Karnataka High Court
Smt Rashmi Solanki vs Sri B S Sham Sunder on 11 September, 2015
Author: A.V.Chandrashekara
Bench: A.V.Chandrashekara
1
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 11TH DAY OF SEPTEMBER 2015
BEFORE
THE HON'BLE MR. JUSTICE A.V.CHANDRASHEKARA
WRIT PETITION NOs.27600-601/2015 (GM-CPC)
BETWEEN:
SMT. RASHMI SOLANKI
AGED ABOUT 56 YEARS
D/O AIR COMMANDER
LATE JAGADEVA CHANDRA
R/O AT T.3, ORCHID APARTMENTS
10TH CROSS, 1ST MAIN,
GREEN PARK LAYOUT
BANASWADI
BANGALORE- 560 046.
...PETITIONER
(BY SRI. K. SUMAN, ADV.)
AND:
SRI. B.S. SHAM SUNDER
AGED ABOUT 57 YEARS
S/O LATE SADASHIVAIAH
R/O SRISTI RESIDENCY
2
MAGADI ROAD
AGRAHARA DASARAHALLI CIRCLE
BANGALORE- 560 040
...RESPONDENT
(BY SRI.B.M. SHYAM PRASAD SR. ADV. FOR
SRI. G. B. SHARATH GOWDA, ADV.)
THESE WRIT PETITIONS ARE FILED UNDER
ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA
PRAYING TO SET ASIDE THE ORDER DATED 28.3.2015
VIDE ANN-C, PASSED BY THE SENIOR CIVIL JUDGE
AND JMFC., MAGADI IN O.S. NO.55/2015 WHERE
UNDER THE COURT BELOW HAS GRANTED THE
INTERIM ORDER RESTRAINING THE PETITIONER
FROM ALIENATING THE SUIT SCHEDULE PROPERTY
AND THE ORDER DATED 22.6.2015 VIDE ANN-F,
PASSED BY THE SENIOR CIVIL JUDGE AND JMFC
MAGADI IN O.S. NO.55/2015 REJECTING I.A. NO.3
FILED BY THE PETITIONER UNDER SECTION 8(1) OF
THE ARBITRATION AND CONCILIATION ACT AND TO
CONSEQUENTLY ALLOW I.A. NO.3 AS PRAYED FOR BY
THE PETITIONER.
THESE PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 29.07.2015 COMING ON
FOR PRONOUNCEMENT OF ORDERS THIS DAY,
A.V.CHANDRASHEKARA, J., MADE THE FOLLOWING:
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ORDER
Both these petitions filed under Article 227 of Constitution of India are directed against the order dated 28.3.2015 and 22.6.2015 passed by the learned Senior Civil Judge & JMFC, Magadi in O.S.55/2015. Several grounds have been urged in these petitions.
2. The petitioner in these petitions is the lone defendant in the said suit bearing O.S.55/2015 filed by the respondent herein for the relief of specific performance of contract based on an agreement stated to have been executed by the defendant on 19.6.2013 in his favour.
3. Parties will be referred to as plaintiff and defendant as per their ranking before the trial court in O.S.55/2015.
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4. The fact leading to the filing of these petitions are as follows:
The case of the plaintiff is that defendant, who is the petitioner herein has executed an agreement of sale dated 19.6.2013 agreeing to execute the regular sale deed in respect of converted lands in erstwhile Sy.Nos.4, 5, 6 and 7 of Varthur Narsipura Village, Tavarekere Hobli, Bangalore South Taluk and converted agricultural lands in erstwhile Sy.Nos.7, 10 and 13 of Varthur Village, Tavarekere Hoblic, Bangalore South Taluk. The said agreement of sale contains several clauses and one such clause No.12 relates to the resolution of any dispute arising between the parties relating to agreement of sale only through Arbitration and Conciliation Act, 1996 only.
5. Inspite of several demands, defendant did not come forward to execute regular sale deed in 5 terms of the agreement of sale and therefore, plaintiff was constrained to file a suit for relief of specific performance before the court of Civil Judge & JMFC Magadi.
6. Soon after filing of the suit, notices and summons were issued on I.As. to the defendant returnable by 28.3.2015. On 28.3.2015, defendant No.1 appeared and requested the court to permit him to file objections to the application filed under Order 39 Rules 1 and 2 of CPC. Counsel for the plaintiff insisted for passing an order on I.A. filed under Order 39 Rules 1 and 2 of CPC and to restrain the defendant from alienating the suit property till the next date of hearing. Therefore, the learned Judge chose to grant an order of temporary injunction against alienation to be in force till 9.4.2015. 6 Subsequently, the interim order was extended from time to time.
7. In the meantime, the application i.e., I.A.3 was filed in terms of Section 8(1) of Arbitration and Conciliation Act, 1996 by the defendant and supported by the affidavit sworn to by him. As per clause-12 of the agreement of sale, any dispute arising between first and second party with regard to the sale will have to be referred to a single arbitrator to be appointed by both the parties mutually. This application was filed before filing of the written statement, requesting the court to refer the matter to arbitration. Objections were filed to the application bearing I.A.3 by the plaintiff. After hearing the learned counsel for the parties, the learned Judge has chosen to dismiss I.A.3 vide 22.6.2015. It is this 7 order, which is called in question on various grounds as set out in the memorandum of petition.
8. Both the learned counsel for the parties have submitted their arguments at length and have relied upon number of decisions of Hon'ble Apex Court. After going through the records and hearing the arguments of the learned counsel for the parties:
1) When all the requirements of Section 8 of Arbitration and Conciliation Act, 1996 are complied with, whether refusal to refer the matter to the arbitration under Section 8 of the Act is justified on the ground that the vendor has created third party right by alienating the entire portion of the schedule land prior to or after the filing of suit for specific performance of contract ?
2) Whether the trial court is justified in extending the order of temporary injunction granted against alienation of the suit schedule properties from time to time?8
POINT-(1)
9. Plaintiff has relied upon the agreement of sale stated to have been executed by the defendant in his favour dated 19.6.2013 regarding sale of land measuring 5 acres 5 guntas of converted agricultural land in erstwhile Sy.Nos.4, 5, 6 and 7 and converted agricultural land measuring 9 acres 35 guntas in erstwhile Sy.Nos.7, 19 and 13 of Varthur Narasipura Village, Tavarekere Hobli, Bangalore South Taluk.
10. Consideration agreed between the parties is Rs.40 Lakhs per acre. A sum of Rs.65 Lakhs is stated to have been received by the defendant as advance sale consideration out of the agreed sale consideration by way of cash on the same day of agreement i.e., 19.6.2013. He is stated to have agreed to receive the balance consideration of Rs.5 Crores 35 Lakhs within 4 months from the date of 9 agreement of sale. Clause 12 found in the agreement is in respect of resolution of any dispute through arbitration. The same reads as under:
"Clause 12. In case of any dispute arises between the first party and second party with regard to the sale, arising from this agreement to sell, then such dispute is referred to a single arbitrator mutually appointed by both parties"
11. During the pendency of the suit, defendant has chosen to alienate a portion of the schedule property in favour of one person by name Sri.Byatappa through a registered sale deed. Therefore, plaintiff has filed an application under Order 1 Rule 10(2) of CPC to bring the said Byatappa as necessary party. In this regard, notice has been issued to Byatappa, who has purchased the portion of the schedule property.
12. The fact that application came to be filed under Section 8(1) of Arbitration and Conciliation 10 Act, 1996 by the defendant in the trial court before filing of the written statement is not in dispute. Copy of the application I.A.3 and affidavit sworn to by the defendant are made available. The defendant has sworn to an affidavit stating that it is obligatory on the part of the trial court to refer the parties to arbitration in terms of Clause 12 of the agreement. Objections to I.A.3 disclose that the said agreement does not bind Sri.Byatappa, who has chosen to purchase the property during the pendency of the suit. Therefore, the cause of action cannot be bifurcated. It is mentioned in the objections filed by the plaintiff to I.A.3 that defendant has chosen to alienate 6.15 acres in favour of Sri.Byatappa and that he is a necessary party for effective determination of the dispute.
13. It is argued that Sri.Byatappa is not a party to the agreement of sale dated 19.6.2013 and 11 therefore, covenants found in the agreement of sale do no bind Byatappa and plaintiff has independent right to proceed the case against Byatappa in the civil proceedings. It is argued that the defendant having sold the portion of the property in favour of Byatappa contrary to the covenants of the agreement of sale, entire arbitral clause in the agreement of sale is frustrated and hence, civil court alone is competent to deal with the matter in terms of Section 9 of CPC.
14. The learned Judge has passed a detailed order referring to various decisions cited by the learned counsel before the Court. Necessary reasoning is found in paragraphs 18 and 19 of the order passed by the learned Judge on 22.6.2015. What is observed by the learned Judge is that dispute cannot be bifurcated in respect of defendant 12 and also in respect of C.Byatappa, who has purchased the portion of the property during the pendency of the suit. Hence, it is observed that it is not possible to accept the contention of the defendant. The learned Judge of the trial court has held that the decisions relied upon by the learned counsel for the defendant are not applicable to the facts of the case and decisions furnished by the learned counsel for the plaintiff are applicable to the facts of the case. In the light of third party interest being created during the pendency of the suit and in the light of Byatappa being a necessary party and in the light of application filed under Order 1 Rule 10(2) of CPC, I.A.3 filed under Section 8(1) of Arbitration and Conciliation Act, 1996 is stated to be not maintainable.
15. Section 8 of the Arbitration and Conciliation Act, 1996 is as follows: 13
8. Power to refer parties to arbitration where there is an arbitration agreement.--
(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
16. Section 8 of the Arbitration and Conciliation Act, 1996 contemplates some departures from Section 34 of repealed Arbitration Act, 1940. Section 34 of Arbitration Act, 1940 contemplates the stay of the suit; whereas, Section 8 of the Arbitration and Conciliation Act, 1996 mandates reference. The discretion vested under Section 34 of Arbitration Act, 1940 and that has been taken away by the new Act. 14 Direction to make reference is not only mandatory, but the arbitration proceedings to be commenced or continued and conclusion there on by means of arbitral award remains unhampered by the pendency of the suit.
17. The learned senior counsel Sri.B.M.Shyam Pasad for the respondent herein has relied upon the decision of the Hon'ble Apex Court in the case of Sukanya Holdings (Pvt.) Ltd. v. Jayesh. H.Pandya and another [(2003) 5 SCC 531] to contend that where a suit is commenced in respect of matter which falls partly within the arbitration agreement and partly outside and which involves parties some of whom are parties to the arbitration agreement and some are not so, Section 8 of the Arbitration and Conciliation Act, 1996 is not attracted. It is further held that there is no provision for bifurcating the suit 15 in parts one to be referred to the arbitration for adjudication and other to be decided by the civil court.
18. Another decision of the Hon'ble Apex Court relied upon by the learned counsel for respondent is Rashtriya Ispat Nigam Ltd. and Another v. Verma Transport Co.[(2006) 7 SCC 275]. The learned counsel has further relied upon the decision of Everest Holding Limited v. Syam Kumar Shrivastava and others [(2008) 16 SCC 774] to contend that if there is any dispute between the parties to the agreement arising out of or in relation to the subject matter, all such disputes have to be adjudicated upon and decided through the process of arbitration. Further, in paragraph 24 of the decision rendered in Everest Holding Limited's case, the Hon'ble Apex Court has held that the 16 decision rendered in Sukanya Holdings (P) Ltd. came to be distinguished in a subsequent decision of Apex Court in the case of Rashtriya Ispat Nigam Ltd. v. Verma Transport co. in order to pinpoint the distinction drawn.
19. Reliance is placed on yet another decision of Hon'ble Apex Court in the case of Vidur Impex and Traders Private Limited and others vs. Tosh Apartments Private Limited and Others [(2012) 8 SCC 384]. In the said decision, provisions of Order 1 Rule 10 and 9 of CPC has been discussed with reference to the right of the party to move the civil court inspite of clause regarding arbitration found in the agreement of sale. As per the facts of the said case, there was a transfer of property during the pendency of the suit filed for relief of specific performance. As could be seen from the facts and 17 circumstances of the case, there was suppression of material facts from the purview of the court and therefore, the transferees had ordered to impose cost.
20. The learned counsel for the petitioner Sr.K.Suman has relied upon several decisions in support of the stand taken up by the petitioner and one such decision of the Hon'ble Apex Court is M/s.Sundaram Finance Limited and another v. T.Thankam [2015 (2) Supreme 66]. In paragraph 15 of the said decision, it is specifically held that the Court has to see whether its jurisdiction is ousted and not whether it has jurisdiction. It is further held that if an application has been filed in terms of Section 8 of the Arbitration and Conciliation Act, 1996 after having complied all the requirements, civil court has no option but to refer the parties to arbitration. In the decision of M/s.Sundaram 18 Finance Limited, following decisions have been relied upon:
a) P. Anand gajapathi Raju v. PVG Raju (Dead) [(2002) 4 SCC 539]
b) Hindustan Petroleum Corporation Limited v. Pinkcity Midway Petroleums [(2003) 6 SCC 503]
c) Branch Manager, Magma Leasing and Fianance Limited v. Potluri Madhvilata [(2009) 10 SCC 103]
d) Sukanya Holdings P Ltd. v. Jayesh Pandya [(2003) 5 SCC 531]
e) Orix Auto Finance (India) Limited v.
Jagamandar Singh [(2006) 2 SCC 598]
21. Discussion found in paragraphs 16 and 17 in the case of Sukanya Holdings Pvt. Ltd. has been referred to in paragraph 13 of decision rendered in M/s.Sundaram Finance Limited. The said paragraph 13 in the case of M/s.Sundaram Finance Limited is relevant and same is extracted hereinbelow:
"13.....................
16. The next question which requires consideration is -- even if there is no provision for partly referring the dispute to arbitration, whether such a course is 19 possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed.
17. Secondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and the other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums."20
22. According to the Hon'ble Apex Court in the case of M/s.Sundaram Finance Limited, there is lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statute, the civil court should first see whether there is ouster of jurisdiction in terms or compliance of the procedure under the special statute. It is also made clear that general law should yield to the special law. Paragraph 15 of the said decision is relevant and same is extracted hereinbelow:
"15. Once an application in due compliance of Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statue, the civil court should first see whether 21 there is ouster of jurisdiction in terms or compliance of the procedure under the special statute. The general law should yield to the special law - generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court."
23. In the light of specific observations made by Hon'ble Apex Court in the case of M/s.Sundaram Finance Limited, the approach adopted by the trial court in rejecting the application filed in I.A.3 under Section 8(1) of the Arbitration and Conciliation Act 1996 is incorrect and improper and the same needs to be corrected by this court in terms of Article 227 of Constitution of India. Hence, point No.1 is answered in the negative.
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24. Point No.2 - In view of reference made under Section 8(1) of Arbitration and Conciliation Act, 1996 and in view of mandate being clearly explained by the Hon'ble Apex Court in the latest decision rendered in the case of M/s.Sundaram Finance Limited's case, the question of continuing the order of temporary injunction against alienation granted earlier by the learned judge of the trial court does not survive. Hence, point No.2 is answered in the negative.
25. In view of answering both the points in the negative and in the light of the latest decision of Hon'ble Apex Court rendered in the case of M/s.Sundaram Finance Limited's case having same quorum equivalent to the quorum of the decision rendered in Sukanya Holdings's case, petitions are to be allowed.
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ORDER Petitions filed under Article 227 of Constitution of India directed against the order dated 28.3.2015 and 22.6.2015 passed by the learned Senior Civil Judge & JMFC, Magadi in O.S.55/2015 are allowed in entirety.
The impugned order passed by the learned Judge in granting an order of temporary injunction against alienation and in regard to refusal of reference to the arbitration are set aside.
Consequently, learned Judge is expected to pass an order in terms of Section 8 of Arbitration and Conciliation Act referring the matter to the Arbitration.
Parties to bear their own costs.
Sd/-
JUDGE DM