Vijay Anand & Associates Pvt. Ltd. vs Ashraf & Co. Pvt. Ltd. And Anr.
2001 Latest Caselaw 1402 Del

JUDGMENT

V.S. Aggarwal, J.

1. Vijay Anand & Associates has filed the suit seeking a permanent injunction to restrain the defendants 1 and 2 or their directors in any manner awarding or authorising any person or entity to execute or proceed with any work in relation to contract for interior work assigned to the plaintiff at farm house No. 21-22, Maulsari Garden, Rajokri, New Delhi and further in any manner preventing the plaintiff from preparing the inventory of all equipment and material lying therein. Decree is also prayed to restrain the defendants from taking any action to the notices of invocation of arbitration clause. The notice is dated 7th May, 2001.

2. The facts alleged are that defendants 1 and 2 jointly own a farm house and appurtenant buildings at Rajokri New Delhi. After inviting quotations and negotiations an agreement dated 7th April, 2001 was signed. The plaintiff was awarded the interior work of the farm house. Defendant no. 3 was described as the architect. The defendants alleged to have illegally and arbitrarily terminated the contract and have failed to pay plaintiff outstanding dues. They have even refused to permit joint measurement to be carried out to ascertain the work done by the plaintiff. They are not even permitting the plaintiff to take back the equipment worth lakhs of rupees. While the contract in respect of the said site was expected to be completed within a period of six months but there was lack of coordination at the defendants end. The plaintiff was not supplied the drawings in time and most of the drawings were subject to innumerable revisions. In March 2000 drawings had been issued setting out the lay out for the electrical works. Details have been given about the other disputes that have arisen between the parties and it asserted that site was inspected on 26th April, 2000 wherein Praney Jain and Anurag Sharma representing the defendants 1 and 2 and Shri S S Mahale and Ms. Sangeeta Jain representing defendant no. 3 were present. After inspection specifications of the work done in the guest cottage bedroom no. 4 were changed. Defendants have time and again made changes in the work. The plaintiff had brought to the notice of the defendants the problem being faced in completing the work. Disputes have arisen with respect to certain work that was being done and for the payments that had to be made. The plaintiff requested the defendants to release the pending payments but defendants arbitrarily under certified the bills presented. Instead of releasing the payment or resolving the outstanding issues, the plaintiff alleges that defendants terminated the agreement arbitrarily and illegally. The bills as such have not been cleared. The defendants followed the termination notice by sending another notice on 7th May, 2001 purporting to invoke the arbitration clause in the agreement of 7th April, 2001.

3. The plaintiff's case is that said Clause is untenable in law. The plaintiff replied and denied each and every allegation made in the notice. It is asserted that defendants are not entitled to invoke the said clause because the agreement mentioned that parties are entitled in accordance therewith call upon the sole arbitrator named therein viz. architect is enter into reference and proceed with the matter in accordance with law. The plaintiff denies and disputes the arbitration clause and further asserts that defendant no. 3 is not competent is law nor possess the necessary qualifications to act as the sole arbitrator. The plaintiff after receipt of the notices asserting that defendant no. 3 claims to be a firm of architect and is a sole proprietorship firm headed by S S Mahale is not registered with the Council of Architects. On these broad facts and above said reliefs have been claimed.

4. On behalf of defendants 1 and 2 an application under Section 5 and 8 of the Arbitration and Conciliation Act read with Section 16 of the said Act has been filed (IA 5484/2001). It has been asserted that the civil suit is not maintainable. On 24th May, 2001 the defendants counsel had made a voluntary statement that arbitration proceedings will not proceed till the next date of hearing. As per defendants 1 and 2 the plaintiff wants to avoid the arbitration clause in the agreement but mandate of Section 5 of the Arbitration and Conciliation Act completely bars any judicial interference when there is an arbitration clause. In face of provisions of Section 8 also it is prayed that the suit as such therefore cannot proceed because admittedly there is an arbitration clause in the agreement.

5. In the reply filed the plaintiff contests the said application alleging that the application under consideration is malicious and an abuse of the process of law. On 24th May, 2001 this court had directed the defendants to file their written statement and replies but instead the present application has been filed. The defendants have lost their right to file their written statement and their defense is liable to be struck off. It is denied that the application is maintainable or that Section 5 or 8 of the Act bars the present suit. Some of the other assertions are those that flow from the plaint, summary of which has already been reproduced above.

6. By this order above the said IA 5484/2001 is proposed to be disposed of.

7. Learned counsel for the plaintiff, at the outset, asserted that the application so filed by the defendants under Section 5 and 8 is not maintainable and in this connection refers to the statement purported to have been made on behalf of defendant 1 and 2 when the civil suit was taken up for consideration by this court on 24th May, 2001. The said order passed by this court reads:-

"Notice. Shri Moitra accepts notice on behalf of defendants 1 and 2 and seeks time for filing written statement and replies.

Sh. Singh voluntarily states that he will ensure that the arbitrator does not proceed with the arbitration proceedings till the next date of hearing.

Written statement and replies be filed by defendant 1 and 2 within three weeks. Replication may be filed within two weeks thereafter by the plaintiff.

List on 2nd August, 2001 for arguments."

8. Indeed on the said date on behalf of the defendants while accepting notice time was claimed to file the written statement and replies which had been granted. Can on basis of this fact it be stated that defendants 1 and 2 have lost their right to file the application under Section 5 read with Section 8 of the Act? For an answer to the said question reference can well be made to sub-section (1) to Section 8 of the Act which runs as under:-

"(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration."

9. Perusal of the same clearly show that sub-section (1) to Section 8 is another incarnation of section 34 of the Arbitration Act, 1940. But there are basic differences in the two provisions.It is unnecessary to go into those differences but the material fact that requires to be mentioned is that an application under Section 34 of the Arbitration Act had to be filed before fielding the written statement or taking other steps in the proceedings. In addition to that under Section 34 of the Arbitration Act it is not mandatory for the court to refer the matter to the arbitration. Herein the provisions are mandatory and furthermore an application in this regard can be filed under Section 8 of the Act not later than when submitting his first statement on the substance of the dispute. Therefore, even if some time was claimed to file the written statement or the replies, there was no bar from filing the present application. The law is well settled that there is no estoppel against the statute. If the law permits then the defendants 1 and 2 could not be estopped from taking recourse under the law. And this particular plea in this regard on behalf of the plaintiff necessarily must be repelled.

10. There is another way of looking at the matter. If it be taken even to be an admission that written statement is to be filed still in law it will not be binding on the party. The answer to what has been stated above would get support from the decision of the Supreme Court in the case of Banarsi Dass v. Kashi Ram . The Supreme Court held that admissions do not bind so far as points of law are concerned. In other words, if the law permits in that event the application under Section 5 read with Section 8 of the Act would not be a bar. There is no hesitation thus in repelling the said argument.

11. It was urged further that in any case the arbitration clause so much relied upon is indefinite, vague, and consequently there cannot be a support to the application filed under Section 5 and 8 of the Act. The arbitration clause in this regard can well be reproduced for the sake of facility and reads:-

"4.9.1. Settlement of Disputes

In case any disputes of differences shall arise between the parties either upon any question relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned or as to the quality of workmanship of materials used on the work, or on the construction, or any of the conditions or any clause or thing therein contained, or as to question claim, rights or liabilities of the parties, or any matter, or thing whatsoever in any way arising out of, or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions, or otherwise concerning the work, or the execution, or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment thereof, or as to the breach of this contract, then either party shall for with dispute or differences shall be referred to the Architects appointed for the work as sole Arbitrator under the Arbitration and Conciliation Act, 1996."

12. Special reference was made by the learned counsel for the plaintiff to the fact that disputes in any way arising out of or relating to contract of drawing, designs etc. have to be referred to the architects appointed for the work as sole arbitrator under the Arbitration and Conciliation Act, 1996. The learned counsel taking advantage of the said fact contended that the said clause must be taken to be totally vague because there cannot be body of architects who can act as the sole arbitrator. In support of his claim reliance was placed on the decision of the Punjab High Court in the case of Delhi and Finance Housing and Construction Ltd. v. Brij Mohan Shah & Anr. . In the said case there was an arbitration clause in the contract. It provided that all disputes arising out of the contract shall be referred to the sole arbitration of A or B. The court held that it is not possible to imply the words in such a clause that one or the other was to be selected. The clause, therefore, was held to be not operative and declared to be invalid.

13. It is obvious from the aforesaid that the decision referred to was confirmed to the peculiar facts. The position herein is not identical. Though at the first reading it appeared that when the word 'architects' which is in plural was used, it must be invalid because there is no definite arbitrator who has to be appointed. But in the present case the agreement by itself particularly the arbitration clause is not very articulately drawn. But despite that true meaning has to be given to the agreement. The agreement opens with the fact that the drawings and specification describing the work to be done is to be prepared by M/s S S Mehale and Associates, is architects (herein referred to as the architect). Therefore, it is obvious that S S Mahale & Associates have been described to be the architect though still the word plural 'architects' is used. This even gets further clarified from the definitions given in the contract and the word 'architects' has been described as:

"Architects means the Architect/Consultants appointed by the Company for these works."

14. Reading of the said definition makes the position clear that the expression architects means the architect appointed but the company and, therefore, even if in the arbitration clause the plural word is used in fact it means the architect of the company which happens to be M/s S S Mahale Associates. In face of the aforesaid it would be difficult to accept the plaintiff's argument or to conclude that the arbitrations clause is vague. Indeed but for the said definition the argument could well have prevailed but not in face of what has been recorded above.

15. On behalf of the defendants/applicants it was vehemently urged in any case that the plaintiff in no event can challenge the arbitration agreement to be invalid because, according to him, since they are parties to the agreement this question can only be raised before the arbitrator. However, the purposes of the present order suffice to say that when this question directly arises before the court it has to be decided if there is an arbitration agreement between the parties or not otherwise the very factum of reference would become invalid. Therefore, for the limited purpose to see if there is such a clause or not the court can indeed make an enquiry which has been done above. The decision of the Supreme Court in the case of Rensugar Power Co. Ltd. v. General Electric Co. and anr will not in that view of the matter come to the rescue of either party.

16. All the same it was urged that the arbitrator could only be an architect and Shri S S Mahale was alleged to be not even an architect. The attention of the court was drawn to the certificate so as to show that Mr. S S Mahale was not registered as an architect under the Architects Act. 1972 with the Council of Architects. But in this regard the special procedure that has been prescribed under the Arbitration and Conciliation Act, 1996 cannot be lost sight of, Section 12 of the said act unfold itself as under:-

12. Grounds for challenge - (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if-

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made."

17. It is obvious from aforesaid that under sub-section (3) to Section 12 an arbitrator may be challenged if he does not possess any qualifications agreed by the parties. Subsequently of course the party concerned may raise such an application which may form part of Section 34 of the Act in case the need arises. But the necessary procedure prescribed under Section 13 in this regard cannot be lost singh of. The parties can challenge the arbitrator whether as to if he possess the qualification agreed by the parties or not but this will not deter the court from deciding the present application when there is an arbitration agreement as such. At this stage, therefore no further opinion need to be expressed.

18. As a limb of the same argument it had been contended that Shri S S Mahale is described as a company because the expression used is that the architect are M/s S S Mahale & Associates. Some reference was made to document purported to be signed by others. In this regard the said contention has to be stated to be rejected. In the plaint it had been contended that Shri S S Mahale is the sole proprietor. If that is so then the name given to the firm is immaterial he would remain to be individual in this regard.

19. We know from the decision in the case of ITC Classic Finance Ltd. v. Grapco Mining and Co. Ltd and Anr. that the consideration for the court only is to see that matter of the suit is subject of arbitration clause. Indeed that has necessarily to be done. When there is an arbitration clause and other conditions referred to above are satisfied the mischief of sub-section (1) of Section 8 of the Act will come into play. To the same effect is the decision of this court in the case of M/s Architectural Innovations v. Rajasthan Cooperative Group Housing Society, 77 (1999) DLT 403. One finds in respectful agreement with the view referred to above and held that there is an arbitration clause. The defendants 1 and 2 can invoke the same.

20. There is another way of looking at the matter. Section 5 of the Act bars the judicial interference when matters have to be decided by the arbitrator. The said provision is being reproduced below for the sake of facility:

"Extent of judicial intervention Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."

21. The scope of Section 5 of the Act had come up for consideration before the Division Bench of this court. This court considered the scheme of Section 5 in Bharat Heavy Electricals Ltd. v. C N Garg & Ors. 2001 957) DRJ 154 (DB) and held:-

".....The scheme of the New Act is clear enough i.e. during the arbitration proceedings Court's interference is done away with. The New Act deals with the situation even when there is challenge to the constitution of the arbitral tribunal. It is left to the arbitrator to decide the same in the first instance. If a challenge before the arbitrator is not successful, the arbitral tribunal is permitted to continue the arbitral proceedings and make an arbitral award. Such a challenge to the constitution of the arbitral tribunal before the Court is then deferred and it could be only after the arbitral award is made that the party challenging the arbitrator may make an application for setting aside an arbitral award and it can take the ground regarding the constitution of arbitral tribunal while challenging such an award....."

22. Thereupon the conclusion was further drawn:

".....Rather Section 5 as inserted which provides that there will be no judicial intervention. We have already noted that a party having grievances against an arbitrator on account of bias and prejudice is not without remedy. It has only to wait till the arbitral award comes and it can challenge the award on various grounds including bias and prejudice on the part of the arbitrator. Before the stage of challenge under Section 34 comes, sub-section (1), (2) and (3) of Section 4 envisage a situation where the arbitrator may on his own recluse himself on objection being taken qua his functioning as an arbitrator or where both the parties agree to his removal as per procedure accepted by them. If both fail, the arbitrator is required to decide on challenge to his functioning as an arbitrator levelled by a party. The arbitrator is expected to be a fair person and if he finds that there is substance in the allegations, an arbitrator is expected to dispassionately rule on such an objection. Failing all this the last resort for an aggrieved party is the challenge under Section 13(5) read with section 34....."

23. A clear meaning thus has been clarified because Section 5 bars judicial interference when matters have to be decided in accordance with the provisions of the Act. A civil suit in that process pertaining to the said controversy will not be maintainable. The provisions of Section 8 read with Section 5 bars entertainment of such a suit.

24. As a result of the reasons given above IA 5484/20021 is allowed. The civil suit as such cannot proceed because of the bar of Section 8 and 5 of the Act.