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2017 SCC OnLine Bom 9250

In the High Court of Bombay

Bottero S.P.A. having its head office at Cuneo (Italy) Via Genova
82 … Petitioner (Original Deft. No. 2);
Versus
Euro Glass Limited registered under Companies Act, 1956 having
its head office at Boston House, Suren Road, Chakala, Andheri,
Mumbai and Another … Respondent No. 1 (Original Plaintiff).
Arbitration Petition No. 279 of 2011
Decided on November 30, 2017, [Reserved On : 10th November 2017]
Advocates who appeared in this case :
Mr. Rohan Rajadhakshya a/w Mr. Shahen Pradhan i/by has Advocates for the
petitioner.
Mr. Ashutosh Thipsay a/w Ms. Neha Karnik i/by Mr. Vinod Juwale for the
respondents.
The Judgment of the Court was delivered by
R.D. DHANUKA, J.:— By this petition filed under Section 45 of the Arbitration and
Conciliation Act, 1996 (for short “the Arbitration Act”), the petitioner seeks an order
and direction to refer the disputes raised in Suit No. 1846 of 2009 to arbitration in
accordance with Clause 27.2 of the Arbitration Agreement dated 14th April 2008 and
seeks dismissal of the said suit. Some of the relevant facts for the purpose of the
deciding this petition are as under:—
2. The petitioner herein is the original defendant no. 2 in Suit 1846 of 2009 which
was filed by the respondent no. 1 herein (original plaintiff) against Gutal Trading
(India)- the respondent no. 2 herein (for the sake of convenience, the said Suit No.
1846 of 2009 is referred to as “the said suit”). The said suit was filed by the
respondent no. 1 herein inter alia praying for recovery of Euro 4,25,100 alleged to
have been paid by the respondent no. 1 as an advance payment on account of the
petitioner herein failing to fulfill the terms and conditions of the contract agreement
despite the advance payment being released by the respondent no. 1 in favour of the
petitioner herein.
3. In the said suit, the respondent no. 1 had prayed for an order and decree against
the petitioner herein and Gutal Trading (India) in the sum of Euro 8,50,200 equivalent
to Indian Rs. 5,60,79,192/-. The petitioner herein appeared in the said suit. No written
statement has been filed by the petitioner herein till date. In the said suit, the
defendant no. 1-Gutal Trading (India) filed Notion of Motion No. 9 of 2011 under Order
VII Rule 11 of the Code of Civil Procedure, 1908 inter alia praying for dismissal of the
said suit, in so far as the defendant no. 1-Gutal Trading (India) is concerned, on the
ground that there was no privity of contract whatsoever nature between the plaintiff
and the defendant no. 1 and on various other grounds.
4. By an order dated 29th October 2015 passed by this Court, the said Notice of
Motion No. 9 of 2011 filed by the said Gutal Trading (India) came to be allowed. This
Court held that there was no cause of action against the said Gutal Trading (India) in
the said suit. The plaintiff i.e. Euro Glass Limited preferred an appeal against the said
order dated 29th October 2015. The Division Bench of this Court has condoned the
delay in filing the said appeal. The said appeal is still pending. During the pendency of
the said appeal, hearing of this arbitration petition was adjourned for sometime. Since
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the said order dated 29th October 2015 was admittedly not stayed by the Division
Bench of this Court, in the said appeal filed by the petitioner herein, this Court
therefore proceeded with hearing of this Arbitration Petition No. 279 of 2011.
5. Mr. Rajadhakshya, learned counsel appearing for the petitioner invited my
attention to the agreement entered into between the petitioner and the respondent no.
1 dated 14th April 2008 annexed at Exhibit-A to the petition and more particularly the
arbitration agreement recorded in Clause 27 of the said agreement which is extracted
as under:—
27. DISPUTES AND ARBITRATIONS
27.1 Friendly Consultations
Any dispute arising from, out of or in connection with the contract shall be
settled through friendly consultations between the parties. Such consultations
shall begin immediately after one party has delivered to the other party a
written request for such consultation.
Following such written request the Project Managers of each party shall
meet and try to reach a settlement.
If the Project Managers are unable to reach a settlement within one month,
they shall draft within two further weeks a joint report stating the exact
subject of the dispute, the facts on which they agree, the points of
disagreement and the reasons of such disagreement.
This report shall be handed over to the management of both parties. The
management of both parties shall then try to reach a settlement.
27.2 Continued Implementation of Contract
During the period when a dispute is being resolved, the parties shall in all
other respects continue their implementation of the contract. In particular,
when a dispute arises between the parties, the seller, during the pendency of
the dispute, shall proceed with work as set forth in the contract.
All disputes that cannot be settled between the parties by amicable
negotiation shall be finally settled by arbitration in Geneva in accordance with
the rules of the ICC (International Chamber of Commerce). Any award made
by the arbitrators shall be binding upon the parties hereto and judgment
thereon many be enforced in any court of competent jurisdiction.
27.3 Governing Law and Place of Jurisdiction
Both parties shall try to solve their differences through friendly
consultations and if they fail to reach a mutually convenient settlement and
have to go to Court, the exclusive place of jurisdiction shall be neutral to both
parties and Internationally recognized as suitable for this condition.
Therefore we propose the following Rules and Location; United Nations
Convention on Contracts for the International Sale of Goods (CISG). The
substantive law of Switzerland applies to all matters not provided for in the
UN Convention on Contracts for the International Sale of Goods (CISG).
Place of Legal Arbitration : The International Court of Geneva, Switzerland.
6. It is submitted by the learned counsel that the arbitration agreement is very
wide and would include all the disputes which are subject matter of the said suit
bearing No. 1846 of 2009. The name of the defendant no. 1 in the said suit i.e. Gutal
Trading (India) has already been deleted in view of the order dated 29th October 2015
passed by this Court allowing the application filed by Gutal Trading (India) under
Order VII Rule 11 of the Code of Civil Procedure, 1908. He submits that the said order
passed by the learned Single Judge of this Court on 29th October 2015 is not stayed or
set aside by the Division Bench of this Court and thus now the said suit is only
between the petitioner herein (original defendant no. 2) and the respondent no. 1
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herein (original plaintiff). Learned counsel for the petitioner placed reliance on the
judgment of the Supreme Court in the case of Chloro Controls India Private Limited v.
Severn Trent Water Purification Inc., reported in (2013) 1 SCC 641 and in particular
paragraph 69 thereof and would submit that since the subject matter of the suit is
governed by the arbitration agreement and in view of the petitioner having satisfied
the conditions under Section 45 of the Arbitration Act, this Court is bound to refer the
parties to the arbitration. All prerequisites stated under Sections 44 and 45 read with
Schedule I of the Arbitration Act in this case have been satisfied according to the
petitioner.
7. Learned counsel for the petitioner invited my attention to the averments made
by the respondent in the affidavit-in-reply. He submits that merely because the
petitioner herein had filed a suit in the Court of Cuneo and prayed the respondent
herein for seeking interim relief in respect of the bank guarantee, the petitioner has
not waived its rights to invoke the arbitration agreement and that would not amount
to waiver on the part of the petitioner. He submits that the said suit was filed by the
petitioner against the bank who was not a party to the arbitration agreement. The
bank guarantee was not the subject matter of the arbitration proceedings. The said
Court of Cuneo had initially granted injunction in favour of the petitioner but the same
was subsequently vacated. The bank had paid the bank guarantee amount to the
respondent in the suit. The reliefs claimed by the petitioner in the suit were not
touching the subject matter of the arbitration agreement. He submits that Article 23 of
the Rules of Arbitration framed by the International Chamber of Commerce would be
applicable. He submits that under second part of Article 23, since the petitioner was
permitted to file proceedings before the competent judicial authority for interim or
conservatory measures before the file of arbitration proceedings is transmitted to the
arbitral tribunal, it would not amount to an infringement or a waiver of the arbitration
agreement and would not affect the rights of the petitioner to make an application
under Section 45 of the Arbitration Act.
8. Articles 4 and 23 of the Rules of Arbitration framed by the International Chamber
of Commerce are extracted as under:
Article 4-Request for Arbitration:—
1. A party wishing to have recourse to arbitration under these Rules shall submit
its Request for Arbitration (the “Request”) to the Secretariat, which shall
notify the claimant and respondent of the receipt of the Request and the date
of such receipt.
2. The date on which the Request is received by the Secretariat shall, for all
purposes, be deemed to be the date of the commencement of the arbitral
proceedings.
3. The Request shall, inter alia, contain the following information:
a) the name in full, description and address of each of the parties;
b) a description of the nature and circumstances of the dispute giving rise to
the claim(s);
c) a statement of the relief sought, including, to the extent possible, an
indication of any amount(s) claimed;
d) the relevant agreements and, in particular, the arbitration agreement;
e) all relevant particulars concerning the number of arbitrators and their
choice in accordance with the provisions of Articles 8, 9 and 10, and any
nomination of an arbitrator required thereby; and
f) any comments as to the place of arbitration, the applicable rules of law and
the language of the arbitration.
4. Together with the Request, the claimant shall submit the number of copies
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thereof required by Article 3(1) and shall make the advance payment on
administrative expenses required by Appendix III (“Arbitration Costs and
Fees”) in force on the date the Request is submitted. In the event that the
claimant fails to comply with either of these requirements, the Secretariat
may fix a time limit within which the claimant must comply, failing which the
file shall be closed without prejudice to the right of the claimant to submit the
same claims at a later date in another Request.
5. The Secretariat shall send a copy of the Request and the documents annexed
thereto to the respondent for its Answer to the Request once the Secretariat
has sufficient copies of the Request and the required advance payment.
6. When a party submits a Request in connection with a legal relationship in
respect of which arbitration proceedings between the same parties are already
pending under these Rules, the Court may, at the request of a party, decide to
include the claims contained in the Request in the pending proceedings
provided that the Terms of Reference have not been signed or approved by
the Court. Once the Terms of Reference have been signed or approved by the
Court, claims may only be included in the pending proceedings subject to the
provisions of Article 19.
Article 23-Conservatory and Interim Measures:—
1. Unless the parties have otherwise agreed, as soon as the file has been
transmitted to it, the Arbitral Tribunal may, at the request of a party, order
any interim or conservatory measure it deems appropriate. The Arbitral
Tribunal may make the granting of any such measure subject to appropriate
security being furnished by the requesting party. Any such measure shall take
the form of an order, giving reasons, or of an Award, as the Arbitral Tribunal
considers appropriate.
2. Before the file is transmitted to the Arbitral Tribunal, and in appropriate
circumstances even thereafter, the parties may apply to any competent
judicial authority for interim or conservatory measures. The application of a
party to a judicial authority for such measures or for the implementation of
any such measures ordered by an Arbitral Tribunal shall not be deemed to be
an infringement or a waiver of the arbitration agreement and shall not affect
the relevant powers reserved to the Arbitral Tribunal. Any such application and
any measures taken by the judicial authority must be notified without delay to
the Secretariat. The Secretariat shall inform the Arbitral Tribunal thereof.
9. It is submitted that there was no suppression about the said proceedings filed by
the petitioner before the Court of Cuneo in this proceeding as both the proceedings
were totally different. Scope of enquiry under Section 25 of the Arbitration Act is very
limited.
10. It is submitted by the learned counsel that there is no delay in filing the
proceedings by the petitioner under Section 45 of the Arbitration Act. There is no
progress in the said suit. He submits that by an order dated 15th July 2011 passed by
this Court, it was made clear that the participation of the petitioner in the said suit
would be without prejudice to the rights and contentions of the petitioner. He submits
that the provisions of Section 45 of the Arbitration Act are mandatory and thus this
Court shall refer the parties to the arbitration in view of the petitioner having satisfied
all the conditions of Section 45 of the Arbitration Act.
11. Mr. Thipsay, learned counsel for the respondent (original plaintiff) submits that
there was no privity of contract between his client and the petitioner herein. He invited
my attention to Article 4 of the Rules of Arbitration framed by the International
Chamber of Commerce and would submit that under the said Article, a party wishing
to have recourse to arbitration under those Rules has to submit its request for
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Arbitration to the Secretariat which shall notify the parties of the receipt of the said
request. Upon receipt of the such request by a party, arbitral proceedings be deemed
to have commenced. He submits that the petitioner had admittedly not invoked the
arbitration agreement and had not made any request for arbitration as contemplated
under Article 4(2) to the Secretariat, the question of transmitting the file of arbitration
proceedings to the arbitral tribunal under first part of Article 23 did not arise. He
submits that the provisions of waiver prescribed in second part of Article 23, in the
event of such party applying to any competent judicial authority for interim or
conservatory measures in appropriate circumstances before the file is transmitted to
the arbitral tribunal cannot be availed of by a party who has not made a request for
recourse to arbitration in terms of Article 4 of the ICC Rules.
12. Learned counsel for the respondent submits that since there was waiver on the
part of the petitioner of its right to arbitrate by invoking the arbitration agreement, the
arbitration agreement has become inoperative by virtue of such waiver. The petitioner
had abandoned its rights to apply for arbitration and thus cannot file this application
under section 45 of the Arbitration Act on that ground also. He submits that the suit
was filed by his clients in the year 2009, whereas the arbitration petition has been
filed only in the month of February, 2011 i.e. after delay of about 2 years. The
arbitration petition does not show whether any other proceedings were filed by the
petitioner. The petitioner has disclosed about the proceedings filed by it in the Court of
Cuneo for the first time in the affidavit in rejoinder. In those proceedings filed by the
petitioner in the Court at Cuneo, there was no reference to the arbitration agreement.
The petitioner had no intention to invoke arbitration agreement at any point of time.
No notice invoking arbitration agreement came to be issued by the petitioner till date.
13. Learned counsel placed reliance on the judgment of the Madras High Court in
case of Ramasamy Athappan v. The Secretary of the Court, International Chamber of
Commerce, (2009) 3 LW 580 and in particular paragraph 29 thereof. He also placed
reliance on the judgment of the Supreme Court of Victoria at Melbourne in the case of
LA Donna Pty. Ltd. v. Wolford AG, (2005) VSC 359 and would submit that since the
petitioner had participated in the suit filed by the respondent no. 1 in this Court for
two years, in view of all its conduct, action, intention, motion and commission, the
petitioner has waived its right to invoke arbitration agreement He submits that on this
ground itself, the application under section 45 of the Arbitration Act is not
maintainable.
14. Mr. Rajadhyaksha, learned counsel for the petitioner in rejoinder submits that
admittedly the bank against whom certain reliefs were sought by the petitioner in the
Court of Cuneo was not a party to the arbitration agreement. The said bank thus could
not have been a party to the arbitral tribunal. The petitioner had filed those
proceedings for various reliefs in respect of the bank guarantee against the said bank
independently and that would not amount to waiver. He invited my attention to a
passage from treatise of Shri. O.P. Malhotra, on Law of Arbitration and would submit
that the waiver cannot be easily assumed. Various factors are to be considered by this
Court before rendering any finding on the waiver since the consequence of finding on
the issue of waiver may be serious.
15. Insofar as the submission of the learned counsel for the respondent that since
the petitioner had not invoked the arbitration agreement and the file was not
transmitted to the arbitral tribunal by International Chamber of Commerce, the
petitioner could not availed of exemption from waiver is concerned, it is submitted
that it was not necessary for the petitioner to first invoke the arbitration agreement by
making an application before the International Chamber of Commerce before filing an
application for interim measures or for other reliefs before any other Court during the
interregnum period of the arbitration file not having been transmitted by the
International Chamber of Commerce to the arbitration tribunal. He submits that in any
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event the alleged inaction on the part of the petitioner would not fall under the
expression ‘inoperative’ and thus the second part of Article 23 of the arbitration rules
framed by the International Chamber of Commerce would apply to the facts of this
case and thus by filing an application for interim reliefs against the bank who was not
a party to the arbitration agreement by filing a suit in the Court of Cuneo, it cannot
amount to waiver and the petitioner cannot be precluded from filing an application
under section 45 of the Arbitration Act.
16. It is submitted that under Article 23 of the Arbitration Rules framed by
International Chamber of Commerce filing of such application was not at all barred and
such application could be filed even before filing an application invoking the arbitration
agreement by making an application to the Secretariat under Article 4 of Rules of
Arbitration framed by the International Chamber of Commerce. It is submitted that
there is no time period prescribed in section 45 of the Arbitration Act for making an
application for referring the parties to arbitration. He submits that the principles laid
down by the Supreme Court in case of Chloro Controls India Private Limited (supra)
would squarely apply to the facts of this case and all such norms laid down by the
Supreme Court in the said judgment after interpreting section 45 of the Arbitration Act
are already satisfied by the petitioner in this case.
REASONS AND CONCLUSIONS:
17. It is not in dispute that the petitioner and the respondent had entered into an
agreement on 18th April, 2008 on the terms and conditions recorded in the said
agreement. Clause 27 of the said agreement provided for an arbitration in case of
disputes between the parties. Clause 27.2 of the said agreement provided that all
disputes that cannot be settled between the parties by amicable negotiations shall be
finally settled by arbitration in Geneva in accordance with the rules of the International
Chamber of Commerce. Any award made by the arbitrator shall be binding upon the
parties to the said agreement and the judgment thereon may be enforced in any Court
of competent jurisdiction. Clause 27.3 provided that the exclusive place of jurisdiction
shall be neutral to both the parties and internationally recognized as suitable for that
condition. The place of legal arbitration provided in the said clause was “The
International Cort of Geneva, Switzerland”.
18. It is not in dispute that on 8th May, 2009, the respondent no. 1 herein had filed
a suit (1846 of 2009) against Gutal Trading (India) and the petitioner herein inter-alia
praying for an order and decree to pay to the plaintiff therein an amount of Euro
850200 equivalent to Indian Rs. 5,60,79,192/- with interest thereon. The defendant
no. 1 in the said suit i.e. Gutal Trading (India) filed a notice of motion under Order VII
Rule 11 of the Code of Civil Procedure, 1908 contending that there was no cause of
action against the defendant no. 1 in the said suit and applied for dismissal of the suit
against that party. By an order dated 29th October, 2015, this Court allowed the said
Notice of Motion No. 9 of 2011 filed by the defendant no. 1 in that suit and held that
there was no cause of action against the defendant no. 1 based on the contract and
that the plaint did not disclose any cause of action against the defendant no. 1. The
respondent no. 1 herein has filed an appeal against the said order dated 29th October,
2015 before the Division Bench of this Court. The said appeal is still pending and the
said order dated 29th October, 2015 is not stayed.
19. The question however, that arises for consideration of this Court is whether by
filing a suit by the petitioner herein in the Court of Cuneo for various reliefs and not
invoking arbitration agreement amounted to waiver and abandonment of the right to
invoke the arbitration agreement and would fall within the expression ‘inoperative’
referred in section 45 of the Arbitration Act. The question also that arises for
consideration of this Court is that whether the petitioner has satisfied the conditions
set out in section 45 of the Arbitration Act or not.
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20. The existence of the arbitration agreement in the agreement entered into
between the parties on 14th April, 2008 is not in dispute. The case of the respondent
no. 1 however, is that since the petitioner had never invoked the arbitration
agreement, had no intention to invoke the arbitration agreement, had already filed a
civil proceeding for part of the relief in the Court of Cuneo arising under the said
agreement dated 14th April, 2008, has participated in the suit filed by the respondent
no. 1 herein would amount to waiver and abandonment and thus the conditions of
section 45 of the Arbitration Act were not satisfied.
21. Insofar as participation of the petitioner in Suit No. 1846 of 2009 filed the
respondent no. 1 is concerned, it is not in dispute that this Court has already clarified
in the order dated 15th July 2011 that the petitioner would be appearing in the said
suit without prejudice to the rights and contentions of the petitioner. In my view,
participation of the petitioner thus in the said suit cannot a ground for dismissing this
petition as sought to be canvassed by the learned counsel for the respondent no. 1. It
is however, not in dispute that the application under section 45 of the Arbitration Act
came to be filed by the petitioner only on 4th February, 2011 though the said Suit No.
1846 of 2009 is pending since May, 2009.
22. I shall first deal with the issue whether the petitioner can avail of the benefit of
waiver in terms of the second part of Article 23 of the Rules of Arbitration framed by
the International Chamber of Commerce or not. A perusal of the rules framed by the
International Chamber of Commerce which are admittedly applicable to the parties
clearly indicates that any party, who wish to have recourse to arbitration under those
rules shall submit its request for arbitration to the Secretariat. On the date of receipt
of such request by the Secretariat, the arbitral proceedings is deemed to have been
commenced. It is not in dispute that neither on the date of filing a suit by the
petitioner in the Court of Cuneo nor even thereafter the petitioner made any
application to the Secretariat under Article 4 of the Rules of Arbitration framed by the
International Chamber of Commerce till date.
23. A perusal of Article 4 of the Arbitration Rules framed by the International
Chamber of Commerce thus clearly indicates that the arbitral proceedings would
commence only when a request is received by a Secretariat under Article 4 from a
party to the arbitration agreement. A conjoint reading of Article 4 with Article 23
clearly indicates that both the Articles have to be read together and the waiver
described in the second part of Article 23 would apply only if the conditions set out in
Article 4 are complied with by a party to the arbitration agreement as a condition
precedent before claiming any waiver under the second part of Article 23.
24. The jurisdiction of the Court under section 45 of the Arbitration Act is very
limited. A Court has to scrutinize as to there is an arbitration agreement referred to in
section 44 of the Arbitration Act between the parties and one of those parties have
filed an application under section 45 of the Arbitration Act before the judicial authority
for referring the parties to the arbitration and also as to whether the said arbitration
agreement described in section 44 of the Arbitration Act is null and void, inoperative
and/or incapable of being performed.
25. There is no dispute that the parties had agreed to refer the disputes to
arbitration. I shall now consider whether such arbitration agreement has become
inoperative or not.
26. It is not in dispute that though the petitioner had filed a suit in the Court of
Cuneo against the bank in respect of the bank guarantee furnished by the said bank,
the petitioner has not till date invoked the arbitration agreement recorded in the
agreement dated 14th April, 2008 entered into between the petitioner and the
respondent no. 1. The petitioner has also not made any claim against the respondent
no. 1 herein arising out of the said agreement dated 14th April, 2008 between the
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parties. The petitioner has disclosed about the said proceedings filed by the petitioner
in the Court of Cuneo for the first time in the affidavit in rejoinder. There was no
reference to the arbitration agreement in the said proceedings filed by the petitioner
against the bank in the Court of Cuneo. It is thus clear that the petitioner has no
intention to invoke the arbitration agreement at any point of time.
27. The Supreme Court in case of Chloro Controls India Private Limited (supra) has
held that the expression ‘any person’ mentioned in section 45 of the Arbitration Act
clearly referred to the legislative intent of enlarging the scope of the words beyond
“the parties” who are signatory to the arbitration agreement. Such applicant however
should claim through or under signatory party. Once this link is established, then the
court shall refer them to the arbitration. It is held that the expression ‘shall’ in the
language of section 45 is intended to require the court to necessarily make a reference
to arbitration, if the conditions of that provision are satisfied. It is held that a party
can seek the reference under section 45 only upon satisfaction of the prerequisites
stated under sections 44 and 45 read with Schedule I of the Arbitration Act. It is a
legal right which has its own contours and is not an absolute right, free of any
obligations/limitations.
28. There is no dispute with the principles of law laid down by the Supreme Court
in case of Chloro Controls India Private Limited (supra). A perusal of the said judgment
clearly indicates that though it is a legal right of a party to the arbitration agreement
to make an application under section 45 of the Arbitration Act to a judicial authority, it
is not an absolute right, free of any obligation/limitation.
29. The Madras High Court in case of Ramasamy Athappan (supra) has considered
the expression “inoperative”. The Madras High Court in the said judgment has
adverted to a judgment of the Supreme Court of New South Wales, Commercial
Division, Australia in case of Shanghai Foreign Trade Corporation (PR China) v. Sigma
Metallurgical Co. Pty. Ltd. in which it was held that an agreement may be rendered
inoperative even by acts of omission, or commission, on the part of the parties.
Waiver, abandonment, renunciation, election, acquiescence etc. are some of the acts
of commission or omission, by which an agreement may be made inoperative by a
party.
30. The Madras High Court has also quoted the passage from Law and Practice of
Arbitration and Conciliation (2nd Edition) by Shri. O.P. Malhotra with approval on the
expression “waiver”. The judgment of the Supreme Court in case of F.C.I. v. Yadav
Engineer And Contractor, (1982) 2 SCC 499 on the issue of abandonment of right to
arbitration is also adverted to by the Madras High clearly manifested by the stand
taken by such a party and has held that once such unequivocal intention is declared or
abandoned of the right to claim the benefit of the agreement which becomes
manifested from the conduct, such party would then not be entitled to enforce the
arbitration agreement because there is a breach of the agreement by both the parties
disentitling both to claim any benefit of the arbitration agreement. A party who makes
an application for stay of the proceeding before filing the written statement or before
taking any other steps in the proceedings must simultaneously show its readiness and
willingness to do all things necessary to proper conduct of the arbitration. In my view
the principles laid down by the supreme Court in case of F.C.I. v. Yadav Engineer And
Contractor (supra) and by the Madras High Court in case of Ramasamy Athappan
(supra) would squarely apply to the facts of this case. I am respectfully bound by the
principles of law laid down by the Supreme Court in case of F.C.I. v. Yadav Engineer
And Contractor (supra). I am in agreement with the views expressed by the Madras
High Court in case of Ramasamy Athappan (supra).
31. The Madras High Court in the said judgment has held that while exercise of
right to seek arbitration under section 34 of the Arbitration Act, 1940 or section 8 of
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the Arbitration & Conciliation Act, 1996 is time bound and not really substance-bound,
exercise of right to seek arbitration under section 45 of the Arbitration & Conciliation
Act, 1996 is actually substance-bound and not time bound. Section 45 of the
Arbitration Act empowers a judicial authority to reject an application for arbitration if
the agreement is inoperative. An agreement can be made inoperative by
abandonment. The abandonment may also arise when the contract is followed by a
long period of delay or inactivity. The abandonment of a right may arise by virtue of a
party making an election. The suit filed by the respondent no. 1 in this Court is
pending since 2009. It also would be important factor for this Court to decide whether
at this stage in view of inaction on the part of the petitioner to apply under section 45
of the Arbitration Act to refer the parties to arbitration after delay of about 2 years
would also amount to abandonment or inaction on the part of the petitioner and would
fall within the expression ‘inoperative’ referred in section 45 of the Arbitration Act.
32. In my view, though no limitation is prescribed under section 45 of the
Arbitration Act to make an application to refer parties to arbitration inordinate delay or
inaction on the part of a party would be a relevant factor to arrive at a conclusion that
by such inaction on the part of a party to arbitration agreement would amount to
abandonment or waiver which would fall within the expression of “inoperative”
prescribed or referred under section 45 of the Arbitration Act. Even if no time is
prescribed for making such an application under section 45 of the Arbitration Act by a
party to arbitration agreement in a pending proceeding before the judicial authority,
such action under section 45 of the Arbitration Act has to be initiated within a
reasonable period of time. A party who has no intention to invoke arbitration
agreement and has not exercised his rights under the said arbitration agreement
cannot compel the other party to refer his disputes to arbitration. It is not in dispute
that though the petitioner had filed a suit against the bank arising in respect of the
bank guarantee furnished by the bank in favour of the respondent no. 1, neither any
claim is made by the petitioner by invoking any arbitration agreement, nor any notice
invoking arbitration agreement has been issued in the last several years.
33. In my view, the petitioner has not satisfied the mandatory conditions
prescribed under section 45 of the Arbitration Act. In view of the fact that the
arbitration agreement is inoperative and in view of the petitioner having abandoned or
waived its right to invoke the said arbitration agreement, the parties cannot be
referred to arbitration under section 45 of the Arbitration & Conciliation Act, 1996.
Waiver and abandonment of right to invoke the arbitration agreement would fall the
expression ‘inoperative’ prescribed under section 45. In my view the petition is devoid
of merits.
34. I therefore, pass the following order:—
i) Arbitration Petition No. 279 of 2011 is dismissed.
ii) There shall be no order as to costs.
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