Karnataka High Court
M Shashikala vs M/S Canara Nidhi Ltd., on 12 September, 2014
Author: A.N.Venugopala Gowda
Bench: A.N. Venugopala Gowda
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®
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 12TH DAY OF SEPTEMBER, 2014
BEFORE
THE HON'BLE MR. JUSTICE A.N. VENUGOPALA GOWDA
WRIT PETITION NOS.18374-18375/2010 (GM-RES)
BETWEEN:
1. M. SHASHIKALA
AGED ABOUT 69 YEARS,
W/O. LATE B. RAGHAVA,
PRESENTLY RESIDING AT
SAI RESIDENCY, FLAT NO.101,
CHILIMBI, LADY HILL,
MANGALORE.
2. CHITRALEKHA UMESH,
AGED ABOUT 41 YEARS,
RESIDING AT FLAT NO.102,
OPP: URWA STORE, ASHOKNAGAR,
MANGALORE - 575 002.
... PETITIONERS
(BY SRI B.L. SANJEEV, ADV.)
AND:
1. M/s. CANARA NIDHI LTD.,
KODIALBAIL, MANGALORE BRANCH,
REGD. OFFICE AT MANIPAL CENTRE,
I FLOOR, CHITHARANJAN CIRCLE,
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UDUPI - 560 001.
2. Mr. A.S.N. HEBBAR,
ADVOCATE & HON. ARBITRATOR,
MAIN ROAD, KUNDAPURA - 576 201.
3. Mr. NAGESH,
AGED ABOUT 44 YEARS,
S/O LATE B. RAGHAVA.
4. Mr. GIRISH,
AGED ABOUT 43 YEARS,
RESPONDENT NOS..3 AND 4 ARE
RESIDING AT CYBER CENTER,
RAGHU BUILDING, URWA STORE,
MANGALORE.
5. MAMATHA @ MUMTAZ HAMEED,
AGED ABOUT 39 YEARS,
W/O HAMEED, R/AT HALEEMA BAGH,
MISSION COMPOUND, BALMATTA,
MANGALORE.
6. LATHA PRADEEP,
AGED ABOUT 37 YEARS,
W/O. PRADEEP KUMAR,
R/AT RATHNA KAMAL,
4TH MAIN ROAD, GANGANAGAR,
BANGALORE - 560 032.
7. B.N. UMESH,
AGED ABOUT 44 YEARS,
S/O A.B. NARAYAN, R/AT FLAT NO.102,
OPP. URWA STORE, ASHOKNAGAR,
MANGALORE - 2.
... RESPONDENTS
(BY SRI SWAMY SHIVA PRAKASH H., ADV. FOR
M/S. ESSKAY ASSOCIATES, ADVS. FOR R1
SRI N.D.JAYADEVAPPA, ADV. FOR R2
R3, R5 & R6 - SERVED)
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THESE PETITIONS ARE FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE
ORDER DATED 02.06.2010 PASSED BY THE 1ST ADDL. DISTRICT
JUDGE, D.K., MANGALORE ON THE APPLICATION DATED
17.03.2010, IN A.S.NO.1/2008, PENDING ON ITS FILE, VIDE
ANNEXURE-F.
THESE PETITIONS COMING ON FOR PRELIMINARY
HEARING THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
Dispute between the petitioners and the first respondent was referred to arbitration by the 2nd respondent. The Arbitrator made an award dated 15.12.2007 and directed the petitioners to pay `63,82,802/- and interest on `50,00,000/- at 14% from 11.08.2000 and cost of `52,959/-. To set aside the said award, the petitioners filed A.S.No.1/2008, under Section 34 of the Arbitration and Conciliation Act, 1996 ('Act' for short), in the Court of District Judge at Mangalore. The first respondent having filed written statement, resisting the case, issues have been raised on 09.12.2009. The petitioners filed an application, under Section 151 of CPC, to permit adduction of evidence. The application having been objected to by the first respondent and the learned I 4 Additional District Judge having passed an order of dismissal, on 02.06.2010, these writ petitions were filed, to quash the said order and allow the application.
2. Sri B.L.Sanjeev, learned advocate, contended that there being disputed facts in the case and based on the pleadings of the parties, issues having been raised on 09.12.2009, the Court below has committed illegality in dismissing I.A. filed on 17.03.2010. He submitted that the I.A. has been mechanically dismissed, in disregard of the ratio of law in the case of Fiza Developers and Inter-Trade Private Limited vs. AMCI (India) Private Limited and Another, (2009) 17 SCC 796. He submitted that the impugned order being arbitrary and irrational, interference is called for.
3. Sri Swamy Shiva Prakash, learned advocate, on the other hand contended that the issues raised on 09.12.2009 are beyond the scope of the case in A.S.No.1/2008 and the petitioners have no absolute right to adduce evidence. He submitted that the petitioners are 5 due huge amount to the first respondent and despite passing of the award on 15.12.2007 by the Arbitrator, every effort is being made to delay the payment. He submitted that having regard to the object of the Act, which is to provide expeditious alternative binding dispute resolution process with the minimal court intervention, the proceeding under Section 34 of the Act being a summary proceeding and not full-fledged trial in the manner of civil suit under the Code of Civil Procedure, the District Judge is justified in dismissing the I.A. Learned counsel made submissions in support of the impugned order.
4. Main reason for dismissal of the application by the learned District Judge reads as follows:
"In the instant case the plaintiffs have not at all made out sufficient grounds for leading evidence and whatever the grounds urged in the application can be very well be met with by the records of the Arbitration proceedings. Therefore the application filed by the plaintiff is filed only with an intention to drag on the proceedings and the application filed is misconceived one and is liable to the dismissed."6
5. A.S.No.1/2008 was filed on 28.01.2008, to set aside the arbitral award made by the 2nd respondent, on 15.12.2007. Sub-S.(1) of S.34 of the Act, provides for recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-Ss.(2) and (3), which being relevant, are extracted herein under:
"34. Application for setting aside arbitral award.-
(1) ****** (2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof 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 7 the agreement of the parties, unless such agreement was in conflict with a provision of this Part from 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.-Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
(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 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."
6. It is trite that the Act is a special legislation and that S.34 provides for a special remedy and that an arbitration award can be set aside only upon existence of 8 one of the ground mentioned in sub-S.(2) of S.34 and that the proceeding is required to be dealt with expeditiously.
The scope of enquiry in a proceeding under S.34 of the Act, is restricted to consideration, whether one of the grounds mentioned in sub-S.(2) of S.34 exists, for setting aside the award. The grounds for setting aside the award being specific, the issues raised on 09.12.2009, concededly, being outside the scope of sub-S.(2) of S.34, is required to be recasted, to be in conformity with the scope of the said provision. The said provision makes it clear that the burden of proof is on the plaintiff and hence, the District Judge while recasting the issues shall cast the burden of proof on the plaintiffs.
7. In Fiza Developers and Inter-Trade Private Limited (supra), an application filed under Order 14 Rules 1 and 3 of CPC r/w Rule 4(b) of the High Court of Karnataka Arbitration (Proceedings before the Courts) Rules, 2001, in an arbitration suit instituted under S.34 of the Act, requesting the Court to frame issues in the 9 matter, having been rejected, was questioned in a writ petition and the learned Single Judge, in the decision reported at AIR 2009 Kar 20, held that application under Section 34 is not necessarily in the nature of an adversarial proceeding where a dispute between two parties requires adjudication by the Court; that there is a legal presumption in favour of the award being valid; and that whether the opposite party joins issue or not, the person challenging the award has to make out one of the grounds enumerated under Section 34(2) of the Act and as a consequence held that there is no need for the Court to frame issues, as is done in a civil suit. Writ appeal filed there against having been dismissed as per the judgment reported in 2009 (6) Kar.L.J. 545, Apex Court, when approached for relief, after examining the scheme and provisions of the Act and also the scope of proceedings under S.34 and also the effect of Rules 4 and 12 of the High Court of Karnataka Arbitration (Proceedings before the Courts) Rules, 2001, has held as follows: 10
"17. The scheme and provisions of the Act disclose two significant aspects relating to courts vis-à-vis arbitration. The first is that there should be minimal interference by courts in matters relating to arbitration. Second is the sense of urgency shown with reference to arbitration matters brought to court, requiring promptness in disposal.
18. Section 5 of the Act provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I of the Act, no judicial authority shall intervene except where so provided in the Act.
19. Section 34 of the Act makes it clear than an arbitral award can be set aside on the grounds enumerated in sub-section (2) of Section 34 and on no other ground. Sub-section (3) of Section 34 provides that an application for setting aside may not be made after three months and the maximum delay that can be condoned is only 30 days. In other words, the maximum period for challenging an award is three months plus 30 days, even if there is sufficient cause for condonation of a longer period delay.
20. Section 36 provides that an award shall be enforced in the same manner as if it were a decree of the court, but only on the expiry of the time for making an application to set aside the arbitral award under section 34, or such application having been made, only after it has been refused. Thus, until the disposal of the application under Section 34 of the Act, there is an implied prohibition of enforcement of the arbitral award. The very filing and pendency of an application under Section 34, in effect, operates as a stay of the enforcement of the award.
21. We may therefore examine the question for consideration by bearing three factors in mind. The first is that the Act is a special enactment and Section 34 provides for a 11 special remedy. The second is that an arbitration award can be set aside only upon one of the grounds mentioned in sub-section (2) of Section 34 exists. The third is that proceedings under Section 34 requires to be dealt with expeditiously.
22. The scope of enquiry in a proceeding under section 34 is restricted to consideration whether any one of the grounds mentioned in sub-section (2) of Section 34 exists for setting aside the award. We may approvingly extract the analysis relating to `Grounds of Challenge' from The Law & Practice of Arbitration and Conciliation by Shri O. P. Malhotra [1st Edition, p.768, Para (I) 34- 14]:
"Section 5 regulates court intervention in arbitral process. It provides that notwithstanding anything contained in any other law for the time being in force in India, in matters governed by Part I of this Act, the court will not intervene except where so provided in this Part. Pursuant to this policy, Section 34 imposes certain restrictions on the right of the court to set aside an arbitral award. It provides, in all, seven grounds for setting aside an award. In other words, an arbitral award can be set aside only if one or more of these seven grounds exists.
The first five grounds have been set forth in section 34(2)(a). In order to successfully invoke any of these grounds, a party has to plead and prove the existence of one or more of such grounds. That is to say, the party challenging the award has to discharge the burden of poof by adducing sufficient credible evidence to show the existence of any one of such grounds. The rest two grounds are contained in section 34(2)(b) which provides that an award may be set aside by the court on its own initiative if the subject-matter of the dispute is not arbitrable or the impugned award is in conflict with the public policy of India."
The grounds for setting aside the award are specific. Therefore, necessarily a petitioner who files an application will have to plead the facts necessary to make out the ingredients of any of the 12 grounds mentioned in sub-section (2) and prove the same. Therefore, the only question that arises in an application under Section 34 of the Act is whether the award requires to be set aside on any of the specified grounds in sub-section (2) thereof. Sub- section (2) also clearly places the burden of proof on the person who makes the application. Therefore, the question arising for adjudication as also the person on whom the burden of proof is placed is statutorily specified. Therefore, the need for issues is obviated.
23. Framing of issues is necessary only where different types of material propositions of fact or law are affirmed by one party and are denied by the other and it is therefore necessary for the court to identify the issues and specify the party on whom the burden to prove the same lies. When this exercise has already been done by the statute, there is no need for framing the issues.
24. In other words, an application under section 34 of the Act is a single issue proceeding, where the very fact that the application has been instituted under that particular provision declares the issue involved. Any further exercise to frame issues will only delay the proceedings. It is thus clear that issues need not be framed in applications under Section 34 of the Act.
*** *** ***
28. Before concluding, there is a need to clarify the observation by the High Court that a proceeding under Section 34 may not be in the nature of adversarial proceedings. In an adversarial process, each party to a dispute presents its case to the neutral adjudicator seeking to demonstrate the correctness of his own case and the wrongness of the other. [See : P.Ramanatha Iyer's Advanced Law Lexicon, Third Edition, Vol.I, Page 152]. While 13 an applicant in an application under section 34 is interested in getting an order setting aside an award, his opponent is equally interested in ensuring that it is not set aside, but upheld. While an applicant presents his case to the Judge to prove that the award is liable to be set aside, the respondent puts forth his case to refute the claim of the applicant that the award is liable to be set aside. An application under section 34 in that sense is adversarial in nature. But proceedings under section 34 differ from regular civil suits in a significant aspect.
29. In a regular civil suit, in the event of failure to file a defence, it will be lawful for the court to pronounce the judgment on the basis of facts contained in the plaint [Vide Order 8 Rule 5(2) of the Code]. But in an application under Section 34, even if there is no contest, the court cannot, on the basis of the averments contained in the application, set aside the award. Whether there is contest or not, the applicant has to prove one of the grounds set out in Sections 34(2)(a) and (b). Even if the applicant does not rely upon the grounds under clause (b), the court, on its own initiative, may examine the award to find out whether it is liable to be set aside on either of the two grounds mentioned in Section 34(2)(b). It is perhaps in this sense, the High Court has stated that the proceedings may not be adversarial. Be that as it may.
30. Having regard to the object of the Act, that is providing an expeditious alternative binding dispute resolution process with minimal court intervention, it is difficult to envisage proceedings under Section 34 of the Act as full-fledged regular civil suits under the Code of Civil Procedure.
31. Applications under Section 34 of the Act are summary proceedings with provision for objections by the respondent- defendant, followed by an opportunity to the applicant to `prove' the 14 existence of any ground under Section 34(2). The applicant is permitted to file affidavits of his witnesses in proof. A corresponding opportunity is given to the respondent-defendant to place his evidence by affidavit. Where the case so warrants, the court permits cross-examination of the persons swearing to the affidavit. Thereafter, the court hears arguments and/or receives written submissions and decides the matter. This is of course the routine procedure. The Court may vary the said procedure, depending upon the facts of any particular case or the local rules. What is however clear is that framing of issues as contemplated under Rule 1 of Order 14 of the Code is not an integral part of the process of a proceedings under Section 34 of the Act."
(emphasis supplied)
8. In view of the said decision, it is to be held that the reasoning of the District Judge, extracted in para 4, supra, not permitting the petitioners to file their and witnesses affidavits in proof of the case and extending a corresponding opportunity to the defendants/respondents to place their evidence by affidavit is arbitrary and irrational. The approach of the District Judge in dealing with the I.A. is patently wrong and opposed to the settled principles of law, in the decision of the Apex Court, noticed supra.
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In the result, writ petitions are allowed and the impugned order is quashed. The Court below is directed to recast the issues, on the next hearing date, by keeping in view the observations made supra. I.A. filed on 17.03.2010 in A.S.No.1/2008 is allowed in part and the Court below is directed to permit the petitioners to file affidavits of their witnesses and extend a corresponding opportunity to the defendants to place their evidence by affidavits. It is open to the Court below to permit cross- examination of persons swearing to the affidavits i.e., in case the case warrants so. The arguments shall be heard with expedition and case decided, on or before 31.01.2015.
No costs.
Sd/-
JUDGE ca