Bombay High Court

Cogent Enterprises Private ... vs Shri. Vijay Kumar Jagdishray ... on 17 March, 2017

Bench: A.A. Sayed

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             IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                     CIVIL APPELLATE JURISDICTION

                      ARBITRATION PETITION NO.56 OF 2016


Cogent Enterprises Pvt. Ltd.                                                  ... Petitioner
      vs.
Shri Vijay Kumar Jagdishray Chawla                                            ... Respondent


Mr. Deepak Dhingra a/w Mr. S.C. Wakankar for the Petitioner.
Mr. Harshad Sathe and Mr. Saurabh Butala for the Respondent.

                                                 Coram : A.A.Sayed, J.

Date : 17 March 2017.

ORAL JUDGMENT:

1 This Arbitration Petition has been filed under section 11 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to as the

'Arbitration Act') for appointment of an Arbitrator to adjudicate the

disputes between the Petitioner Company and the Respondent arising

out of an arbitration agreement contained in the Memorandum of

Understanding (MOU) dated 6 July 2011.

2 The case of the Petitioner Company is as follows:

(i) A Memorandum of Understanding dated 6 July 2011 came to be

executed between the Petitioner Company and the Respondent

wherein the Respondent agreed to purchase two Villas to be

constructed by the Petitioner Company for a total consideration of

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Rs.1.5 Crores payable in three installments. The Respondent did not

make payment in accordance with the schedule fixed in the Agreement

and paid only an amount of Rs.1 Crore. The Respondent invited one of

the Directors of the Petitioner Company, Shri Girimon P.T. to his

residence on 18 December 2013 on the pretext of amicably settling the

matter. When the said Director visited the residence of the

Respondent, he was thoroughly beaten up by the Respondent and his

goons who insisted that the Director should draw up cheques in favour

of the Respondent for a sum of Rs.1,65,81,000/- towards the

cancellation of the said Agreement. The said Director was also made to

sign a document written in Marathi alongwith few other blank pages.

The Respondent compelled the said Director to write cheques and

since the said Director did not carry the cheques of the Petitioner

Company, he was made by the Respondent and his goons to sign

cheques from his own personal account and the said cheques were

later used to file a summary suit. The Respondent thereafter filed a

Special Summary Suit in the Court of Civil Judge, Senior Division,

Pune against the Petitioner Company as also its Directors alleging the

Petitioner Company had unconditionally undertaken to pay an amount

of Rs.1,65,81,000/- to the Respondent and in furtherance of the said

writing they had issued 8 cheques worth Rs.1,65,81,000/- and said

cheques were dishonored. The said summary suit was based on the

Agreement referred to as MOU as also the cheques. The Respondent

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ignored the arbitration clause contained in the MOU dated 6 July 2011

and filed summary suit under the provision of Order XXXVII of the

Code of Civil Procedure, 1908. The trial Court allowed the Application

for leave to defend filed by the Petitioner Company, subject to

furnishing bank guarantee for the amount claimed in the suit by an

order dated 26 October 2015. After passing of the order dated 26

October 2015 of the trial Court the Petitioner Company filed an

Application under section 8 of the Arbitration Act. The said Application

was dismissed by the trial Court on 18 December 2015.

(ii) Against the order dated 26 October 2015 of the trial Court

granting conditional leave to defend and before the Application under

section 8 of the Arbitration Act was dismissed by the trial Court by its

order dated 18 December 2015 the Petitioner Company preferred Writ

Petition being Writ Petition (Stamp) No.24983 of 2015 and by an order

dated 7 October 2015 this Court modified the condition for grant of

leave to defend and reduced the amount of bank guarantee to Rs.1

Crore and as also allowed the Petitioner Company to file its Written

Statement within 15 days.

(iii) The Petitioner Company filed Writ Petition before this Court

impugning the order dated 18 December 2015 dismissing the

Application of the Petitioner Company under section 8 of the Arbitration

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Act. The said Writ Petition came to be dismissed by judgment and

order dated 22 January 2016 (Coram: R.G. Ketkar, J.). The said

judgment and order was challenged before the Apex Court by way of

Special Leave Petition No.4465 of 2016 which came to be dismissed.

Review was also filed against the said order, which was stated to be

pending as on the date of filing of the Petition i.e. 10 March 2016.

Notwithstanding the above, the Petitioner Company has a right to get

its claims adjudicated in terms of the arbitration clause in the

Agreement. The Petitioner Company served the Respondent with a

notice dated 29 January 2016 invoking arbitration clause contained in

MOU dated 6 July 2011 to adjudicate the disputes and differences

amongst the parties and suggested the name of a retired Judge of the

Supreme Court be the sole Arbitrator and called upon the Respondent

to accord his consent. By Reply dated 17 February 2016 through his

Advocate the Respondent declined to the suggestion of the Petitioner

Company for appointment of an Arbitrator. Hence, the present Petition

under section 11 of the Arbitration Act for appointment of an Arbitrator.

3 An Affidavit-in-Reply has been filed on behalf of the Respondent

opposing the Petition. The case of the Respondent in the Affidavit-in-

Reply is as follows:

The Petition is barred by principles of res-judicata, estoppel and

waiver and the Petition is an abuse of process of law and the same

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ought to be dismissed on this ground only. The Petitioner Company

does not have any right to file the present Petition as the Application of

the Petitioner Company under section 8 of the Arbitration Act, is

already rejected. Thereafter the suit was heard by the Civil Court and

the same was decided finally on merits. Mr. Girimon Pattupara

Thankappan had approached the Respondent for the sale of the Villas

and relying upon the assurance of Mr. Girimon Pattupara Thankappan,

the Respondent had agreed to purchase the Villa Nos.1 and 2 for a

total consideration of Rs.1.50 Crores and accordingly the parties

entered into MOU dated 6 July 2011. From time to time the

Respondent had paid an amount of Rs.1 Crores to the Petitioner

Company towards part payment. However, the front elevation of the

said Villas were not constructed as per the plan and there was delay on

the part of the Petitioner Company in construction of the Villas and it

was mutually agreed between the parties to terminate the MOU date 6

July 2011 and accordingly the MOU was mutually terminated. The

Petitioner Company agreed to refund the money paid by the

Respondent alongwith compensation. The Petitioner Company

executed an undertaking on 18 December 2013 and agreed to refund

an amount of Rs.1,65,81,000/- and issued cheques for the said

amount. However, the cheques were dishonoured and the Respondent

has also initiated criminal action. As the Petitioner Company failed and

neglected to pay the amount, the Respondent has filed Summary Suit

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No.25 of 2015 against the Petitioner Company wherein the Petitioner

Company had filed an Application for leave to defend. By order dated

26 August 2015 the Civil Judge, Senior Division, granted conditional

leave on the condition of furnishing guarantee for the said amount of

Rs.1,51,26,000/-. This order came to be modified by this Court by an

order dated 7 October 2015 and the Petitioner Company was directed

to furnish bank guarantee of Rs.1 Crore within a period of four weeks

to defend the summary suit filed by the Respondent. Though two

extensions were granted, the Petitioner Company failed to furnish bank

guarantee and the request of further extension was rejected by this

Court. The Petitioner Company has not complied with the order of this

Court though the Petitioner Company has submitted to the jurisdiction

of this Court by submitting its first statement on the substance of the

dispute before making an Application under section 8 of the Arbitration

Act. The said Application under section 8 of the Arbitration Act was

rejected by the Civil Judge, Senior Division. The said order was

confirmed by this Court. The Petitioner Company thereafter sought time

from this Court to challenge the order before the Supreme Court and in

the meantime the Petitioner Company wrongly issued notice for

reference of the dispute to arbitration by seeking to appoint an

Arbitrator. The issue of reference of the dispute to arbitration between

the parties is already decided on the request of the Petitioner Company

and has been rejected. The Petitioner Company therefore does not

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have any authority to once again agitate the same. The Petitioner

Company had failed to perform its part of the Agreement and as the

Agreement was mutually terminated and cheques were issued towards

repayment. Consequently, the Respondent has filed the suit against the

Petitioner Company and the said suit is now decreed in favour of the

Respondent. Therefore, now the Petitioner Company does not have

any right to raise claim of specific performance and recovery of amount

and damages as the issue is already decided and attained finality in

the suit.

4 I have heard the learned Counsel for the Petitioner Company

and the learned Counsel for the Respondent.

5 Learned Counsel for the Petitioner Company has placed reliance

on the following judgments - (i) A. Ayyasamy vs. A. Paramasivam &

Ors, in Civil Appeal Nos.8245-8246 of 2016, decided on 4 October

2016 by the Supreme Court; (ii) Everest Holding Limited vs. Shyam

Kumar Shrivastava & Ors., (2008) 16 SCC 774; (iii) Reva Electric Car

Company Private Limited vs. Green Mobil, (2012) 2 SCC 93;

(iv) Enercon (India) Limited & Ors. vs. Enercon GMBH & Anr. (2014) 5

SCC 1; (v) Ashapura Mine-Chem Limited vs. Gujarat Mineral

Development Corporation, (2015) 8 SCC 193; (vi) Branch Manager,

Magma Leasing and Finance Limited & Anr. vs. Potluri Madhavilata &

Anr., (2009) 10 SCC 103. Learned Counsel for the Respondent on the

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other hand has relied upon the judgment in the case of Anil s/o

Jagannath Rana & Ors. vs. Rajendra s/o Radhakishan Rana & Ors.

(2015) 2 SCC 583. I have given due consideration to the submissions

made by the learned Counsel for the Petitioner Company and the

learned Counsel for the Respondent. I have also perused the material

on record as well as the judgments cited by the learned Counsel.

6 The Petitioner Company is seeking appointment of Arbitrator

in terms of clause 8 of the MOU dated 6 July 2011. Clause 8 reads

as under:

"8. All disputes and differences of whatsoever nature that shall arise during the pendency to or their respective representative or between any of them touching these presents of construction or application thereof be made hereinafter or relating to the said Agreement or affairs the roof of rights, duties or obligations or liabilities of any person under these presents shall be referred to the common single arbitrator by mutual understanding by both parties, in accordance with the provisions of the Indian Arbitration & Conciliation Act 1996 or as amended upto the date thereof for the time being in force and his decision will be final and binding upon the parties to arbitration."

7 It is noted that the Petitioner Company and its Directors had

admittedly filed an Application under section 8 of the Arbitration

and Conciliation Act seeking reference to arbitration before the trial

Court in the Summary Suit filed by the Respondent under the

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provisions of Order XXXVII of Code of Civil Procedure, 1908. The

trial Court had dismissed the said Application by its order dated 18

December 2015. The Petitioner Company had challenged the

aforesaid order by filing Writ Petition before this Court. By judgment

and order dated 22 January 2006 the learned Single Judge of this

Court (R.G. Ketkar, J.) dismissed the Writ Petition. The learned

Single Judge held in para 28 as follows:

"28. In the facts and circumstances of the present case and also from the conduct of defendants no.1 to 5 I am more than satisfied that defendants no.1 to 5 have submitted to the jurisdiction of the civil Court and have waived their right to seek reference to arbitration."

(emphasis supplied)

8 In para 31, the learned Single Judge observed:

"31. Butala submitted that the present proceedings are abuse of process of court and abuse of process of law. I find merit in the submission. It has come on record that the plaintiff had paid Rs.1 Crore for purchasing Twin Villas and the said fact is specifically asserted in paragraphs 12 to 14 of the plaint. Defendants no.1 to 5 admit receipt of one crore. They dispute receipt of balance amount. The plaintiff has instituted Summary Suit on the basis of eight dishonoured cheques. Defendants no.1 to 5 have participated in the proceedings by applying for condonation of delay in causing appearance in the suit by filing application on 17.3.2015 at Exh.15 and application dated 19.6.2015 at Exh.22 for leave to defend.

Again they have applied under section 8 on 11.9.2015 at

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Exh.41 for referring the matter to the arbitration. It is only when defendants no.1 to 5 could not comply conditional order passed by this Court for leave to defend, they have pressed application Exh.41. Learned trial Judge has rightly rejected the application on 18.12.2015. In my opinion, the present proceedings are nothing but abuse of process of court as also abuse of process of law. Petition being devoid of any substance, is liable to be rejected and is dismissed subject to imposing exemplary costs of Rs. 50,000/-. Costs shall be paid to the plaintiff within four weeks from today. Copy of this order may be forwarded to Collector, Pune for recovering of this amount as land revenue from defendants no.1 to 5, in case they do not pay to plaintiff or deposit in the trial Court within four weeks from today. In case defendants no.1 to 5 obtain suitable order from higher Court, they shall forthwith communicate the said order to the Collector, Pune. Order accordingly.

(emphasis supplied)

9 The aforesaid order of the learned Single Judge was carried to

the Apex Court. By an order dated 22 February 2016 the Apex

Court dismissed the Special Leave Petition. Thus, the finding of the

learned Single Judge that the Petitioner Company and its Directors

(Defendant Nos.1 to 5 in the suit) "had submitted to the jurisdiction

of the Civil Court and have waived their right to seek reference to

arbitration" had attained finality. The learned Single Judge also

imposed costs of Rs.50,000/- on the Petitioner Company and its

Directors.

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10      The contention of the learned Counsel for the Petitioner

Company that the Summary Suit was based on cheques and not

MOU and therefore the Petitioner Company would be within its

rights to seek reference to arbitration cannot be accepted. This

contention is contrary to the averments in the Petition itself. In

paragraphs 9 and 15 of the Petition it has been averred as follows:

"9) The Petitioner submits that the respondent thereafter filed a Special Summary Suit in the court of Civil Judge, Senior Division, Pune against the Petitioner Company as also its directors alleging that Petitioner had unconditionally undertaken to pay an amount of Rs.1,65,81,000/- (Rupees One Crore Sixty Five Lac and Eighty One Thousand only) to Respondent and in furtherance of the said writing, they had issued 8 cheques worth Rs.1,65,81,000/- and that since the said cheques have not been honoured, the said summary suit was filed. The Petitioner submits that the said summary suit was based upon the Agreement referred to above as also the said alleged cheques drawn up by the director of the Petitioner company from his personal account.

...

15) The Petitioner submits that it has a right to seek specific performance against the respondent as also damages for the loss suffered by the Petitioner due to the acts of omission and commission committed by the respondent and the said estimated loss runs into approximately Rs.2 crores. The Petitioner submits that admittedly there does not exist a document by which the said MOU was terminated and/or rescinded and/or

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cancelled. The respondent himself has agitated and based his suit upon the Agreement dated 06/07/2011. Petitioner states that notwithstanding the arbitration clause yet survives and the Petitioner has a right to get his claims against the respondent adjudicated and the proceedings referred above by the Petitioner in the summary suit filed by the respondent, in no manner does take away the right of the Petitioner to have his claim adjudicate through arbitration in terms of clause contained in the Agreement amongst the parties." (emphasis supplied)

The Petitioner Company, in my view, cannot approbate and

reprobate as and when it suits it.

11 The issue whether an Application under section 11 of the

Arbitration Act for appointment of Arbitrator would be maintainable

after either of the parties had invoked section 8 of the Arbitration

Act by filing an Application for reference to arbitration and is

rejected, is no more res integra. In Anil s/o Jagannath Rana &

Ors. vs. Rajedndra s/o Radhakishan Rana & Ors. (supra),

the Supreme Court in paragraph 1 set out the issues which arose

before it in the following terms:

" .. Once a judicial authority takes a decision under Section 8(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") declining to refer the dispute pending before it to arbitration and the said decision having become final, whether either party to the proceedings can thereafter invoke the jurisdiction of the Chief Justice under Section 11(6) of

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the Act, is the question arising for consideration in this case. The scope of Section 8(3) of the Act is also an ancillary issue."

In paragraphs 9, 12 and 15 the Supreme Court held as follows:

"9. The facts as narrated by us hereinbefore would show that the application filed by the respondents herein under Section 11 of the Act is nothing but an abuse of process. The partnership firm itself is the first plaintiff in the suit. The dispute between the parties is the subject of the suit. Precisely for that reason, the appellants sought the matter to be referred to the arbitrator. That was opposed by the respondents. When the suit is at the final stage, the respondents have sought appointment of an arbitrator under Section 11(6) of the Act. Having approached the civil court and having opposed the reference to arbitration under Section 8(1) of the Act and the decision of the court in that regard having become final, the respondents cannot invoke jurisdiction under Section 11(6) of the Act; it is hit by the principle of issue estoppel.

12. In the suit instituted by the firm and some of the respondents, the order passed by the civil court that it was well within its jurisdiction to try the suit, despite the objection regarding the existence of a clause for arbitration, has become final. Thereafter, Section 11(6) jurisdiction of the Chief Justice cannot be invoked by either party. The principle of res judicata will also be attracted in such a case.

15. The principles as discussed above on res judicata have been consistently followed by this Court.

And the recent judgments in that regard are in

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Subramanian Swamy v. State of T.N., (2014) 5 SCC 75 : (2014) 3 SCC (Civ) 134 and in Surjit Singh v. Gurwant Kaur, (2015) 1 SCC 665. Thus, once the judicial authority takes a decision not to refer the parties to arbitration, and the said decision having become final, thereafter Section 11(6) route before the Chief Justice is not available to either party."

In my view, the Petitioner Company, in the facts and circumstances

of the case, is now estopped from seeking reference of the disputes

to arbitration by appointing an Arbitrator under section 11 of the

Arbitration Act.

12 It is pertinent to note that the Summary Suit filed by the

Respondent has now been decreed on 30 April 2016, after leave to

defend was refused earlier by the trial Court and confirmed by this

Court. In these circumstances, if the matter is now referred to the

Arbitration by appointing an Arbitrator, there would be a likelihood

of two inconsistent orders being passed. In the facts and

circumstances of the case, the contention on behalf of the

Petitioner Company that in view of section 11 (6-A) which provides