M/S. Supreme Industries Ltd. vs M/S. Intermolde India And Ors.
2001 Latest Caselaw 878 Del

ORDER

Sharda Aggarwal, J.

1. The present application has been filed for appointment of an arbitrator under Section 11(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) for adjudicating the disputes having arisen between the parties out of an agreement/contract dated 14th January, 1992 for the sale of plastic molded furniture in the states of Haryana, Punjab, Jammu and Kashmir, Rajasthan, Uttar Pradesh, Himachal Pradesh and Union Territories of Delhi and Chandigarh. The respondent M/s Intermolde India was appointed as the main dealer of the applicant company. The respondent was at liberty to appoint sub-dealers in the region allotted to it for the sale of furniture and at the request of the respondent the applicant was to dispatch the plastic moulded furniture directly to the sub-dealers/sister firms of the respondent for convenience. The respondent was entitled to trade discount as per the terms of the agreement. The applicant was maintaining running account of the respondent. In December, 1995, it was found that a sum of Rs. 41,40,277/- was outstanding in the respondent's account including the outstanding of their sub-dealers/sisters firms, namely, M/s Ankit Travels, M/s perfect Marketing, M/s Poly-Furn and M/s Veecon Trading. The applicant requested the respondent to clear the outstanding dues. Correspondence was exchanged between the parties and an effort was made to settle the accounts as the respondent had failed to clear the outstandings. The applicant cancelled the dealership agreement vide its letter dated 16th April, 1996. It served the respondent with a legal notice to which the respondent replied on 2nd April, 1997 alleging that the applicant had committed the breach of the contract. It set up a counter claim, but in the alternative called upon the applicant to give its consent for appointment of an arbitrator in terms of the arbitration Clause incorporated in the agreement.

2. The applicant was ready and wiling for reference of disputes for arbitration but no account of absence of procedure for appointment of an arbitrator in the agreement and the fact that the parties failed to agree on the name of an arbitrator the present application was filed. The dealership agreement contained the following arbitration Clause.:-

"Any dispute or differences arising at the time under this agreement between purchaser and the seller shall be referred to arbitration in accordance with and subject to the provisions of Indian Arbitration Act, 1940 or any statutory modification or re-enactment thereof in force. Such arbitration shall be held in Bombay and not elsewhere. Courts in Bombay will have jurisdiction in the event of any legal/Judicial proceedings."

3. This Court at present need not dilate on the detailed facts of the case as the short prayer in the application is for the appointment of an arbitrator and referring to him all the disputes having arisen between the parties for adjudication. The respondent contests the application inter-alia on the grounds, that the Courts at Delhi have no jurisdiction to entertain the present application, the applicant has not complied with the provisions of Section 11(2) and 11(5) of the Act, and the respondent has nothing to do with the four sub-dealers/sister firms.

4. On the point of jurisdiction, the learned counsel for the applicant submits that Delhi Courts have jurisdiction to entertain the present application. Clause 25 of the agreement apparently ousts the jurisdiction of Delhi Courts by stating that arbitration shall be held in Bombay and the Bombay Courts will have jurisdiction in the event of legal/judicial proceedings. It is pointed out that no cause of action arose at Bombay. The respondent resides and carrying on its business at Delhi. The contention is that it is only the applicant who has its registered office at Bombay and its regional office at New Delhi. It is urged that the transactions between the parties make it apparent that the contract for supply of goods was concluded at Delhi, the goods contracted for sale were supplied at Delhi and part payment by the respondent was made at Delhi. No transaction took place at Bombay. Since no cause of action arose in Bombay, the Bombay Courts have no jurisdiction to try the present disputes between the parties. The contention is that according to the established legal position the Courts which do not have jurisdiction, cannot be conferred with jurisdiction by the consent of the parties. In this respect reference has been made to M/s. Patel Roadways Limited, Bombay V/s. Prasad Trading Company, , wherein the Supreme Court held that if the Clause in the agreement gives jurisdiction to a specific Court though no cause of action arose within its jurisdiction then that Court will not have jurisdiction to try the dispute and the Court where the clause of action arose will have the jurisdiction. In that case by virtue of a Clause in the contract between the parties the Courts at Bombay alone had been conferred with the jurisdiction to try the dispute and the jurisdiction of all other Courts including Madras Courts was barred. On facts it was held that no cause of action had arisen at Bombay where the defendant had his principal office as the goods were entrusted at its subordinate office in Tamil Nadu, to be delivered at New Delhi. It was held that the Courts at Bombay in the said case had no jurisdiction and consequently the agreement between the parties conferring exclusive jurisdiction of Bombay Courts was of no avail.

5. In the case in hand the agreement dated 14th January, 1992 was entered into between the parties at Delhi, the order for supply of goods was placed by the respondent on the applicant at Delhi, the goods were supplied at Delhi and the payment was to be made at Delhi and in-facts part payment was made by the respondent at Delhi. It is apparent from these facts that no cause of action arose at Bombay and as such the Bombay Courts could not be conferred with jurisdiction by mutual agreement to try the present dispute. The Courts at Delhi have jurisdiction to try the present application.

6. As regards the contention that the provisions under Section 11(2) and 11(5) have not been complied with the submission of the learned counsel for the applicant is that the respondent itself in its reply dated 2nd April, 1997 and 4th April, 1998 admitted that disputes and differences had arisen between the parties and the same were referable to arbitration and the applicant was called upon to give its consent under Section 8 of the Act for the adjudication of the disputes and differences, at Delhi. The respondent had thus itself requested the applicant to give its consent for reference of the disputes to an arbitrator in view of Clause 25 of the agreement. The submission is that the parties failed to agree on the name of the arbitrator and in the absence of appointing procedure agreed between the parties, the applicant was compelled to file the present application for appointment or an arbitrator. These facts show, that though respondent himself was desirous of having the disputes referred to an arbitrator but the same could not be referred, as the parties failed to agree on the the name of the arbitrator. In view of these facts it is difficult to endorse the arguments of the learned counsel for the respondent. The application is maintainable under Section 11(5) of the Act.

7. The plea of the respondent is that it has no liability of payment on account of applicant's sale transactions with the four sub-dealers named above. The submission the learned counsel for the applicant is that it is one of the contentious issues raised between the parties, decision of which is based, on the interpretation of the agreement and the transactions between the parties in pursuance thereto. The submission is that all the contentious issues and the agreement between the parties are to be interpreted by the arbitrator under Section 16 of the Act. It is submitted that in view of the settled legal position the various contentious issues raised by a party opposing the appointment of an arbitrator are not to be decided by the Court, but by the arbitrator under Section 16 of the Act and the court should not waste any time in making the appointment of an Arbitrator so that the arbitral process is set in motion without wasting any time. For this proposition of law reliance is place on , Konkan Railway Corpn. Ltd. & Ors. Vs. M/s Mehul Construction Co. wherein the nature of the order passed under Section 11 of the Act has been explained and it is also observed therein that in case of a dispute between the parties as to the existence and validity of the arbitration agreement, it should be examined by the arbitral tribunal itself. In this respect the Supreme Court held as under:-

"Section 16 of empowers the arbitral Tribunal to rule on its own as well as on objections with respect to the existence or validity of the arbitration agreement. 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 legislative 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 proceedings, it would be open to raise any objection, as provided under the Act."

8. Learned counsel also placed reliance on Nimet Resources Inc. and Another Vs. Essar Steels Ltd. , wherein the existence of the arbitration agreement itself was under question. In the said case examination of the correspondence between the parties prima facie revealed that it could not be said that it was a case of no transaction between the parties with regard to the sale and supply of good in question. However, the moot point to be decided was to whether the transaction between the parties fructified into a contract with an arbitration Clause. The Supreme Court did not go into the details of the correspondence exchanged between the parties, as this exercise was to be undertaken by the arbitrator in order to decide the question of the existence or otherwise of the arbitration agreement.

9. In the case in hand, a careful consideration of the pleadings and rival contentions of the parties show that the existence of the contract containing an arbitration Clause is not disputed. The fact that disputes and differences have arisen between the parties is also not disputed. Some of the contentious issues raised by the respondent are that they are not liable for the outstanding dues of the sub-dealers, that it is the applicant who has committed the breach of contract, and that the applicant is liable to pay damages and make good the loss suffered by the respondent and that the claim of the applicant is not correct. In view of the Supreme Court decision in Konkan Railway's case (supra), all these contentious issues are to be decided by the Arbitration under Section 16 of the Act.

10. In view of the facts and circumstances of the case set out above it is for the Chief Justice or the person designated by him to make appointment having due regard for considerations set out in Sub-section (8) of the Section 11 of the Act and to secure the appointment of an independent and impartial arbitrator. The application is, accordingly allowed with costs.

11. I appoint Justice C.L. Chaudhary a retired Judge of Delhi High Court as the Sole Arbitrator to decide all the disputes and differences having arisen between the parties. He will issue notice to the parties on entering upon the reference and shall fix his own remuneration.