Bangalore District Court
Naveena Granites vs Mysore Mineral Ltd on 7 November, 2024
KABC010003902007
IN THE COURT OF THE II ADDITIONAL CITY CIVIL AND
SESSIONS JUDGE AT BANGALORE (C.C.H. No.17)
Dated this the 7th day of November, 2024.
PRESENT:
Sri. Padma Prasad, B.A.Law.LL.B.
II Addl. City Civil and Sessions Judge, Bangalore.
: A.S. NO.7/2007 :
PETITIONERS :
1) M/s. Naveena Granites
Thilagavathi Illam,
5-A South Railway Road,
Dharmapuri-636 703.
Tamilnadu,
Represented by its
Managing Partner P.K. Pounraj
2) M/s. Sathya Granites,
No.179, Raja Rao street,
Kanakapura-562 117
Bengaluru Rural District
Represented by its proprietor
(Sri. AS, Advocate)
-VERSUS-
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RESPONDENTS :
1) M/s. Mysore Minerals Limited
(A Govt. of India undertaking)
No.39, Mahatma Gandhi Road,
Bengaluru - 560 001.
2) Sri. Mahendra Jain, IAS
Arbitrator,
Chairman & Managing Director
M/s. Mysore Minerals Limited
Bengaluru -560 001.
(Sri. CVS, Advocate)
: JUDGMENT :
This petition/ Arbitration Suit filed by the petitioners under Section 34 of the Arbitration and Conciliation Act, 1996 praying to set aside the award dated Nil that has been received by the petitioners on 17.11.2006 and also prays to set aside the order of dismissal of Interlocutory Application filed by the petitioners before the respondent No.2.
.2. The case made out by the petitioners is that the respondent No.1 is a Company registered under the Companies Act and the respondent No.1 is fully owned by the Government of Karnataka. The respondent No.2
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was the Managing Director In charge of the respondent No.1 Company. In the course of conducting the business, the respondents offered to enter into two agreements namely one with petitioner No.1 for raising the Granite Blocks and another with petitioner No.2 for raising the Granite Blocks and for selling the Blocks. However the respondents failed and neglected to fulfill its commitments towards the agreement between petitioners and the respondents. Accordingly, the petitioners calling upon the respondents to fulfill various obligations imposed on the respondents under the agreement, such as providing compensation to the land owners and various other disputes. The respondents also failed to provide basic facilities and fulfill the obligations under the terms of the agreement as the aforesaid obligations are not fulfilled by the respondents. The petitioners were not permitted to conduct the quarrying activities. Accordingly, the agreement dated 14.06.2004 was terminated by the respondents on 08.02.2005. After the receipt of letter
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dated 08.02.2005 regarding the termination of agreement, the petitioners wrote a letter to the respondent No.1 on 15.03.2005 calling upon the respondent No.1 to recall the said termination order/letter dated 08.02.2005 but the termination order has not been recalled by the respondents. Hence, the petitioner No.1 caused a legal notice. Further it is stated that after the receipt of legal notice, the previous Managing Director Smt. Jeeja Hari Singh treated herself as Arbitrator and issued a notice on 16.04.2005 calling upon the petitioners to appear before the Managing Director on or before 25.04.2005 asking the petitioners to file a claim statement. On 25.04.2005 the petitioners appeared before the previous Managing Director Smt. Jeeja Hari Singh and she has informed the petitioners that she has no jurisdiction to act as Arbitrator and she will take proper decision and inform the same to the petitioners. It is further stated that on 28.03.2006 the matter was was entirely heard and the counsel for the respondent No.1 was also heard. Thereafter, the case
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was adjourned on 03.04.2006 and 05.05.2006 but no orders were passed. The petitioners were not informed about hearing date of 05.05.2006. It is further stated that the respondent No.2 has personal animosity against the petitioners and others and also passed several orders against them. It is further stated that without consulting the petitioners, the respondent No.2 fixed the date of hearing as on 14.06.2006 and on that date, the advocate for the petitioners could not appear before the Arbitrator at 4.00 p.m, as he could not find car parking place at M.G. Road and thereafter, when he reached the office of Arbitrator at 4.45 p.m., it has been told to him that the case has been adjourned and accordingly he has given a representation at 5.00 p.m., to fix the date and inform the date of hearing well in advance and he will advance the arguments in the said arbitration proceedings. Without considering all these aspects, the award has been passed without knowledge of the petitioners and the petitioners came to know about the award when they have received the copy of
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the award as on 07.11.2006. Accordingly, the petitioners claim that the impugned award passed by the respondent No.2 is not in accordance with the law and prayed to set aside the said award on the following:
:G R O U N D S :
"That the Award passed by the 2nd respondent is highly arbitrary, capricious and failure to exercise the jurisdiction vested in it. Further it is stated that agreement is between petitioners and the respondent No.1 and the respondent No.2 is the Managing Director of respondent No.1, as such, the respondent No.2 being Managing Director is not entitled to act as Arbitrator and decide the dispute between the parties as per the principles laid down by the Hon'ble Supreme Court of India in a case of Bihar State Municipal Development Corporation Vs. Encon Builders India Pvt. Ltd. Further it is also stated that the petitioners filed an application before the Arbitrator that the Arbitrator is not a competent person to act as Arbitrator as he is a party to the agreement and he cannot decide his own case. It is also stated that further date of hearing or arguments by the respondents not informed to the petitioners and the order has been passed
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behind back of the petitioners. The act of the respondent No.1 is in violation of Section 12 of the Arbitration and Conciliation Act and among other grounds, prayed to set aside the judgment." .3. The respondent No. 1 and 2 though served with the notice, they appeared through their counsel.
.4. On the basis of above, the point for consideration is as that:
"Whether the impugned award of the Arbitrator/SLAO is against law, fact, evidence and probabilities of the case and liable to be intervened by this Court?"
.5. The respective counsels filed written arguments as well as advanced the arguments and also filed memo with citations. Perused the material on record, on that basis my finding on the above point is in the affirmative, for the following:
REASONS .6. As per the materials on record, the petitioner No.1 entered into "Raising Agreement" with the
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respondent No.1 as on 14.06.2002 for a period of 5 years as raising agent for the work of removal of Granite Blocks from the quarries stated in the aforesaid agreement. Similarly the respondents 1 and 2 also entered into a sale agreement for a period of 5 years on 14.06.2002. It is found from the records that there is no progress in the agreement entered between the parties. The case made out by the petitioners at page No.3 in first paragraph that the respondent No.1 i.e., M/s. Mysore Minerals Limited terminated the aforesaid two agreements as on 08.02.2005. Surprisingly the said termination of agreement order/letter has not been produced to the Court by the parties. In response to the said letter dated 08.02.2005, the petitioners sent a reply dated 15.03.2005. In response to the said termination of agreement, the petitioners replied on 15.03.2005 calling upon the respondent No.1 to recall the order dated 08.02.2005 and also claims that the respondents have not acted upon as per the terms of the agreement entered between them and as such, the petitioners
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could not proceed with the agreement. It is further claimed that in the event the respondents failed to comply with the request made by the petitioners vide letter dated 15.03.2005 they are invoking the arbitration Clause in the agreement entered between them.
.7. With the aforesaid background, the respondent No.1 initiated the arbitration proceedings claiming that it is the petitioner has initiated the arbitration proceedings as per the terms of agreement entered between them. Accordingly Director of respondent No.1, being an arbitrator as per the terms of arbitration clause in the agreement issued a notice on 16.04.2005 calling upon the petitioners to appear before the Managing Director/Arbitrator/Respondent No.2 and to file a claim statement.
.8. The petitioners claim that subsequent to the receipt of the notice of hearing in the arbitration proceedings, the petitioners filed an application claiming that as per Section 12 of the Arbitration Act, the
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respondent No.2 being an employee of respondent No.1 or any Managing Director or Chairman of respondent No.1 is not entitled to act as an Arbitrator in the dispute between petitioners and the respondents as the respondent No.2 is the employee under the respondent No.1. The said claim of the petitioners has been overturned by the respondent No.2 and the respondent No.2 without giving an opportunity to the petitioners terminated the arbitration proceedings.
.9. The petitioners claim that the termination of arbitration proceedings is an illegal as per Section 12(5) and Schedule 7 of the Arbitration Act. Per contra, the claim of respondents 1 and 2 is that the petitioners in the arbitration agreement itself admitted and accepted that in the event of any disputes or differences between parties, the same shall be referred to the Managing Director of respondent No.1, who shall be the sole Arbitrator to resolve the dispute or agitate the dispute. Hence, claimed that claim of the petitioners cannot be entertained and respondent No.2 considering all the
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aspects rightly terminated the arbitration proceedings. With these backgrounds the materials placed before the Court has to be appreciated and the Court has to consider whether the respondent No.2 is entitled to act as an Arbitrator as per terms of agreement entered between parties or the respondent No.2 is estopped from acting as Arbitrator as per Sections 5 and 7 th Schedule of the Arbitration and Conciliation Act.
.10. Before proceeding further it is just and necessary to note the Clause No.20 in the Arbitration Agreement along with Section 12(5) and 7th Schedule of the Arbitration and Conciliation Act. The copy of raising agreement entered between petitioner No.1 and respondent No.2 is produced and as per the said agreement, Clause-20 is relating to Arbitration that reads as that:
"In the event of any disputes or differences whatsoever arising between the parties out of relating to the construction meaning and operation or effect of this agreement or the breach thereof shall be referred to the Managing Director, MML who shall be the sole Arbitrator
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and any award made in such Arbitration shall be final, conclusive and binding on both the parties.
Such Arbitration shall be governed by the Arbitration and Conciliation Act 1996. The venue of the Arbitration shall be Bengaluru."
Similarly the identical Arbitration Clause is found at condition No. 13 in the agreement entered between petitioner No.2 and respondent No.1. The said Arbitration Clause reads as that:
"In the event of any disputes or differences whatsoever arising between the parties out of relating to the construction meaning and operation or effect of this agreement or the breach thereof shall be referred to the Managing Director, MML who shall be the sole Arbitrator and any award made in such Arbitration shall be final, conclusive and binding on both the parties. Such Arbitration shall be governed by the Arbitration and Conciliation Act 1996. the venue of the Arbitration shall be Bengaluru."
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If the said Arbitration Clauses in the agreements are accepted, then contention of the respondent is correct and that has to be accepted as the petitioners agreed to have a Managing Director of respondent No.1 as an Arbitrator and with the consent of the petitioners, the respondent No.2 acted as Arbitrator.
.11. In view of the aforesaid clause in the agreements it is just and necessary to see the relevant provision of law on this aspect. Section 12 of the Arbitration Act speaks about the grounds for challenge. Section 12(5) of the Arbitration Act reads as under:
"12(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."
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This provision of law to be read along with 7 th schedule relating to Section 12(5) of the Arbitration and Conciliation Act and this schedule is regarding Arbitrator relationship with the parties or counsel. The condition No.5 of the 7th schedule reads as that:
"The Arbitrator is a Managing Director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the Arbitration."
Conjoint reading of Section 12(5) with proviso and condition of No.5 of the 7th schedule makes it clear that it certainly bars the Manager or Director or part of the Management of any party to act as an Arbitrator. Therefore, the Manager or Director or person who is part of management cannot be sit as an Arbitrator in the dispute between parties.
.12. Only exception is provided in the proviso to Section 12 (5) is that if there is any express agreement between the parties to have the person of the management of the parties to act as an arbitrator in the
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dispute between the parties. Hence in the case on hand it is for the respondents to prove that there is an express agreement between the petitioners and the respondents to have the respondent No.2 as an arbitrator in the dispute between them. As aforesaid proviso makes it clear that there must be express agreement in writing between parties in view of the consent given by the parties in the Arbitration and Conciliation Agreement to have the person who is interest over the subject matter as an Arbitrator. Therefore, in the case on hand, the claim of the respondents 1 and 2 can be accepted, if there is any express undertaking/ written agreement between parties to have the respondent No.2 as an Arbitrator in the dispute involved in this case. Admittedly, there is no express agreement between parties or consent by the petitioners to have the respondent No.2 as an Arbitrator as per Arbitration Clause in the respective agreements. In this context, it is useful to refer the principles laid down by the Hon'ble High Court of Karnataka in Civil
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Misc. No. 7/2020 dated 25.02.2021 in a case of JMC ATEPL JOINT VENTURE Vs. Bengaluru Metro Rail Corporation Limited. Even in the said case, similar contention taken by the respondent has putforth in the said case, that has been over-ruled by the Hon'ble High Court of Karnataka with the specific observations that if there is any such agreement between parties, then there must be an express agreement between parties. Admittedly in the case on hand, the respondent has not produced any material to show that there is express agreement between parties to have the Managing Director or respondent No.2 as an Arbitrator in dispute between the parties. Infact on this count itself, the award passed by the Arbitrator is liable to be set aside.
.13. Apart from that there is no material on record to show that the respondent No. 2 even heard the petitioners' before passing the impugned award. Admittedly the petitioners have requested the respondent No.2 not to act as an Arbitrator and prayed to appoint some other independent person as an
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Arbitrator to proceed with the dispute between the parties. The order of the respondent No.2 is also without any date. The entire copy of the order produced before the Court nowhere discloses when actually the said order or award has been passed by the Arbitrator. The reading of the award in page No.3 clearly reveals that the Arbitrator who is Managing Director of respondent No.1, who is party to the agreement passed the award without hearing the petitioners and without considering the application of the petitioners to the respondent No.2 requesting not to act as an Arbitrator with a prayer to appoint a separate Arbitrator, any such award certainly not maintainable.
.14. It is true that the the duration of the agreement is lapsed in the year 2007 itself. The duration of the agreement between the petitioners and the respondent was from 14.06.2002 to 14.06.2007 but whatever the contention of the parties and even if the duration with agreement is over, even then the award passed by the respondent No.2 who is Managing
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Director of respondent No.1 in dispute between petitioners and the respondents, certainly cannot be accepted, because the respondent No.2 being Managing Director of respondent No.1 certainly he will act in favour of the respondent No.1 rather than petitioners.
.15. The vague order has been passed without hearing the petitioners, certainly shows that without giving fair opportunity, the respondent No.2 passed the impugned award. As such, this Court is liable to intervene the award passed by the Arbitrator as the said award cannot be accepted under law as fair and proper award. Accordingly, the above point is answered in the negative. In the result, I proceed to pass the following:
ORDER Arbitration Suit filed under Section 34 of the Arbitration and Conciliation Act, 1996 is hereby allowed.
Consequently, the award / termination of the proceedings dated Nil passed by the respondent No.2 in the Arbitration case No.1/2005, is hereby set
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aside with a liberty to the parties to pursue their remedy in accordance with law.
(Dictated to the Judgment Writer, transcribed by her, revised by me and after corrections, pronounced in open Court on this the 7th day of November, 2024) ( Padma Prasad) II Addl. City Civil and Sessions Judge, & Spl. Judge, Bangalore