M/S.Deetech Projects Pvt. Ltd vs M/S.Batliboi Environmental ...
2022 Latest Caselaw 17230 Mad

                                                                      Arb.O.P.(Comm.Div.) No.200 of 2022

                                  IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                DATED: 03.11.2022

                                                      CORAM

                           THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY

                                        Arb.O.P.(Comm.Div.) No.200 of 2022


                     M/s.Deetech Projects Pvt. Ltd.
                     Rep. by its Managing Director, Mr.S.Sivaraman,
                     No.129, 2nd Floor, Aani Street,
                     Chinmaya Nagar, Chennai - 600 092.                                 ... Petitioner

                     (Amended as per order dated 28.04.2022 in A.No.1912 of 2022)
                                                        vs.

                     M/s.Batliboi Environmental Engineering Ltd.
                     Represented by its Divisional Manager Mr.Vilas M.Gharat
                     Spartan House, 1st Floor,
                     Plot No.B/29, Road No.18/S, Wagle Estate,
                     Thane (W) - 400 604.                                            ... Respondent


                     PRAYER: Arbitration Original Petition filed under Section 11 4(a) of the

                     Arbitration and Conciliation Act, 1996, pleased to appoint an arbitrator for

                     adjudicating the dispute arising between the applicant and respondent in

                     respect to the Work order that was awarded to the consortium, vide LOA




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https://www.mhc.tn.gov.in/judis
                                                                              Arb.O.P.(Comm.Div.) No.200 of 2022

                     No.CMWSSB/CNT/C2/W/CNT/SEW/NCB/JNNURM/122/2010-2011,

                     dated 21.11.2011.

                                        For Petitioner      : Mr.N.Umapathi

                                        For Respondent      : Mr.B.Sudarshan
                                                             **********

                                                              ORDER

By relying on clause 11 of the Consortium Agreement dated

12.04.2012 (the Agreement), the petitioner seeks the constitution of an

arbitral tribunal to resolve the dispute between the parties.

2. The petitioner states that the parties entered into the Agreement and

that the said Agreement provides for the resolution of disputes through

arbitration. Upon arising, initially, the respondent issued a notice on

09.08.2021 proposing the names of two senior advocates for appointment as

sole arbitrator. In response thereto, by letter dated 18.08.2021, the

petitioner informed the respondent that the dispute had been referred to the

Facilitation Council under the Micro Small and Medium Enterprises

Development Act, 2006 (the MSMED Act) and, therefore, the petitioner is

unwilling to accept the proposal of the respondent. Thereafter, by order

https://www.mhc.tn.gov.in/judis Arb.O.P.(Comm.Div.) No.200 of 2022

dated 13.09.2021, the Facilitation Council concluded that the petition is not

maintainable before the said forum. In those circumstances, the petitioner

issued a notice dated 12.03.2022 requesting the respondent to accept the

person proposed for appointment as sole arbitrator by the petitioner. By

reply dated 12.04.2022, the respondent informed the petitioner that it is not

agreeable for the appointment of the person proposed by the petitioner. This

petition was filed in the above facts and circumstances.

3. Learned counsel for the petitioner relied on the arbitration clause in

the Agreement and stated that the petition is liable to be allowed in view of

the refusal of the respondent to adhere to the appointment procedure

prescribed therein.

4. The petition is opposed by learned counsel for the respondent on

two grounds. The primary ground is that the petitioner elected to adjudicate

the dispute under the MSMED Act. By doing so, the petitioner waived or

abrogated its right under clause 11 of the Agreement. By relying on Section

18(3) of the MSMED Act, learned counsel contended that the arbitration

https://www.mhc.tn.gov.in/judis Arb.O.P.(Comm.Div.) No.200 of 2022

clause stands superseded once parties take recourse to the statutory

mechanism under the MSMED Act. The second ground is that the petition

is not maintainable under Sub-section 4 of Section 11 of the Arbitration and

Conciliation Act, 1996 (the Arbitration Act).

5. Upon reference of the dispute to the Facilitation Council, if the

Facilitation Council had adjudicated the dispute on merits, such decision

would have operated as res judicata and precluded the institution of

contractual arbitral proceedings in respect of the same dispute. In fact, it is

for purposes of extending and applying the provisions of the Arbitration Act

to matters before the Facilitation Council that Section 18(3) of the MSMED

Act contains a legal fiction by which an agreement in terms of Section 7 of

the Arbitration Act is statutorily imported once parties take recourse to

Section 18 of the MSMED Act. It is instructive to examine the language of

Section 18(3) of the MSMED Act, which is set out below:

“(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the

https://www.mhc.tn.gov.in/judis Arb.O.P.(Comm.Div.) No.200 of 2022

dispute for arbitration or refer to it any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-

section (1) of section 7 of that Act.”

6. In the case at hand, the Facilitation Council declined to exercise

jurisdiction by stating that "the petition is not maintainable in this forum".

As a result of the said order, the petitioner was not in a position to avail of

the statutory remedy under the MSMED Act. The contention of learned

counsel for the respondent that Section 18(3) has the effect of novating the

Agreement by deleting the arbitration clause therefrom is completely

misconceived. As in the case of any legal fiction, its scope cannot be

extended beyond the purpose. The legal fiction in Section 18(3) cannot be

relied upon to contend that it has the effect of novating the Agreement by

deleting the arbitration clause therefrom. Learned counsel relied on the

judgment of the Hon'ble Supreme Court in WAPCOS Limited -vs- Salma

https://www.mhc.tn.gov.in/judis Arb.O.P.(Comm.Div.) No.200 of 2022

Dam Joint Venture and another, (2020)3 SCC 169, particularly paragraph

34 thereof. In the said judgment, the Supreme Court was dealing with a

situation where parties executed a subsequent document, namely, an

amendment of agreement in terms of which the contractor relinquished

specific claims and also agreed that there will be no arbitration for the

settlement of such claims in future. Thus, in that case, there was an express

novation of the original contract containing the arbitration clause. By

contrast, in this case, there is no evidence of novation. Consequently, clause

11 of the arbitration clause survives in the context of the Facilitation Council

declining to exercise jurisdiction on the ground that the petition is not

maintainable in the said forum.

7. The other objection on the ground that the petition is not

maintainable under Section 11(4) is liable to be rejected out of hand because

the petition clearly falls within the scope of Section 11 of the Arbitration Act.

8. For reasons set out above, the petitioner is entitled to succeed.

https://www.mhc.tn.gov.in/judis Arb.O.P.(Comm.Div.) No.200 of 2022

Accordingly, Arb.O.P.(Comm.Div.) No.200 of 2022 is allowed by

appointing Mr.P.Giridharan, Advocate, “Vanguard House”, 3rd Floor, No.48,

Second Line Beach, Parrys, Chennai – 1, Mobile No.9884672733 as the

sole arbitrator. The sole arbitrator is called upon to enter upon reference and

adjudicate the dispute. The fees and expenses in relation to the arbitral

proceedings may be fixed by the arbitral tribunal in consultation with the

parties.

03.11.2022 rna Index : Yes / No Internet : Yes / No

SENTHILKUMAR RAMAMOORTHY,J

https://www.mhc.tn.gov.in/judis Arb.O.P.(Comm.Div.) No.200 of 2022

rna

Arb.O.P.(Comm.Div.) No.200 of 2022

03.11.2022

https://www.mhc.tn.gov.in/judis