2015 (2) TMI 483 - HC - Indian Laws

Court Requires Escrow Deposit for Arbitration Agreement Validity. Petitioner's Delay Tactics Fined.

NRC Limited Versus Kalyan Dombivli Municipal Corporation & anr and State of Maharashtra

The court upheld the lower courts' decisions, ruling that the deposit in the Escrow Account was a condition precedent for the arbitration agreement. ... Pre deposit for reference to arbitration - Whether in view of Section 8 of the Arbitration Act and Section 408 of the BPMC Act, mere existence of a clause for arbitration in an agreement, ipso-facto casts an obligation on the Court to refer the matter for arbitration - Held that:- There is no dispute as regards the execution of the agreement dated 22nd April, 2009 and Clause-6 therein for reference of the dispute relating to rateable value and tax charged by the Corporation on the properties in question to arbitration. - question of existence of an arbitration agreement arose for consideration of the Apex Court in the facts of discharge of the agreement by performance and satisfaction. The dispute before the Apex Court had arisen out of a contract of insurance, which contained a clause for arbitration. There was a settlement arrived at between the parties as regards the insurance claim and the insured had issued “discharge voucher-inadvance” acknowledging receipt of amount in full and final settlement of the insurance claim. The insured, however, subsequently raised a dispute as regards the settlement alleging that settlement had been arrived at under duress and coercion. It filed an application under Section 11 of the Arbitration Act in this Court. The application was opposed by the insurer with a contention that the insured could not invoke the arbitration clause in the agreement as the agreement stood discharged by accord and satisfaction. Courts below are correct in their conclusion that, deposit of the amount in Escrow Account was condition precedent to the arbitration agreement. In the circumstance, unless the condition is fulfilled, the arbitration agreement does not get activated and come into existence. A mere writing on a piece of paper with signature of the parties by itself cannot mean existence of an agreement. What is material, is the intention of the parties in executing the document. Both the Courts below have also held that, the application for reference to arbitration is nothing but an attempt to protract the hearing of the appeals. It is nobody's case that the appeals have remained pending on account of procedural delay. The Court, as well as, KDMC are ready and anxious for taking up the appeals for hearing. But, there was clear reluctance on the part of the petitioner in prosecuting the appeals. After obtaining concession from the Apex Court in November, 2006 the petitioner has not taken any step to lead evidence of it's valuer. Today, it is 18 years since the filing of the first appeal by the petitioner and 10 years since the filing of the last appeal. It would also be relevant to note here that, the petitioner had initially filed Writ Petition to challenge the demand for taxes when the petitions were patently not maintainable. Had the petitioner on due adjudication of the dispute discharged it's tax liability, a substantial amount would have been available to KDMC for utilisation for public purposes. On account of the mischievous and dishonest conduct on the part of the petitioner, the public body has been deprived of it's legitimate funds from the year 1996 till date. Petitioner shall pay costs quantified at ₹ 1,00,000 for each petition to respondent no.1, KDMC. The costs to be paid within a period of 2 weeks from today. If the costs are not paid within the time granted, the appeals filed by the petitioner in the Court of Civil Judge Senior Division, Kalyan shall stand dismissed without further reference to the Court. After payment of costs, the petitioner, if it so desires, is at liberty to deposit the amount of ₹ 6,68,76,000 in Escrow Account within the same period of 2 weeks and renew it's application for reference to arbitration. - Decided against appellant. Issues Involved:1. Validity of Arbitration Agreement under Section 8 of the Arbitration Act and Section 408 of the BPMC Act.2. Condition Precedent for Arbitration: Whether the deposit of Rs. 6,68,76,000/- in Escrow Account is a condition precedent for referring the dispute to arbitration.Detailed Analysis:1. Validity of Arbitration Agreement:The primary issue is whether the mere existence of an arbitration clause in the agreement obligates the court to refer the matter for arbitration under Section 8 of the Arbitration Act and Section 408 of the BPMC Act. The court highlighted that the provisions use the word 'shall' for referring parties to arbitration, but this is contingent upon the existence of an arbitration agreement. The court must ascertain the existence of a valid arbitration agreement before referring the matter for arbitration. This principle is supported by the decision in National Insurance Company Limited vs. Boghara Polyfab Private Limited, where the Apex Court emphasized that the court must decide on the existence of an arbitration agreement. The court concluded that the existence of an arbitration clause does not automatically compel reference to arbitration; the court must first confirm the validity and existence of the arbitration agreement.2. Condition Precedent for Arbitration:The second issue is whether the deposit of Rs. 6,68,76,000/- in an Escrow Account is a condition precedent for referring the dispute to arbitration. The court examined the agreement dated 22nd April 2009, particularly Clauses 1, 2, and 6. Clause 1 required KDMC to issue a 'No-Objection Certificate' (NOC) conditional upon the petitioner depositing the amount in the Escrow Account. Clause 2 complicated this by allowing the petitioner to deposit the amount within four months after receiving the third installment from the purchaser, effectively delaying the deposit until after the sale transaction. The court found that this arrangement allowed the petitioner to benefit from the agreement without fulfilling its obligations, thereby tricking KDMC into issuing the NOC without securing the tax dues. The court held that the deposit in the Escrow Account was indeed a condition precedent for the arbitration agreement to become effective. Without fulfilling this condition, the arbitration agreement does not come into existence.Conclusion:The court upheld the decisions of the lower courts, concluding that the deposit of the amount in the Escrow Account was a condition precedent to the arbitration agreement. Consequently, without fulfilling this condition, the arbitration agreement was not activated. The court also noted that the petitioner's actions were an attempt to delay the proceedings and avoid tax liabilities, depriving KDMC of legitimate funds since 1996. The petitions were dismissed with costs, and the petitioner was ordered to pay Rs. 1,00,000/- for each petition to KDMC within two weeks. If the costs were not paid within the stipulated time, the appeals filed by the petitioner would stand dismissed. The petitioner was also given the option to deposit the amount in the Escrow Account within the same period and renew its application for reference to arbitration.