Telangana High Court

G.Mohan Vamshi vs Mercury Sports Entertainment Llp on 28 October, 2022

Bench: Ujjal Bhuyan

       THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
               Arbitration Application No.3 of 2022
ORDER:

Heard Mr. Pramod, learned counsel appearing on behalf of

Mr. A.Venkatesh, learned counsel for the applicant and Mr. Shyam

S.Agarwal, learned counsel for respondent No.2.

2. There is no representation on behalf of respondents No.1

and 3 though the said respondents have been served. As a matter

of fact, in the proceedings dated 22.07.2022, it was recorded that

memo dated 12.04.2022 and office note dated 21.07.2022 indicated

that all the respondents were served.

3. By filing this application under Section 11(6) of the

Arbitration and Conciliation Act, 1996 (briefly 'the 1996 Act'

hereinafter), applicant seeks appointment of sole arbitrator to

arbitrate on the dispute between the parties.

4. It is stated that applicant, respondent No.2 and respondent

No.3 formed a Limited Liability Partnership (LLP) firm called

M/s. Mercury Sports Entertainment LLP i.e., respondent No.1. In ::2::

this connection, an LLP agreement was entered into by and

between the three partners on 12.10.2018.

5. For the purpose of the present application, it may not be

necessary to advert to other provisions of the LLP agreement.

Suffice it to say, Clause 35 of the LLP agreement provides for

resolution of disputes and differences between the parties by way

of arbitration. Clause 35 reads as under:

All disputes and differences whatsoever which shall arise between the partners, or between the partners and the personal representatives of the deceased partner relating to any matter, or between Partner and LLP whatsoever touching the affairs of the LLP, or the interpretation of this Agreement shall be referred to a single arbitrator, if the parties agree upon one, otherwise to three arbitrators one to be appointed by each party to the difference in accordance with and subject to the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force.

6. It is stated that respondent No.1 was required to pay

Rs.40,80,000.00 to the income tax department towards Tax

Deducted at Source (TDS). While the share of the applicant was ::3::

quantified at Rs.13,36,500.00, the combined share of respondents

No.2 and 3 was quantified at Rs.27,13,500.00. According to the

applicant, as respondents No.2 and 3 expressed their inability to

raise such an amount of Rs.27,13,500.00, to ensure that respondent

No.1 did not land up in any tax dispute, the said amount was paid

by the applicant treating it as loan advances to respondents No.2

and 3.

7. When the applicant approached respondents No.2 and 3 for

repayment of the aforesaid amount, the same was flatly denied by

the said respondents. This compelled the applicant to write to the

respondents on 17.06.2021 calling upon them to return the sum of

Rs.27,13,500.00 together with applicable interest and cost.

Respondents replied to the applicant through their advocate's letter

dated 20.07.2021. Amongst other contentions, respondents stated

that it was the applicant on his own who made payment to the

income tax department without any consultation and without

taking into confidence the two partners of the LLP firm. None of ::4::

the respondents had received any notice of demand from the

income tax department.

8. Finally, applicant invoked the arbitration clause and wrote to

the respondents on 11.09.2021 appointing Mr. G.Gopala Krishna

Murthy, a retired District Judge, as the sole arbitrator and sought

for consent of the respondents. As no such consent of the

respondents was forthcoming, applicant was constrained to file the

present application.

9. Respondent No.2 has filed a counter-affidavit wherein a

stand is taken that claim of the applicant is unrelated to the

business of respondent No.1; therefore, it is not governed by the

terms and conditions of the LLP agreement dated 12.10.2018.

Even as per the statement of the applicant, the money was lent to

the respondents. Therefore, question of the claim of the applicant

arising out of the partnership agreement did not arise.

10. In the hearing today, learned counsel for the parties made

submissions which are on pleaded line. Therefore, it is not ::5::

necessary to elaborately refer to those submissions. However, the

submissions so made have received the due consideration of the

Court.

11. From the pleadings and other materials on record, it is

deducible that applicant and respondents No.2 and 3 are the

partners of respondent No.1- LLP firm. Applicant has stated that

it had paid the entire income tax dues of respondent No.1 including

the shares of respondents No.2 and 3, which had been quantified at

Rs.27,13,500.00 According to respondent No.2, such payment was

made unilaterally by the applicant and if the contention of the

applicant is accepted, it was a loan advanced to respondents No.2

and 3 by the applicant. Therefore, such amount did not accrue out

of the business activities of respondent No.1.

12. Clause 35 of the LLP agreement as extracted above provides

that all disputes and differences which may arise between the

partners should be referred to a single arbitrator that may be agreed

upon. If the partners are unable to agree upon a single arbitrator,

then each partner may nominate one arbitrator each.

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13. From the above, what is evident is that while the applicant

asserts that he had made payment to the income tax department on

behalf of all the partners, respondent No.2 on the other hand states

that such payment was made unilaterally and without any

consultation amongst the partners. The claim of the applicant that

it was a loan advanced to respondents No.2 and 3 for payment of

income tax dues has been denied.

14. From the above facts, it is thus clear that there is a dispute

between the parties and Clause 35 of the LLP agreement provides

for dispute resolution.

15. The Arbitration and Conciliation (Amendment) Act, 2015

(briefly 'the 2015 Act' hereinafter) came into force with effect

from 23.10.2015. As per Sub-Section (6A) of Section 11, inserted

by way of the aforesaid amendment, Supreme Court or the High

Court, as the case may be, 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, ::7::

confine to the examination of the existence of an arbitration

agreement. Thus, the effect of the amendment is that if the

existence of the arbitration agreement is not in dispute, all the

issues should be left for the arbitral tribunal to decide.

16. The effect and impact of the 2015 amendment was

considered by the Supreme Court in Bharat Sanchar Nigam

Limited v. M/s. Nortel Networks India Private Limited1.

Supreme Court held as follows:

"The effect of the amendment was that if the existence of the arbitration agreement was not in dispute, all other issues would be left for the arbitral tribunal to decide. This was in reinforcement of the doctrine of kompetenz- kompetenz, which empowers the tribunal to rule on its own jurisdiction, including any objections with respect to the validity of the arbitration agreement; and thereby minimize judicial intervention at the pre-reference stage."

17. After analyzing the earlier decisions of the Supreme Court, it

has been held that post 2015 amendment all that the Courts are

Civil Appeal Nos.843-844 of 2021 ::8::

required to examine is whether an arbitration agreement is in

existence or not - nothing more, nothing less. It has been held as

follows:

31. Sub-section (6-A) came up for consideration in Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729, wherein this Court held that the legislative policy was to minimise judicial intervention at the appointment stage. In an application under Section 11, the Court should only look into the existence of the arbitration agreement, before making the reference. Post the 2015 Amendment, all that the courts are required to examine is whether an arbitration agreement is in existence -- nothing more, nothing less.

"48. Section 11(6-A) added by the 2015 Amendment, reads as follows:

'11. (6-A) 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.' (emphasis supplied) From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect--the existence ::9::

of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple--it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.

59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists--nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected."

18. Finally, Supreme Court concluded as under:

34. In view of the legislative mandate contained in the amended Section 11(6-A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be ::10::

decided by the arbitrator under Section 16, which enshrines the kompetenz-kompetenz principle. The doctrine of kompetenz-kompetenz implies that the Arbitral Tribunal is empowered, and has the competence to rule on its own jurisdiction, including determination of all jurisdictional issues. This was intended to minimize judicial intervention at the pre-reference stage, so that the arbitral process is not thwarted at the threshold when a preliminary objection is raised by the parties.

19. Thus, following the law laid down by the Supreme Court in

Bharat Sanchar Nigam Limited v. M/s. Nortel Networks

India Private Limited (1 supra) and on the basis of the

deliberations made hereinabove, this Court is clearly of the opinion

that there is an arbitral dispute between the parties which should be

referred to arbitration to be conducted by a sole arbitrator as

provided under Clause 35 of the LLP agreement.

20. Accordingly Mr. G.Gopala Krishna Murthy, a retired District

Judge, resident of Flat No.102, H.No.3-4-756/1, Sai Raghavendra

Residency, Barkatpura, Hyderabad, is appointed as the sole

arbitrator to arbitrate on the dispute between the parties.

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