Citation Codes

Equivalent Citations

citation codes

Case Number

M.C.C No. 887 of 1998

Advocates

For Applicant: Abhay Sapre
For Opposite Party Nos. 1 to 3: Abhay Gohil

Judges

S.C Pandey, J.

Acts

SECTION 11 ARBITRATION AND CONCILIATION ACT 1996
Sub-section(4) or Sub-section (5) or Sub-section(6)
Sub-rule (1) and Sub-rule (2) of Rule 3
Sub-rule (2) of Rule 3

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Smart Summary

Summary of the Opinion (Application under Section 11, Arbitration & Conciliation Act, 1996)

Factual and Procedural Background

This opinion concerns an application under Section 11 of the Arbitration and Conciliation Act, 1996 (the Act) for appointment of an arbitrator. The Chief Justice of the Madhya Pradesh High Court had made a scheme for appointment of arbitrators under Sub-section (10) of Section 11, and by Sub-rule (2) of Rule 3 of that scheme requests involving subject matter in excess of Rs. 25 lakhs are to be dealt with by the Chief Justice himself or a Judge designated by him. A general order of designation enabled the judge seised of this matter to hear the request.

Procedurally, the non-applicants raised preliminary objections to the High Court's jurisdiction on pecuniary grounds and on the maintainability of a Section 11 application in circumstances where an arbitrator had already been appointed pursuant to Clause 24 of the partnership agreement. The applicant had previously filed an application under Section 12 (registered as a civil suit) before the Vth Additional District Judge, Bhopal, which was rejected by an order dated 15-9-1998 (the opinion later refers to an Annexure A-10 dated 15-9-1996). The applicant then approached the High Court under Section 11.

Legal Issues Presented

Whether, for the purpose of Rule 3 of the Chief Justice's scheme, the pecuniary value of the "subject matter of dispute" between partners on dissolution of a partnership is to be taken as the entire partnership assets (thus attracting the High Court's jurisdiction under Sub-rule (2) where value exceeds Rs. 25 lakhs) or only the share of the applicant (e.g., 1/4th) thereby confining jurisdiction to the District Judge.
Whether an application under Section 11 of the Act lies where the parties have an appointment procedure (Clause 24 of the partnership agreement) and one party or the majority has purported to appoint an arbitrator without following the consultation procedure — specifically, the interpretation of clause (a) of Sub-section (6) of Section 11: does "a party fails to act as required under that procedure" include affirmative but wrongful acts (such as appointing an arbitrator without consultation) or is it limited to total inaction?
Whether the applicant is precluded (estopped) from seeking relief under Section 11 in the High Court by reason of having earlier availed the remedy under Section 12 in the District Court and by the order of rejection passed by the Additional District Judge which has not been set aside.

Arguments of the Parties

Non-applicants' Arguments

The pecuniary jurisdiction of the Chief Justice (or his designate) is limited by the scheme: if the dispute relates only to less than Rs. 25 lakhs (which the non-applicants say is the case because the applicant's claim is only to his 1/4th share), then the District Judge has jurisdiction.
Clause 24 of the partnership agreement prescribed a procedure for appointment of an arbitrator. The majority of partners (three non-applicants) had appointed an arbitrator (initially Shri Rajkumar Agrawal who declined, and thereafter Shri R.C. Agrawal). Thus, an arbitrator had already been appointed by the parties in accordance with the agreement.
The applicant had pursued remedies in the District Court (Section 12 application) which was rejected by the Additional District Judge on the grounds that the District Judge had no jurisdiction or that Sections 12/14 were not applicable; accordingly, the applicant cannot bypass that order and bring a fresh request under Section 11 without setting aside the District Court order first.
An order passed by a court of competent jurisdiction cannot be treated as a nullity unless it is set aside; therefore the applicant's bypassing of that order is improper.

Applicant's Arguments

The value of the entire partnership assets, as alleged in paragraph 17 of the request and supported by a prima facie balance sheet, exceeds Rs. 25 lakhs (balance sheet prima facie shows Rs. 37 lakhs; the request also alleges the assets exceed Rs. One Crore), so the High Court/Chief Justice has pecuniary jurisdiction under Sub-rule (2) of Rule 3.
The procedure in Clause 24 of the partnership agreement was not complied with: the non-applicants appointed Shri R.C. Agrawal without consulting the applicant. Under clause (a) of Sub-section (6) of Section 11, where "a party fails to act as required under that procedure," the Chief Justice or his nominee can be requested to take necessary measures; the applicant contends that the non-applicants' failure to consult (and their unilateral appointment) amounts to a failure to act under the procedure and therefore justifies Court appointment under Section 11(6).
The order of the Additional District Judge (Annexure A-10), even if recorded, was a nullity because that Court allegedly lacked jurisdiction to decide a dispute involving property valued over Rs. 25 lakhs; therefore there is no need to set that order aside before approaching the High Court under Section 11.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Union of India v. Central Government Industrial Tribunal-cum-Labour Court, Jabalpur, reported in 1979 MPLJ 808 (1980 Lab IC 361)	That an order passed by a Court of competent jurisdiction cannot be deemed a nullity unless it is set aside.	The Court cited this decision in support of the submission that the prior District Judge order could not be ignored as a nullity unless set aside. The Court noted the authority but did not give a final opinion on the nullity question because it disposed the matter on other grounds.
New India Assurance Co., Ltd. v. Dalbir Singh Khera, reported in 1980 MPLJ 587 (1981 Lab IC NOC 19)	That an order passed by a Court of competent jurisdiction cannot be deemed a nullity unless it is set aside.	The Court relied on this decision for the same legal proposition mentioned above and acknowledged it supports the non-applicants' contention; again the Court did not finally decide the nullity point because it dismissed the Section 11 application on other grounds.

Court's Reasoning and Analysis

The Court proceeded in two main stages corresponding to the two preliminary objections.

1. Pecuniary jurisdiction under the Chief Justice's scheme (Rule 3):

The Court reproduced Rule 3 (Sub-rules (1)–(3)) of the Chief Justice's scheme and emphasized that Sub-rule (2) confers jurisdiction on the Chief Justice or his designate where the value of the subject matter exceeds Rs. 25 lakhs, while Sub-rule (1) confines matters of value not exceeding Rs. 25 lakhs to the District Judge or Additional Judge.
The Court identified the precise legal question: what constitutes the "subject matter of dispute" between partners on dissolution of a partnership? The Court found it necessary to determine whether the dispute should be measured by the applicant's 1/4th share or by the partnership assets as a whole.
It was not disputed that there are four partners with equal 1/4th shares. The Court accepted the applicant's averment in paragraph 17 that the arbitrator would be required to decide the share each partner had in the entire assets, and concluded that the subject matter for arbitration is the entire partnership assets to be distributed between the partners, not merely the applicant's 1/4th share.
Prima facie the value of the partnership assets was assessed at Rs. 37 lakhs (as supported by a produced balance sheet). On that basis the Court concluded that the subject matter exceeds Rs. 25 lakhs and therefore the Chief Justice or his designate had jurisdiction to decide the request under Rule 3.

2. Maintainability of a Section 11 application where an arbitrator has already been appointed (interpretation of Section 11(6)(a) and relation to Sections 12, 13 & 16):

The Court reproduced relevant portions of Section 11 (clauses (1)–(7)), and focused on Sub-section (2) and clause (a) of Sub-section (6): "a party fails to act as required under that procedure." The contested interpretive point was whether "fails to act" includes affirmative wrongful acts (such as appointing an arbitrator without required consultation) or is limited to total inaction by a party.
The Court held that the power given to an authority other than the parties (e.g., the Chief Justice) to appoint an arbitrator arises where the parties themselves do not appoint an arbitrator or where they conduct themselves such that no arbitrator can be appointed by them. The Court emphasized the scheme of Section 11: first the parties must try to appoint; only upon their failure does the Chief Justice or his designate intervene.
On interpretation, the Court concluded that clause (a) of Sub-section (6) is confined to total failure of action by a party and does not include wrongful or incorrect action. If the parties have appointed an arbitrator — whether rightly or wrongly — there are statutory remedies to challenge appointment: Sections 12 and 13 provide for challenge before courts, and Section 16(1) allows the arbitral tribunal to address its own jurisdiction. Thus, once an arbitrator has been appointed, the Chief Justice's power under Section 11 is generally not the appropriate route.
The Court held that the applicant could not bypass the statutory procedures for challenging an arbitrator's appointment by directly invoking Section 11 to obtain a fresh appointment from the Chief Justice or his designate.

3. Estoppel arising from earlier District Court proceedings:

The Court observed that the applicant had earlier filed an application under Section 12 before the Additional District Judge (which was rejected). By so filing the applicant had submitted to the jurisdiction of the District Judge.
The Court accepted the non-applicants' submission that the applicant could not ignore the District Judge's order (which indicated the District Judge had the power to consider the matter) unless that order was set aside by a competent court. No proceedings to set aside the order were taken by the applicant, and therefore the Court found that the applicant was estopped from bringing the present Section 11 application.
The Court acknowledged two Division Bench decisions supporting the proposition that an order of a court of competent jurisdiction is not a nullity unless set aside, but expressly stated it would not give a final opinion on the nullity point because it reached the conclusion that the Section 11 application did not lie in any event.

Holding and Implications

Holding: The Court concluded that, on the facts presented, an application under Section 11 of the Act does not lie in this case and accordingly the miscellaneous civil case (M.C.C.) is dismissed. The Court ordered No costs.

Implications:

Direct effect on parties: The Section 11 request by the applicant was dismissed; the applicant remains bound by the statutory remedies available to challenge an already-appointed arbitrator (Sections 12 and 13 before the court and Section 16 before the arbitral tribunal), and the prior District Court order was not treated as a nullity for the purposes of permitting this Section 11 application to proceed.
The Court did hold, for the pecuniary jurisdiction point, that where the arbitration concerns distribution of partnership assets on dissolution, the "subject matter" for jurisdictional valuation is the entire partnership assets (and not merely the applicant's fraction). On the prima facie valuation shown (Rs. 37 lakhs), the Chief Justice or his designate had pecuniary jurisdiction under the scheme. Nonetheless, because of the interpretation of Section 11(6)(a) and the procedural posture (prior appointment and prior District Court proceedings), the Section 11 application was dismissed.
No broader or novel legal precedent on the nullity issue was finally pronounced: the Court noted existing Division Bench authorities to the effect that a court's order is not a nullity unless set aside, but expressly declined to decide the nullity question finally because it disposed of the matter on other grounds.

Disposition recorded in the opinion: M.C.C. dismissed. No costs.

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Mukesh Kumar Raj Kumar Agrawal v. Raj Kumar Avinash Chand Agarwal

1. This is an application under Section 11 of the Arbitration and Conciliation Act, 1996 (henceforth 'the Act').

2. Honourable the Chief Justice of Madhya Pradesh High Court had made a scheme for appointment of arbitrators, in exercise of the powers conferred upon him by Sub-section(10) of Section 11 of the Act. By virtue of Sub-rule (2) of Rule 3 of the aforesaid scheme, the request under Sub-section (4) or Sub-section (5) or Sub-section (6) of Section 11 of the Act can be heard by the Chief Justice himself or a Judge designated by him by a general or special order. In view of a general order passed by Honourable the Chief Justice designating me for the purpose in this case, this request can be heard by me.

3. A preliminary objection has been raised on behalf of the non-applicants regarding the pecuniary jurisdiction of the Chief Justice or his designate to hear the application under Section 11 of the Act. It has been argued by the learned counsel for the non-applicants that this request under Section 11 of the Act cannot be heard as a dispute between the partners relates to a matter which is with regard to less than Rs. 25 Lacs. The argument of the learned counsel for the non-applicants is that the applicant Mukesh Kumar Agrawal, who is making a request, has l/4th share in the entire assets of the dissolved partnership firm and, therefore, the dispute is in respect of only l/4th share between the applicant and the non applicants no. 1, 2 and 3. Consequently, the District Judge alone can decide the request under Section 11 of the Act.

4. It is, on the other hand, contended by the learned counsel for the applicant that as per the allegations made in paragraph 17 of the request he has specifically stated that the valuation of the assets of the firm in question, is more than Rs. 25 Lacs. A balance sheet has been produced prima facie showing that the amount involved in the dispute was Rs. 37 Lacs. It has been further averred in paragraph 17 of the request that in fact, the entire assets of the firm are worth more than Rs. One Crore and, therefore, it is argued that this Court has jurisdiction to decide the request.

5. In order to appreciate the controversy between the parties it is necessary to reproduce the entire Rule 3 of the Scheme referred above, as follows :--

"3. Authority to deal with the_ request -- (1) For the purpose of dealing with the request made under paragraph 2 the Chief Justice hereby designates the District Judge Addl. Judge to the Court of District Judge, where the value of the subject matter does not exceed 25 lakhs rupees;

(2) The request involving the subject matter exceeding 25 lakh rupees shall be dealt with by the Chief Justice himself or he may designate any Judge of the high Court for this purpose by a general or special order, (3) The requests falling under sub-para (1) shall be placed before the District Judge for the appropriate allotment and the requests falling under sub-para (2) shall be placed before the Chief Justice or his designate."

It is clear from Sub-rule (1) and Sub-rule (2) of Rule 3 aforesaid that in case, the value of the subject matter of dispute is more than rupees 25 lakhs, the Chief Justice or his designate shall have the jurisdiction to deal with the request. If the subject matter is valued less than rupees 25 lacs, the District Judge or Additional Judge to the Court of District Judge shall have the jurisdiction to deal with the request. Therefore, the precise question for determination in this case is what amount comprises the subject matter of dispute between the partners on dissolution of a partnership.

6. It is not disputed in this case that there are four partners and each of them has 1/4th share in the partnership assets. If the averment made in the request is accepted that the arbitrator shall be required to decide what share each partner had in entire assets of the partnership. Thus, the subject matter of dispute which shall come within the purview of the arbitrator shall be the entire assets of the partnership, which have to be distributed between the partners. The subject matter cannot be confined to the extent of l/4th share claimed by the separating partner. The dispute is all pervasive as it covers the entire assets of the partnership which is likely to be dissolved. Prima facie, the value of the subject matter has been assessed to be Rs. 37 Lacs. In view of this matter, the dispute is regarding the subject matter which exceeds Rs.25 Lacs. For this reason, the first preliminary objection raised by the learned counsel for the applicant is not accepted, and it is held, that so far as the point of pecuniary jurisdiction to deal with the request in this case is concerned, the Chief Justice or his designate can decide that matter.

7. This takes me to another preliminary objection, raised on behalf of the non-applicants. The learned counsel for the non-applicants argues, that an application under Section 11 of the Act does not lie on the facts stated in the application itself. It is argued that, it was not disputed by the applicant, that as per Clause 24 of the agreement of partnership an arbitrator has to be appointed. The procedure was already fixed by the parties at the time of reaching of partnership agreement. The only thing that was required to be done was to follow the details prescribed in Clause 24 of the agreement. It was contended that as per Clause 24 of the agreement, the majority of the partners, that is to say, the three non-applicants had appointed an arbitrator the named arbitrator Shri Rajkumar Agrawal son of Shri A. C. Agrawal expressed his inability to act as an arbitrator. According to the learned counsel for the non-applicants Nos. 1, 2 and 3 it is not in dispute that thereafter the majority of the partners had decided to appoint Shri R.C. Agrawal. Advocate as an arbitrator. It is, therefore, argued that there was appointment of the arbitrator by the concerned parties and consequently, the applicant had moved an application under Section 12 of the Act before the Vth Additional District Judge, Bhopal. The learned Additional District Judge, Bhopal, by his order dated 15-9-1998 had rejected the application which was registered as civil suit. The learned Additional District Judge held that the application was not maintainable either under Section 12 or Section 14 of the Act. According to the learned counsel for the non-applicant Nos. 1 to 3, having failed in his attempt to get the appointment order of the arbitrator set aside either under Section 12 or Section 14 of the Act, the applicant had by-passed that order and clandestinely approached this Court, without showing, that the order passed by the learned Additional District Judge was null and void, in the sense that the Additional District Judge had no inherent jurisdiction to decide the application filed by the applicant, It was contended that the order of rejection made by the Additional District Judge was on the ground that he had no jurisdiction to decide the application, because according to the learned Additional District Judge, an application under Section 12 of the Act did not lie for the reason the procedure followed by Section 12 of the Act was not adopted, it was also held by the learned Additional District judge that Section 14 of the Act was not applicable to the facts of the case. In short, the agreement of the learned counsel for the non-applicants Nos. 1 to 3 is that the application under Section 11 of the Act did not lie without getting the order passed by the Additional District Judge set aside.

8. The learned counsel for the applicant, on the other hand, argued that no useful purpose would be served by getting the order, Annexure A-10, dated 15-9-1996, passed by the Additional District Judge, Bhopal, set aside, it was a nullity on the face of it as the Additional Disrtict Judge had no power or authority to decide a dispute involving a property valued more than Rs. 25 Lacs. Moreover, it was argued that procedure fixed by Clause 24 of the partnership agreement was not complied with. This procedure was fixed by the parties and Sub-section (2) of Section 11 of the Act recognized the rights of parties to the arbitration agreement to provide a procedure which would be subject to Sub-section(6) of Section 11 of the Act. The learned counsel for the applicant argued that under clause (a) of sub-section (6) of Section 11 of the Act this request of appointment of an arbitrator shall lie, because the non-applicants themselves have appointed Shri R.C. Agrawal, Advocate, Bhopal as the arbitrator, without consulting the applicant. In other words, the procedure prescribed by Clause 24 of the partnership agreement was not followed and, therefore, the appointment of Shri R. C. Agrawal, Advocate, as the arbitrator would be ignored as null and void. It followed that the Chief Justice or his nominee had jurisdiction to appoint a fresh arbitrator under Section 11(6) of the Act. It was contended that there was no other way of securing a legal appointment in view of the attitude of the non-applicants.

9. In order to understand the controversy between the parties it is necessary to reproduce Section 11(1) or 11(7) of the Act as follows "11. Appointment of arbitrators. (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

(2) Subject to Sub-section(6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3) Falling any agreement referred to in Sub-section(2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

(4) If the appointment procedure in Sub-section (3) applies and--

(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or Institution designated by him.

(5) Falling any agreement referred to in Sub-section(2). In an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties, --

(a) a party fails to act as required under that procedure, or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure, or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(7) A decision on a matter entrusted by Sub-section(4) or Sub-section (5) or Sub-section(6) to the Chief Justice or the person or institution designated by him, is final."

It is clear from Section 11 of the Act that an arbitrator can be a person of any nationality unless there is an agreement to the contrary. The normal procedure for appointment of an arbitrator, where there is no prior agreement, as is given In Clauses (3), (4) and (5) of Section 11 of the Act. We are not concerned with above clauses directly as the facts are covered by Sub-section (2) of Section 11 of the Act. From Sub-section (2) of Section 11, it is clear, that subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Therefore, we have to concentrate upon clause (a) of sub-section (6) of Section 11 of the Act which is the basis of argument of the learned counsel for the applicant. The wordings of clause (a) of sub-section (6) aforesaid are -- "a party fails to act as required under the procedure." The precise question is that what is the meaning of words -- "a party fails to act as required under the procedure." The learned counsel for the applicant argued that act of the non-applicants, who did not consult the applicant, when they appointed Shri R. C. Agrawal, Bhopal, as the arbitrator, would be covered by these words. He further argued that these words should be given a wider connotation in the sense that even if there be any violation of any norm of the procedure fixed by the parties, it would amount to "failure to act". As against this, the counter argument, raised by the learned counsel for the non-

applicants No. 1 to 3, is that this clause (a) of sub-section (6) of Section 11 of the Act is confined to only to inaction on the part of the parties. The aforesaid clause cannot be interpreted widely in order to usurp the jurisdiction which is not clearly with the Chief Justice or the authority designated by him.

10. In the opinion of this Court, the question of appointment of an arbitrator is given to an authority other than the parties, be it, the Chief Justice or any person or any institution designated by him, is confined to the cases where the parties themselves do not appoint the arbitrator or arbitrators; or they conduct themselves in such a manner as no arbitrator can be appointed by them. As per the scheme of Section 11 of the Act, where the parties have fixed the prior procedure, or when they have not fixed any procedure, it is first they should try to appoint an arbitrator or arbitrators. Only on their failure to do so, the Chief Justice or any person or institution designated by him comes into play. This scheme of Section 11 of the Act has to be kept in mind while interpreting Sub-section (6) of Section 11 of the Act.

11. In my opinion, the words in clause (a) of sub-section (6) of Section 11 of the Act are confined to total failure of the action on the part of the parties and it does not include wrong action of a party which may even be illegal. Once, the parties have appointed an arbitrator or arbitrators right or wrong, there is procedure provided in the Act to challenge his authority. The applicant cannot by-pass that procedure and directly file an application under Section 11 of the Act before the Chief Justice or the person or institution designated by him. This is clear from Section 12 of the Act read with Section 13 thereof. That apart, the jurisdiction of the Arbitration Tribunal can be challenged under Section 16(1) of the Act. Therefore, once the arbitrator has already been appointed there is no occasion for the Chief Justice or his designate to exercise his powers under Section 11 of the Act. The arbitrator is already seized of the matter and it is for him to decide whether he was validly or invalidly appointed.

12. The interpretation put upon by Section 16(1) of the Act is in consonance with the scheme of Section 11 and also with the other provisions of the Act. The appointment is not without any remedy.

13. Moreover, the learned counsel for the non-applicants No. 1, 2 and 3 is right in his submission when he says that the applicant had already submitted to the jurisdiction of the District Judge by filing an application under Section 12 of the Act. This procedure could be adopted by the applicant only when he thought that initial appointment of the arbitrator was good and valid. Now, at this stage he cannot ignore that order which says that the Court had power to consider the application under Section 12 or Section 14 of the Act; provided the applicant had taken recourse to the procedure followed under the Ad. Accordingly, the learned Counsel for the non-applicants No. 1. 2 and 3 rightly contends that this order cannot be ignored as a nullity without it being set aside by a Court of competent jurisdiction. No such proceedings were taken up by the applicant and, there-fore, he is estopped from filing this application under Section 11 of the Act. This argument seems to have some substance because there are two Division Bench decisions of this Court in Union of India v. Central Government Indus trial Tribunal-cum-Labour Court, Jabalpur, reported in 1979 MPLJ 808: (1980 Lab IC 361) and also in New India Assurance Co., Ltd. v. Dalbir Singh Khera, reported in 1980 MPLJ 587 : (1981 Lab IC NOC 19), holding that an order passed by a Court of competent jurisdiction cannot be deemed to be a nullity unless it is set aside. However, I do not give any final opinion on this point because I have come to the conclusion that application under Section 11 of the Act does not lie in this case. This M.C.C. is accordingly, dismissed. No costs.

Mukesh Kumar Raj Kumar Agrawal v. Raj Kumar Avinash Chand Agarwal

Summary of the Opinion (Application under Section 11, Arbitration & Conciliation Act, 1996)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Non-applicants' Arguments

Applicant's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Mukesh Kumar Raj Kumar Agrawal v. Raj Kumar Avinash Chand Agarwal

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