Dismissed

M/S Shree Balaji Enterprises v. M/S Bhagyashri Enterprises

Bombay HC3 Jul 2014ARBP/1140/2013

Case brief

AI extract

What is this about?

The High Court of Bombay, in an arbitration petition, set aside the challenge to an arbitral award on the ground that the petitioner waived its jurisdictional objection under Section 4 of the Arbitration Act by participating in the proceedings without raising the defence earlier.

What did the court decide?

The arbitration petition challenging the award was dismissed.

M/S Shree Balaji Enterprises Vs M/S Bhagyashri Enterprises — Arbitration | Bombay HC (2014)

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ARBP.1140/2013(5) Oral Order

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mnm

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION PETITION NO. 1140 OF 2013

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M/s. Shree Balaji Enterprises ...Petitioner Vs. M/s. Bhagyashri Enterprises ...Respondent

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Mr. Simil Purohit a/w. Mr. Krunal Sampat i/b. S.K. Jain & Assoc. Advocates for the Petitioner

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Mr. Anil T. Agarwal, Advocate for the Respondent.

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CORAM : MRS. ROSHAN DALVI, J. DATED : 3^RD JULY, 2014

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ORAL ORDER :

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The petitioner has challenged the Arbitral award of the Hindustan Chambers of Commerce dated 9^th November, 2012.

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The arbitration was under the initial contract between the parties under 13 invoices of the respondent herein under which Rs.14.51 lakhs were payable for the goods supplied to the petitioner herein. Interest @ 24% p.a was payable on the invoice value. The petitioner issued certain cheques. The cheques were dishonoured. The demand notice was sent on 15^th August, 2010 and replied on 24^th August, 2010. The parties entered into an Memorandum Of Understanding (MOU) on 9^th September, 2010 under which the petitioner herein admitted the entire liability of Rs.14.51 lakhs and agreed to pay the same with interest @ 24% p.a

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ARBP.1140/2013(5) Oral Order

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thereon. That payment was not made. The arbitration was invoked under the arbitration clause in the invoices of the respondent herein.

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The petitioner herein, which is a partnership firm of 4 partners, was represented through one of the partners, Rajesh Shah in the arbitration No. 85 of 2011-12. The petitioner had not appointed its Arbitrator and hence one Arbitrator was appointed on behalf of the petitioner. On 17^th January, 2012 the petitioner sent a letter to the Hindustan Chambers of Commerce asking for time. 20 days time was given to the petitioner as per its request dated 17^th January, 2012 received by Hindustan Chambers of Commerce on 18^th January, 2012. The petitioner thereafter deposited Rs.200/- as the cost of the arbitration in the Arbitral proceeding No.85 of 201112. On 21^st April, 2012 the petitioner appointed its own Arbitrator. That appointment was accepted by the Tribunal. The petitioner's Arbitrator as also the respondent's Arbitrator appointed a third Arbitrator. The arbitration was to accordingly proceed. On 31^st May, 2012 petitioner's other partner, Kapoorchand Shah applied for one month's time on the ground that he had severe back-ache. That time was granted by the Arbitral tribunal.

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The three of the partners of the firm of the petitioner appointed the 4^th partner “ to attend for the arbitration proceeding on our behalf for Case No.85 of 2011-12 to proceed further for the said case and to take the decision as he deems fit”. This authority

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ARBP.1140/2013(5) Oral Order

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letter was to allow Rajesh Shah to attend to the arbitration.

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In the next arbitral meeting dated 4^th July, 2012 Rajesh Shah attended on behalf of the petitioner herein. He submitted a statement signed by him showing that the respondent had filed a criminal complaint under Section 138 of Negotiable Instrument Act before the Metropolitan Magistrate, Thane Court which is Sub Judice and hence there was no scope on him to attend the arbitration proceedings, as per the arbitration notice dated 16^th June, 2012. He further stated that if the respondent wished to compromise the matter it must directly deal with him for offering his claim amount and that at that stage he was not interested in arbitration proceedings. This statement showing the reply of the petitioner was submitted to the Hindustan Chambers of Commerce on 7^th July, 2012.

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On 20^th July, 2012 the same partner of the petitioner Rajesh Shah appointed yet another Arbitrator on behalf of the firm of the petitioner and asked for the next date in arbitration. In the meeting of the Arbitral tribunal held on 21^st July, 2012, when the petitioner was not represented by any partner, the three arbitrators including the first arbitrator appointed by the petitioner passed an order that the petitioner has already appointed an Arbitrator “out of its own choice” and thereafter sought time to file reply twice and hence the request for changing the appointed Arbitrator once again was rejected.

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ARBP.1140/2013(5) Oral Order

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Thereafter on 8^th August, 2012 the other partner of the petitioner, Kapoorchand Shah filed another statement by way of a letter to the Hindustan Chambers of Commerce showing that he was shocked to receive the rejection of the request to appoint another arbitrator. He stated that the tribunal was partial alleged two facts to show that aspect which are found in the minutes of the Arbitration and which cannot be accepted. In the minutes of the arbitral meeting dated 20^th August, 2012 this letter has been considered. The case of the respondent on merits has also been considered. On that date the petitioner's firm was not represented despite having known of the arbitration. The matter was closed for the award which came to be passed on 9^th November, 2012.

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The award shows the consideration of the invoices of the petitioner based upon which the claim was filed as also what transpired at the arbitral hearings, from the time the respondent appeared, deposited the fee of Rs.200/-, sought to appoint an Arbitrator and thereafter how he applied for time. Upon the claim on merits the learned Arbitrators have considered the bills of the respondent, the agreement with regard to the payment of interest @ 24% thereunder, 34 cheques issued by the petitioner, the Memorandum Of Understanding (MOU) signed by the petitioner under which 21 cheques were issued as also the promise to pay the interest @24% even under the MOU and how the claim remained

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ARBP.1140/2013(5) Oral Order

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unpaid. The learned Arbitrators proceeded to pass the award for the unpaid amount for the goods supplied by the respondent to the petitioner.

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The challenge to the award is on the ground that the Arbitrators lacked the jurisdiction because the MOU executed between the parties did not have an arbitration clause. It is argued that the MOU constituted a novatio of the earlier contract denoted by the invoices under which the goods were supplied and remained unpaid. Emphasis is put upon the third recital in the MOU that the parties have amicably and mutually settled all their disputes on the terms and conditions appearing in the MOU. It is argued that the arbitral clause in the invoice could not apply after the MOU was executed.

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Counsel on behalf of the respondent showed the provisions of the MOU under which the same agreement between the parties for payment of price for the goods sold and delivered is shown in the invoices. There has been an admission of the liability to the full extent of the claim. Consequently it can be seen that in fact no dispute was raised about the quality of the goods supplied by the petitioner. The petitioner merely reiterated and admitted its liability under the MOU. Even if it were to constitute a novatio stricto sensu that aspect should have been brought to the notice of the Arbitral Tribunal when the petitioner was represented on a number of dates of hearing and raised various contentions. No

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ARBP.1140/2013(5) Oral Order

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defence on merits was shown. Consequently the arbitral award came to be passed.

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The Counsel on behalf of the petitioner has relied upon the judgment in the case of Damodar Valley Corporation Vs. K.K. Kar AIR 1974 SC 158 in which the arbitration clause providing the reference to the arbitration was taken to have been rendered nugatory by a full and final settlement between the parties thereafter.

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Counsel on behalf of the petitioner has also relied upon the judgment of this Court of Justice M.B. Shah, the Chief Justice as he then was, in the case of Lloyds Steel Industries Limited Vs. Oil & Natural Gas Corporation Ltd. AIR 1997 Bombay 337 in which it has been held that when an MOU was entered into by the parties under which the claim was fully and finally settled and the applicant accepted the MOU, it put an end to the original contract and the applicant could not invoke the arbitration clause contained in it for the remainder of the dispute, which in that case was the claim for interest on delayed bills. In that case there was an agreement between the parties which had an arbitration clause. It was observed that that arbitration agreement did not subsist after the MOU and if the agreement was not in existence by the later MOU which constituted the novatio, the arbitration clause also perished along with it. It is observed that when the parties put an end to the contract it is as if it had never subsisted and substituted

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ARBP.1140/2013(5) Oral Order

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it with a new contract governing the rights and liabilities. In such a case the arbitration clause in the original contract perished and could not be invoked as the old agreement did not subsist.

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What is of importance to note is that in that case the Arbitrator was sought to be appointed. The petition was filed under Section 11 of the Arbitration and Conciliation Act, 1996 (the Act). Upon the aforesaid premise the Arbitrator was not appointed. The Court held that even the reference to arbitration under Section 16 for determining its own jurisdiction would not be required. The contention that the arbitration clause did not survive and had perished was taken at the first available opportunity.

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In this case the petitioner has not taken exception to the jurisdiction of the Arbitrator under Section 16 of the Arbitration Act at the earliest opportunity. The petitioner has instead appointed one of its own partners to represent it. That partner deposited the arbitration fee. That partner appointed an Arbitrator on behalf of the petitioner. He sought to change that Arbitrator and appointed another Arbitrator also. He filed a statement objecting to the continuance of the proceeding not on the ground that there was no arbitration agreement between the parties any more or that the Arbitrators otherwise lacked the jurisdiction, but on the ground that the criminal complaint was filed under Section 138 of the Negotiable Instrument Act by the respondent. Even in that statement the partner of the petitioner offered to settle, but

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ARBP.1140/2013(5) Oral Order

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refused to attend to the arbitration proceedings. The petitioner, therefore, submitted to arbitration and thereafter refused to submit its defence on merits. The petitioner also applied for time from time to time on various grounds which were granted and lastly expressed partiality of the arbitration but sought the appointment of another Arbitrator even after refusing to settle the petitioner's claim in arbitration.

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It would have to be seen whether upon those circumstances the petitioner is taken to have waived the right to object to the arbitration which objection the petitioner has sought to raise only after the award came to be passed on merits in this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act) to set aside the award on that ground.

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Under Section 4 of the Act the petitioner would be deemed to have waived the right to object if the petitioner had proceeded with the arbitration without stating his objection thereto. The objection could be taken under Section 4 upon either the provision of part 1 of the Act not being applied or any requirement under the arbitration agreement not being complied. It is argued on behalf of the petitioner that Section 4 would contemplate an arbitration agreement subsisting and existing between the parties. It is contended that in this case there was no arbitration agreement at all and hence there was total lack of jurisdiction.

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ARBP.1140/2013(5) Oral Order

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In the case of Vimal G. Jain Vs. Vertex Financial Services Pvt. Ltd. & Anr. 2007(5) Bom. C.R. 478 it has been held by the Division Bench of this Court that a plea of jurisdiction even upon the bar of limitation as in that case would be taken to be waived upon a conjoint reading of Section 4 and 16 of the Act, if not taken at the earliest opportunity in the arbitral proceedings.

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In that case it was contended that the claim was barred by the law of limitation. That would have been a jurisdictional issue because there would be no jurisdiction in the arbitratal tribunal to grant a claim barred by the law of limitation. That defence was not raised in the statement of defence in arbitration. It was held to be a mixed question of law and fact. It was held that it not having been raised under Section 16(2) of the Act it would be taken to be waived under Section 4 of the Act and such a question cannot be entertained in a petition filed under Section 34 of the Act.

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This case relates precisely to the jurisdictional aspect alone. It would have had to be seen under Section 16 of the Act by the Arbitrators themselves because it is the case of the petitioner that there was no arbitration agreement and hence the Arbitrator could not have entered upon the reference at all. Such a plea cannot be raised for the first time in a petition under Section 34 of the Act.

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The petitioner has relied upon the judgment of this Court in the case of Union of India Vs. Ms. Maa Agency & Anr. 2003(2)

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ARBP.1140/2013(5) Oral Order

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ALL MR 1003 in which the Court considered the question of waiver upon a plea of want of jurisdiction being raised in an arbitration petition filed under Section 34 of the Act. In that case there were three claims. Two were referred to arbitration as per the agreement between the parties. A third claim was made by the other party without an arbitration agreement in that behalf. The parties had filed their respective written statements. No objection was raised before the Arbitrator therein with regard to the jurisdiction to entertain the third claim or with regard to the arbitrability of the claim. The Court considered Section 4 as also Section 5 which deals with the limited jurisdictional intervention. The Court also considered Section 16 of the Act under which the Arbitrator can rule upon its own jurisdiction. The Court considered that under Section 16(2) the plea of jurisdiction had to be raised not later than the submission of the statement of the defence. Similarly a plea that the arbitral tribunal would exceed the scope of its authority would have to be raised during the arbitral proceedings under Section 16(3). If the arbitral tribunal rejected such plea and continued with the arbitral petition, the award granted could be challenged under Section 34.

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It must be remembered that that was a case of total lack of arbitral agreement with regard to the third claim made thereunder. It is observed in para 9 of the judgment that no objection was made in that regard before the arbitral tribunal. This would have been the objection to jurisdiction itself. It was held that when the

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ARBP.1140/2013(5) Oral Order

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petitioner proceeded with a defence to the claim on merits, and the arbitral award was passed, the petitioner “clearly waived” the right to object that any requirement to the arbitration agreement was not complied under Section 4 of the Act. The defence that the third claim could not have been arbitrated upon without a formal reference as claimed by the petitioner in that claim was seen to be within the knowledge of the petitioner and such a defence not having been raised before the Arbitrator, the petitioner was held bound by the waiver under Section 4 of the Act.

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It may be mentioned that in the case of Union of India (Supra) there was no arbitral agreement at all; in this case there has been an arbitral agreement admittedly between the parties which is only stated to have been superseded by the MOU.

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In this case the petitioner appeared with authority given to one of its partners, deposited the arbitration amount, appointed its own Arbitrator, applied for time, appointed second Arbitrator and stated that he was not interested in proceeding with the arbitration because of the criminal complaint. The petitioner, therefore, must be held to have clearly waived the right to object to the arbitration on the ground that the initial arbitration agreement no longer subsisted under the MOU executed between the parties.

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In view of the aforesaid discussion the award is seen to be correctly passed and does not require to be interfered with. The

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ARBP.1140/2013(5) Oral Order

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contention on law though appearing to be attractive at first instance, is seen to be negated upon seeing what transpired in the arbitral proceeding when this contention was not raised challenging the jurisdiction of the arbitral tribunal.

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25. Consequently the petition is dismissed.

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(ROSHAN DALVI, J.)

M/S Shree Balaji Enterprises v. M/S Bhagyashri Enterprises

Case brief

What is this about?

What did the court decide?

M/S Shree Balaji Enterprises v. M/S Bhagyashri Enterprises

Case brief

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