Devinder Kumar Gupta vs Realogy Corporation & Anr
2011 Latest Caselaw 2377 Del

         THE HIGH COURT OF DELHI AT NEW DELHI

%                     Judgment Reserved on:   28.04.2011
                      Judgment Pronounced on: 04.05.2011

+            CS(OS) No. 829/2011

DEVINDER KUMAR GUPTA                             .....Plaintiff

                             - versus -

REALOGY CORPORATION & ANR                        .....Defendant

Advocates who appeared in this case:
For the Plaintiff: Mr. Sandeep Sethi, Sr. Adv. with
                   Mr. Ashish Dhaulakia, Mr. Sindhu
                   Sinha and Mr. Anand Srivastava, Advs.

For the Defendant: Mr. P.V. Kapur, Sr. Adv. with Mr. Aman
                   Anand, Mr. Anish Dayal,
                   Ms. Shwetasree Majumdar,
                   Mr. Siddharth Vaid and Mr. Ranbir
                   Dutta, Advs. for D-1.

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may                    Yes
   be allowed to see the judgment?

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

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

V.K. JAIN, J

IA No. 5447/2011 (O. 39 R. 1&2 CPC)

1.           This is a suit for declaration, permanent injunction

and damages. The plaintiff is the Chairman and Managing


CS(OS) No. 829/2011                                    Page 1 of 19
 Director of defendant No. 2, which entered into an

agreement with defendant No.1, whereby defendant No. 2

was granted exclusive licence/right to sub-licence the

"Century 21" trademark and "Century 21 system" to real

estate     brokers      in    5   out   of   7   territories   in   India.

Subsequently, the licence was extended to remaining 2

territories as        well.   The   plaintiff    vide Guarantee        and

Indemnification        Agreement        dated    24th   October,    2007,

guaranteed the payment obligations of defendant No. 2 to

defendant No. 1.             There is an arbitration clause in the

agreement between defendant No. 1 and defendant No. 2,

whereunder all controversies, disputes or claims arising in

connection with, from or with respect to the agreement

between them, unless resolved within 15 business days

after either party notifying the other party                    of such

controversy, dispute or claim, are to be submitted for

arbitration to New York office of American Arbitration

Association under its commercial arbitration rules and the

arbitration proceedings are to be conducted in New York,

before a panel of three arbitrators. Both the parties have to

appoint one arbitrator each and the two arbitrators, so

appointed, have to appoint a third arbitrator to act as

CS(OS) No. 829/2011                                            Page 2 of 19
 Chairman of the Tribunal. In case of the failure of the

respondent to nominate the arbitrator within 30 days from

the date when claimant‟s request for arbitration is

communicated to it, the appointment is to be made by

American Arbitration Association. If the two arbitrators fail

to nominate the Chairman within 30 days from the date of

appointment of second arbitrator, he has to be appointed by

the very same Association. The arbitrators have the right to

award or include in their award any relief which they deem

appropriate under the circumstances, including without

limitation, money damages etc.

2. The case of the plaintiff is that there is no

arbitration clause in the Guarantee and Indemnification

Agreement to which he is a party and which is appended as

Ex.-1 to the Sub Franchise Agreement. This is also the case

of the plaintiff that there is no provision in Guarantee and

Indemnification Agreement executed by him, whereby the

provisions of Century 21 Sub Franchise Agreement would

be incorporated in the Guarantee and Indemnification

Agreement and at no point of time, he agreed to informal

dispute resolution, arbitration or any other method of

alternative dispute resolution.

3. The Sub Franchise Agreement was terminated by

defendant No. 1 on the ground of non-payment of

Continuing Service Fees. The case of the plaintiff is that the

termination was illegal, null and void since non-payment of

Continuing Service Fee did not constitute breach of a

material provision of the agreement entitling defendant No.

1 to terminate it.

4. Defendant No. 2 filed an application under Section

9 of Arbitration and Conciliation Act, seeking stay of

termination of agreement dated 24th October, 2007 by

defendant No. 1 and restraining it from entering into any

agreement with any third party for grant of licence/right to

sub-licence the „Century 21‟ proprietary trademark and

„Century 21 System‟ in India. The petition was dismissed by

a learned Single Judge of this Court. An appeal filed

against that order is stated to be pending.

5. It is alleged that on 03rd March, 2011, the plaintiff

received a pre-printed Notice of Demand for arbitration from

the Attorneys of defendant No. 1, whereby he came to know

that defendant No. 1 had initiated arbitration proceedings

not only against defendant No. 2, but against him as well.

The plaintiff also received a letter dated 08 th March, 2011

from International Centre of Dispute Resolution, claiming to

be a division of American Arbitration Association, informing

that the arbitration proceedings have been assigned to a

Case Manager/Supervisor and called upon him to file

response within 15 days. The plaintiff also received an e-

mail dated 28th March, 2011 from the aforesaid

Manager/Supervisor regarding appointment of Arbitrator.

The plaintiff has now claimed Rs 30 lakhs as damages from

defendant No. 1. He has sought a further declaration that

he does not owe any money to defendant No. 1 and there is

no subsisting arbitration agreement between him and

defendant No. 1. He has also sought a declaration that the

Notice for Demand of arbitration, sent by defendant No. 1, is

null and void and has no effect. He has also sought

injunction, restraining defendant No. 1 from claiming any

money under the Guarantee and Indemnification Agreement

dated 24th October, 2007. He has also sought injunction

against defendant No.1 from claiming that the plaintiff is

liable to make any payment in terms of Notice of Demand

for arbitration, sent by it to American Arbitration

Association in New York. He has also sought injunction

against defendant No. 1 restraining it from taking any steps

in relation to Notice of Demand for Arbitration.

Vide IA No. 5447/2011, the plaintiff has sought a

temporary injunction, restraining defendant No. 1 for

commencement of, acting upon or continuing any

arbitration proceeding pursuant to notice dated 01st March,

2011 demanding arbitration.

6. The application has been opposed by defendant

No.1 which has claimed that the declaration sought by the

plaintiff with respect to the arbitration agreement cannot be

granted by a Civil Court nor can this Court restrain

defendant No. 1 from pursuing the arbitration proceedings

before American Arbitration Association. Though no reply

has been filed by defendant No. 1, it was submitted during

arguments that in fact there is an arbitration clause

between the parties which covers the disputes raised in the

present suit.

Hence, the first question which comes up for

consideration in this case is as to whether existence of an

arbitration agreement between the plaintiff and defendant

No.1 can be challenged by filing a civil suit and whether a

civil court, in such a suit, can stay arbitration proceedings.

7. In Kvaerner vs. Bajranglal Agarwal (2001) 6

Supreme 265, a civil suit was filed in Bombay High Court

seeking declaration that there exist no arbitration clause

and, therefore, the arbitration proceedings are without

jurisdiction. The learned Single Judge of Bombay High

Court was of the view that since in view of the provisions

contained in Section 5 of Arbitration and Conciliation Act,

1996 read with Section 16 thereof, since the Arbitral

Tribunal had the power and jurisdiction to rule on its own

jurisdiction, the Civil Court would not pass any injunction

against arbitral proceedings. It was contended before the

Supreme Court that jurisdiction of Civil Court need not be

inferentially held to be ousted unless any statute on the face

of it excludes the same and judged from that angle.

Rejecting the contention, the Supreme Court, inter alia, held

as under:-

"But, bearing in mind the very object with which the Arbitration and Conciliation Act, 1996 has been enacted and the provisions thereof contained in Section 16 conferring the power on the arbitral Tribunal to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement, we have no doubt in our mind that the Civil Court cannot have jurisdiction to go into that question. A bare reading of Section 16 makes it explicitly clear that the arbitral Tribunal

has the power to rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised and a conjoint reading of sub-sections (2) (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. In this view of the matter, we see no infirmity with the impugned order so as to be interfered with by this Court. The petitioner who is a party to the arbitral proceedings may raise the question of jurisdiction of the Arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question and such an objection being raised, the Arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings."

8. The decision of the Supreme Court in the case of

Kvaerner (supra) was sought to be distinguished by the

learned senior counsel for the plaintiff in view of Supreme

Court decision in SBP & Co. vs. Patel Engineering (2005) 8

SCC 618, where the Court held that the Chief Justice or his

designate, while considering a petition under Section 11(6)

of the Act was bound to decide whether there was a valid

agreement, whether the person before him with a request

for appointment of an Arbitrator is a party to the arbitration

agreement and there was a dispute/a live claim which was

capable of being arbitrated upon. This judgment was

considered by a learned Single Judge of this Court in

Roshan Lal Gupta vs. Parasram Holdings Pvt. Ltd., OMP

No.205/1997 & RSA No. 131/2002 decided on 11th

February, 2009. In that case, the plaintiff/appellant had

filed a suit for declaration and injunction challenging the

arbitration agreement. The suit was filed after

commencement of arbitration proceedings before the stock

exchange. Referring to Section 5 of Arbitration and

Conciliation Act which provides that notwithstanding

anything contained in any other law for the time being in

force, the matters governed by the Part I, no judicial

authority should intervene except where so provided in that

part and noticing introduction of Section 16 in the Act

which did not find place in Arbitration Act of 1940 and

further noticing that Section 34 of the Act provides for

recourse against an arbitral award on the ground of

invalidity of arbitration agreement, this Court, inter alia,

held as under:

"A peremptory Section 5 prohibiting the jurisdiction of courts save as expressly provided under the Act has also been introduced. If in spite of the said changes, this Court is to hold that a suit

is maintainable where the contract containing the arbitration clause is challenged on ground of forgery and the court in such suit is empowered to injunct arbitration proceedings (as otherwise no purpose would be served by such suit), in my view, it would tantamount to negating the effect of the change in the statute. It may also be noticed that arbitration is normally provided for in commercial agreements and whereunder after the disputes have arisen, one of the parties is always interested in delaying the disposal of the claims of the other. In fact, the parties while providing for arbitration in commercial contracts do so for the reasons of expediency. If notwithstanding the aforesaid material changes between the old and the new Act, it is to be held that a suit as a present one is maintainable, it would give a tool in the hands of the party wanting to delay the disposal of the claims of the other; in each case suits would be instituted and stay of arbitration proceedings would be sought."

9. Referring to the provisions of Section 41 of Specific

Relief Act, this Court, inter alia, observed as under:

"A permanent injunction cannot be granted under Clause (h) of Section 41 when equally efficacious relief can be obtained by any other usual mode of proceeding except in case of breach of trust. The discretion of the court ought not to be exercised in a manner so as to adversely affect the arbitral proceedings or to negate the purport of the 1996 Act. Similarly, it is not as if, if injunction restraining the arbitration is not given,

the party challenging the validity of the arbitration agreement would be rendered remediless. The said party has the equally efficacious remedy of Sections 16 and 34 of the Arbitration Act. The suit for declaration and permanent injunction is found to be barred by provisions of Specific Relief Act also."

Dealing with the contention that the Courts,

including Supreme Court in SBP & Co. (supra), had held

that the party should not be permitted to be vexed by costly

arbitration if at the initial stage itself it cannot be

determined whether there is any arbitration agreement

and/or arbitral dispute or not, this Court held as under:

"In my view, the law with respect to the adjudication by the courts while dealing with an application under Section 8 or Section 11 of the Act would not apply to the suit. Firstly, the proceedings under Sections 8 and 11 are provided for by the Act itself while the suit challenging the validity of the arbitration agreement has not been provided for in the Act and is barred under Section 5 of the Act. Thus merely because while interpreting Section 8 and Section 11 it has been held that the court before referring the parties to arbitration should satisfy itself of the existence of the arbitration agreement would not justify the institution of a suit for the same relief. Section 8 application is filed when a substantive suit is already before court and the question to be determined is whether that suit is to proceed or the parties are to be referred to arbitration.

Similarly, Section 11 is an application for appointment of the arbitrator. Merely, because the court when faced with such provisions as provided for under the Act is to satisfy itself of the existence of the agreement cannot be understood to lay down that it is open to a party to even where no suit for substantial relief and application under Section 11 has been filed, an independent suit only for the relief of challenging the validity of the arbitration agreement can be instituted. I, therefore, do not feel the need to refer to the judgments filed by the counsel for the petitioner/appellant alongwith the synopsis on Section 8 and Section 11 of the Act."

The conclusion of this Court is contained in para

26 of the judgment, which reads as under:

"The questions No. 1, 2 and 4 of law are thus answered to the effect that a suit for declaration that an agreement containing an arbitration clause is forged, fabricated and unenforceable and thus null and void and for injunction restraining arbitration does not lie and is barred by Section 5 of Arbitration Act and Sections 34 and 411(h) of the Specific Relief Act read with Section 16 of the Arbitration Act."

10. Similar view was taken by this Court in Spentex

Industries Ltd. vs. Dunvant S.A. and Anr. in CS(OS)

1101/2009, decided on 29th May, 2009. A perusal of the

judgment would show that the earlier decision of this Court

in the case of Roshan Lal (supra) was sought to be doubted

by the learned senior counsel for the petitioner on a number

of grounds, including that (i) as per the agreement alleged

by the defendants, the place of arbitration was England not

India, whereas Section 5 and 16 of the Act are placed in

Part I of the Act which applies only when the place of

arbitration is in India (ii) Section 45 contained in Part II of

the Act relating to enforcement of certain foreign awards is

in diversion from the para materia Section 8 in Part I

relating to domestic awards and Section 45 provides for

reference to Arbitrator unless the judicial authority seized of

the matter finds the agreement to be null and void,

inoperative or incapable of being performed; (iii) the court

loses the jurisdiction only when the other party applies for

reference to arbitration; else the suit is maintainable and in

Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. 2005

(6) Scale 561, Supreme Court has held that when a suit is

filed for a declaration and injunction for cancellation of

documents and declaration that long term sale and

purchase agreement, including arbitration clause was void

on the ground that terms of the agreements are

unconscionable, unfair and unreasonable and an

application under Section 45 of the Act is moved therein,

the findings therein are only prima facie and not final.

Rejecting the contention, this Court noticed that the

Supreme Court in Bhatia International v. Bulk Trading

S.A. 2002 (4) SCC 105, had held that the provisions of Part

I of the Act apply also in cases of international commercial

arbitrations held out of India unless the parties by

agreement expressly or impliedly exclude all or any of its

provisions in which case the laws or rules chosen by the

parties would prevail and also noticing that Supreme Court

in Global Engineering v. Satyam Computers Services

Ltd. AIR 2008 SC 1061 had not only followed Bhatia

International (supra), but had further held that the

provisions of Section 34 of the Act also apply to

international commercial agreements, rejected the

contention. An appeal came to be preferred against the

aforesaid decision of the learned Single Judge of this Court

and was decided by a Division Bench of this Court in

Spentex Industries Ltd. vs. Dunvant S.A. and Anr.

RFA(OS) No. 69/2009 and C.M. No.11710-11/2009, decided

on 29th October, 2009. The Division Bench noted that the

relief sought in the plaint, included a declaration that the

purported arbitration clause was non-est and

unenforceable. On the question as to whether there are

material dissimilarities between Chapter I and Chapter II of

the Act, the Division Bench held that debate in this regard

had been settled by Supreme Court in the case of Bhatia

International (supra) holding that Chapter I, including

Section 9 would be applicable even to international

commercial arbitrations held outside India unless the

parties excluded all or any of its provisions.

The Division bench, inter alia, held as under:

"The learned Single Judge has dealt in great detail various case laws. Very recently another Division Bench of this Court of which one of us (Vikramajit Sen, J) was a member has also dwelt on this issue in FAO(OS) No. 21/2008 titled Airport Authority of India v. Hindustan Steel Works Construction Ltd. decided on 15.10.2009. It was concluded that the A&C Act provides adequate recourse for challenging an award, not merely on the merits but also on questions such as whether the Arbitral Tribunal was possessed of powers to adjudicate the disputes. The learned Single Judge has correctly found the decision in K.V.

Aerner Cementation India Ltd. v.

Bajranglal Agarwal 2001 (6) Supreme 265, S.B.P. & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 as well as Shin-

Etsu Chemical Ltd. v. Aksh Optfiber Ltd.

AIR 2005 SC 3766 : (2005) 7 SCC 234 to be relevant. We are in entire agreement with the reasoning in the impugned Judgment."

The decision of the Division Bench of this Court

being binding on me and even otherwise I am in full

agreement with the view taken therein, I, therefore, hold

that the existence or validity of an arbitration agreement

cannot be agitated by filing a civil suit before a court and

that the question as to whether there is an arbitration

agreement between the parties or not or whether such an

agreement is valid or otherwise, can be raised only in the

proceedings initiated under the provisions of Arbitration and

Conciliation Act, 1996 and not by filing a suit before a Civil

Court.

11. In The Handicrafts and Handlooms Exports

Corporation of India Limited vs. Ashok Metal

Corporation and Anr. RFA 219/2009 and CM No.

9219/2009, decided on 25th May, 2010, another learned

Single Judge of this Court, after taking into consideration

the decisions of Supreme Court in the case of SBP & Co.

(supra) and the decision of Supreme Court in Shin-Etsu

Chemical Co. Ltd. (supra) and the decision of this Court in

Lucent Technologies Inc. (supra), held that it is not open

to Civil Court to go into the questions of the alleged non-

existence of an arbitration agreement, in a suit for

declaration and, therefore, it would not be open to Civil

Court to pass an injunction against an arbitral proceeding.

12. The learned counsel for the plaintiff has referred to

the decision of this Court in Lucent Technologies Inc. vs.

ICICI Bank Ltd. & Ors., IA No. 2758/2005, 3134/2005 &

5838/2006 in CS(OS) No. 386/2005, decided on 13th

October, 2009, where a contrary view appears to have been

taken. But, in view of the decision of the Division Bench of

this Court in the case of Spentex Industries Ltd. (supra), it

is not open to me to act upon this decision.

13. The learned counsel for the plaintiff has referred to

decision of Supreme Court in Sukanya Holdings Pvt. Ltd.

Vs. Jayesh H. Pandya and Anr. 2003 (5) SCC 531, where

Supreme Court, while considering an application under

Section 8 of Arbitration and Conciliation Act, held that for

interpretation of Section 8, Section 5 would have no bearing

because it contemplates that in the matters governed by

Part I of the Act, the judicial authority shall not intervene,

except where so provided in the Act and except Section 8,

there was no provision in the Act to refer the dispute to

arbitration in a pending suit. It was further held that there

is no provision in the Act as to what is required to be done

in a case where some parties to the suit are not parties to

the arbitration agreement nor is there a provision for

referring the matter to arbitration when the subject matter

of the suit includes subject matter of the agreement as well

as other disputes. The Court was of the view that where a

suit has commenced „as to a matter‟ which lies outside the

arbitration agreement and is also between some of the

parties who are not parties to the arbitration agreement,

there is no question of application of Section 8 since the

words „a matter‟ indicate that the entire subject matter of

the suit should be subject to arbitration agreement. This

judgment, to my mind, does not apply to the present suit

since this is a suit filed before a Civil Court and not a

proceeding initiated under the provisions of Arbitration and

Conciliation Act and, therefore, Section 5 of the Act squarely

applies to the present suit.

14. The learned counsel for the plaintiff has also

referred to the decision of Shin-Etsu Chemical Co. Ltd.

(supra). This judgment, as noted earlier, was considered by

a learned Single Judge of this Court and his decision has

been upheld by a Division Bench of this Court. Even

otherwise, I find no proposition of law in this judgment

which would entitle the plaintiff to dispute the existence or

validity of an arbitration agreement by way of a suit before a

Civil Court.

15. For the reasons given in the preceding paragraphs,

prima facie, I am of the view that this Court cannot go into

existence or validity of the arbitration clause invoked by

defendant No.1, nor can an injunction be granted by it

restraining defendant No. 1 from continuing with the

arbitration proceedings initiated by it before American

Arbitration Association.

The application is dismissed.

CS(OS) No. 829/2011

Renotify for hearing on 11th July, 2011.

(V.K. JAIN) JUDGE MAY 04, 2011 bg