Bombay High Court High Court

Mahindra Lifespace Developers … vs The New Great Eastern Spinning & on 16 April, 2009

Bombay High Court
Mahindra Lifespace Developers … vs The New Great Eastern Spinning & on 16 April, 2009
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             IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                 ORDINARY ORIGINAL CIVIL JURISDICTION 
                ARBITRATION APPLICATION NO. 110 OF 2008




                                                                                     
    Mahindra Lifespace Developers Ltd.,             )




                                                             
    a company incorporated under the                )
    Companies Act, 1956, and having their           )
    office at 5th Floor, Mahindra Towers,           )
    Worli, Mumbai - 400 018.                        )..            Applicant 




                                                            
                 Vs.

    1.    The New Great Eastern Spinning & )




                                                
          Weaving Company Ltd., a Company)
          incorporated under the provisions  )
                                 
          of the Companies Act, 1913 and  )
          is an existing company under the  )
          Companies Act, 1956 having its  )
                                
          registered office at 25-29,        )
          Dr. Ambedkar Road,                 )
          Mumbai - 400 027.                  )
           


    2.     Rozal Mehta, an Indian Inhabitant, )
        



           residing at Carmichael House,          )
           Carmichael Road,                       )
           Mumbai - 400 026.                      )..           Respondents
                  --





    Shri Virag Tulzapurkar, Senior Advocate i/by M/s. Little & Company
    for the Applicant. 
    Shri   D.D.   Madon,   Senior   Advocate   i/by   M/s.   Kanga   &   Co.   for   the
    Respondents. 





                  --

                               CORAM :  SWATANTER KUMAR, C.J.

    JUDGMENT RESERVED ON                            : 20TH MARCH, 2009.




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    JUDGMENT PRONOUNCED ON  : 16TH APRIL, 2009.

    JUDGMENT : 

Simple but pertinent questions of law arise for

consideration in this Petition under Section 11 of the Arbitration and

Conciliation Act, 1996 ( hereinafter referred to as the “Act” ). On

behalf of the Applicant, it is contended that the parties had not

appointed any Arbitrator and Shri Rozal Mehta, Respondent No.2 who

had acted as a Conciliator and resultantly acquired disqualification for

being nominated as an Arbitrator. Thus Respondent No.2 cannot be

appointed as an Arbitrator in terms of Section 11(8)(b) of the Act. The

Applicant, thus, prays for an appointment of an independent

Arbitrator.

2. On the other hand, the Respondent No.1 objects to the

very maintainability of the present Petition, as it contends that

Respondent No.2 was appointed and had acted as an Arbitrator thus

the mandate of an Arbitrator could be revoked or substituted only

upon a petition being filed satisfying the grounds and reasons stated

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in Section 12(15) of the Act and such a Petition under Section 11 of

the Act is not maintainable and is misconceived. In order to examine

the merits or otherwise of these contentions, reference to the basic

facts of the case is necessary. Mahindra and Mahindra Limited

entered into an agreement with Respondent No.1 for developing an

immovable property situated at 25-29, Dr. Ambedkar Road, Mumbai.

Mahindra and Mahindra Limited, by virtue of a scheme presented in

the Court was amalgamated with the Company known as Gesco

Corporation Ltd. and by an order dated 24th October, 2001 the merger

was allowed. Gesco Corporation Limited came into existence. On or

about 24th December, 2002, Gesco Corporation Ltd. changed its

name to Mahindra Gesco Developers Ltd. Again on 25th October,

2007, Mahindra Gesco Corporation Ltd. changed its name into

Mahindra Lifespace Developers Ltd., the Applicant in the present

case. The Applicant and Respondent No.1 executed a Composite

Service Agreement on 14th July, 1995. This agreement read with the

original Memorandum of Understanding provided for detail terms and

conditions for execution of the development of the property. The

Applicant took several steps to develop the property. According to

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the Applicant, because of non cooperative attitude adopted by the

Respondent No.1 and despite at the Applicant rendering financial

assistance the contract could not be concluded as desired.

3. According to the Applicant, it was willing to perform all its

obligations under the terms and conditions of the agreement and even

had advanced monies in excess of Rs.35 crores to Respondent No.1

besides putting in a lot of time and labour. In the long past years,

the parties had been meeting, negotiations had taken place but

nothing could be successfully concluded. Respondent No.2 was the

named arbitrator under the terms of the Agreement. He had also

participated in various meetings between the parties which did not

result in any decision. Clause 19 of the Composite Service

Agreement provided for reference to the sole Arbitrator to adjudicate

the disputes and differences which may arise between the parties.

The clause reads as under:-

“19. All disputes and differences between the
parties hereto including interpretation of any
clause herein contained arising out of or under
this Agreement shall be referred to the sole
arbitration of Mr Rozal Mehta, or in the event of

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his non-availability Mr………………… whose
decision shall be final and binding on the
parties hereto. The arbitration proceedings
shall be held in Bombay and shall be in

accordance with and subject to the provisions
of the Indian Arbitration Act, 1940 or any

statutory modification or re-enactment thereof
for the time being in force.”

3. Respondent No.2 vide his letter dated 7th January, 1996

had made certain suggestions and had also referred to offers made

by Kanoria i.e. Representative of Respondent No.1. He even

commented upon the extent of profit that the parties could make by

the executing of the project. The Respondent No.1 vide its letter

dated 21st June, 1996 addressed to the Executive Director of the

Applicant while refuting the allegations made in the letter of the

Applicant dated 7th January, 1996 also referred with some emphasis

on the participation of Respondent No.2. The relevant portion of the

said letter reads as under:-

“…..Your letter further mentions the submission
of certain papers by NGE but unfortunately
does not go on to elaborate the reasons behind

the same remaining pending which you are
aware of and so is Mr. Rozal Mehta. In case
there remains any confusion on this score in
your mind I suggest you may have a fresh and
detailed discussion once again with Mr. Rozal

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Mehta who has repeatedly assured me that all
such issues have been thoroughly and
repeatedly discussed by him with M & M and on
the basis of which assured me on several

occasions that they would be satisfactorily
resolved but which unfortunately continue to

remain pending.

With regard to you suggestion for a
meeting we may do so at any time suitable to

you after 3.30 p.m. Tomorrow. The presence of
Mr. Rozal Mehta in the discussions would be
most helpful as he is closely aware of all
developments.”

4.

Vide letter dated 4th December, 1996 the Respondent

No.1 informed the Applicant that Shri Rozal Mehta should speak to

both the parties separately and try to bridge the gap. A meeting

between the parties appears to have been held on 7th October, 2002

wherein matters regarding money to be advanced to Applicant were

discussed and it was also decided that the arbitration process shall

proceed in parallel to the development of project and Shri Rozal

Mehta, Respondent No.2 to be provided legal assistance by either of

the parties. Vide letter dated 5th June, 2003 the Respondent No.1

again wrote to the Applicant in furtherance to the meeting held on 7th

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October, 2002 indicating the need for setting aside the arbitration

process, opted for mediation and called upon a positive response

from the Applicant.

5. Again Shri Rozal Mehta, Respondent No.2, had on 1st

April, 2003 written a private and confidential letter and had noticed, in

furtherance to the discussion that took place between Kanti Kanoria,

and Hemant that no formal arbitration would take place and the

parties would, in a sealed cover, submit their claims and process of

mediation would start. The terms of mediation were put to the

parties. It was also stated by Respondent No.2 that it was virtually

impossible for him to wear two hats i.e. one of an Arbitrator and the

other of a Mediator, and he would prefer the role of Mediator. Vide

letter dated 15th January, 2008 the Applicant wrote to the Respondent

No.1 that there were disputes between the parties and they should be

referred to an independent arbitrator to be appointed by the parties.

This letter was responded by Respondent No.1, by its letter dated

23rd January, 2008, stating that it would agree to have the disputes

between the parties referred to arbitration in terms of Clause 19 to

Shri Rozal J. Mehta, Respondent No.2 herein. To this, the

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Applicant raised an objection and stated that instead of providing

legal assistance to Shri Rozal Mehta, it will be better to appoint an

independent arbitrator. However, vide letter dated 16th February,

2008, Respondent No.1 reiterated that the arbitration would be only

before Respondent No.2 and it was not willing for his substitution.

In the light of these facts, the Applicant filed the present petition under

Section 11(2) and 11(6) read with Section 80 of the Act for

appointment of a suitable person to act as a Sole Arbitrator and refer

the disputes between the parties to such an Arbitrator.

6. From the above narrated facts, it is clear that there is no

dispute either to the execution or the existence of the arbitration

agreement. The dispute only relates to the appointment of a Sole

Arbitrator in the backdrop of the contentions raised by the learned

Counsel appearing for the parties. First of all it needs to be noticed

that Clause 19 of the Composite Service Agreement, the arbitration

clause contained in the main Agreement between the parties refers

to the appointment of a named Sole Arbitrator but at the same time

the expression “or in the event of his non-availability Mr.

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______________ whose decision shall be final and binding on the

parties thereto” indicates that the agreement between the parties had

contemplated non-availability of Respondent No.2 to act as a Sole

Arbitrator and name of the substitute/alternate Arbitrator was left

blank, thus leaving it open for appointment of any other Sole

Arbitrator other than Respondent No.2. This construction itself may

not be absolutely befitting but in the facts and circumstances of the

case it is of some significance. From the documents afore-referred, it

is clear that Respondent No.2 had been acting in once capacity or the

other in order to bring the parties to a compromise. He, vide his letter

dated 7th January, 1996, had even projected the minimum profits

resulting from the execution of the project. Respondent No.1 vide its

different letters including 4th December, 1996 had indicated that

Respondent No.2 understood the points of view of the parties, should

meet them separately and try to bridge the gap. Thus, there is no

document on record which in unambiguous terms appoints by

consent of the parties Respondent No.2 as Sole Arbitrator. On the

contrary, as noticed by Respondent No.2 himself, he had been

wearing different hats from time to time. According to Respondent

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No.2, he had indicated that he would prefer to resolve the disputes

between the parties as a Mediator. A Mediator is a term having

distinct with connotation and distinct functions and obligations to that

of an Arbitrator. An Arbitrator is primarily a Tribunal to resolve the

dispute by adjudicative process in accordance with law. In the letter

of 1st April, 2003, it was specifically recorded “on Friday the 28th

March 2003 wherein we had agreed that no formal arbitration would

take place.” These words clearly indicate that the parties had

decided not to pursue the arbitral forum even if it had commenced.

There are serious contentions raised even to this aspect of the matter

as to whether the sole arbitrator had entered upon the reference and

had in fact conducted arbitration proceedings at any stage. Firstly, it

is not quite certain, at least the Court is not convinced that Shri Rozal

Mehta had been appointed as a sole arbitrator in accordance with law

and he had acted as the sole arbitrator to adjudicate differences

and/or disputes between the parties. The emphasis of the Applicant

is that Respondent No.2 had acted as a Mediator and the

correspondence exchanged by him as well as his conduct with the

parties is that of a Mediator and not that of an arbitrator. No attempts

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had been made by him to settle the dispute between the parties by

adjudication process and that he had clearly worked as a Conciliator

or Mediator between the parties, also had tried to bring them together

and in fact had even put forth the proposal of one side the parties with

greater emphasis to that correspondence. The Agreement dated 14th

July, 1995 was subsisting and was treated as effective and binding

between the parties as late as on 27th November, 2007. While

referring to the letter dated 30th October, 2007 wherein the Applicant

informed Respondent No.1, after noticing the four options which

even included that the decision of the sole arbitrator shall be final and

bind. The Applicant had clearly stated that it, in view of the conduct

of the parties, reserved its right to chose one of the options at an

appropriate time. In other words, the parties were not ad idem that

Shri Rozal Mehta, Respondent No.2 had actually acted as the sole

arbitrator. In various correspondence exchanged between the

parties, which has already been referred by the Court, there is no

unambiguous or definite record to show that Respondent No.2 had

been appointed as the sole arbitrator and he had so acted in that

capacity. Once that is not so, the question of removing the arbitrator

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for making an appointment in his place would hardly arise and the

contention of the Respondent No.1 that the present Application under

Section 11 of the Act is not maintainable is without substance and

merit. The provisions of Sections 12 to 14 would be invocable only

when there is a mandate for appointment of an arbitrator which can

be revoked in the facts and circumstances of a case.

7. There is definite documentation on record to show that

Respondent No.2 acted as a Mediator or Conciliator and always

attempted to reconcile the dispute between the parties by mutual

agreement and persuasion. In fact, as already noticed, he himself in

his letter dated 1st April, 2003 had noticed that during the discussions

between the parties and him, it was agreed that the process of

mediation would start on both parties submitting their claims in sealed

envolope, and had clearly stated that he could not wear two hats, i.e.

one of an Arbitrator and the other of a Mediator. He had also stated

that he had been acting as an Mediator and would step down as an

Mediator when ever his role as an Arbitrator would be called for and

would look into the matter. The letter dated 21st June, 1996 (Exhibit-

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C) indicates that Respondent No.2 was present in all the meetings

between the parties. It also refers to discussion of Respondent No.2

with one party and consequent assurances being given to the other

party. Vide letter dated 15th January, 2008, the Applicant had clearly

stated that the arbitration agreement should be invoked and had

requested for an appointment of any independent arbitrator. The

distinction between the arbitration and mediation is well known and

accepted now. The arbitration in no uncertain terms is an

adjudication process which an arbitral tribunal performs in

accordance with law while mediation is a conflict resolution method

where a neutral person facilitates discussions between the parties in

an attempt to get the parties to reach an agreement that is mutually

agreeable to both the parties. In short mediation is a method to

dissolve disagreement designed to help disputing parties resolve their

own dispute even without obtaining legal counsel. It is a non-

adversarial approach to conflict resolution and the approach of

mediator is to encourage mutual agreement rather than to impose a

settlement. It is not simplicitor a remedy but a system having

appropriate of dispute resolution. One must remember that litigant

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should not feel that by resorting to mediation he is going to get justice

of second class. Legitimacy of action of court in referring matter to

mediation depends upon quality of mediation process which is

offered. It is, therefore, important to keep in mind the objectives of

mediation.

(i) It is to facilitate parties resolving dispute

themselves;

(ii)

To provide fair and expeditious ADR process;

(iii) To provide effective and cost effective ADR

process;

(iv) To provide informal ADR process.

For all kinds of mediation, the basic training of a mediator is for

transforming “No” to “I will think over the solution” and further to “I

think it is a better solution”. It definitely would require specialised

communication skills. Mediator has to apply universal principles of

persuation in the process of mediation. Cialdini has stated six such

principles, namely,

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(a) Reciprocity : People feel obligated to give
back to others who have given to them.

(b) Linking : We prefer to say “yes” to those we

know and like.

( c) Consensus : People decide what’s
appropriate for them to do in a situation by

examining and following what others are
doing.

(d) Authority : People rely on those with

superior knowledge or perspective for
guidance on how to respond AND what

decision to make.

(e) Consistency : Once we make a choice/take

a stand, we will encounter personal and
interpersonal pressure to behave
consistently with that commitment.

(f) Scarcity : Opportunities appear more

valuable when they are less available.”

8. The role of Respondent No.2 as reflected from the record

on the Court file was primarily that of a mediator and not that of an

arbitrator. There is no much doubt that Respondent No.2 had acted

as Mediator or Conciliator between the parties and had put forward a

point of view of one party to the other. Thus, in view of a fine

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distinction between the Conciliator and Arbitrator, the action is not a

greater significance in the present case, and as held in Salem

Advocate Bar Association, T.N. v. Union of India, (2005)6 SCC 344,

that “in conciliation, there is a little more latitude and a conciliator can

suggest some terms of settlements too.” Attempts made by

Respondent No.2 were actually for resolving the disputes between

the parties by recourse to the process of mediation rather than by

adjudication process. He talked to the parties individually, putforth

proposal of one party to the other and tried to bring up a commonly

acceptable solution to their problems. Thus, this is not a function of

an arbitrator. Another way of looking at it is as to what the parties

actually understood and practiced as a result of the role played by

Respondent No.2. As far as the Applicant is concerned, all

throughout, it took up the stand as to whether Respondent No.2

should act as a Conciliator or Mediator and ultimately requested for

an independent arbitrator because of the bar contained in Section 80

of the Act. The Respondents No.1 did aver in the correspondence

that Respondent No.2 acted as an arbitrator but he himself made it

clear that he was acting as Mediator and would give up that role and

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consider the role of an arbitrator as and when occasion arose. It

may not be absolutely essential for this Court to examine in a greater

detail when there is a bar contained in Section 80 of the Act.

Because it would always be better and in the interest of justice to

appoint an arbitrator in which both the parties have failed and where

there is no genuine apprehension or bias. The Applicant had made

certain averments in his Arbitration Application and resultantly had

asked for an appointment of an independent arbitrator. The

provisions of Section 80 of the Act are pleaded as a bar to the

appointment of Respondent No.2 as an arbitrator. At this stage, it

may be appropriate to refer to the arbitration clause between the

parties. Clause 19 states that “All disputes and differences between

the parties hereto including interpretation of any clause herein

contained arising out of or under this Agreement shall be referred to

the sole arbitration of Mr. Rozal Mehta, or in the event of his non-

availability Mr………………… whose decision shall be final and binding

on the parties thereto.” In other words, the parties had

contemplated and the arbitration clause so specifically provides that

some other sole arbitrator could be appointed in the event

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Respondent No.2 could not be available for any reason. No prejudice

will be caused to any of the parties into proceedings and it would be

in the interest of justice, equity and good conscious that some other

person is appointed as Sole Arbitrator in terms of Clause 19 of the

Agreement between the parties rather than Respondent No.2.

9. The parties infact can agitate their controverted

contentions even before the Arbitrator. This being an Application for

appointment of an Arbitrator, there is limited scope for this Court to

play larger role, as the contentions are left open to be urged before

the Learned Arbitrator in terms of Section 16 of the Act.

10. Resultantly, Shri S.P. Bharucha, former Chief Justice of

India is appointed as Sole Arbitrator to enter upon reference to

adjudicate the disputes between the parties.

11. The Arbitration Application is allowed and accordingly

stands disposed of. No order as to costs.

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CHIEF JUSTICE

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