Karnataka High Court
V-2 Retail Limited vs Mr. Govindraj S/O Allappa Hariwan on 28 June, 2019
Equivalent citations: AIRONLINE 2019 KAR 827, (2019) 5 KANT LJ 531
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R
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 28 T H DAY OF JUNE 2019
BEFORE
THE HON'BLE MR. JUSTICE P.G.M.PATIL
MFA NO.100467/2018 (A&C)
BETWEEN:
V-2 RETAIL LIMITED,
FORMERLY KNOWN AS VISHAL RETAIL LTD.,
REGISTERED COMPANY.
REGISTERED UNDER THE COMPANIES ACT,
REPRESENTED BY ITS AUTHORIZED SIGNATORY-
SRI ANUP DESARI S/O RAMGOPAL GUPTA.
HAVING REGISTERED OFFICE AT V-2 RETAIL LTD.,
14, OLD DELHI GURGAON ROAD,
KAPAS HERE EXTENSION,
KAPAS HERA ESTATE, NEW DELHI-110037.
... APPELLANT
(By Sri KAMALACHANDRAN & S.S. GUNDI, ADV.)
AND
1. MR. GOVINDRAJ S/O ALLAPPA HARIWAN,
AGE:58 YEARS,OCC:BUSINESS,
R/O:VENKATESHWAR PALACE,
PLOT NO.5 AND 96, MANSAGIRI, GOKUL ROAD,
HUBBALLI-580030.
2. MRS. SUJATA W/O GOVINDRAJ HARIWAN,
AGE 50 YEARS, OCC:BUSINESS,
R/O:VENKATESHWAR PALACE,
PLOT NO.5 AND 96, MANSAGIRI, GOKUL ROAD,
HUBBALLI-580030.
3. MR. VARDHRAJ S/O GOVINDRAJ HARIWAN,
AGE 32 YEARS, OCC:BUSINESS,
2
R/O:VENKATESHWAR PALACE,
PLOT NO.5 AND 96, MANSAGIRI,
GOKUL ROAD, HUBBALLI-580030.
4. MR. GOUTAMRAJ S/O GOVINDRAJ HARIWAN,
AGE 32 YEARS, OCC:BUSINESS,
R/O:VENKATESHWAR PALACE,
PLOT NO.5 AND 96,
MANSAGIRI, GOKUL ROAD, HUBBALLI
... RESPONDENTS
(By Sri. SANTOSH B. MANE, ADV. FOR R1-R4)
THIS MFA FILED U/O. 43 RULE 1(r) OF THE CODE OF
CIVIL PROCEDURE, 1908, AGAINST THE ORDER
DATED:10.11.2017, PASSED IN O.S.NO.14/2017 ON THE FILE
OF THE PRINCIPAL SENIOR CIVIL JUDGE AND JMFC,
HUBBALLI, DISMISSING THE IA NO.3 FILED UNDER SEC.5 AND
8 OF THE ARBITRATION AND CONCILIATION ACT.
RESERVED FOR JUDGMENT ON: 18/06/2019
JUDGMENT PRONOUNCED ON : 28/06/2019
THIS APPEAL HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT, COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY,
THE COURT DELIVERED THE FOLLOWING:
JUDGMENT
The defendant being aggrieved by the order dated 10/11/2011 passed on IA No.3 in O.S No.14/2017 by the I Addl. Senior Civil Judge, Hubli, has filed this appeal.
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2. The brief facts of the case are as follows:-
The plaintiffs-respondents herein filed OS No.14/2017 on the file of the I Addl. Senior Civil Judge & JMFC, Hubli, against the defendant- appellant herein for declaration and permanent injunction in respect of agreement of sale dated 16/10/2014 executed amongst the plaintiffs and defendant. It is stated that the defendant has opened up sale of its commercial property at Krishnapur village, Gokul road Hubli. Accordingly, the plaintiffs approached and agreed to purchase the property in question for a total sale consideration of Rs.26.50 crore paying Rs.50,00,000/- as earnest money and further transactions were agreed to be carried out in compliance with terms and condition 4 agreed upon by the parties in the said agreement of sale dated 16/10/2014.
3. The plaintiffs also contended in the said suit that there is also another agreement dated 9/10/2014 entered into between the parties and the same is suppressed by the defendant. The plaintiffs sought for a declaration that the defendant has concealed the true and material facts and committed fraud and therefore, the agreement stands terminated and is to be declared as illegal, ab initio, null and void.
4. In pursuance of the summons, defendant appeared in the said suit, through its counsel and filed written statement. The defendant prior to filing of the written statement, filed IA No.3 under Sections 5 and 8 of Arbitration and Conciliation Act, 1956 5 seeking reference of the matter to Arbitration by dismissing the suit.
5. The defendant contended that the suit agreement was entered into between the parties on 16/10/2014 which contains a clause for reference of the dispute to the Arbitration. Clause No.18 of the agreement is relevant under which the parties have agreed to refer the dispute between the parties regarding the terms of agreement to the sole arbitrator and the place of arbitration is also agreed as New Delhi. The plaintiffs are bound to comply the said condition. The suit is not maintainable in view of Section 5 of the Arbitration & Conciliation Act (hereinafter referred to as "the Act" for short) and the parties have to be referred to Arbitration as provided under Section 8 of the Act. 6
6. The plaintiffs filed objection on the application stating that the application is not maintainable and the defendant has not produced neither original nor the certified copy of the agreement as required under Section 8 of the Act. There is no arbitration agreement between the parties and there is no dispute to be referred to the Arbitration. It is further contended that the parties to the suit have entered into an agreement of sale dated 9.10.2014 which is not forthcoming. Hence, the plaintiffs sought for a direction to the defendant to produce the said agreement and to dismiss the application.
7. The trial Court after hearing both the parties dismissed IA No.3 by the impugned order dated 10/11/2012. The defendant being aggrieved by the said order, has filed this appeal 7 under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996. The appellant has contended that the trial Court has completely ignored the settled principles of law, more particularly Section 16 of the Act. The trial Court ought to have taken into account that the suit is purely based on the terms of agreement of sale dated 16/10/2014 and in view of the Arbitration Clause, the trial Court ought to have allowed the application.
8. Heard the learned counsel for the appellant and respondents.
9. A short question which arises for consideration before this Court is as to "whether the appellant has made out that the impugned order is illegal and perverse and is liable to be set aside and IA No.3 filed in the suit deserves to be allowed?"
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10. The learned counsel for the appellant submitted that the plaintiffs have not disputed the agreement dated 16/10/2014. However, they have contended that there is also another agreement of sale dated 9/10/2014. The defendant has denied of any such agreement. Clause No.18 in the agreement dated 16/10/2014 provides for adjudication of dispute through Arbitration. The plaintiffs have referred the said Clause in the plaint itself. Therefore, the suit filed before the Civil Court is not maintainable and the parties have to be directed to approach the Arbitration in view of the arbitration clause in the agreement. The learned counsel for the appellant has relied on certain decisions in support of his arguments.
11. Per contra, learned counsel for the respondents submitted that there are two 9 agreements one dated 9/10/2014 and other dated 16/10/2014 and that the defendant has suppressed the agreement dated 9/10/2014. According to the plaintiffs, the agreement dated 16/10/2014 is only an ostensible agreement, which is not intended to be acted upon. The learned counsel further submitted that as per the terms of the agreement dated 9/10/2014, the place of Arbitration is Hubli, and therefore, the defendant is denying the said agreement itself.
12. The plaintiffs have not denied that the agreement of sale dated 16/10/2014 was executed between the parties. However, it is contended by the plaintiffs that prior to this agreement, there was another agreement of sale dated 9.10.2014 and the same has been suppressed by the defendant. Therefore, it is 10 crystal clear that the plaintiffs are not denying the agreement dated 16.10.2014, wherein there is a arbitration clause. Clause No.18 in this agreement provides that in case of any dispute with regard to the present agreement, the same shall be referred to Shri Avtar Singh, Advocate for Arbitration and the seat of the Arbitrator shall be at New Delhi. It is the contention of the plaintiffs that under the agreement of sale dated 9/10/2014, the place of arbitration is agreed to be at Hubli. The defendant has denied existence of any such agreement dated 9/10/2014. The plaintiffs have retained the copy of the agreement dated 16/10/2014 and the same was referred to in the plaint. It is alleged by the plaintiffs in para 10 of the plaint that two documents were executed on 9/10/2014 and 16/10/2014 and the defendant sent the photocopy of the document dated 16/10/2014 11 and the other document was not sent to him. Further, the plaintiffs are contending that the agreement dated 16.10.2014 is illegal, ab inito, null and void and therefore, the arbitration clause in the said agreement cannot be invoked.
13. Learned counsel for the appellant relied upon the judgment in the case of Reva Electric Car company Pvt. Ltd. Vs. Green Mobile reported in (2012) 2 SCC 93 in para 54 the Hon'ble Supreme Court has held as follows:-
"54. Under Section 16(1), the legislature makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, the arbitration clause which formed part of the contract, has to be treated as an agreement independent of the other terms of the contract. To ensure that there is no 12 misunderstanding, Section 16(1)(B) further provides that even if the Arbitral Tribunal concludes that the contract is null and void, it should not result, as a matter of law, in an automatic invalidation of the arbitration clause. Section 16(1)(a) presumes the existence of a valid arbitration clause and mandates the same to be treated as an agreement independent of the other terms of the contract. By virtue of Section 16(1)(b), it continues to be enforceable notwithstanding a declaration of the contract being null and void. In view of the provisions contained in Section 16(1) of the Arbitration and Conciliation Act, 1996, it would not be possible to accept the submission of Ms Ahmadi that with the termination of the MoU on 13 31.12.2007, the arbitration clause would also cease to exist."
14. Further, in the case of Today Homes and Infrastructure Pvt. Ltd. Vs. Ludhiana Improvement Trust and Another reported in (2014) 5 SCC 68 the Hon'ble Supreme Court in para 13 has held as follows:-
"13. We have carefully considered the submissions made on behalf of the respective parties and we are of the view that the learned Designated Judge exceeded the bounds of his jurisdiction, as envisaged in SBP & Co. In our view, the learned Designated Judge was not required to undertake a detailed scrutiny of the merits and demerits of the case, almost as if he was deciding a suit. The learned Judge was only required to decide such preliminary 14 issues such as Jurisdiction to entertain the application, the existence of a valid arbitration agreement, whether a live claim existed or not, for the purpose of appointment of an arbitrator. By the impugned order, much more than what is contemplated under Section 11(6) of the 1996 Act was sought to be decided, without any evidence being adduced by the parties. The issue regarding the continued existence of the arbitration agreement, notwithstanding the main agreement itself being declared void, was considered by the seven-Judge Bench in SBP & Co. and it was held that an arbitration agreement could stand independent of the main agreement and did not necessarily become otiose, even if the main agreement, of which it is a part, is declared void."15
15. Similarly in the judgment in Sasan Power Lmt. Vs. North American Coal Corporation (India) Pvt. Ltd. reported in 2016 10 SCC 813. Hon'ble Supreme Court in para 43 has held as follows:-
"43. In any case, whether an arbitration agreement is exclusively governed by the provision of either Part I or by Part II of the 1996 Act or both (as discussed earlier), judicial authorities seized of an action in respect of which there exists an arbitration agreement are bound to refer the dispute between the parties to arbitration and are precluded under Sections 8 and 45 from adjudicating the dispute subject to the other conditions stipulated in two Sections."16
16. Therefore, in view of the principles stated in the above cases, it is crystal clear that even in the case where the main contract is null and void, it should not result as a matter of law in an automatic in validation of Arbitration Clause. Therefore, even if the arguments on behalf of the plaintiff is accepted, that the agreement dated 16.10.2014 is null and void, Arbitration Clause 18 in the said agreement is not automatically taken away or has not become invalid. The dispute as to whether the said agreement dated 16.10.2014 is null and void and not to be acted upon has to be decided by the Arbitrator alone.
17. Further the Hon'ble Supreme Court has held as stated above that where there is a arbitration agreement between the parties, the judicial authorities seized of an action in 17 respect of which there exists an arbitration agreement and they are bound to refer the dispute between the parties to Arbitration and they are precluded under Sections 8 and 45 from adjudicating the dispute. The only exception to this rule as stated in the case of A.Ayyasamy Vs K.Paramasivam and others reported in (2016) 10 SCC 386 is that of the cases of series fraud. The Hon'ble Supreme Court in the said case has held that para 18 as follows:-
"18. When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable. However, at the same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement by arbitration 18 and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The judgment in N. Radhakrishnan does not touch upon this aspect and said decision is rendered after 19 finding that allegations of fraud were of serious nature."
18. Therefore, in the present case, the appellant-defendant has made out that there is an arbitration clause in the said agreement dated 16/10/2014 which is produced before the trial Court and it is also not disputed by the plaintiff. Therefore, the trial Court has no jurisdiction to adjudicate the dispute between the parties as provided under Section 5 of the Act. As such, the parties ought to have been referred to the Arbitration as required under Section 8 of the Act and thereby trial court ought to have allowed IA No.3. Therefore, this Court holds that the appellant has made out that the impugned order is illegal, perverse and is liable to be set aside and IA No.3 filed before the trial Court deserves to be allowed. 20 Accordingly, the point for consideration is answered in the affirmative. In the result, this Court proceed to pass the following:
ORDER The appeal is allowed. Order dated 10/11/2011 passed on IA No.3 in O.S.No.14/2017 by the I Addl. Senior Civil Judge, Hubli, is set aside. IA No.3 filed by the defendant in the said suit is allowed.
Consequently, suit of the plaintiff is dismissed and the parties are referred to the arbitration.
Sd/-
JUDGE Vmb