Gujarat High Court Case Information System Print SCA/10291/2009 52/ 54 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 10291 of 2009 For Approval and Signature: HON'BLE SMT. JUSTICE [ENTITY] 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No [ENTITY] - Petitioner Versus [ENTITY] - THROUGH PARTNERS AND ADMINISTRATOR & ANR. - Respondents Appearance : MR [ENTITY], SENIOR ADVOCATE WITH MR [ENTITY] FOR MRS [ENTITY] for Petitioner MR [ENTITY] for Respondent No.1 MR [ENTITY], SENIOR ADVOCATE WITH MR [ENTITY] for Respondent No.2 CORAM : HON'BLE SMT. JUSTICE [ENTITY] Date : 11/02/2010 ORAL JUDGMENT
1. The petitioner, [ENTITY], a registered Society, which is the owner of the land in question, has preferred this petition, invoking the provisions of [SECTION] and [SECTION] of the [ACT], praying for the issuance of an appropriate writ or order, to quash and set aside the order dated 19.09.2009, rendered by the learned Principal Civil Judge (S.D.), Surat, below application at Exhibit-[SECTION], in [CASE NUMBER], whereby, the said application preferred by the petitioner for referring the matter to arbitration and for stay of the proceedings of the above-mentioned suit, has been rejected.
2. In order to decide the issues arising in the petition, a brief summary of the factual background of the case would be necessary. Respondent No.1 is the original plaintiff and the petitioner and respondent No.2 are the original defendants Nos. 1 and 2, respectively. The petitioner is owner of the land being Ward-4, Entry No.2245/B, situated on Ring Road, Surat City, Taluka: Chauryashi, admeasuring 6686 sq. mts., along with construction thereupon. The petitioner issued a public notice dated 01.06.2007 to sell the open land, admeasuring 501 sq. mts., out of the aforesaid land on As is, Where is basis. By the said public notice, which was published in five different newspapers having wide circulation in Surat, the petitioner invited Tenders, with conditions stipulated in the Tender Form.
2.1 Respondent No.1 M/s. [ENTITY] filled in the Tender Form on 12.06.2007, duly signed, offering Rs.41,00,00,000/-(Rupees Forty One Crores) for the land, which was the subject matter of the public notice. However, immediately thereafter, on [SECTION].06.2007, respondent No.1 addressed a letter to the petitioner, specifically mentioning therein that even though it has filled in the Tender Form on 12.06.2007, the offer is a conditional one, subject to three conditions mentioned in the said letter. The first condition imposed by respondent No.1 pertains to Paragraph-2 of the Tender Form, wherein it is stated that auction to purchase the additional land, admeasuring 392.[SECTION] sq.mts., belonging to the Surat Municipal Corporation, and which is to be purchased by the petitioner, is given to the tenderer with the condition that whatever purchase price is fixed for this land by the State Government, will have to be paid by the tenderer separately and will not be included in the Tender amount. It is further stipulated in Paragraph-2 of the Tender Form that the Sale Document in respect of the land, shall be executed at the cost of the tenderer and the petitioner will not be responsible for making any further payment for the same. However, if the tenderer agrees to accept this condition, he will be entitled to use the built up Floor Space Index (FSI). Regarding this condition in the Tender Form, respondent No.1, by letter dated [SECTION].06.2007, imposed the counter condition to the effect that it would not be responsible for making the payment for the land admeasuring 392.[SECTION] sq. mts. belonging to the Surat Municipal Corporation, or for bearing the expenses of execution of the Sale Document, over and above the offer of the Tender amount. The case of the petitioner is that, the first condition imposed by respondent No.1 in letter dated [SECTION].06.2007, is contrary to the condition contained in Paragraph-2 of the Tender Form. The second condition imposed by respondent No.1 is that they have already tendered a cheque for Rs.10,00,00,000/- (Rupees Ten Crores) and shall pay the remaining amount in three equal installments, over a period of three years, which condition is also in conflict with condition No.3(3), stipulated in the Tender Form. [SECTION] clearly states that the tenderer will have to make a deposit of an amount of Rs.10,00,00,000/- (Rupees Ten Crores) by an account payee Pay Order or Demand Draft and the Tender will only be accepted after the remaining amount is paid, failing which, the amount of deposit shall stand forfeited.
2.2 The case of the petitioner is that the second condition imposed by respondent No.1 is in contravention of condition No.3(3) of the Tender Form. The condition laid down in the letter dated [SECTION].06.2007, by respondent No.1 to the effect that title clearance, regarding the additional land belonging to the Surat Municipal Corporation, will be the responsibility of the petitioner, is also contrary to the recitals contained in Paragraph-2 of the Tender Form. Accordingly, as the Tender of respondent No.1 was a conditional one and found to be in contravention of the conditions stipulated in the Tender Form, the same was rejected by the petitioner on 15.06.2007 and the Tender of respondent No.2, which was the highest for Rs.43,11,00,000/- (Forty Three Crores and Eleven Lakhs), after inter se bidding, was accepted.
2.3 It is a matter of record that one [ENTITY], a Member of the petitioner-Society, filed [CASE NUMBER] before the Board of Nominees, Surat, challenging the acceptance of the Tender of respondent No.2. Initially, respondent No.1 preferred an application at Exhibit-25 for being joined as party to the said Arbitration Suit. This application remained pending; therefore, respondent No.1 approached the High Court, by filing a petition, being [CASE NUMBER], praying for directions to the Board of Nominees to hear and decide the application at Exhibit-25 and for grant of interim relief, restraining respondent No.2 from putting up any construction on the land, which is the subject matter of the Tender. The petition was disposed of, by order dated 30.06.2009, with directions to the Board of Nominees, Surat, to decide the application of respondent No.1, as expeditiously as possible, and preferably within four weeks from the date of the said order. However, respondent No.1 did not pursue the application at Exhibit-25 before the Board of Nominees, but withdrew the same, on 14.07.2009.
2.4 Prior thereto, respondent No.1 had instituted a suit, being [CASE NUMBER], challenging the action of the petitioner in rejecting the Tender submitted by him. In the said suit, the subsequent proceedings following the acceptance of the Tender of respondent No.2 and handing over the possession of the land, which is the subject matter of the Tender, have also been challenged. Additionally, respondent No.1 has offered an amount of Rs.51,11,00,000/-(Fifty One Crores Eleven Lakhs) to the petitioner and has prayed that the petitioner be directed to accept this amount and execute a Sale Deed in his favour, in respect of the said land. An application, being Exhibit-5, for grant of temporary injunction also came to be filed, which is still pending.
2.5 In the above background, in the very suit mentioned hereinabove, the petitioner filed an application, being Exhibit-[SECTION], before the trial Court, stating therein that, as respondent No.1 has signed the Tender and has accepted the conditions stated in the Tender Form, including Paragraph-[SECTION] thereof which provides for an [ACT], the suit is not maintainable, and as per the provisions of [SECTION] of the [ACT] [ACT]' for short), the matter should be referred to the Arbitrator. The said application of the petitioner has been rejected by the trial Court by passing the impugned order, giving rise to the filing of the petition.
3. Mr.[ENTITY], learned Senior Advocate with Mr.[ENTITY], learned advocate, appears for the petitioner. The submissions made by the learned Senior Advocate are as follows:
(i) The dispute raised by respondent No.1 in the suit is regarding rejection of his Tender, therefore, it is essentially a dispute that arises from the Tender Form, which is clear from the prayers made in the plaint. It is clearly stated in the said prayers that the petitioner has approached the Civil Court, as his Tender has been illegally rejected on 15.06.2007, and the Tender of respondent No.2, has been accepted.
(ii) The petitioner issued a public notice inviting Tenders on 01.06.2007, which is duly signed. It is clearly mentioned in the said notice that the land was to be sold, as per the terms and conditions of the Tender and discretion, whether to accept or reject any Tender, vests solely with the petitioner.
(iii) The property was to be sold on As is, Where is basis, as per Condition No.3(1) of the Tender Form. Condition No.3(3), stipulates that the Tender has to be accompanied with an account payee Pay Order or Demand Draft of Rs.10,00,00,000/- (Rupees Ten Crores), as earnest money. Respondent No.1 has violated this condition and has acted in contravention of the condition in the Tender Form. As per Condition No.3(5), the petitioner has discretion to reject or accept any Tender, without assigning any reason, therefore, the Tender of respondent No.1 has been rightly rejected by the petitioner.
(iv) Clause [SECTION] of the Tender Form contains the [ACT] which has been accepted by respondent no.1 and as the present dispute arises out of the Tender and is covered by the Arbitration Clause which has never been repudiated by respondent no.1, the matter ought to have been referred to the Arbitrator by the Trial Court. The conditions in the Tender Form have been accepted by respondent No.1 on 12.06.2007, and the said Tender was duly signed by the partner of respondent No.1. The arbitration clause has also been accepted in toto. Some counter-conditions have been imposed by respondent No.1 in its letter dated [SECTION].06.2007, which are contrary to the conditions in the Tender Form. Accordingly, the Tender of respondent No.1 came to be rejected on 15.06.2007, as discretion to do so is vested in the petitioner, by the conditions of the Tender itself. As the dispute arises from the Tender Form, it is governed by the arbitration clause contained therein, and the matter ought to be referred to the Arbitrator.
(v) The impugned order dated 19.09.2009, is patently erroneous. One of the grounds for rejecting the application at Exhibit-[SECTION] by the Trial Court is that there is no concluded contract between the petitioner and respondent No.1, as the Tender has not been accepted by the petitioner, and Clause-[SECTION] of the Tender, which states that any dispute with regard to the Tender would have to be settled by arbitration, is not applicable in the absence of any concluded contract. This finding of the Trial Court is illegal and erroneous, and not in accordance with the relevant provisions of the [ACT]. The Trial Court has erred in holding that there is no concluded contract, as the Tender has not been signed by the petitioner as, for an [ACT] to be effective, the only requirement of law is that it should be in writing and the intention to refer the dispute to the Arbitrator must be discernible therefrom, which requirement is fulfilled in the present case. The provisions of [SECTION] of the [ACT] stipulate that the [ACT] can be contained in the form of an arbitration clause in a contract or in the form of a separate agreement. The requirement of [SECTION] that the [ACT] should be in writing is fulfilled in the present case, as the petitioner gave an offer in writing, duly signed vide Public Notice / Advertisement dated 01.06.2007, which has been accepted by respondent No.1, also duly signed, on 12.06.2007. All conditions mentioned in the Tender Form, including clause [SECTION], which contains the [ACT], have been accepted. It is stated in the Public Notice/ Advertisement that offers are invited on the basis of terms and conditions mentioned in the Tender Form. It is not necessary for an [ACT] to be effective, that parties should sign on a single document. The Public Notice/ Advertisement is, therefore, an invitation and the submission of its Tender by respondent No.1 signifies acceptance of the offer, which constitutes a contract under law. Respondent No.1 has signed the Tender and accepted all the conditions contained in the Tender Form. The intention of the parties to refer the disputes arising out of the Tender Form to the Arbitrator is clearly discernible and the acceptance of the conditions contained in the Tender Form give rise to an effective [ACT], which ought to be enforced.
(vi) The issue whether the signatures of both parties are required on a single document has been decided by the Supreme Court in J.K.Jain and Others v. Delhi Development Authority and Others
-(1995)6 SCC 571 and [PRECEDENT]
- (2009)2 SCC [SECTION]4, and it is now settled law that to constitute an [ACT], it is not necessary that there should be a formal Agreement or that the terms should be contained in one document signed by the parties.
Hence, the finding of the Trial Court that the [ACT] has not come into force as it is not signed by both parties is patently erroneous and unsustainable in law.
(vii) The Trial Court has rejected the application of the petitioner for referring the matter to the Arbitrator on the ground that there is no concluded contract between the parties, as the Tender of respondent No.1 has been rejected. This finding of the Trial Court is misdirected in law as the Trial Court was called upon to determine the question whether the [ACT] is a concluded one, and not whether the contract for sale has been concluded. The issue regarding arbitration is distinct from the sale of land that would have resulted, had the bid of respondent No.1 been accepted. Admittedly, the contract for sale has not come into existence as the offer of respondent No.1 has been rejected. However, there is certainly an [ACT] between the petitioner and respondent No.1 to refer any dispute arising from the Tender to be adjudicated upon by the Arbitrator, as per clause-[SECTION] of the Tender Form. Respondent No.1 has unconditionally accepted all the conditions in the Tender Form on 12.06.2007. It is only after the acceptance of the conditions of the Tender Form that respondent No.1 has, by letter dated [SECTION].06.2007, sought to modify the conditions, making his offer a conditional one. These conditions are anterior to the contract of sale and cannot be construed to be a part of the terms of the contract of sale.
(viii) Clause-[SECTION] which contains the [ACT], clearly refers to disputes arising out of the Tender, at any point of time, to be referred to the Arbitrator and does not refer to post-Tender conditions. Moreover, the conditions of the Tender Form vest the petitioner with discretion to accept or reject any Tender without assigning reasons. As respondent No.1, after accepting the conditions of the Tender Form, sought to make his offer a conditional one by letter dated [SECTION].06.2007, its Tender has been rejected as it is contrary to the terms and conditions of the Tender Form. Whether the Tender of respondent No.1 has been rightly or wrongly rejected, is a dispute arising out of the terms and conditions of the Tender and is squarely covered by clause-[SECTION], which is the arbitration clause. The arbitration clause is distinct from a contract of sale and all disputes arising in the interregnum are covered by clause-[SECTION]. As this clause has been accepted by respondent no.1, there is a concluded [ACT] between the parties. The Trial Court has, therefore, erred in addressing itself to the issue that there is no concluded contract between the parties as the Tender of respondent No.1 has not been accepted, whereas the question whether there is a concluded [ACT] between the parties has not been addressed.
(ix) The finding of the Trial Court that the arbitration clause would have the effect of making the petitioner a judge in his own cause is also not in accordance with law. No individual has been named in clause-[SECTION], but the President of the petitioner-Society has been named as Arbitrator by designation. The arbitration clause itself would not fail for the above reason. Even otherwise, if the Court thinks it fit to do so, an independent Arbitrator, being a retired Judge of the Supreme Court or the High Court, can be appointed as an Arbitrator in view of the nature of the litigation. However, independently of this dispute, clause-[SECTION] is not rendered invalid as there is no prohibition on the appointment of an Arbitrator. In a given case, if the person appointed as an Arbitrator is found to be biased or if there is a reasonable apprehension of bias, the petitioner can insist for the appointment of a different person as an Arbitrator. On facts, clause-[SECTION] would not become invalid as the part, wherein the Arbitrator is named by designation, is clearly severable from the rest of the clause and even though there is no reasonable cause for bias, it is open to this Court to appoint an independent Arbitrator.
In support of this submission, reliance has been placed upon Indian Oil Corporation Limited and others v. Raja Transport Private Limited
- 2009(8) SCC 520.
On the basis of the above submissions, it is submitted that the impugned order be quashed and set aside and the petition allowed.
4. Mr.[ENTITY], learned Senior Advocate with Mr.[ENTITY], learned counsel for respondent No.2, has supported, and adopted, the arguments made on behalf of the petitioner.
5. Strongly opposing the submissions made on behalf of the petitioner, Mr.[ENTITY], learned counsel for respondent No.1, has submitted that:
(a) Clause [SECTION] which is said to contain the [ACT] is illegal, void ab-initio and not enforceable in law and no directions can be issued by the Court for implementing it. The sole Arbitrator named in the said clause is the President of the petitioner-Society. It is a settled principle of law that no man can become a judge in his own cause and the President of the Society has participated in the Tender process after the opening of the Tender. The Tender of respondent No.1 has been rejected, therefore, respondent No.1 could not participate in the inter-se bidding. There is a reasonable apprehension of bias against the President of the petitioner-Society, who has been named as the sole Arbitrator, as it is the contention of respondent No.1 that his Tender has been wrongly rejected. The effect of the Arbitration clause would be that the person who is part of the process whereby the said Tender has been rejected, would become the sole Judge.
(b) That part of Clause [SECTION] which names the President of the petitioner-Society as Arbitrator, is not severable from the rest of the clause. Further, in a petition under [SECTION] of the [ACT], an Arbitrator cannot be appointed by this Court, as there is a separate procedure prescribed for the same. As the Arbitration Clause is not severable it is, therefore, totally invalidated and rendered illegal, by naming the President of the petitioner-Society as Arbitrator as he cannot be said to be an independent person.
(c) If this Court would proceed to appoint an independent arbitrator, it would amount to rewriting the [ACT], which cannot be done.
In support of the above submission, the learned counsel for the respondent No.1 has placed reliance upon [PRECEDENT] and Bihar State Mineral Dev. Corpn. And another v. Encon Builders (I) Pvt. Ltd.
- AIR 2003 SC 3688.
(d) The conduct of the petitioner ought to be taken note of by this Court. In a highly contested litigation, it is significant that respondent No.2, who is the beneficiary, has not approached the Court by filing the petition, but it is filed by the petitioner, who has invited Tenders.
(e) The merits of the case, at this stage, are not relevant as the [ACT] itself is void and nothing further remains, therefore, the conclusions arrived at by the Trial Court while passing the impugned order are legal, valid and in accordance with law.
(f) In the alternative, there is no [ACT] between the parties as the [ACT] is required to be in writing and signed by both the parties. If only one party signs the said agreement, it ceases to be a valid [ACT]. Admittedly, the Tender Form has been signed only by respondent No.1 and not by the petitioner, therefore, there is no proper [ACT] between the parties.
(g) On the facts of the case, the Public Notice/ Advertisement for inviting Tenders is an invitation to make an offer. Under law, this offer would result in an agreement/ contract only if it is accepted. Till accepted, it would remain a proposal or an offer which can be withdrawn. As the Tender of the respondent No.1 has not been accepted by the petitioner, there is no concluded contract between the parties.
(h) The Civil Court has the jurisdiction to determine and decide whether clause-[SECTION] is void or not and in this case, it has rightly exercised jurisdiction and the impugned order does not deserve to be interfered with.
In support of the above submissions, the learned counsel for respondent No.1 has placed reliance upon Atul Singh and Others v. Sunil Kumar Singh and Others
- (2008)2 SCC 602, M/s.Ganesh Shankar Pandey & Co. v. Union of India and others -
AIR 2004 Allahabad 26 and [PRECEDENT].
(i) The mandatory provisions of [SECTION] of the [ACT] have not been complied with by the petitioner as the original [ACT], or a duly signed and certified copy thereof, has not been submitted before the Trial Court but only a xerox copy has been submitted, therefore, the application of the petitioner has been rightly rejected by the Trial Court.
6. In rejoinder, Mr.[ENTITY], learned Senior Advocate for the petitioner, has reiterated the submissions made by him earlier. In addition, it is submitted as under:
(I) That the Scheme of the [ACT] is such that it contains the procedure whereby the appointment of a person as an Arbitrator can be challenged. If there is any objection to the named Arbitrator, the petitioner has an effective remedy under the Act and in view of the above, it cannot be said that the arbitration clause itself, is rendered invalid by naming the President of the petitioner-Society as the sole Arbitrator by designation.
(II) Proceedings under [SECTION] of the [ACT] are a continuation of the proceedings before the Trial Court. If the Court below could have passed an order referring the matter to the Arbitrator, this Court can certainly do so, and an independent Arbitrator can be appointed. In support of this submission, reliance has been placed on [PRECEDENT].
(III) The objection raised by the learned counsel for the respondent No.1 that the original [ACT] or a certified copy thereof has not been annexed with the application before the Trial Court, is a hyper-technical one, as the suit has been filed by respondent No.1.
This objection was never taken at any stage before the Trial Court, which had no occasion to deal with the same. In any case, the said objection has been waived by respondent No.1 as, in the reply to Ex.[SECTION] filed before the Trial Court, the [ACT] between the parties has not been denied and no such objection has been taken. The petitioner has, by an affidavit affirmed on 16.01.2010, placed the original Tender document containing the [ACT] on the record of the petition, which may be taken note of, therefore, it cannot be said that the application is not maintainable on this ground.
In support of this submission, reliance has been placed on [PRECEDENT]
- 2000(2) Arbitration Law Reporter 650 (SC) and [PRECEDENT] Distinguishing the judgments cited by the learned counsel for respondent No.1, it is urged by the learned counsel for the petitioner that the petition be allowed.
7. I have heard the learned counsel for the respective parties, perused the averments made in the petition, contents of the impugned order and other documents on record.
8. The admitted position is that the petitioner issued a Public Notice/ Advertisement dated 01.06.2007, inviting Tenders in accordance with the conditions contained in the Tender Form. The said Notice is signed by the petitioner. It is also not in dispute that respondent No.1 has accepted the conditions in the Tender Form on 12.06.2009, in writing, by offering Rs.41 crores. Subsequently, by communication dated [SECTION].06.2007, respondent No.1 made his Tender offer a conditional one by imposing certain conditions, which are contrary to those stipulated in the Tender Form. In other words, the unconditional acceptance of the conditions contained in the Tender Form by respondent No.1 was made conditional by the said communication. It is also not disputed that respondent No.1 has tendered a cheque for an amount of Rs.10 crores as earnest money instead of an Account Payee Demand Draft or Pay Order, as required by the conditions of the Tender Form. The Tender of respondent No.1 has been rejected on 15.06.2007 by the petitioner-Society, on the ground that it is a conditional one and the conditions imposed are in contravention to those contained in the Tender Form. Moreover, the respondent No.1 did not attach an Account Payee Demand Draft or Pay Order for Rs.10 crores as per the conditions contained in the Tender Form, but submitted a cheque, which is also contrary to the stipulations in the Tender form. The Tender of respondent No.2 was accepted and the General Body/ Managing committee of the petitioner approved of this decision as also the decision rejecting the Tender of respondent No.1, in its meeting dated 16.06.2007.
9. The Trial Court, by the impugned order, has rejected the application of the petitioner for referring the dispute to arbitration on the grounds, that there is no concluded contract between the petitioner and respondent No.1 as the Tender has been rejected; that the [ACT] has not been signed by both parties; and that the [ACT] has the effect of making the petitioner a judge in his own cause, as the sole Arbitrator named by designation is the President of the petitioner-Society. These are, precisely, the issues that arise for determination in the petition.
10. In the above background, this Court is called upon to decide whether there is an [ACT] and, if so, whether the dispute ought to have been referred to the Arbitrator. The translated version of Clause-[SECTION] of the Tender Form, which contains the [ACT], reads thus:
[SECTION]. At the present stage, in the event that any uncontemplated circumstances should arise, the Sangh is empowered to make amendments in the conditions of the Form, as required, which shall be binding on the offerors. Notwithstanding the above, the Tenderer shall not be empowered to approach the Court in respect of any disputes or issues arising from the Tender Form but the same shall have to be resolved by arbitration, by the President of the Sangh (by designation) subject to the provisions of the [ACT] .
11. In light of the above, it would be fruitful, at this stage, to refer to the provisions of [SECTION] of the [ACT], which read as under:
7. Arbitration agreement In this part, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
12. The respondent No.1, while submitting his Tender, has accepted the arbitration clause in writing. The Public Notice / Advertisement dated 01.06.2007 can be said to be an invitation inviting offers, which invitation has been accepted by respondent No.1. The Public Notice is signed on behalf of the petitioner. In [PRECEDENT] (supra), it has been held by the Supreme Court that in order to confer jurisdiction on the Arbitrator to hear and decide the dispute, there must exist an [ACT] and if there is no such agreement, there is want or lack of jurisdiction in the Arbitrator. In this context, the observations of the Supreme Court are relevant and are reproduced hereinbelow:
7. It is true that there must be an arbitration agreement, to confer jurisdiction on the Arbitrator to hear and decide the dispute. Where there is no such agreement there is an initial want of jurisdiction. That is why it has been impressed by Courts that one of the essential ingredients of submission to arbitration is that the parties should agree that the dispute should be determined by an Arbitrator. Where there is an arbitration clause in a contract, it amounts to two contracts into one, one relating to the execution of the work entrusted in the manner prescribed and the other how to resolve the dispute in event any such dispute arises in respect of the said contract. Whenever one party to the dispute asserts that there is an arbitration agreement by which the parties had agreed to refer the dispute to an Arbitrator which is disputed and challenged by the other party to the agreement, it has to be examined and determined. To constitute "an arbitration agreement" it is not necessary that there should be a formal agreement or that the terms should all be contained in one document. All that is necessary that from documents it must appear that parties had agreed to submit present or future differences to arbitration.
[SECTION] of the [ACT] defines arbitration agreement to mean a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. But when [SECTION] while defining arbitration agreement speaks about a written agreement to submit present or future differences to the arbitration, it is not necessary that it should also be signed by the parties like any formal agreement relating to a contract. In the case of [PRECEDENT], it was said:
"But it is settled law that to constitute an arbitration agreement in writing it is not necessary that it be signed by the parties, and that it is sufficient if the terms, are reduced to writing and the agreement of the parties thereto is established."
9. It was said in the case of [PRECEDENT]:
"It may be pointed out that the arbitration clause in the agreement was enforceable if agreed to, even without the signature of the appellant as it is a settled law that to constitute an arbitration agreement in writing it is not necessary that it should be signed by the parties and it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established."
10. In the case of [PRECEDENT], it was said:
"A writing incorporating a valid agreement to submit differences to arbitration is therefore requisite: it is however not a condition of an effective arbitration agreement that it must be incorporated in a formal agreement executed by both the parties thereto, nor is it required to be signed by the parties. There must be an agreement to submit present or future differences to arbitration, this agreement must be in writing, and must be accepted by the parties."
(emphasis supplied)
[SECTION]. Further, in [PRECEDENT] (supra), discussing the provisions of [SECTION] of the [ACT], the Supreme Court has held that the [ACT] may be in the form of an arbitration clause in a contract or in a form of a separate agreement. The relevant extract of the judgment is reproduced hereinbelow:
As far as the provision of [SECTION] of the Act is concerned, an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and furthermore an arbitration is considered to be in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement or an exchange of statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. So from the provisions of [SECTION], it is clear that a charter party agreement need not be in writing signed by both parties and this could as well be made out from the acts of the parties to the agreement by way of their exchange of letters and information through fax, e-mails, etc. The contention of the appellant that under [SECTION] of the Act the latter/ faxes or mails or any other communications will have to contain the arbitration clause in the absence of any agreement, cannot be accepted. The expressions of [SECTION] do not specify any requirement to this effect.
(Paras 17, 14 and 15)
14. From a reading of the above judicial pronouncements, it clearly emerges that what is of paramount importance is the intention of the parties to refer the dispute to arbitration. The provisions of [SECTION] are wide enough to cover, apart from a document signed by parties, also an exchange of letters, telex, telegram or other means of telecommunication which provide a record of agreement or an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
15. It is now settled law that an [ACT] need not be signed by parties in a single document. Where there is an agreement to submit the disputes mentioned in the agreement to arbitration and the intention of the parties is clear and unambiguous, there is no requirement that both parties should sign on a single document. In the present case, the respondent No.1 has accepted clause-[SECTION] (the arbitration clause), in writing which provides for reference of disputes arising from the Tender, to the Arbitrator. In fact, at no stage before the Trial Court, has the existence of the [ACT] been denied by respondent No.1. Significantly, even in letter dated [SECTION].06.2007, whereby counter-conditions have been imposed by respondent No.1, after accepting the Tender on 12.06.2007, there is no counter-condition seeking to modify the Arbitration clause, or its acceptance by respondent No.1.
16. The public notice/ Advertisement is in the nature of an offer of the petitioner in writing, on the basis of terms and conditions governing the sale of the property. The arbitration clause is contained in the Tender Form itself, and is also in writing. The offer of the petitioner has been accepted by respondent No.1 in writing, therefore, the requirements of [SECTION] of the [ACT] are satisfied. The findings of the Trial Court in this regard are at variance with the settled principles of law laid down in the above-mentioned judgments, as the impugned order does not reveal that the said Court has adjudicated upon the fundamental issue, whether there exists a valid [ACT] in existence, or not.
17. The next question is regarding the validity of the finding of the Trial Court to the effect, that there is no concluded contract between the parties as the Tender of respondent No.1 has been rejected. A perusal of the contents of the arbitration clause shows that it speaks of disputes arising out of the Tender itself, to be referred to arbitration. The dispute between the parties has arisen because the Tender of respondent No.1 has been rejected, as it was found to be a conditional one and the conditions, as imposed by letter dated [SECTION].06.2007, are contrary to the conditions contained in the Tender Form. Moreover, instead of an Account Payee Demand Draft or Pay Order for Rs.10 crores as earnest money deposit, respondent No.1 has tendered a cheque, which is also not in consonance with the conditions in the Tender Form. No doubt, the Tender Form has been rejected at the threshold, therefore, no contract of sale has taken place. However, the arbitration clause distinctly refers to disputes arising from the Tender or any issue relating to the Tender, to be referred to arbitration, and not disputes arising out of the sale.
It is clear from clause-[SECTION] that the same refers to pre-Tender conditions and not post-Tender conditions, as post-Tender conditions would relate to a stage where the Tender has been accepted, and had that been the situation, then no dispute would have arisen. The contract of sale would necessarily come into existence only if the Tender had been accepted. The dispute between the parties has arisen out of the conditions of the Tender Form and the finding of the Trial Court that there is no [ACT] as no concluded contract had taken place between the parties is manifestly erroneous in the light of the above-mentioned discussion. It is, however, not specifically stated in the impugned order which contract the Trial Court is referring to as, admittedly, the contract of sale had not taken place as the Tender has been rejected at the threshold. What would have been proper for the Court below to examine is whether the dispute is covered by the [ACT] or not, which exercise has apparently not been undertaken by the Court below. The disputes contemplated in clause-[SECTION] are disputes arising from the Tender Form. As the dispute between the petitioner and respondent No.1 arises out of the rejection of the Tender of respondent No.1, being contrary to the conditions of the Tender Form, in the considered of this Court, it is certainly a dispute arising out of the Tender and, therefore, covered by the [ACT] contained in clause [SECTION].
18. The third ground on which the application of the petitioner has been rejected is that the arbitration clause provides for the President of the petitioner-Society (by designation) to act as the sole Arbitrator in the dispute. A serious objection has been taken by respondent No.1 to this and it has been strenuously argued that the arbitration clause itself is rendered null and void, illegal and non-est as the President of the petitioner-Society cannot be a judge in his own cause. It has also been submitted that this clause is not severable, and if one part of it, i.e. naming the President of the petitioner-Society as the sole Arbitrator by designation, is illegal, then the entire clause should be considered to be null and void. In this regard, the learned counsel for the respondent No.1 has relied upon [PRECEDENT]. (supra) and Bihar State Mineral Dev. Corpn. And another v. Encon Builders (I) Pvt. Ltd. (supra) in support of the proposition that the Arbitrator must be an independent an impartial one and a person cannot be a judge in his own cause. It has also been submitted that the President of the petitioner-Society is an interested person and there is a reasonable apprehension of bias against the respondent No.1.
19. There can be no doubt regarding the aspect that the Arbitrator should be an independent and impartial one, as justice should not only be done but manifestly be seen to be done. It is undisputed that the President of the petitioner-Society has been named as the sole Arbitrator by designation in the arbitration clause. The submission of the learned counsel for the respondent No.1 is that the President of the petitioner-Society has participated in the process of acceptance/ rejection of Tenders, therefore, the apprehension of bias against respondent No.1 is not unfounded. On this ground, it is urged that the arbitration clause itself becomes invalid, whereas, the argument of the petitioner is that the arbitration clause itself will not become invalid as the [ACT] provides for a procedure for filing objections to the appointment of the Arbitrator, in case such a situation arises. Both sides have placed reliance upon [PRECEDENT] (supra). The learned counsel for respondent No.1 has relied upon paragraph 36 of the said judgment wherein it is mentioned that if the named Arbitrator is an employee of a Company or body, there may be a valid and reasonable apprehension of bias in view of his position and interest and he may be unsuitable to act as an Arbitrator in an arbitration involving his Company. It has been submitted that as the named Arbitrator is the President of the petitioner-Society, and has participated in the Tender process, the apprehension of respondent No.1 is valid and reasonable and the said Arbitrator cannot be allowed to function as such. However, this proposition has been taken a step further by urging that not only is the named Arbitrator unsuitable to act as such, but by his being named as an Arbitrator, the arbitration clause itself has become invalid.
20. On the other hand, the learned counsel for the petitioner has relied upon paragraphs 45 to 47 of the same judgment and has submitted that no individual has been named as an Arbitrator but in the present case, the Arbitrator has been named by designation and if the respondent No.1 has an objection to the Arbitration, then proceedings under [SECTION] and [SECTION] of the [ACT] can be initiated in this regard.
21. At this stage, it cannot be observed by this Court whether, or not, the apprehension of bias expressed by respondent No.1 is a valid one or not. On one hand, the arbitration clause has been accepted by respondent No.1 with open eyes, and even by letter dated [SECTION].06.2007, there is no modification of this clause. There is no denial that the [ACT] is in existence between the parties. On the other hand, it cannot be denied that the Arbitrator named in clause [SECTION] (by designation) is the President of the petitioner-Society and may have participated in the Tender process. The question whether the arbitration clause itself is rendered invalid or illegal by naming the President of the petitioner-Society (by designation) as the Arbitrator is to be examined. Naming an employee or office bearer of one of the parties as an Arbitrator does not, ipso-facto, lead to the presumption of bias, partiality or lack of independence. However, on the other hand, there may be a justifiable apprehension of impartiality if the person named as an Arbitrator is in control of, or has dealt with the subject-matter of the dispute which, in this case, is the acceptance/ rejection of the Tender process.
22. In this background, it would be pertinent to refer to provisions of [SECTION] of the [ACT], which are reproduced hereinbelow:
Grounds for challenge (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
(emphasis supplied)
23. The said provision of law provides that when a person is approached in connection with his possible appointment as an Arbitrator, he shall disclose in writing, any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Sub-section 3(a) provides that an Arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to his independence or impartiality. The said section can be invoked by a party who has a reasonable apprehension that circumstances exist that give rise to justifiable doubts as to the independence or impartiality of the Arbitrator. The circumstances mentioned in [SECTION] would necessarily include a reasonable apprehension of bias as to the impartiality of the Arbitrator, especially in circumstances where the Arbitrator is an office bearer of, or employee, of one of the parties. In the present case, such an apprehension has been expressed against the Arbitrator who is the President of the petitioner-Society. As the [ACT] itself provides for challenging the appointment of an Arbitrator and the procedure thereof vide [SECTION], a remedy is available to respondent No.1 in case such an apprehension is nursed by it. No provision of law or judicial pronouncements have been invoked by the learned counsel for respondent No.1 in support of his stand that merely naming the President of the petitioner-Society by designation as the Arbitrator, the arbitration clause will be rendered invalid. There can be no presumption of bias against an Arbitrator named by designation but in case of genuine apprehension, the other party is not left remediless in view of the provisions of [SECTION] and [SECTION] of the [ACT].
24. In this regard, the principles of law enunciated in [PRECEDENT] (supra) are relevant and are reproduced hereinbelow:
34. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other Department) to the officer whose decision is the subject-matter of the dispute.
35. Where however the named arbitrator though a senior officer of the Government/ statutory body/ government company, had nothing to do with the execution of the subject contract, there can be no justification for anyone doubting his independence or impartiality, in the absence of any specific evidence. Therefore, senior officer(s) (usually Heads of Department or equivalent) of a Government/ statutory corporation/ public sector undertaking, not associated with the contract, are considered to be independent and impartial and are not barred from functioning as arbitrators merely because their employer is a party to the contract.
36. The position may be different where the person named as the arbitrator is an employee of a company or body or individual other than the State and its instrumentalities. For example, if the Director of a private company (which is a party to the arbitration agreement), is named as the arbitrator, there may be a valid and reasonable apprehension of bias in view of his position and interest, and he may be unsuitable to act as an arbitrator in an arbitration involving his company. If any circumstance exist to create a reasonable apprehension about the impartiality or independence of the agreed or named arbitrator, then the Court has the discretion not to appoint such a person.
25. In the present case, while accepting the conditions in the Tender Form, including the arbitration clause, respondent No.1 has expressed no reservations regarding the appointment of the President of the petitioner-Society as an Arbitrator. Even vide letter dated [SECTION].06.2007, whereby counter conditions have been imposed by respondent No.1, the arbitration clause has not been sought to be modified in any manner. As a result, it cannot be said that the [ACT] contained in clause [SECTION] is invalid because the President of the petitioner has been named as sole Arbitrator.
26. The last submission made by the learned counsel for respondent No.1 is that as per the requirements of [SECTION] of the [ACT], the application referred to in [SECTION] shall not be entertained unless it is accompanied by the original [ACT] or a duly certified copy thereof. It has been submitted that the application at Ex.[SECTION] preferred by the petitioner before the Trial Court was not accompanied by the original [ACT] or a duly certified copy thereof, but only a xerox copy of the same has been submitted. Admittedly, this argument was never raised before the Trial Court by respondent No.1, therefore, the Trial Court has had no occasion to deal with the same. It has not only entertained the application but has also decided the same by passing the impugned order. This objection has been raised for the first time before the High Court. An affidavit has been filed by the petitioner, which has been objected to by respondent No.1, whereby the original Tender Form containing the [ACT], has been appended. It appears that this objection has been waived by respondent No.1 during the proceedings before the Trial Court. A copy of the reply filed by the respondent No.1 before the Trial Court shows that no such objection has been taken. In fact, the existence of the [ACT] is clearly admitted.
27. In [PRECEDENT] (supra) it has been so stated by the Apex Court:
5. It is made clear that the technical objection against the maintainability of the earlier application due to not filing of certified copy of the agreement does not survive in view of the fair stand taken by the learned counsel for the respondents in the present proceedings.
6. It may also be stated that technical objections regarding step-in-aid as well as regarding maintainability of the application because of not filing of the certified copy of the agreement are given up by the respondents with the result that the remanded proceedings and the other pending applications will now have to be decided according to law on merits.
However, in that case, the objection against non-production of the certified copy of the [ACT] was given up by the respondent. In the present case, such an objection has never been taken in the Trial Court, but has been raised only in the High Court. As the Trial Court has had no occasion to examine this contention, and as the [ACT] has not been denied by respondent No.1, this Court would not like to enter into this issue as there is no finding regarding it in the impugned order.
28. In view of the above, the judgments cited by the learned counsel for respondent No.1 do not advance his case, in the factual matrix of the present case as well as the judicial pronouncements and settled position of law discussed in detail hereinabove.
29. Ultimately, from the above discussion, it emerges that the Trial Court has not examined the aspect whether there is an [ACT] between the parties and whether the dispute is liable to be sent to the Arbitrator as per the arbitration clause. Instead of this, the entire focus of the Trial Court, as disclosed by the impugned order, is on whether the petitioner and respondent No.1 had a concluded contract or not. It has also not been adjudicated by the Trial Court whether the arbitration clause, in its entirety, would get invalidated by naming the President of the petitioner-Society as the sole Arbitrator by designation, or not.
30. As already mentioned earlier, [SECTION] and [SECTION] of the [ACT] provide for the remedy of challenging the appointment of an Arbitrator in case there is an apprehension regarding the impartiality of the named Arbitrator. The said provisions of law can be resorted to by respondent No.1 at the appropriate stage, if so desired. The Trial Court, by passing the impugned order has glossed over the aspect whether the entire arbitration clause would get invalidated by naming an Arbitrator by designation. There is no legal basis for the stand taken in the impugned order regarding this issue, especially in view of [SECTION] and [SECTION] of the [ACT]. This stage would come later in point of time. From the material on record, there is an [ACT] between the parties which covers the nature of the dispute between them. In view of the principles of law laid down in the judgments referred to hereinabove, in my considered view, the impugned order cannot be sustained. In [PRECEDENT], the Supreme Court has laid down certain guidelines regarding the circumstances in which the High Court can interfere in exercise of supervisory powers under [SECTION] of the [ACT]. The relevant extract is reproduced hereinbelow:
24. It is clear that whether it is a writ of certiorari or the exercise of supervisory jurisdiction, none is available to correct mere errors of fact or of law unless the following requirements are satisfied: (i) the error is manifest and apparent on the face of the proceedings such as when it is based on clear ignorance or utter disregard of the provisions of law, and (ii) a grave injustice or gross failure of justice has occasioned thereby. It is also clear that the High Court in exercise of certiorari or supervisory jurisdiction will not convert itself into a court of appeal and indulge in reappreciation or evaluation of evidence or correct errors in drawing inferences or correct errors of mere formal or technical character.
31. As the impugned order of the Trial Court is manifestly erroneous and has not been passed in accordance with the settled principles of law and as the Trial Court has not exercised jurisdiction vested in it properly and in accordance with law, the impugned order cannot be sustained.
32. Accordingly, the petition is allowed. The order dated 19.09.2009, rendered by the learned Principal Civil Judge (Senior Division), Surat, below application at Exhibit-[SECTION], in [CASE NUMBER], is quashed and set aside. Rule is made absolute. There shall be no orders as to costs.
33. It is clarified the observations made hereinabove are in the context of the impugned order and are prima-facie in nature. The same shall not influence any subsequent proceedings, in any manner.
(Smt.[ENTITY], J.) (sunil)