M/S L.R. Print Solutions vs M/S Exflo Sanitation Pvt Ltd
2022 Latest Caselaw 20030 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

A.F.R.
 
Reserved
 

 
Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 DEFECTIVE No. - 46 of 2022
 

 
Appellant :- M/S L.R. Print Solutions
 
Respondent :- M/S Exflo Sanitation Pvt Ltd
 
Counsel for Appellant :- Ashish Kumar Singh,Ishwar Kumar Upadhyay
 
Counsel for Respondent :- Ishir Sripat
 

 
Hon'ble Manoj Kumar Gupta,J.

Hon'ble Jayant Banerji,J.

(Per Manoj Kumar Gupta, J.)

1. The instant appeal is directed against the order dated 30.06.2022 passed by the Presiding Officer, Commercial Court, Gautam Budh Nagar rejecting the objection of the appellant filed under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Objection Case No.150 of 2017).

2. The facts in brief are as follows:-

(a) The appellant is a proprietorship concern. It entered into an agreement of tenancy for a period of 11 months dated 11.06.2008 with the respondent ( M/s Exflo Sanitation Pvt Ltd.) in respect of an industrial property No.C-156, Sector 10, Noida. The tenancy was for a period of 11 months starting from 1.07.2008 at the rate of Rs.8000/- per month. Under Clause 4 of the lease deed, it was provided that the lease rent will be enhanced by 10% after expiry of 11 months. Clause 7 gave option to both lessee and lessor to terminate the lease after giving one month notice. Under Clause 14, in the event of any dispute or difference arising out of lease agreement, the same would be referred to an arbitrator appointed by the lessor. The decision of the arbitrator was made binding on both the parties.

(b) The respondent by notice dated 13.09.2011 demanded arrears of rent amounting to Rs.80,688/- and also terminated the lease after expiry of 30 days.

(c) As the appellant failed to vacate the tenanted premises, the respondent instituted a suit (SCC Suit No.19 of 2011) for recovery of arrears of rent and damages as well as for eviction.

(d) The appellant filed an application in the suit purporting to be under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') read with Order 7 Rule 11 C.P.C. contending that as per the lease agreement, it was agreed between the parties that in case of any dispute or difference arising out of the same, it would be decided by the arbitrator and consequently, the court had no jurisdiction. As per Section 8 of the Act, the dispute can only be decided by the arbitrator, therefore, the plaint should be rejected under Order 7 Rule 11 C.P.C.

(e) The trial court accepted the objections and by order dated 19.09.2015 rejected the plaint in exercise of power under Order 7, Rule 11 (d) CPC holding that the suit is barred by Section 8 of the Act.

(f) The respondent thereafter nominated Sri Ashok Kumar Tripathi as arbitrator and filed a claim before him for arrears of rent; damages at the rate of Rs.25,000/- per month; interest at the rate of 18%; and eviction of the appellant.

(g) The appellant contested the claim by filing objections.

(h) The arbitrator framed five issues and gave his award dated 19.07.2017. The claim of the respondent was decreed for recovery of arrears of rent, damages and eviction of the appellant.

(i) The appellant filed objections under Section 34 of the Act against the award which was registered as Arbitration Objection Case No.150 of 2017. The court below has rejected the objections by order dated 20.06.2022 and aggrieved thereby the instant appeal has been filed.

3. The appeal was admitted by order dated 10.08.2022. Counsel for the appellant on the date the appeal was admitted made a statement that he has annexed all relevant documents with the memo of appeal and it can be heard without calling for the records of the court below. Learned counsel for the respondent also made a statement to the same effect. Accordingly, we fixed a date for hearing of the appeal and it has been heard finally.

4. The sole submission of counsel for the appellant Sri Rakesh Pande, learned senior counsel assisted by Sri Ishwar Kumar Upadhyay, is that the arbitral tribunal does not get jurisdiction to decide dispute between the parties without dispute being referred to it by the court. It is submitted that the court simply rejected the plaint and did not make reference of the dispute under Section 8 of the Act. Thus, the contention is that unless the court refers the parties to arbitration, the parties themselves cannot invoke the arbitral machinery nor the arbitral tribunal gets jurisdiction to decide the dispute and differences between the parties. In support of his submission, he places reliance on paragraph 244.3 of the judgement of the Supreme Court in Vidya Drolia and others Vs. Durga Trading Corporation1.

5. On the other hand, learned counsel for the respondent submitted that it is not necessary that the court should refer the parties to arbitration and the respondent was fully competent to appoint the arbitrator in terms of Clause 14 of the agreement and the arbitrator had rightly proceeded to decide the dispute between the parties. It is submitted that the appellant itself challenged the jurisdiction of the civil court on the ground that there was arbitration agreement between the parties and the respondent having invoked the said remedy, the appellant cannot be permitted to challenge the jurisdiction of the arbitral tribunal or the award given by him.

6. We have considered the rival submissions and perused the record.

7. As would appear, the facts to the extent noted above, are not in dispute between the parties. Before we proceed to dwell on the rival contentions, we would like to advert to the judgement of the Supreme Court in Vidya Drolia (supra). It is a judgement by a Three Judge Bench answering a Reference as to whether landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882 can be decided through the mechanism of arbitration or recourse to such remedy would be against public policy. The Reference arose out of the order by a Two Judge Bench dated 28.02.2019 in Civil Appeal No.2402 of 2019 Vidya Drolia and others Vs. Durga Trading Corporation2 doubting the correctness of the law laid down in Himangni Enterprises Vs. Kamaljeet Singh Ahluwalia3.

8. Two larger issues were decided viz:-

"2.1. (i) meaning of non-arbitrability and when the subject matter of the dispute is not capable of being resolved through arbitration; and

2.2. (ii) the conundrum - "who decides" - whether the court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability.

2.3. The second aspect also relates to the scope and ambit of jurisdiction of the court at the referral stage when an objection of non-arbitrability is raised to an application under Section 8 or 11 of the Arbitration and Conciliation Act, 1996 (for short, the ''Arbitration Act')."

9. The first issue relating to non-arbitrability of the subject matter of disputes between landlord and tenant was decided by holding that the disputes between them are, normally, arbitrable except where the dispute is covered by a legislation. The law laid down in Himangni Enterprises was accordingly overruled. The conclusion drawn is as follows:-

"80. 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."

10. While deciding the second issue as to who would be competent to decide a plea of non-arbitrability, the Supreme Court after noticing the statutory regime as it existed prior to Act No.3 of 2016, after the amending Act No.3 of 2016 and after Act No. 33 of 2019 held that Section 8 and Section 11 of the Act are complementary provisions. The object and purpose behind the two provisions is identical i.e. to compel and force the parties to abide by their contractual understanding. Section 11, it has been noted, does not prescribe any standard of judicial review for determining whether any arbitration agreement is in existence or not while Section 8 states that the judicial review at the stage of Reference is 'prima facie' and not final. The 'prima facie' satisfaction test regarding existence of an arbitration agreement in Section 11 can also be read in Section 8. Accordingly, it is held that a limited power of judicial review to the extent of prima facie examination of the existence of an arbitral agreement would effectuate the mechanism of arbitration rather than obstruct it. The conclusions have been crystallized in paragraph 154 as follows:-

"154.1. Ratio of the decision in Patel Engineering Ltd. on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23.10.2015) and even post the amendments vide Act 33 of 2019 (with effect from 09.08.2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of the court under Section 8 and 11 of the Arbitration Act is identical but extremely limited and restricted.

154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of "second look" on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34 (2)(a) or sub-clause (i) of Section 34 (2)(b) of the Arbitration Act.

154.4. Rarely as a demurrer the court may interfere at the Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non- existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably ''non-arbitrable' and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the arbitral tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism."

11. While laying down the above, a caveat was added. It has been held that while deciding the issue relating to existence of an arbitration agreement under Section 11 of the Act, if debatable and disputable facts are involved, the court would force the parties to abide by the arbitration agreement as the arbitral tribunal is fully competent to rule on its jurisdiction and non-arbitrability.

12. The Chief Justice in his separate but concurring judgment noted that the discretion in referring the parties to arbitration under the old Arbitration Act, 1940 has been done away with after coming into force of the 1996 Act. Section 8 of the new Act contains a mandate that where an action is brought before a judicial authority in a matter which is subject matter of an arbitration agreement, the parties have to be referred to arbitration. It is in said context that it was observed in paragraph 244.3 as follows:-

"The Court, under Sections 8 and 11, has to refer a matter to arbitration to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding."

13. The above observation is not intended to mean that when any dispute arises between the parties to the arbitration agreement, they cannot set the arbitral machinery in motion without intervention of the court. In fact, such an interpretation would be contrary to the object of the Act and also the interpretation given to the amendments made in Section 8 in Vidya Drolia (supra) .

14. As noted above, the primary aim behind Section 8 and Section 11 is to compel and force the parties to abide by their contractual commitment and get the dispute resolved through arbitration. For the said reason, even while applying prima facie test while exercising power of judicial review, the judicial authority/court has to steer through a very narrow path. It cannot enter into the arena of factual discord and appreciation of evidence. Where the court or the judicial authority feels that prima facie test would be inconclusive and inadequate as it requires detailed examination of facts, the matter has to be left for final determination by the arbitral tribunal selected by the parties. The underlying reason being to discourage the parties from using referral proceeding as a ruse to delay and obstruct.

15. While the provision of Section 8 is mandatory and obligates the court to refer the parties to arbitration where the subject matter of dispute is covered by arbitration agreement, it no where imposes any restriction on a party in invoking the arbitral machinery and getting the lis decided. In the instant case, although the trial court while deciding the issue relating to bar under Section 8 had rejected the plaint without referring the parties to arbitration and to that extent it's order is erroneous, but that in no manner was an impediment in invoking the mechanism of redressal viz. arbitration agreed to by the parties themselves. In fact, sub-section (3) of Section 8 when it provides that "notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made" is conclusive of the legislative intent that there is no embargo for a party to approach the arbitral tribunal for getting the dispute decided during pendency of the suit. It would be an ideal scenario if the parties themselves respect their contractual commitment and approach the arbitrator without the judicial authority compelling them to do so under Section 8 of the Act. The submission of learned counsel for the appellant is inherently contrary to the legislative intent and cannot be countenanced and hence rejected.

16. The appeal lacks merit and is dismissed.

(Jayant Banerji, J.)    (Manoj Kumar Gupta, J.)
 
Order Date :- 06.12.2022
 
SL