Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2008 Supreme(Mad) 3905

High Court of Judicature at Madras
THE HON'BLE MR. JUSTICE V. RAMASUBRAMANIAN
Ramasamy Athappan & Another
Versus
The Secretariat of the Court, International Chamber of Commerce & Others
A.No. 2670 of 2008, 1236 of 2008 & O.A.No. 277 of 2008 and A.No. 2671 of 2008 in C.S.No. 257 of 2008
Decided On : 29-10-2008

Advocates Appeared:
For the Appearing Parties:J. Sivanandaraj, P.H. Arvind Pandian, Satish Parasaran, Advocates, C. Harikrishnan, Sr. Counsel.

An arbitration agreement may be deemed inoperative if the parties engage in multiple legal proceedings that undermine the arbitration process, indicating abandonment or waiver of the right to arbitration.

Headnote:
ARBITRATION - DISPUTE RESOLUTION - Arbitration and Conciliation Act, 1996 - Section 45 - The court analyzed the arbitration clause within the Joint Venture Agreement, determining that the clause was inoperative due to the parties engaging in multiple legal proceedings, which undermined the purpose of arbitration as a singular dispute resolution mechanism. The court emphasized that an arbitration agreement can be deemed inoperative if the parties have acted in a manner that suggests abandonment or waiver of the right to arbitration. The court concluded that the defendants' actions rendered the arbitration clause ineffective, leading to the dismissal of their application to refer the matter to arbitration.
Fact of the Case:
The plaintiffs and defendants entered into a Joint Venture Agreement for developing properties. Disputes arose, leading to multiple legal actions, including petitions under the Companies Act and criminal complaints. The defendants sought to invoke arbitration, claiming the Joint Venture Agreement was void due to misrepresentation, while the plaintiffs contended the arbitration clause was null and void. The court had to determine the validity of the arbitration agreement under Section 45 of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The court found that the arbitration agreement was inoperative due to the defendants' engagement in various legal proceedings, which contradicted the purpose of arbitration. The court held that the plaintiffs had not sufficiently established that the arbitration agreement was null and void, and the defendants' conduct indicated abandonment of the arbitration process.
Issues: 1. Whether the arbitration agreement was null and void, inoperative, or incapable of being performed. 2. Whether the defendants had waived their right to arbitration by engaging in multiple legal proceedings.
Ratio Decidendi: The court concluded that an arbitration agreement can be rendered inoperative if the parties engage in other legal proceedings that contradict the arbitration process. The court emphasized the need for a singular dispute resolution mechanism and found that the defendants' actions indicated an abandonment of the arbitration agreement.
Final Decision: The application under Section 45 to refer the parties to arbitration was dismissed. The plaintiffs' applications for injunction and stay of the arbitration clause were allowed, while the defendants' application to vacate the injunction was dismissed.

Judgment :

V. Ramasubramanian, J.

Applications O.A.No.277 of 2008 and A.No.1236 of 2008 are by the plaintiffs in the suit respectively (i) for an interim order of injunction restraining the defendants 6 and 10 from proceeding with the arbitration and (ii) for stay of the arbitration clause. The applications A.Nos.2670 and 2671 of 2008 are by the defendants 6 and 10, praying respectively (i) for an order under section 45 of the Arbitration and Conciliation Act, 1996 referring the parties to international commercial arbitration and (ii) for an order vacating the interim injunction granted in O.A.No.277 of 2008.

2. I have heard Mr.C.Harikrishnan, learned senior counsel for the defendants 6 & 10, Mr.J.Sivanandaraj, learned counsel for the plaintiffs, Mr.Satish Parasaran, learned counsel for defendants 3 to 5 and P.H.Arvind Pandian, learned counsel for 2nd defendant.

3. In brief, the history of this litigation is as follows:-

.(a) On 30.01.2004, the Plaintiffs, the 2nd defendant and defendants 6 to 10 entered into a Joint Venture Agreement at New Delhi, by which the 9th defendant was floated as a Joint Venture Company with the object of purchasing, constructing and developing a hotel property, a shopping complex and an information technology park and to develop and sell the properties owned by defendants 7 and 8. For achieving these objects, the Joint Venture Company was to obtain a Syndicated Credit Facility and the facility was to be secured by a Corporate Guarantee issued by the 4th defendant.

.(b) In September 2005, disputes arose between the Joint Venture partners and the 10th defendant was removed from the post of Managing Director of the Joint Venture Company (D-9).

.(c) In November 2005, the defendants 6 and 10 filed a petition in C.P.65 of 2005 under sections 397, 398, 402 and 403 of the Companies Act, on the file of the Company Law Board. It was filed against the plaintiffs herein, the defendants 2, 4 and 9 and one more person. The prayer in the Company Petition was for a declaration that the resolutions passed by the Board of Directors of the Joint venture company (D-9) on 21/22-9-2005 were null and void and for certain consequential reliefs.

.(d) Around the same time, the defendants 6 and 10 also filed O.P.No. 279 of 2005, on the file of the District Court, Coimbatore, under Section 9 of the Arbitration and Conciliation Act, 1996 for a direction to the plaintiffs and defendants 2 and 4 herein, to furnish security.

.(e) In December 2005, the 2nd defendant filed a petition in C.P.76 of 2005 on the file of the Company Law Board under Sections 397, 398, 402 and 403 of the Companies Act, 1956, against the plaintiffs herein and the defendants 6 to 10. The State Bank of India, ABN Amro Bank and the Syndicate Bank were also made parties to the said petition.

.The main prayer in the petition was to remove the 10th defendant from the post of Director of the Joint Venture company and for various consequential reliefs.

.(f) In February 2006, the 10th defendant filed a criminal complaint against the plaintiffs, the defendants 2,4 and 5 and two more persons, alleging that they had committed offences punishable under section 120-B read with sections 409, 420, 405, 471 and 389, I.P.C. On the ground that no action was taken by the police on the said complaint, the 10th defendant filed Crl.O.P.No.9791 of 2006 on the file of this court for appropriate directions to the police to register the complaint and investigate. However, the 10th defendant later filed a private complaint under section 200, Cr.P.C., on the file of the Judicial Magistrate Court, Perundurai in Crl.M.P.No. 6096 of 2006 seeking to take cognizance of the offences allegedly committed by the above named persons. But the learned Magistrate dismissed the private complaint by an order dated 13-3-2007, under section 203 of the Code of Criminal Procedure.

.(g) In the meantime, the Defendants 6 and 10 wrote to the Plaintiff on 14-8-2006, invoking Article 22.3 of the Joint Venture Agreement a

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