Bangalore District Court
Sri.H.M.Chinnappa Reddy vs The Chief Manager on 13 January, 2023
1 A.S. No.170/2017
IN THE COURT OF LXIX ADDITIONAL CITY CIVIL AND
SESSIONS JUDGE (CCH 70)
Present: Sri Rajesh Karnam K.,B.Sc.,LL.B.,LL.M,
LXIX Additional City Civil and
Sessions Judge,
Bengaluru.
Dated this the 13th day of January, 2023
A.S. No.170/2017
Plaintiff: Sri.H.M.Chinnappa Reddy,
S/o.Muniyappa,
Aged about 70 years,
Residing at No.63,
Hebbagodi, Huskuru Gate
Electronic city Post,
Hosur Road, Anekal Taluk,
Bangalore District,
Bangalore-560 099
(By Sri.V.Manjunath, Advocate)
Vs.
Defendants: 1. The Chief Manager,
Sri.Beereshwara Credit
Co-operative Society Ltd.,
(Multi-State) Examba,
Chikkodi Taluk,
Belagaum District,
Having its head office in the above
address and branch office.
2. The Branch Manager,
Sri.Beereshwara Credit
Co-operative Society Ltd.,
(Multi-State) branch at 771,
40th Cross, 8th Block, Jayanagar,
Bangalore-560 060.
2 A.S. No.170/2017
3. Sri. Govinda Reddy,
Since dead by his Lrs:
3(a). Smt. Gayathri,
W/o late Govinda Reddy,
Aged about 46 years.
3(b). Kum.Varshini,
D/o late Govinda Reddy,
Aged about 20 years.
3(c). Kum.Rakshitha
D/o late Govinda Reddy,
Aged about 16 years.
LRs No.3(a) to 3(c) residing at
Sarathi Residency, 8th 'B' Main Road,
4th Cross, Vijaya Bank Layout,
Near Mico Layout, Outpost police
Station, Bilekahalli, Ward No.188,
Bengaluru-560 074.
4. Sri.Devaraja,
Major in age,
R/at No.207, 3rd Cross,
Try Nagara, Bengaluru-560 028.
JUDGMENT
This suit is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) seeking the relief of setting aside the arbitration award passed by the Arbitrator in dispute No.SBCCS/ABN/02/2015-16 dated 11.10.2017 with costs and other relief.
2. The plaintiff submits that the plaintiff is alleged to be a member of defendant No.1 Credit Co-operative Society and 3 A.S. No.170/2017 defendant No.2 is the Branch Manager of Jayanagar. The defendant No.3 is the person who has availed loan from the defendant society to which the plaintiff is the guarantor. Defendant No.4 is also the guarantor.
3. The brief facts of the case are:
The defendant No.2 has not accounted properly of the payments made towards the dispute raised before Arbitrator multi state Co-operative Society. Defendant No.1 and 2 are claimed excess amount towards principal and interest. The plaintiff is not served notice as per law in the original proceedings before the Arbitrator in dispute No.SBCCS/ABN/02/2015-16 dated 11.10.2017. The award is passed against the plaintiff and defendant No.3 and 4 which is opposed to facts and law. The Arbitrator has not followed the rules of Arbitration and Conciliation Act, 1996. Therefore the impugned arbitration award has to be set aside in the interest of justice. The defendant No.4 is the principal borrower who has borrowed the amount.
4. The plaintiff pleads that, when the matter is pending before the Arbitrator, the plaintiff got examined as defendant therein and gave evidence. The Arbitrator without following due procedure, going through the documents of the plaintiff and without applying judicial mind ignoring the documents of this plaintiff had proceeded with the matter and passed the arbitral award to the tune of Rs.1,34,77,468/- with interest at 17% p.a. and penal interest at 2% since from 1.1.2016 till realisation. The defendant No.3, 4 and plaintiff jointly and severally liable to pay the amount is the award.
4 A.S. No.170/20175. Plaintiff submits that apart from that, Rs.2,170/- towards litigation charges and the rate of interest imposed is abnormal, which is against the guidelines issued by the RBI and Govt. Circulars concerning Co-operative societies. Therefore, the entire award is vitiated.
Plaintiff submits the evidence namely cross-examination of P.W.1 made for the present plaintiff is not considered in a proper and perspective manner. The mortgage deed obtained is behind back of plaintiff who is innocent, illiterate having no knowledge about the bank matters.
Plaintiff pleads that he is suffering from old age, diseases namely blood pressure, diabetes and also undergone heart surgery. Therefore, the defendant No.1 and 2 can recover the amount from other defendants as they have no any financial commitments. Therefore, the award is to be set aside.
6. The grounds of suit is plaintiff No.4 and 5 are not being served properly as per Karnataka Civil Rules of Practice, and Arbitration and Conciliation Act. The evidence of plaintiff is not considered in a proper and perspective. The order passed by the Arbitrator is behind back of the plaintiff which is to be set aside. The amount of award of Rs.1,34,77,468/- with interest at 17% together with penal interest at 2% and litigation charges of Rs.2,170/- are all exorbitant and against principle.
The plaintiff submit that Arbitrator has failed to verify the account maintained by defendant No.1 and 2 and discrepancies shown therein, which do not reflect all the payments made by the 5 A.S. No.170/2017 plaintiff and defendant No.3 and 4. There is no resolution passed to appoint the Arbitrator, but it is a premature dispute before all the installment period is over.
The plaintiff pleads that he is suffering from old age, diseases like B.P, sugar and has undergone heart surgery in the month of 17.6.2017. Therefore, due to severe financial crisis of the plaintiff, award is to be set aside.
Plaintiff pleads that the award is received from the defendant No.2 on 22.11.2017 and the present suit filed is within time.
Plaintiff pleads the defendant No.3 is having sufficient means to repay the amount and defendant No.1 and 2 without proceeding to recover the amount are trying to take the property of the plaintiff. Accordingly, seeks interference by this court in the order of the award passed being illegal. The award is to be set aside as per Section 34 of the Arbitration Act since it is against the public policy. By valuing the suit as per the Article-1 and schedule- 1 of the Court Fee and Suit Valuation Act, has come up with the above suit.
7. On service of notice, the defendant No.2 has filed objections to the suit under Section 34 of the Arbitration Act.
8. The contentions of the defendant No.2 are as follows:
The allegations made by the plaintiff are all opposed to facts. In fact, the award passed by the Arbitrator on 11.10.2017 is in accordance with the Arbitration and Conciliation Act. The award passed is consequentially satisfied all the parameters of the 6 A.S. No.170/2017 requirement of law. The plaintiff has availed financial assistance to the tune of one crore and only an amount of Rs.70 Lakhs is sanctioned. The applicant has not mortgaged the residential house in favour of the defendant No.1 and 2. As the plaintiff is defaulter, defendant No.3 is proceeding with the matter and to recover the amount due.
The plaintiff's grounds for suit are not proper. The notice has been duly served on the defendant before the arbitral award and the grounds of present suit are not coming within provisions of Section 34 (2)(a) of the Arbitration Act. Therefore, the suit is to be dismissed with heavy cost and permit the defendants No.1 and 2 to recover as per procedure.
9. On issuance of notice, the defendant No.1 to 4 are served. The defendant No.1 and 2 are represented by counsel. Defendant No.3 is dead during this pending proceedings. On 23.04.2021 accordingly the L.Rs are brought on record. The defendant No.4 is served. Only defendant No.1 and 2 represented before this court. Later defendant No.3 counsel appeared by filing power for legal heirs of defendant No.3 on 11.8.2022.
10. My predecessor in office has permitted to examination of the plaintiff. On 7.12.2019 the affidavit evidence is filed. This court as on 4.11.2022 has discarded the evidence, which is impermissible as per the decision of Hon'ble Supreme Court of India in AIR 2019 SC 4544.
11. Heard and perused the record.
7 A.S. No.170/201712. On the basis of materials, the point that arises for consideration are:
1. Whether the plaintiff proves that the award passed by the Arbitrator is opposed to principles of natural justice?
2. Whether the plaintiff proves the award passed by the Arbitrator is opposed to facts and circumstances involved in the case, such that the plaintiff is incapacitated in participation in the proceedings and order passed is opposed to public policy as per Arbitration and Conciliation Act?
3. What order?
13. My answer to the above points are as under;
Point No.1&2: Partly in the affirmative.
Point No.3 : As per final order for the following;
REASONS
14. POINT NO.1 AND 2: For the sake of convenience these two points are taken up simultaneously as facts involved are interconnected.
The plaintiff has filed the suit seeking setting aside the arbitration award that the Arbitrator appointment itself is bad asper Section 84 of the Co-operative Societies Act. The Arbitrator has not appreciated the facts in proper and perspective. In fact, the entire loan transaction is a sham. The defendant No.3 had nexus with the bank authorities. Behind the back of the plaintiff got hypothecated the documents. The plaintiff is not concerned to the loan transaction. However, he has been made liable to pay the 8 A.S. No.170/2017 amount which is opposed to facts and law.
15. The learned counsel for plaintiff submitted written arguments that plaintiff is the member of defendant No.1 Credit Co-operative Society and defendant No.2 is the Branch Manager of Jayanagar. The defendant No.3 is the person who availed loan from the defendant society to which the plaintiff is the guarantor. Defendant No.4 is also the guarantor. Plaintiff and defendant No.3 have paid several installments. But, the defendant No.2 has not accounted properly of the payments made towards the dispute raised before Arbitrator multi state Co-operative Society. Defendant No.1 and 2 are claimed excess amount towards principal and interest. The plaintiff is not served notice as per law in the original proceedings before the Arbitrator in dispute No.SBCCS/ABN/02/2015-16 dated 11.10.2017. The award is passed against the plaintiff and defendant No.3 and 4 which is opposed to facts and law. The Arbitrator has not followed the rules of Arbitration and Conciliation Act, 1996. Therefore the impugned arbitration award has to be set aside in the interest of justice. The defendant No.4 is the principal borrower who has borrowed the amount.
It is further argued that, when the matter is pending before the Arbitrator, the plaintiff got examined as defendant therein and gave evidence. The Arbitrator without following due procedure, going through the documents of the plaintiff and without applying judicial mind ignoring the documents of this plaintiff had proceeded with the matter and passed the arbitral award to the tune of Rs.1,34,77,468/- with interest at 17% p.a. and penal interest at 2% since from 1.1.2016 till realization. The defendant No.3, 4 and 9 A.S. No.170/2017 plaintiff jointly and severally liable to pay the amount, is the award. The rate of interest imposed is abnormal, which is against the guidelines issued by the RBI and Govt. Circulars concerning co- operative societies. Therefore, the entire award is vitiated. The cross-examination of P.W.1 made for the present plaintiff is not considered in a proper and perspective manner. The mortgage deed obtained is behind back of plaintiff who is innocent, illiterate having no knowledge about the bank matters. Plaintiff is suffering from old age, diseases namely blood pressure, diabetes and also undergone heart surgery. Therefore, the defendant No.1 and 2 can recover the amount from other defendants as they have no any financial commitments. Therefore, the award is to be set aside.
16. The learned counsel for the plaintiff as per the Arbitration Suit, submits extract of the account is not furnished by the respondent. The appointment of the Arbitrator is not as per Section 84 (4) of the Co-operative Societies Act. The learned counsel argues that the central registering authority has to appoint the Arbitrator. But the Board of Directors have appointed the Arbitrator. Section 84 of the Act is not complied. The appointment of the Arbitrator is opposed to law and facts. The order of Arbitrator is also opposed to facts. In fact no any proper notice has been issued with regard to repayment. There is contradiction in the loan and the notice. It has been mentioned as one crore loan. The plaintiff is aged more than 70 years. He is suffering from diseases, as such, he is unable to pay the amount, which is not at all borrowed by him. All the columns are not filled in the 10 A.S. No.170/2017 loan application. The purpose of loan not mentioned. In the arbitration award there is no mention for what purpose the loan is availed and the inspection of spot has not been made. The defendant No.1 has not done his job as provided under the provisions of law. In fact, defendant No.3 Govinda Reddy is having nexus with the bank authority, who got hypothecation of the documents and there is no any mention of the outstanding loan in the award. The interest part is missing in the award. In fact some amount has been paid by the defendant No.3 not disclosed in the account statement.
17. The cross-examination of P.W.1 was done on 21.3.2017. The plaintiff is not a member of the society. No approval of the society is obtained. Exs.P.5, P.6 and P.7 are not complete with all particulars. Date of loan is not specified therein. The plaintiff had sufficient means. There was no any need for the plaintiff to avail loan. The Arbitrator has not followed the guidelines of RBI. In fact the installments paid, no any deductions have been shown. Accordingly, order is opposed to law which is to be set aside. The defendant No.1 representing the bank submits the loan has been availed by the plaintiff, which has been proved by the Arbitrator, now by leading evidence, he cannot substitute the material on record. In fact, the allowing the evidence of plaintiff itself is illegal as per Section 34 of the Arbitration Act. The documents being duly executed by the plaintiff which is admitted. The plaintiff is a member is specifically admitted. There is no question of non availability of legally recoverable debt. The documents executed has specifically disclose that the due procedure is followed by the bank while sanctioning the loan.
11 A.S. No.170/2017There is resolution of the board of directors to proceed with the recovery. The defendant No.3 is no more, but his L.Rs. are not liable to pay. His L.R. application dated 2.7.2022 is allowed. The application is filed by son-in-law of the plaintiff to be a power of attorney holder and the liability is admitted as per Ex.P.5 and P.6. Therefore, the contentions raised by the plaintiff now are opposed by law. Accordingly, seeks dismissal of the suit.
18. Sri.MND, counsel for the defendant No.1 argues that loan availed is Rs.70 Lakhs. The procedure is duly followed as per Section 84(1)(d). In fact there is no any specific plea made by the plaintiff as provided under Section 34(a)(b) and (c) of the Arbitration Act. It is submitted that there is no any incapacity or validity of the award or composition of award is public policy being proved. The Arbitral Tribunal has considered all the aspects and materials on record and passed the Arbitration award as per law governing to that effect. Section 16 of the Arbitration and Conciliation Act is duly complied. Further, as per Section 23 the Arbitrator has power to follow his own procedure along with CPC. After looking to the original documents placed, marked and crossed the P.W.1 before the Arbitration Tribunal, the defendant shares acquired by the P.W.1 is proved. The question of re- appreciation of evidence does not arise in this case. The learned counsel for defendant No.1 submits already evidence was recorded on merits, order has been passed. Therefore seeks dismissal of the suit.
12 A.S. No.170/201719. The learned counsel for defendant No.3 submits that as defendant No.3 is no more, he is not the borrower as he has died during the pendency of proceedings, it should be abated. In fact, the procedure adopted by the Arbitrator is not mentioned or specified in the documents. The defendant no.3 is not at all liable on all counts. The defendant No.4 counsel submits that there is no borrowing made by this defendant No.4, there is no reflection of payments made in the documents and there is no duty of this defendant as claimed by defendant No.1. The interest part is not properly mentioned. As such, there is no question of valid transaction. Dispute raised by the defendant No.1 is not binding on this defendant No.4 and no any notice is served. As such, it is to be dismissed against the defendant No.4.
20. On going through the material on record, Ex.P.1 at page-3 discloses the power is with the defendant No.1 authority to exercise lien and set off over the loan amount due. In page-4 of Ex.P.3 further plaintiff had invested Rs.1,000/- and he has been assigned SB A/c No.730. Therefore, the plaintiff counsel prayer that plaintiff is not a member is false. On going through Ex.P.4, it discloses 16% interest in default and penal interest at 2%. Similarly Ex.P.7 is the promissory note executed by the plaintiff wherein 16% interest is shown. As per Ex.P.7, the principal borrower is plaintiff only. Even as per Ex.P.6, the plaintiff is the borrower. On going through Ex.P.9, the interest is mentioned at 16% and penal interest at 2%. On going through the account extract placed along with Ex.P.8, there is no specific mention on what date this amount of interest is due by the plaintiff. It has been 13 A.S. No.170/2017 mentioned in the account statement in the proceedings before the Arbitrator, 17% interest is shown. In Ex.P.8, the interest is shown as 16% on the mortgaged property for loan borrowed by the plaintiff and penal interest at 2%. Under these circumstances as per the petition filed before the Arbitrator, the defendant No.1 has specifically claimed interest at 17% p.a. which is not supported by the documents placed by the defendant. The Arbitrator has also followed and considered 17% interest in the award which is opposed to the facts. The award passed considering the interest at 17% with 2% penal interest is not supported by the documents placed by the defendant No.1 before the Arbitrator. Therefore, the award is vitiated. The plaintiff has placed materials to show that the interest claimed by the defendant No.1 before the Arbitrator is excess, more than the agreed interest.
21. In the case on hand to prove that the award is not in accordance with law or is opposed to facts prima-facie is established by the plaintiff.
The plaintiff in proof of his contentions with regard to borrowing of the loan and other aspects with regard to appointment of Arbitrator, the question of law, which have been admitted to be raised by the plaintiff are not being substantiated. The question of non service of the notice as contended by the plaintiff is not proved since the documents placed by the defendant No.1 before the Arbitrator establishes the aspects of due service of notice and even acknowledgment is also placed as per Ex.P.10. Therefore, the plaintiff is not able to prove that the arbitral award is opposed to public policy or is not concerning the dispute, 14 A.S. No.170/2017 contemplated in the agreement. Under these circumstances, the plaintiff has placed materials only to the extent that award passed by the Arbitrator is opposed to the consideration with regard to interest part is proved by the plaintiff is my confirmed view. The other contentions namely averments made in the plaint that loan is not borrowed and the documents are not properly executed and appointment of Arbitrator is not as per Section 84 of the Co- operative Act are not being established by the plaintiff. Under these circumstances, the contentions raised by the plaintiff only with regard to the interest part is proved by the plaintiff.
22. On the basis of the discussion made supra and considering the entire materials on record this court satisfied and modified the award passed by the Arbitrator concerning the interest.
23. The learned counsel for the plaintiff has relied on the citation namely W.P.No.16352/2006, W.P.No.1681/2009, (2009) 17 SCC 769, in the case of FIZA Developers and Inter Trade Pvt. Limited -Vs- AMCI (India) Private Limited and another. This citation cannot be applied to the present facts to set aside the entire award since the amended Arbitration Act provides to consider the setting aside of the entire arbitral award only in the case of proof to that effect.
24. This court by relying on the decision of Hon'ble High Court of Karnataka in COMAP No.101/2021 dated 22.12.2021 has similarly observed by relying on citations of Hon'ble Supreme Court of India in the case of Kanchan Udyog Limited Vs. United 15 A.S. No.170/2017 Spirits Limited (2017) 8 SCC 237, in para No.48 to 53, the Hon'ble High Court of Karnataka has observed as follows:
"48. CHITTY ON CONTRACTS in 28th Edition while dealing with nominal damages in para 27-0007 has opined as under:
Nominal damages. Wherever the defendant is liable for a breach of contract, the claimant is in general entitled to nominal damages although no actual damage is proved, the violation of a right at common law will usually entitle the claimant to nominal damages without proof of special damage. Normally, this situation arises when the defendant's breach of contract has in fact caused no loss to the claimant, but it may also arise when the claimant, although he has suffered loss, fails to prove any loss flowing from the breach of contract, or fails to prove the actual amount of his loss. A regular use of nominal damages, however, is to establish the infringement of the claimant's right, and sometimes the award of nominal damages is "a mere peg on which to hang costs."
49. Thus, nominal damages are granted where a legal right of plaintiff is found to be infringed and there is no proof of actual loss. In such a case, a notional amount may be awarded as damages to plaintiff. The arbitral tribunal by majority while dealing with the aforesaid claim of the respondent in para 4.2.21 has held as under: In the absence of critical evidence forthcoming from both the parties, we are constrained to award nominal damages in favour of the claimant for loss of business between March 2018 and August 2020.
50. However, the majority award has proceeded to award a sum of Rs.16,04,41,281/- along with future interest at the rate of 10% from the date of award till actual payment. The relevant extract of the majority award reads as under: 4.4.23. In the light of the discussion above, we deem it appropriate to award a sum of Rs.16,04,41,281/- (Rupees Sixteen Crores Four Lakhs Forty One Thousand Two Hundred and Eighty One only) as damages for business losses in favour of the Claimant herein with a future interest of 10% from the date of this award until date of actual payment. 4.4.24. The above quantum is computed on the 16 A.S. No.170/2017 touchstone of the law valid down in this regard by the Apex Court and in consideration of the primary sales in 2017 with an average annual sales growth rate of 10% (in consideration of the average sales growth rate of the Beer Market in India) while factoring the fixed and variable components of the revenue expenditure, probable gains made by the claimant as a result of not performing its side of contractual obligations and the form of the COVID-19 pandemic between the months of April - June 2020 etc.
51. The Supreme Court in 'KANCHAN UDYOG LIMITED VS. UNITED SPIRITS LIMITED', (2017) 8 SCC 237 has held that a unilaterally projected profitability which is a mere assumption, cannot be the basis of assessment of damages. In the instant case, respondent has not provided any evidence to support is claim that sales would grow at a projection or 15% per annum between March 2018 and August 2020. There is no material on record to show average annual sales growth of 10% as assumed by tribunal, as well as commercial court. The aforesaid findings are based on no evidence.
52. The figure of Rs.16,04,41,281/- awarded under the head of nominal damages by taking into account of 10% annual sales growth for which no evidence is on record seems to actual damages and not notional damages. The award of 38.5% of the claim, as nominal damages is based on no evidence. Therefore, the award to the aforesaid extent suffers from patent illegality under Section 34(2-A) of the Act.
(XIII) AWARD OF COSTS OF THE PROCEEDING BEFORE THE ARBITRAL TRIBUNAL
53. The majority award has awarded a sum of Rs.2,03,71,475/-. The respondent in the written statement made a claim of Rs.1,33,67,000/- incurred towards professional fee and legal expenses. However, no evidence was adduced with regard to the same. In the written submissions, the respondent had stated that invoices and bills pertaining to the claim for costs from part of confidential record and that it would submit the same if directed by the tribunal. However, the tribunal did not issue any 17 A.S. No.170/2017 direction to the respondent. The respondent claimed actual costs without any evidence and the tribunal proceeded to award the claim of Rs.2,03,71,475/- without any evidence. The finding in this regard is based on no evidence and suffers from patent illegality under Section 34(2-A) of the Act".
25. The Hon'ble High Court of Karnataka modifying the award in that particular case has rejected. The interest part and the award portion which has been made by the Arbitrator being opposed to facts. Accordingly, this court considering the material on record, the interest part is not considered by the Arbitrator as per the documents placed before him, but he has awarded excess interest which is opposed to facts and prima facie the plaintiff is able to establish as per Section 34 of Arbitration and Conciliation Act that the award is opposed to facts. Accordingly, there needs interference by this court to that effect. Hence, point No.1 is answered partly in the Affirmative.
26. Point No.3: In view of my finding on point No.1 and 2 in negative the suit filed under Section 34 of the Act is liable to be allowed in part. In the result I proceed to pass the following:
ORDER Suit filed under Section 34 of The Arbitration and Conciliation Act, 1996 is allowed in part.
The award passed by the Arbitrator with regard to recovery of the amount of Rs.70 Lakhs borrowed by the plaintiff is affirmed.18 A.S. No.170/2017
The award of 17% interest with 2% penal interest on the principal amount is modified.
The defendant has to repay Rs.70 Lakhs loan with cost of the proceedings Rs.2,170/- and 16% interest on the principal amount is allowed. The penal interest is not allowed since the defendant No.1 is not shown bonafide in calculating interest and evidence on record as per the loan transaction.
Accordingly, office to draw decree.
(Dictated to the Judgment Writer, transcript thereof is corrected, signed and pronounced by me on this the 13 nd day of January, 2023.) (Rajesh Karnam K.) LXIX Addl.C.C. & Sessions Judge, Bengaluru.19 A.S. No.170/2017