ELECTRONICS & CONTROLS Vs. WEP PERIPHERALS LIMITED

JUDGEMENT

(1.) PETITIONER Company is engaged in the design, development, manufacture, assembly, selling and maintenance of Uninterruptible Power Systems, inverters, hardware, software and components thereof. Respondent company is engaged in the manufacture and sale of computer peripherals, printers etc., The petitioner company and respondent company agreed to have business relationship with each other. Thus on 29.9.2006 the petitioner and the respondent entered into a "Business Participation Agreement" ('BPA' for short) to achieve the objective of participating and enhancing the business growth of each other as per Annexure-A. On the very day, another agreement styled as "Distributorship Agreement" ('DA' for short) was also entered into between the parties and in terms thereof, the petitioner agreed to concentrate on the design and manufacture of UPS in the online segment and the respondent agreed to concentrate on marketing, sales and service of the online UPS as per Annexure-B. The BPA was for a period of three years from 29.9.2006. Subsequently, the problems have cropped up between the parties with regard to business transactions and consequently, there were exchange of E.mails between the parties in the month of February and March-2007 as per Annexure-E. According to the petitioner, the respondent is liable to pay the balance sum of Rs.250 lakhs alongwith the amount incurred by the petitioner towards interest and that the respondent has not implemented Clause-7(d) of the agreement resulting in loss of name, fame and reputation of the petitioner. It is further stated by the petitioner that the respondent has failed to fulfill all their obligations under both the agreements. However in order to explore the possibility of working out a different arrangement of business participation, the parties have reduced their discussion in the form of a Memorandum of Understanding ('MOU' for short) on 28.12.2007 as per Annexure-T. Further case of the petitioner is that the said MOU was a complete non-starter from its inception inasmuch as the respondent did not invest Rs.500 lakhs in the equity share capital of the petitioner as required under the MOU and therefore the parties continued to be bound by the agreements at Annexures-A and B i.e., BPA and DA. Since the disputes between the petitioner and the respondent are arbitrable as per Clause-32 of the BPA and Clause 10.9 of the DA and as the respondent has failed to pay the claim to the petitioner company as requested in the notice Annexure-V, the petitioner issued legal notice as per Annexure-X dated 24.3.2011 invoking arbitration clause for appointment of arbitrator. The respondent did not agree for appointment of arbitrator and redressal of disputes through arbitral process. Hence this petition is filed under Sections 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996 ('the Act' for short) praying for appointment of sole arbitrator for adjudication of the dispute between the parties under the agreements dated 29.9.2006 vide Annexures-A and B.

(2.) THE petition is opposed by the respondent vehemently. According to the respondent, there is no valid and subsisting arbitration agreement between the parties; that the City Civil Court, Bangalore in Arbitration Application No.239/2010 while deciding the petition filed under Section-9 of the Act, has already determined that there is no valid and subsisting arbitration agreement between the parties. The petitioner has nowhere in the petition referred the order dated 30.3.2010 passed by the City Civil Court in Arbitration Application No.239/2010. By the MOU duly signed by the parties on 28.12.2007, the parties have entered into new arrangement altogether by terminating BPA and DA entered into on 29.9.2006 and consequently the arbitration agreement entered into between the parties pursuant to agreements Annexures-A and B also came to an end. Clause-22 of the MOU entered into between the parties clearly reveals that all preceding agreements/ MOUs including the one signed in September-2006 stand cancelled. The MOU entered into between the parties provide for new arrangement altogether inasmuch as the amount of Rs.200 lakhs paid under the BPA as financial assistance to the petitioner was agreed to be treated as share application money. The MOU dated 28.12.2007 entered into between the parties is given effect to by the petitioner. Inspite of the same, the petitioner with an ulterior motive has invoked the arbitration clause under the terminated contract. The sum and substance of the case of the respondent is that the MOU entered into between the parties on 28.12.2007 terminates the earlier two agreements viz., BPA and DA vide Annexures-A and B and as the MOU does not contain the arbitration clause, it is not open for the petitioner to approach the Court seeking reference of the matter to the Arbitral Tribunal for adjudication. On these among other grounds, the respondent has prayed for dismissal of the petition.

(3.) AS has been held by a seven-Judge Bench of the Apex Court in the case of SBP & CO., ­vs- PATEL ENGINEERING LIMITED reported in (2005)8 SCC 618, the power conferred on the Chief Justice under Section 11(6) of Act is not merely an administrative power, but it is a judicial power. The Chief Justice or his designate as the case may be is not conferred with the power as a persona designata under Section-11(6) of the Act. The power is conferred on the highest judicial authority in the country and in the State in their capacities as Chief Justices. So also Section-9 of the Act enables the Civil Court to decide whether it has jurisdiction, whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by that agreement. There is no indication in the Act that the powers of the Court are curtailed on these aspects. On the other hand, Section-9 of the Act insists that once approached in that behalf, the Court shall have the same power for making orders as it has for the purpose of and in relation to, any proceedings before it. As the power exercised by the Chief Justice under Section- 11(6) of the Act is not an administrative power, but a judicial power, the Chief Justice or the designated Judge has got a right to decide the preliminary aspect. It is the jurisdiction of the Chief Justice or the designated Judge to entertain the request to find out as to whether there exists a valid arbitration agreement or not. This means, there is no bar for this Court while acting under Section-11 of the Act to decide as to whether there exists a valid arbitration agreement or not. In other words, the finding arrived at by the Civil Court while deciding the petition under Section-9 of the Act with regard to the existence of the valid arbitration agreement will not deter this Court from deciding the said question while hearing the petition under Sections 11(5) and 11(6) of the Act.