1 IN THE HIGH COURT OF BOMBAY AT GOA APPLICATION FOR APPOINTMENT OF ARBITRATOR NO.19/2009 M/s. Cosme Farma Laboratories Ltd Formerly known as CFL Pharmaceuticals Ltd, a Company incorporated under the Companies Act, 1956 and having its registered office at Dempo Towers, 5th Floor, EDC, Patto Plaza, Panaji, Goa .. Petitioner Vs. M/s Shwarde Pharmaceutical Pvt Ltd. Having its registered office at Dr. Malbarao Bldg, Rua Ismail Gracias, Panaji-Goa .. Respondent. Mr. S. M. Singbal, Advocate for the petitioner. Mr. V. Braganza, Advocate for the respondent. CORAM : A. P. LAVANDE, J. Reserved on : 15 th December, 2011. Dictated on : 17 th December, 2011 ORAL ORDER : Heard Mr. Singbal, learned Counsel for the petitioner and Mr. Braganza, learned Counsel for the respondent. 2. By this application, the applicant seeks appointment of an arbitrator under Section 11(6) of the 2 Arbitration and Conciliation Act, 1996 ('The Act' for short) in respect of the disputes arisen between the parties to agreements dated 12th February, 2001 and 14th May, 2002. 3. The petitioner and the respondent entered into an agreement of manufacturing dated 12th February, 2001 ('Manufacturing Agreement' for short) on certain terms and conditions mentioned therein. Clause 12 of the said agreement contains arbitration clause. The petitioner and respondent entered into separate supply agreement dated 14th May, 2002 ('Supply Agreement' for short) on the terms and conditions mentioned therein. Clause 10.8 of the said agreement reads as under : “10.8 . Any dispute, difference or question arising between the parties in connection with or relating to this agreement shall first be amicably settled or else the same shall be settled by arbitration of one arbitrator to be appointed with the consent of the parties hereto, otherwise each party will appoint one arbitrator who in turn shall appoint umpire. Such arbitration shall be governed by the Rules of Indian Council of Arbitration. The arbitration proceedings shall be held in English. The venue of arbitration shall be at Goa, India. The cost of arbitration shall be borne by the party whose claims are not upheld by the arbitral tribunal.” 3 4. Clause 8.1 of the Manufacturing Agreement stipulated that the agreement shall be effective from the date indicated in the agreement and shall remain in force for a period of three years. It further provided that after the period of three years, the agreement shall remain in force for successive period of one year each unless terminated in accordance with clause 8.2 of Manufacturing Agreement hereunder. Insofar as Supply Agreement is concerned, clause 8.1 of the said agreement provided that the agreement shall remain in force from the date of agreement and shall subject to the provisions of clauses 8.2 and 8.3 remain in force for a period of three years thereafter. The agreement further provided that the agreement may be renewed thereafter for such further period and on such terms and conditions as may be then agreed upon between the parties. 5. Certain disputes arose between the parties. On 26th May, 2008, on behalf of the petitioner advocate's notice was issued to the respondent, inter alia, calling upon the respondent to return change parts, punches and dies and further calling upon the respondent to settle the dues of Rs.10,56,628.57 along with interest at the rate of 18 % per annum thereon and also damages within 15 days from the 4 receipt of the notice. In the said notice, it was further stated that in case the notice was not complied with, the petitioner would be compelled to institute the legal proceedings against the respondent and refer the dispute to arbitration in terms of The Act. On behalf of the petitioner, the name of retired District Judge Dr. Alvares Noronha Fereira was suggested for being appointed as an arbitrator. In the notice sent by advocate for the petitioner in paragraph 2, reference was made only to the Supply Agreement and not to Manufacturing Agreement. The respondent sent reply dated 26th June, 2008 through its advocate, inter alia, contending that Supply Agreement had expired on 13th May, 2005 and it was not renewed thereafter. The claim was also resisted on the merits by the respondent. The respondent claimed that an amount of Rs.1,79,060/- was due to the respondent from the petitioner. The respondent also claimed that invocation of the agreement was barred by limitation and claimed that there was no live arbitral dispute and as such, appointment of an arbitrator to settle the claim did not arise. The petitioner through its advocate sent notice dated 5th August, 2008 to the advocate for the respondent, inter alia, contending that the agreement was renewed after expiry of three years on the same terms and conditions and that both the parties had acted upon the said agreement and done several business 5 transactions pursuant to the said agreement. The petitioner denied any liability on its part to the respondent. The petitioner further called upon the respondent to suggest names of three arbitrators from Panaji. Since the respondent did not comply with the notice nor take any steps to suggest the names of arbitrators, the petitioner filed the present application under Section 11(6) of The Act for appointment of sole arbitrator. 6. The respondent filed reply to the application for appointment of arbitrator contesting the application on various grounds including the ground that Supply Agreement had expired on 13th May, 2005 and that the same was not renewed. The respondent contended that there was no valid arbitration agreement between the parties and claim made by the petitioner was barred by limitation since the claim was a stale claim and as such, not capable of being arbitrated upon. 7. On 9th April, 2010, this Court granted liberty to the petitioner to file a suit since last entry in the books of accounts of the petitioner was of 23rd May, 2007. Liberty to file the suit was granted without prejudice to the rights and contentions of the parties in the present application. Advocate R. G. Ramani was appointed Commissioner for 6 recording evidence. Pursuant to the said order, evidence was recorded by the Commissioner. On behalf of the petitioner, two witnesses were examined namely Shri Cyril D'Souza, Director of the petitioner company and Shri Anant V. Kamat, Chartered Accountant, who had issued certificate dated 10th August, 2009 regarding the dues payable to the petitioner by the respondent. 8. Cyril D'Souza, besides leading oral evidence, produced several documents including Manufacturing Agreement, Supply Agreement, invoices and delivery challans. According to Mr. Cyril D'Souza, the last invoice raised by the respondent on the petitioner as per the said entry was dated 23rd May, 2007 along with hundi dated 23rd May, 2007. No witness was examined on behalf of the respondent. In terms of the statement made by Mr. Cyril D'Souza before the Commissioner, as on 10th August, 2009 the respondent owed an amount of Rs.15,75,448.22 to the petitioner, the details of which were shown in Creditors Account, Cenvat Account and PLA Account. 9. Mr. Singbal, learned Counsel appearing for the petitioner submitted that both the Supply and Manufacturing Agreements contain arbitration clauses and in terms of both 7 these agreements, an amount of Rs.15,75,448.22 was due by the respondent to the petitioner. Learned Counsel further submitted that since the last entry in the books of accounts of the petitioner was on 23rd May, 2007 the present application filed on 29th September, 2009 is within the period of limitation and, therefore, it cannot be said that the claim of the petitioner is barred by limitation or that there is no live claim to be arbitrated upon in terms of the arbitration clauses contained in both the agreements. Mr. Singbal invited my attention to the application filed by the petitioner, reply filed by the respondent and the relevant evidence recorded before the Commissioner. Learned Counsel further submitted that insofar as Manufacturing Agreement is concerned, the renewal of agreement is automatic in terms of clause 8.1; whereas Supply Agreement though does not contain the automatic renewal clause, was renewed by the parties on the same terms and conditions and there were transactions between the parties pursuant to Supply Agreement as reflected in the books of accounts maintained by the petitioner. According to learned Counsel, the evidence of Cyril D'Souza and A. V. Kamat tendered by the petitioner clearly establishes that pursuant to these above referred agreements, there were transactions between the parties and last transaction was entered on 23rd May, 2007 and as such, 8 the contention of the respondent that the claim made by the petitioner is barred by limitation or that there is no live claim, is patently unsustainable in law. According to learned Counsel, since the respondent has not stepped in the box, adverse inference has to be drawn against the respondent and the claim made by the petitioner that Manufacturing Agreement was renewed from time to time and Supply Agreement was also renewed on mutual terms and conditions, has to be accepted. According to learned Counsel, the entries made after 14th May, 2005 in the books of accounts of the petitioner, are referable to Manufacturing and Supply Agreements and the last entry being on 23rd May, 2007, the present application seeking appointment of an arbitrator cannot be said to be barred by limitation and, therefore, the disputes between the parties in terms of both these agreements, deserve to be referred to the arbitrator in terms of the arbitration clauses contained in both these agreements. In support of his submissions, Mr. Singbal placed reliance upon the following judgments : (i) National Insurance Company Vs. Boghara Polyfab Pvt. Ltd.; AIR 2009 SC 170. (ii) Unreported judgment of Supreme Court in the case of M/s.Shree Ram Mills Ltd. Vs. M/s. Utility 9 Premises (P) Ltd. Dated 21 st March, 2007. (iii) Unreported judgment of Delhi High Court in case of Carrier Airconditioning and Refrigeration Ltd. Vs. M/s. Linc Digital Systems Pvt. Ltd dated 10 th January, 1998. (iii) U nreported judgment of Supreme Court in the case of National Agricultural Co-Op. Marketing Federation India Ltd. Vs. Gains Trading Ltd. Dated 22 nd May, 2007. (iv) Bharat Petroleum Corporation Ltd Vs. The great Eastern Shipping Co. Ltd.; (2008)1SCC 503. 10. Per contra, Mr. Braganza, learned Counsel appearing for the respondent submitted that by notice dated 26th May, 2008 issued on behalf of the petitioner, the petitioner claimed the amount from the respondent only in terms of Supply Agreement and sought appointment of an arbitrator in terms of arbitration clause contained thereunder. According to learned Counsel, in the said notice, there is no reference to Manufacturing Agreement nor the petitioner invoked arbitration clause contained in the said agreement prior to the filing of the present application and, therefore, in view of Section 11(5) of The Act, the present application filed for appointment of arbitrator in respect of Manufacturing Agreement, is not maintainable. Learned 10 Counsel further submitted that in the notice dated 26th May, 2008 issued by the petitioner, the petitioner though referred to Supply Agreement, did not even contend that the same was renewed and such a stand was taken by the petitioner in its reply notice dated 5th August, 2008 addressed to advocate for the respondent only after the respondent sent reply dated 26th June, 2008 contending that Supply Agreement had expired. Learned Counsel further submitted that there is absolutely no material on record to establish that Supply Agreement was renewed by agreement between the parties or on what terms and conditions the agreement was renewed. Learned Counsel further submitted that Cyril D'Souza has clearly admitted in his cross-examination that arbitration clause contained in Manufacturing Agreement was not invoked in the notice dated 26th May, 2008 though at a later stage he stated that arbitration clause in the said agreement was invoked. Mr. Braganza further submitted that the evidence of the two witnesses i.e. Cyril D'Souza and A. V. Kamat does not establish that the transactions reflected in the books of accounts of the petitioner after 14th May, 2005 were referable to Supply Agreement and as such, the petitioner has not been able to establish that there were transactions between the parties after 14th May, 2005 in terms of any renewal agreement and, therefore, the claim for referring the dispute 11 for arbitration made for the first time by the petitioner vide notice dated 26th May, 2008, is barred by limitation and as such, there is no live claim which requires to be arbitrated upon by the arbitrator in terms of Supply Agreement. Mr. Braganza, therefore, submitted that the application for appointment of arbitrator is liable to be dismissed in respect of Supply Agreement since the claim made by the petitioner is barred by limitation and there is no live claim which could be arbitrated upon by the arbitrator. 11. I have carefully considered the rival submissions, perused the record including the evidence led before the Commissioner- Advocate R. G. Ramani and the judgments relied upon by Mr. Singbal. 12. In view of the rival submissions, the following points arise for determination in the present application : (i) Whether the application for appointment of arbitrator in terms of the arbitration clause in the Manufacturing Agreement dated 12th February, 2001 is maintainable ? (ii) Whether the claim made by the petitioner in terms of Supply Agreement dated 14th May, 2002 is barred by limitation and there is no live claim which can be arbitrated upon by the arbitrator ? 12 13. Insofar as the invocation of arbitration clause in terms of Manufacturing Agreement entered into between the parties is concerned, perusal of the record discloses that in notice dated 26th May, 2008 addressed by the advocate on behalf of the petitioner to the respondent, reference was made only to Supply Agreement. In terms of paragraph 6 of the said notice, the petitioner claimed an amount of Rs.10,56,628.57 and also invoked arbitration clause in terms of Article 10.8 of Supply Agreement. Therefore, it is clear that before filing the present application on 29th September, 2009, the petitioner never invoked arbitration clause contained in the Manufacturing Agreement. Mr. Braganza is right in contending that the present application filed seeking appointment of arbitrator under Section11(6) of The Act is not maintainable inasmuch as the petitioner before filing the present application, ought to have called upon the respondent to appoint arbitrator and in case of failure on the part of the respondent, the petitioner was entitled to seek appointment of arbitrator by this Court. From harmonious reading of subsections (5) and (6) of Section 11 of The Act, it is clear that a party can approach learned Chief Justice or his designate for appointment of an arbitrator if the other party to the agreement fails to appoint arbitrator within 30 days 13 from receipt of request to appoint an arbitrator. In the present case, before filing the present application, at no point of time, the petitioner called upon the respondent to appoint arbitrator in respect of the disputes arisen under Manufacturing Agreement and, therefore, the present application filed for appointment of arbitrator in respect of the disputes arisen under Manufacturing Agreement is not maintainable. No doubt, the said Agreement has automatic renewal clause, but in the absence of any demand by the petitioner to the respondent to appoint an arbitrator in respect of the disputes arisen under the said agreement, the petitioner is not entitled to approach the learned Chief Justice or his designate for appointment of arbitrator under Section 11(6) of The Act. Moreover, Cyril D'Souza in his cross- examination has clearly admitted that by notice dated 26th May, 2008 arbitration clause in Manufacturing Agreement was not invoked, though at a later stage, he claimed that the arbitration clause was invoked. The notice dated 26th May, 2008, which is placed on record clearly belies the stand taken by the witness in his further statement that arbitration clause in terms of Manufacturing Agreement was invoked by the petitioner. Therefore, I have no hesitation to hold that the present application filed for appointment of arbitrator in respect of the disputes arisen under Manufacturing 14 Agreement is not maintainable. Therefore, the first point is answered in favour of the respondent. 14. The next question which arises for consideration is whether claim made by the petitioner in terms of Supply Agreement, which the petitioner claims to have been renewed by the parties on the same terms and conditions is barred by limitation and whether there is no live claim made which can be arbitrated upon. At this stage, it is pertinent to note that it is the case of the petitioner as disclosed from the evidence of Cyril D'Souza as well as A.V. Kamat that there was a common account maintained between the parties in respect of both the Manufacturing and Supply Agreements. I have already held that the application for appointment of arbitrator in terms of Manufacturing Agreement is not maintainable. This being the position, in the absence of any cogent evidence having been led by the petitioner as to which of the transactions mentioned in the books of accounts were referable to Supply Agreement which is claimed to have been renewed, it is difficult to hold that the transactions entered into books of accounts of the petitioner, were referable to Supply Agreement. Since admittedly there were two agreements between the parties and the petitioner claimed that the transactions entered into books of accounts were referable to 15 both these Agreements, the burden of proving that the entries made in the books of accounts after 14th May, 2005 were referable to Supply Agreement, was on the petitioner. The petitioner has not been able to discharge this burden and there is not even whisper in the entire evidence of the two witnesses that particular transaction entered into books of accounts after 14th may, 2005 is referable to Supply Agreement which was renewed. 15. There is one more factor which goes against the petitioner. It is the case of the petitioner that Supply Agreement was renewed on the same terms and conditions as contained in original agreement. It is pertinent to note that in the notice dated 26th May, 2008 issued on behalf of the petitioner such a claim is not made and it is only after the respondent in its advocate's reply dated 26th June, 2008 claimed that the agreement had expired, that in its further notice dated 5th August, 2008 the petitioner claimed that the agreement was renewed by mutual consent on the same terms and conditions and both the parties had acted upon the said agreement and done several business transactions pursuant the said agreement. As stated above, the evidence led on behalf of the petitioner does not disclose that the transactions entered into books of accounts from 14th May, 16 2005, were referable only to Supply Agreements and not with reference to Manufacturing Agreement which stood automatically renewed from time to time. There is one more aspect which assumes importance. Clause 8.1 of Supply Agreement reads thus : “8.1. This agreement shall come into force from the date hereof and shall subject to the provisions of clause 8.2 and clause 8.3 remain in force for a period of 3 years thereafter. This agreement may be renewed thereafter for such further period and on such terms and conditions as may be then agreed upon between the parties.” Bare perusal of the above clause of the agreement discloses that the agreement had to be renewed for such further period and on such terms and conditions as may be agreed upon between the parties. From perusal of the evidence of the two witnesses examined on behalf of the petitioner, it is difficult to hold that the said agreement was renewed and whether it was renewed for a particular period and what were the terms and conditions upon which the agreement was renewed. Perusal of the evidence of Cyril D'Souza, who at the relevant time, was the director of the petitioner Company discloses that he was not a party to both these agreements. In his cross-examination, he admitted that his awareness as regards 17 the Manufacturing Agreement and Supply Agreement was restricted to the areas of work allotted to him from time to time in the course of his duties. He further stated that there was no letter in writing issued by the petitioner addressed to the respondent renewing Supply Agreement and that normal dealings were done through mutual discussions. In cross- examination, he further admitted that he was not dealing with Manufacturing Agreement and Supply Agreement or transactions with the respondent. He also further admitted that in the record, there was nothing in writing to show that Supply Agreement was renewed after it expired. In view of this evidence, it is evident that the petitioner has not been able to establish that Supply Agreement was renewed. There is absolutely no evidence on record to show as to what were the terms and conditions on which the agreement was renewed or the period for which it was renewed. Since both the parties are Limited Companies, it is expected that ordinarily any agreement or renewal thereof between the parties would be in writing. 16. From what has been stated hereinabove, it is evident that the petitioner has not been able to establish that Supply Agreement was renewed after its expiry. Therefore, the claim made by the petitioner for the first time through its 18 advocate's notice dated 26th May, 2008 against the respondent is clearly barred by limitation. Secondly, the claim made by the petitioner is not a live claim which requires to be arbitrated upon by appointing an arbitrator in terms of the arbitration clause contained in Supply Agreement. 17. I shall now deal with the authorities relied upon on behalf of the petitioner. In the case of National Insurance Company Ltd (supra), the Apex Court in paragraph nos.17.1, 17.2 and 17.3 observed thus : “17.1 The issues (first category) which Chief Justice/his 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. 19 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 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 of 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 designate decides the issue.” In terms of clause 17.2, the Chief Justice or his designate is entitled to decide whether the