PNP 1 ARBAP85-10=3.9 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. ARBITRATION APPLICATION NO.85 OF 2010 M/s. Pinak Bharat & Co. and another ..Applicants. Vs. Anil Ramrao Naik ..Respondent. ..... Mr. R.S. Tripathi for the Applicants. Mr. V.R. Valavalkar i/b Mr. V.S. Kapse for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD, J. 3 September 2010. P.C. : 1. The Respondent and the Applicants entered into a Memorandum of Understanding on 9 May 2003. The Memorandum of Understanding records that the Applicant, described as the financier, has financed the Respondent, described in the agreement as a developer, by providing an amount of Rs.1 Crore. Parties agreed in Clause 4 to a repayment schedule, details of which were set out. Under Clause 8 it was agreed that the Respondent shall before the expiry of the 35th calendar month from the month falling next to the month in which the agreement was executed choose under written intimation one of the following two modes of repayment of the secured loan together with interest : (i) Either the Applicant could choose to receive back the loan of Rs.1 Crore together with interest at 19% per annum, PNP 2 ARBAP85-10=3.9 or (ii) The Applicant was entitled to call upon the Respondent to make available on ownership basis commercial premises of an aggregate carpet area of 2338 sq. ft. in the building to be constructed by the Respondent on the property more particularly described in the schedule to the agreement. A power of attorney was executed by the Respondent in favour of the Applicants. 2. The Respondent instituted a suit in the City Civil Court in March 2007 seeking the following reliefs : (a) that it be declared that the period of 36 calendar months mentioned in clause 5 of the MOU dated 9.5.2003 be calculated from the month falling next to the month of January 2007; (b)that it be declared that the Defendants are not entitled, either to call upon the Plaintiff to repay the loan or any part thereof, or to invoke the provisions of Clause Nos.4, 5, 7 and 8 of the MOU dated 9.5.2003 before the expiry of 36 calendar months to be calculated from the month falling next to the month of January 2007; (c) that it be declared that the Defendants are not entitled to act upon or to take any steps pursuant to or in furtherance of the POA attorney dated 9.5.2003 before the expiry of 36 calendar months to be calculated from the month falling next to the month of January 2007.” 3. In sum and substance, the relief that was sought before the City Civil Court was that the period of 36 calendar months stipulated in Clause 5 of the of the Memorandum of Understanding be extended so that the period PNP 3 ARBAP85-10=3.9 should commence from February 2007. The Applicant filed a written statement in the suit on 3 September 2007 and an interim injunction was granted by the City Civil Court restraining the Applicant from taking steps in pursuance of the power of attorney prior to the expiry of two years and two months to be calculated from the month of January 2007. The effect of the order of the City Civil Court was therefore to restrain the Applicant from taking steps in pursuance of the power of attorney until 30 March 2009. That period expired. As a matter of fact, even the period of 36 months that was sought by the Respondent in the suit before the City Civil Court for compliance with its obligations under the Memorandum of Understanding has expired, at any rate at the end of February 2010. 4. The Applicant had taken out a Notice of Motion before the City Civil Court under Section 8 of the Arbitration and Conciliation Act 1996 seeking a reference to arbitration. The Memorandum of Understanding contains an arbitration clause. Clause 16 provides that disputes and differences between the parties will be resolved by making a reference under the Arbitration and Conciliation Act 1996. The Motion was dismissed by the City Civil Court by an order dated 3 September 2007 on the ground that the Applicant had filed a written statement and had therefore not submitted an PNP 4 ARBAP85-10=3.9 application under Section 8 before submitting its first statement on the substance of the dispute. The order dismissing the Motion was confirmed by a Learned Single Judge of this Court on 5 February 2010. 5. As already noted earlier, the suit instituted by the Respondent was essentially worked out since the relief sought therein was a declaration that the period of 36 calendar months mentioned in Clause 5 of the Memorandum of Understanding be calculated from the month falling next to January 2007. A declaration was also sought that the Applicant herein was not entitled to call upon the Respondent to repay the loan or to invoke the provisions of the Memorandum of Understanding prior to the aforesaid period of 36 months. A declaration was sought that the Applicant would not be entitled to take steps in pursuance of the power of attorney until the said period of 36 months expired. The period of 36 months in any event came to an end at the end of February 2010. A Chamber Summons was taken out by the Respondent in May 2009 seeking the extension of the period of 36 months by amending the plaint. The Chamber Summons was allowed by the City Civil Court on 22 March 2010. The Court has been informed during the course of the hearing by counsel for the Applicant that the writ petition filed by the Applicant has been admitted and further proceedings before the trial Court have been PNP 5 ARBAP85-10=3.9 stayed. This is not in dispute. 6. The provisions for arbitration have been invoked by addressing a notice under Section 11(6) on 25 March 2010. There is no reply to the notice. 7. The defence to the proceedings is based on the dismissal of the Motion taken out by the Applicant under Section 8 before the City Civil Court and the confirmation of the order of the City Civil Court by a Learned Single Judge of this Court. Counsel appearing on behalf of the Respondent submitted that the Motion was dismissed on the ground that the Applicant had filed a written statement and that as a result, the application to have the suit referred to arbitration was dismissed. That, it is submitted is a bar to an application under Section 11(6). 7A. On a careful consideration of the facts which have been narrated in the earlier part of the judgment, it is not possible accede to the submission urged in defence to the application under Section 11 (6). The existence of the arbitration agreement is not in dispute. The arbitration agreement forms part of the Memorandum of Understanding, the execution of which is not in dispute. The arbitration agreement has been validly invoked by a notice dated PNP 6 ARBAP85-10=3.9 25 March 2010. The suit instituted by the Respondent before the City Civil Court was for a declaration that the Applicant was not entitled to seek recourse to the provisions of the Memorandum of Understanding for an extended period of 36 months. The extended period as sought in the suit has in any event expired at the end of February 2010. Evidently, the relief sough in the suit itself has been worked out. An interim injunction was granted by the City Civil Court restraining the Applicant from invoking the power of attorney for a period of two years and two months which period also expired on 30 March 2009. The order of the Learned Trial Judge declining a reference to arbitration under Section 8 must therefore be construed with reference to the reliefs that were sought before the City Civil Court and the structure of the suit instituted in that Court. Once the relief which has been claimed in the suit is rendered infructuous on the expiry of the period of 36 months, it would be no defence to the application under Section 11(6) to rely upon the order of the Trial Judge dated 19 November 2009 dismissing the Motion under Section 8. The Learned Trial Judge, as already noted earlier, had allowed an amendment of the plaint so as to permit a further extension of the period of 36 months. However, as noted earlier, this Court was informed by counsel for the Applicant that proceedings before the Trial Court have been stayed by the order of the Learned Single Judge in writ proceedings. PNP 7 ARBAP85-10=3.9 8. In these circumstances, in exercise of the powers conferred by Section 11(6) of the Arbitration and Conciliation Act 1996, Hon’ble Mr. Justice B. N. Srikrishna, Former Judge of the Supreme Court of India is appointed as sole arbitrator under the provisions of the Arbitration and Conciliation Act 1996. The Arbitration Application is accordingly disposed of. (Dr. D.Y.Chandrachud, J.)