Delhi District Court
Nishtha Enterprises vs Mirik Healthfoods Pvt Ltd on 19 November, 2022
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court)03, Patiala House Courts
New Delhi
CS (Comm)No. 591/21
1. Nishtha Enterprises
C/o Maheshpur, Lahartara,
GT Road, Varanasi,
UP- 221106
Also at:
R/o 299, GT Road, Maheshpur,
Industrial Estate (Varanasi), UP- 221106
2. Santosh Kumar Rastogi
S/o Sh. A. Raghunathji Rastogi,
C/o Maheshpur, Lahartara,
GT Road, Varanasi,
UP- 221106
Also at:
R/o 299, GT Road, Maheshpur,
Industrial Estate (Varanasi), UP- 221106
... Plaintiffs
Versus
1. Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
New Delhi-110001
Also at:
D-128, Basement, Sector 3,
DSIDC, Bawana Industrial Area,
Delhi-110039
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.1 of 23
2. Shashi Bhushan Sinha,
S/o Vinod Kumar Sinha,
Managing Director,
M/s Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
New Delhi-110001
3. Awadhesh Kumar Tiwary
S/o Mukh Lal Tiwary,
Director,
Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
New Delhi-110001
4. Vinod Dubey,
General Manager,
Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
New Delhi-110001
5. Rakesh Kumar Sharma
S/o Babban Prasad,
Area Sales Manager,
Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
New Delhi-110001
Also at:
S.17/95, A-15, Laxmi Ghat,
Nadesar, Varanasi, Uttar Pradesh-221002
6. Pawan Sharma
S/o Sudesh Kumar Sharma
Finance Manager
Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.2 of 23
New Delhi-110001
7. Amit Sahoo
Assistant Manager
Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
New Delhi-110001
8. Vijay Singh
Assistant Manager
Mirik Healthfoods Pvt Ltd
105, First Floor, New Delhi House,
27, Barakhamba Road,
New Delhi-110001
..... Defendants
Date of institution : 14.12.2021
Date of decision : 19.11.2022
JUDGME NT
1. This suit for recovery of a sum of Rs. 37,62,996/- along with
interest has been filed by the plaintiff, Nishtha Enterprises against
the defendants Mirik Health Foods Pvt Ltd and ors.
2. Briefly, the facts as alleged in the plaint are that plaintiff no.1,
of which, plaintiff no.2 was the proprietor used to run wholesale
and retail business of ayurvedic medicines from MaheshPur,
Lahartara, GT Road, Varanasi, UP. Defendant no.1 was a
company which had its registered office at Sector 3, DSIDC,
Bawana Industrial Area, Delhi and its corporate office at 105, First
floor, 27, Barakhamba Road, New Delhi. Defendant no.2 was the
Managing Director, defendant no.3 was the Director, defendant
no.4 was the General Manager of the company, defendant no.5
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.3 of 23
was Area Sales Manager of the company, defendant no.6 was the
Finance Manager, defendant no.7 and defendant no.8 were the
Assistant Managers of the company.
3. It is alleged that in July, 2016, defendants came to the office of
plaintiff no.1 and held a meeting where officials of defendant
no.1 were also present. In that meeting, it was offered by the
defendant no.1 that if plaintiffs becomes the C & F (carrier and
forward) agent, it will provide certain facilities i.e. 2% on the
price of ayurvedic and pharmaceuticals products. The bills of
telephone in the office of the plaintiff, courier charges and rent for
the godown to be used for storage and distribution of ayurvedic
and pharmaceutical products for defendant no.1 would also be
paid. Defendant no.1 also offered to pay monthly salaries of the
persons to be employed by plaintiff for the office work, computer
work and any other work. It was however stated that the plaintiff
would be required to give a security of Rs. 24.0 lakhs for the
goods to be kept in godown and that the address of the retailers
would be provided by defendant no.1. The defendant also assured
that plaintiff would receive interest on security deposit from the
defendant. The plaintiff vide email dated 09.07.2016 then agreed
to become the C & F (carrying and forwarding) agent of defendant
no.1 in Uttar Pradesh.
4. The plaintiff got prepared the demand drafts dated 13.07.2016
bearing nos. 853191 and 853192 for Rs. 6.0 lakh each in favour of
the defendant. An agreement dated 14.07.2016 was prepared by
the officials of the defendant no.1 which plaintiff no.2 signed.
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.4 of 23
The agreement contained the terms and conditions which interalia
provided that the second party (plaintiff) shall deposit Rs. 24.0
lakhs with the first party (defendant) and the first party shall pay
interest @6% per annum to the second party on quarterly basis on
the said sum. The agreement also provided other terms and
conditions including Clause no.5 which related to service charges
and reimbursement as per which, first party shall pay the services
charges @ 2% on sales to the second party, the first party shall
reimburse the expense of telephone and courier service charges to
the second party, on the basis of actual business done by the
second party for the first party from the date of its actual
operation, first party shall reimburse a monthly godown rent for
storage of goods by the second party, first party shall reimburse
the delivery charges monthly on account, to the second party,
Freight of the good on FOR basis to main godown shall be borne
by the first party and thereafter outward freight will be reimbursed
on actual basis by the first party to the second party, all the
direct/indirect taxes shall be borne/reimbursed by the first party
and all the incentives, service charges and or any other claims of
the second party shall be reimbursed by the first party on a
monthly basis.
5. It is alleged that pursuant to the agreement dated 14.07.2016,
plaintiff took a premises/godown on rent at Rs. 8000/- per month
from August, 2016. Plaintiff also employed two persons namely
Jitendra Yadav and Santosh Singh on a salary of Rs. 15000/- per
month and Rs. 12000/- per month from 01.08.2016 for the work
of C & F of defendant.
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.5 of 23
6. It is alleged that plaintiff sent mails/speed post to the company
requesting it to send goods but the company dishonestly induced
the plaintiff to sign and handover Form 38 of the plaintiff's firm
and finally, on 01.08.2016 sent some good through speed post
which were received by the plaintiff on 10.08.2016, invoice of
which was mailed to the plaintiffs. However, the expense of builty
of Rs. 7996/- was not paid by the defendants as per its assurance
and the same had to be paid by the plaintiffs which thereafter was
reimbursed by the defendants.
7. It is alleged that for marketing and promoting the products,
plaintiff approached the defendants but the defendants after
10.08.2016, did not send any goods including salesman etc and
the products/goods remained lying in the godown in the same
condition. It is alleged that after some time, plaintiff received
three envelopes having pamphlets of the product details of
defendants without any covering letter for which, plaintiff vide
letter dated 02.09.2016 sought clarification but the defendants did
not respond to the mail. It rather asked the plaintiff to prepare rent
agreement and send it through courier for signature which the
plaintiff sent but it was never signed nor was sent back. It is
alleged that the plaintiff on many occasions, requested the
defendants to employ persons for promotion/sales as per the
agreement but defendants ignored/disregarded the request and
never made any payment towards the rent, salary, office expenses
and interest. Being tired of chasing defendant no.1, plaintiff sent
mail dated 08.10.2016 for rescinding of the agreement and refund
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.6 of 23
of the security deposit but the defendants did not respond. The
plaintiff again on 10.0.2016, sent mail requesting for refund of
security deposit and settling the matter and also visited the office
of the defendants and sent mails dated 08.02.2017, 21.03.2017,
13.04.17, 29.05.2017 but the defendants did not give any
response. It is alleged that the plaintiff incurred huge loss
including expenditure i.e. Rs. 1.0 lakh on the fitting and furnitures
and Rs. 6996/- towards courier charges.
8. It is alleged that the defendants had this modus operandi and
with that modus, they entered into agreements with number of
persons/companies and took huge sums of money as security for
providing C & F as detailed in para 24 and 25. It is alleged that the
defendants did not have any business and have cheated the public
at large by entering into false agreements and taking huge sums of
money as security for providing C & F.
9. It is stated that the defendants appointed Sh. Feroze Ahmed,
Advocate as the Sole Arbitrator at New Delhi in the said matter
who vide letter dated 19.10.2016 informed the plaintiff about his
appointment, however, did not take any consent from the plaintiff.
10. It is alleged that plaintiffs filed a complaint which led to
registration of FIR no. 492/17 dated 08.09.2017 at P.S
Manduwadih under Section 419/420/406/403/504/506 IPC against
the defendant no.1.
11. It is stated that plaintiffs on receipt of notice of appearance
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.7 of 23
dated 06.04.2017 from the Arbitrator in Arb. Petition No. 1/2017,
contested the matter by filing written statement/reply and the
counter claims. The plaintiffs also challenged the appointment of
the Arbitrator by filing application dated 08.05.2018 for rejection
of claim petition. It is stated that the Arbitrator did not pass any
effective order with regard to any of its applications in the petition
and by virtue of Section 29A of the Act, the mandate of the
arbitrator stood terminated.
12. It is alleged that till date, defendants have not refunded the
security and other amounts as stated in para 38 which they are
liable to pay with interest.
13. Summons of the suit were sent to the defendants however,
they refused to receive the summons and were proceeded against
exparte vide order dated 29.03.2022.
14. To prove its case, plaintiff examined Sh. Santosh Kumar
Rastogi, proprietor of the plaintiff company as PW-1. He tendered
his affidavit in evidence and placed on record the documents i.e.
internet copy of the company master data of defendant no.1
Ex.PW-1/1, copy of aadhar card, PAN card and registration
certificate Ex.PW-1/2, Ex.PW-1/3 and Ex.PW-1/4, email dated
09.07.2016 along with attachments Ex.PW-1/5, bank receipt
regarding preparation of DDs in favour of defendant no.1 Ex.PW-
1/6, acknowledgment of DD bearing nos. 853191 and 853192
dated 13.07.2016 of Rs. 6.0 lakh Ex.PW-1/7 (colly), agreement
dated 14.07.2016 Ex.PW-1/8, certificate regarding encashment of
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.8 of 23
demand drafts along with attachments Mark PW-1/9, copy of
statement of account of plaintiff no.1 firm for the period of
01.07.2016 to 31.07.2016 Ex.PW-1/10, salary slips of employee of
godown keeper Jitendra Yadav from 01.08.2016 Ex.PW-1/11
(colly), salary slips of employee of godown keeper namely
Santosh Singh Ex.PW-1/12 (colly), copies of bill of expense of the
builty dated 10.08.2016 along with receiver copy dated
12.08.2016 Mark PW-1/13, email dated 02.09.2016 along with
attachment letter Ex. PW-1/14, rent agreement between the
landlady Smt. Poonam Rastogi and plaintiff no.2 on behalf of
defendant no.1 Mark A, courier receipt dated 15.09.2016 Ex.PW-
1/15, rent receipts from the month of August 2016 till June 2021
Ex.PW-1/16 (colly), copy of letter/email dated 08.10.2016 Ex.PW-
1/17 (colly), email dated 18.10.2016 Ex.PW-1/18, email dated
03.11.2016 sent by defendant no.1 company to the plaintiff no.2
along with scanned letter dated 19.10.2016 Ex.PW-1/19 (colly),
emails/letters dated 08.02.2017, 21.03.2017, 13.04.2017 and
29.05.2017 along with its attachment Ex.PW-1/20 (colly), copies
of the electricity bills along with receipts Ex.PW-1/21 (colly),
copy of invoice dated 19.05.2017 for purchase of office material
Mark PW-1/22, copies of telephone bills Ex.PW-1/23 (colly),
certified copy of FIR No. 492/17 Ex.PW-1/24, certified copy of
FIR no. 492/17 Ex.PW-1/25, copy of order dated 28.02.2018 of
the High Court in Crl. Misc WP No. 5242/18 Ex.PW-1/26, copy of
order dated 05.03.2018 of High Court in Crl Misc WP No.
3915/18 Ex.PW-1/27, copy of ordersheet in connection with FIR
No. 492/17 Ex.PW-1/28, copies of warrants under Section 82
Mark B, copies of the ordersheet of the Arbitrator in Arb Case No.
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.9 of 23
01/17 Mark C, office copy of the application under Section 29A of
the Arbitration and Conciliation Act Ex.PW-1/29, letter dated
07.03.2020 sent to the arbitrator along with postal receipt and
track report Ex.PW-1/30, company master data of the Miric
Biotech Ltd Ex.PW-1/31, certified/dasti copy of the order sheet of
PIM dated 09.07.2021 Ex.PW-1/32 and certificate under Section
65B of the Evidence Act Ex.PW-1/33.
15. I have heard the arguments advanced by Ld. Counsel Sh.
Sanjib Dutta for the plaintiff and perused the record.
16. A perusal of record reveals that pursuant to Clause 10 of the
Agreement Ex.PW-1/8 for resolution of dispute through
arbitration, the defendants had appointed Sh. Feroze Ahmed as the
arbitrator, who sent notice to the plaintiffs and started the arbitral
proceedings. The plaintiff had filed the reply and the counter
claims. On 17.01.2019, the plaintiff filed an application under
Section 29A of the Act r/w 151 CPC stating that though the
arbitrator was appointed vide letter dated 19.10.2016 but he did
not pass the award within the period of 12 months or the extended
period of 6 months and as such, his mandate expired to carry
forward the arbitral proceedings. The plaintiff also sent letter
dated 07.03.2020 Ex.PW-1/13 to the arbitrator requesting to
dispose of the application under Section 29A, however, no order
was passed by the arbitrator nor any proceeding was conducted by
the arbitrator as evident from the record.
17. In this case, vide proceedings dated 10.05.2022, it was
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.10 of 23
observed that there existed an arbitration clause in the agreement.
Accordingly, a preliminary issue as to the maintainability of the
suit in view of the provisions contained in Section 8 of the
Arbitration and Conciliation Act was framed.
18. Arbitration is an alternate dispute resolution mechanism to
provide for an expeditious adjudication of disputes. By virtue of
the Arbitration and Conciliation (Amendment Act), 2015, certain
other provisions were also introduced in the act to provide for the
time limit for making the arbitral award. Section 29A of the Act
was introduced which specifically provides that an arbitral award
would be made within a period of 12 months from the date the
arbitral tribunal enters upon reference. One of the objects of the
act is to provide for an expeditious resolution of disputes in a time
bound manner. In BSNL and anr v/s Nortel Networks India
Private Limited, Civil Appeal Nos. 843-844 of 2021, dated
10.03.2021, the Supreme Court had observed that the act has
amended twice over in 2015 and 2019, to provide for further time
limits to ensure that the arbitration proceedings are conducted and
concluded expeditiously.
19. Section 29A of the Arbitration and Conciliation Act reads as.
29A. Time limit for arbitral award- (1) The award shall be made
within a period of twelve months from the date the arbitral
tribunal enters upon the reference.
Explanation- For the purpose of this sub-section, an arbitral
tribunal shall be deemed to have entered upon the reference on
the date on which the arbitrator or all the arbitrators, as the case
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.11 of 23
may be, have received notice, in writing, of their appointment.
(2) If the award is made within a period of six months from the
date the arbitral tribunal enters upon the reference, the arbitral
tribunal shall be entitled to receive such amount of additional
fees as the parties may agree.
(3) The parties may, by consent, extend the period specified in
sub-section (1) for making award for a further period not
exceeding six months.
(4) If the award is not made within the period specified in the
sub-section (1) or the extended period specified under sub-
section (3), the mandate of the arbitrator(s) shall terminate unless
the Court has, either prior to or after the expiry of the period so
specified, extended the period:
Provided that while extending the period under this sub-section,
if the Court finds that the proceedings have been delayed for the
reasons attributable to the arbitral tribunal, then, it may order
reduction of fees of arbitrator(s) by not exceeding five percent
for each month of such delay.
(5) The extension of period referred to in sub-section (4) may be
on the application of any of the parties and may be granted only
for sufficient cause and on such terms and conditions as may be
imposed by the court.
(6) While extending the period referred to in sub-section (4), it
shall be open to the court to substitute one or all of the
arbitrators and if one or all of the arbitrators are substituted, the
arbitral proceedings shall continue from the stage already
reached and on the basis of the evidence and material already on
record, and the arbitrator (s) appointed under this section shall be
deemed to have received the said evidence and material.
(7) In the event of arbitrator(s) being appointed under this
section, the arbitral tribunal thus reconstituted shall be deemed to
be in continuation of the previously appointed arbitral tribunal.
(8) It shall be open to the court to impose actual or exemplary
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.12 of 23
costs upon any of the parties under this section.
(9) An application filed under sub-section (5) shall be disposed
of by the Court as expeditiously as possible and endeavour shall
be made to dispose of the matter within a period of sixty days
from the date of service of notice on the opposite party.
20. On a reading of Section 29A of the Act, I find that the award
shall be made within a period of 12 months from the date, the
arbitral tribunal enters upon the reference. The parties may, by
consent, extend the period, for making award for a further period
not exceeding six months and if the award is not made within the
period or the extended period, the mandate of the arbitrator shall
terminate unless the court has, either prior to after the expiry of
the period so specified, extended the period and the extension may
be on the application of any of the parties and may be granted only
for sufficient cause and on such terms and conditions. While
extending, it shall be open to the court to substitute one or all the
arbitrators and the arbitral proceedings shall continue from the
stage already reached. Where the mandate of an arbitrator
terminates, a substitute arbitrator shall be appointed according to
the rules.
21. In the case of Republic of India through Ministry of Defence
v/s M/s Agusta Westland International Limited, CS (Comm)-
9/2019, the plaintiff filed a suit seeking declaration and permanent
injunction to the effect that mandate of arbitral tribunal has been
terminated in terms of Section 29A of the Act and for restraining
the defendant from continuing with the arbitration
proceedings.............. During the arguments, the counsels for the
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.13 of 23
defendant submitted without prejudice to the rights and
contentions of the defendant that they have instructions to
withdraw the claims filed before the arbitral tribunal in view of the
challenge by the plaintiff and pursue its remedies in accordance
with law by filing a civil suit in India. It was also submitted that
plaintiff cannot have any objection if the defendant wishes to
withdraw the arbitral proceedings and pursue its remedies in law
provided the same is maintainable. On the submissions made on
behalf of the defendant, the suit was disposed of with the
directions that the defendant's claims filed before the arbitral
tribunal are treated as withdrawn with liberty given to defendant
to file a civil suit in India, in accordance with law. It was also
ordered that defendant may intimate this order to the arbitral
tribunal within one month. It was ordered that the proceedings
before the arbitral tribunal shall stand terminated with liberty as
aforesaid.
22. It is well settled law that even if an agreement contains an
arbitration clause, the parties may resort to taking action under the
Code of Civil Procedure qua recovery, declaration etc. If one of
the parties to the suit files a suit for recovery or any other
relief/initiates the proceedings before the court or judicial
authority and if the other party fails to file the written statement in
terms of Order 8 Rule 1 of CPC r/w Commercial Court Act, 2015
or fails to file an application under Section 8 (1) of the Act for
referring the parties to arbitration within the time available or
granted for filing the first statement on the substance of the
dispute (which would include a written statement in the context of
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.14 of 23
a suit), the party would forfeit its right to apply under Section 8
(1) of the Act. In the case of Alok Kumar Lodha v/s Asian Hotels
(North) Limited, RFA OS (Comm)13/2020, decided on 24.12.2020,
it was held that the application contemplated by Section 8 (1) of
the Act is a written application and not an oral application, so that,
other side knows exactly the grounds on which the reference is
sought; ii) that the language of Section 8 (1) and 8 (2) indicate that
application i.e. contemplated is a written application and not an
oral application; iii) that one of the aspects to be considered by the
court while considering an application for referring the parties to
arbitration is that the subject matter of the action is the same as the
subject matter of arbitration agreement and which will involve
reference to the context to the claim as also to the arbitration
agreement and the manner in which the applicant wants the court
to read the averments made in the plaint as also the recital in the
arbitration agreement.............It was also held that law is even
otherwise well settled, that an arbitration agreement is not a bar at
the threshold to the filing of a suit. There is no provision in any
law or even in the Arbitration Act, to that effect. Thus, even if the
plaintiff himself in the plaint pleads existence of an Arbitration
agreement covering the disputes by way of suit and/or himself
along with the plaint files the arbitration agreement, a perusal
whereof shows the subject matter of the suit to be a subject matter
of an arbitration agreement, the court before which the suit is
brought, still cannot reject/written the plaint as under Order VII
Rule 10 or Rule 11 of the CPC and has to, if otherwise satisfied,
necessarily issue summons of the suit. The arbitration agreement
relating to the subject matter of a dispute brought by way of a suit,
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.15 of 23
becomes a bar to the suit only when the defendant applies for the
parties to be referred to arbitration. If the defendant does not apply
in the manner provided, notwithstanding the arbitration
agreement, the suit has to be proceeded with.
23. In the present suit, the defendants pursuant to the service of
summons did not appear nor contested the suit and were
proceeded against exparte vide order dated 29.03.2022. In this
case, no written statement nor the application under Section 8 of
the Arbitration and Conciliation Act, 1996 was filed for referring
the dispute to arbitration in view of Clause 10 of the Agreement
within the time frame as mandated under Order 8 Rule 1 CPC r/w
Commercial Courts Act, 2015.
24. In the case of SSIPL Lifestyle Private Limited and Ors v/s
Vama Apparels (India) Private Limited and ors, CS (Comm)-
735/2018, decided on 19.02.2020, question arose before the court
whether there is a limitation period prescribed for filing of an
application under Section 8 of the Arbitration and Conciliation Act
or whether the limitation for filing of the written statement as
prescribed in CPC and also the Commercial Court Act, 2015
would be applicable for filing of Section 8 application. It was held
that since in the present case, defendants failed to file the
application under Section 8 within the prescribed period, their
applications under Section 8 are dismissed.
25. In the present case, the defendants never contested the suit nor
filed the written statement nor the application under Section 8 of
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.16 of 23
the Arbitration and Conciliation Act. The plaintiff had already
filed the counter claims in the arbitral proceedings relating to the
present dispute but the proceedings could not be concluded within
the time as mandated under Section 29 A of the Arbitration and
Conciliation Act.
26. In the case of Alstom T & D India ltd v/s Texcel International
Pvt Ltd, CMA No. 3683 of 2019, decided on 31.01.2020, it was
held that where the party approaches the Civil Court for redressal
of dispute and the defendant, who alleges that there is an
arbitration clause for resolution of disputes arising between them,
should be prudent enough to follow conditions enumerated under
Section 8 of the Act. As Section 8 is the only provision in the Act
which entitles a party seeking a referral through arbitration, in a
pending suit. Even if there is arbitration agreement between the
parties, the onus is on the party claiming to have approached the
court under Section 8 of the Arbitration and Conciliation Act,
1996.
27. In the case of SPML Infra Ltd v/s Trisquare Switchgears Pvt
Ltd, FAO (Comm)-81/2022 dated 06.07.2022, the court referred
Section 8 of the Act and held that the legislative intent to
introduce the words 'not later than the date of' clearly stipulates a
framework of time within which an application under Section 8
(1) of the Act can be made. This amendment to Section 8 cannot
be considered in isolation. It was held that if a party fails to file an
application under Section 8 (1) of the Act for referring the parties
to arbitration within the time available or granted for filing the
CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.17 of 23
first statement on the substance of the dispute (which would
include a written statement in the context of a suit), the party
would forfeit its right under Section 8 (1) of the Act.
28. In the present case, the defendants have not filed any
application under Section 8 of the Act after termination of
mandate. Though initially, the arbitral proceedings had
commenced pursuant to the arbitration clause contained in the
agreement, parties had filed the statement of claims/reply/counter
claims and led the evidence but since the arbitral proceedings
could not be concluded within the time limit as provided under
Section 29A of the Act or even within the extended time. The
plaintiff had moved an application under Section 29A of the Act
which was not disposed of by the arbitrator nor the arbitrator
conducted the further proceedings. As such, the mandate of the
arbitrator stood terminated. Thereafter, none of the parties got
extended the period as no such steps in view of Section 29 A (4),
29 A (5) and 29 A (6) and 29 A(7) were taken by either of the
parties including the respondent/counter claimant i.e. plaintiff
herein. No application was moved for appointment of fresh arbitrator under Section 11 of the Act.
29. In the instant case, the plaintiff thereafter filed the civil suit for recovery which was never contested by the defendant as the defendants failed to file the written statement within the time frame nor filed any application under Section 8 of the Act for referring the dispute for arbitration within the time frame as mandated under Order 8 Rule 1 CPC r/w Commercial Courts Act, CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.18 of 23 2015.
30. I am of the view that the civil suit for recovery filed by the plaintiff is maintainable in its present form.
31. The preliminary issue is accordingly decided in favour of the plaintiff and against the defendant.
32. Now coming to the merits of the case, testimony of PW-1 shows that the plaintiff entered into agreement with defendants Ex.PW-1/8 dated 14.07.2016 whereby defendant had agreed to give C & F agency for marketing/trading of pharma products. As per the terms and conditions contained in the agreement, the plaintiff had to hold the godown of the first party at Varanasi, UP from where it would dispatch the goods and raised the bills. In terms of Clause 4 of the Agreement Ex.PW-1/8, it had deposited Rs. 12.0 lakhs with defendants as security vide Demand Drafts dated 13.07.2016 Ex.PW-1/7, which are also reflected in the statement of accounts of the plaintiff maintained with Allahabad Bank Ex.PW-1/10. The accounts show that the said amount was transferred to the defendant.
33. Clause 5 of the Agreement provides that the defendant shall pay the service charge @ 2% on sales to the plaintiff. It shall reimburse/pay the expenses of telephone and courier charges services, monthly godown rent for storage of goods, accounts and delivery charges, freight of the goods on FOR basis to the main godown, direct and indirect taxes and all other incentive/service CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.19 of 23 charges including insuring of the godown and fulfiling the norms of sales tax registration, license fees etc to the plaintiff.
34. As evident from the testimony of PW-1 and the record, the plaintiff had taken the godown on rent vide rent agreement Mark A. He proved the payment vouchers in respect of rent of the godown for the period from August 2016 till June 2021 Ex.PW- 1/16 (colly), salary slips of employee of godown keeper namely Jitendra Yadav and Santosh Singh Ex.PW-1/11 (colly) and Ex.PW- 1/12 (colly) and stated that the defendants did not honour the agreement as they failed to pay/reimburse the amount in terms of Clause 5 of the Agreement. PW-1 proved the email dated 09.07.2016 Ex.PW-1/5, email dated 02.09.2016 Ex.PW-1/14, letter/mail dated 08.10.2016 Ex.PW-1/17 (colly), email dated 18.10.2016 Ex.PW-1/18, email dated 03.11.2016 Ex.PW-1/19, emails/letters dated 08.02.2017, 21.03.2017, 13.04.2017 and 29.05.2017 Ex.PW-1/20 (colly). He also proved the bill of expense of builty dated 10.08.2016 along with receiver copy Mark PW- 1/13, electricity bills Ex.PW-1/21 (colly), invoice dated 19.05.2017 for purchase of office material Mark PW-1/22, telephone bills Ex.PW-1/23 (colly). He stated that when the defendants did not make the payment, it made the complaints. He proved the copy of complaint in FIR No. 492/17 Ex.PW-1/24 and Ex.PW-1/25. He has stated that defendants had initiated the arbitration in terms of the agreement. He proved the copy of application under Section 29A filed by the plaintiff Ex.PW-1/29, Company Master Data of Mirik Biotech Ltd Ex.PW-1/31 and the certificate under Section 65B of the Evidence Act Ex.PW-1/33.
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35. From the unrebutted testimony of PW-1 and the record, it is clear that the plaintiff had performed its part of the agreement and paid the security deposit of Rs. 12.0 lakhs to the defendants and also engaged staff and took the godown on rent and did other acts as provided in the agreement but the defendants did not take any action in furtherence of the agreement despite repeated letters and reminders.
36. The statement of accounts shows that last payment made to the staff/rent was on 31.03.2017. This suit for recovery has been filed on 14.12.2021. Though the limitation of three years for filing this petition expired on 30.03.2020 and this suit has been filed on 14.12.2021 but in view of the judgment in writ petition No. 03/2020 of the Supreme Court, vide which the limitation has been extended for filing the suits till March 2022, this suit is maintainable and is not barred by limitation.
37. For the aforesaid discussions, I am of the view that plaintiff is entitled to the amount as claimed i.e. Rs. 12.0 lakhs towards security, demand draft charges Rs. 4200/-, annual interest @ 6% on Rs. 12.0 lakhs from 07.09.2016 to 06.12.2018 i.e. Rs. 1,62,000/-, godown rent i.e. Rs. 4,72,000/-, salary of godown keepers from 07.09.2016 to 06.12.2018 amounting to Rs. 7,56,000/-, electricity bills, invoice for purchase of office material and telephone bills amounting to Rs. 51810/-, total amounting to Rs. 26,46,010/-.
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38. As to the interest, plaintiff has claimed pendentelite and future interest @ 18% per annum, however, same appears to be on the higher side. I am of the view that interest @10% per annum would be reasonable rate of interest. Hence, I grant pendentelite and future interest @ 10% per annum on the said amount.
39. In this case, plaintiff has impleaded defendant no.2 as Managing Director, defendant no.3 as Director, defendant no.4 as General Manager (Operations),defendant no.5 as Area Sales Manager, defendant no.6 as General Manager, defendant no.7 as Assistant Manager and defendant no.8 as Assistant Manager of defendant no.1. It was held in case of Tristar Consultants v/s M/s Vcustomer Services India P. Ltd and Anr, MANU/DE/4031/2013 decided on 05.03.2007 in CRP No. 365/2006 that company is a juristic person. The decisions on behalf of the company are taken by the Board of Directors of the company. An individual director has no power to act on behalf of a company of which he is a director, unless there is a specific resolution of the board of directors of the company giving specific power to him or where the articles of company confer such a power. Directors of the company have been described as agents, trustees or representatives of the company because of the fact vis-a-vis the company they act in a fiduciary capacity. They owe no fiduciary or contractual duties or any duty of care to third parties who deal with the company. They cannot be treated as acting as agents of the company. Reference is made of Section 230 of the Indian Companies Act where it was held that unless an agent personally binds himself, an agent is not personally liable for contracts CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.22 of 23 entered into by him on behalf of his principal.
Reference is made of the case, Mukesh Hans and Anr v/s Smt. Uma Bhasin and Ors, RFA 14/2010, decided on 16.08.2010 wherein it was held that a director of a company owes a fiduciary duty to the company. He owes no contractual duty qua third parties. It was held in the case titled as Faith Mercantile Pvt Ltd v/s Simbhaoli Sugars Ltd and Ors, OA No. 166/2017, decided on 20.08.2018 that Directors of the company are agents, trustees or representatives of the company, thus, they are not personally liable. In the instant case, there is no allegation of fraud against the directors. The plaint narrates the facts and events which the defendant no.2 to 5 had undertaken as agents/directors of the defendant company. That being the position, defendant no.2 to 5 are neither the necessary nor proper parties for adjudication of the disputes. Their name be deleted from the array of parties.
40. In the light of what has been stated above, the suit of the plaintiff is decreed in its favour and against the defendant no.1 for Rs. 26,46,010/- along with pendente lite and future interest @ 10.00% per annum with costs.
41. Decree sheet be prepared accordingly. File be consigned to record room.
Announced in the open court on 19.11.2022.
(Sanjiv Jain) District Judge (Commercial Court)-03 New Delhi CS (Comm) No. 591 /21 Nishtha Enterprises v/s Mirik Health Foods Pvt Ltd Page No.23 of 23