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ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 562 OF 2006
IN
ARBITRATION PETITION NO. 356 OF 2005
Paramount Limited, Paramount Complex, Gotri Road, Race Course, Baroda- 390 007. … Appellant.
Companies Act, 1956, having its registered office at Tiecicon House, Dr. E. Moses Road, Mahalaxmi, Mumbai- 400 011. … Respondent.
Mr. Chetan Kapadia, Senior Advocate, with Mr. Yuvraj
Singh, Mr. Deepak Shukla and Mr. Sarthak Solaskar, i/b. Vinod Mistry and Co. for the Appellant.
Dr. V.V. Tulzapurkar, Senior Advocate with Mr. Y.V.
Divekar, Mr. Rohan Karande, Mr. Pawan Rajpal i/b.
M/s. Divekar and Co. for the Respondent.
JUDGMENT
2. In this judgment, the Appellant- is referred to as "Paramount". Respondent- Ion Exchange (India) Limited is referred to as “Ion Exchange”. Briefly, the dispute arose in the following facts. The Gujarat Electricity Board had invited tenders for the Turnkey Project for the Sikka Thermal Power Project Pretreatment Plant. Paramount and Ion Exchange signed a Memorandum of Understanding to bid with the Gujarat Electricity Board (Board) for the design, construction, supply execution, painting, testing and commissioning of the pretreatment plant and connected civil, mechanical, electrical and instrumentation plant work. The Memorandum of Understanding (M.O.U.) was signed at Mumbai. Pursuant to the M.O.U. bid was submitted to the Board. The Board accepted the tender and issued a Letter of Intent on 28 December 1994.
3. Disputes arose between the parties. On 26 February 2002, Paramount put forth its claim and called upon Ion Exchange to settle it and make payment. On 28 March 2002, Ion Exchange replied and denied the claim. On 13 April 2002, Paramount wrote to Ion Exchange stating that Ion Exchange was not making payment as called upon as per the letter dated 26 February 2002, and differences and disputes had arisen. The M.O.U. contained an arbitration clause stating that if a dispute arises between Paramount and Ion Exchange, each one will make a reference for the arbitration of such dispute as cannot be mutually resolved. It was agreed that both parties would nominate/ appoint one arbitrator each, and two arbitrators would appoint an umpire. It was agreed that if one party fails to appoint an arbitrator after due notice, the arbitrator appointed by the other party will be the sole arbitrator. Such a reference was to be treated as a submission to arbitration under the Indian Arbitration Act of 1940, as amended. The notice dated 13 April 2002 stated that the matter is required to be resolved through arbitration and called upon Ion Exchange to send the name of one of the arbitrators. Paramount informed Ion Exchange that it has nominated Mr. Sanat Pandya as the arbitrator. Paramount called upon Ion Exchange to appoint its arbitrator. On 17 May 2002, Paramount informed Ion Exchange that since Ion Exchange did not appoint its arbitrator, the arbitrator appointed by Paramount, Mr. Pandya, would act as a sole arbitrator to resolve the disputes and differences as per the arbitration clause.
4. On 21 May 2002, Mr Pandya, the Arbitrator, issued notice for a preliminary hearing. On 14 June 2002, Ion Exchange communicated to Paramount that it had not consented to appoint a sole arbitrator and was in the process of nominating an arbitrator. By letter dated 17 June 2002, Ion Exchange informed that it had nominated a retired learned Judge of this Court as its arbitrator and gave the address and contact number. Mr. Pandya adjourned the meeting. After that, on 2 July 2002, Mr. Pandya conveyed that he is the Sole Arbitrator and, in case Ion Exchange is able to show that it has the right to appoint/ nominate its arbitrator, then he will act accordingly. By communication dated 8 July 2002, Ion Exchange informed Mr. Pandya that it has filed Arbitration Application (L) No.365/2002 (thereafter numbered as Arbitration Application No.124/2002) in this Court under section 11 of the Act and furnished a copy. The learned Single Judge, by order dated 30 November 2002, disposed of the Arbitration Application No.124/2002, leaving it open for the parties to agitate the issue regarding jurisdiction before the Arbitrator.
5. On 5 April 2003, Ion Exchange filed an application under section 16 of the Act challenging the jurisdiction of the Arbitrator- Mr. Pandya. Ion Exchange contended that the arbitration clause provided for arbitration by a sole arbitrator on the failure of one party to respond, but only after giving a due notice of the specified time providing consequences of failure therein.It was contended that Paramount did not give 'due notice' specifying a time to respond and thus Mr. Pandya has no jurisdiction. On 23 June 2003, Mr. Pandya, rejected the application filed under section 16 of the Act and proceeded to pass an award on 31 March 2005. The learned Arbitrator awarded the claim in favour of Paramount to the tune of Rs.53,88,495/- along with interest on Rs.41,68,343/- till the date of the award and also directed to pay interest on the awarded amount of Rs.95,56,838/- till the payment and cost of the arbitration.
6. Thereafter, Paramount filed an application under section 9 of the Act in the Civil Court at Vadodara. By this application, Paramount sought a direction that Ion Exchange should deposit the awarded amount of Rs.98,56,838/- along with interest, and this amount be secured. According to Paramount, it applied for service of the application on Ion Exchange and paid the necessary process fee for service. The Vadodara Court issued notice to Ion Exchange on 13 July 2005. According to Paramount, the notice was served on 14 July 2005. According to Ion Exchange, it received notice on 20 July 2005. Before the notice was received either on 14 July 2005 or 20 July 2005, Ion Exchange had already filed Arbitration Petition No.356/2005 in this Court on 29 June 2005 to challenge the arbitral award dated 31 March 2005.
7. Arbitration Petition No.356/2005 came up for consideration before the learned Single Judge. Paramount raised a preliminary objection as to the maintainability of the petition filed by Ion Exchange based on section 42 of the Act. It was argued that since Paramount had filed an application under section 9 of the Act on 5 May 2005 in the Court of Vadodara, as per the mandate contained in Section 42 of the Act, the arbitration petition filed on 29 June 2005 by Ion Exchange should have been filed only in the Court at Vadodara and not in this Court. The learned Single Judge rejected the objection holding that Paramount ought to have given notice of filing an application at Vadodara immediately and was precluded from raising the said preliminary objection as Ion Exchange filed its arbitration petition at Mumbai having no knowledge of the earlier application. The learned Single Judge then upheld the contention raised by Ion Exchange that that Mr. Pandya could not have assumed jurisdiction Sole Arbitrator. By the impugned order dated 5 June 2006, the learned Single Judge allowed the arbitration petition and set aside the arbitral award. The parties are thereafter before us.
8. We have heard Mr. Chetan Kapadia, learned Senior Advocate for the Appellant- Paramount and Dr. V.V. Tulzapurkar, learned Senior Advocate for the Respondent- Ion Exchange.
9. Three main issues arise for consideration. First, the maintainability of the arbitration petition filed by Ion Exchange in this Court. Second, the jurisdiction of the learned Arbitrator Pandya to proceed as Sole Arbitrator as per the arbitration clause. Third, whether the application filed by Paramount under Section 9 of the Act, which was in the nature of securing the award after completion of the arbitration proceeding, could attract the provisions of Section 42 of the Act. If the view taken by the learned Single Judge that Paramount was precluded from raising contention based on section 42 of the Act because of its conduct is accepted, then the third argument raised by Ion Exchange on legal issue would be rendered academic. Therefore, we will first deal with the findings of the learned Single Judge regarding Paramount's conduct. The facts, except for a few dates, are not in dispute.
10. First we note Section 42 of the Act which reads as under: “42. Jurisdiction.- Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.” Section 42, which opens with a non-obstante clause, mandates that, where with respect to an arbitration agreement, any application under Part-I of the Act is made in the court, then that court alone will have jurisdiction over the arbitral proceedings and all subsequent applications out of that agreement, and the arbitral proceedings shall be made in that court and no other court.
11. The award was rendered by Mr Pandya, the learned Arbitrator, on 31 March 2005. Paramount filed an application under section 9 of the Act in the court of Vadodara on 5 May 2005. In the said application, Paramount prayed for an order directing Ion Exchange to deposit the awarded amount and for disbursing the payment to Paramount of the amount to the tune Rs.95,56,838/along with interest at the rate of 18% per annum from the date of the award till the payment as per section 31(7)(b) of the Act or passing an order securing the amount of Rs.95,56,838/- along with interest. According to Paramount, on 5 May 2005, Paramount applied to the Court for service of the application upon Ion Exchange. An order for service was passed, and Paramount paid the necessary fees.
12. On 29 June 2005, Ion Exchange filed the present Arbitration Petition No.356/2005 under section 34 of the Act in this Court. On 13 July 2005, Vadodara Court issued a notice on the application filed by Paramount. According to Paramount, the notice was served on 14 July 2005; however, Ion Exchange claims to have received notice on 20 July 2005.
13. Two positions are not in dispute. First, that this Court had territorial jurisdiction to entertain the petition filed by Ion Exchange under section 34 of the Act. Second, as on 29 June 2005, Ion Exchange had no notice of the application filed by Paramount in the Court of Vadodara on 5 May 2005. Paramount did not intimate Ion Exchange that it had filed an application in the Court at Vadodara, prior to the expiry of the period of limitation under Section 34 of the Act. The learned Single Judge proceeded on this admitted position and disapproved the conduct of Paramount of filing an application under section 9 and, after that, not making an effort to intimate Ion Exchange immediately regarding the same.
14. Paramount contended before the learned Single Judge that section 42 of the Act would bar the petition filed by Ion Exchange before this Court on 29 June 2005. Ion Exchange, per contra, submitted that the application made by Paramount was not a bona fide application and what is contemplated under section 42 is a bona fide application. It was contended that as per the law laid down by the Division Bench in the case of H.M.P. Engineers Ltd. v. the provision of the Limitation Act does not have any application to the petition under section 34 of the Act, and, therefore, if the petition under section 34 of the Act is not filed within the period of limitation, then the remedy under section 34 would be permanently barred. Ion Exchange contended that the award was rendered on 31 May 2005. It was communicated to Ion 1 2003 (4) Mh.L.J. 931 Exchange on 6 April 2005 that the last date for filing the petition under section 34 was 7 July 2005. However, Paramount did not inform that it had filed an application under section 9 of the Act, and the notice was served on the Ion Exchange after the period fixed under section 34 of the Act was over. It was contended that if such conduct is permitted, section 42 of the Act would be put to grave misuse.
15. The learned Single Judge found merit in the contention raised by Ion Exchange. The learned Single Judge, following the law laid down in H.M.P. Engineers Ltd., held that if the petition under section 34 of the Act is not filed before the competent court within the period of three months, then save, and except the power to condone the delay of maximum days of 30 for the sufficient cause being shown, the remedy would be lost. The learned Single Judge held that since the Division Bench in H.M.P. Engineers Ltd. has held that section 14 of the Limitation Act does not apply, the period cannot be excluded even if Ion Exchange was to approach the Vadodara Court. In that context, the learned Single Judge observed that if one party to the arbitration can easily and conveniently file an application in one court and keep that fact to itself, denying the remedy of section 34 of the Act permanently to the other party in this manner, the provisions of section 42 of the Act can be misused. The learned Single Judge held that if the Court comes to the conclusion that the provisions of the Act and application based on which the jurisdiction of the Court is to be ousted was not a bona fide application, the filing of such application will not oust the jurisdiction of the Court. It was held that if such an application is filed merely to gain an unfair advantage, it cannot be considered as a bona fide application. Learned Single Judge held that in the facts of this case, Paramount acted unfairly by filing an application under section 9 of the Act without giving notice or at least apprising Ion Exchange that it had filed such an application. The learned Single Judge held that the party has the right to notice of any proceeding connected in which it has an interest. After holding so, the learned Single Judge held that merely because Paramount paid process charges, it cannot be said that Paramount did everything in its power to intimate Ion Exchange regarding filing an application under section 9 of the Act. In short, the learned Single Judge held that it was the duty of Paramount to inform Ion Exchange that it had filed an application in Vadodara Court so as to enable Ion Exchange to file a petition under section 34 of the Act in the Court of Vadodara, if Ion Exchange so desired. The preliminary objection was, thus, rejected.
16. Paramount assailed this finding of the learned Single Judge, contending that the legal position based on which the learned Single Judge held against Paramount no longer survives and has undergone a change. Paramount submitted that the learned Single Judge has solely relied on the decision in the case of H.M.P. Engineers Ltd., which is no longer good law in view of the decision of the Hon'ble Supreme Court in the case of United India Assurance Co. Ltd. v. J.A. Infra Structure (P) Ltd.[2] and Commissioner, Madhya Pradesh Housing Board v. Mohanlal and Company[3]. It was contended that the entire reliance of the impugned order regarding the non-applicability of section 14 of the Limitation Act and resultant proceeding does not survive. It is not necessary to elaborate on this aspect more as Ion Exchange does not dispute that section 14 of the Limitation Act is applicable to the petitions filed under section 34 of the Act in view of the subsequent decision of the Supreme Court, it, however, contends that the basis of the impugned order, that is, prejudice to the parties, is not taken away. It is contended that section 14 of the Limitation Act cannot be availed of as a matter of right by the parties, and it is the discretion of the Court and, therefore, it cannot be said that there is no prejudice.
17. Section 34(3) of the Act states that an application for setting aside the award may not be made after three months have elapsed from the date on which the party making that application had received the award and other contingencies provided. If the Court is satisfied that the Applicant was prevented by a sufficient cause from making the application within the period of three months, it may entertain the application, if preferred, within 30 days after the period of three months is lapsed but not thereafter. Thus, the party to the arbitration has the right under section 34(3) of the Act to file an application/ petition to set aside the award within a 2 (2006) 8 S.C.C. 21: 2006 S.C.C. OnLine SC 898 period of three months from the date of receipt of the award if it is properly instituted. After a period of three months till the further period of 30 days, it is not an absolute right of the party to file a petition under section 34 of the Act, and it is within the discretion of the Court to condone the delay if the Court is satisfied that there is sufficient cause. Thus, if there is no sufficient cause, the Court can dismiss the petition challenging the award on the ground of delay by not condoning the delay. This change from the absolute right to present a petition under section 34 of the Act to the discretion of the Court is noted by the learned Single Judge in the impugned order.
18. Though it is correct that if the petition is filed within time/ permitted to be filed within the stipulation of section 34(3) of the Act if it is found that the Court did not have jurisdiction in view of the bar of section 42, the Petitioner can invoke section 14 of the Limitation Act to institute the same in a proper court, because section 14 of the Limitation Act is available, it does not mean that the prejudice to the parties presenting a petition no longer exists. Section 14 of the Limitation Act states that computing the period of limitation for any suit, the time during which the plaintiff has been prosecuting with due diligence, another civil proceeding against the defendant shall be excluded. The exclusion of the limitation period under this provision is not a matter of right. The heading of section 14 also stresses on ‘bona fide proceedings’ in the Court. It also refers to the prosecution of proceedings in ‘good faith’ in the Court. Therefore, section 14 of the Limitation Act cannot be considered an absolute right because the party invoking it must establish the bona fides, due diligence and good faith in prosecuting the earlier proceeding.
19. Therefore, Ion Exchange had rightly contended that had notice been given to Ion Exchange of filing of the application under section 9 of the Act in the Court of Vadodara before the limitation period of 3 months under section 34(3) had expired, there would be no uncertainty and Ion Exchange would have filed its petition in the said court. Therefore, because section 14 of the Limitation Act is now held to be applicable to the petition under section 34, it cannot be said that there is no prejudice to Ion Exchange at all, as Ion Exchange can file a petition in proper court now. We agree with the contention of Ion Exchange that though there is a change in law and section 14 of the Limitation Act applies to the petition filed under section 34 of the Act, the basis of the order passed by the learned Single Judge is not lost. The degree of prejudice is reduced from an absolute right to file an application under section 34 within limitation to uncertainty. However, the absolute right to file a petition under section 34 of the Act within the time limit is undoubtedly affected.
20. Ion Exchange contended that assuming availing section 14 of the Limitation Act if a petition is to be filed in the Court at Vadodara now as per the amendment to section 36 of the Act Ion Exchange would be subjected to deposit the amount of award as directed by the Court. When the arbitration petition was filed the position was that upon filing a petition under section 34 of the Act there would be an automatic stay for the execution of the award. Therefore it cannot be said that the foundation of the impugned order of prejudice to the Ion Exchange is now removed.
21. In this background, the conduct of Paramount, as noted by the learned Single Judge, will have to be examined. This conduct is material in light of the preliminary objection taken by Paramount on the maintainability of the petition filed under section 34 before the learned Single Judge.
22. Paramount contended that as per the practice in Vadodara Court, Paramount had prayed for issuance of notice, necessary process charges were also paid, and, therefore, Paramount could not be faulted as it had acted diligently. It was contended that as per the practice, on payment of the processing fee, the court issues summons to the other side, and if the processing fee is paid for summoning the other side by Registered A.D., then even though the court issues summons, does not hand over the same to the applicant for serving the notice. Paramount contends that this is the usual practice followed. It was contended that having paid the processing fee, Paramount had done all it could and that Paramount cannot be faulted for not giving notice to Ion Exchange early, nor is it the requirement of law.
23. Although section 42 of the Act does not specifically stipulate the requirement for notifying the other party of the application filed in one court, the question arose before the learned Single Judge is whether Paramount, when withheld the knowledge of its application and refrained from notifying it to Ion Exchange, could subsequently raise an objection under section 42 after a petition was filed. Paramount has relied upon the decisions of the Supreme Court in the cases of Padma Sundara Rao (Dead) v. State of T.N.[4] and Union of India v. Hansoli Devi[5] to contend that there should be a strict interpretation of the statute and no words should be added. There cannot be a dispute on this general principle of interpretation of the statute. However, the question before us is whether the view taken by the learned Single Judge, that Paramount by keeping the fact of filing an application to itself without intimating Ion Exchange in time, did not act bona fide and was precluded from raising an objection regarding the mandate of section 42 of the Act is illegal or perverse.
24. Paying the processing fee in the court where the application under section 9 is filed is a part of the procedure for hearing that application. This is different from giving intimation to the other side that it has filed an application and intends to invoke section 42 of the Act. We are not concerned with the merits of the application filed under section 9 of the Act, and the procedure followed for consideration of that application therein is a different aspect. In the case at hand, the filing of the application is a ground taken to apply the mandate of section 42 of the Act. The notice to be issued in the application in Vadodara is not only to contest that application, but it was to be an intimation to Ion Exchange that the mandate of section 42 of the Act has come into play. This intimation would have put Ion Exchange to notice that section 42 has come into effect and that all subsequent proceedings are to be filed in the same court. No satisfactory reason is given to us why Paramount did not even intimate Ion Exchange that it has filed an application under section 9 of the Act. It is not even contended that the same was mentioned verbally. There was complete silence on the part of Paramount regarding the filing of an application, and it is only after that Ion Exchange filed its petition in the Bombay High Court that the notice was served on Ion Exchange.
25. Ion Exchange relying on the decision of the Hon'ble Supreme Court in the case of Joseph and another Versus Batho Mary and Others[6], contended that if there is litigation pending between the parties, the party instituting another litigation in respect of the subject matter, it should give a notice to the other side. Paramount sought to distinguish this decision contending that in that case, fraud had been established and there was no such fraud in the case at hand, and Paramount was not required to take any action as per law but only had to serve the summons. There is no merit in this submission. If the parties to a litigation are proceeding before another forum which has a direct bearing on the existing litigation, they should give notice to the other side. This is a basic fairness that one party must show to the other. This aspect has bearing on the conduct of the parties.
26. Furthermore, both the courts, the Court at Vadodara and the Bombay High Court, had jurisdiction to entertain the petition under section 34 of the Act. It is Paramount, who was invoking section 42 of the Act to divest the jurisdiction of this Court, which, otherwise, is competent. As stated earlier, a party to the award has the right to file an appropriate petition in the competent court under section 34 of the Act within a period of three months from the date of receipt of the award and, if it is filed within that period, the right would be unquestionable. Paramount, after having filed an application under section 9 of the Act by not informing Ion Exchange that it has so filed the application, converted the absolute right of Ion Exchange to the discretion of the Court.
27. Ion Exchange contended that though the principle of estoppel could not confer jurisdiction on the court, which has no jurisdiction and applies when there is a total lack of jurisdiction; however, in the present case, the Bombay High Court had jurisdiction and its estoppel by conduct prevents Paramount from disputing the jurisdiction of Bombay High Court. The learned counsel relied upon the judgments of the Supreme Court in the cases of Smt. Isabella Johnsons v. M.S.Susai[7]; Mahabir v. State[8]; B.L.Sreedhar v. K.M.Munireddy (Dead)9 and Jai Narain Parasrampurai (Dead) v. Pushpa Devi Saraf10. Paramount contended that power under section 42 of the Act is mandatory and absolute, and the ouster of jurisdiction takes effect upon an application being filed, irrespective of the effects on the parties' rights. It is contended that it is so because no two courts having concurrent jurisdiction can proceed simultaneously, and it is a settled position that there cannot be estoppel against the statute being a principle in equity. Reliance is placed on the judgment of the Supreme Court in the cases of Inder Sasis Mittal v. Housing Board Haryana11 and Chief Justice of Andhra Pradesh v. L.V.A. Dixitulu12. It was submitted that once section 42 comes into play, the argument of forum conveniens will not be applicable.
28. Though the learned Single Judge did not say so in the specific terms, the learned Single Judge had raised the ground of estoppel. We have examined the view taken by the learned Single Judge in the context of the Act and the principles behind it. If the view taken by the learned Single Judge is to be set aside, we would be required to hold that Paramount had no obligation to inform Ion Exchange that section 42 of the Act has come into operation, before expiry of limitation period under Section 34 of the Act and even 7 A.I.R. 1991 SC 9931 8 A.I.R. 1959 Allahabad 783
11 2002 (I) UC 460 12 (1979) 2 S.C.C. 34 after keeping Ion Exchange in dark could challenge the maintainability of the Petition. According to us, setting aside the view taken by the learned Single Judge would be a retrograde step and lead to further litigation and further delays, and such interpretation would be contrary to the object of the Act. In the dispute redressal forum, such as arbitration, the emphasis is on simplification of the procedure and speedy resolution of the dispute.
29. The Division Bench of Delhi High Court in the case of Priya Hiranandani Vandervala v. Niranjan Hiranandani13, had an occasion to consider the ambit of section 42 of the Act. The Division Bench declared the law that it as a bona fide petition filed for at the first instance that would exclude the jurisdiction of the other court and vests jurisdiction in the said court in view of section 42 of the Act. The Court further held that if there was hidden agenda in ousting the jurisdiction of another court, then the Court may take a different view. In paragraph- 29, the Court has held thus: “29. We therefore declare the law to be that a bona-fide petition filed under the Act first in point of time would exclude jurisdiction of other Courts and vest exclusive jurisdiction in the said Court in view of Section 42 of the Act and the filing would mean a properly constituted petition filed in the Registry of the Court. But if the Court finds that there was a hidden agenda in ousting jurisdiction of another Court and that the petition filed was devoid of merit and the Court so expressly states, the cunning act of filing the petition in said Court would not be treated as the said Court being the first one to be approached and therefore excluding jurisdiction in the other Court and vesting jurisdiction in said Court alone; 13 F.A.O. (O.S.) (COMM) No.37/2016 decided on 30 May 2016 for the reason a mala-fide act with cunning and having a hidden agenda can never be countenanced by any Court of record; and Courts in India are not only Courts of law but even of justice and equity. In said situation it has to be held that no advantage accrues to the party which has resorted to cunning and had a hidden agenda to oust jurisdiction.” Therefore, the conduct of the party invoking section 42 is not an irrelevant consideration.
30. The learned counsel for Paramount then sought to contend that Ion Exchange could have resorted to applying under sections 24 and 25 of the Code of Civil Procedure, 1908. Reliance is placed on the decision of the Supreme Court in the case of Balaji Coke Industry Pvt. Ltd. v. Maa Bhagwati Coke Gujarat Pvt.Ltd.14 Similarly, it was contended that Ion Exchange could have taken recourse to Order 7 Rule 10 of C.P.C. Reliance was placed on the decision of Allahabad High Court in the cases of Union of India v. and Nand Kishore v. Mool Chandra16. Ion Exchange countered the submission contending that it had a choice to file a petition under section 34 of the Act either in the Bombay High Court or in Court at Vadodara as the contract did not give exclusive jurisdiction on the Vadodara Court. It was contended that under the scheme of sections 22 to 25 of C.P.C., it is the defendant aggrieved by choice of the plaintiff that can apply for transfer. We find no merit in the arguments based on sections 22 to 25 of C.P.C.
15 1996 S.C.C. OnLine All 264: A.I.R. 1967 All 504 16 1965 S.C.C. OnLine All 411: A.I.R. 1996 All 613 Having not acted bona fide and seeking to reduce the right of Ion Exchange to the discretion of the Court; it is not open to Paramount to suggest that Ion Exchange should invoke provision which are under the discretion of the Court such as sections 22 to 25 of C.P.C. Furthermore, according to Ion Exchange, it had rightly instituted the petition and, therefore, cannot be forced to apply for transfer.
31. In conclusion, we concur with the learned Single Judge that, Paramount having not given notice of application under section 9 to Ion Exchange and then invoking section 42 of the Act, did not act bona fide and was estopped from raising the contention of bar under section 42 of the Act. The learned Single Judge rightly rejected the preliminary objection raised by Paramount.
32. We may add that we are concerned with that fact situation that Ion Exchange was admittedly not aware of filing of the application by Paramount. No communication written or oral was made by Paramount to Ion Exchange, and before the period of limitation expired nor it is demonstrated that Ion Exchange was knowing about the filing of the application at Vadodara and yet it filed the petition under section 34 of the Act in this Court with full knowledge.
33. In view of this conclusion, the contention raised by Ion Exchange in its counterclaim that an application under section 9 filed after the award, which is only in the nature of execution, cannot attract the bar of section 42 is academic. The counter claim does not survive.
34. We now turn to the second aspect of this case, which is the issue of jurisdiction of the Arbitrator.
35. Ion Exchange filed an application taking objection to the jurisdiction of the Arbitrator- Mr. Pandya. Mr. Pandya, the Arbitrator, dismissed the application holding that a notice was given by Paramount and Ion Exchange failed to appoint its arbitrator under clause-16 of the M.O.U. within a period of 30 days which was a reasonable period, and since clause-16 provided for a mechanism for such a contingency, i.e. the arbitrator appointed by one party to act as sole arbitrator, there was no lack of jurisdiction. Ion Exchange challenged this order by raising the issue of jurisdiction while challenging the award of the Arbitrator dated 31 March 2005. The learned Single Judge by the impugned order upheld the contention raised by Ion Exchange that the Arbitrator- Mr.Pandya, did not have jurisdiction. The learned Single Judge took note of the language of clause-16 of the M.O.U. and observed that the term "due notice" used in the said clause would show that the first party will indicate in the letter the time limit which will be at the disposal of the other party to appoint its nominee. This would be a primary requirement, otherwise if such a requirement is not stipulated, the second party could take its own time, defeating the purpose of speedy arbitration. The learned Single Judge observed that the notice issued by Paramount was not a due notice and merely because within a period of 30 days, Ion Exchange did not appoint its arbitrator, Mr.Pandya could not have assumed jurisdiction. The learned Single Judge accordingly found that the arbitral award was without jurisdiction and set aside the same.
36. The M.O.U. contained an arbitration clause in Clause- 16, which reads as under: “16. If any dispute arises between I.E.I. and PPCL, each one shall continue the performance of its obligation without hampering the work and shall make reference to the Arbitration of such disputes as cannot be mutually resolved. Both parties will nominate/appoint one Arbitrator each and an umpire to be appointed by the two Arbitrators, where one party shall fail to appoint an Arbitrator after due notice, the Arbitrator nominated/appointed by the other party shall act as a Sole Arbitrator. Such a reference shall be a submission to arbitration under the Indian Arbitration Act, 1996 as amended to date." (emphasis supplied) Thus, the parties agreed that if any dispute arises between them, each party will nominate/ appoint one arbitrator and an umpire to be appointed by two arbitrators. When one party failed to appoint the arbitrator after due notice, the arbitrator nominated/ appointed by the other party would act as a sole arbitrator and, thus, the reference would be submitted to the arbitrator under the Act.
37. When disputes arose between the parties, Paramount wrote to Ion Exchange on 13 April 2022. Paramount referred to the contract terms and asserted that the work was satisfactorily completed. It is stated that Ion Exchange is not making payment for the work done and referred to the earlier correspondence and noted that disputes have arisen between the parties. Then in the next paragraph, the name of the arbitrator appointed is mentioned. In paragraphs-2 and 3 of the said communication, Paramount stated as under: “2. We say that, as per the Agreement, as and when disputes and differences have arisen by and between the parties, the matter is required ta be resolved through Arbitration, and as per the said Arbitration Clause, we are required to send the name of one of the Arbitrator, and the said name and address of the Arbitrator appointed by us are as under: Shri Sanat V. Pandya B.E. (Civil), Consulting Civil Engineer Besides Utkarsh Petrol Pump, Karelibaug, Baroda- 390 018.
3. That you are hereby called upon to see that you appoint the arbitrator from your side at the earliest and oblige." Thereafter there was no correspondence between the parties.
38. On 17 May 2002, Paramount addressed a communication to Ion Exchange, wherein again it referred to a fact that a dispute had arisen and took a stand that since Ion Exchange has failed to appoint its arbitrator, Mr.Pandya, the arbitrator appointed by Paramount will act as a sole arbitrator. In paragraphs- 3 and 4, Paramount stated thus: “3) We say that, on arising of the disputes and differences by and between the parties, we had vide our letter dated 13.04.2002 sent the name of Shri Sanat V. Pandya as an Arbitrator from our side, and you were requested to select an Arbitrator from your side, and which you failed to appoint within the period of 30 days as provided under the law.
4) We Say that as per the provision of the Arbitration Clause. on your failing to appoint the arbitrator, the appointed arbitrator by us will act as a Sole Arbitrator to arbitrate upon the disputes and differences by and between the parties, and hence now, Shri Sanat V. Pandya is a Sole Arbitrator to arbitrate upon the disputes and differences by and between the parties.” On 31 May 2022, the arbitrator- Mr Pandya, issued a notice of a preliminary meeting to Ion Exchange and Paramount.
39. On 14 June 2022, Ion Exchange wrote to Mr Pandya that it was in receipt of his letter; however, it had not consented to the appointment of Mr Pandya as sole arbitrator and that Ion Exchange is in the process of appointing its arbitrator and requested him not to proceed and that it would revert with the name and address of its choice of arbitrator. On 17 June 2002, Ion Exchange informed Mr Pandya, Arbitrator and Paramount, that it had appointed a learned retired Judge of this Court as its arbitrator.
40. On 2 July 2002, Mr Pandya, Arbitrator, informed his decision that he would proceed as a Sole Arbitrator. Ion Exchange informed Mr Pandya that it had filed Arbitration Application (L) No.365/2002 in this Court under section 11 of the Act. This Court dismissed Arbitration Application No.124/2002 (earlier lodging No.365/2002) and kept open the contention of the parties regarding jurisdiction to be agitated before the arbitrator.
41. According to Paramount, Paramount after sending the notice waited for a reasonable time and, after 30 days, communicated to Ion Exchange that the arbitrator nominated by it- Mr.Pandya will act as a sole arbitrator as per the agreement between the parties contained in clause-16 of the M.O.U. It was contended that section 11(6) of the Act will not apply because under clause-16 of the M.O.U., the parties had agreed to the procedure, and once the parties had agreed to the procedure for the consequences of default, section 11(6) is inapplicable. Reliance was placed on the decision of the Supreme Court in the case of SVG Molasses Co. B.V. v. Mysore Mercantile Co. Ltd.17 on non-application of section 11(6) of the Act. It was contended that even assuming the concept of a reasonable period to be invoked, once the arbitrator has found that 30 days period was reasonable, the learned Single Judge ought not to have disturbed the said finding unless it was grossly perverse. It was contended that there is no statutory provision under which Paramount was required to stipulate the time period while giving notice. Also it was submitted that Paramount did not immediately 17 2006 S.C.C. OnLine SC 38 proceed to declare that its nominee will act as sole arbitrator but had given reasonable time of more than 30 days to Ion Exchange to respond. Paramount could not have waited forever for the Ion Exchange to respond and, therefore, proceeded to inform Ion Exchange that Mr. Pandya would act as a sole arbitrator. Paramount contended that the view taken by the learned Single Judge is wrong in law, and it overlooks that Paramount has been reasonable and fair. It was contended that the learned Single Judge has overlooked the fundamental principles of party autonomy in an arbitration proceeding. Paramount relied on several decisions and, during the oral arguments, emphasized the law laid down in the decision of the Division Bench of Delhi High Court in the case of Talwar Brothers Pvt. Ltd. v. Punjab State Industrial Development Corporation Ltd.18 and the decisions of the Supreme Court in the case of Punj Lloyd Ltd. v. Petronet M.H.B. Ltd.1; and National Highways Authority of India v. Bumihiway D.D.B. Ltd.(J.V.)19. Paramount also relied upon the decision of the Supreme Court in Deep Trading Company v. Indian Oil Corporation20 on the aspect of forfeiture of the right to appoint the arbitrator.
42. Ion Exchange, in response, submitted that in the absence of a ‘due notice’ to Ion Exchange, Mr. Pandya was not entitled to act as the sole arbitrator. When there was no time prescribed in the contract to nominate the arbitrator after one party nominated its 18 2001 SCC OnLine Del 805: (2001) 94 DLT 84 (DB)
20 (2013) 4 S.C.C. 35: 2013 S.C.C. OnLine SC 259 arbitrator, Paramount while nominating its arbitrator was legally bound to specify time within which Ion Exchange was required to nominate its arbitrator. The notice should have specified the time and consequence of failure to nominate an arbitrator within that time limit. Ion Exchange relied on the decision of the Supreme Court in the case of Gomathinayagam Pillai v. Palaniswami Nadar21; the decisions of the Andhra Pradesh High Court in the cases of Nannapaneni Subayya Choudary v. Garikapati Veeraya22 and Koyana S. Reddy v. C. Chellayyamma23 and the decision of the Madhya Pradesh High Court in the case of Mulla Badruddin v.. It was contended that since no due notice was given by Paramount to Ion Exchange before Ion Exchange moved an application under section 11 of the Act, it had not lost its right to nominate its arbitrator. Reliance was placed on the decision of the Supreme Court in the case of Datar Switchgears Ltd. v. Tata It was contended that the default position, as envisaged in clause-16 of the M.O.U., did not apply, and also the law relating to the contract would become applicable, and the parties would have to make the time as the essence of the contract; otherwise, consequences would follow.
43. Paramount relied upon various decisions in support of its submission that 30 days period was reasonable was reasonable, but 21 (1967) 1 SCR 227: A.I.R. 1967 SC 868 22 A.I.R. 1957 AP 307 23 A.I.R. 1989 AP 276 24 A.I.R. 1963 MP 31 these decisions are distinguishable. In the case of K.R.Anand v., it was a case where the Single Judge of the Court had directed the Engineer Member of the respondent therein to appoint some other arbitrator and to refer all the disputes, and after five months of the order passed, the vacancy was not filled up. The appeal bench overruled the view of the learned Single Judge, holding that the vacancy did not have to be filled in 30 days. Therefore, the facts of this case are not the same as the facts of the case at hand. In the case of State of Gujarat v. R. Engineer27, the arbitration clause itself stipulated a time limit for various stages. This decision therefore cannot assist Paramount. In the case of S.B.P. and Company v. Patel Engineering Ltd.28 also, the arbitration clause under consideration stipulated a time period for the default mechanism. The same is the position in respect of the decision in You One Engineering & Construction Co.Ltd. v. National Highways Authority of India29 where the arbitration clause (Clause-
67.3) provided for the time limit for the other party to respond. In the case of the National Highways Authority of India also, the arbitration clause therein provided for a period of 30 days for the party to respond. In the case at hand clause-16 does not provide for any time limit within which the second party has to nominate an arbitrator after the first party intimates its choice and Paramount did not specify any period within which Ion Exchange was to appoint/ 26 2006 SCC OnLine Del 473: (2006) 131 DLT 538 27 2005 SC OnLine Guj 252 nominate its arbitrator.
44. In the decision of the Madhya Pradesh High Court in the case of Mulla Badruddin, the Court referred to section 55 of the Contract Act, 1872 to hold that it is a settled law that without giving reasonable notice to the other party to complete the contract within the specified time, the contract could not be cancelled at the sweet will of the party. It was held that in the contract of immovable property, time would not be regarded as of essence unless it is shown that the parties intended that their rights should depend upon observation of time as the essence of the contract. In the case of Nannapaneni Subayya Choudary, upon the difference between the learned Judges, the matter was referred to a third learned Judge and the majority decision was rendered considering section 55 of the Contract Act. Again the same principle was reiterated that when a contract does not stipulate a time period and does not make time the essence of the contract, it is open to the parties to make time the essence of the contract by calling upon the other party which has been guilty of unreasonable delay to perform its part of contract within the stated period. This line of argument was not advanced by Ion Exchange before the learned Single Judge, but it broadly supports its stand before the learned Arbitrator and the learned Single Judge that due notice was not given and, therefore, right of Ion Exchange to nominate its arbitrator could not have been curtailed.
45. The learned Single Judge going by a plain reading of the said clause 16 of the M.O.U. held that the default mechanism under Clause 16 of the M.O.U. had not come into operation. In an appeal under section 37 of the Act, we have to consider whether the view taken by the learned Single Judge interpreting the said clause can be considered as perverse. Clause-16 does not provide for any time limit within which the second party has to nominate an arbitrator after the first party intimates its choice. Second, Paramount did not specify any period within which Ion Exchange was to appoint/ nominate its arbitrator. while intimating Ion Exchange that it has nominated Mr.Pandya as its arbitrator, in the letter dated 13 April
2002.
46. Clause-16 of the M.O.U. is already reproduced above. As per that Clause the parties had agreed that if any dispute arose between them, they shall make reference to the arbitration of such disputes as cannot be mutually resolved. Both parties will nominate/appoint one Arbitrator each and an umpire to be appointed by the two Arbitrators, where one party shall fail to appoint an Arbitrator after due notice, the Arbitrator nominated/appointed by the other party shall act as a Sole Arbitrator. As stated above, admittedly, after Paramount wrote a letter on 13 April 2002 to Ion Exchange intimating that Mr.Pandya is its arbitrator, had stipulated no time for Ion Exchange to respond. Therefore, neither the contract between the parties stipulated any time within which the Ion Exchange had to nominate its arbitrator, nor in the communication the Paramount mentioned any time limit.
47. In the case of Datar Switchgears Ltd., the Hon’ble Supreme Court examined the law relating to section 11 of the Act. It was held that as far as section 11(6) of the Act, if the party demands the opposite party to appoint its arbitrator and the opposite party does not appoint any arbitrator within a period of 30 days, the right of the party does not get automatically forfeited after the period of 30 days. It was held that if the opposite party makes an application even after 30 days of demand but before the first party moves the Court under section 11, that would be sufficient, and only then the right of the opposite party ceases. The Hon'ble Supreme Court, in paragraphs-19 and 23, has observed thus: “19. So far as cases falling under Section 11(6) are concerned — such as the one before us — no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited. ….. ….. ….. ….. ….. ….. ….. ….. …..
23. When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of “freedom of contract” has been whittled down by various labour and social welfare legislation, still the court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause.” Paramount sought to contend that section 11 of the Act does not come into the picture at all as the parties had agreed to a default mechanism which has come into operation. However, since 'due notice' was not given by Paramount to Ion Exchange stating that Ion Exchange would forfeit its right to nominate its arbitrator after a particular time, the default mechanism under clause 16 of the M.O.U. between the parties had not come into operation at all.
48. Clause 16 of the M.O.U. did not use the phrase "notice" but specifically used the phrase a "due notice". This phrase "due notice" deliberately used by the parties will have to be given its meaning. The parties could not have intended to introduce uncertainty into their default mechanism under the M.O.U. They categorically used the term "due notice". When interpreting any agreement between the parties, a reading that would result in one party forfeiting an important right should not be casually adopted. Due notice will have to be the one which specifies the time period for the other party to nominate its arbitrator. Therefore, we concur with the reasoning of the learned Single Judge that in the absence of specific provision in the M.O.U., Paramount was under an obligation to specify a time-frame in its notice. This view taken by the learned Single Judge is in consonance with the underlying spirit of the concept of arbitration itself. Arbitration is designed to streamline proceedings based on the principles of equity, overseen by an arbitrator chosen by the parties. It cannot be held that that even though the M.O.U between the parties did not specify a time-frame for the second party to nominate its arbitrator, the Paramount was not required to communicate any time frame for default, subsequently and unilaterally could declare its nominee as the sole arbitrator.
49. We, therefore, find no illegality or perversity in the view taken by the learned Single Judge that the Arbitrator, Mr. Pandya had no jurisdiction to pass the impugned award. Paramount should have accepted the request made by Ion Exchange regarding its nominee arbitrator and then an umpire would have been appointed to conduct the arbitration proceedings as per the M.O.U. Therefore, on both counts Paramount did not act fairly, that is filing application in the Court at Vadodara and keeping that knowledge to itself and forcing ahead with own nominee as the sole arbitrator.
50. Considering the totality of the circumstances, and the scope of section 37 of the Act, we hold that no case is made out for interference with the impugned order passed by the learned Single Judge.
51. The appeal is dismissed. No costs.
52. In view of dismissal of appeal, cross-objection does not survive and stands disposed of accordingly. (SANDEEP V. MARNE, J.) (NITIN JAMDAR, J.)