UEDI - Trigunaas Joint Venture vs Karnataka Slum Development Board

Aravind Kumar, J.—Heard Sri. Dhyan Chinnappa, learned senior counsel appearing on behalf of petitioner and Sri. Prashnth Chandra, learned counsel appearing for the respondent.

Perused the records.

Petitioner is seeking for an appointment of sole arbitrator to adjudicate the disputes which has arisen between parties pursuant to the Agreement dated 27.07.2011 (Annexure-C), contending inter alia that petitioner and respondent have agreed for disputes that has arisen between them would be resolved by arbitration. On account of clumsy drafting of the procedure for resolving of the dispute between parties it has given cause of action for the present petition.

Brief facts:--

"Petitioner was a contractual joint venture comprising of three companies namely, UEM Construction SdnBhd, a company incorporated under the laws of Malaysia and two Indian Companies namely, UE Development India Pvt. Ltd. and Trigunaas Build -Tech Limited and petitioner was established by a joint venture agreement dated 11.04.2011 for executing Housing Projects and implementing such projects in India as per Annexure-A. Subsequently, UEM Construction SdnBhd had assigned all its shares and rights to UE Development India Pvt. Limited and is not part of the consortium."

It is contended that respondent invited proposals for putting up construction of residential houses under the Flood Relief Works "Aasare" in North Karnataka Districts and proposal submitted by the petitioner was accepted by issuance of letter of acceptance dated 08.07.2011 and on furnishing requisite Bank Guarantees by the petitioner, an Agreement dated 27.07.2011 came to be executed as per Annexure-C. It is further contended that respondents having awarded contract in favour of the petitioner, was not serious in ensuring due completion of the work to the petitioner on time and it did not hand over land, approved designs and drawings, make payments and wrongly recovered Value Added Taxes amongst other things. It is contended that amounts which were due to be paid by the respondent to the petitioner was not paid despite issuance of demand letters and as such, petitioner terminated the contract vide communication dated 18.07.2013 alleging fundamental breach on the part of respondent and also on account of the stand taken by the respondent and not paying the amounts due to the petitioner. Thereafter, petitioner got issued notice dated 17.03.2014 seeking for referring the dispute to an Arbitrator and nominating its arbitrator by invoking clause 24 of the Agreement which was duly acknowledged by respondent and the same has not been responded to. As such, petitioner has sought for appointment of an independent arbitrator.

Respondent on service of notice has appeared and filed its statement of objections. It is contended that as per clause 4.1 of the Agreement dated 27.07.2011 (Annexure-C), it stipulates that Employer would decide the contractual matters between the Employer and the Contractor and after such decision being taken by the Employer, the Contractor if not being satisfied with such decision, would be entitled to approach the Secretary, Government of Karnataka, Department of Housing, for resolving those decision taken by Employer in respect of which Contractor may not be satisfied and the decision of the Secretary as agreed would be final and binding. It is contended that this would be the tenor of clause 24.1 of the Agreement and the use of words "dispute shall be referred by either party to Arbitration within 30 days of the Notification of the Employer''s decision", would refer to the "decision" which the Employer takes and there is no agreement entered into between the parties for referring the disputes for being adjudicated by an independent Arbitrator and the Arbitration referred to in clause 24.1 is to be understood as referring the dispute to a named Arbitrator i.e., Secretary, Government of Karnataka, that too in respect of such decision of the Employer of which Contractor may not be satisfied. Hence, it is contended that parties have not agreed for an Arbitrator being appointed for resolution of the disputes even after the decision is rendered by the Secretary, Government of Karnataka, who is the named Arbitrator and hence, respondent has sought for dismissal of the petition.

Having heard the learned Advocates appearing for the parties and on perusal of the subject Agreement dated 27.07.2011, this Court is of the considered view that following points would arise for consideration:--

"(i) Whether under the Agreement dated 27.07.2011, Annexure-C, parties have agreed for referring the dispute which may arise out of order under the said agreement for being adjudicated by an independent Arbitrator?

Or

Whether the word "Arbitrator" used in clause 24.1 of the Agreement dated 27.07.2011 refers to the named Arbitrator i.e., Secretary, Government of Karnataka, Department of Housing or an independent Arbitrator?

(ii) What order?"

RE-Point No. 1:--

Section 2(b) of the Act indicates what Arbitration Agreement means and perusal of the said provision would clearly indicate that it has to be read in conjunction with Section 7 of the Act. Hence, for the purpose of convenience and immediate reference, Section 7 is extracted herein below:--

Arbitration agreement.-

"(1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."

Under Section 11 of the Act, the Chief Justice or his designate would got jurisdiction to appoint an Arbitrator when there is existence of an Arbitration agreement between the parties, as otherwise not. In that view of the matter, it would be necessary for this Court to examine as to whether there is an agreement between the parties to refer the dispute for Arbitration.

In order to adjudicate Point No. 1 formulated herein above, it would be necessary for this Court to extract the clauses pressed into service relating to subject Agreement dated 27.07.2011, Annexure-C. Hence, clause 4.1 and 24.1 are extracted herein below;

"4.1 Except where otherwise specifically stated, the Employer will decide contractual matters between the Employer and the Contractor.

24.1 If the Contractor is not satisfied with the decision taken by the Employer, the same shall be referred to the Secretary to Government of Karnataka, Department of Housing and the decision is final and binding dispute shall be referred by either party to Arbitration within 30 days of the notification of the Employer''s decision."

Perusal of clause 4.1 would indicate that where agreement otherwise specifically providing the Employer would take a decision with regard to contracted matters and it is agreed between parties that Employer would decide the contractual matters between the Employer and the Contractor. In the instant case, respondent is the ''Employer'' and petitioner is the ''Contractor''. Thus, when a dispute is raised by the Contractor, the Employer is required to take a decision. On such decision being rendered by the Employer, of which the Contractor may be dissatisfied or in other words, not being satisfied, Contractor would be entitled to seek for such decision of which Contractor may be dissatisfied being referred to Secretary, Government of Karnataka, Department of Housing for being adjudicated. For instance, if Contractor would raise several issues and Employer were to take decision in respect of only few issues in favour of Contractor and some of the decisions rendered by the Employer not being to the satisfaction of the Contractor, it would give rise for cause of action for the Contractor to approach the Secretary, Government of Karnataka, Department of Housing to adjudicate such of those decisions rendered by the Employer, of which, the Contractor may be dissatisfied. Till this stage, there cannot be any dispute with regard to understanding of clause 24.1.

As noticed herein above, on account of clumsy drafting of clause 24.1, or to put it more precisely on account of punctuations not being indicated in the formation of sentences, it has per forced the petitioner to approach this Court contending that there is an Arbitration clause in the subject Agreement which is emphatically denied by the respondent. After the words "binding" in clause 24.1, the following sentence is found; "dispute shall be referred by either party to Arbitration within 30 days of the Notification of the Employers decision".

Sri. Prashanth Chandra, learned counsel appearing for the respondent has made a valiant effort to contend that the words "Employers decision" referred at the end of clause 24.1 has to be read in conjunction with the first sentence namely "where a Contractor being not satisfied with the decision taken by employer, seeks for matter being referred to Secretary, Government of Karnataka, on the ground that there cannot be any other decision of the employer which enable the Contractor to seek for such disputes being referred to Secretary.

On the other hand, Sri. Dhyan Chinnappa, learned senior counsel appearing on behalf of the petitioner, would contend that the Employer''s decision referred to in clause 24.1 does not necessarily mean such decision is referable to clause 4.1 and what is agreed to between the parties is that after the decision rendered by the Secretary, Government of Karnataka, if the employer were to accept the said decision in part or refuses to accept the said decision, it would give rise for either of the parties to seek for the matter being referred to Arbitration and prays for clause 24.1 being interpreted in said manner.

Perusal of Section 7 of the Act would indicate that an Agreement to constitute Arbitration Agreement, there should be intention of the parties to enter into such an Agreement and such intention will have to be gathered from the terms of such Agreement itself. If the terms of the Agreement clearly indicate intention of the part of the parties was to refer their disputes to Arbitrator for adjudication and they have expressed their willingness to be bound by the decision of such Arbitrator, it is an Arbitration Agreement. Where there is merely a possibility of the parties agreeing to refer their future disputes to the Arbitration as contrasted from an obligation to refer the disputes to arbitration, then it cannot be held that there is enforceable and binding Arbitration Agreement between parties.

For an Agreement to constitute Arbitration Agreement, the following elements if present would suffice; (a) Agreement should be in writing (b) Parties should have agreed to refer the disputes between them to the decision of Arbitrator (c) The Arbitrator should be empowered to adjudicate such disputes and the parties should have agreed that such decision would be binding on them.

In this background, it has to be examined as to whether under clause 24.1, is an Arbitration Agreement between the parties or the word "Arbitrator" in clause 24.1 would refer and is to be restricted only to the named Arbitrator or not?

The Hon''ble Apex Court in the case of Smt. Rukmanibai Gupta Vs. Collector Jabalpur and Others, AIR 1981 SC 479 : (1980) 4 SCC 556 : (1980) 12 UJ 988 has held that Arbitration Agreement need not be in any particular format and what is required to be ascertained is whether the parties had agreed for their disputes being referred to Arbitration. It has been held by the Hon''ble Apex Court in paragraph-6 to the following effect:

"6. Does Clause 15 spell out an arbitration agreement? Section 2(a) of the Arbitration Act, 1940, defines ''arbitration agreement'' to mean a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. Clause 15 provides that any doubt, difference or dispute, arising after the execution of the lease deed touching the construction of the terms of the lease deed or anything therein contained or any matter or things connected with the said lands or the working or non-working thereof or the amount or payment of any rent or royalty reserved or made payable thereunder, the matter in difference shall be decided by the lessor whose decision shall be final. The reference has to be made to the lessor and the lessor is the Governor. His decision is declared final by the terms of the contract. His decision has to be in respect of a dispute or difference that may arise either touching the construction of the terms of the lease deed or disputes or differences arising out of the working or non-working of the lease or any dispute about the payment of rent or royalty payable under the lease deed. Therefore, Clause 15 read as a whole provides for referring future disputes to the arbitration of the Governor. Arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if disputes arise between them in respect of the subject-matter of contract such dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement. A passage from Russel on Arbitration, 19th Edn., p.59 may be referred to with advantage:

"If it appears from the terms of the agreement by which a matter is submitted to a person''s decision that the intention of the parties was that he should hold an inquiry in the nature of a judicial inquiry and hear the respective cases of the parties and decide upon evidence laid before him, then the case is one of an arbitration."

In the clause under discussion there is a provision for referring the disputes to the lessor and the decision of the lessor is made final. On its true construction it spells out an arbitration agreement".

In this background, when clause 24.1 is perused, examined and scrutinized, it would indicate that in the first instance, the parties have agreed for the procedure for resolution of disputes under clause 24. Clause 4.1 when read conjunction with clause 24.1 would leave no doubt to hold as to what is agreed to between the parties expressly under the subject contract, is : except where otherwise specifically stated the Employer will decide contractual matters between the Employer and the Contractor and if the Contractor is not satisfied with said decision rendered by the Employer, Contractor would be entitled to seek for reference of such decision taken by the Employer to be adjudicated by the Secretary, Government of Karnataka and it is also agreed between the parties that decision of the Secretary would be final and binding. This clause would clearly indicate and suggest that parties have agreed for resolution of their disputes by a named Arbitrator namely, Secretary, Government of Karnataka. The cause of action for the Contractor to seek reference to the named Arbitrator to adjudicate the issues or disputes would arise only after the Employer takes a decision on the issues raised by the Contractor and in the event of Contractor not being satisfied with such decision, he would be entitled to seek for such decision rendered by employer being adjudicated by the Secretary. Once decision is rendered by the Employer, the recourse which will have to adopted by contractor is to seek for referring such dispute namely decisions rendered by employer of which is not acceptable by contractor to the named Arbitrator namely, Secretary, Government of Karnataka that too within 30 days of the Notification of the Employer''s decision. The word "Employer''s decision" found at the end of clause 24.1, will have to be read along with words found in the first sentence of clause 24.1, which reads "decision taken by the Employer". Any other interpretation if sought to be put forth would render clause 24 nugatory, in as much as, the question of Employer taking a decision after the Contractor seeks for the matter being referring to Secretary, Government of Karnataka, i.e., named Arbitrator would not arise at all. Perusal of clause 24 would indicate that it is agreed to between the parties that decision of the Secretary, Government of Karnataka would be final and binding on the parties which means he would be the Arbitrator and his decision will be final and binding on them as could be seen from clause 24 itself. Hence, question of Employer taking any decision after the decision being rendered by the Secretary does not arise. "Employers decision" referred to in clause 24.1 would necessarily mean, the decision taken by the Employer at the first instance, in respect of which, the Contractor may be dissatisfied or not satisfied, which gives rise for cause of action for the Contractor to seek for same being referred to the Secretary, Government of Karnataka for being Arbitrated. Thus, the language employed in clause 24.1 does not indicate or suggests intention of the parties to get the dispute adjudicated by an independent Arbitrator other than the named Arbitrator.

It is not in dispute that petitioner has terminated the contract in question and has also invoked clause 24 of the said agreement. When the parties have agreed to resolve their dispute by entering into an agreement with eyes wide open, they cannot be permitted to take a stand contrary to the agreed contracted terms. In other words, when the parties have agreed for the named Arbitrator to adjudicate their dispute, they cannot contend that an independent Arbitrator is required to be appointed. However, the exception under which the Courts would appoint an independent Arbitrator, would be when the named Arbitrator is not likely to act fairly or it is established by clear evidence that there is likelihood of impartiality not being shown by the named Arbitrator, or where it is demonstrated that there is likelihood of bias being present in the event of named Arbitrator adjudicating the dispute. The normal rule is when the parties have agreed for named Arbitrator, Court should agree it and not depart from said contract, unless exception is made out for independent Arbitrator being appointed as noted hereinabove.

Perusal of the averments made in the petition, does not even remotely suggest about any apprehension being expressed by the petitioner for the named Arbitrator adjudicating the dispute. When the Agreement in question provides for the dispute being adjudicated by the named Arbitrator and in the event of petitioner not being satisfied with the decision of the Employer, which would also include the Employer not taking a decision, giving rise for cause of action to the petitioner to seek for the dispute being adjudicated by the named Arbitrator and same not having been made use of by the petitioner in the instant case, petitioner cannot be heard to contend that an independent Arbitrator has to be appointed, notwithstanding what has been agreed to between the parties. The only grievance of the petitioner is that despite issuance of notice, respondent has not taken steps to get the dispute resolved through the Arbitration.

In that view of the matter, this Court is of the considered view that clause 24.1 of the subject Agreement would clearly suggest that parties have entered into an Arbitration Agreement namely to appoint named Arbitrator to resolve the disputes arising out of subject Agreement and when there is no whisper in the petition with regard to any bias or doubting the impartiality of named Arbitrator, parties will have to be relegated to named Arbitrator for adjudicating the dispute that is said to have arisen between parties. Hence, point No. 1 will have to be answered partly in favour of the petitioner and partly in favour of the respondent as discussed hereinabove.

RE-Point No. 2:--

For the reasons aforestated, I proceed to pass the following:--

ORDER

"(i) Civil Miscellaneous Petition is hereby allowed in part.

(ii) The Secretary, Government of Karnataka, Department of Housing is directed to adjudicate the dispute as agreed to between the parties under clause 24.1 of the Agreement and render her decision thereof.

(iii) Costs made easy."