Full Judgment Text
Neutral Citation Number: 2023/DHC/001355
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
nd
Date of decision: 22 February, 2023
+ ARB.P. 1221/2022
M/S FIITJEE LTD. ..... Petitioner
Through: Ms.Revati Gulati, Ms.Diksha
Narula, Advs.
versus
ASHISH KHARE & ANR. ..... Respondents
Through: Mr.Apoorva Bhumesh and
Ms.Madhavi Khare, Advs. for R-1.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
NAVIN CHAWLA, J. (ORAL)
1. This petition has been filed under Section 11 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the „Act‟) seeking
appointment of an Arbitrator for adjudicating the disputes that have
arisen between the parties in relation to the employment of the
respondent no.1 with the petitioner as a faculty member in the
Department of Math on 17.04.2010.
2. It is the case of the petitioner that the respondent no.1 was, during
his employment with the petitioner, transferred to M/s USA
UNIVQUEST with effect from 01.05.2016. The said M/s USA
UNIVQUEST amalgamated with the petitioner Company on 03.04.2019.
In the meantime, the respondent no.1 left the services of the petitioner on
05.02.2018.
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3. It is the case of the petitioner that the respondent no.1 thereafter
co-founded a competitor academy namely „Venkateshwara Academy‟
and started working there as Founder, Mentor and Director. The
petitioner claims that the same was in violation of the Service Rules.
4. The petitioner, thereafter, vide notice dated 19.02.2019, invoked
the Arbitration Agreement as contained in Clause 36(a) of the Service
Rules for the Employees of M/s FIITJEE Ltd (Faculty Members)
(hereinafter referred to as the „Service Rules‟). As the Arbitration
Agreement granted a right to the petitioner to appoint the Sole Arbitrator,
a Sole Arbitrator was appointed by the petitioner. Certain proceedings
also took place before the Sole Arbitrator so appointed. Details of the
same are not relevant for the purpose of the present petition.
5. The respondent thereafter filed an application under Section 14 of
the Act seeking termination of the mandate of the Arbitrator so appointed
by the petitioner, being OMP(T)(COMM) 17/2021. By an order dated
14.03.2022, the learned District Judge (Commercial-02), South District,
Saket, New Delhi was pleased to hold the Sole Arbitrator appointed by
the petitioner to be de-jure ineligible to act as an Arbitrator and
accordingly terminated his mandate. The petitioner thereafter filed the
present petition seeking appointment of an Arbitrator.
6. The learned counsel for the respondents submits that in terms of
Section 14 of the Act, it would be for the Court which terminates the
mandate of the earlier Arbitrator to appoint a substitute Arbitrator. He
submits that the petitioner cannot invoke the provision of Section 11 of
the Act, having failed to pray for appointment of a substitute Arbitrator
before the learned District Judge.
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7. He further submits that in the present case, the purported invocation
of the arbitration agreement by the petitioner itself cannot be relied upon.
He submits that the petitioner has invoked the Arbitration Agreement as
contained in Service Rules. The said Service Rules were applicable when
the respondent no.1 was in employment with the petitioner. He submits that
the respondent no.1 had left such employment and joined M/s USA
UNIVQUEST on 01.05.2016, and was thereafter governed by the
„Corrigendum and Addendum‟ dated 12.05.2016 between the respondent
no.1 and the said company. The said Corrigendum contained a separate
Arbitration Agreement, which has not been invoked by the petitioner. He
submits that a notice under Section 21 of the Act is a sine qua non for
initiating a proceeding under Section 11 of the Act. The same having not
properly been given, the present petition is not maintainable. In support,
he places reliance on the judgment of this Court in Alupro Building
System Pvt. Ltd. v. Ozone Overseas Pvt. Ltd., 2017 SCC OnLine Del
7228, and of the High Court of Bombay in D.P. Construction v.
Vishvaraj Environment Pvt. Ltd., 2022 SCC OnLine Bom 1410.
8. The learned counsel for the respondent submits that Clause 36(a)
of the Service Rules would not be attracted even though the Corrigendum
executed with the M/s USA UNIVQUEST states that the respondent no.1
shall be bound by all the terms and conditions of the Service Rules signed
at the time of joining the petitioner. Placing reliance on the judgment of
the Supreme Court in M.R. Engineers and Contractors Pvt. Ltd. v. Som
Datt Builders Ltd., 2009 (7) SCC 696, he submits that for an Arbitration
Agreement to be incorporated into the subsequent agreement, the said
incorporation has to be specific and cannot be implied.
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9. He further submits that the petitioner cannot also seek benefit of its
assertion that M/s USA UNIVQUEST is a group company of the
petitioner. Placing reliance on the judgment of the Supreme Court in Cox
and Kings Ltd. v. SAP India Pvt. Ltd. & Anr., (2022) 8 SCC 1, he
submits that a non-signatory cannot be bound by an Arbitration
Agreement even though it is a group company. He submits that the letter
of invocation is also by M/s USA UNIVQUEST, which has a separate
Arbitration Agreement. Though M/s USA UNIVQUEST may have
subsequently amalgamated with the petitioner, the same would have no
bearing, its invocation being bad in law.
10. The learned counsel for the respondent no.1 further submits that
the respondent no.1 had executed a full and final settlement on
03.04.2018 with M/s USA UNIVQUEST at the time of leaving its
employment. With the execution of the said document, the inter-se
claims between the parties stood fully and finally settled and the
Arbitration Agreement as contained in Corrigendum or in the Service
Manual cannot be invoked either by the M/s USA UNIVQUEST or by
the petitioner. In support, he places reliance on the judgment of the
Supreme Court in M/s Meenakshi Solar Power Pvt. Ltd. v. M/s
Abhyudaya Green Economic Zones Pvt. Ltd. & Ors , 2022 SCC OnLine
SC 1616.
11. He finally submits that even otherwise the claim made by the
petitioner is in derogation of settled principles of the Indian Contract Act,
1872 and against the Public Policy of India. The petitioner is seeking
compensation on the ground of violation of the non-compete-clause
which has been held to be invalid and unenforceable in Percept D’Mark
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(India) Pvt. Ltd. v. Zaheer Khan & Anr., (2006) 4 SCC 227. In fact, the
petitioner is the successor in interest of M/s USA UNIVQUEST and,
therefore, even otherwise cannot enforce the said covenant.
12. The learned counsel for the petitioner in rejoinder submits that the
respondent no.1 never left the service of the petitioner. He was merely
transferred to M/s USA UNIVQUEST as is evident from the transfer
letter dated 24.04.2016. On such transfer, even in terms of the
Corrigendum, the respondent no.1 remained bound to the Service Rules
of the petitioner. She submits that, therefore, the M/s USA UNIVQUEST
rightly invoked the Arbitration Agreement as contained in Clause 36(a)
of the Service Rules.
13. On the question of the substitute Arbitrator being appointed under
Section 14 of the Act, the learned counsel for the petitioner submits that
the Court having terminated the mandate of the Arbitrator appointed by
the petitioner, the parties were relegated to the procedure agreed upon for
appointment of the Arbitrator, failing which the petitioner has rightly
invoked the provision of Section 11 of the Act.
14. She submits that the plea of the respondent no.1 on full and final
accord and satisfaction as also claim of the petitioner being not
maintainable under the Indian Contract Act, cannot be considered by this
Court while exercising its power under Section 11 of the Act. She
submits that even with the execution of full and final settlement, the
respondent no.1 remained bound by the terms of the employment
contract, which are sought to be now enforced by the petitioner. She
submits that it was merely a settlement of accounts that was executed by
the respondent no.1.
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15. I have considered the submissions made by the learned counsels
for the parties.
16. The respondent no. 1 was admittedly appointed with the petitioner
on 17.04.2010. Clause 36(a) of the Service Rules contained an
Arbitration Agreement between the parties, and is reproduced herein
below:-
“36(a) All disputes and differences of any nature
FIITJEE service manual and the interpretation &
adjudication of clauses and claims respectively
shall be referred to the Sole Arbitrator appointed
by the Company i.e FIITJEE Ltd.. The arbitration
proceedings shall be conducted in accordance
with the provisions of the Arbitration &
Conciliation Act, 1996 and statutory modification
thereof & rules made thereunder. The award of
arbitrator shall be final & binding on both the
parties. The award of the arbitrator shall be final
& binding on every matter arising hereunder. It is
further agreed that in spite of the fact that the Sole
Arbitrator may be known to any of the Directors
or share-holders and that he may have been
dealing with the Company or had occasion to deal
with any matter of this agreement shall not
disqualify him. Even if the Arbitrator may have
expressed opinion in similar matter earlier shall
also not render him disqualified. The venue of the
arbitration shall be Delhi /New Delhi only.”
17. While the respondent no. 1 claims that he resigned from the service
of the petitioner and joined M/s USA UNIVQUEST, it is the case of the
petitioner that the respondent was transferred to M/s USAUNIVQUEST,
which was a group Company of the petitioner. The learned counsel for
the petitioner has produced a copy of the letter dated 24.04.2016 in
support of her above stand. The said letter reads as under:-
“ Subject: Transfer of Services
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Dear Mr. Khare,
The management is pleased to inform you that as
per the terms of your appointment letter, your
services are being hereby transferred to „ USA
UNIVQUEST PRIVATE LIMITED ' on same
terms and conditions of your appointment letter,
with effect from May 1, 2016 with continuity of
employment. The amount accumulated upto April
30, 2016 in sincerity fund shall be transferred in
due course. Your present emoluments shall be
protected. All other terms and conditions of your
employment shall remain the same.
Kindly acknowledge the receipt and return a
signed copy of this letter as token of your
acceptance.”
18. In view of the above letter, there is an underlying dispute between
the parties as to whether the employment of the respondent no.1 with the
petitioner was terminated on his transfer to M/s USA UNIVQUEST, or it
was merely a case of transfer.
19. The Corrigendum itself states that the respondent no.1 shall remain
bound by all the terms and conditions of the Service Rules Manual and
Code of Conduct signed by him at the time of joining and amendments
made thereto. The said Corrigendum also contained the Arbitration
Agreement, which is pari materia to Clause 36(a) of the Service Rules,
and is reproduced herein below:-
“All disputes and differences of any nature with
regard to the USA UnivQuest Service Rule
Manual/terms and conditions and the
interpretation & adjudication of clauses and
claims respectively shall be referred to the Sole
Arbitrator appointed by the Company. The
employee hereby agrees to the appointment of the
Sole Arbitrator by the Company whenever any
dispute arises. The employee undertakes not to
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oppose the said appointment of the Sole
Arbitrator. The arbitration proceedings shall be
conducted in accordance with the provisions of
the Arbitration & Conciliation Act, 1996 and
statutory modification thereof & rules made
thereunder. The award of arbitrator shall be final
& binding on both the parties. The award of the
arbitrator shall be final & binding on every matter
arising hereunder. It is further agreed that in spite
of the fact that the Sole Arbitrator may be known
to any of the Directors or share holders or may
have been appointed as an arbitrator earlier by
the company shall not disqualify him. Even if the
Arbitrator may have expressed opinion in similar
matter earlier shall also not render him
disqualified. The venue of the arbitration shall be
Delhi/New Delhi only.
Subject to hereinabove, the exclusive jurisdiction
in the matter shall vest in Delhi/New Delhi
Courts.”
20. M/s USA UNIVQUEST invoked the Arbitration Agreement, albeit
as contained in Clause 36(a) of the Service Rules. Even assuming that the
respondent no. 1 is governed only by the Arbitration Agreement as
contained in the Corrigendum, it is settled law that mere reference to a
wrong provision or terms of the Agreement cannot invalidate the notice if
otherwise such power or provision exists in the document. Therefore,
even assuming that Clause 36(a) of the Agreement would not be
applicable to the parties, as there cannot be a dispute on existence of the
Arbitration Agreement in Corrigendum, which is relied upon by the
respondent himself, it cannot be said that the invocation of the arbitration
by the M/s USA UNIVQUEST cannot be acted upon.
21. In Alupro Building Systems Pvt. Ltd. (supra) , the Court was
considering a case of unilateral appointment of an arbitrator by one of the
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parties to the agreement without issuing a notice under Section 21 of the
Act. The Court held that issuance of a notice under Section 21 of the Act
is a mandatory condition. The said judgment shall have no application to
the facts of the present case as it is not disputed that M/s USA
UNIVQUEST had issued notice dated 19.02.2019 to the respondents.
22. In D.P. Construction (supra) , the Court was considering whether a
petition under Section 11 of the Act can be filed without first invoking
the Arbitration Agreement by way of a notice under Section 21 of the
Act. The Court answered in the negative. The said judgment, however,
again has no application to the facts of the present petition inasmuch as
the present petition is preceded by a notice under Section 21 of the Act.
23. The submission of the learned counsel for the respondent no. 1 that
the notice having been issued by M/s USA UNIVQUEST, the present
petition cannot be filed by the petitioner herein, is also ill founded. It is
not disputed that M/s USA UNIVQUEST has amalgamated with the
petitioner company on 03.04.2019. Therefore, the petitioner shall be
entitled to maintain the present petition. The judgment of Cox and Kings
Ltd. (supra) shall have no application to the facts of the present petition.
24. As far as the reliance on Section 14 of the Act is concerned, the
same is as under:
“ Section 14
Failure or impossibility to act .—(1) The mandate
of an arbitrator shall terminate and he shall be
substituted by another arbitrator, if—
(a) he becomes de jure or de facto unable to
perform his functions or for other reasons
fails to act without undue delay; and
(b) he withdraws from his office or the
parties agree to the termination of his
mandate.
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(2) If a controversy remains concerning any of the
grounds referred to in clause (a) of sub-section
(1), a party may, unless otherwise agreed by the
parties, apply to the Court to decide on the
termination of the mandate.
(3) If, under this section or sub-section (3) of
section 13, an arbitrator withdraws from his office
or a party agrees to the termination of the
mandate of an arbitrator, it shall not imply
acceptance of the validity of any ground referred
to in this section or sub-section (3) of section 12.”
25. In terms of Sub-Section (1) of Section 14 of the Act, the mandate
of an Arbitrator shall terminate, and he shall be substituted by another
Arbitrator if he becomes de jure or de facto unable to perform his
functions. In Sub-Section (2), it is stated that in case a controversy
remains concerning an Arbitrator‟s ineligibility, a party may apply to the
“Court” to decide on the “Termination of the Mandate”.
26. In the present case, the respondent no.1 invoked the said provision
and applied for termination of the mandate of the Arbitrator appointed by
the petitioner unilaterally. The same was rightly terminated by the
learned District Judge vide its order dated 14.03.2022.
27. Sub-Section 2 of Section 15 of the Act states that where the
mandate of an arbitrator terminates, a substitute arbitrator shall be
appointed in accordance to the rules that were applicable to the
appointment of the arbitrator being replaced. In the present case, as the
Arbitration Agreement provides for appointment of a Sole Arbitrator by
the petitioner, the said Arbitrator could not have been appointed in view
of the judgment of the Supreme Court in Perkins Eastman Architects
DPC and Another vs. HSCC (Limited) , (2020) 20 SCC 760. The
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petitioner has, therefore, rightfully approached this Court for appointment
of an Arbitrator.
28. In view of the above, I find no merit in the objection of the
respondent no. 1 to the maintainability of the present petition relying
upon Section 14 of the Act.
29. On the issue of the full and final settlement, the said document is
dated 03.04.2018, and is reproduced hereinbelow:
“Received Cheque No. “115393” Dated March
21, 2018 for Rs.10,47,245/- (Rupees Ten Lacs
Forty Seven Thousand Two Hundred Forty Five
only.) and Cheque No. “115894” Dated March
21, 2018 for Rs.9,69,462/- (Rupees Nine Lacs
Sixty Nine Thousand Four Hundred Sixty Two
only.) drawn on Axis Bank, Green Park New
Delhi-110016 from USA UNIVQUEST PVT
LTD , on account of payment towards all dues till
February 2, 2015.
I am satisfied & happy with the amount given to
me and now there is no claim pending against
USA UNIVQUEST PVT LTD in any manner
whatsoever.
I hereby undertake that I had not used and shall
not use/divulge any confidential information
acquired by me during my services at USA
UNIVQUEST PVT LTD regarding working in
USA UNIVQUEST PVT LTD to any of the
competitors of USA UNIVQUEST PVT LTD or
anybody else from the date of leaving USA
UNIVQUEST PVT LTD by word of mouth or any
written communication to anybody.
I hereby undertake that since I have already left
USA UNIVQUEST PVT LTD , therefore, I will
not continue to show my association/ working in
any forum/ on websites/social media etc. or
otherwise in any manner whatsoever, as if I am
still working with USA UNIVQUEST PVT LTD
or its associate /subsidiary companies etc.
Further, I undertake to refrain myself from
posting any slanderous, libellous
posts/comments/articles or giving interviews on
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social/electronic/print media with respect to my
association with USA UNIVQUEST PVT LTD ,
its working and functioning or for any reason
whatsoever which may result in defaming USA
UNIVQUEST PVT LTD or its associate
/subsidiary companies etc., employees or its
directors etc. Further, I also undertake to provide
assistance with respect to tasks, assignments or
any other matters thereto, whenever I am called
upon by USA UNIVQUEST PVT LTD .
In the event of any non-compliance /failure on my
part to the terms & conditions, I shall be liable for
appropriate action by USA UNIVQUEST PVT
LTD as it deem fit.”
30. A reading of the above document prima facie shows merit in the
submissions of the learned counsel for the petitioner that the same was
merely an acknowledgment of settlement of accounts owed to the
respondent no.1. In any case, in terms of the judgment of the Supreme
Court in Vidya Drolia & Ors. v. Durga Trading Corporation, (2021) 2
SCC 1, the effect of the said document is best left to be determined by
the learned Arbitral Tribunal. This Court, at the stage of exercising its
power under Section 11 of the Act, should not venture into the said
disputed question of fact. Even in M/s Meenakshi Solar Power Pvt. Ltd.
(supra) relied upon by the learned counsel for the respondent no. 1, it has
been held as under:-
“16. In Vidya Drolia (supra) , it has been
further observed in relation to the aforesaid
three categories in Boghara Polyfab Pvt. Ltd.
(supra) . The first category of issues, namely,
whether the party has approached the appropriate
High Court, whether there is an arbitration
agreement and whether the party who has applied
for reference is party to such agreement would be
subject to a more thorough examination in
comparison to the second and third
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categories/issues which are presumptively, save in
exceptional cases, for the arbitrator to decide. In
the first category, the question or issues are
relating to whether the cause of action relates to
action in personam or rem; whether the
subject-matter of the dispute affects third-party
rights, have erga omnes effect, requires
centralized adjudication; whether the
subject-matter relates to inalienable sovereign
and public interest functions or by necessary
implication non-arbitrable as per mandatory
statutes. On the other hand, issues relating to
contract formation, existence, validity and
non-arbitrability would be connected and
intertwined with the issues underlying the merits
of the respective disputes/claims. They would be
factual and disputed and for the Arbitral Tribunal
to decide.
17. Further, this Court observed that the court at
the referral stage can interfere only when it is
manifest that the claims are ex facie time-barred
and dead, or there is no subsisting
dispute. In the context of issue of limitation
period, it should be referred to the Arbitral
Tribunal for decision on merits. Similar would be
the position in case of disputed “noclaim
certificate” or defence on the plea of novation and
“accord and satisfaction”.
xxxxx
19. In view of the aforesaid discussion, we find
that High Court was not right in dismissing the
petition under Section 11(6) of the Act of 1996
filed by the appellant herein by giving a finding on
novation of the Share Purchase Agreement
between the parties as the said aspect would have
a bearing on the merits of the controversy between
the parties. Therefore, it must be left to the
Arbitrator to decide on the said issue also. Hence,
the impugned judgment and order passed by the
High Court has to be set-aside.
20. In the result, the appeal filed by the appellant
is allowed and the impugned judgment and order
passed by the High Court is hereby quashed and
set aside.”
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31. Similar is the fate of the submissions of the learned counsel for the
respondents that the claim of the petitioner otherwise is not maintainable
being in violation of the provision of the Indian Contract Act, 1972.
Such plea is necessarily to be determined by the Arbitrator and not by
this Court while exercising its power under Section 11 of the Act.
32. In view of the above, I see no impediment in appointing a Sole
Arbitrator for adjudicating the disputes that have arisen between the
parties in relation to the above-mentioned agreement. I accordingly
appoint Mr. Davinder Singh, Senior Advocate (Mobile: 9810039326), as
a Sole Arbitrator for adjudicating the disputes between the parties.
33. The Arbitrator shall give the disclosure in terms of Section 12 of
the Act before proceeding with the reference.
34. The fee of the Arbitrator shall be governed by Schedule IV of the
Act.
35. It is made clear that the Arbitrator shall undertake the arbitration
proceedings afresh. Any proceedings that had been undertaken by the
earlier Arbitrator shall be treated as non-est. In such arbitration
proceedings all objections of the respondents shall remain open and the
learned Arbitrator shall decide the same remaining uninfluenced by any
observation made herein above.
36. The petition is disposed of in the above terms.
NAVIN CHAWLA, J
FEBRUARY 22, 2023/Arya
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