The Apex Court has thus drawn distinction between
reference to arbitration of dispute without intervention of the Court
and the reference to arbitration with recourse to Section 11 of the
Arbitration Act. Where the reference is made without intervention of
the Court, the Arbitral Tribunal can decide the question affecting it's
jurisdiction, one of which is the existence and validity of the
arbitration agreement. But, where the intervention of the Court is
sought for the purpose, the Court has the discretion to decide the
preliminary issue of existence and validity of the arbitration
agreement. The same principle will have to apply to an application
for reference to arbitration made under Section 8 of the Arbitration
Act. Infact, this has been so recognised by the Apex Court in SBP &
Co.'s case at para-20 of the decision quoted above. Therefore
existence of an arbitration clause in an agreement, ipso-facto is not a
compelling factor for reference to arbitration. Having said so, it is to
be seen whether there exists an arbitration agreement between the
parties in the facts and circumstances of the case.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 2587 OF 2014
: V E R S U S :
Kalyan Dombivli Municipal
Corporation & anr
CORAM :- SMT. R.P. SONDURBALDOTA, J.
4TH AUGUST, 2014.
Citation;2014(5) MHLJ564
1). This is a common order on the above Writ Petitions between
the same parties and having identical subject matter.
2). The petitioner, a Company incorporated under the Companies
Act is the owner of a large property at Kalyan. Respondent no.1,
Kalyan Dombivli Municipal Corporation (“KDMC” for short) issued
bills to the petitioner during the period 1996 to 2004 for the property
taxes. Being aggrieved by the rateable value fixed of the properties
and the tax charged thereon, the petitioner filed eight appeals under
WP25872014
A/W. WP2567/
2014 TO
WP25732014
4Aug,2014Monday
Section 406 of the Bombay Provincial Municipal Corporation Act,
1949 (“BPMC Act” for short) in the Court of Civil Judge, Senior
Division, Kalyan (“CJSD” for short). The details of the appeals are
tabulated below :-
Municipal Appeal
No.
Amount (Rs.) Bill No.
52/96 1,20,44,430.00 33602
18/97 2,31,98,033.5o 33628
19/98 3,41,45,421.5o 5201
09/99 4,28,93,736.5o o10301
04/01 5,15,74,599.5o 205
33/01 6,23,37,714.00 54335
23/02 7,31,00,828.00 61054
20/04 7,82,27,274.00 6713
3). The petitioner had earlier filed Writ Petitions in this
Court to challenge the demand notices issued to them on the basis of
the rateable value fixed. Those petitions were dismissed by this Court
in view of alternate remedy available to the petitioner by way of an
appeal under Section 406 of the BPMC Act. The petitioner carried
the order to the Apex Court in S.L.P. No. 14419 of 2006. By the order
dated 13th November, 2006, while disposing off the S.L.P., the Apex
Court took note of the appeals under Section 406 of the BPMC Act,
that had been already filed by the petitioner and the fact that at no
point of time, the petitioner had led evidence of an expert valuer on
the question of fixation of rateable value. The Apex Court as a matter
of indulgence and particularly in view of the fact that the petitioner
was earlier under BIFR directed the appellate Court to allow the
petitioner to lead evidence on valuation of the property. The
indulgence shown was subject to a condition that the petitioner first
pays, under protest, Rs.4,50,00,000/-, less the amount of
Rs.77,58,000/- which amount had already been paid to the
Corporation, within a period of 8 weeks.
4). Pursuant to the direction of the Apex Court, the
petitioner paid, under protest, amount of Rs.4,50,00,000/- to
KDMC. But thereafter, instead of leading the evidence of an expert
valuer on the question of rateable value as permitted by the Apex
Court, the petitioner executed agreement dated 1st March, 2007 and
supplementary agreement dated 29th September, 2007 with one M/s.
K. Raheja Universal for sale of 339.40 Acres, out of the total area of
442.55 acres of the land in question and applied to KDMC for grant of
a “No-Objection Certificate” for transfer of the land, free from
liability of all municipal taxes upto the date of sale. Since KDMC was
not willing to give the “No-Objection Certificate” as desired by the
petitioner, meetings had been held with the Hon'ble Deputy Chief
Minister of Maharashtra and Hon'ble Labour Minister. During the
meetings, the Company's representative, representative of the Union,
Principal Secretary of Labour Department, the Commissioner, KDMC
and Tax Assessment Collector of KDMC were present. Pursuant to
the decision taken in the meetings, agreement dated 22nd April, 2009
was executed by the petitioner and KDMC. Under the agreement, the
petitioner agreed to deposit a sum of Rs.6,68,76,000/- in Escrow
Account with any Scheduled/Nationalised bank. The Escrow amount
was to remain with the Escrow agent until the decision in the dispute
as regards the taxes and then payment made in accordance with the
decision. The petitioner and KDMC further agreed that the dispute
relating to rateable value and tax charged by KDMC upto the date of
sale shall be referred to arbitration as provided under Section 408 of
BPMC Act. Both were to make separate applications giving their
consent to the arbitration to the Court of CJSD, Kalyan where the
appeals are pending for referring the dispute to the arbitration by a
retired Judge of the High Court of the Supreme Court as mutually
agreed upon.
5). Without depositing the amount in the Escrow Account,
the petitioner, by its letter dated 6th October, 2009 requested Justice
A.P. Agiar (Retired) for acting as a sole arbitrator for adjudication of
the dispute relating to the rateable value. By the letter dated 8th
October, 2009 Justice Agiar (Retired) gave his acceptance. KDMC
also by its letter dated 25th November, 2009 made a similar request to
Justice Agiar (Retired). Then, on 13th July, 2010, a common
application was filed before the Court of CJSD under Section 408 of
BPMC Act for referring the dispute for arbitration. The application
was, however, subsequently opposed by KDMC, contending that, the
petitioner had committed breach of the terms and conditions of
agreement by not depositing the amount of Rs.6,68,76,000/- in the
Escrow Account. KDMC also contended that the agreement dated
22nd April, 2009 was not in accordance with Chapter-5 of BPMC Act,
in as much as, there was no approval of the Standing Committee for
execution of the agreement. The Court of CJSD, Kalyan by its order
dated 18th January, 2012 dismissed the application.
6). Being aggrieved by the order of CJSD, Kalyan, the petitioner
preferred Appeal under Section 411 BPMC Act to the District Court,
Kalyan being Civil Appeal No. 35 of 2012. By way of an interim order,
it had applied for stay of the proceedings before CJSD, Kalyan. The
District Court, by it's order dated 12th February, 2013 rejected the
application. The order of rejection was then carried by the petitioner
to this Court by preferring Writ Petition No. 9122 of 2013. This Court
by the order dated 12th November, 2013, declined to interfere with the
order of the lower appellate Court, holding that the view taken by the
District Court was a correct view. It, however, expedited the hearing
of the appeals with a direction that the same be disposed off by 21st
January, 2014.
7). Pursuant to the direction of expeditious hearing, the appeal
preferred by the petitioner was heard by the District Court and
dismissed by it's order dated 28th January, 2014. The District Court
upheld the findings of the Court of CJSD, Kalyan in it's order dated
18th January, 2012. Being aggrieved by that order, the petitioner has
approached this Court.
8). The Court of CJSD, Kalyan for dismissing the application
under Section 408 of BPMC Act filed by the petitioner, noted that the
petitioner had despite directions from the Apex Court, failed to lead
evidence in the appeals. Instead, it entered into an agreement with
the third party for sale of a large portion of the land and by executing
the agreement dated 22nd April, 2009 , it tied up the issue of recovery
of taxes from the petitioner to the sale transaction with a third party.
The Court of CJSD also noted that there is nothing on record to show
that Standing Committee had given consent to the agreement or that
the agreement was entered into in compliance of the provisions of
Chapter V of BPMC Act. The next shortcoming noted by the Court of
CJSD was of the failure on the part of the petitioner to deposit the
amount of Rs.6,68,76,000/- in Escrow Account. It further opined
that, execution of the agreement dated 22nd April, 2009 was in fact a
way found out by the petitioners to prolong the matter.
9). In its appeal before the District Court filed under Section 411
of BPMC Act, the petitioner contended that once there was an
agreement entered into by the parties to refer the dispute for
arbitration, it was not open for any party to resile from the
agreement. Further, the mandate of Section 408 of BPMC Act and of
Section 8 of the Arbitration and Conciliation Act (“Arbitration Act”
for short), is such that the Court is bound to refer the matter for
arbitration. It was also contended that, opening an Escrow Account
and deposit of amount therein has no bearing with the issue of
referring the matter to the Arbitrator. Besides, both the parties had
already acted upon the agreement by approaching the sole arbitrator
and obtaining his consent.
10). The KDMC, on the other hand, argued before the District
Court that deposit of the amount in Escrow Account was a condition
precedent to refer the matter for arbitration and in view of noncompliance
with the condition, there could be no reference to the
arbitration. According to it, the agreement dated 22nd April, 2009 is
null and void as there is no approval of Standing Committee or
Government to the agreement. The dispute as regards the rateable
value of the property had already been carried upto the Apex Court
and the Apex Court had directed the petitioner to lead evidence in the
appeals by examining it's valuer. But, the petitioner with a view to
delay the decisions in the appeals filed the application. One more
argument advanced by KDMC before the District Court was that,
KDMC was tricked into executing the agreement dated 22nd April,
2009 by the petitioner. It had made a false representation that it
would deposit the amount of property taxes of Rs.6,68,76,000/- in an
Escrow Account and obtained “No Objection Certificate” for sale of
it's property to M/s. K. Raheja Universal. The KDMC believed in the
promise given by the petitioner and the promise was not kept. Thus,
it played fraud upon KDMC and has been abusing the process of law.
11). The District Court rejected the argument of KDMC on
the validity of the agreement. However, on appreciation of the
agreement, it found that two of the material clauses i.e. Clause-1 and
2 were contrary to each other and that deposit in Escrow Account is
the condition precedent to refer the matter for arbitration. It
concluded that, for non-compliance with the condition precedent, the
matter cannot be referred to arbitration.
12). The principle grounds of challenge to the orders of the
Courts below as set out in the petition are that, in view of Section 8 of
the Arbitration Act and Section 408 of the BPMC Act, the Courts
below ought to have referred the dispute to arbitration instead of
making the parties to face rigmaroles of litigation. Further, Section
16 of the Arbitration Act provides that objections as regards the
validity of the arbitration agreement can be gone into and dealt with
by the Arbitral Tribunal. Hence, the Courts below could not have
usurped the jurisdiction of the Arbitrator to interprete clauses of the
agreement. They also erred in holding that, there was a condition
precedent for invoking the arbitration clause and the petitioner has
committed breach of that condition. According to the petitioner, the
sale of land by the petitioner to Raheja Universal, as well as, Clauses-
1 and 2 of the agreement have no bearing on the matter, with respect
to rateable value and tax on the property in question, being referred
to arbitration. The agreement also does not contain termination
clause in case of breach of any of the stipulations of the agreement.
13). In the above factual background, the two questions that
would arise for consideration of this Court are :-
(i). Whether in view of Section 8 of the Arbitration Act and
Section 408 of the BPMC Act, mere existence of a clause for
arbitration in an agreement, ipso-facto casts an obligation on the
Court to refer the matter for arbitration, and
(ii) Whether deposit of Rs.6,68,76,000/- in Escrow Account by
the petitioner is the condition precedent under the agreement
for reference of the dispute to arbitration.
14). It would be convenient to reproduce Section 8 of the
Arbitration Act and Section 408 of the BPMC Act for ready
reference :
“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 so applies not later than when submitting his first
statement on the substance of the dispute, refer the parties to
arbitration.
(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.
(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.
“408. Arbitration-
Where any appeal against the rateable value or tax fixed or
charged under this Act is pending and all the parties interested
agreed that any matter in difference between them shall be
referred to arbitration, they may, at any time before a decision is
given in such appeal, apply in writing to the judge for an order of
reference on such matter and on such application being made the
provisions of the Arbitration Act, 1940 (X of 1940), relating to
arbitration in suits shall, so far as they can be made applicable
apply to such application and proceedings to follow thereon, as if
the said Judge were a Court within the meaning of that Act and
the application were an application made in a suit.”
15). There is no dispute as regards the execution of the
agreement dated 22nd April, 2009 and Clause-6 therein for reference
of the dispute relating to rateable value and tax charged by the
Corporation on the properties in question to arbitration. The dispute
raised by KDMC to the validity of the agreement has been laid to rest
by the decision of he District Court on this aspect, which decision is
not challenged by KDMC. Mr. Sawant, the learned Advocate
appearing for the petitioner, submits that considering the language of
Section 8 of the Arbitration Act and Section 408 of the BPMC Act
with the use of the word “shall”, there can be escape for KDMC from
reference of the matter to arbitration. On the compulsive nature of
the provisions, Mr. Sawant relies upon the decision of the Apex Court
in National Insurance Company Limited Versus Boghara
Polyfab Privated Limited, reported in (2009) 1 SCC page 267
and in particular paras-21, 22 and 23 thereof.
16). The provisions referred to from the two statutes
undoubtedly use the word “shall” for referring the parties to
arbitration. However, that is preceded by the need of consideration
of existence of an arbitration agreement. Both the provisions
empower the Courts before whom the proceedings are pending, to
refer the parties to arbitration, where there is an arbitration
agreement. (emphasis supplied). Therefore, even if the document of
agreement between the parties contains a clause for reference of the
dispute to arbitration, the Court is required to first ascertain that
there is an arbitration agreement in existence between the parties.
This view is in fact supported by the decision cited by Mr. Sawant as
can be seen hereinafter.
17). In the decision cited, the question of existence of an
arbitration agreement arose for consideration of the Apex Court in
the facts of discharge of the agreement by performance and
satisfaction. The dispute before the Apex Court had arisen out of a
contract of insurance, which contained a clause for arbitration. There
was a settlement arrived at between the parties as regards the
insurance claim and the insured had issued “discharge voucher-inadvance”
acknowledging receipt of amount in full and final
settlement of the insurance claim. The insured, however,
subsequently raised a dispute as regards the settlement alleging that
settlement had been arrived at under duress and coercion. It filed an
application under Section 11 of the Arbitration Act in this Court. The
application was opposed by the insurer with a contention that the
insured could not invoke the arbitration clause in the agreement as
the agreement stood discharged by accord and satisfaction. In the
facts, the question framed by the Apex Court for its consideration was
“In what circumstances, a Court will refuse to refer a dispute relating
to quantum to arbitration, when the contract specifically provides for
reference of the disputes and differences relating to quantum to
arbitration?” For answering the question, Apex Court amongst
several others referred to the decision of its seven Judges Bench in
SBP and Co. V/s. Patel Engineering Ltd, reported in (2005) 8
SCC page 618, wherein the scope of Section 11 of the Arbitration
Act, was considered and it was held that the scheme of Section 11 of
the Act required the Chief Justice or his designate to decide whether
there is an arbitration agreement in terms of Section 7 of the Act
before exercising his power under Section 11(6) of the Act and its
implications. The observations quoted from the decision of the seven
judges Bench, which observations would be relevant for the present
purposes also, read as follows :-
“ 39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act, is to
decide at that stage. Obviously, he has to decide his own
jurisdiction in the sense, whether the party making the motion
has approached the right High Court. He has to decide whether
there is an arbitration agreement, as defined in the Act and
whether the person who has made the request before him, is a
party to such an agreement. It is necessary to indicate that he
can also decide the question whether the claim was a dead one;
or a long barred claim that was sought to be resurrected and
whether the parties have concluded the transaction by
recording satisfaction of their mutual rights and obligations or
by receiving the final payment without objection. It may not be
possible at that stage, to decide whether a live claim made, is one
which comes within the purview of the arbitration clause. It will
be appropriate to leave that question to be decided by the
arbitral tribunal on taking evidence, along with the merits of the
claims involved in the arbitration. The Chief Justice has to
decide whether the applicant has satisfied the conditions for
appointing an arbitrator under Section 11(6) of the Act. For the
purpose of taking a decision on these aspects, the Chief Justice
can either proceed on the basis of affidavits and the documents
produced or take such evidence or get such evidence recorded,
as may be necessary. We think that adoption of this procedure
in the context of the Act would best serve the purpose sought to
be achieved by the Act of expediting the process of arbitration,
without too many approaches to the court at various stages of
the proceedings before the Arbitral tribunal."
"47. (iv) The Chief Justice or the designated judge will have
the right to decide the preliminary aspects as indicated in the
earlier part of this judgment. These will be, his own jurisdiction,
to entertain the request, the existence of a valid arbitration
agreement, the existence or otherwise of a live claim, the
existence of the condition for the exercise of his power and on
the qualifications of the arbitrator or arbitrators."
(emphasis supplied)
18). In the case of SBP & Co., the Apex Court had also
examined the competence of the Arbitral Tribunal to rule upon its
own jurisdiction and about the existence of the arbitration clause
when the Chief Justice or his designate had appointed an Arbitral
Tribunal under Section 11 of the Act after deciding upon such
jurisdictional issue. It was held that the decision of the Chief Justice
on the issue of jurisdiction and existence of an valid arbitration
agreement would be binding on the parties when the matter goes to
Arbitral Tribunal. The further observations on the competence under
Section 16 of the Arbitration Act quoted from SBP Co.'s case, read as
follows :-
“20. Section 16 is said to be the recognition of the principle
of Kompetenz - Kompetenz. The fact that the arbitral tribunal
has the competence to rule on its own jurisdiction and to define
the contours of its jurisdiction, only means that when such
issues arise before it, the Tribunal can and possibly, ought to
decide them. This can happen when the parties have gone to the
arbitral tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under these
Sections, before a reference is made, Section 16 cannot be held
to empower the arbitral tribunal to ignore the decision given by
the judicial authority or the Chief Justice before the reference to
it was made. The competence to decide does not enable the
arbitral tribunal to get over the finality conferred on an order
passed prior to its entering upon the reference by the very
statute that creates it. That is the position arising out of Section
11(7) of the Act read with Section 16 thereof. The finality given
to the order of the Chief Justice on the matters within his
competence under Section 11 of the Act, are incapable of being
reopened before the arbitral tribunal."
(emphasis supplied)
19). On the basis of the observations in the decision in SBP
and Co.'s case (supra), the Apex court in National Insurance's case
(supra), at para-21 concluded that, when a contract contains an
arbitration clause and any dispute in respect of such contract is
referred to arbitration, without intervention of the Court, the Arbitral
Tribunal can decide upon the questions affecting its jurisdiction. But,
when the intervention of the Court is sought for appointment of
Arbitral Tribunal under Section 11 of the Arbitration Act, one of the
preliminary issues that the Chief Justice or his designate is bound to
decide is, whether there is an arbitration agreement and whether the
party who has applied under Section 11 of the Act, is a party to such
an agreement. If the respondent, to the application contends that,
the dispute is not arbitrable on account of discharge of a contract in a
settlement agreement and the claimant contends that it was obtained
by fraud, coercion or undue influence, the Chief Justice or his
designate may decide the same, if necessary, by taking evidence.
Alternatively, he may leave the issues open with a direction to the
Arbitral Tribunal to decide the same. Thus the issue can be decided
by the Arbitral Tribunal only if the Chief Justice/designate leaves the
question to be decided by the Arbitral Tribunal and gives directions
in the regards.
20). The Apex Court has thus drawn distinction between
reference to arbitration of dispute without intervention of the Court
and the reference to arbitration with recourse to Section 11 of the
Arbitration Act. Where the reference is made without intervention of
the Court, the Arbitral Tribunal can decide the question affecting it's
jurisdiction, one of which is the existence and validity of the
arbitration agreement. But, where the intervention of the Court is
sought for the purpose, the Court has the discretion to decide the
preliminary issue of existence and validity of the arbitration
agreement. The same principle will have to apply to an application
for reference to arbitration made under Section 8 of the Arbitration
Act. Infact, this has been so recognised by the Apex Court in SBP &
Co.'s case at para-20 of the decision quoted above. Therefore
existence of an arbitration clause in an agreement, ipso-facto is not a
compelling factor for reference to arbitration. Having said so, it is to
be seen whether there exists an arbitration agreement between the
parties in the facts and circumstances of the case.
21). For that purpose, a brief reference to the background of
the agreement dated 22nd April, 2009, even at the cost of repetition is
required to be noted. KDMC has issued eight bills to the petitioner
during the period 1996 to 2004 towards the taxes in respect of the
property in question. The total tax dues payable as on the date of the
agreement apparently were of Rs.6,68,76,000/-. It has attempted to
challenge the bills by invoking the extra-ordinary jurisdiction of this
Court. But that attempt had failed. The Apex Court had by way of
sheer indulgence permitted the petitioner to lead evidence in the
appeals that were already filed. The order of the Apex Court was
passed on 23rd November, 2006. The petitioner did not take any step
to lead evidence in the appeal proceedings. It instead utilised the
time to sell a large chunk of the property in question to a third party.
That sale would not have come through without the consent of KDMC
in view of huge arrears of tax dues and the litigation pending relating
thereto. The petitioner needed “No Objection Certificate” from
KDMC for sale of the land free from liability of all municipal taxes
upto the date of sale. It then sought political intervention by
involving two ministers of the State Government, as also, the
Secretary to the Government. Only thereafter, the agreement dated
22nd April, 2009 came to be executed.
22). The resort to political intervention in respect of the
private sale is an admitted fact having been mentioned in the recital
to the agreement. It is obvious that, KDMC agreed to give “No
Objection Certificate” only because of the promise from the petitioner
to deposit the entire tax dues in a Escrow Account. The petitioner
has resiled from the agreement by not depositing the amount.
23). The three material clauses from the agreement dated
22nd April, 2009 i.e. clauses-1, 2 and 6 (the arbitration clause) read as
follows :-
“1. The Corporation shall issue No Objection Certificate to the
company for sale of Saleable land admeasuring 339.40 acres as
per Annexure “B” stating that the purchaser shall be liable for
the municipal taxes charged by the Corporation including Open
land tax only from the date of conveyance irrespective of tax
dispute of the said land between KDMC and NRC Limited,
provided that the Company deposit an amount of
Rs.6,68,76,000/- in the Escrow Account in accordance with
para 2 of the agreement. The said No Objection Certificate
shall be issued within 7 days from the date of Execution of this
agreement as per draft given in Annexure “D” annexed hereto.”
“2. It is agreed that the agreement for sale dtd. 1/3/2007
and supplementary agreement dtd 29/9/2007 between NRC
Limited & M/s. K. Raheja Universal has already been executed
and conveyance deed in pursuance thereto shall be executed
after NOC from the Corporation. As per the said agreement,
two installments are already released by M/s. K. Raheja
Universal and the third installment is due after getting NOC
from the Corporation and completing the formalities of fencing
vacant possession of non-colony land and execution of
conveyance. The company shall within four months from the
date of receipt of the third installment, deposit an amount of
Rs.6,68,76,000/- in the Escrow Account to be open in any
Scheduled/Nationalised bank (hereinafter called the “Escrow
Agent”) to be appointed jointly with the approval and consent
of both the parties. The amount deposited in the Escrow
Account shall be invested by the Escrow Agent from time to
time at the instructions of both parties in Fixed Deposit with
any Scheduled/Nationalised banks. Both parties agree that a
separate tripartite agreement shall be executed between the
Corporation, the Company and the Escrow Agent for opening
an Escrow Account in terms of this agreement.”
6). The company and corporation further agrees that the
dispute relating to the rateable value and tax charged by the
corporation on open land of the company upto the date of sale
shall be referred to the arbitration as provided under Section
408 of Bombay Provincial Municipal Corporation Act, 1949. It
is further agreed between the parties that the company and the
Corporation shall make separate applications, giving their
consents to the arbitration, as required under Section 408
under BPMC Act, 1949, to the Court of CJSD, Kalyan under
various petitions, as per details in annexure “C” to this
agreement within fifteen days from the date of this agreement.
A retired Judge of High Court or Supreme Court as mutually
agreed by the company and the corporation shall be appointed
as Arbitrator. The Arbitrator shall be appointed within thirty
days from date the Court give consent for appointment of
arbitrator. The expenses towards arbitration shall be borne by
the NRC Ltd.”
24). Careful reading of Clauses-1 and 2 above, exposes the
mischief played by the petitioner. Under Clause-1, KDMC is to issue
“No-Objection Certificate” on condition that the petitioner deposits
the amount of Rs.6,68,76,000/- in Escrow Account and “No-
Objection Certificate” was to be issued within 7 days from the date of
the agreement. For this to happen, the petitioner had to deposit the
amount within 7 days from the date of the agreement. But the very
next clause, sets the condition at naught, by recording one of the
terms of the agreement between the petitioner and the purchaser of
the property. Clause-2 records that, the purchaser had already
released two installments of the consideration and that the third
installment was to be paid after (i) getting “No Objection Certificate”
from KDMC, (ii) completing fencing of the property and (iii)
execution of conveyance. The clause further says that, the petitioner
shall deposit amount in Escrow Account within FOUR MONTHS
after the payment of the third installment. This would mean that, the
petitioner agreed to deposit the amount on expiry of substantial
period after completion of transaction of sale. In this way, the
petitioner made the property unavailable to KDMC for recovery of
it's tax dues. It would be pertinent to note at this stage, that caught in
such situation, KDMC issued the “No-Objection Certificate” on the
basis of which the petitioner has already received the third
installment of consideration from the purchasers. When enquired
about the deposit in the Escrow Account, Mr. Sawant, submits that
the non-deposit would be one of the issues falling for consideration of
the Arbitral Tribunal. Thus, the petitioner has merely derived the
benefits from the agreement but resiled from the obligations. These
undisputed facts establish the contention of KDMC that it was tricked
into executing the agreement and the petitioner never intended to
deposit the amount in the Escrow Account.
25). It is sought to be argued on behalf of the petitioner that,
issuance of No-Objection Certificate, as well as, the transaction of
sale between the petitioner and M/s. Raheja Universal has no bearing
on the arbitration agreement. The argument needs outright
rejection. Grant of No-Objection Certificate by KDMC for sale of the
property by the petitioner, is directly connected to the dispute to be
referred for arbitration. The need for No-Objection Certificate arose
solely on account of the dispute. Besides, acceptance of such an
argument would mean, reading Clause-6 in isolation, which cannot
be done. The agreement needs to be read as a whole. On reading it
as a whole, it becomes apparent that but for the deposit of the entire
tax dues in Escrow Account, KDMC would not have agreed either for
issuance of No-Objection Certificate or for reference of the dispute to
arbitration. The trial Court in it's order has noted the word “further”
used in Clause-6 of the agreement and opined that, use of the word
would mean that the clause is to be resorted to after compliance of
the earlier clauses. In that case, deposit of the amount in Escrow
Account becomes a condition precedent.
26). Thus, the Courts below are correct in their conclusion
that, deposit of the amount in Escrow Account was condition
precedent to the arbitration agreement. In the circumstance, unless
the condition is fulfilled, the arbitration agreement does not get
activated and come into existence. A mere writing on a piece of paper
with signature of the parties by itself cannot mean existence of an
agreement. What is material, is the intention of the parties in
executing the document.
27). Both the Courts below have also held that, the
application for reference to arbitration is nothing but an attempt to
protract the hearing of the appeals. It is nobody's case that the
appeals have remained pending on account of procedural delay. The
Court, as well as, KDMC are ready and anxious for taking up the
appeals for hearing. But, there was clear reluctance on the part of the
petitioner in prosecuting the appeals. After obtaining concession
from the Apex Court in November, 2006 the petitioner has not taken
any step to lead evidence of it's valuer. Today, it is 18 years since the
filing of the first appeal by the petitioner and 10 years since the filing
of the last appeal. It would also be relevant to note here that, the
petitioner had initially filed Writ Petition to challenge the demand for
taxes when the petitions were patently not maintainable. Had the
petitioner on due adjudication of the dispute discharged it's tax
liability, a substantial amount would have been available to KDMC
for utilisation for public purposes. On account of the mischievous
and dishonest conduct on the part of the petitioner, the public body
has been deprived of it's legitimate funds from the year 1996 till date.
28). For all the above reasons, the petitions are dismissed
with costs. The petitioner shall pay costs quantified at Rs.1,00,000/-
(Rs. One Lakhs only) for each petition to respondent no.1, KDMC.
The costs to be paid within a period of 2 weeks from today. If the
costs are not paid within the time granted, the appeals filed by the
petitioner in the Court of Civil Judge Senior Division, Kalyan shall
stand dismissed without further reference to the Court. After
payment of costs, the petitioner, if it so desires, is at liberty to deposit
the amount of Rs.6,68,76,000/- (Rs. Six Crores Sixty Eight Lakhs
and Seventy Six Thousand only) in Escrow Account within the same
period of 2 weeks and renew it's application for reference to
arbitration.
(SMT. R.P. SONDURBALDOTA, J)
Print Page
reference to arbitration of dispute without intervention of the Court
and the reference to arbitration with recourse to Section 11 of the
Arbitration Act. Where the reference is made without intervention of
the Court, the Arbitral Tribunal can decide the question affecting it's
jurisdiction, one of which is the existence and validity of the
arbitration agreement. But, where the intervention of the Court is
sought for the purpose, the Court has the discretion to decide the
preliminary issue of existence and validity of the arbitration
agreement. The same principle will have to apply to an application
for reference to arbitration made under Section 8 of the Arbitration
Act. Infact, this has been so recognised by the Apex Court in SBP &
Co.'s case at para-20 of the decision quoted above. Therefore
existence of an arbitration clause in an agreement, ipso-facto is not a
compelling factor for reference to arbitration. Having said so, it is to
be seen whether there exists an arbitration agreement between the
parties in the facts and circumstances of the case.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 2587 OF 2014
: V E R S U S :
Kalyan Dombivli Municipal
Corporation & anr
CORAM :- SMT. R.P. SONDURBALDOTA, J.
4TH AUGUST, 2014.
Citation;2014(5) MHLJ564
1). This is a common order on the above Writ Petitions between
the same parties and having identical subject matter.
2). The petitioner, a Company incorporated under the Companies
Act is the owner of a large property at Kalyan. Respondent no.1,
Kalyan Dombivli Municipal Corporation (“KDMC” for short) issued
bills to the petitioner during the period 1996 to 2004 for the property
taxes. Being aggrieved by the rateable value fixed of the properties
and the tax charged thereon, the petitioner filed eight appeals under
WP25872014
A/W. WP2567/
2014 TO
WP25732014
4Aug,2014Monday
Section 406 of the Bombay Provincial Municipal Corporation Act,
1949 (“BPMC Act” for short) in the Court of Civil Judge, Senior
Division, Kalyan (“CJSD” for short). The details of the appeals are
tabulated below :-
Municipal Appeal
No.
Amount (Rs.) Bill No.
52/96 1,20,44,430.00 33602
18/97 2,31,98,033.5o 33628
19/98 3,41,45,421.5o 5201
09/99 4,28,93,736.5o o10301
04/01 5,15,74,599.5o 205
33/01 6,23,37,714.00 54335
23/02 7,31,00,828.00 61054
20/04 7,82,27,274.00 6713
3). The petitioner had earlier filed Writ Petitions in this
Court to challenge the demand notices issued to them on the basis of
the rateable value fixed. Those petitions were dismissed by this Court
in view of alternate remedy available to the petitioner by way of an
appeal under Section 406 of the BPMC Act. The petitioner carried
the order to the Apex Court in S.L.P. No. 14419 of 2006. By the order
dated 13th November, 2006, while disposing off the S.L.P., the Apex
Court took note of the appeals under Section 406 of the BPMC Act,
that had been already filed by the petitioner and the fact that at no
point of time, the petitioner had led evidence of an expert valuer on
the question of fixation of rateable value. The Apex Court as a matter
of indulgence and particularly in view of the fact that the petitioner
was earlier under BIFR directed the appellate Court to allow the
petitioner to lead evidence on valuation of the property. The
indulgence shown was subject to a condition that the petitioner first
pays, under protest, Rs.4,50,00,000/-, less the amount of
Rs.77,58,000/- which amount had already been paid to the
Corporation, within a period of 8 weeks.
4). Pursuant to the direction of the Apex Court, the
petitioner paid, under protest, amount of Rs.4,50,00,000/- to
KDMC. But thereafter, instead of leading the evidence of an expert
valuer on the question of rateable value as permitted by the Apex
Court, the petitioner executed agreement dated 1st March, 2007 and
supplementary agreement dated 29th September, 2007 with one M/s.
K. Raheja Universal for sale of 339.40 Acres, out of the total area of
442.55 acres of the land in question and applied to KDMC for grant of
a “No-Objection Certificate” for transfer of the land, free from
liability of all municipal taxes upto the date of sale. Since KDMC was
not willing to give the “No-Objection Certificate” as desired by the
petitioner, meetings had been held with the Hon'ble Deputy Chief
Minister of Maharashtra and Hon'ble Labour Minister. During the
meetings, the Company's representative, representative of the Union,
Principal Secretary of Labour Department, the Commissioner, KDMC
and Tax Assessment Collector of KDMC were present. Pursuant to
the decision taken in the meetings, agreement dated 22nd April, 2009
was executed by the petitioner and KDMC. Under the agreement, the
petitioner agreed to deposit a sum of Rs.6,68,76,000/- in Escrow
Account with any Scheduled/Nationalised bank. The Escrow amount
was to remain with the Escrow agent until the decision in the dispute
as regards the taxes and then payment made in accordance with the
decision. The petitioner and KDMC further agreed that the dispute
relating to rateable value and tax charged by KDMC upto the date of
sale shall be referred to arbitration as provided under Section 408 of
BPMC Act. Both were to make separate applications giving their
consent to the arbitration to the Court of CJSD, Kalyan where the
appeals are pending for referring the dispute to the arbitration by a
retired Judge of the High Court of the Supreme Court as mutually
agreed upon.
5). Without depositing the amount in the Escrow Account,
the petitioner, by its letter dated 6th October, 2009 requested Justice
A.P. Agiar (Retired) for acting as a sole arbitrator for adjudication of
the dispute relating to the rateable value. By the letter dated 8th
October, 2009 Justice Agiar (Retired) gave his acceptance. KDMC
also by its letter dated 25th November, 2009 made a similar request to
Justice Agiar (Retired). Then, on 13th July, 2010, a common
application was filed before the Court of CJSD under Section 408 of
BPMC Act for referring the dispute for arbitration. The application
was, however, subsequently opposed by KDMC, contending that, the
petitioner had committed breach of the terms and conditions of
agreement by not depositing the amount of Rs.6,68,76,000/- in the
Escrow Account. KDMC also contended that the agreement dated
22nd April, 2009 was not in accordance with Chapter-5 of BPMC Act,
in as much as, there was no approval of the Standing Committee for
execution of the agreement. The Court of CJSD, Kalyan by its order
dated 18th January, 2012 dismissed the application.
6). Being aggrieved by the order of CJSD, Kalyan, the petitioner
preferred Appeal under Section 411 BPMC Act to the District Court,
Kalyan being Civil Appeal No. 35 of 2012. By way of an interim order,
it had applied for stay of the proceedings before CJSD, Kalyan. The
District Court, by it's order dated 12th February, 2013 rejected the
application. The order of rejection was then carried by the petitioner
to this Court by preferring Writ Petition No. 9122 of 2013. This Court
by the order dated 12th November, 2013, declined to interfere with the
order of the lower appellate Court, holding that the view taken by the
District Court was a correct view. It, however, expedited the hearing
of the appeals with a direction that the same be disposed off by 21st
January, 2014.
7). Pursuant to the direction of expeditious hearing, the appeal
preferred by the petitioner was heard by the District Court and
dismissed by it's order dated 28th January, 2014. The District Court
upheld the findings of the Court of CJSD, Kalyan in it's order dated
18th January, 2012. Being aggrieved by that order, the petitioner has
approached this Court.
8). The Court of CJSD, Kalyan for dismissing the application
under Section 408 of BPMC Act filed by the petitioner, noted that the
petitioner had despite directions from the Apex Court, failed to lead
evidence in the appeals. Instead, it entered into an agreement with
the third party for sale of a large portion of the land and by executing
the agreement dated 22nd April, 2009 , it tied up the issue of recovery
of taxes from the petitioner to the sale transaction with a third party.
The Court of CJSD also noted that there is nothing on record to show
that Standing Committee had given consent to the agreement or that
the agreement was entered into in compliance of the provisions of
Chapter V of BPMC Act. The next shortcoming noted by the Court of
CJSD was of the failure on the part of the petitioner to deposit the
amount of Rs.6,68,76,000/- in Escrow Account. It further opined
that, execution of the agreement dated 22nd April, 2009 was in fact a
way found out by the petitioners to prolong the matter.
9). In its appeal before the District Court filed under Section 411
of BPMC Act, the petitioner contended that once there was an
agreement entered into by the parties to refer the dispute for
arbitration, it was not open for any party to resile from the
agreement. Further, the mandate of Section 408 of BPMC Act and of
Section 8 of the Arbitration and Conciliation Act (“Arbitration Act”
for short), is such that the Court is bound to refer the matter for
arbitration. It was also contended that, opening an Escrow Account
and deposit of amount therein has no bearing with the issue of
referring the matter to the Arbitrator. Besides, both the parties had
already acted upon the agreement by approaching the sole arbitrator
and obtaining his consent.
10). The KDMC, on the other hand, argued before the District
Court that deposit of the amount in Escrow Account was a condition
precedent to refer the matter for arbitration and in view of noncompliance
with the condition, there could be no reference to the
arbitration. According to it, the agreement dated 22nd April, 2009 is
null and void as there is no approval of Standing Committee or
Government to the agreement. The dispute as regards the rateable
value of the property had already been carried upto the Apex Court
and the Apex Court had directed the petitioner to lead evidence in the
appeals by examining it's valuer. But, the petitioner with a view to
delay the decisions in the appeals filed the application. One more
argument advanced by KDMC before the District Court was that,
KDMC was tricked into executing the agreement dated 22nd April,
2009 by the petitioner. It had made a false representation that it
would deposit the amount of property taxes of Rs.6,68,76,000/- in an
Escrow Account and obtained “No Objection Certificate” for sale of
it's property to M/s. K. Raheja Universal. The KDMC believed in the
promise given by the petitioner and the promise was not kept. Thus,
it played fraud upon KDMC and has been abusing the process of law.
11). The District Court rejected the argument of KDMC on
the validity of the agreement. However, on appreciation of the
agreement, it found that two of the material clauses i.e. Clause-1 and
2 were contrary to each other and that deposit in Escrow Account is
the condition precedent to refer the matter for arbitration. It
concluded that, for non-compliance with the condition precedent, the
matter cannot be referred to arbitration.
12). The principle grounds of challenge to the orders of the
Courts below as set out in the petition are that, in view of Section 8 of
the Arbitration Act and Section 408 of the BPMC Act, the Courts
below ought to have referred the dispute to arbitration instead of
making the parties to face rigmaroles of litigation. Further, Section
16 of the Arbitration Act provides that objections as regards the
validity of the arbitration agreement can be gone into and dealt with
by the Arbitral Tribunal. Hence, the Courts below could not have
usurped the jurisdiction of the Arbitrator to interprete clauses of the
agreement. They also erred in holding that, there was a condition
precedent for invoking the arbitration clause and the petitioner has
committed breach of that condition. According to the petitioner, the
sale of land by the petitioner to Raheja Universal, as well as, Clauses-
1 and 2 of the agreement have no bearing on the matter, with respect
to rateable value and tax on the property in question, being referred
to arbitration. The agreement also does not contain termination
clause in case of breach of any of the stipulations of the agreement.
13). In the above factual background, the two questions that
would arise for consideration of this Court are :-
(i). Whether in view of Section 8 of the Arbitration Act and
Section 408 of the BPMC Act, mere existence of a clause for
arbitration in an agreement, ipso-facto casts an obligation on the
Court to refer the matter for arbitration, and
(ii) Whether deposit of Rs.6,68,76,000/- in Escrow Account by
the petitioner is the condition precedent under the agreement
for reference of the dispute to arbitration.
14). It would be convenient to reproduce Section 8 of the
Arbitration Act and Section 408 of the BPMC Act for ready
reference :
“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 so applies not later than when submitting his first
statement on the substance of the dispute, refer the parties to
arbitration.
(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.
(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.
“408. Arbitration-
Where any appeal against the rateable value or tax fixed or
charged under this Act is pending and all the parties interested
agreed that any matter in difference between them shall be
referred to arbitration, they may, at any time before a decision is
given in such appeal, apply in writing to the judge for an order of
reference on such matter and on such application being made the
provisions of the Arbitration Act, 1940 (X of 1940), relating to
arbitration in suits shall, so far as they can be made applicable
apply to such application and proceedings to follow thereon, as if
the said Judge were a Court within the meaning of that Act and
the application were an application made in a suit.”
15). There is no dispute as regards the execution of the
agreement dated 22nd April, 2009 and Clause-6 therein for reference
of the dispute relating to rateable value and tax charged by the
Corporation on the properties in question to arbitration. The dispute
raised by KDMC to the validity of the agreement has been laid to rest
by the decision of he District Court on this aspect, which decision is
not challenged by KDMC. Mr. Sawant, the learned Advocate
appearing for the petitioner, submits that considering the language of
Section 8 of the Arbitration Act and Section 408 of the BPMC Act
with the use of the word “shall”, there can be escape for KDMC from
reference of the matter to arbitration. On the compulsive nature of
the provisions, Mr. Sawant relies upon the decision of the Apex Court
in National Insurance Company Limited Versus Boghara
Polyfab Privated Limited, reported in (2009) 1 SCC page 267
and in particular paras-21, 22 and 23 thereof.
16). The provisions referred to from the two statutes
undoubtedly use the word “shall” for referring the parties to
arbitration. However, that is preceded by the need of consideration
of existence of an arbitration agreement. Both the provisions
empower the Courts before whom the proceedings are pending, to
refer the parties to arbitration, where there is an arbitration
agreement. (emphasis supplied). Therefore, even if the document of
agreement between the parties contains a clause for reference of the
dispute to arbitration, the Court is required to first ascertain that
there is an arbitration agreement in existence between the parties.
This view is in fact supported by the decision cited by Mr. Sawant as
can be seen hereinafter.
17). In the decision cited, the question of existence of an
arbitration agreement arose for consideration of the Apex Court in
the facts of discharge of the agreement by performance and
satisfaction. The dispute before the Apex Court had arisen out of a
contract of insurance, which contained a clause for arbitration. There
was a settlement arrived at between the parties as regards the
insurance claim and the insured had issued “discharge voucher-inadvance”
acknowledging receipt of amount in full and final
settlement of the insurance claim. The insured, however,
subsequently raised a dispute as regards the settlement alleging that
settlement had been arrived at under duress and coercion. It filed an
application under Section 11 of the Arbitration Act in this Court. The
application was opposed by the insurer with a contention that the
insured could not invoke the arbitration clause in the agreement as
the agreement stood discharged by accord and satisfaction. In the
facts, the question framed by the Apex Court for its consideration was
“In what circumstances, a Court will refuse to refer a dispute relating
to quantum to arbitration, when the contract specifically provides for
reference of the disputes and differences relating to quantum to
arbitration?” For answering the question, Apex Court amongst
several others referred to the decision of its seven Judges Bench in
SBP and Co. V/s. Patel Engineering Ltd, reported in (2005) 8
SCC page 618, wherein the scope of Section 11 of the Arbitration
Act, was considered and it was held that the scheme of Section 11 of
the Act required the Chief Justice or his designate to decide whether
there is an arbitration agreement in terms of Section 7 of the Act
before exercising his power under Section 11(6) of the Act and its
implications. The observations quoted from the decision of the seven
judges Bench, which observations would be relevant for the present
purposes also, read as follows :-
“ 39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act, is to
decide at that stage. Obviously, he has to decide his own
jurisdiction in the sense, whether the party making the motion
has approached the right High Court. He has to decide whether
there is an arbitration agreement, as defined in the Act and
whether the person who has made the request before him, is a
party to such an agreement. It is necessary to indicate that he
can also decide the question whether the claim was a dead one;
or a long barred claim that was sought to be resurrected and
whether the parties have concluded the transaction by
recording satisfaction of their mutual rights and obligations or
by receiving the final payment without objection. It may not be
possible at that stage, to decide whether a live claim made, is one
which comes within the purview of the arbitration clause. It will
be appropriate to leave that question to be decided by the
arbitral tribunal on taking evidence, along with the merits of the
claims involved in the arbitration. The Chief Justice has to
decide whether the applicant has satisfied the conditions for
appointing an arbitrator under Section 11(6) of the Act. For the
purpose of taking a decision on these aspects, the Chief Justice
can either proceed on the basis of affidavits and the documents
produced or take such evidence or get such evidence recorded,
as may be necessary. We think that adoption of this procedure
in the context of the Act would best serve the purpose sought to
be achieved by the Act of expediting the process of arbitration,
without too many approaches to the court at various stages of
the proceedings before the Arbitral tribunal."
"47. (iv) The Chief Justice or the designated judge will have
the right to decide the preliminary aspects as indicated in the
earlier part of this judgment. These will be, his own jurisdiction,
to entertain the request, the existence of a valid arbitration
agreement, the existence or otherwise of a live claim, the
existence of the condition for the exercise of his power and on
the qualifications of the arbitrator or arbitrators."
(emphasis supplied)
18). In the case of SBP & Co., the Apex Court had also
examined the competence of the Arbitral Tribunal to rule upon its
own jurisdiction and about the existence of the arbitration clause
when the Chief Justice or his designate had appointed an Arbitral
Tribunal under Section 11 of the Act after deciding upon such
jurisdictional issue. It was held that the decision of the Chief Justice
on the issue of jurisdiction and existence of an valid arbitration
agreement would be binding on the parties when the matter goes to
Arbitral Tribunal. The further observations on the competence under
Section 16 of the Arbitration Act quoted from SBP Co.'s case, read as
follows :-
“20. Section 16 is said to be the recognition of the principle
of Kompetenz - Kompetenz. The fact that the arbitral tribunal
has the competence to rule on its own jurisdiction and to define
the contours of its jurisdiction, only means that when such
issues arise before it, the Tribunal can and possibly, ought to
decide them. This can happen when the parties have gone to the
arbitral tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under these
Sections, before a reference is made, Section 16 cannot be held
to empower the arbitral tribunal to ignore the decision given by
the judicial authority or the Chief Justice before the reference to
it was made. The competence to decide does not enable the
arbitral tribunal to get over the finality conferred on an order
passed prior to its entering upon the reference by the very
statute that creates it. That is the position arising out of Section
11(7) of the Act read with Section 16 thereof. The finality given
to the order of the Chief Justice on the matters within his
competence under Section 11 of the Act, are incapable of being
reopened before the arbitral tribunal."
(emphasis supplied)
19). On the basis of the observations in the decision in SBP
and Co.'s case (supra), the Apex court in National Insurance's case
(supra), at para-21 concluded that, when a contract contains an
arbitration clause and any dispute in respect of such contract is
referred to arbitration, without intervention of the Court, the Arbitral
Tribunal can decide upon the questions affecting its jurisdiction. But,
when the intervention of the Court is sought for appointment of
Arbitral Tribunal under Section 11 of the Arbitration Act, one of the
preliminary issues that the Chief Justice or his designate is bound to
decide is, whether there is an arbitration agreement and whether the
party who has applied under Section 11 of the Act, is a party to such
an agreement. If the respondent, to the application contends that,
the dispute is not arbitrable on account of discharge of a contract in a
settlement agreement and the claimant contends that it was obtained
by fraud, coercion or undue influence, the Chief Justice or his
designate may decide the same, if necessary, by taking evidence.
Alternatively, he may leave the issues open with a direction to the
Arbitral Tribunal to decide the same. Thus the issue can be decided
by the Arbitral Tribunal only if the Chief Justice/designate leaves the
question to be decided by the Arbitral Tribunal and gives directions
in the regards.
20). The Apex Court has thus drawn distinction between
reference to arbitration of dispute without intervention of the Court
and the reference to arbitration with recourse to Section 11 of the
Arbitration Act. Where the reference is made without intervention of
the Court, the Arbitral Tribunal can decide the question affecting it's
jurisdiction, one of which is the existence and validity of the
arbitration agreement. But, where the intervention of the Court is
sought for the purpose, the Court has the discretion to decide the
preliminary issue of existence and validity of the arbitration
agreement. The same principle will have to apply to an application
for reference to arbitration made under Section 8 of the Arbitration
Act. Infact, this has been so recognised by the Apex Court in SBP &
Co.'s case at para-20 of the decision quoted above. Therefore
existence of an arbitration clause in an agreement, ipso-facto is not a
compelling factor for reference to arbitration. Having said so, it is to
be seen whether there exists an arbitration agreement between the
parties in the facts and circumstances of the case.
21). For that purpose, a brief reference to the background of
the agreement dated 22nd April, 2009, even at the cost of repetition is
required to be noted. KDMC has issued eight bills to the petitioner
during the period 1996 to 2004 towards the taxes in respect of the
property in question. The total tax dues payable as on the date of the
agreement apparently were of Rs.6,68,76,000/-. It has attempted to
challenge the bills by invoking the extra-ordinary jurisdiction of this
Court. But that attempt had failed. The Apex Court had by way of
sheer indulgence permitted the petitioner to lead evidence in the
appeals that were already filed. The order of the Apex Court was
passed on 23rd November, 2006. The petitioner did not take any step
to lead evidence in the appeal proceedings. It instead utilised the
time to sell a large chunk of the property in question to a third party.
That sale would not have come through without the consent of KDMC
in view of huge arrears of tax dues and the litigation pending relating
thereto. The petitioner needed “No Objection Certificate” from
KDMC for sale of the land free from liability of all municipal taxes
upto the date of sale. It then sought political intervention by
involving two ministers of the State Government, as also, the
Secretary to the Government. Only thereafter, the agreement dated
22nd April, 2009 came to be executed.
22). The resort to political intervention in respect of the
private sale is an admitted fact having been mentioned in the recital
to the agreement. It is obvious that, KDMC agreed to give “No
Objection Certificate” only because of the promise from the petitioner
to deposit the entire tax dues in a Escrow Account. The petitioner
has resiled from the agreement by not depositing the amount.
23). The three material clauses from the agreement dated
22nd April, 2009 i.e. clauses-1, 2 and 6 (the arbitration clause) read as
follows :-
“1. The Corporation shall issue No Objection Certificate to the
company for sale of Saleable land admeasuring 339.40 acres as
per Annexure “B” stating that the purchaser shall be liable for
the municipal taxes charged by the Corporation including Open
land tax only from the date of conveyance irrespective of tax
dispute of the said land between KDMC and NRC Limited,
provided that the Company deposit an amount of
Rs.6,68,76,000/- in the Escrow Account in accordance with
para 2 of the agreement. The said No Objection Certificate
shall be issued within 7 days from the date of Execution of this
agreement as per draft given in Annexure “D” annexed hereto.”
“2. It is agreed that the agreement for sale dtd. 1/3/2007
and supplementary agreement dtd 29/9/2007 between NRC
Limited & M/s. K. Raheja Universal has already been executed
and conveyance deed in pursuance thereto shall be executed
after NOC from the Corporation. As per the said agreement,
two installments are already released by M/s. K. Raheja
Universal and the third installment is due after getting NOC
from the Corporation and completing the formalities of fencing
vacant possession of non-colony land and execution of
conveyance. The company shall within four months from the
date of receipt of the third installment, deposit an amount of
Rs.6,68,76,000/- in the Escrow Account to be open in any
Scheduled/Nationalised bank (hereinafter called the “Escrow
Agent”) to be appointed jointly with the approval and consent
of both the parties. The amount deposited in the Escrow
Account shall be invested by the Escrow Agent from time to
time at the instructions of both parties in Fixed Deposit with
any Scheduled/Nationalised banks. Both parties agree that a
separate tripartite agreement shall be executed between the
Corporation, the Company and the Escrow Agent for opening
an Escrow Account in terms of this agreement.”
6). The company and corporation further agrees that the
dispute relating to the rateable value and tax charged by the
corporation on open land of the company upto the date of sale
shall be referred to the arbitration as provided under Section
408 of Bombay Provincial Municipal Corporation Act, 1949. It
is further agreed between the parties that the company and the
Corporation shall make separate applications, giving their
consents to the arbitration, as required under Section 408
under BPMC Act, 1949, to the Court of CJSD, Kalyan under
various petitions, as per details in annexure “C” to this
agreement within fifteen days from the date of this agreement.
A retired Judge of High Court or Supreme Court as mutually
agreed by the company and the corporation shall be appointed
as Arbitrator. The Arbitrator shall be appointed within thirty
days from date the Court give consent for appointment of
arbitrator. The expenses towards arbitration shall be borne by
the NRC Ltd.”
24). Careful reading of Clauses-1 and 2 above, exposes the
mischief played by the petitioner. Under Clause-1, KDMC is to issue
“No-Objection Certificate” on condition that the petitioner deposits
the amount of Rs.6,68,76,000/- in Escrow Account and “No-
Objection Certificate” was to be issued within 7 days from the date of
the agreement. For this to happen, the petitioner had to deposit the
amount within 7 days from the date of the agreement. But the very
next clause, sets the condition at naught, by recording one of the
terms of the agreement between the petitioner and the purchaser of
the property. Clause-2 records that, the purchaser had already
released two installments of the consideration and that the third
installment was to be paid after (i) getting “No Objection Certificate”
from KDMC, (ii) completing fencing of the property and (iii)
execution of conveyance. The clause further says that, the petitioner
shall deposit amount in Escrow Account within FOUR MONTHS
after the payment of the third installment. This would mean that, the
petitioner agreed to deposit the amount on expiry of substantial
period after completion of transaction of sale. In this way, the
petitioner made the property unavailable to KDMC for recovery of
it's tax dues. It would be pertinent to note at this stage, that caught in
such situation, KDMC issued the “No-Objection Certificate” on the
basis of which the petitioner has already received the third
installment of consideration from the purchasers. When enquired
about the deposit in the Escrow Account, Mr. Sawant, submits that
the non-deposit would be one of the issues falling for consideration of
the Arbitral Tribunal. Thus, the petitioner has merely derived the
benefits from the agreement but resiled from the obligations. These
undisputed facts establish the contention of KDMC that it was tricked
into executing the agreement and the petitioner never intended to
deposit the amount in the Escrow Account.
25). It is sought to be argued on behalf of the petitioner that,
issuance of No-Objection Certificate, as well as, the transaction of
sale between the petitioner and M/s. Raheja Universal has no bearing
on the arbitration agreement. The argument needs outright
rejection. Grant of No-Objection Certificate by KDMC for sale of the
property by the petitioner, is directly connected to the dispute to be
referred for arbitration. The need for No-Objection Certificate arose
solely on account of the dispute. Besides, acceptance of such an
argument would mean, reading Clause-6 in isolation, which cannot
be done. The agreement needs to be read as a whole. On reading it
as a whole, it becomes apparent that but for the deposit of the entire
tax dues in Escrow Account, KDMC would not have agreed either for
issuance of No-Objection Certificate or for reference of the dispute to
arbitration. The trial Court in it's order has noted the word “further”
used in Clause-6 of the agreement and opined that, use of the word
would mean that the clause is to be resorted to after compliance of
the earlier clauses. In that case, deposit of the amount in Escrow
Account becomes a condition precedent.
26). Thus, the Courts below are correct in their conclusion
that, deposit of the amount in Escrow Account was condition
precedent to the arbitration agreement. In the circumstance, unless
the condition is fulfilled, the arbitration agreement does not get
activated and come into existence. A mere writing on a piece of paper
with signature of the parties by itself cannot mean existence of an
agreement. What is material, is the intention of the parties in
executing the document.
27). Both the Courts below have also held that, the
application for reference to arbitration is nothing but an attempt to
protract the hearing of the appeals. It is nobody's case that the
appeals have remained pending on account of procedural delay. The
Court, as well as, KDMC are ready and anxious for taking up the
appeals for hearing. But, there was clear reluctance on the part of the
petitioner in prosecuting the appeals. After obtaining concession
from the Apex Court in November, 2006 the petitioner has not taken
any step to lead evidence of it's valuer. Today, it is 18 years since the
filing of the first appeal by the petitioner and 10 years since the filing
of the last appeal. It would also be relevant to note here that, the
petitioner had initially filed Writ Petition to challenge the demand for
taxes when the petitions were patently not maintainable. Had the
petitioner on due adjudication of the dispute discharged it's tax
liability, a substantial amount would have been available to KDMC
for utilisation for public purposes. On account of the mischievous
and dishonest conduct on the part of the petitioner, the public body
has been deprived of it's legitimate funds from the year 1996 till date.
28). For all the above reasons, the petitions are dismissed
with costs. The petitioner shall pay costs quantified at Rs.1,00,000/-
(Rs. One Lakhs only) for each petition to respondent no.1, KDMC.
The costs to be paid within a period of 2 weeks from today. If the
costs are not paid within the time granted, the appeals filed by the
petitioner in the Court of Civil Judge Senior Division, Kalyan shall
stand dismissed without further reference to the Court. After
payment of costs, the petitioner, if it so desires, is at liberty to deposit
the amount of Rs.6,68,76,000/- (Rs. Six Crores Sixty Eight Lakhs
and Seventy Six Thousand only) in Escrow Account within the same
period of 2 weeks and renew it's application for reference to
arbitration.
(SMT. R.P. SONDURBALDOTA, J)
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