Next Education India Private ... vs Sge Education Pvt. Ltd
2023 Latest Caselaw 3378 Tel

       HON'BLE SRI JUSTICE J.SREENIVAS RAO

                 ARB.APPL.No.184 OF 2022

ORDER:

This Arbitration Application is filed under Section 11 (5)

and (6) of Arbitration and Conciliation Act, 1996, R/w Scheme

for Appointment of Arbitrator, 1996 (for short 'the Act') to

appoint Arbitrator to adjudicate the dispute between the

applicant and respondent.

2. Factual Matrix:

2.1 The applicant is engaged in the field of Education,

Development of Educational content and facilitating

enhancement of knowledge and efficiency of students by

providing computer based teaching and learning materials.

The applicant provides its products and services for internet

based teaching and coaching as well as computer based

teaching and coaching in class room scenario. Respondent is

a private limited company and it runs a School by name

School of Global Education at Sushanti kunj, Kurji Pataliputra

Road, Patna-800010. Applicant submits that respondent

approached and requested to provide its products and services

for using the same in the said school and accordingly they

entered into School-Academic consulting Agreement dated

14.10.2017 ('Agreement' for brevity). As per Clause-4 of the

Agreement, applicant was retained as a consultant and

academic advisor by respondent to perform the services set

out in Annexure-1. Clause 12 of Agreement deals with the

terms of payment for the services provided by the applicant to

the respondent set out in Annexure II of the Agreement.

Clause 17 deals with payments to be made to the applicant by

the respondents within 30 days from the date of invoice failing

which respondent is obligated to pay interest at the rate of

18% p.a. from the date of which the amount become due.

Clause 20(f) of the Agreement states that if any disputes

arising out of the Agreement shall be adjudicated by the Sole

Arbitrator mutually agreed by the parties. Clause 20(g) says

that the Courts at Hyderabad alone have exclusive

jurisdiction.

2.2 The applicant further submits that pursuant to the said

Agreement, the applicant installed its computer system and

also provided other requisite hardware such as uninterrupted

power system (UPS), speakers and cabinet for digitized

classroom teaching and coaching etc., and the applicant

fulfilled its obligation in terms of Agreement completely

without any complaint. The applicant raised invoices,

however the respondent failed to make payments in terms of

Agreement. The last payment made by the respondent is an

amount of Rs.1,24,630/- on 29.06.2020. An amount of

Rs.57,83,974/- was due to be paid by respondent.

Respondent issued cheques to the applicant dated

28.08.2018, 12.12.2019, 01.01.2020, 29.01.2020,

19.02.2020, 06.03.2020, 18.03.2020, 27.04.2020, respectively

and the said cheques were dishonored. Thereafter, the

applicant issued a notice dated 31.08.2020, calling upon

respondents to make payment of the said amounts along with

interest at the rate of 18% per annum within 7 days. In spite

of receiving said notice, respondent had neither paid the

amount nor given any reply. The applicant had also

terminated the Agreement between the parties. As per the

Agreement total amount due to be paid by respondent is

Rs.1,28,87,504/- to the applicant.

2.3 The applicant further submits that they had issued

notice dated 26.02.2021, invoking the arbitration clause

nominating a sole arbitrator and informed the respondent to

give his consent. The respondent issued reply notice on

09.03.2021, stating that no amount is due and calling upon

the applicant to withdraw the notice dated 26.02.2021.

Hence, the applicant filed the present application invoking the

provisions of the Act seeking appointment of a sole arbitrator.

2.4 Respondent filed counter contending that the application

filed by the applicant is not maintainable under law and this

Court does not have jurisdiction to adjudicate the present

application and the competent jurisdiction lies at Patna,

Bihar. He further contended that the applicant fraudulently

created the Agreement for the purpose of extorting money from

the respondent. He further contended that the Agreement

relied by the applicant is created, forged and fabricated

document. According to the said document, the stamp papers

were purchased on 20.01.2018 at Patna, Bihar whereas the

date of execution of Agreement is 14.10.2017 i.e., four months

prior to purchase of the stamp paper and the witness

signatures bear the date i.e., 26.01.2018 which is a public

holiday as the day being Republic Day and the above said

aspects clearly reveals that the Agreement relied by the

applicant is fabricated document. He further submitted that

the seat and venue of arbitration was agreed between the

parties to be at Patna, Bihar, however, applicant in the

Agreement deceitfully omitted the "seat" of arbitration and

inserted a clause only stating that the 'venue' of the

arbitration at Hyderabad, contrary to what was agreed

between the parties. He also submitted that the applicant

basing on the fraudulent Agreement claiming huge amounts of

Rs.1,28,87,504/-, though the respondent is not liable to pay

any amount, respondent issued reply notice dated 23.10.2020,

to the legal notice dated 31.08.2020, denying the claim made

by the applicant. It is further stated that respondent issued

reply notice dated 09.03.2021, to the notice issued by

applicant dated 26.02.2021, seeking consent for appointment

of arbitrator on the ground that the Agreement relied by the

applicant itself is fabricated and basing on the same, applicant

is not entitled for seeking appointment of arbitrator. The

application filed by the applicant is not maintainable and the

same is liable to be dismissed.

2.5. The applicant filed reply wherein it is stated that the

stamp paper was purchased by respondent on 20.01.2018 and

Agreement was signed at Hyderabad on 26.01.2018, the date

of Agreement was mentioned as 14.10.2017, as that was the

date from which both the parties intended that the Agreement

has to come into effect. Pursuant to the said agreement, the

respondent made a few payments to the applicant and

thereafter not chosen to pay further amounts. The respondent

has admitted the execution of the Agreement in its reply dated

09.03.2021 and also acted upon the same. Hence, the

respondent is not entitled to contend that the Agreement is

forged, fabricated and created document. He further stated

that the dispute raised with regard to execution and genuinety

of the Agreement can be adjudicated by the arbitral Tribunal.

3. Heard Sri Ch. Pushyam Kiran, learned counsel for the

applicant and Dibyanshu Pandey, learned counsel

representing Sri Mahesh Raje, learned counsel for the

respondent.

4. Learned counsel for the applicant contended that the

applicant as well as respondent have entered School-Academic

Consulting Agreement dated 14.10.2017 and both the parties

have signed on 26.01.2018. As per the terms and conditions

of the Agreement, the applicant installed its computer systems

with the content agreed upon and requisite hardware such as

uninterrupted power systems(UPS), speakers and cabinet for

digitized classroom teaching and coaching etc., and fulfilled all

obligations in terms of the Agreement. The applicant raised

invoice for the supplies made and services provided to the

respondent and an amount of Rs.57,83,947/-, was due to be

paid by respondent. The respondent issued cheques for the

said amount and the same were dishonored. On 31.08.2020,

the applicant issued notice calling upon respondent to pay the

said amount with interest @18% p.a. and also terminated the

Agreement. In spite of the same, respondent had neither

replied nor made the payment. Thereafter, the applicant

issued legal notice on 26.02.2021, invoking the arbitration

clause 20(f) of the Agreement wherein it was mentioned that

the respondent is liable to pay an amount of Rs.1,28,87,504/-,

and to resolve the dispute between the parties, the applicant

nominated retired judge of High Court and informed the

respondent to give consent. In response to the same,

respondent issued reply legal notice on 09.03.2021, denying

the claim made by the applicant stating that as per Section 11

of the Act, the appointment of arbitrator could be done only by

mutual consent of the parties and the appointment of sole

arbitrator by the applicant is not legally valid.

4.1 He further contended that the respondent has not denied

the execution of the Agreement dated 14.10.2017 which was

signed by both the parties on 26.01.2018 in the reply notice.

However, para 1 of reply notice mentioned one Agreement i.e.,

School-Academic consultant Agreement dated 20.01.2018

though there is no such Agreement between the parties except

one Agreement i.e, 14.10.2017. Respondent had not filed the

said document before this court nor pleaded in the counter.

4.2 He also contended that respondent filed counter contrary

to the averments made in the reply notice contending that

Agreement dated 14.10.2017, which was signed on

26.10.2018, is fabricated and forged document and the same

is not permissible under law and pendency of the criminal

cases filed by the applicant invoking provisions of 138 of

Negotiable Instruments Act before Chief Metropolitan

Magistrate, New Delhi are nothing to do with the present

application. The applicant rightly invoked the Arbitration

Clause 20(f) under the Agreement and filed the present

application and the same is very much maintainable under

law.

4.3 The specific contention of the applicant is that

respondent is due an amount of Rs.57,83,974/- and he is

liable to pay the same along with interest @18% p.a and the

total amounts comes to Rs.1,28,87,504/-, on the other hand

respondent denied the same stating that he is not liable to pay

the amounts and the said objections/disputes raised by the

parties are disputed questions of facts and the same have to

be resolved by the arbitratral Tribunal after considering the

contentions of the respective parties and evidence which is

going to be adduced by both the parties only.

4.4 In support of his contention, he relied upon the

judgment of Vidya Drolia and Ors Vs. Durga Trading

Corporation and Ors 1 and Komirishetty Shravani Vs.

Indana Geetha and Ors 2.

5. Per contra, learned counsel for respondent contended

that Agreement dated 14.10.2017, relied by the applicant is

forged, fabricated document and basing on the said document

the applicant is not entitled to seek appointment of sole

arbitrator, unless and until the applicant establishes that the

Agreement relied by the applicant is genuine. In the absence

of the same, applicant is not entitled to invoke the provisions

of the Act seeking appointment of arbitrator.

5.1 In the reply notice dated 09.03.2021, respondent

specifically mentioned that the actual Agreement between the

parties is 20.01.2018 and the Agreement relied by the

applicant dated 14.07.2018 is fabricated document and the

said Agreement dated 20.01.2018 is in the custody of the

1 2021 2 SCC 1 2 2022 6 ALD 474

applicant only. He further contended that the applicant

already initiated the proceedings invoking the provisions of

Section 138 of Negotiable Instruments Act and filed Criminal

Cases before Chief Metropolitan Magistrate, New Delhi and the

present application is not maintainable, especially this Court

is not having jurisdiction to adjudicate the application and as

per the Agreement the competent Courts jurisdiction lies at

Patna, hence the petitioner is not entitled to relief sought in

this Application.

5.2 In support of his contention he relied upon the

judgement of Hon'ble Supreme Court in Avitel Post Studioz

Ltd and Ors. Vs. HSBC PI Holdings (Mauritius) Limited

(Civil Appeal No.5145 of 2016) dated 19.08.2020.

6. Having considered the rival submissions made by

respective parties and upon perusal of the material available

on record following point arises for consideration.

i. Whether the arbitration application filed by applicant seeking appointment of sole arbitrator for dissolution of the dispute invoking provisions of Section 11(5 and 6) of Act is maintainable under law?

ii. To what relief?

Point Nos. (i) and (ii)

6.1 As per the pleadings and the documents filed by the

applicant in support of the application, it reveals that the

applicant and respondent entered into Agreement and

applicant installed its computer system and also provided

other material to respondent school and the applicant raised

invoices for an amount of Rs.57,83,974/-. It further appears

from the record that the respondent issued cheques to the

applicant dated 28.08.2018, 12.12.2019, 01.01.2020,

29.01.2020, 19.02.2020, 06.03.2020, 18.03.2020,

27.04.2020, respectively and the said cheques were

dishonored and the applicant initiated proceedings invoking

the provisions of Section 138 of Negotiable Instruments Act

and filed Criminal Cases before Chief Metropolitan Magistrate,

New Delhi and the said cases were numbered as

CC. Nos. 6182, 6188, 6189, 6226, 7508, 7509 of 2020 and the

same are pending.

6.2. As per the pleadings, the applicant filed this application

seeking appointment of sole arbitrator basing on the

Agreement dated 14.10.2017. The specific contention of the

applicant is that he complied all the terms and conditions of

the Agreements by providing all the material to the respondent

and they issued invoice claiming Rs.57,83,974/-. When the

respondent failed to pay the said amount, the applicant issued

notice on 31.08.2020, to respondent calling upon to pay the

said amount along with the interest @18% p.a. When the

respondents failed to pay the same, the applicant issued

notice dated 26.02.2021, invoking arbitration clause i.e.,

clause 20(f) of the agreement which reads as follows:

Arbitration: Any dispute arising out of this Agreement or in any manner touching upon it, the same shall be settled through arbitration under the provisions of the Arbitration and Conciliation Act, 1996 with all statutory amendments and updates, by a sole arbitrator to be appointed mutually by NEIPL and SCHOOL. The venue of arbitration shall be Hyderabad and shall be conducted in English.

6.3 Respondent issued reply notice on 09.03.2021, denying

the allegation made by the applicant. The specific contention

of the applicant is that respondent has to pay an amount of

Rs.1,28,87,504/- and in spite of several demands made by

applicant, respondent had not paid the said amount and as

per the clause 20(f) of the Agreement, if any dispute arises

between the parties, they shall be settled through arbitration.

As per the clause (g) of the Agreement, the Courts at

Hyderabad alone have exclusive jurisdiction. Whereas the

specific contention of the learned counsel for the respondent

that the applicant filed the present application basing on the

fabricated Agreement dated 14.10.2017 and unless and until

the applicant prove that the Agreement dated 14.10.2017 is

genuine, he is not entitled to seek relief under the provisions

of the Act.

7. In Vidya Drolia and Ors V (supra) the Hon'ble Apex

Court held that whenever there is a doubt regarding the

dispute, the Courts shall refer the matter to arbitration which

reads as follows:

86. The courts at the referral stage do not perform ministerial functions. They exercise and perform judicial functions when they decide objections in terms of Sections 8 and 11 of the Arbitration Act. Section 8 prescribes the courts to refer the parties to arbitration, if the action brought is the subject of an arbitration Agreement, unless it finds that prima facie no valid arbitration Agreement exists. Examining the term 'prima facie', in Nirmala J. Jhala v. State of Gujarat and Another, this Court had noted:

"48.Aprima facie case does not mean a case proved to the hilt but a case which can be said to be established if the evidence which is led in support of the case were [to be] believed. While determining whether a prima facie case had been made out or not the relevant consideration is whether on the evidence led it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence."

Prima facie case in the context of Section 8 is not to be confused with the merits of the case put up by the parties which has to be established before the arbitral tribunal. It is restricted to the subject matter of the suit being prima facie arbitrable under a valid arbitration Agreement. Prima facie case means that the assertions on these aspects are bona fide. When read with the principles of separation and competence-competence and Section 34 of the Arbitration Act, referral court without getting bogged- down would compel the parties to abide unless there are good and substantial reasons to the contrary.

87. Prima facie examination is not full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration Agreements and non-arbitrable disputes. The

prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straight forward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. Only when the court is certain that no valid arbitration Agreement exists or the disputes/subject matter are not arbitrable, the application under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini trial. This necessarily reflects on the nature of the jurisdiction exercised by the court and in this context, the observations of B.N. Srikrishna, J. of 'plainly arguable' case in Shin-Etsu Chemical Co. Ltd. are of importance and relevance. Similar views are expressed by this Court in Vimal Kishore Shah wherein the test applied at the pre-arbitration stage was whether there is a "good arguable case" for the existence of an arbitration Agreement. The test of "good arguable case" has been elaborated by the England and Wales High Court in Silver Dry Bulk Company Limited v. Homer Hulbert Maritime Company Limited, in the following words:

"Good arguable case" is an expression which has been hallowed by long usage, but it means different things in different contexts. For the purpose of an application under Section 18, I would hold that what must be shown is a case which is somewhat more than merely arguable, but need not be one which appears more likely than not to succeed. It shall use the term "good arguable case" in that sense. It represents a relatively low threshold which retains flexibility for the Court to do what is just, while excluding those cases where the jurisdictional merits were so low that reluctant respondents ought not to be put to the expense and trouble of having to decide how to deal with arbitral proceedings where it was very likely that the tribunal had no jurisdiction. In this connection it is important to remember that crossing the threshold of "good arguable case" means that the Court has power to make one of the orders listed in Section 18(3). It remains for consideration whether it should do so as a matter of discretion."

Appropriate at this stage would be a reference to the judgment of the Delhi High Court in NCC Ltd. v. Indian Oil Corporation Ltd., wherein it has been held as under:

"59.1 In my view, the scope of examination as to whether or not the claims lodged are Notified Claims has narrowed down considerably in view of the language of Section 11(6A)

of the 1996 Act. To my mind, once the Court is persuaded that it has jurisdiction to entertain a Section 11 petition all that is required to examine is as to whether or not an arbitration Agreement exists between the parties which is relatable to the dispute at hand. The latter part of the exercise adverted to above, which involves correlating the dispute with the arbitration Agreement obtaining between the parties, is an aspect which is implicitly embedded in sub-section (6A) of Section 11 of the 1996 Act, which, otherwise, requires the Court to confine its examination only to the existence of the arbitration Agreement. Therefore, if on a bare perusal of the Agreement it is found that a particular dispute is not relatable to the arbitration Agreement, then, perhaps, the Court may decline the relief sought for by a party in a Section 11 petition. However, if there is a contestation with regard to the issue as to whether the dispute falls within the realm of the arbitration Agreement, then, the best course would be to allow the arbitrator to form a view in the matter.

59.2 Thus, unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned court hearing the Section 11 petition should follow the more conservative course of allowing parties to have their say before the arbitral tribunal."

89. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the arbitral tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a rule to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the arbitral tribunal and violate the legislative scheme allocating jurisdiction between the courts and the arbitral tribunal. Centralisation of litigation with the arbitral tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes.

95. 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 non-arbitrability.

173. Before we part, the conclusions reached, with respect to question No.1, are:

a. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.

b. Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it's a clear case of deadwood.

c. The Court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non­existence of valid arbitration Agreement, by summarily portraying a strong case that he is entitled to such a finding.

d. The Court should refer a matter if the validity of the arbitration Agreement cannot be determined on a prima facie basis, as laid down above, i.e., 'when in doubt, do refer'.

8. In Komirishetty Shravani Vs. Indana Geetha and

Ors(supra) this Court following the principle laid down by the

Hon'ble Apex Court held that:

8. Coming to the facts of the case, this Court cannot accept the contentions of the Respondent that serious allegations of fraud exist which make the dispute non-arbitrable. It is relevant to note that mere allegations of serious fraud cannot stop the court from appointing an Arbitrator. According to this Court, the party alleging serious fraud has to prima facie establish that facts constituting such fraud exist. No party can avoid arbitral proceedings by a merely alleging serious fraud, including serious.

9. The Courts while deciding whether the existence of the Agreement is marred by serious fraud has to see the conduct of the party alleging such fraud. For instance, it may be relevant to see if the party acted in furtherance of the alleged contract or not. If the party alleging serious fraud acted in furtherance of the contract, it cannot allege serious fraud which threatens the

existence of the Agreement itself. Further, the courts may also look into the conduct of the party after discovery of the fraud. In other words, the subsequent steps taken by the party alleging fraud against the party playing the alleged fraud may be relevant. If the court finds that fraud was discovered but no action was taken against it, the court may draw an inference against the existence of serious fraud. However, this Court makes it clear that there can be no straight-jacket formula to ascertain whether serious allegations of fraud exist or not. Every case is to be decided based on the relevant facts.

11. At this juncture, it is relevant to note that the scope of Section 11 of the Act, 1996 is extremely limited. In Vidya Drolia v. Durga Trading Corporation, the Supreme Court has held that whenever there is a doubt regarding the existence of a dispute, the courts shall refer the matter to arbitration.

9. In the above judgment, this Court specifically held that

whether the existence of the Agreement is marred by serious

fraud has to see the conduct of the party alleging such fraud.

Arbitrary Tribunal is having power to decide the serious

allegations made by the respondent in respect of forgery,

fabricated and existence of the Agreement and the scope of the

Section 11 is very limited and this Court is not having power

to decide the aspect of forgery. This Court while deciding the

application under Section 11(6) of the Act, is not having any

such power to decide the said aspect.

10. The judgment relied by the learned counsel for the

respondent in Avitel Post Studioz Ltd and Ors. Vs. HSBC PI

Holdings (Mauritius) Limited is not applicable to the facts

and circumstances of the case as it is held that the disputes

relating to fraud are arbitrable as long as the allegations of

fraud do not permeate the existence of the agreement itself.

11. In the case on hand, the respondent disputing that the

Agreement dated 14.10.2017, as forged and fabricated

document whereas the applicant contended that the

respondent accepted the agreement and he paid some

amounts and respondent did not raise any objection in the

reply notice about the execution of agreement except in the

counter affidavit nor produced any evidence to that effect and

not initiated any proceedings against the applicant. The

genuinity of Agreement dated 14.10.2017 and amounts

claimed by the applicant and denial of such claim by the

respondents are disputed facts and the same have to be

resolved by the Arbitral Tribunal by taking into consideration

of the evidence which is going to be adduced by the respective

parties and this Court is not having power, authority or

jurisdiction to decide the said aspects under Section 11 of the

Act.

12. For the foregoing reasons and the law laid down by the

Hon'ble Supreme Court and this Court, the application filed by

the applicant invoking the provisions of Section 11(5 and 6) of

Act is maintainable under law and Hon'ble Sri A. Santhosh

Reddy, Retired High Court Judge, H.No.16-2-740/46, New

Malakpet, Hyderabad is appointed as Sole Arbitrator, who will

adjudicate the dispute between the parties arising out of the

School-Academic Consulting Agreement dated 14.10.2017.

13. The learned Arbitrator shall fix his own remuneration

upon deliberation and consultation with the parties. He shall

also estimate the cost and expenses for the secretarial

assistance and other incidental expenditure of the arbitration

proceedings. The parties will bear the expenses of the

arbitration proceedings in equal share. Thus, Point Nos.(i)

and (ii) are answered.

14. Accordingly, the Arbitration Application is allowed. No

costs.

Miscellaneous petitions, if any pending, shall stand

closed.

_____________________________ JUSTICE J. SREENIVAS RAO

30th October, 2023 PSW