Ravindra Kumar Verma vs M/S. Bptp Ltd. & Anr.
2014 Latest Caselaw 5891 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  C.M.(M) No.1021/2014

%                                                        18th November, 2014

RAVINDRA KUMAR VERMA                                     ..... Petitioner
                Through:                 Mr. Bharat Bhushan, Advocate.


                          Versus

M/S. BPTP LTD. & ANR.                                       ..... Respondents

                    Through:             Mr. Harish Sharma, Advocate.

CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

To be referred to the Reporter or not?    Yes


VALMIKI J. MEHTA, J (ORAL)

C.M. No.18930/2014 (exemption)

1.           Exemption allowed subject to just exceptions.

             C.M. stands disposed of.

+ C.M.(M) No.1021/2014 and C.M. No.18931/2014 (stay)

2. This petition under Article 227 of the Constitution of India is

filed by the plaintiff in the suit seeking setting aside of the impugned order

dated 31.7.2014 by which trial court has allowed the application filed by the

defendant/respondent no.1 under Section 8 of the Arbitration & Conciliation

Act, 1996 (hereinafter referred to as 'the Act') and held that the suit

proceedings could not be continued in view of the arbitration clause between

the parties i.e parties were to resolve their disputes by arbitration.

3. The subject suit was filed by the petitioner/plaintiff for recovery

of Rs.12,64,258.80/- claiming that the defendant has failed to perform the

contract and has failed to give the flat which was booked by the

petitioner/plaintiff in a project "Parklands" in Faridabad, Haryana. The total

amount claimed in the suit was Rs.12,64,258.80/- out of which Rs.8,97,671/-

was towards principal amount being the advance sale price paid and the

balance was towards interest.

4.            It   is   an     undisputed   position     before   me       that   the

petitioner/plaintiff    when    he   booked   a   flat    with    the    respondent

no.1/defendant, in the allotment letter, there was an arbitration clause and

this arbitration clause reads as under:-

"All and any disputes arising out of or touching upon or in relation to the terms of this application and/or Standard Floor Buyer's Agreement including the interpretation and validity of the terms thereof and the respective rights and obligations of the parties shall be settled amicably by mutual discussion failing which the same shall be settled through arbitration. The arbitration proceedings shall be governed by the Arbitration & Conciliation Act, 1996, or any statutory amendments/modifications thereof for the time being in force. The arbitration proceedings shall be held at an appropriate location in New Delhi by a sole arbitrator appointed by the Company. The applicant(s) hereby confirms that he/she shall have or raise no objection to this appointment. The Courts at New Delhi alone shall have the jurisdiction in all matter arising out of/touching and/or concerning this

application and/or Floor Buyers agreement regardless of the place of execution of this application which is deemed to be at New Delhi "

5. Learned counsel for the petitioner argues that as per the agreed

arbitration clause, before going in for arbitration there was a pre-condition of

taking place a mutual discussion between the parties and since no mutual

discussion took place, arbitration clause/agreement could not have been

invoked by the respondents/defendants. Reliance is placed by the petitioner

upon the judgment of the learned Single Judge of this Court in the case of

M/s Haldiram Manufacturing Company Pvt. Ltd. Vs. M/s DLF

Commercial Complexes Limited 193 (2012) DLT 410. It is argued that the

trial court has committed an illegality in ignoring this binding judgment in

which it is held that an application under Section 8 of the Act has to be

dismissed if the application under Section 8 of the Act does not comply with

the pre-condition of entering into mutual discussion before invoking the

arbitration clause/agreement. Paras 14 to 16 of the judgment in the case of

M/s Haldiram Manufacturing Company Pvt. Ltd. (supra) are relied upon

by the petitioner and which paras read as under:-

"14. The controversy in hand does not come to an end here as the arbitration clause under consideration has another dimension. It would be manifest on perusal of the above arbitration clause that the disputes arising between the parties at the first instance were to be mandatorily settled amicably by mutual discussion as the word used is shall in the clause and it is only on the failure of any settlement arrived at between the parties after the mutual

discussion, the other alternative was the settlement of the disputes through arbitration. Hence, clearly the first step stipulated in the said clause is the settlement of disputes through mutual discussion and second step is the settlement through arbitration. The Forum of Arbitration was, therefore, made dependent on the outcome of the first step that is of mutual settlement.

15. Indisputably, no mutual discussion between the parties has taken place, prior to the filing of the present suit. Surprisingly, the defendant in their reply dated 14th August, 2009, to the legal notice of the plaintiff dated 13th July, 2009 had neither called upon the plaintiff for such mutual discussions as envisaged in Clause-34 of the application form and nor had specifically reminded the plaintiff of the Clause for adjudication of the disputes through arbitration.

16. On a holistic reading of the said arbitration clause, it is decipherable that the first option given by the defendant to the plaintiff is for settlement of the disputes through mutual discussion and the option of arbitration would come at the second stage. The defendant has admittedly not called upon the plaintiff for any mutual discussion and therefore, the defendant itself has ignored Clause-34 of the said application form and having ignored the said clause itself, this Court does not find the defendant has any right to move the present application to seek rejection of the present plaint based on the alleged arbitration agreement. The defendant cannot be allowed to rely on the said clause for invoking arbitration proceedings and at the same time ignore the course of action of `mutual discussion' contrived in the said clause. The conduct of the defendant clearly is contrary to the mandate of the said clause and thus the stage to invoke arbitration proceedings before exhausting the first stage of mutual discussion does not arise. However, at this stage the defendant cannot be allowed to take shelter under the said clause for invoking the arbitration proceedings when it has retracted from the same. The defendant cannot be allowed to approbate and reprobate and thus in the facts of the case at hand is not entitled to relief."

6. No doubt, the observations in the case of M/s Haldiram

Manufacturing Company Pvt. Ltd. (supra) does help the petitioner/plaintiff

inasmuch as it is held in the case of M/s Haldiram Manufacturing

Company Pvt. Ltd. (supra) that if no mutual discussion takes place prior to

filing of the application under Section 8 of the Act then the arbitration clause

cannot be invoked, however, the issue is that whether the proposition of law

laid down in the case of M/s Haldiram Manufacturing Company Pvt. Ltd.

(supra) is correct or that the same goes against the earlier judgments of

different Single Judges of this Court.

7. The issue is that is the arbitration clause not capable of being

invoked if a prior requirement contained in the arbitration clause is not

complied with. This issue as to whether requirement of a particular

procedure to be followed before the arbitration clause can be invoked is

directory or mandatory has been decided in the judgment of a learned Single

Judge of this Court in the case of Saraswati Construction Co. Vs. Co-

operative Group Housing Society Ltd. 1995 (57) DLT 343: 1994 RLR 458.

In the case of Saraswati Construction Co. (supra) as per the arbitration

clause the same could only be invoked in a particular manner by calling

upon the architect to refer the disputes to arbitration and since notice was not

given through the architect, it was argued that the arbitration clause could

not be invoked. The learned Single Judge of this Court in the case of

Saraswati Construction Co. (supra) held that the prior requirement as stated

for invoking arbitration even if not complied with, the same cannot prevent

reference to arbitration, because, the procedure/pre-condition has to be only

taken as a directory and not a mandatory requirement. The learned Single

Judge in the case of Saraswati Construction Co. (supra) relied upon the

earlier judgment of a learned Single Judge of this Court in the case of M/s

Sikand Construction Co. Vs. State Bank of India ILR (1979) I Delhi 364.

Paras 2 to 5 of the judgment in the case of Saraswati Construction Co.

(supra) are relevant and the same read as under:-

"2. There has been a contract between the parties which contains an arbitration clause to the following effect.

"All disputes and differences of any kind whatever arising out of or in connection with the conduct of the carrying out of the works (whether during the progress of the works or after their completion, and whether before or after the determination, abandonment or breach of the contract) shall be referred to and settled by the architects who shall state their decision in writing .Such decision may be in the form of a final certificate or otherwise. The decision of the Architect with respect to any of the excepted matters shall be final and without Appeal as stated in Clause No. 33. But if either the Employer or the Contractor be dissatisfied with the decision of the Architect or any matter, question or the dispute of any kind (except any of the excepted matters) or as to the withholding by the Architect of any certificate to which the contractors may claim to be entitled, then and in any such case either party(the Employer or the Contractors) may within 28 days after receiving notice to such decision give a written notice to the other party through the Architects requiring that such matters in dispute be arbitrated upon. Such written notice shall specify the matters which are in dispute and

such dispute or difference of which such written notice has been given and no other shall be and is hereby referred to the arbitration and final decision of a single arbitrator being a Fellow of the Indian Institute of Architects to be agreed upon and appointed by both the parties or in case of disagreement to the appointment of a single arbitrator, to the arbitration of two Arbitrators being both Fellow of the Indian Institute of Engineers of equivalent one to be appointed by each party, which arbitrators shall before taking themselves the burden of reference appoint an Umpire."

3. This petition is contested by the respondent on the sole ground that the petitioner has not invoked the arbitration clause in accordance with the terms of the said clause and thus the petition is not maintainable. It is pointed out that the arbitration clause contemplates that petitioner has to give a notice in writing in which the disputes sought to be raised for arbitration were to be detailed out and such a notice was to be given through the architect to the respondent and this step has not been taken by the petitioner, thus the arbitration clause cannot be invoked by filing a petition under Section 20.

4. Similar arbitration clause came up for consideration before this Court in the case of Mis. Sikand Construction Co. v. State Bank of India, 2nd (1979) I Delhi 364. The Court held that writing a letter to the architect is directory provision in an arbitration clause and in the said case despite no such letter being written by the party for invoking the arbitration clause in the manner contemplated in the arbitration clause, still the Court held that in view of the provisions of Section 20 of the Arbitration Act what the Court has to consider is whether the parties have entered into an arbitration agreement and if so, whether there is any sufficient ground for not referring the matter for arbitration and if it is proved that there is an agreement for arbitration then the Court has to direct the filing of the arbitration agreement and appoint the arbitrator in accordance with the arbitration clause.

5. In that case also the directions were given to the parties to appoint an arbitrator in consonance with the arbitration clause. In the present case, admittedly, the contract out of which the disputes arise contains the arbitration clause and thus I hold that the matter is liable for reference in accordance with the arbitration clause. In the present

case, the petitioner had on his own appointed his arbitrator and had sent a communication to the respondent to appoint his arbitrator. the arbitration clause did not contemplate that in the very first instance, the petitioner could appoint his own arbitrator. As was required by the arbitration clause that parties have to agree for appointment of a single arbitrator who is Fellow of the Indian Institute of Architects failing which each party was to nominate its arbitrator who was also to be a Fellow of the Indian Institute of Architects and those two arbitrators were then to appoint an Umpire."

8(i) In my opinion, there are two other reasons, and which are in

addition to the reasoning given in the case of Saraswati Construction Co.

(supra), for holding that a prior requirement to be complied with before

seeking reference of disputes to the arbitration is only directory and not

mandatory.

(ii) The first reason is that if the arbitration clause is read in a

mandatory manner with respect to prior requirement to be complied with

before invoking arbitration, the same can result in serious and grave

prejudice to a party who is seeking to invoke arbitration because the time

consumed in conciliation proceedings before seeking invocation of

arbitration is not exempted from limitation under any of the provisions of the

Limitation Act, 1963 including its Section 14. Once there is no provision to

exclude the period spent in conciliation proceedings, it is perfectly possible

that if conciliation proceedings continue when the limitation period expires

the same will result in nullifying the arbitration clause on account of the

same not capable of being invoked on account of bar of limitation i.e when

proceedings for reference to arbitration are filed in court, the right to seek

arbitration may end up being beyond three years of arising of the disputes

and hence the petition for reference may be barred by limitation. Another

example would make this position clear that suppose on the last date of

limitation period of three years a party wants to invoke an arbitration clause

but the arbitration clause contains the requirement of invoking the pre-

condition of 'mutual discussion'. Surely, on the last date if a notice has to

be given for invoking mutual discussion, no mutual discussion or

conciliation can take place on the same date of the notice itself i.e no mutual

discussion can take place before expiry of the period of limitation which

expires on that very day on which the notice for mutual discussion is given.

Therefore, if the pre-condition of mutual discussion is treated as mandatory,

valuable rights of getting disputes decided by arbitration will get

extinguished and which is not a position which should be acceptable in law.

9(i) Any doubt on this aspect as to whether conciliation proceedings

as required by an arbitration clause are directory or mandatory is removed

when we refer to Section 77 of the Act, and which is the second reason that

the pre-condition of mutual discussion is only a directory requirement and

not a mandatory one. Section 77 of the Act states that in spite of

conciliation proceedings going on, the existence of the same will not prevent

any of the parties to exercise its rights in accordance with law. Section 77 of

the Act reads as under:-

"Section 77. Resort to arbitral or judicial proceedings.- The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights." (underlining added)

(ii) Section 77 of the Act specifically uses the expression

proceedings which are necessary for preserving rights and therefore if rights

are to be preserved on account of limitation expiring, because after expiry of

the period of limitation arbitration clause cannot be invoked either by filing

of a petition under Section 8 of the Act or under Section 11 of the Act,

therefore, existence of conciliation proceedings or mutual discussion should

not be a bar for enforcing rights to arbitration either by filing a petition

under Section 11 of the Act or by seeking to get the suit dismissed by filing

an application under Section 8 of the Act because such proceedings are

necessary to preserve rights of getting the disputes decided by arbitration.

10. It may be noted that the judgment of the learned Single Judge

of this Court in the case of M/s Haldiram Manufacturing Company Pvt.

Ltd. (supra) does not refer to the binding provision of Section 77 of the Act

which provides that existence of conciliation proceedings would not be a bar

for filing of proceedings to preserve rights. It has been held by the Supreme

Court in the judgment in the case of N. Bhargavan Pillai (dead) by LRs and

Anr. Vs. State of Kerala (2004) 13 SCC 217 that a judgment of a court

rendered without taking note of the relevant provision of a statute is per

incuriam and also the settled law is that an earlier judgment in the case of

Saraswati Construction Co. (supra) will prevail either and the later

judgment in the case of M/s Haldiram Manufacturing Company Pvt. Ltd.

(supra). However, in my opinion, the conflict can be resolved by taking the

middle path approach and which is stated hereinafter.

11. Whereas the existence of conciliation or mutual discussion

should not be a bar in seeking to file proceedings for reference of the matter

to arbitration and which is necessary for preserving rights as envisaged by

Section 77 of the Act, however, since in many contracts there is an effective

need of conciliation etc in terms of the agreed procedure provided by the

contract, the best course of action to be adopted is that existence of

conciliation or mutual discussion procedure or similar other procedure

though should not be held as a bar for dismissing of a petition which is filed

under Sections 11 or 8 of the Act or for any legal proceeding required to be

filed for preserving rights of the parties, however before formally starting

effective arbitration proceedings parties should be directed to take up the

agreed procedure for conciliation as provided in the agreed clause for mutual

discussion/conciliation in a time bound reasonable period, and which if they

fail the parties can thereafter be held entitled to proceed with the arbitration

proceedings to determine their claims/rights etc.

12. In view of the above, though this petition is dismissed and the

impugned order is sustained by which the application under Section 8 of the

Act has been allowed, it is however directed that before arbitration

proceedings are effectively pursued, parties must resort to mutual

discussions within a time bound reasonable period. In case, mutual

discussions or conciliation proceedings do not successfully conclude within

the time bound reasonable period of say three months, thereafter arbitration

proceedings for determination of the rights can be continued. I note that I

am fixing a period in this case because contractually no period has been

prescribed for mutual discussion/conciliation procedure. This petition is

accordingly dismissed and disposed of subject however to the aforesaid

observations with respect to mutual discussion/conciliation procedure.

VALMIKI J. MEHTA, J NOVEMBER 18, 2014 Ne