 16 Agreement as the arbitral tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability.
173. Before we part, the conclusions reached, with respect to question No.1, are:
a. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.
b. Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it's a clear case of deadwood.
c. 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 nonexistence of valid arbitration Agreement, by summarily portraying a strong case that he is entitled to such a finding.
d. 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'.
8. In Komirishetty Shravani Vs. Indana Geetha and Ors(supra) this Court following the principle laid down by the Hon'ble Apex Court held that:
8. Coming to the facts of the case, this Court cannot accept the contentions of the Respondent that serious allegations of fraud exist which make the dispute non-arbitrable. It is relevant to note that mere allegations of serious fraud cannot stop the court from appointing an Arbitrator. According to this Court, the party alleging serious fraud has to prima facie establish that facts constituting such fraud exist. No party can avoid arbitral proceedings by a merely alleging serious fraud, including serious.
9. The Courts while deciding whether the existence of the Agreement is marred by serious fraud has to see the conduct of the party alleging such fraud. For instance, it may be relevant to see if the party acted in furtherance of the alleged contract or not. If the party alleging serious fraud acted in furtherance of the contract, it cannot allege serious fraud which threatens the 17 existence of the Agreement itself. Further, the courts may also look into the conduct of the party after discovery of the fraud. In other words, the subsequent steps taken by the party alleging fraud against the party playing the alleged fraud may be relevant. If the court finds that fraud was discovered but no action was taken against it, the court may draw an inference against the existence of serious fraud. However, this Court makes it clear that there can be no straight-jacket formula to ascertain whether serious allegations of fraud exist or not. Every case is to be decided based on the relevant facts.
11. At this juncture, it is relevant to note that the scope of Section 11 of the Act, 1996 is extremely limited. In Vidya Drolia v. Durga Trading Corporation, the Supreme Court has held that whenever there is a doubt regarding the existence of a dispute, the courts shall refer the matter to arbitration.
9. In the above judgment, this Court specifically held that whether the existence of the Agreement is marred by serious fraud has to see the conduct of the party alleging such fraud. Arbitrary Tribunal is having power to decide the serious allegations made by the respondent in respect of forgery, fabricated and existence of the Agreement and the scope of the Section 11 is very limited and this Court is not having power to decide the aspect of forgery. This Court while deciding the application under Section 11(6) of the Act, is not having any such power to decide the said aspect.
10. The judgment relied by the learned counsel for the respondent in Avitel Post Studioz Ltd and Ors. Vs. HSBC PI Holdings (Mauritius) Limited is not applicable to the facts and circumstances of the case as it is held that the disputes 18 relating to fraud are arbitrable as long as the allegations of fraud do not permeate the existence of the agreement itself.
11. In the case on hand, the respondent disputing that the Agreement dated 14.10.2017, as forged and fabricated document whereas the applicant contended that the respondent accepted the agreement and he paid some amounts and respondent did not raise any objection in the reply notice about the execution of agreement except in the counter affidavit nor produced any evidence to that effect and not initiated any proceedings against the applicant. The genuinity of Agreement dated 14.10.2017 and amounts claimed by the applicant and denial of such claim by the respondents are disputed facts and the same have to be resolved by the Arbitral Tribunal by taking into consideration of the evidence which is going to be adduced by the respective parties and this Court is not having power, authority or jurisdiction to decide the said aspects under Section 11 of the Act.
12. For the foregoing reasons and the law laid down by the Hon'ble Supreme Court and this Court, the application filed by the applicant invoking the provisions of Section 11(5 and 6) of Act is maintainable under law and Hon'ble Sri A. Santhosh 19 Reddy, Retired High Court Judge, H.No.16-2-740/46, New Malakpet, Hyderabad is appointed as Sole Arbitrator, who will adjudicate the dispute between the parties arising out of the School-Academic Consulting Agreement dated 14.10.2017.
13. The learned Arbitrator shall fix his own remuneration upon deliberation and consultation with the parties. He shall also estimate the cost and expenses for the secretarial assistance and other incidental expenditure of the arbitration proceedings. The parties will bear the expenses of the arbitration proceedings in equal share. Thus, Point Nos.(i) and (ii) are answered.
14. Accordingly, the Arbitration Application is allowed. No costs.
Miscellaneous petitions, if any pending, shall stand closed.
_____________________________ JUSTICE J. SREENIVAS RAO 30th October, 2023 PSW