Mr.Satnam Singh vs The Jammu & Kashmir Bank Ltd & Ors.
2009 Latest Caselaw 899 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 ARBITRATION APPLICATION NO.251/2008

%                      Date of Decision: 19.03.2009

Mr.Satnam Singh                                            .... Petitioner

                      Through Mr. Rajeev Sharma, Advocate

                                Versus

The Jammu & Kashmir Bank Ltd & Ors.                    .... Respondents

                      Through Mr. Tanveer Ahmad Mir, Advocate.
CORAM:
HON'BLE MR. JUSTICE ANIL KUMAR

1.   Whether reporters of Local papers may be                  YES
     allowed to see the judgment?
2.   To be referred to the reporter or not?                    NO
3.   Whether the judgment should be reported in                NO
     the Digest?


ANIL KUMAR, J.

*

1. This is a petition under Section 11(6) of the Arbitration &

Conciliation Act, 1996 by the petitioner for appointment of an

arbitrator.

2. The petitioner has contended that he is a non resident Indian

presently residing at 584, Urban Estate, Phase-II, Jalandhar, Punjab,

India. According to him the respondent had published a tender notice

on 15th October, 2004 and 16th October, 2004 for sale of 550 Marlas of

free hold land, factory building, covered sheds, worker quarters etc and

plant and machinery, spares and store under Securitization and

Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002 belonging to M/s.Prabhat General Agencies.

3. In the tender notice it was mentioned that the property is free

from all encumbrances and is put on sale on „as is where is and

whatever there is‟ basis. Believing the statement made in the tender

that the property is free of any encumbrance, the petitioner applied to

the respondent No.1 and made the offer of Rs.451 lakhs and deposited

a sum of Rs.28 lakhs at New Delhi. The tender was opened in the office

of respondent No.1 and the petitioner was declared as highest bidder.

The bid amount of Rs.451 lakhs was later on enhanced to Rs.460 lakhs

subject to the condition that the respondent shall be responsible for

selling the property free from all encumbrances like Income Tax, Excise

duty and workmen dues etc. as was represented in the tender dated 15-

16/10/2001. The petitioner had communicated this offer by his letter

dated 18th November, 2004 which was accepted by the respondent No.3

by reply dated 2nd December, 2004, but without accepting any liability

of tax.

4. The petitioner protested to the contents of the letter dated 2nd

December, 2004 stipulating that the respondent does not undertake

any responsibility to procure any permission/license etc. in respect of

the property offered for sale nor for any dues like outstanding

water/service charges, transfer fees, electricity dues, dues of the

Municipal Corporation/local authority/CHS or other dues, taxes in

respect of the property and relying on the tender document contended

that it was specifically stipulated that the property is free from any

encumbrances which means that there was no charge on the property

and the respondents had a right to transfer the title of the property and

give possession to the petitioner without any encumbrances, by his

letter dated 4th December, 2001.

5. The petitioner has alleged that he made various representations

to various authorities such as Reserve Bank of India, Police, Ministry of

Finance, State of Jammu & Kashmir about the illegal acts of the

respondent of giving a wrong and misleading tender notice as he came

to know that M/s.Prabhat General Agencies has a huge dues of

approximately 700 crores on the property which was tried to be sold by

the respondent as free from any encumbrances.

6. The respondents instead of handing over the possession of the

property free from all encumbrances as had been represented in the

tender notice, threatened to forfeit the amount of Rs.28 lakhs deposited

by the petitioner by letter dated 5th January, 2005. Consequently, the

petitioner got issued a legal notice dated 28th January, 2005 seeking

refund of Rs.28 lakhs along with interest at 24% and damages from the

respondent.

7. The petitioner asserted that instead of refunding the earnest

money with interest the respondent sent another letter dated 13th June,

2005 cancelling the deal and claiming that the earnest money of Rs.28

lakh deposited by the petitioner has been forfeited.

8. The petitioner has contended that the tender document as well as

the letter dated 2nd December, 2004 contained an arbitration Clause.

The Arbitration clause 15 in the tender document is as under:-

"15. Dispute, if any, shall be referred to an Arbitrator mutually appointed by the parties.

The Clause pertaining to the Arbitration in the letter dated 2nd

December, 2004 is as under:-

h. Dispute, if any, shall be referred to an arbitrator to be mutually appointed by the bank and you, and his decision shall be final and binding."

9. The petitioner therefore, invoked the arbitration agreement and

sent a legal notice dated 9th June, 2008 and after failure of the

respondent to appoint an arbitrator filed the present petition on 15th

July, 2008.

10. The notice of the petition was given to the respondent and a reply

dated 29th September, 2008 has been filed on behalf of the respondent

opposing the appointment of an arbitrator on the ground that the

petition is prima facie barred by law as the time to initiate any legal

action for alleged recovery of tender deposit of Rs.28 lakhs has already

expired and consequently the claim of the petitioner is barred by time.

It is contended that it is a well settled principle of law pursuant to a

number of judgments passed by the Supreme Court and the High

Courts that the wheel of arbitration cannot be given a push on

appointment of an arbitrator, if the claim of the claimant is time barred.

The respondents contended that the tender for purchase of immovable

properties was floated on 15/16th October, 2004 pursuant to which a

letter dated 18th November, 2004 was written by the petitioner

intimating his willingness to purchase the property which was being

liquidated under the provisions of Securitization Act. It is stated that

the respondents by letter dated 2nd December, 2004 clearly intimated

that the property is being liquidated and sold on „as is where is and

whatever there is‟ basis and it was further made clear that if the

transaction is not completed within 15 days from the letter dated 2nd

December, 2004 then all the moneys including earnest money of Rs.28

lakhs would be forfeited. In the circumstances, it is contended that the

invocation of the arbitration agreement in July, 2008 is beyond the

period of time stipulated under the Indian Limitation Act, 1968 and

consequently the petitioner is not entitled to invoke the arbitration

agreement nor an arbitrator can be appointed in view thereof. It is also

contended that the petitioner had also accepted the offer of the bank in

consonance with the contents thereof and, therefore, the petitioner

cannot contend that the respondents are not entitled for forfeiture of

Rs.28 lakhs nor that the forfeiture is contrary to the terms and

conditions of the contract.

11. The learned counsel for the respondent has relied on 2002(1) Raj

594(Del), Pandit Munshi Ram & Associates (Pvt) Ltd v. Delhi

Development Authority in support of his contention. The petitioner on

the other hand has relied on AIR 2004 SC 3145, Milkfood Ltd v.

M/s.GMC Ice Cream (P) Ltd to contend that the limitation for the

purpose of Arbitration has to apply from the date of notice for

appointment of arbitrator by one party to another and such a date is

the relevant date for commencement of arbitral proceedings.

12. The petitioner has relied on the stipulation in the tender notice of

the petition that the property which was proposed to be sold by the

respondent was free from any encumbrances. The tender notice which

is filed along with the petition as Annexure A which has not been

denied by the respondents categorically stipulated that the property to

the best of the knowledge of the respondents is free from any

encumbrances. On the basis of the representations made by the

respondent in the tender notice the petitioner offered to purchase the

same and also agreed to enhance the amount of his bid from Rs.451

lakhs, which was the highest bid to the tender, to Rs.460 lakhs on the

specific stipulation that the bank shall be responsible for selling the

property free of any encumbrances like Income Tax, Excise Duty and

workman dues etc.

13. If the offer of the petitioner dated 18th November, 2004 was that

he will enhance the consideration from 451 lakhs to 460 lakhs provided

he gets the property free from any encumbrance like Income Tax, Excise

Duty and workmen dues, the respondent could not have accepted the

same with the stipulation that the Bank shall not be liable for the dues

of Municipal Corporation, electricity dues and other dues of the said

property. It appears that the parties were not at ad idem in respect of

the terms of the agreement as the petitioner had been claiming that the

properties be given to him free from any encumbrance and the

respondent had also represented, in their tender notice, that the

property to the best of their knowledge is free from any encumbrance

and the petitioner also raised his highest bid of Rs.451 lakhs to Rs.460

lakhs only subject to the respondent giving the property free from any

encumbrance. Therefore, prima facie the amount could not have been

forfeited in the facts and circumstances. In the circumstances, the

respondent could not have demanded from the petitioner to pay the

balance amount of Rs.460 lakhs after deducting Rs.28 lakhs which was

paid as earnest money by letter dated 5th January, 2005. The proposed

agreement between the parties was cancelled by the respondents by

letter dated 30th June, 2005.

14. On cancellation of the proposed agreement and alleged forfeiture

of the earnest money given by the petitioner to the respondent, the

arbitration agreement was invoked by the petitioner by notice dated 9th

June, 2008. Apparently the Arbitration Agreement had been invoked by

the petitioner prior to the expiry of three years. The Supreme Court in

Milkfood Ltd (Supra) had held that the provision contained in Section

21 of 1996 Act as also the common parlance meaning given to the

expression "commencement of an arbitration" stipulates about the

commencement of the Arbitration by seeking invocation of arbitration

by giving a notice. It was held that issuance of request for appointment

of an arbitrator in terms of the arbitration agreement must be held to be

determinative of the commencement of the arbitral proceedings.

Consequently, in the present case the arbitral proceedings shall be

deemed to have commenced from 9th June, 2008 when the notice was

given by the petitioner on the basis of the arbitration agreement

between the parties. The respondents had cancelled the alleged

agreement between the parties by communication dated 13th June,

2005, therefore, the dispute for recovery of an amount of Rs.28 lakhs

and damages invoked on 9th June, 2008 shall be within time, prima

facie, and on this ground the respondent cannot contest the

appointment of an arbitrator in the facts and circumstances.

15. The precedent relied on by the respondents is apparently

distinguishable as in Pt. Munshi Ram (Supra) the petition for

appointment of an arbitrator was to be made before expiry of 90 days

from the date of appointment of final bill. It was held that the

acceptance of correctness of the bill by itself does not imply that the bill

had been paid and the dispute shall remain until the bill is finally paid.

16. The petitioner had given the notice dated 9th June, 2008 seeking

appointment of the arbitrator. Before filing of the petition on 15th July,

2008, the respondents have not appointed the arbitrator and, therefore,

they have lost the right to appoint an arbitrator of their choice. In any

case a sole arbitrator has to be appointed under the arbitration

agreement and since the parties have not agreed for a mutually

agreeable arbitrator, it will be just and appropriate to appoint an

arbitrator by this Court.

17. Consequently, Mr. B.L. Garg, Advocate (retired Additional District

Judge), R/o 8/9 Ganpati Apartments, Civil Lines, Rajpur Road, Delhi-

110054 (Mobile: 9810827815) is appointed as an Arbitrator to

adjudicate all the disputes between the parties. The Arbitrator shall be

entitled to devise his procedure for conducting the arbitration

proceedings. The fees of the Arbitrator shall be Rs. 10,000/- per hearing

which shall be shared equally by the parties. The maximum fees of the

Arbitrator shall be Rs. 1,50,000/-. The Arbitrator shall also be entitled

for secretarial expenses which shall also be shared by the parties.

Parties are directed to appear before the Arbitrator on 2nd April, 2009 at

4.00 p.m.

A copy of this order be sent to the Arbitrator forthwith and copies

of this order be also given dasti to learned counsel for the parties.

With these directions, the petition is disposed of.

MARCH 19, 2009                                         ANIL KUMAR, J.
sb/k