S.B. Sinha, C.J.
1. An order of a learned Single Judge of this Court dated 01.03.2002 passed in A.A. No. 57 of 2002 whereby and whereunder an Arbitration Application filed by the petitioner herein purported to be under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for the sake of brevity referred to as, 'the said Act') was dismissed, is the subject matter of this writ petition.
2. The basic fact of the matter is not in dispute.
DLF Real Estate Developers, a partnership firm, comprising of Mahtur Cultivations Pvt. Ltd., Navsansar Agro Products Pvt. Ltd., Dreamland Agro Industries Pvt. Ltd., Vipul Vaibhav Agro Development Pvt. Ltd., Mr. Rajinder Singh and DLF Universal Limited, was constituted. The said partnership was registered under the Indian Partnership Act, 1932.
An agreement to sell dated 15.04.1995 was executed by and between the said DLF Real Estate Developers and the appellant herein whereby and whereunder the appellant herein agreed to purchase an office block consisting of floor space admeasuring 24210 sq. ft. situated at DLF Corporate Park, DLF City, Phase-III, Gurgaon for a total consideration of Rs. 5,56,82,162/- only. A sum of Rs. 81,70,875/- only was paid towards the amount of consideration. Pursuant to or in furtherance of the said agreement to sell, the appellant herein was to obtain delivery of possession within three and a half (3 1/2) years there from.
However, the said partnership firm was dissolved on or about 15.12.1995 and the assets and liabilities thereof were taken over by the respondent herein.
Disputes and differences arose between the parties hereto. According to the petitioner herein, it not only made payments in accordance with terms and conditions of the said agreement to sell but also made further payments as demanded by the respondent herien from time to time. A final payment of Rs. 76,66,398/- was also made on 24.07.1997 on obtaining possession. Despite the same, allegedly in the year 1999, the respondent herein raised an arbitrary demand of Rs. 1,65,74,552/-. The petitioner herein, however, without prejudice to its rights offered a sum of Rs. 50,00,000/- to the respondent herein as part payment against the said demand. The petitioner herein also allegedly held discussions with the respondent herein with a view to seek clarifications regarding the said demand. However, on or about 11.11.1999, the respondent herein returned the said amount of Rs. 50,00,000/- tendered by the petitioner and purported to have cancelled the said agreement to sell dated 15.04.1995.
According to the petitioner, despite repeated demands, the respondent herein failed and/or neglected to perform its obligation under the said agreement of sale dated 15.04.1995.
By a notice dated 16.01.2002, the petitioner herein sought to invoke the arbitration clause where for on or about 18.01.2002, a notice was served upon the respondent herein whereby and whereunder the name of Justice Mr. P.N. Bhagwati to act as sole arbitrator was suggested and the respondent herein was called upon to agree therewith. However, in terms of its letter dated 14.02.2002, the respondent herein rejected the said claim and informed the petitioner that in terms of the said agreement of sale dated 15.04.1995 the arbitrator was to be appointed by it and it nominated Shri S.S. Bagai as a sole arbitrator.
Thereafter the said application purported to be under Section 11(6) of the said Act was filed by the petitioner herein and by reason of the impugned order dated 01.03.2002, a learned Single Judge of this Court having regard to the contentions of the parties directed:-
'Respondent - DLF Universal Limited is hereby directed to appoint an Arbitrator, if already not appointed, within one month, failing which the petitioner shall approach this court for appointment of an independent Arbitrator.'
3. Mr. V.P. Singh, the learned senior counsel appearing on behalf of the petitioner, would raise two contentions in support of this writ petition.
The learned counsel would firstly submit that having regard to the fact that the said partnership firm, namely, DLF Real Estate Developers with whom the said agreement to sell was entered into by the petitioner, having been dissolved, the purported stipulation to the effect that the said firm shall appoint a sole arbitrator has come to an end as the mechanism thereforee did not survive.
The learned counsel would next contend that consequent upon the change of membership of the said firm, the mechanism as regards appointment of the arbitrator came to an end. In support of the said contention, strong reliance was placed upon a decision of the Privy Council in Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd. and Ors.,
The learned counsel would contend that the assets and liabilities of the said firm, having vested in the respondent herein in terms of Section 47 of the Partnership Act, it was bound thereby.
The learned counsel would further contend that as the learned Single Judge has failed to appoint an arbitrator, as prayed for by the petitioner as by reason of the impugned order he having rejected the prayer of the petitioner, a writ petition would be maintainable. Reliance in this connection has been placed on Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd., : [2002]1SCR728
4. Mr. Seth, the learned counsel appearing on behalf of the respondent on the other hand, would contend that this writ petition is not maintainable inasmuch as by reason of the impugned order, the learned Single Judge has appointed an arbitrator. Reliance in this behalf was placed on Konkan Railway Corporation's case (Supra).
The learned counsel would contend that the arbitration agreement can be assigned and in view of the fact that the assets and liabilities of the said firm had been taken over by the respondent herein, the arbitration clause contained in the said agreement to sell dated 15.04.1995 shall survive. Reliance in this connection has been placed on R.K. Associates v. V. Channappa and Ors., : AIR1993Kant247 ; Commissioner of Income-tax, West Bengal-III v. Pigot Champan & Co., : [1982]135ITR620(SC) ; Konkan Railway Corporation Ltd. and ors. v. Mehul Construction Co., : AIR2000SC2821 ; Mrs. Sushila Seth and Ors. v. The State of Madhya Pradesh, : AIR1980Delhi244 ; Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem . and Ors., : AIR1996SC543 ; and The Additional Secretary to the Government of India and Ors. v. Smt. Alka Subhash Gadia and Anr, : 1991(53)ELT481(SC) .
5. It is not in dispute that the respondent herein was a partner in the said partnership firm, which was dissolved by a deed of dissolution dated 29.12.1995. By reason of the aforementioned deed of dissolution, the respondent herein became a continuing partner in terms whereof it took over the assets and liabilities at the close of business hours on 15.12.1995. The said dissolution of the partnership firm must, thereforee, be held to have been effected in terms of Section 40 of the Partnership Act.
The parties do not dispute that the arbitration clause contained in the said Agreement survives despite execution of the aforementioned deed of dissolution and, thus, in our opinion, the parties would be bound thereby.
Out of six partners, if one of the partners viz. the respondent herein having taken over the assets and liabilities of the said firm was entitled to take all steps for the purpose of enforcement of contract. The rights and liabilities of the parties of the said agreement to sell dated 15.04.1995, thus, were assignable and in that view of the matter, the arbitration agreement will bind the actual parties.
6. In Russell on the Law of Arbitration, Twentieth Edition by Anthony Walton, Q.C. and Mary Vitoria, the law is stated in the following terms:-
'An arbitration clause will bind a valid assignee of a contract containing it; and the presence of an arbitration clause will not normally cause a court to hold that a contract is not assignable. Shaylor v. Woolf [1946] Ch. 320
7. Similarly in The Law and Practice of Commercial Arbitration in England by Sir Michael J. Mustill and Stewart C. Boyd, London Butterworths 1982, the law is stated in the following terms:-
'4. Assignment
The fourth situation is the one which most commonly arises. Here, the claimant is the assignee of the benefit of the contract - either by statute, or by a full legal assignment under Section 136 of the Law of Property Act 1925 or by an equitable assignment. The decided cases on the rights of the parties in this situation are not clear. There would be much to be said for an argument that although the presence of the arbitration clause would not present the assignee from obtaining a valid right of claim, he would have to enforce his claim by action, rather than arbitration. It appears, however, that this is not the law, and that the position is as follows:-
(i) The presence of an arbitration clause in a contract does not prevent the contract from being assigned.
(ii) The assignee can and must enforce his claim by arbitration, unless the clause is so worded as to make it clear that it binds only the original parties.
(iii) Where there has been a legal assignment under the Law of Property Act 1925, the assignee may maintain an arbitration in his own name alone. ( Aspell v. Seymour [1929] WN 152; Shayler v. Woolf, ante.). The assignor is allowed to arbitrate, but he will recover nothing. ( Cottage Club Estates Ltd. v. Woodside Estate Co. (Amersham) Ltd. ante.). Where the assignment is equitable, both the assignor and the assignee should join in the arbitration.
(iv) The mere fact that the claim is connected with the contract does not require the assignee to arbitrate. It is only if he is claiming to enforce the contract that he is bound by the clause. ( Bonnin v. Name [1910] 1 Ch. 732.
Where it is not the benefit of the whole contract which has been assigned, but merely a claim arising under it, the right of the assignee to avail himself of the arbitration clause is not at present clear.
Thus far, we have discussed the position which exists where the arbitration clause is in the ordinary form. If the clause is of the Scott v. Avery type, the claim must plainly be pursued by arbitration, since the original party could not, by assigning away his right, deprive the respondent of his right to rely on the contractual stipulation making an award a condition precedent to legal proceedings. ( Dennehy v. Bellamy, ante; Freshwater v. Western Australian Assurance Co. Ltd. ante; Smith v. Pearl Assurance Co. Ltd. [1939] 63 L R 1. But who should be the parties to the arbitration? Should the assignee arbitrate in his own name, or should he cause the original party to arbitrate on his behalf? It appears that the former view is correct. ( Digby v. General Accident, ante; Dennehy v. Bellamy, ante], unless the clause is so worded as to admit only on an arbitration between the original parties to the contract.'
8. In Halsbury's Laws of England, Fourth Edition, Volume 2, the law is stated in the following terms:-
'528. Parties and their assignees.--An arbitration agreement or an oral submission is binding on the parties thereto. ( Baron v. Sunderland Corporation. [1966] 2 QB 56, [1966] 1 A ER 349, CA or Ronaasen & Son v. Metsanomistajain Metsakeskus O/Y [1931] 40 L R 267. Where the subject matter of the reference is capable of assignment the assignee of a party to an arbitration agreement is likewise bound. ( Shauler v. Woolf [1946] Ch 320, CA; Smith v. Jones [1842] 1 NS 526.'
9. In the aforementioned backdrop, the arbitration agreement between the parties, which is in the following terms, is required to be construed:-
'45. That all disputes arising out of or under or in any manner connected with this agreement shall be referred to the sole arbitrator appointed by the Firm and the proceedings thereof shall be governed by the Indian Arbitration Act, 1940 and the Rules framed there under and the award shall only be filed in a court of appropriate jurisdiction in Delhi and in no other court. There shall be no objection that the Arbitrator so appointed by the Firm is an official of their Firm or of any of the Partners of the Firm.'
10. If the contract was assignable as a result whereof the parties hereto are bound thereby, the arbitration agreement can be enforced. Once the arbitration agreement is enforced, the right of the parties to appoint arbitrator cannot be taken away. For all intent and purport, the respondent herein having succeeded to the assets of the said partnership firm and being entitled to all its rights and liabilities, in the considered view of this Court, it would also be entitled to enforce the contract in the manner as specified therein.
11. It is thereforee, in our opinion, not correct to contend that although the petitioner would be entitled to enforce the arbitration agreement as against the respondent herein, the latter would not be entitled to exercise its right to appoint an arbitrator there under.
12. In The Union of India v. D.N. Revri & Co. and Ors., : [1977]1SCR483 , the Apex Court in no uncertain terms held that the arbitration agreement should not be construed in a pedantic manner. It was observed:-
'7. It must be remembered that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract, entered into between two lay parties, to apply strict rules of construction which are ordinarily applicable to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a commonsense approach and it must not be allowed to be thwarted by a narrow pedantic and legalistic interpretation. Here, at the time when the arbitrator came to be nominated and the reference was made, there was a Ministry of Food and Agriculture and there was a Secretary in that Ministry, but the only difficulty, according to the High Court was that there were instead of one, two Secretaries and it could not be predicated as to which Secretary was intended to exercise the power of nominating an arbitrator. We do not think this difficulty is at all real. Let us consider, for a moment, why in Clause (17) the power to nominate an arbitrator was conferred on the Secretary in the Ministry of Food and Agriculture and not on a Secretary in any other Ministry. The reason obviously was that at the date of the contract the Secretary in the Ministry of Food and Agriculture was the Officer dealing with the subject-matter of the contract. If this object and reason of the provision of Clause (17) is kept in mind, it will become immediately clear that the 'Secretary in the Ministry of Food and Agriculture' authorised to nominate an arbitrator was the Secretary in charge of the Department of Food who was concerned with the subject-matter of the contract. The Secretary in charge of the Department of Food filled the description 'Secretary in the Ministry of Food and Agriculture' given in Clause (17). The respondents relied strongly on the use of the definite article 'the' before the words 'Secretary in the Ministry of Food and Agriculture' and urged that what the parties to the contract had in mind was not a Secretary in the Ministry of Food and Agriculture but the Secretary in the Ministry of Food and Agriculture and that clearly postulated one definite Secretary in the Ministry of Food and Agriculture and not one of two Secretariesin that Ministry. This is, in our opinion, a hypertechnical argument which seeks to make a fortress out of the dictionary and ignores the plain intendment of the contract. We fail to see why the Secretary in the Ministry of Food and Agriculture in charge of the Department of Food could not be described as the Secretary. He would be the Secretary in the Ministry of Food and Agriculture concerned with the subject-matter of the contract and clearly and indubitably he would be the person intended by the parties to exercise the power of nominating the arbitrator. The parties to the contract obviously could not be expected to use the words 'a Secretary in the Ministry of Food and Agriculture', because their intendment was not that any Secretary in the Ministry of Food and Agriculture should be entitled to exercise the power of nominating an arbitrator, but it should only be the Secretary in the Ministry of Food and Agriculture concerned with the subject-matter of the contract....'
13. Yet again in Pigot Champan's case (Supra), it was held that when an old firm was dissolved and a new firm succeeded to the old business, the successor was also entitled to claim relief under Section 25(4) of the Income-tax Act, 1922.
14. It cannot also be said that the arbitration clause was vague.
In Sushila Seth's case (Supra) , this Court relying upon Section 18 of the General Clauses Act held that a designated authority for the purpose of appointment of arbitrator shall also include his successor in office.
15. Yet again in Indian Drugs & Pharmaceuticals's case (Supra), it was held:-
'16. In the aforesaid premises, we do not find any threshold infirmity in the invocation of Clause 19 and to the reference of the dispute to respondent No. 3. Shri Desai submits that respondent No. 3 may not be required to arbitrate inasmuch as he being an appointee of the Chairman and Managing Director of the appellant himself, respondent's case may not be fairly examined. He prays that any retired High Court Judge may be appointed as an arbitrator by us. We have not felt inclined to accept this submission, because arbitration clause states categorically that the difference/dispute shall be referred 'to an arbitrator appointed by the Chairman and Managing Director of IPDL' (Indian Drugs and Pharmaceutical Limited) who is the appellant. This provision in the arbitration clause cannot be given a go-bye merely at the askance of the respondent unless he challenged its binding nature in an appropriate proceeding which he did not do.'
Thus, herein no case has been made out to hold that the mechanism of appointment of arbitrator has failed.
16. In Mehul Construction's case (Supra), the Apex Court laid down the history of enactment of the said Act and held that the object of the said Act being for a progressive, formalization and unification of law of international trade and speedy disposal of the dispute and having regard to the fact that even jurisdiction of the arbitration can be challenged on certain grounds held:-
'4. ...This being the legislative intent, it would be proper for the Chief Justice or his nominee just to appoint an arbitrator without wasting any time or without entertaining any contentions issues at that stage, by a party objecting to the appointment of an arbitrator. If this approach is adhered to, then there would be no grievance of any party and in the arbitral proceeding, it would be open to raise any objection, as provided under the Act. But certain contingencies may arise where the Chief Justice or his nominee refuses to make an appointment of an arbitrator and in such a case a party seeking appointment of an arbitrator cannot be said to be without any remedy. Bearing in mind the purpose of legislation, the language used in Section 11(6) conferring power on the Chief Justice or his nominee to appoint an arbitrator, the curtailment of the powers of the Court in the matter of interference, the expanding jurisdiction of the arbitrator in course of the arbitral proceeding, and above all the main objective, namely, the confidence of the international market for speedy disposal of their disputes, the character and status of an order appointing an arbitrator by the Chief Justice or his nominee under Section 11(6) has to be decided upon....'
The said dicta has been upheld by the Constitution Bench of the Apex Court in Konkan v. Rani Construction's case (Supra) holding:-
'17. ... Where an appointment procedure has been agreed upon by the parties but a party fails to act as required by that procedure or the parties, or the two arbitrators appointed by them, fail to reach the agreement expected of them under that procedure or a person or institution fails to perform the function entrusted to him or it under that procedure, a party may request the Chief Justice or his designate to nominate an arbitrator, unless the appointment procedure provides other means in this behalf. The decision of the Chief Justice or his designate is final. In nominating an arbitrator the Chief Justice or his designate must have regard to the qualifications required of the arbitrator in the agreement between the parties and to other considerations that will secure the nomination of an independent and impartial arbitrator.'
In the instant case, the parties had agreed to a procedure as regards appointment of arbitrator.
17. For the reasons aforementioned, we are of the opinion it is difficult to hold, as has been contended by Mr. V.P. Singh, that the mechanism for appointment of an arbitrator came to an end with the change of circumstances.
Furthermore, the decision of the Privy Council in Bhagwanji Morarji Goculdas's (Supra) cannot be said to have any application in the facts and circumstances of this case. In that case, an agreement was made between a company and four named individuals carrying on business under a firm and when all the four members seized to be the members of the firm, it was held that there was no privity between the company and the firm. In the instant case,all the four individuals had not ceased to be the members of the firm inasmuch as the respondent herein was a partner of the said partnership firm and had taken over the continuing business with its assets and liabilities.
18. In this view of the matter, we are of the opinion that there is no merit in this writ petition, which is accordingly dismissed with costs quantified at Rs. 5,000/-.