Bangalore District Court
Thimmesh Kumar Holeyappa Sampalli vs M/S Pravarah Holidays Llp on 18 March, 2024
KABC170017792022
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84
Present: Sri S. Sudindranath, LL.M., M.B.L.,
C/c LXXXVIII Addl. City Civil &
Sessions Judge (CCH-89)
Bengaluru.
COM.AP.No.67/2022
Dated on this 18th day of March 2024
Petitioner Mr. Thimmesh Kumar Holeyappa
Sampalli,
S/o Sampalli Huchappat,
aged about 44 years,
R/at 1st Floor, Varada Block,
D.C.Office, Devagiri, Haveri,
Karnataka-581110.
(By Sri.P.K.Shrikara, Advocate)
// versus //
Respondents 1. M/s. Pravarah Holidays LLP
At Anbjanaputra Arcade, ANK Arcade,
Chennappa Layout, Gandhi Nagar,
Shivamoga-560066.
2. Mr. Punith Kenchikoppa Manjachari,
S/o Kenchikoppa Manjachari,
aged about 30 years,
R/at Veerabhadreshwara Nilaya,
Ashok Nagar 5th Cross,
Behind Chowdamma Temple,
Shivamogga,
Karnataka-577202.
3. Mr.Huchappa Ganapathi Sampalli,
Legal Representative and father of
Amith Ganapathi Sampalli
2
KABC170017792022
CT 1390_Com.AP.67-2022_Judgment.doc
(Since Deceased)
Former Designated Partner of
M/s.Pravarah Holidays LLP,
aged about 60 years,
R/at No.77/A, 'B' Block,
Raghavendra Krupa Nilaya
Behind Income Tax Quarters,
Gopal Gowda Extension,
Shivamogga,
Karnataka-577205.
4. Mr. H.A.Prabhakara
Major,
R/at Nishanth Residency,
No.1/4, Govinda Rao Street,
Beside Sheshadripuram Law College,
Sheshadripuram,
Bengaluru-560020.
Karnataka.
(R.1, R3 & R4 - Exparte,
R.2 - Sri.Gururaj J.P, Advocate)
Date of Institution of suit : 01/07/2022
Nature of the suit : Recovery of Money
Date of commencement of : --
recording of the evidence
Date on which the : 18/03/2024
Judgment was pronounced.
: Year Month/ Day/s
Total duration /s s
01 08 17
JUDGMENT
This is a petition under Section 34 of the Arbitration and Conciliation Act for setting aside the arbitral award dated 3 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc 18-04-2022 passed by the Learned Sole Arbitrator / Respondent No. 4 herein in A.C. No. P01 of 2021.
2. On issuance of notice of the present petition, the Respondent No. 2 has entered appearance through counsel and filed detailed objections to the present petition. The Respondent No. 1, 3 and 4 are placed exparte.
3. I have heard the arguments of both sides and perused the records of the case.
4. The only point that arises for my consideration is :-
Whether the arbitral award dated 18-04-2022 passed by Learned Sole Arbitrator / Respondent No. 4 herein in A.C. No.P01 of 2021 is liable to be set aside, under Section 34 of the Arbitration and Conciliation Act?
5. My answer to the above point is in the affirmative for the following :-
REASONS
6. The facts in brief are that, the Petitioner herein, Respondent No. 2 and the Son of Respondent No. 3 together entered into partnership deed and constituted themselves into Limited Liability Partnership under the name and style of Pravarah Holidays LLP which is the respondent No. 1 herein 4 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc The business of the said LLP was to carry on the business of hotels, restaurants, cafes, holiday camps, resorts, taverns, etc. The said LLP agreement contained Arbitration Clause at paragraph 35. The capital contribution by the partners was in the ratio of Petitioner contributing 40% and Respondent No. 2 and the son of Respondent No. 3 contributing 30% each.
7. It appears certain disputes arose between the partners since Respondent No. 2 alleges Petitioner and son of Respondent No. 3 opened two branches in Hubbali and Udupi which incurred huge losses and also due to closure of business during the COVID-19 lockdown period, the LLP suffered loss of Rs. 85,81,841 as a result of which, according to Respondent No. 2, the creditors were threatening and demanding repayment of their liability. Therefore, Respondent No. 2 claims that, he has repaid nearly Rs. 13 lakhs to the creditors of the LLP out of his own personal funds and in the meantime, the son of Respondent No. 3 died an unnatural death and the creditors were demanding repayment from Respondent No. 2 personally.
8. With these allegations, Respondent No. 2 issued notice initiating arbitration calling upon the other partners to 5 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc contribute to the losses of the partnership firm of Rs. 85,81,841 in proportion of their share in the partnership firm.
9. According to the recitals in the Arbitral Award, at paragraph 6, the Section 21 Notice nominating Respondent No. 4 as the arbitrator was issued on 6-1-2021 to the Petitioner and Respondent No. 3. However, according to the Petitioner, the said notice was sent by Respondent No. 2 on 19-1-2021 and received by Petitioner on 22-1-2021. On 8-2- 2021, Counsel for Petitioner responded to the same stating that, Petitioner is not agreeable for appointment of Respondent No. 4 as sole arbitrator. In spite of the said objection, it is the grievance of the Petitioner that Respondent No. 4 has entered upon the reference and issued Section 23 Notice, along with Section 12 (1) (b) disclosure dated 20-01- 2021. Thereafter, inspite of Petitioner appearing before the Learned Arbitrator through Counsel and submitting that Petitioner is not agreeable for appointment of Respondent No. 4 as the sole arbitrator, it is the grievance of the Petitioner that, Respondent No. 4 has proceeded with the arbitration, which culminated in passing of the impugned award. 6 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc
10. Essentially, two grounds are raised by Petitioner for seeking setting aside of the arbitral award. Firstly, that the constitution of the arbitral tribunal was not in accordance with law and agreement of parties and secondly, the award is unreasoned and non-speaking award.
11. In the objections filed by Respondent No. 2, the allegations of the statement of claim are reiterated and ultimately, it is contended that no grounds are made out for setting aside of the arbitral award.
12. Having considered the rival contentions, I am of the view that Petitioner is entitled to succeed on both the grounds raised in the present petition.
13. Insofar as the composition of the arbitral tribunal is concerned, as per the LLP agreement dated 14-06-2016, the Arbitration Clause is contained at paragraph 35 and is as follows;
"All disputes and differences whatsoever which shall arise between the partners or between the partners and the personal representatives of the deceased partner relating to any matter or between partner and LLP whatsoever touching 7 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc the affairs of the LLP or the interpretation of the agreement shall be referred to a single arbitrator if the parties agree upon one, otherwise, to three arbitrators, one to be appointed by each party to the difference, in accordance with and subject to the provisions of Arbitration and Conciliation Act 1996 or any statutory modification or re-enactment thereof, for the time being in force."
14. Therefore, the Arbitration Clause between the parties is crystal clear that the dispute shall be referred to sole arbitrator if both parties agree to the sole arbitrator or in case they do not agree, each party shall nominate one arbitrator who shall then nominate the third arbitrator. The crucial fact to be noticed at this stage is that, according to the arbitral award at paragraph 6, the claimant i.e. Respondent No. 2 herein issued notice dated 6-01-2021 nominating Respondent No. 4 to act as arbitrator on his behalf. However, according to the specific contention raised by the petitioner, the said notice initiating arbitration and nominating Respondent No. 4 as the arbitrator was sent only on 19-01-2021 and received by petitioner on 22-01-2021. This fact is categorically admitted 8 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc in the objection statement filed by Respondent No. 2 at paragraph 8 wherein it is stated as follows;
"The Respondent No. 2 submits that, on the basis of petitioner's consent, the Respondent No. 2 was approached arbitrators at Bangalore for amicable settlement of disputes among the designated partners at that juncture. However, the arbitration notices had been served on 19-01-2021 for appointment of sole arbitrator, Hon'ble Sri H. A. Prabhakara, vide Arbitration Case No. P01 of 2021."
15. Therefore, Respondent No. 2 admits that, the notice nominating Respondent No. 4 as the sole arbitrator was served on petitioner only on 19-01-2021. It is to be noted that, according to the petitioner, the said notice was served only on 22-01-2021. Be that as it may, even accepting the contention of Respondent No. 2 that the said notice was served on 19-01-2021, on the very next day, i.e., on 20-01- 2021, the learned arbitrator / Respondent No. 4 has entered upon the reference and issued Section 23 notice, calling upon the parties to appear before him with their respective claim statement and statement of defence.
9KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc
16. Under Section 11 of the Arbitration and Conciliation Act, if a party fails to appoint an arbitrator within 30 days from receipt of request to do so, the appointment shall be made upon request of a party by Hon'ble Apex Court or High Court, as applicable. In the case on hand, the Arbitration Clause specifically contemplated that, in case the parties do not agree upon sole arbitrator, the arbitration shall be by three arbitrators, one to be appointed by each arbitrator. Even according to Respondent No. 2, the notice nominating Respondent No. 4 as arbitrator was served on petitioner only on 19-01-2021. Therefore, the parties ought to have waited for 30 days from 19-01-2021, to enable petitioner to appoint arbitrator on his behalf or on failure to do so, either of the parties ought to have approached Hon'ble High Court for appointment of second arbitrator. Instead of doing so, on the very next day i.e., on 20-01-2021 itself, Respondent No. 4 has entered upon the reference and issued Section 23 notice to the parties. Therefore, the constitution of the arbitral tribunal is contrary to law and contrary to the agreement between the parties and on this score alone, the arbitral award is liable to be set aside under Section 34 (2) (a) (v) of the Act i.e., the 10 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.
17. Apart from this, Learned Counsel for Petitioner has rightly relied upon ruling of Hon'ble Apex Court in the case of Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1 : 2019 SCC OnLine SC 1656 at page 14, wherein it is laid down as follows;
"34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.
35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are:
proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on 11 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 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 under Section 34 has 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 a precise 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 awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards 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 12 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc between inadequacy of reasons in an award and unintelligible awards.
42. From the facts, we can only state that from a perusal of the award, in the facts and circumstances of the case, it has been rendered without reasons. However, the muddled and confused form of the award has invited the High Court to state that the arbitrator has merely restated the contentions of both parties.
From a perusal of the award, the inadequate reasoning and basing the award on the approval of the respondent herein cannot be stated to be appropriate considering the complexity of the issue involved herein, and accordingly the award is unintelligible and cannot be sustained."
(Emphasis Supplied)
18. If the arbitral award in question is considered in the light of the above law, it is clear that the arbitral award suffers from being a totally unreasoned and non-speaking award. The reading of the arbitral award discloses that paragraph 1 to 3 is a re-statement of the case of the claimant. Then paragraph 4 to 7 deals with the procedure prior to appointment of the arbitrator. Paragraph 8 to 16 deals with the objection raised by the petitioner herein to the composition of the arbitral 13 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc tribunal. Then abruptly at Paragraph 17, the learned arbitrator states that he has assumed the role of sole arbitrator and hence the following award and then follows the operative portion of the award.
19. Therefore, there is absolutely no reasoning on the part of the Learned arbitrator. There are serious questions which would have arisen in the present case i.e. what is the extent of the liability of designated partners of the LLP and what material is produced by the claimant to substantiate that the present liability of the LLP is Rs. 85,81,841. Without going into these factual questions, the learned arbitrator has abruptly passed the award directing the petitioner to bear 40% of the alleged liability of Rs. 85,81,841 and calling upon the Respondent No. 2 herein and Respondent No. 3 herein to bear 30% each of the said liability. Be it noted that Respondent No. 3 herein is not even a designated partner but the father of pre-deceased designated partner. Therefore, the liability of Respondent No. 3 would be only to the extent of property inherited by him from his son (the deceased partner). But there is no discussion in this regard and a totally unreasoned award is passed holding Respondent No. 3 liable 14 KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc to pay 30% of the debts of the LLP on behalf of his deceased son. Therefore, the said arbitral award falls foul of requirement that every arbitral award should be supported by adequate reasons and on this ground also the arbitral award is liable to be set aside. Accordingly, answering the point for consideration in the affirmative, I proceed to pass the following:-
ORDER The petition under section 34 of the Arbitration and Conciliation Act is hereby allowed.
The arbitral award dated 18-04-2022 passed by Respondent No. 4 herein / Learned Sole Arbitrator, in Arbitration Case No. P01 of 2021, is hereby set aside.
Office to issue soft copy of this judgment to both sides, by email, if furnished.
[Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 18th day of March, 2024] (Sri. S. Sudindranath) C/c.LXXXVIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT; BANGALORE.15
KABC170017792022 CT 1390_Com.AP.67-2022_Judgment.doc