w w w . L a w y e r S e r v i c e s . i n



NAS Aviation Services India Pvt. Ltd. v/s Kingfisher Airlines Limited


Company & Directors' Information:- KINGFISHER AIRLINES LIMITED [Active] CIN = L85110KA1995PLC018045

Company & Directors' Information:- NAS AVIATION SERVICES INDIA PRIVATE LIMITED [Active] CIN = U80302MH1995PTC092766

Company & Directors' Information:- A K AVIATION PRIVATE LIMITED [Strike Off] CIN = U62200MH2007PTC176382

Company & Directors' Information:- R L AVIATION SERVICES PRIVATE LIMITED [Active] CIN = U62100DL2008PTC186202

Company & Directors' Information:- S V V AVIATION PRIVATE LIMITED [Strike Off] CIN = U62200KA2008PTC046264

Company & Directors' Information:- A. S. INDIA LIMITED [Active] CIN = U70100MP2009PLC022300

Company & Directors' Information:- J. P. AVIATION SERVICES PRIVATE LIMITED [Active] CIN = U93000TR2006PTC008100

Company & Directors' Information:- S R C AVIATION PRIVATE LIMITED [Active] CIN = U74899DL1995PTC071383

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- M AND C AVIATION INDIA PRIVATE LIMITED [Active] CIN = U63013KA2006PTC039002

Company & Directors' Information:- S. A. AVIATION PRIVATE LIMITED [Active] CIN = U63040DL2012PTC234038

Company & Directors' Information:- AVIATION INDIA PRIVATE LIMITED [Strike Off] CIN = U63033DL1996PTC077267

Company & Directors' Information:- K AVIATION SERVICES PRIVATE LIMITED [Strike Off] CIN = U62100DL2002PTC118113

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- S K AVIATION PRIVATE LIMITED [Strike Off] CIN = U63090WB1999PTC089940

Company & Directors' Information:- P AND M AVIATION PRIVATE LIMITED [Active] CIN = U35999KA2021PTC143523

Company & Directors' Information:- S. S. AVIATION PRIVATE LIMITED [Active] CIN = U35300KA2007PTC043583

Company & Directors' Information:- AVIATION SERVICES INDIA PRIVATE LIMITED [Strike Off] CIN = U29299DL2002PTC117996

Company & Directors' Information:- R. S. INDIA AVIATION PRIVATE LIMITED [Active] CIN = U62100DL2006PTC153980

Company & Directors' Information:- NAS INDIA PVT LTD [Strike Off] CIN = U29119AS1989PTC003341

Company & Directors' Information:- J D M AVIATION INDIA PRIVATE LIMITED [Active] CIN = U63040PB2013PTC038242

Company & Directors' Information:- D J AVIATION SERVICES PRIVATE LIMITED [Active] CIN = U62200MH2009PTC192961

Company & Directors' Information:- V G AVIATION SERVICES PRIVATE LIMITED [Strike Off] CIN = U62100DL2002PTC116609

Company & Directors' Information:- J T AVIATION PRIVATE LIMITED [Strike Off] CIN = U62200DL2011PTC216080

Company & Directors' Information:- J K AIRLINES PRIVATE LIMITED [Strike Off] CIN = U62200MP2010PTC023926

Company & Directors' Information:- R R AVIATION SERVICES PRIVATE LIMITED [Active] CIN = U63040GJ2003PTC041908

    Arbitration Petition No. 456 of 2013 With Arbitration Application No. 151 of 2013

    Decided On, 28 February 2014

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE N.M. JAMDAR

    For the Petitioner: Mayur Khandeparkar a/w Dinesh Parmar a/w Kedar Oak i/by M/s. DSR Legal, Advocates. For the Respondents: Rohaan Cama i/by M/s.Bachubhai Munim & Co., Advocates.



Judgment Text

1. Both the arbitration application and the arbitration petition have been filed by the same Petitioner and are taken up for final disposal together.

2. The Application is filed for appointment of an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The Petition is filed under Section 9 of the Act for interim reliefs pending disposal of the arbitral proceedings.

3. A contention has been raised by the Respondent that there is no arbitration agreement between the parties. Since the relief prayed for in both, the application as well as the petition, will depend upon resolution of this question, it will have to be decided first. It is however necessary to give a brief background of the dispute to understand the context to which this question has arisen.

4. The Petitioner-NAS Aviation Services India Pvt. Ltd.(NAS) is a company which provides ground handling services to airline companies in India. The Respondent-Kingfisher Airlines Limited (Kingfisher) is a company which provides Scheduled Air Transport Services (passenger). NAS and Kingfisher entered into a cargo handling contract on 22 June 2009. Under this contract, NAS was to provide ground and cargo handling services to Kingfisher. On 23 September 2009, NAS called upon the Kingfisher to pay its dues. NAS stated that the dues are around Rs.9 crores, however only an amount of Rs.60 lakhs is received by it and the bank concerned has issued a letter to confiscate and repossess the assets, due to non-payment of term loan EMI on the equipment’s procured for Kingfisher-Flight Handling Services. The NAS called upon the Kingfisher to pay at least an amount of Rs.5 crores. According to NAS, on 18 November 2009, NAS received payment of Rs. 3.7 crores and thereafter had received the payment of Rs.1 crore. On 20 November 2009, NAS called upon the Kingfisher to release advances of an amount of Rs.3.5 crores. In the meanwhile, NAS and Kingfisher renewed the main agreement dated 13 April 2007 and 1 May 2010 by which NAS continued providing the ground handling services to the Kingfisher and also provided ground handling services at various airports in Goa, Ahemdabad, Nagpur, Indore, Delhi, Lucknow, Varansi etc. It is the case of NAS that on 28 April 2011, it was agreed that certain amount would be released by Kingfisher to NAS. Since this amount was not paid by Kingfisher, the parties exchanged various letters. The issue as regards the payments was not be resolved. Finally, NAS by letter dated 9 October 2012 terminated the agreement dated 1 May 2010 and called upon the Kingfisher to clear all outstanding dues. According to NAS, an attempt was made to resolve the dispute amicably by holding a meeting on 18 February 2013 at 3.00 p.m. thereupon it invoked the arbitration clause and sought appointment of an arbitrator. Since there was no favourable response from the Kingfisher, NAS has filed this application and the petition for appointment of an arbitrator and for interim reliefs.

5. I have heard Mr. Mayur Khandeparkar, learned counsel for Petitioner-NAS and Mr. Rohaan Cama, learned counsel for Respondent-Kingfisher.

6. According to Mr. Khandeparkar, the agreement dated 1 May 2010 provides an arbitration clause. He submitted that a notice has been issued by NAS duly invoking the arbitration clause and since the Kingfisher has failed to act as per the arbitration agreement, an arbitrator needs to be appointed under Section 11 of the Act. He submitted that Kingfisher is avoiding to go for arbitration on frivolous grounds, such as the agreement has not been signed by NAS and that there is no arbitration clause. He submitted that Article 9 of the agreement is only dealt with interpretation of contract and is not an arbitration clause for resolution of dispute. He submitted that Article 13 of the Agreement which in the arbitration clause, makes it abundantly clear that all the disputes and differences between the parties in connection with the agreement including interpretation of any term or condition shall be referred to for arbitration. According to Mr. Khandeparkar, it does not matter as to under what heading clause 13 appears as the intention of the parties to go for arbitration is clear from the language of clause 13.

7. Mr. Cama for Kingfisher, on the other hand, contended that Article 9 of the agreement contains the arbitration clause and not Article 13 which is only a provision for governing laws. According to Mr. Cama, Article 9 does not make resort to arbitration mandatory and that course of action is left to the choice of the parties. According to Mr. Cama, if the parties choose to exercise the option of arbitration, then Article 13 will apply. Another argument advanced by Mr. Cama is that NAS never signed the agreement and, therefore it did not come to an existence. This argument is made because in the petition, a copy of the agreement signed by Kingfisher alone is annexed.

8. First the argument regarding non-signing of the contract by NAS needs to be dealt with. Not only this argument has no merit but it is a highly inequitable one as well. NAS has filed a petition for appointment of an Arbitrator relying on the agreement signed by Kingfisher. Once Kingfisher signed the agreement, it cannot be turn around and take a stand that since NAS has not signed the agreement, it cannot rely upon it. This issue is anyway now academic, because NAS has placed on record by a rejoinder that the agreement is signed and executed by NAS also, however a copy annexed to the petition is a unsigned copy of the agreement. Agreement signed by both the parties is now placed on record. NAS asserts that it has also signed the agreement and is a contract between the parties. In view of this position, it is not necessary to dwell on this contention any further.

9. Before turning to the main argument regarding existence of the arbitration clause, scope of power under Section 11 of the Act needs to be kept in mind. Under section 11 of the Act, the Chief Justice or his designate has power to appoint an arbitrator if the parties fail to act as per the appointment procedure agreed upon by the parties. While exercising this power, the Chief Justice or his designate must however ensure that the ingredients of Section 7 of the Act are satisfied. Section 7 of the Act lays down what is an arbitration agreement. It means an agreement by the parties to submit to arbitration, all or certain disputes which have arisen or which may arise between them. Section 7 thereafter lays down that arbitration agreement has to be in writing and what constitutes an arbitration agreement in writing.

10. In the case of IndowindEnergy Limited Vs. Wescare (India) Limited and Anr. (2010) 5 SCC 306), the Apex Court held that when an application is filed under Section 11, the Chief Justice or his designate has to decide two main issues. First, whether the party making the application has approached the appropriate Court and second, whether there exists an arbitration agreement between the parties. Existence of an arbitration agreement between the parties is fundamental to the exercise of the jurisdiction under Section 11 of the Act. This issue has to be decided by the Chief Justice or his designate finally and it is not permissible to record a prima facie finding and leave it to the arbitrator to decide. Existence of an arbitration agreement between parties is thus a jurisdictional fact which has to be decided by the Chief Justice or his designate before the power under Section 11 is executed. Thus if one party raises a contention that there is no arbitration agreement, then the issue will have to be decided finally. While interpreting a commercial document to find out whether the parties contemplated recourse to arbitration in case of dispute, plain and common sense of interpretation of words employed, needs to be adopted. Another principle that needs to be adopted is, as far as possible, no clause of the agreement should be treated as superfluous and that the parties intended to use the words and phrases in their natural ordinary meaning. Corollary being that if different words are used then another different meaning was intended to be given.

11. With this in mind the first issue as to whether Article 9 or Article 13 is the arbitration clause, will have to be considered. If Article 9 is to be narrowly construed as confined only for interpretation of the agreement, then the argument advanced by Mr. Khandeparkar that Article 13 will take care of other eventualities, will have be accepted. However, if Article 9 is to be read widely as including all the disputes, it will have to be considered as an arbitration clause and then Article 13 will have to be considered as Article only specifying the governing laws. So the question is whether Article 9 is the arbitration clause or Article 13. Further question is whether Article 9 makes arbitration mandatory, and how these two clauses are to be reconciled.

12. Both the counsel have decisions in support of their respective contentions. Mr. Khandeparkar relied upon the decisions of the Apex Court in the cases of NandanBiomatrix Limited Vs. D 1 Oils Limited (2009) 4 Supreme Court Cases 495), Visa International Limited Vs. Continental Resources (USA) Limited (2009) 2 Supreme Court Cases 55), Empire Jute Company Limited and Ors. Vs. Jute Corporation of India Limited and Anr. (2007) 14 Supreme Court Cases 680), State of Uttar Pradesh and Ors. Vs. Combined Chemicals Company Private Limited (2011) 2 Supreme Court Cases 151) and Indian Oil Corporation Limited Vs. SPS Engineering Limited (2011) 3 Supreme Court Cases 507). Mr. Khandeparkar submitted that in case of Visa International Limited (supra), the Apex Court has held that arbitration clause is not required to be stated in any particular form and intention of the parties cannot be defeated by inartistic drafting of an agreement. He submitted that in the case of Empire Jute Company Limited and Ors. (supra), the Apex Court held that the Court must be lean in favour of liberal interpretation of arbitral clause and to encourage arbitration as it is the legislature policy. He submitted that in case of United India Insurance Co. Ltd. Vs. Pushpalaya Printers (2004) 3 Supreme Court Cases 694), the Apex Court laid down that where the words of a document are ambiguous, they shall be construed against the party who prepared the document. He submitted that in Indian Oil Corporation Limited (supra), the Apex Court held that Section 11 of the Act has a limited scope and to consider tenability of a claim is not permissible. According to him, what the Respondent is trying to do is to invite the Court to consider the tenability of the claim.

13. Mr. Cama, on the other hand, relied on the decisions of the Apex Court in the case of RenusagarPower Co. Ltd. Vs. General Electric Company and Anr. (1984) 4 Supreme Court Cases 679) to contend that the expression 'concerning' is of widest amplitude. According to him, this phrase has been used in Article 9 which makes it clear that Article 9 will have to be read in a widest sense. He relied on the extract from Black’s Law Dictionary Sixth Edition as regards the meaning of the phrase word ‘effect.’ According to him, the word ‘effect’ appearing in Article 9 has been interpreted to mean that ‘effect’ of an agreement is a result of the agreement.

14. What is material is the intention of the parties. To find out what the parties intended all points need to be taken cumulatively and not in isolation. Each point taken in isolation can have a counter point but what is material is the cumulative effect.

15. Now to consider Article 9 of the Arbitration Agreement. Whether it has to be read narrowly so as to restrict only for construction of the agreement or widely to consider as an arbitration clause for all purposes. Article 9 reads as under:-

'ARTICLE 9

ARBITRATION

In the event of any dispute or claim concerning the scope, meaning, construction or effect of this Agreement, the parties shall make all reasonable efforts to resolve disputes amongst themselves. Failing mutual resolution of the dispute, the parties may elect to resolve the dispute through arbitration (either by a single arbitrator or a panel of arbitrators). In the event that the parties fail to agree to an arbitration process laid in Arbitration & Conciliation Act, 1996, the dispute shall be settled in accordance with the laws of India or Jurisdiction set out in Annex(es)B, by the Courts set out in Annex(es)B without regard to principles of conflict of laws.'

16. Two words, which are important, are ‘claim’ and ‘effect’ appearing in the first sentence of Article 9 of the Agreement. Article 9 refers to any ‘dispute’ or ‘claim.’ Thus these two words have to be understood differently. If this clause is to be construed as Mr. Khandeparkar suggests, then it would have sufficed if the parties simply stated any ‘dispute’ concerning the scope, meaning and construction of the Agreement. There was no necessity to use the word ‘claim.’ The word ‘claim’ has to be understood in a commercial and ordinary parlance, which is ‘relief’ or a ‘prayer.’ It is sought to be contended by Mr. Khandeparkar that the claim only relates to a preceding clause 8.1. But at this stage, it cannot be considered as to what will be the claim that the Petitioner is making as, such enquiry would be outside the scope of Section 11. At present, I have to consider whether Article 9 is to be construed as an arbitration clause. It is in this context, the word ‘claim’ has to be considered.

17. Next important word is ‘effect.’ The clause thus concerns the ‘effect of the agreement.’ What is generally understood to be an effect of the agreement is it’s outcome. In Black’s Law Dictionary, Sixth Edition, the word ‘effect’ has been defined as ‘result, outcome and consequence’ and as the ‘result which an instrument between the parties will produce in their relative rights.’ Thus, if these two words ‘claim’ and ‘effect’ are to be considered together, then the article means to cover any ‘claim’ arising from the ‘outcome of the agreement.’ The agreement contains heading, sub-heading for all clauses. Clause 9 appears under the heading ‘Arbitration.’ The parties chose to prefix clause 9 with the heading ‘Arbitration.’ This will have to be taken as a starting point to consider it as an arbitration clause unless contrary intention is shown. Thus under Article 9 parties meant to cover all claims arising from outcome of the contract. Thus Article 9 will have to be considered as an arbitration clause.

18. Once Article 9 is held to be an arbitration clause then next question would be, what would be the relevance of Article 13. Obviously, there cannot be two arbitration clauses in the same agreement. It cannot be the intention of the parties to provide so. Both will have to be then considered having their own place and will have to be read together. Article 13 reads as under :-

'ARTICLE 13

GOVERNING LAW

13.1 All disputes and differences between the parties hereto in connection with this Agreement including the interpretation of any term or condition hereof either during the subsistence of this Agreement or subsequent thereto, shall be referred for Arbitration as per the provisions of the Arbitration & Conciliation Act, 1996 or its statutory modifications for the time being in force.

13.2 This Agreement shall be governed by the laws of India. The parties agree to submit to the exclusive jurisdiction of the Courts located in Mumbai as regards any claims or matters arising under or in relation to these terms and condition.'

19. Article 13 appears under sub-heading 'Governing Law.' Again the parties must be given credit for choosing a specific heading. It is true that the arbitration agreement need not be in any form or it can, in a given case, appear under a different heading. But when the parties chose to prefix a clause with a specific heading, then one must start with a presumption that they meant that the clauses will fall under the heading specified. To read Article 9 and Article 13 harmoniously, it will have to be held that Article 9 specified arbitration and Article 13 specified law governing arbitration, if the eventuality of arbitration arose. If Article 9 is construed to give a choice to the parties to go for arbitration, which issue is discussed later, then Article 13 will have to be read to mean that, if the parties chose to go for arbitration, then the arbitration will be as per the law specified in Article 13. In this manner no article is rendered superfluous. Thus next point that is to be considered is whether Article 9 makes it binding on the parties to go for an arbitration or it was made optional.

20. In Article 9, the parties have used consciously the words ‘shall’ and ‘may’ at different places. The parties have agreed that the parties ‘shall’ make all reasonable efforts to resolve disputes amongst themselves. Then the parties ‘may’ elect to resolve the dispute through arbitration and if the parties fail, then the dispute ‘shall’ be settled in accordance with the laws of India and the jurisdiction specified therein. One has to keep in mind that this is a commercial document, and the parties used ordinary language. In common parlance, the word ‘shall’ is used when it is compulsory and the word ‘may’ is used when it is optional. If in the same clause, the parties for certain actions use ‘may’ and other action ‘shall,’ it would mean that they made certain actions optional and certain actions compulsory.

21. In the case of Wellington Associates Ltd. Vs. Kirit Mehta (2000) 4 SCC 272), the Apex Court had an occasion to consider the use of words ‘may’ and ‘shall’ in a document in the context of existence of an arbitration agreement. In the case before the Apex Court, the document contained both ‘may’ and ‘shall’ at different places and the Apex Court held that the parties must be deemed to have used the words ‘may’ and ‘shall’ at different places, after due deliberation. The Apex Court observed that sub-section (1) of Section 7 of the Act postulates an agreement which makes an appointment of Arbitrator mandatory. The Apex Court held as under:-

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

22. 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 also 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 word 'shall'. The parties, in my view, must be deemed to have used the words 'may' and 'shall' at different places, after due deliberation.

22. What the parties stated in Article 9 is that they may elect to resolve the dispute through arbitration and if they fail to agree to an arbitral process, the dispute shall be settled in accordance with the laws of India. Intention on the face of it, is clear. It was that, first the parties must make an effort to resolve the dispute amongst themselves, failing which they may elect to go for arbitration. If they did not so elect, the dispute shall be settled as per laws of India and jurisdiction specified. Mr. Khandeparkar sought to argue that what the parties decided to elect was only whether 'either a single arbitrator or a panel of arbitrators' be appointed and if they fail in that, then the dispute shall be resolved by resorting to Section 11 of the Act, and what is meant by laws of India is Section 11. This is a strained and forced interpretation of Article 9 which the parties never even thought of. Further the words 'either a single arbitrator or a panel of arbitrators' are in a bracket. The Apex Court in the case of DozcoIndia Private Limited Vs. Dossan Infracore Company Limited (2011) 6 SCC 179) while construing an arbitration agreement held that the words appearing in the bracket are clarificatory in nature and cannot control the main sentence. The word ‘may’ is used for entire arbitration. What is meant by the parties is the arbitral process laid down in the Arbitration Act in its entirety. Thus if the parties fail to agree to the entire arbiral process as an adjudication. Then the dispute has to be resolved as per the laws of India. If laws of India meant Section 11 of the Act as contended, then there was no need to specify Arbitration and Conciliation Act and Laws of India separately. Thus the choice is left to the parties to elect for arbitration. Plain common sense reading of the clause shows that it did not mandate the parties to go for arbitration. It was left to the choice of the parties. Parties may decide for arbitration. Section 7 of the Act contemplates an arbitration agreement whic

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h makes it obligatory to go for arbitration. In this context, thus a specific fresh consent of Kingfisher was necessary for arbitration. 23. As stated above, once Article 9 is held to be an arbitration clause which makes it optional to go for arbitration, then what was optional cannot be made mandatory by trying to make clause 13 as arbitration clause by process of interpretation. Such an intention cannot be foisted on the parties. One would have understood if Article 9 was not in existence at all then Article 13 could have been held as an arbitration clause. A perverted interpretation cannot be placed on an agreement merely because NAS wants to force Kingfisher to go for arbitration and that it can then seek relief of appointment of a receiver or furnishing security. 24. Thus reading of the agreement as a whole following intention of the parties appears. First the parties would make an effort to resolve the dispute by themselves. This course of action was compulsory. Failing that the parties may decide to resolve their dispute through arbitration. This was optional. If they did not agree for arbitration, the dispute would be settled as per laws of India and jurisdiction specified in the agreement. If the parties do decide to go for arbitration, it was to be as per Arbitration and Conciliation Act, 1996 or its statutory modifications for the time being in force. 25. There is one more aspect of the matter. If the contract is any way ambiguous, it is not irrelevant to note what the parties have understood the contract to be. Though it’s advocates have now advanced several legal arguments to show that Article 13 is the clause and not Article 9, it is interesting to note that what NAS itself thought of Article 9. When NAS invoked the arbitration by notice dated 18 March 2013, it invoked Article 9 as an arbitration clause. There was no reference to Article 13 at all. This is how NAS itself has understood the agreement. 26. Thus if all these points are cumulatively taken for consideration, inescapable conclusion is reached that recourse to arbitration was an optional one and that there was no consent of Kingfisher for arbitration. Once I have come to the conclusion that there was no agreement between the parties that obliged them to go for arbitration then the application will have to be dismissed. Consequently, there cannot be any relief under Section 9 of the Act, if there exists no arbitration agreement. 27. Accordingly, both, the petition and application are rejected.
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