Navin Chawla, J
I.A. 12835/2022
1. This application has been filed by the defendant nos.1 and 2 under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) praying that the parties be referred to arbitration in terms of Clause 14 of the Agreement dated 04.08.2017, on the basis whereof the plaintiff has filed the present suit.
2. The present suit has been filed by the plaintiff, inter alia, praying for a decree of recovery of a sum of Rs. 6,89,57,768/- (Rupees Six Crores Eighty-Nine Lakhs Fifty-Seven Thousand Seven Hundred and Sixty-Eight only) alongwith interest thereon from the defendants.
3. It is the case of the plaintiff that the plaintiff had applied to the defendant no.1 for producing a Radio-Programme titled “Chaandi Ke Parde Se” to be broadcasted on the radio channels of the defendant no.1. The plaintiff entered into an Agreement dated 04.08.2017 with the defendant no.1 for broadcasting 260 episodes of approximately 30 minutes duration in two installments and for dividing the net revenue in two equal halves between the parties. The plaintiff claims that the payment on its invoices remained pending from the defendants and, therefore, has filed the present suit for recovery.
4. As noted hereinabove, the defendant nos.1 and 2 have now filed the present application under Section 8 of the Act contending therein that the parties had entered into an Arbitration Agreement, as contained in Clause 14 of the Agreement dated 04.08.2017, and, in view thereof, the present suit is not maintainable and the parties should be referred to arbitration.
5. Clause 14 of the Agreement dated 04.08.2017 is reproduced hereinunder:-
“14. In the event of any dispute related to the interpretation or rights or liabilities arising out of this MOU, the decision of DG, AIR shall be final and binding on the parties.”
6. The learned senior counsel for the defendant nos.1 and 2/applicants, placing reliance on the judgment of the Supreme Court in Smt. Rukmanibai Gupta v. Collector, Jabalpur and Others, (1980) 4 SCC 556, submits that Clause 14 of the Agreement is an Arbitration Agreement between the parties and, therefore, the present suit is not maintainable, and the parties should be referred to arbitration.
7. On the other hand, the learned counsel for the plaintiff, placing reliance on the judgments of the Supreme Court in K.K. Modi v. K.N. Modi & Ors., (1998) 3 SCC 573; State of Orissa & Anr. v. Damodar Das, (1996) 2 SCC 216; Bihar State Mineral Development Corporation & Anr. v. Encon Builders (I) (P) Ltd., (2003) 7 SCC 418; and International Amusement Limited v. India Trade Promotion Organisation & Anr., (2015) 12 SCC 677, submits that Clause 14 of the Agreement is not an Arbitration Agreement between the parties, but is only an internal mechanism of dispute resolution.
8. I have considered the submissions made by the learned counsels for the parties.
9. Section 8 of the Act is reproduced hereinbelow:-
“8. Power to refer parties to arbitration where there is an arbitration agreement.—
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof:
Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.”
10. A reading of the above provision would show that where an action is brought in a matter which is subject to an Arbitration Agreement, the Court shall refer the parties to arbitration unless it finds that, prima facie, no valid Arbitration Agreement exists.
11. Section 7 of the Act defines the expression ‘Arbitration Agreement’ as under:-
“7. Arbitration agreement.—
(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
12. In K.K. Modi (supra), the Court was considering whether Clause 9 of the Memorandum of Understanding dated 24.01.1989 therein constitutes an Arbitration Agreement. Clause 9 of the MoU dated 24.01.1989, which was the subject matter of the dispute in the said judgment, is reproduced hereinbelow:-
“Implementation will be done in consultation with the financial institutions. For all disputes, clarifications etc. in respect of implementation of this agreement, the same shall be referred to the Chairman, IFCI or his nominees whose decisions will be final and binding on both the groups.”
13. The Supreme Court in answering the above issue, held as under:-
“16. Mustill and Boyd in their book on Commercial Arbitration, 2nd Edn., at p. 30, point out that in a complex modern State there is an immense variety of tribunals, differing fundamentally as regards their compositions, their functions and the sources from which their powers are derived. Dealing with tribunals whose jurisdiction is derived from consent of parties, they list, apart from arbitral tribunals, persons (not properly called tribunals) entrusted by consent with the power to affect the legal rights of two parties inter se in a manner creating legally enforceable rights, but intended to do so by a procedure of a ministerial and not a judicial nature (for example, persons appointed by contract to value property or to certify the compliance of building works with a specification). There are also other tribunals with a consensual jurisdiction whose decisions are intended to affect the private rights of two parties inter se, but not in a manner which creates a legally enforceable remedy (for example, conciliation tribunals of local religious communities, or persons privately appointed to act as mediators between two disputing persons or groups). Mustill and Boyd have listed some of the attributes which must be present for an agreement to be considered as an arbitration agreement, though these attributes in themselves may not be sufficient. They have also listed certain other considerations which are relevant to this question, although not conclusive on the point.
17. Among the attributes which must be present for an agreement to be considered as an arbitration agreement are:
(1) The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement,
(2) that the jurisdiction of the tribunal to decide the rights of parties must derive either from the consent of the parties or from an order of the court or from a statute, the terms of which make it clear that the process is to be an arbitration,
(3) the agreement must contemplate that substantive rights of parties will be determined by the agreed tribunal,
(4) that the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides,
(5) that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law and lastly,
(6) the agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.
18. The other factors which are relevant include, whether the agreement contemplates that the tribunal will receive evidence from both sides and hear their contentions or at least give the parties an opportunity to put them forward; whether the wording of the agreement is consistent or inconsistent with the view that the process was intended to be an arbitration, and whether the agreement requires the tribunal to decide the dispute according to law.
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20. The authorities thus seem to agree that while there are no conclusive tests, by and large, one can follow a set of guidelines in deciding whether the agreement is to refer an issue to an expert or whether the parties have agreed to resolve disputes through arbitration.
21. Therefore our courts have laid emphasis on (1) existence of disputes as against intention to avoid future disputes; (2) the tribunal or forum so chosen is intended to act judicially after taking into account relevant evidence before it and the submissions made by the parties before it; and (3) the decision is intended to bind the parties. Nomenclature used by the parties may not be conclusive. One must examine the true intent and purport of the agreement. There are, of course, the statutory requirements of a written agreement, existing or future disputes and an intention to refer them to arbitration. (Vide Section 2 Arbitration Act, 1940 and Section 7 Arbitration and Conciliation Act, 1996.)”
14. The Supreme Court finally held that Clause 9 of the MoU was not an Arbitration Agreement; it was meant to be an expert’s decision.
15. In International Amusement Limited (supra), the Supreme Court was considering whether Clause 28 of the Agreement dated 06.11.1995 therein, which is been reproduced hereinbelow, is an Arbitration Agreement between the parties:-
“28. In case of any dispute arising out of or in connection with this agreement the disputes shall be referred to the sole arbitration of the Chairman, India Trade Promotion Organisation or his nominee whose decision/award shall be final, conclusive and binding on the parties. Application for reference to arbitration shall be made by either party within two months of arising of the dispute.”
16. The Supreme Court held that the above Clause would not amount to an Arbitration Agreement between the parties. The reasoning of the Supreme Court is reproduced herein below:-
“20. This Court must accept the contention of the learned Senior Counsel on behalf of ITPO that the said clause in the licence agreement is not an arbitration agreement between the parties for the reasons discussed below.
21. The three-Judge Bench decision of this Court (of which two of us were members) in P. Dasaratharama Reddy Complex v. Govt. of Karnataka, while examining a similar clause of an arbitration agreement, after careful consideration and interpretation of the clause, has held that in all the matters of dispute arising out of the agreement regarding quality of materials and work, etc., the decision of the Board of Directors of Nagarika Yogbakashema Mathu Gruha Nirmana Sahakara Sangha, shall be final and binding on the part of the contractor. Further, the case of Mysore Construction Co. v. Karnataka Power Corpn. Ltd. was discussed in P. Dasaratharama Reddy by this Court, at para 14, wherein, the Designated Judge has referred to the passage from Russell on Arbitration (19th Edn., p. 59) and the other judgments of this Court in K.K. Modi v. K.N. Modi , Chief Conservator of Forests v. Ratan Singh Hans , Rukmanibai Gupta v. Collector , State of U.P. v. Tipper Chand, State of Orissa v. Damodar Das, Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd. and observed that the decisions in the abovementioned cases make it clear by laying down the conditions, when an agreement or a clause in the agreement can be construed as an arbitration agreement between the parties.
22. Further, at para 16 of P. Dasaratharama Reddy, the distinction between an expert determination and arbitration between the parties has been spelt out as per Russell on Arbitration (21st Edn.) in the following words: (SCC pp.212-13)
“16. … Many cases have been fought over whether a contract's chosen form of dispute resolution is expert determination or arbitration. This is a matter of construction of the contract, which involves an objective enquiry into the intentions of the parties. First, there are the express words of the disputes clause. If specific words such as ‘arbitrator’, ‘Arbitral Tribunal’, ‘arbitration’ or the formula ‘as an expert and not as an arbitrator’ are used to describe the manner in which the dispute resolver is to act, they are likely to be persuasive although not always conclusive…. Where there is no express wording, the court will refer to certain guidelines. Of these, the most important used to be, whether there was an ‘issue’ between the parties such as the value of an asset on which they had not taken defined positions, in which case the procedure was held to be expert determination; or a ‘formulated dispute’ between the parties where defined positions had been taken, in which case the procedure was held to be an arbitration. This imprecise concept is still being relied on. It is unsatisfactory because some parties to contract deliberately choose expert determination for dispute resolution. The next guideline is the judicial function of an Arbitral Tribunal as opposed to the expertise of the expert…. An Arbitral Tribunal arrives at its decision on the evidence and submissions of the parties and must apply the law or if the parties agree, on other consideration; an expert, unless it is agreed otherwise, makes his own enquiries, applies his own expertise and decides on his own expert opinion….”
23. It was further held that a clause substantially similar to the clauses referred to in P. Dasaratharama Reddy was interpreted by the three-Judge Bench of this Court in State of U.P. v. Tipper Chand wherein paras 2 and 3 of the said judgment contain the reasons for holding that the clause in the agreement cannot be construed as an arbitration clause.
24. At para 18 in P. Dasaratharama Reddy, the case of State of Maharashtra v. Ranjeet Construction has been discussed wherein a two-Judge Bench of this Court interpreted Clause 30 of the agreement entered into between the parties, which is almost identical to the clauses under consideration, relying upon the judgment in Tipper Chand, and held that Clause 30 cannot be relied upon by the parties for seeking reference of any dispute to an arbitrator arising out of the contract.
25. At para 19 in P. Dasaratharama Reddy Complex case , the case of State of Orissa v. Damodar Das has also been examined, wherein the three-Judge Bench of this Court interpreted Clause 21 of the contract entered into between the parties. In the said case, this Court referred to Clause 25 of the agreement, relied upon the judgment in State of U.P. v. Tipper Chand and held that the said clause cannot be interpreted for resolution of the dispute by an arbitrator, the case fell for consideration of this Court in State of U.P. v. Tipper Chand which was relied upon in the said case is extracted at para 20 of P. Dasaratharama Reddy case as under : (SCC pp.215-16)
“20. … (10) … A reading of the above clause in the contract as a conjoint whole, would give us an indication that during the progress of the work or after the completion or the sooner determination thereof of the contract, the Public Health Engineer has been empowered to decide all questions relating to the meaning of the specifications, drawings, instructions hereinbefore mentioned and as to the quality of workmanship or material used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of, or relating to, the contract drawings, specifications, estimates, instructions, orders or those conditions or otherwise concerning the works or the execution or failure to execute the same has been entrusted to the Public Health Engineer and his decision shall be final. In other words, he is nominated only to decide the questions arising in the quality of the work or any other matters enumerated hereinbefore and his decision shall be final and bind the contractor. A clause in the contract cannot be split into two parts so as to consider one part to give rise to difference or dispute and another part relating to execution of work, its workmanship, etc. It is settled now that a clause in the contract must be read as a whole. If the construction suggested by the respondent is given effect then the decision of the Public Health Engineer would become final and it is not even necessary to have it made rule of the court under the Arbitration Act. It would be hazardous to the claim of a contractor to give such instruction and give power to the Public Health Engineer to make any dispute final and binding on the contractor. A careful reading of the clause in the contract would give us an indication that the Public Health Engineer is empowered to decide all the questions enumerated therein other than any disputes or differences that have arisen between the contractor and the Government. But for Clause 25, there is no other contract to refer any dispute or difference to an arbitrator named or otherwise.”
26. Further, at para 21 of P. Dasaratharama Reddy the case of K.K. Modi v. K.N. Modi fell for consideration, wherein this Court interpreted Clause 9 of the memorandum of understanding that was signed by the two groups of Modi family. The relevant portion from the said judgment with regard to interpretation of Clause 9 of the memorandum of understanding between the parties is extracted below:
“21. … ‘9. Implementation will be done in consultation with the financial institutions. For all disputes, clarifications, etc. in respect of implementation of this agreement, the same shall be referred to the Chairman, IFCI or his nominees whose decisions will be final and binding on both the groups.’”
27. Further, the decision of P. Dasaratharama Reddy at para 30 referred to the case of Mallikarjun v. Gulbarga University wherein it was held that the decision of the Superintending Engineer of Gulbarga Circle was final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications, designs, etc. whether arising during the progress of the work or after the completion or abandonment thereof in case of dispute arising between the contractor and Gulbarga University. The case of Punjab State v. Dina Nath was also referred supporting the same view in P. Dasaratharama Reddy.
28. In view of the aforesaid decisions and the law laid down by this Court in a catena of cases referred to supra which are reiterated in P. Dasaratharama Reddy we are of the view that Clause 28 in the agreement which is referred to in the case on hand is not an arbitration clause. Therefore, the appointment of an arbitrator by the nominee of the Chief Justice has been rightly set aside in the impugned judgment by the Division Bench of the Delhi High Court. The law laid down by this Court in the abovereferred judgments, after interpretation of the relevant arbitration clauses in the agreement in those cases, are aptly applicable to the fact situation on hand and we answer the questions of law framed by this Court against the appellant and in favour of ITPO and the Union of India.”
17. I must herein also take note of the judgment of Smt. Rukmanibai Gupta (supra), which has been relied upon by the learned counsel for the defendants to contend that Clause 14 of the Agreement dated 04.08.2017 shall amount to an Arbitration Agreement between the parties. In the said case, however, the Court was also influenced by the fact that the appellant therein had herself unreservedly accepted that the Clause 15, which was in dispute therein, spelled out an Arbitration Agreement between the parties.
18. From a reading of the above judgments, it would be evident that to constitute an Arbitration Agreement, the parties must have agreed for the Arbitral Tribunal to determine the rights of the parties in an impartial and judicial manner, with the Tribunal owing an equal obligation of fairness towards both sides. The Tribunal has to act judicially after taking into account relevant evidence and submissions made by the parties before it. One must examine the true intent and purport of the Agreement and though the presence or absence of the words ‘Arbitrator’, ‘Arbitral Tribunal’, ‘Arbitration’ may be persuasive, but are not always conclusive to determine the question whether the Clause amounts to an Arbitration Agreement between the parties. Apart from an Arbitral Tribunal, the parties may have, by consent, empowered a body to also consider the disputes between them in a ministerial and not a judicial manner like an expert (for example in the case of K.K. Modi) or as an in-house dispute resolution mechanism, like in the present case.
19. In my opinion, therefore, Clause 14 of the Agreement dated 04.08.2017 does not amount to an Arbitration Agreement between the parties. It merely provides for an in-house escalation of the disputes to the Director General, All India Radio (DG,AIR), however, it cannot curtail the right of the plaintiff to institute a Civil Suit in case the plaintiff is aggrieved of the decision of the said authority, that is, DG, AIR. The Agreement is executed with the DG, AIR being one of the parties thereto. The parties to the Agreement could never have intended to make one of them to act as an impartial dispute adjudicator/arbitrator.
20. In view of the above, I find no merit in the present application. The same is dismissed.
CS(COMM) 2/2022
21. List before the learned Joint Registrar (Judicial) on 12th May, 2023, the date already fixed.
