T. Rajan vs Kail Limited

A.I.S. Cheema, J.—The present revision application has been filed by the petitioner, challenging order of Sole Arbitrator, rejecting application of the petitioner, objecting to the maintainability of the Arbitration proceedings.

In brief, the matter brought by the petitioner is that, the petitioner is proprietor of Firm M/s Rajan and Company, operating at Nagercoil, District Kanyakumari, Tamil Nadu. It deals in Electronics goods. Respondent is Public Limited Company and deals in selling of multi-brand electronics goods. Officials of the respondent at Madurai Branch approached the firm of petitioner and petitioner had placed purchase orders with the said officials at Madurai Branch on credit. There was no agreement entered into between the petitioner and respondent. Later on, respondent claimed inflated amount of Rs.20,13,213/- from petitioner although only Rs.10,79,354/- was due. Respondent sent notice on the basis of forged documents and referred the matter to the Sole Arbitrator Shri Girish V. Wani. The appointment was unilateral and without consent of petitioner and in absence of any valid agreement. Respondent is trying to project an alleged document namely "Customer Master Attribute" (CMA for short). The petitioner denied that any such agreement was entered into or that such CMA could be termed as agreement. Respondent filed claim petition before the Sole Arbitrator on 21.3.2012. Case is that respondent had sent notice dated 3.11.2011, demanding Rs.20,13,213/- and petitioner sent reply dated 12.12.2011, claiming that only Rs.10,79,354/- was due. Respondent sent rejoinder dated 3.1.2012 and petitioner sent further reply dated 19.1.2012. The petitioner initially filed petition u/s 7, 9(ii)(d) and (e) and 13 of the Arbitration and Conciliation Act, 1996 (Arbitration Act for short) before the District Judge, Nagercoil and the same was rejected on 19.3.2012. Order of the District Court was challenged before the Madurai Bench of the High Court of Madras in C.R.P. (P.D.) (M.D.) No.1250/2012 and M.P. (M.D.) No.1/2012 and even that petition was disposed of on 7.12.2012, holding that it was open to the petitioner to raise the plea before the Arbitrator. Petitioner appeared before the Sole Arbitrator and filed application dated 4.5.2013 raising objection at preliminary stage to the jurisdiction and maintainability of the arbitration proceedings as per Section 16 of the Arbitration Act. The respondent opposed the application and the application was rejected on 21.8.2013 and hence, the present revision application.

I have heard counsel for both sides. Learned counsel for the petitioner argued that the CMA relied on by the respondent is denied by the petitioner as according to petitioner it was not executed by him. There was no contractual relationship established and the CMA is not an arbitration agreement. The Sole Arbitrator, while rejecting the application of petitioner, did not decide if the arbitration agreement is there. Reliance has been placed on the case of Bharat Rasiklal Ashra Vs. Gautam Rasiklal Ashra and Another, claiming that when in the notice petitioner denied existence of arbitration agreement, without deciding whether there is arbitration agreement, appointment of the Arbitrator was not permissible. Reliance is placed also on the case of M/s. Zenith Fire Services (India) Private Limited Vs. Charmi Sales, to submit that if the respondent appointed Arbitrator unilaterally, burden is on the respondent to show that the appointment is valid and binding. According to the learned counsel, if there was valid agreement, right of appointment unilaterally could be made, but in the present matter, petitioner denied executing CMA and thus, the unilateral appointment was not legal.

It is further argued by the learned counsel for petitioner that the Sole Arbitrator appointed is one of the Arbitrators on the panel of the respondent Company and earlier also he has acted as Arbitrator for the Company and so, there is likelihood of bias and that u/s 12 of the Arbitration Act, the Arbitrator should have recused himself.

The argument of the learned counsel for petitioner was that, the Arbitrator, in support of his order, also relied on an invoice, which refers to arbitration clause, but the arbitration clause mentions that the arbitration shall be at Mumbai. He submitted that, in rejoinder notice dated 3.1.2012, however, the respondent had relied on CMA for the purpose of appointing Arbitrator at Aurangabad. It is argued that, the rulings relied on by the Arbitrator for ruling his competency on jurisdiction was erroneous. Thus, the petitioner wants the order passed by the Arbitrator to be quashed and set aside.

Per contra, the learned counsel for respondent raised objection that the present revision itself is not maintainable as the Arbitrator is not "Court" as contemplated u/s 115 of the Civil Procedure Code, 1908 (Civil Procedure Code for short). According to the learned counsel, present matter does not arise from any judgment or order of "Court" as defined u/s 2(e) of the Arbitration Act. It has been submitted that, u/s 19, the Arbitral Tribunal is not even bound by the CPC or the Indian Evidence Act and thus, according to him, the present revision is not maintainable.

It was further submitted that, the dealers with whom the respondent does business, are required to execute the CMA. In the present matter also, CMA was executed by the petitioner and on the basis of same, goods were supplied and received. Only subsequently, the petitioner has denied executing CMA. It was argued that, the Arbitrator has held that the question whether or not CMA has been duly executed, can be decided by permitting parties to lead the evidence with reference to execution of the document. It was argued that, u/s 7 of the Arbitration Act, existence of the agreement can be construed even from letters, exchange of letters and no specific format is prescribed. Reliance is placed on the matter of Impex Corporation and Others Vs. Elenjikal Aquamarine Exports Ltd., in support of the submission that no particular format is prescribed. According to the learned counsel, the invoice referred by the Arbitrator is also on record, and in addition to such invoice, there are various other such invoices, on the basis of which goods were supplied and accepted, the petitioner never objected to the same. It was submitted that, these invoices clearly had contents that the transactions are subject to arbitration. He submitted that, no doubt what is printed on the invoices mention that the place of arbitration shall be at Mumbai. He submitted that, the respondent, however, relying on the CMA executed between the parties, has appointed the Sole Arbitrator at Aurangabad, but if the petitioner wants, the Arbitrator can hold sittings even at Mumbai. It was argued that, on the basis of various invoices, goods were supplied and petitioner made payments, but now the petitioner wants to deny all the documents bearing his seal signatures just so as to claim that there was no agreement executed regarding arbitration. It is argued that, the facts of the rulings relied on by the petitioner are different. In the present matter, there was mutual agreement. There is no basis for the alleged apprehension of bias. The petitioner has not even filed written statement/ reply in the arbitration proceedings and the proceedings are yet to start. Without Arbitrator having done anything, bias is alleged. According to the learned counsel for respondent, it being a Company, the respondent, has a panel of Arbitrator, but that by itself does not mean that Arbitrators are likely to be biased.

Learned counsel for respondent relied on the case of Sandip Industries Vs. Superpack, A Division of Bajaj Steel Industries Limited and Another, and submitted that, u/s 16 of the Arbitration Act, the Arbitrator can rule on his jurisdiction and also decide objections in respect to existence or validity of the Arbitration agreement. It was argued that, in view of the ruling relied on, if the Arbitrator has rejected the plea objecting to the jurisdiction and existence of arbitration agreement, the matter has to proceed to the stage of arbitral award, and only there after appeal could be filed and present revision in between is not maintainable. The learned counsel submitted that, Section 5 of the Arbitration Act bars judicial intervention on intermediate stages.

In reply, the learned counsel for petitioner claimed that, as appeal u/s 37 is not maintainable against the order concerned, which is u/s 16, hence this revision has been filed. At the time of arguments, the learned counsel for petitioner was asked and was unable to explain as to how photograph of the petitioner with other details of Bank Accounts etc. are seen on the CMA if the petitioner claims that it was never executed by him.

The counsel, however, submitted that, if very existence of the arbitration agreement is challenged, Section 5 of the Arbitration Act does not create bar.

Copy of the CMA has been filed on record. It bears photograph of the petitioner and details of the Bank Account, VAT registration and PAN Number. At the bottom of the document, the contents are :

"The information furnished above is true and correct. The disputes arising out of this association shall be referred to a sole Arbitrator to be appointed by KAIL Ltd. Arbitration shall be conducted as per the Arbitration and Conciliation Act, 1996 at Auto Cars Compound, Adalat Road, Distt. Aurangabad in English Language and the Award of the Arbitrator shall be final and binding on both the parties."

Below the above contents, there is rubber stamp and signature purporting to be of petitioner. The petitioner filed proceedings before the District Judge, Kanyakumari, at Nagercoil u/s 7(9)(ii)(d) and (3), 13 of the Arbitration Act, claiming that there was no arbitration agreement between the parties. The District Judge found that, if it is claimed that there was no valid arbitration agreement between the parties, the petitioner could agitate the same before the Sole Arbitrator. The Madurai Bench of the Madras High Court observed as under :

"6. As such, law is well-settled that even if there is any dispute relating to the very existence of valid arbitration agreement and the arbitrator''s jurisdiction, it is open to the petitioner to raise the plea before the arbitrator and it is for the arbitrator to decide that plea, who would have jurisdiction even to decide on such points."

Thus, even Madurai Bench clearly directed that the matter has to be decided by the Arbitrator. Thereafter, the petitioner has approached the Arbitrator, and after hearing the parties, the Arbitrator has observed that, it would be in the interest of justice to allow both the parties to lead the evidence in respect of execution of the document. The Arbitrator also referred to the fact that, apart from the Customer Master Attribute (CMA), there is also invoice placed on record showing transaction between the parties which also carries an arbitration clause. The Arbitrator referred to the judgment of "Zenith Fire Services" (supra), relied on by the petitioner and did not find that the same is of assistance to the present petitioner. As observed in para 16 of the said judgment, relying on the facts and circumstances of that matter, it was found that, the unilateral appointment of the Arbitrator was illegal, impermissible and contrary to the Arbitration Act. The observations show that the burden lies upon the party who appoints Arbitrator contrary to the terms and conditions of the agreement to show that the appointment of the Sole Arbitrator was valid and binding. In the present matter, the Arbitrator referred to the clause in CMA to find that M/s KAIL Ltd., (present respondent) could appoint Sole Arbitrator. Referring to the CMA itself, the Arbitrator observed that the arbitration at Aurangabad was maintainable.

The reliance of petitioner on the case of "Bharat Rasiklal Ashra" (supra) is not helpful as that matter related to provisions u/s 11(6) when Chief Justice is moved for appointment of Arbitrator. In that context, the question which came up before the Hon''ble Supreme Court and which the Hon''ble Supreme Court reproduced in para 7, was as under :

"Where the arbitration agreement between the parties is denied by the respondent, whether the Chief Justice or his designate, in exercise of power u/s 11 of the Act, can appoint an arbitrator without deciding the question whether there was an arbitration agreement between the parties, leaving it open to be decided by the arbitrator?"

Hon''ble Supreme Court referred to the judgment in the matter of S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, and judgment in the matter of "National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd.", reported in National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., The Supreme Court observed that, in the matter of SBP and Company, a constitution Bench of the Supreme Court had held that, when an application u/s 11 of the Act is filed, it is for the Chief Justice or his designate to decide whether there is arbitration agreement and whether the party who has made request before him is a party to such agreement. In para Nos.12 and 13 of the judgment, the observations were :-

"12.The learned counsel for the first respondent next submitted that if the Chief Justice or his designate is required to examine the allegations of fabrication and forgery made by a party in regard to the contract containing the arbitration agreement, before appointing an arbitrator u/s 11 of the Act, the proceedings under the said Section will cease to be a summary proceedings and become cumbersome and protracted, necessitating recording of evidence, thereby defeating the object of the Act. In our considered view this apprehension has no relevance or merit. Existence of a valid and enforceable arbitration agreement is a condition precedent before an arbitrator can be appointed u/s 11 of the Act. When serious allegations of fraud and fabrication are made, it is not possible for the Court to proceed to appoint an arbitrator without deciding the said issue which relates to the very validity of the arbitration agreement. Therefore, the fact that the allegations of fraud, forgery and fabrication are likely to invoke recording of evidence or involve some delay in disposal, are not grounds for refusing to consider the existence of a valid arbitration agreement.

The apprehension that such contentions are likely to be raised frequently to protract the proceedings u/s 11 of the Act or to delay the arbitration process, thereby defeating the purpose of Section 11 of the Act is also without basis. Where agreements have been performed in part, such a contention will not be entertained. It is only in a very few cases, where an agreement which had not seen the light of the day is suddenly propounded, or where the agreement had never been acted upon or where sufficient circumstances exist to doubt the genuineness of the agreement, the Chief Justice or his designate will examine this issue. This court has repeatedly held that on the ground of termination, performance or frustration of the contract, arbitration agreement cannot be avoided. The legislature has entrusted the power of appointment of an arbitrator to the holders of high judicial officers like the Chief Justice or Judge of the Supreme Court/ High Court, with a view that they can identify and effectively deal with false or vexatious claims made only to protract the proceedings or defeat arbitration. If a party is found to have falsely contended that the contract was forged/ fabricated, the Chief Justice or his designate may subject such party to heavy costs so that such false claims are discouraged. Be that as it may."

It is thus clear from para 13 itself that where agreements have been performed in part, such contention cannot be entertained and it is only in very few cases where any agreement which has not seen light of the day, is suddenly propounded that genuineness of such document would be required to be examined.

In the present proceedings, the Sole Arbitrator is appointed as per the agreement relied on by the respondent and it is not a matter where Hon''ble Chief Justice or his designate were moved for appointment of an Arbitrator. As such, the Sole Arbitrator himself has to deal with the question of his jurisdiction and existence or validity of the arbitration agreement u/s 16 of the Arbitration Act. The Act does not open any other option to deal with the question except when after award challenge is raised as per Section 34 and/ or Section 37 of the Arbitration Act.

Relying on the judgment in the matter of "SBP and Company" (supra) and other rulings, the Division Bench of this Court, in the matter of "M/s Sandip Industries" (supra), observed in para 9 as under:

"9.Therefore, taking overall view of the scheme of Section 16, one thing is very clear that Arbitrator has power to decide the applications with regard to the existence of arbitration agreement and objection in respect of jurisdiction. The Arbitrator having once taken decision and rejected the objection with regard to the jurisdiction and observed further that there is existence of arbitration agreement between the parties and proceeded accordingly, such order cannot be challenged except the remedy as available u/s 34 of the Arbitration Act as referred above."

It has been further observed in the above judgment that, Section 5 applies to matters governed by Part I of the Arbitration Act and Section 16 belongs to Part I. The non-obstante clause of Section 5 clearly indicates that it overrides provisions in any other statute and as a result, judicial intervention is permissible only where it is specifically provided for in Part I. The Hon''ble Division Bench in the matter of "M/s Sandip Industries" referred to the following observations in the matter of "SBP and Company" in para 16 :-

"16.The conclusions in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, with regard to Sections 16, 34 and 37 clinches the issue against the appellants, viz. "(vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceeding and the parties could approach the court only in terms of Section 34 of the Act.

(ix) In a case where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act."

Thus, the Hon''ble Division Bench found that Writ Petition was not maintainable. In the present matter also, the Arbitrator has been appointed without having recourse to Section 11(6) of the Act. Thus, the matter of "Bharat Rasiklal Ashra" is not helpful to the petitioner. The Arbitrator has ruled u/s 16 of the Arbitration Act and rejected the plea raised u/s 16(5). As per sub-section (5) of Section 16 itself, the Arbitrator has to proceed to continue with the Arbitral Proceedings and make an arbitral award. There is no intermediate stage in between permitting filing of such revision.

For above reasons, such revision is not maintainable, keeping in view Section 16(5) read with Section 5 of the Arbitration Act.

Apart from above, there is substance in the arguments raised by the learned counsel for respondent that the revision is not maintainable as the Arbitrator is not a Court subordinate to the High Court. Looking to the scheme of the Arbitration Act, Sole Arbitrator appointed by party cannot be said to be Court subordinate to the High Court in terms of Section 115 of the Code of Civil Procedure. Reliance can be placed on judgment in the matter of C. Abboy Reddiar Vs. Collector of Chingleput at Saidapet and Others, The Arbitrator appointed is persona designata. Revision u/s 115 of the CPC is not maintainable against order of such Arbitrator. Thus, on this count also the revision must fail.

For the above reasons, the present revision is not maintainable and deserves to be rejected with costs. The revision application is rejected with costs.

Observations herein on facts of the matter shall be treated as prima facie appearing from record.