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Subba Reddy Badwelu v/s Aditya–Vamsiram Homes LLP, Rep. by its Designated Partners Kota Reddyand, Subba Reddy Badwelu & Another

    Arbitration Application No. 91 of 2020

    Decided On, 07 June 2021

    At, High Court of for the State of Telangana

    By, THE HONOURABLE MR. JUSTICE P. NAVEEN RAO

    For the Applicant: M.V. Pratap, Advocate. For the Respondents: B. Venkateswara Rao, Advocate.



Judgment Text

1. This Arbitration Application is filed under Sections 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as “the Act”) seeking appointment of an Arbitrator to resolve the disputes between the applicant and 2nd respondent in respect of LLP Agreement.

2. The averments in the application, counter and documents placed on record disclose following facts:

2.1. The applicant is engaged in the business of real estate and construction. The applicant entered into an LLP Agreement dated 21.05.2014 with the 2nd respondent in order to constitute ‘Sri Aditya-Vamsiram Homes LLP’, i.e. the 1st respondent. The LLP entered into a Development Agreement with landowners in Survey Nos.155 and 156, Narsingi Village, Gandipet Mandal, for construction of villas project named, ‘Aditya Casa Grand’.’ The villas were to be developed and sold as per the terms of the Development Agreement. Applicant asserts that as a co-owner of the 1st respondent company he is entitled to retain Villa No.52 and it was mutually agreed. He claims to be aggrieved by the manner in which the 2nd respondent is conducting the affairs of the 1st respondent, illegally denying villa no.52 to applicant and illegally entering into sale agreement of said villa to a third party.

2.2. On 04.07.2020 applicant sent a notice to 2nd respondent pointing out various aspects of functioning of their company and asking him to immediately cancel sale agreement, if any, entered into for Villa No.52 of ‘Aditya Casa Grand’ with third party and restrain from registering sale deed with any third party for Villa No 52 without the prior consent of the applicant.

2.3. In response to the said notice, 2nd respondent addressed a letter/email, dated 08.07.2020, to applicant. He has denied the allegations and put forth his version. Second respondent stated about sale of Villa No.52 to the third party, P.Venkata Reddy, and payment of Rs.65 Lakhs as advance reflected in the books of accounts of the LLP and claim of the applicant on the Villa is false. The 2nd respondent also invoked clause-7.4 of the LLP Agreement to expel the applicant from the partnership, with effect from date of receipt of the letter. The 2nd respondent also invoked the arbitration clause of the LLP Agreement for resolution of all disputes, including settlement of capital amount, claim regarding Villa No.52 and liability and obligation towards third parties and any damages payable. The 2nd respondent put forth three names to appoint as arbitrator and sought the applicant’s consent.

2.4. On receipt of above correspondence, applicant addressed two letters to the 2nd respondent, dated 11.07.2020 and 24.07.2020. Applicant agreed for resolution of all disputes by arbitration. However, applicant rejected the names proposed by the 2nd respondent for appointment as arbitrator and instead suggested two other names.

2.5. In response 2nd respondent vide his letter dated 25.08.2020 stated that the names suggested by the applicant were not acceptable. As there was stalemate on who should be the arbitrator, the present application is filed.

2.6. It is the further case of the applicant that as a partner of LLP, he desired to own villa no.52 and the same was communicated to 2nd respondent. Second respondent agreed and allowed applicant to make internal changes to suit his requirements. He further asserts that later 2nd respondent agreed to sell this villa for Rs.8,00,00,000/-; applicant agreed and paid Rs.2,25,00,000/- to 1st respondent. He claimed to be in possession of the said villa. While so, applicant alleges that he came to know that 2nd respondent sold this villa to Sri P.Venkat Reddy without his consent.

2.7. Having come to know of this sale transaction, the applicant instituted O.S.No.101 of 2021 in the Court of XIV Additional District Judge, Ranga Reddy district to grant decree of specific performance of an oral agreement of sale between the applicant and defendant no.27, the 1st respondent herein in relation to Villa No.52 and also sought to grant injunction to restrain defendant no.28, the 2nd respondent herein, and defendant no.29, Sri P.Venkat Reddy, to whom respondents claim to have sold villa no.52, from interfering with the possession of the said villa. O.S.No.101/2021 is pending consideration of the Court of XIV Addl.District Judge, Ranga Reddy.

2.8. In the said suit, the 2nd respondent filed I.A.No.197 of 2021 under Section 8 of the Act to relegate parties to arbitration as per the LLP Agreement. The said application is pending consideration of the said Court. The 2nd respondent asserts that there was never such an understanding to give villa no.52 to the applicant and it was validly sold to Sri P.Venkat Reddy. The amount paid by him is reflected in the account books of the LLP reflecting sale of the villa, 2nd respondent alleges that applicant is making all false and frivolous claims and is deliberately acting to damage the reputation of the 2nd respondent. He claimed to have invoked power available to him under LLP agreement to remove the applicant from the partnership firm.

2.9. To complete the narration, it is also seen that the applicant filed COP No.73/2020 for interim relief under Section 9 of the Act before Hon’ble XXIV Addl. Chief Judge Cum Commercial Court and the 2nd respondent also filed COP No.85/2020 in the same Court for similar relief. These two applications are stated to be pending consideration of the said Court.

3. Heard Mr. M.V.Pratap, learned counsel for applicant and Mr. B.Venkateswara Rao, learned counsel the respondents.

4.1. Learned counsel Sri M.V.Pratap Kumar for the applicant, while emphasizing the need to appoint arbitrator to resolve inter se disputes, submitted that dispute relating to Villa No.52 has to be excluded in view of subsequent developments. By virtue of the terms of LLP, the arbitration agreement is between the partners and concerns disputes arising out of LLP agreement. Oral agreement of sale for Villa No.52 entered into by the applicant with 1st respondent, and issues arising there from is an independent issue and outside the scope of arbitration agreement.

4.2. He further submitted that as applicant was informed that 2nd respondent agreed to sell Villa No.52 to P.Venkat Reddy, who is defendant No.29 in O.S.No.101 of 2021 and sought declaration against him also not to interfere with possession of said villa by the applicant and these aspects are outside the scope of LLP agreement. According to learned counsel any claim to the Villa is independent of the LLP Agreement and the affairs of the LLP. It is a claim arising out of an oral agreement not covered by the arbitration clause.

4.3. He further submitted that dispute concerning Villa No.52 is subject matter of O.S.No.101 of 2021 pending in the Court of XXIV Additional Chief Judge-cum-Commercial Court seeking enforcement of the applicant’s rights regarding said Villa.

4.4. He further submitted that 2nd respondent filed interlocutory application under Section 8 of the Act in O.S.No.101 of 2021 praying to relegate the parties to Arbitral Tribunal. The same is pending consideration of the Civil Court and, therefore, at this stage, arbitration cannot be gone into on the dispute on Villa No.52.

4.5. Learned counsel for applicant placed reliance on following decisions:

i) Vijay Kumar Sharma alias Manju Vs. Raghunandan Sharma alias Baburam and others (2010) 2 SCC 486);

ii) Sukanya Holdings (P) Ltd. Vs. Jayesh H.Pandya and another (2003) 5 SCC 531);

iii) Duro Felguera, S.A. Vs. Gangavaram Port Limited (2017) 9 SCC 729);

iv) Mayavati Trading Private Limited Vs. Pradyuat Deb Burman (2019) SCC 714);

v) Vidya Drolia and others Vs. Durga Trading Corporation5; and

vi) Garware Wall Ropes Limited vs. Coastal Marine Constructions and Engineering Limited6 . 5.1. Per contra, learned counsel for respondent no.2 contended that pursuant to the notice issued by the applicant on 04.07.2020 there was long correspondence on inter se disputes and applicant agreed to refer to arbitrator all pending disputes. The disagreement was only on who should be the arbitrator. He therefore submitted that applicant cannot seek to exclude dispute relating to Villa No.52 for consideration by the Arbitrator. He contended that the claim on Villa No.52 was the ground for the invocation of the arbitration clause and the dispute is covered by the arbitration clause in the LLP Agreement as it is stock in trade of the LLP and cannot be separated from other claims on the LLP. 5.2. He further submitted that the respondents filed I.A.No.197 of 2021 under Section 8 of the Act seeking relegation of all disputes including villa no. 52 to a sole arbitrator as per the terms of the arbitration clause of the LLP Agreement. He further submitted that pendency of such application in the Civil Court is not a bar for this Court to grant relief under Sections 11(5) and (6) of the Act. 5.3. Learned counsel placed reliance on following decisions: i) Powertech World Wide Limited vs. Delvin International General Trading LLC7; ii) Kasturi vs. Iyyamperumal and others8; and 5 (2021) 2 SCC 1 6 (2019) 9 SCC 209 7 (2012) 1 SCC 361 8 (2005) 6 SCC 733

iii) A.Tosh and Sons (India) Ltd. Vs. Happy Valley Tea Company Pvt.Ltd.9 6. Both parties agree that there are inter se disputes flowing out of LLP Agreement; that clause-18.7 of LLP Agreement provides for resolution of disputes though arbitration; and agree for reference of disputes to arbitration. While respondent consistently contends that arbitration clause is wide and encompasses all disputes including dispute relating to Villa No.52 and that applicant agreed for reference of all disputes, there is a change in the stand of the applicant. The time applicant instituted this application he had no reservations on reference of all disputes. Only issue was lack of consensus on who should arbitrate their disputes. By the time the matter came up consideration, he has changed his perception of what matters can be referred to arbitration. By this time, his clear stand is against reference to arbitration on the dispute concerning villa No.52. 7. The elaborate submissions by both counsel centered on whether issue relating to Villa No.52 should also be subject matter of reference to the arbitrator. Incidentally, extensive submissions are made on scope of jurisdiction of High Court in an application filed for appointment of arbitrator under Section 11(5)10 and (6)11 on an issue pending adjudication before a Civil Court and when 9 2005 SCC Online Cal 146 10 S.11. Appointment of arbitrators. (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by 1 [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court]. 11 (6) Where, under an appointment procedure agreed upon by the parties,— (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. [(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or subsection (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement. (6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.] application under Section 812 of the Act is pending before Civil Court. 8. Clause – 18.7 of the LLP Agreement dated 21.05.2014 reads as under: “Clause 18.7 - Dispute Resolution In case of any dispute or differences among the Partners or between the partners or between the partners and the legal heirs/representatives of the deceased partner or between and LLP whatsoever concerned with the affairs of the LLP or the interpretation of this Agreement, efforts shall be made to resolve such dispute or difference through mutual dialogue. Where such dialogue fails, the matter shall be referred to a single arbitrator, if the parties agree upon one, or if the parties fail to reach a consensus on such appointment then such appointment shall be made in accordance with and subject to the provisions of the Arbitration and Conciliation Act, 1996 (the ‘Arbitration Act’) and/or any statutory modification or re-enactment thereof for the time being in force. Such arbitral awards shall be binding on all parties to the dispute.” 9. From the bare reading of the clause, it is apparent that this clause is exhaustive and covers all inter se disputes. It requires that if there is a dispute or difference, first parties should strive to resolve the dispute or difference though dialogue. If such dialogue fails to resolve the dispute or difference, matter should be referred to a single arbitrator. 10. Now, I consider the chronology of correspondence, to the extent relevant leading to institution of this application: (a) Applicant issued notice dated 04.07.2020 to 2nd respondent alleging that business was conducted by the 12 Section 8. Power to refer parties to arbitration where there is an arbitration agreement.— [(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.] (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: 2 [Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.] (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. respondent as per his whims and in violation of the respondents fiduciary duty towards the LLP. This Legal Notice was limited to the rights of applicant on Villa No.52 of the gated community built by the LLP Company. The respondent was asked to immediately cancel any sale agreement regarding the Villa and restrain from registering it in favour of any third party without the applicant’s consent. The letter also mentions a public notice and notice to the Sub-Registrar cautioning against the same. (b) In his response dated 08.07.2020, the 2nd respondent categorically denied allegations of the applicant on both counts and further alleged that the claim over Villa 52 was known by both partners as sold to third party Sri P.Venkata Reddy from whom advance was also collected by the LLP. It was further pointed out that as required by Clause 18.7 of the Agreement no steps were taken to resolve the disputes via dialogue. The 2nd respondent then invokes the arbitration clause and proposes the names for appointment of the sole arbitrator, settlement of capital amount of applicant, claim of applicant regarding the Villa No.52 and his liabilities and obligations towards third parties including landowners and damages payable by the applicant. By this correspondence, the respondent also communicated the decision of expulsion of the applicant as partner of the LLP. (c) In his response, dated 11.07.2020, the applicant informed that the arbitration of the dispute is deemed to have commenced with effect from the date of respondent letter i.e., 8th July 2020. In the second letter dated 24.07.2020 he accepts invoking the arbitration clause for resolution of all disputes.

11. From this correspondence, it is clear that when this application was filed applicant was not asking to separate issue on Villa No.52 and applicant was in favour of resolution of all disputes. The only controversy was on who should be the arbitrator.

12. Section 11 of the Act deals with who can be arbitrator, evolving procedure by parties to appoint arbitrator(s), power of the Hon’ble Supreme Court and the High Court to designate arbitral institutions and the power of the High Court to maintain panel of arbitrators. Sub-Section (5) deals with a contingency when there is no consensus among the parties to the arbitration agreement as to who should be the arbitrator. When parties to an arbitration agreement fail to arrive to a consensus on who should be the arbitrator to resolve their inter se dispute and one of the parties files application under Section 11 of the Act, the High Court shall consider the application and appoint an arbitrator.

13. Since, both agree for reference of inter se disputes to arbitrator, in normal circumstances, only aspect to be considered is who should be the arbitrator. But, issue is sought to be complicated by both sides emphasizing on the subsequent developments and wanted the Court to dwell deep into dispute concerning villa No.52. Applicant sought to contend that he has entered into oral agreement of sale with 2nd respondent to purchase Villa No.52. This agreement and dispute arising there from is not the subject matter of LLP Agreement. The arbitration clause only concerns inter se disputes arising out of LLP agreement. It is also contended that as the issue concerning villa No.52 is pending consideration by the Civil Court in a suit for specific performance, it cannot be subjected to arbitral proceedings. Per contra, according to 2nd respondent when applicant agreed to refer all disputes to arbitration he cannot see exclusion of dispute concerning village no.52. Having regard to the submissions made by learned counsel, to place the record straight the Court is required to consider scope of jurisdiction of the High Court under Section 11 of the Act.

14. After the amendment to the Act, 1996, it is now well settled that the High Court is only required to confine its consideration on whether an arbitration agreement exists. Nothing more, nothing less. If there is an arbitration clause, if there is a dispute inter parties and there is difference of opinion between the parties on who should be arbitrator, High Court should step in and appoint an arbitrator. While deciding the question of appointment of arbitrator, the Court has not to touch the merits of the case. [IBI Consultancy India Pvt. Ltd. Vs. DSC Limited: (2018) 17 SCC 95; Mayavati Trading Pvt. Ltd. Vs. Pradyuat Deb Burman: (2019) 8 SCC 714]. The legislative policy and purpose is essentially to minimize the Court’s intervention at the stage of appointing the arbitrator [Duro Felguera, SA Vs. Gangaram Port Ltd: (2017) 9 SCC 729].

15. In Sajiv Prakash Vs. Seema Kukreja (2021 SCC Online SC 282), the Hon’ble Supreme Court reviewed the law on the subject. In paragraph-41, the Hon’ble Supreme Court recorded as under:

“41. Judged by the aforesaid tests, it is obvious that whether the MoU has been novated by the SHA dated 12.04.1996 requires a detailed consideration of the clauses of the two Agreements, together with the surrounding circumstances in which these Agreements were entered into, and a full consideration of the law on the subject. None of this can be done given the limited jurisdiction of a court under Section 11 of the 1996 Act. As has been held in paragraph 148 of Vidya Drolia (supra), detailed arguments on whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties. Also, this case does not fall within the category of cases which ousts arbitration altogether, such as matters which are in rem proceedings or cases which, without doubt, concern minors, lunatics or other persons incompetent to contract. There is nothing vexatious or frivolous in the plea taken by the Appellant. On the contrary, a Section 11 court would refer the matter when contentions relating to non-arbitrability are plainly arguable, or when facts are contested. The court cannot, at this stage, enter into a mini trial or elaborate review of the facts and law which would usurp the jurisdiction of the arbitral tribunal.”

(emphasis supplied)

16. As elucidated by the Hon’ble Supreme Court in the decisions noted above, at the stage of consideration of Section 11 application, the Court is required to examine only whether a valid arbitration agreement exists. The precedent decisions throw enough guidance to hold that High Court cannot dwell into the inter se disputes and what aspects are to be considered by the Arbitrator. In an application under Section 11, the hands of the High Court are tied, for good measure, having regard to the scope and object of the Arbitration Act. If there is an arbitration agreement, and the clause requires resolution of disputes by arbitration, the Court is only required to consider appointment of arbitrator and leave it to the arbitral Tribunal to decide all issues. It is settled principle of law that issue regarding non-arbitrability of a dispute can also be considered and decided by the arbitral tribunal.

17. In a rare case, when it is shown that the issue is ‘demonstrably’ and ‘ex facie’, ‘non-arbitrable’, ‘non-existent agreement’, ‘agreement is invalid’, the Court may decline appointment of arbitrator. It is a restricted and limited consideration. The Court cannot look into disputed facts or conduct a mini-trial.

18. The serious debate was on scope of consideration of application under Section 11 while application filed under Section 8 of the Act is pending in the Civil Suit. While learned counsel for applicant asserted that since such application is pending, the arbitral proceedings, until the said application is decided by the Civil Court, cannot commence on villa no.52, whereas learned counsel for 2nd respondent asserted that pendency of application under Section 8 is no bar for this Court to refer the dispute on villa no.52 also to arbitration. As noted above, in an application under Section 11 of the Act the scope of consideration is very limited. However, having regard to submissions made, it is necessary to briefly look into the interplay between Section 11 and Section 8 of the Act, and the law laid down by the Hon’ble Supreme Court. Both provisions intend to give effect to the object of the Arbitration Act and the desire of the parties to a dispute to resolve their dispute through medium of arbitration. The contingency for their application is different.

19. Section 8(3) of the Act came up for consideration in Vijay Kumar Sharma (supra), where it is observed-

“12. Having regard to the specific provision in Section 8(3) providing that the pendency of an application under Section 8(1) will not come in the way of an arbitration being commenced or continued, we are of the view that an application under Section 11 or Section 15(2) of the Act, for appointment of an arbitrator, will not be barred by pendency of an application under Section 8 of the Act in any suit, nor will the designate of the Chief Justice be precluded from considering and disposing of an application under Section 11 or 15(2) of the Act.

13. It follows that if an arbitrator is appointed by the designate of the Chief Justice under Section 11 of the Act, nothing prevents the arbitrator from proceeding with the arbitration. It also therefore follows that the mere fact that an appeal from an order dismissing the suit under Order 7 Rule 11 CPC (on the ground that the disputes were required to be settled by arbitration) is pending before the High Court, will not come inthe way of the appointment of an arbitrator under Section 11 read with Section 15(2) ofthe Act, if the authority under Section 11 finds it necessary to appoint an arbitrator.”

20. The scope of jurisdiction of High Court while considering Application under Section 11 vis--vis Section 8, post the 2016 amendment is considered in Vidya Drolia (supra). On review of law on the subject, the Hon’ble Supreme Court held:

“147.9. Even in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] , Kurian Joseph, J., in para 52, had referred to Section 7(5) and thereafter in para 53 referred to a judgment of this Court in M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. [M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] to observe that the analysis in the said case supports the final conclusion that the memorandum of understanding in the said case did not incorporate an arbitration clause. Thereafter, reference was specifically made to Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] to observe that the legislative policy is essential to minimise court's interference at the pre-arbitral stage and this was the intention of sub-section (6) to Section 11 of the Arbitration Act. Para 48 in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] specifically states that the resolution has to exist in the arbitration agreement, and it is for the court to see if the agreement contains a clause which provides for arbitration of disputes which have arisen between the parties. Para 59 is more restrictive and requires the court to see whether an arbitration agreement exists — nothing more, nothing less. Read with the other findings, it would be appropriate to read the two paragraphs as laying down the legal ratio that the court is required to see if the underlying contract contains an arbitration clause for arbitration of the disputes which have arisen between the parties — nothing more, nothing less. Reference to decisions in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] was to highlight that at the reference stage, post the amendments vide Act 3 of 2016, the court would not go into and finally decide different aspects that were highlighted in the two decisions.

153. Accordingly, we hold that the expression “existence of an arbitration agreement” in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability.

154. Discussion under the heading “Who Decides Arbitrability?” can be crystallised as under:

154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted.

154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of “second look” on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act.

154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non-arbitrable” and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.”

(emphasis supplied)

21. It is thus clear as crystal that Section 8(3) of the Act permits commencement or continuation of arbitral proceedings notwithstanding pendency of any application under Section 8 of the Act.

22. The applicant also raised the plea that when rights of a person who is not a party to the arbitration agreement are at stake, arbitral proceedings cannot be taken up. Said third party in question is the buyer of Villa No.52 against whom Section 9 applicatio

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n is pending and Section 8 application to refer the dispute to arbitration is filed in O.S.No.101 of 2021 and both applications are pending consideration of the civil Court. 23. Section 9 relief can be sought at any stage of the arbitration except after passing of the final award; and a Court with jurisdiction is free to grant interim relief if a prima facie case is made out. Nothing in the statute specifically points out that arbitrator cannot be appointed merely because Section 9 application is pending, unless it is ruled that issue is non-arbitrable. Again, on the aspect that when third party interest are involved whether arbitral proceedings can commence also requires detailed consideration and cannot be gone into in a summary proceedings. 24. This being the elucidation of law on various aspects concerning arbitral proceeding, the Court is not entering into inter se disputes, range of disputes, effect of pending civil suit and pending Section 8 application in the Civil Suit. These are all matters to be urged before the Arbitral Tribunal. The Court is only considering the issue of appointing the arbitrator when there is no consensus between the parties to arbitration agreement on who should be the arbitrator. 25. This leaves consideration of the core issue, appointment of arbitrator. Since parties are not able to arrive to an understanding to identify a person to act as arbitrator, in view of the provision in sub-section (2) of Section 10 (S.10. Number of arbitrators.— (1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.) of the Act, sole arbitrator can be appointed by the Court to resolve the inter se disputes arising out of the LLP agreement. 26. Guided by the principle of law as it stands now, when I look at the material documents and pleadings, it is seen that clause- 18.7 of the Agreement clearly requires resolution of dispute by arbitration. Both parties to the agreement agreed that there are disputes and agreed to invoke this clause and proposed names to appoint an arbitrator. There was no consensus on who should be the arbitrator. Therefore, Court cannot go into any other aspect except suggesting a name of the arbitrator. It is for the parties to raise all pleas as available in law and invite decision from the arbitrator. 27. Accordingly, the Arbitration Application is allowed appointing Hon’ble Justice Sri C.V.Nagarjun Reddy, Retired Judge of the High Court of Telangana, as sole arbitrator for resolution of dispute between the applicant and the respondent arising out of LLP agreement dated 21.05.2014 in accordance with the provisions and mandate of the Act, 1996. Learned Arbitrator is entitled to fee as per the rules prescribed in the 4th schedule of the Act, 1996, which shall be borne by both parties equally. 28. It is made clear that the Court has only noted the law on the scope of jurisdiction of High Court in a Section 11 application and when an application filed under Section 8 is pending before the Civil Court and has not expressed any opinion on range of inter se disputes, scope of disputes, and what disputes are arbitrable. These are all matters to be urged before the Arbitral Tribunal. Pending miscellaneous petitions if any pending shall stand closed.
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