Karnataka High Court
M/S. Srimaya Builders And Developers, vs M/S. Bharath Electronics Employees on 10 November, 2020
Author: G.Narendar
Bench: G.Narendar
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 10TH DAY OF NOVEMBER 2020
BEFORE
THE HON'BLE MR. JUSTICE G.NARENDAR
C.M.P. NO.127/2019
BETWEEN:
M/S.SRIMAYA BUILDERS AND DEVELOPERS,
(A REGISTERED PARTNERSHIP FIRM UNDER THE
PROVISIONS OF INDIAN PARTNERSHIP ACT)
HAVING ITS REGISTERED OFFICE AT
NO.3, OPP. BBMP OFFICE,
HESARAGHATTA MAIN ROAD,
BENGALURU 560057,
REP. BY ITS MANAGING PARTNER
SRI.T.P.GANGADHAR,
AGED ABOUT 50 YEARS,
...PETITIONER
(BY SRI. M.R.RAJAGOPAL, ADV.)
AND:
M/S.BHARATH ELECTRONICS EMPLOYEES
CO.OP. HOUSE BUILDING SOCIETY LTD.,
1ST FLOOR, BE CO.OP. SOCIETY LTD.,
JALAHALLI POST, BENGALURU 560013,
REP. BY ITS SECRETARY.
...RESPONDENT
(BY SRI. S.SHAKER SHETTY, ADV.)
THIS CMP IS FILED UNDER SECTION 11(3) OF THE
ARBITRATION AND CONCILIATION ACT, 1996 (AS AMENDED)
PRAYING THIS HON'BLE COURT TO APPOINT ANY RETIRED
DISTRICT JUDGE AS SOLE ARBITRATOR TO ADJUDICATE THE
DISPUTE AROUSE BETWEEN BOTH THE PARTIES AND PASS
NECESSARY ORDERS BY GIVING FULL OPPORTUNITIES TO
BOTH THE SIDES IN TERMS OF CLAUSE 28 OF MEMORANDUM
OF UNDERSTANDING DATED 09.10.2009 VIDE ANNEXURE - B
AND SUBSEQUENT AMENDMENTS AND SUPPLEMENTARY
MEMORANDUM OF UNDERSTANDING VIDE ANNEXURES -C TO
L.
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THIS CMP COMING ON FOR HEARING, THIS DAY, THE
COURT MADE THE FOLLOWING:
ORDER
Heard the learned counsel for the petitioner and the learned counsel for the respondent.
2. The petition is preferred seeking for appointment of sole arbitrator in terms of clause 28 of Annexure - B to the petition contained in MOU (Memorandum Of Understanding) dated 09.10.2009.
3. The facts in brief necessary for disposal of the petition are as under:
The case of the petitioner is that it is a registered partnership firm duly constituted under the provisions of the Indian Partnership Act and that the partnership is at will and that the petitioner firm is a reputed entity and has been constituted with the object of carrying on the business of developing of lands by formation of layouts and housing sites. That it also indulges in purchasing of lands in bulk and transferring them to -3- associations or housing societies in accordance with law.
4. That the respondent society entrusted development of work i.e., formation of layouts in Nelamangala, Bengaluru Rural and that the same was promptly executed in compliance with the terms and directions agreed upon between the parties and the respondent on being impressed by the quality of work and the speedy execution, expressed interest to procure more lands in Ajjanahalli, Ganapathihalli, Karigirpura Punagamaranahalli Villages, Tavarekere Hobli, Bengaluru South Taluk and also assured prompt and timely payment.
5. That initially the respondent requested to the petitioner to procure a large extent of land, that is, between 50 to 75 acres in Ajjanahalli and Ganapathihalli Villages. That in this regard, the parties reduced the same into writing and accordingly the MOU dated 09.10.2009 came to be executed. That -4- subsequently on account of certain changes that were desired by the parties, a corrigendum or amended agreement came to be attached to the MOU dated 09.10.2009 executed on 11.02.2011. That further amendments were proposed and incorporated on 23.05.2011, 13.07.2012, 09.01.2013, 21.03.2013, 20.05.2013 and supplementary MOU dated 04.03.2016. That in all the MOUs., it has been specifically agreed that the variations amendments would not have any impact on the covenants agreed upon and settled under the MOU dated 09.10.2009. That a joint meeting of the petitioner and the respondent society was held on 27.02.2016 and an agreement came about between the parties with regard to payment of the balance amount.
6. That despite the petitioner having executed substantial quantum of work, the respondent baulked and reneged on its promise to make timely payment. That on account of the default, a legal notice came to be issued to the respondent vide Annexure - M calling upon the respondent to appoint an arbitrator in terms -5- of clause 28 of the MOU dated 09.10.2009 and that the respondent was also put on notice that in the event of the respondent failing to appoint an arbitrator in terms of clause 28 of the MOU, the petitioner would take recourse to the provisions of the Arbitration and Conciliation Act and seek judicial intervention for the appointment of the arbitrator. That despite receipt of the notice, the respondent turned a deaf ear and hence the instant petition.
7. Learned counsel for the petitioner would submit that in terms of clause 28 of MOU dated 09.10.2009, the parties are required to resort to arbitration for resolution of any dispute that may arise between the parties and pertaining to the terms of the agreement. Clause 28 reads as under:
"28) IN CASE ANY differences or disputes arise between the parties in the observance of the terms and conditions of this agreement, such differences and disputes shall be referred to a committee of three arbitrators appointed by one each by the -6- FIRST PARTY and SECOND PARTY and third by these two arbitrators and the decision of the arbitrators shall be final and binding on both the parties."
8. Per contra, learned counsel for the respondent would contend that, in view of the nature of the claim made by the petitioner the same is unsustainable, as the petitioner was engaged only to procure lands and for implementing contract work. That the signatory to the petition is not authorized to set up the claim and that the partners of the petitioner firm have already initiated action for settlement of accounts of the firm and appointment of a receiver. That the inter se dispute between the partners of the petitioner firm, is seized off by the Court in A.A. No.1/2020 and hence, it is to be presumed that the signatory has no mandate to file and pursue this petition. It is further contended that in the light of the law laid down by the Apex Court in the case of S.B.P. and Co. vs. Patel Engineering Ltd., and others reported in AIR 2006 SC 450.
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9. It is necessary for this Court to ascertain as to whether a dispute capable of arbitration subsists between the parties. That the petitioner itself has issued notices proclaiming termination of the MOUs. executed between parties and that the respondent has also issued notice of termination of the MOUs. and appointed another contractor to complete the work, that the claim is in the nature of claim for damages and hence unsustainable. That the MOU on which the right is based suffers from want of requisite stamp duty, that the claims are based on documents executed between 2009 to 2016 and hence admissible stamp duty is required to be paid on each of the additional subjects and the same is cured, it cannot be relied upon.
10. That no dispute under the agreement is subsisting and which requires reference to arbitration. That on account of termination of the agreement, that can be invocation of clause pertaining to settlement of disputes by way of arbitration. That the nature of the MOU precludes the petitioner from seeking reliefs in -8- terms of Section 14(1)(c) of the Specific Relief Act. That the notice is issued in the individual capacity of the Managing Director and hence, the same is an invalid notice. That the projects handed over to the petitioner for execution were left dangling, endangering the rights of more than 1500 members of the respondent society. That the petitioner neither completed nor permitted the completion of the work and that the instant petition is nothing but an attempt to stall and impede the completion of the project. That the petitioner has also preferred A.A. No.4/2019 on the file of the Civil Court at Magadi seeking for interim measures. That there being no notice appointing an arbitrator in terms of the arbitration agreement (Clause 28), the instant petition is not maintainable and it is required to be rejected.
11. Per contra, learned counsel for the petitioner would contend that pursuant to the objections raised by the respondent, the petitioner approached the competent authority and the competent authority after assessing the documents has it collected Rs.5,00,000/- -9- towards stamp duty and further sum of Rs.50,000/- was collected by way of penalty and a certificate has been issued under Section 41 of the Karnataka Stamp Act, 1957. In view of the certification of sufficiency of stamp duty, the objections regarding impounding requires to be rejected.
12. It is further contended that there can be no unilateral termination and termination would also not estop the petitioner from laying claims for its dues under the MOU. It is further contended that the issues as to whether there is a valid termination or not cannot be a subject matter of the instant petition. Whether there is valid termination of the contract or not and whether termination absolves the respondent of its wrong doing or not are issues that could be gone into and decided by this Court in a petition preferred under Section 11(3) of the Arbitration and Conciliation Act.
13. In the above background, the short point that falls for determination is whether the petitioner is
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entitled for relief in terms of Section 11(3) of the Arbitration and Conciliation Act. Section 11(3) of the Arbitration and Conciliation Act reads as under:
"11(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator."
14. The objections of the respondent to the petition are primarily as under:
That there is no like dispute which is referable for adjudication by the Arbitration Tribunal. In this regard, reliance is placed on the ruling of the Apex Court in the case of S.B.P. and Co. vs. Patel Engineering Ltd., and others reported in AIR 2006 SC 450. The said submission need not detain this Court as the very submission and the pleadings would disclose otherwise. The mere fact that a notice of termination of the contract has been issued would not absolve the party to the contract of its liabilities to satisfy claims arising
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under the contract. That Apart, the said issue is a mixed question of fact and law and is a question that requires to be gone into and adjudicated after enquiry. No prima facie material is placed by the respondent otherwise to demonstrate the issue. In that view of the matter, the said contention requires to be rejected.
15. Secondly, the petitioner has raised an issue with regard to the non-payment of stamp duty. In the light of the subsequent payment of stamp duty and issuance of certificate under Section 41, the said objection also does not survive. Even as per the pleadings in para 4, it is contended as under:
"Even otherwise, the claim of the petitioner is regarding some alleged dues which does not fall within the purview of arbitration agreement. Hence, seeking appointment of Arbitrator is completely misconceived and unsustainable."
16. From the very statement, it is apparent that the claim has been made by the petitioner allegedly under the contract/s and that the said claim has been
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repudiated by the respondent. The fact remains that a notice has been issued in terms of clause 28 on 11.01.2019 invoking clause 28 and therein have named the arbitrator and have called upon the respondent to name their arbitrator in order to constitute the arbitral tribunal and further the respondent has also been put on notice that in the event of failure on the part of the respondent to name an arbitrator, the petitioner would be constrained to invoke the provisions of Section 11(3) of the Act. The said notice has not been replied nor has the respondent named its arbitrator.
17. In that view of the matter, this Court is of the considered opinion that the petitioner has made out a case for allowing the reliefs sought for.
18. The other objection that the petitioner has no authorization to maintain the petition or that the claim is not maintainable on account of inter se dispute between the parties are all mixed question of fact and law and are required to be answered after conducting an
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enquiry and after affording an opportunity to the parties to let-in evidence and that the same would be within the domain of the arbitral tribunal. In that view of the matter, the said objection also requires to be rejected and is rejected. Accordingly, the point for consideration is answered in favour of the petitioner.
The petition is allowed. All the disputes that have arisen between the parties under the agreement Memorandum of Understanding dated 09.10.2009 (Annexure-B) and all the contracts Annexures - C to L are referred for adjudication by the arbitral tribunal of Hon'ble Shri. Justice N.K.Patil, Retired Judge of High Court of Karnataka.
The Registry to secure the consent of the learned Arbitrator.
Sd/-
JUDGE Rsh/-