Delhi District Court
M/S Sparrow Healthcare Pvt. Ltd vs . on 31 July, 2020
IN THE COURT OF MS NEENA BANSAL KRISHNA
DISTRICT & SESSIONS JUDGE
SOUTH EAST: SAKET COURT, NEW DELHI
Arbitration No. 21237/2016
M/s Sparrow Healthcare Pvt. Ltd.
vs.
M/s Paramount Surgimed Ltd.
M/s Sparrow Healthcare Pvt. Ltd.
W679, 6th Cross, 3rd Block,
Koramangala, Bandalore
Represented by its Managing Director ..... Petitioner/
Mr. Rajiv Sarda Respondent
VERSUS
M/s Paramount Surgimed Ltd.
Plot No. 1, LSC Okhla Main Road, ..... Respondent/
Okhla PhaseII, New Delhi - 110020 Claimant
PETITION UNDER SECTION 34 OF THE ARBITRATION &
CONCILIATION ACT, 1996 FOR SETTINGASIDE THE
ARBITRATION AWARD DATED 30.08.2011
First date before this Court: 26.08.2016
Date of Judgment : 31.07.2020
JUDGMENT:
1. The Petition under Section 34 of The Arbitration & Conciliation Act, 1996 (hereinafter referred as "The Act") has been filed by the petitioner/respondent for settingaside the Arbitration Award dated Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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30.08.2011, whereby the claim of the respondent/claimant for a sum of Rs. 9,93,786.62 out of the claimed amount of Rs. 79,59,066.62 has been allowed.
2. The facts in brief are that respondent M/s Paramount Surgimed Ltd. was the Master Franchisee in India of OSIM International Limited, Singapore which sells OSIM's range of "Healthy Lifestyle Products" such as foot massager, massage chairs etc. directly through its Showroom and through its SubFranchise in various cities all over India. The respondent entered into the Franchise Agreement for 04 years with the petitioner on 11.10.2004 and the Petitioner was appointed as a Franchisee of the respondent/claimant to sell the OSIM's "Healthy Lifestyle Products" in Bangalore.
3. The Claimant/respondent averred that after 02 years, the petitioner violated its contractual obligation by closing the Showroom in December, 2006, while the duration of Franchisee Agreement was 04 years w.e.f. 11.10.2004 and he surrendered the lease of the Showroom at Galleria, Hotel Leela Kempinski, Bangalore. Due to the sudden closure of its only Showroom/outlet in South India, the respondent/claimant suffered loss of goodwill and reputation which was assiduously built over last few years in Bangalore amongst its existing customers. Further, it also caused substantial and considerable loss of market presence to the respondent/Claimant in this very important region.
4. It was asserted that the petitioner negligently did not bother to insert the Assignment clause in the Lease Agreement as per terms of the Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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Franchisee Agreement to enable assignment of the lease of the Showroom to the claimant/respondent if the petitioner decided not to continue to operate the Showroom, putting the respondent/claimant to a great financial loss. Moreover, the petitioner instead of facilitating the smooth transition of operation of the Showroom to the respondent/claimant, created grave impediments by acting without the consent of the claimant/respondent in surrendering the Showroom in December, 2006 despite repeated requests/instructions by the respondent/claimant not to do so. This resulted in the landlord of the property later offering the Showroom to the claimant/ respondent at a higher rate.
5. It was further asserted by the respondent/claimant that the Franchisee Agreement could not have been unilaterally terminated by the petitioner. In order to ensure the smooth transition, the claimant/ respondent had offered the petitioner to continue the operation of the business from the Showroom till June, 2007 so that the claimant/ respondent could take over the Showroom without any loss of reputation, but his request was not conceded to by the Petitioner. On account of these malafide and illegal actions, which were in complete violation of Franchisee Agreement, the respondent/ claimant suffered huge losses.
6. The claimant/ respondent made a claim for the following amounts:
1. The balance amount of Rs. 2 lacs which was payable at the time of execution of the Franchisee Agreement alongwith interest @ 15%.Arbitration No. 21237/2016
M/s Sparrow Healthcare Pvt. Ltd.
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2. The yearly lumpsum amount of Rs. 2 lacs which was payable on 11.10.2005 & 11.10.2006 aggregating to Rs. 4 lacs along with interest @ 15%.
3. Royalty fees of 3% on the net sales of each month payable from 30.04.2006 aggregating to Rs. 1,36,036.62 along with interest @ 15%.
4. Outstanding payment of Rs. 3,47,000/ against the goods supplied to the petitioner along with interest @ 15%.
5. Amount of Rs. 19,18,430/ along with interest @ 15% from July to December, 2006 spent on advertisement campaign including hoardings etc. in Bangalore.
6. Amount of Rs. 7,47,600/ towards advertisement in print media including airline, magazine etc.
7. Amount of Rs. 12,50,000/ spent on catalogue with the address of Showroom at Bangalore.
8. Amount of Rs. 10 lacs towards damages for breach of the terms of the Franchisee Agreement whereby the petitioner was not supposed to directly communicate with the OSIM International Limited, Singapore.
9. An amount of Rs. 20 lacs towards damages for maligning, lowering the reputation and goodwill of the respondent/claimant.
7. The respondent/claimant thus, claimed total aggregate amount of Rs. 79,59,066.62 along with interest @ 15%.
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8. The petitioner (respondent before the Ld. Arbitrator) contested the claim and asserted that the respondent/claimant was guilty of suppressio veri and suggestio falsi. The respondent/claimant had maliciously concealed the material fact that in the month of September, 2005 itself the petitioner/respondent had intimidated the claimant/respondent about losses being suffered by it and its inability to continue the said Showroom. The subsequent correspondence was exchanged between the parties and modified terms were agreed according to which the respondent/claimant agreed to the closure of the Showroom by March, 2006 and also agreed to waive the sub franchisee fees, royalty fees and also agreed to pay minimum guaranteed amount to the petitioner/ respondent to recover from the losses incurred by it and also gave an option to continue beyond March, 2006 on enhanced guaranteed turnover of Rs. 7.5 lacs per month. These terms were incorporated in the Minutes of Meeting dated 29.11.2005 of the Claimant/respondent. The petitioner/ respondent contended that in October, 2016 it again intimated the claimant/respondent about closing down of the Showroom on 15.12.2008, which was duly acknowledged and confirmed by the respondent/claimant; it also expressed its inability to take over the Showroom or to continue the business. The petitioner did not deny the claim of Rs. 3,47,000/ on account of goods supplied by the respondent/claimant, but asserted that it had made a request for return of the goods under the terms of the Agreement and also to settle other bills and adjust the outstanding amount against other Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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bills. Petitioner/respondent denied all the claims of the respondent/ claimant in regard to advertisement, printing of catalogue etc. and also claim of the respondent/claimant on account of loss of goodwill and lowering of reputation.
9. The claimant/respondent in its rejoinder filed in March, 2009 reaffirmed its case as contended in the claim.
10.The respondent/claimant in support of its case has examined CW1 Sh. Munish Bhalla, its Chief Operation Officer, who tendered his evidence by way of affidavit Ex. CW1/1 and exhibited the documents Ex. CW1/1 to Ex. CW1/13 and statement of claim as Ex, CW1/A.
11.The petitioner/respondent has examined RW1 Sh. Rajiv Sarda, its Managing Director, who proved the documents Ex. RW1/1 to Ex. RW1/28.
12.Arguments were heard by the Ld. Arbitrator and vide detailed reasons as contained in the impugned Award dated 30.08.2011, allowed the Claims No. 1 to 4 of the petitioner/respondent and granted the balance of Rs. 2 lacs payable at the time of execution of Franchisee Agreement, as lumpsum amount, payable on 11.10.2006; Rs. 1,36,036.62 towards Royalty Fee; Rs. 3,47,000/ towards goods supplied and reimbursement of Rs. 1,10,750/ that was deposited by the petitioner/respondent initially towards Arbitration Fee, thus totaling to Rs. 9,93,786.62 and interest @ 12% in case the award amount was not paid within 60 days of the passing of the Award. All other Claims from No. 5 to 9 in regard to Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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damages, advertisement in print media including airline, magazine etc. amounting to Rs. 69,65,280/ was declined.
13.Aggrieved by the said Award, the present objections under Section 34 of the Act have been filed.
14.The main grounds of challenge to the impugned Award are that the affidavit of CW1 Sh. Munish Bhalla, who was examined on behalf of the respondent/claimant, was not attested and thus, could not have been read in evidence. Furthermore, there is admission in the cross examination of CW1 Sh. Munish Bhalla that he did not have any personal knowledge about the negotiations or the covenants of the Franchisee Agreement and therefore he was not competent to depose about the transactions, which took place between the parties. Moreover, as per Clause XI (11) of the Franchisee Agreement dated 11.10.2004, it was stipulated that the efforts shall be made to resolve the dispute by negotiations and only in the event of failure of the negotiations, the dispute shall be referred to the Ld. Arbitrator. The Arbitration Proceedings could not have been initiated without first resorting to negotiations. The Ld. Arbitrator has wrongly noted in his Award that the objection in regard to maintainability of the proceedings before the Arbitrator stood decided by him vide Order dated 08.07.2008. Likewise, the Review Application filed by the petitioner was dismissed erroneously on 04.08.2008. This issue of maintainability is still to be adjudicated. It is further submitted that Ld. Arbitrator has given the findings in regard to payment of Rs. 2 lacs as balance lumpsum amount of Franchise Agreement in Para31 Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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of his Award in mechanical manner, without even reading the examination of RW1 Sh. Rajiv Sarda, as it was clearly established that the same stood waived as per Minutes of the Meeting dated 29.11.2005. Likewise, the claim of the Royalty Fees in the sum of Rs. 1,36,036.62 stood waived in terms of Minutes of the Meeting dated 29.11.2005. Further, the claim for supply of goods in the sum of Rs. 3,47,000/ has been wrongly granted as the claimant/ respondent vide its email dated 04.01.2007 had given a complete statement of account and after the adjustment of amount of Rs. 3,47,000/ and the cost of unsold goods, which was to be taken back by the claimant/respondent, the petitioner/respondent was entitled to refund of Rs. 10,84,000/.
15.Furthermore, the Award is against the statutory provisions of contract and is against the public policy. The conduct of the Ld. Arbitrator throughout the entire proceedings was biased and arbitrary. He proceeded to adjudicate the dispute with perdisposed mind and an objection to the conduct of Ld. Arbitrator was raised by the respondent/claimant from time to time before the Ld. Arbitrator as well as before the Indian Council of Arbitration. Moreover, the proceedings went on for an unduly long period of time with a view to favour the respondent/claimant as Ld. Arbitrator was well aware that the petitioner/respondent was based in Bangalore and attending every proceeding caused immense hardship to him. The nexus between the Ld. Arbitrator and the respondent/claimant was quite apparent and the petitioner expressed its apprehensions vide Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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application dated 16.02.2008, despite which Ld. Arbitrator failed to recuse himself from the proceedings. The petitioner/respondent expressed lack of faith in the Ld. Arbitrator and had sought his removal/transfer but its application was dismissed.
16.It is further submitted that the terms of Franchisee Agreement stood novated vide Minutes of Meeting dated 29.11.2005 despite which Ld. Arbitrator has relied upon the original Franchisee Agreement dated 11.10.2004 to decide the claim in favour of the respondent/ claimant. Moreover, Ld. Arbitrator has completely omitted to mention and appreciate that the respondent/claimant had been simultaneously selling its products from 04 other shops/Showrooms in Bangalore itself, which had resulted in major blow to the sales of the petitioner's/respondent's Showroom resulting in heavy loss and ultimately to the closure. Since the petitioner/respondent expressed its intention in September, 2005 to close the Showroom, respondent/ claimant opened another Showroom at No. 22, Chakravarthy Layout, 1st Main, 2nd Cross, Palace Cross Road, Bangalore. The respondent's/ claimant's Showroom was in existence along with the Showroom of the petitioner/respondent for more than 10 months. Ld. Arbitrator has failed to appreciate that the petitioner/respondent sent reply dated 30.03.2007 to the Legal Notice dated 03.03.2007 of the claimant/ respondent, wherein it had explained the correct factual position and had sought refund of Rs. 21,07,900/ due to the petitioner/ respondent upto that date. It is further submitted that the approach of Ld. Arbitrator was fundamentally flawed and based on material Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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irregularity, which has caused substantial injustice to the petitioner/ respondent. The misconduct on the part of Ld. Arbitrator during the proceedings suffers from legal infirmity making the Award liable to be settingaside.
17.Moreover, the territorial jurisdiction lies with the Bangalore Court as Civil Suit bearing OS No. 16709/2006 was filed by the petitioner/respondent before the City Civil Judge, Bangalore subject matter of which also arose out of Franchisee Agreement and no objection was taken to the jurisdiction of City Civil Court, Bangalore. This clearly shows that the jurisdiction lies with the Courts at Bangalore. Therefore, prayer is made that the impugned Award be settingaside.
18.Ld. Counsel for the respondent/claimant has submitted that the claim of the respondent was for Rs. 79,59,066.62, but the Ld. Arbitrator has granted only Rs. 9,93,786.62, which clearly show that there was no bias for this conduct on the part of Ld. Arbitrator. It is submitted that the Award has been made after due consideration of the documents and there is no merit in the stand taken by the petitioner company and the objections are liable to be settingaside.
19.Ld. Counsel for the petitioner, as well as, the respondent have filed their respective written arguments raising similar grounds as mentioned above.
20.I have heard the arguments and perused the record. I have also perused the record of Ld. Arbitrator and the evidence led therein. My findings are as under:
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21.The 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the Tribunal gives reasons for an arbitral award; to ensure that the Tribunal remains within the limits of its jurisdiction and to minimize the supervisory roles of courts in the arbitral process.
22.The arbitration is judicial determination of disputes not by a judge, but by an Arbitrator who though not bound by the strict procedure of laws, has the trappings of the court with a bounden duty to adjudicate judiciously in accordance with the principles of Law. In ONGC Limited vs. Western Geco International Limited, 2014 (9) SCC 263 the Hon'ble Apex Court delineated three distinct juristic principles which are:
1. In every determination by a court or any other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority is bound to adopt what is in legal called a judicial approach.
2. If the court and so also a quasijudicial authority must determine the rights and obligations of the parties before it in accordance with the principles of natural justice, which included audi alteram partem rule and a reasoned order and after due application of mind.
3. The principle now recognised as a salutary juristic fundamental in administrative law that a decision which Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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is perverse or so irrational that no reasonable person would have arrived at and would not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury Principle of reasonableness.
23.It was observed by the Apex Court that these three distinct and fundamental juristic principles must be understood as a part and parcel of the Fundamental Policy of Indian Law. The Arbitrator is thus, to be guided by these fundamental principles while deciding any arbitration claim. It is expected that the Award would be rendered in accordance with these principles and consequently limited grounds are provided under Section 34 of the Act, 1996 as it stood before its Amendment in 2015 (since the dispute is of 2006 2007) on which the award can be challenged.
24.Before going into the merits of the petition, it would be relevant to first discuss the scope of objections that can be dealt with under Section 34 of the Act, 1996.
25.Section 34 of the Act provides for setting aside the Arbitral Award.
Section 34 (2) of The Act specifies the grounds on which the Arbitral Award may be set aside, which reads as under:
S.34 "Application for setting aside arbitral award -
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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such award in accordance with subsection (2) and subsection (3).
(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 Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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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 which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) The Court finds that -
(I) The subjectmatter 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 subclause (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)...
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(4)...
26.Section 5 of the Act provides the extent of judicial intervention and states that no judicial authority shall intervene except where so provided in this Part.
27.None of the grounds contained in subClause 2 (a) of the Act deal with the merits of the decision rendered by an arbitral award. The arbitral award can be challenged only if it is in conflict with Public Policy of India. The scope and meaning of "Public Policy" has been a subject matter of elaborate discussion in various judgments and its content is now well defined.
28.In Renusagar Power Company Limited vs. General Electronic Company, 1994 Supp (1) SCC 644, the Hon'ble Apex Court construed the meaning of public policy in the context of Section 7 (1) (b) (ii) of the Foreign Award (Recognition and Enforcement) Act, 1961 and observed that the enforcement of award shall be contrary to Public policy if it is contrary to :
1. The fundamental policy of Indian law;
2. The interest of India to the fundamental policy of Indian Law &
3. Justice or morality.
29.It further explained that disregarding orders passed by the superior courts in India could also be a contravention of the Fundamental Policy of Indian law.
30.Another dimension was given to the expression "the public policy of India" by the Apex Court in ONGC v. Saw Pipes, 2003 (5) SCC Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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705,which held:
(a) "31...However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/ judgment/ decision is likely to adversely affect the administration of justice. ...it is required to be held that the award could be set aside if it is patently illegal."
31.It was explained that illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.
32.In Hindustan Zinc Limited vs. Friends Coal Carbonisation (2006) 4 SCC 445, the Hon'ble Apex Court referred to the principles laid down in Saw Pipes Ltd. case (supra) and clarified that it is open to the Court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.
33.In Central Inland Water Transport Corporation Limited & Another vs. Brojo Nath Ganguly and another (1986) 3 SCC 156 the Hon'ble Apex Court referred to the applicability of the expression public policy on the touchstone of Section 23 of the Indian Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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Contract Act and Article 14 of the Constitution of India and held that any term of agreement, which is patently arbitrary and/or otherwise arrived at because of the unequal bargaining power would not only be ultravires Article 14 of the Constitution of India but also hit by Section 23 of the Indian Contract Act.
34.In DDA vs. R. S. Sharma & Company (2008) 13 SCC 80, Hon'ble Apex Court reaffirmed that the award may be set aside if it the terms of the contract are patently illegal or prejudicial to the rights of the parties. These principles were reiterated by the Hon'ble Apex Court in J. G. Engineers (P) Ltd. v. Union of India, (2011) 5 SCC 758 and in Union of India vs. Col. L. S. N. Murthy, (2012) 1 SCC 718.
35.In Kuldeep Singh vs. Commissioner of Police (1999) 2 SCC 10 the Hon'ble Apex Court observed that if a decision is arrived at without any evidence or on the evidence which is unreliable, then such order shall be perverse and the findings would not be interfered with. The Court while deciding the objections under Section 34 of The Act does not act as a Court of Appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts is necessarily to be accepted like a master. Ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Once it is found that the Arbitrator's approach is not arbitrary or capricious, then he is the last word on facts.
36.In P. R. Shah, Shares & Stock Brokers (P) Limited vs. B. H. H. Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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Securities (P) Limited (2012) 1 SCC 594, Hon'ble Apex Court has observed that a court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. The challenged to an award is limited to the grounds specified in Section 34 (2) of the Act.
37.In Associate Builders vs. Delhi Development Authority in Civil Appeal No. 10531/2014, decided on 25 November, 2014 the Apex court referred to Section 34 (2)(v) which provides for setting aside of arbitral award on the ground that 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 the Act. It takes in its radar Chapter VI of Part1 of the Act. A reference was made to Section 28 (1) (a) in Chapter VI, which provided that the contravention of the Arbitration Act itself would be regarded as patently illegality. It was explained that under subsection (1) (a) of Section 28 there is a mandate to the arbitral tribunal to decide the dispute in accordance with the substantive law for the time being in force in India which would include the Indian Contract Act, the Transfer of Property Act and other such laws in force. If the award is passed in violation of the provisions of the Transfer of Property Act or in violation of the Indian Contract Act, could be set aside. Similarly, under subsection (3), arbitral tribunal is directed to decide the dispute in accordance with the terms of the contract and also after taking into account the usage of the trade applicable to the transaction. The conclusion is that if the award is Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34. However, such failure of procedure should be patent affecting the rights of the parties. The aforesaid interpretation of the clause (v) was held to be in conformity with the settled principle of law that the procedural law cannot fail to provide relief when substantive law gives the right. Principle is there cannot be any wrong without a remedy as was observed by Hon'ble Apex Court In M.V. Elisabeth & others vs. Harwan Investment & Trading Pvt. Ltd. [1993 Supp. (2) SCC 433] that where substantive law demands justice for the party aggrieved and the statute has not provided the remedy, it is the duty of the Court to devise procedure by drawing analogy from other systems of law and practice. Similarly, in Dhanna Lal vs. Kalawatibai and others [(2002) 6 SCC 16] Hon'ble Apex Court observed that wrong must not be left unredeemed and right not left unenforced.
38.In McDermott International Inc. vs. Burn Standard Company Limited (2006) 11 SCC 181 the Hon'ble Apex Court has observed that the terms of the contract can be expressed or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the Arbitrator to determine, even if it gives rise to determination of a question of law.
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39.In M. S. K. Projects (I) (JV) Ltd. vs. State of Rajasthan, (2011) 10 SCC 573 the Hon'ble Apex Court further explained that If the arbitrator commits an error in the construction of the contract, then it is an error within his jurisdiction, but if he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error.
40.In Sumitomo Heavy Industries Limited vs. ONGC Ltd. (2010) 11 SCC 296 the Hon'ble Apex Court has observed that if the umpire on the facts has taken place one construction on the clauses of the agreement which according to him was the correct one, then it would not make the Award perverse merely because another construction could have been preferred in respect of said clause.
41.To sum up, Patent illegality and perversity would mean:
(a) it is so unfair and unreasonable that it shocks the conscience of the court
(b) the award which is on the face of it, patently in violation of statutory provisions cannot be said to be in public interest
(c) disregarding orders passed by the superior courts
(d) award is against the specific terms of contract which can be expressed or implied usages of the trade applicable to the transaction
(e) decision is arrived at without any evidence or on the evidence which is unreliable
(f) any term of agreement, which is patently arbitrary Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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and/or otherwise arrived at because of the unequal bargaining power and is patently illegal or prejudicial to the rights of the parties
(g) However, it does not include reassessment or re appreciation of the evidence and consequently errors of fact cannot be corrected.
42.In the light of these principles the objections of the petitioner are required to be considered.
43.The 1st objection taken on behalf of the petitioner/ respondent is that the claim petition was not signed by a person who was duly authorized by Board Resolution. The Ld. Arbitrator had relied upon the certified copy of the Board Resolution dated 17.02.2007 (Ex. CW1/1), which authorised Sh. Munish Bhalla to file the claim petition before the Ld. Arbitrator. It has been rightly observed in the Award that there was no challenge to the Board Resolution (Ex. CW 1/1) neither in the crossexamination of CW1 Sh. Munish Bhalla nor any evidence has been led by the petitioner/respondent to show that CW1 Sh. Munish Bhalla was not authorised to sign the claim petition on behalf of the respondent company. There is no illegality or perversity in this conclusion and the Ld. Arbitrator has rightly rejected this argument.
44.The 2nd objection, which has been taken, is that the affidavit of CW1 Sh. Munish Bhalla was not attested and thus, could not be read in evidence. In this context, the Ld. Arbitrator had observed that the contents of the affidavit were duly verified by CW1 Sh. Munish Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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Bhalla, who had mentioned that the contents of the affidavit were true and correct to the best of his knowledge and nothing material had been concealed therefrom. Though, the affidavit of CW1 Sh. Munish Bhalla was indisputably not attested but it may be mentioned that the evidence was recorded by way of affidavit that had been tendered in evidence by CW1 Sh. Munish Bhalla. Once the evidence is tendered on oath, it assumes form of deposition before the Court and thus, the affidavit of evidence not being attested would not make the evidence of CW1 Sh. Munish Bhalla inadmissible. There is no illegality committed by Ld. Arbitrator in admitting the evidence of CW1 Sh. Munish Bhalla while determining the claim.
45.The 3rd objection, which has been taken on behalf of the petitioner, is that CW1 Sh. Munish Bhalla has admitted in his cross examination that he did not have any personal knowledge of the negotiations that had taken place between the parties for finalizations of the covenants of the Franchisee Agreement. Thus, the documents on which the reliance has been placed by the respondent/claimant have not been proved by a competent witness and could not been admissible in evidence. In this context, it may be mentioned that CW1 Sh. Munish Bhalla had produced the office records and other documents executed in the normal course of business and same were duly exhibited as per law without any objection from the petitioner. The contents of the documents were thus, admissible to determine the claim. The documents per se could be read in evidence as being Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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duly proved to determine the competing claims of the parties. Ld. Arbitrator had rightly observed that the evidence of CW1 Sh. Munish Bhalla was on the basis of record and documents, which were admissible.
46.The 4th objection which has been taken on behalf of the petitioner is that as per the Franchise Agreement, the Arbitration Clause could have been invoked only after the parties had made an endeavour to settle their dispute through negotiations. There were various negotiations that took place since September, 2005 when the petitioner first expressed its intention to quit the contract. Thereafter, many mails were admittedly exchanged for early closure of the Franchise Agreement and a new understanding was arrived at which was recorded vide Minutes Dated 29.11.2005 (Ex. RW1/22). The matter was duly negotiated for amicable settlement and it cannot be said that negotiations were not held before invoking arbitration.
47.The 5th objection which has been vehemently agitated on behalf of the petitioner is that Ld. Arbitrator was biased and he misconducted himself, which was evident from the long period that was taken by him to conclude the proceedings. However, this is only the bald claim made by the petitioner without giving any facts. It may be noted that the claim of the respondent/claimant was for Rs. 79,59,066.62 while it has been allowed only to the extent of Rs. 9,93,786.62, which includes Rs. 1,10,750/ towards the Arbitration Fees. Had there been any bias or misconduct, then the petitioner would not have got an order against it only for a sum of Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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Rs. 9,93,786.62, instead of Rs. 79,59,066.62. The entire record reflects that the Ld. Arbitrator has considered all the documents of both the parties and has made a well reasoned Award. No bias or misconduct can be gathered from the record and no such instance of his conduct has been pointed out by the petitioner/respondent.
48.The 6th objection is in regard to territorial jurisdiction which is claimed to be that of Bangalore and not Delhi. Section XI of the Recitals of the Original Agreement dated 11.10.2004 (Ex. RW1/13) deal with the Miscellaneous Clauses, its Sub Clause (11), it was specifically provided that in the event if dispute arose between the parties in connection with the agreement which cannot be settled through negotiations, then such dispute shall be dealt with under Arbitration & Conciliation Act, 1996 and the same will be referred to the Delhi Council for Arbitration at New Delhi.
49.The respondent/claimant was based at New Delhi, while the petitioner was based at Bangalore. The agreement was negotiated between the parties, out of which respondent/claimant was in Delhi. The business transactions and emails were also been exchanged between the parties located at Delhi and Bangalore respectively. The part cause of action arose in Delhi and therefore the Courts at Delhi as well as Bangalore had the territorial jurisdiction. Clause11 of The Agreement specifically restricted the jurisdiction for Arbitration at Delhi. It is not a case of exclusion of jurisdiction but out of the two Forums that were available to the parties, it has been restricted to Delhi. Since by virtue of Sub Clause11, the seat of Arbitration was Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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specifically mentioned to be New Delhi, Ld. Arbitrator has rightly interpreted the clauses of the agreement to hold that Delhi had the jurisdiction to entertain the arbitral dispute.
50.An objection has been taken by the respondent in regard to the present petition under Section 34 of The Act being barred by limitation. The impugned Award is dated 30.08.2011, while the objections in the Court have been filed on 23.08.2016. It has been explained by the petitioner in its objection that the objections under Section 34 of The Act were filed before the City Civil Court at Bangalore vide AS No. 86/2011 but the same was disposed of vide order dated 18.11.2016 by observing that by virtue of clause with regard to jurisdiction, the Bangalore Court had no territorial jurisdiction and the plaint was returned to be filed in the appropriate Court. The present objections have been immediately thereafter filed before this Court on 23.08.2016. The objection taken is without merit and the objections have been filed within the period of limitation.
51.Ld. Counsel for the petitioner has further agitated that there is breach of public policy since Ld. Arbitrator has failed to follow the Statutory Clauses in the Franchise Agreement dated 11.10.2004, copy of which is Ex. RW1/13. The claims decided in favour of the respondent have been challenged on merits.
52.It is an admitted case between the parties that they had entered into Franchise Agreement dated 11.10.2004, copy of which is Ex. RW 1/13. In the original Agreement dated 11.10.2004 Ex. RW1/13, Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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PartI deals with Payments by Franchisee, which reads as under:
I. Franchise shall pay the master franchisee lumpsum amount of Rs. 5 lacs (hereinafter referred to as lumpsum amount) which shall be paid at the time of signing this agreement and the sum of Rs. 2 lacs (hereinafter referred as yearly lumpsum amount) shall be paid on each anniversary for the balance duration of this agreement and each year of any removal of this agreement.
II. Franchise in addition to the lumpsum payment and yearly lumpsum payment shall be liable to pay royalty fee @ 3% from April, 2006 on the net sales given by the Franchise for each month for the duration and extension/renewal of this agreement.
53.It is not disputed that the petitioner did not make enough profits as per its expectations and wanted an exit from the Franchise Agreement. It is further admitted that the parties entered into the Arrangement for making the business profitable over a period of time for which respondent agreed to give some relaxation in payments as was reflected in the Minutes of the Meeting held on 29.11.2005, Ex. RW1/22. According to the said Minutes, both the parties agreed that the appellant may continue the business upto March, 2006 for which respondent agreed for minimum guarantee of turnover of Rs. 5 lacs. It was further agreed that if the business is continued by the petitioner beyond March, 2006 i.e. upto March Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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2007, the minimum guarantee of turnover of Rs. 7.5 lacs shall be provided by the respondent w.e.f. April, 2006.
54.Clause 3 (C) of the Agreement further provided as under:
Leela Galleria will operate under S/F Agreement, which is already in place with all the terms and conditions which are to be followed. Sub Franchisee Fee of Rs. 2 lacs beyond March, 2006 as per the agreement, no royalty fee till March, 2007.
55.Clause 9 of the Agreement further provided as under:
No further sub Franchisee Fee applicable till 31.03.2006.
56.Clause 10 of the Agreement further provided as under:
Royalty fee applicable till 31.03.2007, subfranchisee fee as per the Agreement, but no penalty fee till March, 2007.
57.Clause 14 of the Agreement further provided as under:
Subfranchisee (original) agreement however remains in force.
58.From the perusal of the terms of the Agreement dated 29.11.2005, it is quite evident that the Franchise Agreement dated 11.10.2004 (Ex. RW1/13), as was originally entered into between the parties, was to stand though there were some waivers and concessions in regard to payments that the respondent agreed to extend to the petitioner on account of losses suffered by it. It was given assurance of minimum guarantee of turnover in the sum of Rs. 5 lacs if the business was continued till March, 2006 and up to minimum a sum of Rs. 7.5 lacs in case business was continued till March, 2007. In the light of these Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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admitted facts, the challenge to the claims No.1 to 4 allowed by the Ld. Arbitrator may now be considered.
A. Claim for the balance amount of Rs. 2 lacs, out of lump sum Rs. 5 lacs payable at the time of execution of the franchisee agreement along with interest @ 15%
59.The Ld. Arbitrator allowed the claim of Rs. 2 lacs as balance outstanding of Rs. 5 lacs, which was payable at the time of execution of franchisee agreement which has been challenged by the petitioner.
60.The parties had admittedly entered into the Franchise Agreement dated 11.10.2004 Ex. CW1/3. In terms of the Clause 1 (1) of the said Agreement, petitioner was liable to pay Rs. 5 lacs at the time of signing of Franchisee Agreement.
61.CW1 Sh. Munish Bhalla on behalf of the respondent tendered his affidavit in his evidence as Ex. CW1/A. He deposed that out of the onetime Franchise Agreement Fee of Rs. 5 lacs payable at the time of execution of Franchise Agreement, the petitioner failed to pay balance Rs. 2 lacs which was still due.
62.On the other hand, petitioner had examined RW1Sh. Rajiv Sarda, its Managing Director who deposed that all the amounts have been paid as per the terms of the Contract and Minutes of Meeting. The claim of the respondent for balance amount of Rs. 2 lacs to be paid against the Franchise Agreement Fee at the time of execution of agreement, could not have been proved only by oral evidence, but by the statement of account or the documents.
Arbitration No. 21237/2016M/s Sparrow Healthcare Pvt. Ltd.
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63.It is a settled proposition of law that it is the best evidence that has to be produced and where evidence is a document any oral evidence in regard to contents of the documents as inadmissible. In the present case, CW1 Sh. Munish Bhalla had merely made a bald claim that Rs. 2 lacs were still due from the petitioner. The best evidence to prove this due was through statement of account, which has not been produced. The testimony of CW1 Sh. Munish Bhalla may not have been challenged on behalf of the petitioner, but the onus was on the respondent to prove its claim for Rs. 2 lacs.
64.In this context, it may also be noted that RW1 Sh. Rajiv Sarda, Managing Director of the petitioner had also deposed that he has paid the entire amount. A suggestion was given to him that there was an outstanding of Rs. 2 lacs towards the original lumpsum sub franchise agreement fee but it is the word of petitioner against the word of the respondent. Mere oral evidence is not admissible.
65.Ld. Arbitrator's conclusion that there is outstanding amount of Rs. 2 lacs, is based on oral evidence without producing or proving the documents which is not admissible in law. The claim of Rs. 2 lacs has been allowed by wrongly relying on evidence which is legally not permissible. This finding of Ld. Arbitrator suffers from patent illegality and is therefore liable to be setaside. B. Claim for the yearly lumpsum amount of Rs. 2 lacs which was payable on 11.10.2005 & 11.10.2006 aggregating to Rs. 4 lacs along with interest @ 15%.
66.The petitioner, as per clause I (i) of the original Agreement dated Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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Ex. RW1/13 was liable to pay the annual subfranchise fees of Rs. 2 lacs. Parties however, agreed vide Agreement dated 29.10.2005 Ex. RW1/22 that no subfranchisee agreement fee (a sum of Rs. 2 lacs) would be payable till 31.03.2006 which implies that the fees of Rs.2 lacs for 2005 was waived. However, the subfranchisee fee of Rs. 2 lacs for the year 2006 became payable on 11.10.2006 as the business was continued by the petitioner till December, 2006. There was no waiver of the Franchisee fee beyond 31.03.2006 as is also clearly stipulated in the Ex. RW1/22.
67.In this context it is also significant to refer to the email Ex. RW1/14 dated 07.07.2005 addressed to the petitioner by the respondent wherein it had been written as under:
I told you to try for three months and if there is a loss then I would share the same with you. The sub franchisee fee was waived off to assist you.
68.Waiver of subfranchisee fee payable for the year 20052006 stood waived even as per the admission of the respondent itself.
69.The Ld. Arbitrator has rightly observed that though there was waiver of Rs. 2 lacs for the period of previous year i.e. till October, 2006 but a sum of Rs. 2 lacs as renewal of subfranchise fee beyond 31.03.2006 became payable and due. The sum of Rs. 2 lacs as against the claim of Rs.4 lacs towards SubFranchise Agreement has been rightly allowed in accordance with the Agreement between the parties and there is no perversity in this conclusion of the Ld. Arbitrator.
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C. CLAIM FOR ROYALTY FEE FOR RS. 1,36,036.62/
70.The Ld. Arbitrator allowed the claim for Rs. 1,36,036.62 on account of Royalty fee @ 3% on the net sales for each month payable from 30.04.2006 along with interest @ 15%.
71.The Agreement dated 29.11.2005 (Ex. RW1/22) provided for the waiver of the Royalty Fee till March, 2007and it was not subject to a condition precedent that the petitioner would have to continue the business till March, 2007. Rather, it was an unconditional waiver of Royalty Fee till March, 2007.
72.Ld. Arbitrator has fallen in error in misconstruing this clause regarding waiver of the Royalty Fee by interpreting that it was subject to continuation of the business by the petitioner till 31.03.2007. Rather, it is a stand alone clause which unconditionally provided that no Royalty Fee shall be applicable till March, 2007. The Ld. Arbitrator has granted this sum of Rs. 1,36,036.62 towards the Royalty Fee against the terms of the contract by wrong interpretation of the Agreement between the parties. The said amount of Rs. 1,36,036.62 towards the Royalty Fee has been wrongly granted in contravention of the express terms of the Agreement and falls within the scope of adjudication under Section 34 of The Act; the grant of Rs1,36,036.62 towards the Royalty Fees is therefore, setaside.
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D. CLAIM OF RS. 3,47,000/ AGAINST THE GOODS SUPPLIED BY THE RESPONDENT/ CLAIMANT TO THE PETITIONER.
73.The Ld. Arbitrator allowed the claim of Rs. 3,47,000/ against the goods supplied by the respondent/ claimant to the petitioner which has been challenged by the petitioner.
74.It is an admitted case of the parties that the respondent had delivered goods worth Rs. 3,47,000/ for which payment was outstanding. Petitioner had setup a defence that there was an agreement between the parties that petitioner would return these goods and the payment would be adjusted by the respondent. To this effect, various correspondences were exchanged and respondent agreed to take back these goods subject to the goods being intact and in good condition. However, there is not an iota of evidence that the petitioner ever returned the goods or the respondent refused to take back the goods. The respondent had agreed to make the adjustment, but that was subject to return of the goods. The onus was on the petitioner to show that it had delivered or returned the goods to the respondent or that respondent wrongly refused to accept the return of goods. However, there is no evidence that the goods were returned entitling the petitioner to adjust Rs. 3,47,000/. Admittedly, the goods in the sum of Rs. 3,47,000/ were delivered to the petitioner and payment against them had not been made. Ld. Arbitrator has rightly awarded an amount of Rs. 3,47,000/ to the respondent/ claimant on the basis of evidence led by the parties. There is no illegality in Arbitration No. 21237/2016 M/s Sparrow Healthcare Pvt. Ltd.
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the interpretation of the evidence or the grant of this claim of the respondent.
E. Amount of Arbitrator's Fees
75.Ld. Arbitrator also allowed Rs. 1,10,750/ as the share of the Arbitrator's initial fee that was paid by the Respondent on behalf of the Petitioner which is not disputed.
76.In view of above discussions, the objections are partly allowed and the claim of the respondent to the extent of Rs. 3,36,036.62 (Rs. 1,36,036.62 + 2,00,000/) is setaside while it is upheld to the extent of Rs. 6,57,750/ (Rs. 1,10,750/ + Rs. 3,47,000/ + 2,00,000/).
77.Record of Ld. Arbitrator be sent back along with a copy of this order.
78.File be consigned to Record Room.
NEENA Digitally signed by NEENA
BANSAL KRISHNA
BANSAL Date: 2020.07.31 17:37:24
KRISHNA +0530
Announced in the open Court on (NEENA BANSAL KRISHNA)
31st July, 2020 District & Sessions Judge
(KSR) South East, Saket Courts,
New Delhi
Arbitration No. 21237/2016
M/s Sparrow Healthcare Pvt. Ltd.
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M/s Paramount Surgimed Ltd.