Karnataka High Court

Universal Test Solutions Llp vs S L K Software Services Private ... on 4 October, 2023

Bench: S.G.Pandit

 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 4TH DAY OF OCTOBER, 2023

                        BEFORE

         THE HON'BLE MR.JUSTICE S.G.PANDIT

       WRIT PETITION No.16338/2023 (GM-CPC)

BETWEEN:
UNIVERSAL TEST SOLUTIONS LLP
A LIMITED LIABILITY PARTNERSHIP
REGISTERED UNDER THE LIMITED LIABILITY
PARTNERSHIP ACT, 2008 UNDER
REGISTRATION NO.AAB-1485 AND HAVING
ITS REGISTERED OFFICE AT
C/O 303, ANURAG BUSINESS CENTER
VT PATIL MARG, NEAR AMAR THEATER
CHEMBUR (E), MUMBAI-400071
BY ITS PARTNER MR. ANANND KHOSLA.
                                           ...PETITIONER

(BY SRI JOSHUA HUDSON SAMUEL, ADV.)

AND:
S.L.K. SOFTWARE SERVICES PRIVATE LIMITED
A COMPANY REGISTERED UNDER THE PROVISIONS
OF THE COMPANIES ACT, 1956
AND HAVING ITS REGISTERED OFFICE AT
SLK1, 40/A, KHB INDUSTRIAL AREA
YELAHANKA, BANGALORE-560 0064
REP. BY ITS MANAGING DIRECTOR.
                                         ....RESPONDENT
(BY MS. TAMARRA SEQUIRA, ADV. FOR C/R)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO CALL FOR THE
RECORDS IN COMM AS NO.1/2021 ON THE FILE OF THE LXXXIII
ADDL.CITY CIVIL AND SESSION JUDGE (COMMERCIAL COURT)
BANGALORE (CCH-84) AND AFTER EXAMINING THE LEGALITY AD
                              2
VALIDITY OF THE IMPUGNED ORDER DATED 15.07.2023
REJECTING THE APPLICATION FILED BY THE PETITIONER FOR
DIRECTION TO THE REGISTRAR CITY CIVIL COURT BANGALORE
AND ETC.

     THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
ON 14/08/2023 COMING ON FOR PRONOUNCEMENT THIS DAY,
THE COURT MADE THE FOLLOWING:

                        ORDER

The petitioner/defendant in Com.A.P.No.1/2020 on

the file of LXXXIII Additional City Civil and Sessions

Judge at Bengaluru City (CCH-84) (for short, 'Trial

Court') is before this Court under Article 227 of the

Constitution of India, against rejection of application

filed under Section 151 of CPC praying for a direction to

invoke bank guarantee and disburse the amount to the

respondent., i.e., petitioner herein.

2. Heard the learned counsel Sri.Joshua Hudson

Samuel for petitioner/defendant and learned counsel

Ms.Tamarra Sequeira for Caveator/respondent. Perused

the entire writ petition papers.

3. Brief facts of the case are that petitioner

initiated arbitration proceedings against respondent in

CMP No.345/2017. The Arbitrator was appointed to

resolve the dispute between the petitioner and

respondent. It is stated that Arbitrator conducted

proceedings in A.C.No.92/2018 and passed interim

award dated 14.11.2018 and final award dated

30.09.2019 directing the respondent to furnish bank

guarantee for Rs.2 Crores under interim award and

directed the respondent to pay a sum of USD 7,92,369

with 18% interest under the final award. The said award

dated 30.09.2019 was challenged under Section 34 of

the Arbitration and Conciliation Act, 1996 (for short,

'Arbitration Act') before the Commercial Court,

Bengaluru by respondent herein in A.P.No.1/2020. The

petitioner also challenged portion of the award under

Section 34 of the Arbitration Act in A.S.No.182/2019.

4. In A.P.No.1/2020 filed by respondent herein,

the Commercial Court on application by the respondent

herein passed an interim order dated 17.03.2020

staying the execution of award, subject to the

respondent depositing 60% of the award amount and on

furnishing security for the balance 40% by way of bank

guarantee. The respondent in pursuance to interim order

dated 17.03.2020, deposited a sum of Rs.4,80,02,855/-

before the Registrar, City Civil Court and also furnished

bank guarantee for a sum of Rs.3,20,01,903/- in the

name of the Registrar, City Civil Court, Bengaluru.

Thereafter, both the proceedings initiated under Section

34 of Arbitration Act by the petitioner as well as

respondent were heard and dismissed. The Commercial

Court while dismissing A.P.No.1/2020 directed that 60%

of the award amount in deposit be released in favour of

the petitioner herein who was respondent before the

Commercial Court. No order was passed in respect of

the bank guarantee furnished to the Court. The

petitioner's A.S.No.182/2019 was dismissed under

judgment dated 30.10.2021, against which Commercial

Appeal No.7/2021 is pending before this Court.

5. On dismissal of A.P.No.1/2020 filed by

respondent herein by judgment dated 30.10.2021, the

petitioner herein filed application dated 18.05.2022 under

Section 151 of CPC seeking a direction to the Registrar,

City Civil Court, Bengaluru to invoke bank guarantee

dated 07.10.2021 and disburse the amount to the

petitioner, since bank guarantee was offered as security

for the award amount under Order dated 17.03.2020.

The said application was opposed by respondent by filing

objections contending that the Court had become functus

officio and as such the Court would not get jurisdiction to

entertain the application. It is also contended that bank

guarantee was in the nature of security and was never

intended to be disbursed to the respondent. It is also

stated that when the petitioner had preferred Commercial

Appeal No.7/2022 before this Court praying to set aside

the award, the petitioner cannot seek for enforcement of

bank guarantee. It is also stated in the objections that

petitioner's claim has not attained finality and petitioner

is required to initiate execution proceedings in respect of

any amount which it claims.

6. The bank guarantee was extended from time

to time and it was extended till 31.07.2023. The

Commercial Court by order dated 26.07.2022, dismissed

the application filed under Section 151 of CPC by the

petitioner, which had sought a direction to invoke the

bank guarantee on the ground that the bank guarantee

was taken at the time of passing order of stay of the

operation of award and it is open for the petitioner

herein to take steps for execution of the award. The said

order dated 26.07.2022 dismissing application of the

petitioner was the subject matter of writ petition before

this Court in W.P.No.22221/2022. This Court by order

dated 08.06.2023, allowed the writ petition, set aside

the order dated 26.07.2022, remitted the matter back to

the Commercial Court for re-consideration by treating

the application as Review Petition/application and to

pass appropriate orders in accordance with law.

7. The respondent herein filed Review Petition

No.282/2023 against the order dated 08.06.2023 in

W.P.No.22221/2022 and the said Review Petition was

disposed of by order dated 22.06.2023 making it clear

that all rival contentions on all aspects of the application

including maintainability/non-maintainability are kept

open to be decided by the Commercial Court, without

expressing any opinion. Thereafter, the Commercial

Court on re-consideration of the application, passed the

impugned order dated 15.07.2023 rejecting the

application of the petitioner filed under Section 151 of

CPC seeking invocation of bank guarantee dated

07.10.2021 on the ground that as the Arbitration Act

does not provide for review of order passed under

Section 34 of Arbitration Act, the provisions of Section

47 and Section 114 of CPC cannot be applied and the

Review Petition would not be maintainable. Further, it

also observed that Section 34 Petition cannot be

converted as petition under Section 36 for enforcement

of award, that too without paying the stamp duty on the

award. Aggrieved by the said order, petitioner is before

this Court in this writ petition.

8. Learned counsel Sri.Joshua Hudson Samuel

has contended that,

(i) bank guarantee was furnished by respondent as

security in terms of interim order dated 17.03.2020 in

A.P.No.1/2020. On dismissal of A.P.No.1/2020 filed by

respondent herein, the Commercial Court ought to have

invoked bank guarantee given as security and ought to

have directed payment to the petitioner towards the

amount due under award.

(ii) The Commercial Court having directed the

amount in deposit be paid to the petitioner, failed to

invoke bank guarantee. The security furnished in the

form of bank guarantee was towards the award under

challenge and when the challenge to award by

respondent was dismissed, the Commercial Court in

exercise of its power ought to have directed invocation

of bank guarantee.

(iii) The Commercial Court having released the

amount in deposit which was also directed to be

deposited as security to the award and on the same

analogy, the Commercial Court should have directed

invocation of bank guarantee. Both the cash deposit and

bank guarantee stand on the same footing and while

realizing, they cannot be treated as different.

(iv) The Commercial Court failed to note that the

security obtained by way of bank guarantee was to

protect the interest of the petitioner under the award

which was challenged under Section 34 of the

Arbitration Act.

(v) Observation of the Commercial Court that

bank guarantee was given as security during pendency

of challenge to award under Section 34 of the Arbitration

Act and not for enforcement of award under Section 36

of the Arbitration Act is erroneous and would not stand

to reasons. The Commercial Court by way of interim

order directed the respondent to furnish security by way

of bank guarantee.

(vi) There is no security available to realize the

fruits of the award as the bank guarantee furnished by

respondent herein has expired. Therefore, he pleads

difficulty in executing the award in terms of Section 36

of the Arbitration Act. To substantiate the same, he has

referred to the letter dated 01.08.2023 and submitted

that bank guarantee was extended up to 31.05.2024

and was submitted to the Registrar, City Civil Court, but

on verifying it is found that no such guarantee is

available in the file of Com.A.P.No.1/2020, which is clear

from the above stated letter issued by the Sheristedar,

City Civil Court (Commercial Court), Bengaluru. In that

regard, learned counsel would request for passing

appropriate order.

(vii) That the purpose and object of arbitration is

speedy and expeditious disposal of the disputes.

Therefore, there is no need to go through the process of

execution proceedings when security is available before

the Court.

(viii) The observations of the Commercial Court

that to avoid payment of stamp duty, the petitioner is

seeking invocation of bank guarantee given as security,

was uncalled for since the Commercial Court could have

called upon the petitioner to pay stamp duty on the

award and thereafter could have invoked the bank

guarantee. Thus, he prays for allowing the writ petition

and to direct the Commercial Court to invoke bank

guarantee furnished as security by the respondent.

9. Learned counsel Sri.Joshua Hudson Samuel

initially also argued on the point of power of review of

the Commercial Court, but when this Court pointed out

that same would be academic in the present writ

petition, learned counsel submitted that said question

may be kept open to be decided in any other

appropriate proceedings.

10. Per contra, learned counsel Ms.Tamarra

Sequeira for Caveator/respondent would support the

order of the Commercial Court and would submit that,

(i) Once the proceedings under Section 34 of the

Arbitration Act is disposed of, Commercial Court would

not get jurisdiction to issue further direction on the

application filed by the petitioner.

(ii) The only course open for the petitioner is to

file execution petition under Section 36 of the Arbitration

Act.

(iii) The petitioner filed application under Section

151 of CPC seeking for a direction to invoke bank

guarantee only to avoid payment of stamp duty on the

award.

(iv) The petitioner has challenged the award in

Com.A.P.No.7/2022 before this Court and having

challenged the award, it is not open for the petitioner to

put the said award for execution that too by way of an

application under Section 151 of CPC.

(v) The bank guarantee was given as security

during pendency of Section 34 proceedings and the bank

guarantee is not submitted to enforce the award in

Section 34 proceedings.

(vi) The bank guarantee is not submitted for

discharge of the dues insofar as the award is concerned,

but it is given as security during Section 34 proceedings.

As such, the petitioner cannot claim any right over the

bank guarantee.

(vii) In a proceedings under Section 34 of the

Arbitration Act, the Court could examine as to whether

the award on the ground stated under Section 34

requires interference and Section 34 would not empower

the Commercial Court to enforce the award. To enforce

the award, one has to invoke Section 36 of the

Arbitration Act.

Therefore, learned counsel would submit that the

Commercial Court was justified in rejecting IA filed

under Section 151 of CPC to invoke bank guarantee.

Thus, learned counsel would pray for dismissal of the

writ petition.

11. On hearing the learned counsel appearing for

the parties and on perusal of the writ petition papers,

the only point which falls for consideration is as to,

"Whether the Commercial Court is justified in rejecting I.A filed under Section 151 of CPC seeking direction to invoke bank guarantee, in the facts and circumstances of the case?"

The answer to the above point would be in the

Affirmative and the Trial Court is justified in rejecting I.A

filed under Section 151 of CPC for the following reasons:

12. The petitioner is before this Court under

Article 227 of the Constitution of India. Under Article

227 of the Constitution of India, this Court would

exercise supervisory jurisdiction and would not act as

Appellate Court. Further, it would not re-appreciate or

re-evaluate the evidence or facts upon which the Trial

Court has come to a conclusion, if it is supported by

reasons. Supervisory jurisdiction is not to correct every

error, fact or even a legal flaw. Supervisory jurisdiction

would be exercised sparingly in appropriate cases. If a

person who approaches the Court under Article 227 of

the Constitution of India, establishes that the finding of

the Trial Court is so perverse that no reasonable person

can possibly come to such a conclusion that the Court

has come to, then the Court would exercise Supervisory

jurisdiction. Moreover, if the petitioner could avail any

other remedy, the Court would not exercise its

jurisdiction under Article 227 of the Constitution of

India. In other words, to exercise its jurisdiction under

Article 227 of the Constitution of India, one of the

essential pre-requisite would be that petitioner should

be remediless. The Hon'ble Apex Court in a decision in

GARMENT CRAFT V/S. PRAKASH CHAND GOEL1 has

laid down and explained under what circumstances,

power under Article 227 of the Constitution of India

could be exercised. Relevant paragraphs 15 and 16

reads as follows:

"15. Having heard the counsel for the parties, we are clearly of the view that the impugned order [Prakash Chand Goel v. Garment Craft, 2019 SCC OnLine Del 11943] is contrary to law and cannot be sustained for several reasons, but primarily for deviation from the limited jurisdiction exercised by the High Court under Article 227 of the Constitution of India. The High Court exercising supervisory jurisdiction does not act as a court of first appeal to reappreciate, reweigh the evidence or facts upon which the determination under challenge is based.

Supervisory jurisdiction is not to correct

(2022) 4 SCC 181

every error of fact or even a legal flaw when the final finding is justified or can be supported. The High Court is not to substitute its own decision on facts and conclusion, for that of the inferior court or tribunal. [Celina Coelho Pereira v. Ulhas Mahabaleshwar Kholkar, (2010) 1 SCC 217 : (2010) 1 SCC (Civ) 69] The jurisdiction exercised is in the nature of correctional jurisdiction to set right grave dereliction of duty or flagrant abuse, violation of fundamental principles of law or justice. The power under Article 227 is exercised sparingly in appropriate cases, like when there is no evidence at all to justify, or the finding is so perverse that no reasonable person can possibly come to such a conclusion that the court or tribunal has come to. It is axiomatic that such discretionary relief must be exercised to ensure there is no miscarriage of justice.

16. Explaining the scope of jurisdiction under Article 227, this Court in Estralla Rubber v. Dass Estate (P) Ltd. [Estralla

Rubber v. Dass Estate (P) Ltd., (2001) 8 SCC 97] has observed : (SCC pp. 101-102, para

6) "6. The scope and ambit of exercise of power and jurisdiction by a High Court under Article 227 of the Constitution of India is examined and explained in a number of decisions of this Court. The exercise of power under this article involves a duty on the High Court to keep inferior courts and tribunals within the bounds of their authority and to see that they do the duty expected or required of them in a legal manner. The High Court is not vested with any unlimited prerogative to correct all kinds of hardship or wrong decisions made within the limits of the jurisdiction of the subordinate courts or tribunals. Exercise of this power and interfering with the orders of the courts or tribunals is restricted to cases of serious dereliction of duty and flagrant violation of fundamental principles of law or justice,

where if the High Court does not interfere, a grave injustice remains uncorrected. It is also well settled that the High Court while acting under this Article cannot exercise its power as an appellate court or substitute its own judgment in place of that of the subordinate court to correct an error, which is not apparent on the face of the record. The High Court can set aside or ignore the findings of facts of an inferior court or tribunal, if there is no evidence at all to justify or the finding is so perverse, that no reasonable person can possibly come to such a conclusion, which the court or tribunal has come to.""

In the background of above legal position, I

proceed to examine the facts of the present case:

13. The petitioner in A.P.No.1/2020 before the

Commercial Court questioned award dated 30.09.2018

under Section 34 of the Arbitration Act and prayed to set

aside the said award. The petitioner herein also

challenged part of the said award dated 30.09.2018 in

A.S.No.182/2019. Both the proceedings initiated under

Section 34 of the Arbitration Act came to be dismissed

under judgment dated 30.10.2021. The petitioner herein

filed appeal against the said judgment dated 30.10.2021

insofar as dismissal of the challenge to part of the

award, but insofar as dismissal of A.P.No.1/2020 filed by

respondent it has become final and binding on the

parties. The operative portion of the judgment in

A.P.No.1/2020 reads as follows:

"Petition U/s. 34 of the Arbitration & Conciliation Act filed by the petitioner is dismissed.

In the circumstances of the case, there is no order as to costs.

Rs.4,80,02,855/- deposited in this case by the respondent (petitioner in this petition),

which is kept in FD, be released to the Claimant along with accrued interest, after appeal period is over."

14. No doubt, by interim order dated 17.03.2020

in Com.A.P.No.1/2020, the Commercial Court had

stayed the award under challenge, subject to respondent

herein depositing 60% of the award amount and

providing security for rest of the 40% of the award

amount. While dismissing Com.Appeal No.1/2020, the

Commercial Court directed to release the amount in

deposit in favour of the petitioner herein along with

accrued interest. No order was passed in respect of the

bank guarantee which was furnished by respondent

herein in pursuance to the interim order dated

17.03.2020, apparently because the said bank

guarantee was provided as security during pendency of

Section 34 proceedings.

15. The impugned order is not perverse or

unreasonable, but it is supported by reasons. Further,

the finding of the Commercial Court cannot be said that

no reasonable person can possibly come to such a

conclusion that the Court has not arrived at. The

Commercial Court has rightly come to the conclusion

that bank guarantee in pursuance to interim order dated

17.03.2020 was furnished as security during the

proceedings under Section 34 of the Arbitration Act.

16. Once Section 34 proceedings is dismissed, it

is always open for the petitioner to enforce the award.

The petitioner cannot convert Section 34 proceedings

into Section 36 proceedings for enforcement of award by

means of an I.A. When the Arbitration Act provides for

enforcement of award under Section 36 of the

Arbitration Act, the petitioner shall have to resort to

the procedure prescribed under Section 36 of the

Arbitration Act.

17. Moreover, without paying stamp duty on the

award amount, it is not open for the petitioner to seek

enforcement of the award. As rightly observed by the

Commercial Court, objection regarding non-payment of

stamp duty on the award cannot be raised in a

proceedings under Section 34 of the Arbitration Act.

While enforcing the award under Section 36 of the

Arbitration Act, the award could be executed only if

stamp duty is paid and Executing Court would not be in

a position to execute the award unless it is stamped and

registered. The Hon'ble Apex Court in the case of

M.ANASUYA DEVI AND ANOTHER V/S. M.MANIK

REDDY AND OTHERS2 with regard to stamping and

registration and the stage at which objection regarding

the same could be raised has been discussed in

paragraphs 2, 3 and 4 which reads as follows:

"2. The Principal Sub-Judge, Hyderabad, by an order dated 4-8-2000

(2003) 8 SCC 565

rejected the said petitions. Aggrieved, the respondents filed the appeals before the High Court of Judicature at Andhra Pradesh under Section 37(1)(b) of the Act. The High Court was of the view that since the award was not stamped and registered, it was, therefore, invalid and without jurisdiction. It is against the said judgment of the High Court, the appellants are in appeal before us.

3. Shri Rakesh Dwivedi, learned Senior Counsel appearing for the appellants urged that a perusal of the award would show that it has not created any right or liability in favour of any party, but it requires a subsequent documentation by the parties. He submitted, in that view of the matter, the award was not required to be stamped and registered and in fact, subsequent documentation would definitely require stamping and registration. However, Shri V.R. Reddy, learned Senior Counsel appearing for the respondents, urged that the award did create rights in favour of the parties and as

such it required registration and the view taken by the High Court is in conformity with law.

4. After we heard the matter, we are of the view that in the present case this issue was not required to be gone into at the stage of the proceedings under Section 34 of the Act. In fact, this issue was premature at that stage. Section 34 of the Act provides for setting aside of the award on the grounds enumerated therein. It is not in dispute that an application for setting aside the award would not lie on any other ground, which is not enumerated in Section 34 of the Act. The question as to whether the award is required to be stamped and registered, would be relevant only when the parties would file the award for its enforcement under Section 36 of the Act. It is at this stage the parties can raise objections regarding its admissibility on account of non-registration and non-stamping under Section 17 of the Registration Act. In that view of the matter, the exercise

undertaken to decide the said issue by the civil court as also by the High Court was entirely an exercise in futility. The question whether an award requires stamping and registration is within the ambit of Section 47 of the Code of Civil Procedure and not covered by Section 34 of the Act."

18. The Commercial Court has rightly observed

that bank guarantee is given as security and not given

for payment of the award amount. Further, it rightly

observed that if it requires payment of stamp duty,

when award holder have to enforce the award, the

respondent may have to comply with the same and

cannot seek enforcement in other way by invoking bank

guarantee which is given to the Court. Admittedly, the

bank guarantee was valid or in currency till 31.07.2023.

The petitioner instead of filing application under

Section 151 of CPC for invoking bank guarantee, had

filed application under Section 36 of the Arbitration Act

for enforcement and in the said petition if the petitioner

had sought direction to invoke the bank guarantee, by

this time, the petitioner would have enjoyed the fruits of

the award. But, it appears that with an intention to save

the stamp duty, the petitioner appears to have filed

application under Section 151 of CPC for a direction to

invoke the bank guarantee in a disposed-off Section 34

Proceedings. Having not filed an application for

enforcement of award under Section 36 of the

Arbitration Act before expiry of the bank guarantee, it is

not open for the petitioner to contend that there is no

security to enforce the award.

19. Learned counsel for the petitioner contended

that amount in FD was released but the Commercial

Court failed to invoke the bank guarantee while

dismissing Section 34 petition of the respondent herein.

The Commercial Court at paragraph 21 has assigned

reason for not invoking bank guarantee. Paragraph 21 of

the Commercial Court's order reads as follows:

"21. Invocation of bank guarantee has several consequences and may affect their commercial understandings and creditworthiness of the party and even their business prospects. When bank guarantee is given to the court, unless specified event mentioned in the bank guarantee has arisen or particular condition in the bank guarantee is violated, bank guarantee cannot be invoked. Invocation of bank guarantee cannot be equated with payment of FD amount. Since the bank guarantee is given to the court, court would invoke the bank guarantee only if, situation which compel the court to invoke the bank guarantee arises. When such situation is not placed before the court, there was no occasion for this court to order for invoking of bank guarantee while passing judgment on petition under Section 34. Hence, not invoking bank guarantee while passing order under Section 34, cannot be considered as an error

apparent on the face of record. Even if another contrary view is also possible view of the court cannot be changed subsequently, as rightly argued by the learned senior counsel for the petitioner, as such change of view is beyond the scope of Review."

The Commercial Court has assigned reason as to why it

has not invoked bank guarantee. As stated above, this

Court under Article 227 of the Constitution of India is

not sitting in appeal and would not go into the

correctness of the reason. Moreover, when the petitioner

has remedy of enforcing the Award under Section 36 of

1996 Act, the Trial Court is justified in refusing to invoke

the bank guarantee. Moreover, the bank guarantee as

observed above was to protect the interest of the

petitioner during the pendency of Section 34

proceedings. During the pendency of Section 34

proceedings, there was no occasion or contingency so as