TaxTMI 
TaxTMI 
2021 (3) TMI 382
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....f providing consultancy services. The Appellant, Pravin Electricals Pvt. Ltd., operates in key industrial and commercial retail sectors and provides services for electrical supplies etc. 3. On 26th May, 2014, an online tender was invited by Chief Engineer, South Bihar Power Distribution Company Ltd. (hereinafter referred to as "SBPDCL") for appointment of implementing agencies for execution of a Scheme, on turnkey basis, for strengthening, improvement and augmentation of distribution systems capacities of 20 towns in Bihar. The Appellant submitted its technical and financial bid and was declared the L1 bidder and was awarded the work on 22nd September, 2014. It is the case of the Respondent that it had made substantial efforts under a Consultancy Agreement dated 7th July, 2014, to facilitate the Appellant in getting the aforesaid contract for which it was entitled to commission. It is then alleged that the Appellant sent an email dated 15th July, 2014 to the Respondent with a draft agreement attached for comments and confirmation. On the same day, the Respondent sent its reply stating that certain terms were not acceptable. In emails that have surfaced for the first time in this....
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....spondent then filed a petition under Section 11(6) of the 1996 Act for appointment of a Sole Arbitrator on the basis of the alleged Agreement dated 7th July, 2014. The Delhi High Court vide an order dated 28th November, 2018, directed the Respondent to produce the original of the Consultancy Agreement dated 7th July, 2014. The Appellant was then directed to produce Mr. M.G. Stephen, Managing Director of the Appellant, before the Registrar (Judicial) on 7th December, 2018, so that he can carry with him documents which bear his original signature at the contemporaneous time. The Registrar (Judicial) was also directed to obtain specimen signatures of Mr. M.G. Stephen. The original of the Agreement together with the aforesaid signatures of Mr. M.G. Stephen was then to be sent to the CFSL for obtaining a report. The report was then received and by an order dated 20th September, 2019, the High Court directed that copies of the report be given to the learned counsel for the parties. Finally, on 30th September, 2019, the learned counsel for the Appellant submitted that he had instructions to contest the matter after which the impugned judgment dated 12th May, 2020 was passed. 7. Vide th....
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....s is also fortified by the fact that the information sent by the Department to the respondent regarding award of the Contract to the respondent was also sent to the petitioner vide email dated 22.09.2014. Draft letter of acceptance sent by the Department to the petitioner through email dated 25.09.2014 was sent by the petitioner to the respondent on the same day, by an email. 41. Learned counsel for the respondent in my view is not correct in its contention that since a draft agreement was emailed by the respondent, there was no executed agreement dated 07.07.2014. From the email dated 15.07.2014, it is apparent that the respondent had executed an Agreement prior to 15.07.2014. Petitioner had categorically stated in the email dated 15.07.2014 that the payment terms in the draft agreement were different and there is no document on record filed by the respondent evidencing denial of the contents of this email. 42. In so far as the argument that the invoices were raised on PCTSPL and not on the petitioner is concerned, petitioner is correct in its submission that PCTSPL was only a sub-contractor of the respondent. Petitioner had not raised the invoice on its own will....
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....lls within the ambit of Section 7(4)(b) of the Act. The inevitable result is that the parties must be referred to Arbitration for adjudication of their disputes." Accordingly, Justice G.S. Sistani, a former Judge of the Delhi High Court was appointed as the Sole Arbitrator to adjudicate the dispute between the parties. 8. Shri Shyam Divan, learned Senior Advocate, appearing on behalf of the Appellant, has argued that the alleged Consultancy Agreement dated 7th July, 2014 is a concocted document. This is clear from the CFSL report dated 29th September, 2019, on which he relied very heavily. This being the case, since the alleged Consultancy Agreement itself had no existence, there was no arbitration agreement between the parties, as a result of which the High Court judgment fell to the ground. He also argued that this is the only case of its kind in which a formal signed agreement is alleged to have been entered into between the parties, after which negotiations take place and a draft agreement is referred to. The very fact that negotiations have taken place after such alleged agreement shows that such alleged agreement does not in fact exist. He also went on to argue that the....
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....correspondence referred to by the learned Single Judge of the High Court would clearly show that the dramatis personae in this case interacted with each other and that, but for the efforts of his client, Pravin Electricals Pvt. Ltd. would never have got the bid. He relied upon a number of judgments of this Court to buttress his submissions. 10. Having heard learned counsel for both the parties, it is important to first set out the relevant provisions of the Arbitration and Conciliation Act, 1996: 8. Power to refer parties to arbitration where there is an arbitration agreement. - (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. 11. Appointment of arbitrators. - xxxx (6) Where, under an ....
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....1996 Act are administrative in nature, and that the Chief Justice or his designate does not act as a judicial authority while appointing an arbitrator. The same view was reiterated in Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd., (2002) 2 SCC 388 (Konkan Railway 2). 10. However, in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, a seven-Judge Bench overruled this view and held that the power to appoint an arbitrator under Section 11 is judicial and not administrative. The conclusions of the seven-Judge Bench were summarised in para 47 of the aforesaid judgment. We are concerned directly with sub-paras (i), (iv) and (xii), which read as follows: (SCC pp. 663-64) '(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power. *** (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a liv....
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....rtmental authority and excepted or excluded from arbitration). (ii)Merits or any claim involved in the arbitration.' 12. As a result of these judgments, the door was wide open for the Chief Justice or his designate to decide a large number of preliminary aspects which could otherwise have been left to be decided by the arbitrator under Section 16 of the 1996 Act. As a result, the Law Commission of India, by its Report No. 246 submitted in August 2014, suggested that various sweeping changes be made in the 1996 Act. Insofar as SBP & Co. (supra) and Boghara Polyfab (supra) are concerned, the Law Commission examined the matter and recommended the addition of a new subsection, namely, sub-section (6-A) in Section 11. In so doing, the Law Commission recommendations which are relevant and which led to the introduction of Section 11(6- A) are as follows: '28. The Act recognises situations where the intervention of the Court is envisaged at the pre-arbitral stage i.e. prior to the constitution of the Arbitral Tribunal, which includes Sections 8, 9, 11 in the case of Part I arbitrations and Section 45 in the case of Part II arbitrations. Sections 8, 45 an....
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.... 11 of the Act, is a party to such an agreement? 22.2. The issues (second category) which the Chief Justice/his designate may choose to decide are: (a) Whether the claim is a dead (long barred) claim or a live claim? (b)Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection? 22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are: (a) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)? (b) Merits of any claim involved in the arbitration." 31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of Section 11, should also apply to Sections 8 and 45 of the Act - since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refu....
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....ation and Conciliation (Amendment) Bill, 2015 which introduced the Amendment Act, 2015 read as follows: 'Statement of Objects and Reasons *** 6. It is proposed to introduce the Arbitration and Conciliation (Amendment) Bill, 2015, to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015, which inter alia, provides for the following, namely- (i) to amend the definition of "Court" to provide that in the case of international commercial arbitrations, the Court should be the High Court; (ii) to ensure that an Indian Court can exercise jurisdiction to grant interim measures, etc., even where the seat of the arbitration is outside India; (iii) an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court, as the case may be, as expeditiously as possible and an endeavour should be made to dispose of the matter within a period of sixty days; (iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues; (v) to provide ....
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....h Ahluwalia, (2017) 10 SCC 706 that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882, are not arbitrable as this would be contrary to public policy. 2. A deeper consideration of the order of reference reveals that the issues required to be answered relate to two aspects that are distinct and yet interconnected, namely: 2.1. (i) Meaning of non-arbitrability and when the subject-matter of the dispute is not capable of being resolved through arbitration. 2.2. (ii) The conundrum - "who decides" - whether the court at the reference stage or the Arbitral Tribunal in the arbitration proceedings would decide the question of non-arbitrability. 2.3. The second aspect also relates to the scope and ambit of jurisdiction of the court at the referral stage when an objection of non-arbitrability is raised to an application under Section 8 or 11 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act"). 13. The Bench then went into the Law Commission's 246th Report as follows: 124. In order to appreciate the effect of the amendments made by Act 3 of 2016, it would be appropriate to refer ....
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....is certain that no valid arbitration agreement exists or the disputes/subject-matter are not arbitrable, the application under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini trial. This necessarily reflects on the nature of the jurisdiction exercised by the court and in this context, the observations of B.N. Srikrishna, J. of "plainly arguable" case in Shin-Etsu Chemical Co. Ltd. are of importance and relevance. Similar views are expressed by this Court in Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC wherein the test applied at the pre-arbitration stage was whether there is a "good arguable case" for the existence of an arbitration agreement. 15. The parameters of review under Sections 8 and 11 were then laid down thus: 138. In the Indian context, we would respectfully adopt the three categories in Boghara Polyfab (P) Ltd. The first category of issues, namely, whether the party has approached the appropriate High Court, whether there is an arbitration agreement and whether the party who has applied for reference is part....
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....prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the Arbitral Tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a ruse to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the Arbitral Tribunal and violate the legislative scheme allocating jurisdiction between the courts and the Arbitral Tribunal. Centralisation of litigation with the Arbitral Tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes. 16. The Court then examined the meaning of the expression "existence" which occurs in Section 11(6A) and summed up its discussion as follows: 146. We now proceed to examine the question, whether the word "existence" in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at t....
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....ccepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did "exist", so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the subcontract would not "exist" as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with "existence", as opposed to Section 8, Section 16 and Section 45, which deal with "validity" of an arbitration agreement is answered by this Court's understanding of the expression "existence" in Hyundai Engg. case, as followed by us." Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement. 147.2. The court at the reference stage exercises judicial powers. "Examination", as an ordinary expression in common parlance, refers to an act of looking or considering something....
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....not obstruct but effectuates arbitration. 147.7. Exercise of the limited prima facie review does not in any way interfere with the principle of competence-competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage. 147.8. Exercise of prima facie power of judicial review as to the validity of the arbitration agreement would save costs and check harassment of objecting parties when there is clearly no justification and a good reason not to accept plea of non-arbitrability. In Subrata Roy Sahara v. Union of India, (2014) 8 SCC 470, this Court has observed: (SCC p. 642, para 191) "191. The Indian judicial system is grossly afflicted with frivolous litigation. Ways and means need to be evolved to deter litigants from their compulsive obsession towards senseless and ill-considered claims. One needs to keep in mind that in the process of litigation, there is an innocent sufferer on the other side of every irresponsible and senseless claim. He suffers long-drawn anxious periods of nervousness and restlessness, whilst the litigation is pending without any fault on his par....
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....e stage, post the amendments vide Act 3 of 2016, the court would not go into and finally decide different aspects that were highlighted in the two decisions. 147.10. In addition to Garware Wall Ropes Ltd. case, this Court in Narbheram Power & Steel (P) Ltd. [Oriental Insurance Co. Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534] and Hyundai Engg. & Construction Co. Ltd. [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607] , both decisions of three Judges, has rejected the application for reference in the insurance contracts holding that the claim was beyond and not covered by the arbitration agreement. The Court felt that the legal position was beyond doubt as the scope of the arbitration clause was fully covered by the dictum in Vulcan Insurance Co. Ltd. [Vulcan Insurance Co. Ltd. v. Maharaj Singh, (1976) 1 SCC 943] Similarly, in PSA Mumbai Investments Pte. Ltd. [PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525] , this Court at the referral stage came to the conclusion that the arbitration clause would not be applicable and govern the disputes. Accordingly, the reference to the Arbitral ....
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....lause (i) of Section 34(2)(b) of the Arbitration Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is nonexistent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably "non-arbitrable" and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism. 155. Reference is, accordingly, answer....
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....d void. Explanation 1: If the judicial authority is prima facie satisfied about the existence of an arbitration agreement, it shall refer the parties to arbitration and leave the final determination of the existence of the arbitration agreement to the arbitral tribunal in accordance with section 16, which shall decide the same as a preliminary issue; Explanation 2: Any pleading filed in relation to any interim application which has been filed before the judicial authority shall not be treated to be a statement on the substance of the dispute for the purpose of this section." [NOTE: The words "such of the parties... to the arbitration agreement" and proviso (i) of the amendment have been proposed in the context of the decision of the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr., (2003) 5 SCC 531, - in cases where all the parties to the dispute are not parties to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the action - and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration agreeme....
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....es to arbitration and leave the final determination of the existence of the arbitration agreement to the arbitral tribunal in accordance with section 16, which shall decide the same as a preliminary issue. Explanation 2: For the removal of any doubt, it is clarified that reference by the High Court to any person or institution designated by it shall not be regarded as a delegation of judicial power. Explanation 3: The High Court may take steps to encourage the parties to refer the disputes to institutionalised arbitration by a professional Indian or International Arbitral Institute. [NOTE: The proposed section 11 (6A) envisages the same process of determination as is reflected in the proposed amendment to section 8. Explanation 2 envisages that reference by the High Court to any person or institution designated by it shall not be regarded as a delegation of judicial power. Explanation 3 has been inserted with the hope and expectation that High Courts would encourage the parties to refer the disputes to institutionalize arbitration by a professional Indian or international arbitral institute.] (v) In sub-section (7), after the words "or sub-sectio....
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....nded by the Law Commission was not incorporated. Section 11(6A) merely confines examination of the Court to the existence of an arbitration agreement. Section 11(7) was retained, by which no appeal could be filed under an order made under Section 11(6) read with Section 11(6A), whether the Court's determination led to a finding that the arbitration agreement existed or did not exist on the facts of a given case. Concomitantly, no amendment was made to Section 37(1), as recommended by the Law Commission. 21. However, by a process of judicial interpretation, Vidya Drolia (supra) has now read the "prima facie test" into Section 11(6A) so as to bring the provisions of Sections 8(1) and 11(6) r/w 11(6A) on par. Considering that Section 11(7) and Section 37 have not been amended, an anomaly thus arises. Whereas in cases decided under Section 8, a refusal to refer parties to arbitration is appealable under Section 37(1)(a), a similar refusal to refer parties to arbitration under Section 11(6) read with Sections 6(A) and 7 is not appealable. In the light of what has been decided in Vidya Drolia (supra), Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders....
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....he parties, as an invoice was raised on Process, Process making payment on 29th September, 2014 and not the Appellant. Equally, the finding that a draft Consultancy Agreement was sent on 15th July, 2014 containing an arbitration clause, parties being ad idem regarding submission of the disputes to arbitration is also plainly incorrect in view of the fact that on the same day, an email was sent back in which various terms were disputed, there being no concluded contract between the parties. Also, the finding that Process was a sub-contractor of the Respondent, is contrary to the pleadings between the parties which, as we have seen, had ranged from Process being a joint venture partner of the Appellant to Process having common Directors with the Appellant, and to Process thereafter being described as the lead partner. Sub-contractor-ship is not pleaded at all by the Respondent, the aforesaid arising only from written submissions made before the learned Single Judge. 26. The allegation that the Consultancy Agreement of 7th July, 2014 had a signature that may not be that of Mr. M.G. Stephen was brushed aside stating that an arbitration agreement need not be signed by the parties. Th....