AP No. 43 of 2010
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
DR. PB'S HEALTH AND GLOW CLINIC PRIVATE LIMITED
For the Petitioner: Mr Debojyoti Dutta, Adv., Ms Anisha Surana, Adv.
For the Respondent: Mr Ranjan Bachawat, Adv., Mr Ritabrata Mitra, Adv.
Hearing concluded on: March 17, 2010.
The Hon'ble Justice
Date: March 19, 2010.
SANJIB BANERJEE, J. : -
The petitioner seeks a reference of the disputes covered by the arbitration agreement between the parties, to arbitration. This request under Section 11 of the Arbitration and Conciliation Act, 1996 has been carried upon the petitioner's perceived demand for the appointment of an arbitrator being apparently left unattended to by the respondent.
The respondent is engaged in providing healthcare services including homoeopathic consultation, provisional diagnosis and therapy primarily for hair skin, arthritis and obesity related disorders. On August 7, 2007 the petitioner entered into an agreement with the respondent for being the respondent's franchisee in Siliguri. The petitioner has complained of the respondent having 2
failed to provide logistic, technical and expert support to the Siliguri healthcare centre. The petitioner claims that he was exasperated and discontinued the franchise with effect from March 1, 2009.
Disputes and differences have, indeed, arisen between the parties. The petitioner says that such disputes are covered by the arbitration agreement recorded in clause 14 of the franchise agreement of August 7, 2007:
That place for the performance of obligations of the parties hereto is in Kolkata and the parties hereto expressly agree that if any dispute and/or disputes arise between the parties hereto than the dispute and/or disputes will refer to the Arbitration and Conciliation Act, 1956 and accordingly, the parties submit to the exclusive jurisdiction of the Hon'ble High Court at for that purpose." (Clause reproduced exactly as it appears in the agreement.)
The petitioner says that he caused a letter to be issued to the respondent on October 22, 2009 wherein the demand for reference of the disputes to arbitration was also made. A copy of the letter appears as annexure "J" to the petition. Over the first three pages advocate for the petitioner detailed the instances of alleged breach committed by the respondent and particularised the several heads of claim adding up to an amount of Rs.83,57,837/-. At the second- last paragraph of the letter issued by advocate representing the petitioner, the following assertion was made:
"Despite notice you have failed and neglected to take any steps in the regard. As a consequence of such wrongful deed and conduct on your part our client is entitled to claim the loss and damages suffered by our client as enumerated hereinbefore. We therefore call upon you to pay within a period of two weeks the sum of Rs.83,57,837/-. In the event such payment is not received within the time stipulated, our client would in such event refer the dispute for arbitration in accordance with the Arbitration and Conciliation Act, 1996 as mentioned in the Clause of the said "Franchisee Agreement". For the said purpose please treat this letter also as commencement of arbitration proceedings within the meaning of section 21 of the Arbitration and Conciliation Act, 1996."
It is evident that the respondent did not accede to the petitioner's demand. In a terse, one-paragraph reply of January 18, 2010, the respondent refuted the petitioner's claim and narrated its grievances against the petitioner.
The respondent says that the precondition to making a request under Section 11 of the 1996 Act has not been complied with by the petitioner. Without going into the arbitration agreement, the respondent says that if the present request is incompetent, the respondent is not called upon to address on the merits. The respondent refers to Section 11 of the 1996 Act and says that before a request can be brought to a Chief Justice or his designate, a party to an arbitration agreement must make a demand for a reference. The respondent suggests that the petitioner's letter of October 22, 2009 merely claimed that if the respondent did not pay the sum demanded by the petitioner therein, the petitioner "would in such event refer the dispute for arbitration ...." The respondent argues that if at all, the letter of October 22, 2009 threatened to seek a reference at a future date and did not, in fact, seek a reference. The respondent asserts that a party to an arbitration agreement must first exhaust its rights under the agreement as recognised by the statute before proceeding to make a request under Section 11 of the Act.
The petitioner says that the relevant paragraph in the letter of October 22, 2009 implied that a reference had been demanded. The petitioner submits that upon the respondent denying the claim made in such letter by the petitioner, it was incumbent on the respondent to take steps for the reference to be commenced. The petitioner refers to Section 10 of the 1996 Act and says that since the arbitration agreement in the present case did not specify the number of arbitrators, by virtue of Section 10(2) of the Act the arbitral tribunal was to consist of a sole arbitrator. As to whether there had been a demand for a reference before the petitioner brought the request to the Chief Justice or his designate, the petitioner relies on the judgments reported at 2007 (2) Arb LR 434 4
(Haldiram Manufacturing Co. Ltd. v. SRF International) and AIR 1999 Del 83 (G. Premjee Trading Pvt. Ltd. v. Ashoka Alloys Ltd).
Assuming, for the moment, that there is an arbitration agreement reflected in clause 14 of the franchise agreement, it does not specify the number of arbitrators. If the clause can be understood to be an arbitration agreement, the petitioner is right in his assertion that there would be a sole arbitrator to adjudicate upon the disputes covered by the arbitration agreement.
Section 11(2) of the 1996 Act permits the parties to an arbitration agreement to agree on a procedure for appointing the arbitrator or arbitrators, subject to the provisions of sub-section (6) thereof. Sub-section (6) applies where there is a procedure that has been agreed upon by the parties for constituting the arbitral tribunal. If an arbitration agreement does not specify how the arbitral tribunal is to be constituted and if the parties to an arbitration agreement do not agree on such procedure, sub-section (3) of Section 11 of the Act or sub-section (5) thereof would come into play. Sub-sections (3) and (4) of Section 11 of the Act cover a situation where the arbitral tribunal is to comprise three arbitrators. Sub-section (5) comes into play in an arbitration with the sole arbitrator. If the arbitration agreement does not provide the manner of appointment or specify the number of arbitrators making up the arbitral tribunal, the parties thereto are still free to agree on a procedure for appointing the sole arbitrator. If the parties fail to agree on a procedure for appointing the sole arbitrator in such case, a party to the agreement may request the other party thereto to agree to an arbitrator. If such request goes unheeded by the other party for a period of 30 days from the date of receipt thereof, the party that had made the request may apply to the Chief Justice or any person or institution designated by the Chief Justice for an appointment to be made. That is the mandate of Section 11(5) of the Act.
Even if clause 14 of the franchise agreement reflects the intention of the parties to go to arbitration, there is no prescribed appointment procedure that is recorded therein. It was open to either party, therefore, to request the other party 5
to agree on a procedure for appointing a sole arbitrator. This could have been done by a party nominating its arbitrator or forwarding a panel of names to the other party for the other party to accept the nominee or one from the suggested panel. The 1996 Act gives primacy to the parties to the arbitration agreement. Section 5 of the 1996 Act mandates that no judicial authority shall intervene in matters governed by Part I of the Act except where so provided in such Part. Now that it is recognised that there is a process of adjudication that is required to be made even upon a request under Section 11 of the Act being received [SBP & Co. v. Patel Engineering Ltd, (2005) 8 SCC 618)], such adjudication will also be governed by Section 5 of the Act. In other words, if the statutory precondition to making a request under Section 11 of the Act has not been complied with, the Chief Justice or his designate would per force have to decline the request in view of the strict mandate of Section 5 of the Act.
In Haldiram Manufacturing the petitioner who carried the request under Section 11 of the Act sought to enforce the following arbitration clause:
"Arbitration -In case of any dispute between the parties to this order, the same will be referred for arbitration to a person, who will be mutually nominated by the parties hereto and whose decision shall be final and binding."
The respondent in Haldiram Manufacturing urged that a petition under Section 11 of the Act could be filed only after there was invocation of arbitration and a failure of the respondent to agree to the appointment of an arbitrator in terms of the arbitration clause. Such argument is recorded at paragraph 12 of the report. The principal issue that fell for consideration in that case is recorded at paragraph 16 of the report:
"16. The controversy in the present case has arisen on account of the fact that indisputably the petitioner never called upon the respondent to appoint an arbitrator and, thus, the question of failure to so appoint did not arise."
In the discussion on the issue, several other judgments were considered. At paragraph 17 two judgments reported at AIR 1973 Del 157 (Greenland Foods Pvt. Ltd. v. Union of India) and 1984 RLR 438 (Anand Kumar Jain v. Union of India) were noticed. Both the cases noticed were under Section 20 of the Arbitration Act, 1940 where it was held that an application filed under Section 20 of the 1940 Act could be treated as a demand or notice for appointment of an arbitrator if no previous notice had been issued to the other parties to the agreement. At paragraph 18 of the report, the case of G. Premjee Trading Pvt. Ltd. (which has also been cited by the petitioner here) has been noticed. The essence of the principle enunciated in G. Premjee Trading Pvt. Ltd. was recognised to be that if the disputes that had arisen were not identified, a request made under Section 11 of the 1996 Act would be incompetent.
The conclusion on the issue identified at paragraph 16 of the report appears at paragraph 27 of the Haldiram Manufacturing judgment:
"27. There is no doubt that if the petitioner had at least called upon the respondent to appoint an arbitrator, this difficulty would not have arisen but the line of judgments starting from Greenland Foods Pvt. Ltd.; Anand Kumar Jain and finally in G. Premjee Trading Pvt. Ltd. held that once the arbitration clause does not indicate as to who would be the arbitrator and no specific procedure is prescribed, the court should have the power to appoint an arbitrator. In view thereof, it cannot be said that this court is devoid in the facts of the present case to appoint an arbitrator."
With respect, the mandate under the 1940 Act cannot be equated with the command of the 1996 Act. Though the fundamental principles relating to arbitration law may have been retained in the 1996 Act, the scope of interference by court is expressly truncated. Section 5 of the 1996 Act did not appear in any shape or form in the 1940 Act. The principles recognised by the 1940 Act may not always be apposite in the context of the 1996 Act. 7
Sub-section (2) and sub-section (6) of Section 11 of the 1996 Act leave the parties free to agree on a procedure for the constitution and composition of the arbitral tribunal. There could be an arbitration agreement which itself provides for the procedure for appointment. There may be other arbitration agreements which are completely silent on the procedure for appointment of the arbitrator or arbitrators. Even in the second case the parties to the arbitration agreement may agree on a procedure for appointing the arbitrator or arbitrators at or after the time that the arbitration agreement has been invoked. Merely because an arbitration agreement does not provide the procedure for appointing the arbitrator or arbitrators, a party to an arbitration agreement may not make a request under Section 11 of the 1996 Act without affording the other parties to the arbitration agreement an opportunity to agree on the procedure for appointment. Section 11 of the Act does not give unbridled right either to an applicant or to the Chief Justice or his designate to make or receive a request thereunder. Every limb of Section 11 of the 1996 Act provides for the parties to forge an agreement on the appointment procedure and it is only upon the failure of the parties to agree on a procedure for appointment or to comply with the agreed procedure for appointment that a party demanding a reference or seeking an appointment may carry a request under Section 11 of the Act. It is not an idle formality; it is a statutory pre-requisite that a party carrying a request under Section 11 of the Act has to satisfy.
The Haldiram Manufacturing did not consider the objection raised by the respondent in the Section 11 proceedings before it in the light of the requirement of the 1996 Act. The relevant issue was decided, as is evident from paragraph 27 of the report, on the basis of Greenland Foods Pvt. Ltd. and Anand Kumar Jain without making a distinction between the requirements under the 1940 Act and the 1996 Act.
In G. Premjee Trading Pvt. Ltd., the other decision that has been brought by the petitioner, the third objection raised by the respondent therein was that the 8
petitioner therein had failed to identify and indicate the disputes alleged to have arisen between the parties. Such defence was very commonly taken by a respondent to proceedings under Section 20 of the 1940 Act or by a plaintiff in a suit upon such suit being attempted to be stayed by a defendant under Section 34 of the 1940 Act. Under the 1940 Act, a petitioner in proceedings under Section 20 thereof was obliged to enumerate the disputes for such disputes to be referred to arbitration. Similarly, a petitioner who applied under Section 34 of the 1940 Act for the stay of a suit on the ground that the disputes therein were covered by an arbitration agreement between the parties, had to enumerate the disputes so that it could be assessed by court whether the arbitration agreement was wide enough to cover the same.
Section 11 of the 1996 Act is, loosely speaking, the corresponding provision of Section 20 of the 1940 Act but there is a gulf of difference between the two. Section 8 of the 1996 Act is, in a sense, the corresponding provision of Section 34 of the 1940 Act, but the mandate of the one is completely different from the requirement of the other. The 1996 Act does not envisage the disputes between the parties being enumerated in a request under Section 11 thereof. That does not imply that any and every dispute between the parties to an arbitration agreement can be referred to arbitration without the Chief Justice or his designate assessing whether such disputes are covered by the arbitration agreement. But the extent of the adjudication under Section 11 is limited; if the Chief Justice or his designate is prima facie satisfied as to the existence of the arbitration agreement and if the disputes referred to by the party making the request do not appear to be utterly beyond the scope of the arbitration agreement, the Chief Justice or his designate will allow the arbitral tribunal to assess the matters in greater detail. That is the import of the 1996 Act since it gives the arbitrator the authority to adjudicate upon his own jurisdiction under Section 16 thereof and limits the extent of judicial intervention under Section 5. The flavour of the 1996 Act is quite distinct from that of the 1940 Act. 9
Since the petitioner here did not make a demand for a reference or for appointment of the sole arbitrator before carrying the present request under Section 11 of the 1996 Act, the petition has to fail. This will, however, not preclude the petitioner from carrying a future request in accordance with law.
AP No. 43 of 2010 is dismissed. There will be no order as to costs.
Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J.)