Countryside Builders and Developers and ors. Vs. Rajesh Kumar Bansal and anr. - Court Judgment

V.K. Gupta, C.J.

1. Under challenge in this appeal filed under Section 12 of the Delhi High Court Act (as applicable to the State of Himachal Pradesh) read with Clause 10 of the Letters Patent is the judgment dated 23rd July, 2004 passed by a learned Single Judge of this Court rendered in two miscellaneous applications, being OMPs No. 179 and 195 of 2004 arising out of Civil Suit No. 8 of 2004. By the aforesaid impugned judgment, the learned Single Judge dismissed both the aforesaid applications after rejecting the prayer of the appellants that the Court should, in terms of Section 8 of the Arbitration and Conciliation Act, 1996 (1996 Act, for short) refer the parties to arbitration.

2. Brief facts leading to the filing of the appeal may be summarized as under.

3. Rajesh Kumar Bansal, respondent No. 1 herein filed Civil Suit No. 8 of 2004 in this Court by invoking the ordinary original jurisdiction of this Court. The suit was for dissolution of partnership firm i.e. M/ s Countryside Builders and Developers, appellant No. 1 herein, and for rendition of accounts etc. Even while the suit was in its initial stages and before the defendants in the suit (who are the appellants in this appeal before us) could file their written statement, they filed the above mentioned two miscellaneous applications, being OMPs No. 179 and 195 of 2004 in terms of Section 8 of the 1996 Act praying that since the subject matter of Civil Suit No. 8 of 2004 is also the subject-matter of an arbitration agreement having been executed between the parties to the suit and it still being in existence, the parties be referred to arbitration. As noticed at the out-set, the learned Single Judge not agreeing with the contention of the appellants rejected their aforesaid applications by holding that no binding arbitration agreement between the parties was in force and therefore, the jurisdiction of the Civil Court to entertain and continue with the suit not having been ousted in any manner, the suit would proceed.

4. The arbitration agreement upon which the appellants sought reliance in filing the above referred applications under Section 8 of the 1996 Act is contained in Clause 12 of the Deed of Partnership which admittedly has been executed by and between the parties. Clause 12 reads thus:

Any dispute that may arise amongst the partners pertaining to the affairs of partnership shall be referred to the arbitration of arbitrator whose decision shall be final and binding on the partners. Arbitrator shall be chosen mutually by both the partners. However, jurisdiction of the civil Court shall not be ousted.

5. Undoubtedly, the learned Single Judge for rejecting Section 8 applications was influenced by that part of Clause 12 (supra) which stated that the jurisdiction of the Civil Court 'shall not be ousted'. Reliance was placed by the learned Single Judge upon a judgment of the Supreme Court in the case of Wellington Associates Ltd. v. Kirit Mehta reported in : AIR2000SC1379 .

6. Section 8 of the 1996 Act reads thus:

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.

7. A plain reading of Section 8 (supra) clearly suggests that before a Civil Court (a Judicial Authority) seized of a Civil Suit with respect and relating to an action which is also clamed to be the subject-matter of an arbitration agreement decides to refer the parties to arbitration upon an application made before it by the defendants in the suit, has to satisfy itself that indeed a subsisting arbitration agreement exists between the parties and that the subject-matter of the suit is the same as is covered by the said arbitration agreement so that it is referable to arbitration. The existence of a subsisting arbitration agreement and the arbitrality of the subject-matter of the suit therefore, are conditions precedent for passing an order by such a Court under Section 8 of the 1996 Act for referring the parties to the arbitration. If there is no arbitration agreement between the parties or if, despite existence of the arbitration agreement the subject-matter of the suit is not arbitrable, the Court is obliged to reject the application filed by the defendants under Section 8 of 1996 Act and proceed to continue with the hearing of the suit.

8. An arbitration agreement has been defined in Section 7 of the 1996 Act which reads thus:

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 a rise 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 defence 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 us to make that arbitration clause part of the contract.

9. Taking a cue from the definition of the 'arbitration agreement' as occurring in Section 7 (supra) there can be no manner of doubt that the text of Clause 12 of the Partnership deed (supra), minus the expression, 'however, jurisdiction of the Civil Court shall not be ousted' clearly suggests that the parties clearly intended that all disputes between and amongst themselves pertaining to the aforesaid-partnership should be referred to the arbitration of an Arbitrator to be chosen mutually by all the parties and that the decision of the Arbitrator shall be final and binding on the parties. If one reads the said text occurring in Clause 12 (supra) and applies the mandate of law as contained in Section 7 (supra) with respect to the definition of an 'arbitration agreement' there cannot be any manner of doubt that by any reckoning, on any touchstone, the text of Clause 12 meets with the requirements of an arbitration agreement because Clause 12 is an 'agreement' in writing, being in the form of arbitration clause contained in a contract since it is undoubtedly signed by the parties and it clearly reflects and manifests an explicit agreement by and between the parties to submit to arbitration all disputes which may arise between the parties in respect of a defined legal relationship, namely, the affairs of the partnership arising out of partnership deed in question qua the partners constituting the partnership. But for the aforesaid last quoted expression with respect to the non-ouster of the jurisdiction of the Civil Court, no dispute with respect to the interpretation of Clause 12 would have arisen at all in this case. The dispute has arisen only because the above referred last quoted sentence in Clause 12 says that the jurisdiction of the Civil Court shall not be ousted.

10. In Wellington Associates Ltd. v. Kirit Mehta (supra) which has been relied upon by the learned Single Judge in the course of impugned judgment, adverting to Section 7 of 1996 Act, M. Jagannadha Rao, J. (as he then was) while mentioning that the arbitration agreement is a document which requires a reference in a mandatory sense has to be interpreted to gather its full meaning, where with reference to the expression 'may' or 'shall' the parties intended that the dispute should mandatorily be referred to the arbitration. What would be the true intention of the parties by a reference to the main text of Clause 12 (supra) has thus to be gathered by reading Clause 12 as a whole and neither in abstract, nor in isolation nor by practically splitting Clause 12 in two parts. In Wellington Associates Ltd. v. Kirit Mehta (supra) the confusion had arisen, and very palpably so because of a clearly defined demarcation reflecting conflicting intentions of the parties, viz. whether they should take recourse to arbitration, or they should go to a Civil Court by filing a Civil Suit. The conflicting intentions, or what the Supreme Court termed them as the 'options' are very clearly manifested and writ large in the agreement which formed the subject-matter of contention between the parties in that case. It would be advantageous, to draw a comparison with the text of that agreement in that case to Clause 12 (supra) in our case so as to find out some subtle differences between the two with a view to deciding and relating the controversy on the touch stone of Section 8 of the 1996 Act. The agreement which has been quoted in para 9 of the judgment is in two clauses, Clause 4 and Clause 5, and reads thus:

4. It is hereby agreed that, if any dispute arises in connection with these presents, only Courts in Bombay would have jurisdiction to try and determine the suit and the parties hereto submit themselves to the exclusive jurisdiction of the Courts in Bombay.

5. It is also agreed by and between the parties that any dispute or differences arising in connection with these presents may be referred to arbitration in pursuance of the Arbitration Act, 1940 by each party appointing one arbitrator and the arbitrators so appointed selecting, an umpire. The venue of arbitration shall be at Bombay.

11. The expressions 'may', 'it is also agreed', and the emphasis on the word 'also' occurring in Clause 5 clearly reflected an intention of the parties, on a combined reading of Clauses 4 and 5 that the parties had the 'option' of having recourse to either of the two remedies and that the intention of the parties that the arbitration was not to be the sole remedy can be manifested from a combined reading of these two clauses. The following observations in Wellington Associates Ltd. v. Kirit Mehta (supra) are apposite and we quote:

It is contended for the petitioner that the word 'may' in clause 5 has to be construed as 'shall'. According to the petitioner's Counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties. The parties, in my view, used the words 'may' not without reason. If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the civil Courts at Bombay are to be approached by way of a suit. Then follows clause 5 with the words 'it is also agreed' that the dispute 'may' be referred to arbitration implying that parties need not necessarily go to the civil Court by way of suit but can also go before an arbitrator. Thus, clause 5 is merely an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like clause 4 which discloses a general intention of the parties to go before a civil Court by way of suit. Thus, reading clause 4 and clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they can 'also' go to arbitration in case the aggrieved party does not wish to go to a civil Court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same clause 5, so far as the venue of arbitration is concerned, uses the word 'shall'. The parties, in my view, must be deemed to have used the words 'may' and 'shall' at different places, after due deliberation.

12. Else where in the same judgment it was clearly held that in most arbitration clauses words normally used are to the effect that the 'disputes shall be referred to arbitration' and not that the 'disputes may be referred'. The following observations in para 21 of the judgment to this effect are apposite and we quote:

Does clause 5 amount to an arbitration clause as defined in Section 2(b) read with Section 7? I may here slate that in most arbitration clauses, the words normally used are that 'disputes shall be referred to arbitration'. But in the ease before me, the words used are 'may be referred'.

13. Applying the aforesaid principles of law and culling out from these legal principles the ratio applicable to the relevant fact about the existence or non-existence of a valid, binding and enforceable arbitration agreement, we have to see whether in the present case there were any 'conflicting intentions' of parties vis-a-vis either of the courses to be adopted, viz. to go in for arbitration or to file a Civil Suit. In other words, did the parties in the present case reserve to themselves the option of either taking recourse to arbitration or filing a Civil Suit in a Civil Court. In our considered opinion, a plain reading of Clause 12 (supra), applying the aforesaid ratio culled from the aforesaid legal principles, does not leave any room for doubt that there was neither any conflicting intention of the parties nor did clause 12 leave the parties with any option. Clause 12, on its plain reading clearly reflected the manifested intention of the parties that the disputes between the parties had to be referred to the arbitration of an Arbitrator chosen mutually by both the parties and the decision of the Arbitrator would be final and binding on the parties. The expression 'however, jurisdiction of the Civil Court shall not be ousted', in the aforesaid background, on being given its true and proper meaning in the context in which it occurs and has been used in Clause 12 (supra) only connotes that the jurisdiction of the Civil Courts, wherever the question of such jurisdiction is relevant or necessary for giving effect to the main thrust in Clause 12, viz., the settlement of disputes through the mechanism of arbitration, shall not be ousted. For instance, in so far as it relates to the scope of 1996 Act or any purpose connected therewith, say Section 9 or for that matter even Section 8, Section 34, Sections 6 and 37 of the 1996 Act etc. etc. Whatever meaning is assigned to the aforesaid expression occurring in Clause 12, this expression cannot be permitted to obliterate the main, operative part of clause 12. If we permit the aforesaid expression to obliterate the main operative part of Clause 12, Clause 12 itself would be rendered otiose and that surely could not have been the intention of the parties.

14. We may not fail at this stage to notices clear distinction between our case and the facts of the case in Wellington Associates Ltd. v. Kirit Mehta (supra). The distinction is that in our case the last sentence in Clause 12 (supra) only suggests that the jurisdiction of the Civil Court is not ousted whereas in the case of Wellington Associates Ltd. v. Kirit Mehta (supra) a combined reading of Clauses 4 and 5 therein clearly suggests that what to speak of merely not ousting the jurisdiction of the Civil Court, the parties explicitly and specifically had reserved to themselves a clear option of taking recourse to the remedy of filing a Civil Suit in a Civil Court. This is a glaring distinction between the scope and ambit of two agreements. As far as the agreement in our case is concerned, the parties have not reserved to themselves any such option of taking recourse to filing a Civil Suit in a Civil Court for resolution of their disputes. The mere use of the expression 'the jurisdiction of the Civil Court shall not be ousted' would not therefore amount to either a discrepancy or a conflict of intention of the parties in the agreement, nor would it therefore correspondingly give rise to any such interpretation of the agreement which may reflect any conflicting or contradictory intention of the parties. The intention is writ large in the agreement itself and that is that the parties had agreed and wanted to resolve their disputes through the mechanism of arbitration, especially when one looks at the word 'shall' used in the agreement connoting the mandatory import of the adoption of this mechanism of resolution of disputes (through arbitration only).

15. In the view that we have taken we have no doubt in our minds that the learned Single Judge erred in placing interpretation upon Clause 12 to the effect that it did not constitute a binding arbitration agreement between the parties in terms of Section 7 of the 1996 Act.

16. The appeal accordingly is allowed. The impugned judgment is set aside. The applications filed under Section 8 of the 1996 Act are allowed with all the consequences.