MWC MARKET SERVICES PRIVATE LIMITED Vs. STATE OF MANIPUR

JUDGEMENT

(1.) MWC MarketServices Private Limited and another, in this application under Section 11 (5) of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as "the Act, 1996") sought for appointment of a sole Arbitrator on the basis of a related agreement dated 5- 4-2001 by contending, inter alia, that the petitioner-company after a series of discussions with the respondent-authorities and obtaining due approval of the State Cabinet on 5-4-2001 entered into an agreement with the State Government of Manipur to install, commission, promote and market the sale of lottery tickets and operate in all respects the on-line Lottery pn behalf of the State of Manipur as seen in the document marked as Annexure 3 to the petition, and after execution of the agreement dated 5-4- 2001, the petitioner-company in all earnest and to fulfil and commit the obligations under the agreement started all preparations for starting the launching of the One-line Computerized lottery of the State of Manipur. The petitioner-company already spent crores of rupees in the process, i.e. for the technology, hardware, software, and for establishing the distribution networks for the sale of lottery tickets and operating, installing and commissioning of the entire networking system all over India. But, to the utter surprise and shock, the petitioner-company on 23- 7-2001 received a Memorandum Notice dated 11-7-2001 for termination of the agreement dated 5-4-2001 issued by the Joint Director of Lotteries, Government of Manipur, respondent No. 3 herein as seen in the dqcument marked Annexure 6 to the petition, and on receiving the said Memorandum/Notice dated 11-7-2001, the petitioner-company immediately sent an objection/representation on 27-7-2001 to respondents-2 and 3 stating their grievance in detail and requesting them to withdraw the said notice of termination which was not taken into consideration by the respondent- authorities, and having no other alternative, the petitioner-company immediately sent a notice on 13-10-2001 to the Government of Manipur stating therein that the petitioner- company is willing to invoke Clause XIX of the agreement dated 5-4-2001 for appointment of a sole Arbitrator as per Section 10

(2.) of the Act, 1996. and the petitioner-company intimated the respondents its offer to refer all the disputes, differences, questions, and interpretations to the arbitration of a sole Arbitrator, Mr. Justice P. N. Bhagwati, retired Chief Justice of India, and the said notice was duly received by the respondent- authorities. It is also the case of the petitioner- company that being aggrieved by the action of the respondent-authorities, they filed a writ petition, being W.P.(C) 7504/2001 (Imphal Bench) challenging the validity of the impugned termination order dated 11 - 7-2001, and while issuing notice upon the respondents making the same returnable by 20-11-2001, this Court made an ad interim order/measure to the effect that the State of Manipur would not appoint any third party as an On-line Selling Agent until further orders of the Court and the order of termination would be subject to the outcome of the writ petition, as seen in the document marked Annexure 12 of the writ petition. As the authority concerned failed to appoint Arbitrator in terms of the related clause XIX of the agreement, the petitioner-company filed the present Arbitration petition. 2. The case of the petitioner was resisted by the State-respondents by filing counter- affidavit contending, inter alia, that though the Government had entered into a Memorandum . of Understanding (for short, "MOU") on 25-1-2001; in view of the office letter dated 8-2-2001 of the Ministry of Home Affairs, the impugned termination order was issued by the authority as the Ministry of Home Affairs raised some objections to the extent that some of the conditions of the Act, 1996, have not been envisaged in the proposed agreement and the agreement was not in conformity with the Lottery (Regulation) Act, 1998, ("the Act, 1998", for short), and from the Scheme it appears that lotteries are proposed to be organised and run by private agent and the State is only lending its name. This statement of the respondents is controverted by the petitioner-company by highlighting the facts in their rejoinder- affidavit that placing of documents and submission of documents to the Ministry of Home Affairs were an internal procedure and what documents were placed and submitted was not in the knowledge of the petitioner-company. Apart from that under the law, np prior formal approval or sanction was required to be taken by the State of Manipur from the Central Government for the purpose of entering into an agreement to, organise on-line lotteries by the State of Manipur. It was also urged that in the letter of Ministry of Home Affairs dated 15-5-2001, the Ministry of Home Affairs talked and highlighted about some proposed agreement of which no date had been given, and, did not in fact speak about the legal, valid and binding agreement dated 5-4-2001, and such agreement which was signed on 5-4-2001 was never even sent to the Ministry of Home Affairs wherein all the required procedures and factors had been followed and complied with in accordance with the provisions of the Act, 1998.

(3.) Mr. N. Dutta, learned senior counsel, appearing for the petitioner-company, contended that in terms of the related clause XIX of the agreement dated 5-4-2001, all disputes, questions, differences or any interpretation arising out of or in connection with the said agreement, at the first instance, were to be mutually discussed and resolved by mutual agreement by the representatives of each party failing which they would then be referred to two Arbitrators who would be retired Judges of the Supreme Court of India and High Court, But the respondent -authorities failed to comply with and follow this clause of the agreement despite the petitioner-company approached them thus causing a great injustice and prejudice to the petitioner-company. It was also argued that the respondent-authorities have issued the impugned notice of termination dated 11-7-2001 and the order of termination dated 5-10-2001 with the sole purpose of illegally accommodating other interested and vested party without any justification, and the impugned notice is, therefore, arbitrary, unfair, unreasonable and capricious inasmuch as violative of the rights guaranteed to the petitioner under Articles 14 and 19 of the Constitution of India. Mr. Dutta, learned senior counsel, appearing for the petitioner company, whose main thrust of argument was that since the agreement contained arbitration clause, it was the lawful duty of the parties that they ought to have discussed and arrived at an agreement before the matter/dispute was referred for arbitration, and if such discussion on mutual agreement failed then in that case the dispute was to be referred to two arbitrators, as mentioned above, and if such effort was resulted in failure, the petitioner-company would have no alternative but to approach the Chief Justice or his designated to appoint arbitrator(s) on the basis of the related agreement. Supporting his case, Mr. N. Dutta, learned senior counsel, has relied on the decisions of the Apex Court rendered in Konkan Railway Cbrpn. Ltd. v. Mehul Construction Co., (2000) 7 SCC 201 ; AIR 2000 SC 2821. Konkan Railway Corporation v. Rani Construction. 2002 (1) SCALE 465 : AIR 2003 SC 778. Sundaram. Finance Ltd. V. NEPC India Ltd., (1999) 2 SCC 479 : AIR 1999 SC 565. Nimet Resources Inc. v. Essar Stells Ltd., AIR 2000 SC 3107, and contended that the Chief Justice or his designate has to make nomination of an arbitrator only if the period of 30 days is over which does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make appointment of arbitrator, the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or his designate has to see, and it would be appropriate to refer the matter to arbitration to secure the ends of justice and the only function of the Chief Justice or his designate under Section 11 of the Act, 1996 is to fill up the gap left by a party to the arbitration agreement and the Arbitral Tribunal should be constituted so as to enable it to commence the proceeding and the nomination of such Arbitrator should be made by a person occupying high judicial office.