Existence Of Arbitration Agreement Can Be Presumed If No Denial Is Made In The Reply: Karnataka High Court

The bench of Justice S.R. Krishna Kumar held in terms of Section 7(4)(c) an arbitration agreement is said to exist if the petitioner has asserted its existence in its notice of arbitration and the respondent has not denied its existence in its reply to the notice.

The Court further held that if the two agreements are intrinsically interlinked and intertwined and relate to the same project work, then the arbitration agreement in one of the agreement may be invoked for dispute in relation to both the contracts.

Facts

The parties entered into two agreements dated 27.04.2011 for upgradation of Rajbhavan and allied works. A dispute arose between the parties related to payment for the work under the agreement.

Thereafter, the petitioner issued the notice of arbitration dated 19.02.2020 qua both the agreement nominating its arbitrator and requested the respondent to appoint its nominee arbitrator. The respondent vide its reply dated 15.05.2020 denied its liability to pay any due amount to the petitioner, however, it did not deny the existence of the arbitration agreement. Consequently, the petitioner filed the application under Section 11 of the A&C Act for the appointment of the arbitrator.

The objections to the petition

The respondent raised a three-fold objection to the maintainability of the petition, it submitted as follows:

• There is no arbitration clause in one of the agreements for which the petitioner has sought the appointment of arbitrator, therefore, the petition is liable to be dismissed due to non-existence of the arbitration agreement.
• The claims of the petitioner are barred by limitation.
• The dispute between the parties has been settled by accord and satisfaction, therefore, nothing survives for which an arbitrator is to be appointed.

Analysis by the Court

The Court observed that the petitioner in its notice of arbitration dated 19.02.2020 has claimed arbitration qua both the agreements and it has also asserted the existence of the arbitration agreement and the respondent in its reply denied its liability to pay, however, it did not dispute or deny the existence of the arbitration agreement.

The Court held in terms of Section 7(4)(c) an arbitration agreement is said to exist if the petitioner has asserted its existence in its notice of arbitration and the respondent has not denied its existence in its reply to the notice.

The Court held that words "statements of claim and defence" under Section 7(4)(c) of the A&C Act are to be given wider interpretation and reply to a notice of arbitration falls within the section.

The Court further observed that the two agreements in question are intrinsically interlinked and intertwined as they relates to the same project for which the directions were also issued together and both were executed jointly on the same day, therefore, the arbitration agreement in one of the agreement may be invoked for dispute in relation to both the contracts.

The Court rejected the argument of the respondent relating to limitation and accord & satisfaction issues, the Court held that these arises out of disputed question of facts that ought to be decided by the arbitrator only as the scope of inquiry at the stage of Section 11 is very limited.

Accordingly, the Court allowed the petition.

Case Title: S.R. Ravi v. Karnataka State Tourism Development Corporation, Civil Miscellaneous Petition No. 180 of 2020

Date: 01.08.2022

Counsel for the Petitioner: Mr. M.V. Sundara Raman

Counsel for the Respondent: Mr. Gururaj Joshi

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