Telangana High Court
A Gopala Krishna, Died Per Lrs vs M/S.Urban Asia Gachibowli on 28 November, 2022
Author: K. Lakshman
Bench: K.Lakshman
1
IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT: HYDERABAD
CORAM:
* THE HON'BLE SRI JUSTICE K.LAKSHMAN
+ARBITRATION APPLICATION No.121 OF 2021
ALONG WITH I.A.NOs.4, 5 AND 6 OF 2022
COMMON ORDER:
% Delivered on:28.11.2022 Between:
# A.Gopala Krishna(died) by his legal representative 2nd applicant ..Applicant Vs. $ M/s Urban Asia Gachibowli .. Respondent ! For Applicant : Sri A.Venkatesh, Lr.Counsel, ^ For Respondent : Sri Zeeshan Adnan Mahmood Ld counsel, < Gist :
> Head Note :
? Cases Referred :
1. (2005) 1 SCC 40.
2. (2003) 12 SCC 35.
3. (2008) 13 SCC 667.
4. 2021 SCC OnLine SC 294
5. (2021) 2 SCC 1.
2
THE HON'BLE SRI JUSTICE K.LAKSHMAN
ARBITRATION APPLICATION No.121 OF 2021
ALONG WITH I.A.NOs.4, 5 AND 6 OF 2022
COMMON ORDER:
The present Arbitration Application is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act, 1996') for appointment of arbitrators to resolve the disputes between the parties.
2. Heard Mr. A.Venkatesh, learned counsel for the Applicant, Mr. Zeeshan Adnan Mahmood, learned counsel for Respondent.
3. The Applicant claims to be the owner of property admeasuring 16000 Sq. Ft. spread over the second floor, third floor, fourth floor and the terrace in the building constructed on Plot No. 1259/A, Road No. 36, Jubilee Hills, Hyderabad (hereinafter 'subject property').
4. The Applicant and the Respondent entered into a lease deed dated 30.12.2017 (hereinafter 'the agreement') whereby the subject property was leased out to the Respondent for a period of three years. As per the terms of the agreement, the rent payable by the Respondent 3 was Rs. 6,52,359/- per month (excluding CAM charges + GST) and the said amount was payable on or before 10th of every month. According to the Applicant, the Respondent by virtue of Clause 3 and Clause 7 was also liable to the agreed rent including the CAM + GST charges. The terms also provided that if the Respondent defaults in payment of monthly rent for a consecutive period of 3 months, it is liable to pay interest to the tune of 1.5% per month.
5. According to the Applicant, payment of the rent and CAM + GST charges before 10th of every month was the essence of the agreement. The Applicant states that the Respondent failed to pay the agreed rent and CAM + GST charges from September 2019 despite repeated requests. The Applicant terminated the agreement by issuing a notice dated 28.08.2020 and seeking possession of the subject property along with arrears of rent amounting to Rs. 79, 23, 590/- for a period from 01.09.2019 to 30.06.2020.
6. The Respondent replied to the termination notice dated 28.08.2020 on 12.09.2020 disputing the claims of the Applicant and stated that it has been paying the rent regularly including CAM + GST charges. The Applicant then issued a rejoinder notice dated 4 07.10.2020 reiterating its claims. While things stood thus, the Respondent also filed a suit bearing O.S. No. 1212 of 2021 on the file of Hon'ble XXI Junior Civil Judge, City Civil Court, Hyderabad seeking perpetual injunction. The said court vide order dated 26.03.2021 passed an ex parte order directing the parties to maintain status quo.
7. According to the Applicant, despite receiving the termination notice and despite the lease deed coming to an end due to efflux of time, the Respondent is continuing to be in possession without paying the rents as per the agreement. The Applicant filed an application under Section 9 of the Act, 1996 vide A.O.P. No. 41 of 2021 in which an ex parte order dated 22.04.2021 was passed directing the Respondent to deposit the rental arrears to the tune of Rs. 1,15,31,716/- for the period of 01.09.2019 to 30.09.2020 within a period of 3 days.
8. Subsequently, the Applicant invoked Clause 24 of the agreement dated 30.12.2017 and issued an arbitration notice dated 26.04.2021. In the said arbitration notice, the Applicant nominated Sri 5 G.Gopala Krishna Murthy, Retired District Judge, and called upon the Respondent to appoint its nominee arbitrator.
9. As no reply was received from the Respondent to the arbitration notice dated 26.04.2021, the Applicant filed the present arbitration application seeking appointment of an arbitrator on behalf of the Respondent. The Applicant claims that the Respondent is liable to pay rents to the tune of Rs. 1,15,31,716/- along with mesne profits of Rs. 10,00,000/- per month, 18% GST and Rs. 90,000/- per month towards CAM charges from 01.10.2020 till the date of vacating the subject property.
10. The Respondent filed its Counter Affidavit disputing the claims of the Applicant. The Respondent contends that it has been timely paying the rents to the tune of Rs. 7,84,794/- which includes the CAM + GST Charges without any default. Further, it contends that it had made huge investments for the interior works of the subject property with the consent of the Applicant and it has been regularly paying electricity, water and maintenance charges. The Respondent also contended that it was the duty of the Applicant to pay the CAM + 6 GST Charges as received from it to the Central Government which it failed to do.
11. According to the Respondent, the parties agreed to settle and extend the agreement dated 30.12.2017 for a further period of 3 years on the condition of Rs. 15,00,000/- were paid by the Respondent. The Respondent claims that it has paid a total amount of Rs. 10,00,000/- on various dates i.e., 23.11.2020, 26.11.2020 and 05.12.2020 to the Applicant and the balance was to be paid during the registration of the lease deed. However, the agreement was not extended. The Respondent also contended that its liquor license was cancelled on account of the Applicant. The Respondent alleges that the Applicant deliberately is not paying the property tax so that the municipal authorities seize the subject property and Respondent is not allowed to conduct its business.
12. While the present arbitration application was pending, the Applicant passed away on 22.10.2021. Applicant No. 2 claiming to be the daughter and legal heir of the original Applicant filed interlocutory applications vide I.A. No. 1 of 2022, I.A. No. 2 of 2022 and I.A. No. 3 of 2022 praying this Court to implead her and bring 7 her on record as the legal heir of the original Applicant for the purpose of the present Arbitration Application. The Applicant in the above mentioned Interlocutory Applications claims that the subject property was bequeathed to her by the original Applicant vide a registered Will Deed dated 05.01.2021.
13. This Court vide order dated 22.06.2022 allowed the Interlocutory Applications filed by Applicant No. 2 impleading her as the legal representative of the original Applicant.
14. The Respondent filed I.A. No. 4 of 2022, I.A. No. 5 of 2022 and I.A. No. 6 of 2022 to recall the orders dated 22.06.2022 passed in I.A. No. 1 of 2022, I.A. No. 2 of 2022 and I.A. No. 3 of 2022 whereby Applicant No. 2 was impleaded as the legal representative of the original Applicant. The Respondent contends that Applicant No. 2 cannot be impleaded as the legal heir as other legal heirs of the original Applicant were not arrayed as parties. Relying on the decisions in Daulat Ram v. Sodha1 and Bhagat Ram v. Suresh2, the Respondent contended that production of Will Deed is insufficient to prove that Applicant No. 2 is the legal heir of the 1 (2005) 1 SCC 40.
2(2003) 12 SCC 35.
8original Applicant and the genuinity of the Will Deed has to be proved before a competent Civil Court.
15. During the course of hearing, the parties together have filed a Joint Memorandum of Compromise dated 27.10.2022 stating they have partially settled the disputes and the present Arbitration Application may be decided in light of such partial settlement.
16. On perusal of the aforesaid facts and contentions of the parties, the following issues have to be decided by this Court:
1. Whether this Court could have impleaded Applicant No. 2 as the legal representative of the original Applicant?
2. Whether this Court can record partial compromise/settlement entered into by the parties while exercising powers under Section 11 of the Act?
3. Whether any arbitral disputes exist between the parties which warrant appointment of an arbitrator?
Issue No. 1 :-
17. The Respondent contends in I.A. Nos. 4 to 6 of 2022 that Applicant No.2 could not have been impleaded as legal heir of the original Applicant. Firstly, because other legal heirs were not arrayed as parties and secondly, because the genuineness of the Will Deed relied upon by Applicant No. 2 has to be proved before a competent 9 Civil Court. This Court cannot accept the said contentions of the Respondent.
18. Before discussing the issue at hand, it is apt to refer to Section 2(1)(g) of the Act, 1996 and Section 40 of the Act, 1996. The said provisions are extracted below:
Section 2(1)(g):
"legal representative" means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;
Section 40:
Arbitration agreement not to be discharged by death of party thereto.
(1) An arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event been forceable by or against the legal representative of the deceased.
(2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.
(3) Nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person.
19. Section 2(1)(g) of the Act provides that any person who in law represents the deceased (who before his death was party to the 10 arbitration) or a person acting in a representative capacity on whom the estate of the deceased devolves can act as a legal representative of the deceased for the purpose of arbitral proceedings. Section 40(1) of the Act, provides that in the event of death of any of the party to an arbitration, the proceedings shall continue by/against the legal representative of such deceased person. Therefore, Section 2(1)(g) read with Section 40(1) of the Act, provides that a deceased who was party to an arbitration proceeding can be represented by his legal representative.
20. An arbitration does not get abated merely on the death of the party. The claims under the arbitration agreement can be prosecuted by/against the legal representatives of the deceased party. The Supreme Court in Ravi Prakash Goel v. Chandra Prakash Goel3 explaining the scope of Section 40 held that a legal representative can seek appointment of an arbitrator under Section 11 of the Act, 1996. The Court also held that arbitrator can be appointed even in the absence of a probate to a Will Deed based on which the legal representative claims a right to represent the deceased. The relevant paragraphs are extracted below:
3
(2008) 13 SCC 667.11
20. The definition of "legal representative" became necessary because such representatives are bound by and also entitled to enforce an arbitration agreement. Section 40 clearly says that an arbitration agreement is not discharged by the death of a party. The agreement remains enforceable by or against the legal representatives of the deceased. In our opinion, a person who has the right to represent the estate of the deceased person occupies the status of a legal person (sic representative). Section 35 of the 1996 Act which imparts the touch of finality to an arbitral award says that the award shall have binding effect on the "parties and persons claiming under them". Persons claiming under the rights of a deceased person are the personal representatives of the deceased party and they have the right to enforce the award and are also bound by it. The arbitration agreement is enforceable by or against the legal representative of a deceased party provided the right to sue in respect of the cause of action survives.
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28. In the instant case, the appellant being the only son of his deceased mother, is undisputedly a partner in the partnership firm with the respondents especially where the dispute concerning the partnership affairs had arisen already during her lifetime. The view taken in the impugned order that the appellant has no presently establishable binding arbitration agreement with the respondents is erroneous in law and facts. The impugned order is also bad in law in the teeth of the law laid down by this Court in Prem Lata v. IsharDass Chaman Lal [(1995) 2 SCC 145 : AIR 1995 SC 714] . This apart, the appointment of arbitrator could not be rejected on the ground of non-probate of the will executed by the mother when no family member is disputing the will and the appellant's claim vis-à-vis the partnership firm, even otherwise also the appellant is the legal heir of the deceased partner being her only son. In our view, non-probate of will is not a germane factor to be considered at the time of appointment of arbitrator under Section 11 of the Arbitration Act. In our opinion, the partnership deed clearly recites that all the disputes touching the affairs of the partnership 12 firm were referable to arbitrator and it cannot be gainsaid that the dispute regarding accounts of the partnership firm is a dispute touching the affairs of the firm.
29. As already stated, it was not legally essential to specifically make a mention that the partners included their legal heirs, representatives, assigns or legatees, etc. and the arbitration clause could be invoked by the appellant as the legatee as well as the legal heir/legal representative of the deceased Dulari Devi particularly where the dispute had arisen during her lifetime. The appellant's claim in the instant case is based on the will as well as being a legal heir of the deceased Dulari Devi. The appellant, in our opinion, possessed a legal and enforceable right to invoke arbitration clause and move application under Section 11 of the Arbitration Act before the High Court for appointment of arbitrator. The word "party" as used in the partnership deed does not exclude inclusion of legal heirs, legal representatives, etc. as being canvassed by the respondents. Thus, in our opinion, in view of the provisions of Sections 40 and 46 of the Partnership Act read with Section 40 of the Arbitration Act, the appellant has a legal right to commence arbitration by moving an application under Section 11 of the Arbitration Act in the High Court as in our view, the right to sue survives on him as legal representative of the deceased Dulari Devi and he is entitled to invoke Clause 13 of the partnership deed. Moreover, the dispute referable to arbitration had already arisen during the lifetime of Dulari Devi which is also well settled that where a dispute is referable to arbitration, the parties cannot be compelled to take recourse to in the civil courts.
21. In the present case, none of the other legal representatives dispute the Will Deed dated 05.02.2021executed by the original Applicant (since deceased) in favour of Applicant No. 2. It is relevant to note that the agreement dated 30.12.2017 defining the parties 13 specified that the term Lessor (original Applicant) will mean and include legal heirs, successors in interest, executors and administrators. The said part of the agreement dated 30.12.2017 is extracted below:
MR.A. GOPALA KRISHNA s/o A.VSubba Rao and Mrs. M.VIJAYALAKSHMI w/o MV Narasimha Rao R/o plot no 1259/A, road # 36. Jubilee Hills, Hyderabad-500033. Hereinafter referred to as the LESSOR (Which expression shall unless repugnant to the subject or context thereof, mean and include their legal heirs, successors in interest, executors, administrators and assigns) of the FIRST PART.
22. It is relevant to note that the Respondent also does not dispute the fact that Applicant No. 2 is the daughter of the original Applicant. The Court cannot refuse to implead a legal heir of a deceased party to an arbitration merely on the ground that the veracity of the Will Deed was questioned by the opposite party. Further, where the other legal representatives do not dispute the Will Deed, such legal representative in whose favour the property was bequeathed can be impleaded in place of the deceased party. If any dispute regarding the succession of the subject property arises, the same will be an inter se dispute between the Applicant No. 2 and the other legal heirs of the original Applicant/deceased. Therefore, the Applicant No. 2 was rightly impleaded as a legal representative of the original Applicant. 14 Therefore, there is no need to recall order dated 22.06.2022 passed by this Court in I.A.Nos.1 to 3 of 2022 as sought in I.A.Nos. 4, 5 and 6 of 2022 and thus, I.A.Nos.4 to 6 of 2022 are dismissed. Issue 2:-
23. As stated above, the parties filed a Joint Memorandum of Compromise dated 27.10.2022 agreeing to certain terms mentioned therein. However, the said Memorandum in Clause 8 stated that the compromise was partial. The said Clause is extracted below:
8. In view of the partial compromise, the Arbitration proceedings in ARB. APPL. No. 121 of 2021 will be proceeded with after recording the compromise as agreed above.
This raises a question whether the Court in exercise of its power under Section 11 of the Act, 1996 can record a partial compromise/settlement entered into by the parties. It is relevant to note that the power of the Court under Section 11 of the Act, 1996 is limited. If the courts on perusal of the pleadings finds that, prima facie, an arbitration agreement exists and finds that there are, prima facie, disputes between the parties to such an agreement, it has to appoint an arbitrator. Existence of an arbitrable dispute is a condition precedent to appoint an arbitrator and the dispute is said to exist till it is decided by the arbitral tribunal.
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24. Therefore, in cases where an application under Section 11 is pending and an arbitrator is yet to be appointed, the Court can record a compromise entered into between the parties which brings the entire arbitral dispute to an end. In other words, where the entire arbitral dispute comes to an end on account of a compromise, the Court can dispose off the application for appointment of an arbitrator recording such compromise.
25. The Supreme Court in V. Sreenivasa Reddy v. B.L. Rathnamma4 held that the Court can record compromise while deciding an application under Section 11 of the Act, 1996. The Court has to only see whether sufficient material is placed on record evidencing that such compromise was entered into by the parties. The relevant paragraphs are extracted below:
15. We note that in the said background there is no definite material on record to indicate that there was a concluded settlement between the parties based on which the petition was disposed and, therefore there is no reason to hold that there is no dispute which required resolution through arbitration; nor are we in a position to hold that there is Novation of the earlier agreement. Though the learned Judge of the High Court of Karnataka through the order dated 05.07.2011 had disposed of the petition under Section 11(6) of the Act, 1996 by recording the submission that the matter has 4 2021 SCC OnLine SC 294 16 been settled out of court, the so-called settlement has not been recorded nor made a part of the order so as to bind the parties and to indicate that the dispute had been resolved and had accordingly erased the original dispute or amounted to Novation.
That apart, no material is placed on record to show that the settlement had been reduced into writing and had been placed before the Court when the petition was disposed of so as to indicate that the right to arbitration under the original agreement cannot be claimed. If that be the position, the rejection of the IA also on the ground that the original order had merely recorded the settlement will not indicate that a concluded settlement was placed before the Court.
17. That apart, as rightly portrayed in the affidavit of the appellant filed in Arbitration Application No. 52/2016, not just the original dispute but even the fact as to whether the matter was settled amongst themselves or not is a dispute arising out of and in connection with the agreement dated 23.11.2006 entered into between the parties. If that be the position, the learned Chief Justice, High Court of Judicature at Hyderabad was not justified in rejecting the application only on the contentions urged therein on behalf of the respondent about the petition being hit by Order II Rule 2 of CPC and also the principles of res-judicata. It cannot be accepted in the present facts that there was abandonment of part of any claim nor was there a conclusive adjudication of the dispute between the same parties on merits to constitute res-judicata. As already indicated above, the so- called settlement has neither been recorded in the earlier proceedings nor any document brought on record to indicate that factually the settlement had taken place so as to wipe out the original dispute. In such circumstance, a party to the arbitration agreement contending that there was a dispute amongst them cannot be left without a forum for resolution of the dispute by taking a hyper technical view of the matter. In any event, whether the dispute which had arisen at the first instance has been settled; if the dispute subsisted, whether the claim is within the period of limitation, the nature of relief if any and all other contention on merits are to be considered in the arbitral 17 proceedings. Hence, keeping open all contentions on merits, we are of the view that the sole Arbitrator is to be appointed to resolve the dispute between the parties.
26. In the present case, this Court cannot record a partial compromise between the parties. A perusal of the Memorandum dated 27.10.2022 indicates that the disputes between the parties have not been fully resolved. At this stage, it may not be possible to separate the disputes which have been settled and the ones which still exist. This Court also feels that the settled disputes may be related to the ones which remain unsettled. Therefore, while a full and final compromise between the parties may be recorded under Section 11 of the Act, a partial compromise resolving only few of the disputes cannot be recorded by the Court. However, this Court grants liberty to the parties to place the Memorandum of Compromise dated 27.10.2022 and get the same recorded before the arbitral tribunal. Issue 3:-
27. The scope of High Court's power under Section 11 of the Act, 1996 is extremely limited. The Court has to only see whether, prima facie, an arbitration agreement exists. The Court cannot go into disputed questions of facts which are to be decided by the arbitrator.
Clause 24 of the agreement dated 30.12.2017 provides that arbitration 18 shall be the mode of dispute resolution. The said clause is extracted below:
24. This agreement shall be governed in accordance with the laws of India. In case of any dispute arising in respect of this agreement, the matter shall be referred to arbitration in consonance with the provisions of the arbitration and conciliation act. 1996. The arbitral tribunal shall consist of three arbitrators, one each nominated by Lessor and the Lessee who shall then jointly nominate the third arbitrator. The decision of the arbitrators so appointed shall be binding upon the parties.
The law governing the arbitration proceedings shall be Indian law and the proceedings at Hyderabad and conducted language. shall be held in the English
28. It is relevant to note that the Supreme Court in Vidya Drolia v. Durga Trading Corporation5 laid down the test to exercise power under Section 11 of the Act, 1996. In his separate opinion, Hon'ble Sri Justice N.V. Ramana, Former Chief Justice of India, held as follows:
244. Before we part, the conclusions reached, with respect to Question 1, are:
244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference. 244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood.
244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie 5 (2021) 2 SCC 1.19
(summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.
244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above i.e. "when in doubt, do refer".
244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only:
244.5.1. Whether the arbitration agreement was in writing? or 244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.?
244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled? 244.5.4. On rare occasions, whether the subject-matter of dispute is arbitrable?
29. From the facts and contentions raised by the parties, it is clear that disputes regarding payment of the rental dues and its quantum exist between the parties. Disputes also pertain as to who is liable under the agreement to pay the taxes. Therefore, in view of Clause 24 of the Agreement, this Court deems it appropriate to refer the matter to arbitration.
30. In light of the aforesaid discussion and the law laid down by the Supreme Court, the I.A.Nos.4 to 6 of 2022 are dismissed. The present Arbitration Application is allowed. Sri Mangari Rajender, 20 Retired District Judge, is appointed as the arbitrator on behalf of the Respondent and Sri G. Gopala Krishna Murthy (Retired District Judge) will be the nominee arbitrator of the Applicant. Both the arbitrators with consensus shall choose the third arbitrator.
Consequently, miscellaneous Petitions, pending if any, shall stand closed.
__________________ K. LAKSHMAN, J Date: 28.11.2022 Note: L.R. Copy to be issued.
b/o. vvr