Sri Subba Reddy Badwelu vs Sri Adityavamsiram Homes Llp
2021 Latest Caselaw 1563 Tel

          *THE HONOURABLE SRI JUSTICE P.NAVEEN RAO

          +ARBITRATION APPLICATION NO.91 OF 2020


% 07.06.2021

# Sri Subba Reddy Badwelu,
s/o. late Sri Gopal Reddy Badwelu,
Aged about 51 years, Occu:Business,
R/o. Plot No.30, Lane No.3,
Nandagiri Hills, Road No.69,
Jubilee Hills, Hyderabad.
                                                       .....Applicant
                   Vs.
$ 1.Sri Aditya -Vamsiram Homes LLP,
having its registered office at
# 8-2-332/8/A, Road No.3,
Banjara Hills, Hyderabad,
Rep.by its Designated Partners
Mr Kota Reddyand Sri Subba Reddy Badwelu
(respondent no.1 is a formal party)

2. Mr. Kota Reddy,
s/o.Veerappareddy Siva Kota Reddy,
Aged about 57 years, r/o. Plot No.1161,
Road No.59, Jubilee Hills,
Hyderabad.
                                                  ....Respondents

!Counsel for the applicant          : Sri M.V.Pratap

Counsel for the Respondents         : Sri B.Venkateswara Rao


<Gist :

>Head Note:

? Cases referred:

 (2010) 2 SCC 486
 (2003) 5 SCC 531
 (2017) 9 SCC 729
 (2019) SCC 714
 (2021) 2 SCC 1
 (2019) 9 SCC 209
 (2012) 1 SCC 361
 (2005) 6 SCC 733
 2005 SCC Online Cal 146
 2021 SCC Online SC 282
                                                                     PNR,J
                                                    ARBAPPL.No.91 of 2020
                                2



 IN THE HIGH COURT FOR THE STATE OF TELANGANA

                              ********

           ARBITRATION APPLICATION NO.91 OF 2020

Between:

Sri Subba Reddy Badwelu,
s/o. late Sri Gopal Reddy Badwelu,
Aged about 51 years, Occu:Business,
R/o. Plot No.30, Lane No.3,
Nandagiri Hills, Road No.69,
Jubilee Hills, Hyderabad.
                                                     .....Applicant

     And

1.Sri Aditya -Vamsiram Homes LLP,
having its registered office at
# 8-2-332/8/A, Road No.3,
Banjara Hills, Hyderabad,
Rep.by its Designated Partners
Mr Kota Reddyand Sri Subba Reddy Badwelu
(respondent no.1 is a formal party)

2. Mr. Kota Reddy,
s/o.Veerappareddy Siva Kota Reddy,
Aged about 57 years, r/o. Plot No.1161,
Road No.59, Jubilee Hills,
Hyderabad.
                                                  .....Respondents

JUDGMENT PRONOUNCED ON                    :   07.06.2021


           THE HON'BLE SRI JUSTICE P.NAVEEN RAO


1.    Whether Reporters of Local Newspapers may       :    Yes
      be allowed to see the Judgments ?               :


2.    Whether the copies of judgment may be marked :       Yes
      to Law Reporters/Journals                    :


3.    Whether Their Ladyship/Lordship wish to         :    No
      See fair Copy of the Judgment ?                 :
                                                                          PNR,J
                                                         ARBAPPL.No.91 of 2020
                                   3


           HONOURABLE SRI JUSTICE P.NAVEEN RAO

           ARBITRTION APPLICATION NO.91 OF 2020

ORDER:

1. This Arbitration Application is filed under Sections 11(5) and

(6) of the Arbitration and Conciliation Act, 1996 (Hereinafter

referred to as "the Act") seeking appointment of an Arbitrator to

resolve the disputes between the applicant and 2nd respondent in

respect of LLP Agreement.

2. The averments in the application, counter and documents

placed on record disclose following facts:

2.1. The applicant is engaged in the business of real estate and

construction. The applicant entered into an LLP Agreement dated

21.05.2014 with the 2nd respondent in order to constitute 'Sri

Aditya-Vamsiram Homes LLP', i.e. the 1st respondent. The LLP

entered into a Development Agreement with landowners in Survey

Nos.155 and 156, Narsingi Village, Gandipet Mandal, for

construction of villas project named, 'Aditya Casa Grand'.' The

villas were to be developed and sold as per the terms of the

Development Agreement. Applicant asserts that as a co-owner of

the 1st respondent company he is entitled to retain Villa No.52 and

it was mutually agreed. He claims to be aggrieved by the manner

in which the 2nd respondent is conducting the affairs of the 1st

respondent, illegally denying villa no.52 to applicant and illegally

entering into sale agreement of said villa to a third party.

2.2. On 04.07.2020 applicant sent a notice to 2nd respondent

pointing out various aspects of functioning of their company and

asking him to immediately cancel sale agreement, if any, entered PNR,J ARBAPPL.No.91 of 2020

into for Villa No.52 of 'Aditya Casa Grand' with third party and

restrain from registering sale deed with any third party for Villa No

52 without the prior consent of the applicant.

2.3. In response to the said notice, 2nd respondent addressed a

letter/email, dated 08.07.2020, to applicant. He has denied the

allegations and put forth his version. Second respondent stated

about sale of Villa No.52 to the third party, P.Venkata Reddy, and

payment of Rs.65 Lakhs as advance reflected in the books of

accounts of the LLP and claim of the applicant on the Villa is false.

The 2nd respondent also invoked clause-7.4 of the LLP Agreement

to expel the applicant from the partnership, with effect from date of

receipt of the letter. The 2nd respondent also invoked the

arbitration clause of the LLP Agreement for resolution of all

disputes, including settlement of capital amount, claim regarding

Villa No.52 and liability and obligation towards third parties and

any damages payable. The 2nd respondent put forth three names to

appoint as arbitrator and sought the applicant's consent.

2.4. On receipt of above correspondence, applicant addressed two

letters to the 2nd respondent, dated 11.07.2020 and 24.07.2020.

Applicant agreed for resolution of all disputes by arbitration.

However, applicant rejected the names proposed by the 2nd

respondent for appointment as arbitrator and instead suggested

two other names.

2.5. In response 2nd respondent vide his letter dated 25.08.2020

stated that the names suggested by the applicant were not

acceptable. As there was stalemate on who should be the

arbitrator, the present application is filed.

PNR,J ARBAPPL.No.91 of 2020

2.6. It is the further case of the applicant that as a partner of

LLP, he desired to own villa no.52 and the same was

communicated to 2nd respondent. Second respondent agreed and

allowed applicant to make internal changes to suit his

requirements. He further asserts that later 2nd respondent agreed

to sell this villa for Rs.8,00,00,000/-; applicant agreed and paid

Rs.2,25,00,000/- to 1st respondent. He claimed to be in

possession of the said villa. While so, applicant alleges that he

came to know that 2nd respondent sold this villa to Sri P.Venkat

Reddy without his consent.

2.7. Having come to know of this sale transaction, the applicant

instituted O.S.No.101 of 2021 in the Court of XIV Additional

District Judge, Ranga Reddy district to grant decree of specific

performance of an oral agreement of sale between the applicant

and defendant no.27, the 1st respondent herein in relation to Villa

No.52 and also sought to grant injunction to restrain defendant

no.28, the 2nd respondent herein, and defendant no.29, Sri

P.Venkat Reddy, to whom respondents claim to have sold villa

no.52, from interfering with the possession of the said villa.

O.S.No.101/2021 is pending consideration of the Court of

XIV Addl.District Judge, Ranga Reddy.

2.8. In the said suit, the 2nd respondent filed I.A.No.197 of 2021

under Section 8 of the Act to relegate parties to arbitration as per

the LLP Agreement. The said application is pending consideration

of the said Court. The 2nd respondent asserts that there was

never such an understanding to give villa no.52 to the applicant

and it was validly sold to Sri P.Venkat Reddy. The amount paid by PNR,J ARBAPPL.No.91 of 2020

him is reflected in the account books of the LLP reflecting sale of

the villa, 2nd respondent alleges that applicant is making all false

and frivolous claims and is deliberately acting to damage the

reputation of the 2nd respondent. He claimed to have invoked

power available to him under LLP agreement to remove the

applicant from the partnership firm.

2.9. To complete the narration, it is also seen that the applicant

filed COP No.73/2020 for interim relief under Section 9 of the Act

before Hon'ble XXIV Addl. Chief Judge Cum Commercial Court and

the 2nd respondent also filed COP No.85/2020 in the same Court

for similar relief. These two applications are stated to be pending

consideration of the said Court.

3. Heard Mr. M.V.Pratap, learned counsel for applicant and

Mr. B.Venkateswara Rao, learned counsel the respondents.

4.1. Learned counsel Sri M.V.Pratap Kumar for the applicant,

while emphasizing the need to appoint arbitrator to resolve inter se

disputes, submitted that dispute relating to Villa No.52 has to be

excluded in view of subsequent developments. By virtue of the

terms of LLP, the arbitration agreement is between the partners

and concerns disputes arising out of LLP agreement. Oral

agreement of sale for Villa No.52 entered into by the applicant with

1st respondent, and issues arising there from is an independent

issue and outside the scope of arbitration agreement.

4.2. He further submitted that as applicant was informed that 2nd

respondent agreed to sell Villa No.52 to P.Venkat Reddy, who is

defendant No.29 in O.S.No.101 of 2021 and sought declaration PNR,J ARBAPPL.No.91 of 2020

against him also not to interfere with possession of said villa by the

applicant and these aspects are outside the scope of LLP

agreement. According to learned counsel any claim to the Villa is

independent of the LLP Agreement and the affairs of the LLP. It is

a claim arising out of an oral agreement not covered by the

arbitration clause.

4.3. He further submitted that dispute concerning Villa No.52 is

subject matter of O.S.No.101 of 2021 pending in the Court of XXIV

Additional Chief Judge-cum-Commercial Court seeking

enforcement of the applicant's rights regarding said Villa.

4.4. He further submitted that 2nd respondent filed interlocutory

application under Section 8 of the Act in O.S.No.101 of 2021

praying to relegate the parties to Arbitral Tribunal. The same is

pending consideration of the Civil Court and, therefore, at this

stage, arbitration cannot be gone into on the dispute on Villa

No.52.

4.5. Learned counsel for applicant placed reliance on following

decisions:

i) Vijay Kumar Sharma alias Manju Vs. Raghunandan Sharma alias Baburam and others1;

ii) Sukanya Holdings (P) Ltd. Vs. Jayesh H.Pandya and another2;

iii) Duro Felguera, S.A. Vs. Gangavaram Port Limited3;

iv) Mayavati Trading Private Limited Vs. Pradyuat Deb Burman4;

1 (2010) 2 SCC 486 2 (2003) 5 SCC 531 3 (2017) 9 SCC 729 4 (2019) SCC 714 PNR,J ARBAPPL.No.91 of 2020

v) Vidya Drolia and others Vs. Durga Trading Corporation5; and

vi) Garware Wall Ropes Limited vs. Coastal Marine Constructions and Engineering Limited6.

5.1. Per contra, learned counsel for respondent no.2 contended

that pursuant to the notice issued by the applicant on 04.07.2020

there was long correspondence on inter se disputes and applicant

agreed to refer to arbitrator all pending disputes. The

disagreement was only on who should be the arbitrator. He

therefore submitted that applicant cannot seek to exclude dispute

relating to Villa No.52 for consideration by the Arbitrator. He

contended that the claim on Villa No.52 was the ground for the

invocation of the arbitration clause and the dispute is covered by

the arbitration clause in the LLP Agreement as it is stock in trade

of the LLP and cannot be separated from other claims on the LLP.

5.2. He further submitted that the respondents filed I.A.No.197 of

2021 under Section 8 of the Act seeking relegation of all disputes

including villa no. 52 to a sole arbitrator as per the terms of the

arbitration clause of the LLP Agreement. He further submitted

that pendency of such application in the Civil Court is not a bar for

this Court to grant relief under Sections 11(5) and (6) of the Act.

5.3. Learned counsel placed reliance on following decisions:

i) Powertech World Wide Limited vs. Delvin International General Trading LLC7;

ii) Kasturi vs. Iyyamperumal and others8; and

5 (2021) 2 SCC 1 6 (2019) 9 SCC 209 7 (2012) 1 SCC 361 8 (2005) 6 SCC 733 PNR,J ARBAPPL.No.91 of 2020

iii) A.Tosh and Sons (India) Ltd. Vs. Happy Valley Tea Company Pvt.Ltd.9

6. Both parties agree that there are inter se disputes flowing

out of LLP Agreement; that clause-18.7 of LLP Agreement provides

for resolution of disputes though arbitration; and agree for

reference of disputes to arbitration. While respondent consistently

contends that arbitration clause is wide and encompasses all

disputes including dispute relating to Villa No.52 and that

applicant agreed for reference of all disputes, there is a change in

the stand of the applicant. The time applicant instituted this

application he had no reservations on reference of all disputes.

Only issue was lack of consensus on who should arbitrate their

disputes. By the time the matter came up consideration, he has

changed his perception of what matters can be referred to

arbitration. By this time, his clear stand is against reference to

arbitration on the dispute concerning villa No.52.

7. The elaborate submissions by both counsel centered on

whether issue relating to Villa No.52 should also be subject matter

of reference to the arbitrator. Incidentally, extensive submissions

are made on scope of jurisdiction of High Court in an application

filed for appointment of arbitrator under Section 11(5)10 and (6)11

on an issue pending adjudication before a Civil Court and when

9 2005 SCC Online Cal 146 10 S.11. Appointment of arbitrators.

(5) Failing any agreement referred to in sub‐section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by 1 [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].

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

(6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.] PNR,J ARBAPPL.No.91 of 2020

application under Section 812 of the Act is pending before Civil

Court.

8. Clause - 18.7 of the LLP Agreement dated 21.05.2014 reads

as under:

"Clause 18.7 - Dispute Resolution In case of any dispute or differences among the Partners or between the partners or between the partners and the legal heirs/representatives of the deceased partner or between and LLP whatsoever concerned with the affairs of the LLP or the interpretation of this Agreement, efforts shall be made to resolve such dispute or difference through mutual dialogue. Where such dialogue fails, the matter shall be referred to a single arbitrator, if the parties agree upon one, or if the parties fail to reach a consensus on such appointment then such appointment shall be made in accordance with and subject to the provisions of the Arbitration and Conciliation Act, 1996 (the 'Arbitration Act') and/or any statutory modification or re-enactment thereof for the time being in force. Such arbitral awards shall be binding on all parties to the dispute."

9. From the bare reading of the clause, it is apparent that this

clause is exhaustive and covers all inter se disputes. It requires

that if there is a dispute or difference, first parties should strive to

resolve the dispute or difference though dialogue. If such dialogue

fails to resolve the dispute or difference, matter should be referred

to a single arbitrator.

10. Now, I consider the chronology of correspondence, to the

extent relevant leading to institution of this application:

(a) Applicant issued notice dated 04.07.2020 to 2nd

respondent alleging that business was conducted by the

12 Section 8. Power to refer parties to arbitration where there is an arbitration agreement.-- [(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.] (2) The application referred to in sub‐section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof: 2 [Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub‐section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.] (3) Notwithstanding that an application has been made under sub‐section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

PNR,J ARBAPPL.No.91 of 2020

respondent as per his whims and in violation of the respondents

fiduciary duty towards the LLP. This Legal Notice was limited to

the rights of applicant on Villa No.52 of the gated community built

by the LLP Company. The respondent was asked to immediately

cancel any sale agreement regarding the Villa and restrain from

registering it in favour of any third party without the applicant's

consent. The letter also mentions a public notice and notice to the

Sub-Registrar cautioning against the same.

(b) In his response dated 08.07.2020, the 2nd respondent

categorically denied allegations of the applicant on both counts

and further alleged that the claim over Villa 52 was known by both

partners as sold to third party Sri P.Venkata Reddy from whom

advance was also collected by the LLP. It was further pointed out

that as required by Clause 18.7 of the Agreement no steps were

taken to resolve the disputes via dialogue. The 2nd respondent

then invokes the arbitration clause and proposes the names for

appointment of the sole arbitrator, settlement of capital amount of

applicant, claim of applicant regarding the Villa No.52 and his

liabilities and obligations towards third parties including

landowners and damages payable by the applicant. By this

correspondence, the respondent also communicated the decision of

expulsion of the applicant as partner of the LLP.

(c) In his response, dated 11.07.2020, the applicant informed

that the arbitration of the dispute is deemed to have commenced

with effect from the date of respondent letter i.e., 8th July 2020. In

the second letter dated 24.07.2020 he accepts invoking the

arbitration clause for resolution of all disputes.

PNR,J ARBAPPL.No.91 of 2020

11. From this correspondence, it is clear that when this

application was filed applicant was not asking to separate issue on

Villa No.52 and applicant was in favour of resolution of all

disputes. The only controversy was on who should be the

arbitrator.

12. Section 11 of the Act deals with who can be arbitrator,

evolving procedure by parties to appoint arbitrator(s), power of the

Hon'ble Supreme Court and the High Court to designate arbitral

institutions and the power of the High Court to maintain panel of

arbitrators. Sub-Section (5) deals with a contingency when there is

no consensus among the parties to the arbitration agreement as to

who should be the arbitrator. When parties to an arbitration

agreement fail to arrive to a consensus on who should be the

arbitrator to resolve their inter se dispute and one of the parties

files application under Section 11 of the Act, the High Court shall

consider the application and appoint an arbitrator.

13. Since, both agree for reference of inter se disputes to

arbitrator, in normal circumstances, only aspect to be considered

is who should be the arbitrator. But, issue is sought to be

complicated by both sides emphasizing on the subsequent

developments and wanted the Court to dwell deep into dispute

concerning villa No.52. Applicant sought to contend that he has

entered into oral agreement of sale with 2nd respondent to

purchase Villa No.52. This agreement and dispute arising there

from is not the subject matter of LLP Agreement. The arbitration

clause only concerns inter se disputes arising out of LLP

agreement. It is also contended that as the issue concerning villa PNR,J ARBAPPL.No.91 of 2020

No.52 is pending consideration by the Civil Court in a suit for

specific performance, it cannot be subjected to arbitral

proceedings. Per contra, according to 2nd respondent when

applicant agreed to refer all disputes to arbitration he cannot see

exclusion of dispute concerning village no.52. Having regard to the

submissions made by learned counsel, to place the record straight

the Court is required to consider scope of jurisdiction of the High

Court under Section 11 of the Act.

14. After the amendment to the Act, 1996, it is now well settled

that the High Court is only required to confine its consideration on

whether an arbitration agreement exists. Nothing more, nothing

less. If there is an arbitration clause, if there is a dispute inter

parties and there is difference of opinion between the parties on

who should be arbitrator, High Court should step in and appoint

an arbitrator. While deciding the question of appointment of

arbitrator, the Court has not to touch the merits of the case. [IBI

Consultancy India Pvt. Ltd. Vs. DSC Limited: (2018) 17 SCC 95;

Mayavati Trading Pvt. Ltd. Vs. Pradyuat Deb Burman: (2019) 8

SCC 714]. The legislative policy and purpose is essentially to

minimize the Court's intervention at the stage of appointing the

arbitrator [Duro Felguera, SA Vs. Gangaram Port Ltd: (2017) 9

SCC 729 ].

15. In Sajiv Prakash Vs. Seema Kukreja13, the Hon'ble

Supreme Court reviewed the law on the subject. In paragraph-41,

the Hon'ble Supreme Court recorded as under:

13 2021 SCC Online SC 282 PNR,J ARBAPPL.No.91 of 2020

"41. Judged by the aforesaid tests, it is obvious that whether the MoU has been novated by the SHA dated 12.04.1996 requires a detailed consideration of the clauses of the two Agreements, together with the surrounding circumstances in which these Agreements were entered into, and a full consideration of the law on the subject. None of this can be done given the limited jurisdiction of a court under Section 11 of the 1996 Act. As has been held in paragraph 148 of Vidya Drolia (supra), detailed arguments on whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties. Also, this case does not fall within the category of cases which ousts arbitration altogether, such as matters which are in rem proceedings or cases which, without doubt, concern minors, lunatics or other persons incompetent to contract. There is nothing vexatious or frivolous in the plea taken by the Appellant. On the contrary, a Section 11 court would refer the matter when contentions relating to non-arbitrability are plainly arguable, or when facts are contested. The court cannot, at this stage, enter into a mini trial or elaborate review of the facts and law which would usurp the jurisdiction of the arbitral tribunal." (emphasis supplied)

16. As elucidated by the Hon'ble Supreme Court in the

decisions noted above, at the stage of consideration of Section 11

application, the Court is required to examine only whether a valid

arbitration agreement exists. The precedent decisions throw

enough guidance to hold that High Court cannot dwell into the

inter se disputes and what aspects are to be considered by the

Arbitrator. In an application under Section 11, the hands of the

High Court are tied, for good measure, having regard to the scope

and object of the Arbitration Act. If there is an arbitration

agreement, and the clause requires resolution of disputes by

arbitration, the Court is only required to consider appointment of

arbitrator and leave it to the arbitral Tribunal to decide all issues.

PNR,J ARBAPPL.No.91 of 2020

It is settled principle of law that issue regarding non-arbitrability of

a dispute can also be considered and decided by the arbitral

tribunal.

17. In a rare case, when it is shown that the issue is

'demonstrably' and 'ex facie', 'non-arbitrable', 'non-existent

agreement', 'agreement is invalid', the Court may decline

appointment of arbitrator. It is a restricted and limited

consideration. The Court cannot look into disputed facts or

conduct a mini-trial.

18. The serious debate was on scope of consideration of

application under Section 11 while application filed under Section

8 of the Act is pending in the Civil Suit. While learned counsel for

applicant asserted that since such application is pending, the

arbitral proceedings, until the said application is decided by the

Civil Court, cannot commence on villa no.52, whereas learned

counsel for 2nd respondent asserted that pendency of application

under Section 8 is no bar for this Court to refer the dispute on villa

no.52 also to arbitration. As noted above, in an application under

Section 11 of the Act the scope of consideration is very limited.

However, having regard to submissions made, it is necessary to

briefly look into the interplay between Section 11 and Section 8 of

the Act, and the law laid down by the Hon'ble Supreme Court.

Both provisions intend to give effect to the object of the Arbitration

Act and the desire of the parties to a dispute to resolve their

dispute through medium of arbitration. The contingency for their

application is different.

PNR,J ARBAPPL.No.91 of 2020

19. Section 8(3) of the Act came up for consideration in Vijay

Kumar Sharma (supra), where it is observed-

"12. Having regard to the specific provision in Section 8(3) providing that the pendency of an application under Section 8(1) will not come in the way of an arbitration being commenced or continued, we are of the view that an application under Section 11 or Section 15(2) of the Act, for appointment of an arbitrator, will not be barred by pendency of an application under Section 8 of the Act in any suit, nor will the designate of the Chief Justice be precluded from considering and disposing of an application under Section 11 or 15(2) of the Act.

13. It follows that if an arbitrator is appointed by the designate of the Chief Justiceunder Section 11 of the Act, nothing prevents the arbitrator from proceeding with thearbitration. It also therefore follows that the mere fact that an appeal from an orderdismissing the suit under Order 7 Rule 11 CPC (on the ground that the disputes wererequired to be settled by arbitration) is pending before the High Court, will not come inthe way of the appointment of an arbitrator under Section 11 read with Section 15(2) ofthe Act, if the authority under Section 11 finds it necessary to appoint an arbitrator."

20. The scope of jurisdiction of High Court while considering

Application under Section 11 vis-à-vis Section 8, post the 2016

amendment is considered in Vidya Drolia (supra). On review of

law on the subject, the Hon'ble Supreme Court held:

"147.9. Even in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] , Kurian Joseph, J., in para 52, had referred to Section 7(5) and thereafter in para 53 referred to a judgment of this Court in M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. [M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] to observe that the analysis in the said case supports the final conclusion that the memorandum of understanding in the said case did not incorporate an arbitration clause. Thereafter, reference was specifically made to Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 :

(2009) 1 SCC (Civ) 117] to observe that the legislative policy is essential to minimise court's interference at the pre-arbitral stage and this was the intention of sub-section (6) to Section 11 of the Arbitration Act. Para 48 in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] specifically states that the resolution has to exist in the arbitration agreement, and it is for the court to see if the agreement contains a clause which provides for arbitration of disputes which have arisen between the parties. Para 59 is more restrictive and requires the court to see whether an arbitration PNR,J ARBAPPL.No.91 of 2020

agreement exists -- nothing more, nothing less. Read with the other findings, it would be appropriate to read the two paragraphs as laying down the legal ratio that the court is required to see if the underlying contract contains an arbitration clause for arbitration of the disputes which have arisen between the parties -- nothing more, nothing less. Reference to decisions in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] was to highlight that at the reference stage, post the amendments vide Act 3 of 2016, the court would not go into and finally decide different aspects that were highlighted in the two decisions.

153. Accordingly, we hold that the expression "existence of an arbitration agreement" in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and nonarbitrability.

154. Discussion under the heading "Who Decides Arbitrability?" can be crystallised as under:

154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted.

154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of "second look" on aspects of non-arbitrability post the award in terms of sub-clauses

(i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act.

154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably "non-arbitrable" and to cut off the deadwood. The court by default would refer the matter when PNR,J ARBAPPL.No.91 of 2020

contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism."

(emphasis supplied)

21. It is thus clear as crystal that Section 8(3) of the Act permits

commencement or continuation of arbitral proceedings

notwithstanding pendency of any application under Section 8 of

the Act.

22. The applicant also raised the plea that when rights of a

person who is not a party to the arbitration agreement are at stake,

arbitral proceedings cannot be taken up. Said third party in

question is the buyer of Villa No.52 against whom Section 9

application is pending and Section 8 application to refer the

dispute to arbitration is filed in O.S.No.101 of 2021 and both

applications are pending consideration of the civil Court.

23. Section 9 relief can be sought at any stage of the arbitration

except after passing of the final award; and a Court with

jurisdiction is free to grant interim relief if a prima facie case is

made out. Nothing in the statute specifically points out that

arbitrator cannot be appointed merely because Section 9

application is pending, unless it is ruled that issue is non-

arbitrable. Again, on the aspect that when third party interest are

involved whether arbitral proceedings can commence also requires

detailed consideration and cannot be gone into in a summary

proceedings.

PNR,J ARBAPPL.No.91 of 2020

24. This being the elucidation of law on various aspects

concerning arbitral proceeding, the Court is not entering into inter

se disputes, range of disputes, effect of pending civil suit and

pending Section 8 application in the Civil Suit. These are all

matters to be urged before the Arbitral Tribunal. The Court is only

considering the issue of appointing the arbitrator when there is no

consensus between the parties to arbitration agreement on who

should be the arbitrator.

25. This leaves consideration of the core issue, appointment of

arbitrator. Since parties are not able to arrive to an understanding

to identify a person to act as arbitrator, in view of the provision in

sub-section (2) of Section 1014 of the Act, sole arbitrator can be

appointed by the Court to resolve the inter se disputes arising out

of the LLP agreement.

26. Guided by the principle of law as it stands now, when I look

at the material documents and pleadings, it is seen that clause-

18.7 of the Agreement clearly requires resolution of dispute by

arbitration. Both parties to the agreement agreed that there are

disputes and agreed to invoke this clause and proposed names to

appoint an arbitrator. There was no consensus on who should be

the arbitrator. Therefore, Court cannot go into any other aspect

except suggesting a name of the arbitrator. It is for the parties to

raise all pleas as available in law and invite decision from the

arbitrator.

14 S.10. Number of arbitrators.--

(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.

(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.

PNR,J ARBAPPL.No.91 of 2020

27. Accordingly, the Arbitration Application is allowed

appointing Hon'ble Justice Sri C.V.Nagarjun Reddy, Retired Judge

of the High Court of Telangana, as sole arbitrator for resolution of

dispute between the applicant and the respondent arising out of

LLP agreement dated 21.05.2014 in accordance with the provisions

and mandate of the Act, 1996. Learned Arbitrator is entitled to fee

as per the rules prescribed in the 4th schedule of the Act, 1996,

which shall be borne by both parties equally.

28. It is made clear that the Court has only noted the law on the

scope of jurisdiction of High Court in a Section 11 application and

when an application filed under Section 8 is pending before the

Civil Court and has not expressed any opinion on range of inter se

disputes, scope of disputes, and what disputes are arbitrable.

These are all matters to be urged before the Arbitral Tribunal.

Pending miscellaneous petitions if any pending shall stand

closed.

__________________________ JUSTICE P.NAVEEN RAO Date: 07.06.2021 Kkm

Note: LR copy to be marked: Yes PNR,J ARBAPPL.No.91 of 2020

HONOURABLE SRI JUSTICE P.NAVEEN RAO

ARBITRTION APPLICATION NO.91 OF 2020

Date: 07.06.2021 kkm