Agtec Industries Private Limited vs M/S Nikon Systems Private Limited
2021 Latest Caselaw 11094 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
Court No. - 2
 

 
Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 38 of 2021
 

 
Appellant :- Agtec Industries Private Limited
 
Respondent :- M/S Nikon Systems Private Limited
 
Counsel for Appellant :- Gaurav Tripathi,Syed Imran Ibrahim
 
Counsel for Respondent :- Syed Fahim Ahmed
 

 
Hon'ble Suneet Kumar,J.

Heard Shri Gaurav Tripathi, along with Shri Syed Imran Ibrahim, learned counsel for the appellant and Shri H.N. Singh, learned Senior Counsel assisted by Shri Syed Fahim Ahmed, learned counsel for the opposite party.

The present appeal has been filed against the order dated 14 January 2021, passed by the learned Additional District Judge, Court No. 5, Gautam Budh Nagar, Noida, Uttar Pradesh in SCC Suit No. 09 of 2019 (M/s Nikon Systems Private Ltd. vs. Agtec Industries Private Ltd.). By the impugned order, the learned Court has rejected the application filed by the appellant/defendant under Section 8 of the Arbitration and Conciliation Act, 19961, declining to refer the parties to arbitration in terms of the registered rent agreement.

The facts giving rise in the present appeal, briefly stated, is that the opposite party, herein, is the landlord of the demised premises bearing No. 38-B, Udyog Vihar, Ecotech-II, Greater Noida, District Gautam Budh Nagar. The property was rented to the appellant for business and commercial purpose for manufacturing sheet metal and engineering goods. The parties reduced the terms of the agreement vide rent agreement dated 7 August 2018. Clause 13.5 of the rent agreement stipulated that in the event of a dispute arising between the parties, the matter would be referred for arbitration to a panel of arbitrators. Clause 13.5 is extracted:

"Clause 13.5 - Arbitration

In the event of any dispute or difference arising out of or relating to or with reference to or in connection with Sub-Lease Deed, including the termination of the Sub-Lease Deed, the same shall be referred for arbitration to a panel of arbitrators, one to be appointed jointly by the two arbitrators so nominated, whose decision shall be final and binding on both the parties. The arbitrators so appointed shall give a reasoned award. The venue of the arbitration shall be at New Delhi and the arbitration proceedings shall be in accordance with the Indian Arbitration and Conciliation Act, 1996. The arbitration proceedings shall be conducted in English language."

It appears that a dispute arose between the parties with regard to payment of rent. Aggrieved, the opposite party instituted a suit before the Provincial Small Cause Court seeking eviction and arrears of rent. The appellant upon receiving the summons filed an application under Order VII Rule 11 of the Code of Civil Procedure, 19732, contending that in view of the arbitration clause, the court lacks jurisdiction, accordingly, prayed that the plaint be rejected and the parties be relegated for arbitration as per terms of the rent agreement. The application came to be rejected vide order dated 16 September 2019. Learned trial court while dismissing the application under Order VII Rule 11, placed reliance on the decision rendered by the Supreme Court in Himangi Enterprises vs. Kamaljeet Singh Ahliwalia3. Aggrieved, appellant approached this Court by filing a petition under Article 227 of the Constitution of India, being Writ Petition No. 7446 of 2019 (M/s Agtec Industries Private Ltd. vs. Nikon Systems Pvt. Ltd.) The petition came to be dismissed by this Court on 17.10.2019, upholding the order of the trial court.

The appellant chose not to assail the order, consequently, the judgement and order passed by this Court affirming the trial court order attained finality between the parties. Thereafter, appellant within thirty days from dismissal of the petition under Article 227, appeared and filed written statement on 5 November 2020, along with objection to an application filed by the opposite party/plaintiff under Order VIII Rule 10 for rejecting the defence of the appellant. Thereafter, appellant filed an application before the court below for referring the matter to mediation under Section 89 of the C.P.C. The parties agreed to mediation, accordingly, parties were referred to the Mediation Centre. The mediation between the parties succeeded. The Settlement Agreement was duly signed by the the parties and filed before the court. This fact is noted by the trial court in its order dated 23 December 2020. As per Settlement Agreement dated 10 December 2020, the appellant (second party to the agreement) agreed that the outstanding arrears of rent till November 2020 stands at Rs. 1,68,53,522/-. In compliance of the terms of the Settlement Agreement, appellant paid upfront an amount at Rs. 20,00,000/- towards part payment of arrears of rent from April 2020 till November 2020, at the signing of the Settlement Agreement, and vacated the demised premises.

It is alleged that to scuttle the Settlement Agreement and not to pay the agreed amount stipulated therein, an application under Section 8 of the Arbitration Act was filed by the appellant on 23 December 2020, raising an objection that in view of the law mandated by the Supreme Court in Vidya Drolia and others Vs. Durga Trading Corporation4, the rent agreement between the parties ought to be referred to arbitration in terms of the rent agreement. The trial court by the impugned order has rejected the application. The order is under challenge.

Learned Counsel for the appellant submits that Section-8 application filed under the Arbitration Act was maintainable. It was filed before submitting to the jurisdiction of the trial court. It is urged that the written statement, though, filed earlier was not taken on record by the trial court. In other words, it is submitted that appellant had not submitted to the jurisdiction of the court or on the substance of the dispute. Learned counsel for the appellant has placed reliance on the Allahabad Amendment of Order-VIII Rule-11, to submit that in the event the defendant does not file defence within 30 days from the date of appearance, his defence would be struck off. Learned counsel, in support of his submission, placed reliance on the decisions rendered by the Supreme Court in Rashtriya Ispat Nigam Ltd. and another v. Verma Transport Company5 and Ardy International (P) Ltd. v. Inspiration Clothes & U and another6. It is sought to be urged the expression 'first statement on the substance of the dispute' contained in Section 8(1) of the Arbitration Act must be contra-distinguished with the expression 'written statement'. If an application is filed before actually filing the first statement on the substance of the dispute, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court.

Per contra, learned counsel for the respondent submits that appellant appeared and filed written statement within thirty days after the dismissal of his application under Order VII Rule 11 of C.P.C.. The appellant by raising objection/defence on the substance (merit) of the case submitted to the jurisdiction of the trial court. Admittedly, appellant thereafter got the matter settled through mediation. It is, thereafter, appellant submitted an application under Section 8 of the Arbitration Act which was not maintainable in view of the rejection of application under Order VII Rule 11 of C.P.C.. The trial court had to decree the suit in terms of the Settlement Agreement. The appeal lacks merit and is liable to be dismissed in limine.

In the facts of the instant case, the decisions relied upon by the learned counsel for the appellant is distinguishable. The objections were filed to the interim injunction application wherein the court was of the view that objection to an application for interim injunction would not tantamount to the defendant having waived his right or acquiesced itself to the jurisdiction of the court.

In the facts of the case at hand, the suit was instituted for eviction and arrears of rent, there was no occasion of passing any interim injunction. The suit had to be decided finally on merit. On receiving summons, the appellant appeared and filed an application under Order VII Rule 11 of the C.P.C. questioning the jurisdiction of the court in view of the arbitration agreement. The application under Order VII Rule 11 of the C.P.C. would not tantamount to acquiescence to the jurisdiction of the court. The application came to be rejected in view of the law applicable on the date of passing of the order. The order was carried in a petition under Article 227 of the Constitution, which came to be rejected, consequently, the order attained finality. Thereafter, the appellant appeared and filed written statement on the substance (merit) of the dispute, thus, submitting to the jurisdiction of the court. In other words, appellant waived his right under the rent agreement and acquiesced to the jurisdiction of the court. During pendency of the trial proceedings, appellant filed an application on 18 February 2020, for settlement through mediation, accordingly, parties were referred to the Mediation Centre. Parties participated in the mediation proceeding and entered into a settlement outside the court vide Settlement Agreement dated 23 December 2020. The appellant, acted upon the settlement by making upfront payment towards rent and also vacated the premises. It is, thereafter, to thwart the Settlement Agreement, an application was filed under Section 8 for referring the dispute as per the rent agreement. In my opinion, parties have settled the dispute outside the court, the trial court was required to decree the suit in terms of the Settlement Agreement under Order XXIII Rule 3 of the C.P.C. The application under Section 8 at that stage to refer the matter to arbitration would not satisfy the condition stipulated under Section 8 of the Arbitration Act, i.e., appellant waived his right by acquiescence to the jurisdiction of the court by filing written statement― first statement on the substance of the dispute. Section 89 and Section 8 stand on different footing.

The ratio expressed in Himangi (supra) that landlord disputes governed by the provisions of Transfer of Property Act, 1882, are not arbitrable as this would be contrary to public policy. The ratio laid down came to be overruled in Vidya Drolia (supra) (decided on 14.12.2020). Relevant portion of para 49 is extracted:

"In view of the aforesaid, we overrule the ratio laid down in Himangni Enterprises and hold that landlord-tenant disputes are arbitrable as the Transfer of Property Act does not forbid or foreclose arbitration. However, landlord-tenant disputes covered and governed by rent control legislation would not be arbitrable when specific court or forum has been given exclusive jurisdiction to apply and decide special rights and obligations. Such rights and obligations can only be adjudicated and enforced by the specified court/forum, and not through arbitration."

Admittedly, the written statement was filed by the appellant on 5 November 2020 before the law declared in Vidya Drolia; Section 8 application was filed on 23 December 2020. As per Section 9 of C.P.C., civil court has jurisdiction to try all suits of civil nature unless barred explicitly or by implication. Section 8 of Arbitration Act does not oust the jurisdiction of the civil court in landlord-tenant dispute, but leaves it to the party to the agreement to make a choice between the court or arbitration, not later than the date of submitting his first statement on the substance of the dispute, notwithstanding any judgment, decree or order of any court.

In the backdrop of the legislative mandate the argument of the learned counsel for the appellant that the written statement was not taken on record by the court in view of the pending application under Order VIII Rule 10 filed by the opposite party, lacks merit. No such condition requiring an order of the court can be read or inferred in Section 8 of the Arbitration Act. Moment the defendant files his first statement (written statement) raising objections/defence on the substance (merit) of the dispute the embargo under Section 8 immediately operates. The order passed by the court on the application of the respondent under Order VIII Rule 10 is of no consequence. The rejection of the application filed by the appellant under Order VII Rule 11 would have no bearing on the maintainability of an application under Section 8 of the Arbitration Act in view of the language explicitly providing "notwithstanding any judgment, decree or order of the Supreme Court or any court", but with a caveat that the objection has to be raised not later than the date of submitting the first statement on substance of the dispute. In the facts of the case in hand, on 5 November 2020, the appellant filed his written statement, the application under Section 8 of the Arbitration Act filed, thereafter, was of no consequence. Further, the court would have to prima facie satisfy itself that there is a live dispute, inter se, parties. In view of the settlement reached between the parties arising from the rent agreement, the dispute, if any, no longer existed between the parties to be referred to arbitration. The Arbitration Act facilitates settlement of dispute through arbitration with minimal interference of the court, provided there is a dispute. It is not the case of the appellant that the Settlement Agreement was obtained by fraud, misrepresentation or coercion.

Learned counsel for the appellant failed to point out any illegality, infirmity or jurisdictional error in the impugned order.

It is clarified that no other ground was pressed.

The appeal is, accordingly, dismissed at the admission stage.

No Cost.

Order Date :- 16.9.2021

Mukesh Kr.

(Suneet Kumar,J.)