Karnataka High Court
M/S Icds Ltd vs Sr Bhaskaran Pillai on 9 February, 2024
Author: H.P. Sandesh
Bench: H.P. Sandesh
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 9TH DAY OF FEBRUARY, 2024 R
BEFORE
THE HON'BLE MR. JUSTICE H.P. SANDESH
M.F.A. NO.6319/2014 (AA)
BETWEEN:
1. M/S. ICDS LTD.,
(A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956)
BY ITS GPA HOLDER
SMT. NIRMALA PRABHAKAR
AGED ABOUT 49 YEARS
DEPUTY MANAGER
SYNDICATE HOUSE
MANIPAL-576104. ... APPELLANT
(BY MISS. ARCHANA NAIR, ADVOCATE FOR
SRI ANANDA SHETTY A., ADVOCATE)
AND:
1. SRI BHASKARAN PILLAI
S/O RAMAN PILLAI
AGE: MAJOR
2. SRI ANIL B. KUMAR
S/O BHASKARAN PILLAI
AGE: MAJOR
RESPONDENTS NO.1 AND 2
ARE R/A 'VENU NIVAS'
P.O PALEMADE, EDAKKARA,
MALAPPURAM DISTRICT
KERALA STATE-679331.
2
3. SRI S. VITTALA SHETTIGAR
AGE: MAJOR
ARBITRATOR & ADVOCATE
UDUPI-576 101. ... RESPONDENTS
(BY SRI VIJAYKUMAR V., ADVOCATE FOR R1 & R2;
R3 - SERVED AND UNREPRESENTED)
THIS M.F.A. IS FILED U/S 37(1)(b) OF THE ARBITRATION
ANC CONCILIATION ACT, 1996, AGAINST THE JUDGMENT AND
DECREE DATED 12.8.2014 PASSED IN ARBITRAION SUIT
NO.18/2006 ON THE FILE OF PRINCIPAL DISTRICT JDUGE,
UDUPI DISTRICT, UDUPI, ALLOWING THE SUIT FILED U/SEC 34
OF THE ARBITRATION AND CONCILIATION ACT.
THIS M.F.A. HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 31.01.2024 THIS DAY, THE COURT
PRONOUNCED THE FOLLOWING:
JUDGMENT
Heard the learned counsel for the appellant and learned
counsel for the respondent Nos.1 and 2.
2. The factual matrix of the case of the appellant herein
before the Arbitrator is that the appellant herein has forwarded
the claim petition dated 23.06.1999 with File No.AE-514 with
connected documents to Sri B. Yogishwara Holla, Advocate,
Udupi, with request to hold enquiry and to pass the award. The
dispute was in connection with the Hire Purchase Agreement
dated 27.08.1997 entered into between the parties i.e.,
appellant as owner, respondent No.1 as hirer and respondent
No.2 as guarantor. The claim was for Rs.3,02,350/-. As the said
Hire Purchase Agreement shows that the parties had agreed for
arbitration of said Sri B. Yogishwara Holla, he entered reference
on 20.07.1999 and conducted proceedings up to 15.05.2005.
The Arbitrator also submits that due to age factors of earlier
Arbitrator, the papers were entrusted to him on 08.07.2005 with
a request to continue the enquiry, as the earlier Arbitrator Sri B.
Yogishwara Holla is not inclined to continue on account of his old
age and ill-health. The Hire Purchase Agreement at Clause
No.VII(a) provides that the parties had agreed for arbitration
also (in case of failure on the part of Sri B. Yogishwara Holla).
So, he entered on the reference on 08.07.2005 and issued
notices to the parties and also to their advocates. There was no
objection by any of the parties to the notice and has maintained
a separate order sheet with effect from 08.07.2005 and
continued to enquire into the matter, since the earlier Arbitrator
had already conducted proceedings, framed issues, recorded the
evidence of appellant and the respondents. The only work that
remained was to hear the arguments and to pass the award.
The respective parties represented through their respective
counsels. The Arbitrator having heard the respective counsels,
allowed the arbitration claim and directed the respondents to pay
an amount of Rs.3,06,750/-.
3. Being aggrieved by the said award, arbitration suit
was filed which is numbered as Arbitration Suit No.18 of 2006.
Having perused the claim and also the grounds urged in the said
arbitration suit filed under Section 34 of the Arbitration and
Conciliation Act, 1996 and also on the basis of the pleadings, the
following issues and additional issues are framed which reads as
hereunder:
"1. Whether the plaintiffs prove that there was no
arbitration agreement between the parties
within the meaning of Section 7 of the
Arbitration and Conciliation Act and they have
not participated in the appointment of
arbitrators and the alleged arbitration
agreement has completely nullified the
mandatory provisions of Section 11 of the Act,
and the same is not binding on them, and the
Arbitrator had no jurisdiction to decide the
dispute between the parties?
2. Whether the plaintiffs prove that the Arbitral
Tribunal has completely ignored the mandatory
procedure prescribed under Chapter III of the
Act, in particular Sections 11, 14, 15 and 16 of
the Act?
3. Whether the plaintiffs prove that the 1st
defendant is not entitled to recover any
amount from them as awarded by the 2nd
defendant?
4. Whether the award in question is liable
to be interfered with by this Court? If so,
to what extent?
5. To what relief or decree, the parties are
entitled for?
Additional Issues:
"1. Whether the plaintiffs prove that the alleged
Hire Purchase Agreement has been materially
altered without their knowledge and consent
and the same is void contract and the same is
not capable of being in force in view of the
repeal of Arbitration Act, 1940?
2. Whether the plaintiffs prove that there was no
dispute capable of being referred for arbitration
and as such also the Arbitral Tribunal had no
jurisdiction to decide the matter?
3. Whether the plaintiffs prove that the arbitral
award is otherwise opposed to law, facts and
circumstances of the case and the same is
against to the public policy and principles of
natural justice?"
4. The parties have not led any evidence and the
District Court, having heard the respective counsels, answered
issue No.1 as 'partly affirmative', issue Nos.2 and 3 as 'does not
arise for consideration' and set aside the award by answering
issue No.4 as 'affirmative' and answered additional issue No.1
'partly in the affirmative' and additional issue Nos.2 and 3 as
'does not arise for consideration' and arbitration suit was allowed
and set aside the award passed by the Arbitrator. However,
liberty was reserved to the first defendant to file a civil suit for
recovery of the amount due to it from the plaintiffs and claim
benefit under Section 14 of the Limitation Act. Being aggrieved
by the said judgment and decree passed in Arbitration Suit
No.18 of 2006 dated 12.08.2014, the present miscellaneous first
appeal is filed before this Court.
5. Learned counsel for the appellant in this appeal
would contend that the learned Judge failed to consider that the
mistake has occurred because of the printed Hire Purchase
Agreement form where under, in Clause-VII (a), the Arbitration
Act, 1940 is referred which was required to be amended by
incorporating the Act, 1996. This mistake has occurred due to
oversight in not amending that portion of the Clause-VII (a) and
the mistake has occurred due to oversight. All the Clauses in
Hire Purchase Agreement are totally in accordance with the
provisions of the new Act. The entire proceedings were initiated
and concluded by the appointed Arbitrator in accordance with
the new Act and mere mentioning of a wrong provision will not
make the award as invalid. The counsel would vehemently
contend that the learned District Judge failed to consider that
even in the absence of amendment to the Hire Purchase
Agreement by way of replacement of the words 'Arbitration Act
1940', with the words 'Arbitration Act 1996' in view of the
available words in the said clause "or any statutory amendment
thereof", the entire proceedings is deemed to have been held
under the Arbitration and Conciliation Act, 1996. It is also
contended that the learned District Judge failed to consider that
the Hire Purchase Agreement at Ex.P1 is fully in consonance with
Section 7 of the 1996 Act, as it fully complies with the
requirement of Section 7 of the Act. The arbitration agreement
need not be referred to any particular Act, no particular form of
agreement is prescribed for the purpose and the Arbitrator is
empowered to decide the matter under Section 16 of the Act,
1996.
6. The counsel would vehemently contend that the
learned Judge has failed to consider that Ex.P1 and the
proceedings took place, after coming into force of the new Act on
25.01.1996. Therefore, this proceedings cannot have the
application of any provision of old Act or 1940 and the old Act
was repealed and the Hire Purchase Agreement in the real sense
is the agreement entered into as per the provisions of the New
Act 1996 and the same could not have been entered into when
old Act was not at all in force. It is contended that Hire Purchase
Agreement at Ex.P1, though refers to 1940 Act, it also includes
the words "or any statutory amendments thereof". Therefore,
there is no reason to say that the reference or the proceedings is
invalid and not binding on the parties. The counsel also would
vehemently contend that the decision relied upon by the learned
District Judge in THYSSEN STAHLUNION GMBH VS. STEEL
AUTHORITY OF INDIA LTD. reported in AIR 1999 SC 3923 is
not applicable to the facts of the case on hand, since in the case
on hand, Hire Purchase Agreement is dated 27.08.1997 and the
new Arbitration Act was in force as on that date. Hence, the
very approach of the learned District Judge is erroneous and it
requires interference of this Court.
7. Learned counsel for the appellant in her argument,
relied upon the judgment in PURUSHOTTAM, S/O. TULSIRAM
BADWAIK VS. ANIL AND OTHERS reported in (2018) 8 SCC
95. The counsel referring this judgment would vehemently
contend that the Apex Court has discussed Sections 85, 7 and 8
of the Arbitration and Conciliation Act, 1996, wherein it is held
that arbitration agreement incorrectly stipulating arbitration
under the 1940 Act i.e., even after the 1996 Act had come into
effect, not to render the entire agreement invalid. The Apex
Court has even taken note of its earlier judgment in MMTC LTD.
VS. STERLITE INDUSTRIES (INDIA) LTD. reported in
(1996) 6 SCC 716, wherein followed the judgment in
THYSSEN STAHLUNION GMBH VS. STEEL AUTHORITY OF
INDIA LTD. reported in AIR 1999 SCC 3923. The counsel
referring this judgment would vehemently contend that the very
approach of the learned District Judge is erroneous. Hence, it
requires interference.
8. Per contra, learned counsel for the respondent Nos.1
and 2 in his argument would vehemently contend that the very
contention of the learned counsel for the appellant cannot be
accepted and in the objection statement itself filed before the
Arbitrator, the appellant took the specific contention that
arbitration clause inserted as per the Arbitration Act of 1940
cannot be enforced subsequent to coming into force of Central
Act of 1996. The counsel would contend that the Arbitrator
failed to consider this aspect of the matter, however, the learned
District Judge, having taken note of the reference of old Act,
rightly comes to the conclusion that the Arbitrator has no
authority. Learned counsel also in his argument would
vehemently contend that the learned District Judge, taken note
of the Hire Purchase Agreement at Ex.P1 which contains a
arbitration clause at Clause No.VII (a) which reads as
hereunder:
"Clause VII (a) - All disputes, differences and
or claims arising out of this Hire Purchase Agreement
shall be settled by arbitration in accordance with the
provisions of the Indian Arbitration Act, 1940 or any
statutory amendment thereof and shall be referred
to the arbitration of Mr. B. Yogishwara Holla,
Advocate, Udupi, or in case of his death, refusal,
neglect or incapacity to act as an Arbitrator to the
sold arbitration of Mr. S.V. Shettigar, Advocate,
Udupi. The reference to the Arbitrator shall be
within the Clauses, Terms and Conditions of this
Agreement. The award given by the Arbitrator shall
be final and binding on all the parties concerned".
9. The learned District Judge has also taken note of the
judgment in THYSSEN STAHLUNION's case reported in AIR
1999 SC 3923 and so also the judgment in RAJAN KUMAR
VERMA AND ANOTHER VS. SACHCHIDNAND SINGH
reported in AIR 2006 PATNA 1 and extracted Para Nos.14 to
17 of the judgment and comes to the conclusion that those
judgments are aptly applicable to the case on hand. The District
Judge having considered the principles laid down in the
judgments and also the contents of Ex.P1 i.e., Clause No.VII (a),
rightly comes to the conclusion that the very arbitration under
the provisions of repealed Act is not valid and therefore, the
Arbitrator has no jurisdiction to decide the dispute involved
between the parties and the District Judge has not committed
any error in passing the judgment and hence, the question of
setting aside the judgment in Arbitration Suit No.18 of 2006
does not arise.
10. Having heard the learned counsel for the appellant
and learned counsel for the respondent Nos.1 and 2, the points
that would arise for consideration of this Court are:
(1) Whether the learned District Judge has
committed an error in allowing the Arbitration
Suit No.18 of 2006, considering Clause No. VII
(a) at Ex.P1 and erroneously arrived at a
conclusion that the arbitration is invalid and
the Arbitrator has no jurisdiction to set aside
the judgment and award.
(2) What order?
Point No.(1)
11. Having heard the learned counsel for the appellant
and learned counsel for the respondent Nos.1 and 2, no dispute
with regard to the fact that there was a Hire Purchase
Agreement between the parties and it is also not in dispute that
earlier, the arbitration was referred to one Sri B.Yogishwara
Holla, Advocate, Udupi with a request to hold an enquiry and
pass the award. It is also not in dispute that the issue involved
between the parties was in connection with the Hire Purchase
Agreement dated 27.08.1997 which was entered into between
the appellant and the respondents i.e., the appellant as owner,
respondent No.1 as hirer and respondent No.2 as guarantor.
The claim was for Rs.3,02,350/-. It is also not in dispute that
earlier Arbitrator issued notice and respective parties have
entered appearance, completed their pleadings and thereafter,
issues were framed and the earlier Arbitrator itself recorded
evidence of the respective parties. Thereafter, the said Arbitrator
was not inclined to continue on account of his old age and ill-
health. Hence, request was made to the new Arbitrator and he
continued the arbitration proceedings from 08.07.2005 and
heard the arguments of respective parties and passed the award
directing the respondents herein to pay the amount of
Rs.3,06,750/-. It is also not in dispute that being aggrieved by
the said award, an arbitration suit is filed.
12. Having perused the arbitration proceedings, the
respondents have also raised the defence before the Arbitrator
that the arbitration clause inserted as per the Arbitration Act of
1940 cannot be enforced subsequent to coming into force of
Central Act of 1996. It is also important to note that with regard
to the said defence, framed additional issue No.1 whether Hire
Purchase Agreement entered into between the parties under the
Arbitration Act, 1940 after the said act was repealed is valid and
binding on the parties. The Arbitrator, while answering additional
issue No.1, taken note of the Clause No. VII (a) of Hire Purchase
Agreement where there was reference to the arbitration as per
the provisions of 1940 Act. The Arbitrator has also taken note of
the intention of the parties at the time of agreement and
observed that intention of the parties at the time of agreement
has to be looked into by reading the agreement between the
lines and taken note of the very object of the Act shown in the
opening sentence [to consolidate and amend the law]. So this
act of 1996 is amendment in real sense, though replaced in the
place of earlier Act of 1940 and Section 7 of Arbitration Act,
1996 is included. The Arbitrator comes to the conclusion that
there is no particular form of agreement, intention of parties and
intention of parties is the basic need. It is also observed that the
Arbitrator is empowered to decide his own jurisdiction as per
Section 16 of the Act, 1996 also. The Arbitrator has also taken
note of Section 6 of General Clauses Act referring the judgment
of the Apex Court reported in AIR 1955 SC 84. The line of
enquiry would not be whether it manifests an intention to
destroy them for unless such an intention is manifested by the
new Act, the rights and liabilities under the repealed Act will
continue to exist by force of Section 6 of General Clauses Act.
The Arbitrator also taken note of the Clause i.e., Hire Purchase
Agreement which refers to 1940 Act, it also adds at Clause VII
(a) "or any statutory amendments thereof". So there is no
reason to say that the whole arbitration clause is invalid and not
binding on the respondents. Having considered the same, the
Arbitrator comes to the conclusion that Hire Purchase Agreement
at Ex.P1 is valid and binding on the respondents and answered
the issue in the 'affirmative'.
13. Now, this Court has to look into the reasoning given
by the learned District Judge in the Arbitration Suit No.18 of
2006, since the very same grounds are urged in the arbitration
suit as well. The District Judge has also taken note of the
contents of Ex.P1 i.e., Clause No. VII (a) and having perused
this Clause, it is very clear that all disputes, differences and or
claims arising out of Hire Purchase Agreement shall be settled by
arbitration in accordance with the provisions of the Indian
Arbitration Act, 1940 or any statutory amendment thereof and
shall be referred to the arbitration and name of the Arbitrator,
who had to conduct the proceedings is mentioned and so also,
the name of the subsequent Arbitrator in case of his death is
also mentioned in the said Clause.
14. Having considered the said Clause, the parties to
Ex.P1 i.e., Hire Purchase Agreement have entered into
agreement containing the arbitration Clause for referring the
disputes, differences and claims arising out of it to the Arbitrator
and shall be settled in accordance with the provisions of the
Indian Arbitration Act, 1940 or any statutory amendments
thereof. It is also not in dispute that new Act came into force on
25.01.1996 and it is also not in dispute that Clause No.VII (a)
refers to old Act. But, the fact is that parties entered into Hire
Purchase Agreement i.e., Ex.P1 on 27.08.1997 and reference
was made in the year 1999. The learned District Judge in Para
No.9 of the judgment, referred the principles laid down in the
judgment in THYSSEN STAHLUNION GMBH's case, wherein
head note (B) is extracted and so also relied upon other
judgment of the Apex Court in RAJAN KUMAR VERMA's case
reported in AIR 2006 PATNA 1 and extracted Para Nos.14 to
17 of the judgment in Para No.10. The learned District Judge
comes to the conclusion that the facts of the above decisions are
similar and also referred the decision of the Apex Court in
THYSSEN STAHLUNION GMBH's case and RAJAN KUMAR
VERMA's case.
15. Having considered the principles laid down in the
said judgments referred (supra), the learned District Judge
comes to the conclusion that the dispute between the parties for
arbitration to the Arbitrator is as per the provisions contained in
Arbitration Act, 1940 and comes to the conclusion that the said
arbitration clause cannot be enforced as the said Hire Purchase
Agreement refers the dispute for arbitration under the provisions
of the repealed Act. Therefore, the arbitration Clause contained
in Ex.P1 at Clause No.VII (a) is not valid and the Arbitrator has
no jurisdiction to decide the dispute involved between the
parties, as the arbitration agreement as contained in Clause
No.VII (a) of the Hire Purchase Agreement at Ex.P1 is not a valid
agreement between the parties.
16. It is also important to note that learned counsel for
the appellant relied upon the judgment of the Apex Court in
PURUSHOTTAM, S/O. TULSIRAM BADWAIK VS. ANIL AND
OTHERS reported in (2018) 8 SCC 95. In this judgment, the
Apex Court has considered the earlier judgments which have
been referred by the learned District Judge and the Apex Court
has clarified the same, particularly the judgment in MMTC LTD.
VS. STERLITE INDUSTRIES (INDIA) LTD. reported in
(1996) 6 SCC 716 and though the said judgment was not
referred by the learned District Judge, in the said judgment, it is
clarified that in terms of Section 85(2)(a) of 1996 Act, even
when the proceedings had commenced under the 1940 Act, the
parties could still agree on the applicability of the 1996 Act. If
the arbitral proceedings had not commenced as on the day when
the 1996 Act came into force, any subsequent commencement of
arbitral proceedings had to be in terms of the 1996 Act.
17. Having considered the said principle, it is very clear
that, even when the proceedings had commenced under 1940
Act, the subsequent commencement of arbitral proceedings had
to be in terms of the 1996 Act. Hence, it is clear that, if any
proceedings had to be initiated, the same shall be in terms of the
1996 Act. It is also important to note that the learned District
Judge referred the judgment in THYSSEN STAHLUNION
GMBH's case and the said judgment is also discussed in
PURUSHOTTAM's case and clarified that what is material for
the purposes of the applicability of the 1996 Act is the
agreement between the parties to refer the disputes to
arbitration. If there be such an arbitration agreement which
satisfies the requirements of Section 7 of the 1996 Act, and if no
arbitral proceeding had commenced before the 1996 Act came
into force, the matter would be completely governed by the
provisions of the 1996 Act. Any reference to the 1940 Act in the
arbitration agreement would be of no consequence and the
matter would be referred to arbitration only in terms of the 1996
Act consistent with the basic intent of the parties and discernible
from the arbitration agreement to refer the disputes to
arbitration.
18. Having perused the principles laid down in the
judgment in PURUSHOTTAM's case referred (supra), the Apex
Court considered the similar issue involved between the parties
in the case on hand and held that Sub-section (1) of Section 85
repealed three enactments including the 1940 Act. Sub-section
(2) stipulates, inter alia, that notwithstanding such repeal, the
repealed enactment, namely, the 1940 Act would continue to
apply in relation to arbitral proceedings which had commenced
before the 1996 Act came into force unless the parties were to
agree otherwise. The second limb of first clause of said sub-
section (2) further stipulates that notwithstanding such repeal
the provisions of the 1996 Act would apply in relation to arbitral
proceedings which commenced on or after the 1996 Act came
into force. It is also held that the reference to "Indian Arbitration
Act" or "to arbitration under the 1940 Act" in such cases would
be of no consequence and the matter would still be governed
under the 1996 Act. Would it then make any difference if in an
agreement entered into after the 1996 Act came into force, the
reference made by the parties in the agreement was to
arbitration in terms of the 1940 Act. Having considered the
principles laid down in the judgment and discussion made by the
Apex Court considering Section 85 and also Sections 7 and 8 of
the Arbitration Act, categorically held that arbitration agreement
incorrectly stipulating arbitration under the 1940 Act i.e., even
after the 1996 Act had come into effect, not to render the entire
agreement invalid and further held that, even if an arbitration
agreement entered into after the 1996 Act had come into force
were to make a reference to the applicable provisions of those
under Indian Arbitration Act or the 1940 Act, such stipulation
would be of no consequence and the matter must be governed
under provisions of the 1996 Act. It is further held that an
incorrect reference or recital regarding applicability of the 1940
Act would not render the entire arbitration agreement invalid
and such stipulation will have to be read in the light of Section
85 of the 1996 Act and principles governing such relationship
have to be under and in tune with the 1996 Act.
19. Having considered the principles laid down in the
judgment in PURUSHOTTAM's case, this judgment is aptly
applicable to the facts of the case on hand and though the
learned District Judge referred the judgment in THYSSEN
STAHLUNION GMBH's case referred supra, the same is
clarified in this judgment. Hence, the very approach of the
learned District Judge is erroneous and committed an error in
dismissing the claim of the appellant herein and erroneously
answered issue No.4, in coming to the conclusion that the very
agreement is not valid, though framed the issue whether the
award in question is liable to be interfered with by this Court.
20. Having perused the reasoning given by the learned
District Judge, while answering issue No.4, the learned District
Judge held that the Hire Purchase Agreement at Ex.P1 is not a
valid agreement between the parties. Therefore, the reference
made by the first defendant to second defendant is not valid
reference and set aside the award and not considered the matter
on merits as to whether the Arbitrator has committed an error
considering the scope of Section 34 of the Arbitration and
Conciliation Act, 1996. When issue No.4 has not been considered
and answered by the learned District Judge, this Court is of the
view that the learned District Judge has committed an error in
allowing the arbitration suit and setting aside the arbitration
award only on the ground of no jurisdiction and arbitration
reference is not correct and the matter requires to be remanded
to the District Court to consider issue No.4 afresh on merits.
Hence, I answer point No.(1) as 'affirmative'.
Point No.(2)
21. In view of the discussion made above, I pass the
following:
ORDER
(i) The appeal is allowed.
(ii) The impugned judgment and decree passed
by the learned District Judge at Udupi in
Arbitration Suit No.18 of 2006 dated
12.08.2014, is hereby set aside and the
matter is remanded to the District Court to
consider the same on merits, particularly with
reference to issue No.4.
(iii) The parties are directed to appear before the
District Court on 29.02.2024 without
expecting any notice and this order itself shall
be treated as notice to the parties.
(iv) The District Court is directed to dispose of the
matter within a period of three months from
29.02.2024, since the arbitration reference
is of the year 1999 and presently, we are in
2024.
(v) The Registry is directed to communicate this
order and send the records to the District
Court, forthwith, to enable the District Court
to take up the matter on 29.02.2024.
Sd/-
JUDGE
ST
