MISCELLANEOUS CIVIL APPLICATION (ARBITRATION) No. 326/2019

23rd July 2019

Petitioner Counsel: Shri Shyam Dewani
Respondent Counsel: Shri C. S. Dharmadhikari
Act Name: Maharashtra Co-operative Societies Act, 1960 Arbitration and Conciliation Act, 1996

Section :
Section 11 Arbitration and Conciliation Act, 1996

Cases Cited :
Para 3: Dr. Bhalchandra Jageshwar Subhedar Vs. State of Maharashtra & Others., Public Interest Litigation No.23 of 2013
Para 4: Duro Felguera, S.A. Vs. Gangavaram Port Limited [(2017) 9 SCC 729]
Para 4: Dresser Rand S.A. Bindal Agro Chem Ltd. & Another [(2006) 1 SCC 751]
Para 4: PSA Mumbai Investments PTE. Limited Vs. Board of Trustees of the Jawaharlal Nehru Port Trust & Another [(2018) 10 SCC 525]
Para 5: Anant Narayanrao Gharad & Others Vs. The Hon'ble Minister, Co-operative, Marketing and Textiles & Others]., Writ Petition No.2231 of 2018
Para 5: M/s Simpark Infrastructure Pvt. Ltd. Vs. Jaipur Municipal Corporation [2012 SCC Online Rajasthan 2738]
Para 5: National Highways Authority of India Vs. PATI-BEL (JV) [2019 SCC Online Delhi 6793]

JUDGEMENT

The miscellaneous civil application is ADMITTED and heard with consent of counsel for the parties.

2. This application has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, 'the said Act') seeking appointment of an Arbitrator.

3. Pursuant to the notice inviting bids for the management and development of a multi-speciality hospital issued by the non-applicant which is a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960, the applicant had submitted its bid. A letter of intent was issued thereafter by the non-applicant and pursuant thereto on 15.12.2012, the applicant paid an amount of Rupees Four Crores to the non-applicant alongwith a bank guarantee for an amount of Rupees Two Crores towards performance of various terms and conditions. On 25.02.2013, a management and development agreement was entered into between the parties. In the meanwhile, Public Interest Litigation No.23 of 2013 [Dr.Bhalchandra Jageshwar Subhedar Versus State of Maharashtra & Others] was filed in this Court challenging the resolution passed by the non-applicant of entering into a collaboration with the applicant leading to execution of the agreement in question. On 06.05.2014, the aforesaid public interest litigation came to be decided and the consent letter dated 21.02.2013 alongwith all subsequent actions came to be set aside. In view of aforesaid order, the applicant on 06.06.2014 requested the non-applicant to refund the amount of Rupees Four Crores alongwith interest. On 09.07.2014 reply was given by the non-applicant calling upon the applicant to confirm whether it had interest in completing the projects in question. On 06.08.2014, the applicant informed the non-applicant that it was willing to continue the collaboration as recorded in the management and development agreement. Thereafter on 05.01.2017 the special leave petition that was filed by the non-applicant challenging the order passed in the public interest litigation came to be dismissed by the Hon'ble Supreme Court. Hence, on 01.04.2017 a legal notice was issued by the applicant seeking refund of the amount of Rupees Four Crores with interest at the rate of 21% per annum. The applicant was informed on 01.05.2017 that the decision of refunding the amount paid could be taken only after the elections of the Board of Directors. There were subsequent communications between the parties and in response to the applicant's notice dated 10.08.2018, the non-applicant on 10.09.2018 stated that as a duly constituted Board of Directors was not yet available reference could not be made to the Management Committee in terms of the arbitration clause. The applicant therefore invoked the arbitration clause by its notice dated 31.12.2018. There being no response to the same, the present application has been filed.

4. Shri Shyam Dewani, learned counsel for the applicant referred to various clauses in the management and development agreement dated 25.02.2013 and submitted that in terms of clause 5.17 thereof, an Arbitrator was liable to be appointed. He submitted that as per the said clause the dispute between the parties was required to be referred to a Management Committee and on its failure to resolve the dispute, the proceedings were to be referred to an Arbitrator. Since the Board of Directors had not yet been constituted, there was no question of referring the dispute to the Management Committee. He referred to various notices issued to the non-applicant and submitted that the applicant could not be required to wait for an indefinite period till the Board of Directors was available after which the dispute could be referred to a Management Committee. He therefore submitted that in terms of the aforesaid clause, an Arbitrator was liable to be appointed. He then submitted that reference to the tender document with regard to the invitation to bid was not required to be gone into as Clause 5.17 in the management and development agreement was quite clear. There was no ambiguity whatsoever in the said clause and therefore the request made by the applicant was liable to be accepted. Since the work in question could not be commenced in view of orders passed in the public interest litigation, it was all the more necessary to proceed on the basis of the management and development agreement. Even otherwise, it was submitted that as per Clause 1.3 of the management and development agreement, a priority was to be given to the contract agreement and not to the tender document. In support of his submissions, the learned counsel referred to the decisions in Duro Felguera, S.A. Versus Gangavaram Port Limited [(2017) 9 SCC 729], Dresser Rand S.A. Bindal Agro Chem Ltd. & Another [(2006) 1 SCC 751] and PSA Mumbai Investments PTE. Limited Versus Board of Trustees of the Jawaharlal Nehru Port Trust & Another [(2018) 10 SCC 525]. It was thus submitted that the application deserves to be accordingly allowed.

5. Shri C.S. Dharmadhikari, learned counsel for the non-applicant on the other hand opposed the aforesaid submissions and submitted that reference of the dispute initially to the Management Committee was necessary in the light of the clear words of the arbitration clause. As per Clause 5.17 unless the dispute was first referred to the Management Committee and the same remained unresolved even thereafter, the dispute was required to be referred to an Arbitrator. He then submitted that if the management and development agreement did not provide for the manner in which the Management Committee was to be constituted, then the tender document would have to be referred to. In that regard, he referred to Clause 5.1 of the tender document wherein the expression “Management Committee” was defined to comprise of seven members out of which three members were to be nominated by the non-applicant. In that regard, it was submitted that the Board of Directors of the non-applicant-Society was not available as the Administrator was incharge of the affairs of the society. In that regard, he referred to the pendency of Writ Petition No.2231 of 2018 [Anant Narayanrao Gharad & Others versus The Hon'ble Minister, Co-operative, Marketing and Textiles & Others] as a result of which the Board of Directors could not be constituted. He therefore submitted that it was only after the Board of Directors would be available that the representation on the Management Committee could be provided by the said Board and only thereafter the dispute could be considered by the Management Committee. According to him, the conditions prescribed in Clause 5.17 being of a mandatory nature, all conditions stated therein were required to be fulfilled. He referred to the decisions in M/s Simpark Infrastructure Pvt. Ltd. Versus Jaipur Municipal Corporation [2012 SCC Online Rajasthan 2738] and National Highways Authority of India Versus PATI-BEL (JV) [2019 SCC Online Delhi 6793] in that regard. It was thus submitted that the prayer made in the present application could not be granted and hence the application was liable to be rejected.

6. I have heard the learned counsel for the parties and I have perused the tender document as well as the management and development agreement entered into between the parties. Clause 5.17 of the management and development agreement which contains the arbitration clause stipulates that in case of any dispute arising out of the contract either during progress of the work or after completion or abandonment thereof would be first referred to a Management Committee which would attempt to amicably resolve the dispute. If the Management Committee was unable to resolve the dispute then the same was required to be referred to the Arbitrator as appointed as per the procedure provided under the said Act. In this regard, it is to be noted that on 10.08.2018 the applicant issued a legal notice to the non-applicant and reiterated its demand to receive the outstanding amount of Rupees Four Crores alongwith interest. In paragraph 5 of the said legal notice, it was stated thus:-

“5. That, in view of the failure on the part of you Noticee to clear the outstanding amount and since the scope of the said Arbitration Clause is wide enough to include any questions and disputes relating to the Contract, my client hereby calls upon you Noticee to refer the said matter to the “Management Committee” consisting of 7 members including 3 representatives of Nagrik Sahakari Rugnalaya & Research Center Limited. If the said dispute is not resolved by the said “Management Committee” my client will take steps as are permissible in the eyes of law.”
In response thereto the non-applicant on 10.09.2018 responded to paragraph 5 of the applicant's notice as under:-
“5. As to paragraph No.5: In the absence of duly constituted Board of Directors a reference to the Management Committee consisting of 7 members including 3 representatives of Nagrik Sahakari Rugnalaya & Research Centre Ltd. is uncalled for.”
From this exchange of communications, it is clear that the applicant had called upon the non-applicant to refer the dispute to the Management Committee and had further stated that if the same was not resolved by the Management Committee then the applicant would take further steps as permissible. According to the non-applicant, it was pointed out that in the absence of a duly constituted Board of Directors, a reference to the Management Committee was uncalled for. It thus becomes clear that the applicant in terms of Clause 5.17 had sought reference to the Management Committee but the non-applicant took the stand that in absence of a duly constituted Board of Directors, a reference to the Management Committee was uncalled for.

7. It is not in dispute that the Board of Director of the non-applicant-Society was not available in view of the fact that an Administrator has been appointed to manage the affairs of the Society. It is further not in dispute that in view of the interim orders passed in Writ Petition 2231 of 2018 which is stated to be pending, the elections to the Board of Directors cannot be held. From the aforesaid therefore it becomes clear that though the applicant-Society had sought reference of the dispute to the Management Committee, according to the non-applicant the same was uncalled for as the Board of Directors itself was not available. Having taken such stand in the reply that was given on 10.09.2018 it would not be now permissible for the non-applicant to insist upon reference of the dispute initially to the Management Committee. Even otherwise, in view of pending litigation the Board of Directors has not yet been duly constituted. In these facts therefore the applicant cannot be required to wait indefinitely till the Management Committee is constituted which is dependent upon availability of the Board of Directors of the non-applicant-Society. Even otherwise, the dispute is merely being referred to Arbitration as agreed between the parties. The requirement of referring the dispute first to the Management Committee cannot be placed on a higher pedestal to mean that unless a dispute is first referred to it in any event, reference to the Arbitrator is not permissible. When the Board of Directors is not available for a period of more than one year and even according to the non-applicant the reference to the Management Committee was not uncalled for on that count, it is found that the application under Section 11 is liable to be allowed by referring the dispute to an Arbitrator.

8. In these facts therefore it is not found necessary to refer to the tender document as sought to be urged on behalf of the non-applicant. There is no ambiguity found in the arbitration clause in the management and development agreement. Similarly, after considering the ratio of the decisions relied upon by the learned counsel for the parties and applying that law to the case in hand, it is found that the prayer made in the application is liable to be granted.

9. Accordingly, the Miscellaneous Civil Application is allowed. It is held that the dispute is liable to be referred for arbitration in terms of Clause 5.17 of the Management and Development Agreement. Learned counsel for the parties on instructions agree that Hon'ble Shri Justice A.P. Deshpande (Retired) be appointed as an Arbitrator. Accordingly, statement of disclosure be obtained within a period of four weeks.