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M/s. M.N. Enterprises Partnership Firm, Represented by its Partner, M.N. Prabhakar, Bengaluru v/s M/s. Novus & Berrys India Partnership Firm, Represented by M/s. Novus Indiana Leisurez LLP, Through Its Designated Partner, V. Chandrasekhar, Bengaluru & Another

    Civil Miscellaneous Petition No. 343 Of 2021

    Decided On, 29 July 2022

    At, High Court of Karnataka

    By, THE HONOURABLE MR. JUSTICE M. NAGAPRASANNA

    For the Petitioner: Vivek Holla, Advocate (Physical Hearing). For the Respondents: R1, R. Kiran, Advocate.



Judgment Text

(Prayer: This Civil Miscellaneous Petition is filed Under Sec. 11(5) and (6) of the Arbitration and Conciliation Act 1996, praying this Hon'ble Court to

i) nominate and appoint a retired judge of this Hon'ble Court as the sole Arbitrator, in terms of Clause 27 of the Lease Deed dated 14/10/2016 to adjudicate the dispute between the parties hereto in respect of the lease deed dated 14/10/2016.

(Annexure-D).

ii) declare that the appointment of the 2nd Respondent as the sole Arbitrator, is Non Est having been made without the consent of the petitioner and contrary to Clause 27 of the Lease Deed dated 14/10/2016, and

iii) grant such other and further reliefs as are just, including the costs of this petition.)

1. The petitioner is before this Court, in the subject petition, seeking nomination and appointment of a retired Judge of this Court as sole Arbitrator, to arbitrate and adjudicate upon the dispute between the parties to the lis.

2. Heard the learned counsel Sri Vivek Holla appearing for the petitioner and the learned senior counsel Smt. Lakshmi Iyengar representing respondent No.1.

3. Brief facts leading to the filing of the present petition, as borne out from the pleadings, are as follows:-

The petitioner claims to be a partnership firm incorporated under the provisions of the Partnership Act, 1932 and is engaged in the business of a Multi-cuisine Family Bar and Restaurant. A lease deed came to be executed by Mr. Jaideep L and Mr. Pradeep L in favour the petitioner in respect of property bearing No.82/4B situated in Doddakannalli village, Varthur Hobli, Bangalore (schedule property' for short) for a period of 11 years. On 14-10-2016 the petitioner executed a lease deed in favour of the 1st respondent firm sub-leasing the schedule property consisting of lease hold land, building premises along with car parking space for a period of 10 years and put the 1st respondent in possession on the date of signing the lease deed. On 24.11.2017 it transpires that amendment deed was brought out making certain amendments to the clauses in the lease deed and it was agreed that the rent would commence from 01-01-2018.

4. A dispute arose between the petitioner and the 1st respondent which resulted in the 1st respondent causing a legal notice upon the petitioner allegedly invoking the clause with regard to arbitration as found in the lease deed and also proposing to nominate one Sri Gireesha Kodgi, Advocate/2nd respondent as the sole Arbitrator to adjudicate upon the dispute generated in terms of the lease deed. The petitioner replies to the notice objecting to the appointment of the 2nd respondent as sole Arbitrator. On receipt of a reply, which was in the form of objections, the 1st respondent approaches Commercial Court under Section 9 of the Arbitration and Conciliation Act, 1996 ('the Act' for short) in Com.A.A.160 of 2020 seeking injunction restraining the petitioner from dispossessing them from the schedule property.

5. The Commercial Court by its order dated 21-07-2021 granted an ex-parte interim order in terms of Section 17 of the Act even without issuing notice upon the petitioner and the Arbitrator who was appointed earlier by the 1st respondent issued notice to the petitioner directing him to appear before him on 13-08-2021. The petitioner immediately sent a reply to the 2nd respondent opposing constitution of Arbitral Tribunal unilaterally without its consent and opposed the appointment of Arbitrator as it was according to the petitioner contrary to law. On filing of the objections by the petitioner, a memo was filed by the 1st respondent withdrawing the arbitration application filed before the City Civil Court on the premise that Arbitral Tribunal had been constituted and interim relief under Section 17 of the Act had been granted by the sole Arbitrator. The petitioner claims to have subsequently filed objections to the memo seeking withdrawal of arbitration application. In view of the interim order passed by the sole Arbitrator who has been unilaterally appointed by the 1st respondent, the petitioner has filed the subject petition seeking appointment of an Arbitrator of a choice of this Court being a retired Judge of this Court in terms of the Act.

6. The learned counsel appearing for the petitioner submits that the appointment of sole Arbitrator by the 1st respondent was without the consent of the petitioner and the law mandates that sole Arbitrator at the instance of a particular party would be contrary to law and seeks indulgence of this Court for such appointment.

7. On the other hand, the learned senior counsel representing the 1st respondent would vehemently refute the submissions to contend that it was well within the right of the 1st respondent to appoint a sole Arbitrator in terms of the lease deed between the parties and the same should not be interfered with in the peculiar facts of the case at hand.

8. I have given my anxious consideration to the submissions made by the respective learned counsel and perused the material on record.

9. The afore-narrated facts are not in dispute. The petitioner and the 1st respondent had entered into a sub-lease on 14-10-2016 pursuant to which, the 1st respondent was put in possession of the premises. The dispute resolution between the parties in terms of what is generated on the sub-lease is dealt with under clause 27 of the said lease deed. Clause 27 reads as follows:

"27. Arbitration:

All disputes arising out of or in respect of this lease deed shall be referred to Arbitration or either a sole Arbitrator or three Arbitrators, one to be appointed by each party and the third to be appointed by the two appointed Arbitrators, as both the parties might agree to. Arbitration place is at Bangalore."

The afore-quoted arbitration clause in the agreement mandates that the dispute be referred to either a sole Arbitrator or three Arbitrators, one to be appointed by each party and the third one to be appointed by the two appointed Arbitrators and the place of arbitration is said to be at Bangalore.

10. Dispute did arise between the parties for various reasons. Owing to the said dispute, the 1st respondent causes a legal notice on 26-11-2020 upon the petitioner wherein it is clearly indicated that in terms of Clause 27 (supra) it is nominating the 2nd respondent as an Arbitrator to arbitrate upon the dispute. In reply, the petitioner objected to the said appointment while denying all the claims made by the 1st respondent in the notice. Paragraph 28 of the reply notice reads as follows:

"28. The allegation that our client should desist from illegally entering the schedule property in any manner and also restrain from illegally evict your client from the schedule property under the term of lease is meaningless as the said sub-lease has already been surrendered in favour of M/s M.N. Enterprises. The further allegation that in case if you fail to honour the terms of the sub-lease deed dated 14-10-2016, in true spirit and as per the intention of the parties and understanding, your clients would Clause 27 of the sub-lease dated 14-10-2016 for appointment of Arbitrator to adjudicate the breach committed by our client as stated above and accordingly nominate your Arbitrator Sri Girish Kodgi, Advocate an Arbitrator, No.140-141, Kavi Lakshmisha Road, V.V.Puram Bangalore-560 004, as the nominee of our client is untenable under law. The further averment that you call upon our clients to nominate their Arbitrator within the stipulated time in accordance with law is untenable under law."

Therefore, there was no consensus in the nomination so made unilaterally by the 1st respondent in appointing the 2nd respondent as the sole Arbitrator. By then, the 1st respondent approached the City Civil Court in Arbitration Application No.160 of 2020 and sought a prayer to grant injunction restraining the petitioner from dispossessing the 1st respondent from the premises. No order appears to have been passed on the interim relief sought for in the Arbitration application. However, the sole Arbitrator who was appointed by the 1st respondent has passed interim order dated 21-07-2021 on I.A.No.2 reading -

"Considering the nature of the dispute between the parties, I am of the opinion that the Claimant's possession should be protected by passing appropriate order. The Applicant/Claimant has made out sufficient grounds to allow the application. Hence, I answer the above point in the "Affirmative" and proceed to pass the following:

ORDER

I.A.No.2 filed by the claimant under Section 17 of Arbitration and Conciliation Act, 1996 dated 20-07-2021 is hereby allowed. The respondents, its partners, agents, servants, representatives, henchmen, supports or any person/s claiming under or through the respondents from interfering with the peaceful possession and enjoyment of the schedule property which is under the possession of claimant M/s Novus and Berrys India, a partnership firm, having its office at No.82/4B, Sarjapur Maini Road, next to Wipro Corporate Office, Bangalore-560035."

The above interim order shall be in force till the filing of the statement of objections by the respondents."

This order was communicated by the Arbitrator so appointed by the 1st respondent by issuing a notice of arbitration on 22.07.2021. Immediately, thereupon, the petitioner on 28.07.2021 submits a reply and objects to the nomination and the notice that is issued and seeks withdrawal of the notice dated 22-07-2021 and further seeks immediate dissolution of the Arbitral Tribunal. But, the sole Arbitrator went on continuing with the proceedings. It is at that juncture the petitioner has knocked the doors this Court in the present petition.

11. Clause 27 extracted (supra) no doubts gives a right to parties to appoint an Arbitrator on a consensus for resolution of the dispute. Unilateral appointment of a sole Arbitrator is not what is envisaged under Clause 27. Therefore, when there is a dispute existing and if consensus on appointment of an Arbitrator is not reached, the remedy that would be available to the parties was to approach this Court seeking appointment of an Arbitrator. Therefore, the ground that is set up by the 1st respondent that the petition would not be maintainable once the Arbitral Tribunal is constituted and he commences the proceedings would not hold water as it was not an appointment on consensus, as the petitioner has throughout objected to any such appointment, more particularly of the choice of the 1st respondent.

12. It is trite law that appointment of a sole Arbitrator unilaterally by one of the parties to the dispute would be rendered a nullity in the light of the mandate of the statute and its interpretation by the Apex Court in plethora of cases. Therefore, the Arbitrator has to be appointed on consensus. Such a situation that has emerged has been dealt with by the High Court of Delhi in the case of OYO HOTELS AND HOMES PRIVATE LIMITED v. RAJAN TEWARI AND ANOTHER (2021 SCC OnLine Del 446) wherein the High Court of Delhi has held as follows:

"23. Having heard the learned counsel for the parties and perused the record, the only issue which arises for consideration is whether the appointment of the learned arbitrator is at variance with the stipulation in the contract and as such non-est for this court to grant the relief to the petitioner by appointing a new arbitrator.

24. To answer this issue, it is necessary to reproduce the arbitration clause in the contract:

"18. DISPUTE RESOLUTION- Any dispute or controversy arising out of or in connection with the Deed or its performance, including the validity, interpretation or application hereof, shall to the extent possible be settled amicably by negotiation and discussion among the Parties within 30 (thirty) days as of the date requested by either Party. Failing which, either Party shall be at liberty to refer the matter to arbitration in accordance with the Indian Arbitration and Conciliation Act, 1996. The arbitral panel shall consist of a sole arbitrator appointed mutually by the Parties. Any arbitral award issued by such sole arbitrator shall be final and binding on the Parties. The language of the arbitration shall be English and seat of arbitration shall be Delhi."

Emphasis supplied

25. From the above it is clear that the arbitrator has to be appointed mutually by both the parties. The respondent had invoked the arbitration clause and issued notice dated June 23, 2020 and nominated a retired Judge of this Court as the nominator. The notice could not be responded by the petitioner.

26. Mr. Panda is right to submit that the notice/recommendation of the respondents with regard to the learned arbitrator was not confirmed. Mr. Panda is also right in stating that the respondents should have approached this Court under Section 11 of the Act seeking an appointment of an Arbitrator when the petitioner has not confirmed the appointment.

27. Having said so, it must be held in view of the arbitration clause as referred above; the appointment made by the respondent is non-est and need to be ignored. The plea of Ms. Anand that the present petition is not maintainable as the petitioner under the garb of Section 11 is seeking termination of the mandate of the learned Sole Arbitrator is not appealing for the reason when the appointment is non-est, being not in accordance with the agreed procedure, the petitioner is within its right to approach the Court for appointment of an arbitrator under Section 11 of the Act. This position of law is well settled in terms of the Supreme Court judgment in Walter Bau Ag, Legal Successor of the Original Contractor, Dycheroff& Widmann A.G. v. Municipal Corporation of Greater Mumbai, (2015) 3 SCC 800, wherein in paras 8, 9 and 10 the Supreme Court has held as under:

"8. While it is correct that in Antrix (supra) and Pricol Limited (supra), it was opined by this Court that after appointment of an Arbitrator is made, the remedy of the aggrieved party is not under Section 11(6) but such remedy lies elsewhere and under different provisions of the Arbitration Act (Sections 12 and 13), the context in which the aforesaid view was expressed cannot be lost sight of. In Antrix (supra), appointment of the Arbitrator, as per ICC Rules, was as per the alternative procedure agreed upon, whereas in Pricol Limited (supra), the party which had filed the application under Section 11(6) of the Arbitration Act had already submitted to the jurisdiction of the Arbitrator. In the present case, the situation is otherwise.

9. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law. In the present case, the agreed upon procedure between the parties contemplated the appointment of the arbitrator by second party within 30 days of receipt of a notice from the first party. While the decision in Datar Switchgears Ltd. (supra) may have introduced some flexibility in the time frame agreed upon by the parties by extending it till a point of time anterior to the filing of the application under Section 11(6) of the Arbitration Act, it cannot be lost sight of that in the present case the appointment of Shri. Justice A.D. Mane is clearly contrary to the provisions of the Rules governing the appointment of Arbitrators by ICADR, which the parties had agreed to abide in the matter of such appointment. The option given to the respondent Corporation to go beyond the panel submitted by the ICADR and to appoint any person of its choice was clearly not in the contemplation of the parties. If that be so, obviously, the appointment of Shri. Justice A.D. Mane is non-est in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. The appointment of Shri. Justice A.D. Mane made beyond 30 days of the receipt of notice by the petitioner, though may appear to be in conformity with the law laid down in Datar Switchgears Ltd. (supra), is clearly contrary to the agreed procedure which required the appointment made by the respondent Corporation to be from the panel submitted by the ICADR. The said appointment, therefore, is clearly invalid in law.

10. Consequently, we allow the present petition and appoint Shri. Justice S.R. Sathe, a retired judge of the Bombay High Page 21 Court as the Arbitrator on behalf of the respondent Corporation. Both the Arbitrators shall now name the third Arbitrator forthwith whereafter the arbitration proceedings will be held and concluded as expeditiously as possible. The terms of appointment of Shri. Justice S.R. Sathe as the Arbitrator on behalf of the respondent Corporation will be settled in consultation with the respondent Corporation."

28. The aforesaid position is followed by this Coordinate Benches of this Court in the cases of Naveen Kandhari (supra) and Manish Chibber (supra). In Naveen Kandhari (supra), on the objection taken by the respondent therein that the an arbitrator has already been appointed by them and hence the Section 11 petition is not maintainable, the Court in paragraphs 18 and 19 held as under:

"18. A plain reading of the arbitration clause as set out above indicates that an arbitrator was required to be appointed by the parties. Thus, the unilateral appointment of Mr. A.P. Dhamija as an arbitrator is contrary to the arbitration clause and without authority. It is also relevant to note that the respondent had invoked the arbitration clause by its letter dated 06.06.2016 and unilaterally declared that it had appointed Mr. A.P. Dhamija, Advocate as an arbitrator.

19. The said appointment, being contrary to the terms of the arbitration agreement, cannot be considered as an appointment at all. It is for all intents and purposes non est. Mr. A.P. Dhamija has no authority to act as an arbitrator; his actions are plainly of no consequence."

29. Similarly, in the case of Manish Chibber (supra), on the significance of adherence to the procedure agreed upon by the parties to an arbitration agreement with regard mutual/common consent in appointing an arbitrator, the Court has held as under:

"13. Section 11(6) of the 1996 Act specifically states that, if a party fails to act as required by the procedure for appointment of arbitrator, as agreed upon between the parties, the appointment shall, in the case of domestic arbitration, be made by the High Court, on an application of the party, by this Court, where the arbitration is other than an international commercial arbitration. The procedure agreed upon, between the petitioner and the respondents, to appoint the arbitrator in the present case, is encapsulated in Clause 22 of the partnership deed dated 1st April, 2016, which already stands reproduced hereinabove.

A reading thereof makes it clear that "appointment by common consent of all partners" is the sine qua non, for the appointment of the arbitrator to be valid. In the present case, there is nothing, whatsoever, to indicate that, prior to, or even at, the time of his appointment as sole arbitrator, and of his taking cognizance of the arbitral proceedings, there was any consent, by the petitioner to the appointment of Mr. Ankit Batra. Clearly, therefore, the appointment of Mr. Ankit Batra had not taken place in accordance with Clause 22 of the partnership deed, dated 1st April, 2016 supra. Section 11(6) of the 1996 Act, therefore, squarely applies, and the task of appointment of the arbitrator, devolves on this Court, as there is no consensus, ad idem, regarding the arbitrator, who would arbitrate on the disputes between the parties."

A little earlier to the afore-noted judgment, the High Court of Delhi in the case of MANISH CHIBBER v. ANIL SHARMA AND ANOTHER (2020 SCC OnLine Del 1731) has held as follows:

"13. Section 11(6) of the 1996 Act specifically states that, if a party fails to act as required by the procedure for appointment of arbitrator, as agreed upon between the parties, the appointment shall, in the case of domestic arbitration, be made by the High Court, on an application of the party, by this Court, where the arbitration is other than an international commercial arbitration. The procedure agreed upon, between the petitioner and the respondents, to appoint the arbitrator in the present case, is encapsulated in Clause 22 of the partnership deed dated 1st April, 2016, which already stands reproduced hereinabove. A reading thereof makes it clear that "appointment by common consent of all partners" is the sine qua non, for the appointment of the arbitrator to be valid. In the present case, there is nothing, whatsoever, to indicate that, prior to, or even at, the time of his appointment as sole ar

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bitrator, and of his taking cognizance of the arbitral proceedings, there was any consent, by the petitioner to the appointment of Mr. Ankit Batra. Clearly, therefore, the appointment of Mr. Ankit Batra had not taken place in accordance with Clause 22 of the partnership deed, dated 1st April, 2016 supra. Section 11(6) of the 1996 Act, therefore, squarely applies, and the task of appointment of the arbitrator, devolves on this Court, as there is no consensus, ad idem, regarding the arbitrator, who would arbitrate on the disputes between the parties." Both these judgments considered a situation that has emerged in the case at hand and held that unilateral appointment of a sole Arbitrator by any one of the parties to the lis cannot be countenanced. 13. Therefore, it is appropriate for this Court to interfere and direct appointment of a retired Judge of this Court to arbitrate upon the dispute between the parties. It would have been an altogether different circumstance if the petitioner had agreed to the appointment of the Arbitrator in the proceedings and then approached this Court in the subject petition. Even then, consent given contrary to the statute for exercising jurisdiction will not clothe a particular entity with jurisdiction even if it is contrary to law. Therefore, the appointment of Arbitrator, solely made by the 1st respondent without the consent of the petitioner, would run counter to law. 14. In the circumstances, I deem it appropriate to exercise the power under sub-section (6) of Section 11 of the Act and pass the following: ORDER [a] The petition is allowed appointing Former Mr. Justice A.V.Chandrashekar, Flat No.406, III Floor, Ramsreedhar Apartment, II Cross, 9th Main, BTM Layout, II Stage, Bangalore-560076. [Mobile No.9886323178], as the sole Arbitrator to enter reference of the disputes between the petitioner and the respondents and conduct such proceedings in accordance with law. [b] All contentions inter se parties are left open for adjudication in the arbitration proceedings. [c] The Office is directed to communicate this order to Hon'ble Mr. Justice A.V.Chandrashekar, Former Judge, High Court of Karnataka, as required under the Arbitration and Conciliation Centre Rules, 2012. Consequently, pending I.A.No.1/2021 also stands disposed.
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