Pradeep Nandrajog, J.
1. Application filed by the defendants invoking Section 5 and 8 of the Arbitration and Conciliation Act, 1996 is being disposed of by the present order. Section 5 and Section 8 relied upon read as under:-
5. Extent of judicial intervention.- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.
8. Power to refer parties to arbitration where there is an arbitration agreement. - (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute refer the parties to arbitration.
(2) The application referred to in sub-section(1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section(1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
2. Pleadings of the defendants in aid of the relief prayed in the application, relief being to refer the dispute to arbitration, are as under:-
That the Defendants herein submits that the enterprise Partner agreement dated 26th August 2000 although not signed by the Plaintiff but upon which the Plaintiff insists and relied at various points of time consist of an arbitration clause being Clause No. 19, which states as under:
All disputes or the differences whatsoever arising between the parties hereto out of or relating to the construction, meaning and operation or effect of this Agreement or the breach thereof which cannot be settled by mutual discussion the same shall be referred to the decision of an arbitrator to be appointed in writing by the parties to the Agreement or if they cannot agree upon a single arbitrator to the decision of three arbitrators, one each to be appointed by the Parties herein and the third to be mutually agreed upon by the two arbitrators will be appointed as the Chairman. The arbitration proceedings shall be conducted at New Delhi and the arbitration proceedings shall be in accordance with the provisions of the Arbitration and Conciliation Act, 1996.
3. Sh.Biswajeet Bhattacharya, counsel for the defendants urged that mandate of Section 5 of the Arbitration & Conciliation Act, 1996 prohibited a judicial authority to determine any dispute which was the subject matter of an arbitration agreement between the parties. Counsel urged that mandate of Section 8 required a judicial authority before which an action is brought to refer the parties to arbitration if the subject matter of the action was the subject matter of an arbitration agreement.
4. There could hardly be any dispute to the proposition of law propounded by counsel for the defendants, but the issue is, whether facts of the present case would prohibit a trial of the suit in this court.
5. Application has to be dismissed for two reasons. The first and the foremost reason is that the defendants have not only filed a written statement simultaneously when the application was filed but have also laid a counter claim. Sh.Biswajeet Bhattacharya argued that the suit has to be referred to arbitration but the counter claim has to continue in this court.
6. I am quite surprised with the arguments urged for the reason the alleged agreement dated 26.8.2000 which has been made the basis of the application has been made the basis of the counter claim by the defendants themselves. If the defendants lay a counter claim under the alleged agreement dated 26.8.2000 and require this court to adjudicate their counter claim, defendants cannot approbate and reprobate, requiring the dispute raised in the plaint to be referred to arbitration.
7. The second reason as to why the application cannot be allowed, being more fundamental to the issue, may now be decided.
8. Case of the plaintiff is that defendant No. 2 who is the Chairman and Chief Executive Officer of defendant No. 1 approached the plaintiff in August, 2000 and expressed a desire to do business in partnership with the plaintiff. Said defendant gave a very rosy picture of defendant No. 1. As per the plaintiff, believing the representations of the defendants, parties discussed the modality of a joint venture. Verbal discussions were held and it was agreed that a joint venture company would be formed with equity participation from the plaintiff and the defendants. As per the plaintiff when negotiations were at an advanced stage, defendants represented that they were facing liquidated problem and to tide over the same requested the plaintiff for a short term financial assistance in sum of Rs.40,00,000/-. Plaintiff advanced a loan in sum of Rs.40,00,000/- by means of a cheque dated 24.8.2000 drawn in favor of defendant No. 1. The cheque was encashed.
9. Plaintiff states that having received the sum of Rs.40,00,000/- by way of loan, defendant No. 2 turned dishonest inasmuch as in May, 2001 he sent a copy of a proposed joint venture agreement for the formation of a joint venture company containing terms not agreed to by the parties. In the draft of the agreement sent, defendants sought to appropriate the sum of Rs.40,00,000/- received by them.
10. According to the plaintiff, this was an act of complete fraud. Accordingly, plaintiff seeks to recover sum of Rs.40,00,000/- received by the defendants together with interest thereon.
11. It is the admitted position between the parties that the agreement relied upon by the defendants has not been executed by the plaintiff. Indeed, the agreement does not bear the signatures of any person on behalf of the plaintiff.
12. Assertion of the defendant that plaintiff has sued on the basis of the agreement dated 26.8.2000 relied upon by the defendant is incorrect. I have noted above the case of the plaintiff. Plaintiff has categorically averred that the sum of Rs.40,00,000/- in question was by way of loan. Plaintiff has categorically averred that after verbal negotiations, defendants sent a draft of a proposed joint-venture which contained terms not agreed upon and thereforee plaintiff did not sign the agreement in question.
13. Learned counsel for the applicant submitted that jurisdiction of this court under Section 8 had to be understood in the context of Section 16 of the Arbitration & Conciliation act, 1996. Submission made was that the learned arbitrators had to rule on their jurisdiction. Counsel urged that whether or not an agreement existed between the parties had to be decided by the learned arbitrator.
14. Counsel relied upon the following decisions:-
(i) : AIR2003SC2881 Hindustan Petroleum Corporation Ltd. v. Pink City Midway Petroleums;
(ii) : (2002)10SCC71 Niko Resources Limited v.Gujarat State Petroleum Corporation;
(iii) : AIR2000SC3107 Nimet Resources Inc. and Anr. v. Essar Steels Limited;
(iv) JT 2003 (6) SC 515 Hythro Power Corporation v. Delhi Transco Ltd.;
(v) : (2002)10SCC74 Viatra A.G. v. State Trading Corporation of India Limited.
15. Decision of the Hon'ble Supreme Court in Hindustan Petroleum Corporation Limited pertained to an issue where agreement between the parties was not in dispute. Plaintiff had filed the suit in respect of a cause of action under the agreement alleging breach by the defendant. Application under Section 8 of the Arbitration & Conciliation Act filed by the defendant was dismissed by the trial court on the ground that the dispute raised was not covered by the ambit of the arbitration clause and hence the suit could proceed in the court. Revision petition filed before the High Court had failed.
16. In the context of the said facts, learned Supreme Court held as under:-
15. The question then would arise: what would be the role of the civil court when an argument is raised that such an arbitration clause does not apply to the facts of the case in hand? Learned counsel for the appellant contends that it is a matter which should be raised before the arbitrator who is competent to adjudicate upon the same and the civil court should not embark upon an inquiry in regard to the applicability of the arbitration clause to the facts of the case. While learned counsel appearing for the respondent contends that since the applicability of the arbitration clause to the facts of the case goes to the very root of the jurisdiction of the reference to arbitration, this question will have to be decided by the civil court before referring the matter to arbitration even in cases where there is admittedly an arbitration clause. The answer to this argument, in our opinion, is found in Section 16 of the Act itself. It has empowered the Arbitral Tribunal to rule on its own jurisdiction including rule on any objection with respect to the existence or validity of the arbitration agreement.
17. Following pertinent observations of their Lordships in para 14 of the report are relevant for the purposes of the present adjudication and hence are being noted. They read as under:-
14. ......... thereforee, it is clear that if, as contended by a party in an agreement between the parties before the civil court, there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the Agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration.
18. Decision in Niko Resources Limited's Judgment (Supra), shows, refer para 9 of the report, that their Lordships of the Supreme Court recorded a finding that there was an agreement between the parties containing an arbitration clause and as a result thereof, matter was referred for arbitration.
19. In Nimit Resources' case (Supra), their Lordships of the Supreme Court held that where there was undoubtedly a transaction, evidenced from correspondence and documents exchanged between the parties but it was not clear whether there existed or not an arbitration agreement, appropriate course would be to refer the dispute to arbitration leaving it open to the arbitration to decide the question under Section 16. Their Lordships of the Supreme Court noted Section 7 of the Act which sets out what an arbitration agreement is.
20. Section 7 of the Act reads as under:-
7. Arbitration Agreement.- (1) In this part, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in-
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
21. Decision in Nimet Resources' case (Supra) has to be understood in context of the admitted facts of the case. Facts being that Nimet Resources claim to have supplied goods as per contract dated 20.8.1998. Contract dated 20.8.1998 was followed by a purchase order dated 25.8.1998 issued by Essar Steel followed by Essar Steel opening a L.C. On 15.10.98. There was a dispute. Essar Steel disclaimed the contract alleging that it had not signed the same. Nimet alleged that by placing purchase order and opening L.C. Essar Steel had acted under the contract dated 20.8.1998. It was accordingly held in para 4 as under:-
4. In this case from the pleadings raised by the parties, prima facie, it appears to me that the parties are not total strangers. There has been some correspondence between them in regard to sale and supply of different quantities of ferro-vanadium on different dates. Prima facie examination reveals that it cannot be a case of there being no transaction between the parties in regard to sale and supply of the goods in question. Whether that transaction fructified into a contract with an arbitration clause is a moot point to be decided.
22. Admitted facts noted in Hythro Power Corporation's case (Supra) were that respondent had issued a NIT pursuant whereto Hythro Power Corporation submitted an offer which was accepted. Tender documents contained an arbitration clause. In light of said admitted facts, their Lordships of the Supreme Court held in para 9:
9. ......... Whether the letters and exchange of correspondence between the parties, pursuant to NIT, can constitute a contract and an arbitration agreement can be read into the same in terms of Section 7(4)(b) of the Act was a question solely within the jurisdiction of the Arbitral Tribunal under Section 16 of the Act.
23. Decision in Viatra A.G. (Supra) reads as under:-
1. In view of a factual error in the order made by me on 1.5.2002, I recall the same and make the following order after hearing the parties:
I have been nominated by the Hon'ble the Chief Justice of India to appoint a presiding arbitrator to decide the dispute between Viatra A.G. And State Trading Corporation of India Ltd.2. Exercising the authority so vested in me and after hearing the parties concerned, I appoint Mr.Justice S. Ranganathan, resident of A-102, Anandlok Coop. Group housing Society, Purvasha, Mayur Vihar, Phase I, Delhi 110 091, a retired Judge of the Supreme Court of India as the presiding arbitrator to decide the said dispute between the parties.
3. The said presiding arbitrator will be paid such fee as may be determined by him.
4. Learned counsel appearing for the State Trading Corporation has put forward a contention that there is no valid arbitral clause in the agreement. This is not a matter for me to decide. The objection, if any, in this regard will have to be raised before the learned arbitrators.
5. Ordered accordingly.
24. Learned counsel for the applicant could hardly explain it's relevance.
25. Plaintiffs assertion in para 16 of the plaint pertaining to the alleged agreement relied upon by the defendant are:
That the Defendant No. 2 mischievously after persistent demands, reminders, pleas and notices from the Plaintiff Company, in or about May, 2001 instead of sending a draft of the proposed Joint Venture Agreement for the formation of a Joint Venture Company, in utter disregard and absolutely contrary to the representations made earlier and the understanding arrived at between the parties, send an alleged Enterprise Partner Agreement to the Plaintiff which was neither in contemplation of the Plaintiff nor was ever discussed by the parties.
26. Defendants response to para 16 is as under:-
16. False and denied. It is stated that the parties had only agreed to sign an Enterprise Partner Agreement and not Joint Venture Agreement. Preliminary objections are reiterated.
27. When plaintiff received the alleged agreement in May, 2001, it wrote a letter on 29.5.2001 as under:-+
M/s Globsyn Technologies Limited,
Registered Office,
E-993, Chittranjan Park,
New Delhi-110 019+
Also at:
M/s Globsyn Technologies Ltd.,
Enkay Tower, B & B1, Vanijya Nikunj,
Udyog Vihar, Phase-V,
Gurgaon-122 016
Attn: Mr.Bikram Dasgupta, Chairman.
Dear Sirs/Mr.Bikram Dasgupta, Chairman,As discussed and conveyed to you during our meeting with you, we once again confirm and convey that the draft Enterprise Partner Agreement (EPA) as sent by you is not acceptable to us as the said draft EPA sent by you is substantially and materially at variance with what had been agreed to between you (Mr.Bikram Dasgupta, Chairman and other senior officers of GTL) and us (M/s Asiasoft (India) Private Limited). Further, during your discussions with us you also declined to finalise and execute the JV agreement and to incorporate the Joint Venture Company as was originally proposed by you and agreed to by us.
In view of the above, we now request and call upon you to immediately refund Rs.40,00,000/- (Rupees Forty Lacs) which was lent by us to you on the basis of the explicit promise made by you that the said short term loan of Rs.40,00,000/- (Rupees Forty Lacs) would, in the event of the formation of a JV and execution of the JV agreement, be converted into Equity Contribution by us-M/s Asiasoft (India) Private Limited, or would be repaid in cash in the event of failure of parties to reach the agreement in the formation of JV.
We hope as per our understanding and as conveyed, assured and agreed by you, GTL will immediately refund the said amount of Rs.40,00,000/- (Rupees Forty Lacs) with up to date interest @ 18% per annum thereon, by way of demand draft/pay order in our favor and payable at New Delhi and we call upon you to please pay the entire sum of Rs.40,00,000/- (Rupees Forty Lacs) with up to date interest calculated @ 18% from 24/08/2000 to the date of the pay order.
Thanking you
Yours truly,
for Asiasoft (India) Pvt. Ltd.
Sd/-
Director.
28. Aforenoted decisions cited by counsel for the applicant bring out that contentious issues should not be gone into or decided at the stage of appointment of an arbitrator and no time should be wasted in such an exercise. Remedy of the aggrieved party being to raise the issue of jurisdiction before the arbitrator. But where 'ex facie' it is evident that there exists no arbitration agreement between the parties and the stand of the defendant is based on a document which is created, sham or fabricated, position would be otherwise.
29. Facts of the case do not bring out any arbitration agreement under any of the clauses of sub-section 4 of Section 7. Document relied upon by the applicant surfaced in May 2001 whereas money in question was paid in August, 2000.
30. Application is accordingly dismissed.
31. No costs.