Karnataka High Court
Starlog Enterprises Limited vs Board Of Trustees Of New Mangalore Port ... on 25 February, 2025
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 25TH DAY OF FEBRUARY, 2025
BEFORE
THE HON'BLE MR JUSTICE SACHIN SHANKAR MAGADUM
CIVIL MISC. PETITION NO. 372 OF 2023
BETWEEN:
STARLOG ENTERPRISES LIMITED
(FORMERLY ABG INFRALOGISTICS LIMITED)
501, SUKH SAGAR BUILDING
N.S. PATKAR MARG
MUMBAI-400 007.
REPRESENTED BY ITS
AUTHORIZED REPRESENTATIVE
MS. EDWINA D'SOUZA
...PETITIONER
(BY SRI. PRADEEP NAYAK, ADVOCATE A/W
Ms. SANJANA .M, ADVOCATE A/W
Ms. AKSHITA GOYAL, ADVOCATE)
AND:
BOARD OF TRUSTEES OF
NEW MANGALORE PORT TRUST
PANAMBUR, MANAGALURU-575 010.
REPRESENTED BY CHIEF ENGINEER (CIVIL)
...RESPONDENT
(BY SRI. TEJAS .S.R, ADVOCATE A/W
Ms. FATHIMA NAHA, ADVOCATE FOR
DUA ASSOCIATES FOR RESPONDENT)
THIS CIVIL MISC. PETITION IS FILED UNDER SEC.11(5)
OF THE ARBITRATION AND CONCILIATION ACT 1996, PRAYING
TO APPOINT A SOLE ARBITRATOR TO ARBITRATE THE
DISPUTES RAISED BY THE PETITIONER THAT HAVE ARISED
BETWEEN THE PETITIONER AND THE RESPONDENT IN
RESPECT OF THE LEASE DEED DATED 31.03.2009 PURSUANT
TO CLAUSE 12 UNDER THE SAID LEASE DEED VIDE
ANENXURE-A.
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THIS PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 24.02.2025, THIS DAY ORDER WAS
PRONOUNCED THEREIN, AS UNDER:
CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
CAV ORDER
This Civil Miscellaneous Petition is filed under Section
11(5) of the Arbitration and Conciliation Act, 1996 (for
short 'the Act') seeking appointment of sole Arbitrator to
resolve the dispute and difference between the parties in
terms of clause 12 of the registered lease deed dated
31.03.2009.
2. In response to the notice sent by this Court,
respondent/Board has tendered appearance through
learned counsel and statement of objections is filed.
3. This petition is filed on the basis of a registered
lease deed executed on 31.03.2009. The petitioner
contends that the lease agreement was unlawfully
terminated by the respondent, compelling the petitioner to
invoke the arbitration clause as stipulated under Clause
12 of the lease deed. Subsequently, this Court, in CMP No.
66/2015, allowed the petition and appointed a sole
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Arbitrator to adjudicate the dispute. After considering the
merits of the case, the learned Arbitrator issued an arbitral
award on 08.02.2017 in Arbitration Case No. 61/2016,
which partially ruled in favour of the petitioner. The award
directed the respondent to refund both the security
deposit and the expenses incurred for constructing the
perimeter wall, amounting to a total sum
of Rs.6,28,49,016/-.
4. Dissatisfied with the arbitral award, the
respondent filed an application under Section 34 of the
Arbitration and Conciliation Act before the District and
Sessions Court, challenging the validity of the award. By
its judgment and decree dated 29.06.2018, the District
and Sessions Court set aside the award. The Court held
that the lease agreement between the parties did not
provide for the refund of the deposit amount or the
reimbursement of the costs incurred for constructing the
perimeter wall, thereby nullifying the relevant portions of
the Arbitrator's decision.
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5. Aggrieved by the judgment and decree of the
District and Sessions Court, the petitioner filed an appeal
before this Court in MFA No.7245/2018. Upon hearing the
arguments, this Court upheld the judgment passed
under Section 34, concurring with the lower court's view
that the Arbitrator lacked the jurisdiction to order a refund
of the statutory deposit and reimbursement of
construction expenses. This decision was further affirmed
by the Hon'ble Supreme Court in S.L.P.(Civil) No.
16473/2021, bringing finality to the issue of refund claims.
6. In its statement of objections, the respondent
has vigorously opposed the current petition, arguing that
the issue of refund, both in terms of the statutory deposit
and the expenses for constructing the perimeter wall, has
already been comprehensively adjudicated in the earlier
proceedings under Section 34. These findings have been
upheld by this Court and subsequently by the Hon'ble
Supreme Court. The respondent asserts that, given the
conclusive determination of these matters, no arbitral
dispute remains under consideration. Consequently, the
respondent has urged the Court to dismiss the present
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petition filed under Section 11(5) of the Arbitration and
Conciliation Act, as the issues raised have been
conclusively settled and are no longer open for arbitration.
7. Learned counsel appearing for the petitioner
has exhaustively advanced his arguments and has placed
reliance on the following judgments:
1) Payu Payments Private Limited vs. The New India
Assurance Co. Ltd. - 2024 SCC Online Del 6777;
2) Vidya Drolia vs. Durga Trading Corporation - (021) 2
SCC 1;
3) Kunhayammed & Others vs. State of Kerala and
Another - 2000 (6) SCC 359;
4) Vardhaman Builders vs. Narendra Balasaheb Ghatge
and Others - 2024:BHC-OS:7195;
5) Shakeel Pasha and Others vs. City Max Hotels (India)
Pvt. Ltd., - 023 (6) KarLJ 202;
6) SBI General Insurance vs. Krish Spinning - 2024 SCC
Online SC 1754;
7) In Re: Interplay between Arbitration Agreements
under the Arbitration and Conciliation Act 1996 and the Indian
Stamp Act, 1899 - 2023 INSC 1066;
8) NTPC Ltd. vs. SPML Infra Ltd. (03) 9 SCC 385;
9) Asmal Ismail Khan Deshmukh vs. ASAP Fluids Pvt. Ltd.
and Another - 2024 SCC Online SC 3191;
10) Wadhwa Group Holdings Private Limited vs. Homi
Pheroze Ghandy and Others - Manu/MH/1670/2022;
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11) McDermott International Inc. vs. Burn Standard Co.
Ltd. and Ors. - (2006) 11 SCC 181;
12) Steel Authority of India Limited vs. Indian Council of
Arbitration and Others - 225 (2015) DLT 348;
13) Associated Constructions vs. Mormugoa Port Trust -
2010 (3) ARBLR 472 (Bom);
14) Indian Oil Corporation vs. SPS Engineering - Civil
Appeal No.1282 of 2011.
8. Per contra, learned counsel appearing for the
respondent has placed reliance on the following judgment:
1) M/s. Jaiprakash Associates Limited vs. M/s. NHPC
Limited - ARB.P.No.1061/2023
9. This is a second round of litigation where
petitioner has invoked the arbitration clause seeking
appointment of sole Arbitrator. However, the parties to
this petition were relegated to get their disputes resolved
through sole Arbitrator. This Court on an earlier occasion
at the instance of petitioner in CMP.No.66/2015 proceeded
to appoint a sole Arbitrator. Petitioner and respondent
lead their respective oral and documentary evidence.
Learned Arbitrator formulated the following issues which
are relevant and therefore are extracted which reads as
under:
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1) Whether the claimant proves that the
termination of contract by the respondent by its
letter dated 2nd April 2014 is illegal? If so whether
the claimant is entitled to seek the continuation of
the contract?
2) If the termination of the contract by the
respondent is justified in alternative whether the
claimant is entitled to return of Rs.7 crores invested
by it from the respondent?
3) Whether the claimant is entitled to the
reliefs sought for in the rejoinder and in the
objections to the counter claim of the respondent?
4) Whether the reasons given by the claimant
for non-performance of the contract within time line
prescribed by the terms of the contract and the
reasons for delayed execution of the contract are
justified in law?
5) Whether the claimant proves that the
termination of the lease by the respondent is
contrary to the provisions of Transfer of Property
Act?
6) Whether the findings recorded by the Addl.
District Judge, Mangalore in Arbitration Case
No.10/2014 that the claimant was not at fault and
did not breach the terms of the contract is binding on
the Arbitral Tribunal?
7) Whether the respondent is entitled to
damages of Rs.27 crores towards loss of business
and loss of revenue and Rs.20 crores towards
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interest on the said sum on account of the breach of
the terms of the contract by the claimant?
8) Whether the respondent is entitled
compensation of Rs.1,21,05,975/- for not vacating
the lease land after termination of lease which is in
addition to the damages claimed which is covered by
issue No.7?
10. The learned Arbitrator, while addressing Issue
No.1, found that the petitioner had failed to demonstrate
due diligence in fulfilling its obligations under the contract.
The Arbitrator concluded that there was clear negligence
on the part of the petitioner in failing to perform its
contractual duties as stipulated under the lease
agreement. Consequently, the Arbitrator upheld the
respondent's termination of the contract, deeming it
legally justified. Despite upholding the respondent's right
to terminate the agreement, the Arbitrator proceeded to
partially award relief in favour of the petitioner by
directing the refund of the deposit amount along with
reimbursement for the expenses incurred in constructing
the perimeter wall.
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11. Aggrieved by the portion of the arbitral award
that ordered the refund of the deposit and reimbursement
for construction expenses, the respondent initiated
proceedings under Section 34 of the Arbitration and
Conciliation Act, 1996, challenging the legality of the
award. The respondent contended that the lease
agreement contained no provisions for the refund of the
statutory deposit or reimbursement of the amount spent
on construction. The District and Sessions Court upheld
this argument and set aside the portion of the award
directing the refund. This judgment, delivered
in Arbitration Case No.61/2016, was subsequently
affirmed by this Court in MFA No.7245/2018 through an
order dated 12.05.2021. The petitioner, dissatisfied with
this outcome, approached the Hon'ble Supreme Court by
filing SLP (Civil) No.16473/2021. However, the Hon'ble
Apex Court dismissed the petition, thereby affirming the
findings of both the lower courts. The courts consistently
held that the agreement contained no clause permitting a
refund of the upfront payment, whether the lease
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concluded upon the expiration of the 30-year term or due
to premature termination.
12. In light of the above developments, the present
petition raises the question of whether the petitioner is
entitled to seek the appointment of a sole Arbitrator
under Section 11(5) of the Arbitration and Conciliation Act.
The issue assumes significance given that the arbitral
award in Arbitration Case No.61/2016 has been
conclusively set aside by the District and Sessions Court,
upheld by this Court, and confirmed by the Hon'ble
Supreme Court. This Court, therefore, must examine
whether the petitioner can maintain the present petition
by relying on the arbitration clause within the lease
agreement, notwithstanding the previous judicial findings.
13. The learned counsel for the petitioner has cited
a series of precedents to argue that this Court, while
acting as a Referral Court under Section 11 of the
Arbitration and Conciliation Act, cannot exceed its
jurisdiction by examining the merits of the dispute. The
petitioner has placed reliance on the judgment of the
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Hon'ble Supreme Court in SBI General Insurance Co.
Ltd. v. Krish Spinning Mills Pvt. Ltd. (supra) to assert
that the Referral Court's role is confined to ascertaining
the existence of an arbitration agreement. Emphasizing
the presence of a valid arbitration clause in the lease
agreement, the counsel argues that the parties are
entitled to decide the procedure for appointing Arbitrators.
The petitioner contends that, even though the arbitral
award has been set aside under Section 34, the underlying
cause of action persists, allowing the petitioner to invoke
the arbitration clause once again by issuing a notice
under Section 21 of the Act.
14. Conversely, the learned counsel for the
respondent has placed reliance on a judgment rendered by
the Delhi High Court in M/s. Jaiprakash Associates
Limited v. M/s. NHPC Limited (supra). Drawing from
this decision, the counsel argues that even a Referral
Court has limited authority to assess whether the dispute
is arbitrable, particularly in cases where prior arbitral
proceedings have conclusively settled the issues raised. It
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is submitted that, since the petitioner's claims have
already been adjudicated through properly constituted
arbitral proceedings and subsequent judicial scrutiny, the
petitioner cannot seek to invoke arbitration anew. The
respondent maintains that initiating fresh arbitral
proceedings under these circumstances would be
untenable, given that the arbitral award has been fully set
aside under Section 34 and confirmed by higher judicial
authorities.
15. In response, the petitioner's counsel has
countered the arguments of the respondent, asserting that
the Delhi High Court's judgment in M/s. Jaiprakash
Associates Limited (supra) is per incuriam as it allegedly
contradicts the principles established by the Hon'ble
Supreme Court in Krish Spinning Mills case. The
petitioner urges this Court not to rely on the Delhi High
Court's decision and instead focus on the precedents set
by the Hon'ble Apex Court regarding the limited role of the
Referral Court under Section 11.
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16. This Court has carefully considered the
submissions made by both counsels and examined the
relevant judgments. Additionally, this Court has
scrutinized the findings recorded by the sole Arbitrator,
particularly the affirmation of the respondent's termination
of the contract. The Court has also analyzed the legal
basis for setting aside the arbitral award under Section
34 and the subsequent confirmation of that decision by
this Court and the Hon'ble Supreme Court.
17. The central issue that arises for consideration is
whether the setting aside of the arbitral award
under Section 34,which has been upheld by higher judicial
forums grants the petitioner the right to initiate fresh
arbitral proceedings based on the same arbitration clause
invoked earlier.
Findings:
18. The learned Arbitrator, while answering Issue
No.1 in the affirmative, concluded that the termination of
the lease agreement by the respondent through its letter
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dated 02.04.2014 was legally valid. Consequently, the
Arbitrator held that the petitioner was not entitled to seek
the continuation of the contract. Despite this finding, the
Arbitrator awarded partial relief to the petitioner by
directing the refund of the deposit and reimbursement of
expenses related to the perimeter wall construction. The
respondent challenged this relief by arguing that the lease
agreement did not provide for such refunds, either upon
the natural expiration of the 30-year lease period or in
cases of premature termination. The District and Sessions
Court, acting under Section 34, accepted this argument
and set aside the refund-related portions of the award in
its judgment dated 08.02.2017.
19. This Court, in its judgment rendered in MFA No.
7245/2018, upheld the findings of the lower court. The
affirmation of these findings is evident from Paragraph
43 of this Court's decision, which states:
"43. Indisputedly, there is no clause in the
agreement for the refund of upfront payment after
the lapse of 30 years period of the lease deed or
when the lease agreement is terminated before the
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efflux of time or to claim compensation for the
alleged expenses incurred towards the construction
of compound wall. The award passed by the learned
arbitrator against the terms of the agreement is
opposed to the principles of law as rightly held by the
Trial Court. Besides, the direction issued by the
learned arbitrator to refund the upfront payment of
Rs.5,81,08,700/- with the compensation/damages,
towards expenses incurred towards the alleged
construction of the compound wall at Rs.47,40,316/-
with interest at 12% per annum from the date of the
award till its payment is unreasonable and patently
illegal being contrary to the terms of the contract
and certainly comes within the ambit of Section
34(2)(b)(ii) of the Act."
20. The petitioner, aggrieved by the order passed
by this Court, approached the Hon'ble Apex Court seeking
redressal. However, the Hon'ble Apex Court declined to
grant any indulgence, effectively upholding the orders
passed by the lower courts. This decision by the Apex
Court solidifies the findings rendered by the courts under
Section 34 proceedings.
21. In light of the findings recorded by the Court
under Section 34 proceedings and subsequently affirmed
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by the Hon'ble Apex Court, the pivotal issue that arises for
determination before this Court is whether the setting
aside of the arbitral award by judgment and award dated
08.02.2017 permits the petitioner to invoke the arbitration
clause as per the agreement dated 31.03.2009. This Court
emphatically holds that the answer to this question is 'No'.
22. The primary relief sought by the petitioner,
which involved challenging the termination of the contract,
was decisively negated by the Arbitrator while answering
Issue No.1. This adverse finding against the petitioner was
not contested by initiating proceedings under Section 34 of
the Arbitration and Conciliation Act. Consequently, the
Section 34 proceedings were confined solely to the issue of
refund of the statutory deposit and the amount expended
on the construction of the perimeter wall. These limited
reliefs were also set aside by the Court under Section 34
proceedings and affirmed by the Hon'ble Apex Court,
leaving no scope for further arbitration on these matters.
23. Two significant conclusions emerge from the
preceding legal trajectory. Firstly, the termination of the
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contract has been legally validated and stands final.
Secondly, the petitioner chose not to challenge the
Arbitrator's decision on this issue. Furthermore, the relief
concerning the refund of the statutory deposit and
construction expenditure was set aside by the Court and
confirmed by the Hon'ble Apex Court. Thus, both of these
issues have attained finality.
24. The petitioner's argument, asserting that their
right to seek compensation under Section 65 of the Indian
Contract Act remains intact, and therefore the arbitration
clause can be invoked, is fundamentally flawed. The
judgments cited by the petitioner, which pertain to the
limited inquiry permissible under Section 11 of the
Arbitration Act, do not apply to the current scenario. This
case involves post-award developments under Section 34
proceedings, where the award has been conclusively set
aside.
25. It is a well-established legal principle that once
an award is set aside, the parties may ordinarily invoke
the arbitration clause anew by resorting to Section 21 of
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the Arbitration and Conciliation Act. However, this principle
is inapplicable here because the issues raised by the
petitioner were already adjudicated upon by the Arbitrator
and subsequently addressed in Section 34 proceedings,
with the findings being affirmed by the Hon'ble Apex
Court.
26. The contention of the petitioner that since the
entire award was set aside, their right to invoke arbitration
under Section 21 still subsists is misconceived. The
findings under Section 34 proceedings have a direct
bearing on the maintainability of the present civil
miscellaneous petition. The Court, while adjudicating
Section 34 proceedings, unequivocally addressed the
pertinent issues, and these findings remain binding upon
both parties.
"17. The defendant No.1 has not preferred any
cross appeal about the findings of the learned
arbitrator on issue No.1, 3, 4 and 5. Hence the
findings of the learned arbitrator regarding the
termination of the contract are binding upon the
parties and it has assumed the nature of finality.
The plaintiff came up with this suit U/s 34 of A & C
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Act challenging the findings of the learned arbitrator
on issue No.2. The plaintiff sought for damages to
the tune of Rs.27-00 crore towards loss of business
and loss of revenue and Rs.20-00 crore towards
interest on the said sum on account of breach of
terms of the contract and compensation of
Rs.1,21,05,975/- for having failed to vacate and
handover the leased premises, even after
termination of the lease deed, in addition to the
damages claimed by them. The learned arbitrator
has not awarded any damages of compensation to
the plaintiff/NMPT. The plaintiff has not filed this suit
challenging the findings of the learned arbitrator on
issue No.7 and 8 in A.C.No.61/2016 dated 8.2.2017.
The plaintiff/NMPT claims that even though they
have sought for damages and compensation, the
learned arbitrator has not considered their claim and
even no reasons are assigned for rejecting their
claim and merely observed that the plaintiff is
holding the deposited amount of Rs.5,81,08,700/-
without any liability to pay interest on the said
amount and also held that the defendant No.1 is not
entitled to claim any interest from the date of
termination of contract to till the date of award.
Since the plaintiff/NMPT has not challenged the
findings of the learned arbitrator on issue No.7, 8,
they do not survive for consideration."
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27. A careful examination of the Section 34
proceedings reveals that the subject matter was restricted
to the refund of the upfront payment of Rs.5,81,08,700/-
and Rs.47,40,316/- towards the cost of constructing the
perimeter wall. Thus, the petitioner's assertion that the
setting aside of the entire award revives their right to seek
fresh arbitration is legally untenable. The operative portion
of the Section 34 judgment clearly reflects the Court's
intent. The operative portion reads as under:
"The Arbitration suit filed by the plaintiff/NMPT
against the defendants under Sec.34 of the
Arbitration and Conciliation Act, 1996 is hereby
decreed.
The award passed by the learned
Arbitrator/defendant No.2 is Arbitration Case
No.61/2016 dated 8.2.2017 is hereby set aside with
liberty to the parties to approach proper forum for
necessary relief.
Draw decree accordingly."
28. The unambiguous language in the second
paragraph of the operative portion underscores that while
liberty was granted to approach the appropriate forum,
such a forum does not encompass arbitration under the
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provisions of the Arbitration and Conciliation Act.
Consequently, the petitioner's claim under Section 65 of
the Indian Contract Act falls outside the ambit of the
arbitration clause and cannot be adjudicated by an
arbitrator.
Conclusion:
29. The Arbitrator's decision, which upheld the
validity of the termination of the contract, stands as final
and binding since the petitioner chose not to challenge this
specific finding under Section 34 of the Arbitration and
Conciliation Act.
30. Furthermore, the relief granted by the
Arbitrator regarding the refund of the statutory deposit
and the reimbursement for construction costs incurred by
the petitioner was specifically set aside by the Court under
Section 34 proceedings. This decision, which was
subsequently upheld by the Hon'ble Apex Court, firmly
establishes that the petitioner has no legal entitlement to
seek a refund of either the upfront payment or the
expenses related to the construction of the perimeter wall
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through arbitration. The issue of refund has thus been
conclusively settled in favour of the respondent.
31. Given that both critical issues, the legality of
the contract's termination and the refund of amounts
claimed have attained finality through due legal process,
the petitioner cannot invoke the arbitration clause again
on the same grounds. The petitioner's attempt to initiate
fresh arbitration proceedings under Section 21 of the
Arbitration and Conciliation Act is therefore fundamentally
misconceived and legally impermissible.
32. The only potential recourse available to the
petitioner, if any, would be through a competent civil
court, as the liberty granted in the Section 34 judgment
pertains solely to seeking relief in an appropriate legal
forum outside of arbitration. The arbitration clause
embedded in the agreement dated 31.03.2009 cannot be
invoked for matters that have already been adjudicated
upon and concluded by both the Arbitral Tribunal and the
judiciary, including the Hon'ble Apex Court.
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33. The judgments cited by the petitioner,
including Payu Payments Private Limited vs. The New
India Assurance Co. Ltd., Vidya Drolia vs. Durga
Trading Corporation, and Kunhayammed & Others vs.
State of Kerala and Another, primarily address issues
related to the interpretation of arbitration agreements, the
scope of judicial interference under Section 34, and the
finality of judicial decisions. However, these precedents
are not applicable to the present case, as the core issues
of contract termination and refund have already attained
finality through decisions affirmed by the Hon'ble Apex
Court. Unlike the cases cited, where arbitration
proceedings or statutory interpretations were central to
the dispute, the present matter concerns the enforceability
of an arbitration clause after the underlying disputes,
termination and refund have been conclusively resolved by
judicial proceedings. The petitioner's reliance on these
judgments is thus misplaced, as they do not address
circumstances where an arbitral award has been set aside
and affirmed through subsequent court rulings, leaving no
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scope for re-invoking arbitration under the same
agreement.
34. In conclusion, the petitioner's claim under
Section 65 of the Indian Contract Act or any related legal
principle cannot be entertained within the domain of
arbitration. All relevant issues have been conclusively
resolved through the arbitration proceedings and
subsequent judicial reviews, leaving no scope for further
arbitration under the existing agreement.
35. For the foregoing reasons, this Court proceeds
to pass the following:
ORDER
The civil miscellaneous petition is devoid of merits and accordingly, stands dismissed.
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(SACHIN SHANKAR MAGADUM) JUDGE CA