M/S Qualitas Golden Enclave Private Limited vs. Mr. Gangidi Shiva Reddy

Held

The Court held that in proceedings under Section 11(6) of the Arbitration and Conciliation Act, 1996, the Court must prima facie satisfy itself that an arbitration agreement exists and that a dispute has arisen. The Court found that the Applicant had sent a notice claiming dues, which the Respondents did not respond to. Subsequently, the Applicant proposed reconciliation, but the Respondents denied their liability prematurely, even before the stipulated 30-day period for conciliation expired. The Court rejected the contention that the Applicant had not resorted to conciliation, stating that the Respondents themselves failed to engage in conciliation despite the offer. The Court also held that the question of whether the dispute falls within the arbitration clause is an issue that can be raised before the arbitrator. Therefore, a dispute had arisen between the parties requiring resolution as agreed. Accordingly, the Court appointed Dr. Justice Shameem Akther, a former Judge of the High Court, as the sole arbitrator to adjudicate the disputes. The arbitration application was allowed, with no order as to costs.

Facts

M/s Qualitas Golden Enclave Private Limited (Applicant) filed an Arbitration Application under Section 11(5) & (6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The application arose from a dispute concerning GST dues. The Applicant and Respondents entered into a Development Agreement-cum-General Power of Attorney on April 18, 2016, which contained an arbitration clause. A supplementary deed dated July 07, 2017, stipulated that respective parties would be responsible for tax liabilities on apartment sales. The Applicant paid Rs. 12 crores towards GST dues on September 18, 2023, and subsequently issued a notice to the Respondents on September 05, 2023, demanding Rs. 4.50 crores towards GST dues. The Respondents did not respond. The Applicant sent another notice on January 02, 2024, proposing reconciliation as per the agreement. However, the Respondents, by a reply notice dated January 25, 2024, denied their liability, even before the expiry of the 30-day reconciliation period.

Key Issues

1. Whether the Applicant has complied with the pre-arbitration dispute resolution mechanism as stipulated in Clause 13(b) and (c) of the Development Agreement, specifically regarding mutual conciliation, before filing the arbitration application? (Question of law and fact, turning on Clause 13(b) and (c) of the Agreement). Petitioner's Arguments: The Applicant contended that they had complied with Clause 13(b) and (c) by sending notices and offering reconciliation. They argued that the Respondents failed to participate in conciliation and prematurely denied liability, thereby waiving their right to object to the arbitration application on this ground. Reliance was placed on *Visa International Limited vs. Continental Resources (USA) Limited* and *Demerara Distilleries Private Limited and another vs. Demerara Distillers Limited*. Respondents' Arguments: The Respondents argued that no dispute existed between the parties, and the GST authorities had not determined their liability. They contended that they could not be forced into arbitration in the absence of a dispute and that the subject matter of GST liability falls outside the purview of the arbitration clause, as it involves sovereign functions and would deprive them of statutory remedies under the Goods and Services Tax Act, 2017. Reliance was placed on *Barmer Lawrie and Company Limited and others vs. Partha Sarathi Sen Roy and others*, *Vidya Drolia and others vs. Durga Trading Corporation*, and *Commissioner of Income Tax, Udaipur, Rajasthan vs. McDowell and Company Limited*.