Shri Raj Baboo Nischal vs Shri Ajay Kumar Verma
2008 Latest Caselaw 1943 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI


                         +ARB.APPL. 431/2007

%                               Date of decision :       04.11.2008

SHRI RAJ BABOO NISCHAL                                ....Petitioner

                             Through: Mr. Siddhartha Yadav,
                                      Advocate


                                Versus

SHRI AJAY KUMAR VERMA                                  ....Respondent

                             Through: Mr. Atul Bandhu and Mr.
                                      Varun Kumar, Advocates


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?                 Yes

2.    To be referred to the reporter or not?          Yes

3.    Whether the judgment should be reported
      in the Digest?                                  Yes


RAJIV SAHAI ENDLAW, J.

1. The Petitioner has applied under Section 11 (6) of the

Arbitration and Conciliation Act, 1996 for appointment of a sole

Arbitrator, the parties having failed to arrive at a consensus thereon.

2. The Petitioner claims an Agreement dated 1st February, 1991

with the Respondent. Under the said Agreement, the Respondent,

stated to be desirous of developing his business of sale and purchase

of artificial jewellery and silver ornaments under the name and style

of M/s Shivam Jewellers, appointed the Petitioner as his agent.

Under the Agreement, the Respondent was to provide supply and

make available all the said goods for sale of the same to be

conducted by the Petitioner and for which the Petitioner was to be

entitled to commission at the rate of 5% or at any other rate mutually

settled between the parties from time to time. The Agreement

further provides that the Petitioner shall conduct the business in

shop bearing private no. 6 (Back side), forming part of premises no.

83/1A, Punjabi Bagh, New Delhi-110026, owned / rented by the

Petitioner. It is further contained in the Agreement that the

Respondent shall have no right and interest in the

ownership/tenancy rights of the shop in question and the Respondent

shall not in any manner interfere or claim any right or interest in the

said shop in any manner or capacity whatsoever. The Agreement

further provides that if either party desires not to continue the

business under the said deed for any reason whatsoever, he may give

one month's notice to the other party of his intention to discontinue

the business. The other terms and conditions of the said Agreement

are not relevant for the present purposes save that the Agreement in

Clause 12 thereof provides as under.

"12. That in case of any dispute or difference concerning the business or in relation to any of the clauses of this agreement or otherwise connected both the business conducted under this agreement in any manner whatsoever. The same shall be referred to the sole arbitrator to be appointed by the parties and whose decision shall be final. The provisions of arbitration act shall apply to such proceedings."

3. The Petitioner approached the court with a case that the

Respondent had paid commission to the Petitioner till 1st April, 2000

and has not paid any commission thereafter; that the Petitioner vide

notice dated 16th March, 2001 by a one month's notice terminated

the Agreement and also asked the Respondent to ask his

representatives, who in terms of the Agreement were reporting at

the shop aforesaid to assist in sales, not to so report; that the

Respondent however vide reply dated 27th March, 2001 claimed the

Agreement dated 1st February, 1991 to be a sham document and

having no legal validity and the Respondent further claimed to be a

tenant of the Petitioner in the shop in question and at a rent of Rs.

750/- per month; that the said contention of the Respondent was

controverted by the Petitioner vide rejoinder notice dated 20th April,

2001 and in which the Respondent was also asked to hand over

vacant and peaceful possession of the shop to the Petitioner; that

upon the failure of the Respondent to so deliver possession, the

Petitioner vide letter dated 10th May, 2001 invoked the Arbitration

clause and asked the Respondent to concur in the appointment of

the sole Arbitrator; that the Respondent however, vide reply dated

21st May, 2001 took a stand that the Arbitrator had no jurisdiction to

decide such dispute and further took a stand that in any case, the

Agreement was a sham. The Petitioner described his claims against

the Respondent for adjudication by arbitrators as relating to the

validity of the agreement, possession of the shop, for recovery of

arrears of commission and for mesne profits with interest etc.

4. The petition was filed before the District Judge, Delhi. After

completion of pleadings, the following issues were struck on 9th

October, 2001 by the learned Additional District Judge before whom

the petition was then pending.

"1. Whether the Agreement dated 1/2/91 was a sham document?

2. Whether the disputes enumerated in para 17 of the petition are liable to be referred to Arbitrator?

3. Relief."

5. The counsel for the Respondent pressed for an issue to be

framed as to whether the Respondent is a tenant under the

Petitioner and as to whether the Petitioner is entitled to the benefit

of the Delhi Rent Control Act, 1958; however the learned Additional

District Judge ordered that no separate issue needs to be framed on

this aspect, as the question to be decided was whether there is legal

Arbitration Agreement between the parties and whether there are

referable disputes.

6. The parties were directed to lead their evidence on the issues

framed. Evidence was led by the parties. However, for the present

purposes, it is not necessary to discuss the same in detail and the

relevance thereof to the present application shall be discussed at the

appropriate place. Pursuant to the dicta of the Apex court in SBP &

Co. Ltd. vs. Patel Engineering Ltd. and Another 2005 (8) SCC

618, the petition was transferred to and received in this court on 1st

October, 2007 alongwith the entire record. The counsel for the

parties have been heard.

7. It is inter alia the case of the Respondent that one Shri Vishal

Verma was a tenant in the shop aforesaid under the Petitioner; that

the Respondent paid "pugree" of Rs. 75,000/- shared by the

Petitioner and the said Shri Vishal Verma and thereby became a

tenant in the shop under the Petitioner w.e.f. October, 1990; that the

Respondent was initially paying rent at the rate of Rs. 500/- per

month to the Petitioner; that the Petitioner after the Respondent had

occupied the premises as a tenant, asked the Respondent to sign the

Agreement dated 1st February, 1991 supra for the reason of showing

to the income tax authorities; that the said Agreement is a sham

document and is a camouflage for a rent agreement and the real

nature of the Agreement is that of a rent deed creating relationship

of landlord and tenant between the parties; that the Petitioner has

illegally and mala fide issued the receipts etc., to the Respondent

ostensibly on account of commission but in fact the same are rent

receipts; that the Respondent is an illiterate person and the

Petitioner has been procuring the signatures of the Respondent on

whatever documents the Petitioner required and even on blank

papers; that the Agreement dated 1st February, 1991 does not bind

the Respondent as the real intention of the parties was to create

tenancy of the shop in favour of the Respondent; that the Petitioner

had in fact grabbed the land belonging to Bankey Behari Mandir and

constructed 23 shops and a godown thereon and all of which shops

were given on rent to different parties under similar agreements,

and it was not possible for the Petitioner to carry on business in

each shops on commission basis. It was contended that there being

no Arbitration Agreement, the petition was misconceived and in any

case, the Respondent being a tenant in the shop, cannot be evicted

save in accordance with the provisions of the Rent Act.

8. The question which arises for consideration is that if with

respect to an Agreement containing an arbitration clause, one party

claims the same to be a sham, who is to adjudicate the said issue. In

exercise of powers under Section 11 (6) of the Act, the nominee of

the Chief Justice cannot certainly adjudicate the same. The powers

under Section 11 (6) of the Act earlier held to be purely

administrative, even after SBP & Co. Ltd. supra are limited to

finding whether the Arbitration Agreement exists or not; whether the

person applying is a party to the agreement and as to whether the

claims are dead claims or not or not referable to Arbitration in terms

of the Agreement. In the present case the respondent admits his

signature on the agreement containing arbitration clause, though

calls the agreement sham and thus denies any arbitration

agreement.

9. So, who is to decide whether the agreement is a sham or the

nature of transaction between the parties i.e., whether the

Respondent is a tenant or came into use/occupation of the premises

in terms of the Agreement dated 1st February, 1991 supra. The

Arbitration clause contained in the Agreement aforesaid is couched

in the widest possible terms. It covers disputes and differences

between the parties concerning any of the clauses of the Agreement

or otherwise connected with the business or the Agreement between

the parties.

10. The Petitioner's case is that the Respondent is not a tenant.

Even though the Respondent prior to petition only claimed tenancy,

the petitioner could not approach the Rent Controller for

determination of such question in as much as the Rent Controller can

be approached only when the petitioner pleads the dispute to be

falling within the jurisdiction of Rent Controller. Undoubtedly, the

Rent Controller has jurisdiction to determine the relationship of

landlord - tenant, if disputed by the Respondent.

11. So the Petitioner could have approached the Civil Court for the

adjudication of disputes raised. But the agreement contained all

pervasive arbitration clause as aforesaid. Merely because a party to

the document claims the document to be sham, cannot put to naught

the Arbitration clause contained therein. The Respondent admits

signing the said Agreement. The Respondent further admits

obtaining receipts of payment from the Petitioner in terms of the said

Agreement. In the circumstances, even though issue was framed

and evidence ordered to be led, in my view erroneously, it is not for

determination in exercise of jurisdiction under Section 11 (6) as to

whether the Agreement is a sham or not and it is best to leave all the

said disputes, claims and counter claims between the parties to be

adjudicated by the Arbitrator.

12. The plea of the Respondent that the Respondent being a tenant

protected by the Rent Act, the Arbitrator is not entitled / empowered

to grant the relief of ejectment, in my view does not call for

dismissal of the petition. The plea of the Respondent cannot be

treated as a gospel truth. It is not to be forgotten that the Petitioner

disputes the said position and relies upon a written document which

also belies / negatives the stand of the Respondent. In the event of it

being held that the Respondent is not a tenant and came into

use/occupation of the shop in terms of the Agreement dated 1st

February, 1991 supra, the jurisdiction of the Arbitrator to award the

removal of the Respondent therefrom, cannot be denied. However, if

it is ultimately found by the Arbitrator that the Respondent in fact is

a tenant in the premises and covered by the provisions of the Delhi

Rent Control Act, 1958, the claim of the Petitioner for possession

would be dismissed and the occasion would not arise for the

Arbitrator to award the ejectment / vacation of the Respondent and

in any case, the same would also be barred by Section 50 of the Rent

Act.

13. The Apex Court in SBP & Co Ltd also held in relation to

determination whether a claim made is live or not, that where it is

not possible to determine without intricate enquiry, it will be

appropriate to leave that question to be decided by Arbitral Tribunal

on taking evidence, alongwith the merits of the claims in the

application. That being the position, it would be the Arbitrator and

not the Civil court which would be empowered to adjudicate the

nature of the relationship between the parties. I am supported in

this view by judgment of this court in Vijay Kumar Jain v. Baby

Care Mktg. Co. 1997 (41) DRJ 131; MANU/DE/0404/1996.

14. I must record that another single Judge of this court (as his

Lordship then was) in Krishan Gopal Arora vs. Roshan Lal Arora

and Another MANU/DE/0120/1994, relying upon Natraj Studio (P)

Ltd. v. Narang Studio AIR 1981 SC 537, has held that the question

whether there is relationship of landlord and tenant between the

parties or merely a commission agency agreement or such other

jurisdictional questions if fall for determination may have to be

determined by the court and not by the Arbitrator. It was held that

Public policy requires that contracts which nullify the rights

conferred on tenants by the Rent Act cannot be permitted and the

public policy further requires that parties cannot be permitted to

contract out of the legislative mandate which requires certain kind of

disputes to be settled by special courts constituted by the Rent Act.

This court held that a serious dispute as to the real nature of

transaction between the parties is a subtle question of law requiring

interpretation of the documents which would enable an inference

being drawn whether it was merely a commission agency agreement

or a tenancy created between the parties and will be best

adjudicated by court.

15. I am however, not inclined to follow the view taken in Krishan

Gopal Arora (supra) for four reasons. Firstly, the same is based

entirely on judgment of Apex Court in Natraj Studio Pvt. Ltd. in

which case the Apex Court before it had not only an arbitration

proceeding but proceeding arising from a declaration suit as to the

status/relationship between the parties. The Apex Court on

construction of agreement between the parties found a relationship

of landlord tenant between the parties therein and thus held the

authority/court under the Bombay Rent Act had the exclusive

jurisdiction to resolve the dispute of recovery of possession. It was

on finding the existence of relationship of landlord and tenant that

the observations quoted in judgment in Krishan Gopal Arora, were

made by the Apex Court. Otherwise, I do not find the Apex Court

laying down that where the applicant disputes such relationship, the

arbitrator has no jurisdiction to adjudicate the same. On the contrary

the Apex court in Vasudev Gopalkrishna Tambwekar vs. Board

of Liquidators, Happy Home Cooperative Housing Society Ltd

AIR 1967 SC 369 in para 10 held

"10. Alternatively, it was contended that even if the Society claimed to obtain an order for possession on some footing other than the relationship of landlord and tenant, when the appellant raised the contention that he was a tenant and the relationship of landlord and tenant was put into issue, the Court of Small Causes, Bombay, alone was competent to decide that question. Section 28 of Bombay Act 57 of 1947 excludes the jurisdiction of all courts other than the Court of Small Causes to try any suit, proceeding or application between a landlord and tenant and to deal with any claims or questions as are referred to in the section. Even if it be granted that an arbitrator appointed under the Bombay Co-operative Societies Act is a Court, - on this question we do not deem it necessary to express any opinion - in order that his jurisdiction be excluded the proceeding before him must be between landlord and tenant, and relating to the recovery of rent or possession of any premises to which the provisions of Part II of the Act apply. The exclusive jurisdiction of the Court of Small Clauses arises only if the person invoking the jurisdiction of the Court alleges that the other party is a tenant or a landlord and the question is one which is one which is referred to in s.

28. Where the person so invoking does not set up the claim that the other party is a tenant or a landlord the defendant is not entitled to displace the jurisdiction of the ordinary court by an allegation that he stands in that relation qua the other and on that ground the Court has no jurisdiction to try the suit or proceeding or an application. There is nothing in the judgment of this Court in Babulal Bhuramal's Case MANU/SC/0136/1958, which supports the view that by merely setting up a plea that he is a tenant in respect of the premises in dispute, the jurisdiction of the ordinary Courts to decide a suit, proceeding or application would be displaced."

I find the above law apposite and applicable to the present

controversy.

16. The Petitioner who claims that there is no relationship of

landlord and tenant protected by the Rent Act, cannot be compelled

to go before the Rent Controller for determination of the said issue.

The only alternative to Arbitration would be to relegate the

Petitioner to Civil court and which in view of the Arbitration

Agreement, is not permissible.

17. Secondly, the judgment in Krishan Gopal Arora (supra) was

under the 1940 Act. The 1996 Act has drastically altered the law of

Arbitration or at least attempted to do so. By Section 5 thereof, the

judicial interference has been prohibited except as provided under

the Act. Thus upon finding that the dispute of determination of the

nature of the Agreement/relationship between the parties is covered

by the Arbitration Agreement, I find myself unable to refuse

appointment of Arbitrator in as much as the same is not permitted

under the 1996 Act. Moreover, I do not find any public policy

involved for such determination. The said determination is a pure

determination of fact. Only in the event of it being found on such

determination that the Agreement between the parties in fact was of

tenancy protected by the Rent Act, does the question of public policy

come in. I have already held that in the event of it being found so,

the Arbitrator would in any case be debarred from awarding the

eviction/ejectment of the Respondent by virtue of provision of

Section 50 of the Rent Act. However, such determination is not

barred by the Rent Act or by reason of any public policy.

18. Thirdly, because the Apex court relying upon and reiterating

the law laid down in Pure Helium India (P) Ltd. v. Oil & Natural

Gas Commission MANU/SC/0803/2003 and D.D. Sharma v.

Union of India MANU/SC/0419/2004, recently in Mcdermott

International Inc. vs. Burn Standard Co. Ltd. and Ors. (2006)

11 SCC 181 has held that the construction of the contract agreement

is within the jurisdiction of the Arbitrators if the language thereof so

permits and that interpretation of a contract is a matter for the

Arbitrator to determine even if it gives rise to determination of a

question of law. The same view is to be also found in the State of

Rajasthan v. Nav Bharat Construction Company 2006 (1) SCC

86. The question whether the Agreement between the parties is of

tenancy or of commission agency thus is capable of being

adjudicated by the Arbitrator.

19. Fourthly, the Agreement in Krishan Gopal Arora supra was

of the year 1973. The Rent Act was amended w.e.f. 01/12/1988

whereby protection from eviction inter alia to premises, the rent

whereof was in excess of Rs. 3,500/- per month, was taken away.

The admitted position of the Respondent also in the present case is

that he came into the premises in the year 1990 i.e. after the

amendment of the Rent Act. After the amendment, in my view, there

were no compulsions on the landlord to adopt the devices earlier

adopted to evade applicability of the Rent Act, as in the present case.

There is thus a shift in public policy also as prevailing at the time of

adjudication in Natraj Studio Pvt Ltd and Krishan Gopal Arora

supra. Today, public policy does not require arbitration to be

ousted/excluded for such reasons.

20. The counsel for Respondent also argued that the Petitioner is

not the owner of the property and is thus not entitled to maintain the

petition. However, the said question is again alien to a petition

under Section 11, especially since the contractual relationship with

the Petitioner is admitted. Moreover, even if the stand of the

Respondent has to be of the relationship of landlord and tenant

between the parties, the Petitioner even as a landlord, without being

the owner, is entitled to maintain a proceeding for

ejectment/eviction.

21. It was contended by the counsel for the Respondent that the

Petitioner would save on the court fees payable in a suit to be filed in

the Civil court. This is again no ground to defeat a petition under

Section 11.

22. I, therefore, find that there is an Arbitration Agreement

between the parties and the claims of the Petitioner, if upheld, are

arbitrable.

23. The parties having been unable to concur upon the sole

Arbitrator, I appoint Mr Rohit Kumar, Advocate (Ch. 411, Lawyers'

Chamber, Delhi High Court, Tel 23385161) as the sole Arbitrator to

adjudicate the claims and counter claims of the parties. The

consolidated fee is fixed at Rs 60,000/- to be borne equally by the

parties subject to the final award as to costs and besides out of

pocket expenses. Since the matter has remained pending at the

stage of Section 11 for long, the arbitrator is further requested to

dispose of the matter expeditiously preferably within one year.

RAJIV SAHAI ENDLAW (JUDGE) November 04, 2008 smp