Karnataka High Court
Smt. Padma Mahadev, vs M/S. Sierra Constructions ... on 22 March, 2021
Author: Chief Justice Magadum
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF MARCH, 2021
PRESENT
THE HON'BLE MR. ABHAY S. OKA, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
COMAP NO. 2 OF 2021
BETWEEN:
1. Smt. Padma Mahadev,
Wife of Late R. Mahadev,
Aged about 62 years,
Residing at No.37,
Police Station Road,
Basavanagudi,
Bengaluru - 560 004.
2. Mr. Chetan Mahadev,
Son of Late R. Mahadev,
Aged about 46 years,
Residing at No.37,
Police Station Road,
Basavanagudi,
Bengaluru - 560 004.
3. Smt. Archana Mahadev,
Daughter of Late R. Mahadev,
Aged about 36 years,
Residing at No.37,
Police Station Road,
Basavanagudi,
Bengaluru - 560 004. . . . Appellants
(By Shri Udaya Holla, Senior Advocate for
Shri Chandrashekar S, Advocate)
2
AND:
M/s. Sierra Constructions
Private Limited,
Having its registered office at
No.187, 1st Cross, 1st Main,
Lower Palace Orchards,
Bangalore - 560 003,
Represented by its Director
Mrs. Kumari Bharathi . . . Respondent
(By Shri M.V. Sundara Raman, Advocate)
This Commercial Appeal (COMAP) is filed under Section
13 (1A) of the Commercial Courts Act, 2015 read with Section 37
(1) (b) of the Arbitration and Conciliation Act, 1996, praying to (i)
call for the records in Com.A.A.No.45/2020, on the file of LXXXIII
Additional City Civil and Sessions Judge (Commercial Court),
Bengaluru, (CCH-84) and (ii) Set aside the impugned order dated
19/11/2020 passed by the LXXXIII Addl. City Civil and Sessions
Judge (Commercial Court), Bengaluru, (CCH-84) in Com.A.A.No.
45/2020 passed on I.A.No.1 (Annexure-A) and to dismiss the
Com.A.A.No.45/2020 pending on the file of the LXXXIII Addl.City
Civil and Sessions Judge (Commercial Court), Bengaluru (CCH-
84 and etc.
This Appeal having heard and reserved for Judgment,
coming on for pronouncement of Judgment, this day, Chief
Justice delivered the following:
3
JUDGMENT
The appellants who are the owners of the schedule
property are the respondents before the learned Judge of the
Commercial Court, Bengaluru Urban District in Com.A.A.
No.45/2020. The impugned order dated 19th November 2020 has
been passed on an application made by the respondent-
developer before the Commercial Court under Rules 1 and 2,
Order XXXIX of the Code of Civil Procedure, 1908 (for short "the
said Code"). The application was made in an application filed
under section 9 of the Arbitration and Conciliation Act, 1996 (for
short, 'the Arbitration Act').
FACTS OF THE CASE:
2. With a view to appreciate the submissions made across the
Bar, a brief reference to the facts will be necessary. The
appellants are the owners of the schedule property and the
respondent is the developer. The property which is the subject
matter of the application filed by the respondent-developer under
Section 9 of the Arbitration Act, is the land bearing No.19/1, new
No.165 and 165/1, R.V. Road, Visweswarapuram, Bengaluru-
560004. The area of the said property (for short, 'the schedule
property') is 9533 square feet (out of 10725 square feet). On 14th
December, 2007, a Joint Development Agreement (for short, 'the
JDA') was entered into by and between the appellants and the
respondent. As per the terms of the said JDA, the respondent had
agreed to construct a commercial complex or a Hotel complex
structure on the schedule property. According to the case of the
respondent, it has spent a sum of Rs.16,00,00,000/- (rupees
sixteen crores) on the construction of a building on the schedule
property. According to the case of the respondent, a commercial
complex was required to be constructed by it within a period of
thirty six months as stipulated in the JDA. As per the JDA, time
of eighteen months was granted to the respondent to complete
the construction work from the date of issuance of
commencement certificate. By a memorandum of understanding
dated 12th November, 2009 executed by and between the
appellants and the respondent, it was agreed that the
construction shall be completed within 18 months from first
January, 2010 with a grace period of four months. On 27th June
2013, another memorandum of understanding was entered into
by and between the parties under which, the respondent had
agreed to complete the construction work by 30th June 2015. On
16th July 2016, the appellants issued a legal notice, terminating
the JDA dated 14th December 2007 and two subsequent
memorandum of understanding dated 12th November 2009 and
27th June 2013. The notice was replied by the respondent.
Thereafter, an application under section 9 of the Arbitration Act,
bearing A.A. No.339 of 2016 was filed by the respondent before
the City Civil Court at Bengaluru. A prayer was made in the said
application seeking an order of injunction restraining the
appellants from interfering with the respondent's share in the
schedule property and restraining the appellants from creating
third party interests over the schedule property. By the Judgment
and order dated 24th March 2017, the said application was
rejected.
3. On the basis of a petition filed by the respondent under
section 11 of the Arbitration Act, by the order dated 25th July 2018
passed by this Court in CMP No.208/2017, the dispute was
referred to sole Arbitrator for adjudication which came to be
registered as AC. No.131/2018. The claim made by the
respondent was for passing of an award against the appellants
directing them to convey 50% share of the respondent in the
undivided area along with possession of 50% share in the super
built up area and covered/open car parking area in the
commercial complex constructed on the schedule property and to
direct the appellants to pay a sum of Rs.21 crores towards cost of
construction, damages for unlawful termination of the JDA and
compensatory damages. The present appellants made a counter
claim in a sum of Rs.32,20,000/-.
4. An Award was made by the sole Arbitrator on 5th July 2019
in A.C.No.131/2018 holding that the notice of termination of JDA
dated 14th December, 2017 issued by the appellants was valid
and legal and, therefore, the JDA entered into by and between
the appellants and the respondent stood validly terminated from
the date of service of the notice. The learned sole Arbitrator has
proceeded to dismiss the claim made by the respondent-
developer and the counter claim made by the appellants-owner.
5. Being aggrieved by the Award dated 5th July 2019 made by
the sole Arbitrator in AC.No.131/2018, on 18th September 2019,
the respondent has preferred Arbitration suit in Com.A.S. No.
144/2019 in the form of an application under Section 34 of the
Arbitration Act which is pending adjudication before the
Commercial Court. On 22nd June 2020, the respondent filed an
application under Section 9 of the Arbitration Act before the
Commercial Court at Bengaluru which has been numbered as
Comm. A.A. No.45/2020. A prayer for temporary injunction was
made in the said application by filing interlocutory application
being IA No.I under Order XXXIX Rules 1 and 2 of the Code of
Civil Procedure (for short, 'the said Code'). The prayer in the
said application was for grant of an order of temporary injunction
restraining the appellants from carrying out any further
construction activities and from making any structural alterations
to the building constructed by the respondent till the disposal of
the said application filed by the respondent under Section 34 of
the Arbitration Act. An additional affidavit in support of the said
application (IA-I) was filed by the respondent on 20th October
2020 by placing on record the subsequent event of a Joint
Development Agreement executed by the appellants in favour of
one Sri Dinesh Pullipati in respect of the schedule property. The
said Joint Development Agreement is referred as the second
JDA.
6. By the Judgment and order dated 19th November 2020
which is impugned in this appeal, the interlocutory application IA
No. I filed by the respondent under Order XXXIX, Rules 1 and 2
of the Code in the petition filed under Section 9 of the Arbitration
Act has been allowed by restraining the appellants from carrying
out construction activities on the schedule property and from
making modification or alteration to the construction already
carried out on the schedule property, till disposal of the
application filed under Section 34 of the Arbitration Act. For
challenging the said order dated 19th November, 2020, the
present appeal is preferred by the appellants, who are the owners
of the schedule property.
SUBMISSIONS OF THE APPELLANTS:
7. The submission of Shri. Udaya Holla, the learned Senior
Counsel appearing for the appellants in support of the appeal is
firstly that in view of the law laid down in the decisions of the
Bombay High Court and Delhi High Court respectively, no relief
could have been granted in an application filed under Section 9 of
the Arbitration Act filed by the un-successful claimant pending the
adjudication of the application filed by him under Section 34 of the
Arbitration Act. The decisions are as under:
i) Dirk India Private Limited -vs- Maharashtra State
Electricity Generation Company Limited1.
ii) Wind World (India) Ltd., -vs- Enercon GmbH and
others2
iii) Nussli Switzerland Ltd., -vs- Organizing
Committee Commonwealth Games3
iv) Singhania Horizons -vs- HRC Engineers Estate
Private Limited and another4
8. The learned Senior Counsel further submitted that in view
of the law laid down by the Apex Court in the case of Mc Dermott
International INC -vs- Burn Standard Co. Ltd and others5,
while deciding the application filed under Section 34 of the
Arbitration Act, the Court cannot correct an error committed by
the Arbitrator or correct an award and at best, it can only quash
the Award made by the Arbitrator thereby leaving the parties to
begin the Arbitration again, if they so desire. He submitted that
in the application filed under Section 9 of the Arbitration Act, the
respondent has sought a relief of temporary injunction till the
disposal of the application under Section 34 of the Arbitration Act
2013 SCC OnLine Bom-481
2017 SCC OnLine Bom 1147
2014 SCC OnLine Del 4834
2016 SCC OnLine Del 550
(2006) 11 SCC 181
filed by it for challenging the Award made by the sole Arbitrator.
He submitted that even if the respondent succeeds in the
application filed under Section 34 of the Arbitration Act, at the
highest, the Award of the learned sole Arbitrator will be set aside
leaving the parties to have an opportunity of again taking
recourse to the Arbitration. He submitted that even assuming that
the respondent would succeed in the pending application filed
under Section 34 of the Arbitration Act, the respondent will not be
entitled to get any relief in the sense that the Court is not
empowered to pass an award in favour of the respondent. He
submitted that an interim relief sought in an application filed under
Section 9 of the Arbitration Act can be granted only in the aid of
final relief which can be granted on the application filed under
Section 34 of the Arbitration Act. As the maximum relief which the
respondent can get in the pending application filed under Section
34 of the Arbitration Act is of setting aside the Award passed by
the sole Arbitrator, it cannot be said that the relief of temporary
injunction sought in the application filed under Section 34 of the
Arbitration Act is in the aid of final relief.
9. He pointed out that on 13th March 2020, the appellants
have executed second JDA in favour of Shri. Dinesh Pullipati
under which, the appellants have agreed to handover the
schedule property to the said Mr. Dinesh Pullipati (for short 'new
developer') to complete the project from the stage at which it was
stopped. The learned Senior Counsel pointed out that said new
developer is not a party to the application filed under Section 9 of
the Arbitration Act. The learned Senior Counsel appearing for the
appellants relied upon a recent decision of the Apex Court in the
case of Hindustan Construction Company Limited and
another -vs- Union of India and others6 and submitted that the
view taken by the Division Bench of the Bombay High Court in the
case of Dirk India (supra) has been quoted with approval by the
Apex Court.
SUBMISSION OF THE RESPONDENT:
10. The learned counsel appearing for the respondent relied
upon a decision of the learned Single Judge of the High Court of
Madras in the case of Gayatri Balaswamy -vs- ISG Novasoft
Technologies Ltd7 and submitted that in the said decision, after
considering the decision of the Apex Court rendered in the case
of Mc Dermott International (supra), the learned Single Judge of
the Madras High Court held that the Court which deals with an
2019 SCC OnLine SC 1520
Original petition No.463/2012 decided on 02.09.2014
application filed under Section 34 of the Arbitration Act has a
power to modify or reverse or vary the Award passed by the
Arbitral Tribunal. He submitted that the Bombay High Court, while
deciding the case of Dirk India (supra) has proceeded on an
incorrect premise that even if an application filed under Section
34 of the Arbitration Act is allowed, at highest, the Court can set
aside the Award and thereby, leaving open to the parties to again
to for arbitration. He submitted that on plain reading of Section 9
of the Arbitration Act, there is no distinction made between a
party who has lost before Arbitral Tribunal and a party who has
succeeded before the Arbitral Tribunal. He urged that after the
amendment to Section 17 of the Arbitration Act, after Arbitral
Award is made, the parties do not have a remedy of applying
under Section 17 of the Arbitration Act.
11. He submitted that the perusal of the second JDA executed
by the appellants in favour of the new developer on 13th March
2020 will show that the new developer has virtually purchased the
litigation, as can be seen from the recitals in the said agreement.
He pointed out that the second JDA has been executed on the
footing that the Award of the sole Arbitrator has become final.
He submitted that if the construction activities as per the second
JDA executed in favour of the new developer are allowed to
continue, the schedule property which is the subject matter of the
pending application filed under Section 34 of the Arbitration Act
will be virtually lost to the respondent. He submitted that if the
schedule property is constructed upon, the very purpose of filing
of the application under Section 34 of the Arbitration Act will be
frustrated.
12. The learned counsel appearing for the respondent
submitted that if the decision of the Apex Court rendered in the
case of Hindustan Construction (supra) is perused, it is
apparent that the issue involved in this appeal never fell for
consideration before the Apex Court, inasmuch as, the issue
before the Apex Court was regarding the interpretation of Section
36 of the Arbitration Act, as amended in the year 2015.
13. The learned counsel appearing for the respondent relied
upon a decision of the learned Single Judge of the Gujarat High
Court in the case of Gail (India) Ltd -vs- Latin Rasayani
Private Ltd8. He submitted that a Division Bench of the High
Court of Telangana, in the case of Saptarishi Hotels Pvt. Ltd
2014 SCC OnLine Guj 14836
and another -vs- National Institute of Tourism and
Hospitality Management (NITHM)9 took a view that in the
proceedings under Section 34 of the Arbitration Act, the Court
can interfere with the Arbitral Award even by making a
modification. He also relied upon a decision of the Division Bench
of the Andhra Pradesh High Court in the case of Sudershan Rao
and others -vs- Evershine Builders Pvt Ltd10and submitted
that even in the said decision, a view taken is that when the
Arbitral Tribunal rejects the claims for specific performance, a
relief claimed under Section 9 of the Arbitration Act can always be
granted pending the application filed under Section 34 of the
Arbitration Act.
CONSIDERATION OF SUBMISSIONS:
14. On perusal of the pleadings, it is evident that in the
interlocutory application (IA No.I) filed under Rules 1 and 2 of
Order XXXIX of the Code filed by the respondent-developer
before the Commercial Court, the prayer sought by the
respondent was to restrain the appellants or any other persons
claiming through them from carrying on any further construction
or from modifying or altering the construction already carried out
2019 SCC OnLine TS 1765
2012 SCC Online AP 682
on the schedule property. During the pendency of the said
application, an additional affidavit was filed by the respondent,
placing on record the second JDA dated 13th March 2020
executed by the appellants in favour of new developer namely,
Shri. Dinesh Pullipati. It is pointed out in the said affidavit that
centering materials, scaffolding and other goods of the
respondent on the schedule property are being illegally taken
away by using trucks. A careful perusal of the second JDA
executed by the appellants in favour of new developer shows that
the appellants have agreed to give the schedule property to the
new developer for proceeding with the further construction work
from the stage where it had stopped earlier. Apart from that,
under clause-2 of the second JDA, the new developer has been
permitted to enter upon the schedule property to complete the
project as agreed. Thus, by virtue of the second JDA dated 13th
March, 2020, third party interests have already been created in
favour of the new developer who, even according to the case of
the respondent, has already started certain activities on the
schedule property. In fact, the respondent by filing statement of
objections to the appeal on 8th February 2020 has relied upon the
photographs of the schedule property showing a board displayed
thereon which records that the schedule property is being
developed by 'Grebrick' and 'NINTHMILE'. In paragraph 62 of the
statement of objections, the respondent has categorically stated
that the centering material and scaffolding items as well as other
goods of the respondent are being taken away from the schedule
property. Thus, going by the case made out by the respondent
itself, as of today, the new developer who is not made a party to
the proceedings either before the Commercial Court or before this
Court will be directly affected by the order of temporary injunction
granted under the impugned Judgment and order. As per the
second JDA dated 13th March 2020, the appellants have already
created third party rights over the schedule property much prior to
passing of the impugned order by the Commercial Court and that
the appellants have allowed the new developer to develop the
property. This is one reason why interference will have to be
made with the impugned Judgment and order granting temporary
injunction.
15. Even assuming that the Commercial Court could have
exercised its powers under Section 9 of the Arbitration Act,
though a copy of the second JDA was placed before the
Commercial Court, it has not considered the effect of the said
second JDA dated 13th March, 2020 and it has ignored the fact
that as on the date of passing of the impugned Judgment and
order, a third party has been entrusted a right to develop the
schedule property.
MAINTAINABILITY OF APPLICATION UNDER SECTION 9:
16. Now we come to the issue of maintainability of the
application filed under Section 9 of the Arbitration Act by an
unsuccessful claimant pending the application under Section 34
of the Arbitration Act for challenging the Arbitral Award. On this
aspect, it will be necessary to make a reference to the decision of
the Apex Court in the case of Mc Dermott International (supra).
In paragraphs 51 to 54, the Apex Court discussed the issue
relating to the scope of the powers of the Court while dealing with
the application filed under Section 34 of the Arbitration Act. In
paragraph 52 of the said decision, the Apex Court held thus:
"52. The 1996 Act makes provision for the
supervisory role of courts, for the review of the
arbitral award only to ensure fairness. Intervention of
the court is envisaged in few circumstances only,
like, in case of fraud or bias by the arbitrators,
violation of natural justice, etc. The court cannot
correct errors of the arbitrators. It can only quash the
award leaving the parties free to begin the arbitration
again if it is desired. So, the scheme of the provision
aims at keeping the supervisory role of the court at
minimum level and this can be justified as parties to
the agreement make a conscious decision to exclude
the court's jurisdiction by opting for arbitration as
they prefer the expediency and finality offered by it".
(underlines added)
Hence, the Apex Court, in categorical terms, held that while
disposing of an application filed under Section 34 of the
Arbitration Act, the Court cannot correct the errors of the
Arbitrators and at the highest, it can only quash the Arbitral
Award and thereby leaving the parties free to begin the
Arbitration again, if it is desired.
17. On this aspect, it is necessary to refer to another decision
of the Apex Court of a bench consisting of three Hon'ble Judges
in the case of Kinnari Mullick and another -vs- Ghanshyam
Das Damani11. In the first paragraph of the said decision, the
Apex Court has noted the question for consideration before it,
which reads thus:
(2018) 11 SCC 328
"This appeal raises a short question as to
whether Section 34(4) of the Arbitration and
Conciliation Act, 1996 (for short "the Act") empowers
the Court to relegate the parties before the Arbitral
Tribunal after having set aside the arbitral award in
question and more so suo motu in the absence of any
application made in that behalf by the parties to the
arbitration proceedings?".
This was a case before the Apex Court wherein the Award
made by the Arbitrator was set aside on an application filed under
Section 34 of the Arbitration Act on the ground that the Award
impugned therein did not disclose the reasons in support of the
same. By setting aside the Award, the parties were left to
pursue their remedy in accordance with law. The order passed
by the learned Single Judge was challenged in appeal before the
Division Bench of the Calcutta High Court. The Division Bench,
while dismissing the appeal and affirming the order passed by the
learned Single Judge, by placing reliance on the provisions of
sub-section (4) of Section 34 directed that the Award be send
back to the Arbitrator with a direction to support his Award by
assigning reasons. Therefore, the issue before the Apex Court
in the case of Kinnari Mullick (supra) was whether an order of
remand can be made to the Arbitral Tribunal, while deciding the
application filed under Section 34 of the Arbitration Act.
18. After referring to the earlier decisions including the decision
in the case of McDermott International (supra), the Apex Court,
in paragraphs 14 to 16 of its decision in the said case of Kinnari
Mullick (supra) held thus:
"14. In this backdrop, the question which arises
is: whether the highlighted portion in the operative
part of the impugned judgment of the Division Bench
can be sustained in law? For that, we may advert to
Section 34(4) of the Act which is the repository of
power invested in the Court. The same reads thus:
"34. (4) On receipt of an application under sub-
section (1), the court may, where it is appropriate
and it is so requested by a party, adjourn the
proceedings for a period of time determined by it in
order to give the Arbitral Tribunal an opportunity to
resume the arbitral proceedings or to take such other
action as in the opinion of Arbitral Tribunal will
eliminate the grounds for setting aside the arbitral
award."
15. On a bare reading of this provision, it is amply
clear that the Court can defer the hearing of the
application filed under Section 34 for setting aside
the award on a written request made by a party to
the arbitration proceedings to facilitate the Arbitral
Tribunal by resuming the arbitral proceedings or to
take such other action as in the opinion of the
Arbitral Tribunal will eliminate the grounds for setting
aside the arbitral award. The quintessence for
exercising power under this provision is that the
arbitral award has not been set aside. Further, the
challenge to the said award has been set up under
Section 34 about the deficiencies in the arbitral
award which may be curable by allowing the Arbitral
Tribunal to take such measures which can eliminate
the grounds for setting aside the arbitral award. No
power has been invested by Parliament in the Court
to remand the matter to the Arbitral Tribunal except
to adjourn the proceedings for the limited purpose
mentioned in sub-section (4) of Section 34. This
legal position has been expounded in McDermott
International Inc. [McDermott International
Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181]
In para 8 of the said decision, the Court observed
thus: (Bhaskar Industrial case [Bhaskar Industrial
Development Ltd. v. South Western Railway, 2016
SCC OnLine Kar 8330] , SCC OnLine Kar)
"8. ... Parliament has not conferred any power of
remand to the Court to remit the matter to the Arbitral
Tribunal except to adjourn the proceedings as
provided under sub-section (4) of Section 34 of the
Act. The object of sub-section (4) of Section 34 of
the Act is to give an opportunity to the Arbitral
Tribunal to resume the arbitral proceedings or to
enable it to take such other action which will
eliminate the grounds for setting aside the arbitral
award."
16. In any case, the limited discretion available to
the Court under Section 34(4) can be exercised only
upon a written application made in that behalf by a
party to the arbitration proceedings. It is crystal clear
that the Court cannot exercise this limited power of
deferring the proceedings before it suo motu.
Moreover, before formally setting aside the award, if
the party to the arbitration proceedings fails to
request the Court to defer the proceedings pending
before it, then it is not open to the party to move an
application under Section 34(4) of the Act. For,
consequent to disposal of the main proceedings
under Section 34 of the Act by the Court, it would
become functus officio. In other words, the limited
remedy available under Section 34(4) is required to
be invoked by the party to the arbitral proceedings
before the award is set aside by the Court".
(underlines supplied)
19. Hence, the larger Bench of the Apex Court has approved
the view taken in the case of Mc Dermott International (supra)
by holding that Parliament has not conferred any power on the
Court to remit the matter to the Arbitral Tribunal. However, there
is a power to adjourn the proceedings of the application filed
under Section 34 for the limited purposes mentioned in sub-
section (4) of Section 34 of the Act. The object of sub-section (4)
of Section 34 of the Act is to give an opportunity to the Arbitral
Tribunal to resume the arbitral proceedings to enable it to take
such action which will eliminate the grounds for setting aside the
Arbitral Award.
20. At this stage, we must make a useful reference to a
decision of a Division Bench of this Court in the case of Bhaskar
Industrial Development Limited -vs- South Western Railway,
Hubballi12 wherein the issue before the Division Bench of this
Court was whether a Court while dealing with an application-
petition filed under Section 34 of the Arbitration Act has a power
to remit the matter to the Arbitral Tribunal after setting aside the
Arbitral Award. After relying upon the decision of the Apex Court
2016 SCC OnLine Kar 8330
in the case of Mc Dermott International (supra), in paragraph 8,
the Division Bench of this Court held thus:
"8. A plain reading of Section 34 of the Act
extracted above will show that Parliament has not
conferred any power of remand to the Court to remit
the matter to the Arbitral Tribunal except to adjourn
the proceedings as provided under sub-Section (4)
of Section 34 of the Act. The object of sub-Section
(4) of Section 34 is to give an opportunity to the
Arbitral Tribunal to resume the arbitral proceedings
or to enable it to take such other action which will
eliminate the grounds for setting aside the arbitral
award. This provision (sub-Section (4)) cannot be
invoked, once the arbitral Award is set-aside".
21. In paragraph-52 of the decision of the Apex Court in the
case of Mc Dermott International (supra), the Apex Court
specifically held that while deciding the application under Section
34, the Court cannot correct the errors of the Arbitrator and it can
only quash the award leaving the parties free to begin the
Arbitration again. If the errors are such that the Arbitral Award is
rendered illegal, there is no option available to the Court to
correct such errors. The only option available to the Court in
such case is to set aside the Award without correcting the said
error. The reason is that after the parties have consciously
chosen to exclude the jurisdictional Court, the parties should
again go back to the Arbitration after the Award is set aside.
22. Incorporation of sub-section (4) of Section 34 of the
Arbitration Act is very significant. It empowers the Court on an
application filed by the parties to give the Arbitral Tribunal an
opportunity to resume the arbitral proceedings or to take such
other action as in the opinion of the Arbitral Tribunal will eliminate
the grounds for setting aside the arbitral award. If the intention of
the Legislature was to confer a power on the Court while dealing
with an application filed under Section 34 of the Arbitration Act to
correct the errors or mistakes committed by the Arbitral Tribunal,
there was no reason for the Legislature to incorporate sub-section
(4) of Section 34 of the Arbitration Act. If it is held that the Court
dealing with an application under Section 34 has a power to
modify the Award or to correct errors of the Arbitrator and to
make a modified award, the provision of sub-section (4) of
Section 34 will become redundant, as it will not be necessary for
the Court to exercise the power under sub-section (4) of Section
34, as the Court can itself correct the errors. In paragraph 52 of
the decision of the Apex Court rendered in the case of Mc
Dermott International (supra) the word "only" has been used
while observing that the Court cannot correct errors of the
arbitrators and it can "only" quash the award leaving the parties
free to begin the arbitration again if it is desired.
23. At this stage, it is necessary to make a reference to Section
43 of the Arbitration Act, which reads thus:
"43. Limitation - (1) The Limitation Act, 1963 (36 of
1963), shall apply to arbitrations as it applies to
proceedings in court.
(2) For the purposes of this section and the
Limitation Act, 1963 (36 of 1963), an arbitration shall
be deemed to have commenced on the date referred
in Section 21.
(3) Where an arbitration agreement to submit
future disputes to arbitration provides that any claim
to which the agreement applies shall be barred
unless some step to commence arbitral proceedings
is taken within a time fixed by the agreement, and a
dispute arises to which the agreement applies, the
Court, if it is of opinion that in the circumstances of
the case undue hardship would otherwise be caused,
and notwithstanding that the time so fixed has
expired, may on such terms, if any, as the justice of
the case may require, extend the time for such period
as it thinks proper.
(4) Where the Court orders that an arbitral award
be set aside, the period between the commencement
of the arbitration and the date of the order of the
Court shall be excluded in computing the time
prescribed by the Limitation Act, 1963 (36 of 1963),
for the commencement of the proceedings (including
arbitration) with respect to the dispute so submitted".
(underlines supplied)
Sub-Section (4) of Section 43 applies to a situation when the
Court exercising the jurisdiction under Section 34 of the
Arbitration Act sets aside an Arbitral Award. Sub-Section (4)
provides for exclusion of the period spent in Arbitration and the
application under Section 34. This enables the successful party
in Section 34 application to again take recourse to Arbitration
after the Award is set aside by the Court. If the intention of the
Legislature was to confer a power on the Court dealing with an
application under Section 34 of the Arbitration Act to modify the
Award or to make a fresh Award, there was no reason to make a
provision in the form of sub-section (4) of Section 43. This
supports the conclusion that the Court dealing with application
under Section 34 cannot modify or substitute Arbitral Awards.
24. Therefore, in a case, where the Court dealing with an
application filed under Section 34 of the Arbitration Act finds that
the claim of the claimant was erroneously rejected or the Arbitral
Tribunal has committed an illegality by rejecting the claim, the
Court can set aside the award so that the claimant can again go
back to the Arbitration. In such a case, by correcting the error
made by the Arbitrator, the Court cannot make an Award in
favour of the claimant after setting aside award. If, after perusal
of the award, a view is taken by the Court that the rejection of the
claim made by the claimant by the Arbitral Tribunal is illegal, in
view of the law laid down by the Apex Court in paragraph-52 of
Mc Dermott International (supra), the Court is required to set
aside the arbitral award enabling the parties to begin the
arbitration again. As pointed out earlier, there are two parts in the
conclusions recorded by the Apex Court in paragraph-52. The
first part is that the Court cannot correct the errors committed by
the Arbitrator and the second part is that the Court can "only"
quash the Award. Therefore, if an Award rejecting the claim of
the claimant who has filed an application under Section 34 is
found to be illegal, a fresh award cannot be made by the Court in
favour of the claimant while allowing the application filed under
Section 34. The only option in such a case is to set aside the
award and leave the parties to resume the Arbitration once again.
25. In the decision of the learned Single Judge of the Madras
High Court in the case of Gayatri Balaswamy (supra), in
paragraphs 34 and 35 it is held thus:
"34. In Mc Dermott International Inc. v. Burn
Standard Co. Ltd., 2006 (11) SCC 181, the Supreme
Court was concerned with a challenge to various
Partial/Interim Awards as well as a Final Award
passed by the Arbitrator, appointed by the Supreme
Court. The Arbitrator in that case first passed a partial
award. Thereafter, Applications under Section 33 of
the 1996 Act were filed on the ground that certain
claims had not been dealt with by the Arbitrator in his
Partial Award. Though a preliminary objection was
raised with regard to the entitlement to pass a Partial
Award, the Arbitrator passed an Additional Award. It
was only thereafter that an Application under Section
34 was filed questioning both the Partial Award and
the Additional Award. During the pendency of the
Application, a Final Award was also passed and an
Application challenging the same under Section 34
was filed. Several questions arose before the
Supreme Court, including the question as to whether
a Partial Award is permissible in law. After holding in
Paragraph 35 of the Report that a Partial Award, is in
effect and substance, an Interim Award within the
meaning of Sections 31(6) & 2I of the Act, the
Supreme Court held that its validity is not open to
question. Thereafter, the Supreme Court took up for
consideration all other challenges to the Award.
Before doing so, the Court indicated the legal scope
of challenge to an Arbitration Award, in Paragraphs
45 to 48 of the Report. Taking note of the radical
departure made in the 1996 Act from the 1940 Act,
the Supreme Court observed in Paragraph 52 as
follows:
"The 1996 Act makes provision for the supervisory
role of Courts, for the review of the Arbitral Award
only to ensure fairness. Intervention of the Court is
envisaged in few circumstances only like in case of
fraud or bias by the Arbitrators, violation of Natural
Justice, etc. The Court cannot correct errors of
Arbitrators. It can only quash the Award leaving the
parties free to begin the Arbitration again if it is
desired. So the scheme of the provision aims at
keeping the supervisory role of the Court at minimum
level and this can be justified as the parties to the
Agreement make a conscious decision to exclude the
Court's jurisdiction by opting for Arbitration as they
prefer the expediency and finality offered by it."
35. But, as in the case of other decisions, which I
have dealt with in the previous paragraphs, the
Supreme Court was not directly concerned, even
in Mc Dermott, with the interpretation to be given to
the expression "set aside" appearing in Section 34.
The observations made in the paragraph extracted
above, were not given in an answer to a pointed
question as to whether the Court has the power under
Section 34 to modify or revise or vary an Award.
Therefore, I do not think that the question raised in
this case, is settled by the Supreme Court in Mc
Dermott finally".
(underlines supplied)
26. With greatest respect to the learned Single Judge (as he
then was) of the Madras High Court, in our view, he has ignored
the dictum laid down by the Apex Court in paragraph 52 in the
case of Mc Dermott International (supra) wherein the Apex
Court categorically held that the Court cannot correct the error of
the Arbitrator and it can only set aside the award.
27. The learned Single Judge of the Madras High Court, in
paragraph-52 has equated the jurisdiction of the Court which
deals with an application under Section 34 of the Arbitration Act
on par with the revisional jurisdiction of the High Court conferred
by Section 115 of the said Code.
Sub-section (1) of Section 115 of the said Code reads thus:
"115. Revision (1) The High Court may call for the
record of any case which has been decided by any
Court subordinate to such High Court and in which no
appeal lies thereto, and if such subordinate Court
appears -
(a) to have exercised a jurisdiction not vested in it
by law, or
(b) to have failed to exercise a jurisdiction so
vested, or
(c) to have acted in the exercise of its jurisdiction
illegally or with material irregularity,
the High Court may make such order in the case as it
thinks fit:
Provided that the High Court shall not, under
this section, vary or reverse any order made, or any
order deciding an issue, in the course of a suit or other
proceeding, except where the order, if it had been
made in favour of the party applying for revision,
would have finally disposed of the suit or other
proceedings."
(underlines supplied)
28. The scope of the revisional jurisdiction conferred on the
High Court under Section 115 of the said Code is completely
different from the limited supervisory jurisdiction conferred on the
Court under Section 34 of the Arbitration Act. We may note here
that in the case of Steel Authority of India Limited vs Gupta
Brother Steel Tubes Limited13,the Apex Court held that while
dealing with an application under Section 34 of the Arbitration
Act, it is not permissible to a Court to examine the correctness of
the findings of the Arbitrator, as if it was sitting in appeal over his
findings. The powers of the High Court under Section 115 of the
Code are much wider. High Court can interfere with the decision
even on the ground of material irregularity as is clear from clause
(c) of sub-section (1) of Section 115 of the said Code. As held
by the Apex Court in the case of Masjid Kacha Tank, Nahan -
vs- Tuffail Mohammed14, the High Court while exercising its
power under Section 115 of the said Code can interfere with the
finding of fact recorded by the Court sub-ordinate to it on the
ground that it is perverse. The High Court, while exercising the
jurisdiction under Section 115 of the said Code can interfere with
(2009) 10 SCC 63
AIR 1991 SC 455
the findings of the Court on the ground of non-consideration of
evidence.
29. From the proviso to Section-115 of the said Code, it is
crystal clear that a specific power has been conferred on the High
Court while dealing with revision filed under Section 115 of the
said Code to vary or reverse an order made by the Court
subordinate to the High Court. In contrast, we may consider
Section 34 of the Arbitration Act which reads thus:
"34. Application for setting aside arbitral award. -
(1) Recourse to a Court against an arbitral award may
be made only by an application for setting aside such
award in accordance with sub-section (2) and sub-
section (3).
(2) An arbitral award may be set aside by the Court
only if--
(a) the party making the application establishes on the
basis of the record of the arbitral tribunal that--
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be separated from those
not so submitted, only that part of the arbitral award
which contains decisions on matters not submitted to
arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was
in conflict with a provision of this Part from which the
parties cannot derogate, or, failing such agreement,
was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force, or
(ii) the arbitral award is in conflict with the public policy
of India.
Explanation 1.--For the avoidance of any doubt,
it is clarified that an award is in conflict with the public
policy of India, only if,--
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of Section 75 or
Section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2.--For the avoidance of doubt, the
test as to whether there is a contravention with the
fundamental policy of Indian law shall not entail a
review on the merits of the dispute.
(2-A) An arbitral award arising out of arbitrations
other than international commercial arbitrations, may
also be set aside by the court, if the court finds that
the award is vitiated by patent illegality appearing on
the face of the award:
Provided that an award shall not be set aside
merely on the ground of an erroneous application of
the law or by reappreciation of evidence".
30. In contrast to Section 115 of the said Code, which confers a
specific power to vary or reverse an order of Civil Court, Section
34 of the Arbitration Act refers to only setting aside the Awards.
Hence, with respect, the view taken by the Madras High Court is
not correct. The decision of the Gujarat High Court in the case of
Gail (India) Ltd (supra) has not even adverted to the effect of the
decision of the Apex Court in the case of Mc Dermott
International (supra). In the case of Saptarishi Hotels (supra),
the Division Bench of the High Court of Telengana has proceeded
to hold that the Court, while dealing with the application filed
under Section 34 of the Arbitration Act, can even modify the
Award passed by the Arbitral Tribunal while sustaining it in
relation to a part thereof and setting it aside in relation to other
part. We are unable to take the said view for the reasons
recorded earlier. Even if the Court which decides an application
made by unsuccessful claimant is satisfied that a part of the claim
of the claimant could not have been rejected by the Arbitral
Tribunal, at the highest, that part of the award could be set aside,
so that the claimant can again take recourse to the Arbitral
proceedings. The Andhra Pradesh High Court, in the case of
Sudershan Rao (supra), has not adverted to the limitation on the
powers of the Court while dealing with an application under
Section 34 of the Arbitration Act.
31. Section 9 of the Arbitration Act reads thus:
"9. Interim measures, etc. by Courts - (1) A party
may, before or during arbitral proceedings or at any
time after the making of the arbitral award but before it
is enforced in accordance with Section 36, apply to a
Court:--
(i) for the appointment of a guardian for a minor or a
person of unsound mind for the purposes of arbitral
proceedings; or
(ii) for an interim measure of protection in respect of
any of the following matters, namely:--
(a) the preservation, interim custody or sale of any
goods which are the subject-matter of the arbitration
agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any
property or thing which is the subject-matter of the
dispute in arbitration, or as to which any question may
arise therein and authorising for any of the aforesaid
purposes any person to enter upon any land or
building in the possession of any party, or authorising
any samples to be taken or any observation to be
made, or experiment to be tried, which may be
necessary or expedient for the purpose of obtaining
full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may
appear to the Court to be just and convenient,
and the Court shall have the same power for making
orders as it has for the purpose of, and in relation to,
any proceedings before it.
(2) Where, before the commencement of the
arbitral proceedings, a court passes an order for any
interim measure of protection under sub-section (1),
the arbitral proceedings shall be commenced within a
period of ninety days from the date of such order or
within such further time as the court may determine.
(3) Once the arbitral tribunal has been constituted,
the court shall not entertain an application under sub-
section (1), unless the court finds that circumstances
exist which may not render the remedy provided under
Section 17 efficacious".
(underlines supplied)
32. Thus, on its plain reading, an application under Section 9
can be made at three stages. (i) Before commencement of
Arbitration; (ii) during the pending of arbitral proceedings and (iii)
after making an Award, but before it is enforced. Hence, after
conclusion of the arbitral proceedings, recourse can be taken to
Section 9 of the Arbitration Act before the Award is enforced.
The third contingency will arise only if there is an award made
which is capable of being enforced. If, by the award, the claim is
rejected, the unsuccessful party cannot take recourse to Section
9 of the Arbitration Act, pending the decision on Section 34
application.
33. On this background, now we refer to the decision of the
Bombay High Court in the case of Dirk India (supra). In
paragraphs 13 and 14 of the said decision, the Division Bench of
the Bombay High Court held thus:
"13. Two facets of Section 9 merit emphasis. The first
relates to the nature of the orders that can be passed
under clauses (i) and (ii). Clause (i) contemplates an
order appointing a guardian for a minor or a person of
unsound mind for the purposes of arbitral
proceedings. Clause (ii) contemplates an interim
measure of protection for: (a) the preservation,
interim custody or sale of any goods which are
the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
and (c) the detention, preservation or inspection of
any property or thing which is the subject-matter of
the dispute in arbitration; (d) an interim injunction or
the appointment of a receiver; and (e) such other
interim measure of protection as may appear to the
Court to be just and convenient. The underlying
theme of each one of the sub-clauses of clause (ii) is
the immediate and proximate nexus between the
interim measure of protection and the preservation,
protection and securing of the subject-matter of the
dispute in the arbitral proceedings. In other words, the
orders that are contemplated under clause (ii) are
regarded as interim measures of protection intended
to protect the claim in arbitration from being
frustrated. The interim measure is intended to
safeguard the subject-matter of the dispute in the
course of the arbitral proceedings. The second facet
of Section 9 is the proximate nexus between the
orders that are sought and the arbitral proceedings.
When an interim measure of protection is sought
before or during arbitral proceedings, such a measure
is a step in aid to the fruition of the arbitral
proceedings. When sought after an arbitral award is
made but before it is enforced, the measure of
protection is intended to safeguard the fruit of the
proceedings until the eventual enforcement of the
award. Here again the measure of protection is a step
in aid of enforcement. It is intended to ensure that
enforcement of the award results in a realisable claim
and that the award is not rendered illusory by
dealings that would put the subject of the award
beyond the pale of enforcement. Now it is in this
background that it is necessary for the Court to impart
a purposive interpretation to the meaning of the
expression "at any time after the making of the
arbitral award but before it is enforced in accordance
with section 36". Under Section 36, an arbitral award
can be enforced under the Code of Civil Procedure in
the same manner as if it were a decree of the Court.
The arbitral award can be enforced where the time for
making an application to set aside the arbitral award
under Section 34 has expired or in the event of such
an application having been made, it has been
refused. The enforcement of an award enures to the
benefit of the party who has secured an award in the
arbitral proceedings. That is why the enforceability of
an award under Section 36 is juxtaposed in the
context of two time frames, the first being where an
application for setting aside an arbitral award has
expired and the second where an application for
setting aside an arbitral award was made but was
refused. The enforceability of an award, in other
words, is defined with reference to the failure of the
other side to file an application for setting aside the
award within the stipulated time limit or having filed
such an application has failed to establish a case for
setting aside the arbitral award. Once a challenge to
the arbitral award has either failed under Section 34
having been made within the stipulated period or
when no application for setting aside the arbitral
award has been made within time, the arbitral award
becomes enforceable at the behest of the party for
whose benefit the award enures. Contextually,
therefore, the scheme of Section 9 postulates an
application for the grant of an interim measure of
protection after the making of an arbitral award and
before it is enforced for the benefit of the party which
seeks enforcement of the award. An interim measure
of protection within the meaning of Section 9(ii) is
intended to protect through the measure, the fruits of
a successful conclusion of the arbitral proceedings. A
party whose claim has been rejected in the course of
the arbitral proceedings cannot obviously have an
arbitral award enforced in accordance with Section
36. The object and purpose of an interim measure
after the passing of the arbitral award but before it is
enforced is to secure the property, goods or amount
for the benefit of the party which seeks enforcement.
14. The Court which exercises jurisdiction under
Section 34 is not a court of first appeal under the
provisions of the Code of Civil Procedure. An
appellate court to which recourse is taken against a
decree of the trial Court has powers which are co-
extensive with those of the trial Court. A party which
has failed in its claim before a trial Judge can in
appeal seek a judgment of reversal and in
consequence, the passing of a decree in terms of the
claim in the suit. The court to which an arbitration
petition challenging the award under Section 34 lies
does not pass an order decreeing the claim. Where
an arbitral claim has been rejected by the arbitral
tribunal, the court under Section 34 may either
dismiss the objection to the arbitral award or in the
exercise of its jurisdiction set aside the arbitral award.
The setting aside of an arbitral award rejecting a
claim does not result in the claim which was rejected
by the Arbitrator being decreed as a result of the
judgment of the court in a petition under Section 34.
To hold that a petition under Section 9 would be
maintainable after the passing of an arbitral award at
the behest of DIPL whose claim has been rejected
would result in a perversion of the object and purpose
underlying Section 9 of the Arbitration and
Conciliation Act, 1996. DIPL's application under
Section 9, if allowed, would result in the grant of
interim specific performance of a contract in the teeth
of the findings recorded in the arbitral award. The
interference by the Court at this stage to grant what in
essence is a plea for a mandatory order for interim
specific performance will negate the sanctity and
efficacy of arbitration as a form of alternate disputes
redressal. What such a litigating party cannot possibly
obtain even upon completion of the proceedings
under Section 34, it cannot possibly secure in a
petition under Section 9 after the award. The object
and purpose of Section 9 is to provide an interim
measure that would protect the subject-matter of the
arbitral proceedings whether before or during the
continuance of the arbitral proceedings and even
thereafter upon conclusion of the proceedings until
the award is enforced. Once the award has been
made and a claim has been rejected as in the present
case, even a successful challenge to the award under
Section 34 does not result an order decreeing the
claim. In this view of the matter, there could be no
occasion to take recourse to Section 9. Enforcement
for the purpose of Section 36 as a decree of the Court
is at the behest of a person who seeks to enforce the
award".
(underlines added)
The view taken by the Bombay High Court in paragraph 13 above
has been quoted with approval in a recent decision of the Apex
Court in the case of Hindustan Construction (supra).
34. According to us, the view taken by the Division Bench of
the Bombay High Court is consistent with the view taken by the
Apex Court in the case of Mc Dermott International (supra).
Hence, the relief of injunction granted in the present case on an
application made under Section 9 of the Arbitration Act could not
have been granted.
35. In the facts of the present case, the entire claim made by
the respondent has been rejected by the Arbitral Tribunal.
Therefore, even if the respondent succeeds in the application
filed under Section 34 of the Arbitration Act, at the highest, the
Arbitral Award can be set aside, leaving the parties to begin fresh
arbitration. Therefore, this Court is of the considered view that
the order of interim relief granted under the impugned order by
allowing the application filed under Rules 1 and 2 of Order XXXIX
of the said Code is illegal as it is not in aid of the final relief which
can be granted in the pending application filed under Section 34
of the Arbitration Act. There is a second reason why the said
order is illegal. Even going by the material placed on record, it is
evident that now the development of the schedule property has
been undertaken by the new developer by virtue of the second
JDA executed by the appellants on 13th March 2020. By the said
second JDA, third party interests are already created in favour of
the new developer who is not before the Court. Therefore, for the
reasons aforesaid, the impugned order of injunction cannot be
sustained and the same deserves to be set aside. Accordingly,
we pass the following order:
ORDER
i) The appeal is allowed;
ii) That part of the impugned order dated 19th November 2020
passed by the LXXXIII Additional City Civil and Sessions
Judge, Bengaluru city (CCH-84) by which IA No.I is
allowed, is hereby set aside and the application being IA
No. I filed in Com.A.A. No.45/2020 stands dismissed;
iii) The direction regarding expeditious hearing of Com. A.S.
No. 144/2019 is hereby maintained;
iv) There shall be no order as to the costs.
Sd/-
CHIEF JUSTICE
Sd/-
JUDGE
VR
