IN THE HIGH COURT OF BOMBAY AT GOA, PANAJI. APPLICATION FOR APPOINTMENT OF ARBITRATOR NO.3 OF 2011. M/s Actiongroup Associates having its registered office at S-6, The Grand Landscape, ground floor, behind Mahalaxmi Temple, Panaji-Goa, through its Sole proprietor Mr. Ivan Singh, …...... Applicant. Versus 1 BEML Midwest Limited, Srinivas Nilayam, 8-2-684/3- 55, Banjara Green Colony, Road No. 12, Banjara Hills, Hyderabad, Andra Pradesh. 2 BEML Limited, having it registered office at BEML Soudha, No. 23/1, 4th Main Road, S. R. Nagar, Bangalore - India. …...... Respondents. Mr. S. M. Singbal, Advocate for the applicant. Mr. P. Karpe, Advocate for respondent no.1. Mr. Sriranga S. and Mr. J. Godinho, Advocates for respondent no.2. Coram: A. P. LAVANDE, J. Date:- 30th September, 2011. 2 ORAL ORDER This application is filed by the applicant under Section 11(6) of the Arbitration and Conciliation Act, 1996 ("the Act" for short), for appointment of an arbitrator. 2. The case of the applicant is that the applicant entered into an agreement dated 2.4.2008 with respondent no.1 for supply of ore. The said agreement contains following arbitration clause:- All disputes or differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by friendly negotiations between the parties. If no settlement can be reached, the case in dispute shall then be submitted for arbitration as per provision of "Indian Arbitration Act" as amended from time to time. The venue of the arbitration shall be in India and the proceedings shall be conducted in English only. The award shall be binding on the parties except for the matter, which is specifically under arbitration the parties shall continue to perform the respective obligations 3 under this contract including without limitation, all payment obligations. 3. It is further case of the applicant that respondent no.1 is a joint venture of respondent no. 2 and actually respondent no. 2 has finalised the export of shipment of ore which was purchased by respondent no.1 in terms of the said agreement and there has been correspondence between the applicant on one side and respondent nos.1 and 2 on the other side. It is further the case of the applicant that though respondent no.2 is not a party to the arbitration agreement, respondent no.1 has assigned its rights under the agreement in favour of respondent no. 2 and all the negotiations were entered into between the applicant and respondent no.2 before entering into the agreement and all the instructions regarding preparation of the mandatory export and custom documents including shipping bill, performa invoice to customs, port charges, declaration of goods to customs have been filed in the name of respondent no.2. Respondent no. 2 is necessary party before the arbitrator. It is further case of the applicant that the amount of Rs.3,76,12,176/- (Rupees three crores seventy six lakhs twelve thousand one hundred seventy six only) was due to the applicant from the respondents in terms of the agreement dated 2.4.2008 and as such 4 vide notice dated 3.5.2010 applicant called upon the respondents to settle the dispute along with interest and also damages to the tune of Rs. 12,50,00,000/- ( Rupees twelve crores fifty lakhs only) for loss of credibility and goodwill and mental agony and further amount of Rs. 15,00,00,000/- ( Rupees fifteen crores only). It is the case of the applicant that although notice was served on the respondents, the acknowledgment due card was not received by the applicant. Thereafter, applicant sent final notice dated 30.7.2010 along with copy of the notice dated 3.5.2010 to the respondents. The said notice was received by respondent no.1 on 7.8.2010 and by respondent no. 2 on . 9.8.2010. It is further case of the applicant that in the said notice in addition to the demand of the amount due to the applicant, demand for appointment of an arbitrator was made upon the respondents. However the respondents have neither paid the amount nor agreed to the appointment of an arbitrator in terms of the agreement dated 2.4.2008. 4. Reply has been filed on behalf of respondent no.1, inter alia, stating that in terms of the agreement dated 2.4.2008 the applicant had to raise commercial invoice at the office of respondent no. 2 which was exporter of the ore. It is further case of respondent no.1 that issue 5 pertaining to the company is pending before Company Law Board and as such respondent no.1 is unable to operate bank accounts. Respondent no.1 also denied its liability to pay any amount to the applicant. 5. On behalf of respondent no.2, reply has been filed objecting to reference of the disputes between the parties to an arbitrator, firstly on the ground that respondent no. 2 was not a party to the agreement dated 2.4.2008. The respondent no. 2 has denied the case set out by the applicant that though the agreement was entered into between the applicant and respondent no.1, entire negotiations and transactions were entered into at the instance of respondent no. 2 and all the instructions regarding preparation of the invoice, bill of lading and transportation were issued by respondent no. 2. In short it is the case of respondent no.2 that there can be no reference of any dispute between the applicant and respondent no. 2 to an arbitrator, since respondent no. 2 is not a party to the agreement dated 2.4.2008. 6. On behalf of the applicant, an affidavit in rejoinder has been filed denying the stand taken by the respondents in their replies. 6 7. Mr. Singbal, learned Counsel appearing for the applicant submitted that there is admittedly an arbitration agreement as disclosed in the agreement dated 2.4.2008 entered into between the applicant and respondent no.1. Learned Counsel further submitted that although respondent no.2 is not a party to the said agreement negotiations and all the transactions were actually entered into between the applicant and respondent no. 2 and therefore respondent no. 2 is a necessary party to the dispute which is required to be referred to an arbitrator. According to learned Counsel, respondent no.1 has assigned its right under the agreement dated 2.4.2008 in favour of respondent no. 2. Therefore the applicant is entitled to seek an order of appointment of an arbitrator against respondent no.2 also. 8. Mr. Singbal, places reliance upon the judgment of the Delhi High Court in the case of Bestech India Private Limited Vs. Mgf Development Ltd and ors., in Arbitration Petition No. 147/2005 dated 6.4.2009 and the judgment of the Apex Court in the case of Khardah Company Ltd Vs. Raymon & Co.( India) Private Ltd., AIR 1962 SC 1810. 9. Perusal of the agreement dated 2.4.2008 discloses that the 7 same contains an arbitration clause which has been reproduced herein above. Admittedly, respondent no.1 is a party to the agreement and respondent no. 2 is not a party to the agreement. 10. The question which arises for consideration is whether the disputes between the applicant and the respondents are required to be referred to the arbitrator or only qua respondent no.1? 11. In the case of S. B. P. and Company Vs. Patel Engineering Ltd and another, AIR 2007 SC 450, the Apex Court in para 38 has observed thus:- It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was 8 a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be 9 achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral tribunal. 12. In Boghara Polyfab Pvt. Ltd (supra) the Apex Court after considering the Constitution Bench judgment in the case of Patel Engineering Ltd (supra) has observed thus in para 17:- Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is (i) issues which the Chief Justice or his Designate is bound to decide; (ii) issues which he can also decide, that is issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. 17.1 The issues (first category) which Chief Justice/his 10 designate will have to decide are: (a) Whether the party making the application has approached the appropriate High Court. (b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement. 17.2 The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are: (a) Whether the claim is a dead (long barred) claim or a live claim. (b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection. 17.3 The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are: (i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved 11 for final decision of a departmental authority and excepted or excluded from arbitration). (ii) Merits or any claim involved in the arbitration. It is clear from the scheme of the Act as explained by this Court in SBP & Co., that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his Designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his 12 designate decides the issue. 13. In view of the ratio laid down in the above referred judgments it is evident that Chief Justice/his designate has to find out whether the applicant is a party to the Arbitration agreement. In the present case admittedly only respondent no.1 is a party to the agreement. 14. In so far as the stand taken by respondent no. 1 in the reply having regard to the ratio of the Apex Court in the case of Patel Engineering and others(supra) it is clear that the defence taken by respondent no.1 would not oust my jurisdiction to refer the disputes between the applicant and respondent no.1 to an arbitrator since, admittedly, there is arbitration agreement and all the issues on merits have to be decided by the arbitrator only. In so far as respondent no. 2 is concerned, it is the case of the applicant that though respondent no. 2 is not a party to the arbitration agreement, all the negotiations were entered into between the applicant and respondent no.2 before entering into the agreement and all the instructions regarding preparation of the mandatory export and custom documents including shipping bill, performa invoice to customs, port charges, declaration of goods to 13 customs have been filed in the name of respondent no.2. Respondent no. 2 is necessary party before the arbitrator. 15. Having perused the record, I find no merit in the submission of Mr. Singbal. Agreement dated 2.4.2008 contains arbitration clause, to which only the applicant and respondent no.1, are parties. Therefore, I find merit in the submission of Mr. Shriranga that respondent no. 2 cannot be asked to submit to the jurisdiction of the arbitration when respondent no. 2 is not a party to the agreement. In my considered view there is no material placed on record by the applicant to substantiate that respondent no. 1 has assigned its right under the agreement dated 2.4.2008 to respondent no. 2 so as to bind respondent no. 2 to the agreement dated 2.4.2008 which contains an arbitration clause. 16. In so far as authorities relied upon by Mr. Singbal are concerned, none of them advances the case of the applicant. In the case of Khardah Company Ltd (supra) the Apex Court while considering the scope of Section 33 of 1940 Act, held that it is settled law that an arbitration clause does not take away right of a party to a contract to assign it if it is otherwise assignable. In the case of Bestech 14 India Private Limited (supra) of Delhi High Court in para 12 has held that if the subject matter of the arbitration agreement is capable of assignment, then the assignee would step into the shoes of his assignor and would be bound by it and entitled to enforce it, but for this purpose, one has to look to the law relating to assignment of contractual rights and obligations and also to see whether in a given case, the assignee has exercised his right as such. Perusal of the record shows that applicant has not been able to establish any assignment of right and obligations of respondent no.1 in terms of the agreement dated 2.4.2008 in favour of respondent no.2. Therefore, in my considered opinion, respondent no. 2 cannot be compelled to submit itself to arbitration in terms of the arbitration clause in the agreement dated 2.4.2008. Therefore the application as against respondent no. 2 deserves to be dismissed and is hereby dismissed. 17. As stated above, in view of the arbitration clause as contained in the agreement dated 2.4.2008 the disputes between the applicant and respondent no.1 are required to be referred to an arbitrator. Accordingly the disputes between the applicant and respondent no.1 are referred to the arbitrator, Justice G. F. Couto, at Panaji, Goa, Former Judge of this Court is appointed as an arbitrator. 15 The applicant and respondent no.1 shall pay fees of the arbitrator in equal share. 18. The application stands disposed of. A. P. Lavande, J. vn/-