INDUS TOWERS LIMITED vs. SISTEMA SHYAM TELESERVICES LTD.

* IN THE HIGH COURT OF DELHI AT NEW DELHI

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% Judgment Reserved on: 19 May, 2016
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Judgment Pronounced on: 23 May, 2016

+ Arb. P. No.272/2016
INDUS TOWERS LIMITED ..... Petitioner
Through Mr.Rajiv Nayar, Sr. Adv. with
Mr.L.K.Bhushan, Mr.Saurabh Seth
& Ms.Raashi Beri, Advs.

versus

SISTEMA SHYAM TELESERVICES LTD. ..... Respondent
Through Mr.Akhil Sibal, Adv. with Mr.Shivek
Trehan, Ms.Fareha Ahmad Khan,
Mr.Utkarsh Saxena, Ms.Nidhima
Sareen, Mr.Nikhil Chawla &
Ms.Jhanavi Mitra, Advs.

CORAM:
HON'BLE MR.JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

1. The petitioner has filed the present petition under Section 11(4)
of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as
the ‘Act’) seeking to appoint the nominee Arbitrator on behalf of the
respondent as according to the petitioner, the respondent has rejected
the reference of the disputes to arbitration who has also failed to
appoint its nominee Arbitrator as required under the Dispute
Resolution Clause under the Master Services Agreement (in short,
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called the “MSA”) dated 25 February, 2009 signed between the
petitioner and the respondent.
2. The brief facts of the case as per the petition are that the parties
admittedly had entered into the MSA, whereby the respondent availed
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of the passive infrastructure services provided by the petitioner in
various telecom circles throughout India, in consideration for fees to be
paid to the petitioner as stipulated under the MSA. The petitioner
raised invoices on the respondent-Company for the same, but the said
amount remained unpaid by the respondent-Company.
3. The MSA stipulates that the respondent is liable to pay to the
petitioner 'Exit Amount' as prescribed under Clause 19.2 and Schedule
5 of the MSA, in the event that it terminates the MSA or exits from the
telecom sites under the MSA prior to the expiry of its term.
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The petitioner received a letter dated 21 February, 2013 from
the respondent whereby the respondent terminated its services in 10
service areas/telecom circles, out of which the petitioner was providing
passive infrastructure services to the respondent at 133 sites in 3
telecom circles, namely Punjab, Haryana and Andhra Pradesh.
4. In the above said letter, the respondent stated that pursuant to
the 2G judgment (judgment of Supreme Court in Centre for Public
Interest Litigation v. Union of India (2012) 3 SCC 1), 21 of its
licenses were cancelled and hence, it was terminating its services with
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effect from 23 March, 2013 in the said 3 circles. It was also stated
that this circumstance was beyond its control, falling under Force
Majeure, thus, the respondent is not liable to pay the lock-in
charges/Exit Amount consequent to the early termination of the
services. The petitioner rejected the stand of the respondent.
5. After the expiry of couple of years, the petitioner sent a demand
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letter dated 10 March, 2016 to the respondent, asking it to make
payment of the outstanding amounts to the petitioner within two days.
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6. Thereafter, the petitioner sent letters dated 7 March, 2016 and
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11 March, 2016 to the respondent, thereby invoking Clause 21.1.1 of
the MSA and referring the disputes between the parties to the
Relationship Managers of both petitioner and respondent, as
contemplated under the Dispute Resolution Clause under the MSA.
The Relationship Manager of the petitioner also sent a letter
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dated 11 March, 2016 to the respondent vide e-mail of even date,
sent at 1.56 p.m. to the Relationship Manager of the respondent who
agreed to meet with the Relationship Manager of the petitioner on the
same day at 3.00 p.m. in the office of the respondent.
7. It is alleged by the petitioner that the Relationship Manager of
the petitioner left for meeting and went to the office of the respondent
where he was informed that due to some change in plan, the scheduled
meeting cannot take place. The petitioner's Relationship Manager was
also informed that an email has been sent by Relationship Manager of
the respondent about his inability to meet due to some sudden urgent
engagement and next suitable meeting time would be informed by the
respondent to the petitioner shortly. It is averred in the petition that
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the petitioner at around 5.00 pm on the same day, i.e., 11 March,
2016, the respondent sent another email to the petitioner, wherein the
respondent, instead of trying to resolve the disputes through
discussion and scheduling a meeting between the Relationship
Managers, did not eager or made any efforts to resolve the disputes
through the Internal Escalation mechanism as provided under Clause
21.1.1 of the MSA.
8. It is submitted by the petitioner that though from the aforesaid
conduct of the respondent, the entire Internal Escalation mechanism
provided under Clause 21.1 of the MSA stood failed, still in order to
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settle the disputes between the parties amicably, the petitioner wrote a
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letter dated 11 March, 2016 to the respondent, invoking Clause
21.1.2 of the MSA and referring the disputes between the parties to
the Chief Technical Officers of both the parties asking them to resolve
the said disputes.
9. It is not in dispute that Clause 21.2 of the MSA stipulates that
the if the Chief Technical Officers of the petitioner and the respondent
are unable to resolve the disputes referred to them within 5 business
days of the disputes having been referred to them, then either party
may, in writing refer the disputes to Arbitration. The petitioner says
that as the disputes referred to the Chief Technical Officers could not
be resolved within 5 business days despite of all efforts by the
petitioner. As the stipulated period for informal dispute resolution as
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prescribed in MSA had expired, the petitioner on 19 March, 2016,
sent a notice invoking arbitration to the respondent, referring all
disputes between the parties arising out of the MSA to arbitration and
nominating Justice (Retd.) Vikramajit Sen as its Nominee Arbitrator.
10. The main case of the petitioner now is that in response to the
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letter dated 25 March, 2016 to the notice invoking arbitration dated
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19 March, 2016, the respondent has without any cogent reasons
rejected the reference of the disputes to arbitration in order to avoid
payment of the outstanding amount due by rejecting the reference of
disputes to arbitration, who also failed to appoint a nominee Arbitrator,
as required under Clause 21.3.1 (ii) of the MSA.
Therefore, the respondent has lost its right to appoint its
nominee Arbitrator for adjudication of the disputes between the parties
by the Arbitration Panel. Thus, the prayer is made in the present
petition to appoint a suitable Arbitrator by this Court under Section
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11(4) of the Act to arbitrate upon the disputes between the parties
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arising from the MSA dated 25 February, 2009.
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11. Clause 21 of the MSA dated 25 February, 2009 prescribes for
Dispute Resolution Procedure and provides for an internal escalation
mechanism to be employed by the parties to attempt to settle disputes
arising out of the MSA, failing which the disputes are to be referred to
Arbitration. The relevant Clauses of the MSA are reproduced
hereinbelow:
“21. Dispute Resolution Procedure
……
21.2 Dispute Remedies
If, within five Business Days of a Dispute having been
referred to the individuals specified in Clause 21. 1.2 no
agreement has been reached (or such longer period as the
parties may agree in writing), then either party may by
notice in writing to the other Party refer the disputes to
binding arbitration in accordance with the Arbitration and
Conciliation Act, 1996, as amended.
21.3 Arbitration
……
(ii) the arbitration shall be conducted in English by an
arbitral tribunal consisting of three arbitrators. For the
purpose of such arbitration, each Party shall appoint one
arbitrator and the third arbitrator shall be appointed by
mutual agreement by the two arbitrators so appointed (the
“Arbitration Panel”)”

12. The petitioner is claiming inter alia the following reliefs as
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mentioned in the notice for invocation dated 19 March, 2016:
“(i) An order directing SSTL to pay outstanding Exit
Amount of around Rs.87,80,51,993/- (Rupees Eighty
Seven Crores Eighty Lakhs Fifty One Thousand and-Nine
Hundred and Ninety Three Only) account of the
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termination of the MSA in 6 circles prior to the expiry of its
term,
(ii) An order directing SSTL to pay the outstanding
amount of Rs. 4 Crores on account of services availed by
SSTL in the 6 circles from which it exited from the MSA
prior to the expiry of its term, which includes Rs. 1.1 Crore
as principle outstanding amount and Rs. 2.9 crore as
interest billed for delayed payments.
(iii) An order directing SSTL to pay the outstanding
amount of Rs.23,83,22,374/- (Rupees Twenty Three
Crores Eighty Three Lakhs Twenty Two Thousand Three
Hundred and Seventy Four Only) payable by SSTL to Indus
on account of services availed by SSTL in the 10 circles
wherein SSTL continues to avail services under the MSA,
which includes Rs.14,55,75,484/- (Rupees Fourteen Crore
Fifty Five Lakhs Seventy Five Thousand Four Hundred and
Eight Four Only) as principle outstanding amount and
Rs.9,27,46,890/- (Rupees Nine Crore Twenty Seven Lakhs
Forty Six Thousand Eight Hundred Ninety) as interest billed
for delayed payments.
(iv) Pendente lite and future Interest
(v) Costs.”

13. It is pertinent to mention that the petitioner while invoking the
arbitration under clause 21.2 of the agreement in para 13 of the notice
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dated 19 March, 2016 has informed to the respondent that the
petitioner has nominated its nominee arbitrator and called upon the
respondent to nominate its nominee Arbitrator within 30 days of
receipt of this notice.
14. No formal reply to the present petition is on record on behalf of
the respondent. Counsel for the respondent, however, referred the
reply to notice of invocation of arbitration issued by the petitioner. In
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reply dated 25 March, 2016 to invocation of arbitration, the specific
plea is taken that the petitioner has failed to act in accordance with the
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Dispute Resolution Procedure prescribed under the MSA. The said
communications, which pertain to purported claims having arisen in
the year 2013 or prior thereto, have been hastily issued by the
petitioner within a span of two weeks without giving the respondent
adequate time to respond to the same. The same were highlighted
from the series of following correspondences issued by the petitioner
as referred by the respondent in its reply. The details taken from the
reply are mentioned as below:-

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15. It is mentioned by the respondent in its reply that the petitioner
has failed to raise its claims for the past several years and now the
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petitioner is attempting to re-agitate time barred and other abandoned
claims without complying with the mechanism prescribed under the
Dispute Resolution Clause of the MSA. The demands as raised in
paragraph 14(i) and (ii) of notice are arbitrary demands. As far as the
purported demand at paragraph No.14(i) with respect to payment of
Exit Charges under the MSA is concerned, it is stated that the same is
patently time barred and same is not liable to be paid in view of the 2G
judgement passed by Supreme Court of India.
With regard to purported claim referred to in paragraph 14(ii) of
the notice under reply, the same is disputed by the respondent. The
principal amount of Rs.1.1 crores claimed by the petitioner towards
services purportedly provided by the petitioner prior to the termination
of the MSA is also time barred and is not liable to pay the same. The
demand raised for an amount of Rs.2.9 crores as interest billed for
delayed payments has never been raised prior to the communications
issued in March, 2016. The said demand is also barred by limitation.
As regards the claim referred to in paragraph 14(iii), the respondent
asked the petitioner to furnish details and full particulars along with
supporting documents including copy of the invoices, proof of
submission of the invoices, in order to examine the purported claim by
the respondent.
16. In a nut shell, it was mentioned in the reply to the notice of
invocation that the demand was unlawful and arbitrary in reference to
the purported claims raised by the petitioner at para 14(i) and (ii) in
the communication under reply. In so far as the purported claim at
para 14(iii) is concerned, the petitioner was requested to furnish
necessary details of the claim.
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17. It is the admitted position that the notice of invocation was
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issued on 19 March, 2016 wherein 30 days time was given to
nominate the respondent’s Arbitrator, the reply was given by the
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respondent on 25 March, 2016 which is less than a period of one
week.
18. The argument of the learned Senior counsel appearing for the
petitioner is that once respondent has rejected the reference, it has
lost its right of 30 days time mentioned by the petitioner in its notice.
Therefore, the petitioner is entitled to file the petition even before
expiry of 30 days. And once the petition is filed, the respondent (who
has lost its right because of rejection of reference) has no right to
appoint its own nominee Arbitrator even within the period of 30 days
time granted by the petitioner in its notice.
Learned counsel says that even if any appointment is made
within 30 days by the respondent, no effect can be given. It is now for
the Court to appoint the nominee Arbitrator on behalf of the
respondent. Counsel, however, has not denied the fact that the
respondent has nominated its nominee within 30 days period within
the time period mentioned in the notice of invocation of arbitration. He
says that such appointment was bad and contrary to the settled law
although his client has highest regard and respect to the learned
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Arbitrator who has been appointed by the respondent on 8 April,
2016. He further submits that in view of amendment of Act, now the
order passed under Section 11 is not to be treated as judicial order
thus strict provision of the law is to be applied. Liberal approach
cannot be taken. He has referred the decision of this Court passed on
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7 January, 2011 in Arb.P. No.24/2010, titled as Indian Potash
Limted v. Bohra Industries Ltd.
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19. Counsel further submits that even under Section 11(6) of the
Act, no time is prescribed, therefore no advantage can be derived by
the respondent of 30 days period even if the said period of time is
mentioned in the notice of invocation of arbitration on behalf of the
petitioner. The said averment in para 13 of the notice is immaterial
once the reference is rejected by the respondent as per the decision of
Indian Potash Limted (supra). Thus, the prayer made in the petition
is liable to be allowed.
20. As far as merit of the case is concerned, I do not wish to express
any opinion. Even otherwise, both the parties have made their
submissions in another petition filed under Section 9 of the Act. The
order has been reserved in the said matter.
21. There is also no dispute about the right of extinguishment that
once 30 days period has expired and a petition under Section 11 of the
Act is filed, the appointing authority loses its right to make the
appointment of Arbitrator.
22. In the present case, it is not disputed fact that the respondent
has appointed an Arbitrator after filing the present petition but on the
same day within thirty days from receipt of request to do so from the
petitioner.
Now, it is to be decided whether the present petition is pre-
matured or is maintainable within the scope of Section 11 of the Act as
the same is filed before the expiry of thirty days.
23. The period of limitation of thirty days is only provided under sub-
sections (4) and (5) of Section 11 of the Act. As per the statute, the
period of limitation of thirty days cannot be invoked under sub-Section
(6) of Section 11 of the Act. It is merely a practice and the convention
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is being followed for the last many years as appears from the various
decisions passed by the Supreme Court and High Courts.
24. There is no doubt that as far as the cases falling under Section
11(6) of the Act are concerned, no limit of time has been prescribed
under the Act whereas a period of 30 days has been prescribed under
Section 11(4) and (5) of the Act. The present petition is filed under
Section 11(4) of the Act wherein 30 days time is prescribed. It is
settled law that if one party demands the opposite party to appoint an
Arbitrator and the opposite party does not make an appointment within
30 days of the demand, the right to appoint does not get automatically
forfeited after the expiry of 30 days. If the opposite party makes an
appointment even after 30 days of the demand and before the first
party has moved the Court under Section 11 of the Act, the same
would be sufficient. Reliance is placed on Datar Switchgears Ltd. v.
Tata Finance Ltd. and another , (2000) 8 Supreme Court Cases 151.
25. The judgment referred by the counsel for the petitioner has no
bearing to the facts of the present case as the facts in the case of
Indian Potash Limted (supra) were that the notice invoking the
arbitration agreement was sent by the respondent and not the
petitioner who filed a petition under Section 11 of the Act before expiry
of thirty days from the date of issuance of the notice of invocation of
arbitration agreement. It was argued by the respondent that the
petition was premature when filed. The name was suggested by the
respondent in its letter of invocation. The case of the respondent
before Court was that even if the petitioner did not agree to the name
of the proposed arbitrator as suggested by the respondent, the
petitioner ought to have made a suggestion of its own, to which the
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respondent might have agreed. Therefore, the petitioner could not
have prematurely approached the Court by filing the petition.
In para 12 of the said judgment, it was specifically recorded that
the arbitration agreement does not prescribe any procedure for
appointment of the arbitrator. Upon receipt of the said communication,
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the petitioner vide communication dated 18 January, 2010, rejected
the unilateral appointment of Shri Sunder Lal Mehta as the arbitrator
who stated that it shall be moving the Court for appointment of an
arbitrator. The petitioner thereafter filed the petition before the Court
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on 21 January, 2010. In para 29, it was noticed by the Court that the
appointment of the arbitrator had to be done mutually and there was
no procedure prescribed for that purpose, however, the position in the
present case is distinct. In para 30, it was observed by the Court while
recording the submission of the respondent that it was not obliged on
the part of the petitioner to have on its own proposed the name of any
other person to act as an arbitrator. Once the disagreement on the
proposed name had surfaced, either party could have moved the Chief
Justice or his designate for appointment of the arbitrator and the
respondent had on receipt of reply filed its petition before Rajasthan
High Court under Section 11 of the Act, prior to the petition filed by the
petitioner in the matter.
It is apparent that the facts in the present case are materially
different as such situation has not happened in the present case. The
petitioner in the present petition has requested the Court to appoint
the arbitrator. The petitioner did not appoint the Arbitrator on behalf
of the respondent as it was in the case referred above. There was no
procedure prescribed in the agreement. Therfore, the judgment
refered by the counsel does not help the case of the petitioner.
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26. In the present case, in the reply to the invocation notice the
respondent has not wholly refused the arbitration specifically. If the
reply is read in a meaningful manner, the respondent intended to
reject the claim of the petitioner raised in the invocation notice. The
respondent has also asked the petitioner to produce the documents so
that the accounts may be verified by the respondent. Admittedly,
while invoking the arbitration, the petitioner asked the respondent to
appoint the nominee Arbitrator on its behalf within 30 days. Within
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one week from the date of receiving the notice, the respondent on 25
March, 2016 gave the reply and admittedly, within the period of 20
days, the respondent appointed its nominee Arbitrator being a Retired
Judge of the Hon’ble Supreme Court.
27. There is no force in the argument of the petitioner that once the
respondent has rejected the reference on various reasons, it is not
entitled to appoint the Arbitrator even within 30 days time granted by
the petitioner after changing its mind. This Court is of the considered
view that within 30 days time, as given by the petitioner in the present
case, the respondent was entitled to appoint the nominee Arbitrator, if
good sense prevails upon, it even after rejection of reference prior to
such appointment within thirty days. Even, during this period of 30
days time, the respondent can change its mind to appoint the nominee
Arbitrator.
28. I am clear in my mind that if the nominee Arbitrator is not
appointed before filing of the petition, the party loses its right. In the
present case, facts speak for themselves as the respondent has
appointed its arbitrator within the period of thirty days given by the
petitioner itself though after filing of the petition.
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29. It would be appropriate to refer the list of dates and events
supplied by the learned counsel for the respondent:-

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30. Although there is no time limit prescribed under Section 11(6) of
the Act, but I am of the view that in case the entire scheme of Section
11 along with judgments delivered by the Supreme Court and High
Courts is read in a meaningful manner, by implication, thirty days time
is minimum period of time, otherwise one of the parties could misuse
the due process of procedure by simply approaching the Court that the
notice was given, even before the expiry of thirty days period, since
the respondent is not agreeable to the reference (whether any
arbitrable claim(s) is alive or not). Therefore, the petition under
Section 11 of the Act cannot be entertained before expiry of thirty days
on behalf of any party, once the notice is served, unless with the
consent of the parties to the agreement. No doubt, needless to
mention that after expiry of thirty days if a petition is filed in the Court,
the appointing authority loses its right to make the appointment.
31. In the present case, the respondent has appointed the nominee
Arbitrator within the period of 30 days. Therefore, the present petition
is pre-mature and is not maintainable. The same is accordingly
dismissed.
32. No costs.
33. Copy of the order be given dasti to both the parties under the
signatures of the Court Master and order also be communicated to the
Arbitral Tribunal without any delay.

(MANMOHAN SINGH)
JUDGE
MAY 23, 2016
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