Bangalore District Court
M/S Trishul Developers vs M/S Mac Charles (I) Limited on 27 October, 2022
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Com.A.P.No.53/2021
In the Court of LXXXIV Addl. City Civil and Sessions
Judge (CCH-85 Commercial Court) Bengaluru
Dated this the 27th day of October 2022
Present: Smt.H.R.Radha B.A.L., LL.M.
LXXXIV Addl. City Civil and Sessions Judge,
(CCH-85 - Commercial Court)
Bengaluru
Com.A.P.No.53/2021
Petitioners 1. M/s Trishul Developers, a registered
partnership firm, having its office at
Mittal Towers, No.109, 'B' Wing, First
Floor, No.6, M.G.Road, Bengaluru - 560
001, represented by its Managing
Partner, Mr.Niraj Mittal
2. Mr.O.P.Mittal, aged about 72 years,
represented by his constituted
attorney Mr.Niraj Mittal
3. Mr.Niraj Mittal, S/o Mr.O.P.Mittal,
aged about 47 years
4. Mrs. Uma Mittal, W/o Mr.O.P.Mittal,
aged about 69 years, represented by
her constituted attorney Mr.Niraj Mittal
5. Mrs.Jyothi Mittal, W/o Mr.Niraj Mittal,
aged about 45 years, represented by
her constituted attorney Mr.Niraj Mittal
Petitioners 2 to 5 R/at No.94D, Mittal
Nivas, 9th Cross Road, RMV Extension,
Bengaluru - 560 080
(By Sri.Dhananjay Joshi, Senior Adv.
for Sri.Rajath S., Adv.)
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Com.A.P.No.53/2021
Vs
Respondent M/s MAC Charles (I) Limited, a company
registered under the Companies Act,
1956 having its registered office at
P.B.No.174, No.28, Sankey Road,
Bengaluru - 560 052
(By Sri.Sanjay Nair, Adv.)
Date of Institution 03.07.2021
U/s 34 of the Arbitration and
Nature of the petition
Conciliation Act, 1996
Date on which judgment
27.10.2022
pronounced
Total Duration Years Months Days
01 03 24
LXXXIV Addl. City Civil and Sessions Judge
(CCH-85 Commercial Court) Bengaluru
JUDGMENT
This is the respondents petition U/s 34 of the Arbitration and Conciliation Act, 1996 ('the Act' for short) for setting aside the arbitral award dated 07.12.2020 in A.C.No.99/2020.
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Com.A.P.No.53/2021
2. The parties are referred as per their original rank before the AT for clarity.
3. Briefs facts leading to filing of this petition are that the 1st respondent firm borrowed Rs.3 Crore from the claimant under loan agreement dated 11.08.2015; and Deed of personal guarantee, demand pronote of the even date were executed in addition to issuing cheques towards the principal amount and interest and handing over the title deed of the immovable property in RMV extension to secure the debt. Disputes arose between the parties after the cheque issued towards the principal amount came to be dishonoured. The claimant, besides initiating criminal proceedings in C.C.No.9820/2016 and C.C.No.3095/2019, also issued notice U/s 21 of the Act. In CMP No.187/2018 filed by the claimant U/s 11 of the Act, the Hon'ble High Court appointed the learned sole arbitrator ('AT' for short) by order dated 05.04.2019.
4. The claimant filed the claim statement for recovery of Rs.3 crore with interest at 24% p.a. and an order of restraint from creating third party interest over the property offered as security claiming that the respondents, having 4 Com.A.P.No.53/2021 availed loan of Rs.3 crore and executed loan agreement, deed of personal guarantee, pronote dated 11.08.2015 and three post dated cheques covering the principal amount and interest, failed to honour the cheques and to repay the outstanding amount even after repeated demands; criminal proceeding U/s 138 of NI Act is also initiated and the same is pending.
5. The respondents filed the statement of defence and two IAs U/s 16 of the Act questioning the jurisdiction of the AT contending that the dispute cannot be adjudicated by arbitration as the loan is secured by creating mortgage over the schedule immovable property; and there is no arbitration agreement between the 5th respondent and the claimant, as she is neither a party nor a signatory to the loan agreement dated 11.08.2015. The claimant withdrew the criminal cases after accepting fresh cheques from the 1st respondent, as such no offence is committed by them.
6. Based on the pleadings, the AT framed as many as twelve issues.
7. The claimant examined their company secretary as Pw1 and got marked Ex.P1 to P49, Ex.P9(a) to P13(a), 5 Com.A.P.No.53/2021 P17(a1) to (a8), P17(b1) to (b8), P17(c1) to (c4), P17(d), P18(a1) to (a8), P18(b1) to (b8), P18(c1) to (c4), P18(d), P19(a) to P19(d), P22(a), P37(a) and (b), P39(a1) to (a7), P39(b1) to (b7).
8. The respondents cross examined Pw1 and got marked Ex.P17(a9) but did not adduce any evidence.
9. After hearing both sides and considering the material on record the AT rejected the respondents' IAs U/s 16 of the Act and allowed the claim in part by the impugned award dated 07.12.2020 directing the respondents to pay Rs.3 crore with interest at 24% p.a. and future interest at 9% p.a. to the claimant and also the cost.
10. Aggrieved by the same, the respondents/petitioners have filed this petition challenging the award on the grounds U/s 34(2)(a)(iv), 34(2)(b)(i) and 34(2)(b)(ii) of the Act stating that the claim was time barred and documents not duly stamped documents were permitted to be marked in evidence, in contravention of Sec.33 of the Karnataka Stamp Act. Adverse inference is drawn against them for not leading evidence when there is no evidence to substantiate the claim. Even in the absence of agreement 6 Com.A.P.No.53/2021 for levy of interest they are directed to pay the principal amount of Rs.3 crore with interest at 24% p.a. and therefore, the impugned award should be set aside.
11. The claimant/respondent has filed statement of objections contending that the impugned award is well reasoned, based on appreciation of facts and evidence. For want of proof of intention to create mortgage, Ex.P21 being unilateral act of a respondent and considering that mere deposit of title deed cannot lead to presumption as to existence of mortgage, the AT has concluded Ex.P21 to be not ancillary to Ex.P17 and rejected IA U/s 33 of the Karnataka Stamp Act. The 3rd respondent who is the husband and power of attorney holder of the 5 th respondent is a signatory to Ex.P17 and P18. The findings of AT with regard to the 5th respondent being a party to arbitration agreement is based on appreciation of facts, evidence and interpretation of the documents, more particularly Ex.P39 and the same cannot be interfered with, specially when the respondents' have failed to deny the claimant's case. Since the respondents did not adduce evidence, the AT is justified in drawing adverse inference that their defence is false. 7
Com.A.P.No.53/2021 Mere erroneous application of law cannot amount to patent illegality and this court cannot reappreciate facts, evidence or substitute its findings for that of the AT.
12. Heard arguments.
13. Perused the records and the written arguments filed on behalf of the respondents/petitioners.
14. The learned counsel for the respondents/petitioners vehemently argues that the 5th respondent is not a party to Ex.P17 to P21 and she neither expressly or impliedly ratified execution of the said documents; and the dispute relates to a mortgage debt. On account of the same and for want of privity of contract between the claimant and the 5th respondent the AT had no jurisdiction. Ex.P21 is a chargeable with duty under Article 6 of the Karnataka Stamp Act but not stamped. The findings of the AT to the contrary is attributable to contravention of Sec.33 of the Karnataka Stamp Act; and under section 34 of the Act, this court cannot modify the impugned award. In support of the same, he relies upon the following judgments:
(a) National Small Industries Corporation Ltd., Vs Punjab Tin Printing & Metal 8 Com.A.P.No.53/2021 Industries & Ors. [ILR (1979) I Delhi 381];
(b) Food Corporation of India Vs Rama Mills Shahbad Markanda [1988 SCC Online P&H 117];
(c) Associated Engineering Co. Vs Government of Andhra Pradesh & Anr.
[(1991) 4 SCC 93];
(d) Project Director, NHAI Vs M.Hakim & Anr. [(2021) 9 SCC 1]; and
(e) K.Lubna & Ors Vs Beevi & Ors. [(2020) 2 SCC 524]
15. On the other hand, the learned counsel for the claimant/respondent argues that the respondents' had offered as security, property which was already alienated. Assuming that the debt is secured by mortgage, the lender may choose to bring claim only for recovery of money and not enforce rights under the mortgage and such claim would be arbitrable. The loan agreement being a valid contract, not repudiated in accordance with law, is binding on the 1st respondent firm and all the partners including the 5th respondent. Mere contravention of a substantive law is not a ground to set aside the impugned award. The AT has construed the loan agreement and other documents in a fairly reasonable manner; and the grounds urged involve 9 Com.A.P.No.53/2021 reappreciation of facts and evidence which cannot not done in a petition U/Sec.34 of the Act. In support of the above, the claimant/respondent relies upon the following judgments:
(a) M/s Murugharajendra Co. Vs The Chief Controlling Revenue Authority in Mysore & Ors. [ILR 1974 Kar 276];
(b) K.J.Nathan Vs S.V.Maruthi Rao & Ors.
[AIR 1965 SC 430];
(c) Sanganer Dal & Floor Mill Vs F.C.I. & Ors. [(1992) 1 SCC 145]
(d) Ssangyong Engineering & Construction Company Ltd. Vs National Highways Authority of India (NHAI) [(2019) 15 SCC 131];
(e) Delhi Airport Metro Express Pvt. Ltd. Vs Delhi Metro Rail Corporation Ltd. [(2021) 1 SCC 131];
(f) PSA SICAL Terminals (P) Ltd. Vs Board of Trustees of V.O. Chidambranar Port Trust Tuticorin [2021 SCC Online 508];
(g) Tata Capital Finance Services Ltd Vs Deccan Chronicle holdings Ltd. & Anr [(2013) 3 Bom Cr 205]; and
(h) Aditya Birla Finance Ltd Vs Mr.Carnet Elias Fernades & Anr. [2015 SCC Online Bom 4774].
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Com.A.P.No.53/2021
16. In reply, the learned counsel for the respondents/petitioners argues that the claimant never demanded from the respondents 4 and 5 the amounts due under the loan agreement; they came to know about it for the first time on receiving notice of the petition U/s 11 of the Act. The respondents' title to the immovable property in RMV extension was never in dispute and there is no basis for contending that the said property was sold much earlier to the loan transaction; and the documents dated 11.08.2015 relied upon by the claimant to prove the transaction speak about debt, constructive delivery of the property by deposit of the title deeds with the intention to secure the debt and therefore, the dispute is not arbitrable.
17. In the light of the rival contentions of the parties, grounds urged by the respondents/ petitioners and the directions issued by the Division Bench of our Hon'ble High Court in Union of India Vs M/s Warsaw Engineers & Anr. [COMAP No.25/2021 dated 17.04.2021 (DB)], the points that arise for the consideration of this court are as follows:
1. Whether the respondents/ petitioners establish that the AT had 11 Com.A.P.No.53/2021 no jurisdiction and the arbitration proceeding was barred U/s 19(2)(a) of the Indian Partnership Act as there is no privity between the 5th respondent and the claimant?
2. Whether the respondents/ petitioners establish that the claim is not arbitrable as it relates to mortgage debt?
3. Whether the respondents/ petitioners have made out the grounds for setting aside the arbitral award U/s 34(2)(a)(ii), 34(2)(a)(iv) and 34(2A) of the Act?
4. What order?
18. My findings on the above points are :
Point No.1: In the negative Point No.2: In the negative Point No.3: In the negative Point No.4: As per final order for the following REASONS
19. Point No.1: There is no dispute that the 1st respondent, a registered partnership firm borrowed loan of Rs.3 crores for the conduct of the business under Ex.P17; Ex.P18 and P19 were also executed in relation thereto. As on the date of borrowing the 5th respondent was one of the 12 Com.A.P.No.53/2021 partners of the 1st respondent, as seen from Ex.P38; her address was recorded in the register of firms as shown in the notice at Ex.P28 dated 27.02.2016, issued by the claimant demanding repayment of Rs.3 crores borrowed under the loan agreement dated 11.08.2015.
20. Sec.7(4) of the Act mandates that an arbitr ation agreement in writing should be signed by the parties and no doubt, the 5th respondent's signature is not found in Ex.P17 or P18, but as seen from paras 6 and 7 of Ex.P39 the 5th respondent's husband i.e., the 3 rd respondent was the working partner of the firm; and the amount required for the business of the partnership in excess of the capital contributed by the partners was permitted to be raised from outsiders on mutually agreed terms with the consent of all the partners.
21. The scheme of the provisions contained in chapter IV of the Indian Partnership Act makes it is clear that a partner is the agent of the firm for the purpose of its business; act of a partner done to carry on the business of the firm in the usual way binds the firm. If the act is done by a partner or any other person on behalf of the firm or any document is 13 Com.A.P.No.53/2021 executed in the firm name expressing or implying an intention to bind the firm, then same would be binding on the firm. However, this implied authority of a partner does not empower him to submit a dispute relating to the business of the firm to arbitration in the absence of any usage or custom of trade to the contrary as provided U/Sec.19(2)(a) of the Indian Partnership Act.
22. National Small Industries Corporation Ltd. Vs Punjab Tin Printing & Metal Industries & Ors relied upon by the respondents relates to a case where based on hire purchase agreement entered into by one of the partners, a suit was filed for recovery against the firm. When IA U/s 34 of the Indian Arbitration Act, 1940 for stay of the proceedings was filed claiming that the suit claim is covered by arbitration agreement, the plaintiff opposed the same. Having regard to Sec.19(2)(a) of the Indian Partnership Act and considering that there was no averment in the IA that the agreement to refer the matter to arbitration was ratified by the firm, the Hon'ble High Court of Delhi held that the partner who entered into agreement was not competent to agree to refer the dispute 14 Com.A.P.No.53/2021 to arbitration.
23. In Food Corporation of India Vs Rama Mills Shahbad Markanda a suit was filed for accounts against FCI in relation to an agreement of paddy shelling entered into on behalf of Rama Mills by one of its partners. FCI filed IA U/s 34 of Indian Arbitration Act claiming that there was an arbitration agreement and the proceedings should be stayed. Rama Mills objected on the ground that the arbitration agreement would not bind the firm as the partner who entered into agreement with FCI did not have any authority. Though the power of attorney executed by six partners in favour of other four partners including the one who entered into agreement with FCI was pressed into service to contend that he had authority, considering that it did not contain any clause authorizing the power of attorney holder to act severally or to enter into an arbitration agreement relating to the business of the firm, the Hon'ble High Court of Punjab and Haryana held that there was no valid arbitration agreement binding.
24. JJLB Engineers & Contractors through its partner Balbeer Sing Vs Manmohan Harijinder & Associates & Anr is 15 Com.A.P.No.53/2021 a case where one of the partners of JJLB Engineers signed the agreement for referring the dispute to arbitration without the consent of other partners and award came to be passed by the Arbitral Tribunal. In a challenge to the same U/s 30 and 33 of the Indian Arbitration Act, 1940 the Hon'ble Bombay High Court (Aurangabad Bench) after considering the scope of Sec.18, 19(2)(a), 19(2)(b), 22 of the Indian Partnership Act and the clauses in the partnership deed, held that the dispute was in relation to business of the firm and the person who signed the agreement was authorized to execute to tender documents etc. and the agreement was in the name of the firm by a partner with the intention to bind the firm, as an agent and therefore, he acted with implied consent of all the partners.
25. It is pertinent to note here that the respondents do not dispute availing loan of Rs.3 crores from the claimant for the business of 1st respondent firm or execution of Ex.P17, P18 and P19 by the respondents 3, 4 as well as the 2nd respondent for himself and on behalf of the 1 st respondent. A perusal of these documents would reveal that the 2nd defendant while signing on behalf of the firm, 16 Com.A.P.No.53/2021 has even affixed its seal. This speaks volumes about the clear intention of the parties to bind the firm as rightly argued by the learned counsel for the claimant.
26. The 5th respondent does not dispute her address in Ex.P38 and it is the same as in the claimant's notice at Ex.P9(a) and P28 demanding the amount due under Ex.P17 and also the speed post acknowledgment at Ex.P32. Therefore, it can be safely inferred that the notice at Ex.P28 was duly delivered to the 5 th respondent. Yet she has chosen not to reply either objecting to the firm borrowing money for its business or alleging that the same was not for the firm's business or objecting to the authority of respondents 1 to 4 to avail loan in the name of the firm without her consent.
27. The arbitration records also disclose that the 5th respondent was a party to the claimant's A.A.No.310/2017 U/s 9 of the Act for interim measure before CCH-83 (LXXXII Addl. City civil Judge), Bengaluru. If at all there was no privity of contract between the 5th respondent and the claimant as canvassed or respondents 1 to 4 did not have the implied authority to enter into an agreement containing 17 Com.A.P.No.53/2021 the clause to refer the dispute relating to the firm's business to the arbitration, she ought to have raised objection in that behalf. But interestingly none of the partners of the 1st respondents including the 5th respondent appeared and contested the said proceedings raising such objections, on receipt of the notice. As a result the petition came to be allowed exparte.
28. Therefore, it can be safely inferred that the 5th respondent did not object to the loan transaction dated 11.08.2015 as the remaining respondents had implied authority to act on her behalf including to agree to refer the dispute to arbitration. By remaining silent even after service of notice the 5th respondent in my considered opinion has ratified of the acts of other respondents, as such there is no merit in the argument with regard to absence of valid arbitration agreement between the 5 th respondent and the claimant. In the circumstances, the ratio laid down in the above judgments are of no avail to the respondents and the point for consideration is accordingly answered in the negative.
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Com.A.P.No.53/2021
29. Point No.2: The respondents/petitioners contend that the dispute relates to mortgage debt and not arbitrable; and Ex.P21, a document chargeable with duty and being unstamped is not admissible in evidence and the AT rejected their IA in contravention of Sec.33 of the Karnataka Stamp Act. Per contra, the claimant argues that the dispute is very much arbitrable as it only involves a simple money recovery claim.
30. It is pertinent to note that an arbitral award can be interfered with on limited grounds U/Sec.34 of the Act. The Hon'ble Supreme Court, following the judgment in Associate Builders Vs DDA, has reiterated in Saangyong Engineering and Construction Company Limited Vs NHAI and PSA SICAL Terminals (P) Ltd. Vs Board of Trustees of VO Chidambranar Port Trust Tuticorin & Ors., that there must be patent illegality appearing on the face of the award; reappreciation of evidence cannot be permitted under the ground of patent illegality appearing on the face of the award. A mere contravention of the substantive law of India by itself is no longer a ground available to set aside an arbitral award and construction of the terms of a contract is 19 Com.A.P.No.53/2021 primarily for an arbitrator to decide.
31. Under the Transfer of Property Act, a mortgage by deposit of sale deeds can be executed by mere delivery of the sale deed relating to the property or by a registered document. But the intention that the title deed shall be security for the debt is a question of fact to be decided based on presumptions and evidence; mere delivery of title deed does not lead to presumptions under law that it constitutes a mortgage as held in K.J.Nathan's case cited supra.
32. The impugned award shows that the AT on appreciation of Ex.P17, P18 and P21 and oral evidence of the claimant has concluded that Ex.P17 to be an independent document and Ex.P21, an unilateral act of the respondents; the second prayer for injunction to be not germane to the enforcement of rights under a mortgage and there is no claim for sale of the property to recover the outstanding dues. Based on such appreciation of facts and evidence and interpretation of Ex.P17 and P21, it has come to the conclusion that the transaction does not answer the description of mortgage by deposit of title deed and the 20 Com.A.P.No.53/2021 claim to be a simple claim for recovery of money.
33. Therefore, when the liability is not disputed by the respondents I am of the opinion that the impugned award cannot be interfered with by reappretiating facts, evidence, facts or even by interpreting Ex.P21 differently when the respondents/petitioners have failed to demonstrate that the construction of this document by the AT is not even a possible one, in the circumstances of the case.
34. Ex.P17 dated 11.08.2015 speaks about the claimant lending of Rs.3 crore to the respondents on execution of demand pronote, personal guarantee of respondents 2 and 3, issuance of post dated cheques covering the principal amount and the interest, and a receipt for the principal amount. Ex.P18 is the deed of personal guarantee executed by respondents 2 and 3 in terms of the conditions under Ex.P17. When the respondents admit the borrowing, execution of loan agreement etc. in favour of the claimant and the liability to repay the outstanding amount the findings of the AT cannot be said to be dehors the claim, the contract and the material on record.
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35. Assuming that Ex.P21 is not admissible in evidence being an unstamped document, the claim is since based on Ex.P17, P18 and not exclusively on Ex.P21, I am of the opinion that even if the letter of the respondents at Ex.P21 is to be eschewed as such an inadmissible document, the claimant would still be entitled to recover the amount due because the respondents do not dispute execution of Ex.P17, P18 or the pronote or issuing the cheques for repayment of the loan and interest.
36. Further, as could be gathered from Ex.P48, the title deed of the property sought to be offered as security under Ex.P21 was sold by the first respondent firm in favour of one J.P.Agarwal represented by its PA holder Kapil Agarwal Indian Bank under registered deed dated 08.12.2009 and the purchaser mortgaged the said property in favour of M/s Indian Bank under registered document dated 23.12.2009 by deposit of title deed. Such being the case, the argument that the respondents intended to offer the property as security for the debt appears fallacious and merit less.
37. The lender, as rightly argued by the learned counsel for the claimant may choose to bring a claim only for 22 Com.A.P.No.53/2021 recovery of the amount due and not to sue for enforcement of mortgage. This position is clarified in the two judgments of the Hon'ble Bombay High Court in Tata Capital Financial Services Ltd and Aditya Birla Finance Ltd, relied upon by the claimant.
38. When the findings of the AT that the claim was for recovery of money and Ex.P21 does not answer all the descriptions of mortgage by deposit of title deeds, is based on the appreciation of facts and evidence, it cannot be disturbed by reappreciating the same or by differently interpreting Ex.P21. For these reasons and considering that the dispute before the AT was neither for foreclosure nor sale of the property sought to be offered as security under Ex.P21, I am of the opinion that the claim related to mortgage debt and was not arbitrable, as sought to be canvassed. Accordingly, the point for consideration is answered in the negative.
39. Point No.3: From the above discussion it is clear that the 1st respondent firm entered into agreement with the claimant to avail loan for its business but failed to repay the same. As the loan agreement contained arbitration clause, 23 Com.A.P.No.53/2021 the claimant invoked the same, issued notice U/Sec.21 of the Act to respondents 1 to 5 and initiated proceedings U/Sec.11 of the Act. None of the respondents appeared before the Hon'ble High Court in the CMP as the 2 nd respondent had implied authority to conduct the business of the firm and such implied authority binds all the partners.
40. Ex.P17 admittedly is not repudiated as per law and it is a valid agreement and therefore it binds all the partners of the 1st respondent, as held in Sanger Dal and Flour Mill Vs FCI & Ors. cited supra. The intention to create mortgage in respect of the immovable property sought to be offered as security on the part of the respondents was absent, as the said property was already alienated and mortgaged by the purchaser in favour a bank as on the date of execution of Ex.P21. Therefore, the point for consideration is answered in the negative holding that the respondents/petitioners have failed to make out grounds for setting aside the impugned award U/Sec.34(2)(a)(ii), 34(2)
(a)(iv) and 34(2A) of the Act.
41. Point No.4: In the result, I pass the following: 24
Com.A.P.No.53/2021 ORDER The petition U/Sec.34 of the Arbitration and Conciliation Act is hereby dismissed.
Issue copy of the judgment to the parties through e-mail as provided U/o XX Rule 1 of CPC, if email ID is furnished.
Send back the arbitration records to the Arbitration Centre Bengaluru, after expiry of the appeal period.
(Dictated to the stenographer, transcribed and typed by her, corrected and then pronounced by me in the open court on this the 27th day of October 2022) (H.R.Radha) LXXXIV Addl. City Civil and Sessions Judge, (CCH-85 Commercial Court) Bengaluru.