* IN THE HIGH COURT OF DELHI AT NEW DELHI + FAO(OS) No.268/2011 & CM No.10057/2011 Dr. Devinder Kumar Gupta ...Appellant through Mr. Sandeep Sethi, Sr. Adv. with Mr: Ashish Dhaulakia and Mr. Anand Srivastava, Advs. versus Realogy Corporation & Anr. WITH ...... Respondent through Mr. P.V. Kapur, Sr. Adv. with Mr. Anish Dayal, Mr. Siddharth Vaid, Mr. Aman Anand & Mr. Ranabir Dutta, Advs. for Respondent No.,1. Mr. Rajiv Nayar, Sr. Adv. with.Mr. Prateek Jalan:,. Mr., Siddharth Bh.atnagar, Mr. Darp an, Wa dhyva, Mr§. Sonia:Dube and Mr. S. Chakraborty, Advs. for Respondent No.2. RFA(OS) No.112/2010 & CM No.20283/2010 JSM Corpn. Pvt. Ltd. versus IndoChine India Ltd. FAO(OS].268/2011 Appellant through Dr. y\,.M. Singhvi, Sr. Adv. with Mr. Akhii Sibal, Mr. Deepak BGiurana & Mr. Pradeep Chhindra, Advs. Respondent through Mr. N.K. Kaul, Sr: Adv. with Mr. R. Sudhir, Mr., Gaurav Liberhan & Ms. Prerna Amitabh, Advs. Page 1 of 54 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified WITH RFA(OS) No.59/2010 & CM No.11380/2010 Bhushan Steel Ltd. Appellant through Mr. A.S. Chandhiok, Sr. Adv. with Ms. Ranjana Roy Gawai, Ms.Vasudha Sen & Mr. Pradeep Chhindra, Advs. versus Singapore Intl. Arbitration Centre ....Respondent through Mr. Sandeep Sethi, Sr. Adv. with Mr. Anil Kumar Mishra & Ms. Sindhu Sinha, Advs. for Respondent No.2 WITH FAO(OS) No.698/2010 & CM No.22313/2010 Bhushan Steel Ltd. Appellant through Mr. A.S. Chandhiok, Sr. Adv. with Ms. Ranjana Roy Gawai, Ms^Vasudha Sen & Mr. Pradeep Chhindra, Advs. versus Singapore Intl. Arbitration Centre ....Respondent through Mr. Sandeep Sethi, Sr. Adv. with Mr. Anil Kumar Mishra & Ms. Sindhu Sinha, Advs. for Respondent No.2 WITH RFA(OS) No.43/2009 WPIL Ltd. Appellant through Mr. T.K. Ganju, Sr. Adv. with Mr. Gaurav Chauhan, Adv. FAO(OS)268/2011 Page2of54 y NTPC Ltd. % versus .... Respondent through Mr. Bharat Sangal, Ms.Vernika Tomar & Ms. Srijana Lama, Advs. for Respondent No.l Mr. Rajiv Nayyar, Sr. Adv. with Mr. Ayush Agrawal, Adv. for Respondent No.2 Mr. Chetan Sharma, Sr. Adv. with Mr.S. Kumar, Adv. for Respondent No.3 Date of Decision: July 25, 2011 CORAM: * HON'BLE MR. JUSTICE VIKRAMAJIT SEN HON'BLE MR. JUSTICE SIDDHARTH MRIDUL 1. Whether reporters of local papers may be allowed to see the Judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the Judgment should be reported in the Digest? Yes VIKRAMAJIT SEN. T. FAO(OS) N0.268/2Q11 1. This Appeal challenges the Order dated 4.5.2011 of the learned Single Judge who has concluded that the Court cannot go into the controversy concerning the existence or validity of the Arbitration Clause invoked by one of the parties; nor can it issue an injunction restraining that party from continuing with the arbitration proceedings initiated by that party before the American Arbitration Association. Succinctly stated, the case of the Appellant is that the Arbitration Clause featured as FAO(OS) 268/2011 Page 3 of 54 paragraph 11 of the "Century 21 International Sub Franchise Agreement" is only between the styled Respondent No.l, Realogy Corporation and DCS Realtors Pvt. Ltd. This Agreement is obviously and apparently a standard form contract prepared by the Claimant. It is salutary to bear in mind that the rule of contra proferentem enjoins Courts to lean in favour of the party which is not the originator or drafter of the document if a contradiction is encountered. We have perused the said Agreement dated 24.10.2007 which incontrovertibly is between the said two parties only. The Arbitration Clause provides, inter alia, for the submission of all disputes for arbitration to the New York Office of the American Arbitration Association. Sub-clause (2) thereof empowers each of those two parties to appoint its arbitrator who will thereafter, together appoint a third arbitrator to assume the responsibilities of the Chairman of the Tribunal. It is also not in controversy that the Appellant Dr. Devinder Kumar Gupta is the Managing Director of DCS Realtors Pvt. Ltd. and that the latter had executed not only the sub-franchise Agreement on behalf of the Company but also a "Deed of Guarantee and Indemnification" of even date, that is, 24.10.2007. This Deed of Guarantee and Indemnification admittedly is Exhibit 1 to the aforementioned "Century 21 International Sub Franchise Agreement". The contention on FAOCOS) 268/2011 I'age4of54 behalf of the Respondent is that since the "Deed of Guarantee and Indemnification" is part and parcel of "Century 21 International Sub Franchise Agreement", the Arbitration Clause in the latter would also assume and take the former within its sweep. With this brief narration, we must rule on the correctness of the impugned Judgment, that is, whether a civil suit is not maintainable with regard to the existence or validity of an arbitration agreement. 2. A Division Bench of this Court in Spentex Industries Ltd. -vs- Dunvant S.A., 2009 (X) AD Delhi 162 had dealt with this conundrum, but only partially. A Civil Suit had been filed in those proceedings in which one of the prayers was for a Declaration that the Arbitration Clause was non est and unenforceable. The other reliefs pertained to the validity of the Arbitral Award which had already been rendered. Inasmuch as an Arbitral Award has not been published so far as the parties before us are concerned, Spentex does not apply on all fours. After analyzing the celebrated Judgments reported as Bhatia International -vs- Bullc Trading S.A., (2002) 4 SCC 105, and SBP & Co. -vs- Pate! Engineering, (2005) 8 SCC 618 and Shin-Etsu Chemical Co. Ltd. -vs- Aksh Optifibre Ltd., (2005) 7 SCC 234, the Division Bench in Spentex held that the suit was incompetent and that the only procedure provided by law was to FAO(OS)268/2011 Page5of54 • \ assail the Award after it had been pubhshed, by way of filing Objections either under Section 34 or Section 48 of the Arbitration & Conciliation Act, 1996 (A&C Act), as the case may be. It would also be apposite to mention another Division Bench decision titled Progressive Career Academy Pvt. Ltd. -vs- FIIT JEE Ltd. which has been delivered on 16.5.2011. A batch of Appeals and one Reference from a learned Single Judge to the Division Bench had been heard together, all of which concerned the jurisdiction of civil courts where allegations of bias had been leveled against the Arbitral Tribunal. Several decisions had been rendered on this subject, which came to be analyzed by the Division Bench. The conclusion was that the A&C Act contemplated an immediate remonstration raising the bias of the Arbitral Tribunal. In the event that the challenge on the ground of bias was not accepted, the remedy was to await the Award and thereupon raise grounds of bias as Objection under Sections 34 and 48, as the case may be. In the penultimate paragraph, it has been opined that "curial interference is not possible at the pre-award stage on the allegations of bias or impartiality of the Arbitral Tribunal " The A&C Act proscribes intervention by Courts obviously because the endeavour and expectation of the Legislature is that the Award should be pronounced at the earliest; and logically, therefore, FAO(OS)268/2011 Page 6of54 obtrusion and interruptions from any quarters are statutory- anathema. As has already been enunciated in Bhatia, the A&C Act is unhappily worded, leading to an explosion of litigation. So far as Section 11 of the A&C Act is concerned, it applies to domestic as well as international arbitrations. The heading of the fasciculus styled as "PART-II - ENFORCEMENT OF CERTAIN FOREIGN AWARDS" ought not to contain provisions dealing with incidences which are anterior to the publication of an Award. However, courts as well as the litigants, have by now become adept at grappling with and adjusting to the incongruencies in the A&C Act. Chapter-I of Part II is styled as "NEW YORK CONVENTION AWARDS" and substantially reproduces the New York Convention, to which litigating parties before us are bound. 3. Returning to the facts of the present case, the two parties specifically mentioned in the Arbitration Clause have already submitted to the jurisdiction of the American Arbitration Association in New York. The Plaintiff, however, contends that no Arbitration Clause subsists between Realogy Corporation and himself. Bhatia lays down that Part I applies to all arbitration. Ergo, since the Plaintiff/Appellant is not willing to submit to arbitration, and especially since the procedure prescribed in the Arbitration Agreement does not envisage the appointment of an FAOCOS) 268/2011 Page 7 of 54 arbitrator by the Appellant/Plaintiff, does not the law mandate the invocation of Section 11 of the A&C Act. Realogy Corporation could have approached the Court under Section 11 (6) of the A&C Act stating that the Appellant/Plaintiff has failed to act as required under the agreed procedure and, therefore, the Chief Justice of India should ordain necessary measures. So far as the facts of the case in hand are concerned, Realogy Corporation as well as DCS Realtors Pvt. Ltd. have, in consonance with the Arbitration Clause, appointed their respective Arbitrators. The legal nodus is that the Arbitration Clause does not postulate that similar action has to be taken by the Plaintiff/Appellant, apparently vindicating his contention that he should not be compelled to submit to the jurisdiction of the Arbitral Tribunal. Be that as it may, none of the provisions of I Section 11 of the A&C Act empower the Chief Justice of India to appoint an arbitrator on behalf of a third party, such as the Plaintiff/Appellant. This could only mean that Section 11 would have no application to cases such as the one before us. But the Plaintiff/Appellant cannot be left without legal remedy, which can either be by way of filing a civil suit or, if he has received a notice from the Arbitral Tribunal, to immediately object to its jurisdiction on the ground that he is not a necessary or proper party to those proceedings. Obviously and reasonably, the FAO(OS]268/2011 Page8 of54 Plaintiff/Appellant can contend that the Arbitration Agreement is null and void, inoperative or incapable of performance vis-a- vis him. We may also clarify that Section 8, the gravamen or intendment of which is obviously apposite, does not come to the rescue of a party, such as the Plaintiff/Appellant, whose assertion is that he has not agreed to an adjudication of disputes through arbitration. 4. No cavil is possible that it is an international commercial arbitration that has been constituted in New York. In Bharti Televentures Ltd. -vs- DSS Enterprises Private Ltd., 123(2005) DLT 532, one of us (Vikramajit Sen, J.) had, after due dissection of the A&C Act, concluded that in the case of an international commercial arbitration, the concerned judicial authority is duty-bound to refer parties to arbitration, even without being petitioned to do so, unless it returns the finding that the Arbitration Agreement is null and void or inoperative or incapable of performance vis-a-vis some or all the parties concerned. It is uncontrovertable that a civil court is a judicial authority as contemplated by Section 45 of the A&C Act. In a fashion similar to what would transpire under Section 8, by virtue of Section 45, the civil court is statutorily bound to go into the question of whether the Arbitration Clause set up by one party is null and void so far as the objector is concerned. Of FAO(OS)268/2011 Page9 of54 --v course, it would have been salutary for the Section to have separately provided for the event where one of the parties alleges that it was not privy to any agreement to arbitrate upon its disputes. This would have totally obviated the filing of a civil suit as appropriate relief, within the parameters of the A&C Act, would be available. It was for this reason that in Bhartithe non ohstante clause in Section 45 was found to be extremely significant since it, inter alia, neutralizes the effect of Section 5 contained in Part I which prohibits intervention of judicial authorities governed by that Part. 5. An analysis of decisions of Single Benches of this Court presents a veritable cauldron of opinions which can be broadly segregated into two. One view is that the Court must point the adversaries to the path of arbitral tribunal for a complete adjudication of all contentions; the other that before doing so the Court must satisfy itself that an agreement to arbitrate is present so far as each and every party is concerned before any or all of them can be so referred. As regards maintainability of a Suit asserting the absence of an Arbitral Agreement or challenging the constitution of an Arbitral Tribunal under an alleged Arbitral Agreement, learned Single Judges of this Court have held divergent opinions, (i) In Akshay Kapur -vs- Rishan Kapoor 105(2003) DLT 467, 2003(2) Arb LR 508(Del), a Suit for FAO(OS)268/2011 Page 10 of 54 J Declaration and Injunction was filed against an 'Evaluation Report' and connected arbitral proceedings, and the view was that "if the Court is of the opinion that the action, in the present case the suit for declaration and injunction, is not the subject matter of the arbitration agreement, it would be improper not to hear it. Notwithstanding the non obstante words employed in Section 5, if the dispute raised in the suit is not covered by the Arbitration Clause, it must be considered on its merits, regardless of whether the Arbitration Proceedings are impeded in the process. It cannot be laid that Section 16 of 1996 Act changes every aspect of common law and that excepted, or exempted or excluded matters cannot be adjudicated upon even in absence of a decision by the Arbitrator as to their arbitrability, on where the ambivalence of the Arbitrator is apparent", (ii) In Jagson International Ltd. -vs-Frontier Drilling 113(2004) DLT 189: 2004(76) DRJ 299, the Plaintiff had filed a Suit for declaration and permanent injunction seeking a Declaration that the Arbitral Agreement stipulating International Arbitration with its seat in London is null, void and inoperative, non est and incapable of being performed and pass an injunction against the Defendant from taking any steps pursuant to the said Arbitration Agreement. The Court, dealing with an application under Order XXXIX Rules 1 and 2 for FAO(OS}268/2011 I'ageH of54 '<21 injunction against invocation of Bank Guarantee, held that a "comparative perusal of Sections 45 and 8 of the Act makes it clear that under section 45 of the Act the Court has been given a wider discretion on the question of referring the parties to Arbitration. The apparent reason is that in the case of domestic arbitration the legislation aiming at speedy reference of the disputes to Arbitral Tribunal has left most of the matters relating to existence and validity of the arbitration agreement to be decided by the arbitrator themselves. However, in case of foreign arbitration. Section 45 of the Act clearly provides that notwithstanding anything contained in the part one or in CPC, a judicial authority may refer the parties to Arbitration unless it finds the agreements null and void, inoperative or incapable of being performed. The conditionality mentioned in Section 45 of the Act are conspicuously absent in Section 8 of the Act. In case of .foreign Arbitrations enormous expenses and efforts get involved and as such the legislature in its wisdom has thought that the question relating to the validity of Arbitration Agreement, its cooperativeness and capability of being performed should be examined by the Court itself instead of leaving those in the hands of Arbitrators in foreign land. Therefore, this Court fully agrees with the submission made by learned Counsel for the Plaintiff that the present case before FAOfOS]268/2011 Page 12 of 54 invoking Section 45 of the Act as prayed by the Defendant, this Court is under a duty to consider as to whether the Arbitration Agreement is null and void, inoperative or incapable of being performed." However on facts, the Court found that the Agreement is binding on the parties. The fraud alleged by the Plaintiff was not such as would annul the Arbitration Agreement. The Court drew a distinction between frauds that vitiate the entire base of the Contract and those which are incidental and do not strike at the root of the agreement, (iii) In Bharti, the Court was once again confronted with the issue of maintainability of a Suit in respect of an International Arbitration. The Findings of Court on this legal conundrum can be enumerated as follows (a) Pronouncement in Bhatia International to the effect that Part I applies to all arbitration, domestic and international does not conclude that Section 8 overrides Section 45 of A&C Act. (b) Section 5 does not act as an absolute bar to Civil Courts. (c) Section 8 requires/mandates filing of an application for reference, whereas Section 45 contemplates only a 'request' for this purpose. (d) Section 8 envisages the reference to the Arbitration of only those disputes which the Arbitrator is competent or empowered to decide. FAO(OS)268/2011 Pagel3of54 J (e) The enquiry of apphcability of Arbitral Agreement to subsisting dispute is mandated in both Sections 8 and Section 45. In Section 8, the Court has to return a prima facie finding, in Section 45 it should be in great detail (though in Shin-Etsu, Supreme Court has held that the enquiry in case of Section 45 can also be of prima facie nature). (iv) In City Corp. -ks- Toli Investers, 2006(4) Arb LR 119 (Del), the Single Judge held a Civil Suit to be maintainable in a case of infringement of the Trade mark 'City' belonging to the Plaintiff. The Defendant's stand was that in light of establishment of ".IN Domain Name Dispute Resolution Policy" the suit was not maintainable and the Court must refer the suit for Arbitration under the said INDRP regime. The Plaintiff had, inter alia, asserted the jurisdiction of the Civil Court on the basis that there was no arbitration agreement between the parties. The Court held in the favour of the Plaintiff holding the Suit to be maintainable, (v) In Sara International Ltd. -vs- Golden Agri International, 2010(3) Arb.LR 29, authored by Manmohan Singh, J., a Suit for Declaration was filed to declare the Arbitration Agreement to be non est as the same was allegedly not signed by the Plaintiff. On a prima facie analysis, the learned Single Judge held the suit to be maintainable and dismissed Order VII Rule 11 application of Defendant relying on FAOCOS) 268/2011 Page 14 of 54 -J Section 5 of A&C Act. Preliminary Issue as regards maintainability was framed and suit listed for further hearing. (vi) In Lucent Technologies -vs- ICICI Bank Ltd., 2010(5) R.A.J. 574, authored by Gita Mittal, J., a Suit for declaring an arbitral agreement to be inoperative was held maintainable and interim injunction granted in favour of the Plaintiff against the Bank regarding guarantee of bridge loan and proceeding against him in arbitration proceedings. It was noted that Section 8 does not prohibit the right of a party to maintain a suit in express terms. It also conferred primacy on the Court to determine the question with regard to existence of an Arbitration Agreement. Under Section 8, the party claiming existence of a valid Arbitration Agreement has to take that plea by filing an Application along with the agreement which would have to stand the scrutiny of the Court. The other is enabled to take the defence of validity and bindingness of the Arbitration Agreement. Looking at the prima facie case, irreparable loss and balance of convenience, an interim injunction in favour of Plaintiff was granted. (vii) In Oval Investment -vs- India Bulls Financial Services, 2009(165) DLT 652, Muralidhar, J. a Suit for Declaration and Injunction against the Defendant alleging that the invocation of Arbitration Agreement by issuance of notices under Section 21 FAO(OS) 268/2011 Page15 of54 © was fraudulent as the notices sent on the wrong addresses had been filed. The Court held that such a Suit, in light of Sections 5 and 16 of A&C Act, for restraining the Defendant from invoking the arbitration Agreement was not maintainable, particularly when it was not the case of the Plaintiff that the Arbitration ^ Agreement either did not exist or that it was otherwise vitiated in law. The same was upheld by the Division Bench, (viii) In Handicraft and Handloom Export -vs- Ashok Metal Corp., Reva Khetrapal, J. held a Suit for Declaration and Injunction against arbitration proceedings to be not maintainable. 21. A conjoint reading of Sections 5, 8 and 16 of the Act, in my view, point to the legislative intent that the Civil Court must keep well away from the turf of arbitration proceedings. Section 9, Section 37 and Section 34 are the only Sections where under the Civil Court is allowed to interject. The intervention of the Civil Court under Section 9 of the Act is, however, confined to the domain of interim orders alone and that too, with a view to ensure preservation of the property which forms or may be forming the subject matter of the arbitration proceedings. Sections 37 and 34 invest the Civil Court with appellate powers in a manner of speaking. Indubitably, the Civil Court also entertains applications under Sections 8 and 11, but this is in consonance with the provisions of the Act itself. Thus, simply because while interpreting Sections 8 FA0(0S3 268/2011 Page 16 of 54 and 11 of the Act, it has been held by the Supreme Court that the Court before referring the parties to arbitration, must satisfy itself of the existence and validity of the arbitration agreement, is not reason enough to hold that a suit for the declaration of the same relief would also be maintainable. There is no provision in the Act enabling the filing of such a suit. It also cannot be lost sight of that an apphcation under Section 8 is filed in a case where a suit is already before the Court; while an application under Section 11 is envisaged by the Act merely for the reference of the disputes to arbitration by appointment of the Arbitrator. Thus, in my considered opinion, merely because the Court must satisfy itself about the existence and validity of an arbitration agreement when faced with an application under Section 11 of the Act or one under Section 8 of the Act, is not good enough reason to hold that it would be open to a party to the arbitration agreement to file a suit challenging the validity or existence of the arbitration agreement. 22. The aforesaid position of law is no longer susceptible to challenge after a Bench of three- Judges of the Supreme Court in KV Aemer Cementation India Ltd. (supra) has laid down that it is not open to the Civil Court to go into the question of non-existence of an arbitration agreement in a suit for declaration, both in view of the stringent provisions of Section 5 of the Arbitration Act and the power bestowed upon the Arbitral Tribunal to rule on its own jurisdiction by Section 16 of the Act, FAO(OS)268/2011 Page17of54 more so, as the decision of the Arbitral Tribunal would be amenable to be assailed within the ambit of Section 34 of the Act. (ix) Another Single Bench expressed a divergent opinion in ITE India Private Ltd.-vs- Shree Mukesh Sharma, 127 (2006) DLT 62 : 2006(1) Arb LR 155. By piercing the corporate veil, the Court went into the issue of whether the Plaintiff Company was a party to Arbitration Agreement and held that, in light of Kvaemer, the Court must refer these questions to the Arbitral Tribunal. In this case. Plaintiff, a registered Company, approached the Court with a Suit for Declaration and Injunction against the Defendant from proceeding with the Arbitration under ICC Rules in terms of shareholders agreement between Defendant No.l, Defendant No.2, a company and Defendant No. 3; Defendant No. 1 being the major share holder in Plaintiff Company. An ad interim injunction was sought in that matter and the stand taken by the Plaintiff was