2006 Supreme(Bom) 825

IN THE HIGH COURT OF BOMBAY
(O.S.)
Deshmukh D.K., J.
Ion Exchange (India) Ltd.--- Petitioners.
Versus
Paramount Ltd . ... Respondent.
Arbitration Petition No. 356 of 2005,
Decided on 5-6-2006.
Advocates appeared:
Dr. V.V. Tulzapurkar with K.D. Parikh, V.Y. Divekar i/b. Divekar & Co., for petitioner.
Pradip Sancheti with Sanjay Jain i/b. Vinod Mistry& Co., for respondent.

Headnote:Arbitration and Conciliation Act, 1996 - Sections 34, 9 and 42 Jurisdiction Petition filed under Section 34 prior to limitation Objected Proceedings already begun at another Court Application not maintainable Rebuttal Proceeding initiated under Section 11, CPC prior to passing award Held application under Section 11, CPC wholly irrelevant as Section 42 applied not in case original jurisdiction. The authority resignate d by Section 11 of the Act as competent to exercise power under this provision cannot be termed as the Court for the purpose of the Act though now the Supreme Court has held that the power exercised by that authority is a judicial power. Therefore, the application made by the petitioner under Section 11 of the Act is totally irrelevant so far as the provisions of Section 42 of the Act are concerned, because the application contemplated by Section 42 of the Act is an application made to the Court and to a judicial authority which is not a Court of Original Civil Jurisdiction.

       Arbitration and Conciliation Act, 1996 - Sections 34, 42 and 9 "With respect to arbitration agreement" Meaning thereof Application under Section 9 Contended as not maintainable It was only for enforcement of award Held Section 12 used the sentence with a wide meaning Also applicable in case where application filed under Section 9 was for award of arbitrator or for security of amount awarded by arbitrator. After the Award is passed when the proceedings are taken up for enforcing that Award, those proceedings cannot be termed as proceedings for enforcing the agreement between the parties. What is sought to be enforced is the Award made by the Arbitrator and not the contract between the parties. It is, however, to be noted here that the contract which is referred to by the Supreme Court in paragraph 9 of the judgment quoted is a contract under which the dispute between the parties had arisen. The Supreme Court in that case was not considering the case where the arbitration agreement is contained in the partnership deed which is not registered. In that case the Supreme Court was considering the case of the contract entered into between a third party and the unregistered partnership firm. The words used in Section 42 of the Act "with respect to arbitration agreement" are wide enough to apply also in a case where application is filed under Section 9 either for deposit of the amount awarded by the Award of the Arbitrator or for security for the amount awarded by the Arbitrator. The award of which enforcement is sought is also made because of the arbitration agreement.

       Arbitration and Conciliation Act, 1996 - Sections 42 and 34 Bona fide application Meaning of Under Section 42 an application can be termed as bona fide A prompt application is given to opposite party enabling that to take an informed decision about future course of action to be followed subsequently. Considering the consequence that an application filed under Part I of the Act has in view of the provision of Section 42 of the Act the Court will have to read a duty in the applicant who files the application to intimate the other side about the fact of having filed the application at the earliest opportunity. Whether intimation has been given by the applicant at an appropriate time, so that it can be said that the applicant has discharged his duty, would be a question of fact, to be decided in each case, on the basis of the facts and circumstances of each case. If there is failure to perform this duty then the Court will be justified in assuming that filing of application is not bona fide and is mala fide. In so far as the present case is concerned, it cannot be said that the respondent could not have filed the application under Section 9 of the Act before the Baroda Court because it is nobodies case that the Baroda Court did not have jurisdiction. But after having filed the application, considering the provisions of Sections 42 and 34(3) of the Act, the respondent, had the application been filed with the bona fide intention to secure an order under Section 9 of the Act and not with the mala fide intention to use the fact of filing the application to deny the statutory remedy under Section 34 of the Act to the petitioner, the respondent would have immediately, independently of paying process charges in the Baroda Court, informed the petitioner that it has filed the application before the Baroda Court. The only reason given by the respondent before me for not doing so is that there is no duty on the respondent under the law to give any such information to the petitioner. In the circumstances therefore, it has to be held that the application under Section 9 of the Act before the Baroda Court was filed by the respondent with mala fide intention and was not a bona fide application, and therefore, filing of that application before the Baroda Court does not oust the jurisdiction of this Court to entertain the petition because of the provisions of Section 42 of the Act.

       Arbitration and Conciliation Act, 1996 - Sections 2(e), 34, 42 and 9 Application under Section 34 before Bombay High Court Contention No part of cause of action arose within jurisdiction of Court Decided to file civil suit, not invoking arbitration agreement No illegality Objection rejected Court has jurisdiction to entertain petition. If suit filed by the claimant could have been entertained by the Court then that Court will be the Court within the meaning of Section 2(e) of the Act. In the present case had the respondent decided to file civil suit instead of invoking the arbitration clause, its suit could have been entertained by this Court, if filed here, because the petitioner who would have been defendant in that suit carry on business within the jurisdiction of this Court. Therefore, the respondent is not right in contending that this Court will not have jurisdiction to entertain the petition because no part of cause of action has arisen within the jurisdiction of this Court and because the respondent also does not carry on business within the jurisdiction of this Court. The objections raised to the maintainability of the petition are thus rejected. I hold that this Court has jurisdiction to entertain the petition.

       Arbitration and Conciliation Act, 1996 - Sections 9, 34 and 42 Jurisdiction Application under Section 9 filed Subsequent petition Whether maintainable Objected as not maintainable Rebuttal No intimation given of earlier application Said application with mala fide intention, not bona fide Filing such application does not oust jurisdiction of High Court. Because the respondent did not inform the petitioner about filing of Section 9 petition before the Baroda Court before expiry of the period of limitation provided by Section 34(3) of the Act for filing application under Section 34 of the Act, the conduct of the respondent of filing an application cannot be termed as bona fide and therefore, the fact of filing of that application will not oust the jurisdiction of this Court because of Section 42 of the Act to entertain the petition, in my opinion, it is not necessary to examine the submission of the petitioner based on the judgment in the case of "Kamal Pushpa Enterprises " any further.

       Arbitration and Conciliation Act, 1996 - Section 11 Arbitrator’s appointment Maintained one when party failed to appoint in given time Can be termed as sole arbitrator Contention, Constitution of Arbitral Tribunal not as per law Assumption of jurisdiction by sole Arbitrator not only in contravention of arbitration clause but also opposed to provisions under Section 11 of Arbitration Act. It was submitted that in view of the provisions of Section 11 of the Act, there was obligation on the petitioner of nominate its representative on the Arbitral Tribunal within a period of 30 days from the date it receives letter from the respondent nominating its representative. Perusal of the provisions of Section 11 of the Act shows that so far as the case where the Arbitration clause contemplates appointment of three Arbitrators, failure of one of the parties to make appointment of its nominee on the Arbitral Tribunal within thirty days from the receipt of a request to do so from the other party results in the Chief Justice getting jurisdiction to appoint Arbitrator. The Supreme Court has considered this question in its judgment in the case Datar Switchgears Ltd. v. Tata Finance Ltd. and another, 2001 (1) Bom CR (SC) 778 : 2000 (8) SCC 151. The observations made by the Supreme Court in paragraphs 19 and 23 are relevant. They read as under :

       "19. So far as cases falling under Section 11(6) are concerned such as the one before us no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator, and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.

       23. When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of "freedom of contract" has been whittled down by various labour and social welfare legislation, still the Court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause."

       It is thus, clear that counsel was not justified in assuming the jurisdiction merely because within 30 days the petitioner did not appoint its nominee on the Arbitral Tribunal. Thus, no force in the contention that because the petitioner failed to nominate its nominee on the Arbitral Tribunal within thirty days, the nominee of the respondent becomes the sole Arbitrator. The assumption of jurisdiction by the Sole Arbitrator, is not only in contravention of the provisions of the arbitration clause, but it is also contrary to the provisions of Section 11 of the Act. It is sub-section (1) to sub-section (6) of Section 11 of the Act which are relevant for the present purpose.