SCA/10841/2008 1/23 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 10841 of 2008 With SPECIAL CIVIL APPLICATION No. 11182 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE M.R. SHAH ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the Civil Judge? ========================================================= RAJ ENTERPRISE - Petitioner(s) Versus NAVKAR FINANCE - Respondent(s) ========================================================= Appearance : MR SN SHELAT, SR.ADVOCATE WITH MR MG NAGARKAR for Petitioner(s) : 1, MR KG VAKHARIA, SR.ADVOCATE WITH MR MK VAKHARIA for Respondent(s): 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE M.R. SHAH Date :16/12/2008 CAV JUDGMENT 1. RULE. Mr.M.K.Vakharia, learned Advocate waives service of rule on behalf of the respondent. With the consent of the learned Advocates appearing on behalf of the respective parties, the petitions are taken up for final hearing today. As common SCA/10841/2008 2/23 JUDGMENT question of law and facts arise in both these petitions, they are being disposed of by this common judgment. 2. Special Civil Application No.10841 of 2008 is filed by the petitioner – original defendant of Civil Suit No.1440 of 2007 under Article 227 of the Constitution of India for an appropriate writ, direction quashing and setting aside the impugned order dated 25.06.2008 passed below Exh.12 in the aforesaid Civil Suit rejecting the said application submitted by the petitioner – original defendant under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') for referring the dispute for arbitration as contemplated under Clause – 22 of the agreement entered into between the plaintiff and the defendant on 19.02.2007. Special Civil Application No.11182 of 2008 is filed by the petitioner – original defendant of Civil Suit No.1373 of 2007 under Article 227 of the Constitution of India for an appropriate writ, direction quashing and setting aside the impugned order dated 25.06.2008 passed below Exh.12 in the aforesaid Civil Suit rejecting the said application submitted by the petitioner – original defendant under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') for referring the dispute for arbitration as contemplated SCA/10841/2008 3/23 JUDGMENT under Clause – 22 of the agreement entered into between the plaintiff and the defendant on 02.02.2007. 3. The respondent herein – original plaintiff had instituted aforesaid two Civil Suits in the City Civil Court, Ahmedabad for accounts and prayed for preliminary decree and directing the respondent original plaintiff to submit true and proper accounts of the amount received by the petitioner-defendant from the market with respect to the motion picture 'Nehle Pe Dehla'. In both the aforesaid suits, respective petitioners – original defendants submitted application Exh.12 under Section 8 of the Act praying to refer the dispute / civil suits to the Indian Motion Picture Distributors Association (hereinafter referred to as 'IMPDA') relying upon clause – 22 of the respective agreements entered into between the respective plaintiffs and defendant and till then to stay suit proceedings. It was contended on behalf of the respective petitioners – original defendants that as per specific clause – 22 of the respective agreements entered into between the respective parties, in case of dispute or differences arising out of the agreements shall be referred to sole arbitration of the IMPDA, Mumbai and its decision shall be binding on both the parties. Therefore, it was requested to allow the said applications submitted under Section 8 of the Act to refer the dispute to the sole arbitration of IMPDA, Mumbai. It was further submitted that in fact SCA/10841/2008 4/23 JUDGMENT respective petitioners have already submitted their complaints with respect to the very dispute before the IMPDA invoking arbitration clause and in the said proceedings even the defendant also participated and after proceedings were initiated before the IMPDA, thereafter, the respondent-original defendant had instituted aforesaid two applications. Therefore, it was requested to allow application Exh.12 and refer the dispute to the sole arbitration, IMPDA, Mumbai and till then it was requested to stay the proceedings of the respective suits. 4. Said applications were opposed by the respective respondents – original plaintiffs submitting that clause – 22 cannot be said to mandatory and the word 'shall' mentioned in clause – 22 of the said agreements is to be construed as 'may' in view of section 23 of the said agreements. By submitting reply to the application exh.12, it was contended by the original plaintiffs that respective suits are for accounts and same cannot be part of the subject matter of the arbitration agreements. Respondent – original plaintiffs relied upon decision of the Hon'ble Supreme Court in the case of Wellington Associates Ltd. V/s. Kirit Mehta reported in AIR 2000 SC 1379 in support of their submission that word 'shall' shall be construed as 'may'. The learned Chamber Judge by impugned orders dismissed aforesaid applications by holding that in view of clause -23 of the respective agreements, the option of referring the dispute to sole arbitration of IMPDA SCA/10841/2008 5/23 JUDGMENT or invoking the jurisdiction of an appropriate court at Ahmedabad, is left open to the party which raises dispute or difference in relation to the arbitration agreements. Therefore, the learned Chamber Judge held that there is no mandatory arbitration clause in the agreements, which mandates reference of dispute to the arbitration alone. Being aggrieved and dissatisfied with the aforesaid orders passed by the learned Chamber Judge, City Civil Court, Ahmedabad dismissing respective applications at Exh.12 in respective suits in not referring the dispute raised in the aforesaid suits to the sole arbitration as provided under Clause – 22 of the aforesaid agreements, the respective petitioners – original defendants have preferred present Special Civil Applications under Article 227 of the Constitution of India. 5. Mr.S.N.Shelat, learned Senior Advocate appearing with Mr.Nagarkar, learned Advocate for the respective petitioners – original defendants has vehemently submitted that the learned Chamber Judge has not properly appreciated the dispute. The case of Wellington Associates Ltd. V/s. Kirit Mehta (supra) has been misread by the learned Chamber Judge. It is submitted that in the case before the Hon'ble Supreme Court the word 'may' was used in the agreement and in the present case admittedly in clause – 22 of the agreement word used is 'shall' and therefore, the learned Chamber Judge has materially erred in relying upon the said decision of the Hon'ble Supreme Court. SCA/10841/2008 6/23 JUDGMENT It is submitted by Mr.Shelat, learned Senior Advocate that the learned Chamber Judge has misinterpreted the arbitration agreement and ratio laid down in the case of Wellington Associates Ltd. V/s. Kirit Mehta (supra). It is also submitted that from the bare reading of the clause – 22 of the agreement, it is crystal clear that in the event of any dispute or differences arising out of the said agreement, the same 'shall' be referred to the sole arbitrator of IMPDA and the word 'shall' used in the said clause is mandatory in nature and therefore, the learned Judge ought to have referred the dispute to the sole arbitrator and until then ought to have stayed the said proceedings. It is also submitted that there was already a dispute between the parties and as per the terms of clause – 16 the defendants were entitled to claim from plaintiffs unrecouped portion of the refundable advance and the defendants issued notice by Regd. A.D.post claiming the said amount. It was duly received by the plaintiffs and thereafter on account of failure to pay the amount as claimed by the defendants in the said notice the defendants lodged complaint with IMPDA on 16.06.2007 which was also replied by the original plaintiffs and therefore, on issuance of notice to the plaintiffs and filing complaint with IMPDA and on account of reply to the said notice by the plaintiffs, the arbitration proceedings in terms of agreements had already been commenced in which the original plaintiffs also participated without any demur or protest, the parties submitted to the jurisdiction of SCA/10841/2008 7/23 JUDGMENT the sole arbitrator. It is submitted that thereafter only original plaintiffs had instituted aforesaid suits with a view to delay the arbitration proceedings and to create multiplicity of proceedings. It is also submitted by Mr.Shelat, learned Senior Advocate that the learned Judge has also misinterpreted and/or misread clause – 23 of the respective agreements. It is submitted that clause 22 precedes clause 23 and when clause 22 refers that the dispute shall be referred to sole arbitrator of IMPDA, the leaned Judge ought to have appreciated that arbitration is condition precedent. Dealing with clause 23 of respective agreements, it is submitted that if any proceedings arising out of the arbitration agreement of the arbitration proceedings like any decision under section 16 of the Act by the arbitrator or any proceedings required to be initiated by both the parties under section 34 of the Act and/or if the arbitrator wants to refer a specific question of law to be determined by the Court of law, clause 23 will hold the field and in those circumstances, the Civil Court at Ahmedabad has been conferred jurisdiction by the said agreement. It is submitted that by no stretch of imagination, it can be said that the said clause 23 ousts the jurisdiction of arbitrator and /or may affect arbitration clause no.22. It is submitted that in case all the contracting parties to the agreement do not want to refer the differences and disputes to an arbitration and wanted to get it resolved through a civil court only and/or case do not fall under SCA/10841/2008 8/23 JUDGMENT section 8 of the Arbitration Act, in that event, the Court at Ahmedabad would have jurisdiction and clause 23 would be applicable. It is submitted that when clause 22 of the agreement specifically provides for referring the dispute to arbitration IMPDA and word used is 'shall', it is to be presumed that the parties have agreed for referring the dispute to sole arbitrator of IMPDA. Therefore, it is submitted that the learned Judge has materially erred in dismissing the said applications Exh.12 submitted under Section 8 of the Arbitration Act and not referring the dispute to sole arbitrator of IMPDA as per clause 22 of the aforesaid agreements. Therefore, it is requested to allow present Special Civil Applications. 6. Both the petitions are opposed by Mr.K.G.Vakharia, learned Senior Advocate appearing with Mr.M.K.Vakharia, learned Advocate for respective respondents – original plaintiffs. Mr.Vakharia, learned Senior Advocate has made following submissions in support of his submission to dismiss present Special Civil Applications : (1) in view of clause – 23 the learned Judge has rightly held that the word 'shall' referred to in clause – 22 is to be construed as 'may', (2) that the original plaintiffs have not participated in the proceedings in pursuance to the complaints filed by the petitioners before the IMPDA as alleged, (3) that the sole arbitration of IMPDA as referred in clause 22 of the agreements requires to be read in context of the SCA/10841/2008 9/23 JUDGMENT provisions of the Arbitration Act and it means only one arbitrator to be appointed by IMPDA, (4) no arbitration proceedings has been commenced between the defendants ant the plaintiffs, (5) that the complaints submitted by the original defendants were in their capacity of member of IMPDA under the Rules of IMPDA and same cannot be termed as initiation of arbitration proceedings, (6) that the perusal of the Rules contemplate adjudication by the Committee consisting of not more than 7 members and less than 3 members and the quorum of the aforesaid committee is of 2 or more members present. It also provides that absence of the members of adjudicating committee shall not invalidate the proceedings and/or decision of the adjudicating committee. Therefore, it is submitted that aforesaid provisions are directly in conflict with the provisions of the Arbitration Act and the principles of natural justice. It is submitted that aforesaid Rules read as a whole makes it clear that adjudicating committee is not an arbitrator as contemplated under the Act, therefore, it is submitted that as such the application exh.12 below which impugned orders are passed are misconceived. What is provided under clause – 22 of the agreement is not as per the arbitration act. It is further submitted that considering constitution of adjudicating committee word 'shall' referred to in clause 22 should be read as 'may'. It is submitted that even otherwise respective suits have been filed for accounts which is outside the purview of the respective agreements. That even otherwise contract SCA/10841/2008 10/23 JUDGMENT novatio was created whereby respective petitioners agreed to submit statement of accounts and on perusal of the aforesaid novatio contract shows that there is no provision for reference to arbitration of the aforesaid dispute for which the suits have been filed. At last it is submitted that assuming without admitting that there is any error in the interpretation of the aforesaid clauses as alleged, then also as per the settled legal position, this Court while exercising the powers under Article 227 of the Constitution of India may not interfere with the impugned orders. Therefore, it is requested to dismiss both the Special Civil Applications. 7. In reply to the above submissions made on behalf of the respondents – original plaintiffs, Mr.Shelat, learned Senior Advocate for the petitioners - original defendants has relied upon the decision of the Hon'ble Supreme Court in the case of Khub Chand and Ors. V/s. State of Rajasthan and ors. reported in AIR 1967 SC 1074 and has submitted that term 'shall' in its ordinary significance is mandatory and the Court shall ordinarily give that interpretation unless it leads to some absurd or inconvenient consequence or be at variance with the intent of the legislature, to be collected from other parts of the Act. It is also submitted by Mr.Shelat, learned Senior Advocate that once parties agree to particular procedure, one must act as per the same. He has relied upon section 11(2) and section 19(2) of the Arbitration Act by further submitting that the SCA/10841/2008 11/23 JUDGMENT parties are free to agree on the procedure to be followed by the Arbitration Tribunal in conducting its proceedings. Therefore, even procedure as contemplated under the relevant Rules of IMPDA for adjudication of dispute is well within the purview of the Arbitration Act. Mr.Shelat, learned Senior Advocate has relied upon decision of the Hon'ble Supreme Court in the case of Iron and Steel Co.Ltd. V/s. M/s. Tiwari Road Lines reported in JT 2007 (6) SC 526. It is also submitted that so far as the submission on behalf of the respondents that under the Rules, decision of the Committee and the Arbitrator is final and it is contrary to the provisions of the Arbitration Act is concerned, it is submitted that even under Section 35 of the Act decision of the Arbitration Act is final. Therefore, it is requested to allow present Special Civil Applications. 8. Heard the learned Advocates appearing on behalf of the respective parties at length and considered the impugned orders as well as respective agreements and relevant rules and bye-laws of the IMPDA for adjudication of dispute by the IMPDA. Relevant clause – 22 and clause of 23 of the respective agreements are as under : “22. In case of any dispute or differences arising out of this Agreement, the same shall be referred to the Sole Arbitration of Indian SCA/10841/2008 12/23 JUDGMENT Motion Pictures Distribution Association (IMPDA), Mumbai and their decision shall be binding on both the parties hereto. 23. It is agreed between the parties hereto that only the appropriate Court in Ahmedabad shall have the jurisdiction to entertain and try any suit or matter in dispute between them relating to or arising from this agreement.” Relevant rules and bye-laws framed by IMPDA for adjudication of complaints / claims / disputes / differences arising out under the distribution agreement are as under : 1. “Adjudication Committee” means a small Committee appointed by the Executive Committee for the purpose of adjudicating on the complaints / claims / disputes / differences arising between members of the IMPDA and procedure of motion pictures in respect of distribution agreements signed by them. 2. “Complainant” means the member (Distributor) who files his complaint with the IMPDA against a producer. 3. “Award” / “Decision” means the findings / decisions / awards given by the Adjudication committee and rectified by the Executive Committee or given by the Executive Committee itself. SCA/10841/2008 13/23 JUDGMENT 4. “Constitution” - An adjudication Committee consisting of not more than 7 members of the Executive Committee or not less than 3 members shall be appointed by the Executive Committee of its first meeting after the General Election of the IMPDA or anytime thereafter every year. 5. “Chairman” - The Adjudication committee shall always be presided at its meetings by the Chairman or Deputy Chairman of the IMPDA, provided the Adjudication Committee may elect its own Chairman in the absence of the Chairman of Deputy Chairman of the IMPDA. 6. “Quoram” - Two or more members present, besides the Chairman, shall constitute a quoram. 7. “Absence of Members” - The absence of any member of the Adjudication Committee at any sitting or any change in the constitution of the Adjudication Committee shall not invalidate the proceedings and/or decision of the Adjudication Committee. 8. “Decisions by Majority”- All cases of complaints / claims / disputes / differences referred to the Adjudication Committee shall be decided by majority. The Chairman, however, shall have casting vote. 9. “Procedure for Adjudication” - Complaints / claims / disputes / differences between a member – distributor and a non-member SCA/10841/2008 14/23 JUDGMENT producer in respect of film distribution, exhibition and exploitation rights for Bomaby Circuit or any part/s thereof, with or without an agreement or contract in writing between the parties and all complaints / claims / disputes and differences of whatsoever nature arising between a member and a non-member, whether under an agreement or contract in writing or not may be referred to the Adjudication Committee for adjudication. 10. “Registration of complaints, claims, disputes” - A complaint may be registered by a member with the Association in the Form prescribed in Schedule I hereto, in duplicate, and shall be accompanied by true copies of the documents and/or writings in the form of letters and correspondence, agreements, contracts, receipts etc. on which the complaint is based and on which the complainant relies in support of his complaint, together with the fees of value involved, payable only on the recovery of the claim amount from the defendant and not in advance along with the registration fee. 11. “Register of Complaints” - Every complaint lodged by members in accordance with Rule No.10 shall be duly numbered serially and entered in a register to be kept and maintained by the Association in the Form prescribed in Schedule II hereto. SCA/10841/2008 15/23 JUDGMENT 12. “Notice of Registration” - The Secretary, shall, upon registration of a complaint / claim, forward a copy thereof together with the documents filed by the complainant to the defendant for reply within 14 days of receipt of the same and with a view to bring abut an amicable settlement between the parties if possible. 13. “Reference to Adjudication Committee” - If no settlement is arrived at between the parties within the specified period, the Secretary shall give due notice to the parties, namely, the complainant and the defendant inviting them to appear before the Adjudication Committee on a date and time to be stipulated in the notice, to plead their case and to produce their documents and evidence in support of their case. 14. “Opportunity of hearing & taking evidence” - The Adjudication Committee shall always afford reasonable opportunities of hearing to both the parties to enable them to plead their respective sides of the case and to produce their documents and evidence in support thereof. In no event shall the Adjudication Committee hear or take evidence of either party behind the back of the other. The Adjudication Committee shall examine either party in the presence of the other party and record the evidence in the presence of both the parties. It shall SCA/10841/2008 16/23 JUDGMENT always be cardinal principle of the Adjudication Committee to follow the rules of natural justice in its deliberations and decisions. Provided, however, that if either of the parties fails, refuses or neglect to attend any of all the meetings of the Adjudication Committee despite due notices, without showing sufficient and reasonable cause for such absence, the Adjudication Committee may hear the other party and determine the reference before it ex-parte without further reference to the other party. 15. “Appearance by Parties” - The parties shall appear before the Adjudication Committee at its meeting at such time and place as may be required from time to time either in person or by a responsible representative duly authorized in writing and produce before the Adjudication Committee at the time of the hearing all the original papers and documents in support of their respective sides. Provided, however, that no legal practitioner, advocate, pleader, attorney or solicitor other than a permanent and paid employee of the parties shall be permitted to represent the parties at the meeting. 16. “Time limit for Adjudication” - All complaints / claims / disputes / differences referred to the Adjudication Committee shall be finally disposed of within a period of 4 SCA/10841/2008 17/23 JUDGMENT months and if time is enlarged at the request of either party in writing for reasons beyond his control, then within 5 months from the date of first hearing. Provided, however, the adjudication shall be finally completed and the decision / award duly published within a period of three months from the date of first hearing. The final decision / award of the Adjudication Committee shall be written on a stamp paper of the requisite value and duly delivered to the parties within 1 month from the conclusion of the final hearing of the parties. 17. “Parties to reference to execute undertaking” - The parties to a complaint / claims / dispute / difference referred to the Adjudication Committee shall, at the outset and before commencement of the adjudication proceedings, execute an undertaking in writing in the Form prescribed in Schedule III hereto, agreeing and undertaking to accept as final and binding on them the decision / award of the Adjudication Committee and of the Executive Committee and hand it over to the Secretary. 9. It is not in dispute that respective plaintiffs and defendants have entered into agreement dated 19.02.2007 and 02.02.2007. As per clause – 22 SCA/10841/2008 18/23 JUDGMENT of the respective agreements, in case of any dispute / differences arising out the said agreements, same 'shall' be referred to the sole arbitration of IMPDA, Mumbai and their decision shall be binding on both the parties. Thus, the word used in the said clause is 'shall'. Therefore, intention of the parties to the said agreements is very clear i.e. to refer any dispute / differences arising out of the said agreements to the sole arbitration of IMPDA. It is also required to be noted at this stage that at the relevant time when the agreements were executed / entered into between the parties, rules and bye-laws of the IMPDA were very much there. Therefore, the parties were aware of the procedure and adjudication of the dispute by IMPDA. In view of above, it is not open for the parties to the aforesaid agreements now i.e. in the present case – original plaintiffs to make a grievance that arbitration provided in clause – 22 and/or relevant rules and bye-laws are de-hors the provisions of the Arbitration Act. Even otherwise considering Section 11(2) read