Oval Investment P. Ltd. & Ors vs Indiabulls Financial Services ...
2009 Latest Caselaw 4428 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     RFA(OS) No.68/2009 & CM No.11652/2009

OVAL INVESTMENT P. LTD. & ORS.....Appellant through
                            Mr. C.A. Sundaram, Sr.
                            Adv., Mr. Arun Bhardwaj,
                            Sr. Adv. with Mr. Manish
                            Sharma, Ms. Rohini Musa,
                            Mr. Vishal Malhotra,
                            Mr. Rohan Sharma, Advs.
             versus

INDIABULLS FINANCIAL
SERVICES LTD. & ORS.               .....Respondent through
                                   Mr. A.S. Chandhiok, Sr.
                                   Adv., Dr. A.M. Singhvi, Sr.
                                   Adv., Mr. B.B. Sawhney, Sr.
                                   Adv. with Ms.Sweta
                                   Kakkad, Mr.Varun
                                   Pathak & Ms. Dimple
                                   Murria, Advs.
%                       Date of Hearing : August 21, 2009

                        Date of Decision : November 03, 2009
      CORAM:
*     HON'BLE MR. JUSTICE VIKRAMAJIT SEN
      HON'BLE MR. JUSTICE V.K. JAIN
      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

VIKRAMAJIT SEN, J.

1. This Appeal is directed against the Judgment of the

learned Single Judge passed on 18.8.2009, whereby the Plaint of

the Appellant was rejected in terms of Order VII Rule 11(d) of

the Code of Civil Procedure, 1908 („CPC‟ for short). The Plaintiff

had filed a suit for declaration and permanent injunction.

2. The Prayers read as follows:-

(a) pass a decree of declaration in favour of the plaintiff companies and against the defendant No.1 company that the invocation of arbitration/reference to arbitration in terms of letter dated 17.07.2009 of the defendant No.1 company is vitiated and liable to be struck down on account of it being improper and based on fraud, forgery and illegality.

(b) pass a decree of perpetual injunction restraining the defendant No.1 from invoking the arbitration clause qua the plaintiff companies without following the due process mentioned in the said clause and as per law.

(c) pass a decree of perpetual injunction restraining the defendant No.1 from selling, transferring, alienating or in any manner creating a third party interest in relation to shares of M/s GHCL and GTL as mentioned in para No.27 of the suit and further in relation to property No.F7/1 to F7/4 and F7/8 to F7/11, F Block, Connaught Place, New Delhi and Khasra No.352/2, 563 (0-9) min and 564 (0-11) min Village Bijwasan Tehsil Mehrauli, New Delhi.

(d) pass such order(s) as this Hon‟ble Court may deem fit and appropriate in the facts and circumstances of the case.

3. The crux of the controversy is the alleged non-service of a

Notice dated 17.7.2009, whereby the Respondent/Defendant

had made an invocation of arbitration clause. This Notice was

stated to have been dispatched by the Defendant to the

Appellant under Certificate of Posting (UPC), Registered Post

Acknowledgement Due, and thirdly by Courier. The contention

of the Appellant is that non-service of the said Notice would

have the consequence of rendering arbitral proceedings void ab

initio on a plain reading of Section 21of the Arbitration and

Conciliation Act, 1996 („A&C Act‟ for short).

4. Before the learned Single Judge the submission of the

Respondent was that the existence of an arbitration clause was

not in doubt; that if the Plaintiff had no objection as to the legal

propriety of the arbitral proceedings, these objections should

have been ventilated before the Arbitral Tribunal itself, on a

conjoint reading of Section 16 and Section 5 of the A&C Act.

According to the Respondent, the only exception to the general

rule that Civil Courts possessed no jurisdiction over arbitral

proceedings was the power conferred by the statute under

Section 9 of the A&C Act to pass interim measures. Therefore,

the suit was not maintainable.

5. Reliance was placed on Secur Industries Ltd. -vs-

Godrej & Boyce Mfg. Co. Ltd., (2004) 3 SCC 447, Milkfood Ltd.

-vs- GMC Ice Cream (P) Ltd., (2004) 7 SCC 288, Singhal &

Brothers -vs- Mahanagar Telephone Nigam Ltd., 2005 (5) Bom

CR 261 and SBP & Co. -vs- Patel Engineering Ltd., (2005) 8

SCC 618.

6. The learned Single Judge has very concisely traversed the

relevant provisions of the A&C Act. In particular, it has been

noted that under Section 37(2) of the A&C Act an appeal can be

filed against orders passed by the arbitrators on the question of

jurisdiction, as well as by a challenge to any interim

orders/measures passed by the Arbitral Tribunal under Section

17 of the A&C Act. Furthermore, a note has been taken of the

wording of Section 16(1) which confers on the Arbitral Tribunal

the power to rule on its own jurisdiction. The

Plaintiff/Appellant‟s contention before the learned Single Judge,

as well as before us, is that in the event Section 21 of the A&C

Act is breached, the Arbitral Tribunal is not competent to

assume the power of ruling on its jurisdiction. For doing so, the

essential prerequisite would be that the Arbitral Tribunal should

be properly and legally constituted.

7. The following paragraphs from Secur Industries Ltd.

remove altogether any scope for debate itself:-

14. This brings us to the ground on which the High Court stayed the proceedings before the Council, namely, the alleged failure of the appellant to serve notice under Section 21 of the 1996 Act. The point was not raised before the High Court at all by Respondent

1. This was candidly stated by the learned counsel for Respondent 1. Our attention was not drawn to any other legal provision which requires a notice to be

given prior to commencing proceedings apart from Section 21 of the 1996 Act. Whether the notice was a notice under Section 21 and whether the giving of notice under Section 21 is to be construed as a precondition to the exercise of jurisdiction by the Council are questions which the Council will have to decide. This debate could not be a ground for the High Court interfering with the Council‟s jurisdiction and staying proceedings before it.

15. To sum up : the High Court erred in staying proceedings before the Council. It had no jurisdiction to do so.

8. It is a moot question whether despite the pronouncement

in Secur Industries Ltd. if a claimant neglects altogether to

issue a notice invoking the arbitration clause the jurisdiction of

the Civil Court would be barred on the contention that such a

notice was the springboard or sine qua non for commencement

of arbitration proceedings. In Secur Industries Ltd., as well as

before us, the Defendant asserts that notices were dispatched

and despite the attempts of the Plaintiff to avoid service

(Respondent in the Claim raised before the Arbitral Tribunal) it

had been served. It is indeed remarkable that this contention

has been raised by learned Senior Counsel despite being

unsuccessful in Secur Industries Ltd., the facts of which are

strikingly similar to the one which obtains in the case in hand.

9. The central question in Milkfood Ltd. was the

applicability of the Arbitration Act, 1940. The determination of

this nodus would be dependent on the date on which notice of

arbitration was issued and received by the Respondents. It was

in that context that their Lordships observed that - "service of

notice and/or issuance of request for appointment of arbitrator

in terms of the arbitration agreement must be held to be

determinative of the commencement of the arbitral

proceedings". Extrapolation of these observations to the case in

hand is, therefore, not appropriate. Indubitably, it is the A&C

Act which is applicable to the parties before us. The issue before

us, namely, the competence of the Arbitral Tribunal to rule on

the aspect whether it was properly constituted, did not arise

and, therefore, was not pronounced upon.

10. Mr. C.A. Sundaram, learned Senior Counsel for the

Appellant, has also raised a neat question of law, namely, that

since the Appellant/Plaintiff had alleged fraud (inasmuch as

notice had been issued to a wrong address) on the part of the

Respondent/Claimant, it was impermissible to dismiss the Suit

under Order VII Rule 11 of the CPC. Although arguments had

been addressed to the contrary, we do not think it logical to go

into this question. This is for the reason that once one arrives at

the conclusion that it is within the competence of the Arbitral

Tribunal to rule on its own jurisdiction, then the appropriate

forum for adjudication whether a fraud had been perpetrated by

the Claimant on the Respondent by issuing notice to the

Respondent at the wrong address, would lie before the Arbitral

Tribunal. By ignoring the averments in the plaint in this regard,

the learned Single Judge has not rendered any opinion on this

point. All that has been done is to direct the Plaintiff/Appellant

to raise these questions before the Arbitrator.

11. It needs to be reiterated that SBP & Co. is not a

precedent for the proposition that the Court must be fully

satisfied on the existence of an arbitration clause etc. What the

Seven-Judge Constitution Bench has observed is that before

issuing interims orders under Section 9 of the A&C Act the

Court should be fully satisfied that the A&C Act applies to the

parties. This is obviously because a reckless exercise of powers

under Section 9 would work incalculable injustice when it is

subsequently found that the A&C Act was not applicable to the

parties at all.

12. The Judgment of the learned Single Judge has taken into

consideration the relevant pronouncements on this subject and

has articulated in detail the arguments which have persuaded

him to dismiss the Plaint.

13. We are also satisfied that the learned Single Judge has

rightly concluded that the suit is barred under Section 34 of the

Specific Relief Act, 1963. It has noted that the consequential

relief that would flow from the first prayer, viz. for the

declaration that the letter dated 17.7.2009 invoking arbitration

proceedings was invalid, would be that proceedings based

thereon would also be invalid. Such a relief could not be granted

as that would tantamount to restraint of arbitral proceedings,

which is precisely what should be assiduously avoided where

the existence of an arbitration clause is not in dispute. The

consequential relief of injunction was, therefore, deliberately

drafted in the manner so as to claim what was essentially and

logically the consequential relief. We are reminded of the

observations in T. Arivandandam -vs- T.V. Satyapal, (1977) 4

SCC 467, which are to the effect that the Court should not fall

prey to clever drafting. This case has recently been adverted to

in Abdul Gafur -vs- State of Uttarakhand, (2008) 10 SCC 97

where his Lordship D.K. Jain, speaking for the Bench, had

recommended that wherever "the High Court is convinced that

the plaint read as a whole does not disclose any cause of action,

it may reject the plaint in terms of Order 7 Rule 11 of the Code.

As a matter of fact, as observed by V.R. Krishna Iyer, J., in T.

Arivandandam -vs- T.V. Satyapal, (1977) 4 SCC 467, if on a

meaningful - not formal - reading of the plaint, it is manifestly

vexatious, and meritless, in the sense of not disclosing a clear

right to sue, the court should exercise its power under the said

provision. And if clever drafting has created an illusion of a

cause of action, it should be nipped in the bud ...."

14. The Appeal, as well as the pending application, is without

merit and is dismissed.

                                         ( VIKRAMAJIT SEN )
                                               JUDGE




                                         ( V.K. JAIN )
November 03, 2009                             JUDGE
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