Dayal S/O Gopaldas Mulchandani ... vs Smt. Savita W/O Ashok Sheodanmal ...
2003 Latest Caselaw 671 Bom

ORDER

J.N. Patel, J.

1. This is an application seeking for appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The background facts leading to the filing of the application can be summed up as under :

There was an agreement (Annexure-A to the application) executed between the parties namely Shri Amritlal s/o Valabhdas Panchmatia on one part, and Shri Dayal Gopaldas Mulchandani on the other part, in respect of 12.50 % undivided share and interest in total land admeasuring 899.70 sq. meter bearing Revenue Kh. No. 343, Mouza Sitabuldi, Nagpur, City Survey No. 2416, Sheet No. 247/46, Chalta No. 56 of Mouza Sitabuldi, Nagpur and bearing Municipal Corporation House No. 876 (old No. 893) of new Ward No. 65 (old Ward No. 35), Nagpur, Tahsil and District Nagpur, within the limits of Nagpur Municipal Corporation and Nagpur Improvement Trust, purchased vide sale deed under Sr. No. 3164 dated 15/3/1991 registered in Book No. 1-A Volume 1344 on pages 126 to 139, at Serial No. 3052 on 15/3/1991, in the office of Sub Registrar, Nagpur, having purchased the same from one late Dr. Narayan Madhaorao Ghatate, by the non-applicant nos. 1 to 5 on 4/10/1989.

2. In accordance with the sale, the undivided proportionate share of the owners, i.e. non-applicant nos. 1 to 5, as mentioned in the sale deed is as under:

(i)Non-applicant No. 1 :50% shares

(ii)Non-applicant No. 2 to 5:12.50% each.

It appears that non-applicant No. 3, thereafter, sold 50% of the property owned by him i.e. 6.25% of the undivided share and interest in the aforesaid land to the non-applicant No. 6, i.e. his son. The remaining 50% of the share was sold to non-applicant No. 7 and after these transactions, the non-applicants became the owners of the said property and the percentage of undivided shares of the non-applicants in the said property was constituted as under :

(i) Non-applicant No. 1 :50%

(ii) Non-applicant Nos. 2, 4 & 5 : 12.50% each.

(iii) Non-applicant No. 6 & 7: 6.25% each.

3.The agreement dated 18/1/1996 between the parties, was entered as the aforesaid property was capable of being developed into a multistoreyed building containing of various self contained commercial office blocks and residential tenements. It was agreed between them that the total consideration will be Rs. 5,50,000/- only. The other clauses of the agreement are not relevant for the decision of this application.

4.The applicants claim that they were given possession of the suit property in order to take further steps so as to perform their part of the contract, i.e. obtaining sanction for construction of building and permitted to obtain electric connection and to carry out various activities in connection with the construction of the complex on the said land. The applicants were also informed that a civil suit is pending in the Court as there was some dispute regarding the title of the property and in case an injunction is granted in respect of the suit property and because of that, transfers could not be effected and the project cannot be taken up, non-applicants shall refund the amount taken by them together with interest @ 18% P.A. from the date of receipt till realisation.

5.It is the case of the applicants that pursuant to the said agreement, the applicants made huge investment. The applicant got the building plan sanctioned by incurring heavy expenses in part performance of the said contract. However, when the applicants were carrying on the work of construction on the said property, the Defence Authorities restrained the applicants from carrying out the construction activities claiming right over the said property. By that time, the applicants had completed the work of foundation of the complex and, therefore, the applicants were required to file suit in the name of the non-applicants before the Civil Court for injunction. The applicants incurred huge expenses for the said legal proceedings, but for all this, they did not receive any cooperation from the non-applicants.

6. It is in these circumstances, and on coming to know that the non-applicants are trying to dispose of the property, that the applicants were required to give notice on 16/7/2001 (Annexure-B) through their advocate to the non-applicants, calling upon them to restrain themselves from taking any steps for transferring the share of the applicants in respect of the said property for which an agreement was executed and a huge amount of consideration was given. By the said notice, the non-applicants are further called upon to cooperate with the applicant to take appropriate steps to enable the applicant to carry on construction activities and also to execute sale deeds in respect of the said property in favour of the applicant. They were forewarned that if they take any step contrary to the agreement, the applicants shall be left with no choice but to take legal steps in the matter.

7. On receipt of the said legal notice, the parties arrived at an understanding and it was decided that the dispute between the parties was to be resolved as per the Arbitration Agreement dated 8/12/2001. In the Arbitration Agreement dated 8/12/2001 entered between the parties, it was stated that various disputes have arisen between the parties and the parties have agreed to resolve the said disputes by referring them to Arbitrator. The parties have agreed to refer the following disputes for arbitration.

(1) Various transactions related to properties,

(2) Kasturchand park property,

(3) Agriculture land at Pardi,

(4) Chitnavis land,

and it was also decided to appoint Arbitrator in following manner:-

That, the non-applicant nos. 2, 4 to 7 represent one group which is for the purpose of brevity referred to as "Panchmatia Group". The "Panchmatia Group" appoints Shri C.J. Thakar of Nagpur as an Arbitrator, duly appointed. Shri Thakar has given his consent for the same.

That, non-applicant No. 1 and one Shri Ashok S. Mokha represent the "Mokha Group" who appoints Shri S.R. Chhallani of Nagpur as an arbitrator duly appointed by them. Shri Chhallani has given his consent for the same. That, the applicant No. 1 appoints Shri S.R. Chhallani of Nagpur as the arbitrator on his behalf. Shri Chhallani has given his consent for the same. That, the parties to the agreement also wish that the third arbitrator be appointed by the consent of Shri C.J. Thakar and Shri S.R. Chhallani. The matter was therefore, referred to the said arbitrators and they have unanimously agreed to appoint Shri Sunil V. Manohar of Nagpur as the third arbitrator.

That, the consent of Shri Sunil V. Manohar has been obtained and he has granted his consent to act as the third Arbitrator.

It appears that subsequent to the arbitration agreement, one of the parties, i.e. Mr. Keshavji Panchmatia approached Mr. Sunil Manohar, Advocate, who was unanimously agreed to be third Arbitrator and had granted his consent to act as such. Probably Mr. Keshavji Panchmatia wanted to ascertain that what will be the Award passed by the Arbitrator. Because of this, Mr. Manohar, by his letter dated 26/1/2002 informed Mr. Ashok Mokha that "After I was appointed to act as a umpire, Shri Keshavbhai Panchmatiya (who was also a client of mine) visited my chamber. He asked me as to what would be the award which would be passed by me. I forthwith told him that one cannot predict in advance what the award would be and that it would be most unethical on the part of anyone concerned with the matter to enquire with the arbitrators or umpire about the final outcome of the arbitration proceedings." And for these reasons, he refused to associate himself with the dispute in any manner.

8. In view of the fact that Mr. Sunil Manohar, Advocate, having refused to associate himself to act as Umpire, the applicant, through his advocate issued notice dated 31st July, 2002 and informed the other two Arbitrators i.e. Mr. C.J. Thakar, Advocate, and Mr. S.R. Chhallani, Chartered Accountant, to appoint third Arbitrator-Umpire in place of the third Arbitrator Shri Sunil Manohar, Advocate, with each others consent within a period of 30 days from the receipt of the notice, failing which he would be required to approach the Court for the appointment of a third arbitrator for getting decided the disputes between the parties, more particularly relating to the property agreed to be purchased by him. A copy of the notice was sent to other non-applicants. Mr. C.J. Thakar also, by his letter dated 25/8/2001, had informed Shri Ashok Mokha that insofar as dispute between Ashok Mokha and Panchmatia group is concerned, Shri Keshubhai Panchmatia is agreeable to his sole arbitration, and in respect of K.P. Property dispute, he is agreeable to his sole arbitration if Dayal Mulchandani agrees. He further stated that otherwise Shri Panchmatia was also agreeable to joint arbitration. However, by subsequent letter dated 4/9/2002, Mr. C.J. Thakar, Advocate, also expressed his inability to act upon the arbitration agreement between Panchmatia group, Mokha group and Mulchandani group, by giving reason that the agreement dated 8/12/2001 was not signed by all the parties and hence he did not want to act on such incomplete document, and also made it clear that there is no need for him and Shri S.R. Chhallani to appoint any third arbitrator-umpire. Notice issued by the applicant through his advocate was also replied by the members of the Panchmatia group in similar term. On the other hand, Shri S.R. Chhallani communicated to Shri Shyam Dewani, Advocate, for the applicant that he has no objection for appointing any one else as third Arbitrator, as may be agreed upon by the parties. It is in these circumstances that the applicants were required to file this application seeking appointment of Arbitrator.

9. On being served with the notice, except one of the members of Panchmatia group, all others appeared through their counsel. Initially, except for Mr. Chhallani, amongst Arbitrators, Mr. Thakar did not appear in the matter and taking into consideration the peculiar nature of the problem, I was required to issue notice to Mr. Thakar and also grant leave to join Mr. S.V. Manohar, Advocate, as non-applicant and they were required to file their say in the matter.

10. Mr. Dewani, the learned counsel appearing for the applicants, submitted that in view of the dispute, the parties have entered into Arbitration Agreement dated 8/12/2001 and having failed to act upon the said agreement, due to aforesaid development resulting in Mr. Manohar withdrawing as third Arbitrator, this Court should appoint an Arbitrator to whom the dispute arisen between the parties relating to agreement dated 18/1/1996, can be referred. Mr. D.V. Chauhan, the learned counsel appearing for the non-applicant No. 1, stated that he has nothing to say in the matter as he is agreeable to the appointment of an Arbitrator.

11. Mr. B.P. Dharmadhikari appears for non-applicant nos. 2 to 7 and vehemently contested the application. In addition to making his submissions on the enforceability of the agreement dated 18/1/1996 between the parties, for various reasons, he also contended that there is absolutely no agreement between the parties, which is mandatory for invoking the provisions of appointment of arbitrator/Umpire under the provisions of the said Act. He further submitted that the agreement is not in consonance with the requirement of Section 7 of the Arbitration Act. According to him, signature of Panchmatia was obtained under the impression that the arbitration process was to be adopted for the settlement of the dispute between Panchmatia group and Mokha group. He further submitted that Romal Panchmatia was never a party to any alleged agreement of sale and thus, it is absolutely clear that there is no arbitration agreement at all and on this count alone the application is liable to be rejected. Mr. Dharmadhikari also clarified that as Mr. Sunil Manohar was Advocate of Panchmatia group and representative on their behalf and acting on their instructions, the non-applicant No. 2 Shri Keshavji Panchmatia having visited his Advocate and making an effort to know as to what would be the process of arbitration if the non-applicant and his family members consents for the same, cannot be said to be an attempt to influence upon him in the matter and, therefore, according to Mr. Dharmadhikari, the application deserves to be rejected.

12. Mr. Chhallani, the non-applicant No. 9, represented by Mr. Gagan Sanghi, Advocate, did not contest the matter or file any reply. But, sofar as Mr. C.J. Thakar, Advocate and Mr. Sunil V. Manohar, Advocate, are concerned, they have filed their affidavits on record clarifying their stands. Mr. Thakar, Mr. Chhallani and Mr. Manohar constituting the panel of Arbitrators, have only made their stands clear in the matter and it was not expected of them to contest the application. As already stated, this Court wanted certain clarification from Mr. Thakar and Mr. Manohar, which they have placed on record.

13. Therefore, on considering the rival contentions between the parties, the only point which arise for my decision is that if the existence or nonexistence of arbitration agreement in terms of Section 7, is challenged, whether the Chief Justice or his nominee should decide such issue under section 11 or it should be left to the Arbitrator under Section 16 of the said Act?

14. From the contents of the application and the affidavit in reply filed by the parties, and considering the rival contentions, one thing is clear that there is a dispute between the parties arising out of the agreement dated 18/1/1996, which, according to the applicants, was sought to be resolved by referring the matter to arbitration and for the said purpose, the agreement dated 8/12/2001 came to be entered between the three groups i.e. Panchmatia group, Mokha group and the applicants.

15. The concurrence of the wills of two or more persons on some common matter, evident by acts apparent to or communicated to, and understood by each other, will amount to an agreement. That is to say, the parties are consensus in idem. The question is what constitutes an arbitration agreement. It is well settled law that to constitute an arbitration agreement in writing, it is not necessary that it should be signed by the parties, and that it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established. This came to be held in a decision rendered by the Supreme Court in the case of Jugal Kishore Rameshwardas -vs- Mrs. Goolbai Hormusji , which was in reference to Arbitration Act, 1940. The same view was followed in subsequent decision of the Supreme Court in the case of Union of India -vs- A.L. Rallia Ram . While dealing with the said provisions, it was observed that though agreement should be in writing, formal document signed by the parties is not essential. Another case is that of J.K. Jain and others -vs- Delhi Development Authority and others , in which the Supreme Court, while referring to the decision of Jugal Kishores case (cited supra) and also of Union of India -vs- A.L. Rallia Ram (cited supra), (Banarsi Das -vs- Cane Commissioner, , held that "The arbitrator gets jurisdiction to decide the dispute on the basis of the agreement to refer such dispute and not by its acceptance or denial, and the objection on behalf of the appellants that there is no condition in the main agreement to refer the dispute to arbitration can be accepted only if it is held that the different terms and conditions mentioned in the tender form are not binding on the parties, because parties never agreed to those terms and conditions, while entering into a contract. But the fact about which there is no dispute, is that both the parties had signed the tender form in token of having accepted the terms and conditions mentioned therein including about reference of disputes, if any to an Arbitrator."

In the present case, though in the main agrement entered between the parties on 18/1/1996 which appears to be executed and signed by them, there is no clause of referring the dispute to arbitration, but subsequently, the dispute having arisen, the parties did contemplate to resolve the said dispute by referring it to Arbitrator as is evident from the arbitration agreement-Annexure-C, the correspondence between the parties and the affidavits filed by Mr. Thakar and Mr. Manohar. Further one of the parties i.e. Mokha group has admitted this position.

16. Therefore, the preliminary issue raised by the Panchmatia group that there did not exist an arbitration agreement between the parties as defined in Section 7 of the Arbitration and Conciliation Act, can itself be referred to the arbitrator for its decision, as held in the case of Nimet Resources and another -vsEssar Steels Ltd. , wherein the Supreme Court took a view after referring to the case of Wellington Associates Ltd. vs. Kirit Mehta , that "... because the power that is exercised by the nominee of the Chief Justice of India under Section 11 of the Act is in the nature of an administrative order. In such a case, unless the Chief Justice of India or his nominee can be absolutely sure that there exists no arbitration agreement between the parties it would be difficult to state that there should be no reference to arbitration. Further such a view may not be conclusive in view of the nature of the powers that are exercised under Section 11(6) of the Act. In this view of the matter, I do not think it would be possible to accede to the defence raised by the respondent. Keeping open all questions raised in this case, I think it would be appropriate to refer the matter to arbitration. I have also restrained myself from referring in detail to the correspondence exchanged between the parties or the pleadings to asses the correctness or otherwise inasmuch as such an exercise will be undertaken by the arbitrator concerned to decide the question as to existence or otherwise of the arbitration agreement."

The Supreme Court also referred to decision rendered in Konkan Railway Corpn. Ltd. -vs- M/s Mehul Construction Co. (2000) 6 Scale 71 in which the nature of the order passed under Section 11(6) of the Act has been explained and it is also observed therein that in case of dispute between the parties as to the existence or validity of an arbitration agreement it should be examined by the arbitral Tribunal itself. This is how the Court has explained the position (para 4):

"Section 16 empowers the arbitral Tribunal to rule on its own as well as on objections with respect to the existence or validity of the arbitration agrement. Conferment of such power on the arbitrator under 1996 Act indicates the intention of the legislature and its anxiety to see that the arbitral process is set in motion. This being the legislature intent, it would be proper for the Chief Justice or his nominee just to appoint an arbitrator without wasting any time or without entertaining any contentious issues at that stage, by a party objecting to the appointment of an arbitrator. If this approach is adhered to, then there would be no grievance of any party and in the arbitral proceeding, it would be open to raise any objection, as provided under the Act. But certain contingencies may arise where the Chief Justice or his nominee refuses to make an appointment or an arbitrator and in such a case a party seeking appointment of arbitrator cannot be said to be without any remedy."

In a subsequent decision rendered by the Supreme Court in the case of Malaysian Airlines System BHD (II) -vs- Stic Travels (P) Ltd. ((2000)1 Supreme Court Cases 509, the controversy rather has been almost settled as to whether the preliminary issue raised by the respondent can be decided at this stage or be referred to the Arbitrator and while deciding the point, it observed in para 11 of the reported judgment as under:

"The question arises whether such issues raised at the stage of Section 11 application or at the state of Section 8 proceedings (corresponding to Section 34 of the old Act, 1940) could be decided by the court. This Court in some cases felt that they could be decided to cut short litigation and waste of time, where the documents are clear enough. But, subsequently the three-Judge Bench in Konkan Rly. Corpn. Ltd. v. Mehul Construction Co. has taken the view that the Chief Justice or his nominee is performing an administrative duty and cannot decide the preliminary issues at this stage and it is for the arbitrator alone to decide the same. [No doubt, the question has now been referred for fresh consideration in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd. In view of the said three-Judge judgment, I decline deciding these preliminary issues and direct that the matter be straight away referred to an arbitrator."

Therefore, rather than taking up the preliminary issues for decision, it would be proper in the given facts and circumstances to refer the dispute for adjudication by the Arbitrator. Parties to raise the preliminary issues before the Arbitrator.

17. Therefore, this Court appoints Shri Justice A.A. Ginwala, Former Judge, High Court of Bombay, as Arbitrator. Office to inform him accordingly.

In case the Arbitrator so requires, he may call for the record and proceedings of this application for the purpose of referring to the documents filed by the parties on record and the affidavits filed by Mr. C.J. Thakar and Mr. Sunil Manohar, Advocates. Application stands disposed of accordingly.