UNISYS INFOSOLUTIONS PVT LTD vs GURBANI MEDIA PVT LTD
$~1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 07th February, 2024
+ ARB.P. 835/2019
M/S UNISYS INFOSOLUTIONS PVT. LTD.
….. Petitioner
Through: Mr. Uttam Datt, Advocate.
versus
GURBANI MEDIA PVT. LTD.
….. Respondent
Through: Mr. Gurmehar S. Sistani & Ms.
Natasha Thakur, Adovcates.
CORAM:
HON’BLE MS. JUSTICE NEENA BANSAL KRISHNA
J U D G M E N T (oral)
1. A Petition under Section 11(6) of the Arbitration & Conciliation Act (hereinafter referred to as Act, 1996) has been filed for appointment of the Arbitrator.
2. The petitioner, a Private Limited Company, entered into a Content Assignment Agreement dated 08.01.2015 with the respondent in terms of which the petitioner was granted digital and other rights in the sound recording of the film titled Nanak Shah Fakir.
3. In terms of the Contract, the film was to be released by the respondent on or before March, 2015. However, it was released on 17.04.2015 and soon thereafter, it was withdrawn from public exhibition on 21.04.2015. The movie was ultimately released by the respondent three years later, on 13.04.2018. Between 08.01.2015 till its release, the petitioner transferred Rs.43,50,000/- to the respondents account while Rs.6,00,000/- were deposited as TDS and Rs.59,37,401.99/- were spent on behalf of respondent on its Digital Marketing, promotion etc. In addition, Rs.1,76,000/- were spent on Audio CDs which were delivered to respondent.
4. The petitioner issued letter dated 20.05.2015 calling upon the respondent to perform their part of the Contract, but no reply was received. The petitioner issued a Legal Notice dated 03.09.2015, in response to which a reply dated 19.09.2015 was received from the respondent through its lawyer. The petitioner has claimed that the respondent had failed to honour its contractual obligation under the Content Agreement and has acted malafidely by surreptitiously terminating the Contract on 06.06.2016 which came to light through an illegal public Notice dated 14.06.2016.
5. Thereafter, the petitioner invoked the Arbitration Clause under the Agreement dated 08.01.2015. Vide Notice dated 29.07.2016 informed the petitioner that it has appointed the Sole Arbitrator. However, no reply was received from the respondent to this Notice regarding the appointment.
6. The learned Sole Arbitrator took cognizance and issued Notice dated 15.11.2016 to conduct the first hearing for the matter on 30.11.2016. Before the first hearing took place, the respondent vide its letter dated 20.11.2016 conveyed to the Arbitrator that the amicable resolution Clause of the Agreement had not yet been exhausted.
7. In view of the response of the respondent, the parties continued to negotiate to sort out the issues inter-se them by having meetings, calls and email exchanges. On account of continued negotiations, the petitioner refrained from pursuing his arbitration before the learned Sole Arbitrator. However, despite repeated attempts by the parties, they could not arrive at any settlement as respondent remained adamant and failed to perform its part of the Content Agreement.
8. Considering the substantial time that has elapsed since the Sole Arbitrator had commenced the arbitration proceedings, the present petition was filed for appointment of Arbitrator on the basis of Notice of Invocation dated 29.07.2016.
9. Learned counsel for the petitioner has placed reliance on Geo Miller & Co. (p) Ltd. vs. Rajasthan Vidyut Utpadan Nigam Ltd. (2020) 14 SCC 643 to contend that the time taken for amicable resolution of disputes has to be excluded while considering the present petition.
10. It is, therefore, submitted that a Sole Arbitrator be appointed for settlement of the disputes inter-se the parties.
11. The respondent in his detailed reply has taken preliminary objections that the petition is barred by limitation. Furthermore, this petition is not maintainable as the petitioner has failed to place on record any prior thirty day Notice of Invocation, as mandatorily required in terms of Section 11(4) of the Act, 1996.
12. It is claimed that though one Notice of Invocation dated 29.07.2016 was issued but pursuant thereto unilateral appointment of an Arbitrator was made by the petitioner who had initiated arbitration proceedings, but the respondent never participated in them. The respondent vide its Reply dated 20.11.2016 had informed him that this was a case of unilateral appointment of Sole Arbitrator and he had no jurisdiction, authority or consent to proceed further. On receipt of this letter, the Sole Arbitrator did not proceed and the proceedings got terminated. The Notice of Invocation dated 29.07.2016 got subsumed into the unlawful appointment of the Sole Arbitrator by the petitioner.
13. The respondent has further contended that assuming the Notice of Invocation on 29.07.2016 to be valid though not admitted, the petitioner was obligated under Clause 28 of the Agreement to first make an endeavour to settle the disputes amicably and only in the event of failure, could the disputes be referred to Sole Arbitrator. It is submitted that the settlement failed on 24.05.2017 after which the petitioner was required to send a Notice of Invocation before filing the present Petition. No Notice had been sent in accordance with provisions of Act, 1996. Therefore, Section 11of the Act,1996 cannot be invoked by the petitioner without there being a valid Notice of Invocation.
14. The second objection taken is that Section 43 of the Act, 1996 provides that for the purpose of limitation, arbitration shall be deemed to have commenced on the date referred to in Section 21 of the Act,1996 i.e. the date of Notice of Invocation. It is submitted that even if Notice invoking Arbitration dated 29.07.2016 is considered as subsisting, then too since the present petition under Section 11 of the Act,1996 has been filed on 28th November, 2019, it is beyond the prescribed period of limitation of three years as provided under Article 137 of the Schedule of the Limitation Act, 1963. The petition under Section 11 of the Act, 1996 is claimed to be hopelessly time barred.
15. Furthermore, the petitioner is attempting to sail in two boats. On one hand, the petitioner is not seeking restoration/continuation of the proceedings before the Sole Arbitrator; while on the other hand, he is seeking for the appointment of the Arbitrator by the Court on the basis of the Notice of Invocation issued earlier pursuant to which it made unilateral appointment of the Sole Arbitrator.
16. The third objection taken on behalf of the respondent is that according to the petition, cause of action arose on 21.04.2015 when the Movie was withdrawn from Public Exhibition; it further arose on 29.07.2016 when the petitioner sent the first Legal Notice followed by the Notice of Invocation on 15.11.16. The claims now sought to be agitated vide the present petition have become time barred and therefore, cannot be referred to arbitration.
17. It is, therefore, submitted that the present petition is not maintainable being barred by time and also being barred under law.
18. Learned counsel for the respondent has placed reliance on the judgment of M/s B and T AG vs. Ministry of Defence 2023 AIR (SC) 2731.
19. Submissions heard.
20. The basic facts are not in dispute. The parties entered into a Content Assignment Agreement on 08.01.2015 which was eventually terminated by the respondent on 06.06.2016 and was brought to the notice of the petitioner vide Public Notice on 14.06.2016.
21. It is not under challenge that the disputes arose under the said Agreement with respect to the payment of dues by the respondent on account of an alleged failure to perform the terms of the said Agreement. It is further not disputed that the parties had agreed for resolution of disputes through the process of arbitration vide Clause 28 of the Agreement dated 08.01.2015.
22. In the case of National Insurance Company Ltd. vs. Boghara Polyfab Private Limited (2009) 1 SCC 267, the Apex Court identified and segregated the preliminary issues that may arise in an application under Section 11 to be in three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.
23. In the first category it has to be decided (a) whether the party making the application has approached the appropriate High Court; and (b) there is a valid arbitration agreement.
24. The second category would include the following questions: (a) Whether the claim is dead (long time barred) claim or is a live claim; and (b) Whether the parties have concluded the contract by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
25. In the third category comes the issue of limitation viz-a-viz the claims that is essentially to be adjudicated by the Arbitrator so appointed by the Court except in such cases where the claim is patently on the face of it, barred by limitation. When it involves a mixed question of fact in law, the Court need not delve into such disputed facts and must leave it for the parties to agitate the issue of the claims being barred by limitation before the Arbitrator. Only when they are patently and ex facie time barred, the Court may refuse to refer them for Arbitration under Section 11 of the Act, as has been observed in the case of Bharat Sanchar Nigam Limited and Another vs. Nortel Networks India Private Limited,(2021) 5 SCC 738.
26. The objections of the respondent in the present case are threefold:
(i) firstly, the application under Section 11(6) of the Act, 1996 is not tenable as no Notice of Invocation has been given before filing the present petition;
(ii) secondly, the claims of the petitioner are barred by limitation and;
(iii) thirdly, the petition under Section 11(6) of the Act, 1996 for reference of the disputes to the Arbitrator, is also barred by time under Section 137 of the Schedule to Limitation Act having been filed beyond the period of three years from the alleged Notice of Invocation dated 29.07.2016.
27. To comprehend contentions raised on behalf of the respondent, it would be pertinent to reproduce Clause 28 of the Agreement, which reads as under :
If any dispute arises between the Parties hereto during the subsistence of this Agreement or thereafter, in connection with the validity, interpretation, implementation or alleged material breach of any provision of this Agreement or regarding a question, including the questions as to whether the termination of this Agreement by one Party hereto has been legitimate, both Parties hereto shall endeavour to settle such dispute amicably.
In case of such failure, the dispute shall be referred to a sole Arbitrator. The Arbitration and Conciliation Act, 1996, shall govern the arbitration proceedings.
The place of the arbitration shall be Delhi, India. The laws of India shall govern the arbitration proceedings.
The arbitration proceedings shall be conducted in English language. The Arbitrator’s award shall be substantiated in writing. The court of arbitration shall also decide on the costs of the arbitration proceedings. The award shall be binding on the Parties subject to applicable laws in force and the award shall be enforceable in any competent court of law.
28. The Notice of Invocation dated 29.07.2016 was admittedly served by the petitioner and pursuant thereto a Sole Arbitrator was also appointed and this was conveyed to the respondent vide Notice dated 05.09.2016. According to the petitioner, the respondent had failed to respond to the Notice conveying the appointment of the Sole Arbitrator.
29. Admittedly, the learned Sole Arbitrator took cognizance and issued a Notice dated 15.11.2016 to the respondent for conducting the first hearing on 30.11.2016. In response to this Notice, the respondent took an objection that since it is a unilateral appointment and the complete process of settlement before invoking arbitration as contemplated in the Agreement had not been followed, the proceedings before the learned Arbitrator were pre-mature.
30. It is also not in dispute that pursuant thereto the Arbitrator did not continue with the arbitration proceedings; instead the parties got into talks and negotiations for settlement which continued till 25.04.2017 after which this Petition for appointment of Arbitrator was filed on 28.11.2019.
I. Whether Notice of Invocation had been given before filing of present Petition:
31. It was agitated by the respondent that the Notice of Invocation dated 29.07.2016 was subsumed in the unlawful appointment of the Sole Arbitrator vide Notice dated 05.09.2016, and there is no fresh Notice of Invocation given by the petitioner before filing the present petition under Section 11 of the Act, 1996.
32. Section 21of the Act, 1996 provides that the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
33. In Prasar Bharti vs. M/s Multi Channel (India) Ltd. 2005 (Supp) Arb. LR 245, it was observed that the object of giving a Notice of Invocation under Section 21 is essentially to put the other party to notice that there are disputes which the party intends to refer to Arbitration. This is to enable the other party to resolve the disputes, if possible, and/or to agree on the Arbitrator in terms of the clause in their Agreement. The Notice was held to be sufficient compliance of the requirements under Section 21of the Act,1996 so long as the information regarding the dispute and the invocation of arbitration had been conveyed to the other party, even if the Notice was not directly addressed to them.
34. In the present case, the intent of initiating arbitration was conveyed through the Notice dated 29.07.2016. It was the respondent who objected to the same on account of the parties not having exhausted the pre-requisite process of amicable settlement, as incorporated in their Agreement. The learned Sole Arbitrator on account of the objection taken by the respondent, abandoned the process of arbitration. The parties entered into negotiation but the settlement talks failed on 24.05.2017. It was amply evident to the respondent that the petitioner intended to invoke the arbitration for adjudication of disputes, for which Notice of Invocation dated 29.07.16 was admittedly issued.
35. Moreover, in the backdrop of earlier Notice, the filing of the present application under Section 11 of the Act, 1996 in itself is a reiteration of intention of the petitioner to refer the disputes to arbitration.
36. In view of the above, the contention of the respondent about the lack of a valid invocation Notice, is fallacious.
II. Whether the present Petition for appointment of an arbitrator by the Court is barred by limitation:
37. In a petition for appointment of an Arbitrator, the Court has to consider two aspects namely: (i) whether the claims made in the arbitration are barred by limitation under the relevant provisions of the Limitation Act ; and (ii) whether the application under Section 21 of the Arbitration Act, 1940 (now S.11 under the Act,1996) is barred by limitation. (reference be had to the case of Union of India and Another vs. M/s L.K. Ahuja and Co.,(1988) 3 SCC 76 that)
38. The distinction between the claims being barred by time and the application for referral of disputes to Arbitration itself being barred by time was explained in the Case of J.C. Budhraja vs. Chairman, Orissa Mining Corporation Ltd. and Another, (2008) 2 SCC 444, wherein it was observed that while the limitation for the claim itself is to be calculated in a manner similar to limitation for filing of a suit; in the case of Arbitration, limitation for the filing of the Application under Section 11 of the Act, 1996 is to be calculated on the basis of the day on which the Arbitration is deemed to have commenced i.e. from the date of Notice of Invocation, as provided under Section 21 of the Act, 1996.
39. There is no provision which provides the limitation for filing of the application for Arbitration under Section 11 of the Act. In the case of M/s B and Tag (supra), it was observed that there is no specific Article in the Limitation Act, 1963, applicable to the application under Section 11 and thus, the residual Article 137 of the Schedule to the Limitation Act,1963 would become applicable and time would begin to run when the right to apply accrues as held in the case of Merla Ramanna vs. Nallaparaju and Others (1955) 2 SCR 938. The period of limitation to file an application under Section 11 is thus, three years from the date of refusal to appoint the Arbitrator or on expiry of 30 days from the Notice of Invocation, whichever is earlier.
40. However, in the case of Geo Miller (supra), the Apex Court held that in cases where the parties are involved in any negotiation process, the said period taken in pre litigation settlement talks prior to invoking Section 11 of the Act, 1996, has to be excluded while determining when the cause of action accrued. It was observed in paragraph 28 and 29 as under :
28. Having perused through the relevant precedents, we agree that on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the breaking point at which may reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This breaking point would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the partys primary interest is in securing the payment due to them, than in family disputes where it may be said that the parties have a greater stake in setting the dispute amicable, and therefore delaying formal adjudication of the claim.
29. Moreover, in a commercial dispute, while mere failure to pay may not give rise to a cause of action, once the applicant has asserted their claim and the respondent fails to respond to such claim, such failure will be treated as a denial of the applicants claim giving rise to a dispute, and therefore the cause of action for reference to arbitration. It does not lie to the applicant to plead that it waited for an unreasonably long period to refer the dispute to arbitration merely on account of the respondents failure to settle their claim and because they were writing representations and reminders to the respondent in the meanwhile.
41. In the case of M/s B and Tag (supra), after making a reference to the aforesaid observations in Geo Miller (supra), it was observed that a Court has to identify the breaking point at which any reasonable party would have abandoned the efforts to arrive at a settlement and contemplate referral of disputes for arbitration.
42. In Hari Shankar Singhania vs. Gaur Hari Singhania (2006) 4 SCC 658, the Apex Court observed that it is only when the parties reach a breaking point i.e. when the settlement with or without conciliation is no longer possible, can it be said that the cause of action has accrued for referring the matter to arbitration. The limitation period would not start so long as the parties indulge in a dialogue, even if differences surfaced during such period, as an interpretation to the contrary would inevitably compel the parties to resort to litigation/ arbitration even where there is serious hope of the parties themselves of resolving the issues. Thus, the right to apply for arbitration would accrue only on the date of the last correspondence between the parties and the period of limitation commences from the date of last communication between the parties.
43. Further, in Zillon Infraprojects Pvt. Ltd. vs. Bharat Heavy Electricals Limited 2023 SCC OnLine Cal 756, the High Court of Calcutta observed that the limitation period shall not be operative during the period the parties were in mutual discussion to resolve the disputes.
44. In this regard, reference may be made to the judgement of this Court in Welspun Enterprises Ltd. vs. NCC Ltd., (2022) 295 DLT 286 wherein it was observed that the period of limitation would run when a party acquires a right to refer the dispute to arbitration. If the arbitration Agreement requires the parties to exhaust the dispute resolution process as a pre-condition for invoking arbitration, the right to refer the dispute to arbitration would arise only after the parties have exhausted the said procedure. It the parties have agreed that they would first endeavour to resolve the disputes amicably in a particular manner, it is necessary for them to first exhaust that procedure before exercising any right to refer the disputes to arbitration.
45. In the present case, Clause 28 of the Agreement dated 08.01.2015 requires the parties to attempt at amicably settling the disputes before resorting to arbitration. The respondent had itself objected to Notice of Invocation dated 29.07.2016 and appointment of Arbitrator pursuant thereto, in the light of settlement process as contemplated in the Agreement, not having been exhausted by the Petitioner. The proceedings before the Arbitrator was consequently abandoned by the petitioner as the respondent not only objected to the unilateral appointment of the Sole arbitrator, but also objected to the commencement of arbitration without exhausting the amicable settlement mechanism.
46. It is the admitted position of the parties that thereafter they actively engaged in a settlement process through e mails, meetings from 29.07.2016 to 25.04.2017. In these circumstances, the period taken in mutual discussions, has to be necessarily excluded.
47. The Notice for invoking arbitration is dated 29.07.2016. Prima facie, while considering the period of limitation for the present Petition under Section 11 of the Act, 1996 which was filed on 28.11.2019, on exclusion of the period from 29.07.2016 to 25.04.2017 taken in settlement negotiations, the present petition is well within the period of three years as provided under Article 137 of the Schedule to The Limitation Act,1973.
48. The present application under Section 11 of the Act, 1996 is therefore, held to be filed within the period of limitation. In the light of the aforesaid discussions, it is held that the arbitration has been invoked validly in accordance with law.
III. Whether claims raised by the petitioner are barred by limitation:
49. Having concluded that the petitioner has validly invoked arbitration under Clause 28 of the Agreement, the third aspect for consideration is whether the claims raised by the petitioner are barred by limitation. The essence of Arbitration is timely commencement of the mechanism, in terms of the Arbitration Agreement as soon as the differences or the disputes arise between the parties. Delay defeats justice and equity aid the promptitude and resultant consequences. Defaulting party should bear the hardship and should not transmit the hardship to the other party, after the claim in the cause of arbitration was allowed to be barred as observed by the Apex Court in M/s B and TAG vs. Ministry of Defence, 2023 AIR (SC) 2731.
50. It was further observed that the proceedings before the Arbitrator in the Arbitration, are like civil proceedings before the Court, within the meaning of Section 14 of the Limitation Act. By consent, the parties substitute the Court by an Arbitrator, to adjudicate their disputes. It is, therefore, open to the parties in the proceedings before the Arbitrator, to set up limitation as defence as is done in the civil suits.
51. In Russel on Arbitration, 19th Edn., it was observed that the period of limitation for commencing an Arbitration runs from the date on which the cause of Arbitration accrued i.e. from the date when the claimant first acquired either a right of action or a right to require that an Arbitration takes place upon the dispute concerned.
52. In the decision of Panchu Gopal Bose vs. Board of Trustees for Port of Calcutta, (1993) 4 SCC 338, the Apex Court made a reference to the observations made in West Riding of Yorkshire County Council vs. Huddersfield Corpn.,(1957) 1 All ER 669, wherein Lord Goddard C.J., (as he then was) held that the Limitation Act applies to Arbitrations as it applies to actions in the Court. If a claim is made after it has become barred under the statute, the plea of limitation can be raised.
53. In Panchu Gopal (supra), it was thus concluded that the period of limitation for the commencement of an Arbitration runs from the date on which the cause of action would have accrued. Thus, the cause of action becomes important for the purpose of calculating the limitation period for bringing an action. It is imperative that a party realizes when a cause of action arises.
54. In the case of Major (Retd.) Inder Singh Rekhi vs. Delhi Development Authority, AIR 1988 SC 1007 it was held that existence of a dispute is essential for the appointment of the Arbitrator under Section 8 of the Act, 1996. The dispute can only arise when the claim is asserted by one party and denied by the other on whatsoever grounds. Mere failure or inaction to pay does not lead to the inference about the existence of a dispute as the expression dispute contains a positive element of assertion and in denying and merely an inaction to accede to a claim or a request. Therefore, to be entitled for a reference of dispute under the Arbitration Act, it is essential that firstly, there should be an Arbitration Agreement and secondly, differences must have arisen under the Agreement. Once a cause of action has arisen, a party cannot postpone the accrual of cause of action by writing reminders.
55. It remains to be determined as to when the cause of action is said to have arisen or accrued in favour of the claimant. The Calcutta High Court in Dwijendra Narain Roy vs. Joges Chandra De and Others, AIR 1924 Cal 600, placed reliance on Coburn vs. Colledge, (1897) 1 Q.B. 7O2 to explain that the true test of determine when a cause of action can be said to have accrued is when there is in existence a person, who can sue and another, who can be sued and when all the facts have happened, which are material to be proved to entitle the plaintiff to succeed. It was observed that the cause of action arises only when a person has a right to apply to the proper Tribunal.
56. Consequently, the true test to determine whether cause of action has accrued is to ascertain when the plaintiff could have first maintained his action for a successful result.
57. The limitation period for invocation of Arbitration would be three years under Article 137 of the Schedule to the Limitation Act, 1963 from the date of the cause of action, as held in the case of Geo Miller (supra).
58. Section 21 of the Act,1996 provides that the arbitral proceedings in respect of a particular dispute, commences on the date on which a request for that dispute to be referred to arbitration, is received by the respondent. The Notice of Invocation in the present case was issued by the petitioner on 29.07.2016 which was within a month of termination of the Contract on 06.06.2016. As already discussed above, the period from 29.07.2016 to 24.05.2017 has to be excluded having been consumed in negation talks for settlement. Therefore, the process of redressal of the disputes commenced on 29.07.2016 which was well within the time from the date of accrual of cause of action on termination of the Contract. The Claims/ disputes raised in the present case are prima facie not barred by limitation. However, this discussion is solely for the purpose of adjudication of the present petition under Section 11 of the Act,1996 and does not tantamount to expression on the merits of the claims. The parties are at liberty to raise their rival claims before the Arbitrator appointed under this Petition.
Conclusion:
59. Considering that there is a valid Arbitration Agreement between the parties and in the light of the facts and above discussion, Mr. Vinay Kumar Gupta, Retired District & Sessions Judge, Mobile No. 9910284701, is hereby appointed as the Sole Arbitrator to adjudicate the disputes between the parties.
60. In view of the submissions made, the petitioner has raised arbitrable disputes and there being a valid Arbitration Clause between the parties, the present petition is allowed.
61. The parties are at liberty to raise their respective objections before the Arbitrator.
62. This is subject to the Arbitrator making necessary disclosure as under Section 12(1) of A&C Act, 1996 and not being ineligible under Section 12(5) of the A&C Act, 1996.
63. The fees of the learned Arbitrator would be fixed in accordance with the Fourth Schedule to A&C Act, 1996 or as consented by the parties.
64. Learned counsels for the parties are directed to contact the learned Arbitrator within one week of being communicated a copy of this Order to them by the Registry.
65. The learned Arbitrator is directed to conduct the arbitral proceedings in the precincts of the DIAC, Delhi High Court.
66. A copy of this Order be also forwarded to the learned Arbitrator, for information.
67. The petition is accordingly disposed of in the above terms.
(NEENA BANSAL KRISHNA)
JUDGE
FEBRUARY 07, 2024
va/Ek/RS
ARB.P. 835/2019 Page 1 of 18