IN THE HIGH COURT OF KERALA AT ERNAKULAM
CRP.No. 396 of 2009()
1. KIRLOSKAR CONSTRUCTION AND ENGINEERS
... Petitioner
Vs
1. NADEERA SULAIMAN, S/O.LATE M.E.SULAIMAN,
... Respondent
2. NAJEENA SHEREF, D/O.LATE
3. RAHEENA SULAIMAN, D/O.LATE M.E.SULAIMAN,
4. MAHIN ABUBACKER, S/O.LATE
For Petitioner :SRI.K.L.VARGHESE
For Respondent :SRI.N.P.SAMUEL
The Hon'ble MR. Justice S.S.SATHEESACHANDRAN
Dated :19/10/2009
O R D E R
S.S.SATHEESACHANDRAN, J.
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C.R.P.NO.396 OF 2009 ()
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Dated this the 19th day of October, 2009
O R D E R
The revision is directed against the order dated
24.6.2009 in I.A.No.3527 of 2005 in O.S.No.273 of 2009
passed by the learned Sub Judge, Ernakulam. Petitioner, a
construction company, is the defendant, and the respondents,
the plaintiffs in the above suit. Suit is one for recovery of
money. After enquiry, the plaintiffs had been granted
permission to sue as indigent persons, and the suit numbered
as above was received on the file. The defendant challenged
the entertainability of the suit before the court contending
that there is an arbitration agreement between the parties,
and so much so, the disputes, if any, have to be referred to
arbitration for determination. The court below, after hearing
both sides, dismissed the application moved by the
petitioner/defendant holding that the court has jurisdiction to
entertain and decide the suit. That order is challenged in the
revision.
CRP.396/09 2
2. I heard the counsel on both sides. The predecessor of
the plaintiffs, one Sulaiman worked as a sub contractor of the
defendant, which was the contractor for a work for
M/s.Marshall Sons and company Ltd., Chennai. Admittedly, an
agreement had been entered between the defendant company
and late Sulaiman in respect of the sub contract arrangement
of the work. Plaintiffs, the legal heirs of the late Sulaiman,
laid the suit for the balance amount allegedly due to late
Sulaiman for the work done as a sub contractor under the
defendant. A sum of Rs.47,20,000/- was claimed in the suit.
Suit was instituted after seeking permission to sue as indigent
persons. Notice on the indigency petition given the defendant
company filed an application contending that there is an
arbitration agreement between the defendant and late
Sulaiman, and so much so, the disputes have to be referred to
arbitration. That application, after hearing both sides, was
previously allowed by the court, but, that order was set aside
in WP(C).No.15516 of 2007 by judgment dated 17th December,
2007 filed by the plaintiffs. This Court, setting aside the order
directed the court below to consider the question of indigency
canvassed by the respondents, who sought permission to sue
CRP.396/09 3
as indigent persons, and then, after passing of appropriate
orders, to hear and dispose of the application of the defendant
challenging the entertainability of the suit, in view of the
arbitration agreement. Pursuant to the judgment referred to
above, the court below, after conducting enquiry, allowed the
application of the respondents to sue as indigent persons.
The application moved by the defendant challenging the
maintainability of the suit in view of the arbitration agreement
between the parties was then taken up for consideration.
After hearing both sides, the impugned order was passed
holding that the suit is maintainable negativing the challenge
raised by the petitioner/defendant.
3. I heard the counsel on both sides. There was an
agreement between late Sulaiman, the predecessor of the
plaintiffs and the defendant company in respect of the
execution of work taken by the defendant is not under dispute.
Clause 17 in that agreement provides for arbitration of
disputes between the parties in respect of the contract work,
and so much so, there is ouster of jurisdiction of the civil
court, is the case of the defendant. Clause 17 in the
CRP.396/09 4
agreement was challenged by the plaintiffs as not valid
contending that the named person to be appointed as the
arbitrator to whom disputes or differences are to be referred,
is the Managing Director of the contractor, the defendant
company. The arbitrator provided by the terms of the
agreement is not an independent disinterested person, and so
much so, the clause providing for arbitration in the
agreement, in the event of disputes or differences between the
parties in relation to the execution and discharge of the
contract work, according to the plaintiffs, was not valid and
enforceable under law. The learned Additional Sub Judge
found merit in the objections so raised by the plaintiffs to
conclude that clause 17 is not a valid agreement for an
arbitration under Section 7 of the Arbitration and Conciliation
Act. Another ground that appealed to the learned Sub Judge
to negative the case of the defendant that the disputes can be
resolved only by way of arbitration is that there was no
dispute as such in the case as the defendant in its reply to the
suit notice has categorically admitted the liability to pay the
balance amount due to the plaintiffs. The impugned order was
passed holding there was no valid agreement between the
CRP.396/09 5
parties for arbitration, and further, no disputes arise out of the
contract between the parties for arbitration.
4. The learned counsel for the petitioner/defendant
assailed the reasonings of the court below contending that the
naming of the Managing Director of the defendant company as
the arbitrator as per the terms of the agreement entered by
the parties, will in no way render the agreement invalid. The
learned Sub Judge has prejudged the merit of the suit claim
itself as if there was candid admission in the reply notice
before the trial of the case while deciding the question
whether the court has jurisdiction to entertain the suit in view
of the arbitration agreement, according to the learned counsel
for the petitioner/defendant. The question to be considered is
whether there was an arbitration agreement, and if so, found
irrespective of the nature of the disputes in relation to the
contract, according to the counsel, it has to be referred to
arbitration for determination. On the other hand, the learned
counsel for the respondents/plaintiffs contended that the
clause in the agreement as found by the court below was
invalid, and further, there was no dispute as such amenable
CRP.396/09 6
for determination by way of arbitration.
5. To resolve the questions posed for consideration, first
of all, it is necessary to advert to clause 17 of the agreement
admittedly entered between the petitioner company and late
Sulaiman, the predecessor of the plaintiffs in the execution of
a contract work. The defendant company was the contractor
and late Sulaiman the sub contractor in the execution of a
work taken by the company. Clause 17 in the agreement
between them is reproduced hereunder:
“All matters of disputes or
differences, if any, shall be referred
to the Managing Director of the
contractor and his decision on the
disputes and difference shall be final
and binding on the sub contractors.”
That clause in the agreement is not valid for the reason the
arbitrator named for resolving the disputes or difference, if
any, between the parties is the Managing Director of the
defendant, was the challenge raised by the plaintiffs to
contend that no reference to arbitration is legally permissible.
CRP.396/09 7
The learned Sub Judge expressing the view that the above
clause with respect to the naming of the arbitrator gives
domination by one party over the other in the contract, held, it
is not a valid arbitration agreement. Section 2 (b) of the
Arbitration and Conciliation Act, 1996, hereinafter referred to
as the ‘Act’ defines an arbitration agreement as agreement
referred to in Section 7 of the Act. A reading of Section 7 of
the Act spell out that an arbitration agreement may be in the
form of an arbitration clause or contract or in the form of a
separate agreement. It is an agreement by the parties to
submit the disputes – present or future – to arbitration. That
agreement shall be in writing. It need not be in any particular
form as even correspondence between the parties by way of
exchange of letters, telegrams, telex or other means of
telecommunications disclosing of an agreement is sufficient to
constitute an arbitration agreement. If the intention of the
parties is discernible from the terms of the agreement even
the words absence of work, arbitration or arbitrator etc. has
no significance. The apex court in Bihar State Mineral
Development Corporation v. Encon Builders (I) (P) Ltd.
((2003) 7 SCC 418) held that the essential elements of the
CRP.396/09 8
arbitration agreement are thus:- (1) there must be a present
or a future difference in connection with some contemplated
affair (2) there must be the intention of the parties to settle
such difference by a private tribunal (3) the parties must
agree in writing to be bound by the decision of such tribunal
and (4) the parties must be at ad idem. The execution of the
agreement containing clause 17 referred to above between the
defendant company and late Sulaiman is not disputed.
However, the challenge is that though an arbitration clause is
provided as the arbitrator named is the Managing Director of
the defendant company, it cannot be considered as a valid
arbitration agreement. That objection has no merit at all.
Challenge canvassed is not that the clause does not spell out
an arbitration agreement, but, only that the arbitrator named
for resolving the disputes is the Managing Director of the
company, and so much so, arbitration agreement is not valid.
When an agreement is entered into by the parties, providing
for arbitration, in the event of disputes arising in present or
future, naming the authority who has to be appointed as the
arbitrator, merely because the named arbitrator is an officer
of the defendant it is not open to the other party to repudiate
CRP.396/09 9
that agreement as not an arbitration agreement. In P.Anand
Gajapathi Raju v. P.V.G.Raju and others ((2000) 4 SCC
539) and Hindustan Petroleum Corporation Ltd. v.
Pinkcity Midway Petroleums ((2003) 6 SCC 503), the
apex court has held that “where there is an arbitration clause
in the agreement, it is obligatory for the court to refer the
parties to arbitration in terms of their arbitration agreement,
and nothing remains to be decided in the original action after
such an application is made except to the matter referred to
disputes to an arbitrator” In the later decision referred to
above Hindustan Petroleum Corporation Ltd. v. Pinkcity
Midway Petroleums ((2003) 6 SCC 503), the apex court
has also held that any challenge that the disputes are not
covered by the arbitration clause, and so much so, it can be
gone into by the civil court, which was the view formed by the
court below in the present case placing reliance upon the
reply notice of the defendant that the suit claim had been
practically admitted by the defendant, is within the purview of
the arbitral tribunal, which can rule on its own jurisdiction
including one on any objection with respect to the existence or
the validity of the arbitration agreement. Adverting to the
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decision rendered in Konkan Railway Corporation Ltd. v.
Rani Construction (P) Ltd. (2002 (2) SCC 388) on the
above question, the apex court has held in the above decision
that if there is any objection “as to the applicability of the
arbitration clause with the facts of the case, the same has to
be raised before the arbitral tribunal concerned”. When that
be the law laid down by the apex court, where an arbitration
agreement between the parties exist, the reasons set out in
the impugned order by the court below to hold that clause 17
in the agreement between the parties is not valid and the
dispute raised can be decided by the civil court and there is no
need to refer to arbitration is patently erroneous and
unsustainable. Setting aside the impugned order, the court
below is directed to refer the parties to arbitration to resolve
their disputes as mandated under Section 8 of the Arbitration
and Conciliation Act, 1996.
Revision is allowed.
S.S.SATHEESACHANDRAN
JUDGE
prp
CRP.396/09 11