Telangana High Court
M/S Abhishek Business Private Limited vs M/S Blue Nile Developers Pvt Ltd on 29 December, 2023
THE HONOURABLEJUSTICE SRI J. SREENIVASRAO
ARB.APPL.No.190 OF 2022
ORDER:
The Applicant filed this application under Section 11 (5) and (6) of the Arbitration and Conciliation Act, 1996 (R/w settlement of appointment of arbitrator), 1996 (for short "the Act") to appoint a sole arbitrator to adjudicate the claims and disputes between the applicant and respondent pursuant to the "Memorandum of Understanding" (brevity "MOU") dated 19.07.2012.
Factual Matrix:
2. The Applicant is a company incorporated under the Indian Companies Act, 1956, engaged in various business activities, such as, supply of industrial goods, commercial goods, household goods, construction material, agriculture and wholesale trading. The applicant submits that in 2012, the Respondent had approached the Applicant for investment in a real estate project named "Pebble Beach Villas" in Visakhapatnam. Accordingly, "MOU" was entered by both the parties on 19.07.2012, stipulating the joint development of the project with a 25% equity investment by the Applicant. The project has to be completed within a period of 24 months. The Applicant invested an amount of more than Rs.
7,50,00,000/- crores in the said project in three tranches. But, disputes were arose with regard to land documentation, delays in approvals, and 2 JSR, J AA.No.190 of 2022 discrepancies arose. The Respondent failed to provide required project information. Upon scrutiny, it was discovered that project funds were misappropriated by the directors. The Applicant initiated insolvency proceedings before NCLT (National Company Law Tribunal), which were later withdrawn with a liberty to approach appropriate tribunal by its order dated 08.09.2022.
2.1 That the applicant has demanded the respondent to return back the investment made by it along with interest and further stated that it is no longer interested in jointly developing the said project with the respondent and also issued legal notice dated 14.04.2020 demanding the respondent to pay a sum of Rs.2,25,00,000/- with interest on the ground that respondent failed to adhere to the terms and conditions mentioned in "MOU". Despite of several promises, respondent did not repay the full investment made by the applicant and the project was also stalled. At that stage, applicant got issued notice dated 14.07.2022 invoking the arbitration clause IV-9 of "MOU" nominating Sri. B.Prakash Rao Retd. High Court Judge, as the sole arbitrator. However, respondent has not given consent nor issued any reply. Hence, the applicant filed present application.
3. Respondent filed counter denying the allegations inter alia contending that the claim made by the applicant for repayment of Rs. 3
JSR, J AA.No.190 of 2022 2,25,00,000/- with interest @18% from 2015, is time barred and the cause of action arose in 2015 and suit for recovery of money shall be filed within 3 years, i,e., on and before 2018. The "MOU" is not properly stamped as per the provisions of Indian Stamp Act, 1899 (for short, 'the Act') unless and until such deficit stamp duty paid through proper procedure under the Act. Applicant is not entitled to seek any relief much less the relief of appointment of arbitrator basing upon the above said document.
4. Heard Sri Sheelam Ashok Reddy, learned counsel for the applicant and Sri. P. Ramesh babu, learned counsel for the respondent.
5. Learned counsel for the applicant submits that the applicant company has entered into "Memorandum of Understanding" on 19th July, 2012 with the respondent intending to jointly develop the project under the name and style of "Peddle Beach Villas" with a 25% equity investment by the Applicant. The completion of said project within 24 months from the date of granting of plan of approval. The respondent has committed several illegal activities, including gross mismanagement and also misappropriation of funds and the respondent failed to repay the principal amount of Rs. 1,20,73,000/- along with 18% interest from 2015. In 2018, the respondent made a partial payment of Rs. 80,00,000/- which was credited towards the interest on the principal amount. Thereafter, the 4 JSR, J AA.No.190 of 2022 respondent has not paid any further payment, resulting in default on both the principal and accrued interest and the respondent liable to pay a total amount of Rs. 2,25,00,000/- inclusive of the principal sum and interest at the rate of 18%.
6. He further contended that in spite of several requests made by the applicant through mails, respondent did not repay the amounts and at that stage, the applicant got issued a legal notice dated 14.04.2020 demanding the respondent to pay a sum of Rs. 2,25,00,000/- including interest. Regardless of the said notice, the respondent has neither complied with the said demands nor replied to the said notice. Having left with no other alternative, the applicant had issued notice dated 14.07.2022 invoking arbitration clause IV-9 of "MOU" nominating retired High Court Judge as arbitrator. However, the respondent neither given consent nor issued any reply. He further contented whether claim made by the applicants within the period of limitation or not and whether the "MOU" is required stamp duty or not those aspects will be decided by the arbitral tribunal and the application under section 11(5)&(6) is maintainable.
7. Per contra, learned counsel for respondent contented that the claim made by the applicant in the application is barred by limitation and 5 JSR, J AA.No.190 of 2022 "MOU" is not properly stamped and required stamp duty and basing upon such document the applicant cannot seek appointment of arbitrator.
8. Having considered the rival submissions made by the respective parties and after perusal of the material available on record, it reveals that the applicant company and the respondent have entered into a "MOU" on 19.07.2012, for a joint development of project styled and named "Peddle Beach Villas". The specific claim of the applicant is that the respondent is carrying out illegal activities, mismanagement and misappropriation of funds, violating the terms and conditions of "MOU". The applicant got issued legal notice dated 14.04.2020 demanding the respondent to return back the investment made by it along with interest amount of Rs.2,25,00,000/- on the ground that the respondent failed to adhere to the "MOU" terms and stated in the said notice that the applicant is no longer interest in jointly developing the said project with the respondent. Despite of several promises, the respondent did not repay the full investment and the project stalled. The applicant claims non-repayment of principal amount of Rs.1,20,73,000/- with 18% interest since 2015. When the respondent failed to repay the said amount, the applicant issued notice dated 04.07.2022 invoking the arbitration clause IV-9 of "MOU" dated 19.07.2012 seeking resolution for outstanding amounts by nominating retired High Court Judge, as a sole arbitrator, to adjudicate 6 JSR, J AA.No.190 of 2022 the disputes between the parties. However, respondent has not given consent nor issued any reply.
9. It is very much relevant to extract the clause IV-9 of the Memorandum of Understanding dated 19.07.2012 which reads as follows:
9. This MOU supersedes any other oral or written agreement between the First and Second Party. Any dispute between the parties regarding matters contained in this MOU shall be resolved by arbitration as per the Arbitration and Conciliation Act, 1996. The Place of Arbitration shall be at Hyderabad, Andhra Pradesh and the proceedings shall be in English. The Place of legal jurisdiction shall be Hyderabad, Andhra Pradesh.
10. The objection raised by the respondent that the claim made by the applicant is barred by limitation and the "MOU" was not properly stamped, these aspects can gone into by the arbitral tribunal, as purview of section 11 or 8 of the Act is very limited, whether there is any arbitral disputes between the parties or not. Admittedly, the parties have entered "MOU"
dated 19.07.2012 and disputes were arose between the parties. As per clause IV-9 of "MOU" the parties agreed to settle the disputes through arbitration. Hence, the view of this Court is that there is arbitral dispute between the parties.
11. It is also relevant to place on record of the seven bench Judges of the Hon'ble Apex court In M/s Bhaskar Raju and Brothers and Anr v. M/s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar 7 JSR, J AA.No.190 of 2022 Chattram & Other Charities and Ors 1 , overruling the earlier the judgments of N. N. Gobal mercantile (p) ltd. V. Indo Unique Flame ltd. 2 and SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., 3 holding that Non-stamping or inadequate stamping is a curable defect and an objection as to stamping does not fall for determination under Section 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement is exist between the parties or not and all the other objections and disputes including stamping of agreement falls within the ambit of arbitral tribunal only.
12. It is already stated 'supra' that the objection raised by the respondent that the claim made by the applicant is barred by limitation and document "MOU" is not stamped properly, these aspects have to be adjudicated by the arbitral tribunal and the application filed by the applicant for seeking appointment arbitrator invoking clause IV-9 of "MOU" dated 19.07.2012 is very much maintainable under Section 11 (5) or (6) of the Act.
13. For the foregoing reasons as well as the law laid down by the Hon'ble Apex Court, Sri. P. Naveen Rao, Retired High Court Judge, H.No.3001, My Home Bhooja, Block-A, Plot Nos.22-24 & 31-33, Raidurgam, K.V Raga Reddy District, Telangana state-500081 is 1 Curative Petition (C) No. 44 of 2023 (2023INSC1066) 2 2023 (7) SCC 1 3 (2011) 14 SCC 66 8 JSR, J AA.No.190 of 2022 appointed as sole Arbitrator, who will adjudicate the dispute between the parties arising out of the "MOU" dated 19.07.2012.
14. The learned Arbitrator shall fix his own remuneration upon deliberation and consultation with the parties. He shall also estimate the cost and expenses for the secretarial assistance and other incidental expenditure of the arbitration proceedings. The parties will bear the expenses of the arbitration proceedings in equal share.
15. Accordingly, the Arbitration Application is allowed. No costs.
As a sequel there to, miscellaneous applications, if any, pending in this arbitration application, shall stand closed.
______________________ J. SREENIVAS RAO, J Date: 29.12.2023 mar