IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.S.SATHEESACHANDRAN MONDAY, THE 19TH OCTOBER 2009 / 27TH ASWINA 1931 CRP.No. 396 of 2009() -------------------------------- IA. NO.3527/2005 IN OS.273/2009 OF THE IST ADDL. SUB COURT, ERNAKULAM. ..... REVN. PETITIONER(S): PETITIONER/DEFENDANT ----------------------------------- KIRLOSKAR CONSTRUCTION AND ENGINEERS LTD, VEEJAY TOWER, SALIM RAJAN ROAD, KADAVANTHARA, KOCHI-17. BY ADVS.MR.K.L.VARGHESE SMT.SANTHA VARGHESE RESPONDENT(S): RESPONDENTS/PLAINTIFF ------------------------------------ 1. NADEERA SULAIMAN, S/O.LATE M.E.SULAIMAN, 2. NAJEENA SHEREF, D/O.LATE M.E.SULAIMAN AND W/O.SHEREEF, EDAVANAKAD HOUSE KARA DESOM, EDAVILANGU VILLAGE, KODUNGALLUR TALUK, THRISSUR DIST. 3. RAHEENA SULAIMAN, D/O.LATE M.E.SULAIMAN, CHELLIPADATH HOUSE, VADAVUKODE PUTHENCRUZ, BRAHMAPURAM, ERNAKULAM DIST. 4. MAHIN ABUBACKER, S/O.LATE M.E.SULAIMAN(MINOR), CHELLIPADATH HOUSE, VADAVUKODE, REP.BY MOTHER AND GUARDIAN NADEERA SULAIMAN, W/O.LATE M.E.SULAIMAN, CHELLIPADATH HOUSE, VADAVUKODE, BRAHMAPURAM ERNAKULAM DIST. BY ADV. MR.N.P.SAMUEL THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON 23/09/2009, THE COURT ON 19/10/2009 PASSED THE FOLLOWING: tss S.S.SATHEESACHANDRAN, J. ------------------------------- C.R.P.NO.396 OF 2009 () ----------------------------------- Dated this the 19th day of October, 2009 O R D E R The revision is directed against the order dated 24.6.2009 in I.A.No.3527 of 2005 in O.S.No.273 of 2009 passed by the learned Sub Judge, Ernakulam. Petitioner, a construction company, is the defendant, and the respondents, the plaintiffs in the above suit. Suit is one for recovery of money. After enquiry, the plaintiffs had been granted permission to sue as indigent persons, and the suit numbered as above was received on the file. The defendant challenged the entertainability of the suit before the court contending that there is an arbitration agreement between the parties, and so much so, the disputes, if any, have to be referred to arbitration for determination. The court below, after hearing both sides, dismissed the application moved by the petitioner/defendant holding that the court has jurisdiction to entertain and decide the suit. That order is challenged in the revision. CRP.396/09 2 2. I heard the counsel on both sides. The predecessor of the plaintiffs, one Sulaiman worked as a sub contractor of the defendant, which was the contractor for a work for M/s.Marshall Sons and company Ltd., Chennai. Admittedly, an agreement had been entered between the defendant company and late Sulaiman in respect of the sub contract arrangement of the work. Plaintiffs, the legal heirs of the late Sulaiman, laid the suit for the balance amount allegedly due to late Sulaiman for the work done as a sub contractor under the defendant. A sum of Rs.47,20,000/- was claimed in the suit. Suit was instituted after seeking permission to sue as indigent persons. Notice on the indigency petition given the defendant company filed an application contending that there is an arbitration agreement between the defendant and late Sulaiman, and so much so, the disputes have to be referred to arbitration. That application, after hearing both sides, was previously allowed by the court, but, that order was set aside in WP(C).No.15516 of 2007 by judgment dated 17th December, 2007 filed by the plaintiffs. This Court, setting aside the order directed the court below to consider the question of indigency canvassed by the respondents, who sought permission to sue CRP.396/09 3 as indigent persons, and then, after passing of appropriate orders, to hear and dispose of the application of the defendant challenging the entertainability of the suit, in view of the arbitration agreement. Pursuant to the judgment referred to above, the court below, after conducting enquiry, allowed the application of the respondents to sue as indigent persons. The application moved by the defendant challenging the maintainability of the suit in view of the arbitration agreement between the parties was then taken up for consideration. After hearing both sides, the impugned order was passed holding that the suit is maintainable negativing the challenge raised by the petitioner/defendant. 3. I heard the counsel on both sides. There was an agreement between late Sulaiman, the predecessor of the plaintiffs and the defendant company in respect of the execution of work taken by the defendant is not under dispute. Clause 17 in that agreement provides for arbitration of disputes between the parties in respect of the contract work, and so much so, there is ouster of jurisdiction of the civil court, is the case of the defendant. Clause 17 in the CRP.396/09 4 agreement was challenged by the plaintiffs as not valid contending that the named person to be appointed as the arbitrator to whom disputes or differences are to be referred, is the Managing Director of the contractor, the defendant company. The arbitrator provided by the terms of the agreement is not an independent disinterested person, and so much so, the clause providing for arbitration in the agreement, in the event of disputes or differences between the parties in relation to the execution and discharge of the contract work, according to the plaintiffs, was not valid and enforceable under law. The learned Additional Sub Judge found merit in the objections so raised by the plaintiffs to conclude that clause 17 is not a valid agreement for an arbitration under Section 7 of the Arbitration and Conciliation Act. Another ground that appealed to the learned Sub Judge to negative the case of the defendant that the disputes can be resolved only by way of arbitration is that there was no dispute as such in the case as the defendant in its reply to the suit notice has categorically admitted the liability to pay the balance amount due to the plaintiffs. The impugned order was passed holding there was no valid agreement between the CRP.396/09 5 parties for arbitration, and further, no disputes arise out of the contract between the parties for arbitration. 4. The learned counsel for the petitioner/defendant assailed the reasonings of the court below contending that the naming of the Managing Director of the defendant company as the arbitrator as per the terms of the agreement entered by the parties, will in no way render the agreement invalid. The learned Sub Judge has prejudged the merit of the suit claim itself as if there was candid admission in the reply notice before the trial of the case while deciding the question whether the court has jurisdiction to entertain the suit in view of the arbitration agreement, according to the learned counsel for the petitioner/defendant. The question to be considered is whether there was an arbitration agreement, and if so, found irrespective of the nature of the disputes in relation to the contract, according to the counsel, it has to be referred to arbitration for determination. On the other hand, the learned counsel for the respondents/plaintiffs contended that the clause in the agreement as found by the court below was invalid, and further, there was no dispute as such amenable CRP.396/09 6 for determination by way of arbitration. 5. To resolve the questions posed for consideration, first of all, it is necessary to advert to clause 17 of the agreement admittedly entered between the petitioner company and late Sulaiman, the predecessor of the plaintiffs in the execution of a contract work. The defendant company was the contractor and late Sulaiman the sub contractor in the execution of a work taken by the company. Clause 17 in the agreement between them is reproduced hereunder: “All matters of disputes or differences, if any, shall be referred to the Managing Director of the contractor and his decision on the disputes and difference shall be final and binding on the sub contractors.” That clause in the agreement is not valid for the reason the arbitrator named for resolving the disputes or difference, if any, between the parties is the Managing Director of the defendant, was the challenge raised by the plaintiffs to contend that no reference to arbitration is legally permissible. CRP.396/09 7 The learned Sub Judge expressing the view that the above clause with respect to the naming of the arbitrator gives domination by one party over the other in the contract, held, it is not a valid arbitration agreement. Section 2 (b) of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the 'Act' defines an arbitration agreement as agreement referred to in Section 7 of the Act. A reading of Section 7 of the Act spell out that an arbitration agreement may be in the form of an arbitration clause or contract or in the form of a separate agreement. It is an agreement by the parties to submit the disputes – present or future – to arbitration. That agreement shall be in writing. It need not be in any particular form as even correspondence between the parties by way of exchange of letters, telegrams, telex or other means of telecommunications disclosing of an agreement is sufficient to constitute an arbitration agreement. If the intention of the parties is discernible from the terms of the agreement even the words absence of work, arbitration or arbitrator etc. has no significance. The apex court in Bihar State Mineral Development Corporation v. Encon Builders (I) (P) Ltd. ((2003) 7 SCC 418) held that the essential elements of the CRP.396/09 8 arbitration agreement are thus:- (1) there must be a present or a future difference in connection with some contemplated affair (2) there must be the intention of the parties to settle such difference by a private tribunal (3) the parties must agree in writing to be bound by the decision of such tribunal and (4) the parties must be at ad idem. The execution of the agreement containing clause 17 referred to above between the defendant company and late Sulaiman is not disputed. However, the challenge is that though an arbitration clause is provided as the arbitrator named is the Managing Director of the defendant company, it cannot be considered as a valid arbitration agreement. That objection has no merit at all. Challenge canvassed is not that the clause does not spell out an arbitration agreement, but, only that the arbitrator named for resolving the disputes is the Managing Director of the company, and so much so, arbitration agreement is not valid. When an agreement is entered into by the parties, providing for arbitration, in the event of disputes arising in present or future, naming the authority who has to be appointed as the arbitrator, merely because the named arbitrator is an officer of the defendant it is not open to the other party to repudiate CRP.396/09 9 that agreement as not an arbitration agreement. In P.Anand Gajapathi Raju v. P.V.G.Raju and others ((2000) 4 SCC 539) and Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums ((2003) 6 SCC 503), the apex court has held that “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 the matter referred to disputes to an arbitrator” In the later decision referred to above Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums ((2003) 6 SCC 503), the apex court has also held that any challenge that the disputes are not covered by the arbitration clause, and so much so, it can be gone into by the civil court, which was the view formed by the court below in the present case placing reliance upon the reply notice of the defendant that the suit claim had been practically admitted by the defendant, is within the purview of the arbitral tribunal, which can rule on its own jurisdiction including one on any objection with respect to the existence or the validity of the arbitration agreement. Adverting to the CRP.396/09 10 decision rendered in Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd. (2002 (2) SCC 388) on the above question, the apex court has held in the above decision that if there is any objection “as to the applicability of the arbitration clause with the facts of the case, the same has to be raised before the arbitral tribunal concerned”. When that be the law laid down by the apex court, where an arbitration agreement between the parties exist, the reasons set out in the impugned order by the court below to hold that clause 17 in the agreement between the parties is not valid and the dispute raised can be decided by the civil court and there is no need to refer to arbitration is patently erroneous and unsustainable. Setting aside the impugned order, the court below is directed to refer the parties to arbitration to resolve their disputes as mandated under Section 8 of the Arbitration and Conciliation Act, 1996. Revision is allowed. S.S.SATHEESACHANDRAN JUDGE prp CRP.396/09 11