Citation Codes

Equivalent Citations

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Case Number

RFA(OS) No. 68/2009 & CM No. 11652/2009

Attorney(S)

PRESENT : Mr. C.A Sundaram, Sr. Adv., Mr. Arun Bhardwaj, Sr. Adv. with Mr. Manish Sharma, Ms. Rohini Musa, Mr. Vishal Malhotra, Mr. Rohan Sharma, Advs. for the Appellants.
Mr. A.S Chandhiok, Sr. Adv., Dr. A.M Singhvi, Sr. Adv., Mr. B.B Sawhney, Sr. Adv. with Ms. Sweta Kakkad, Mr. Varun Pathak & Ms. Dimple Murria, Advs. for the Respondents.

Judges

Vikramajit Sen
V.K Jain, JJ.

Acts

Order VII Rule 11(d) of the Code of Civil Procedure, 1908 (CPC for short).
SECTION 21 ARBITRATION AND CONCILIATION ACT 1996
SECTION 34 SPECIFIC RELIEF ACT 1963
Section 16 and Section 5 of the A&C Act.
Order VII Rule 11 of the CPC.
Order 7 Rule 11 of the Code.
Section 37(2) of the A&C Act
Section 21 of the 1996 Act.
Section 17 of the A&C Act.
Section 21 of the A&C Act
Section 9 of the A&C Act
ARBITRATION ACT 1940

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Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

This appeal challenges the Judgment of the learned Single Judge dated 18.8.2009, in which the Plaint of the Appellant was rejected under Order VII Rule 11(d) of the Code of Civil Procedure, 1908. The Plaintiff had instituted a suit seeking (a) a declaration that a letter dated 17.7.2009 invoking arbitration was vitiated by fraud, forgery and illegality and should be struck down, and (b) perpetual injunctions restraining the Defendant from invoking the arbitration clause without following due process and from dealing with certain shares and properties, among other reliefs.

At the core of the dispute is the Appellant's allegation that a Notice dated 17.7.2009 invoking the arbitration clause was not served on the Appellant. The Defendant/Respondent asserted that the Notice was dispatched by Certificate of Posting (UPC), Registered Post Acknowledgement Due, and by courier, and that service had in fact occurred. The Appellant contended that non-service would render any arbitral proceedings void ab initio under Section 21 of the Arbitration and Conciliation Act, 1996.

Before the Single Judge, the Defendant argued that the existence of an arbitration clause was undisputed and that objections to the legal propriety of arbitral proceedings should be raised before the Arbitral Tribunal (relying on Sections 16 and 5 of the A&C Act). The Single Judge dismissed the Plaint under Order VII Rule 11(d). The present judgment addresses the appeal from that dismissal.

Legal Issues Presented

Whether non-service (or defective service) of a notice under Section 21 of the Arbitration and Conciliation Act, 1996, renders subsequent arbitral proceedings void ab initio and thereby permits civil court jurisdiction to proceed despite an arbitration clause.
Whether objections to jurisdiction, including alleged breach of Section 21 (service), must be decided by the Arbitral Tribunal under Section 16(1) (i.e., can the tribunal rule on its own jurisdiction), or whether the Civil Court can entertain such objections at the outset.
Whether a plaint that alleges fraud (for example, issuance of notice to a wrong address) can nevertheless be rejected under Order VII Rule 11 of the CPC, or whether such allegations require adjudication before dismissing the suit.
Whether the reliefs claimed (declaration that the arbitration invocation was invalid and consequential injunctions restraining arbitration and related actions) are barred because they would effectively restrain arbitral proceedings, invoking Section 34 of the Specific Relief Act, 1963 and established principles on restraint of arbitration.

Arguments of the Parties

Appellant's Arguments

The Notice dated 17.7.2009 invoking arbitration was not served on the Appellant; it was allegedly dispatched but not received, and this non-service invalidates any arbitral proceedings under Section 21 of the A&C Act.
The Appellant alleged fraud in the issuance of the notice (it was sent to a wrong address), and on that basis contended that dismissal of the plaint under Order VII Rule 11 would be impermissible without adjudication of that allegation.

Respondent's Arguments

The existence of an arbitration clause is not in doubt, and the Respondent contended that the Notices were dispatched and served (by UPC, Registered Post Acknowledgement Due, and courier), despite attempts of the Appellant to avoid service.
Objections to the legal propriety of arbitral proceedings (including jurisdictional objections) should be ventilated before the Arbitral Tribunal itself by virtue of Sections 16 and 5 of the A&C Act; Civil Courts lack jurisdiction in respect of matters covered by arbitration except as expressly provided (e.g., interim measures under Section 9).
Accordingly, the suit was not maintainable in the Civil Court and ought to be dismissed.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Ltd., (2004) 3 SCC 447	The opinion quotes Secur Industries regarding the question whether notice under Section 21 is a precondition to commencement of proceedings and that such questions are for the adjudicatory body (Council/Tribunal) to decide.	The court relied on Secur Industries to hold that scope for debate on whether Section 21 notice is a precondition is removed; the adjudication on validity/adequacy of notice is to be decided by the Arbitral Tribunal and not a ground for the Civil Court to interfere.
Milkfood Ltd. v. GMC Ice Cream (P) Ltd., (2004) 7 SCC 288; 2004 (75) DRJ 512 (SC)	The case involved the Arbitration Act, 1940 and observed that service/issuance of notice/request for appointment of arbitrator is determinative of commencement of arbitral proceedings under that Act.	The court held that extrapolation of Milkfood to the present case is not appropriate because the Arbitration and Conciliation Act, 1996 governs the present dispute, and the specific issue about tribunal competence to rule on its constitution was not pronounced upon in Milkfood.
Singhal & Brothers v. Mahanagar Telephone Nigam Ltd., 2005 (5) Bom CR 261	This information was not available in the provided opinion.	This information was not available in the provided opinion.
SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618	Principle that before issuing interim orders under Section 9 of the A&C Act, the Court should be satisfied that the A&C Act applies to the parties.	The court clarified that SBP does not stand for the proposition that the Court must be fully satisfied about the existence of an arbitration clause in every instance; rather, SBP was cited to show limits on issuing interim orders under Section 9 so as to avoid injustice if the A&C Act is inapplicable.
T. Arivandandam v. T.V. Satyapal, (1977) 4 SCC 467	Observation that courts should not fall prey to clever drafting and that a plaint which does not disclose a cause of action should be rejected under Order VII Rule 11.	The court invoked T. Arivandandam to support the view that clever drafting cannot create an illusory cause of action and that a plaint manifestly meritless may be rejected under Order 7 Rule 11.
Abdul Gafur v. State of Uttarakhand, (2008) 10 SCC 97	Recommendation that a High Court convinced that the plaint read as a whole does not disclose any cause of action may reject the plaint under Order 7 Rule 11 of the Code.	The court referred to Abdul Gafur as recent authority endorsing the power to reject a plaint under Order 7 Rule 11 where the plaint, on meaningful reading, fails to disclose a right to sue; this was used to uphold the Single Judge's approach.

Court's Reasoning and Analysis

The court proceeded by closely examining the provisions of the Arbitration and Conciliation Act, 1996 and relevant precedents. Key statutory provisions noted included:

Section 37(2): appeals against orders passed by arbitrators on questions of jurisdiction and against interim orders/measures under Section 17.
Section 16(1): confers on the Arbitral Tribunal the power to rule on its own jurisdiction.
Section 21: dealing with the notice requirement (the Appellant contended that breach of Section 21 rendered an arbitral tribunal incompetent to assume jurisdiction).

The court framed the central dispute as whether a defect or absence of a Section 21 notice prevents the Arbitral Tribunal from ruling on its own jurisdiction. It drew heavily on Secur Industries, which the court read as holding that whether a notice under Section 21 is a precondition to the exercise of jurisdiction is a question for the adjudicatory body (Council/Tribunal) to decide, and that such a debate does not justify interference by the High Court with proceedings before the Council. Applying this principle, the court concluded that the Arbitral Tribunal is competent to rule on its own jurisdiction, including issues concerning the adequacy or existence of the Section 21 notice.

The court treated Milkfood Ltd. as distinguishable because that decision turned on the Arbitration Act, 1940 and the determination of commencement of arbitral proceedings under that prior statute; hence Milkfood's observations were not directly transferable to disputes governed by the A&C Act, 1996 and did not resolve the tribunal-competence question here.

On the allegation of fraud (the Appellant's contention that notice was sent to a wrong address), the court observed that once the Arbitral Tribunal has competence to rule on its jurisdiction, the appropriate forum to decide whether fraud was perpetrated by issuing notice to a wrong address is the Arbitral Tribunal. The Single Judge had directed the Plaintiff to raise these questions before the Arbitrator rather than deciding them in the Civil Court.

The court also examined the nature of the reliefs claimed. It agreed with the Single Judge that granting the principal relief sought (a declaration that the letter invoking arbitration was invalid) would have the practical consequence of invalidating proceedings based on that letter and would amount to restraining arbitral proceedings. The court held that such a relief could not be granted where the existence of an arbitration clause is not in dispute, and that the Plaint was artfully drafted to claim consequential relief that would restrain arbitration—an outcome to be avoided.

To support this view, the court relied on the principle (from T. Arivandandam and cited in Abdul Gafur) that courts should not be misled by clever drafting into sustaining a plaint that does not disclose a real cause of action, and that Order 7 Rule 11 can be invoked where the plaint, meaningfully read, is manifestly meritless or vexatious.

Having considered the cited authorities and the submissions, the court concurred with the Single Judge's analysis and conclusion that the suit was barred by Section 34 of the Specific Relief Act, 1963 (insofar as the relief sought would restrain arbitral proceedings) and that dismissal under Order VII Rule 11(d) was appropriate. The court therefore dismissed the appeal.

Holding and Implications

Core Holding: The appeal is dismissed. The learned Single Judge's order rejecting the Plaint under Order VII Rule 11(d) of the CPC is upheld.

Direct consequences and implications:

The Arbitral Tribunal is competent to rule on its own jurisdiction, including questions relating to whether notice under Section 21 was given or whether it was properly constituted; such objections should ordinarily be raised before the Tribunal.
The Plaintiffs' allegations of non-service and alleged fraud (sending notice to a wrong address) were to be raised before the Arbitral Tribunal rather than decided by the Civil Court at this stage.
The Court held that the reliefs sought, if granted, would amount to restraint of arbitral proceedings; the suit was therefore barred under Section 34 of the Specific Relief Act, 1963, and the plaint could be rejected under Order 7 Rule 11 where it does not disclose a viable cause of action.
No broader change in law or new precedent was announced beyond the application of existing principles (as reflected in the cited authorities) to the facts of this case; the decision leaves intact the established position that tribunals decide their own jurisdiction subject to statutory appeals and remedies.

Final operative outcome from the opinion: The Appeal, as well as the pending application, is without merit and is dismissed.

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Oval Investment P. Ltd. & Ors. v. Indiabulls Financial Services Ltd.

Vikramajit Sen, J.:— This Appeal is directed against the Judgment of the learned Single Judge passed on 18.8.2009, whereby the Plaint of the Appellant was rejected in terms of Order VII Rule 11(d) of the Code of Civil Procedure, 1908 (‘CPC’ for short). The Plaintiff had filed a suit for declaration and permanent injunction.

2. The Prayers read as follows:—

(a) pass a decree of declaration in favour of the plaintiff companies and against the defendant No. 1 company that the invocation of arbitration/reference to arbitration in terms of letter dated 17.07.2009 of the defendant No. 1 company is vitiated and liable to be struck down on account of it being improper and based on fraud, forgery and illegality.

(b) pass a decree of perpetual injunction restraining the defendant No. 1 from invoking the arbitration clause qua the plaintiff companies without following the due process mentioned in the said clause and as per law.

(c) pass a decree of perpetual injunction restraining the defendant No. 1 from selling, transferring, alienating or in any manner creating a third party interest in relation to shares of M/s GHCL and GTL as mentioned in para No. 27 of the suit and further in relation to property No. F7/1 to F7/4 and F7/8 to F7/11, F Block, Connaught Place, New Delhi and Khasra No. 352/2, 563 (0-9) min and 564 (0-11) min Village Bijwasan Tehsil Mehrauli, New Delhi.

(d) pass such order(s) as this Hon'ble Court may deem fit and appropriate in the facts and circumstances of the case.

3. The crux of the controversy is the alleged non-service of a Notice dated 17.7.2009, whereby the Respondent/Defendant had made an invocation of arbitration clause. This Notice was stated to have been dispatched by the Defendant to the Appellant under Certificate of Posting (UPC), Registered Post Acknowledgement Due, and thirdly by Courier. The contention of the Appellant is that non-service of the said Notice would have the consequence of rendering arbitral proceedings void ab initio on a plain reading of Section 21 of the Arbitration and Conciliation Act, 1996 (‘A&C Act’ for short).

4. Before the learned Single Judge the submission of the Respondent was that the existence of an arbitration clause was not in doubt; that if the Plaintiff had no objection as to the legal propriety of the arbitral proceedings, these objections should have been ventilated before the Arbitral Tribunal itself, on a conjoint reading of section 16 and section 5 of the a&c act. According to the Respondent, the only exception to the general rule that Civil Courts possessed no jurisdiction over arbitral proceedings was the power conferred by the statute under section 9 of the a&c act to pass interim measures. Therefore, the suit was not maintainable.

5. Reliance was placed on Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Ltd., (2004) 3 SCC 447, Milkfood Ltd. v. Gmc Ice Cream (P) Ltd., (2004) 7 SCC 288 : 2004 (75) DRJ 512 (SC), Singhal & Brothers v. Mahanagar Telephone Nigam Ltd., 2005 (5) Bom CR 261 and SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618.

6. The learned Single Judge has very concisely traversed the relevant provisions of the A&C Act. In particular, it has been noted that under section 37(2) of the a&c act an appeal can be filed against orders passed by the arbitrators on the question of jurisdiction, as well as by a challenge to any interim orders/measures passed by the Arbitral Tribunal under section 17 of the a&c act. Furthermore, a note has been taken of the wording of Section 16(1) which confers on the Arbitral Tribunal the power to rule on its own jurisdiction. The Plaintiff/Appellant's contention before the learned Single Judge, as well as before us, is that in the event section 21 of the a&c act is breached, the Arbitral Tribunal is not competent to assume the power of ruling on its jurisdiction. For doing so, the essential prerequisite would be that the Arbitral Tribunal should be properly and legally constituted.

7. The following paragraphs from Secur Industries Ltd. remove altogether any scope for debate itself:—

14. This brings us to the ground on which the High Court stayed the proceedings before the Council, namely, the alleged failure of the appellant to serve notice under Section 21 of the 1996 Act. The point was not raised before the High Court at all by Respondent 1. This was candidly stated by the learned counsel for Respondent 1. Our attention was not drawn to any other legal provision which requires a notice to be given prior to commencing proceedings apart from Section 21 of the 1996 Act. Whether the notice was a notice under Section 21 and whether the giving of notice under Section 21 is to be construed as a precondition to the exercise of jurisdiction by the Council are questions which the Council will have to decide. This debate could not be a ground for the High Court interfering with the Council's jurisdiction and staying proceedings before it.

15. To sum up: the High Court erred in staying proceedings before the Council. It had no jurisdiction to do so.

8. It is a moot question whether despite the pronouncement in Secur Industries Ltd. if a claimant neglects altogether to issue a notice invoking the arbitration clause the jurisdiction of the Civil Court would be barred on the contention that such a notice was the springboard or sine qua non for commencement of arbitration proceedings. In Secur Industries Ltd., as well as before us, the Defendant asserts that notices were dispatched and despite the attempts of the Plaintiff to avoid service (Respondent in the Claim raised before the Arbitral Tribunal) it had been served. It is indeed remarkable that this contention has been raised by learned Senior Counsel despite being unsuccessful in Secur Industries Ltd., the facts of which are strikingly similar to the one which obtains in the case in hand.

9. The central question in Milkfood Ltd. was the applicability of the Arbitration Act, 1940. The determination of this nodus would be dependent on the date on which notice of arbitration was issued and received by the Respondents. It was in that context that their Lordships observed that—“service of notice and/or issuance of request for appointment of arbitrator in terms of the arbitration agreement must be held to be determinative of the commencement of the arbitral proceedings”. Extrapolation of these observations to the case in hand is, therefore, not appropriate. Indubitably, it is the A&C Act which is applicable to the parties before us. The issue before us, namely, the competence of the Arbitral Tribunal to rule on the aspect whether it was properly constituted, did not arise and, therefore, was not pronounced upon.

10. Mr. C.A Sundaram, learned Senior Counsel for the Appellant, has also raised a neat question of law, namely, that since the Appellant/Plaintiff had alleged fraud (inasmuch as notice had been issued to a wrong address) on the part of the Respondent/Claimant, it was impermissible to dismiss the Suit under Order VII Rule 11 of the CPC. Although arguments had been addressed to the contrary, we do not think it logical to go into this question. This is for the reason that once one arrives at the conclusion that it is within the competence of the Arbitral Tribunal to rule on its own jurisdiction, then the appropriate forum for adjudication whether a fraud had been perpetrated by the Claimant on the Respondent by issuing notice to the Respondent at the wrong address, would lie before the Arbitral Tribunal. By ignoring the averments in the plaint in this regard, the learned Single Judge has not rendered any opinion on this point. All that has been done is to direct the Plaintiff/Appellant to raise these questions before the Arbitrator.

11. It needs to be reiterated that SBP & Co. is not a precedent for the proposition that the Court must be fully satisfied on the existence of an arbitration clause etc. What the Seven-Judge Constitution Bench has observed is that before issuing interims orders under section 9 of the a&c act the Court should be fully satisfied that the A&C Act applies to the parties. This is obviously because a reckless exercise of powers under Section 9 would work incalculable injustice when it is subsequently found that the A&C Act was not applicable to the parties at all.

12. The Judgment of the learned Single Judge has taken into consideration the relevant pronouncements on this subject and has articulated in detail the arguments which have persuaded him to dismiss the Plaint.

13. We are also satisfied that the learned Single Judge has rightly concluded that the suit is barred under Section 34 of the Specific Relief Act, 1963. It has noted that the consequential relief that would flow from the first prayer, viz. for the declaration that the letter dated 17.7.2009 invoking arbitration proceedings was invalid, would be that proceedings based thereon would also be invalid. Such a relief could not be granted as that would tantamount to restraint of arbitral proceedings, which is precisely what should be assiduously avoided where the existence of an arbitration clause is not in dispute. The consequential relief of injunction was, therefore, deliberately drafted in the manner so as to claim what was essentially and logically the consequential relief. We are reminded of the observations in T. Arivandandam v. T.V Satyapal, (1977) 4 SCC 467, which are to the effect that the Court should not fall prey to clever drafting. This case has recently been adverted to in Abdul Gafur v. State of Uttarakhand, (2008) 10 SCC 97 where his Lordship D.K Jain, speaking for the Bench, had recommended that wherever “the High Court is convinced that the plaint read as a whole does not disclose any cause of action, it may reject the plaint in terms of Order 7 Rule 11 of the Code. As a matter of fact, as observed by V.R Krishna Iyer, J, in T. Arivandandam v. T.V Satyapal, (1977) 4 SCC 467, if on a meaningful—not formal—reading of the plaint, it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, the court should exercise its power under the said provision. And if clever drafting has created an illusion of a cause of action, it should be nipped in the bud…”

14. The Appeal, as well as the pending application, is without merit and is dismissed.

Oval Investment P. Ltd. & Ors. v. Indiabulls Financial Services Ltd.

Structured Summary of the Provided Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Oval Investment P. Ltd. & Ors. v. Indiabulls Financial Services Ltd.

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