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



N.S. Babu Through Power of Attorney Holder Jayasankar Sujaya Babu v/s M/s. Wolkem India Ltd., Through its Director H. Pandwal & Others


Company & Directors' Information:- WOLKEM INDIA LIMITED [Active] CIN = U29299RJ1971PLC001379

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

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

Company & Directors' Information:- NS POWER PRIVATE LIMITED [Strike Off] CIN = U40100GJ2010PTC060398

    Arbitration Application No. 14 of 2017

    Decided On, 16 May 2018

    At, High Court of Rajasthan Jodhpur Bench

    By, THE HONOURABLE DR. JUSTICE PUSHPENDRA SINGH BHATI

    For the Petitioner: K.K. Shah, Advocate. For the Respondents: Ravi Bhansali, Senior Advocate assisted by Rajat Dave, Vipul Dharnia, Advocates.



Judgment Text

1. This arbitration application has been filed by the applicant under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') for appointment of the Sole Arbitrator on account of the respondents failing to appoint the Arbitrator in terms of the arbitration clause in the contract.

2. Brief facts of this case, as noticed by this Court, are that the applicant was the promoter of a Company known as 'Kerala Kaolin Private Limited (Now, M/s.Wolkem Clay Private Limited)'. The petitioner and members of his family were holding 100% share capital of the Company. It was involved in mining and manufacturing of China Clay. The Company was not able to achieve the target and the Wolkem Group headed by M/s. Wolkem India Limited and its subsidiaries came forward as Business Partners. Initially, a Memorandum of Understanding (MOU) dated 19.05.2004 was entered between the applicant and M/s. Wolkem Industries Limited for the purchase of land.

3. The applicant and M/s. Wolkem India Limited entered into the MOU for acquisition of 92.5% of equity stake in the Company owned by the applicant in a phased manner and also purchase of shares held by the promoter (applicant) and members of his family. The aforesaid MOU also contained the purchase of land 0.975 hectares of the applicant.

4. The applicant filed an application for appointment of Arbitrator bearing S.B.Misc. Application No.74/2011 (N.S.Babu Vs. M/s. Wolkem Industries Limited & Ors.), which was withdrawn vide order dated 01.03.2017, which is Annexure-4 of the present application, on the ground to send appropriate notice to the concerned Company, Wolkem India Limited for reference of dispute to the arbitration, and thereafter, to take appropriate proceeding, if occasion arises.

5. Thereafter, the applicant through its counsel gave a notice dated 20.03.2017 (Annexure-5 of the present application) invoking Article 14 of the agreement dated 14.07.2004 for appointment of the Arbitrator to settle the dispute.

6. The arbitration clause (Article 14) contained in the agreement dated 14.07.2004, which was executed between the applicant and the respondents, reads as under:-

"ARTICLE 14 : ARBITRATION

In the event a dispute arises in connection with the validity, interpretation, implementation or alleged breach of this Agreement, the parties shall attempt in the first instance to resolve such dispute through negotiation. If the dispute is not resolved through negotiation within forty five days after commencement of discussions or such longer period as the parties agree to in writing, then either party may refer the dispute for resolution to a sole arbitrator jointly appointed by the Purchaser and the Company. All proceedings in any such Arbitration shall be conducted in English. The Arbitration shall take place in Udaipur, Rajasthan and shall be governed by the Laws of India."

7. The respondents responded the notice (Annexure-5) and rejected the request for appointment of the Arbitrator vide letter dated 20.04.2017, which is Annexure-6 of the present application.

8. Mr.K.K.Shah, learned counsel for the applicant has relied upon the order passed by this Hon'ble Court in The Aluminum Industries Ltd. (ALIND) Vs. Rajasthan State Mines & Minerals Ltd.(RSMML) & Anr. (S.B.Arbitration Application No.11/2016 decided on 08.09.2017), which reads as under:-

"1. This arbitration application has been filed by the applicant under Section 11 (6) of the Arbitration and Conciliation Act, 1996 ("the Act") for appointment of Sole Arbitrator on account of the respondents failing in appointing the Arbitrator in terms of the arbitration clause in the contract.

2. The applicant company, a sick industrial unit, was awarded contract by the respondent Rajasthan State Mines & Minerals Limited (RSMML) of the work of 'Design, Engineering, Supply, Fabrication, Erection, Testing and Commissioning of Crushing & Screening Plant' at Sanu Lime Stone Project of RSMML. The contract value of the work was Rs.11,88,00,000/-. The work was to be completed within a period of 16 months from the date of issue of Telex of Intent i.e. 14.8.92 and accordingly, the date of completion of the work was 13.12.93. The parties entered into agreement on 27.2.93. The clause 90 of General Conditions of Contract deals with the settlement of the dispute arising between the parties, which reads as under:

"All disputes and differences arising out of or in any way touching this contract whatsoever, except as to any matter, the decision of which is expressly vested in any Authority in this contract, shall be referred to Sole Arbitrator of the person appointed by Managing Director of the Company. The Sole Arbitrator shall give a reasoned, speaking detailed award and the same shall be final and binding on the parties to this contract."

3. The execution of the work was delayed and therefore, on 16.10.95, the applicant company made an application for extension of time without penalty, mentioning therein the detailed reasons for the delay. On 23.11.94 RSMML approved the extension of time upto 30.11.95 without prejudice to its rights in accordance with the terms and conditions of the contract entered into between the parties. The applicant company was requested to get extended the validity of bank guarantee given for Mobilization Advance upto 31.8.96 as also the bank guarantee given for security deposits upto 30.11.97. That apart, the applicant company had requested to assign the entire insurance claim lodged by it with the United India Insurance Company in favour of the RSMML as per the terms and conditions of the contract. The work could not be completed even within the extended period. Further extension was granted upto 31.3.97 by the RSMML vide letter dated 10.3.97 with clear stipulation that no further extension will be granted and if the contractual obligations are not completed, the further course of action shall be taken as per the provisions of the contract. The applicant company sought further extension of time which was refused vide communication dated 22/24.4.97 and the RSMML undertook the completion of the balance work at the cost and risk of the applicant company. The RSMML invoked the bank guarantee for Rs.1,18,80,000 which was released by the Bank of Baroda on 20.8.97. The another bank guarantee against the mobilization advance was returned by the RSMML to the applicant company. The final bill was submitted on 19.7.98, which was later withdrawn by the applicant company vide letter dated 27.7.98.

4. Precisely, the case of the applicant company is that the RSMML failed to settle the various claims. It is submitted that on information being sought by the applicant company under Right to Information Act, the RSMML apprised the applicant company that a credit balance of Rs.7,32,572/- is lying in the books of account of RSMML. The applicant submitted yet another application on 27.12.13 seeking information regarding the closure of the contract, which was not furnished by the RSMML. The applicant company also requested RSMML to permit the inspection of books of account and other financial documents which was not allowed by the RSMML and thus, on 5.4.16 the applicant served the RSMML with a notice invoking arbitration clause in the contract for appointment of sole arbitrator within a period of 30 days claiming a sum of Rs.2,69,54,945/- plus interest and cost, but to no avail. Hence, this application.

5. Learned counsel appearing for the applicant contended that admittedly, the applicant company was not granted extension for completion of the work beyond 31.3.97 and the bank guarantee for Rs.1,18,80,000/- was invoked on 13.8.97 and another bank guarantee was returned to the applicant company on 28.11.97. It is submitted that the payments in the account of the applicant company were made to various parties as requested in the year 1998 and thereafter, the RSMML did not receive any claim from the applicant company and thus, the claim made by the applicant company after a period of 18 years is apparently barred by limitation and thus, the application preferred for appointment of arbitrator deserves to be dismissed on this count alone. However, it is not disputed that the applicant company has credit balance of Rs.7,32,572/- in the books of accounts of RSMML.

6. Replying the objection raised on behalf of the respondent, learned counsel appearing for the applicant company submitted that admittedly, withdrawal of the final bill by the applicant company was made with the consent of the RSMML and thus, no finality to the bills has been arrived at till this date. It is submitted that before release of payment against final bill if prepared, both the parties are required to sign a 'No Claim No Dues Certificate' which has not been done and therefore, the contract entered into between the parties remains alive. Learned counsel submitted that it is not in dispute that on the information being sought by the applicant company under RTI Act, vide reply dated 18.12.13, the RSMML has categorically admitted that final payment has not been made to the applicant company and a credit balance of Rs.7,32,572/- is lying in the books of account of the RSMML. It is submitted that on 29.12.14, the representative of the applicant company accepted the documents relating to the contract in question and the representative of the applicant company was handed over computer generated slip showing an outstanding liability of Rs.7,32,572/- as on 31.3.14. Learned counsel submitted that on the facts and in the circumstances of the case, the contention sought to be raised that the claim raised is barred by limitation, is absolutely devoid of any merit.

7. I have considered the rival submissions and perused the material on record.

8. Indisputably, there exists an arbitration clause in the agreement entered into between the parties. The only objection raised by the respondent is that the claim of the applicant is barred by limitation and therefore, no arbitrable dispute exists, which could be referred for adjudication to the arbitrator.

9. In the matter of 'Wexford Financial Inc. Panama Vs. Bharat Heavy Electricals Limited' (2016) 8 SCC 267, the Hon'ble Supreme Court has specifically held that the matter with regard to the claim sought to be referred to arbitration being barred by law has to be decided by the arbitrator and not by the Chief Justice/Authority Designate in proceedings under Section 11(6) of the Act. The Court held :

"We have heard the learned counsel for the parties at some length. The material facts are not in dispute. That a Service Provider Agreement was executed between the parties is admitted. That Article 7 of the said agreement provides for settlement of the dispute in relation to the agreement by way of arbitration is also not in dispute. That disputes have actually arisen between the parties in relation to the agreement is also evident from the averments made in the pleadings. The only method for determination of such disputes is by way of arbitration. Whether or not the petitioner has provided the services envisaged under the agreement and, if so, whether the said services were adequate and satisfactory are matters that can be examined only by the arbitrator. So also the question whether the claim made by the petitioner is time-barred cannot be examined in the present proceedings and shall have to be left open to be raised before the arbitrator. There is, in that view, no gainsaying that the present petition under Sections 11 (5) and 11 (12) shall have to be allowed with appropriate directions, particularly when this Court is concerned primarily with the question whether an arbitration agreement exists between the parties and if so whether the disputes falling within the scope of the agreement have arisen for determination. Our answer to both these questions being in the affirmative, the petitioner has made out a case for appointment of an arbitrator and for reference of the disputes for adjudication to him/her."

(Emphasis supplied)

10. Thus, keeping in view the authoritative pronouncement of the Hon'ble Supreme Court in Wexford Financial Inc. Panama's case (supra), on the facts and in the circumstances of the case noticed above, the question with regard to the claim of the petitioner being barred by limitation is not required to be gone into in the present proceedings.

11. In this view of the matter, the application is allowed. Hon'ble Mr.Justice N.N. Mathur, Former Judge, Rajasthan High Court, 34, Central School Scheme, Jodhpur, is appointed as Sole Arbitrator for adjudication of the dispute alleged to have arisen between the parties in relation to contract in question. It will be open for the parties to raise all contentions on the facts and law including the question with regard to the claim being barred by law before the Sole Arbitrator. The fee and expenses payable to the Arbitrator shall be determined as per clause 34 of the Manual of Procedure for Alternative Dispute Resolution, 2009 as amended vide Manual of Procedure for Alternative Dispute Resolution (Amendment), 2016. The parties shall appear before the Arbitrator on 13.10.17."

9. On the other hand, Mr.Ravi Bhansali, learned Senior Counsel assisted by Mr.Rajat Dave and Mr.Vipul Dharnia for the respondents has stated that no arbitral dispute has arisen between the applicant and the answering respondents warranting any appointment of Arbitrator.

10. Learned Senior Counsel for the respondents also submitted that the applicant had entered into an MOU with Wolkem Industries Limited on 19.05.2004 for sale of lands by him in the State of Kerala alongwith mining leases held by the applicant on part of lands owned by him in the State of Kerala. Another MOU dated 19.05.2004 was entered into between the applicant and the respondent No.1 with regard to sale of shares of the Company, Kerala Kaolin Private Limited.

11. Learned Senior Counsel for the respondents further submitted that thereafter, an agreement dated 14.07.2004 was executed between the applicant and the respondents. As per Clauses 6.2 and 6.12 of the said agreement dated 14.07.2004, after purchase of 85% equity shares in the Company, namely, Kerala Kaolin Private Limited, the applicant was supposed to sell further 7.5% shares (150075 fully paid up equity shares) within a period of five years from the date of agreement i.e. on or before 14.07.2009 to the purchase to enable the purchaser to increase its equity stake to 92.5%, and further, the remaining 7.5% shares were to be held by the applicant during his lifetime, and thereafter, his legal heirs were supposed to transfer the same to the purchaser (answering respondents herein) or his nominee for a consideration of Rs.59 lacs.

12. Learned Senior Counsel for the respondents also submitted that the onus of selling the shares, as per Clauses 6.2 and 6.12 of the agreement, was on the applicant. However, the application himself failed to act in terms of Clauses 6.2 and 6.12 of the agreement dated 14.07.2004.

14. As per learned Senior Counsel for the respondents, the applicant had approached the Company Law Board by filing a Company Petition No.83/2007, wherein by order dated 11.11.2008, the Company Law Board, while declining the relief sought in the said Company Petition, held that the parties to the agreement dated 14.07.2004 shall act in strict compliance with Clauses 6.2 and 6.12, and the aggrieved party was given liberty to take appropriate remedial measures in terms of the agreement dated 14.07.2004.

15. Learned Senior Counsel for the respondents further submitted that so far as Clause 6.12 of the agreement dated 14.07.2004 is concerned, the same cannot be invoked by the applicant, as it refers to sale of equity shares by legal heirs of the applicant, and it is not applicable during the lifetime of the applicant. Moreover, the said Clause 6.12 has become redundant, in view of non-survival of Clause 6.2 of the said agreement.

16. Learned Senior Counsel for the respondents has also submitted that it is apparent that there is no default by the answering respondents, and as such, it cannot be said that the applicant is an aggrieved party so as to entitle him to file and maintain the present arbitration application.

17. Learned Senior Counsel has also submitted that if at all, there has been any breach of the agreement dated 14.07.2004, it is on the part of the applicant himself and it is the answering respondents, who are made to suffer. Thus, it cannot be said that the applicant is entitled to seek appointment of the Sole Arbitrator under Section 11(5) of the Act.

18. Learned Senior Counsel for the respondents further submitted that the conduct of the applicant, whereby he has failed to make offer for sale of shares in strict compliance of Clauses 6.2 and 6.12 of the agreement dated 14.07.2004, disentitles him from seeking any relief from this Court.

19. Learned Senior Counsel for the respondents has thus, made out a case that the applicant himself is guilty of not acting in terms of the agreement dated 14.07.2004, and therefore, the applicant cannot be permitted to derive undue benefit or advantage out of his own lapses.

20. In support of his submissions, learned Senior Counsel for the respondents has relied upon the following precedent laws:

(i) M/s. ONGC Mangalore Petrochemicals Ltd. Vs. M/s.ANS Constructions Ltd. & Anr., reported in AIR 2018 SC 796;

(ii) Union of India & Ors. Vs. M/s. Master Construction Co., reported in (2011) 12 SCC 349;(iii) Indian Oil Corporation Limited Vs. SPS Engineering Limited, reported in (2011) 3 SCC 507;

(iv) Krishna Mittal Vs. Municipal Corporation of Delhi, reported in 2010(2) Arbi LR 439;

(v) Sri Matha Manikakeshwari Enterprises Vs. The General Manager, South Central Railways & Ors., reported in 2014(2) Arbi LR 334;

(vi) M/s. Ram Shakti Construction Vs. Agra Development Authority & Anr., reported in 2017(2) ADJ 262;

21. The thrust of the arguments of learned Senior Counsel for the respondents is that the claim of the applicant is time barred, as the applicant has staked his claim after an inordinate delay, which is a stale claim, and thus, the same deserves to be rejected on this count alone.

22. After hearing learned counsel for the parties as well as perusing the record of the case and looking into the precedent laws cited at the Bar, this Court finds that there might be substance in the arguments of learned Senior Counsel for the respondents.

23. Indisputably, there exists an arbitration clause in the agreement entered into between the parties. The only objection raised by the respondent is that the claim of the applicant is a stale claim and therefore, no arbitrable dispute exists, which could be referred for adjudication to the arbitrator.

24. In the matter of Wexford Financial Inc. Panama Vs. Bharat Heavy Electricals Limited' reported in (2016) 8 SCC 267, the Hon'ble Supreme Court has specifically held that the matter with regard to the claim sought to be referred to arbitration being barred by law has to be decided by the arbitrator and not by the Chief Justice/Authority Designate in proceedings under Section 11(6) of the Act. The Court held :

"We have heard the learned counsel for the parties at some length. The material facts are not in dispute. That a Service Provider Agreement was executed between the parties is admitted. That Article 7 of the said agreement provides for settlement of the dispute in relation to the agreement by way of arbitration is also not in dispute. That disputes have actually arisen between the parties in relation to the agreement is also evident from the averments made in the pleadings. The only method for determination of such disputes is by way of arbitrat

Please Login To View The Full Judgment!

ion. Whether or not the petitioner has provided the services envisaged under the agreement and, if so, whether the said services were adequate and satisfactory are matters that can be examined only by the arbitrator. So also the question whether the claim made by the petitioner is time-barred cannot be examined in the present proceedings and shall have to be left open to be raised before the arbitrator. There is, in that view, no gainsaying that the present petition under Sections 11 (5) and 11 (12) shall have to be allowed with appropriate directions, particularly when this Court is concerned primarily with the question whether an arbitration agreement exists between the parties and if so whether the disputes falling within the scope of the agreement have arisen for determination. Our answer to both these questions being in the affirmative, the petitioner has made out a case for appointment of an arbitrator and for reference of the disputes for adjudication to him/her." (Emphasis supplied) 25. Thus, keeping in view the authoritative pronouncement of the Hon'ble Supreme Court in Wexford Financial Inc. Panama's case (supra), on the facts and in the circumstances of the case noticed above, the question with regard to the claim of the petitioner being barred by limitation is not required to be gone into in the present proceedings. 26. In view of the above, the present arbitration application is allowed and Hon'ble Mr.Justice H.R.Panwar, Former Judge, Rajasthan High Court, 108 A-113 B, Kanishka Resort, Near Delhi Public School, Pal Bypass Road, Jodhpur, is appointed as Sole Arbitrator for adjudication of the dispute alleged to have arisen between the parties in relation to contract in question. It will be open for the parties to raise all contentions on the facts and law including the question with regard to the claim being barred by law before the Sole Arbitrator. The fee and expenses payable to the Arbitrator shall be determined as per clause 34 of the Manual of Procedure for Alternative Dispute Resolution, 2009 as amended vide Manual of Procedure for Alternative Dispute Resolution (Amendment), 2016. The parties shall appear before the learned Arbitrator on 05.07.2018.
O R