[A&C Act] Non-Payment Of Part Of Mutually Agreed Amount After Settlement Of Dispute Not An Arbitrable Issue Under Arbitration Agreement: Andhra Pradesh HC

The Andhra Pradesh High Court has upheld the dismissal of an application filed under section 8 of the Arbitration and Conciliation Act, holding that once an amount has been mutually decided by the parties, the dispute itself is resolved and no arbitrable issue remains for consideration. 

A Division Bench of Justice Ravi Nath Tilhari and Justice V. Srinivas pointed out that non-payment of part amount of the mutually agreed amount cannot be said to give rise to an arbitrable dispute. When an arbitration clause stipulates that 'any dispute' is arbitrable, it should be understood in line with section 8 of the Act, to mean 'any dispute' arising out of a contractual agreement. Relying on M/s. Agri Gold Exims Ltd the Court held:

“….once it was mutually agreed that a particular amount would be given to the plaintiff and out of the said amount, Rs.30 lakhs was paid and the remaining amount of Rs.40 lakh and odd could not be paid for the reason as disclosed by the defendants in the written arguments and their reply to the notice of the plaintiff, there would be no dispute so as to be covered under the expression 'any dispute' under Clause 17 of the arbitration agreement. It has not been argued before us that with respect to the mutually agreed amount, also that in case of any dispute, the same arbitration clause in the arbitration agreement would get attracted nor that the plaintiff's notice, the reply contained any arbitration clause, with respect to any dispute for the mutually agreed amount as well. In our view, the subject matter of the suit is not a dispute so as to be covered under the agreement for being referred to the arbitration.

Background:

Originally a suit was filed before the trial court for recovery of money by the plaintiff therein/respondent herein. As per the contents of the plaint, the respondents and plaintiff had entered into an agreement in 2011 for the mechanical erection of three units of Turbine, Generator, Condenser, High-Pressure Piping and connected works at KSK Mahanandi Power Plant, Akaltara, Jangir, Champa District, Chhattisgarh.

The agreement contained an arbitration clause in clause 17. The work was going on, and in the middle of completion, the respondents decided to discontinue the services of the plaintiff. The plaintiff was forced to leave behind the equipment that was being used for the construction and thus sought reimbursement from the respondent. A mutually agreed amount of INR70,22,561/- was accepted by both parties. The respondent even paid Rs 30 lakhs to the plaintiff in different instalments. However, subsequently, the respondent stopped paying the amounts and refused to pay any interest that was being incurred.

Thus, a suit was initiated before the trial court for recovery of money, and during the pendency of the suit, an IA was filed seeking to refer the matter for Arbitration under clause 17.

The trial court dismissed the application, giving rise to the present petition.

The appellant contended that 'any dispute' as stipulated in the agreement should be given a wide interpretation and relied on M/s. Agri Gold Exims Ltd. v. M/s.Sri Lakshmi Knits & Wovens.

The counsel for the respondent on the other hand argued that the agreement was executed for enforcement of work and not payment of amount and as such, the present dispute was not one that could be considered by a tribunal. It was also contended that the amount was mutually agreed upon and as such there was no dispute to be adjudicated. Thirdly, it was contended that the application for arbitration was vague and did not specify under what clause of the agreement it was being enforced. The counsel relied on Emaar India Ltd. v. Tarun Aggarwal Projects LLP in furtherance of his claim.

Observations:

Giving credence to the judgement rendered in Emaar India Ltd. v. Tarun Aggarwal Projects LLP, the Bench noted that ideally, jurisdiction lies with the Tribunal to decide whether a matter is arbitrable or not and the High Court is only granted the power to have a 'second look'. However, the bench pointed out, that there is one exception to this rule. When the issues are manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, the Court may interfere and reject the application at the threshold.

Moving forward, the Bench noted that the respondents had agreed to the amount and had even paid part of the amount, and the appellants failed to show against which clause the agreement was being enforced. Thus, there was no issue that needed to be considered by the Tribunal.

“ In the written arguments they admitted to the mutual agreement between the plaintiff and the defendant company to settle their issues and the defendant company agreeing to pay Rs.70,22,561/- to the plaintiff towards expenditure cost and also made payment of Rs.30 lakh out of settled amount in different installments. The defendants also admitted about email dated 29.12.2013.”

Thus, the order of dismissal was upheld. However, the bench found it peculiar, that the Trial court had closed the time accorded to the appellants to file a written statement, on account of the application being dismissed. The bench clarified that there is no nexus between the two and even when the time prescribed for filing a written statement has elapsed in the CPC, the court is at liberty to extend the time if sufficient cause is shown.

M/s.Brothers Engineering and Erectors Ltd. Vs. M/s. Zorin Infrastructure, LLP

Counsel for petitioner: Varun Byreddy & Sai Charan Chodisetty

Counsel for respondents: Ms. Lanka Sai Prasanthi

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