2019 Supreme(Bom) 1652

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
R.D. Dhanuka, J.
Earnest Business Services Private Limited – Appellant
Versus
Government of the State of Israel – Respondent
Commercial Arbitration Petition No. 758 of 2019; Notice of Motion (Lodging) No. 1359 of 2019
Decided On : 06-09-2019

The parties can agree for appointment of an arbitrator in any proceedings in Court without filing an application under Section 11(6) or 11(9) as the case may be including in petition under Section 9 or even without intervention of Court.

Headnote:

The Court upheld the arbitral award except for the rate of interest, which was reduced to 8% p.a. from 9th April, 2013 on the amount of Rs.1,17,00,000/- till payment/realization. The Court dismissed the Commercial Arbitration Petition No. 758 of 2019 except to the extent of the rate of interest modified in the judgment. The Court also dismissed the Notice of Motion (L) No. 1359 of 2019 in view of the dismissal of the Commercial Arbitration Petition partly. There was no order as to costs.

Fact of the Case:

The petitioner and the respondent entered into two separate agreements, one for Business Centre Facilities and the other for Support Services, whereby the petitioner agreed to provide business centre facilities and support services to the respondent for a period of 37 months commencing from 1st June 2009 to 30th June 2012. The respondent deposited an interest-free refundable security deposit of Rs.64,80,000/- and Rs.52,20,000/- with the petitioner under the said agreements respectively. The respondent continued to remain in possession of the office units illegally from 1st July, 2012 until 27th November, 2012. On 27th November, 2012, the parties entered into a Memorandum of Extension appropriating the terms and conditions of the agreements. The respondent filed Arbitration Petition No. 799 of 2016 under Section 9 of the Arbitration Act before this Court inter-alia praying for various interim measures. During the pendency of the said arbitration petition filed by the respondent, the parties exchanged the names for appointment of the sole arbitrator. The Court appointed Mr. Vishal Kanade, Advocate as the sole arbitrator by consent of parties to decide the dispute between the parties arising out of the agreements along with the extensions. The respondent filed its statement of claim against the petitioner before the learned Arbitrator and prayed for an award of around Rs.1,95,00,000/- on account of refund of security deposit and also claimed refund of security deposit made by the respondent to BEST authorities. The petitioner filed its written statement, set off and counter claim against the respondent on the ground that the respondent was in unauthorized use or occupation of the office units from 1st July, 2012 till 27th November, 2012 and had caused loss of business earnings and profit to the petitioner. The respondent filed an application under Section 17 of the Arbitration Act before the learned Arbitrator against the petitioner. By an order dated 20th December, 2016, the learned Arbitrator directed the petitioner to maintain an amount of Rs.1,17,00,000/- with one Frank Merchant Bankers till the passing of the arbitral award. Both the parties filed their respective written statements, led evidence, filed written submissions and made oral arguments before the learned Arbitrator. On 3rd December, 2018, the learned Arbitrator passed an award directing the petitioner to pay an amount of Rs.1,17,00,000/- along with interest @ 12% p.a. from 9th April, 2013 on amount of Rs.1,17,00,000/- till payment or realization. The learned Arbitrator directed the petitioner to pay costs quantified at Rs.38,75,000/- inclusive of arbitral fees within a period of 120 days from the date of the communication of the arbitral award and failing which with interest @ 9% p.a. thereon. The learned Arbitrator also rejected the claim for set off and counter claim filed by the petitioner as time barred. The petitioner challenged the arbitral award in this arbitration petition.

Finding of the Court:

The Court found that the petitioner had agreed to the appointment of Mr. Vishal Kanade, Advocate as the sole arbitrator prior to the date of 14th September, 2016 when the order was passed by the Court in Arbitration Petition No.799 of 2016. The Court held that the parties could agree for appointment of an arbitrator in any proceedings in Court without filing an application under Section 11(6) or 11(9) as the case may be including in petition under Section 9 or even without intervention of Court. The Court also found that the claim for set off and counter claim were barred by limitation. The Court further found that the learned arbitrator was justified in awarding cost of Rs.38,75,000/- by exercising powers under Section 31A of the Arbitration Act. However, the Court reduced the rate of interest awarded by the learned arbitrator to 8% p.a. in view of the specific agreement providing for rate of interest on the refund of security deposit amount at the rates offered by Nationalized Banks in India on short terms deposits.

Issues: 1. Whether the appointment of the learned arbitrator by the Court on 14th September, 2016 in Arbitration Petition No.799 of 2016 is nullity on the ground that the respondent being the Government of State of Israel and being party to the arbitration agreement, the arbitration proceedings would fall under Section 2(1)(f) of the Arbitration Act and thus only Chief Justice of India or his designated could appoint an arbitration under Section 11(9) of the Arbitration Act? 2. Whether the claim for set off and counter claim were barred by limitation? 3. Whether the learned arbitrator was justified in awarding cost of Rs.38,75,000/- by exercising powers under Section 31A of the Arbitration Act? 4. Whether the rate of interest awarded by the learned arbitrator @ 12% p.a. is contrary to the terms of the agreement and more particularly clause 4(f) and contrary to the Section 31(7)(a) of the Arbitration Act?

Ratio Decidendi: 1. The Court held that the parties can agree for appointment of an arbitrator in any proceedings in Court without filing an application under Section 11(6) or 11(9) as the case may be including in petition under Section 9 or even without intervention of Court. The Court also held that the provisions of Section 11(9) of the Arbitration Act in this case thus had not attracted in view of there being an agreement on the name of the learned Arbitrator between the parties in the correspondence exchanged between the parties prior to the order dated 14th September, 2016 passed by the Court in Arbitration Petition No.799 of 2016. 2. The Court held that the claim for set off and counter claim were barred by limitation as the entire period of claiming compensation @ Rs.1,17,000/- per day from 1st July, 2012 till 27th November, 2012 was three years prior to the date of issuing such notice invoking arbitration agreement, the entire claim for set off is ex-facie barred by law of limitation. 3. The Court held that the learned arbitrator was justified in awarding cost of Rs.38,75,000/- by exercising powers under Section 31A of the Arbitration Act as both the parties had filed their respective statements of cost before the learned arbitrator claiming almost identical amount. 4. The Court held that the rate of interest awarded by the learned arbitrator @ 12% p.a. is contrary to the terms of the agreement and more particularly clause 4(f) and contrary to the Section 31(7)(a) of the Arbitration Act and thus reduced the rate of interest to 8% p.a.

Final Decision: The Court upheld the arbitral award except for the rate of interest, which was reduced to 8% p.a. from 9th April, 2013 on the amount of Rs.1,17,00,000/- till payment/realization. The Court dismissed the Commercial Arbitration Petition No. 758 of 2019 except to the extent of the rate of interest modified in the judgment. The Court also dismissed the Notice of Motion (L) No. 1359 of 2019 in view of the dismissal of the Commercial Arbitration Petition partly. There was no order as to costs.