Gujarat High Court

Jayantibhai Chelabhai Prajapati vs Sardar Sarovar Narmada Nigam ... on 3 November, 2023

Bench: Mrs. Justice Agarwal

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      C/ARBI.P/183/2021                                           ORDER DATED: 03/11/2023

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              IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

         R/PETN. UNDER ARBITRATION ACT NO.                         183 of 2021

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                     JAYANTIBHAI CHELABHAI PRAJAPATI
                                  Versus
                  SARDAR SAROVAR NARMADA NIGAM LIMITED
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Appearance:
MR SP MAJMUDAR(3456) for the Petitioner(s) No. 1
MR N R DESAI(6504) for the Petitioner(s) No. 1
MR SANJAY A MEHTA(469) for the Respondent(s) No. 1
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     CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
           AGARWAL

                               Date : 03/11/2023
                                   ORAL ORDER

1. The instant petition under Section 11(6) of the

Arbitration and Conciliation Act, 1996 has been filed

seeking for appointment of Arbitrator pursuant to the

arbitration clause in the Lease Agreement dated

14.07.2008. To examine the claim of the petitioner

for appointment of Arbitrator, certain relevant facts

of the case are to be noted at this juncture.

2. The petitioner herein has entered into a Lease

Agreement with the respondent - Sardar Sarovar

Narmada Nigam Limited (in short 'the respondent

herein') on 14.07.2008 on a token monthly rent of

Rs.1,000/- to Rs.2,357/-, for a period of thirty

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years. As per the conditions of the lease, the lessee

was required to obtain development permission within

six months and complete construction within two years

thereafter. It is stated in the petition that after

execution of the agreement, initially possession of

the subject property was not handed over to the

petitioner and it was given only on 04.07.2009. The

initial six months time-line was already expired and

no objection had been raised by the respondent for

not obtaining development permission within the said

time. It seems that on 24.09.2010, a notice was

served upon the petitioner invoking Clause 13 of the

Lease Deed to terminate the agreement on the premise

that the petitioner had failed to comply the terms

and conditions of the Lease Deed, i.e. seeking time

bound approval for development permission within six

months of the execution of the Sale Deed or Lease

Deed and further the development had not been carried

out within two years of the execution of the said

deed. By order dated 25.03.2011, the respondent had

terminated the Lease Agreement dated 14.07.2008 with

the petitioner.

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3. A writ petition, namely Special Civil

Application No.4753 of 2011 had been filed by the

petitioner challenging the termination and seeking

for stay of the dispossession. On 06.08.2014, the

writ petition was dismissed. Special Leave Petition

when while issuing notice to the respondent, interim

order staying dispossession of the petitioner was

granted. The Special Leave Petition, however, has

been finally disposed of vide order dated 11.01.2018.

A perusal of the order passed by the Apex Court

indicates that it has refused to interfere in the

order passed by the High Court in dismissing the writ

petition and the order of rejection of representation

by the respondent, namely Ahmedabad Urban Development

Authority, under the interim order passed by the Apex

Court. However, out of the deposits made by the

petitioner to the tune of Rs.1 Crore, under the Lease

Agreement, forfeiting Rs.25,00,000/-, Rs.75,00,000/-

was directed to be refunded without any interest.

4. It seems that after dismissal of the Special

Leave Petition, on 19.08.2019, the petitioner sent a

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notice under Section 21 of the Arbitration Act, 1996,

calling the respondent to appoint an Arbitrator

seeking for resolution of the dispute arising out of

the Lease Agreement. It is submitted by the learned

counsel for the petitioner that the petitioner is

seeking arbitration for recovery of loss which he

suffered on account of fault of the respondent. The

contention is that the subject land was inundated and

as such project could not be started within the

stipulated time. The details of the loss suffered by

the petitioner has been appended with the notice sent

to the respondent under Section 21 of the Arbitration

Act, 1996.

5. The learned counsel for the respondent, on the

other hand, would submit that there exists no

arbitrable dispute between the parties. The delay

caused in carrying out the construction of the

development project was attributable to the

petitioner and in view of the adjudication by the

High Court on the validity of the termination of

contract, nothing survived for adjudication by an

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Arbitrator. The contention is that the present

petition seeking appointment of arbitrator is nothing

but an after-thought to extract money from the

respondent.

6. In rejoinder, Shri S.P.Majmudar, learned

counsel for the petitioner placing the decisions of

the Apex Court in M/s.Duro Felguera S.A. vs.

M/s.Gangavaram Port Limited - (2017) 9 SCC 729 and

Mayavati Trading Private Limited vs. Pradyuat Deb

Burman - (2019) 8 SCC 714 would submit that with the

insertion of Section 11(6-A) by Amendment Act, 2015,

with effect from 23.10.2015, it is clear that at the

referral stage, the Court in exercise of power under

Section 11(6) of the Arbitration Act, 1996, cannot

make any inquiry on the arbitrability of the dispute.

It has to confine to the examination of the existence

of an arbitration agreement. The submission is that

any other inquiry is outside the scope of

jurisdiction of this Court. Section 6-A inserted by

2015 Amendment has been omitted by the Act 33 of

2019, but it is intimated that assent of President on

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the said amendment has not been accorded till date,

giving effect to the amendment.

7. To deal with the submissions of the learned

counsels for the parties, we are required to note the

relevant provisions in Section 11(6) of the

Arbitration Act, 1996. Sub-section (6-A) of Section

11 pressed into service by the counsel for the

petitioner is also to be extracted hereinunder :-

"11. Appointment of arbitrators. ** ** ** (6) Where, under an appointment procedure agreed upon by the parties,--

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request 1[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court]to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

[(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall,

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notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement."

8. The position of law as to the extent of

inquiry, i.e. the standard of scrutiny to examine the

non-arbitrability of a claim has been settled by the

Apex Court with the recent decision in NTPC Limited

vs. SPML Infra Limited - 2023 SCC Online SC 389. It

is held therein that the limited scope of judicial

scrutiny at the pre-referral stage is navigated

through the test of prima facie review, which is not

to be confused with the merits of the case put up by

the parties which has to be established before the

Arbitral Tribunal. It is restricted to the subject

matter of suit being prima facie arbitrable under a

valid arbitration agreement. Prima facie means that

the assertions on these aspects are bona fide. Prima

facie examination is not full review but a primary

first review to weed out manifestly and ex-facie non-

existent and invalid arbitration agreements and non-

arbitrable disputes. The prima facie review at the

referral stage is to cut the dead wood and trim off

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the said branches in a straight forward cases where

dismissal is bare-faced and pellucid and when on the

facts and law the litigation must stop at the first

stage. At this stage, the Court should not get lost

in thickets and decide debatable questions of facts.

Referral proceedings are preliminary and summary and

not a mini trial.

9. Referring to the various previous decisions

pertaining to the field, the Apex Court has

crystallized the position of law that the pre-

referral jurisdiction of the Courts under Section

11(6) of the Act is very narrow and inheres two

inquiries. The eye of needle principle propounded in

paragraphs 25, 26, 27 and 28 in the decision of the

Apex Court is relevant to be extracted hereinunder :-

"25. Eye of the Needle: The above-referred precedents crystallize the position of law that the pre-referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement.

These are matters which require a thorough examination by the referral court. The

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secondary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute.

26. As a general rule and a principle, the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral court may reject claims which are manifestly and ex-facie non-arbitrable. Explaining this position, flowing from the principles laid down in Vidya Drolia (supra), this Court in a subsequent decision in Nortel Networks (supra) held:

"45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute..."

27. The standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral courts must not undertake a full review of the contested facts; they must only be confined to a primary first review and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bona fide or not. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim

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is non-arbitrable. On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration.

28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non- arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator, as explained in DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd."

10. From the above, it is clear that the referral

Courts may make a prima facie scrutiny as to the

existence of the dispute, which may be arbitrated

before the Tribunal.

11. Applying the above principles, in the facts of

the instant case, as noted hereinabove, the lease

agreement was terminated by the respondents vide

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order dated 25.03.2011 and the proceedings

challenging the termination order have been brought

to their logical conclusion with the dismissal of the

Special Leave Petition filed by the petitioner herein

vide judgment and order dated 11.01.2018. The

grievance raised by the petitioner that the

petitioner could not develop the plot in question for

the fault of the respondent was considered by the

writ court in the judgment and order dated

06.08.2014, in Special Civil Application No.4753 of

2011 filed by the petitioner challenging the

termination order. It was held by this Court that the

petitioner was in clear breach of terms and

conditions of the lease deed and, as such, there was

no option before the respondent but to terminate the

lease deed. The petitioner was allotted the land in

question for developing tourism activity in the

larger public interest and not for setting up a club

for the use of the select individuals and their

families with private motive. By proposing to set up

a club, the petitioner had moved away from the very

object for which the lease was granted by the

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respondent Nigam.

12. In light of the above findings returned by the

High Court, which has not been upturned by the Apex

Court in the Special Leave Petition filed by the

petitioner, it is more than evident that the claim of

the petitioner that he suffered loss on account of

the allotted land being inundated is off the record.

13. As noted hereinabove, there is no such

statement on the record. The submission of the

learned counsel for the petitioner during the course

of argument that the losses suffered by the

petitioner because of the land being inundated is not

supported by even in the averments made in the notice

under Section 21 of the Arbitration Act, 1996. Once

it is held by the High Court that it is not feasible

to permit the petitioner to continue with the lease

deed as the breach committed by the petitioner goes

to the very root of the matter and that the

respondent was completely justified in terminating

the same, no arbitrable dispute could be said to have

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been survived between the parties. Filing of the

instant arbitration petition is nothing but an

afterthought. In case the dispute is referred to the

arbitrator, it would result in harassment of the

respondent Nigam as it would result in not only

wasteful expenditure of the public money but also

would be a futile exercise.

14. From the prima facie scrutiny into the matter

of non-arbitrability of the claim, this Court reaches

at an irresistible conclusion that the claim of the

petitioner is not a bona fide one. There is not even

a slightest doubt that the claims are ex-facie

meritless, frivolous and dishonest litigation, and

are manifestly non-arbitrable.

15. Having reached at the above conclusion, we may

go through the above noted decisions relied by the

counsel for the petitioner to assert that in view of

Sub-section (6-A), the High Court while considering

the application under Sub-section (6) of Section 11

shall confine to the examination of the existence of

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an arbitration agreement only and no inquiry as to

the non-arbitrability of the dispute can be made. We

may note that the decision in the case of Mayavati

Trading (supra) has been noted by the Apex Court in

NTPC Limited (supra) while crystallizing the position

of law, formulating the principle of eye of the

needle. The observations in paragraph 10 of the

decision in Mayavati Trading (supra) relied by the

learned counsel for the petitioner has been noted in

paragraph 21 in NTPC Limited (supra) as under :-

"21. It did not take much time for this Court to reverse the approach in Antique Art Exports (supra). A three-judge bench in Mayavati Trading (supra) expressly overruled the above-referred decision in Antique Art Exports, observing that:

"10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment, as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA."