M. Srinivasa Reddy vs. Gemini Fx

Facts

The applicant, M. Srinivasa Reddy (represented by his GPA holder), filed an Arbitration Application under Section 11(5) & (6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The dispute arose from a registered lease deed dated 01.12.2017, where the respondent, Gemini Fx, leased a property from the applicant for five years. The lease agreement stipulated a monthly rent of Rs. 3,85,000/- plus GST, with rent enhancements every 18 months. The applicant alleged that the respondent was irregular in rent payments and failed to implement the agreed rent enhancements, leading to arrears. The applicant issued multiple legal notices, including one dated 30.04.2021, invoking arbitration under clause 25 of the lease deed. The respondent did not respond or consent to the appointment of an arbitrator, prompting the applicant to file the present application. The Court had previously issued notice to the respondent and permitted personal service, with proof of service filed.

Held

The Court held that the lease agreement contained a valid arbitration clause (Clause 25). It further found that the applicant had properly invoked this arbitration clause by issuing a notice dated 30.04.2021, in accordance with Section 11 of the Arbitration and Conciliation Act, 1996. The Court noted that the respondent had not contested the application or responded to the arbitration notice. Given the existence of the arbitration clause, its invocation by the applicant, and the absence of any contest from the respondent, the Court found no impediment to appointing an arbitrator. The Court's reasoning was that the purpose of Section 11 is to facilitate the commencement of arbitration proceedings when parties have agreed to arbitrate but are unable to agree on the appointment of an arbitrator. The ratio decidendi is that where an arbitration clause is validly invoked and the other party fails to participate or contest, the Court should proceed to appoint an arbitrator. Consequently, the Court allowed the arbitration application and appointed Sri N. Shankaraiah, retired District Judge, as the arbitrator to adjudicate the claims and disputes between the parties. The arbitrator's fees are to be determined as per the Fourth Schedule to the Act and borne equally by both parties. No order as to costs was made.

Key Issues

1. Whether the Court has the power to appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, when a valid arbitration clause exists in the lease deed and one party has invoked it. 2. Whether the respondent's failure to respond to the arbitration notice constitutes a contest to the appointment of an arbitrator. Contentions of the Petitioner/Applicant: The applicant argued that a valid lease deed with an arbitration clause (Clause 25) was in place. They contended that they had duly invoked the arbitration clause by issuing a notice dated 30.04.2021, as per Section 11 of the Act. The applicant further argued that the respondent's complete lack of response to this notice indicated their unwillingness to contest the appointment of an arbitrator. Therefore, the Court should exercise its power under Section 11 to appoint an arbitrator to resolve the disputes, which included arrears of rent, GST, and interest. Contentions of the Respondent: The respondent did not appear before the Court and therefore, no contentions were recorded on their behalf.