THE HON'BLE SRI JUSTICE A. ABHISHEK REDDY
ARBITRATION APPLICATION No.51 OF 2022
ORDER:
This application is filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (for short 'the Act'), seeking appointment of a sole Arbitrator to adjudicate the claims and disputes arising from Agreement for Sale dated 28.12.2018, Business Transfer Agreement dated 11th March, 2019, and notice invoking arbitration dated 15th December, 2021, issued by the applicant.
Brief facts of the case are that the respondent-Meridian Educational Society has approached the applicant-St. Mary's Educational Society and offered to sell a school at Kukatpally and after negotiations two separate agreements dated 28.12.2018 were entered by the parties for the purpose of sale and transfer of immovable property of Meridian School located in Kukatpally, Hyderabad, to the applicant herein for a total sale consideration of Rs.36,00,00,000/-. Further, a Business Transfer Agreement dated 11.03.2019 was also executed for the purpose of transfer of entire business of the school as a going concern to the applicant for a purchase consideration of Rs.6,50,00,000/-. In pursuance of sale agreement dated 28.12.2018, the applicant has paid an amount of Rs.3,00,00,000/- as earnest money deposit and it was agreed that 2 out of the balance consideration amount of Rs.33,00,00,000/-, Rs.30 crores is payable directly to LIC Housing Finance Limited towards clearance of Mortgage/security created by the respondent over the schedule property and Rs.3 crores is payable upon execution and registration of deed of conveyance. It was also agreed that the acquisition transaction has to be completed by 31.03.2019. As the respondent could not obtain NOC from LICHF Limited, it was mutually agreed by the parties to extend the sale date for a further period of thirty days vide Supplementary Agreements dated 31.03.2019 to both the Sale Agreement and the Business Transfer Agreement. Further, pursuant to the Supplementary Agreement dated 31.03.2019 to the Sale Agreement, an additional amount of Rs.3,50,00,000/- was also paid by the applicant to Butta Infrastructure Pvt Ltd., at the written request of the respondent herein. In spite of the same, the respondent failed to obtain NOC from LICHF Limited within the extended timeline. Even the two conditional NOCs issued by the LICHF Limited were cancelled for non-payment of the amounts. Further, the LICHF Limited had issued a possession notice dated 10.02.2020 under the provisions of the SARFAESI Act taking symbolic possession of the subject property. Therefore, the applicant by invoking clause 11.2 of the sale agreement dated 28.12.2018 and clause 27.2 and 27.3 of the Business Transfer 3 Agreement dated 11.03.2019 had issued notice dated 15.12.2021 proposing Sri Seshasayana Reddy, a retired Judge of this Hon'ble High Court, as the sole arbitrator, to which the respondent had issued a reply notice dated 13.01.2022 stating that both the said agreements were terminated by them and therefore the arbitration clauses thereof cannot be invoked. Hence, the applicant was constrained to file the present Arbitration Application seeking appointment of an arbitrator for resolving the disputes.
A counter has been filed by the respondent mainly stating that the respondent was always willing to proceed with the transaction, as agreed. But, the applicant has never corresponded with the respondent showing its readiness to complete their part of the agreement. Therefore, as a matter of abundant caution, the respondent has terminated the said agreement of sale dated 28.12.2018 and Business Transfer Agreement dated 11.03.2019 for non-payment of balance sale consideration and further the advance payment of Rs.6.50 crores was forfeited and the same was duly informed to the applicant. It is further stated that the applicant has lodged a complaint against the respondent and its members basing on which FIR No.366/2021 of PS Madhapur (Guttala) was registered for the offence punishable under Sections 406 and 420 read with 34 of Indian Penal Code and therefore the applicant again cannot file the present application seeking 4 appointment of an Arbitrator. Hence, it is prayed to dismiss the application.
Heard Sri Md. Ameruddin, learned counsel for the applicant, and Ms Niyatha, learned counsel for the respondent.
The learned counsel appearing on behalf of the respondent has opposed the Arbitration Application on the ground that the applicant has already filed a criminal complaint vide FIR No.366/2021 of PS Madhapur (Guttala) dated 02.04.2021 alleging that the respondent did not have any intention to honour the agreements entered between the parties. Learned counsel for the respondent has vehemently argued that once the applicant has lodged a criminal complaint alleging that the respondent did not have any intention to honour the agreement right from the inception, then the contract itself is voidable and therefore the present application seeking appointment of Arbitrator is not maintainable. Learned counsel has strongly placed reliance on Section 19 of the Indian Contract Act, 1872 and also the ratio laid down in Balfour v. Balfour1 to contend that the present application seeking appointment of Arbitrator is one without jurisdiction.
Rebutting the said contention, the learned counsel for the applicant has stated that the applicant is free to approach different 1 1919 RCB 571 5 Forums for redressal of its grievance as violation of terms of contract has both criminal and civil liability. Therefore, the applicant has lodged a criminal complaint against the respondent herein and also pursuing the arbitration proceedings as available to him under the Act and inconsonance with the same, it has filed the present arbitration application and has relied on the judgments of the Hon'ble Supreme Court in Olympus Superstructures Pvt. Ltd., v. Meena Vijay Khetan and others2 and Priti Saraf & Another v. State of NCT of Delhi & Another in Criminal Appeal No(s).296 of 2021 [arising out of SLP (Crl.) No(s).6364 of 2019] Perused the record.
The Hon'ble Supreme Court in Priti Saraf (referred supra) has held that insofar as initiation of arbitral proceedings is concerned, there is no correlation with the criminal proceedings. Thus, there is no bar for the applicant to avail both the remedies i.e. initiating criminal as well as arbitral proceedings, simultaneously.
Learned counsel has laid much stress on Section 19 of the Indian Contract Act, 1872, which reads as under:
"19. Voidability of agreements without free consent:- When consent to an agreement is caused by coercion fraud or misrepresentation, the agreement is a contract, voidable at the option of the party whose consent was so caused.
2 (1999) 5 SCC 651 6 A party to contract, whose consent was caused by fraud or misrepresentation, may if he thinks fit, insist that the contract shall be performed and that he shall be put in the position in which he would have been if the representation made had been true."
A reading of the above provision of law shows that whenever a person is induced for entering into a contract on the basis of some misrepresentation, fraud or coercion then the contract is voidable at the instance of the party who has been induced for entering into that contract.
With all due respect to the learned counsel for the respondent, the reliance on Section 19 of the Contract Act is misplaced and far-fetched and the said provision is not applicable to the facts of this particular case. Even though the learned counsel for the respondent has relied on 1919 RCB 571, the same is distinguishable on facts and therefore not of an avail.
The only thing that matters for initiating arbitral proceedings is 'whether there is any arbitration clause in the agreement entered between the parties or not'.
For the purpose of deciding the present application, the Court has only to see whether there is an arbitrable dispute between the parties and whether the agreement/s entered between the parties have an arbitration clause to refer the matter to an arbitrator.
7
In this particular case, clause 11.2 of the Sale Agreement dated 28.12.2018 and clause 27.2 and 27.3 of the Business Transfer Agreement dated 11.03.2019 provide for arbitration in case of any disputes between the parties.
In IBI Consultancy (India) (P) Ltd. v. DSC Ltd.3, the Hon'ble Supreme Court while dealing with the Arbitration Application filed under Section 11(6) read with Section 11(9) of the Arbitration and Conciliation Act, for appointment of an arbitrator to adjudicate the disputes that have arisen between the parties therein in connection with the contracts in question, has held, at para 8, as under:
8. The first and the foremost thing is the existence of an arbitration agreement between the parties to the petition under Section 11 of the Act and the existence of dispute(s) to be referred to arbitrator is condition precedent for appointing an arbitrator under Section 11 of the Act. It is also a well-settled law that while deciding the question of appointment of arbitrator, the court has not to touch the merits of the case as it may cause prejudice to the case of the parties. The scope under Section 11(6) read with Section 11(9) is very limited to the extent of appointment of arbitrator. This Court has to see whether there exists an arbitration agreement between the parties and if the answer is in the affirmative then whether the petitioner has made out a case for the appointment of arbitrator.
3 (2018) 17 SCC 95 8 Further, in Duro Felguera, S.A. v. Gangavaram Port Ltd.,4 the Hon'ble Supreme Court, at para 59, has held as under:
"The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected."
For the afore-stated reasons and in view of the law laid down by the Hon'ble Supreme Court in IBI Consultancy (India) (P) Ltd. and Duro Felguera, S.A. (referred supra), this Court deems it fit to allow the Arbitration Application and refer the matter for arbitration to be conducted by a sole arbitrator.
In the result, the present Arbitration Application is allowed appointing Ms. G. Sridevi, retired Judge of this High Court, as the sole Arbitrator to arbitrate on the disputes between the applicant and the respondent and the said arbitrator shall enter on reference and proceed with, as enjoined by the Act. The respondent is entitled to raise all legally tenable objections before the Hon'ble Arbitrator.
4 (2017) 9 SCC 729 9 The learned Arbitrator shall fix the remuneration as per the statutory provisions. She shall also fix the costs and expenses of the secretarial assistance for the arbitration proceedings upon deliberation and consultation with the parties. All the costs and expenses of the arbitration proceedings shall be borne by both the parties in equal share. The learned Arbitrator is requested to complete arbitration proceedings and pass an award at the earliest, preferably within six months from the date of commencement of the arbitral proceedings. It is made clear that this order does not preclude the respondent from raising all legally tenable objections as may be permissible under the law.
Miscellaneous Applications, if any, pending in the Arbitration Application shall stand closed.
____________________ A. ABHISHEK REDDY, J Date :13-02-2023 sur