Bangalore District Court
M/S.Veera Vahana Udyog Pvt vs Cerera Software Pvt on 13 June, 2022
IN THE COURT OF LXXXIX ADDL.CITY CIVIL & SESSIONS
JUDGE, BENGALURU. (CCH-90)
Present: Sri.S.J.Krishna, B.Sc., LL.B.,
LXXXIX Addl.City Civil &
Sessions Judge, Bengaluru.
Dated: 13th JUNE 2022
Com.A.S.No.181/2019
PETITIONER/ M/s.Veera Vahana Udyog Pvt., Ltd.,
APPLICANT : A Company registered under
The Indian Companies Act,
Having its registered office at
No.16-19, Jigani Bommasandra Link Road,
Hennagara, Anekal,
Bengaluru-560 105.
Represented by its Human Resources
Officer/ Authorised Representative,
Sri.Umesha.V.
(By Sri.Vishwanath.R.Hegde, Advocate)
Vs.
RESPONDENTS: 1. Cerera Software Pvt., Ltd.,
A Company registered under
The Indian Companies Act,
Having its Regd. Office at
No.202 and 203, 2nd Floor,
Kedia Arcade,
No.92, Infantry Road,
Bengaluru-560 001.
Rept.by its Vice President,
Sri.Anup Kumar
/2/
Com.A.S.No.181/2019
2. Sri.Anup Kumar,
S/o Sri.T.N.Goswamy,
Aged about 49 years,
R/at No.3304, 3rd Floor,
Andria Apartment, Dollars Colony,
New BEL Road,
Bengaluru-560 040.
(For Respondent No.1 and 2
By M/s.Shakeel Ahmed & Associates)
Date of Institution of suit : 18.12.2019
Nature of suit : U/sec.34 of the Arbitration &
(suit on pronote, suit for
Conciliation Act, 1996.
declaration and
possession suit for
injunction, etc.,)
Date of commencement : -
of recording of evidence
Date of judgment : 13.06.2022
Total duration : Year/s Month/s Day/s
02 05 25
(S.J.KRISHNA)
LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU.
(CCH-90)
JUDGMENT
The Plaintiff has filed this Arbitration suit U/Sec.34 of the Arbitration & Conciliation Act, 1996 praying the Court to set /3/ Com.A.S.No.181/2019 aside the award dated:21.09.2019 passed by the Arbitral Tribunal insofar as it rejected the claim of plaintiff in excess of ₹.5,00,000/- and interest in excess of 8.75% p.a. and allow the claim petition and grant such other relief.
02. For the sake of convenience, the parties to the present suit are referred to as 'claimant' and 'respondents' as before the Learned Arbitral Tribunal.
03. In pursuance of order dated 19.07.2018 passed by the Hon'ble High Court of Karnataka in CMP No.144/2015, the learned Arbitral Tribunal was constituted to resolve the dispute between the claimant and the respondents.
The summary of the case of the Claimant before the Arbitral Tribunal is as under:
04. The claimant is carrying on business of bus body building, repairs and services etc., at Bengaluru. The respondent No.1 represented by its Vice-President, respondent No.2 Mr.Anoop Kumar visited the applicant company at their business place and attended meetings about the development of ERP Software to help the business of the claimant. During such visits the respondent No.2 developed a good rapport and convinced the claimant about their capacity to enter into an /4/ Com.A.S.No.181/2019 agreement for developing the business of the respondents.
05. The respondent No.2 requested the claimant to grant loan of ₹.20,00,000/- for their business development. The claimant agreed to advance loan subject to mortgage of tangible assets including lands, building, plant and machinery apart from personal guarantee of the second respondent for the repayment of loan. Under such circumstances, the respondent No.1 executed loan agreement on 23.04.2012. The other Directors of the Company have also authorized respondent No.2 through their Resolution dated 20.04.2012 to raise loan for the purpose of development of their business.
06. Even before entering into loan agreement, the claimant had paid loan amount as agreed in parts and thereafter all through cheques drawn on Canara Bank as under:
1. Cheque No.374151/dated.11.04.2011 for ₹.2,50,000/-.
2.Cheque No.374437/dated.31.05.2011 for ₹.2,50,000/-.
3. Cheque No.381258/dated.13.07.2011 for ₹.2,50,000/-.
4. Cheque No.381442/dated.11.08.2011 for ₹.3,00,000/-.
5. Cheque No.315224/dated.18.10.2011 for ₹.1,50,000/-.
6. Cheque No.319751/dated.11.01.2012 for ₹.1,50,000/-.
7. Cheque No.319895/dated.07.02.2011 for ₹.50,000/-.
8. Cheque No.319919/dated.07.02.2011 for ₹.1,00,000/-.
/5/ Com.A.S.No.181/2019
9. Cheque No.325447/dated.25.01.2012 for ₹.2,50,000/-.
10.Cheque No.325448/dated.28.04.2012 for ₹.2,50,000/-.
07. As per Clause 1(c) of Loan Agreement, the respondents have to repay the principal amount with interest which shall be accruing from the date the money is paid by the claimant at 24%.p.a. compounded quarterly; as per Clause 1(b), the respondents have to repay the loan amount borrowed together with accrued interest at the end of third year commencing from the date of disbursal of the loan i.e., 11.04.2011. Hence, the respondents were required to pay the same by 11.04.2014. The respondents did not pay the principal amount together with interest in spite of several demands made by the claimant.
08. As per Clause 1(e) of the agreement, the claimant is entitled to levy penal interest at 36%.p.a for the period of default.
09. The claimant issued a legal notice to the respondents on 13.08.2014 calling upon them to repay the principal amount of ₹.20,00,000/- along with interest @36%.p.a. within 15 days from the date of receipt of legal notice. The respondents did not reply the legal notice.
/6/ Com.A.S.No.181/2019
10. The claimant was constrained to file OS.No.2557/2015 before the City Civil Court-CCH No.26, Bengaluru seeking interim measures against respondent No.2 restraining him from alienating his immovable property. Hence, the claim statement.
The case of the respondents before the learned Arbitral Triunal is as under.
11. The respondents have denied the contents of para 4 of the claim statement. They have stated that they never approached the claimant for grant of loan of ₹.20,00,000/- for development of business of respondent No.1. They have denied the averments made in para 6 to 9 of the claim statement and put the claimant to strict proof of the same.
12. The respondents have admitted the issuance of legal notice by the claimant and filing of OS No.2557/2015 by the claimant against them before CCH-26.
13. The claimant is not authorized to lend to a private limited company under Section 372-A of Companies Act and the alleged loan transaction is not a valid transaction in the eyes of law.
/7/ Com.A.S.No.181/2019
14. The respondents have denied the existence of loan agreement and stated that the claimant had obtained the same from them under threat, coercion, undue influence, pressure and compulsion.
15. They have stated that the claimant requested them to develop software called as ERP Software costing ₹.25,00,000/- and proposal was made and claimant agreed to stake claim of ₹.2% in respondent No.1 and obtained approval of the claimant for investment of ₹.20,00,000/- in respondent No.1.
16. Considering the investment of the claimant in the business of respondents, the respondents deputed their men at the premises of claimant for development of software. The claimant was monitoring day-to-day development of the software. The claimant informed the respondents to increase the stake of claimant from 2% to 3% in respondent No.1. The respondents refused the same. The claimant compelled the respondents to refund the amount invested in respondent No.1 by the claimant. The claimant informed the respondents that it will prepare loan agreement converting amount paid as 'investment' as 'loan' and pressurized the respondents to agree to the terms of loan agreement for the purpose of recovery the amount of investment made by the claimant in first respondent company.
/8/ Com.A.S.No.181/2019
17. The respondents have stated that during the third week of the April 2012 the claimant invited the respondents and during such visit compelled them to sign loan agreement under force, pressure, compulsion and undue influence. Without knowledge of the Respondents the claimant obtained the Deeds of Title of immovable property of the respondent No.2. Without the knowledge and consent of the respondents the claimant had applied for certified copies of Title Deeds of the flats of respondent No.2 and filed OS No.2557/2015 before City Civil Court (CCH-26) claiming the relief that the respondents shall not encumber the above said properties till the disposal of said suit.
18. The respondents have stated that the claimant has retained the systems and source code of the software with it in its premises and the respondents paid salary to its employees. The respondents got issued a legal notice dated 30.11.2017 to get the back their systems retained by the claimant. The claimant has not responded to the said legal notice.
19. The respondents have incurred more than ₹.15,00,000/- for development of ERP Software for the claimant and the claimant has not paid for the same. The respondents have filed suit is OS No.803/2017 before Addl.City Civil Court, Bengaluru for recovery of the same. The /9/ Com.A.S.No.181/2019 respondents have filed a private complaint in PCR No.1480/2017 before IV ACCM, Bengaluru against the claimant for the offences committed by him in obtaining an agreement in question. The respondents have prayed for dismissal of claim petition.
20. The leraned Arbitral Tribunal has framed the following issues for its determination.
1. Whether the claimant proves that respondent No.2 approached it for loan of ₹.20 lakhs and that respondent No.1 executed Loan Agreement in favor of the claimant on 23.04.2012 as averred in para No.4 of the claim statement?
2. Whether the claimant proves that respondent No.1 company authorized the Vic- President of the Company as per resolution dated 20.04.2012 to raise loan for the purpose of the business, as averred in para No.4 of the claim statement?
3. Whether the claimant proves that it gave loan of ₹.20 lakhs to the respondents as per cheques for ₹.2.5 lakhs, ₹.2.5 lakhs, ₹.2.5 lakhs, ₹.2.5 lakhs, ₹.3 lakhs, ₹1.5 lakhs, ₹.1.5 lakhs, ₹.0.5 lakhs, ₹.1 lakhs, ₹.2.5 lakhs and ₹.2.5 lakhs as per dated 11.04.2011, 31.05.2011, 13.07.2011, 11.08.2011, 18.10.2011, 11.01.2012, 07.02.2012, 07.02.2012, 25.01.2012 and 28.04.2012 respectively, all cheques being drawn by the claimant on Canara Bank, as averred in para No.5 of the claim statement?
4. Whether the claimant proves that as per Clause 1(c) of the Loan Agreement, respondents agreed to pay to the claimant the principal amount with interest @ 24%, compounded quarterly, loan /10/ Com.A.S.No.181/2019 with interest to be repaid by the respondents to the claimant on 11.04.2014 as averred in para No.6 of the claim statement?
5. Whether the claimant proves that as per clause 1(e) of the Loan Agreement the claimant was given by the respondents the right to levy penal interest at 36% p.a. for the period of default, as averred in para No.8 of the claim statement?
6. Whether the claimant proves that the respondents are liable to pay to it ₹.20 lakhs, being the principal amount along with interest of ₹.33 lakhs at 36% p.a. from 11.04.2014 till the date of filing of the claim statement with costs?
7. Whether the respondents prove that agreement of the claimant is not enforceable in the eyes of law and that the claimant is not authorized to lend to any private limited company under Section 372-A of the Companies Act, as averred in para No.10 of the Statement of Objections to the claim statement?
8. Whether the respondents prove that agreement in question is obtained by the claimant by threat, coercion, undue influence, pressure and compulsion and that the same is not binding upon them, as averred in para No.11 of Statement of Objections to the claim statement?
9. Whether the respondents prove that the claimant requested them to develop software for expansion of its business activities as averred in para No.12 of Statement of Objections to the claimant statement?
10. Whether the respondents prove that ₹.1.1 lakhs was paid by cheque by the claimant to them on 15.04.2010, as advance for development of Inventory Management Software and that a formal agreement was prepared for development of the software and that the same was sent by the respondents to the claimant for approval and that /11/ Com.A.S.No.181/2019 the same was accepted by the claimant, as averred in para No.13, of Statement of Objections to the claimant statement?
11. Whether the respondents prove that as per agreed terms, the claimant was required to release other payments within 45 days, of ₹.1.15 lakhs, each, and that the same were not paid/released by the claimant and that ₹.1.15 lakhs was due for release by the claimant to the respondents for the month of July 2011, as averred in para No.14 of Statement of Objections to the claim statement?
12. Whether the respondents prove that the claimant agreed to stake claim at 2% in respondent No.1 company and obtained approval from the claimant company for investment of ₹.20 lakhs for EPR Software development, as averred in para No.15 of Statement of Objections to the claim statement?
13. Whether the respondents proves that the claimant informed that it is preparing Loan Agreement considering to covert the entire amount paid towards the investment as a loan transaction with interest and pressurized the respondents to agree to terms of loan agreement, as averred in para No.17 of the Statement of Objections to the claim statement?
14. Whether the respondents prove that in the 3 week of April 2012, the claimant compelled the rd respondents to sign loan agreement and that the same was on account of force, pressure, compulsion and undue influence, as averred in para No.18 of Statement of Objections to the claim statement?
15. Whether the respondents prove that without their knowledge and consent, the claimant obtained documents of title with regard two immovable properties, as averred in para No.19 of Statement of Objections to the claim statement?
/12/ Com.A.S.No.181/2019
16. Whether the respondents prove that they incurred substantial amount for development of EPR Software and incurred an amount of ₹.15 lakhs for the above said purpose, as averred in para No.24 of Statement of Objections to the claim statement?
17. What Order/award?
21. The claimant has examined its HRD Manager Sri.Umesha.V. as PW.1. PW.1 has exhibited Ex.P1 to P12 in support of his case. The respondents have examined the respondent No.2 as RW.1 and they have examined a witness Sri.Phaniraj.B.N. as RW.2. The respondents have exhibited R1 to R25.
22. After the conclusion of the trial the learned Arbitral Tribunal heard the arguments advanced by the respective learned advocates on record.
23. The learned Arbitral Tribunal passed the award in AC No.186/2018 vide Order dated 21.09.2019 as under
AWARD i. The Claim Statement filed by the claimant is hereby partly allowed with proportionate costs.
ii. The Claimant is held entitled to ₹.5,00,000/-
with interest at 8.75% per annum from 01.06.2012 till the date of filing of the claim statement, namely, 07.12.2018 and interest /13/ Com.A.S.No.181/2019 at the same rate from the date of filing of claim statement till payment with proportionate costs.
iii. The respondents are held liable and are directed to pay the above said sum with interest, as above, within 3 months from today.
iv. The respondents have not deposited share of fees payable to the Tribunal, namely, the Presiding arbitrator and Co-Arbitrators. They shall deposit the same in the office of the Centre within 15 days from today.
v. If the same is not deposited by the respondents, the claimant shall recover the same as part of the award.
vi. In view of the Tribunal holding that Ex.P3 is not proved by law, I.A.No.1 filed by the claimant under Section 17 of Arbitration & Conciliation Act, 1996 r/w Section 151 of CPC praying the Tribunal to grant ex-parte temporary injunction against respondent No.2 restraining him from alienating the schedule property which is flat No.304, 34d floor, Block No.3, sy.No.2/1 and 2/2, Lottegollanahalli now bearing Municipal No.1, 1st Main Road, Lottegollanahalli, Sanjay Nagar, Ward No.100, Bangalore pending disposal of the claim statement is dismissed as becoming infructuous.
vii. The stamp duty is payable as per Karnataka Stamp Act.
24. The claimant being aggrieved by the impugned award has filed the present suit under Section 34 of Arbitration & Conciliation Act, 1996 for the following among other grounds.
/14/ Com.A.S.No.181/2019
25. The claimant has furnished facts of the case in detail, reiterating the claim put forth by it in its claim statement filed before the learned Arbitral Tribunal.
26. The claimant is contending that the impugned award dated 21.09.2019 passed in AC.No.186/2018 passed by the learned Arbitral Tribunal is not maintainable either in law or on facts and the same is liable to be set aside.
27. The learned Arbitral Tribunal failed to notice that the reasons assigned in the award are contrary to their own findings and without appreciating the admitted facts.
28. The Arbitral Tribunal having held that the respondent No.2 signed Ex.P3 on behalf of respondent No.1 by affixing the seal of office of the first respondent in para 66 and having held that the respondents have failed to prove that the agreement at Ex.P3 was obtained by the claimant by threat, coercion, undue influence and compulsion and the same is not binding upon the respondents in para 90 and 91 of the impugned award, wholly erred in rejecting the claim of the claimant in excess of ₹.5,00,000/- and interest in excess of 8.75%.p.a. /15/ Com.A.S.No.181/2019
29. The Arbitral Tribunal erred in relying upon the principles underlying Section 70 of the Indian Contract Act to reject the claim of the claimant in excess of ₹.5,00,000/- by holding that in Ex.P3 no loan to the tune of ₹.15,00,000/- was granted to the respondents as on the date of Ex.P3. The learned Arbitral Tribunal erred in invoking Section 70 of Indian Contract Act, which aspects of the matter was neither raised by the parties to dispute nor issue/terms of reference raised by the Arbitral Tribunal in the present dispute.
30. The Arbitral Tribunal erred in holding that the claimant has not come to the Tribunal with clean hands.
31. The learned Arbitral Tribunal having observed that no complaint was filed by the respondent against the claimant to the effect that M.D. of the claimant took signature of respondent No.2 on Ex.P3 by force immediately after 23.04.2012 and that complaint was filed after lapse of five years and as an after thought after receiving the notice from Hon'ble High Court of Karnataka, Bengaluru in CMP NO.144/2015, ought to have disbelieved the defense of the respondents and allowed the claim in full and ought to have passed an award as prayed for in the claim petition.
/16/ Com.A.S.No.181/2019
32. The learned Arbitral Tribunal wholly erred in making much about the fact that the M.D. of the claimant company was not examined as a witness before the Tribunal in the light of the finding given by it that the agreement Ex.P3 has been proved by the claimant.
33. The learned Arbitral Tribunal erred in opining that the claimant has proved that the respondents requested the claimant to grant loan of ₹.5,00,000/- and not ₹.20,00,000/- as alleged by the claimant.
34. The learned Arbitral Tribunal erred in opining that the claimant has failed to prove that the respondent No.1 authorised the Vice-President of the Company as per Resolution dated 20.04.2012 to raise loan of ₹.20,00,000/-.
35. When the learned Arbitral Tribunal has awarded ₹.5,00,000/- in favor of the claimant on the very same set of documents and answered issue No.1 and 3, the aforesaid interpretation is wholly unfounded and biased.
36. The learned Arbitral Tribunal having noticed that the pleadings of the respondents varied with their evidence, wholly erred in rejecting the claim of the claimant in excess of ₹.5,00,000/- and interest in excess of 8.75%.p.a. /17/ Com.A.S.No.181/2019
37. The findings of the learned Arbitral Tribunal are based on mere assumptions and presumptions and on facts outside the pleadings and evidence, leading to failure of justice.
38. The impugned award suffers from several other legal infirmities. Hence, the suit may be allowed.
39. After the service of notice, the respondents appeared through their advocate and have filed Statement of Objections.
The summary of the objections filed by the respondents is as under:
40. The respondents have reiterated the averments made in their defense statement filed before the learned Arbitral Tribunal.
41. The suit is not maintainable either in law or on facts of the case. The plaintiff has not complied with mandatory requirement Section 34(5), 34(6) Arbitration and Conciliation Act, as there is no compliance of the said provision the suit is not maintainable. The respondents have denied the averments made in para 4 to 9. However, they have admitted the orders passed by the Hon'ble High Court of Karnataka, in CMP /18/ Com.A.S.No.181/2019 No.144/2015. They have admitted the averments made in para 10 are true and correct as the said reliefs were claimed by the plaintiff. The arbitral award is not contrary to the findings as urged by the plaintiff. The learned Arbitral Tribunal has considered the circumstances under which Ex.P3 came into existence and has awarded ₹.5 lakhs and interest at 8.75%.p.a.
42. The respondents have denied the ground No.15 and stated that the respondents have denied the execution of loan agreement in favor of the plaintiff and they have lead evidence and furnished necessary documents before the Arbitral Tribunal.
43. The Arbitral Tribunal has considered Section 70 of Indian Contract Act. Ex.P.3 was not an agreement of loan as it was the agreement prepared for advancing the amount by way of investment towards the development of ERP Software. Therefore, the learned Arbitral Tribunal has awarded ₹.5,00,000/- in favor of the plaintiff.
44. The grounds urged by the plaintiff to assail the award are all not tenable in law or on facts of the case. At no point of time the plaintiff has provided the loan to the tune of ₹.20,00,000/- had they provided any such loan the same /19/ Com.A.S.No.181/2019 should have been reflected in their balance sheet and other official documents. The statement of accounts and the documents produced by the plaintiff does not show any entry regarding loan advanced to the respondents.
45. The learned Arbitral Tribunal has considered the communications held between the claimant and the respondent and has rightly concluded that the amount paid by the claimant was actually an investment made in respondent No.1 Company and is not a loan.
46. The claimant has not examined its Managing Director in support of alleged loan transaction. The claimant has failed to prove that the respondent requested the claimant for grant of loan of ₹.20,00,000/- for its necessities. The claimant has not examined the attesting witnesses of the agreement in question. It was the claim of the claimant that the respondent No.1 has authorised respondent No.2 to avail the loan. However, the claimant has not furnished any such authorisation. The claimant has forcefully dragged the respondents for arbitration when they have opposed the same since they have never agreed for any arbitration.
47. The respondents have placed sufficient materials on record so as to reject the claim of the claimant. The learned /20/ Com.A.S.No.181/2019 Arbitral Tribunal has considered all the materials placed before it and has passed the impugned award. In order to take revenge against the respondents the present suit is filed on false and fictitious grounds. Hence, the suit is liable to be dismissed with exemplary cost.
48. The records in AC No.186/2018 was secured. I have heard the arguments addressed by the learned counsel for the plaintiff and the defendants.
49. I have gone through the materials available on record. The following Points arise for my determination:
(1) Whether the Plaintiff has made out any grounds as set out under Section 34 of Arbitration & Conciliation Act, 1996 so as to Set aside the Award dated: 21st day of September 2019 passed by the learned Arbitratal Tribunal so far as it rejects the claim of the plaintiff in excess of ₹.5,00,000/-
and interest in excess of 8.75% p.a. in the arbitration proceedings A.C.No.186/ 2018? (2) What Order?
50. My findings on the above Points are as under:
Point No:1 : IN THE NEGATIVE Point No:2 : As per final Order for the following /21/ Com.A.S.No.181/2019 REASONS
51. POINT No.1 : The Respondents have filed I.A.No:1 under section 151 CPC praying the Court to dismiss the suit as not maintainable in view of non-compliance of mandatory provisions of Section 34(5) and 34(6) of Arbitration and Conciliation (Amendment) Act, 2015. The Claimant has filed objections to I.A.No:1.
52. The objections raised by the respondents is not maintainable in law in view of the decision of Hon'ble Supreme Court of India reported in (2018) 9 SCC 472: AIR 2018 SC 3862 State of Bihar Vs., Bihar Rajya Bhumi Vikas Bank Samiti, Wherein, the Hon'ble Supreme Court of India has held that
21. Section 80, though a procedural provision, has been held to be mandatory as it is conceived in public interest, the public purpose underlying it being the advancement of justice by giving the Government the opportunity to scrutinize and take immediate action to settle a just claim without driving the person who has issued a notice having to institute a suit involving considerable expenditure and delay. This is to be contrasted with Section 34(5), also a procedural provision, the infraction of which leads to no consequence. To construe such a provision as being mandatory would provide the consequence of dismissing an application filed without adhering to the requirements of Section 34(5), also a procedural provision, the infraction of which leads to no consequence. To construe such a provision as being /22/ Com.A.S.No.181/2019 mandatory would defeat the advancement of justice as it would provide the consequence of dismissing an application filed without adhering to the requirements of section 34(5), thereby scuttling the process of justice by burying the element of fairness.
53. In view of the dictum of the Hon'ble Supreme Court of India, I.A.No:1 does not survive for consideration. The suit filed by the plaintiff is maintainable under section 34 of Arbitration & Conciliation Act, 1996.
54. The claimant has made the following claim before the learned Arbitral Tribunal for a judgment and award;
a) To direct the respondents to pay sum of ₹.20,00,000/- (Rupees Twenty Lakhs only) to the applicant with interest;
b) To direct the Respondents to pay sum of ₹.33,00,000/- (Rupees Thirty Three Lakhs only) as interest at the rate of 36% per annum from the date 11/04/2014 till filing of the claim petition.
c) To grant the costs of proceedings;
d) To grant such other relief or reliefs
55. The Learned Arbitral Tribunal has allowed the claim petition partially and directed the respondents to pay ₹.5,00,000/- together with interest at 8.75% p.a. from 01.06.2012 till the date of filing of the claim statement namely, 07.12.2018 and interest at the same rate from the /23/ Com.A.S.No.181/2019 date of filing of claim statement till payment with proportionate costs.
56. The Claimant has filed the present suit seeking to set aside the Award dated: 21st day of September 2019 passed by the learned Arbitratal Tribunal so far as it rejects the claim of the plaintiff in excess of ₹.5,00,000/- and interest in excess of 8.75% p.a., in the arbitration proceedings A.C.No.186/ 2018. In effect the Claimant is seeking partial modification of Award in respect of final relief granted by the Arbitral Tribunal.
57. It is settled law that the Court while dealing with an application under Section 34 of Arbitration & Conciliation Act, 1996 is required to exercise its jurisdiction within the frame work of Section 34 and Section 34 (2A) of the Act. Where two views are possible in respect of a dispute, the view taken by the Arbitrator cannot be found fault with by the Court. The plaintiff has to establish that the impugned order is against the fundamental law of India and must be patently illegal.
58. In order to determine the suit it is useful to refer to Section 34 of Arbitration and Conciliation Act, 1996 which reads as under:
ARBITRATION AND CONCILIATION ACT, 1996 [Section : 34] Application for setting aside arbitral award (1) Recourse to a Court against an /24/ Com.A.S.No.181/2019 arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if- (a) the party making the application establishes on the basis of the record of the arbitral tribunal that-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from /25/ Com.A.S.No.181/2019 which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a /26/ Com.A.S.No.181/2019 request had been made under section 33 , from the date on which that request had been disposed of by the arbitral Tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-
section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.
59. It is useful to refer to the principles laid down by the Hon'ble Supreme Court of India in the following decision regarding the scope of Section 34 of Arbitration & Conciliation Act.
/27/ Com.A.S.No.181/2019 2021 SCC OnLine SC 1027 STATE OF CHHATTISGARH Vs. M/S. Sal Udyog Private Limited LAWS(SC) 2021 11 2 SUPREME COURT OF INDIA
14. In Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) [2019] 15 SCC 131, speaking for the Bench, Justice R.F. Nariman has spelt out the contours of the limited scope of judicial interference in reviewing the Arbitral Awards under the 1996 Act and observed thus :
"34. What is clear, therefore, is that the expression "public policy of India ", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law " as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of In- dian law would be relegated to "Renusagar "
understanding of this ex- pression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA,(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a ju- dicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, /28/ Com.A.S.No.181/2019 as contained in Sec- tions 18 and 34(2) (a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Asso - ciate Builders [Associate Builders v. DDA(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204].
35. It is important to notice that the ground for interference insofar as it concerns "interest of India " has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be under- stood as a conflict with the "most basic notions of morality or justice ". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], as it is only such Arbitral Awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]. Explanation 2 to Section 34(2)
(b)(ii) and Explanation 2 to Section 48(2)(b)
(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as understood in Associate Builders [Associate Builders v. DDA (2015) 3 /29/ Com.A.S.No.181/2019 SCC 49 : (2015) 2 SCC (Civ) 204], and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental pol- icy of Indian law ", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be per- mitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v DDA(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an Arbitral Award. Para 42.2 of Asso- ciate Builders [Associate Builders v DDA (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
23. We are afraid, the plea of waiver /30/ Com.A.S.No.181/2019 taken against the appellant-State on the ground that it did not raise such an objection in the grounds spelt out in the Section 34 petition and is, therefore, estopped from taking the same in the appeal preferred under Section 37 or before this Court, would also not be available to the respondent- Company having regard to the language used in Section 34(2A) of the 1996 Act that empowers the Court to set aside an award if it finds that the same is vitiated by patent illegality appearing on the face of the same. Once the appellant-State had taken such a ground in the Section 37 petition and it was duly noted in the impugned judgment, the High Court ought to have interfered by resorting to Section 34(2A) of the 1996 Act, a provision which would be equally available for application to an appealable order under Section 37 as it is to a petition filed under Section 34 of the 1996 Act. In other words, the respondent-Company cannot be heard to state that the grounds available for setting aside an award under sub-section (2A) of Section 34 of the 1996 Act could not have been invoked by the Court on its own, in exercise of the jurisdiction vested in it under Section 37 of the 1996 Act. Notably, the expression used in the sub-rule is "the Court finds that ". Therefore, it does not stand to reason that a provision that enables a Court acting on its own in deciding a petition under Section 34 for setting aside an Award, would not be available in an appeal preferred under Section 37 of the 1996 Act.
/31/ Com.A.S.No.181/2019
60. In view of the ratio of the above decision it is clear that this Court is precluded from re-appreciating the evidence under the ground of patent illegality. The Plaintiff has to make out its case on the materials available before the Arbitral Tribunal and establish its grounds to set aside the award.
61. It is the case of the Claimant that the Respondent No:1 has borrowed a sum of ₹.20,00,000/- from the Claimant and has executed Ex.P3 Loan Agreement through its vice- president Respondent No:2. The Respondents had agreed to repay the loan with interest at 24%.p.a. compounded quarterly at the end of 3rd year commencing from the date of disbursal of loan namely, 11.04.2011. The Respondents had also agreed to pay penal interest at 36% p.a. for the period of default. The Claimant had disbursed ₹.20,00,000/- under various cheques as detailed in the claim statement.
62. The Respondents are contending that the Claimant paid various amounts stated in Ex.P3 as investment amounts in the business of the respondents and no loan was advanced by the claimant to the respondents much less ₹.20,00,000/- on 23.04.2012. They are further contending that the Claimant by forcing the Respondent No:2 got his signatures on the alleged loan agreement/Ex.P3. The respondents developed ERP software at the request of the claimant and any alleged /32/ Com.A.S.No.181/2019 payments by the claimant to the respondents is for development of ERP software and that the investments made by the claimant in Respondent No:1 company is treated by the Claimant as loan advanced by the claimant to the respondents.
63. The Learned Tribunal has framed as many as 17 Issues and dealt each Issue at length. Upon appreciating the evidence available on record has answered Issue No:1, 2 to 6 in the Negative against the Claimant and Issue No:8, 10 to 16 in the Negative against the Respondents, and Issue No:9 in the Affirmative in favor of the Respondents. The Learned Arbitral Tribunal has answered Issue No;7 as does not survive for consideration.
64. The learned Arbitral Tribunal has referred to oral evidence adduced by PW1 and RW1 and the exhibits marked by Claimant and Respondents in detail and has come to the conclusion that the Claimant intended to invest in the business of the Respondents and in furtherance of said proposal has paid an amount of ₹.15,00,000/- to the Respondents prior to execution of Ex.P3. While intending to recover ₹.15,00,000/- paid as investment amount to the Respondents perhaps the Claimant has shown the loan amount as ₹.20,00,000/-. The Learned Tribunal has discussed the circumstances surrounding /33/ Com.A.S.No.181/2019 the execution of Ex.P3, viz., date of alleged execution, date of franking and also the contentions raised by the Respondents that Ex.P3 was got executed under duress, the date of complaint filed by the Respondents against the Claimants. The Learned Tribunal has considered the copy of Balance sheet/Ex.P10 and Ex.P11 and found that the alleged loan transaction is not reflected therein. The recitals of Ex.R3, Ex.R7, Ex.R13 in particular and exhibits in Ex.R series show that there was no loan transaction between the claimant and the Respondents and it was a case of investment in the business of respondents by the claimant. The Learned Tribunal having held that the Claimant has failed to prove the alleged loan transaction has took notice of the payment of ₹.2.5 Lakhs on 30.04.2012 and ₹.2.5 lakhs on 21.05.2012 made by the Claimant through NEFT to the Respondents as evidenced by Ex.P5 and the fact that the Cheques Bg.No:325447 and 325448 dated:25.04.2012 drawn for ₹.2.5 Lakhs each are not encashed by the Respondents. The materials available on record show that Ex.P3 has not been acted upon by the Claimant.
65. The Tribunal has acted within the frame work of law when it invoked Section 70 of Indian Contract Act to hold that the respondents having received ₹.5,00,000/- from the Claimant on 30.04.2012 and 21.05.2012 shall reimburse the /34/ Com.A.S.No.181/2019 same to the Claimant.
66. The Learned Tribunal has rightly awarded interest at 8.75% p.a. by taking in to consideration of prevailing rate of interest paid by nationalized banks on fixed deposits during financial year 2012-13. The Tribunal has acted within the parameters of law while fixing the rate of interest at 8.75% p.a. for the simple reason that it has justifiably rejected the loan transaction contended by the Claimant under Ex.P3. The materials available on record justify the reasoning adopted and findings given on issues by the learned Arbitral Tribunal while coming to the conclusion to allow the claim of the claimant in part. The Claimant has failed to make out a case that the impugned Award is against to the fundamental policy of Indian Law and patently illegal, perverse and against the facts of the case. The Claimant i.e. plaintiff herein has not made out any grounds to interfere with the impugned award. In such circumstances, I answer Point No:1 in the NEGATIVE.
67. POINT No.2 : In view of the findings on point No.1, I pass the following ORDER The Arbitral suit filed by the Plaintiff under section 34 of Arbitration & Conciliation Act, 1996 to set aside the impugned award dated: September /35/ Com.A.S.No.181/2019 21, 2019 passed by the learned Arbitral Tribunal in AC.No.186/2018 is hereby dismissed with costs.
The Award dated:21.09.2019 passed by the Learned Arbitral Tribunal in A.C.No:186/2018 is hereby confirmed.
(Dictated to the Stenographer, transcribed and typed by her, then corrected and pronounced by me in the Open Court on this 13th day of JUNE 2022) (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) **** Digitally signed by S J KRISHNA SJ Date:
KRISHNA 2022.06.15
02:34:33 -
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