Karnataka High Court
M/S Amr Sangam Sugar Ventures Ltd., vs Sangam Sahakari Sakkare Karkhane ... on 7 August, 2012
Bench: N.Kumar, H.S.Kempanna
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IN THE HIGH COURT OF KARNATAKA
CIRCUIT BENCH AT DHARWAD
DATED THIS THE 7 T H DAY OF AUGUST 2012
PRESENT
THE HON'BLE MR. JUSTICE N. KUMAR
AND
THE HON'BLE MR. JUSTICE H. S. KEMPANNA
MFA NO 22578 OF 2012 (A & C)
BETWEEN
M/S AMR SANGAM SUGAR VENTURES LTD.,
PUBLIC LIMITED COMPANY REGISTERED
UNDER THE COMPANIES ACT, 1956
REGD. OFF: PLOT NO. 88, 'SARI KONDA
MANSION', PHASE III, KAMALAPURI COLONY
HYDERABAD - 500 073,
R/BY HONNAPPAGOWDA PATIL
S/O. P.H. POLICE PATIL, AGE: 55 YEARS,
OCC: CEO, AMR SANGAM SUGAR VENTURES LTD.
HIDKAL DAM, R/O.HMT MAIN ROAD, JALAHALLI
.. APPELLANT
(By M/S. S S PATIL, SANJAY CHANAL &
PRASHANTH HOSMANI - ADVS. )
AND
1. SHRI SANGAM SAHAKARI SAKKARE KARKHANE
NIYAMIT, R/BY ITS MANAGING DIRECTOR,
A CO-OPERATIVE SOCIETY REGISTERED UNDER
THE KARNATAKA CO-OPERATIVE SOCIETIES ACT,
1959, REGD OFF: HIDKAL DAM, TQ: HUKKERI,
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DIST: BELGAUM. 591107
2. THE COMMISSIONER OF CANE DEVELOPMENT
& DIRECTOR OF SUGAR IN KARNATAKA,
KARNATAKA HOUSING BOARD COMPLEX,
CBAB COMPLEX, F BLOCK, 5TH FLOOR,
CAUVERI BHAVAN K.G. ROAD,
BANGALORE.
3. THE STATE OF KARNATAKA,
R/BY ITS ADDL. SECRETARY TO GOVERNMENT,
DEPARTMENT OF COMMERCE AND
INDUSTRY, VIKAS SOUDHA, BANGALORE.
4. THE DEPARTMENT OF CO-OPERATION,
R/BY ITS PRINCIPAL SECRETARY,
M.S. BUILDING, BANGALORE.
... RESPONDENTS
(By SRI. SHRIDHAR PRABHU, MS.PRATHVI,
SRI.D.MANJUNATH RAO & A.G.MULAWADIMATH - ADVS.
FOR CAVEATOR/ R1)
MFA FILED U/SEC.37(1)(b) OF ARBITRATION AND
CONCILIATION ACT, 1996, AGAINST THE JUDGMENT AND
AWARD DATED:21.04.2012 PASSED IN ARBITRATION
CASE NO.95/2012 ON THE FILE OF THE PRINCIPAL
DISTRICT JUDGE, BELGAUM, DISMISSING THE PETITION
FILED U/S. 34 OF ARBITRATION AND CONCILATION ACT
1996.
THIS APPEAL COMING ON FOR ADMISSION
THIS DAY, N.KUMAR J., DELIVERED THE
FOLLOWING:
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J U D G M E N T
This appeal is preferred against the order passed by the Principal Dist. Judge, Belgaum, who has declined to interfere with the order passed by the Arbitrator u/s.34 of the Arbitration and Conciliation Act, 1996 (for short hereinafter referred to as 'the Act').
2. The appellant is a Public Ltd. Company registered with the Registrar of Companies. It is also a co-operative society registered under the Co-operative societies Act, 1969 having tis registered office at Hidkal Dam, Hukkeri Taluk, Belgaum Dist. The respondent-society was established on 9.6.1999. The object of the society was to produce sugar and by-products from sugarcane. The Government of Karnataka holds a stake in respondent society. Though the -4- respondent society was established in the year 1999, it could not start its production of sugarcane due to lack of funds and other reasons. They collected share monies from farmers of the area. Still the respondent society had no sufficient funds required for its project. In order to salvage co-operative societies from bankruptcy, protect Govt. and farmers investment, the State Government took a policy decision and decided to lease the stock and defunct co-operative societies in Karnataka to private entrepreneurs on long term lease basis. On 24.7.2007 the Government passed an order providing for lease of the incomplete sugar factory belonging to the respondent. They called for tenders from potential investors to run a sugar factory on lease under build, own, operate and transfer (BOOT) basis for a period of 30 -5- years commencing from 2007-08 to 2036-37. The appellant's bid for Rs.225 crores as total lease rentals towards the lease of respondent society's sugar factory for a period of 30 years was accepted as it was the highest bid on 24.9.2009. The Government gave its approval. An agreement of lease came to be executed on 11.11.2007. Subsequently, one more lease agreement also came to be executed on 21.3.2008 incorporating the approved revisions between the parties. On execution of the lease agreement, the appellant was put in possession of the unfinished factory site and other assets. The appellant made a payment of Rs.2 crore as security deposit to the respondent society. The case of the appellant is they have spent huge monies in re-planning the factory development in line with crushing capacities as per the lease -6- agreement terms with modern and efficient technologies, recruited sugar technology/industry experienced key personnel, carried civil work and placed order for plant and machinery and has paid advances too and some machineries were also received at the site. The Society was under an obligation in terms of the lease agreement to furnish all the original documents, permissions and sanctions, with present day validity as on the date of the signing the lease agreement as per various Government and semi Government authorities to the appellants in terms of Clause 14 of the lease agreement. The respondent society failed to furnish the necessary documents and permissions and licences in reasonable time period, thus delaying the execution of the project. The appellant had to encounter lot of -7- problems due to the inaction of the respondent- Society. The respondent-Society also failed to provide the most vital basic document viz., the Industrial Entrepreneur Memorandum (IEM) i.e. the licence issued by the Central Government to set up the sugar factories in India with certain terms and conditions. Under Clause 14 of the lease agreement it was the responsibility of the society to obtain the IEM. They failed to provide this document within a reasonable time. They took almost two years to obtain the IEM and submit the same in August, 2009. The case of the appellant is the lease agreement could not have compulsorily been registered by the appellant while the lease agreement did not have sanctity as major compliances, compulsorily necessary (Ex:IEM) were yet to be regularised and hence at best the agreement entered into -8- between the parties could only be treated as simple binding agreement/contract between the parties as other terms of the lease agreement cannot be enforced until the agreement reached sanctity. It also has an arbitration clause in- built. The appellant has set out in the petition various steps taken subsequent to the execution of the lease agreement. The resolutions passed in the general body meeting of the society and various steps taken by the authorities also. The appellant has made several representations bringing to the notice of the respondent the obligations under the agreement requesting them to comply with the same so that the appellant could start the factory at the earliest. Insofar as the appellant is concerned, they have performed all their obligations under the agreement and have acted in terms of the -9- directions issued by the authorities from time to time. In the meanwhile elections were conducted to the society, new management took over. Then the respondents started to flex the ir muscles exhibiting unlawful power and started new unlawful terms for signing new agreement and acted with aggression to illegally evict the appellant from the premises of the factory with a supportive Govt. for its nefarious activities, thus rendering the appellant's position/situation totally vulnerable and forced the appellant who had patiently waited and suffered huge losses in the process for more than three years to initiate arbitration proceedings under the Act against the respondent-society who is none other than the Commissioner for Cane Development and Director of Sugar of Karnataka in Bangalore on 19.11.2010 as per Clause 52 of the lease
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agreement dated 21.3.2008. After the Arbitrator entered upon the reference he issued notice to both the parties. The respondents entered appearance and filed their objections contending that the arbitration proceedings are not maintainable as the lease agreement is not registered, as such the rights under the said agreement cannot be enforced. On 5.2.2011 the Arbitrator rejected the said contention and held the arbitration proceedings are maintainable. The arbitration proceedings proceeded nearly for more than one year. Further, in the end of the day, he dismissed the arbitration proceedings as not maintainable following the judgment of the Apex Court. Aggrieved by the said award of the arbitrator dated 7.1.2012, the appellant filed an application before the Principal Dist. Court at Belgaum u/s.34 of the Act. The learned Dist.
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Judge on careful consideration of the entire material on record, in particular the terms of the lease agreement and noticing that the said lease agreement is not registered, the lease terms cannot be looked into and enforced as it is inadmissible in evidence, and thus found that the order passed by the Arbitrator is valid and legal and no case is made out in its jurisdiction u/s.34 of the Act.
Aggrieved by the order passed by the Learned Dist. Judge on 21.4.12 the appellant have preferred this appeal u/s.37(1)(b) of the Act.
3. The learned counsel for the appellant assailing the impugned order passed by the learned Dist. Judge as well as the Arbitrator contended the execution of the lease agreement
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is not in dispute. Clause 52 of the lease agreement provides for arbitration which is also not in dispute. The lease agreement was not registered because before the terms of the lease agreement could be given effect to, as stipulated in the very same agreement, the respondents have to perform various obligations without which the said agreement cannot be given effect to. Even if the lease agreement is not registered, clause 52 of the lease agreement which provides for arbitration could be separated as a separate agreement for arbitration which does not require stamp duty and registration and therefore, it cannot be said that the arbitration proceedings is not maintainable because the arbitration clause is contained in a document which requires compulsory registration. Secondly, he contended having regard to the obligations to be
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performed by the respondents under the very same agreement though the lease agreement is duly executed, it is in the nature of memorandum of understanding which does not require registration as well as stamp duty and therefore, both the courts committed a serious error in not keeping the distinction in mind and in rejecting the claim of the appellant on the ground that the arbitration proceedings is not maintainable.
4. Per contra, the learned counsel appearing for the respondents supporting the impugned orders contended, the only dispute between the parties arises out of the terms of the lease agreement. Even if the clause of arbitration in the lease agreement is treated as a separate agreement and arbitration proceedings is maintainable, as the arbitrator has to look
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into the lease agreement to resolve the dispute and if the lease agreement is not admissible in evidence for want of registration, no useful purpose would be served in continuing such arbitration proceedings as held by the Apex Court in the case of M/s.SMS Tea Estates Pvt. Ltd. - vs - M/s.Chandmari Tea Co. Pvt. Ltd. reported in 2011 AIR SCW 4484 and submits when the two courts i.e. when the learned arbitrator and the learned Dist. Judge have followed the judgment of the Apex Court and dismissed the claim, no case for interference is made out.
5. In the light of the aforesaid facts and the rival contentions, the point that arises for our consideration in this appeal is as under :-
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"Even if an arbitration clause in an unregistered document which is compulsorily registrable is treated as an independent arbitration agreement, if the dispute relates to the terms of such unregistered agreement, can an arbitrator proceed with the adjudication of the dispute arising out of such contract?
6. The Supreme Court had an occasion to consider this aspect in the case of SMS Tea Estates Pvt. Ltd. Though the said proceedings arose u/s.11 of the Act for appointment of an Arbitrator by the Chief Justice, after referring to the provisions of the Registration Act, Stamp Act, and Section 16 of the Act, the Apex Court stated the general legal position for guidance in arbitration even though the said question did
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not directly arise for consideration at paras 12, 13 and 14.
12. We may theref ore sum up the procedure to be adopted where the arbitr ation clause is contained in a document which is not registered (but compulsorily registrable) and which is not duly stamped:
(i) the court should, bef ore admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.
(ii) If the document is f ound to be not duly stamped, section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitr ation clause therein cannot be acted upon. The court should then proceed to impound the document under
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section 33 of the Stamp Act and f ollow the procedure under section 35 and 38 of the Stemp Act.
(iii) If the document is f ound to be duly stamped, or if the def icit stamp duty and penalty is paid, either bef ore the Court or bef ore the Collector (as contemplated in section 35 or 40 of the Stemp Act), and the def ect with ref erence to def icit stamp is cured, the court may treat the document as duly stamped.
(iv) Once the document is f ound to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is f ound to be not compulsorily registrable, the court can act upon the arbitr ation agreement, without any impediment.
(v) If the document is not registered, but is compulsorily registrable, having regard to section 16(1)(a) of the Act, the court can de-link the arbitration
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agreement f rom the main document, as an agreement independent of the other terms of the document even if the document itself cannot in any way aff ect the property or cannot be received as evidence of any transaction aff ecting such property. The only exception is where the respondent in the application demonstrates that the arbitr ation agreement was invalid, the court will consider the said objection bef ore proceeding to appoint an arbitr ator.
(vi) Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separ able, wh at is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except f or two purposes, that is(a) as evidence of contract in a claim f or specif ic perf ormance and (b) as evidence of any
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collateral transaction which does not require registration.
Re : Question (iii)
13. Where a lease deed is f or a term of thirty years and is unregistered, the terms of such a deed cannot be relied upon to claim or enf orce any right under or in respect of such lease. It can be relied upon f or the limited purposes of showing that the possession of the lessee is lawf ul possession or as evidence of some collateral transaction. Even if an arbitr ator is appointed, he cannot rely upon or enf orce any terms of the unregistered lease deed. Where the arbitr ation agreement is not wide and does not provide f or arbitration in regard to all and wh atsoever disputes, but provides only f or settlement of disputed and dif ferences arising in relation to the lease deed, the
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arbitr ation clause though available in theory is of little practical assistance, as it cannot be used f or deciding any dispute or diff erence with ref erence to the unregistered deed.
14. In this case, clause 35 of the lease deed reads as under :
That any dispute or difference arising between the parties in relation to or in any manner touching upon this deed shall be settled by Arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 which shall be f inal and binding on the parties hereto. The Government law will be Indian. The venue of Arbitration shall be at Assam and Court at Assam alone shall have jurisdiction f or disputes and litigations arising between the lessor/f irst party and the lessee/second party in context with the above mentioned scheduled property"
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Having regard to the limited scope of the said arbitration agreement (restricting it to disputes in relation to or in any manner touching upon the lease deed), the arbitr ator will have no jurisdiction to decide any dispute which does not relate to the lease deed. Though the Arbitrator will have jurisdiction to decide any dispute touching upon or relating to the lease deed, as the lease deed is unregistered, the arbitr ation will virtually be a non-starter. A party under such a deed may have the luxury of having an arbitrator appointed, but little else. Be that as it may.
7. In the instant case the rights of the parties is crystallised under the lease deed dated 21.3.2008. In consideration of the lessee/lease holder paying a cumulative amount of Rs.32,550 lakhs towards the lease rental in
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terms of the bid made by the lessee for a period of 30 years commencing from the date of execution of the said agreement and in consideration of the lessee/lease holder undertaking completion of balance work of supply, erection and commission, the balance part of the plant and machinery of the sugar unit and commencing commercial crushing operations starting from the sugar season 2009- 10, the lessor granted on lease (under BOOT) the sugar factory together with land and building, plant and machinery and other allied equipment and other movable assets.
8. The schedule property was let out to the lessee/lease holder for a period of 30 years commencing from the date of execution of the agreement. Therefore, there was a demise under
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the agreement and as is clear from the terms of the agreement, lease shall commence from the date of execution of the said agreement. As the lease was for a period of 30 years and there was a transfer of interest of the immovable property by way of a lease, the said document not only requires to be duly stamped under the Karnataka Stamp Act, but it also requires to be duly registered under the Registration Act. It is a compulsorily registerable document. If the document is not duly stamped and not duly registered it is inadmissible in evidence. If a document is not duly stamped the person claiming right under the document can approach the Deputy Commissioner and pay the duty and penalty and then tender the document as evidence. If that procedure is not adopted and if the said
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document is tendered in evidence and objection is taken by the opposite party, an obligation is cast u/s.35 of the Act on the court or the authority receiving evidence, to impound the document and collect duty and penalty. Thus a document which is not duly stamped becomes a valid document if duty and penalty is paid post execution of the document. But if a document is compulsorily registrable, the defect cannot be cured even if it is admitted in evidence and it cannot be looked into.
9. In this background no doubt Clause 52 of the lease agreement contains an arbitration clause. An agreement of arbitration is not compulsorily registrable. It also does not require to be stamped. By virtue of Section 16 of the Act an arbitration clause in an agreement
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can be treated as a separate agreement and it can have an independent existence. Even if the contract is void and the arbitration clause is contained in such void contract in view of Section 16 that arbitration clause would not become void, it can survive as an independent contract. Therefore, in the instant case though the lease agreement requires to be compulsorily registrable and not registered, Clause 52 of such a contract could independently exist and the arbitration clause could be enforced. But, the question is, if the arbitrator has to adjudicate a dispute arising out of the very same contract which is inadmissible in evidence for want of registration even if the arbitrator enters upon reference, he cannot adjudicate the dispute because the terms of contract which is sought to be enforced before him are contained in an
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unregistered document and therefore, it can be a futile exercise. Following the judgment of the Apex Court in S.M.S.Tea Estates Pvt.Ltd. the Arbitrator rightly rejected the dispute as not maintainable and the learned Dist. Judge was justified in upholding such an order. The order passed by the learned Arbitrator and the learned Judge is in conformity with the law laid down by the Apex Court and there is no infirmity in the order which calls for interference by this Court in its appellate jurisdiction u/s.37 of the Act.
No merit. Dismissed.
SD/-
JUDGE SD/-
JUDGE rs