Calcutta High Court
Basant Kumar Khemka And Anr vs City Shoppe Estates Limited on 12 August, 2024
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
The Hon'ble Justice Sabyasachi Bhattacharyya
A.P. No. 69 of 2024
Basant Kumar Khemka and Anr.
Vs
City Shoppe Estates Limited
With
A.P. No. 68 of 2024
Nisha Khemka
Vs.
City Shoppe Estates Limited
For the Petitioner : Mr. Pranit Bag, Adv.
Mr. Rahul Poddar, Adv.
For the respondent : Mr. Rajarshi Dutta, Adv.
Mr. Deepak Kr. Jain, Adv.
Mr. Abvishek Dutta, Adv.
Hearing concluded on : 07.08.2024
Judgment on : 12.08.2024
Sabyasachi Bhattacharyya, J:-
1. The present applications under Section 11 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act") has
been filed by two owners of flats in a Housing Complex called
"Diamond Towers‟‟.
2. One M/s Jhansi Fuels & Chemicals Limited, the developer of the
building complex, entered into an agreement for sale with one M/s
Trot Shoe Company (P) Limited and pursuant thereto, executed a
sale-deed in favour of the said M/s Tort Shoe on July 3, 1991 in
respect of the subject property. On November 9, 1994, M/s Trot Shoe
Company Private Limited sold the said premises to one Amlan Singha.
3. Amlan Singha, in turn, sold the subject property to the present
petitioners on September 1, 2020 by a registered sale deed.
4. Meanwhile, M/s Jhansi Fuels and Chemical Limited was renamed as
City Shoppe Estates Limited, the present respondent.
5. The petitioners issued a notice under Section 21 of the 1996 Act to the
respondent on October 18, 2023, invoking the arbitration clause
contained in an agreement dated May 2, 1995 entered into between
M/s Jhansi Fuels & Chemicals Limited and seven owners of Diamond
Towers who, as per the said agreement, represented all the flat
owners. The dispute raised therein pertains to alleged disconnection of
electricity to the subject property by the respondent and failure of the
respondent to honour its liability to provide amenities and facilities,
primarily electricity, to the petitioners-flat owners.
6. There being no consensus between the parties regarding the
appointment of Arbitrator, the present application has been filed by
the petitioners.
7. Learned counsel for the respondent objects to the application under
Section 11 on several grounds. First, it is pointed out that the
petitioners were not parties to the agreement dated May 2, 1995. Also,
the purchase-deed of the petitioners does not contain any arbitration
clause. Moreover, the purchase-deed of the petitioners does not
incorporate specifically the arbitration clause contained in the
agreement dated May 2, 1995. Thus, it is argued that the petitioners
do not come within the purview of "party" as contemplated in Section
2 (1)(h) of the 1996 Act, which defines the term to mean a party to an
arbitration agreement.
8. Further, learned counsel appearing for the respondent argues that the
petitioners are hit by Section 7(5) of the 1996 Act. While Section 7
defines „arbitration agreement‟, sub-section (5) thereof provides that
the reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in
writing and the reference is such as to make that arbitration clause
part of the contract. Such element is entirely absent in the present
case.
9. The respondents further argues that the dispute now raised by the
petitioners relates to alleged disconnection of the electricity supply of
the petitioners by the respondent, which falls outside the purview of
the 1995 agreement in any case. The 1995 agreement was entered
between the original developer and seven flat owners of Diamond
Towers and was in the nature of a resolution of the then existing
disputes between them.
10. By placing reliance on several clauses of the said agreement, learned
counsel for the respondent argues that the liability of the developer
was restricted to provide a generator, which has already been done
long back.
11. In terms of the agreement, it is submitted, the developer was to hand
over the maintenance of the residential complex to the association
formed by the flat owners on signing the agreement, which is provided
in Clause 2(h) of the same. The reference to electric meters in Clause
2(l) in the agreement merely provided for the developer extending
official, but not financial, assistance for separation of electric meters
of the residential from the commercial/market complex. Mere
provision in the agreement that future bills would be raised in the
name of the association as well as the developer did not cast any
liability on the developer to carry on giving electricity supply to the flat
owners.
12. It is argued that the agreement of 1995 contemplated the developer
paying a lump-sum amount towards future maintenance of the entire
residential complex in discharge of its liability in favour of the
association. The agreement merely settled the dispute between the
parties than existing. The liabilities of the developer were closed with
the said agreement.
13. The present dispute sought to be raised in the notice under Section 21
of the 1996 Act is distinct and different from those dealt with in the
1995 document, arising much subsequent to the said agreement of
1995 having exhausted its force.
14. It is argued that the Supreme Court, in a string of judgments, has
repeatedly observed that unless there is a specific reference to an
arbitration clause in a different document in the agreement of the
party, it cannot be said that the party concerned is entitled to invoke
such arbitration clause.
15. Learned counsel for the respondent further argues that although it
was prima facie observed by the Court in a proceeding under Section 9
of the 1996 Act between the parties that the petitioner was a party to
the arbitration agreement and was entitled to invoke arbitration
clause, such finding was at a preliminary stage and merely prima
facie, which cannot bind the parties at subsequent stages of litigation.
16. Learned counsel for the petitioners, on the other hand, argues that the
present case is different from one where there has to be a reference to
an arbitration clause in a different document in the deed/agreement
between the parties. The present question, it is submitted, is whether
the petitioners are entitled to invoke the arbitration clause of the 1995
agreement directly. It is reiterated that the petitioners do not seek to
claim through the purchase deed of the petitioners from their vendor
but directly rely on the arbitration clause in the 1995 agreement. The
said agreement clearly includes the successors of the then flat owners
as parties to the agreement, thus encompassing all subsequent
successors-in-interest of the original owners. As such, the petitioners
are entitled to invoke arbitration clause contained in the 1995
agreement.
17. Learned counsel for the petitioner places reliance on the judgment of
SBI General Insurance Co. Ltd. v. Krish Spinning reported at (2024)
SCC OnLine SC 1754 where the Supreme Court propounded the
principle of negative competence-competence. Such aspect is aimed at
restricting the interference of Courts at the referral stage by
preventing courts from examining the issues pertaining to the
jurisdiction of the Arbitral Tribunal as the tribunal itself has the
opportunity to entertain them. The Courts, it was held, are allowed to
review the decision of the Arbitral Tribunal at a later stage.
18. It is argued that in terms of the said judgment, the limited jurisdiction
of the Section 11 Court is only to enquire as to whether the
application under Section 11 has been filed within the period of the
limitation of three years or not and at best to see whether an
arbitration agreement/clause exists or not. At this stage, the courts
must not conduct an intricate evidentiary enquiry into the question
whether the claims raised by the applicant are time-barred or on the
jurisdiction of the Arbitral Tribunal.
19. Learned counsel for the petitioners also places reliance on an
unreported Division Bench judgment of the Karnataka High Court in
the matter of M/s Devtree Cot. LLP. V. M/s Bhumika North Gardenia
where the Karnataka High Court, in a similar case, had held that
"party" under Section 2(1)(h), read with Section 7, of the 1996 Act
includes both signatories as well as non-signatory parties. Parties
claiming through or under a party to the agreement can also apply to
refer the matter to arbitration, it was observed. The Karnataka High
Court also took into consideration the judgment in Cox & Kings Ltd. v.
SAP India pvt. Ltd and another reported at (2024) 4 SCC 1 and Chloro
Controls India (P) Ltd. v. Severn Trent Water Purification Inc reported at
(2013) 1 SCC 641 and distinguished between the case before it and the
proposition of law governing the "Group of Companies" doctrine.
20. It is next argued that the on a comprehensive reading of the 1995
agreement, it is evident that the developer also had the responsibility
to continue to provide facilities and amenities to the flat owners,
including electricity connection. The rights of the flat owners emanate
from the said original agreement of 1995. Since the petitioners have
stepped into the shoes of the original flat owners via purchase, the
petitioners can very well refer the dispute to arbitration by invoking
the arbitration clause in the 1995 agreement itself.
21. Learned counsel for the petitioner also relies on a letter executed by
M/s Trot Shoe Company in favour of Amlan Singha, the vendor of the
petitioners, and a similar letter by the said vendor to the petitioners,
whereby the deposits for electricity charges were transferred in the
name of the respective purchasers. The said documents, it is argued,
go on to show that the petitioners have stepped into the shoes of the
original flat owners and the respondent/developer has a continuing
liability to provide electricity supply to the petitioners. Thus, the
invocation of the arbitration clause of the 1995 agreement, it is
submitted, is justified.
22. It is further pointed out that the Learned Additional District and
Sessions Judge, Fifth Court at Alipore, in Misc. Case (Arbitration) No.
47 of 2023, vide order no.25 dated March 2, 2024, decided an
application challenging the maintainability of the petitioners‟
application under Section 9 of the 1996 Act. The said challenge was
turned down and it was held categorically that the petition under
Section 9 was very much maintainable, taking into consideration the
letter dated September 1, 2000 issued by the petitioners‟ vendor
whereby deposits relating to electricity connection were transferred,
including maintenance deposit and other deposit, in respect of the
suit flat, in favour of the petitioners. Thus, it is argued that the issue
has attained finality and cannot be reopened by the respondents.
23. Upon hearing learned counsel of the parties, it is clear that two issues
are germane and are required to be decided for the present
adjudication. Those are as follows:
i) Whether the petitioners come within the purview of "party" as
contemplated in the Arbitration and Conciliation Act, 1996;
ii) Whether the disputes raised by the petitioners come within the
ambit of the arbitration clause in the agreement dated May 2,
1995.
24. The said issues are answered as follows:
Whether the petitioners come within the purview of "party" as
contemplated in the Arbitration and Conciliation Act, 1996
25. In order to decide this issue, the definition of "party" as provided in
Section 2(1)(h) of the 1996 Act is to be considered. The said provision
stipulates that "party" means a party to an arbitration agreement.
Under the general scheme of the 1996 Act as evidenced by its
Statement of Objects and Reasons, the thrust is on facilitating and
encouraging Alternative Dispute Mechanism, especially arbitration, for
settlement of disputes in a more user friendly, cost effective and
expeditious disposal of cases since India is committed to improve its
legal framework to obviate delays in disposal of cases. Hence, the
scheme of the Act is attuned to encourage arbitration and not to throw
the spanner in the wheels of arbitration.
26. Seen from such perspective, the endeavour of the courts would be to
lend a wide interpretation to the provisions of the 1996 Act in favour
of arbitration, rather than a restrictive view to prevent arbitration.
Given a wide connotation to the expression "party", the term should
include not only parties to the agreement but any person claiming
through or under the original parties to the agreement. This is for the
simple reason that an agreement confers certain rights on the parties
thereto, and if such rights are transferred to third parties, the latter
also derive the same rights by stepping into the shoes of the original
signatories.
27. The scenario dealt with in Cox and Kings Limited (supra) and Chloro
Controls India Private Limited (supra) is distinct and different from the
present case. In the said judgments, the provisions of Section 8 of the
1996 Act, was primarily being considered. Moreover, the documents-
in-question in the said matters comprised of distinct and different
agreements. The question which arose was whether a non-signatory
to an agreement can taken advantage of the arbitration clause to such
agreement. There, the agreements-in-question did not specifically
invoke the arbitration clause from another agreement as required
under Section 7(5) of the 1996 Act. In such context, the Supreme
Court propounded the theory of "Group of Companies". By virtue of
the said doctrine, even non-signatories were brought within the
purview of an arbitration clause depending upon indicators of their
consent to be bound by the arbitration agreement. Also, in
circumstances where the disputes arise from the self-same set of
transactions or have a single document as their genesis, the
arbitration clause in the original document or the primary documents
can also be invoked in disputes arising in connection with the other
documents.
28. As opposed to the said scenario, in the present case, the question is
whether a third party claiming through an original signatory to an
arbitration agreement can also come within the purview of "party"
within the contemplation of the 1996 Act. It is nobody‟s case that the
purchase deed of the petitioners contains any arbitration clause or
refers to the arbitration clause of the 1995 agreement. Rather, the
petitioners rely on the arbitration clause in the 1995 agreement
directly, claiming to come within the ambit of the said agreement
through their vendor and grand-vendor.
29. There are two salient features in the agreement dated May 2, 1995,
which acquire crucial importance in the present context.
30. First, it was categorically mentioned in the preamble thereof that the
seven signatory flat owners were signing the agreement for themselves
and also on behalf of and representing the other owners of the total
106 flats of both buildings and five offices at the rear building of the
ground floor of Diamond Towers.
31. Secondly, it was clearly stipulated that the expression "flat owners"
who were the party of the "Other Part" (second party) to the
agreement, shall, unless excluded by or repugnant to the subject or
context, be deemed to mean and include their respective successors or
successors-in-office.
32. Thus, not only were all the then flat owners brought within the fold of
the contract, but their respective successors-in-interest were also
included under the definition of flat owners, which was the second
party to the agreement. The use of the expression "successors" is
sufficiently expansive to include all subsequent successors-in-interest
of the then flat owners, including the present petitioners.
33. With utmost humility, I fully agree with the ratio of the Division Bench
judgment of the Karnataka High Court, which observed that parties
claiming through or under the original parties to the documents also
come within the purview of "party" as contemplated in the 1996 Act.
34. Another cue for coming to such finding is found in Section 8 of the
1996 Act. If an action is brought before a judicial authority, an
application can be filed under the said provision by a party to the
arbitration agreement "or any person claiming through or under him"
for referring the matter to arbitration. Thus, even if a non-party to the
agreement who claims under or through the original signatories
makes such a prayer, the court shall refer the matter to arbitration.
35. This Court is not unaware of the fact that the Section 11 does not
specifically use such an expansive expression to hedge the term
„party‟. However, by similar logic as incorporated in Section 8, if at the
behest of a third party to the agreement claiming through a signatory
to the arbitration agreement can have the matter referred by a judicial
forum to an arbitrator, there cannot be any reason why the same
party cannot file an application under Section 11 seeking appointment
of an arbitrator.
36. Thus, the first issue is decided in favour of the petitioners, holding
that the petitioners come within the broad connotation of the
expression "party" as envisaged in the 1996 Act, being successors-in-
interest of one of the original flat owners/parties to the 1995
agreement.
Whether the dispute raised by the petitioners comes within the
ambit of the arbitration clause in the agreement dated May 2, 1995
37. The judgment of the Supreme Court in SBI General Insurance
Company Limited (supra) is on a slightly different footing than the
present case. There the Supreme Court was primarily deciding issues
pertaining to the scope and standard of judicial scrutiny under
Section 11(6) of the 1996 Act when a plea of "accord and satisfaction"
is taken by the defendant.
38. The Supreme Court held that in such context, the court appointing an
Arbitrator cannot delve into a full-fledged enquiry on whether there
was an accord and satisfaction. The "accord and satisfaction" concept,
however, is not applicable to the present case. However, the Apex
Court, in the said judgment, also dealt with all the recent decisions in
the field and streamlined the position of law to the extent that while
deciding an application under Section 11, the court cannot enter into
a threadbare factual or evidentiary analysis of the issues involved in
the arbitration, including the competence of the Arbitral Tribunal
itself.
39. The negative kompetenz-kompetenz principle which was discussed
therein is actually a mirror image of the kompetenz-kompetenz
principle. The two complement each other but are mutually exclusive
in the sense that the more the Arbitral Tribunal has the competence to
decide its own competence (jurisdiction), the less a judicial forum or a
court has the competence to decide the same.
40. Section 16 of the 1996 Act clearly empowers the Arbitral Tribunal
itself to decide all issues as to jurisdiction, throwing it wide open for
the Arbitrator to enter into all shades of such an enquiry. As pointed
out by the Supreme Court in SBI General Insurance (supra), the court
has a second look only in an appeal under Section 37 or a challenge
under Section 34 at subsequent stages to scrutinize the decision of
the Arbitral Tribunal. However, within the limited window of
consideration in a Section 11 application, the charter of the court is
merely to ascertain whether there is an arbitration clause, the
disputes are inherently arbitrable and as to whether the application
under Section 11 is time-barred. If the underlying dispute sought to
be referred is ex facie time-barred or palpably "deadwood", then the
court at best can nip such a reference at the bud, saving future
trouble for the parties. Considered in such backdrop, in the present
case, it cannot be said that the dispute sought to be raised by the
petitioners is palpably non-arbitrable.
41. A careful scrutiny of the agreement dated May 2, 1995 brings to light
several aspects of the same. Whereas in several sub-clauses, such as
(g), (i), (l), (r), (s) and (t) of Clause 2, it is contemplated that the
developer hands over the maintenance of the residential complex and
signing of the agreement to the Association and makes certain
payments for such transfer, there are other conflicting reflections as
well in the self-same document.
42. For example, in sub-clause (l) of Clause 2, the developer is required to
issue a letter to CESC Limited with a copy to the Association to the
effect that electric meters and other electrical installations previously
standing in the name of the developer should be transferred jointly in
the name of the Association and the developer along with the security
deposit and other deposits if any. Importantly, future bills would also
be made in the joint name of the Association and the developer.
43. Thus, it is seen that the developer does not wash its hand entirely off
the liabilities regarding electricity supply, among other things.
44. Again, Clause 3 of the 1995 agreement, inter alia, provides that in the
event the developer fails to complete the work or provide the facilities
and/amenities required to be provided by it within the stipulated time,
the Association would be entitled to call upon the cheques to be
handed over for encashment.
45. Additionally, Clause 6 of the agreement contemplates that the parties
would do all other and further acts, deeds and things as may be
necessary for requirement "from time to time" to give effect to the
agreement. Thus, the liability of the parties (including the developer),
as envisaged in the said agreement, was of a continuing nature.
46. Also, it is reflected in the agreement itself that it was entered into in
order to resolve the disputes and differences between the developer
and the flat owners, then existing, with regard to the Housing
Complex. Thus, the agreement gave a quietus to conflicts and
disputes on several aspects which are to be explored by assessing
evidence, to see whether electricity supply also came within the fold of
such disputes.
47. That apart, similar letters were issued by the predecessor-in-interest
of the petitioners‟ vendor and the petitioners‟ vendor to the petitioners.
In the said letters, the respective vendors have clearly enumerated
that the deposits given to the promoters/developers went on being
transferred first by M/s. Trot Shoe Company (P) Limited to Amlan
Singha and then from Amlan Singha to the petitioners.
48. The language employed in the letter dated September 1, 2000 issued
by the petitioners‟ vendor to the petitioners was that since the vendor
had sold to the petitioners the flat/unit-in-question, he was also
transferring the said deposit presently held by the vendor in his name
to and in favour of the petitioners. The said deposit included, inter
alia, maintenance deposit, transformer and HT Line deposit as well as
CESC deposit.
49. In a contemporaneous letter dated September 30, 2000, the
petitioners had written to the respondent/developer that they had
been consuming electricity from the sub meter supplied by the
developer and sought extension of electric power from the present
capacity to three phases 40 AMPs capacity.
50. Receipts were also purportedly issued by the present respondent in
favour of the petitioners for electricity charges, which are also annexed
to the present application.
51. Again, in an e-mail dated July 23, 2023, the respondent/developer
had replied to the petitioners‟ previous letter dated July 13, 2023,
thereby alleging that the petitioners had admittedly stopped
consuming electricity since March, 2020 and electricity was
surrendered, meaning thereby that at least till March, 2020 the
petitioners had been consuming electricity from the developer and
that the developer/respondent had a continuing liability in that regard
at least till 2020, much after the execution of the 1995 agreement.
52. It is arguable, to say the least, whether the genesis of the present
dispute regarding electricity supply can be traced back to the
agreement dated May 2, 1995, which was the parent document
conferring the respective rights on the developers and the flat owners
with regard to the Diamond Towers Housing Complex. Hence, since
the issue is clearly arguable, it is not for the Section 11 Court to enter
into the evidentiary appreciation of the same.
53. Section 16 of the 1996 Act embodies the kompetenz-kompetenz
principle, which has been recognized across the board and has to be
honoured, keeping in view the scheme of the 1996 Act, leaving it for
the Arbitral Tribunal to decide as to whether it has jurisdiction. Such
jurisdictional issue encompasses within its fold all the sub-issues
raised in that regard by the respondent in the present application.
54. The very fact that such detailed discussion is necessary on the effect
of the provisions of the 1995 agreement and the other documents
produced before this Court is a sufficient indicator that the issue of
arbitrability of the dispute is clearly arguable, requiring a threadbare
and elaborate evidentiary appreciation as well as adjudication on
questions of fact and law. Thus, it is beyond the limited jurisdiction
conferred by Section 11 of the 1996 Act to enter into such an
expansive enquiry at this stage. Such enquiry is best left to the
Arbitral Tribunal.
55. Hence, the second issue is also decided in favour of the petitioners,
holding that the dispute is prima facie arbitrable and that the dispute
raised by the petitioners comes within the ambit of the arbitration
clause in the agreement dated May 2, 1995.
56. All said and done, however, it is made clear that the above discussions
do not comprise of a final or conclusive adjudication on any of the
issues dealt with here but all questions are kept open for being
decided finally by the learned Arbitrator. The above findings have
been arrived at only for the limited purpose of deciding the application
under Section 11 of the 1996 Act and are tentative insofar as the final
adjudication before the Arbitrator is concerned. It will also be open to
the parties to thrash out the issue of the jurisdiction of the Arbitral
Tribunal before the Tribunal itself when the time comes.
57. Since the two applications arise out of similar and common disputes
in respect of two different units and all the documents to be looked
into for adjudication of the dispute are virtually the same, the two
matters have been taken up together and are being disposed of
together.
58. In such view of the matter, A.P. No. 69 of 2024 and A.P. No. 68 of
2024 are allowed on contest, thereby appointing Mr. Siddhartha
Banerjee (Mobile No: 9830298922), an Advocate of this Court, as the
sole Arbitrator to resolve the disputes between the parties arising in
connection with both the matters, subject to a declaration being
obtained under Section 12 of the Arbitration and Conciliation Act,
1996 from the said learned Arbitrator. The learned Arbitrator shall fix
his own remuneration in consultation with the parties and within the
framework of the 1996 Act, along with its Schedules. It will be open to
the learned Arbitrator to club the two disputes together for the
purpose of convenience.
( Sabyasachi Bhattacharyya, J. )
