M/S. K.L.G. Systel Ltd. vs Director (Vas-Iii), Department ...
2001 Latest Caselaw 469 Del

ORDER

Sharda Aggarwal, J.

1. The applicant has filed the present application under Section 11(6) of The Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act) and has prayed for the appointment of a sole Arbitrator for adjudicating the disputes having arisen between the parties, in view of the arbitration clause contained in the license agreements executed between the applicant and the respondents.

2. It is contended that in exercise of powers under Sub-Section (2) Section 4 of the Indian Telegraph Act, 1885, the Central Government delegated its powers to Telegraph Authority by GSR 806 Gazette of Indian Part-II, Section 3(I) dated 24th August, 1985 and on the request of the applicant granted license to establish, maintain and operate Mobile Radio Trunked Service in eleven areas and executed eleven separate license Agreements for each area. All the license Agreements are similar. These eleven license Agreements were executed pursuant to the Department of Telecommunication's proposal to introduce Mobile Radio Trunked Service in the contrary using 400 and 800 Mhz. Bands. The applicant was granted twelve months time to provide the service in specified areas. It is contended that the frequencies granted to the applicant were prone to inter-modulation problem, but WPC were not inclined to alter the frequencies inspite of applicant's sincere efforts. The contention is that due to non-allocation in inter-modulation free frequencies by WPC, and the Department of Telecommunications not agreeing for change of effective date, the applicant was compelled to seek cancellation of the license Agreements. The license Agreements were accordingly cancelled by the Department of Telecommunications but they forfeited the Advance license Fee. The respondents did not respond to the requests of the applicant for release of Advance license Fee and the applicant's letters to that effect remained unanswered. The applicant vide its letter dated 2nd February, 2000 addressed to the Director General Telecommunications and Director (VAS-III), Ministry of Telecommunications vide their letter dated 22nd February, 2000, in response to the applicant's letter invoking the arbitration clause, stated that there was no dispute and the request to refer the disputes to the Sole Arbitrator was declined. The applicant had raised the dispute that the forfeiture of the Advance license Fee was illegal and the same refundable to the applicant with interest at the rate of 24% per annum compound monthly.

3. Condition 16 of the license Agreement incorporates the arbitration clause, which reads as under:

Condition 16 - ARBITRATION OF DISPUTES

(a) In the event of any question, dispute or difference arising under this license, or in connection thereof, except as to the matter, the decision of which is specifically provided under this license, the same shall be referred to the sole arbitration of the Director General, Telecommunications, or in case his designation has changed, or his office is abolished, then, in such case, to the sole arbitration of the officer for the time being entrusted, whether in addition to the functions of the Director General, Telecommunications or by whatever designation such officer may be called (hereinafter referred to as the said officer), and if the Director General, Communications or the said officer is unable or unwilling to act as such, to the sole arbitration, then some other person appointed by the Director General, Telecommunications or the said officer.

(b) There will no objection to any such appointment that the Arbitrator is a Government Servant, or he has to deal with the matter to which the license relates, he has expressed views on all, or any of the matter in disputes or in differences. The award of the arbitrator shall be final and binding on the parties. It is a term of the license, that in the event of such Arbitrator, to whom the matter is originally referred to, being transferred or vacating his office, or being unable to act for any reason whatsoever, such Director General, Telecommunications or the said officer shall appoint another person to act as Arbitrator, in accordance with the terms of the license and the person so appointed shall be entitled to proceed with reference to the stage at which it was left out by his predecessor.

(c) The Arbitrator may, from time to time, with the consent of the parties, increase the time for making and publishing the award. Subject to Arbitration Act, 1940, the rules made there under and any modification thereof, for the time being in force, shall be deemed to apply to the arbitration proceedings as above.

(d) Upon any and every reference as aforesaid, the assessment of costs and incidental expenses in the proceedings for the award shall be at the discretion of the Arbitrator.

4. The respondents in their reply have not denied the existence of the arbitration clause in the license Agreements. They have also not denied that the applicant invoked the arbitration clause by virtue of their letter dated 2nd February, 2000 to which they had replied vide their dated 22nd February, 2000 alleging that there was no dispute which could be referred to an Arbitrator. The respondent's contention is that the Advance license Fee paid for a period of one year against each of the license was forfeited, as the same was not refundable. They further contended that the license fee was payable and recoverable for full one year even though surrender can happen at any time before the expiry of the year.

5. I have heard the learned counsel for the parties and have perused the record. The execution of the license Agreements and their cancellation at the request of the applicant is not disputed. The fact that the license Agreements contained an arbitration clause is also not disputed. Learned counsel for the applicant contends that since the respondents failed to refund the advance license fee, dispute had arisen in terms of the arbitration clause and the same became referable to the sole arbitration of the Director General Telecommunications and if the Director General Telecommunications is unable or unwilling to act as such, then to the sole arbitration of some other person appointed by the Director General Telecommunications. According to the respondents, there was no dispute which could be referred for arbitration. The further contention of the learned counsel for the applicant is that while exercising powers under sub-section (6) of Section 11 of the Act, the Court is required to pass an order of administrative nature and the objection on the point as to whether a dispute had arisen or not could be examined only by the Arbitrator. Reference in this regard has been made to the decision of the Supreme Court in the case of Konkon Railway Corporation Ltd. & ors. Vs. Mehul Construction Company, wherein it was held:

SCC 201 wherein it was held:

"When the matter is placed before the Chief Justice or his nominee under Section 11 of the Act it is imperative for the said Chief Justice or his nominee to bear in mind the legislative intent that the arbitral process should be set in motion without any delay whatsoever and all contentious issues are left to be raised before the Arbitral Tribunal itself. At that stage, it would not be appropriate for the Chief Justice or his nominee to entertain any contentious issue between parties and decide the same. A bare reading of Section 13 and 16 of the Act makes it crystal clear that questions with regard to the qualifications, independence and impartiality of the arbitrator, and in respect of the jurisdiction of the arbitrator could be raised before the arbitrator who would decide the ----- 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 agreement. Conferment of such power on the arbitrator under the 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 proceeding, it would be open to raise any objection, as provided under the Act.

6. Learned counsel for the appellant has further placed reliance on the decision of this Court in the Case of Bakshi Steels Ltd. Govt. of India & ors. Reported in 2001 (I) AD (Delhi) page 527 where relying on the case of Konkan Railway Corporation Ltd. (supra) directions were issued for appointment of an Arbitrator in terms of the Agreement.

7. Learned counsel for the applicant has further relied upon the decision of Supreme Court in the case of Nimet Resources Inc. & anr. Vs. Essar Steels Ltd., . In this case the existence of the arbitration agreement itself was challenged. There were some transactions between the parties with regard to sale and supply of goods. Whether the said transactions fructified into a contract with an arbitration clause was not the moot point to be decided. It was held by the Supreme Court that under the circumstances proper course for the parties would be to thrash out such question under Section 16 of the Act and not under Section 11 of the Act.

8. In the case in hand, the dispute having arisen between the parties is as to whether the respondents were entitled to forfeit the Advance license Fee or not? In fact according to the respondents, they were entitled to forfeit the Advance license Fee as per the terms of the Advance license Agreements and as such according to them there was no dispute whatsoever which could be referred to an Arbitrator.

9. The pleadings show that there is no dispute the license Agreements were executed in favor of the applicant which were latter on cancelled. There is also no dispute about the existence of an arbitration clause in the said agreements. The pleas of the respondents that they were entitled to forfeit the license fee and no dispute referable to an Arbitrator arose is not tenable at this stage. In view of the findings in the case of Konkan Railway Corporation Ltd. (supra), this issue can be decided only the arbitrator under Section 16 of the Act. A dispute arises when there is a claim by one party and denied or repudiated by the other. This clearly is the situation in the present case. While exercising jurisdiction under Section 11(6) of the Act, the Court has not to go into the question as to whether the claim of the applicant for refund of license fee was valid or not. The validity of such a claim and the existence of a dispute has to be decided by the Arbitrator.

10. In view of my above discussion, the application is allowed. The respondents are directed to appoint an Arbitrator and refer the disputes in terms of the arbitration clause incorporated in the license Agreement within one month. The parties are, however left to bear their own costs.