M/S Salter India Private Ltd. vs Mr. Rakesh Nayyar
2009 Latest Caselaw 3959 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 Arb.A. No.13 of 2008

%                     Date of decision: 25th September, 2009

M/S SALTER INDIA PRIVATE LTD.                        ...Appellant
                        Through: Mr P.V. Kapoor, Sr Advocate with Mr.
                                 Jayant Kumar and Mr. Atul Sahi,
                                 Advocates.


                               Versus

MR. RAKESH NAYYAR                                    ...Respondent

                        Through: Mr. Ramesh Singh with Ms Bina Gupta,
                        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       Yes
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1. The appellant has preferred this appeal under Section 37 (2)

(a) of the Arbitration Act, 1996 against the order dated 10th May,

2008 of the Arbitral Tribunal accepting the plea of the respondent

under Section 16 of the Act; the Arbitral Tribunal held the claims

raised by the appellant not arbitrable.

2. The parties hereto were parties to two agreements for

employment of which the first is dated 1st January, 1999 and the

other of re-employment dated 28th January, 2002. Both the

agreements provide for arbitration as under:-

"All disputes, controversies or differences which may arise between the parties hereto in relation to this agreement or for breach thereof which cannot be settled amicably by the parties shall be submitted for

arbitration and finally settled under the Arbitration & Conciliation Act, 1996, by one or more arbitrator approved in accordance with the said Act. ...............".

3. Under the aforesaid agreements the respondent was appointed

and re-appointed respectively as the Managing Director of the

appellant company. The claims of appellant company against the

respondent were for Rs.3,19,24,987/- on account of the alleged acts

of omission and commission of the respondent as the Managing

Director of the appellant company.

4. It appears that the appellant before the Arbitral Tribunal also

contested the right of the respondent to maintain an application

under Section 16 of the Act; it was contended by the appellant that

the Arbitral Tribunal having been appointed by this court on an

application under Section 11 of the Act, the respondent was not

entitled to maintain an application under Section 16. The Arbitral

Tribunal held the respondent entitled to maintain such an

application. Neither can any wrong be found with the said part of the

order nor has the senior counsel for the appellant challenged the

said part of the order.

5. The Arbitral Tribunal has held the claims of the appellant

company against the respondent not arbitrable for the reasons:

(i) that the employment agreement provides that upon

breach by the respondent of the terms & conditions of

the agreement, the appellant could withhold the salary of

the respondent and/or terminate the employment of the

respondent. The Arbitral Tribunal has held that the

parties had agreed for the remedy for the breach of the

agreement; that the omissions and commissions on the

part of the respondent forming the basis of the claim of

the petitioner were the same as the breach of the

agreement by the respondent, the remedy wherefor to

the appellant was for withholding the salary and

terminating the employment; that the employment of the

respondent with the appellant had admittedly come to an

end; that the appellant company prior to the respondent

ceasing to be the Managing Director of the appellant had

never notified the respondent that he was in breach of

the contract;

(ii) that the disputes raised by the appellant are not in

relation to the employment agreement and thus not

covered by the arbitration agreement; that the claims of

the appellant against the respondent being de hors the

agreement, the remedy of the appellant against the

respondent was not of arbitration as provided in the

agreement but under the Company Law;

(iii) that the claims of the appellant company against the

respondent were inter-alia for misuse by the respondent

of his position as Managing Director of the appellant -

the remedy therefor is under the statutory law;

(iv) that the claims of refund of salary, loss of goodwill and

loss of profit were de hors the agreement because under

the agreement the claim of the appellant could only be of

withholding the salary and terminating the employment

of the respondent.

The Arbitral Tribunal thus held the claims of the appellant to

be not maintainable, not arising out of or in relation to the

employment agreements and thus not within the jurisdiction of the

Arbitral Tribunal. Though the respondent had also urged the claims

to be barred by time, the Arbitral Tribunal held that it was not

necessary to go into the said question.

6. The senior counsel for the appellant relying upon Renusagar

Power Co. Ltd. Vs. General Electric Co. AIR 1985 SC 1156

contended that the arbitration clause aforesaid is very wide and that

expressions such as "arising out of" or "in respect of" or "in

connection with" or "in relation to" or "in consequence of" or

"concerning" or "relating to" the contract are of the widest

amplitude and content and include even questions as to the

existence, validity and effect of the arbitration agreement. The senior

counsel took pains to take this court through the copy of the claim

petition to demonstrate that it could by no stretch of imagination be

said that the claims of the appellant against the respondent are not

in relation to the employment agreement between the parties. It is

further contended that the merits of the claims are irrelevant under

Section 16 and the plea of the claims being barred by time is also on

the merits of the claims.

7. Per contra, the counsel for the respondent has urged three

propositions. Firstly, it is contended that the parties have in the

present case recorded accord and satisfaction. Reliance is placed on

National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd.

(2009) 1 SCC 267 to contend that the arbitration perishes on such

accord and satisfaction. It is contended that the respondent was

appointed as the Managing Director of the appellant company in his

capacity as nominee of one of the joint venture partners and had

stepped down from the office of the Managing Director upon the said

joint venture partner selling its stake in the company to another joint

venture partner; that no such claims as now being made were made

by the appellant company till then or in fact till the respondent made

claim for his unpaid dues to the appellant company. It is contended

that the claims of the appellant company were in fact a counterblast.

Reliance is placed on para 37 of SBP & Co. Vs Patel Engineering

Ltd AIR 2006 SC 450 to contend that such plea would fall in the

category of long dead claims and would be entertainable under

Section 16 of the Act. Secondly, it is contended that the agreement

provided for consequences of the respondent not performing his

duties and the claims of the appellant are beyond the said

consequences. Reliance in this regard is placed on Dadarao Vs.

Ramrao (1999) 8 SCC 416 where the Supreme Court held that

where an agreement for sale provided for payment of double the

amount of earnest money by the seller to the purchaser in the event

of refusing to sell, the only remedy of the purchaser was to recover

double the amount of earnest money and the relief of specific

performance could not be claimed. On the same proposition reliance

is also placed on Surjit Kaur Vs. Naurata Singh (2000) 7 SCC 379.

It is contended that the arbitrator cannot go beyond the terms of

contract between the parties. Lastly, it is contended that the

disputes raised by the appellant in its claim petition were not

covered by arbitration. It is contended that the claims are de hors

the contract.

8. As far as the first two of the aforesaid propositions urged by

the counsel for the respondent are concerned, the Arbitral Tribunal

has not dealt with the plea of accord and satisfaction. There is

absolutely no discussion whatsoever in the order impugned in that

respect. Thus, it would not be appropriate to consider the same. As

far as the other contention of the claimant, being that the claims are

beyond the consequences provided in the agreement for breach

thereof by the respondent would not in my opinion fall within the

ambit of Section 16 of the Act. Section 16 of the Act is not intended

as a summary procedure for disposal of claims. Section 16 of the Act

enables the arbitral tribunal to rule on its jurisdiction i.e. whether

the claims or the disputes raised before it are arbitrable or not. A

plea on merits disentitling the claimant to the relief claimed would

not make the said claim non-arbitrable and thus cannot be

entertained under Section 16 of the Act. The Arbitral Tribunal, if

finds the claims barred by any law or not maintainable for any other

reason, on merits of the claim or not requiring any further

adjudication/investigation, can dismiss the same (unless the same is

contrary to procedure agreed by the parties or laid down by the

arbitral tribunal) but such dismissal cannot be in the garb of Section

16 of the Act.

9. The counsel for the respondent had contended that sub

Clause (iv) of Clause 2 of Section 34 makes decision of the Arbitral

Tribunal holding claims to be beyond the scope of submission to

arbitration a ground for setting aside of the award. It was contended

that thus the appeal would not be maintainable under Section 16 of

the Act in as much as the finding of the Arbitral Tribunal is within

the ambit of Section 34 2 (iv) Supra. However, the Arbitral Tribunal

having made the order on an application under Section 16, it is not

open to the respondent to contend that the order is not under

Section 16 and the remedy of appeal is not available to the appellant.

10. That brings me to the core question for adjudication in this

appeal i.e. whether the Arbitral Tribunal is right in holding the

disputes to be not arbitrable. The Supreme Court in A.M. Mair &

Co. Vs. Gordhandass Sagarmull AIR 1951 SC 9 held that the test

to determine whether a claim in dispute is covered by arbitration

clause in a contract is whether it is necessary to have recourse to the

contract to settle the dispute that has arisen. The same principle has

been reiterated in Tarapore and Company Vs. Cochin Shipyard

Ltd. AIR 1984 SC 1072 and in Rajasthan State Mines & Minerals

Limited Vs. Eastern Engineering Enterprises AIR 1999 SC

3627. The test formulated is that if in settling a dispute, a reference

to the contract is necessary, then such a dispute would be covered

by the arbitration clause.

11. In the present case, it cannot be disputed that the claims of the

appellant whether maintainable or not were arising out of the

relationship with the respondent as Managing Director of the

appellant. The said relationship emanated from the agreements

aforesaid providing for arbitration. It cannot thus possibly be said

that the said disputes, controversies or differences are not in relation

to the agreement.

12. The reasoning given by the arbitrator that since the reliefs

claimed for breach of agreement were different from the remedies

provided under the agreement for such breach, in my view is not a

reasoning under Section 16 of the Act. The same would, in the light

of wide amplitude of arbitration clause, not make the dispute non-

arbitrable even if the same is found by the arbitral tribunal to be a

good reasoning for defeating the claim on merits.

13. I may notice that the courts in relation to construction

contracts have held the contractor entitled to maintain a claim

before arbitrator for escalation under the general principles of law

and beyond the escalation provided for in the contract. Reference in

this regard can be made to P.M. Paul Vs. Union of India 1989

Supp (1) SCC 368 and Food Corporation of India Vs. A.M. Ahmed

& Co. JT 2006 (10) SCC 62.

14. There is another aspect of the matter. The remedies provided

in the agreement and on the basis whereof the Arbitral Tribunal has

held the remedy claimed to be non-arbitrable were for a situation

when the breach came to the knowledge of the appellant during the

currency/operation of the agreement. It is only then that the

question of termination or withholding the service can arise.

However, if the appellant is able to satisfy that it learnt of the breach

on the part of the respondent after the determination of service or

that the loss occurred to the appellant for action of the respondent

during the term of his employment, the appellant in general law

would be entitled to claim damages/compensation from the

respondent and such dispute would be in relation to the employment

agreement only and cannot be adjudicated de hors the agreement.

15. The other reasoning given by the Arbitral Tribunal of the

appellant having not given any notice or of having filed the claim as

an afterthought are also outside the ambit of Section 16 of the Act

and on the merits of the claim.

16. I am, therefore, unable to agree with the Arbitral Tribunal, of

the claims of the appellant against the respondent being not in

relation to the agreement containing the arbitration clause and hold

the same to be arbitrable.

The appeal is accordingly allowed. The order impugned is set

aside. The application of the respondent under Section 16 of the Act

is dismissed.

The parties to approach the Arbitral Tribunal for adjudication

of the claims of the appellant in accordance with law. Nothing

contained herein should be deemed to be an expression on the

merits of the dispute and which shall remain open for adjudication by

the arbitrator.

RAJIV SAHAI ENDLAW (JUDGE)

September 25, 2009 PP