Karnataka High Court
Mr Sumanth Reddy vs Jaganmayi Builders And ... on 6 July, 2023
Bench: Alok Aradhe, Anant Ramanath Hegde
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 6TH DAY OF JULY, 2023
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE ANANT RAMANATH HEGDE
MFA NO.7929 OF 2022 (AA)
BETWEEN:
1. MR.SUMANTH REDDY,
S/O MR.KUMARASWAMY REDDY,
AGED ABOUT 44 YEARS,
R/AT NO.S-001,
LE PROMENADE,
PROMENADE APARTMENTS,
LE PROMENADE ROAD,
FRAZAER TOWN,
BENGALURU - 560 005.
2. MR.SREENADHA REDDY,
S/O MR.JANARDHANA REDDY,
AGED ABOUT 44 YEARS,
HAVING ITS OFFICE AT
KAY KAY TOWERS, NO.18,
17TH CROSS, SECTOR 7,
HSR LAYOUT,
BENGALURU - 560102.
3. M/S RR PLATINA,
A PARTNERSHIP FIRM,
HAVING ITS REGISTERED
OFFICE AT KAY KAY TOWERS,
NO.18, 17TH CROSS, SECTOR-7
2
HSR LAYOUT,
BENGALURU - 560 102.
REPRESENTED BY ITS PARTNER
MR.SREENADHA REDDY. ... APPELLANTS
(BY SRI D.R.RAVISHANKAR, SR.COUNSEL FOR
SRI RAMU S., ADVOCATE)
AND:
1. JAGANMAYI BUILDERS
AND DEVELPERS PRIVATE LTD.,
A COMPANY INCORPORATED
UNDER THE PROVISIONS OF
COMPANIES ACT, 2013,
HAVING ITS REGISTERED OFFICE AT
SALARPURIA WINDSOR,
NO.3, 4TH FLOOR, ULSOOR ROAD,
BENGALURU - 560 042.
REPRESENTED BY ITS
DIRECTORS ASHWIN SANCHETI.
2. NEELANCHAL HAPPY GRIHA LLP,
A LIMITED LIABILITY PARNERSHIP
REGISTERED UNDER THE PROVISIONS
OF LIMITED LIABILITY PARTNERSHIP
ACT, 2008, HAVING ITS
REGISTERED OFFICE AT SALARPURIA
WINDSOR, NO.3, 4TH FLOOR,
ULSOOR ROAD,
BENGALURU - 560 042.
REPRESENTED BY
ITS AUTHORIZED SIGNATORY
ASHWIN SANCHETI.
3
3. JAGANMAYI CONSTRUCTIONS
PRIVATE LTD., A COMPANY
INCORPORATED UNDER THE
PROVISIONS OF COMPANIES
ACT, 2013, HAVING ITS
REGISTERED OFFICE AT
SALARPURIA WINDSOR,
NO.3, 4TH FLOOR, ULSOOR ROAD,
BENGALURU - 560 042.
REPRESENTED BY ITS
DIRECTORS ASHWIN SANCHETI.
... RESPONDENTS
(BY SRI G.L.VISHWANATH SR.COUNSEL FOR
SRI ARUN PRADESH E, ADVOCATE FOR C/R1-R3)
THIS MFA IS FILED UNDER SECTION 37(1)(b) OF
THE ARBITRATION AND CONCILIATION ACT, 1996,
AGAINST THE JUDGMENT AND AWARD DT.29.10.2022
PASSED IN A.A.NO.02/2022 ON THE FILE OF THE VIII
ADDITIONAL DISTRICT AND SESSIONS JUDGE,
BENGALURU RURAL DISTRICT, ALLOWING THE
ARBITRATION APPLICATION FILED UNDER SECTION 9 OF
ARBITRATION AND CONCILIATION ACT, 1996.
THIS APPEAL HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT ON 03.07.2023 COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, ANANT
RAMANATH HEGDE J., DELIVERED THE FOLLOWING:
4
JUDGMENT
This appeal under Section 37(1)(b) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred
to as the 'Act, 1996' for short) has been filed by the
respondents in the proceeding under Section 9 of the Act.
In terms of the order dated.29.10.2022 the application is
allowed and the respondents are directed to furnish cash
security of Rs.50.00 crores along with interest @ 18% per
annum from the date of payment. The respondents have
also been restrained from alienating or creating any third-
party interest over petition properties (hereinafter referred
to as 'schedule properties') till the disposal of arbitration
proceedings.
2. The parties to the proceeding are referred to as
appellants and respondents, as per their designation
before this Court.
3. Brief facts necessary for adjudication of the case
can be summarised as under:
- the appellants and respondent No.1 entered into a
Memorandum of Understanding (MOU) on 06.10.2018 to
develop scheduled properties. Thereafter, on 04.12.2018 a
supplementary agreement was executed modifying certain
terms and conditions of the MOU.
4. On 10.10.2018 the respondents paid Rs.25.00
crores to the appellants as security deposit. Later, on
3.12.2018, respondents paid Rs.25.00 crores to the
appellants. In all Rs.50.00 crores is paid towards security
deposit. The payment of Rs.50.00 crores is not in dispute.
The appellants acknowledge the receipt of Rs.50.00 crores.
5. Alleging violation of the terms and conditions
of the MOU as well as supplementary agreement, the
respondents filed petition under Section 9 of the Act, 1996
praying some interim measures before the commencement
of the arbitral proceedings. The appellants opposed the
Section 9 petition and urged that there is no arbitration
clause and prayed for dismissal of the petition on merits.
6. It is relevant to note that in a petition filed
under Section 11 of the Act, 1996, this Court has kept
open the question of the existence of an arbitration clause
to be decided by the arbitrator.
7. After hearing the parties, the District Court
allowed the application and directed the appellants to
furnish cash security of Rs.50.00 crores along with interest
@ 18% per annum from the date of payment.
8. Aggrieved by the said order, the appellants are
in appeal.
9. Heard Sri D.R. Ravishankar, learned Senior
Counsel for the appellants and Sri G. L. Vishwanath,
learned Senior Counsel for the respondents.
10. Learned Senior Counsel appearing for the
appellants submitted that the question relating to the
maintainability of the proceeding before the arbitrator is
kept open, and that being the position, the impugned
order could not have been passed. It is urged that in view
of the supplementary agreement dated 04.12.2018, the
earlier agreement dated 06.10.2018 stands superseded in
respect of the matters contained in the supplementary
agreement, and the arbitration clause is not found in the
supplementary agreement dated 04.12.2018, as such the
dispute is not arbitrable and Court acting under Section 9
of the Act, 1996 does not have the jurisdiction to entertain
the petition.
11. The claim for payment of interest @ 18% per
annum is nothing but the claim for damages as such there
cannot be an order to furnish the security for the amount
claimed by way of damages.
12. Learned Senior Counsel appearing for the
appellants referring to Clauses No.3 and 15 of the MOU
dated 06.10.2018 urged that the MOU provided for certain
terms and conditions to be fulfilled by both parties to the
MOU. And Clause No.15 provides for termination of the
agreement only in the event of the appellants not fulfilling
the terms and conditions to the satisfaction of the
respondents. The appellants are liable to refund the entire
amount received by them along with interest @ 18% p.a.
only in the event of appellants defaulting in their
obligations under the agreement. It is further urged that
the question, who violated the terms and conditions is to
be decided by the competent forum. This being the
position, impugned order to furnish cash security for
Rs.50.00 crores and interest @ 18% per annum is
impermissible.
13. It is also urged that the Court acting under
Section 9 of Act, 1996 while passing the order to direct the
parties to the proceedings to furnish security is guided by
the provisions of Order XXXVIII of the Code of Civil
Procedure. It is contended that conditions precedent to
grant an order similar to an order XXXVIII of the Code
have not been fulfilled.
14. Alternatively, it is submitted that the appellants
are ready to deposit Rs.50.00 crores without obligation to
deposit interest on the said amount, and the same shall be
kept in a nationalized bank in an interest-earning deposit
and the amount be paid to the successful party after the
adjudication of the dispute by the competent forum.
15. Learned Senior Counsel appearing for the
respondents would submit that the order impugned is
passed taking into consideration that the appellants have
admitted the receipt of Rs.50.00 crores and the
termination clause No.15 entitles the respondents to
receive the security deposit paid by the respondents along
with interest @ 18% per annum in the event of
termination of the agreement.
16. It is further urged that the supplementary
agreement has only imposed additional obligations on the
appellants and has not diluted any of the obligations cast
on the appellants in terms of the MOU dated 6.10.2018
and the arbitration clause found in the agreement is intact
as clause No.13, of the supplementary agreement dated
04.12.2018 does not modify the arbitration clause.
17. It is further urged that the appellants have
failed to obtain the grant order from the KIADB as agreed
in the agreement dated 06.10.2018 and further without
any consent and knowledge of the respondents have
entered into an agreement for sale on 06.12.2019 in
respect of the portion of the properties covered by the
agreement dated 06.10.2018.
18. It is also submitted that the appellants created
a third-party right/charge over the portion of scheduled
properties and collected a huge amount from third parties
suppressing the MOU dated 06.10.2018 and 04.12.2018. It
is further urged that the Court under Section 9 of the Act,
1996 has ample power to pass appropriate interim orders
and is not governed by the requirements contained in
Order XXXVIII Rule 5 of the Code of Civil Procedure.
19. In support of his contention, the learned Senior
Counsel for the respondents relied upon the judgment of
the Apex Court in the case of ESSAR HOUSE PRIVATE
LIMITED vs ARCELLOR MITTAL NIPPON STEEL INDIA
LIMITED reported in 2022 LIVELAW (SC) 765.
20. It is further urged by the learned Senior
Counsel for the respondents that the order under challenge
is neither capricious nor perverse or arbitrary and there is
no scope to interfere with the impugned order.
21. This Court has considered the contentions
raised at the bar and perused the order under challenge.
22. As far as the contention relating to the scope
of the Court under Section 9 of the Act, 1996 is concerned,
the Apex Court in the case of ESSAR HOUSE PRIVATE
LIMITED supra in paragraphs No.49 & 50 has held as
under:
49. If a strong prima facie case is
made out and the balance of convenience is in
favour of interim relief being granted, the
Court exercising power under Section 9 of the
Arbitration Act should not withhold relief on the
mere technicality of absence of averments,
incorporating the grounds for attachment
before judgment under Order 38 Rule 5 of the
CPC.
50. Proof of actual attempts to deal
with, remove or dispose of the property with a
view to defeat or delay the realization of an
impending Arbitral Award is not imperative for
grant of relief under Section 9 of the
Arbitration Act. A strong possibility of
diminution of assets would suffice. To assess
the balance of convenience, the Court is
required to examine and weigh the
consequences of refusal of interim relief to the
applicant for interim relief in case of success in
the proceedings, against the consequence of
grant of the interim relief to the opponent in
case the proceedings should ultimately fail.
23. The Clause No. 13 of the supplementary
agreement prima facie indicates that terms of the MOU
dated 6.10.2018 are modified partially and other terms
and conditions of the MOU are intact. Prima facie there is
nothing on record to suggest that the arbitration clause
which is in the MOU dated 6.10.2018, is done away with in
the supplementary agreement. In the instant case,
admittedly the respondents have paid Rs.50.00 crores to
the appellants. And the appellants have acknowledged the
receipt of Rs.50.00 crores. Details of the payments are as
under:
Sl no Cheque Date Cheque No. Amount
1 10.10.2018 448108 drawn on 5,00,00,000
Federal Bank
2 10.10.2018 448109 drawn on 7,50,00,000
Federal Bank
3 10.10.2018 448111 drawn on 12,50,00,000
Federal Bank
4 03.12.2018 878608 25,00,00,000
Drawn on Vijaya Bank
24. Clause No.15 of the MOU provides for a refund
of the amount received along with the interest @ 18 % per
annum in the event of a appellants not fulfilling the terms
and conditions to the satisfaction of the respondents. From
the grounds urged in the appeal memo, it is seen that the
appellants raised the grounds on the maintainability of the
petition on the premise that there is no arbitration clause.
No specific default on the part of the respondents with
reference to their obligations in the MOU or supplementary
agreement is pointed out.
25. However, the contention of the respondents
relating to default on the part of the appellants is prima
facie made out as the appellants have not acquired
ownership over the properties mentioned in the MOU
within the time stipulated. In addition, it is also
forthcoming that appellants have also executed an
agreement for sale in favour of a third party in respect of
the portion of the properties covered under the MOU. This
being the position Clause No.15 is invoked by the
respondents and they are claiming a refund of Rs.50.00
crores along with interest as agreed under the MOU.
26. As already noticed receipt of Rs.50.00 crores is
admitted by the appellants. Prima facie no materials are
placed to counter the defaults pointed out by the
respondents. This being the position, the respondents have
raised a dispute to recover the security deposit paid by
them by invoking Clause No.15 of the MOU.
27. As an interim measure, the respondents prayed
for a restraint order against the appellants from alienating
the schedule properties and a direction to the appellants to
furnish a bank guarantee of Rs.80.60 crores.
28. The Court acting under Section 9 of the Act on
considering Clause No.15 of the MOU and on noticing the
agreement for sale dated 06.12.2019 executed by the
appellants in favour of M/s Micro Labs Limited for Rs.32.00
crores has concluded that the respondents have made out
a prima facie case for a grant of interim measure and
directed the appellants to furnish cash security to the tune
of Rs.50.00 crores along with interest @ 18% per annum.
29. Having regard to the fact that Rs.50.00 crores
are paid by the respondents and receipt of the same is
admitted by the appellants and having regard to Clause
No.15 of the MOU, the respondents are entitled to seek
refund of the security deposit, this Court is of the view that
the respondents have made out a case for a direction to
the appellants to deposit the amount paid by them.
30. As far as interest @ 18% per annum claimed
on Rs.50.00 crores from the date of payment is concerned,
this Court prima facie finds that said stipulation to pay
interest falls under Section 74 of the Indian Contract Act,
1872. It does not fall in the realm of unspecified damages.
Under these circumstances, this Court is also of the view
that a prima facie case is made out to lay a claim for
interest @ 18% per annum.
31. Having gone through the impugned order, this
Court does not find anything arbitrary, capricious or
perverse in the order directing the appellants to furnish
cash security to the tune of Rs.50.00 crores. However,
what is to be noticed is the Court directing cash security to
the tune of Rs.50.00 along with interest @ 18% per annum
further restraints the appellants from alienating,
transferring, parting with possession, and creating third
party interest over the schedule properties.
32. This Court is of the view that the further restraint
order is unjustified, after directing the appellants to furnish
cash security to the tune of Rs.50.00 crores along with
interest @ 18% per annum.
33. It is submitted that arbitration proceedings
have already commenced. Hence, taking into consideration
the scope of Section 9 in terms of the law laid down in the
case of ESSAR HOUSE supra, and the terms and
conditions of the MOU entered into between the parties,
this Court is of the view the order directing deposit
Rs.50.00 crores by the appellants is to be upheld.
34. The appellants shall furnish security of
immovable property to secure payment of interest @ 18%
per annum on Rs.50.00 crore from the date of payment till
the date of furnishing security, to the satisfaction of the
District Court.
35. The payment of Rs.50.00 crores and security
for the interest amount referred to above shall be
furnished within four weeks from today. On compliance of
the aforesaid order, the restraint order granted by the
District Court restraining alienation shall stand vacated.
36. The amount to be deposited in Court shall be
kept in Fixed deposit till the conclusion of the arbitral
proceeding and the same, along with interest shall be
disbursed in terms of the final award of the arbitrator.
37. This Court has not expressed anything on the
merits of the case. The observations made in this appeal
are only confined to the merits of Section 9 petition. All
the contentions of the parties, including maintainability of
the dispute before the arbitrator, non compliance of the
obligations of the respondents under the MOU and
supplementary agreement are kept open.
38. Hence the following,
ORDER
Impugned order dated 29.10.2022 in
A.A.No.2/2022 on the file of VIII Additional
District Court, Bengaluru rural is partly
modified in the above said terms.
Appeal is partly allowed.
Sd/-
JUDGE
Sd/-
JUDGE
BRN/GVP
