Bangalore District Court
M S Kanaka Enterprises vs Mustaq Ahmed on 16 February, 2024
IN THE COURT OF LXXXVI ADDL. CITY CIVIL &
SESSIONS JUDGE, AT BENGALURU (CCH-87)
THIS THE 16TH DAY OF FEBRUARY 2024
PRESENT:
SMT. M. LATHAKUMARI. M.A., LL. M.,
(CCH-86)
C/c LXXXVI ADDL. CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.162/2016
BETWEEN:
1. M/s Kanaka Enterprises,
A Partnership Business Concern,
Having its office at:
No.14, Cunningham Road,
Bengaluru-560 052.
It is represented by its Partners,
a) Shri.H.J siwani,
Son of J.K.Siwani,
b) Shri M.J.Siwani,
Son of J.K.Siwani,
Both having their office at:
No.14, Cunningham Road,
Bengaluru-560 052.
2 Com.A.S.162/2016
2. M/s Value Infrastructure Pvt Ltd.,
A private Limited Company,
Having its office at:
5th floor, Surya Towers,
S.P.Road,
Secunderabad,
Represented by its lawful assignee,
M/s Kanaka Enterprises,
represented by:
a) Shri.H.J siwani,
Son of J.K.Siwani,
b) Shri M.J.Siwani,
Son of J.K.Siwani,
Both having their office at:
No.14, Cunningham Road,
Bengaluru-560 052.
3. Shri Vinay Karthik,
Aged about 38 years,
Son of K.S.Chandra Prakash,
No.1/121, Gagandeep,
Hanumanthappa Layout,
Bengaluru.
Plaintiff/Respondent
(Represented by V.B.S. Advocate.)
AND
1. Shri Mustaq Ahmed,
Aged 63 years,
S/o Mohammed Hanif,
No.12, Benson Road,
Benson Town,
Bengaluru-560 046.
3 Com.A.S.162/2016
2. The arbitration Centre,
Karnataka (Domestic and International),
Bengaluru
Before the aRbitral Tribunal
Justice K.N.Keshavanarayana,
Sole Arbitrator
Defendants/Claimants
(Represented by L.M.C, Advocate).
Date of Institution of the suit 01.10.2016
Nature of the suit (suit on Arbitration Suit under Sec.
pronote, suit for declaration 34 of Arbitration &
& Possession, Suit for Conciliation Act, 1996
injunction etc.)
Date of commencement of
recording of evidence ---
Date on which judgment was 16.02.2024
pronounced
Total Duration Year/s Month/s Day/s
07 04 17
(M.LATHAKUMARI)
C/c LXXXVI Addl. City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
This is an arbitration suit filed by the plaintiffs, claimants before arbitral tribunal Under Sec.34(1) of the Arbitration & Conciliation Act, 1996 (Act in brief) seeking to set aside the award dated 29.08.2016 passed by the arbitral tribunal in A.C.No.62/2015. Further to pass an 4 Com.A.S.162/2016 order directing the defendants to pay the entire amount in terms of the claim statement or in the alternative remand the matter for fresh adjudication for recovery thereof with cost of this arbitration suit proceedings.
2. The plaintiffs herein were the claimants and 1st defendant was the respondent before arbitral tribunal in the matter of A.C.62/2015 and in pursuance of award dated 29.08.2016 passed by the arbitral tribunal in the matter of A.C.62/2015, wherein claims made by the claimants came to be dismissed, the plaintiffs have challenged the impugned award accordingly. In this suit for the sake of convenience parties herein are referred to as plaintiffs/claimants and 1st defendant/respondent.
3. The brief facts of the plaintiffs/claimants before arbitral tribunal was that, 1 st defendant/respondent and claimants/plaintiffs 2 and 3 jointly entered into a memorandum of understanding (MOU) dated 16.02.2005 as per Ex.P.3 for purchasing of land measuring 15 acres 11 guntas under auction purchase initiated by M/s Indian Overseas Bank and debt recovery tribunal Bangalore. It is not in dispute that towards said auction purchase of property, the 1st defendant/respondent deposited Rs.70 lakhs by way of earnest money and another Rs.50,5000/- towards 25% of the bid amount, 1% of the poundage fees 5 Com.A.S.162/2016 on 04.02.2005. It is also not in dispute that respondent/1st defendant agreed to pay Rs.2,86,85,640/- as per the directions issued by the recovery officer of the debt recovery tribunal on or before 18.02.2005 in order to claim 8 acres of land. Further plaintiffs 2 and 3/claimants 2 and 3 paid an amount of Rs.82,07,500/- in pursuance of Ex.P.3 and they were due of Rs.2,88,71,816/- to be payable by them to the debt recovery tribunal on or before 18.02.2005 in order to claim remaining 7 acres 11 guntas of land in pursuance of Ex.P.3. In the meantime plaintiffs 2 and 3/claimants 2 and 3, have assigned their rights to the 1st plaintiff/1st claimant. As assignee of plaintiffs 2 & 3/claimants 2 and 3, 1 st plaintiff/1st claimant paid to the 1st defendant/respondent the portion of amount payable by plaintiffs 2 and 3/claimants 2 and 3 towards the sale price. However in the meantime with regard to sale of property conducted in the public auction held on 04.02.2005, litigation crop up, W.P.4293/2005 came to be initiated by RBI staff and other co-operative housing society limited questioning the very legality of the sale of property by debt recovery tribunal (DRT). Hon'ble High Court of Karnataka by its order dated 07.04.2011 allowed the writ petition No.4293/2005 holding that land in question constitutes tank bund vests with the state government as such could not have been sold for realization of the decreetal amount payable to 6 Com.A.S.162/2016 Indian Overseas Bank by M/s SIERA Properties Pvt.Ltd. Under these circumstances 1 st defendant/respondent withdraw the entire amount deposited before the debt recovery tribunal including the amount given by the plaintiffs/claimants towards purchase of sale of property from DRT. On 16.02.2005 a memorandum came to be entered between plaintiffs 1 and 2/claimants 1 and 2 with regard to share the land in question in certain proportion. It was also recited in the said document which is as per Ex.P.4, 2nd plaintiff/2nd claimant will assign the rights which it has acquired under MOU dated 16.02.2005 executed between 1st defendant/respondent and plaintiff 2 and 3/claimants 2 and 3. Further on 17.02.2005 a further memorandum was entered into between plaintiffs 1 and 2/claimants 1 & 2 as per Ex.P.5. Again on 18.02.2005 a MOU was entered between plaintiff No.3/claimant 3 and 1st plaintiff/claimant along with one Yusuf Sharif as Ex.P.6 to share the land in the event the sale of land in question is completed. Since the sale in question was not materialized and 1st defendant/respondent failed to return the amount deposited through him by claimants/plaintiffs, on 08.07.2014 notice was issued by plaintiffs/claimants against 1st defendant/respondent claiming the amount and in case of 1st defendant/respondent's failure to return the amount of plaintiffs/claimants to initiate arbitration 7 Com.A.S.162/2016 proceedings, criminal proceedings or any other proceedings. This notice came to be issued by plaintiffs 1 and 3/claimants 1 & 3. Since 1st defendant/respondent failed to respond to the such notice dated 08.07.2014 issued by plaintiffs 1 and 3/claimants 1 & 3 which is as per Ex.P.9, the plaintiffs/claimants initiated civil miscellaneous petition before Hon'ble High Court of Karnataka seeking appointment of arbitrator vide CMP 158/2014 against 1st defendant/respondent. Hon'ble High court of Karnataka by its order dated 02.03.2015 allowed misc. petition filed by the plaintiffs/claimants and appointed the arbitrator. The 1 st defendant/respondent challenged said order of Hon'ble High Court of Karnataka dated 02.03.2015 passed in CMP No.158/2014 before Hon'ble Supreme Court of India in SLA(c) No.(s) 9940/2015. Hon'ble Apex Court dismissed special leave appeal with an observation that, "the observation made by the Hon'ble High Court of Karnataka while appointing the arbitrator would not come in the way of the arbitrator in deciding the case on merits, the parties are at liberty to raise all contentions which are available to them including the jurisdiction of the arbitrator". In pursuance of arbitral tribunal came to be constituted plaintiffs/claimants filed their claim petition for recovery of amount of Rs.8,74,90,771/- from 1st defendant/respondent together with interest at 18% p.a from 16.02.2005 till realization of 8 Com.A.S.162/2016 the amount. 1st defendant/respondent filed its statement of objection before arbitral tribunal contending that there is no agreement much less the arbitration agreement between the 1st plaintiff/claimant and 1st defendant/respondent and therefore the above arbitration dispute is wholly against the 1 st defendant/respondent, is not maintainable in law or on facts. 1 st claimant/1st plaintiff is not a party to the arbitration agreement to invoke the arbitration clause. Under Sec.2(i)/(h) of the Act the person must be party to the arbitration agreement and therefore there is no arbitration agreement as defined u/sec.7 of the Act to raise the dispute before the arbitral tribunal. The claim statement filed on behalf of the 2 nd & 3rd plaintiff/claimants 2 & 3 is not maintainable, as much as the 2nd plaintiff/claimant is a company registered under the companies act. In case of companies only authorized persons authorized by the board of directors can claim the arbitration dispute. The claim petition is signed by 1 st plaintiff/1st claimant. Therefore the dispute raised on behalf of 2nd & 3rd plaintiff/claimants 2 & 3 is not maintainable. 2Nd & 3rd plaintiff/claimants 2 & 3 have not invoked the arbitration clause at any point of time. The legal notice dated 08.07.2014 which is the cause of action for filing the claim statement was not issued by the 2 nd claimant / 2nd plaintiff. The dispute on behalf of 2 nd plaintiff/ 2nd claimant is not at all maintainable in law 9 Com.A.S.162/2016 before this arbitral tribunal. The proceedings before the debt recovery tribunal are not assignable as it pertains to the public auction by the debt recovery tribunal. The 2 nd and 3rd plaintiffs / claimants 2 & 3 did not have any right to assign in favour of 1 st plaintiff/ 1st claimant. Hence claim made by 1st plaintiff/ 1st claimant by itself and on behalf of other claimants/plaintiffs is not maintainable. The MOU dated 16.02.2005 is between the 1 st claimant/ 1st plaintiff if they have any interse dispute regarding the payment the same is required to the agitated by the 1 st claimant/ 1st plaintiff and 2nd claimant/ 2nd plaintiff, said MOU is not signed by 1 st defendant/respondent. The addendum to MOU dated 17.02.2005 is again between claimants 1 and 2 and respondent / 1 st defendant is not a party to the same. The agreement between the 1 st claimant/ 1st plaintiff and 3rd plaintiff/ 3rd claimant is again not maintainable in law. Since 1 st defendant/respondent is not a party to the said agreement. Therefore making the claim on behalf of 3rd plaintiff/ 3rd claimant is not maintainable. 1st plaintiff/ 1st claimant is a stranger to the 1st defendant/respondent and there is no privity of contract between them. The claim made by the plaintiffs/ claimants is also hit by misjoinder of cause of action, since the agreements independently entered by plaintiffs / claimants along with Mr.Yusuf Sharif @ D Babu cannot be a subject matter of the arbitration.
10 Com.A.S.162/2016 Claimants/plaintiffs have not made said yusuf Sharif @ D Babu as a party. It is further mentioned in the statement of objection of 1st defendant/respondent before arbitral tribunal that, after the acceptance of the bid, the claimants 2 and 3 came to join in the purchase of the property along with 1st defendant/respondent, though the sale proceedings before the debt recovery tribunal are unassignable in the law or facts. In view of the desire expressed by the claimants 2 and 3/plaintiffs 2 & 3 though sale proceedings was unassignable, 1 st defendant/ respondent agreed to enter into MOU with plaintiffs 2 and 3/claimants 2 & 3. Wherein claimants 2 and 3/plaintiffs 2 & 3 agreed to contribute the money for purchase of the property informing that they have their own resources for joining 1st defendant/respondent for purchase of the said property. 1st claimant/ 1st plaintiff filed an application before the debt recovery tribunal requesting him to implead while passing an order of refund of money on the ground that 2nd and 3rd claimant/plaintiffs 2 & 3 have taken money from the 1st claimant/1st plaintiff for payment of the money towards purchase of land. Said application came to be rejected by recovery officer. This 1st defendant/respondent filed W.P.No.21313/2011 before Hon'ble High Court of Karnataka seeking direction to the bank and recovery officer to refund the amount as per Ex.R.1. Said W.P said to be allowed by Hon'ble High Court 11 Com.A.S.162/2016 of Karnataka by its order dated 03.08.2011. Thereafter application came to filed before the bank for refund of the money paid for the sale of the said property and thereby bank returned the amount. In the said W.P Hon'ble High Court of Karnataka held that 1st defendant/respondent is entitled to move further for interest and damages against bank in accordance with law. Hence 1 st defendant/respondent called upon claimants 2 and 3/plaintiffs 2 & 3 to come forward to pay the court fees so has to claim the damages and interest as the false representation made by the bank in selling the property which does not belongs to the M/s SIERA Properties Pvt Ltd . The interest and damages is required to be claimed from the bank for the purpose of resolving the claims for amount payable to all the parties. However claimants 2 and 3/plaintiffs 2 & 3 did not come forward to institute the suit. 1st defendant/respondent came to know that, the agreement between claimants/plaintiffs 2 and 3 only when he was received notice from 1 st claimant/ 1st plaintiff. On the basis of the agreement entered between plaintiffs 1 to 3/claimants 1 to 3 on different dates, the CMP proceedings were initiated before Hon'ble High Court of Karnataka seeking for appointment of an arbitrator. The 1st defendant/respondent has not admitted that agreement, as the same is not within the knowledge of this respondent / 1st defendant. This 1st 12 Com.A.S.162/2016 defendant/respondent contested the proceedings stating that the claim for appointment of arbitrator is unsustainable as there is no arbitration agreement between the 1st claimant/ 1st plaintiff and this respondent/ 1st defendant for appointment of an arbitrator. However Hon'ble High Court of Karnataka appointed arbitrator and constituted this arbitral tribunal. Aggrieved by the appointment of the arbitrator, the respondent/ 1 st defendant has approached the Hon'ble Supreme Court and hence he filed its statement of objection without admitting the claimants/plaintiffs case or the arbitration clause.
4. Based on these pleadings the arbitral tribunal framed as many as 12 issues in A.C.No.62/2015. Answered issue No.1 to 4, 8 and 9 in the affirmative and issue No.5, 6,7,10,11 and 12 in the negative and thereby dismissed the claim of the claimants/ plaintiffs in its entirety with costs by its award dated 29.08.2016. Aggrieved by the same the plaintiffs/claimants instituted above arbitration suit against 1 st defendant/respondent contending that the arbitral tribunal as interpreted the documents arbitrarily. The contentions regarding jurisdiction and liberty to raise question cannot be read in contradiction to observation made by the Hon'ble High Court. The arbitral tribunal ought to have noticed that, 13 Com.A.S.162/2016 the arbitration proceedings initiated only for recovery of amount against the 1st defendant/respondent. For the purpose of evidencing payment of the amount, valid material documents were produced which would indicate payment of the amount in the name of 1 st defendant/respondent before the debt recovery tribunal the said documents were not disputed, neither it was contractually asserted for denying payment of the amount, the arbitral tribunal failed to consider the documents produced by claimants/plaintiffs. The MOU executed by 2nd plaintiff/ 2nd claimant in favour of 1st plaintiff/ 1st claimant and the addendum of MOU together with MOU as per Ex.P.4 to 6. Said documents were internally contributed for investment before the debt recovery tribunal for the purpose of purchase of immovable property through 1 st defendant/respondent. The arbitrator was committed an act of error in not noticing that there was no evidence. That apart the 1 st defendant/respondent did not enter the witness box nor as denied the documents, the award of the arbitrator is contrary to the claim statement, pleadings, written statement and oral and documentary evidence. The award of the arbitrator is nothing but non appreciation of the documents. The award of arbitrator is absolutely contrary to the claim statement, pleadings, written 14 Com.A.S.162/2016 statement and evidence and thereby liable to be set aside. Hence this petition.
5. On issuance of notice to the 1 st defendant/respondent, he appeared through his counsel and filed his written statement contending that the above arbitration suit is filed by the 1 st claimant/ 1st plaintiff alleging itself as the assignee of the 2 nd plaintiff. The assertion that, 1st plaintiff/ 1st claimant is the assignee of the 2nd plaintiff/ 2nd claimant is false. 1st plaintiff/ 1st claimant is not validly authorize to maintain this arbitration suit on behalf of 2 nd plaintiff/ 2nd claimant, even in CMP.No.158/2014, the 1st plaintiff/ 1st claimant claimed that it is the assignee of the 2 nd plaintiff/ 2nd claimant and filed the proceedings in CMP.No.158/2014 before Hon'ble High Court of Karnataka. This assertion made by the 1 st plaintiff/ 1st claimant before Hon'ble High Court of Karnataka in CMP proceedings was false one. Further 1 st plaintiff/ 1st claimant had filed said CMP falsely claiming itself as a Power of Attorney Holder of 3 rd plaintiff/ 3rd claimant. The order of appointment of arbitrator obtained by the 1st plaintiff on miss-representation of facts. The defendant herein/respondent had challenged the order passed in CMP.No.158/2014 before Hon'ble Supreme Court of India in SLP © No.9940/2015 in view of observation made by Hon'ble Supreme Court, the arbitral 15 Com.A.S.162/2016 tribunal was empowered even to consider the jurisdiction to maintain the arbitral proceedings before arbitrator. Arbitral tribunal after considering the documentary and oral evidence as concluded 1st plaintiff is not assignee of the 2nd plaintiff, the finding of fact recorded by the arbitral tribunal is unassailable. Therefore, the proceedings filed by 1st claimant claiming itself as assignee of 2 nd claimant is not maintainable. The plaintiffs/claimants have not been able to demonstrate that the findings recorded by the arbitral tribunal is patently illegal and attracts Sec.34 of the Act. In exercise powers of this court U/s.34 of Arbitration and Conciliation Act, it is well settled that the well reasoned findings of fact recorded by the Arbitral tribunal during the course of award cannot be disturbed. The 1st plaintiff/ 1st claimant has not been able to prove that it is the assignee of plaintiffs-2 and 3 in the arbitration proceedings. The facts and grounds urged in the arbitration suit do not constitute setting aside the Arbitral tribunal award. There is no privity of contract between 1st plaintiff/ 1st claimant and 1st defendant/respondent herein. The Arbitral tribunal on appreciation of the evidence on record held that, there is no previty of contract between the parties. This finding is recorded on appreciation of the evidence on record. Under these circumstances, the suit is not maintainable in law.
The memorandum entered between 1 st
16 Com.A.S.162/2016
defendant/respondent, plaintiffs-2 and 3 and claimants-2 and 3 relates the proceedings before Debt Recovery Tribunal which are not assignable in nature, there is no valid assignment of the memorandum entered between plaintiffs 2 and 3/claimants 2 and 3 in favour of 1 st plaintiff/ 1st claimant. Thereby 1st plaintiff/ 1st claimant is not entitled to maintain any proceedings before any court against this 1st defendant/respondent, 1st plaintiff/ 1st claimant is falsely claiming himself to be assignee of the 2nd plaintiff and Power of Attorney Holder of 3 rd plaintiff filed CMP.No.158/2014 before Hon'ble High Court of Karnataka based on the claim petition filed by plaintiffs/claimants and statement of objection of 1 st defendant/respondent, Arbitral tribunal framed the issues considered the same on merits and thereby rejected the claim of plaintiffs/claimants. Hence, prays to dismiss this arbitration suit and to grant such other reliefs as this court deems fit to grant in the interest of justice and equity.
6. I have carefully scrutinized the entire records placed before me and also perused the written submissions with citations produced by respective parties and the relevant provisions and citations mentioned supra referred by both parties.
17 Com.A.S.162/2016
7. Now the issues that arise for my consideration are:-
1) Whether the plaintiffs/claimants have made out any ground available u/s 34 of the Arbitration and Conciliation Act so has to set aside the impugned award dated 29.08.2016 passed in A.C.62/2015 by arbitral tribunal?
2) What Order?
8. My answer to the above Issues are as under: -
Issue No.1 - In the Affirmative Issue No.2 - As per final order for the following;
REASONS
9. Issue No.1:- There is no dispute that Sec.34 of the Act limits a challenge to an award only on the grounds provided therein or as interpreted by Hon'ble various High Courts and Hon'ble Supreme court. It is vehemently canvassed by learned counsel for 1st defendant/respondent that, unless the court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award, arbitral awards should not be interfered with in a causal and cavalier manner. On the other hand the learned counsel for plaintiff relied upon principles laid down by Hon'ble Apex court in civil appeal 215/2010 18 Com.A.S.162/2016 decided on 18.12.2019. At para 36 of this judgment, Hon'ble Apex Court held as follows; "When we consider the requirement of a reasoned order 3 characteristics can be essential. They are: proper, intelligible and adequate. If the reasoning in the order are improper they reveal flaw in the decision making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided U/sec.34 of the arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the court while exercising jurisdiction u/sec.34 as to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in precised manner as the same would depend on the complexity of the issue. Even if the court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the tribunal, the court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that award with in adequate reasons are not set aside in causal and cavalier manner. On the other hand, ordinarily 19 Com.A.S.162/2016 unintelligible award are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore the courts are required to be careful while distinguishing between inadequacy of the reasons in an award and unintelligible award". With these principles of Hon'ble Apex Court and also submissions of learned counsel for 1 st defendant/ respondent, now let me consider the impugned award.
10. Although arbitral tribunal framed as many as 12 issues based on claims of claimants and also statement of objections raised by respondent i.e., 1 st defendant herein, the arbitral tribunal has not dealt with the claims/issues separately. Before considering the issues framed, the arbitral tribunal in page 12 of its impugned award dealt with separate heading the scope of arbitral proceedings. At para 9 of the impugned award it is specifically mentioned about appointment of an arbitrator by Hon'ble High Court of Karnataka by its order dated 02.03.2015 and also SLP 9940/2015 preferred by respondent/1st defendant before the Hon'ble Supreme court of India. Under this subheading, arbitral tribunal held that liberty granted to the parties to raise all the contentions including the jurisdiction of the arbitral tribunal. These aspects mentioned in the heading, "scope of arbitral proceedings" establishes that arbitral tribunal was very 20 Com.A.S.162/2016 much having knowledge about the objections raised by 1 st defendant/respondent with regard to appointment of an arbitrator in CMP 158/2014 before Hon'ble High Court of Karnataka. It was the contention of respondent/1st defendant that, the arbitration proceedings initiated at the instance of the 1st claimant / 1st plaintiff is not maintainable in the absence of an arbitration agreement between 1st claimant/1st plaintiff and 1st defendant/respondent. 1st defendant/respondent himself as produced petition copy in CMP 158/2014 initiated by claimants/plaintiffs against 1 st defendant/respondent which is as per Ex.R.1. In para 4 of this petition it is averred that, the 2nd petitioner before Hon'ble High Court i.e., 2nd claimant/ 2nd plaintiff is a private limited company. The 2nd petitioner along with 3rd petitioner i.e., 3rd plaintiff/ 3rd claimant entered into a deed of assignment of right and interest pertaining to the transaction undertaken with the respondent/ 1st defendan1 in terms of the MOU dated 16.02.2005, rights accrued to them under the MOU dated 16.02.2005 being same having been assigned in favour of 1st claimant / 1st plaintiff, 1st defendant / respondent herein cannot be allowed to contend that there is no contract between himself and 1st plaintiff / 1st claimant. Under the document executed by them they have assigned the right even for the recovery and to undertake the project, which the respondent i.e., 1st defendant herein would be 21 Com.A.S.162/2016 undertake in respect of the property which was a subject matter of auction sale initiated by M/s Indian Overseas Bank. At para 5 of the petition in Ex.R.1 it is further mentioned that 1st petitioner/ 1st plaintiff/ 1st claimant and 2nd petitioner/ 2nd claimant entered into a MOU on 16.02.2005 and 17.02.2005 to the transaction undertaken with them in terms of MOU. The 3 rd plaintiff also entered into MOU with M/s Kanaka Enterprises i.e., 1 st plaintiff herein on 18.02.2015. Hence before Hon'ble High Court of Karnataka in CMP filed by plaintiffs/claimants against 1 st defendant/respondent, plaintiffs/claimants mentioned about 4 various MOU executed between the parties as per annexure C, D, E. Plaintiffs/claimants through PW1 who is one of the partner of 1 st plaintiff/claimant in their oral testimony got marked all 4 MOU before arbitral tribunal. The original MOU dated 16.02.2005 entered between 1 st defendant/respondent as a 1st party and plaintiffs 2 and 3/ claimants 2 and 3 as 2nd parties is as per Ex.P.3. Though this is an undisputed document executed between 1 st defendant/respondent and claimants 2 and 3/plaintiffs 2 & 3, 1st defendant/respondent raised objection with regard to its admissibility stating that same has not been duly stamped. The other relevant documents are MOU executed on the same day i.e., on 16.02.2005 itself between 2nd plaintiff with 1st plaintiff. Further Ex.P.5 is the MOU dated 17.02.2005 which is an addendum to the 22 Com.A.S.162/2016 memorandum dated 17.02.2005 executed between 2 nd plaintiff and 1st plaintiff herein. Ex.P.6 is MOU executed between 2nd plaintiff herein as a 1st party in favour of 1 st plaintiff/ 1st claimant and one MR.Yusuf Sharif @ D.Babu.
In Ex.P.3 which is MOU executed by 1 st defendant/respondent as a 1st party against claimants 2 and 3, at para 10 it is stated that one MR.K.C.Venkateshwaralu and Mr.D.Babu on behalf of the 2nd party shall persue with the concerned authority regrading obtaining confirmation of sale from DRT. Further there was no such representatives appointed in pursuance of Ex.P.3 for 1st defendant/respondent MR.Mustaq Ahamed. The terms agreed between the parties with regard to sharing of land and also payments to be made and understanding with regard to amount payable by 1st party i.e., 1st defendant/respondent and 2nd party i.e., claimants 2 and 3/plaintiffs 2 & 3 has been recited in detail in Ex.P.3 itself which are not all disputed by parties more particularly 1st defendant/respondent. In clause 5 of this document Ex.P.5 it is specifically mentioned that on the event of cancellation of the bid, 1 st party i.e., 1st defendant/respondent shall return immediately the entire amount deposited by the 2 nd parties. Further in pursuance of terms in Ex.P.3 the 2 nd party i.e., 2nd and 3rd plaintiffs/claimants 2 & 3 were required to pay Rs.3,70,79,360/- towards bid amount and 23 Com.A.S.162/2016 poundage fees. It is not in dispute that out of such amount they had already deposited an amount of Rs.82,07,500/- and thereby the balance amount of Rs.2,88,71,860/- was due from them. The 2 nd plaintiff/ 2nd claimant executed Ex.P.4 in favour of 1st plaintiff MOU assigning the rights acquired by him under Ex.P.3 in favour of 1st plaintiff/ 1st claimant stating that he is not in a position to invest further. In clause 5 of this Ex.P.4 it is specifically recited as follows; "that the assigner i.e., 2 nd plaintiff/ 2nd claimant places on record and covenant that in the event of the sale in favour of 1 st defendant/respondent being not confirmed or stayed or set aside by any court of law, it shall cause to reimburse forthwith a sum of Rs.50,05,000/- with interest at the rate of 10% to the assignee i.e., 1 st plaintiff herein. It is not in dispute that both in Ex.P.3 and P.4 there was dispute resolution clause through arbitration in terms of the Act. An addendum in pursuance of Ex.P.4 and further Ex.P.5 came to be executed between claimants 1 and 2 herein on 17.02.2005. Even this document contains an arbitration clause, subsequently on 18.02.2005 a MOU was executed between 3rd plaintiff in favour of 1st plaintiff and said D.Babu as per Ex.P.6. In pursuance of this MOU the 3rd plaintiff/ 3rd claimant ensured to return the entire amount deposited by the 1st plaintiff and said Babu. Even in this document there is dispute resolution clause 24 Com.A.S.162/2016 specifically mentioned between the parties. At the time of CMP proceedings itself 1st defendant/respondent raised his objection with regard to entertainment of the said petition for appointment of an arbitrator stating that he is not a party to the MOU entered between plaintiffs/claimants.
There is absolutely no dispute amongst plaintiffs/claimants with regard to investment made by them through 1st defendant/respondent. As I have already stated the dispute arose since 1 st defendant/respondent failed to refund the money invested by claimants/plaintiffs towards purchase of auction sale property from Indian Overses Bank. It is also not in dispute that 1 st defendant/respondent got released the entire amount by himself even though he has not invested the entire amount towards purchase of said property and also being aware of MOU executed by him with claimants 2 and 3. Further raised his contention before arbitral tribunal that there is no arbitration agreement between himself and 1 st plaintiff / 1st claimant.
11. With regard to jurisdiction of appointment of arbitrator by Hon'ble High Court of Karnataka in CMP 158/2016, the 1st defendant / respondent preferred SLP before Hon'ble Supreme court which came to be dismissed and said order of Hon'ble Supreme Court dated 27.08.2015 is as per Ex.P.14.
25 Com.A.S.162/2016
12. With the above circumstances and claims of respective parties, whether arbitral tribunal dealt with issue No.2 framed by it in respect of appointment of an arbitrator by Hon'ble High Court of Karnataka is a point to be considered at this stage. After considering issue No.1 and answering the same in favour of claimants/plaintiffs arbitral tribunal instead of considering the vital issue No.2 at page 33 para 29 mentioned that, said issue No.2 is required to be considered later along with issue No.5 and
8. Hence, proceeded to consider issue No.3 & 4. Hence, vital issue with regard to jurisdiction/ appointment of arbitrator which was challenged by 1 st defendant/respondent was not considered by arbitral tribunal individually and prior to dealt with other claims. Said issue No.2 was considered along with issue No.5 & 8 together. The discussion with regard to issue No.2, 5 & 8 are available at page 39 and 40 of the impugned award. At para 38 of the impugned award arbitral tribunal arrived at finding that there is no force in the contention of respondent/1st defendant that the rights and obligations of the parties under Ex.P.3 are not assignable on the ground that it relates to the proceedings of DRT. Thereby held that parties to Ex.P.3 are entitled to assign their rights and obligations in favour of any other persons. Similar finding is forthcoming in para 44 of the impugned award. Hence in pursuance of this findings it is 26 Com.A.S.162/2016 established before arbitral tribunal that in view of the parties i.e., 1st defendant/respondent and plaintiffs 2 and 3/claimants 2 & 3 having entered into MOU on 16.02.2005 as per Ex.P.3, rights accrued to them under the MOU Ex.P.3 being assignable and same having been assigned in favour of 1st plaintiff/claimant, 1st defendant/respondent cannot contended that there is no contract entered into between himself and claimant. Inspite of these circumstances, at para 57 of the impugned award, arbitral tribunal held that Ex.P.4 and Ex.P.6 being not signed by 1 st defendant/respondent there is no privity of contract amongst them and therefore answered issue No.2 & 8 in the affirmative and issue No.5 in the negative. Hon'ble High court of karnataka while appointing the learned arbitrator in its order dated 02.03.2015 held that in pursuance of assignment of rights accrued under MOU dated 16.02.2005, 1st defendant/respondent cannot be heard to contend that there is no contract entered into between himself and 1st petitioner i.e., 1st plaintiff herein or 1st plaintiff herein as an assignee under the MOU's cannot enforce his right which is available to him under MOU dated 16.02.2005 namely, invoking arbitration clause. On going through the award in question this court opines that, the arbitral tribunal rendered the award with narration of facts with references to the annexures whenever it relied upon by it and abruptly concluded at 27 Com.A.S.162/2016 the end of the factual narration, without providing any reasons in the following manner:
"Thus from the above it is clear that there is no privity of contract between respondent/defendant and the 1st claimant, therefore the arbitration proceedings initiated at the instance of 1 st claimant is not maintainable against respondent/ 1st defendant herein". Inspite of independent application of mind by this court, based on the documents relied upon, but cannot sustain the award in its existing form as there is a requirement of legal reasoning to supplement such conclusion. From the facts this court can only state that, from a perusal of the award, in the facts and circumstances of the case more particularly with regard to the jurisdiction issue which went up to Hon'ble apex court at the instance of respondent/1st defendant, arbitral tribunal not considered the same individually and same has been rendered without reasons. The award is confusing and has jumbled the contentions, facts and reasoning, without appropriate distinction.
13. When the jurisdiction of an arbitral tribunal is challenged on the basis that there is no binding arbitration agreement, the usual ground for such a challenge is that, the contract which incorporates the arbitration clause was not signed by the party. As per
28 Com.A.S.162/2016 Sec.7 (5) of the Act "the reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement, if the contract is in writing and the reference is such as to make that arbitration clause part of the contract". The arbitral tribunal not at all considered sec.7 of the Act while arriving its finding on issue No.2. Further in pursuance of Ex.P.3, rights assigned to claimants under Ex.P.4 to 6.
14. Sec.16 of the Act only makes explicit what is even otherwise implicit, namely, that the arbitral tribunal constituted under the Act has the jurisdiction to rule on its own jurisdiction, including ruling on objection with respect to the existence or validity of the arbitration agreement. Sub sec(1) also directs that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. It is also clarified that, a decision by the arbitral tribunal that the contract is null and void shall not make the arbitration clause invalid. Sub section (2) of Sec.16 enjoins that a party wanting to raise a plea that the arbitral tribunal does not have jurisdiction has right to raise objection not later than the submission of the statement of defence, and that the party shall not be precluded from raising the plea of jurisdiction merely because he has appointed/ participated in the appointment of an arbitrator. Sub sec.
29 Com.A.S.162/2016 (3) lays down that a plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond of the scope of its authority is raised during the arbitral proceedings. When the tribunal decide these two questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in a appeal against the final award, when the objection is over ruled. Sub Sec.(5) enjoins that if the arbitral tribunal over rules the objection under sub Sec.(2) or (3), it should continue with the arbitral proceedings and make an arbitral award. Sub sec.(6) provides that a party aggrieved by such an arbitral award, may make an application for setting aside the award.
15. In the above context it is necessary to consider what is the scope of right conferred on the arbitral tribunal to rule on its own jurisdiction and the existence of the arbitration clause, envisaged by Sec.16 (1). In this regard it is also necessary to go through the provisions of Sec.11 (7) of the Act which reads as under: " a decision on a matter entrusted by Sub sec.(4) or sub Sec.(5) or sub Sec.(6) to the supreme court or, as the case may be, the high court or the person or institution designated such court and no appeal including letters patent appeal shall 30 Com.A.S.162/2016 lie against such decision". Sub Sec(4) to (6) of Sec.11 of the Act deals with appointment procedure by Hon'ble Supreme court or Hon'ble High Court. These provisions makes it clear that, once the Hon'ble Justice of Hon'ble High court or Hon'ble Apex court or the person designated by such court had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case, Prima facie, in pursuance of the finality conferred by sub Sec.7 of Sec.11 of the Act, to such a decision of the Hon'ble High court or Hon'ble Supreme court as the case may be, the arbitral tribunal cannot still go beyond that decision and rule on its own jurisdiction or on the existence of arbitration clause. Decision of Hon'ble High court or Hon'ble supreme court on the issue of jurisdiction on the existence of the valid agreement would be binding on the parties when the matter goes to the arbitral tribunal and at subsequent stages of the proceedings except in an appeal in the Hon'ble supreme court in case of the decision being by the Hon'ble justice of the Hon'ble High court, as per the provisions mentioned above. Arbitral tribunal not at all considered the relevant provisions of the Act nor dealt with the claims separately. From the perusal of the award, the inadequate reasoning and basing the award on the approval of the respondent/1st defendant herein cannot be stated to be appropriate, considering the 31 Com.A.S.162/2016 complexity of the issue involved herein. That apart respondent/1st defendant failed to step into the witness box to give evidence and on its behalf the power of attorney holder who neither participated in the transactions nor part of the contract entered between the parties under Ex.P.3 to Ex.P.6 was allowed to give evidence. Even while considering an issue pertaining to limitation, arbitral tribunal not considered relevant provisions. All these circumstances makes the award passed by arbitral tribunal not only unintelligible but also same cannot be sustained. Further the award passed by the arbitral tribunal in challenge is also contrary to Sec.28 (3) of the Act. Nowhere in the impugned award the arbitral tribunal has considered the relevant provision of the Act discussed supra. Hon'ble supreme court in "associate builders case", observed that a contravention of arbitration Act itself would be regarded as a patent illegality and such award will be liable to be set aside. It is further held that, in all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transactions. Thus, the third subhead of patent illegality is really a contravention of sec.28 (3) of the Act. Further Hon'ble Supreme court in the very same citation held that, "an award which shocks the conscience of the court, or when illegality is not trivial but goes to root of 32 Com.A.S.162/2016 the matter, such award calls for interference u/sec.34 of the Act. The above circumstances establishes that arbitral tribunal not adjudicated the claims between the parties in accordance with the Act. Arbitral Tribunal rendered the award without reasons. The tribunal failed to consider the existing contracts between the parties as per MOU Ex.P.3 to P.6 and merely restated the contentions of both parties with inadequate reasoning, cannot be sustained. Accordingly I answer issue No.1 in the Affirmative.
16. Issue No.2:- Apart from seeking to set aside the impugned award, the plaintiffs/claimants sought for allowing their claim or in the alternative to remand the matter. Since there is no scope for this court to modify the award, while considering petition u/sec.34 of the Act, accordingly and in view of my finding on issue No.1, I proceed to pass the following;
ORDER The Arbitration Suit filed by the plaintiffs (claimants before arbitral tribunal in A.C.No.62/2015) u/Sec.34(1) of the Arbitration and Conciliation Act, 1996 praying to set aside the Award dated 29.08.2016 passed by sole arbitrator in A.C. No.62/2015 is allowed with cost.
33 Com.A.S.162/2016 Further their prayer seeking direction to the 1st defendant/respondent to pay the entire amount in terms of the claim statement or for an alternative remedy to remand the matter for fresh adjudication is rejected.
In the result, the Award dated 29.08.2016 passed by Arbitral Tribunal in the A.C. No.62/2015 is set aside.
(Dictated to the stenographer, transcribed by her, verified and pronounced by me in the open court on this the 16th day of February 2024).
(M.LATHAKUMARI) C/c LXXXVI Addl. City Civil & Sessions Judge, Bengaluru.