GA No. 143 of 2012
AP No.139 of 2011
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
GHANSHYAM SHARMA and; ANR.
SOUTH CITY PROJECTS (KOLKATA) LIMITED
The Hon'ble JUSTICE SANJIB BANERJEE
Date : 31st January, 2012.
Mr. Utpal Bose, Adv.
Mr. Supratim Laha, Adv.
Mr. Sumanta Biswas, Adv.
Mr. Arnab Sardar, Adv.
..for the petitioners
Mr. Abhrajit Mitra, Adv.
Mr. Jishnu Chowdhury, Adv.
..for the respondent
The Court : GA No. 143 of 2012 is an application for recalling an order dated December 22, 2011 passed on a request under Section 11 of the Arbitration and Conciliation Act, 1996. In view of the grounds shown, the order dated December 22, 2011 is recalled and 2
AP No.139 of 2011 is restored to the file. G.A.No.143 of 2012 is allowed without any order as to costs.
By consent of the parties, AP No. 139 of 2011 is immediately taken up by treating the matter as on the day's list. The request under section 11 of the Arbitration and Conciliation Act, 1996 has been carried to the Chief Justice of this Court or his designate on the strength of the reference to a previous agreement contained in a clause of the deed of conveyance executed between the parties. The petitioners are the owners of a flat at the South City Complex. The petitioners have a grievance against the developer on account of alleged poor workmanship, the developer acting contrary to the specific representation as to the use of the space and in the developer attempting to sell space beyond its entitlement to unjustly enrich itself by leaving the complex cluttered. At the time that the petitioners applied for a flat at the complex there was an agreement entered into between the parties which has been referred to in the deed of conveyance as the first declaration. Under such first declaration the developer undertook certain obligations and the petitioners' present grievance is that the developer's conduct is in breach of the obligations contained in the first declaration. There was a further document executed by the parties 3
which has been referred to in the deed of conveyance as the second declaration. The following clauses of the deed of conveyance are relevant:
"5.4 To enable the intending purchasers of flats/apartments/units to acquire on ownership basis a flat/apartment/unit in all the buildings to be constructed on the Residential Zone, the First Vendor had executed a Declaration of the Standard Terms and Conditions dated 31st August 2005 registered at the office of the District Sub Registrar-I, South 24 Paraganas in Book No.1, Volume No.186, Pages 106 to 138, Being No.02715, for the year 2005 (hereafter the 'First Declaration') which expressly provides that the First Vendor shall have the right to alter and/or modify and/or amend the terms and conditions of the First Declaration."
"5.7 Accordingly, the First Vendor caused another Declaration dated 30th January, 2009 to be executed which was registered at the office of the Additional District Sub Registrar, Alipore, South 24 Paraganas in Book No.1, CD Volume No.3, Pages 1606 to 1616, Being No.00540 for the year 2009 (hereafter the 'Second Declaration')." "6.3 Observance of covenants: The Vendors and the Purchaser do hereby mutually covenant with each other to observe, perform and fulfill all the covenants, stipulations and conditions contained in the Declarations 4
and not to commit any breach or to fail or refuse to perform any of them in any circumstances whatsoever and acknowledges that the observance thereof is for the benefit of all the Apartment Owners."
There is no dispute between the parties that the first declaration contained an arbitration clause. The petitioners suggest that in the deed of conveyance referring to the first declaration and in clause 6.3 thereof requiring, inter alia, the observance of the terms of the first declaration, there is ample indication in the deed of conveyance that the entirety of the first declaration remains alive and the petitioners are, as such, entitled to invoke the arbitration clause contained in the first declaration.
On the petitioners' understanding that the arbitration clause could be invoked, the petitioners addressed a letter dated September 24, 2010, barely ten days after the execution of the deed of conveyance, to the respondent and its board of directors. The 12-page letter is a veritable litany of complaints against the developer and the developer having acted in derogation of the petitioners' rights and contrary to the representations made in the two declarations. The 20th paragraph of the letter of September 24, 2010 reads as follows: "In view of the aforesaid disputes and differences, my clients are invoking clause 10.19 of the said STC and 5
request you to appoint an independent and impartial person preferably a Retired High Court Judge to decide such disputes. My clients are agreeable and in case you also agree to nominate, to appoint the Hon'ble Mr. Justice Chittatosh Mookejee (Retired Chief Justice of Bombay High Court) as the Sole Arbitrator in terms of clause 10.19 of the said STC within a period of 30 days from the date of receipt of this notice, failing which my clients shall be constrained to take appropriate steps in accordance with law and for which the said Company shall be held responsible for all costs and consequences." The respondent replied on November 4, 2010, asserting that the first declaration, or the arbitration clause contained therein, provided that "in the event of there being any disputes and differences the same will be referred to a person who may be nominated by the Board of Directors of South City." The respondent suggested in such letter that since the petitioners had nominated a person as arbitrator, there was no invocation of the arbitration agreement in terms thereof which absolved the appointing authority of the obligation to initiate a reference.
The present request has been carried on the ground that there was a valid invocation of the arbitration agreement and the 6
respondent refused to nominate an arbitrator in accordance therewith.
In the affidavit-in-opposition filed on behalf of the respondent in course of the present proceedings, there does not appear to be any clear assertion that there is no arbitration agreement between the parties. It is only in a supplementary affidavit filed after the petitioners' reply was received that the respondent has alleged that there is no subsisting arbitration agreement between the parties. The other point canvassed on behalf of the respondent is that in the petitioners executing the deed of conveyance, the petitioners have waived all of the grievances that have been referred to in the letter dated September 24, 2010 and there is no live dispute to go to arbitration even if it is found that there is a subsisting arbitration agreement between the parties.
The petitioners emphasize on the word "observe" in Clause 6.3 of the deed of conveyance and say that though the other words in the clause refer to the commercial terms in the first declaration, the word "observe" would imply that the arbitration agreement contained in the first declaration had also to be honoured by the parties and had been incorporated in the deed of conveyance by necessary implication. The petitioners suggest that if the obligations under a previous agreement 7
are kept alive under a subsequent agreement between the same parties and the previous agreement contains an arbitration clause but the subsequent agreement does not, the clear intention of the parties to exclude the arbitration agreement must be assessed before it can be said that there is no arbitration agreement between the parties. In such context, the petitioners refer to a judgment reported at (1995) 6 scc 571 (J. K. Jain v. Delhi Development Authority) where the Supreme Court found that the arbitration clause contained in the tender documents governed the mechanism for dispute resolution between the parties to that matter notwithstanding the subsequent agreement not specifically incorporating the arbitration clause from the tender documents. However, it is evident from the judgment that the Supreme Court found that the contractor had signed every page of the tender documents including the page containing the arbitration clause and, on facts, held that there was nothing in the subsequent agreement to indicate that the arbitration clause contained in the tender documents had been excluded.
Nothing in the judgment in J.K. Jain detracts from the principle that an arbitration clause in a previous agreement would not get incorporated into a subsequent agreement by the mere reference to 8
the previous agreement unless specifically included or, by practice or convention, be deemed to be specifically included. The principle is as old as the hills. Generally, the reference to a previous agreement containing an arbitration clause and the requirement of the obligations under the previous agreement to be performed under a subsequent agreement would imply that the commercial and other terms of the previous agreement would continue to be in force. Ordinarily, a reference to a previous agreement or the terms thereof would not imply that an arbitration clause contained in the previous agreement would be incorporated by implication in the subsequent agreement unless the arbitration agreement had been specifically referred to and included. The law on such aspect has now been recognized by the Supreme Court in a judgment reported at (2009) 7 SCC 696 (M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd.). Paragraph 24 of the report is apposite in the context and conclusive on such aspect:
"24. The scope and intent in Section 7(5) of the Act may therefore be summarised thus:
(i) An arbitration clause in another document would get incorporated into a contract by
reference, if the following conditions are
(1) the contract should contain a clear reference to the documents containing
(2) the reference to the other document should clearly indicate an intention to
incorporate the arbitration clause into the contract,
(3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract
and should not be repugnant to any term
of the contract.
(ii) When the party entered into a contract, making a general reference to another contract, such general reference would not
have the effect of incorporating the arbitration clause from the referred document into the
contract between the parties. The arbitration clause from another contract can be incorporated into the contract (where such
reference is made), only by a specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the execution or performance of the
contract shall be in terms of another contract (which contains the terms and conditions
relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and
conditions of a trade association or architects association) will bind them or apply to the contract, such standard from the terms and
conditions including any provision for arbitration in such standard terms and conditions shall be deemed to be incorporated by reference. Sometimes the contract may
also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the
general conditions of contract of the Government where the Government is a
party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties."
Even in the discussion that preceded the Supreme Court's reasoning in the J. K. Jain judgment, there is a reference in the report to a passage from the revered text on arbitration by Mustill and Boyd and the exception carved out in the relevant passage was that if an agreement referred to a standard form of a contract or a particular trade usage which implied the incorporation of an arbitration agreement, the mere reference to the standard form or the trade usage would suffice without the arbitration clause being specifically incorporated in the subsequent agreement. The rule ordinarily applies in commercial matters governed by charter-parties where standard forms of charter-parties or agreements are in vogue. The petitioners' second line of argument is that even if the deed of conveyance did not specifically incorporate the arbitration clause from the first declaration, in view of Section 7(4) of the Arbitration and Conciliation Act, 1996, there would be a deemed arbitration agreement between the parties based on the petitioners' assertion of such an agreement in the letter dated September 24, 2010 and the respondent's acceptance of the arbitration agreement in its response 12
of November 4, 2010. The petitioners also point out that it is only by way of an afterthought that the respondent has denied the existence of the arbitration agreement in a supplementary affidavit filed in course of the present proceedings though such stand is a departure from the stand originally taken in the respondent's principal affidavit. There are two reasons why the petitioners' second line of argument does not appeal. First, clauses (b) and (c) of Section 7 (4) of the Act operate as a corroboration of an arbitration agreement when there is no primary document recording the arbitration agreement. It is not the petitioners' case that an arbitration agreement came into being upon the petitioners asserting it and the respondent not denying it in course of the correspondence exchanged in September and November, 2010. The petitioners' case is that there was already an arbitration agreement between the parties and that the petitioners asserted such agreement which the respondent did not deny in the letter of November 4, 2010. Secondly, it is the following sub-section of Section 7 of the Act which is the more apposite in the context and the Supreme Court's interpretation of Section 7(5) of the Act in M. R. Engineers is a complete answer on such aspect. There is a more fundamental basis on which the petitioners' submission on the strength of Section 7(4) of the Act cannot be 13
accepted. If there is an arbitration agreement contained in a document signed by the parties, the requirement of Section 7(4) is complete and one need not progress to clauses (b) and (c) thereof. It is only if there is no document signed by the parties containing an arbitration agreement or the document is in dispute as to its physical existence would a party asserting an arbitration agreement need to fall back on the two further limbs of Section 7(4) of the Act. In the absence of a document signed by the parties containing the arbitration agreement, clauses (b) and (c) of Section 7(4) of the Act lay down the rules of evidence to construe whether there is an arbitration agreement between the parties. The petitioners' submission on such score by relying on Section 7(4) of the Act runs contrary to the case made out in the petition that the deed of conveyance incorporated the arbitration agreement contained in the first declaration by a reference therein to the first declaration.
Since arbitration in its most rudimentary form is based on the consensus of the parties, it was possible for the court to conclude that the arbitration clause of the first declaration had been incorporated in the deed of conveyance if the respondent herein had not denied the existence thereof. It would have implied, that notwithstanding the arbitration clause in the first declaration not having been specifically 14
referred to in the deed of conveyance, the parties understood it to have been incorporated therein. But implicit in the respondent's denial - albeit belated - of the existence of the arbitration agreement is the respondent's assertion that there was a mistaken interpretation of the deed of conveyance in the respondent's letter dated November 4, 2010.
In view of the law governing the aspect that an arbitration agreement is not to be seen to have been incorporated in subsequent agreement unless specifically referred to, Clause 6.3 of the deed of conveyance cannot be read to have kept the arbitration agreement alive along with the commercial terms contained in the first declaration executed between the parties.
There does not appear to be any subsisting arbitration agreement between the parties. As a consequence, the present request under Section 11 of the 1996 Act cannot be entertained and A.P. No. 139 of 2011 is dismissed as not maintainable. In the light of it being found that the arbitration agreement contained in the first declaration was not incorporated in the deed of conveyance or made applicable thereto, no other aspect of the matter has been gone into and the parties are left to work out their remedies in accordance with law.
There will be no order as to costs.
Urgent certified photocopies of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities. (SANJIB BANERJEE, J.)