Recently, The Jharkhand High Court, while allowing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, held that the pendency of proceedings before the competent authority under the Jharkhand Apartment (Flat) Ownership Act, 2011 does not bar the appointment of an arbitrator where the authority exercises only executive and not judicial powers, and that the arbitration clause in the agreement of sale is valid and enforceable.
Brief Facts:
The applicant, M/s Bodhraj Construction, through its proprietor, filed an arbitration application seeking the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The dispute arose from an agreement for sale dated 27.09.2010 entered into between the applicant and the deceased first respondent regarding Flat No. F-1 in Bodhraj Enclave, Ranchi. Disputes emerged over additional construction and extra work allegedly carried out by the applicant at the request of the deceased first respondent. The applicant claimed a balance payment of ₹8,32,400 remained unpaid despite the possession being handed over in April 2011, and declined to execute the sale deed until payment was made. A notice invoking arbitration was issued by the applicant on 10.10.2023.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the petitioner submitted that the agreement contained an arbitration clause (Clause 18), and that due to the respondents’ refusal to appoint an arbitrator following the notice dated 10.10.2023, the Court should exercise its powers under Section 11(6). It was further contended that the proceedings initiated under the Jharkhand Apartment Act had already been dropped in 2019 and only an appeal was pending. The reliefs sought under the Arbitration clause, including eviction and damages, were distinct and beyond the jurisdiction of the authorities under the 2011 Act.
Contentions of the Respondent:
The learned counsel appearing on behalf of the respondent submitted that they had initiated proceedings under the Jharkhand Apartment (Flat) Ownership Act, 2011, seeking registration and execution of the flat deed. These proceedings had resulted in an order on 29.01.2018, which was challenged by the respondents in an ongoing appeal. It was argued that the arbitration clause could not be invoked in parallel with the pending proceedings, and that the applicant should have raised objections under Section 8 of the Arbitration and Conciliation Act during the earlier proceedings instead of initiating separate arbitration.
Observations of the Court:
The Court, upon examining the submissions of both parties and the record before it, addressed the primary contention regarding whether the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 could be precluded due to the pendency of proceedings under the Jharkhand Apartment (Flat) Ownership Act, 2011. The central issue before the Court was whether the proceedings initiated under the said Act, which involved adjudicatory elements relating to the registration of the flat in question, could operate as a bar to invoking the arbitration clause enshrined in the agreement to sell dated 27.09.2010.
The Court first noted that Section 8 of the Arbitration and Conciliation Act, 1996 mandates that where a judicial authority is seized of a matter which is subject to an arbitration agreement, it shall refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. The Court emphasized that such a reference to arbitration is contingent on the authority being “judicial” in nature. Turning to the nature of the competent authority under the Jharkhand Apartment (Flat) Ownership Act, 2011, the Court referred to Section 3(l) of the Act which defines the competent authority as one vested with executive powers by the State Government. The Court underscored that while the competent authority may be empowered under Section 21 of the 2011 Act to impose penalties, issue certificates for registration, and direct unilateral execution of deeds, such powers are administrative in character. The authority is not required to conduct an adjudicatory process or make determinations on the substantive rights and obligations between the parties in the nature of a judicial forum.
To reinforce this interpretation, the Court relied upon authoritative judgments of the Hon’ble Supreme Court, including Balakrishna Rama Tarle v. Phoenix ARC Pvt. Ltd and R.D. Jain & Co. v. Capital First Ltd., where it was held that authorities exercising powers under statutes such as SARFAESI Act do not engage in adjudication but perform ministerial functions. Drawing a parallel, the Court held that the competent authority under the 2011 Act likewise does not qualify as a judicial authority and hence the provisions of Section 8 do not stand attracted to its proceedings.
Further, the Court noted that the reliefs sought by the applicant in arbitration, including recovery of unpaid dues, eviction of the respondents, and damages for illegal occupation, lie outside the jurisdictional competence of the authority under the 2011 Act. Thus, the arbitration clause encompassed disputes that could not be fully or effectively resolved through the ongoing proceedings under the said Act.
The Court also observed that the respondents’ contention, that the arbitration was initiated to circumvent the proceedings under the 2011 Act, held no legal basis in light of the executive nature of the authority and the clear presence of an arbitration clause in the agreement. The issuance of a legal notice invoking arbitration and the refusal of the respondents to cooperate with the appointment process fulfilled the statutory threshold for intervention by the High Court under Section 11(6) of the 1996 Act. Accordingly, the Court concluded that the pendency of proceedings before the competent authority under the Jharkhand Apartment (Flat) Ownership Act, 2011 does not preclude the invocation of arbitration, and that there exists no legal embargo against appointment of an arbitrator where a valid arbitration clause exists and has been duly invoked.
The decision of the Court:
The Court allowed the application and appointed Sri Rajesh Kumar Vaish, retired Principal District & Sessions Judge, as the Sole Arbitrator to adjudicate the dispute between the parties.
Case Title: M/s Bodhraj Construction vs. Snehanshu Sinha and Ors.
Coram: Hon’ble Mr Chief Justice M.S. Ramachandra Rao
Case No: Arbitration Application No. 36 of 2023
Advocate for the Applicant: Mr. Prashant Pallav, Mr. Parth Jalan
Advocate for the Respondent: Mr. Pandy Neeraj Roy
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