In the present case it is not in dispute the award was not
passed on merits of the rival claims and therefore the decision in
Associated Constructions (supra) will come to the assistance of the applicant. The basis of the application is the fact that the award having been set aside and the Award not being on merits,
principles of Res Judicata cannot be attracted. It is also contended that under Order 41 Rule 5 of the Code of Civil Procedure, merely filing an appeal will not operate stay of further proceedings.
There is no prohibition against a new tribunal being appointed or the applicant being restrained in any manner from prosecuting this application. {Para 15}
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION APPLICATION NO.414 OF 2019
Wadhwa Group Holdlings Private Limited Vs Homi Pheroze Ghandy & Anr.
CORAM : A. K. MENON, J.
DATED : 7TH MARCH, 2022.
1. The application seeks appointment of a Sole Arbitrator pursuant
to notice invoking clause 25 of a writing dated 23rd September,
2006 titled “Heads of Agreement”. The agreement is between the
applicant in its earlier name Vishwaroop Infotech Private Limited
and Homi Pheroze Ghandy-respondent no.1 and Kersi Pheroze
Ghandy (since deceased). Respondent no.2 is the Executor of the
Will of late Kersi Ghandy. Clause 25 of the agreement is the
Arbitration clause, which is reproduced below for ease of
reference;
“25. In the event of any disputes or differences
arising between the parties the same shall be
referred to arbitration under the Arbitration
and Conciliation Act, 1996.”
2. Vishwaroop Infotech Private Limited is now known as Wadhwa
Group Holdings Private Limited. The notice invoking arbitration
is dated 15th May, 2019, copy of which is at Exhibit ‘G’ sets out
that disputes and differences have arisen between the parties and
suggests the name of three persons all Advocates of this court, one
of whom is to be appointed as Sole Arbitrator. The invocation
letter is issued by the Advocates for the applicant and which is
seen to be addressed to the two respondents. The respondents
have vide their letter of 13th June, 2019 contended that the notice
is premature and the matter is yet decided conclusively and hence
the notice is barred by Res Judicata since an appeal is pending
before this court and being sub-judice, no arbitrator is required to
be appointed. In view of this denial, the present application has
been filed.
3. Mr. Khandeparkar who appears for the applicant has taken me
through the facts which reveal that on 23rd September, 2006
respondent no.1 and late Kersi Ghandy had agreed to sell and
assign the right, title and interest in immovable property
described therein to the applicant for consideration of Rs.24
crores. After the disputes arose, Commercial Arbitration Petition
no.618 of 2012 came to be filed and vide an order dated 17th July,
2012 the High Court referred the disputes to a Sole Arbitrator.
4. By his award dated 22nd April, 2013 the Arbitrator dismissed the
claim on the ground of limitation. By a separate award of 14th
August, 2014 the Sole Arbitrator dismissed the counter claim of
the applicant on the ground of Res Judicata and limitation.
Thereafter the applicant filed Arbitration Petition no.487 of 2014
and 688 of 2015 under Section 34 of the Act challenging both the
aforesaid awards. On 22nd January, 2019 this court allowed
Arbitration Petition no.688 of 2015 and set aside the award
dismissing the counter claim. Thereupon Arbitration Petition
no.487 of 2014 also came to be disposed since it did not survive.
The respondent therein being aggrieved by the order of the Single
Judge filed an Appeal under Section 37 of the Arbitration and
Conciliation Act on 22nd February, 2019 and that appeal is said to
be pending.
5. During the pendency of the appeal, the applicant herein invoked
arbitration as aforesaid. The application is opposed on behalf of
the respondents on the basis that it is premature due to the
pendency of the appeal. Mr. Khandeparkar submitted that
notwithstanding pendency of the appeal, this application can
proceed. In support of his contention, he relies upon a decision of
the Delhi High Court in Décor India P. Ltd. v/s. National Building
Const. Corpn. L.1 in which he has relied upon the decision to
demonstrate that there can be no automatic stay during the
pendency of an appeal. He submits that as recorded in paragraph
15 of that judgment, there is no automatic stay in appeals or
orders or decrees of suit, it cannot be contended that the
legislature intended to provide protection to the defendants by
providing automatic stay on filing an appeal under Section 37.
Mr. Khandeparkar submits that the decision in Décor India
(supra) deals with the situation that is presently faced by the
parties. Mr.Khandeparkar submits that the respondent cannot
prevent an arbitrator from being appointed.
6. Mr. Khandeparkar also relies upon a decision of the Supreme
Court in Indian Oil Corporation Ltd. v/s. M/s. S.P.S. Engineering
1 2007 (97) DRJ 428(DB)
Ltd.2 which dealt with the issue whether a claim is barred by Res
Judicata can be adjudicated pursuant to a Section 11 application.
He therefore submits that the application is liable to be allowed
and the Sole Arbitrator is required to be appointed.
7. Mr. Sawant very firmly opposed the application. According to
Mr. Sawant since the appeal is admittedly pending, there is no
occasion to agitate the issue once again. He submits that till the
appeal is decided, this application cannot proceed. On 24th
January, 2022, Mr. Sawant, on instructions, submitted that since
notice invoking arbitration has been dealt with in an Advocate’s
reply dated 13th June, 2019, copy of which is annexed to the
petition, the respondents did not intend to file any reply to this
application. Mr. Sawant has taken me through the factual matrix
to the extent it pertains to his client’s point of view inter alia
contending that the appeal filed by the respondents has been
admitted and once the appeal is admitted, it stands to reason that
no further proceeding must continue since there is always a
possibility that the order impugned in the appeal may be set aside.
If that be so, Mr. Sawant submitted that award would revive and
this application would be rendered infructuous. He therefore
2 Civil Appeal no.1282 of 2011 (SC)
arising out of SLP(c)no.11903/2010
submits that the present application is liable to be rejected as
premature since there is always a likelihood that he may succeed
in the appeal and if he does, the award will revive. Revival of the
award would render the application and the appointment of an
arbitrator unnecessary.
8. Mr. Sawant has invited my attention to the order passed by the
Division Bench of this court in Siddhivinayak Realties Pvt. Ltd. v/s.
V. Hotels Limited and others 3 in which a motion was taken out by
the original defendant no.1 for a summary judgment of dismissal
of the suit. He invited my attention to the observation of the court
in respect of Section 43(4) of the Arbitration and Conciliation Act
in particular the reference to exclusion of time and the fact that
the court had decided that the words “order of the court” referred
in Section 43(4) would mean a final order which is not subjected
to any further challenge or the order in appeal if the original
order setting aside an award is carried in appeal and affirmed. In
that situation there is a case for treating an appeal as a
continuation of the original proceeding for setting aside the
award.
3 NMS No.119 of 2016 in COMS No.133 of 2018
dated 30th April, 2021
9. This Mr. Sawant submitted that is the very same principle that has
been laid down by the Federal Court in Lachmeshwar Prasad
Shukul v/s. Keshwar Lal Chaudhuri and others 4. Mr. Sawant
submitted that in a Lachmeshwar Prasad (supra), the court was
dealing with an issue under the Bihar Money Lenders Act, in a
retrospective action. The decree of the High Court in that case
was not final since an appeal was pending before the Division
Bench. The three judge bench of the court observed that if appeal
were to be allowed on any ground, the court would be bound to
comply with the provisions of the new Bihar Act. Mr. Sawant
canvassed this aspect inter alia observing that more recently the
Supreme Court had in the case of Union of India v/s. Varindera
Constructions Limited 5 in relation to Section 37 read with Section
34 of the Arbitration and Conciliation Act observed that the
Supreme Court had repeatedly observed that an appellate
proceding is a continuation of the original proceeding as held in
Lachmeshwar Prasad (supra). This he submitted would be the
correct position in law and therefore till the appeal filed by the
respondents is disposed finally, the fate of the award is still
unknown and therefore this application would be premature and
4 53 L.W. 373 (Patna)
5 (2020) 2 SCC 111
that the reference would be bad.
10. Mr. Sawant also relied upon the observation of the Supreme
Court in DLF Home Developers Limited v/s. Rajapura Homes
Private Limited & Anr .6 that the High Court is not required to
mechanically appoint an Arbitrator but can examine whether a
prayer for appointment can be denied if the dispute does not
correlate to the agreements.
11. I have heard the learned counsel for the parties at length.
The opposition to this application effectively seeks a stay of
proceedings in this arbitration application. The fact that
arbitration is considered expeditious remedy, is an aspect that the
respondent is obviously aware of but the respondent in the
present case effectively seek postpone the fate of the notice
invoking arbitration and that is not contemplated in the Act.
12. Section 11 of the Act requires this court to appoint an
Arbitrator where the parties have failed to act either for want of
a procedure for appointing an arbitrator or on account of not
observing such a procedure. Chapter III of the Arbitration and
Conciliation Act deals with composition of an arbitral tribunal. It
6 2021 SCC Online SC 781
deals with number of arbitrators, appointment of arbitrators,
grounds for challenge, procedure for challenge, termination of
the mandate for failure of impossibility to act and for substitution
of a tribunal. The merits of the case are not required to be gone
into at those stages. The High Court is concerned with the
appointment of an arbitrator. The contentions raised by the
respondents in the present case are obviously tied in with the fate
of the appeal and in my view considering the facts at hand the
invocation of arbitration cannot be subjected to the fate of the
appeal.
13. Disposal of the appeal could lead to one of two results. If
the order in appeal is affirmed, the award is rendered
inconsequential. If the order is set aside, the award revives. The
question is whether the commencement of a fresh round of
arbitration by virtue of the current invocation can be prevented,
given the uncertainty. In my view that would not lie within the
scheme of the Act which calls upon the court to act for a party
who does not avail of his right of appointment of an arbitrator.
While Mr. Sawant may be correct in his submission that a fresh
suit would be hit by Res Judicata, I find that the institution of the
suit cannot be prevented. Res Judicata may be a good defence but
in an arbitration at the Section 11 stage the objection on the
ground of Res Judicata is forming part of the defence to be
considered by an arbitrator.
14. In my view in the facts of the case the court under Section
11 is not required to deal with that aspect since that would not
fall for consideration under the extent limited scope of High
Courts jurisdiction under Section 11(6) of the Act. Section 11(6)
clearly provides for different situations which would require the
appointment to be made by the High Court. Furthermore, as we
have seen the award is not set aside on merits but this court has
set aside the award and in that view of the factual aspects, a
decision of this court in Associated Constructions (supra) would
be of relevance. Moreover, a decision in Indian Oil Corporation
(supra) also clearly sets out that the objection on the ground of
Res Judicata does not arise for consideration under provisions of
Section 11 and that it should be exempted by an arbitral tribunal.
15. In the present case it is not in dispute the award was not
passed on merits of the rival claims and therefore the decision in
Associated Constructions (supra) will come to the assistance of the
applicant. The basis of the application is the fact that the award
having been set aside and the Award not being on merits,
principles of Res Judicata cannot be attracted. It is also contended
that under Order 41 Rule 5 of the Code of Civil Procedure, merely
filing an appeal will not operate stay of further proceedings.
There is no prohibition against a new tribunal being appointed or
the applicant being restrained in any manner from prosecuting
this application.
16. The need to expedite the pre-appointment process and clear
roadblocks in that process also finds support in the recent
decision of the Supreme Court in Interncontinental Hotels Group
(India) Pvt. Ltd. and Another v/s. Waterline Hotels Pvt. Ltd .7 in
which the court has observed that the jurisdiction of the court to
adjudicate issues at the pre-appointment stage is very limited and
that a prima facie view is to be taken. The issues of arbitrability /
validity are matters to be adjudicated by the arbitral tribunal and
only exception that courts can adjudicate to cut the deadwood. It
describes the watch word for the courts under section 11 as
follows; “when in doubt, do refer”.
7 2022 SC OnLine SC 83
17. In Indian Oil (supra) the Supreme Court observed that a
question whether a claim is barred by Res Judicata cannot arise
for consideration under Section 11 of the Arbitration and
Conciliation Act and such an issue would have to be considered
by the tribunal since it will require consideration of pleadings.
Adverting to the scope of Section 11, the Supreme Court observed
that the provisions does not permit examination of the
maintainability or tenability of the claim on facts or in law. There
can be no threshold consideration and rejection of a claim on the
ground of Res Judicata, while considering an application under
Section 11 of the Act. This is one aspect that has been pressed into
service. This court has in Associated Constructions v/s.
Mormugoa Port Trust8 observed that once an award is set aside
for reasons other than merits, the applicants could commence
arbitration.
18. In the present case also we are at the pre-appointment
stage and as stated above, Post appointment it is always open to
raise all defences before the tribunal including the aspect of Res
Judicata. Therefore the lack of finality of the award before the
arbitral tribunal would be a view on the matter on merits. In DLF
8 2010 (5) Mh.L.J. 739
(supra) the issue the court considered as in the content of
examining whether the dispute correlate to the agreement
between the parties. That does not fall for consideration in the
case at hand and hence the respondent cannot get an assistance
from that decision. In Varindera Consultants (supra), the court
was considering the bar of limitation, hence of no assistance to the
respondents. In my view the other aspects of Res Judicata may be
taken up before the tribunal.
19. In view of the above, I am of the view that the application is
liable to be allowed. Accordingly, I pass the following order;
(i) Mr. Karl Tamboly, Advocate, is appointed as Sole Arbitrator
to adjudicate upon claims and counter claims, if any.
(ii) The learned Arbitrator is requested to file his disclosure
statement under Section 11(8) and Section 12(1) within
four weeks with the Prothonotary and Senior Maser and
provide copies to the parties.
(iii) Parties to appear before the Sole Arbitrator on a date to be
fixed by him at his earliest convenience.
(iv) Fees payable to the Sole Arbitrator will be in accordance
with the Bombay High Court (Fee Payable to Arbitrators)
Rules, 2018.
(v) Arbitration Application is disposed in the above terms.
(vi) No costs.
(A. K. MENON, J.)
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