Bangalore District Court
M/S.Nova Medical Centers Pvt. Ltd vs Sri. V.P.Kamath on 30 January, 2021
1 A.S.159/2017
IN THE COURT OF THE PRINCIPAL CITY CIVIL AND
SESSIONS JUDGE, AT BENGALURU
Dated this the 30th day of January, 2021
PRESENT: SRI. ANIL B. KATTI,
B.Com., LL.B (Spl),
Principal City Civil and Sessions Judge,
Bengaluru.
A.S.No.159/2017
Plaintiff : M/s.NOVA Medical Centers Pvt. Ltd.,
A company registred under the Companies
Act, 1956 having its registered office
at No.128, 5th Floor, Golden Towers,
Old Airport Road,
Bengaluru - 560008.
[By Sri.K.V.Girish, Advocate]
Vs.
Defendant : Sri. V.P.Kamath
S/o. Padmanabha N.Kamath
Aged about 55 years
Residing at No.01203, Floor 12,
Plot No.1249/50
Srusti Apartment,
Old Prabhadevi Road,
Prabhadevi,
Mumbai - 400025.
(Sri. Pramod N.Kathavi, and
Mrs.Ankita G.Shelke, Advocate)
2 A.S.159/2017
JUDGMENT
The plaintiff has filed the present Arbitration suit under Section 34 of Arbitration and Conciliation Act, 1996 to set aside the Arbitral Award dated 18.08.2017.
2) The germane facts leading to the case of plaintiff can be stated in nutshell to the effect that the defendant has instituted Arbitral proceedings before sole arbitrator for recovery of an amount of Rs.27,70,833/ being performance linked incentive for a period of 13 months and 9 days. The plaintiff on appearance filed objections contending that the defendant is not entitled for performance linked incentive as claimed in the Arbitration petition. The performance of the defendant was not upto the expectation of plaintiff company. The grant of performance linked incentive is based on financial performance of the company and on achievement of individual KRAs as per the terms of appointment of defendant. Therefore the plaintiff is not entitled for performance linked 3 A.S.159/2017 incentive as prayed in the petition and prayed for dismissal of the petition.
3) The sole Arbitrator has conducted the proceedings of arbitration. On hearing both the sides, the sole Arbitrator has passed Award dated 18.08.2017.
4) The plaintiff has challenged the Arbitral Award contending that the award passed by the sole Arbitrator is in conflict with Section 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred as Act). The defendant/claimant has voluntarily resigned on 10.6.2014. There is absolutely no evidence on record to showing the performance of company which is a condition precedent for payment of performance linked incentive of Rs.25,00,000/ per annum. The company was running under loss and inspite of documents produced by plaintiff company, showing the performance of company on appointment of defendant/claimant has recorded contrary finding that company has earned huge profits on the 4 A.S.159/2017 performance of defendant. The award of the arbitrator is against the public policy of India. The approach and findings recorded by the sole arbitrator is contrary to the evidence placed on record by the parties to the Arbitration proceedings. Therefore, on these grounds prayed for setting aside the Award passed by the sole Arbitrator dated 18.08.2017.
5) In response to notice, the defendant has appeared through counsel. The defendant has filed objections by contending that the plaintiff has not made out any grounds in terms of Section 34 of the Act to interfere with the award passed by the sole arbitrator. The findings recorded by the arbitrator are based on the legal evidence on record. The sole arbitrator on appreciating the evidence on record has rightly held that the defendant is entitled for performance linked incentive as per the terms of employment as per Ex.P.1. The plaintiff company which was running under loss improved in its business on the appointment of defendant and the same can be evidenced from the documents Ex.R.4, Ex.R.5, Ex.R.7. 5 A.S.159/2017 The plaintiff company has never communicated to defendant for not reaching the target and company having not seen any progress after the appointment of defendant. The company growth on appointment of defendant has been taken note off by the sole arbitrator out of the document produced by the plaintiff as per Ex.R.4 to Ex.R.7 and Ex.R.17 to Ex.R.19. Therefore, prayed for dismissal of the arbitration suit.
6) Heard the arguments of both sides.
7) On the basis of the above narrated facts, following
points arise for determination of Court.
1. Whether plaintiff proves that Award passed by sole Arbitrator dated 18.08.2017 is in conflict with Section 34 of Arbitration and Conciliation Act, 1996?
2. What Order ?
8). 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;
6 A.S.159/2017
REASONS
9) Point No.1: The defendant/claimant was appointed
as Group Chief Operating Officer (COO) as per the
appointment letter Ex.P.1 dated 1.8.2013. There was
communication between the defendant/claimant and plaintiff company as per Ex.P.16 dated 15.6.2013 setting forth the terms of defendant/claimant employment. The said Ex.P.16 on being accepted by the defendant/claimant, the appointment letter was issued as per Ex.P.1. The defendant/claimant as per the terms of appointment letter at Ex.P.1 is entitled for fixed compensation of Rs.85,00,000/ per annum payable on the company's regular payroll dates and performance linked incentive of Rs.25,00,000/ per annum payable annually as per company policy based on company financial performance and on achievement of individual KRAs. In addition to the above, the defendant/claimant is eligible for Rs.15,00,000/ one time payout. This will be payable in two equal installments, the first installment on completion of one month 7 A.S.159/2017 and second installment, on completion of three months of claimant employment with plaintiff company. Compensation will be governed by the rules of the company on the subject, as applicable and/or amended hereafter. Detailed breakup would be mutually worked out in due course.
10) The defendant/claimant has joined the plaintiff company on 1.8.2013 as per Ex.P.1 as Group COO for Nova Speciality Surgery (NSS) and Nova IVI Fertility (NIF). The plaintiff/company has appointed the defendant/claimant on account of the expertise knowledge in the field and work experience. The defendant/claimant was forced to resign from the service and tendered his resignation letter. However, defendant/claimant continued in the service for three months being the notice period. The plaintiff company did not pay all the amount payable to defendant/claimant. Therefore the defendant/claimant issued the notice dated 26.9.2015 as per Ex.p.9 and the plaintiff company has given reply as per 8 A.S.159/2017 Ex.P.10. The defendant/claimant has claimed in the notice calling upon the plaintiff/company to pay an amount of Rs.27,70,833/ as performance linked incentive, Rs.22,500/ being the car lease amount, interest on both the said amount and an amount of Rs.25,00,000/ by way of compensation. However, the defendant/claimant has restricted his claim for Rs.27,70,833/ being the amount due on performance linked incentive. Now the dispute between the parties is restricted only to the claim of performance linked incentive which has been refused by the plaintiff company.
11) The scope of challenging arbitral award dated 18.8.2017 is controlled by Sec.34 of the Act. In the present case, the challenging of arbitral award by the plaintiff company squarely falls in terms of Sec. 34 (2)(b) of the Act which reads as follows : Sec.34(2)(b) the court finds that 9 A.S.159/2017
(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 public policy of India.
Explanation - 1. - For the avoidance of any doubt, it is clarified that an award in complete 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 Section75 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 10 A.S.159/2017 shall not entail a review on the merits of the dispute.
Sec.2(A) - 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.
The above proviso Sec.34(2)(b) and Sec.2(A) of the Act has been substituted by Act No.3 of 2016 with effect from 23.10.2015. The present Arbitration proceedings has been initiated after coming into force of the amended proviso referred above. Thus, apart from the ground of arbitration award being in conflict with the public policy of India, another ground is added i.e., patent illegality. The plaintiff company 11 A.S.159/2017 has challenged the arbitral award dated 18.8.2017 on both the grounds referred above.
12) The learned counsel for the defendant in support of his contention about the grounds available for setting aside award in terms of Sec 34 under the Act relies on the following decisions. :
1) (1994) 6 SCC page No.485 State of Rajasthan V/s. Puri construction Company Ltd and another.
2) (1995) 5 SCC page No.531 Trustees of the Port of Madras V/s. Engineering Construction Company Ltd.
3) (2004) 5 SCC Page No.109 Bharath Cooking Coal Ltd. Vs. L.K. Ahuja
4) (2007) 2 SCC Page No.453 Ramnath International Construction Pvt. Ltd. V/s. Union of India.
5) (2007) 9 SCC Page No.503 BOC India Ltd. Vs. Bhagwati Oxygen Ltd.,
6) AIR (2008) SC Page 2911 M/s. Associated Construction Vs. Pawanhans Helicopters Pvt. Ltd., 12 A.S.159/2017
7) AIR (2008) Page No.2928 Satna Stone and Lime Co. Ltd., MP. etc.., Vs. Union of India and another etc.,
9) (2009) 6 SCC Page No.414 G.Ramachandra Reddy and Co. V/s. Union of India.
11) (2010) 1 SCC Page No.80 Ravindra and Associates vs. Union of India.
12) AIR 2010 SCC Page No.383, M/s.Madani Constructions Corporation (P) Ltd. Vs. Union of India and others
13) (2014) KAR Law Journal Page No.559 (DB) Bangalore Water Supply & Sewerage Board Vs. C.N.Krishnamurthy I have gone through all these decisions meticulously and there cannot be any dispute with regard to the proposition of law laid down in these decisions with regard to the interference 13 A.S.159/2017 in the award passed by the arbitrator in terms of Sec.34 of the Act. The Arbitral Court is not sitting in appeal against award passed by the arbitrator. The award cannot be setaside merely on the ground of misreading, misconstruction or misappreciation of material on record. The award of the arbitrator also cannot be set aside merely because on courts own assessment, an alternative is possible. It must also be demonstrated by evidence on record that there is error apparent on the face of award. Once if it is established by evidence on record that the arbitrator has applied judicial mind and appreciated the oral and documentary evidence placed before him, then there is no scope for interference. The claim is not sustainable in law and against public policy of India is also a ground which can call for interference of the court to set aside the award.
13) The decision reported in AIR 2015 SC page 620 Associate Builders Vs. Delhi authority, was pressed into 14 A.S.159/2017 service which has considered the earlier decision reported in AIR 1994 SC Page No.860 Renusagar Power Co. Ltd. Vs. General Electric Co. in construing the expression public policy and held that an award contrary to the fundamental policy of Indian Law, the interest of India, justice or morality would be set aside on the ground that it would be contrary to the public policy of India. In addition to those grounds under the expression of public policy held in Renusugar Power Co. Ltd. another ground is added in Associate Builders case is patently illegal. Therefore, in view of the principles enunciated in both these decisions, the ground of patently illegal is an additional ground available to set aside the award passed by the arbitrator. The learned counsel for the defendant also would place reliance on the decision reported in AIR 2018 SC (SUPP) Page No.636 (HRD Corporation vs Gail Ltd.) In this decision, the applicability of Sec.12 and 14 of the Act was under consideration. The said aspect of the matter is not the one involved in the present case. The learned counsel for the 15 A.S.159/2017 defendant also placed reliance on the decision reported in AIR 2019 SC Page 2908 (Parsa Kenta Collieries Ltd. Vs. Rajasthan Rajya Vidyuth Utpadan Nigam Ltd.) wherein it has been observed and held that award based on little evidence or on evidence which does not measure up in quality to trained legal mind would not be held to be invalid. The learned counsel for the defendant also relied on another decision of Hon'ble Supreme Court in Civil Appeal No.4779/2019 (Ssangyong Engineering and Construction Co. Ltd. Vs. National Highway Authority of India (NHAI) ). This decision has been rendered by the Hon'ble Supreme Court after changes made by the amended Act of 2015 by taking into consideration all the earlier decisions and more particularly Associate Builders and Renusagar case. The Hon'ble Supreme Court has reiterated the ground of patent illegality is an additional ground available to set aside the award passed by the arbitrator. 16 A.S.159/2017
14) The learned counsel for the plaintiff relied on the decision reported in (2014) 9 SCC Page No.263 (Oil and Natural Gas Corporation Pvt. Ltd. Vs. Western GECO International Ltd.) The Hon'ble Supreme Court while elaborating fundamental policy of Indian Law and public policy of India has held that juristic principle that are to be followed in every determination either by court or any authority including an arbitrator, that affects rights and obligations of parties or leads to any civil consequences are : (i) duty to adopt judicial approach, (ii) compliance with principles of natural justice, particularly, application of mind to the attendants facts and circumstances while taking a view one way or the other, (iii) that the decision is not perverse also irrational that no reasonable person would have arrived at the same. This would include the situation wherein the facts of a case, the case is proved and arbitrators failed to draw an inference which ought to have been drawn, or, can inference on the face of it is unsustainable resulting in miscarriage of 17 A.S.159/2017 justice. The learned counsel for the plaintiff also relied on the decision of Hon'ble Supreme Court in Special Leave Petition (C) No.3584 - 85/2020 (Arising out of SLP (C) D No.577/2020) (Patel Engineering Ltd. Vs. North Eastern Electric Power Corporation Ltd. (NEEPCO)). This is another latest decision of Hon'ble Supreme Court wherein it has been observed and held that an award would be patently illegal if it is contrary to the substantive proviso of law or provisions of the Act or terms of the contract. It has been further held that in all cases the Arbitral Tribunals decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction. Keeping in mind the legal principles enunciated in the above referred decisions relied by both learned counsels, the evidence on record will have to be appreciated while deciding the claim of plaintiff that the award by the sole arbitrator dated 18.8.2017 is against the public policy of India and the same is also patently illegal. 18 A.S.159/2017
15) The defendant/claimant by notice dated 26.9.2015 as per Ex.p.9 has claimed various amount due to him. The said notice was replied by the plaintiff company as per Ex.P.10. The defendant/claimant has restricted his claim of Rs.27,70,833/ for performance linked incentive. The learned sole arbitrator by award dated 18.8.2017 has held that the defendant/claimant is entitled for performance linked incentive. The plaintiff company has contended that the defendant/claimant is not entitled for the performance linked incentive on the premises that surgical business had not performed as expected. The defendant/claimant has accepted the offer of plaintiff company dated 15.6.2013 as per Ex.p.16 and he was appointed as Group COO as per Ex.P.1. The defendant/claimant has resigned from the job by tendering resignation dated 10.6.2014 as per Ex.P.3 being three months notice, which would be effective from 9.9.2014. The plaintiff company has communicated as per Ex.p.7 to the defendant/claimant that surgical business had not performed 19 A.S.159/2017 as expected. The grant of performance linked incentive is neither depending on the termination of employment by the plaintiff company nor voluntary nature of resignation tendered by the defendant/claimant. The terms of employment as per the letter of appointment dated 1.8.2013 at Ex.P.1 has to be taken into consideration while deciding the entitlement of defendant/claimant about performance linked incentive.
16) In terms of letter of appointment dated 1.8.2013 as per Ex.p.1 the payment of performance linked incentive is annually payable subject to following three conditions :
(i) as per company policy
(ii) based on company's financial performance
(iii) on achievement of individual KRAs The evidence placed on record will have to be appreciated as to whether the defendant/claimant has satisfied these required conditions for being entitled of performance linked incentive. 20 A.S.159/2017
17) The evidence lead before the sole arbitrator by the plaintiff company as R.W.1 and the documents relied as per Ex.R.1 to Ex.R.21 will have to be appreciated with reference to the claim of defendant/claimant. In view of the above referred three conditions for grant of performance linked incentive, it would be appropriate to take note of evidence of R.W.1 in the crossexamination. R.W.1 in para 5 of his crossexamination with regard to the policy of the company has deposed to the effect that the company has a policy in so far as performance linked incentive is concerned. It is based on each employee to be appointed and it is reflected in the appointment letter. The policy is specific to the particular employee depending upon the rule and designation of the employee which is laid out in the appointment letter. If this evidence of R.W.1 is taken into consideration and appointment letter Ex.P.1 is perused, then it would go to show that the appointment letter Ex.P.1 does not speak about any policy of company which was communicated to the defendant/claimant. The plaintiff company has also not 21 A.S.159/2017 produced any documents setting out company policy in this regard which was communicated to the defendant/claimant. This was mandated in view of evidence of R.W.1 that policy is specific to the particular employee depending upon the role and designation of the employee.
18) The financial performance of the company is also another criteria for grant of performance linked incentive. R.W.1 in para 6 of the crossexamination states that the financial performance means the performance of the claimant which are reflected in the monthly MIS reports as well as the audited financial statement of the plaintiff company. The plaintiff company relies on Ex.R.17 to Ex.R.19 MIS reports which speaks about financial performance of targets specified in the monthly MIS reports. The same were claimed to be communicated to the defendant/claimant. R.W.1 in para No.7 of crossexamination states that the targets for the year 2013 14 are reflected in the monthly MIS reports sent to the 22 A.S.159/2017 claimant. R.W.1 admits in para 7 of his crossexamination that the financial targets for the financial year 201314 were fixed prior to the start of financial year i.e., in March 2013. R.W.1 further admits that the said targets were fixed before the claimant was appointed. R.W.1 further admits in para 8 of his crossexamination that the target so fixed was not revived after the appointment of claimant. Undisputedly, the defendant/claimant joined the service of plaintiff company on 1.8.2013 after four months of the target fixed by the plaintiff company even according to the evidence of R.W.1. There is absolutely no evidence on record to show that the target fixed by the company was communicated to the defendant/claimant when he joined the service on 1.8.2013 and he was expected to reach the target inspite of lapse of four months of fixing target in the month of March 2013. Undisputedly, the post of Group COO was vacant prior to the defendant/claimant taking assignment with the plaintiff company on 1.8.2013. R.W.1 has also further admitted in para 9 of his crossexamination that 23 A.S.159/2017 even after appointment of the claimant, the said target remained the same. R.W.1 has claimed in para 17 of his cross examination that the defendant/claimant performance was evaluated from the date of his joining till 31.3.2014. There is also no any evidence on record that new targets were fixed for the financial year from March 2014.
19) The above referred evidence of R.W.1 in crossexamination has to be appreciated in the light of plaintiff company own documents of profit and loss as per Ex.R.4 to Ex.R.6 and the MIS report as per Ex.R.17 to Ex.R.19. The document as per Ex.R.4 is a statement of profit and loss for the year ending March 31st 2014. There is a comparative table to show the profit and loss for March 31 st 2013 and March 31st 2014 in respect of Nova Medical Centers Pvt. Ltd. The document at Ex.R.5 is a statement of profit and loss for the year ended March 31st 2014 in respect of Nova Medical Centers, NCR Region Pvt. Ltd. The said statement also reflect about comparative table to show the profit and loss for March 31 st 24 A.S.159/2017 2013 and March 31st 2014. Similarly, the document at Ex.R.6 is a statement of profit and loss for the year ending 31 st March 2014. The said statement also reflect about comparative table to show the profit and loss for March 31 st 2013 and March 31st 2014. The documents at Ex.R.7 to Ex.R.13 are also relied. On perusal of these documents as per Ex.R.6, Ex.R.9 and Ex.R.11, no any business is carried on during the relevant period. It is also pertinent to note that the defendant/claimant was not in employment of plaintiff company. On the basis of Ex.P.2, defendant/claimant was responsible for NOVA Speciality Surgery i.e., NSS and NOVA IVI Fertility business i.e., NIF. The said profit and loss statement speaks about the whole year and not the period to which the defendant/claimant was holding charge of both the units. The profit and loss statement as per Ex.R.4 speaks about revenue from operations for March 31st 2013 as 507.124. Whereas, the revenue from operations shown as 808.196 as on March 31 st 2014. The total including other income revenue is 591.334 as 25 A.S.159/2017 on March 31st 2013 and the same has been increased to 888.269 as on March 31st 2014. Looking to these figures, it cannot be said that the plaintiff company has made no any progress in the revenue from operations. It is pertinent to note that there was no any performance of the company for first four months of financial year 2013. The similar is the revenue from operation in Ex.P.5 and Ex.P.7. The plaintiff company relied on MIS report as per Ex.R.17 to Ex.R.19 for the month of September 2013 to November 2013 respectively. In the said statement it was shown that targets fixed are not achieved. Undisputedly, the said targets were fixed before the appointment of defendant/claimant in the plaintiff company in March 2013. The performance of defendant/claimant for the remaining eight months has not been evaluated proportionate to the target fixed by the plaintiff company. The plaintiff company has not produced any documents or MIS report of the remaining five months out of the eight months service of defendant/claimant in the company. If the profit and loss 26 A.S.159/2017 statement for the remaining eight months for the year 201314 in respect of defendant/claimant who was incharge of the company of the units as per Ex.P.1 is considered, it would go to show that the company has made substantial progress by showing income to the company. The profit in the case of NOVA IVI Fertility business i.e., NIF, is more than the previous year. If the available documents placed on record by the parties to the Arbitral proceedings are taken into consideration in the form of Ex.R.4 to Ex.R.6 and Ex.R.17 to Ex.R.19 then it would go to show that though the target was not reached, the company has made financial progress after defendant/claimant took charge of both the units NSS and NIF.
20) The learned counsel for the plaintiff company has argued that the defendant/claimant has not completed one year of service in the plaintiff company from the date of his appointment. Therefore, the defendant/claimant cannot claim 27 A.S.159/2017 performance linked incentive. It is not in dispute that the defendant/claimant joined the plaintiff company on 1.8.2013 as per Ex.P.1 and resigned from the post on 10.6.2014 as per Ex.P.3 by giving three months notice by stating that he will be quitting the service of the plaintiff company on closure of 9.9.2014. The service rendered by the defendant/claimant for the said period has to be taken into consideration. Therefore, I am unable to accept the contention of the learned counsel for the plaintiff company that since defendant/claimant has not completed one year service in the plaintiff company is not entitled for performance linked incentive. It is also equally pertinent to note that plaintiff company has not issued any notice to the defendant/claimant complaining that the defendant has not reached the target and the performance of the defendant is not satisfactory. The only communication that defendant/claimant received is as per Ex.P.7. The said objection was raised only after the resignation of defendant/claimant from the plaintiff company. Therefore, the 28 A.S.159/2017 claim of plaintiff company that surgical business has not performed as expected and as such, the claim of plaintiff company that defendant/claimant is not entitled for performance linked incentive cannot be accepted in view of the above referred evidence on record. The learned arbitrator has appreciated all the material evidence on record and was justified in arriving to the conclusion that defendant/claimant is entitled for performance linked incentive as claimed in the claim petition. The plaintiff company has failed to demonstrate by evidence on record that the award passed by the sole arbitrator is against public policy of India or patently illegal. Therefore, I am of the opinion that the plaintiff company has failed to make out any ground warranting interference of this court in the award passed by sole arbitrator dated 18.8.2017 in terms of Sec.34 of the Act. Consequently, Point No.1 for consideration is answered in the negative.
29 A.S.159/2017
20) Point No.2: In view of the reasons assigned while dealing with point No.1 as above, I proceed to pass the following;
ORDER The Arbitration suit filed by the plaintiff under Section 34 of Arbitration & Conciliation Act, 1996 challenging the Arbitral Award dated 18.08.2017 is hereby dismissed.
(Dictated to the Judgment Writer directly on the computer, computerized by him,, the same is corrected, signed and then pronounced by me in the open Court on this the 30 th day of January, 2021).
(ANIL B. KATTI) Principal City Civil & Sessions Judge, Bengaluru.