Kuncham Venkat Reddy vs M.L.V. Satyanarayana
2021 Latest Caselaw 1892 Tel

Item No.50



      THE HON'BLE THE CHIEF JUSTICE HIMA KOHLI

             ARBITRATION APPLICATION No.65 of 2021

ORDER:

1. The present application has been moved by the applicant under

Section 11 (5) & (6) of the Arbitration and Conciliation Act (for short,

'the Act') praying inter alia for appointing a Sole Arbitrator to

adjudicate the disputes between the parties.

2. Mr. Prabhakar Sripada, learned counsel appearing for the

applicant refers to the Agreement dated 21.12.2017 executed by the

parties and states that there is an arbitration Clause No.19 in the said

Agreement whereunder, the parties had agreed that any dispute arising

out of the Agreement would be referred to arbitration. He states that

the said clause contemplates that the parties can approach the apex

bodies "Telugu Film Producers Council" and "Telugu Film Directors

Association, Hyderabad" for appointment of an Arbitrator and the

respondent did write to the said bodies for appointment of an

Arbitrator, but they had refused to act on his request. In view of the

above, the applicant has moved the present application for

appointment of a Sole Arbitrator.

3. A counter affidavit in opposition to the present application has

been filed by the respondent, who has taken a preliminary objection

on the maintainability of the present petition.

4. Mr. P. Amarender Reddy, learned counsel for the respondent

states that contrary to the submission made by learned counsel for the

applicant, the respondent did not approach the two apex bodies

referred to in Clause 19 of the Agreement governing the parties for

seeking appointment of an Arbitral Tribunal. The letter dated

26.05.2019 submitted by the respondent to the Telugu Film Chamber

of Commerce (english translation whereof has been enclosed along

with the photocopy of the letter in vernacular language as Annexure-

13) and alluded to by learned counsel for the applicant does not

invoke the arbitration clause. Instead, the same raises a grievance

against the applicant who, as per the respondent, did not act diligently

as a Director of the film "2 States" which had seriously affected the

budget of the film and it had requested that action be taken against the

applicant.

5. Learned counsel for the respondent submits that once there is a

procedure prescribed for appointment of an Arbitrator in terms of the

arbitration clause governing the parties, the applicant cannot be

permitted to approach the court directly by moving an application

under Section 11 of the Act. In support of the said submission, he

refers to Section 11(6)(c) of the Act and states that had the applicant

approached the institutions mentioned in Clause 19 of the Agreement

and sought the appointment of an Arbitrator and the said institutions

had refused to act, only then could he have approached this court for

appointment of an Arbitrator, but not before exhausting the agreed

upon procedure.

6. Learned counsel appearing for the applicant refutes the

aforesaid submission and insists that if the court holistically views the

contents of the letter dated 26.05.2019 addressed by the respondent to

the Telugu Film Chamber of Commerce with a copy endorsed to

Telugu Film Directors Association, particularly the second last

paragraph thereof, the same can sufficiently be treated as invocation

of the procedure prescribed in the Agreement governing the parties for

redressal of their disputes. He thus submits that since the respondent

had already approached the aforesaid body and it had failed to act, the

applicant need not approach the same body all over again for

appointment of an Arbitrator and failure on their part to appoint one is

sufficient reason for approaching this court directly for relief.

7. This court has carefully considered the arguments advanced by

learned counsel for the parties and perused the pleadings and the

documents placed on record, including the correspondence exchanged

by the parties.

8. When it comes to matter of settlement of disputes between the

parties through the mode of arbitration, the agreement executed by

them assumes great significance. Once the parties have agreed upon a

procedure for appointing an arbitrator, the same has to be given

priority and preference over any other mode of securing the

appointment of an arbitrator. There are several rulings of the Supreme

Court emphasizing the above procedure required to be followed by

parties for appointment of an arbitrator. In National Highways

Authority of India v. Bumihiway DDB Limited (JV) reported as

(2006) 10 SCC 763, the Supreme Court held thus:-

"30. It is pertinent to state that under Section 11(6) of the Act, the Court has jurisdiction to make the appointment only when the person including an institution, fails to perform any function entrusted to it under that procedure. In the present case, the relief claimed by the respondents by invoking Section 11(6) is wholly erroneous as prior to the order dated 1-7-2005, the respondents only sought a clarification from IRC and without making a reference to them, immediately filed the petition under Section 11(6) on the purported ground that the Indian Roads Congress had failed to make the appointment within the stipulated time. Therefore, the reliance placed by the respondent on the judgment of this Court in Punj Lloyd Ltd. v. Petronet MHB Ltd. [(2006) 2 SCC 638] is wholly erroneous and is not applicable to the facts of the present case.

34. In our view, the invocation of Section 11(6) of the Arbitration and Conciliation Act, 1996 is squarely based on a default of a party. The ratio laid down in Datar Switchgears Ltd. v. Tata Finance Ltd. [(2000) 8 SCC 151] is the correct proposition and Punj Lloyds Ltd. v. Petronet MHB

Ltd. [(2006) 2 SCC 638] followed Datar Switchgears [(2000) 8 SCC 151] . The question arising for consideration here is who had defaulted and on what basis of default has the Court entered jurisdiction under Section 11(6). This question though raised by the appellant in the counter-affidavit before the High Court has not been answered at all. Hence, the assumption of jurisdiction and adjudication by the High Court, in our opinion, is vitiated."

(emphasis is added)

9. In Iron and Steel Company Limited v. Tiwari Road Lines

reported as (2007) 5 SCC 703, the Supreme Court made the following

pertinent observations:-

"9. The legislative scheme of Section 11 is very clear. If the parties have agreed on a procedure for appointing the arbitrator or arbitrators as contemplated by sub-section (2) thereof, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his designate cannot be taken straightaway. A party can approach the Chief Justice or his designate only if the parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of Section 11 of the Act or the various contingencies provided for in sub-section (6) have arisen. Since the parties here had agreed on a procedure for appointing an arbitrator for settling the dispute by arbitration as contemplated by sub- section (2) and there is no allegation that any one of the contingencies enumerated in clause (a) or (b) or (c) of sub- section (6) had arisen, the application moved by the respondent herein to the City Civil Court, Hyderabad, was clearly not maintainable and the said court had no jurisdiction to entertain such an application and pass any

order. The order dated 27-12-2004, therefore, is not sustainable.

10. In the matter of settlement of dispute by arbitration, the agreement executed by the parties has to be given great importance and an agreed procedure for appointing the arbitrators has been placed on high pedestal and has to be given preference to any other mode for securing appointment of an arbitrator. It is for this reason that in clause (a) of sub-section (8) of Section 11 of the Act it is specifically provided that the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to any qualifications required of the arbitrator by the agreement of the parties."

(emphasis is added)

10. In Indian Oil Corporation Limited v. Raja Transport Private

Limited, reported as (2009) 8 SCC 520, the Supreme Court has

reiterated that normally, courts should adhere to the terms of the

arbitration agreement and ignoring the procedure agreed upon

between the parties, is impermissible. Summarising the scope of

Section 11 of the Act that contains the scheme of appointment of

arbitrators, it has been held thus:-

"48. In the light of the above discussion, the scope of Section 11 of the Act containing the scheme of appointment of arbitrators may be summarised thus:

(i) Where the agreement provides for arbitration with three arbitrators (each party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an arbitrator within 30 days from the receipt of a request from the other party (or the two nominated arbitrators failing to agree on the third arbitrator within 30 days from the date of the appointment), the Chief Justice or his designate will exercise power under sub-section (4) of Section 11 of the Act.

(ii) Where the agreement provides for arbitration by a sole arbitrator and the parties have not agreed upon any appointment procedure, the Chief Justice or his designate will exercise power under sub-section (5) of Section 11, if the parties fail to agree on the arbitration within thirty days from the receipt of a request by a party from the other party.

(iii) Where the arbitration agreement specifies the appointment procedure, then irrespective of whether the arbitration is by a sole arbitrator or by a three-member Tribunal, the Chief Justice or his designate will exercise power under sub-section (6) of Section 11, if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected of them under the agreed procedure or any person/institution fails to perform any function entrusted to him/it under that procedure).

(iv) While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) and (5), such a time-bound requirement is not found in sub-section (6) of Section 11. The failure to act as per the agreed procedure within the time- limit prescribed by the arbitration agreement, or in the absence of any prescribed time-limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11(6) of the Act."

11. In the instant case, the entire dispute hinges on the remake

rights of the film "2 States" in Telugu language, which is the subject

matter of the Agreement dated 21.12.2017. Arbitration clause No.19

contained in the said Agreement is extracted herein below for ready

reference:-

"19. Any dispute arising out of this agreement should be referred to the Arbitration the apex bodies 'Telugu Film Producers Council' and 'Telugu Film Directors Association, Hyderabad' which is final for both the parties."

12. As can be seen from the aforesaid arbitration clause, the parties

had agreed that in the event of any dispute between them, either party

would be at liberty to refer the disputes to the two apex bodies,

namely 'Telugu Film Producers Council' and 'Telugu Film Directors

Association, Hyderabad'. The submission made by learned counsel

for the applicant that the letter dated 26.05.2019 addressed by the

respondent to the Telugu Film Chamber of Commerce with a copy

marked to the Telugu Film Directors Association should be treated as

invocation of the arbitration clause governing the parties and since the

body named in the Agreement did not act on the said letter, the

applicant is well entitled to approach the court for appointment of an

Arbitrator, is found to be meritless.

13. It may be noted that firstly, the letter dated 26.05.2019 was

addressed by the respondent to the Telugu Film Chambers of

Commerce and not to the Telugu Film Producers Council and the

Telugu Film Directors Association, Hyderabad, as contemplated in

the arbitration clause. Secondly, in the said letter, the respondent had

raised a grievance against the applicant complaining of his poor skills

as a Director, his non-cooperation and lack of coordination between

him and the film artists. The respondent had also complained that

because of his stubborn attitude, the respondent had decided to replace

the applicant and as per the Agreement governing the parties, it had

agreed to pay the remake rights amount of the film to the applicant

before the date of release of the film. However, the said letter neither

reflects the intention of the respondent to invoke the arbitration clause

governing the parties, nor does it contain a request to the Telugu Film

Directors Association, to whom a copy was endorsed at the foot, to

make an appointment of an Arbitrator. Therefore, the said letter can

be treated as nothing but a complaint lodged by the respondent against

the applicant highlighting his unprofessional conduct.

14. In view of the aforesaid facts and circumstances, the applicant

cannot be heard to state that though an appointment procedure had

been agreed upon by the parties and set out in clause 19 of the

Agreement, he need not approach the two Bodies named therein and is

entitled to move the court directly under Section 11(5) and (6) of the

Act for appointment of a Sole Arbitrator.

15. As a result, the present application filed by the applicant for

appointment of an Arbitrator is rejected as not maintainable.

However, liberty is granted to the applicant to approach the bodies

named in the Agreement governing the parties for appointment of an

Arbitrator.

16. The present application is dismissed while leaving the parties to

bear their own expenses.

______________________________ HIMA KOHLI, CJ

01.07.2021 vs/pln