Delhi High Court

Celebi Delhi Cargo Terminal ... vs Aryan Cargo Express Pvt. Ltd. on 20 January, 2012

Author: Reva Khetrapal

*    IN THE HIGH COURT OF DELHI AT NEW DELHI


+             IA No.9268/2011 in CS(OS) 2294/2010


CELEBI DELHI CARGO TERMINAL
MANAGEMENT INDIA PVT. LTD.                ..... Plaintiff
                  Through: Mr. B.L. Wali and Mr. Sarul
                           Jain, Advocates.

                   versus


ARYAN CARGO EXPRESS PVT. LTD.         ..... Defendant
                Through: Mr. Vaibhav Dang, Advocate

%                           Date of Decision : January 20, 2012

CORAM:
HON'BLE MS. JUSTICE REVA KHETRAPAL

                            JUDGMENT

: REVA KHETRAPAL, J.

1. The above mentioned application filed by the defendant under

Section 8 of the Arbitration and Conciliation Act, 1996 for referring

the parties to arbitration is predicated on Clauses 9.1 and 9.2 of the

Cargo Handling Agreement executed between the parties valid from

1st March, 2010 till 31st March, 2010 (Ex.D1). For the sake of facility

of reference, the relevant clauses are extracted hereinbelow:-

"9. Governing law 9.1 This Agreement, and the rights of the Parties hereto, shall be governed by, and interpreted in accordance with, the Laws of India without reference to any conflict of law provisions. The Courts of Delhi shall have exclusive jurisdiction in all matters concerning this Agreement. 9.2 In the event of any disputes, controversies or claims arising out of or in connection with or in relation to this Agreement, the Parties shall make all reasonable efforts to resolve disputes amongst themselves. Failing such mutual resolution of the dispute, the Parties shall refer the dispute to the arbitration of a sole arbitrator to be appointed mutually by both the parties. The arbitration shall be conducted as per the provisions of the Arbitration and Conciliation Act, 1996, as amended from time to time. The language of the arbitration proceeding shall be English and the venue of the arbitration shall be New Delhi. The award of the arbitrator shall be binding on the Parties to this Agreement."

2. It is submitted in the application by the defendant as follows.

3. The plaintiff vide allotment letter dated 8th December, 2009 had

agreed to allot space measuring 145 sq. metres to the defendant on

license basis at First Floor of Import III Building at the IGI Cargo

Complex. A perusal of the contents of the aforesaid letter would

reveal that the arrangement between the parties was controlled by the

terms and conditions mentioned in Clauses 1 to 14 of the said

allotment letter. However, despite the said position, the plaintiff

failed to apprise this Court that in furtherance of Clause 6 of the

aforesaid allotment letter, the parties had executed a written

agreement whereunder it was mutually agreed that all disputes,

controversies or claims arising between the parties would be referred

to arbitration. Consequently, the defendant has not filed its first

statement on the substance of the dispute, and prays for reference of

the dispute between the parties to the arbitration of a sole arbitrator to

be appointed mutually in accordance with Clause 9 of the agreement.

4. Reply to the aforesaid application was filed by the plaintiff

wherein it is averred that the application is liable to be dismissed at

the threshold, being an abuse of the process of law as well as

frivolous and vexatious, as the defendant had earlier moved an

application, being IA No.7599/2011 under Order VIII Rule 1 read

with Section 151 of the Code of Civil Procedure, 1908 alleging that

the suit of the plaintiff was frivolous and the claim made therein was

baseless and misconceived.

5. In its reply, the plaintiff also submits that (i) the agreement

relied upon by the defendant in the present application is the „Cargo

Handling Agreement‟ and, (ii) the charges for the services in respect

of which the said agreement has been executed are not the subject

matter of the present suit.

6. Elaborating the aforesaid contentions, the plaintiff submits in

reply that the present suit has been filed by the plaintiff for recovery

of monthly „License Fee‟, „Cargo Services Fees‟ and „Utility

Charges‟ as agreed to be paid by the defendant for the possession and

utilization of office space at First Floor of Import III Building at

Indira Gandhi International Airport Cargo Complex allotted by the

plaintiff to the defendant vide allotment letter dated 08.12.2009. The

plaintiff further submits that in respect of the aforesaid charges no

written agreement was signed between the parties. The Cargo

Handling Agreement referred to by the defendant in his application

was only for the services pertaining to cargo handling, and that too for

the period of one month, i.e., the period intervening 1 st March, 2010

to 31st March, 2010. The said Agreement, therefore, could not be said

to govern the subject matter of the present suit. As such, the claim of

the plaintiff as raised in the suit could not be referred to arbitration,

not being covered under any arbitration agreement.

7. Thus, it is categorically denied by the plaintiff in the reply filed

by it that the arrangement between the parties was controlled by the

Cargo Handling Agreement. It is asserted that the present claim of

the plaintiff is not the subject matter of the said agreement. Without

prejudice to the aforesaid, it is stated that even if the charges for the

cargo handling services during the validity of the said agreement are

presumed to be part of the subject matter of the present claim of the

plaintiff, the same cannot be separated and individually referred to

arbitration and, as such, the application of the defendant is liable to be

dismissed.

8. The defendant rejoined to the aforesaid reply by denying that

the Cargo Handling Agreement (containing the arbitration clause)

had not been executed in furtherance of the allotment letter dated

08.12.2009 or that the plaintiff‟s claim towards fees for cargo services

(which is part of the dispute in the present suit) is not governed by the

terms of the said agreement. It was submitted that pursuant to the

terms contained in the allotment letter dated 08.12.2009, the

defendant had not only deposited, in advance, a sum of ` 2,05,912/-

(Rupees Two Lac Five Thousand Nine Hundred and Twelve Only),

towards monthly license fee, but had also made security deposit of

` 12,35,470/- (Rupees Twelve Lac Thirty Five Thousand Four

Hundred and Seventy Only) [equivalent to six months‟ license fee]

and a sum of ` 1,00,000/- (Rupees One Lac Only) towards the

electricity charges.

9. Significantly, in the context of the assertion of the plaintiff in

reply that the plaintiff has claimed various reliefs in the suit, such as

monthly license fee, cargo services fees and utility charges and, as

such, the dispute with regard to cargo services fees for the valid

period of the said agreement could not be separated from the rest of

the claim and referred to arbitration, the defendant in rejoinder

submitted as follows:-

"The plaintiff has further wrongly assumed that by means of present application the defendant is seeking bifurcation of the subject matter of the suit/claim for recovery. The defendant craves leave of this Hon‟ble Court to refer to the contents of submissions made hereinabove which are not repeated herein for the sake of prolixity. It is relevant to mention that although the defendant has sought intervention of this Hon‟ble Court to refer the entire dispute

to arbitration however, in the event this Hon‟ble Court is of the view that the entire claim cannot be referred for arbitration then such part of the claim as is covered by the terms of arbitration agreement be referred to arbitration."

10. Oral submissions on the basis of the aforesaid pleadings were

addressed by Mr. B.L. Wali, the counsel for the plaintiff and Mr.

Vaibhav Dang, the counsel for the defendant. Mr. Wali, the learned

counsel for the plaintiff, relied upon the judgment of the Supreme

Court in the case of Sukanya Holdings Pvt. Ltd. vs. Jayesh H.

Pandya and Anr. (2003) 5 SCC 531, to contend that there is no

provision in the Act that when the subject matter of the suit includes

the subject matter of the arbitration agreement as well as other

disputes, the matter is required to be referred to arbitration. There is

also no provision for splitting the cause or parties and referring a part

of the subject matter of the suit to the arbitrator. He submitted that

the whole purpose of speedy disposal of the dispute would be

frustrated by such bifurcation of the suits in two parts, one to be

decided by the Arbitral Tribunal and the other to be decided by the

Court in which the suit is filed.

11. Mr. Vaibhav Dang, on the other hand, relied upon a large

number of judgments to buttress his case for reference of the dispute

to arbitration, being the following:-

I. Impex Corporation and Ors. vs, Elenjikal Aquamarine

Exports Ltd., 2008 (2) Arb. LR 560 (Kerala) (DB), wherein,

relying upon the decision of the Supreme Court in

Rukmanibai Gupta vs. The Collector, Jabalpur, AIR 1981 SC

479, it was held that an arbitration agreement is not required to

be in any particular form. What is required to be ascertained is

whether the parties have agreed to refer the dispute to

arbitration.

II. National Aluminium Company Ltd. vs. The Doaba Industrial

& Trading Co. (P) Ltd., AIR 2008 Orissa 12, in which it was

held by the Orissa High Court that the security contract in the

said case was an extension of the C&F contract and the

arbitration clause in the earlier C&F contract could be imported

into the subsequent security contract as it was not inconsistent

with the terms of the subsequent contract between the parties.

III. Rashtriya Ispat Nigam Ltd. and Anr. vs. M/s. Verma

Transport Company, AIR 2006 SC 2800, in which the

Supreme Court drew a distinction between Section 8 of the

1996 Act and Section 34 of the 1940 Act, holding that the

exercise of discretion by the judicial authority, which was the

hallmark of Section 34 of the 1940 Act, has been taken away

under the 1996 Act. Whereas Section 34 of the 1940 Act

contemplated stay of the suit; Section 8 of the 1996 Act

mandates a reference. It further held that the expression „first

statement on the substance of the dispute‟ contained in Section

8(1) of the 1996 Act must be contra-distinguished with the

expression „written statement‟. What is, therefore, material is

as to whether the petitioner has filed his first statement on the

substance of the dispute or not, if not, his application under

Section 8 of the 1996 Act may not be held wholly

unmaintainable.

IV. Ram Naresh Kumar Singh vs. Food Corporation of India

Ltd., Patna and Others, AIR 1983 Patna 285, in which the

Patna High Court elucidated the real test for determining

whether an act is a step in the proceedings and held that this

was to be determined by testing whether the act displays an

unequivocal intention to proceed with the suit and to give up

the right to have the matter disposed of by way of arbitration.

V. GNB Bros. Pvt. Ltd. vs. Sudhir Gensets Ltd. Civil Revision

Petition No.131/2005, wherein a learned Single Judge

(Hon‟ble Mr. Justice Pradeep Nandrajog) of this Court

interpreted the phrase „not later than when submitting his first

statement on the substance of the dispute‟ in sub-section (1) of

Section 8 to hold that an application invoking remedy under

Section 8 of the Arbitration and Conciliation Act, 1996 cannot

be postponed beyond a reasonable period; and dismissed the

respondent‟s application under Section 8 of the Act which was

presented three years after the respondent was served with

summons of the suit.

VI. Shukaran Devi vs. Om Prakash Jain & Anr., 133 (2006)

DLT 297. In this case, another learned Single Judge of this

Court (Hon‟ble Mr. Justice Anil Kumar) emphasized the

preemptory nature of Section 8 of the Arbitration and

Conciliation Act, 1996 and held, rejecting the objection of the

plaintiff that the application under Section 8 had been filed to

avoid the rigour of Order VIII Rule 10 of the Code of Civil

Procedure as the defendant No.1 did not file either the

application or his written statement within 30 days, that on this

ground alone the application of the defendant under Section 8

could not be declined.

VII. Associates India Financial Services Pvt. Ltd. vs .Mr. Jairaj

Shetty, 109 (2004) DLT 854, in which it was held that when

there is a dispute between the parties, the same is required to be

adjudicated upon and resolved through the process of

arbitration in cases where there is an arbitration clause, as

contemplated by Section 8 of the Arbitration and Conciliation

Act, 1996 and not otherwise.

12. Though, in my view, there can be no quarrel with the law

enunciated in the aforesaid decisions, I am satisfied that the

application of the defendant in the present case is untenable for the

reasons delineated hereinbelow, but first an overview of the facts is

necessitated.

13. A bare glance at the plaint shows that the suit instituted by the

plaintiff seeks recovery of a sum of ` 36,67,820.94 (Rupees Thirty

Six Lacs Sixty Seven Thousand Eight Hundred Twenty and Ninety

Four Paise Only) along with 18% interest thereon from the defendant.

The plaintiff is a company having its registered office at RoomNo.23,

International Cargo Terminal, Import Building III, Indira Gandhi

International Airport, New Delhi. It has been granted the Letter of

Award by the Delhi International Airport Pvt. Ltd. (in short "DIAL"),

thereby authorizing it to exercise the right and authority for

upgradation, modernization, financing, operation, maintenance and

management of the Cargo Terminal for providing services at the

Indira Gandhi International Airport, New Delhi vide a Concession

Agreement dated 24th August, 2009. The defendant is a company

having its registered office at A-87/88, Road No.4, Mahipalpur

Extension, New Delhi - 110037, which is engaged in the business of

air cargo transportation within India and across the globe. The

defendant through its Director approached the plaintiff for space

requirement at Indira Gandhi International Airport Cargo Terminal.

The plaintiff by letter dated 8th December, 2009 (Ex.P5) allotted

space to the defendant on payment of monthly license fee and deposit

of security and electricity charges as set out in paragraph 7 of the

plaint. After acceptance of the terms and conditions of the said

allotment, the defendant took possession of the allotted space on 28 th

December, 2009 on payment of the security deposit and advance

license fee.

14. It is the case of the plaintiff that the defendant miserably failed

to fulfill its contractual obligations and defaulted in payment of

monthly license fee, cargo services fees and utility charges as agreed.

Since the defendant kept on avoiding the payment of dues which

remained outstanding under various heads for months together, the

plaintiff, by its letter dated 22nd July, 2010 (Ex.P11), called upon the

defendant to make the payment of the total outstanding dues

amounting to ` 28,83,226/-. The said letter spells out the dues under

various heads as follows:-

                "1. Fees for Cargo Services       ` 1,652,399
                2. License Fees                   ` 1,228,506
                3. Utility Charges                `     2,321
                   (i.e. electricity etc.)
                  Total amount outstanding        ` 2,883,226"

15. The defendant in its reply dated 27th July, 2010 (Ex.P8)

requested for extension of time for making the payment of the total

outstanding amount to the plaintiff till 8th August, 2010. The plaintiff

on 11th August, 2010 issued a reminder calling upon the defendant to

make payment of the total outstanding dues of ` 34,52,314/-. Finally,

on September 06, 2010, a legal notice was issued by the plaintiff to

the defendant. The present suit was instituted thereafter based on the

ledger account of the defendant in the books of the plaintiff

Company. A bare glance at the said ledger account, which is for the

period from 1st April, 2009 to 15th October, 2010, makes it abundantly

clear that there are several entries to debit the defendant under various

heads, viz., rental income, X-ray charges, cargo facility-

reimbursement, de-stuffing charges, ULD-building-rebuilding-

offloading, demurrage charges-bonded area, interest income, etc.

16. With the aforesaid factual background, it is proposed to first

examine the contention of Mr. Wali that the application of the

defendant under Section 8 of the Arbitration Act is liable to be

dismissed at the threshold on the ground that the said application is

not the first statement on the substance of the dispute by the

defendant, as the defendant had earlier moved an application bearing

IA No.7599/2011 under Order VIII Rule 1 read with Section 151 of

the Code of Civil Procedure, 1908 alleging that the instant suit of the

plaintiff was frivolous and the claim made therein was baseless and

misconceived. Mr. Wali‟s further contention is that the present

application filed by the defendant is only a ploy to gain time in view

of the fact that the defendant has failed to file its written statement

within the stipulated time and even within the extended time granted

by this Court. He pointed out that the Supreme Court in the case of

State of Uttar Pradesh and Anr. vs. Janki Saran Kailash Chandra

and Anr., (1973) 2 SCC 96 had considered an application for time to

file written statement to be a step in the proceedings.

17. Indubitably, Mr. Wali is correct in his submission that it was so

held by the Supreme Court in the case of Janki Saran Kailash

Chandra (supra), but it cannot be lost sight of that what was being

considered by the Supreme Court in the said case was an application

under Section 34 of the 1940 Act, and the Supreme Court in its

subsequent decision in Food Corporation of India and Another

versus Yadav Engineer and Contractor, 1983 (1) SCR 95

distinguished the aforesaid judgment, inter alia, stating that the view

taken therein did not run counter to the view taken by it that

interlocutory proceedings are only incidental to the main proceeding

and, thus, any step taken in the interlocutory proceedings does not

come within the purview of main proceedings.

18. Again, the Supreme Court while considering this aspect of the

matter in Sadhu Singh Ghuman vs. Food Corporation of India and

Ors., (1990) 2 SCC 68, wherein it was categorically stated that

seeking a direction to the plaintiff to produce the original agreement

does not amount to submitting to the jurisdiction of the Court,

opined:-

"............The right to have the dispute settled by arbitration has been conferred by agreement of parties and that right should not be deprived of by technical pleas. The Court must go into the circumstances and intention of the party in the step taken. The Court must examine whether the party has abandoned his right under the agreement. In the light of these principles and looking to the substance of the application dated January 4, 1985, we cannot form an opinion that the defendants have abandoned their right to have the suit stayed and took a step in the suit to file the written statement."

19. In the case of Vareed Jacob vs. Sosamma Geevarghese and

Others, (2004) 6 SCC 378, a distinction was drawn by the Supreme

Court between incidental proceedings and supplemental proceedings

referred to in Part III and Part VI of the Code of Civil Procedure. The

said distinction came to be upheld in the case of Rashtriya Ispat

Nigam Ltd. (supra). In the said case, the question which came up for

consideration before the Supreme Court was whether by opposing the

prayer for interim injunction, the restriction contained in sub-section

(1) of Section 8 was not attracted. Highlighting the contradistinction

between supplemental and incidental proceedings which are not part

of the main proceedings on the one hand, and the main proceedings

on the other hand, the Supreme Court held that the aforesaid

distinction must be borne in mind while dealing with an application

under Section 8 of the Arbitration and Conciliation Act, 1996. It

would be apposite to extract the following observations made by the

Supreme Court in the context:-

"37. By opposing the prayer for interim injunction, the restriction contained in sub- section (1) of Section 8 was not attracted. Disclosure of a defence for the purpose of opposing a prayer for injunction would not necessarily mean that substance of the dispute

has already been disclosed in the main proceeding. Supplemental and incidental proceeding are not part of the main proceeding. They are dealt with separately in the Code of Civil Procedure itself. Section 94 of the Code of Civil Procedure deals with supplemental proceedings. Incidental proceedings are those which arise out of the main proceeding. In view of the decision of this Court in Food Corporation of India (supra), the distinction between the main proceeding and supplemental proceeding must be borne in mind."

20. Nearly, a century ago Ridley, J. in Austin and Whiteley Ltd. vs.

S. Bowley and Son (1913) 108 LT 921 (F) enunciated the law in this

regard as follows:-

"In my opinion what is intended by a step in the proceedings is some step which indicates an intention on the part of a party to the proceedings that he desires that the action should proceed and has no desire that the matter should be referred to arbitration."

21. In the Indian context, Tendolkar, J. in Naruddin Abdulhusain

vs. Abu Ahmed, AIR 1950 Bom 127 held that the real test was

whether an act displays an unequivocal intention to proceed with the

suit and to give up the right to have the matter disposed of by

arbitration.

22. In view of the aforesaid well settled legal position, I am not

inclined to hold that the defendant‟s application seeking enlargement

of time for filing written statement can be construed in such a manner

as to lead to the conclusion that the defendant had thereby disclosed

and declared its unequivocal intention to proceed with the suit. As a

corollary, the present application is held to be maintainable.

23. Adverting to the next issue as to whether the present claim of

the plaintiff is or is not the subject matter of the Cargo Handling

Agreement, there is no gainsaying that the plaintiff has claimed

various reliefs in the suit under various heads such as "License Fee",

"Cargo Services Fees" and "Utility Charges". A bare glance at the

Cargo Handling Agreement would suffice to show that the said

Agreement does not cover the entire gamut of disputes between the

parties and is confined to cargo handling charges alone. Also, the

admitted position is that the parties never entered into a written

contract for license fee. It is also undeniable that the Cargo Handling

Agreement on which the claim of the defendant for arbitration is

predicated was for a period of one month only, though cargo handling

services continued to be rendered to the defendant by the plaintiff,

with the concurrence of the defendant, for the entire period during

which the defendant remained in the premises of the plaintiff. It is

also not in dispute that the electricity charges and various other

charges as set out in ledger account referred to hereinabove were

payable by the defendant to the plaintiff. For the purpose of referring

the dispute for cargo handling charges payable by the defendant to the

plaintiff to arbitration, indubitably the part of the cause of action

relating to cargo services fees would have to be split from the

remaining part of the claim of the plaintiff. It is perhaps for this

reason that in the rejoinder filed by it to the plaintiff‟s reply the

defendant itself has pleaded that "in the event this Hon'ble Court is

of the view that the entire claim cannot be referred for

arbitration then such part of the claim as is covered by the terms

of Arbitration Agreement be referred to arbitration."

24. In Sukanya Holdings Pvt. Ltd., the Supreme Court laid down

the law as follows:- (SCC, Page 535)

"................there is no provision in the Act that when the subject matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and

referring the subject matter of the suit to the arbitrators."

It further held:- (SCC, Page 536)

"The next question which requires consideration is - even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act.

If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course.

Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.

Secondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums."

25. In view of the aforesaid delineation of the law by the Supreme

Court, there is no manner of doubt that bifurcation of causes of action

should ordinarily not be resorted to. Such a practice could prove to

be unwholesome and liable to result in inevitable delays and

mounting of cost of litigation, apart from preventable harassment to

the parties and their witnesses. The possibility of conflict of

judgments between the Court and the Arbitral Tribunal also cannot be

ruled out if only a part of the disputes is referred to the Arbitral

Tribunal by the Court and the Court chooses to retain fractional

disputes for adjudication at its own end. There is, therefore, no

plausible reason to impel me to bifurcate the dispute relating to cargo

handling charges and to refer the same to arbitration and at the same