Chandka 1 NMS-754-11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO. 754 OF 2011 IN SUIT NO. 1916 OF 2010 Ind Synergy Limited & Ors. ..Plaintiffs versus Clear Water Capital Partners Singapore Fund III Pvt. Ltd. & Anr. ..Defendants Mr. S. U. Kamdar, Sr. Advocate with Ms. Pooja Patil, Ms. Merlyn Monteiro and Mr. Aniruddha Kulkarni for Plaintiffs. Dr. Virendra Tulzapurkar, Sr. Advocate with Mr. Nikhil Sakhardande i/b. RMG Law Associates for Defendants. CORAM : DR. D. Y. CHANDRACHUD, J. 29 March 2011. P.C. : The relief that has been sought in the Motion is a stay of further proceedings in an arbitration case initiated by the Singapore International Arbitration Centre in pursuance of Clause 12.7 of the Subscription Agreement and Clause 16.7 of the Share Holders’ Agreement dated 11 March 2009 between the parties. Chandka 2 NMS-754-11 2. In the suit which has been instituted before this Court, an application was moved by the Defendants under Section 8 of the Arbitration and Conciliation Act 1996. A learned Single Judge of this Court dismissed the Motion on 6 September 2010. The learned Single Judge held that while parties had made a provision for resolution of their disputes by arbitration there was also a litigation clause which enabled a party to adopt proceedings before a Court to get disputes resolved. In this view of the matter, the learned Single Judge held that the contention of the Defendants that the proceedings in Court must yield in favour of the arbitration agreement could not be accepted. The learned Single Judge also arrived at a conclusion that parties had not specifically agreed that disputes must be referred only to arbitration and should not be resolved by any other method. If such was the intention of parties, in the view of the learned Single Judge there was no room for a litigation clause. Consequently the Court held that the requirements of Section 8 of the Arbitration and Conciliation Act 1996 have not been fulfilled and it is not possible to refer the parties to arbitration. 3. An Appeal has been admitted against the Order of the learned Single Judge on 12 January 2011. During the pendency of the Appeal, the Defendants took out a Motion for an order (i) staying the operation, effect Chandka 3 NMS-754-11 and implementation of the judgment of the learned Single Judge dated 6 September 2010; and (ii) staying further proceedings in the suit. The Motion was disposed of by the Division Bench only with a direction that the participation of the Defendants in the Motion taken out by the Plaintiffs shall not be treated either as a waiver of their rights in the Appeal or in the arbitration proceedings. 4. An application was made by the Plaintiffs before the Arbitral Tribunal constituted by the Singapore International Arbitration Centre for holding the arbitration proceedings in abeyance until after the determination of the Appeal which is pending before the Division Bench. By an order dated 16 March 2011 the Arbitral Tribunal dismissed that application. The Tribunal held that the issue as to whether it can proceed to determine whether it lacks jurisdiction would be decided as a preliminary issue. The Motion thus has been taken out by the Plaintiffs seeking stay of further proceedings before the Arbitral Tribunal. 5. The Motion has been taken up for hearing and final disposal with the consent of the learned counsel in pursuance of the previous order of this Court. Chandka 4 NMS-754-11 6. On behalf of the Plaintiffs it has been submitted that (i) an application filed by the Defendants under Section 8 of the Arbitration and Conciliation Act, 1996 has been dismissed by the learned Single Judge; (ii) though the Appeal has been admitted by the Division Bench despite a specific interim prayer in the Appeal for a stay of the judgment of the learned Single Judge and for stay of further proceedings in the suit, no relief to that effect has been granted by the Division Bench, (iii) in view of the finding that has been arrived at by the learned Single Judge on the application under Section 8, it would not be open for the Arbitral Tribunal, while deciding its own jurisdiction under Section 16 to sit in judgment over the decision of the learned Single Judge which continues to hold the field; (iv) the position in law is not res integra but is concluded by the judgment of the Supreme Court in SBP & Co. vs. Patel Engineering Ltd. & Anr.1 7. On behalf of the Defendants on the other hand it has been urged that (i) in view of the provisions of Section 5 of the Arbitration and Conciliation Act, 1996 it is not open to this Court to interfere in the arbitral proceedings save as authorised by Part I of the Act; (ii) though the learned Single Judge dismissed an application filed by the Defendants under Section 8, the Appeal has been admitted. An Appeal is a continuation of the original proceedings. Hence the question as to whether there is an arbitration 1 (2005) 8 SCC 618 Chandka 5 NMS-754-11 agreement between the parties is not resjudicata since the issue is still at large before the Division Bench; (iii) the submission of the Plaintiffs in response to the application under Section 8 was that there were two clauses in the Agreement between the parties; the first being an Arbitration Agreement and the second a provision in regard to litigation. The Plaintiffs having exercised their choice of proceeding with the suit it was contended that the disputes cannot go to arbitration. On analogy of reasoning it is open to the Defendants to choose to proceed with the arbitration without being restrained by the suit which has been instituted by the Plaintiffs. 8. The facts as they have emerged from the record indicate that the learned Single Judge while dismissing the application under Section 8 of the Arbitration and Conciliation Act 1996 came to the conclusion that the contract between the parties incorporated both an agreement to arbitrate upon disputes as well as a litigation clause which enables a party to adopt proceedings before a Court. The learned Single Judge was of the view that it was therefore not possible to come to the conclusion that disputes between the parties must be resolved only by arbitration. The correctness of the interpretation is the subject of an Appeal which is pending before the Division Bench and which was admitted for hearing by an Order dated 12 January 2011. There cannot be any dispute about the proposition of law that Chandka 6 NMS-754-11 an Appeal is a continuation of the original proceedings. In this context reference may be made to the judgments of the Supreme Court in Ct. A. Ct. Nachiappa Chettiar and Ors. vs. Ct. A. Ct. Subramaniam Chettiar,2 Rachakonda Narayana vs. Ponthala Parvathamma & Anr.3 and Union of India & Ors. vs. West Coast Paper Mills Ltd. & Anr.4 9. Once an Appeal is admitted, the decision of the learned Single Judge does not attain finality. However at this stage it would be necessary to take note of the fact that during the pendency of the Appeal, the Defendants had specifically sought an interlocutory stay of the judgment of the learned Single Judge and of further proceedings in the suit. The Division Bench in its Order dated 12 January 2011 did not grant relief as sought in the Motion but only directed that the participation of the Defendants in the Motion which had been taken out by the Plaintiffs shall not be treated as a waiver of their rights in the Appeal or in the arbitration proceedings. In this background it would be necessary to advert to the judgment of the Supreme Court in the case of SBP & Co. The Supreme Court during the course of its judgment rejected the submission that there is an exclusive conferment of jurisdiction on the Arbitral Tribunal to decide on the existence or validity of an arbitration Agreement. The Supreme Court held that in an application 2 AIR 1960 SC 307 (at paragraph 35 page 317) 3 (2001) 8 SCC 173 (at paragraph 10 page 178) 4 (2004) 2 SCC 747 (at paragraph 41 page 759 Chandka 7 NMS-754-11 under Section 8 brought before a judicial authority by the Defendant who contends that there is an arbitration agreement and that the claim is covered by the agreement, the Court necessarily has to decide whether there exists a valid arbitration agreement and whether the claim sought to be raised is covered by that agreement. The judgment of the Supreme Court holds that where a jurisdictional issue has been decided interalia under Section 8 by the Court, Section 16 cannot empower the Arbitral Tribunal to ignore the decision of the judicial authority. In that context, the following observations in paragraphs 19 and 20 of the judgment of the Supreme Court are material: “19. It is also not possible to accept the argument that there is an exclusive conferment of jurisdiction on the Arbitral Tribunal, to decide on the existence or validity of the arbitration agreement. Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion, include other courts and may even include a special tribunal like the Consumer Forum [ (see Fair Air Engineers(P) Ltd. vs. N. K. Modi) ((1996) 6 SCC 385) ]. When the defendant to an action before a judicial authority raises the plea that there is an arbitration agreement and the subject matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial authority for relief, disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is Chandka 8 NMS-754-11 sought to be raised before it, is covered by the arbitration clause. It is difficult to contemplate that the judicial authority has also to act mechanically or has merely to see the original arbitration agreement produced before it, and mechanically refer the parties to an arbitration. ... Surely, when a matter is entrusted to a civil court in the ordinary hierarchy of courts without anything more, the procedure of that court would govern the adjudication. 20. Section 16 is said to be the recognition of the principle of Kompetenz-Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made, Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made.” 10. In the present case, the learned Single Judge of this Court has come to the conclusion that the Agreement between the parties did not contemplate Arbitration as the only remedy which parties had contractually agreed upon. On the contrary there is a specific finding in the judgment of the learned Single Judge that parties did not intend to oust the remedy of litigating before a court of competent jurisdiction in the resolution of disputes. Though the correctness of that finding is the subject matter of an appeal, it would be wholly impermissible for the Arbitral Tribunal to adjudicate once again upon the issue of jurisdiction. Following the view of the Supreme Chandka 9 NMS-754-11 Court in SBP & Co., the finding of a judicial authority must bind the Arbitral Tribunal. The Tribunal cannot proceed to make an independent determination of its own jurisdiction merely on the ground that the judgment of the learned Single Judge has not attained finality, in the sense, that an Appeal against the judgment is pending. So long as the judgment continues to hold the field and particularly in view of the fact that stay of the operation of the judgment is not granted by the Division Bench in an Appeal, though it was sought, the Tribunal is bound by the adjudication on the issue of jurisdiction by the learned Single Judge until it is modified or vacated in an Appeal by an Appellate Forum. 11. There is no merit in the submission which has been urged on behalf of the Defendants that the intervention of this Court in the Motion is barred by Section 5 of the Arbitration and Conciliation Act, 1996. Section 5 as its plain language indicates applies in relation to matters governed by Part I. Once a suit has been instituted before a Court of competent jurisdiction and there is a finding by this Court that the matter in dispute in suit is not liable to be referred to arbitration under Section 8, the Court must necessarily for the purposes of the suit have all the powers that are vested in a Civil Court under the Code of Civil Procedure, 1908 and the Rules of the Court. Moreover, the Court cannot be unmindful of the fact that allowing the Chandka 10 NMS-754-11 Arbitral Tribunal to proceed ahead with the case would result in two parallel proceedings into a different fora. That the issues in the two proceedings are liable to overlap would at least prima facie be evident upon a comparison of the notice of the Defendants dated 27 August 2010 invoking arbitration under the Arbitration Rules of the Singapore International Arbitration Centre with the nature of the reliefs that have been sought in the suit. Paragraphs 4 and 5 of the notice when read in conjunction with the reliefs claimed in the suit would indicate that the issues which are sought to be raised in the Arbitral Tribunal are not indeed disjunctive from those that would arise in the course of the trial of the suit. Parallel proceedings before two different fora with the possibility of conflicting decisions cannot therefore be ruled out. 12. For the aforesaid reasons, I am of the view that the relief as sought in the Motion would have to be granted. The Motion is accordingly made absolute in terms of prayer clause (a). (Dr. D. Y. Chandrachud, J.)