Computers Unlimited vs Xerox (I) Ltd. on 7 February, 2007

Delhi High Court
Computers Unlimited vs Xerox (I) Ltd. on 7 February, 2007
Equivalent citations: 2007 (2) ARBLR 261 Delhi
Author: A Sikri
Bench: A Sikri

JUDGMENT

A.K. Sikri, J.

1. The petitioner has filed this petition under Section 11(6) read with Section 11(8) of the Arbitration and Conciliation Act, 1996 (in short the ‘Act’) for appointment of a sole arbitrator. As per the averments made in the petition, the petitioner had entered into a Sale Promotion Agency Agreement dated 29.8.1999 with the respondent herein. In terms of this agreement, the petitioner was to be paid a service charge in respect of sale of the products of the respondent. This agreement was initially for a period of three years, which was subject to renewal for a further period of three years unless terminated earlier under Clause 19 of the agreement. The petitioner has deposited a sum of Rs. 50,000/- as security with the respondent. The petitioner promoted the sale of the respondent’s products and according to it, it became entitled to payment of service charge in the sum of Rs. 17,76,027/- as of 31.12.2001 when the agreement was terminated by the respondent. The petitioner’s contention is that the agreement was terminated illegally. In any case, the accounts were to be settled. On 11.9.2002 the respondent wrote to the petitioner seeking statement of accounts for settlement thereof. The petitioner with its letter dated 30.9.2002 also submitted necessary documents for reconciliation of the accounts. On 21.2.2003 the petitioner received a sum of Rs. 4,475/- as interest on the security deposit, but the security deposit itself was not refunded, which promoted the petitioner to write letter dated 28.2.2003. Since the respondent failed to amicably settle the accounts, another communication dated 16.7.2003 was sent by the petitioner to the respondent demanding the amount and the petitioner also sought appointment of an arbitrator in terms of the arbitration clause contained in the agreement dated 29.8.1999. On 11.9.2004 the petitioner received another sum of Rs. 1,795.07/- as interest on the security deposit for the period from January, 2004 to 30th June 2004. The petitioner again wrote another letter dated 16.7.2003 for amicable resolution of the disputes. A meeting was held between the representatives of the parties in which it was agreed that the respondent would revalidate the commission claims of the petitioners and revert to him by 31.8.2005 and another meeting would be held in September, 2005. Minutes of this meeting are recorded in the letter dated 5.8.2005, which is enclosed as Annexure P/8. As decided earlier, meeting between the parties took place on 14.9.2005. However, the fact remains that the parties could not amicably settle the disputes. Ultimately, vide letter dated 20.3.2006 the petitioner invoked the arbitration clause and sought appointment of an independent arbitrator. Since arbitrator was not appointed, present petition is filed. Clause 20 of the agreement dated 29.8.1999 is the arbitration clause which reads as under:

20. ARBITRATION

Any difference or dispute between the parties arising under this agreement shall be settled amicably. Unresolved dispute shall be referred to the arbitration of a sole arbitrator to be appointed by the Chairman of the Board of Directors of XEROX MODI CORP LTD. or by a person designated/authorised by him. The venue of the arbitration shall lbe in Delhi. The decision of the Sole Arbitrator shall be final and binding on the parties. The arbitration shall be conducted in accordance with the Arbitration and Conciliation Act, 1996.

2. As per the aforesaid clause, Chairman of the Board of Directors of the respondent or person designated/authorised by ;him was to act as the arbitrator in case of any difference or dispute between the parties arising under the said agreement. On 3.7.2006, while issuing notice in this petition, following order was passed:

Issue notice, returnable on 6th September, 2006.

Notice to indicate that if the appointment of the Arbitrator is not carried out before the next date of hearing, the right to appoint an Arbitrator may be foreclosed.

3. Since service report was awaited, on 6.9.2006 fresh notice was issued returnable on 16.10.2006. For that date also report about the service of notice was not received. Again, fresh notice was directed to be served upon the respondent, returnable on 31.1.2007. Orders dated 6.9.2006 and 16.10.2006 are also reproduced as that will have some bearing on the contention raised by the respondent now:

06.09.2006

Issue fresh notice of this Petition, returnable on 16th October, 2006.

16.10.2006

Issue fresh notice to respondents in ordinary course through District Judge, Gurgaon, by Registered A.D. Post and through approved courier, returnable on 31st January, 2007.

4. The respondent was served for 31.1.2007. It has filed IA No. 1107/2007 intimating that the respondent has appointed Dr. Madan Gopal Sharma, Advocate, as the sole arbitrator to adjudicate upon the disputes and differences between the parties vide its letter dated 5.12.2006.

5. Learned Counsel for the petitioner, on the other hand, submits that the Chairman of the Board of Directors of the respondent had forfeited his right to appoint the arbitrator as he did not act within 30 days of the notice given by the petitioner requiring him to appoint the arbitrator and even thereafter till this petition was filed. He refers to the judgment of the Supreme Court in the case of Datar Switchgears v. Tata Finance Ltd. and Anr. in support of this submission.

6. Learned Counsel for the respondent, on the other hand, contends that while issuing notice on 3.7.2006, the Court specifically empowered the respondent to appoint the arbitrator. This notice was not received by the respondent. He further submits that since notice of this petition was received by the respondent only in the second week of November, 2006 for 31.1.2007, the Chairman of the Board of Directors of the respondent appointed the arbitrator before the next date fixed, i.e. 31.1.2007 and, therefore, this appointment be treated pursuant to orders passed by this Court on 3.7.2006.

7. To appreciate this contention, one shall have to consider the legal position. In view of the aforesaid judgment of the Supreme Court, now it is settled that the arbitrator is to be appointed by the designated authority within 30 days of the service of notice of appointment of arbitrator and before filing of the petition under Section 11 of the Act. Operative part of the said judgment is reproduced below:

19. So far as cases falling under Section 11(6) are concerned-such as the one before us-no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgment that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.

8. Therefore, the respondent could appoint the arbitrator till the filing of this petition, i.e. 30.6.2006 but not thereafter. The Full Bench of this Court in the case of HBHL-VKS (J.V.) v. Union of India and Ors., has held that in case it is not done, right to appoint the arbitrator by the persona designata, no more remains as would be clear from the following observations in the said judgment:

40. Thus, we record our answer to the two questions referred to the larger Bench as follows:

(i) Once the party, which has been served with the demand notice in terms of of arbitration clause, fails or refuses to act in making appointment in terms of arbitration clause within 30 days or in any case prior to institution of a petition by the other side under Section 11(6) of the Act, then its right to make such appointment ceases or is forfeited. Such cessation is absolute in terms of the judgment of the Supreme Court in Datar Switchgears’s case (supra) and cannot be revived.

(ii) The Court has jurisdiction to take necessary measures in terms of Clause 11 (6) of the Act and this expression would take within its ambit and scope, the power to make appointment of independent and impartial arbitrator with reference to the accepted arbitration clause, unless the court in its discretion directs an institution specified in the arbitration clause not in default, to make such an appointment.

9. In this backdrop, implication of order dated 3.7.2006 is to be considered. Notice was issued returnable on 6.9.2006 and it was directed that this notice would indicate that if the appointment of arbitrator is not carried out before the next date, the right to appoint an arbitrator may be foreclosed. As mentioned above, the right of the Chairman of the Board of Directors of the respondent to appoint the arbitrator had already come to an end. Still an opportunity was given by this Court to the respondent to appoint the arbitrator “before the next date of hearing”, which was 6.9.2006. May be, this notice was not received by the respondent and the respondent did not come to know of the order. However, the aforesaid concession notwithstanding the legal position explained above, was not continued thereafter as while issuing fresh notices on 6.9.2006 and 16.10.2006, the aforesaid concession was not repeated. Obviously, going by the legal position, it was thought proper not to give this liberty to the respondent which the respondent did not have in law and rather a right accrued in favor of the petitioner to approach the Chief Justice of this Court for appointment of an arbitrator. Therefore, under the cover of the order dated 3.7.2006 the respondent cannot now state that it still has right to appoint the arbitrator when the Managing Director’s non-action has resulted in the forfeiture of his right to appoint the arbitrator. Therefore, the appointment by the Chairman of the Board of Directors in his letter dated 5.12.2006 would be of no consequence and has to be ignored. This petition is, therefore, allowed. It is now for this Court to appoint the arbitrator. Mr. Pawan Duggal, Advocate, is appointed as the arbitrator, who shall adjudicate upon the claims of the petition and counter claims, if any, of the respondent. He shall be paid Rs. 11,000/- per hearing, subject to maximum of Rs. 1,10,000/-. The fee of the arbitrator shall be shared by the parties equally.

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