Gaajra International. v. Food Corporation Of India.

A.K Sikri, J.— The petitioner has filed this petition under Section 20 of the Arbitration Act, 1940. The prayer made is that the respondent be directed to appoint an arbitrator in terms of the arbitration clause contained in the agreement to resolve the disputes and differences arisen between the parties.

2. It is stated in the petition that vide agreement dated 1st October, 1985 the respondent had taken on rent the premises belonging to the petitioner situated in Udyog Vihar, Palam Road, Gurgaon comprising of covered sheds of about 33,000/- sq.ft in area as also another area measuring about 4,000/- sq.ft situated in the administrative block, together with other facilities at a monthly rent of Rs. 35,000/- exclusive of water and electricity charges. A detailed agreement was executed between the parties, wherein the contents of letter dated 12th June, 1985 issued by Zonal Manager of the respondent to its Regional Manager, were made part of the agreement and were duly embodied in clause (xi) of the agreement. It is also stated that without any rhyme or reason and to the utter surprise of the petitioner, the respondent wrote letter dated 17th July, 1987 (received by the petitioner on 30th July, 1987) informing that the respondent did not require the demised premises and that the respondent would vacate the same and surrender possession on or about 17th August, 1987. The respondent gave a semblance of giving one month notice commencing from 17th July, 1987 i.e the date of the letter. In the said letter reference of clause 1 of the agreement was made and it was emphasised that the notice was being given in terms of the said clause. The monthly rent payable by the respondent to the petitioner was quantified at Rs. 30,257.70 paisa. The agreement was for three years commencing from 1st October, 1985. Extension of one year or less period could be granted, after the expiration of three years, through mutual consultation. However, vide letter dated 17th July, 1987 (received by the petitioner on 30th July, 1987) the respondent informed the petitioner that the respondent did not require the demised premises and would vacate the same on or about 17th August, 1987. The petitioner replied the said letter challenging the contention of the respondent reiterating that clause 1 of the agreement nowhere stipulated that tenancy could be terminated by the respondent by giving any notice much less notice of a duration of one month period. The contention of the petitioner was that the tenancy was for a fixed period of three years and could not be terminated prematurely. It is also alleged in the petition that the respondent however did not vacate the premises or hand over the vacant possession in all respects in the condition in which it existed before letting, and therefore, the respondent continued to remain bound to pay the monthly rent of Rs. 30,257.70 paisa. The rent is paid upto June, 1987. In this way the petitioner claims the rent for the period from July, 1987 to September, 1988. The petitioner has also claimed water and electricity charges and has alleged that even telephone bills have not been paid by the respondent. The aforesaid demand of rent was obviously negated by the respondent as agreement dated 1st October, 1985 provided arbitration clause being clause (xi) thereof, present petition is filed for appointment of an arbitrator. This arbitration clause reads as under:

“All disputes and differences arising out of in any way touching or concerning this agreement whatsoever, shall be referred to the sole arbitrator of any person appointed by the Managing Director of the Food Corporation of India. It will be no objection to any such appointment that the person appointed is or was an employee of the Food Corporation of India that he had to deal with the matters to which the agreement relates, and that in the course of his duties as such employee of the Corporation had expressed views on all or any of the matters in dispute of differences. The award of such arbitrator shall be final and binding on the parties to this agreement. It is a terms of this agreement that in the event of any such arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Managing Director of the Food Corporation of India at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as an Arbitrator. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also term of this lease agreement that no person other than a person appointed as aforesaid should act as arbitrator and if for any reason that is not possible, matter is not to be referred to arbitrator at all.

Provided further that any demand for arbitration in respect of any claim(s) of the lessors under the lease agreement shall be in writing and made within one year of the date of termination or completion(expiry of the period, of the lease agreement and where such demand is not made within the period of claim (s) the lessors shall be deemed to have been waived and absolutely varied and the Corporation shall be discharged and released of all liabilities under the lease agreement in respect of those claims.”

3. Various disputes are mentioned in para 12 of the petition as per which a total claim of Rs. 16,60,575/- is made against the respondent.

4. The respondent has contested this petition and filed reply to the same. Maintainability of the petition is challenged on the ground that lease of immovable property for a period of three years was compulsorily registrable under Section 17 of the Registration Act, 1908 and as the lease was not registered, no right flows in favour of the petitioner. It is also stated that in the absence of registration of this lease, agreement cannot be looked into and as the arbitration clause is contained in the said lease, this also cannot be acted upon by the petitioner. Various other objections have been taken on the merits of the claims raised by the petitioner in the petition. On the basis of the pleadings, following issues were framed:

1. Whether the petitioner firm is a duly registered firm under the Partnership Act and the petition has been signed, verified and filed by a duly authorised person?

2. Whether the agreement dated 1st October, 1985 did not require registration?

3. If issue No. 2 is proved, whether the arbitration clause contained in the said agreement can be read in evidence?

4. Relief.

5. The parties were allowed to lead evidence by way of affidavits. Both the parties have filed the affidavits.

Issue No. 1

5. It may be mentioned that the petitioner has filed document of registration of the petitioner as a partnership firm with the Registrar of Firms which is Ex P-1 from which it stands established that the petitioner is a duly registered firm under the Partnership Act of which Sh. G.S Bhatia is one of the registered partners and therefore, competent to sign and verify the petition and file the same. Even otherwise, this issue was conceded by the learned counsel for the respondent.

Issues Nos. 2 & 3.

6. It may be stated here that both the parties agreed that lease agreement dated 1st October, 1985 required registration. However, the submission of the learned counsel for the petitioner was that even in the absence of a registration arbitration clause contained in the said agreement could be read into evidence, the submission of the learned counsel for the respondent was to the contrary. Therefore, the whole thrust of arguments by both the parties was on the question as to whether arbitration clause in an unregistered agreement could be looked into. Naturally, maintainability of the present petition would depend upon this issue.

7. Section 2(a) of the Arbitration Act, 1940 defines arbitration clause as under:

“Section 2(a): “Arbitration agreement” means a written agreement to submit present or future differences to arbitration, where an arbitrator is named therein or not.”

8. Admittedly, the arbitration agreement does not require any registration. No form is also required. All that is required is that this arbitration agreement has to be in writing. The agreement dated 1st October, 1985 containing the arbitration clause is in writing and signed by both the parties. Even in case of unregistered lease deed, the same can be looked into for collateral purpose. Therefore, even if the said lease agreement cannot be looked into evidence for other purpose, the arbitration agreement can still be segregated and treated as independent agreement in writing duly signed by both the parties which is binding on the parties. The law on this point is no more res Integra and stands settled by the following judgments:

1. Rai Chand Jain v. Miss Chandra Kanta Khosla, AIR 1991 SC 744.

2. Damodar Valley Corporation v. K.K Kar, AIR 1974 SC 158.

3. M. Dayanand Reddy v. A.P Industrial Infrastructure Corporation Limited and Ors., AIR 1993 SC 2268.

4. The Union of India v. Kishorilal Gupta and Bros., AIR 1959 SC 1362.

5. Prem Lata (Smt.) and Anr. v. M/s Ishar Dass Chaman Lal and Ors., (1995) 2 SCC 145.

6. Prabhu Shankar Jaiswal v. Shri Sheo Narain Jaiswal & Ors., JT 1996 (10) SC 11.

9. Following observations in the case of M. Dayanand Reddy v. A.P Industrial Infrastructure Corporation Limited and Ors., AIR 1993 SC 2268 would be apposite:

“Under the Arbitration Act, 1940, only an arbitration agreement in writing is recognised by the Act. It has been held by this court in Jugal Kishore Rameshwardas v. Mrs Goolbai Hormusji , Hormusji, (1955) 2 SCR 857 : (AIR 1955 SC 812) that it is not necessary that the contract between the parties should be signed by both the parties. But it is necessary that the terms should be reduced in writing and the agreement between the parties on such written terms is established. It has also been held by this Court in Union Of India v. A.L Rallia Ram, (1964) 3 SCR 164 : (AIR 1963 SC 1685), that it is not necessary that all the terms of the agreement should be contained in one document. Such terms may be ascertained from the correspondence consisting of number of letters. In Smt. Rukmanibai Gupta v. The Collector, Jabalpur, AIR 1981 SC 479, this court has laid down that an arbitration clause is not required to be stated in any particular form. If the intention of the parties to refer the dispute to arbitration can be clearly ascertained from the terms of the agreement, it is immaterial whether or not the expression arbitration or ‘arbitrator’ or ‘arbitrators’ has been used in the agreement. It is also not necessary that agreement to arbitration should appear in the document containing the other terms of agreement between the parties. Law is well settled that arbitration clause may be incorporated by reference to a specific document which is in existence and whose terms are easily ascertainable. It is to be noted, however, that the question whether or not the arbitration clause contained in another document is incorporated in the contract is always a question of construction. It should also be noted that the arbitration clause is quite distinct from the other clauses of the contract. Other clauses of agreement impose obligation which the parties undertake towards each other. But arbitration clause does not impose on any of the parties any obligation in favour of the other party. Such arbitration agreement embodies an agreement between the parties that in case of a dispute, such dispute shall be settled by arbitrator, or umpire of their own constitution or by an arbitrator to be appointed by the court in an appropriate case. It is pertinent to mention that there is a material difference in an arbitration agreement inasmuch as in an ordinary contract the obligation of the parties to each other cannot, in general, be specifically enforced and breach of such terms of contract results only in damages. The arbitration clause however can be specifically enforced by the machinery of the Arbitration Act. The appropriate remedy for breach of an agreement to arbitrate is enforcement of the agreement to arbitrate and not to damage arising out of such breach. Moreover, there is a further significant difference between an ordinary agreement and an arbitration agreement. In an arbitration agreement, the courts have discretionary power of dispensation of a valid arbitration agreement but the courts have no such power of dispensation of other terms of contract entered between the parties. This very distinctive feature of an agreement for arbitration has been highlighted in the decision in Heyman v. Darwins Ltd., 1942 AC 356 It has been held in North Western Rubber Company, (1908) 2 KB 907 (overruled in 1961 (1) AC 1314 on other points), that an arbitration agreement no way classifies the right of the parties under the Contract but it relates wholly to the mode of determining the rights……”

Issue No. 4.

10. This petition is accordingly allowed. The respondent is directed to file the original agreement dated 1st October, 1985 and as per the arbitration agreement, Managing Director of the respondent is directed to appoint an arbitration within four weeks from the date of receipt of the communication of this order and refer the disputes mentioned in para 18 of the petition to the said arbitrator for adjudication. It is made clear that in case no arbitrator is appointed by the Managing Director within the aforesaid period, the petitioner shall be at liberty to approach the court for appointment of an arbitrator by the court.

This petition stands disposed of.