TaxTMI 
TaxTMI 
2021 (3) TMI 1391
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....ent No. 6) and two children, namely, Smt. Smriti Bhalotia (Respondent No. 7) and Sh. Anshul Bhalotia (Respondent No. 8). 3. CS (OS) 384/2017 titled Sh. Arun Kumar Bhalotia & Anr. Vs. Sh. Gopal Kumar Bhalotia was filed before this Court, in which an application was moved by Respondent No. 5 (Sh. Gopal Kumar Bhalotia) under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act'). 4. Vide order dated 9th January, 2018, the ld. Single Judge of this Court, referred the disputes to Arbitration by a sole Arbitrator. The relevant portion of the said order reads as under: "1. After hearing the counsels for the parties, this suit is disposed of by referring the disputes in the present suit as also disputes which may arise in any manner with respect to or connected with the family settlement/partition dated 15.7.2009, to the Arbitration of Shri B.B. Chaudhary, District & Sessions Judge (Retired) Mobile No. 9910384611. 2. Counsels for the parties also agree that irrespective of the wording of the arbitration clause in the family settlement/partition dated. 15.7.2009, the Arbitrator hereby appointed to....
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.... been impugned before this Court in a petition filed under Article 227 of the Constitution of India. Submissions of the Petitioners 7. It is argued on behalf of the Petitioners that if the issue of jurisdiction is not decided at the initial stage, parties like the Petitioners would be saddled with arbitral proceedings for several years and incur huge costs and this is contrary to the spirit of section 16(5) of the Arbitration and Conciliation Act, 1996 itself. 8. The submission of Mr. Arjun Garg, ld. counsel for the Petitioners is that there has been a complete failure by the Arbitral Tribunal in exercising jurisdiction and deciding the application under Section 16. Insofar as the maintainability of the petition is concerned, it is urged by him that the provisions of the Act cannot oust the jurisdiction of the High Courts and under Article 227, the said power ought to be exercised sparingly, the jurisdiction of High Courts ought not to be ousted especially when there is a manifest error by the Arbitral Tribunal or abdication of duty, the High Courts ought to exercise jurisdiction under Article 227. He further argues that the objection under Section 16 has to be decided at ....
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.... the arbitral proceedings. In the former, when the plea is accepted by the Tribunal under Section 16(2) or 16(3) of the Arbitration and Conciliation Act, 1996, an appeal would lie under Section 37 of the Act. If the plea is either rejected or no ruling is rendered by the Tribunal, the proceedings would continue and the challenge if any would be only after the final award is passed. She relies upon the following judgments: (i) SBP & Co. v. Patel Engineering Ltd. And Ors. (2005) 8 SCC 618. (ii) Cadre Estate Pvt. Ltd. v. Salochna Goyal and Ors. 2010(119) DRJ 457. (iii) Awasthi Construction Co. v. Government of NCT of Delhi LPA No. 701/2012 decided on 16th October, 2012 by Delhi High Court. (iv) United Spirits Ltd. v. M/s. Stitch Craft (India) W.P.(C) 4886/2013 decided on 8th November, 2013 by Delhi High Court. (v) ATV Projects India Ltd. v. Indian Oil Corporation Ltd. & Anr. 2013 (136) DRJ 720 (DB). (vi) Lalitkumar v. Sanghavi (Dead) Through LRs & Anr. v. Dharamdas V. Sanghavi & Ors. (2014) 7 SCC 255. (vii) M/s. Evolve Marketing Serv....
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....d as to the maintainability of petitions under Art. 227 against orders passed by arbitral tribunals. The said matters are part-heard before this court. Owing to the lockdown, hearing of those matters have been delayed. 3. In the meantime, the following three judgments have also been rendered by the Supreme Court and High Courts:- (i) Deep Industries Ltd. v. ONGC and Ors. (Civil Appeal No. 9106/2019) - Supreme Court (28/11/2019) (ii) Punjab State Power Corporation Ltd. v. Emta Coal Ltd. And Anr. (arising out of SLP (C) No. 8482/2020) -Supreme Court (18/9/2020) (iii) Bhilwara Jaipur Toll Road (p) Ltd. v. State of Rajasthan and ors. (SB Civil Writ Petition No. 21394/19)-Rajasthan High Court (12/10/2020). 4. List this matter on 8th January 2021. Parties to make their submissions on the said date, on the basis of above three judgments." 12. Thus, further submissions were heard in view of the recent decisions of the Supreme Court and of this Court, post the present judgment being reserved on 19th December,....
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....own the scope of interference under Article 226/227 of the Constitution of India, the question that arises is as to whether the present writ petition is maintainable. Analysis and Findings: 17. There are three aspects that arise for consideration: (i) Whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is exercisable by High Courts and what is the scope of interference? (ii) Law governing applications under Section 16 of the Arbitration & Conciliation Act, 1996 and manner of consideration by arbitral tribunals. (iii) Whether on the facts of the present case, interference is warranted challenging the orders passed by the arbitral tribunal? Maintainability 18. Dealing with the first aspect, the law is well settled that Arbitral tribunals are a species of tribunals over which the High Court exercises writ jurisdiction. Challenge to an order of an arbitral tribunal can be raised by way of a writ petition. In Union of India v. R. Gandhi, President Madras Bar Association (supra) the Supreme Court observed on the question as to what constitutes 'Courts' and 'Tribunals&....
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....into the special tribunal for speedy and effective determination of disputes in the interest of the society. Whenever, by a legislative enactment jurisdiction exercised by ordinary civil court is transferred or entrusted to tribunals such tribunals are entrusted with statutory power. The arbitral tribunals in the statute of 1996 are no different, they decide the lis between the parties, follows Rules and procedure conforming to the principle of natural justice, the adjudication has finality subject to remedy provided under the 1996 Act Section 8 of the 1996 Act obliges a judicial authority in a matter which is a subject of an agreement to refer the parties to arbitration. The reference to arbitral tribunal thus can be made by judicial authority or an arbitrator can be appointed in accordance with the arbitration agreement under Section 11 of the 1996 Act." Thus, the Supreme Court held that arbitral tribunals are private tribunals unlike those tribunals set up under the statute or specialized tribunals under the Constitution of India. Thus, a Petition under Article 227 challenging orders of an Arbitral Tribunal would be maintainable. Scope and extent of interference 20. Com....
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....untouched by the non-obstante Clause of Section 5 of the Act. In these circumstances, what is important to note is that though petitions can be filed Under Article 227 against judgments allowing or dismissing first appeals Under Section 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by us herein above so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction." 22. In Punjab State Power Ltd. v. Emta Coal Ltd. & Anr. (supra) again the Supreme Court considered Deep Industries Ltd.(supra) and held: "We are of the view that a foray to the writ Court from a section 16 application being dismissed by the Arbitrator can only be if the order passed is so perverse that the only possible conclusion is that there is a patent lack in inherent jurisdiction. A patent lack of inherent jurisdiction requires no argument whatsoever-it must be the perversity of the order that must stare one in the face. Unfortunately, parties are using this expression which is in our judgment in Deep Industries Ltd., to go to the 227 Court....
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....s most of the issues within the ambit of the Act itself, without there being scope for any extra statutory mechanism to provide just and fair solutions. 13. Any party can enter into an arbitration agreement for resolving any disputes capable of being arbitrable. Parties, while entering into such agreements, need to fulfill the basic ingredients provided under Section 7 of the Arbitration Act. Arbitration being a creature of contract, gives a flexible framework for the parties to agree for their own procedure with minimalistic stipulations under the Arbitration Act. 14. If parties fail to refer a matter to arbitration or to appoint an arbitrator in accordance with the procedure agreed by them, then a party can take recourse for court assistance under Section 8 or 11 of the Arbitration Act. 15. In this context, we may state that the Appellant acted in accordance with the procedure laid down under the agreement to unilaterally appoint a sole arbitrator, without Respondent No. 1 mounting a judicial challenge at that stage. Respondent No. 1 then appeared before the sole arbitrator and challenged the jurisdiction of the so....
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....e, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. This power needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear 'bad faith' shown by one of the parties. This high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient. 18. In this context we may observe M/s. Deep Industries Limited v. Oil and Natural Gas Corporation Limited, wherein interplay of Section 5 of the Arbitration Act and Article 227 of the Constitution was analyzed as under: "15. Most significant of all is the non-obstante clause contained in Section 5 which states that notwithstanding anything contained in any other law, in matters that arise under Part I of the Arbitration Act, no judicial authority shall intervene except where so provided in this Part. Section 37 grants a constricted right of first appeal against certain judgments and orders and no others. Further, the statutory mandate also provides for one bite at the cherry, and interdicts a s....
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....33 does the time-limit of three months begin after the tribunal has disposed of the request. This exception from the three-month time-limit was subject to criticism in the working group due to fears that it could be used as a delaying tactics. However, although "an unbreakable time-limit for applications for setting aside" was sought as being desirable for the sake of "certainty and expediency" the prevailing view was that the words ought to be retained "since they presented the reasonable consequence of Article 33". According to this "unbreakability" of time-limit and true to the "certainty and expediency" of the arbitral awards, any grounds for setting aside the award that emerge after the three-month time-limit has expired cannot be raised. 37. Extending Section 17 of the Limitation Act would go contrary to the principle of "unbreakability" enshrined under Section 34(3) of the Arbitration Act. (emphasis supplied) If the Courts are allowed to interfere with the arbitral process beyond the ambit of the enactment, then the efficiency of the process will be diminished. ....
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....(k). The pertinent question therefore is whether the present contract, which is composite in nature, falls within the ambit of a works contract under Section 2(k) of the Gujarat Act. This is a question that requires contractual interpretation, and is a matter of evidence, especially when both parties have taken contradictory stands regarding this issue. It is a settled law that the interpretation of contracts in such cases shall generally not be done in the writ jurisdiction. Further, the mere fact that the Gujarat Act might apply may not be sufficient for the writ courts to entertain the plea of Respondent No. 1 to challenge the ruling of the arbitrator under Section 16 of the Arbitration Act. 25. It must be noted that Section 16 of the Arbitration Act, necessarily mandates that the issue of jurisdiction must be dealt first by the tribunal, before the Court examines the same under Section 34. Respondent No. 1 is therefore not left remediless, and has statutorily been provided a chance of appeal. In Deep Industries case (supra), this Court observed as follows: "22. One other feature of this case is of some importan....
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....se jurisdiction under Article 226/227; (ix) The power should be exercised in 'exceptional rarity' or if there is 'bad faith' which is shown; (x) Efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided. Section 16 of the Act and consideration by Arbitral Tribunals 25. Coming to the second aspect, i.e., the law governing applications under Section 16 of the Arbitration & Conciliation Act, 1996 and the manner of consideration by arbitral tribunals. Section 16 of the Arbitration and Conciliation Act, 1996 deals with the competence of a Tribunal. Following the principle of kompetenze-kompetenze, an Arbitral Tribunal has the power to rule on its own jurisdiction. However, Section 16(5) requires that the Tribunal ought to decide the plea. The provision is extracted below: "16. Competence of arbitral tribunal to rule on its jurisdiction.-- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validi....
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....rmined as a preliminary ground. A decision taken thereupon by the arbitrator would be the subject-matter of challenge under Section 34 of the Act. In the event the arbitrator opined that he had no jurisdiction in relation thereto an appeal there against was provided for under Section 37 of the Act. 52. The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it." 27. In Raj International (supra), it was observed: "17. So points for consideration come as to whether the arbit....
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....not lose faith in this alternative dispute redressal forum. In ordinary situation, the court should not exercise its power under article 227 of the Constitution, but in exceptional circumstances, when the statutory authority like the arbitrator did not exercise his power vested on him, then a petition under article 227 of the Constitution should not be thrown away. 21. Having considered the rival submissions of the learned counsel of the parties and the law reports, the question arises for decision is that whether the learned arbitrator is liable to rule on the preliminary objection raised by the petitioner as to his jurisdiction to try the dispute and if so whether failure to give decision on the objection and acted at the instance of appointing authority would vitiate the impugned order. 22. From the above contention of the petitioner in its objection, it is very clear that the petitioner wanted to decide the preliminary objection as to the jurisdiction of the arbitrator first before deciding the matter on merit as provided under section 16 of the Act, 1996 and the petitioner also reserved their right to place their defence in so far as....
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....able to them under section 37 of the Act even at an earlier stage, meaning thereby the parties are not fully debarred from approaching the High Court under article 227 of the Constitution when the arbitrator failed to act under sub-section (5) of section 16 of the Act, which is an obligatory to him as intended by the Legislature. Section 16 is self-contained clause as regards to challenge the jurisdiction of the arbitral tribunal/arbitrator before passing the award. 28. In Shri Pankaj Arora (supra)., a Ld. Single Judge of this Court dealing with a similar fact situation observed as under: "13. Be that as it may, I am of the opinion that the present petition cannot succeed, even otherwise, as no case is made out, to direct the learned Sole Arbitrator to take a decision on the application, of the petitioner under Section 16 of the 1996 Act, at this stage itself, without deferring the issue for decision after recording of evidence. The procedure to be followed, in arbitral proceedings, is essentially the province of the arbitrator, or the arbitral tribunal. Unless the decision, in that regard, falls foul of any mandatory stipulation, contained in the 1996 Act,....
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....ossible, as a preliminary ground. The following factors can be borne in mind when objections are raised under Section 16 of the Act: i. If the issue of jurisdiction can be decided on the basis of admitted documents on record then the Tribunal ought to proceed to hear the matter/ objections under Section 16 of the Act at the inception itself; ii. If the Tribunal is of the opinion that the objections under Section 16 of the Act cannot be decided at the inception and would require further enquiry into the matter, the Tribunal could consider framing a preliminary issue and deciding the same as soon as possible. iii. If the Tribunal is of the opinion that objections under Section 16 would require evidence to be led then the Tribunal could direct limited evidence to be led on the said issue and adjudicate the same. iv. If the Tribunal is of the opinion that detailed evidence needs to be led both written and oral, then after the evidence is concluded, the objections under Section 16 would have to be adjudicated first before proceeding to passing of the award. 31. A jurisdictional objection by its ve....
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....n equal proportion. Come up for reply to be filed by Respondent No. 5 to 10 at 07.08.2019 at 2 PM at the above-mentioned venue. In case the counsel for the Respondent No. 5 to 10 files the reply well before 07.08.2019 and supply the copies to the claimant and Respondent No. 1 to 4, then they may file the counter reply to the same on the next date of hearing." 33. An application was moved by the Petitioner herein seeking recall of the above order dated 8th July, 2019 before the arbitrator. In the said application, the ld. Arbitrator heard the submissions of the parties and rejected the prayer for recall vide order dated 7th August, 2019. Extracts from the said order are reproduced herein below: "Arguments heard to decide the application. It is correct that the respondents No. 5 to 10 are not signatories to the settlement/partition deed dated 15.07.2019. That deed was executed between the claimants and the respondents No. 1 to 4. However, the deed is in respect to various properties, including the property purchased by the respondents No. 5 to 10 from the respondent No. 2, vide sale deeds dated 14.02.2017. The claim....
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....spondents No. 5 to 10 and also any objection which the respondents No. 5 to 10 may raise, will be taken care of at an appropriate stage. The Ld. Counsel for the respondents No. 5 to 10 has argued that since the respondents have put appearance and have filed an application u/s. 16 of the Arbitration and Conciliation Act, therefore, their request to recall the order of issuing notice of the arbitration may be allowed. He has further submitted that it is the appropriate stage to decide their application. The respondents No. 5 to 10 have derived their rights in the property at Vrindavan but it is also subject matter of settlement/partition deed dated 15.7.2009. The subject matters of that deed and all other related matters are subject to the arbitration as per order of the Hon'ble High Court. The arbitration in respect to the disputes is only at the stage of completion of the pleadings and admission and denial of the documents by the parties and also to decide the application to refer documents to the CFSL for an expert opinion. The appropriate stage to decide the matters, including the application u/s. 16 of the Arbitration and Conciliation Act of the respond....
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.... the sale consideration qua the said property was to be decided between the parties. Thus, notice was issued to the Petitioners so that their rights are not jeopardized in any manner. An application to recall notice of arbitration under Section 16 cannot, therefore, in the opinion of the ld. Arbitrator, be decided at this stage and would rightly have to await completion of pleadings and admission and denial. According to the ld. Arbitrator, the matters are complicated and would require evidence and the Petitioners arguments cannot be adjudicated in isolation since the claimants have asked for declaration of the sale deed in favour of the Petitioners as null and void. The property which the Petitioners have purchased is squarely in dispute in the arbitration and, therefore, the Ld. Arbitrator was of the view that the appropriate stage will only be the final stage and the application of the Petitioners was kept on file. 35. Applying the settled legal position to the facts of the present case, the approach of the ld. Arbitrator cannot be set out as either perverse or patently lacking in jurisdiction. The fact situation does not present an 'exceptional rarity' requiring exer....