Rajasthan High Court

Secretary R S R T C And Ors vs Ms Kalptaru Infra Projects Pvt Ltd on 6 October, 2021

Bench: Indrajit Mahanty

      HIGH COURT OF JUDICATURE FOR RAJASTHAN
                  BENCH AT JAIPUR

       S.B. Civil Miscellaneous Appeal No. 2355/2018
1.     Secretary, Rajasthan State Road Transport Corporation
       (RSRTC), Head Office, Parivahan Marg, Jaipur.
2.     Executive Manager (Advertisements), Rajasthan State
       Road    Transport      Corporation          (RSRTC),       Head    Office,
       Parivahan Marg, Jaipur.
3.     Arbitrator-Chief General Manager (CMD), Rajasthan State
       Road    Transport      Corporation          (RSRTC),       Head    Office,
       Parivahan Marg, Jaipur.
                                                                  ----Petitioners
                                   Versus
M/s. Kalptaru Infra Projects Pvt. Ltd., 201, Laxmi Complex, MI
Road, Jaipur Through Director Surendra Kumar Bardiya.
                                                                 ----Respondent

Connected with

S.B. Arbitration Application No. 17/2020

Kalptaru Infra Projects Pvt. Ltd., 201, Laxmi Complex, MI Road, Jaipur Through Director Surendra Kumar Bardiya

----Petitioner Versus

1. Secretary, Rajasthan State Road Transport Corporation (RSRTC) Head Office Parivahan Marg, Jaipur

2. Executive Manager (Advertisements), Rajasthan State Road Transport Corporation (RSRTC) Head Office Parivahan Marg, Jaipur

----Respondents

For Petitioner(s) : Mr. Swadeep Singh Hora in SB Arbitration Application No.17/2020 Mr. Alok Chaturvedi in SBCMA No.2355/2018 For Respondent(s) : Mr. V.P. Mathur in SB Arbitration Application No.17/2020 Mr. Swadeep Singh Hora in SBCMA No.2355/2018

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HON'BLE THE CHIEF JUSTICE

JUDGMENT RESERVED ON :: 01/10/2021

JUDGMENT PRONOUNCED ON :: 06/10/2021

1. Since the controversy involved in both the matters is one

and same and arguments were also made simultaneously by the

respective parties, therefore, they are being decided by this

common judgment.

2. Heard learned counsel for the respective parties and have

also carefully gone through the record.

S.B. Civil Miscellaneous Appeal No. 2355/2018:-

3. By way of the present Civil Misc. Appeal, the appellants have

prayed for the following reliefs:-

"It is, therefore, most humbly prayed that your Lordships may graciously be pleased to accept and allow the appeal and kindly be pleased to quash and set aside the judgment and decree dated 04.12.2017 passed by the Additional District Judge No.7, Jaipur Metropolitan, Jaipur in Arbitration Case No.13/2013 (CIS No.1216/2014) and be pleased to restore the Award dated 15.10.2012 passed by the Sole Arbitrator in Arbitration Claim Case No.130/2012 to meets the ends of justice.

Any other direction or order which your Lordships deem fit and proper in the facts and circumstances of the case in favour of the appellant-Corporation be kindly passed."

4. Learned counsel for the appellants contended that on

30.07.2007, applications/tenders were invited by the appellant/

Non-Claimant/Rajasthan State Road Transport Corporation (for

short, 'the Corporation') regarding display of advertisement on

the Corporation's buses. It was stated in the claim that earlier the

predecessor company of the claimant/respondent, namely M/s

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Synergy Ceramics Pvt. Ltd. filed an application for participating in

the bid process by submitting its bid, wherein it was found a

highest bidder. It was further stated in the claim that vide letter

dated 18.06.2007, M/s Synergy Ceramics Pvt. Ltd. was asked to

deposit the license fee of Rs. 21,24,800/- through a demand draft

as also to submit requisite bank guarantee in the sum of Rs.

1,27,48,800/-. In pursuance thereof, M/s Synergy Ceramics Pvt.

Ltd. submitted a cheque and also furnished bank guarantee bond.

It was further submitted that M/s Synergy Ceramics Pvt. Ltd. was

given license by the appellant-Corporation by letter dated

23.06.2007 for the period from 26.06.2007-25.06.2010, as

claimed in the claim petition. M/s Synergy Ceramics Pvt. Ltd.

changed its name as M/s Synergy Advertising Pvt. Ltd. under

Section 23 of the Companies Act and accordingly informed about

the same to the Corporation vide letter dated 23.06.2007. After

change of the name of firm, the appellant-Corporation by order

dated 26.06.2007 had given the license to M/s Synergy

Advertising Pvt. Ltd. for the period from 11.07.2007 to

10.07.2010 and it was provided with a copy of contract executed

between M/s Synergy Advertising Pvt. Ltd. and appellant-

Corporation on 06.08.2007. It was further submitted by the

claimant in the claim petition that the appellant-Corporation failed

to fulfill the terms and conditions of the contract and further, for

the purpose of display neither the clean buses were made

available nor the place for advertisement was provided and as a

result of which, the claimants suffered financial losses. For the

aforesaid reasons, the claimant-respondent had given a written

proposal not to perform the work. It was claimed that the

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Corporation terminated the contract by order dated 12.05.2008.

In the above circumstances, a claim petition came to be filed by

the claimant-respondent for payment of Rs.2,97,38,802/- against

the Corporation.

5. It was further asserted that the appellant-Corporation

resisted the claim petition by filing reply and raised preliminary

objections, inter-alia, stating therein that in the bid proceedings,

M/s Synergy Ceramics Pvt. Ltd. submitted its tender document

and the Corporation by letter dated 23.06.2007 appointed the said

firm as its licensee and thereafter in the amended process M/s

Synergy Advertising Pvt. Ltd. was appointed the licensee, which

submitted the bank guarantee bond and thus, the contract dated

03.08.2007 was duly executed between the Corporation and M/s

Synergy Advertising Pvt. Ltd.. Further, it was averred that there

was no contract ever executed between M/s Kalptaru Infra

Projects Pvt. Ltd. and the appellant-Corporation.

6. It was then submitted by the counsel for the appellant that

the said claim petition came to be dismissed by the Sole Arbitrator

vide its award dated 15.10.2012 on the ground that no contract

was executed between the appellant-Corporation and M/s Kalptaru

Infra Projects Pvt. Ltd. Feeling aggrieved by the said award dated

15.10.2012, the respondent-claimant filed an Objection Petition

under Section 34 of the Arbitration and Conciliation Act, 1996

(hereinafter referred to as 'the Act of 1996'), which came to be

allowed by the learned Additional District and Sessions Judge

No.7, Jaipur Metropolitan, Jaipur vide its judgment dated

04.12.2017.

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7. Learned counsel prayed that since the impugned judgment

dated 04.12.2017 suffers from serious illegality and infirmity, the

same deserves to be quashed and set aside and the appeal may

be allowed.

8. On the other hand, learned counsel appearing for the

respondents has supported the impugned judgment passed by the

Court below and prayed that the appeal may be dismissed.

S.B. Arbitration Application No. 17/2020

9. By way of the Arbitration Application filed under Section 11

of the Act of 1996, the applicant has sought for the following

reliefs:-

"It is, therefore, prayed that this Hon'ble Court may issue necessary orders and directions for appointment of an independent Arbitrator to decide dispute between the parties in terms of contract dated 06.08.2007 between the Applicant and RSRTC by appointing an independent and impartial arbitrator.

Any other just and suitable order may be passed in favor of Applicant."

10. Learned counsel for the applicant submitted that in the year

2007, the respondent-Corporation invited tender for displaying

advertisements on the space available in 3200 buses of the

Corporation on license basis. The applicant was doing the business

in the name and style of M/s Synergy Ceramics Pvt. Ltd. at the

relevant time. As per clause-37 of the tender, the dispute, if any,

between the parties was to be resolved through arbitration by the

Chairman of the Corporation. In pursuance of the above tender,

the applicant submitted its bid along with a draft of Rs.10 lacs

dated 11.06.2007 as security amount. Since the applicant's tender

was the highest, the Corporation sent it the acceptance letter

(6 of 16) [SBCMA-2355/2018]

dated 18.06.2007 directing to submit advance license fee of

Rs.21,24,800/- as also the tender fee of Rs.1,27,48,800/- by

25.06.2007 in order to obtain license for displaying

advertisements on the buses. On 20.06.2007, the applicant wrote

a letter to the Corporation stating that the applicant had deposited

advance license fee of Rs.21,24,800/- through a cheque in favour

of RSRTC, but the bank guarantee will be submitted within a

period of 15 to 20 days. On deposit of advance license fee by the

applicant, the Corporation vide order dated 23.06.2007

(Annexure-4), appointed the applicant as the licensee specifying

the conditions of licensee and also informed the applicant that the

license period will be from 20.06.2007 to 25.06.2010.

11. It was further submitted that later M/s Synergy Ceramics

Pvt. Ltd. changed its name to M/s Synergy Advertising Company

Pvt. Ltd. under Section 23 of the Companies Act and also informed

the Corporation to this effect vide letter dated 23.06.2007

(Annexure-5). In response thereto, the Corporation vide its letter

dated 26.06.2007 (Annexure-6), accepted the change in the name

of the applicant firm and accordingly, new revised license was

issued in the new name of the company, to be operational from

the revised date 11.07.2007 to 10.07.2010. Thereafter, on

23.07.2007 the applicant submitted guarantee bond and also

deposited license fee to the tune of Rs.2,93,848/-, bringing it to

the notice of the Corporation vide letter dated 26.07.2007

(Annexure-8). It was further submitted that on 06.08.2007, the

applicant was provided with an executed copy of the contract

between the applicant and the Corporation. Despite the

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agreement, the Corporation failed to provide space on the buses

for displaying the advertisements and as a result of which, the

applicant suffered huge losses. The applicant vide letter dated

14.08.2007, deposited a cheque of Rs.13,90,201/-. Thereafter,

vide another letter dated 29.08.2007 (Annexure-12), the applicant

informed the Corporation that as per the agreement, approval for

advertising was not given till date and due to which, the applicant

was unable to book orders with the customers for advertisement

on the buses. Vide another letter dated 03.09.2007 (Annexure-

13), the applicant requested the Corporation to make a joint

inspection of the Corporation's Depot so as to handover it the

clean and clear bus panels.

12. Learned counsel also asserted that on the demand raised by

the Corporation vide letter dated 11.10.2007, the applicant

deposited another license fee of Rs.18,92,019/- through a cheque

vide letter dated 22.10.2007 (Annexure-14). Thereafter, vide

letter dated 24.10.2007 (Annexure-15), the applicant expressed

its inability to advertise on the buses as there existed old

advertisements on the same. The grievance of the applicant was

that it had suffered gross hardships on account of non-compliance

on the part of the Corporation and, therefore, vide notice dated

13.11.2007, the applicant was compelled to write the Corporation

that it did not wish to continue with the contract. After repeated

requests made to the Corporation when no response was received,

the applicant decided to discontinue the contract and, therefore,

vide letter dated 04.12.2007 (Annexure-19), it expressed its

desire to invoke clause 23 of the contract. However, yet another

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demand for the license fee was raised for the period from

11.12.2007 to 10.01.2008 by the Corporation vide letter dated

12.12.2007. Thereafter, the Corporation communicated to the

applicant vide letter dated 24.12.2007, in response to the

applicant's letter dated 04.12.2007, that the agreement could be

discontinued as per the request under clause 23 of the agreement

after expiry of six months period from the date of request i.e. on

03.06.2008. Later on also, the Corporation repeatedly raised

demands to deposit the license fee. Ultimately, vide letter dated

12.05.2008 (Annexure-22), on deposit of the demanded license

fee, the Corporation agreed for terminating the contract between

the applicant and the Corporation as per clause 23 of the

agreement. Consequently, a letter dated 16.05.2008 came to be

issued to the applicant by the Corporation stating that the contract

has been terminated and that Rs.10 lacs deposited as security

amount will be adjusted in the remaining license fee. Since the

Corporation failed to release the bank guarantee, the applicant

vide letter dated 24.06.2008 (Annexure-23) requested the

Corporation to release the same which was illegally withheld. In

response thereto, the Corporation vide letter dated 26.06.2008

(Annexure-24), decided to release the bank guarantee of

Rs.1,27,48,800/-.

13. It was contended by the learned counsel for the applicant

that on 26.03.2010 the applicant sent a detailed letter to the

Corporation raising claim/demand for a sum of Rs.2,14,24,620/-

with interest @ 18% p.a. on the same towards non-refund of the

license fee, which was illegally recovered from the applicant in

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breach of the agreement on the part of the Corporation in failing

to provide space on the buses for advertisements. To this, the

Corporation vide letter dated 22.04.2010 (Annexure-26), rejected

the claim/demand raised by the applicant stating that as the

license fee was charged as per the agreement, therefore, no

money could be refunded back. Thereafter, the applicant vide

letter dated 03.06.2010 (Annexure-27) addressed to the

Chairman as also the Chief General Manager of the Corporation,

sought compensation as well as invoked arbitration and vide letter

dated 10.03.2012 (Annexure-28), the applicant agreed to appoint

the Chairman-cum-Managing Director of the Corporation as

Arbitrator. It was submitted that M/s Synergy Advertising Pvt. Ltd.

changed its name as M/s Kalpatru Infra Projects Pvt. Ltd. on

19.11.2008.

14. Learned counsel contended that on 13.07.2012, the

applicant filed a claim petition before the Chairman of the

Corporation for payment of illegal recovery of license fee to the

tune of Rs.1,49,54,512/- for the period from 11.12.2007 to

12.05.2008 with security deposit and earnest money of

Rs.17,25,443/- etc. along with interest @ 18%. However, the

claim petition came to be dismissed by the Arbitrator vide award

dated 15.10.2012 without taking into consideration the grievance

of the applicant.

15. Feeling aggrieved and dissatisfied with the award dated

15.10.2012, the applicant preferred an Objection Petition under

Section 34 of the Act of 1996 before the learned Additional District

& Sessions Judge No.7, Jaipur Metropolitan. The Court below after

(10 of 16) [SBCMA-2355/2018]

hearing the rival submissions of the parties, set aside the

impugned Award dated 15.10.2012 vide its judgment dated

04.12.2017. The said judgment dated 04.12.2017 has been

impugned in the connected S.B. Civil Misc. Appeal No.2355/2018

by the Corporation.

16. It was also submitted that the Chairman of the Corporation is

disqualified from being an arbitrator as there is uncontroverted

bias attached to his position. In this regard, reliance was placed

on the judgments rendered in Bihar State Mineral

Development Corporation Vs. Encon Builders, (2003) 7 SCC

418 and TRF Ltd. Vs. Energo Engineering Projects Ltd.,

(2017) 8 SCC 377, wherein it was held by the Hon'ble Supreme

Court that once the named Arbitrator becomes ineligible, he

cannot nominate other person as an Arbitrator. He also referred to

the recent judgment of the Hon'ble Supreme Court in Special

Leave Petition(Civil) No.13520/2021- Jaipur Zila Dugdh

Utpadak Sahkari Sangh Limited & Ors. Vs. M/s Ajay Sales &

Suppliers, dated 09.09.2021.

17. Learned counsel submitted that as per Section 12(5) read

with Schedule V and VII, the Chairman has become ineligible for

appointment as an Arbitrator. He also referred to Section 11(6)

(c), which reads as under:-

"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

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(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request [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."

18. A prayer has, therefore, been made by the learned counsel

for the applicant to appoint an independent Arbitrator, who is not

related to either applicant or the respondent-Corporation and who

can act impartially to conduct fresh arbitration proceedings and

decide all the disputes between the parties in terms of the

contract following the due process of law.

19. A reply to the Arbitration Application has been filed by the

respondents. It was contended by the learned counsel for the

respondents that the applicant had already invoked the arbitration

clause and the Chairman of the Corporation was appointed as

Arbitrator in terms of the provisions of clause 37 of the tender.

The claim petition filed by the applicant was also adjudicated by

the designated sole arbitrator vide its award dated 15.10.2012

and the same was dismissed. However, the applicant filed an

application under Section 34 of the Act challenging the said award

and the learned Court below vide judgment dated 04.12.2017

quashed and set aside the impugned award dated 15.10.2012.

The said judgment dated 04.12.2017 is under challenge in the

connected Civil Misc. Appeal filed by the Corporation. In the

circumstances, the applicant cannot be permitted to start second

round of arbitral proceedings in the present matter.

(12 of 16) [SBCMA-2355/2018]

20. It was further contended that in the present matter in terms

of Annexure-1 to the application, a letter dated 18.06.2007

(Annexure-2) was issued in favour of M/s Synergy Ceramic Pvt.

Ltd. Subsequently, M/s Synergy Ceramic Pvt. Ltd. submitted an

application dated 23.06.2007 (Annexure-5) praying for changing

the name of M/s Synergy Ceramic Pvt. Ltd. to M/s Synergy

Advertising Company Pvt. Ltd. In response to the above, the

Corporation vide letter dated 26.06.2007 (Annexure-6) issued

new revised license to the applicant for the period from

11.07.2007 to 10.07.2010 and thus, the Corporation executed the

contract agreement with M/s Synergy Advertising Company Pvt.

Ltd. vide Annexure-10 of the application. The respondent-

Corporation is having no knowledge or information about the

present applicant and there was no agreement executed with M/s

Kalptaru Infra Projects Pvt. Ltd. and, therefore, the present

arbitration application cannot be held to be maintainable. That

apart, it was also contended that the present application has been

filed in the year 2020, whereas in the present case the issuance of

the tender conditions (Annexure-1) and the contract agreement

(Annexure-2) was made in the year 2007-2008 and as such, the

arbitration application is barred by limitation also. Furthermore,

the sole arbitrator conducted the arbitral proceedings in

accordance with the provisions of law and has passed the award

taking into consideration the entire material available on record.

Accordingly, a prayer was made to dismiss the arbitration

application.

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21. I have heard rival submissions and with their assistance

carefully gone through the material available on record.

22. It is not in dispute that pursuant to the tender invited by the

Corporation for displaying advertisements on the space available

on the buses of the Corporation, M/s Synergy Ceramics Pvt. Ltd.

was issued acceptance letter. Later M/s Synergy Ceramics Pvt. Ltd.

changed its name as M/s Synergy Advertising Pvt. Ltd. Thereafter,

an agreement dated 03.08.2007 came to be executed between

the Corporation and M/s Synergy Advertising Company Pvt. Ltd.

which includes its owner, partner, successor, administrator, M/s

Synergy Ceramics Pvt. Ltd. etc., as is evident from Annexure-10.

However, the name of M/s Synergy Advertising Pvt. Ltd. was again

changed as M/s Kalpatru Infra Projects Pvt. Ltd.. The dispute

arose when after repeated requests made to the Corporation to

provide space on the buses for displaying the advertisements, no

response was received by the applicant- M/s Kalpatru Infra Project

Pvt. Ltd. and it was compelled to invoke the arbitration clause and

ultimately vide letter dated 10.03.2012, it agreed to appoint the

Chairman-cum-Managing Director of the Corporation as Arbitrator

stating therein as under:-

"Because now we do not have any other option to appoint you as arbitrator as per the agreement. You are requested to accept your appointment as a Sole Arbitrator, enter upon the reference and fix a preliminary hearing in the matter."

23. However, vide award dated 15.10.2012, the learned

Arbitrator rejected the claim, which was challenged by the

applicant before the learned Additional District Judge No.7, Jaipur

Metropolitan, Jaipur. Learned Court below, while referring to

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Sections 21 and 23(1) of the Company Act, 1956, has observed

that it is clear that if the change of name has taken place, in that

event legal proceedings can be continued by or against the

company by its new name, but the learned Arbitrator has

dismissed the claim petition of the applicant on the ground that no

agreement was ever executed with M/s Kalptaru Infra Projects

Pvt. Limited. Thus the learned Arbitrator has passed the award

ignoring the provisions of Sections 21 and 23 of the Company Act,

1956. Learned Court below has also referred to Section 73 and 74

of the Contract Act, 1872 and accordingly vide judgment dated

04.12.2017 has observed as follows:-

"Learned Arbitrator, while passing award has not considered the provisions of Section 73 and 74 of the Contract Act. Besides this, award dated 15.10.2012 having not been stamped in accordance with Article 12 and 15 of the Indian Stamped Act. It is clear that award dated 15.10.2012 having not been passed legally. In view of the above mentioned provisions and discussion, award dated 15.10.2012 is being set aside. Case file be consigned to record room after due compliance."

24. In the considered view of this Court, the findings returned

by the Court below are based on correct appreciation of the

material placed on record and correct interpretation of the legal

position. As there is no illegality or infirmity in the impugned

judgment dated 04.12.2017, the same requires no interference

by this Court.

25. Consequently, there is no merit in S.B. Civil Misc. Appeal

No.2355/2018 and the same is hereby dismissed.

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26. So far as S.B. Arbitration Application No.17/2020 is

concerned, the contention of the applicant is that the Chairman

of the Corporation is disqualified from being an arbitrator as

there is uncontroverted bias attached to its position and further,

as per Section 12(5) read with Schedule V and VII, the Chairman

has become ineligible for appointment as an Arbitrator.

Accordingly a prayer has been made for appointment of a third

party arbitrator having no relation either with the applicant or

the respondent-Corporation and who can act impartially for

conducting the fresh arbitration proceedings.

27. Admittedly, there is no dispute that the Act of 1996 was

amended by inserting sub-section (5) to Section 12 by

amendment dated 23.10.2015 read with Seventh Schedule of

the Act. It is also not in dispute that the Chairman of the

Corporation was clearly a person who has relationship with the

parties and the subject matter of dispute falls under categories

specified under Seventh Schedule. Clause(5) of the Seventh

Schedule of the Act of 1996 reads thus:-

"(5) The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration."

28. This Court is of the opinion that in view of Section 12(5) of

the Act of 1996 read with Seventh Schedule of the Arbitration,

the Chairman of the Corporation is no more competent to

appoint an independent arbitrator and the prayer of the learned

counsel for the applicant appears to be reasonable.

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29. Furthermore, in the case of Jaipur Zila Dugdh Utpadak

Sahkari Sangh Limited & Ors.., the Hon'ble Supreme Court

has observed as under:-

"11. In view of the above and for the reasons stated above once the sole arbitrator - Chairman is 'ineligible' to act as an arbitrator to resolve the dispute between the parties in view of Sub-section (5) of Section 12 read with Seventh Schedule to the Act he loses mandate to continue as a sole arbitrator. Therefore, it cannot be said that the High Court has committed any error in appointing the arbitrator other than the sole arbitrator - Chairman as per Clause 13 of the Agreement in exercise of powers, under Section 11 read with Section 14 of the Act.

12. In view of the above and for the reasons stated above all these applications deserve to be dismissed. The special leave petitions are dismissed accordingly."

30. In view of the above, this Court directs appointment of

Hon'ble Mr. Justice Raghuvendra Singh Rathore (Retd.), R/o Plot

No.5, Nehru Path, Krishna Nagar-II, Lal Kothi, Jaipur to act as an

Arbitrator and to decide all issues without prejudice to the rights

and contentions raised in the present application and in the

reply. The arbitration fees shall be in accordance with the Fourth

Schedule of the Act of 1996. The parties are at liberty to raise all

such objections before the Arbitrator.

31. Registry is directed to intimate Hon'ble Mr. Justice

Raghuvendra Singh Rathore (Retd.) of his appointment as

Arbitrator and parties are at liberty to call upon appropriate date

for necessary directions.