Bangalore District Court
M/S Strategic Outsourcing Service Pvt ... vs Mphasis Limited on 25 January, 2024
42
Com.AP.No.37/2020
KABC170082242020
IN THE COURT OF LXXXII ADDL. CITY CIVIL & SESSIONS
JUDGE, AT BENGALURU (CCH.83)
THIS THE 25th DAY OF JANUARY 2024
PRESENT:
SUMANGALA S. BASAVANNOUR., B.COM, LL.M.,
LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.P.No.37/2020
BETWEEN:
M/s Strategic
Outsourcing Services
Pvt. Ltd., A company
registered under the
Companies Act, 2013 at
No.70/25, 80 feet,
Circular Ring Road, 4th
Block, Koramangala,
Bengaluru - 560034,
rep. by its Director
Mr.Pradeep Patil
: PETITIONER
(Represented by
Sri.V.Sanjay Krishna,
Advocate)
42
Com.AP.No.37/2020
AND
1. Mphasis Limited,
A company registered
under the Companies
Act, 1956, having its
office at : Bagmane
World Technology
Centre, Marathhali
Outer Ring Road,
Doddanekundi Village,
Mahadevapura,
Bengaluru - 560034
(Represented by
Sri.Dhananjay Joshi,
Advocate)
2. Sole Arbitrator,
Shri. Justice Ashok
B.Hinchigiri, (Former
Judge, High Court of
Karnataka) Arbitration
and Conciliation Centre,
Bengaluru, Domestic
and International),
Khajija Bhavana, Race
Course Road, Bengaluru
- 560001
: RESPONDENTS
42
Com.AP.No.37/2020
Date of Institution of the 28.05.2020
suit
Nature of the suit (suit on
pronote, suit for Petition for setting aside
declaration & Possession, Arbitral Award
Suit for injunction etc.)
Date on which judgment 25.01.2024
was pronounced
Total Duration Year/s Month/s Day/s
03 07 28
(SUMANGALA S. BASAVANNOR),
LXXXII Addl. City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
This Petition is filed under Section 34 r/w Sec.16(6) of the Arbitration & Conciliation Act, 1996 for setting aside the Arbitral Award dated 26.11.2019 by the Arbitral Tribunal.
2. The Brief facts leading to the case are as follows:-
The applicant herein was the respondent before the sole arbitrator and respondent herein was claimant in A.C.No.51/2019. For the sake of convenience and brevity, parties are referred as per their ranks before this court.42
Com.AP.No.37/2020 It was the specific case of the applicant under the preliminary objection regarding the jurisdiction of the Arbitral Tribunal to try the dispute that respondent / claimant had made serious allegations of fraud against the applicant herein by filing a police complaint before the jurisdictional police registered as FIR in Crime No.111/2018 for the offences punishable under sections 406 and 420 read with Section 34 of IPC against the director of the applicant alleging the same cause of action in addition to the plea that the respondent herein had resorted to initiation of multiple proceedings such as insolvency proceedings before the NCLT, criminal complaint alleging fraud before the jurisdictional police. Learned sole arbitrator after hearing the parties by order dated 19.07.2019 overruled the preliminary objections filed by the applicant herein and directed to file the state of defense to the claim petition. Learned sole arbitrator though held that there was no legal impediment to consider the preliminary objections raised by the Applicant herein, in the wake of the liberty reserved to the applicant by the Hon'ble High Court of Karnataka by its order dated 08.03.2019 passed in C.M.P. No.238/2018, failed to answer whether the allegations of fraud made by the claimant herein as against the respondent were so serious that the dispute raised are to be held as non arbitrable. The learned arbitrator failed to give a cogent finding on whether the allegations of fraud made 42 Com.AP.No.37/2020 by the respondent herein against the claimant were allegations of fraud simplicitor or not, and held that the reliefs sought in the claim petition can be examined independent of the allegations made in the criminal complaint.
3. Being aggrieved by the order dated 19.07.2019, the appellant/respondent has challenged the order passed over ruling the preliminary objection filed by the applicant herein regarding the jurisdiction on the ground narrated hereunder along with challenge to the main arbitration award dated 26.11.2019 in A.C.51/2019.
4. The petitioner has challenged the award passed in A.C.No.51/2019 on the following grounds:
a) The arbitral award dated 26.11.2019 is liable to be set aside as alleged dispute does not fall under the category of arbitral dispute that can be adjudicated by a private Fora and hence arbitral tribunal has no jurisdiction to adjudicate the same. The award dated 19.07.2019 passed on preliminary objections raised by the applicant to rule on its own jurisdiction being illegal and opposed to the fundamental policy of Indian Law is liable to be set aside.42
Com.AP.No.37/2020
b) The learned arbitrator has passed an order of preliminary objection filed to answer the fundamental issue required to be answered in relation to the objections raised as regards fraud as to whether allegations of fraud played by the claimant as against the respondent were so serious that the dispute raised has to be held as non-arbitral one. Hence, the said ground also, the impugned award is liable to be set aside.
c) The learned arbitrator has failed to consider the law laid down by the Hon'ble Supreme Court of India in Iyyaswamy Vs Paramasivan case wherein it was held that serious allegations of fraud when made, the disputes are not arbitral.
d) The arbitrator failed to take into account that the claimant had resorted to filing several cases against the applicant herein before multiple Fora such as Miscellaneous proceedings before the National Company Law Tribunal, FIR in Crime No.111/2018 making serious allegations against the applicant alleging commissioning of offences under Sec.406 and 420 r/w Sec.34 of IPC while passing the order on preliminary objections and hence on this ground also, the award impugned herein is 42 Com.AP.No.37/2020 liable to be set aside.
e) The learned arbitrator failed to take into consideration the nature of allegations made in the FIR and give a finding as to whether the allegations were mere allegations of fraud simplicitor or of a serious nature, but on the other hand to hold that the claim petition can be examined independent of the allegations made in the complaint which is impermissible in law.
f) The arbitrator erred in overruling the preliminary objections raised by the applicant by his order dated 19.07.2019 and proceeded to pass the impugned order. Hence, on this ground also, the impugned award is liable to be set aside.
g) The impugned award dated 26.11.2019 is liable to set aside since the subject matter of dispute is not capable of settlement by an arbitration under the law being in force.
h) The arbitral award is liable to be set aside since the same is in conflict with public policy of India being in contravention with the fundamental policy of Indian Law.
i) The arbitrator failed to consider the law laid down by 42 Com.AP.No.37/2020 the Hon'ble Supreme Court of India in the matter of Biswanath Padad Singh Vs Rajendra Prasad and another while interpreting the settlement agreement (Ex.P.1) hence the impugned award is liable to be set aside.
j) The learned arbitrator ought to have considered the law laid down by the Hon'ble Supreme Court of India in SRET Infrastructure Findings Pvt. Ltd., Vs TUFF Drilling Private Limited regarding application of Sec.92 of the Evidence Act to the facts of the case and hence the impugned award is liable to be set aside.
k) The arbitrator failed to consider that the settlement agreement was entered into in the best business interest of both the parties with mutual obligations of performing the reciprocal promises and ignored Ex.R.1 while passing the impugned award.
I) The learned arbitrator failed to consider Ex.P.1 was not a document that created a liability and the alleged dues were not payable by the applicant herein to the respondent without any independent evidence being adduced of acknowledgment of any debt on liability. The learned arbitrator further erred that a Commercial Suit in O.S.No.241/2019 (Ex.R.88) was pending between the 42 Com.AP.No.37/2020 parties, wherein the respondent had claimed Rs.50,80,83,721/- from the claimant while passing the impugned award. Hence, the award is liable to be set aside.
m) The learned arbitrator failed to consider the fact that the claimant, on one hand contended that the settlement agreement is enforceable and on the other hand contended that the said agreement was a result of inducement by the respondent, hence the claimant is entitled for payment of entire amount. Hence the learned arbitrator erred in passing the impugned award without holding that the claiamant is blowing both hot and cold.
n) The learned arbitrator failed to consider that the oral evidence led by the claimant's witness was not only inconsistent but also untrustworthy.
o) The learned arbitrator erred in passing the award directing the applicant herein to pay a sum of Rs.4,00,00,000/- to the claimant as the same as opposed to the facts and circumstances of the cases.
p) The learned arbitrator erred in directing the applicant to pay a sum of Rs.10,69,59,630/- to the claimant as 42 Com.AP.No.37/2020 opposed to law and facts and circumstances of the case.
q) The learned arbitrator erred in awarding interest @ 10% p.a. on Rs.4,00,00,000/- and further imposed on payment of Rs.10,69,59,630/- from the date of notice of arbitration proceeding i.e. 25.01.2018 till the date of payment.
r) The learned arbitrator erred in holding that the respondent is entitled to retain only Rs.6,83,84,025/- and on the said amount is liable to pay interest to the claimant.
s) The learned arbitrator failed to consider that the signatories to the claim petition, affidavit, evidence, principal contract were all different individuals.
t) Viewed from any angle the award passed by the learned arbitrator is liable to be set aside.
u) The above application is in time and within the jurisdiction of this court.
5. The respondent has filed objections stating that the applicant has not made out any ground to set aside the award. The grounds stated by the applicant are not specific and bereft of merits. The applicant is only seeking a re-hearing of 42 Com.AP.No.37/2020 arbitration proceedings and failed to establish any defect in the award that merits the intervention of this court. The arbitration proceedings have bee conducted fairly and the impugned award sets out detailed reasons for its findings. It is apparent that the appellant has failed to make out any ground for this Court's intervention in the Award. The appellant is only seeking a fresh hearing of the very same objections that it had raised in the arbitration proceedings and all of which have been appropriately dealt within the said award. Hence, the respondent prays to dismiss the petition with exemplary costs.
6. This award is challenge on the ground that the alleged dispute does not fall under the category of arbitral dispute that can be adjudicated by a private Fora and hence arbitral tribunal has no jurisdiction to adjudicate the same. The award dated 19.07.2019 passed on preliminary objections raised by the applicant to rule on its own jurisdiction being illegal and opposed to the fundamental policy of Indian Law is liable to be set aside. The learned arbitrator has passed an order of preliminary objection filed to answer the fundamental issue required to be answered in relation to the objections raised as regards fraud as to whether allegations of fraud played by the claimant as against the respondent were so serious that the dispute raised has to be held as non-arbitral one. The learned 42 Com.AP.No.37/2020 arbitrator has failed to consider the law laid down by the Hon'ble Supreme Court of India in Iyyaswamy Vs Paramasivan case wherein it was held that serious allegations of fraud when made, the disputes are not arbitral.
7. The learned counsel for the applicant has relied upon the orders of the Hon'ble High Court of Karnataka in CMP No.238/2018 wherein it is held that -
"Needless to state that the respondent shall be at liberty to take all such objections as are permissible in law before the arbitrator under Section 16 of the Act."
8. On perusal of the order dated 19.07.2019 in A.C.No.51/2019 it clears that the learned arbitrator referred the decision of the Hon'ble Supreme Court in the case of A.Ayyasamy Vs Paramshivam & Ors. reported in (2016) 10 SCC 386 and also Swiss Timing Ltd. Vs Commonwealth Games 2010 Organizing Committee reported in (2014) 6 SCC 677.
9. By considering the above decisions, the Hon'ble Arbitral Tribunal has held that -
"13. The point that arises for my consideration is 42 Com.AP.No.37/2020 whether the allegations of fraud are so very serious that the disputes raised in these proceedings are to be held as non-arbitrable. In Ayyasamy's (supra), the Hon'ble Supreme court has held that mere allegations of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. In Swiss Timing Ltd. case (supra), the Hon'ble Supreme Court has expressed the considered view that there is no inherent risk of prejudice to any of the parties in permitting arbitration to proceed simultaneously to the criminal proceedings. Paragraph No.24 of the said decision reads as under:
"24. Keeping in view of the aforesaid observations made by this Court, I see no reason to accept the submission made by the learned counsel for the respondents that since a criminal case has been registered against the Chairman of the Organizing Committee and some other officials of the petitioner, this Court would have no jurisdiction to make a reference to arbitration".
14. The reliefs sought in the claim petition can be examined independently of the allegations made in the criminal complaint ordinarily every civil or commercial dispute, whether based on contract or otherwise, which is capable of being decided by civil court, is in principle capable of being adjudicated upon any resolved by the arbitration, subject to the dispute being governed by the arbitration agreement, unless the jurisdiction of the arbitral tribunal is excluded either expressly or by necessary implication. Arbitration is an alternative to the civil proceedings."
42Com.AP.No.37/2020
10. The learned counsel for the petitioner has relied upon the following decisions:
(a) N.N.Global Mercantile Pvt. Ltd. Vs Indo Unique Flame Ltd. & Ors. reported in (2021) 4 SCC 379 wherein it is held that - (STAMP DUTY) "36.1 - the arbitrator / tribunal is obligated by Section 33 of the Stamp Act, 1899 (or the applicable State Act) to impound the instrument, and direct the parties to pay the requisite stamp duty (and penalty, if any) and obtain an endorsement from the Collector concerned.
This would be evident from the provisions of Section 34 of the Stamp Act which provides that "any person having by law or consent of parties authority to receive evidence"
58. We consider it appropriate to refer the following issue, to be authoritatively settled by a Constitution Bench of five Judges of this Court:
"Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument,which is not chargeable to payment of stamp duty, as being non-existent, unenforceable,or invalid, pending payment of stamp duty on the substantive contract/instrument?"42
Com.AP.No.37/2020
(b) Ratnam Sudesh Iyer Vs Jackie Kakumbhai Shroff reported in (2022) 4 SCC 206 wherein it is held that - (Public Policy) "31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse."
(c) State of Chhattisgarh & Anr. Vs Sal Udyog Pvt.
Ltd. reported in (2022) 2 SCC 275 wherein it is held that -
"Failure on the part of the sole arbitrator to decide in accordance with the terms of the contract governing the parties, would certainly attract the "patent illegality ground", as the said oversight amounts to gross contravention of Section 28(3) of the 1996 Act, the enjoins the Arbitral Tribunal to take into account the terms of the contract while making an award. The said "patent illegality" is not only apparent on the face of the award; it goes to the very root of the matter and 42 Com.AP.No.37/2020 deserves interference. Accordingly, the present appeal is partly allowed and the impugned award, insofar as it has permitted deduction of "supervision charges"
recovered from the respondent company by the appellant state as a part of the expenditure incurred by it while calculating the price of the Sal seeds, is quashed and set aside, being in direct conflict with the terms of the contract governing the parties and the relevant circular. The impugned judgment dated 21.10.2009 is modified to the aforesaid extent".
(d) State of Goa Vs Praveen Enterprises reported in (2012) 12 SCC 581 wherein it is held that -
"Summation - 41 (c) Where however the arbitration agreement requires specific disputes to be referred to arbitration and provides that the arbitrator will have the jurisdiction to decide only the disputes so referred, the arbitrator's jurisdiction is controlled by the specific reference and he cannot travel beyond the reference, nor entertain any additional claims or counterclaims which are not part of the disputes specifically referred to arbitration."
(e) B.K.Muniraju Vs State of Karnataka & Ors. reported in (2008) 4 SCC 451;
(f) Bishwanath Prasad Singh Vs Rajendra Prasad & Anr. reported in (2006) 4 SCC 432;
(g) SREI Infrastructure Finance Ltd. Vs Tuff Drilling Pvt. Ltd. reported in (2018) 11 SCC 470 42 Com.AP.No.37/2020 wherein it is held that -
"35. Coming to Issues (ii) and (iii), in view of what we have said regarding Issue (i) that Arbitral Tribunal has jurisdiction to consider an application for recall of order terminating the proceedings under Section 25(a), it is not necessary for us to enter into Issues (ii) and (iii) for purposes of this case. For deciding the present Civil Appeal, our answer to Issue (i) is sufficient to dispose of the matter."
11. The learned counsel for the petitioner has also relied upon
(a) Article 1 of Stamp Duty Act as here below:
"1. Acknowledgment of -
(i) a debt written or signed by or on behalf of, a debtor in order to supply evidence of such debit in any book (other than a Banker's passbook) or on a separate piece of paper when such book or paper is left in the creditor's possession and the amount or value of such debt.
(a) exceeds Rs.100 but does not exceeds Rs.5000/-
Stamp duty - Two rupees
(b) When exceeds Rs.5,000/-
Stamp duty - Two rupees plus rupees two for every thousand or part thereof.
(b) Chapter VI of the Stamp Act -
42Com.AP.No.37/2020 "58.Revision of certain decisions of Courts regarding the sufficiency of stamps: (1) When any Court in the exercise of its Civil or Revenue jurisdiction or any Criminal Court in any proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898, makes any order admitting any instrument in evidence as duly stamped or as not requiring a stamp, or upon payment of duty and a penalty under Section 34, the Court to which appeals lie from, or references are made by, such first mentioned Court may, of its own motion, or on the application of the [Deputy Commissioner], take such order into consideration.
(2) If such Court, after such consideration, is of opinion that such instrument should not have been admitted in evidence without the payment of duty and penalty under Section 34, or without the payment of a higher duty and penalty than those paid, it may record a declaration to that effect, and determine the amount of duty with which such instrument is chargeable, and may require any person in whose possession or power such instrument then is, to produce the same, and may impound the same when produced.
(3) When any declaration has been recorded under sub- Section (2), the Court recording the same shall send a copy thereof to the [Deputy Commissioner] and, where the instrument to which it relates has been impounded or is otherwise in the possession of such Court, shall also send him such instrument.
42Com.AP.No.37/2020
12. Heard arguments and perused the records.
13. Based on the above contentions of both parties, and the arguments of both Advocates, following Points arise for my consideration:-
1. Whether there are grounds to set aside the Impugned Award under Section 34 of the Arbitration & Conciliation Act?
2. What Order?
14. My findings on the above points are as follows:-
Point No.1:- In the Negative.
Point No.2:- As per the final Order for the following reasons.
REASONS
15. Point No.1: - The settled position in law that in proceedings under Section 34 of the Act, the Court does not sit in appeal over the Award. Thus, an Arbitral Award passed by an Arbitrator shall not be interfered with lightly. The Court can neither sit in appeal nor reassess or re-appreciate the evidence and the Arbitral Award can only be interfered with grounds stipulated in Section 34(2) of the Act.
42Com.AP.No.37/2020
16. It is settled position in law that an Award could be set aside if it is contrary to :-
(a) fundamental policy of Indian law; or
(b) the interest of India ; or
(c) justice or morality ; or
(d) in addition, if it is patently illegal.
17. The illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that the award is against the public policy. Award could also be set aside, if it is so unfair and unreasonable that it shocks the conscience of the Court. Such an award is opposed to public policy and is required to be adjudged void.
18. The Hon'ble Supreme Court in the landmark judgment reported in 2015(3) - S.C.C. - 49 (Associate Builders vs. Delhi Development Authority), (which is relied on by the Advocate for the Defendent) while setting aside the judgment passed by the Division Bench of Hon'ble High Court of Delhi culled out the legal principles after traversing the judicial pronouncements passed by the various High Courts and the Hon'ble Apex Court. In the said case, it is held that it is important to note that the 1996 Act was enacted to replace the Arbitration Act, 1940 in order to provide for an Arbitral procedure which is fair, efficient and capable of meeting the 42 Com.AP.No.37/2020 needs of Arbitration and also to provide that the tribunal gives reasons for an Arbitral Award; to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction and to minimize the supervisory role of Courts in the Arbitral process.
19. In the said decision, the Hon'ble Apex Court observed that it must be clearly understood that when a Court is applying the "Public Policy" test to an Arbitration Award, it does not act, as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster, as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his Arbitral Award. Thus, an Arbitral Award based on little evidence or no evidence which does not measure up in quality to a train legal mind would not be held to be invalid on this count.
20. In view of the above mentioned discussions, the position in law is well settled that while dealing with an award under Section 34 of the Act, the Courts are not supposed to sit in appeal and re-appreciate the evidences as an appellate Court. Hence, the findings of the facts by the Arbitral Tribunal, if based on evidence, even where a different opinion can be held on the basis of that evidences, the findings given by the 42 Com.AP.No.37/2020 Arbitrator has to be accepted and the Courts cannot substitute its opinion. The power to interpret the contracts also lies with the Arbitrator. Once the Court reach to the conclusion that the Arbitrator has acted within its jurisdiction, even if the Courts are of the view that the opinion of the Arbitrator is wrong, the same cannot be disturbed unless it is against the public policy.
21. The applicant challenged this award on the ground that the Arbitral Tribunal has no jurisdiction to adjudicate the matter. The terms of submissions to arbitration as can be clearly culled out from Clause 5 of Ex.P1 has not been addressed at all by the learned arbitrator while passing impugned award (agreement clause at Page No.326). The notice of reference at Ex.P8 dated 25.01.2018 (Page No.343 Vol.1) prima facie reveals that no negotiation in terms of Clause 5 have been held between the parties. The order passed in CMP No.238/2018 reveals that the grounds of premature initiation of arbitration proceedings though does not prevent reference of parties to arbitration, all such objections can be received during the arbitration proceedings. The learned arbitrator, instead of considering the question if very initiation of arbitration proceedings is in terms of arbitration agreements or not, has straight away considered the Settlement Agreement as enforceable thus by passing the terms of arbitration agreement and has proceeded to pass the 42 Com.AP.No.37/2020 impugned award and also relied upon the decision of State of Goa Vs Praveen Industries reported in (2012) 12 SCC 581, the Hon'ble Supreme Court of India, while summing up the position of law relating to the jurisdiction of an Arbitrator to decide the disputes under reference, has held as under:
"Summation:
41: The position emerging from the above discussion may be summed up as follows:
(a)........
(b).....
(c) Where however the arbitration agreement requires specific disputes to be referred to arbitration and provides that the arbitrator will have the jurisdiction to decide only the disputes so referred, the arbitrator's jurisdiction is controlled by the specific reference and he cannot travel beyond the reference, nor entertain any additional claims or counterclaims which are not part of the disputes specifically referred to arbitration."
22. Perused the records. Clause 5 of Ex.P1 reads as under:
"5. Arbitration : That all disputes arising out of or in connection with this settlement agreement between the parties hereto shall be settled mutually between the parties through negotiations and in the event any such dispute does not get resolved within 60 days, either party may refer dispute for arbitration under the provisions of the Indian Arbitration and Conciliation Act, 1996, or any enactment or modifications thereunder, by a sole arbitrator. The seat or place of Arbitration shall be Bengaluru, Karnataka."42
Com.AP.No.37/2020
23. The learned counsel for the applicant vehemently argued that a plain reading of the aforesaid arbitration agreement read in the light of the law declared by the Hon'ble Supreme Court of India reveals that the arbitration agreement in the present case required only such of dispute that does not get resolved within 60 days between the parties through negotiations to be referred to arbitration. In other words, the arbitrator's jurisdiction by virtue of the said agreement having controlled by the specific reference, he could not have traveled beyond the reference, nor could he have entertained any additional claims nor counter claims. Therefore, by its failure to hold the negotiations and by its refusal to await until the release of amounts by NIELIT, the claimant had committed breach of the terms of the Settlement Agreement. Although the aforesaid contentions go to the very root of the matter, the learned Arbitrator has proceeded to pass the impugned award in direct conflict with the terms of the arbitration agreement, thus rendering it "patently illegal". It is now a settled position of law under Sec.34(2A) of the Arbitration and Conciliation Act that a court can set aside the arbitral award if it is vitiated by patent illegality appearing on the face of it.
24. On the other hand, the learned counsel for the respondent has rightly argued that this ground was not raised in the arbitration proceedings and no issue has been framed by the 42 Com.AP.No.37/2020 Arbitral Tribunal on this contention. In any event, this contention was raised by the petitioner in the proceedings U/s 11 of Arbitration and Conciliation Act, 1996, and in its Order dated 08.03.2018, the Hon'ble High Court has held that the requirement is merely directory and not mandatory and that the respondent cannot avoid participating in the arbitration proceedings on this ground. The said order dated 08.03.2018 was not challenged by the Petitioner and has attained finality. Lastly such a contention is not one of the grounds prescribed in Sec.34 of the Arbitration and Conciliation Act.
25. Perused the order of the Hon'ble High Court in CMP No.238/2018 and para 9 reads as under:
"9. ............. So far as submission of the respondent that this petition is premature is concerned, suffice it to say that in the notice dated 25.01.2018, the petitioner has clearly stated that the petitioner has been following up with the respondent to perform its obligation under the agreement. However, despite lapse of 60 days, no action was taken and therefore, the petitioner is forced to invoke the arbitration clause. In the reply dated 12.02.2018, the aforesaid averment of fact has not been specifically denied and it has been merely stated that notice has been issued without exhausting alternative remedy. Besides that, Delhi High court in the case of RAVINDRAKUMAR VERMA supra, has held that even if the requirement as stated for invoking the arbitration is not complied with, the same cannot prevent reference to the arbitration because the procedure/precondition has to be taken as directory and not a mandatory requirement. I am in respectful agreement 42 Com.AP.No.37/2020 with the aforesaid view. Therefore, the objection raised by the respondent that this proceeding is premature cannot be sustained."
26. It is clear from this order that the present petitioner has raised objection regarding the premature institution of the arbitration. But the Hon'ble High Court given a findings on this aspect. Further, till this day the present petitioner has not challenged the said order and now come up with the ground that the institution of the arbitration is premature and on the same ground the award is to be set aside.
27. I relied upon the following decisions:
"(a) In Visa International Ltd. v. Continental Resources (USA) Ltd.1, the agreement required that the parties should make an attempt at amicable settlement. This requirement was not followed before invoking the arbitration clause. It was held that the request for arbitration was not premature because : (a) there was no scope for amicable settlement as both parties had taken rigid stand; and (b) correspondence shows that attempts were made for amicable settlement. The first part of the reasoning shows that the court was of the view that the requirement of attempting amicable settlement need not be fulfilled where it has no hope of succeeding, and in such circumstances it is not mandatory.
(b) In Rajiv Vyas v. Johnwin2, the agreement required reference to conciliation before the arbitration clause 42 Com.AP.No.37/2020 was invoked. Invocation was done without following this procedure. It was held that the correct procedure would be to make an order under Section 11 of the Arbitration and Conciliation Act, subject to the parties complying with any preconditions. This would avoid multiplicity of proceedings. Secondly, it was also held that conciliation would be an empty formality in view of the stand taken by the respondent. The court should reject such defence without compelling the parties to go through empty formality. This second part of the reasoning is the same as what was held in Visa International Ltd. v.
Continental Resources (USA) Ltd.3, mentioned in the previous paragraph. The first part of the reasoning is interesting, namely, invocation can be allowed and the tribunal can be constituted, but subject to the parties complying with the requirement of first referring the matter to conciliation.
(c) In Demerara Distilleries (P) Ltd. v. Demerara Distillers Ltd.9, the agreement contained a requirement of mutual discussion before arbitration. Application was made without complying with this requirement. The Court rejected the contention that the application was premature, on the ground that any discussion at that stage would be an empty formality. Therefore, the requirement was not held to be mandatory.
(d) In summary, the Supreme Court, in Visa International3 and Demerara15, has held that the requirement of mutual discussion to attempt amicable settlement need not be complied with if it would be an empty formality and there was no scope for amicable settlement."
42Com.AP.No.37/2020
28. Since the order of the Hon'ble High Court in CMP No.238/2018 has not challenged by the petitioner and it reached finality. Under these circumstances, at this stage, the award cannot be set aside on the ground of failure to hold the pre settlement. Further, such contention is not one of the ground prescribed U/s 34 of the Arbitration and Conciliation Act 1996. Hence, on this ground the award cannot be set aside.
29. The petitioner has taken another ground for challenging this award that the arbitral award dated 26.11.2019 is liable to be set aside as alleged dispute does not fall under the category of arbitral dispute that can be adjudicated by a private Fora and hence, the arbitral tribunal has no jurisdiction to adjudicate the same. The applicant submits that the award dated 19.07.2019 passed on the preliminary objections raised by the applicant to rule on its own jurisdiction being illegal and opposed to fundamental policy of Indian Law, is liable to be set aside. While passing the order on preliminary objections filed to answer the fundamental issue required to be answered in relation to the objections raised as regards fraud as to whether allegations of fraud played by the claimant as against the respondent were so serious that the dispute raised has to be held as non arbitral one. Hence, on the said ground also the impugned award is liable to be set aside.
42Com.AP.No.37/2020
30. During the course of argument, the learned counsel for the petitioner argued that the learned arbitrator without considering if the allegations of fraud made was one having serious penal consequences, overruled the preliminary objections raised by the applicant herein on the ground that the jurisdiction of arbitral tribunal is not excluded by placing reliance on Swiss Timing Ltd. case which law was earlier in time compared to the law declared by the Hon'ble Supreme Court in Ayyaswamy's case and Amit Lalchand's case. The learned arbitrator not only failed to take into account the seriousness of the allegations of fraud made but also failed to take note of the fact that indeed "fraud" was not a defense set up by the applicant herein and on the other hand, it was the claimant who alleged fraud and got the FIR registered against the directions of the applicant for the offences punishable U/s 420 and other provision of IPC. Hence, the entire proceedings held by the learned arbitrator without following the law laid down by the Hon'ble Supreme Court is violated. Petitioner has relied upon decisions in the case of - (a) A.Ayyasamy Vs Paramshivam & Ors. reported in (2016) 10 SCC 386 wherein it is held that:
"It, thus, follows that those cases where there are serious allegations of fraud, they are to be treated as non-arbitrable and it is only the civil court which should decide such matters. However, where there are allegations of fraud simplicitor and such allegations are 42 Com.AP.No.37/2020 merely alleged, we are of the opinion it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues can be determined by the Arbitral Tribunal." (paras 22 and 23)
(b) Ameet Lalchand Shah Vs Rishath Enterprises & another reported in (2018) 15 SCC 678 wherein it is held that:
"Under the Act, an arbitration agreement means an agreement which is enforceable in law and the jurisdiction of the arbitrator is on the basis of an arbitration clause contained in the arbitration agreement. However, in a case where the parties alleged that the arbitration agreement is vitiated on account of fraud, the Court may refuse to refer the parties to arbitration. In Ayyasamy case, this Court held that mere allegation of fraud is not a ground to nullify the effect of arbitration agreement between the parties and arbitration clause need not be avoided and parties can be relegated to arbitration where merely simple allegations of fraud touched upon internal affairs of parties is levelled. Justice A.K.Sikri observed that it is only in those cases where the Court finds that there are serious allegations of fraud which make a virtual case of criminal offence and where there are complicated allegations of fraud then it becomes necessary that such complex issues can be decided only by the civil court on the appreciation of evidence that needs to be produced."42
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31. On the other hand, the respondent's contention is that by an order dated 19.07.2019, the arbitrator held that there was no allegation of fraud in the arbitration proceedings and that such an allegation was made by the Respondent in a criminal complaint filed by it against the petitioner and relying on decisions of the Hon'ble Supreme Court, the Hon'ble Arbitrator rightly rejected the petitioner's application U/s 16 of the Arbitration and Conciliation Act, 1996.
32. Both the petitioner and the respondent have relied upon the decision of the Hon'ble Supreme Court in A.Ayyasamy Vs Paramshivam & Ors. reported in (2016) 10 SCC 386 wherein the Hon'ble Supreme Court elaborately discussed and held as under:
"In the instant case, only allegation of fraud levelled against appellant was that he had signed and issued a cheque on behalf of the partnership business in favour of his son without knowledge and consent of other partners does not involve any complex issue and it is a mere matter of accounts that can be looked into and found out even by arbitrator - If such cheque is issued from firm's account by appellant, onus is upon the appellant to show reason for giving that amount from partnership firm to his son and he will have to account for the same. Hence, on facts, allegations of purported fraud are not so serious which cannot be taken care of by arbitrator - courts below, therefore, erred in rejecting application of appellant U/s 8 - Appeal allowed and parties relegated to arbitration and arbitrator 42 Com.AP.No.37/2020 appointed."
"14. In the instant case, there is no dispute about the arbitration agreement inasmuch as there is a specific arbitration clause in the partnership deed. However, the question is as to whether the dispute raised by the respondent in the suit is incapable of settlement through arbitration. As pointed out above, the Act does not make any provision excluding any category of disputes treating them as non-arbitrable. Notwithstanding the above, the Courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The Courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. Following categories of disputes are generally treated as non- arbitrable:
(i) patent, trademarks and copyright;
(ii) anti-trust/competition laws;
(iii) insolvency/winding up;
(iv) bribery/corruption;
(v) fraud;
(vi) criminal matters.
Fraud is one such category spelled out by the decisions of this Court where disputes would be considered as non-arbitrable."
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 and should be 42 Com.AP.No.37/2020 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 finding that allegations of fraud were of serious nature."
"25. In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. It is only in those cases where the Court, while dealing with Sec.8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Sec.8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which 42 Com.AP.No.37/2020 contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Sec.8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non- arbitrable subjects are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts, i.e. public for a, are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Sec.8 of the Act, should be on the aforesaid aspect, viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration, then alone such an application under Sec.8 should be rejected."42
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33. Further, in this decision, the Hon'ble Supreme Court referred the case of Swiss Timing Ltd. Vs Commonwealth Games 2010 Organizing Committee reported in (2014) 6 SCC 677 wherein the application U/s 11 of the Act was allowed holding that such a plea of fraud can be adequately take care of even by the arbitrator. It was thus argued that the parties were bound by the arbitration agreement then there was no reason to file the civil suit, the trial court, however dismissed the application of the applicant herein by its order dated 25.04.2014 relying upon the judgment in N.Radhakrishnan.
34. The learned arbitrator held in orders on preliminary objections that "the point that arises for my consideration is whether the allegations of fraud are so very serious that the disputes raised in these proceedings are to be held as non arbitrable. In Ayyasamy's (supra), the Hon'ble Supreme Court has held that mere allegations of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. In Swiss Timing Ltd.'s case (Supra), the Hon'ble Supreme Court has expressed the considered view that there is no inherent risk of prejudice to any of the parties in permitting arbitration to proceed simultaneously to the criminal proceedings. Para No.24 of the said decision reads as under:
42Com.AP.No.37/2020 "24. Keeping in view the aforesaid observations made by this Court, I see no reason to accept the submission made by the learned counsel for the respondents that since a criminal case has been registered against the Chairman of the Organizing Committee and some other officials of the petitioner, this court would have no jurisdiction to make a reference to arbitration"
35. The reliefs sought in the claim petition can be examined independently of the allegations made in the criminal complaint. Ordinarily every civil or commercial dispute, whether based on contract or otherwise, which is capable of being decided by civil court, is in principle capable of being adjudicated upon and resolved by the arbitration, subject to the dispute being governed by the arbitration agreement, unless the jurisdiction of the arbitral tribunal is excluded either expressly or by necessary implication. Arbitration is an alternative to the civil proceedings.
36. In view of above decisions, I do not find any intervention is required against the findings given by the learned arbitrator on preliminary objections. Hence, on this ground the award cannot be set aside.
37. The petitioner has taken another ground to the challenge of the award that the learned arbitrator failed to consider that Ex.P1 was not a document that created a liability and the 42 Com.AP.No.37/2020 alleged dues were not payable by the applicant herein to the respondent without any independent evidence being adduced of acknowledgment of any debt on liability. The learned arbitrator further erred that a commercial suit in O.S.No.241/2019 (Ex.R88) was pending between the parties wherein the respondent had claimed Rs.50,80,83,721/- from the claimant while passing the impugned award. Hence, the award is liable to be set aside. Further, the learned arbitrator failed to consider the fact that the claimant, on one hand contended that the Settlement Agreement is enforceable and on the other hand contended that the said Agreement was a result of inducement by the respondent, hence, the claimant is entitled for payment of entire amount. Hence, the learned arbitrator erred in passing the award impugned without holding that the claimant is blowing both hot and cold.
38. The learned counsel for the petitioner vehemently argued that it is a matter of record that as per Ex.R1, the sharing of 61% and 39% and also the payment of Rs.4,00,00,000/- was subject to the estimated receivable amount of Rs.36 Crores from NIELIT. Even as per the Award, the total sum received from NIELIT was less than Rs.22 Crores as opposed to the discussions held preceding the Settlement Agreement which is evidenced by Ex.R1. For the learned Arbitrator to exercise jurisdiction to distribute the same in the first place, the total amount ought to 42 Com.AP.No.37/2020 have been remitted into the Escrow account by NIELIT. The Settlement Agreement was not an acknowledgment of debt, but, on the other hand, was just an Arrangement to facilitate distribution only subject to realization of entire receivables from NIELIT. In that view of the same, the learned arbitrator had no jurisdiction to decide on the allocation of funds and hence the Award is liable to be set aside. Despite the contention that the agreement was never intended to be an acknowledgment of debt which attracts a stamp duty of Rs.1,000/-, in his award, has not recorded reasons in support of his decision to treat the said Agreement as an acknowledgment of debt now has called upon the Claimant/Respondent to pay the deficit Stamp Duty before giving effect to the same as an Acknowledgment of debt. For the learned arbitrator to treat the document as an acknowledgment of debt, he ought to have impounded the document in accordance with law under Sec.33 of the Karnataka Stamp Act and got it adjudicated as held by the Hon'ble Supreme Court of India in the case of N.N.Global Mercantile Pvt. Ltd. reported in (2021) 4 SCC 379. Further argued that in the present case, the agreement was entered into between the parties on the basis of the representation made by the respondent herein a certain amount would be received from NIELIT. The said Agreement was never intended to be an acknowledgment of debt entitling the party to an 42 Com.AP.No.37/2020 award for recovery of the amounts mentioned therein and hence it was on Rs.300/- stamp paper and not on Rs.1,000/- stamp paper as required under Article 1(i)(b) of the Karnataka Stamp Act. The document was only an agreement which was meant to agree for a sharing ratio upon receipt of the amounts fully payable by NIELIT.
39. On perusal of the award, I do not find any objections raised either the petitioner or the respondent regarding the insufficient stamp duty of the Settlement Agreement. The learned arbitrator has held in para 49 of award that -
"49. Admittedly a sum of Rs.4,28,83,814/- released by the NIELIT is lying in the Joint Escrow Account. In that, a sum of Rs.4 Crores has to go to the claimant towards the loan given by it to the respondent and as agreed upon both the parties under Ex.P1. The balance amount of Rs.28,83,814/- released by the NIELIT into the Joint Escrow Account is available for being apportioned in the ratio of 61% and 39% between the claimant and the respondent respectively. The same is in addition to Rs.17,24,59,842/-, which amount is directly released by the NIELIT to the respondent. Totally a sum of Rs.17,53,43,656/- is thus available for apportionment. 61% of the said amount comes to Rs.10,69,59,630/- and 39% of the same comes to Rs.6,83,84,025/-."
40. On perusal of the portion of the award it discloses that the learned arbitrator has directed to pay the stamp duty payable as per Karnataka Stamp Act. I do not find any intervention 42 Com.AP.No.37/2020
41. In Issue No.6 of the award, the learned arbitrator has held that there can be no dispute that the interest can be awarded for all the three stages; pre reference, pendete lite and post award, when the contract neither provides for nor prohibits the grant of interest. The rate of interest must be compensatory, but not exorbitant or unrealistic or punitive. If the rate of interest is 2% higher than the prevailing current rate of interest, it would meet the requirements of justice. It is deem fit and just to award interest at the rate of 10% p.a. from 25.01.2018 (date of arbitration notice) till the date of payment. Hence, I rely upon the decision as under:
"Morgan Securities And Credits Pvt. Ltd. vs Videocon Industries Ltd. reported in 2022 LiveLaw (SC) 728 wherein it is held that "The Supreme Court held that an arbitrator has the discretion to award post-
award interest on a part of the 'sum'.The arbitrator has the discretion to determine the rate of reasonable interest, the sum on which the interest is to be paid, that is whether on the whole or any part of the principal amount, and the period for which payment of interest is to be made - whether it should be for the whole or any part of the period between the date on which the cause of action arose and the date of the award -The arbitrator must exercise the discretionary power to grant post award interest reasonably and in good faith, taking into account all relevant circumstances -The purpose of granting post-award interest is to ensure that the award debtor does not delay the payment of the award."
42Com.AP.No.37/2020
42. In view of the above decision the arbitrator has a discretion to determine the rate of reasonable interest, which the interest to be paid, i.e., whether an whole or any part of the principal amount, and the period for which payment of interest is to be made. In view of the above decision I do not find any intervention is required against given by the learned arbitrator.
43. It is well established that under no circumstance can any court interfere with an arbitral award on the ground that justice has not been done, for that would be entering into the merits of the dispute, which is not permissible under Sec.34 of the Act. Having regard to the same and in view of the forgoing discussion, the the point for consideration is answered in the negative holding that the claimant has failed to make out grounds U/s 34 of the Act for setting aside the impugned award as prayed. Therefore, I answer this Point in the "Negative".
44. Point No. 2 :- Therefore, I proceed to pass the following Order.
ORDER The Petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996, is dismissed.
42Com.AP.No.37/2020 The Office is directed to send copy of this judgment to both parties to their email ID as required under Order XX Rule 1 of the Civil Procedure Code as amended under Section 16 of the Commercial Courts Act.
(Dictated to the Stenographer, typed by her directly on computer, verified and then pronounced by me in open Court on this the 25th day of January, 2024).
(SUMANGALA S. BASAVANNOR), LXXXII Addl. City Civil & Sessions Judge, Bengaluru.