M/s Railsys Engineers Private Ltd. v. Overseas Infrastructure Alliance Pvt. Ltd.

9. The suit, as noted above has been filed by the Plaintiff for recovery of the amount in respect of the services rendered by the Plaintiff to the Defendants under the said contract agreement dated 21st October, 2011. Pursuant to negotiations, the Defendants sent a November, 2017 to the Plaintiff, whereby the outstanding amount of Rs. 2,93,99,077/- was agreed by the Defendants to be paid to the Plaintiff in the installments mentioned therein. It is an admitted position that pursuant to the said understanding the Defendants made payments to the Plaintiff of a total sum of Rs. 1,35,00,000/- leaving an outstanding of Rs. 1,58,99,077/-. It is in respect of this amount that the Plaintiffs have filed the captioned suit as a summary suit on the basis of the settlement dated 17th November, 2017.

10. A perusal of the dispute resolution clause in the contract dated 21st October, 2011 indicates that if the dispute if not resolved through friendly consultations, then the dispute is to be referred to arbitration. Clause 19.[3] of the said contract clearly records the agreement that both the parties will not institute any legal proceedings against the other arising out of or in connection with the agreement except for the purposes of enforcing any award in any Court.

11. It has been argued on behalf of the Plaintiff that the settlement arrived at between the Plaintiff and Defendants on 17th November, 2017 is a new contract and that the said new contract does not contain any arbitration clause and therefore, the suit is maintainable on the basis of the acknowledgment of debt under the said settlement.

12. I am afraid, I am unable to agree with the submissions made on behalf of the Plaintiff. As noted above, Clause 19 of the said contract clearly provides how disputes between the two parties are to be resolved and that is by referring the dispute to arbitration. A perusal of clause 19 and clause 19.[3] of the said contract agreement dated 21st October, 2011 in particular, clearly suggests that the parties have categorically agreed to refer any dispute to arbitration and also agreed not to institute legal proceedings in respect of any matter arising out of or in connection with the said contract.

13. A look at page 45 of the Plaint, which contains the settlement November, 2017, which again clearly indicates that if due to any reason the Defendant fails to fulfill its commitment, then the Plaintiffs shall have all the rights to take appropriate legal action and that the demand notice dated 13th October, 2017 will not be acted upon. The demand notice dated 13th October, 2017 refers to the action that was threatened by the Plaintiffs against the Defendants under the Insolvency and Bankruptcy Code. Reference to appropriate legal action, to my mind, would refer to the action as contained in the contract to resolve disputes between the parties. The settlement dated 17th November, 2017 arises out of the said contract dated 21st October, 2011 and in respect of any dispute arising out of the said contract, the parties have agreed not to institute legal proceedings but to refer the dispute to the arbitration. The settlement dated 17th November, 2017 by no stretch of imagination can be said to be an independent settlement or a new contract between the parties extinguishing the said contract.

14. It is also pertinent to refer to some of the Clauses in the plaint, pursuant to which the Plaintiff has filed the captioned suit. Paragraph 12 of the Plaint clearly records that as on 18th December, 2020 an amount of Rs. 1,58,99,077/- was due and payable by the Defendants to the Plaintiff under the said contract, arrangement dated 17th November, 2017 and also under the cheques. Even paragraph 17 which pertains to the jurisdiction of this Court to entertain, try and dispose of the suit refers to the fact that the contract was entered into at Mumbai. In my view, the suit is based on the contract as well as on the settlement arrived at between the parties on 17th November, 2017 pursuant to the said contract dated 21st October, 2011 and cheques issued thereafter, which allegedly have been dishonoured.

15. Mr. Sabnis, learned Counsel for the Defendants-Applicants has relied upon the decision of the Delhi High Court in the case of Omega Finvest LLP Vs. Direct News Private Limited (supra), where there were similar arguments that the arbitration clause in the “second rent agreement” that expired on 30th June, 2019 by efflux of time would not apply to the “addendum to settlement” dated 26th February, 2020 as the said addendum did not contain the arbitration clause. After analyzing the law on the point, the Delhi High Court held that the argument that in view of the addendum to the settlement there does not exist an arbitration agreement and thus, the petition under Section 11 of the Arbitration and Conciliation Act, 1996 was not maintainable, could not be accepted.

16. In other words, the arbitration agreement in the second rent agreement though had expired by efflux of time on 30th June, 2019, was considered to be existing between the parties in the addendum to the settlement, which was executed on 26th February, 2020, although the same did not contain an arbitration clause. In my view, the facts of the case at hand are even much better than the facts before the Delhi High Court in the case of Omega Finvest LLP Vs. Direct News Private Limited (supra) as in the present case the communication dated 17th November, 2017 arises out of the said contract dated 21st October,

2011.

17. Even the decision of the Delhi High Court in the case of Super Blastech Solutions Vs. Rajasthan Explosives and Chemicals Ltd.(supra), relied upon by Mr. Sabnis, clearly holds that even if the contract comes to an end by way of termination or subsequent agreement between the parties, the arbitration clause will not be rendered inoperative, except in cases where the contract containing the arbitration clause is completely extinguished and substituted by a new contract that exclusively and entirely governs the relations between the parties. In the facts of this case also there is neither an extinguishment nor a new agreement substituting the said contract dated 21st October, 2011 but the communication dated 17th November, 2017, as observed, has arisen pursuant to the said contract dated 21st October, 2011. The said contract dated 21st October, 2011, in my view, in the facts of this case has not been terminated or replaced by a new contract or by November, 2017. This is borne out, as noted above, by the fact that the plaint in paragraph 12 as well as paragraph 17 with respect to jurisdiction of this Court clearly refer to the said contract. Therefore, in my view, the arbitration clause in the said contract would apply to the disputes arising between the parties including with respect to disputes pursuant to the communication November, 2017.

18. Sub-section (1) of Section 8 of the Arbitration and Conciliation Act, 1996, clearly provides that 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.

19. The Hon'ble Supreme Court in the case of P. Anand Gajapathi Raju vs. P.V.G.Raju[5] has held that the language of Section 8 of the Arbitration and Conciliation Act, 1996, (the “Arbitration Act”) is peremptory in nature. That, therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Also, the Hon'ble Supreme Court in Sundaram Finance Limited and Another vs. T. Thankam[6] has relying upon its own decisions including in the case of P. Anand Gajapathi Raju vs. P.V.G.Raju (supra), held that once there is an agreement between the parties to refer disputes or differences arising out of an agreement to arbitration and in case either party ignoring the terms of the agreement approaches the Civil Court and the other party, in terms of Section 8 of the moves the Court for referring the parties to arbitration in view of the peremptory language

6 (2015) 14 Supreme Court Cases 444 of Section 8 of the Arbitration Act, it is obligatory for the Court to refer the parties to arbitration in terms of the agreement. Paragraphs 8, 9, 10 and 13 of the said decision are usefully quoted as under: “8. Once there is an agreement between the parties to refer the disputes or differences arising out of the agreement to arbitration, and in case either party, ignoring the terms of the agreement, approaches the civil court and the other party, in terms of the Section 8 of the Arbitration Act, moves the court for referring the parties to arbitration before the first statement on the substance of the dispute is filed, in view of the peremptory language of Section 8 of the Arbitration Act, it is obligatory for the court to refer the parties to arbitration in terms of the agreement, as held by this Court in P. Anand Gajapathi Raju v. P.V.G. Raju (2000) 4 SCC 539.

9. The position was further explained in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums. To quote:(SCC pp. 510-11, para 14)

20. Ms. Hajela, learned Counsel for the Plaintiff has referred to the Full Bench decision of this Court in the case of Jyotsna K. Valia Vs. T. S. Parekh and Co.(supra) to elaborate on the meaning of the word ‘debt’ and to submit that a summary suit is maintainable on an acknowledgment of debt. In my view, the said reference does not assist the case of the Plaintiff as there is no discussion in the said decision with respect to the arbitration clause in an agreement. The said decision only refers to the invocability of jurisdiction under Order 37 Rule 2 and not with reference to the dispute between the parties on a contract, where there is a arbitration clause. Nowhere does the said decision hold that even if there is an arbitration clause to a contract between the parties, a suit under Order 37 is maintainable. Therefore, the said decision would not render any assistance to the case of the Respondent/Plaintiff.

21. It has also sought to be argued on behalf of the Plaintiff that since there is an acknowledgment of debt, there would be no dispute in the matter. In this connection the decision of this Court in the case of USP Studios Pvt. Ltd. Vs. Ganpati Enterprises & Ors.(supra) also assumes significance. This Court after considering various decisions has elucidated on the term dispute in paragraph 25 as under:- “25. I am persuaded to agree with the aforesaid submissions of Mr. Patil. If there is a semblance of dispute, which is covered by an arbitration agreement, the judicial authority is statutorily enjoined to refer the parties to arbitration. A profitable reference, in this context, can be made to the judgment of the Supreme Court in the case of Agri gold Exims Ltd. vs. Sri Lakshmi Knits & Wovens and Others 5, wherein the Supreme Court held that the term ‘dispute’ must receive its general connotation. The Supreme Court, inter alia, observed as under: “18. The term “dispute” must be given its general meaning under the 1996 Act.

19. In P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd edition, page 1431, it is stated: "In the context of an arbitration the words "disputes" and "differences" should be given their ordinary meanings. Because one man could be said to be indisputably right and the other indisputably wrong, that did not necessarily mean that there had never been any dispute between them…..."

20. Admittedly, the appellant's claim is not confined to the question regarding non-payment of the amount under the two dishonoured cheques. Thus, there existed a dispute between the parties. Had the dispute between the parties been confined thereto only, the same had come to an end.

21. Appellant evidently has taken before us an inconsistent stand. If he was satisfied with the payment of the said demand drafts, he need not pursue the suit. It could have said so explicitly before the High Court. It cannot, therefore, be permitted to approbate and reprobate.

22. Section 8 of the 1996 Act is peremptory in nature. In a case where there exists an arbitration agreement, the court is under obligation to refer the parties to arbitration in terms of the arbitration agreement. [See Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503 and Rashtriya Ispat Nigam Limited (supra)] No issue, therefore, would remain to be decided in a suit. Existence of arbitration agreement is not disputed. The High Court, therefore, in our opinion, was right in referring the dispute between the parties to arbitration.” (emphasis supplied)” In my view, therefore, the submissions on behalf of the Plaintiff, would not hold water in view of the above elucidation. If a payment is not made, by a party under a contract, whether it is with reference to a subsequent arrangement between the parties, in my view, would also be a dispute which is arbitrable and to be referred to arbitration, in the event there is an arbitration clause in the agreement. In the facts of this case, there is, as mentioned above, clearly an arbitration clause to resolve the dispute by mode of arbitration and not to institute any legal proceedings in respect of the disputes.

22. Ergo since the said contract 21st October, 2011, clearly indicates that a valid arbitration agreement exists between the parties, the dispute between the parties be referred to arbitration. The reference to arbitration would not in my view deny the Plaintiff’s legitimate and valid claim as the Plaintiff can always file statement of claim before the arbitration and also prove it. Only the forum for adjudication has been substituted as per mandate of law. Accordingly, following order is passed:- ORDER i) The parties are referred to arbitration, in accordance with arbitration agreement contained under the Clause 19 of the contract dated 21st October, 2011. ii) Arbitrator to be appointed by the parties, in accordance with the provisions of the Arbitration and Conciliation Act,

1996. iii) In view of the reference of the parties to arbitration, the commercial summary suit no. 86 of 2021 stands disposed. iv) In view of the disposal of the suit, the summons for judgment no. 68 of 2021 also to stand disposed of. v) Refund of Court Fees as per Rules. vi) The Registry is directed to return the original documents to the Plaintiff.

23. The interim application accordingly stands allowed and disposed as above. (ABHAY AHUJA, J.)