* THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL REVISION PETITION No.4853 of 2009 % 08.12.2009 Between: The Loyola School, represented by its Principal, MPR Prasada Rao … Petitioner AND Ms.Megha Kumar, D/o.Sri Sudesh Kumar and another …Respondents Counsel for the petitioner: Sri P.Shiv Kumar Counsel for the Respondents: Sri Ashok Kumar Agarwal < Gist: > Head Note: ? CITATIONS: 1. (2003) 6 SCC 503 2. (2009) 2 SCC 55 3. 2009 (4) ALT 657: 2009(5) ALD 447 4. (2007) 4 SCC 599 5. 2008 (12) SCALE 654 6. (2006) 11 SC 651: AIR 2006 SC 3456 7. (1999) 5 SCC 651 8. AIR 2007 SC 2706: (2007) 4 Recent Arbitration Judgments 77 (SC) 9. (2000) 4 SCC 539 THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL REVISION PETITION No.4853 of 2009 08.12.2009 Between: The Loyola School, represented by its Principal, MPR Prasada Rao … Petitioner AND Ms.Megha Kumar, D/o.Sri Sudesh Kumar and another …Respondents THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL REVISION PETITION No.4853 of 2009 ORDER: The petitioner is defendant in O.S.No.42 of 2009 on the file of the Court of the V Senior Civil Judge, City Civil Court, Hyderabad. The suit was filed by respondents for recovery of possession of suit schedule property and for past and future mesne profits as well as compensation for use and occupation of suit schedule property, which is a house situated at Vijayanagar Colony, Hyderabad, wherein the petitioner is running Loyola School. The petitioner filed application being I.A.No.415 of 2009 under Section 8(1) of Arbitration and Conciliation Act, 1996 (the Act, for brevity) to refer the dispute to arbitration in terms of clause 11 of the rental agreement dated 27.6.1994 executed by and between Mrs.Manju Kumar and the petitioner herein. The said application was dismissed by the Court below on 18.8.2009. Aggrieved by the same, defendant filed the present revision petition under Article 227 of Constitution of India. The brief background facts are as follows. The suit schedule property belongs to grandfather of plaintiffs, Sri Viswanath, who was an Ex-serviceman. He executed a Will on 29.1.1993 bequeathing the property to plaintiffs and appointed plaintiffs’ mother Smt.Manju Kumar and their paternal aunt Smt.Kamalesh Takral as executors of the Will. Latter executed General Power of Attorney (GPA) in favour of former who under rental agreement dated 27.6.1994 inducted the defendant as a tenant for running a school for a period of eleven months commencing from 01.7.1994 with option to extend the lease by mutual consent upto five years ending 30.6.1999. Clause 11 of rental agreement provides that all disputes arising between the parties under the agreement shall be resolved by mutual understanding and goodwill or any third person acceptable to both. As per the Will, the executors registered the property in favour of plaintiffs vide document No.4632/2008, dated 13.11.2008. Thereafter, they sent a quit notice under Section 106 of Transfer of Property Act, 1882, on 26.11.2008 determining the tenancy by giving fifteen (15) days notice and also alleging that defendant did not pay rents from 01.5.1999. The defendant sent reply alleging that the executors entered into agreement of sale on 27.6.1994 to sell suit schedule property to defendant for a consideration of Rs.17,00,000/-, that the entire amount was paid to executors and that they ceased to be tenants. It was also alleged that there was no renewal of rental agreement in June 1999. The defendant also denied jural relationship of landlord and tenant alleging that they became owners of the property. The defendant filed application under Section 8(1) of the Act alleging that in view of the arbitration clause in rental agreement, the matter may be referred to arbitration in terms thereof. In the affidavit filed by Principal of the School, it was also alleged that an agreement of sale was entered into on 27.6.1994, and therefore, title of plaintiffs was denied. The application was opposed by plaintiffs, inter alia, on the ground that when the defendant denied jural relationship claiming ownership, reference to arbitration under the rental agreement would not arise. The trial Court considered rival contentions and dismissed the application observing that in view of the inconsistent stand taken by defendant on one hand alleging that that plaintiffs ceased to be tenants and on the other hand alleging they are not agreement holders, and therefore, they cannot seek reference to arbitration. The observations made by the trial Court are as below. In the petition affidavit the petitioner has been denying the title of the respondent/plaintiff in respect of the suit schedule property. The petitioner has been claiming that he has purchased the suit schedule property from the executors of the Will by paying the entire sale consideration of Rs.17,00,000/- in instalments under an Agreement of sale dated 27.6.1994. Thus on one hand, the petitioner has been denying the jural relationship between the respondents and petitioner and claiming to have become the owner of the property and on the other hand basing on the lease deed dated 27.6.1994 whereunder as per clause ‘11’ to refer the dispute between the parties to the petition to an Arbitrator is not sustainable. The petitioner though entitled to take different stands in the main suit but while seeking a relief of this nature he cannot take contradictory stands one in respect of the proceedings before the Court for the purpose to refer to Arbitration and other for defending the suit on merits. Thus the petitioner having denied the title of the respondent cannot seek to refer the suit dispute to an Arbitrator as per the terms of the rental agreement. Therefore, I hold that the prayer sought by the petitioner to seek for adjudication of the dispute between the parties to the petition by an Arbitrator is not sustainable. In this application learned Counsel for defendant submits that even though there is no jural relationship between plaintiffs and defendant as landlords and tenant, clause 11 of rental agreement is attracted. He would urge that trial Court was in error in rejecting Section 8 application. He placed reliance on Hindustal Petroleum Corpn. Ltd. v Pink City Midway Petroleums, Visa International Ltd. v Continental Resources (USA) Ltd. and a decision rendered by one of us (VVSRJ) in News Today (P) Ltd TV Division v S.Hari Prasad. Per contra, learned Counsel for plaintiffs submits that the defendant never disclosed the agreement of sale allegedly executed by the executors of the Will except mentioning about the same in the reply notice as well as in the application filed under Section 8 of the Act. He also submits that the defendant did not produce original agreement before the Court, and therefore, they cannot invoke Section 8(1) of the Act. In a suit by the landlord/landlady for eviction of tenant, having denied such jural relationship, whether tenant can invoke the arbitration clause in the rental/lease deed and apply under Section 8(1) of the Act. We are required to consider this point to resolve the controversy in the case. The execution of the Will by late Viswanadham and appointment of mother and aunt of plaintiffs as executors is not denied. The defendant in its reply to quit notice, denied bequeath in favour of plaintiffs. Defendant’s allegation that after death of Viswanadham on 15.4.1994 the executors entered into agreement of sale on 27.6.1994 is denied by plaintiffs. Therefore, the defendant certainly disputes that they are tenants and asserts ownership rights under the agreement of sale dated 27.6.1994. When there is a dispute about subsequent transaction and the relationship between the parties dates back to rental agreement, even if there is denial of title of landlord, still the tenant can seek redressal to oppose an eviction case or claim title under a valid document. Clause 11 of rental agreement dated 27.6.1994 is to the effect that, “all disputes if any arising between the parties under the agreement shall be resolved by mutual understanding and goodwill or through any third person acceptable to both.” Though the clause does not specifically refer the term “arbitration”, there is no dispute that clause 11 indeed provides for arbitration. The clause is so broadly worded that even if a dispute arises between the parties in respect of jural relationship or subject matter of rental agreement, it is attracted. The “dispute arising between the parties to the agreement” shall have to be given ordinary meaning and includes any claim which the other party refuses to admit subsequently. In News Today (P) Ltd TV Division (supra), it was urged that when the contract itself is void, the arbitration clause therein would not survive and therefore the Chief Justice or his designate cannot refer the matter to arbitrator under the Act. This Court referring to various decisions of apex Court held that the question of validity of a contract or arbitration clause cannot be decided while exercising power under Section 11(6) of the Act. The relevant observations made therein are as follows. The extent and scope of power under Section 11(6) of the 1996 Act while dealing with the applications for appointment of arbitrator has been well settled after the decision of seven-Judge Bench of Supreme Court in SBP & Company (supra), which has been followed and explained in Shree Ram Mills Limited v Utility Premises (Private) Limited and National Insurance Company Limited v Boghara Polyfab. In the last of these three decisions, Supreme Court on an analysis of SBP & Company (supra) noticed that preliminary issues that might arise for consideration under Section under Section 11 of 1996 Act fall into three categories, viz., (i) issues which the Chief Justice or his Designate is bound to decide; (ii) issues which he can also decide i.e., issues which may choose to decide; and (iii) issues which can be left to the Arbitral Tribunal to decide; and explained these in the following manner. 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. 17.3) The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal; are: a. 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). b. Merits or any claim involved in the arbitration. Supreme Court also held that when an objection is raised that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion and under influence, the issue will have to be decided by the Chief Justice/his Designate in the proceedings under Section 11 of the Act or by the Arbitral Tribunal as directed by the order under Section 11 of the Act. Therefore, the question of validity or findings of a contract or arbitration clause cannot be decided by Chief Justice/his Designate. In Rodemadan India Limited v International Trade Expo Centre Limited, a question was raised that there is no arbitration agreement in existence, and that for want of consideration, the management agreement is void. Supreme Court held that such issues cannot be considered under Section 11(6) of 1996 Act. The observations are as follows. The next contention raised by Mr. Ranjit Kumar is that the Petitioner is attempting to obtain specific performance when specific performance of the contract cannot be granted in arbitral proceedings. In fact, this contention has been squarely rejected by the judgment of this Court in Olympus Superstructures Pvt. Ltd. v Meena Vijay Khetan…. …... Further, it was urged that Clauses 8.0 and 8.1 of the Management Agreement are mutually exclusive and, therefore, the relief for specific performance cannot be asked for and since no consideration had been paid the contract was void and unenforceable. In my view, these are not issues to be considered in a petition under Section 11(6) of the Act, as they can all be raised during the arbitral proceedings…. …... In short, I am not satisfied that the arbitral agreement was vitiated on any of the grounds, averred by Mr.Ranjit Kumar. I am satisfied that there exists a valid arbitration agreement which contemplates that all disputes between the parties under that agreement be referred to arbitration. I n Aurohill Global Commodities Limited v M.S.T.C.Limited, adverting to a similar question, Supreme Court observed, thus: In the present case, M/s. Aurohill Global Commodities Ltd. has filed this petition under Section 11(9) read with Section 11(5) of the said Act. Section 11 falls in Part I. The alleged contract is an international transaction, therefore, this Court has the power to appoint an arbitrator in accordance with the terms of the contract. Under the said Act, the arbitral Tribunal has very wide powers. The powers of the Courts have been curtailed. The arbitral Tribunal's authority under Section 16 of the said Act is not confined to the width of its jurisdiction but goes to the very root of its jurisdiction (see Secur Industries Ltd. v. Godrej and Boyce Mfg. Co. Ltd. and another, (2004) 3 SCC 447). In the present case, therefore, the question as to whether the Draft Purchase Order acquired the character of a concluded contract or not and the question as to whether the contract was non est can only be decided by the arbitrator. Therefore, the aforestated question have got to be decided by arbitration proceedings. In my view, therefore, there is no merit in the contention advanced on behalf of M/s. M.S.T.C. Ltd. that the arbitration petition was misconceived and not maintainable in law. In P.Anand Gajapathi Raju v P.V.G. Raju considering scope of Section 8 of the Act, the Supreme Court held as below. The language of Section 8 is per-emptory. It is therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the Award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the Award. The Court to which the party shall have recourse to challenge the Award would be the Court as defined in Clause (e) of Section 2 of the new Act and not the Court to which an application under Section 8 of the new Act is made. An application before a Court under Section 8 merely brings to the Court's notice that the subject matter of the action before it is the subject matter of an arbitration agreement. This would not be such an application as contemplated under Section 42 of the Act as the Court trying the action may or may not have had jurisdiction to try the suit to start with or be the competent Court within the meaning of Section 2(e) of the new Act. In Hindustan Petroleum Corpn. Ltd. (supra) reiterating the view in Anand Gajapathi Raju (supra), the Supreme Court observed as follows. … … … in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the Civil Court, there is a clause for arbitration, it is mandatory for the Civil Court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration. I n Visa International Ltd. (supra), the Supreme Court made the following observations. The Court is required to decide whether the existence of an agreement to refer the dispute to arbitration can be clearly ascertained in the facts and circumstances of the case. This, in turn, may depend upon the intention of the parties to be gathered from the correspondence exchanged between the parties and the surrounding circumstances. … … … That an arbitration agreement is not required to be in any particular form has been reiterated in more than one decision. see: Bihar State Mineral Development Corporation v. Encon Building, AIR2003SC3688 . What is required is to gather the intention of the parties as to whether they have agreed for resolution of the disputes through arbitration. What is required to be decided in an application under Section 11 of the Act is whether there is any arbitration agreement as defined in the Act? It needs no reiteration that Section 7 of the Act does not prescribe any particular form and it is immaterial whether or not expression `arbitration' or `arbitrator' or `arbitrators' has been used in the agreement. In view of the case law noted hereinabove, it may be taken as well settled that every judicial authority has a mandatory duty to refer the dispute arising between the contracting parties to arbitration and to discontinue the suit or proceeding when once an application under Section 8 of the Act is filed because after making a reference to arbitration nothing remains to be decided in original action. At that stage the Court or judicial authority is not required to decide whether the denial of obligations or mutual duties by the other party or refusal of other party to accept the obligations, disentitles from seeking arbitration. If the parties have altered their jural relationship allegedly due to subsequent modification of their status, even then the arbitration clause would not cease to have effect. We may also add that a Court or judicial authority should entertain an application under Section 8(1) of the Act seeking arbitration only when such application is accompanied by original agreement or a duly certified copy thereof. In this case, though the defendant did not produce original agreement of sale and though the defendant has taken inconsistent stand, the same does not preclude the judicial authority or court from entertaining an application under Section 8(1) of the Act. In that view of the matter, trial Court committed an error and calls for interference by us. Accordingly, the civil revision petition is allowed and the matter is remitted to the Court of V Senior Civil Judge, City Civil Court, Hyderabd, observing that the said Court should appoint an arbitrator under Section 8(1) of the Act in accordance with clause 11 of rental agreement dated 27.6.1994, in respect of the suit schedule premises. There shall be no order as to costs. _______________ (V.V.S.RAO,J) ______________________ (B.N.RAO NALLA,J) December , 2009 NOTE: L.R. Copy be marked. (By order) YS