Karnataka High Court
M/S Falma Laboratories Private Limited vs M/S The Himalaya Drug Company on 5 September, 2017
Equivalent citations: AIR 2018 (NOC) 624 (KAR.), 2018 (1) AKR 376, 2018 (2) KCCR SN 131 (KAR)
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MFA No. 5748/2015
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5TH DAY OF SEPTEMBER 2017
PRESENT
THE HON'BLE MR. JUSTICE H.G.RAMESH
AND
THE HON'BLE MRS. JUSTICE K.S.MUDAGAL
MISCELLANEOUS FIRST APPEAL NO. 5748/2015 (AA)
BETWEEN :
M/S.FALMA LABORATORIES PRIVATE LIMITED
NO.54A, INDUSTRIAL AREA
HOSAKOTE, BANGALORE-562 114
REPRESENTED BY ITS AUTHORISED SIGNATORY
SRI ANIT KUMAR SURANA ...APPELLANT
(BY SRI SANJAY KRISHNA.V., ADVOCATE)
AND :
1. M/S.THE HIMALAYA DRUG COMPANY
A REGISTERED PARTNERSHIP FIRM
HAVING ITS PRINCIPAL PLACE OF BUSINESS AT
MAKALI, BANGALORE-562 123
REPRESENTED BY ITS AUTHORISED SIGNATORY
SRI SHABIR SHARIFF
2. HON'BLE MR.JUSTICE K.R.PRASAD RAO
(RETIRED JUDGE OF HIGH COURT OF
KARNATAKA), RESIDING AT NO.165
2ND BLOCK, 2ND STAGE, 4TH MAIN
JUDGES COLONY, BASAVESHWARANAGAR
BANGALORE-560 079 ...RESPONDENTS
(BY SRI MANU KULKARNI , ADVOCATE FOR R1, NOTICE TO R2
DISPENSED WITH VIDE ORDER DATED 02.06.2017)
THIS MFA IS FILED UNDER SECTION 37(1)(B) OF THE
ARBITRATION AND CONCILIATION ACT, AGAINST THE ORDER
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MFA No. 5748/2015
DATED:29.04.2015 PASSED IN A.S.NO.14/2008 ON THE FILE OF
THE 14TH ADDITIONAL CITY CIVIL JDUGE, BENGALURU,
DISMISSING THE PETITION FILED U/S 34 OF ARBITRATION AND
CONCILIATION ACT.
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 29.06.2017, COMING ON FOR PRONOUNCEMENT
THIS DAY, K.S.MUDAGAL J., DELIVERED THE FOLLOWING:
JUDGMENT
K.S.MUDAGAL, J. :
The appellant is before this Court challenging the judgment and order dated 29.04.2015 in A.S.No.14/2008 passed by the XIV Addl.City Civil Judge, Bengaluru which in turn arises out of the arbitral award passed in Arbitration Case No.2/2007.
2. The first respondent is the claimant before the Arbitral Tribunal. Second respondent is the Arbitrator in the matter. The appellant is the respondent before the Arbitral Tribunal. For the purpose of convenience the parties will be referred to hereafter with their ranks before the arbitral Tribunal.
3. The claimant is the manufacturer and trader of Ayurvedic drugs including Live-52. The respondent is in the business of manufacturing essential drugs and -3- MFA No. 5748/2015 pharmaceuticals in its factory at Hosakote Industrial Area. The claimant and the respondent entered into the agreement dated 01.06.2000 for manufacturing the products of the claimant on loan licence basis.
4. As per the agreement in question the claimant had to supply the raw materials and the respondent had to manufacture and supply the final products to the claimant. The claimant purchased the raw materials in the name of the respondent and supplied the same to the respondent. The claimant was entitled to CENVAT credit facility on the input service purchased by it and supplied to the respondent and respondent had to pay the duty on the final product as a set off to the CENVAT credit credited to its account.
5. In the arbitration proceedings, the claimant sought recovery of Rs.29,36,507/- with interest from the respondent on the ground that the respondent has committed breach of agreement and mis-appropriated /mis-utilized the CENVAT credit facility and 19,700 Kgs of sugar supplied to it as the raw material. -4- MFA No. 5748/2015
6. The respondent denied the case of the claimant and set up a counter claim for Rs.1,47,10,124.75/- contending that the claimant has failed to provide minimum 6 lakh bottles manufacture per month and thereby committed breach of minimum guarantee clause in the agreement.
7. The Arbitral Tribunal on adjudication rejected the counter claim of the respondent and allowed the claim of the claimant for Rs.29,23,539/- with interest @ 15% p.a. from 21.07.2002 till passing of the award and 18% per annum from the date of the award till the date of its realization with costs.
8. Respondent challenged the said award in A.S. No.14/2008 before the XIV Addl. City Civil Judge, Bengaluru under Section 34 of the Arbitration and Conciliation Act. The learned XIV Addl. City Civil Judge, dismissed the suit holding that the award does not violate any of the clauses of Section 34 of the Act warranting interference with the same.
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9. Sri Sanjay Krishna, learned counsel for the appellant in his arguments seeks to assail the impugned order and award contending that the award is in conflict with the public policy of India for the following reasons:
i) The findings of the Arbitral Tribunal regarding breach of minimum guarantee clause and on the assessment of damages are contrary to Sections 73 and 74 of the Indian Contract Act, 1872.
ii) The Arbitral Tribunal ought to have seen that the claimant continued the business despite the knowledge of respondent not complying the condition of CENVAT credit utilization, therefore the claim is hit by the principles of acquiescence under Section 39 of the Indian Contract Act.
10. In support of his contention he relies upon the judgment of the Supreme Court in SUMITOMO HEAVY INDUSTRIES LIMITED -VS- OIL AND NATURAL GAS CORPORATION LIMITED (2010) 11 SCC 296
11. In substance, the award is sought to be challenged on the ground that the arbitrator has failed to appreciate that the claimant committed breach of contract, consequently, Sections 39, 73 and 74 of the Indian -6- MFA No. 5748/2015 Contract Act disables him to claim compensation and enables the respondent to claim damages, therefore, the award is opposed to the public policy of India.
12. Under Section 34 of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as the 'Arbitration Act' for brevity), the scope of interference in an award is very limited. The arbitrator on appreciation of the facts has rejected the claim of the respondent that the claimant has violated the minimum guarantee clause. Further, the Explanation to Section 34 of the Arbitration Act states that an award is in conflict with the public policy of India if:
i) the award was induced or affected by fraud or corruption; or
ii) the award is in violation of Section 75 or Section 81 of the Arbitration Act.
13. It is not the case of the appellant that the award is the out come of fraud or any corrupt practice. Section 75 of the Arbitration Act deals with the confidentiality. It is not the case of the respondent that the Arbitrator at any time disclosed anything to anybody in violation of Section 75 of the Arbitration Act. -7- MFA No. 5748/2015
14. Section 81 of the Arbitration Act deals with the admissibility of evidence which reads as follows:
"81. Admissibility of evidence in other proceedings.- The parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, whether or not such proceedings relate to the dispute that is the subject of the conciliation proceedings,-
(a) views expressed or suggestions made by the other party in respect of a possible settlement of the dispute;
(b) admissions made by the other party in the course of the conciliation proceedings;
(c) proposals made by the conciliator;
(d) the fact that the other party had indicated his willingness to accept a proposal for settlement made by the conciliator."
15. It is not even the case of the appellant that the Arbitrator admitted any evidence which is barred under Section 81 of the Arbitration Act. Having regard to these facts, the Court below has confirmed the award rightly acting under Section 34 of the Arbitration Act. No ground to admit the appeal. Hence dismissed.
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Having regard to the disposal of the appeal, I.A.No.2/2015 does not survive for consideration and disposed of accordingly.
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JUDGE Sd/-
JUDGE Hr