Karnataka High Court
M/S. Janardhana Enterprises vs M/S. Fine Serve Hospitality on 5 September, 2024
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MFA No. 668 of 2019
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5TH DAY OF SEPTEMBER, 2024
PRESENT
THE HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
THE HON'BLE MR JUSTICE VENKATESH NAIK T
MISCELLANEOUS FIRST APPEAL NO. 668 OF 2019 (AA)
BETWEEN:
M/S. JANARDHANA ENTERPRISES,
A REGISTERED PARTNERSHIP FIRM
HAVING ITS OFFICE AT "VEDASRI",
OPPOSITE TO SUBHAMANGALA KALYANA MANTAPA,
60 FEET ROAD, 2ND STAGE, VINOBHA NAGAR,
SHIVAMOGGA - 577 201.
(REPRESENTED BY ITS PARTNER &
AUTHORIZED PERSON MR. M.S. MURALIDHARA ARAS)
...APPELLANT
(BY SRI. ASHOK HANDE, ADVOCATE)
AND:
Digitally M/S. FINE SERVE HOSPITALITY
signed by K S SERVICES INDIA PVT. LTD.,
RENUKAMBA A PVT. LTD. COMPANY INCORPORATED
Location: UNDER THE PROVISIONS OF COMPANIES
High Court of ACT, 1956, HAVING ITS REGISTERED
Karnataka
OFFICE AT NO. 528, 2ND MAIN,
2ND CROSS, 2ND PHASE, 5TH STAGE,
BEML LAYOUT, RAJARAJESHWARI NAGAR,
BANGALORE - 560 098.
(REPRESENTED BY ITS MANAGING DIRECTOR
MR. SHASHIDHARA PADUVARY)
...RESPONDENT
(BY SRI.PRAVEEN HEGDE, ADVOCATE (ABSENT))
THIS MFA IS FILED UNDER SECTION 37(1)(b) OF
ARBITRATION AND CONCILIATION ACT, 1996 PRAYING TO SET
ASIDE THE ORDER PASSED BY THE PRINCIPAL DISTRICT AND
SESSIONS JUDGE, CHITRADURGA, IN A.S.NO.3/2017 DATED
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MFA No. 668 of 2019
30.11.2018 ANNEXURE-A, IN ALLOWING THE PETITION/
APPLICATION FILED BY THE RESPONDENT UNDER S.9 OF THE
ARBITRATION AND CONCILIATION ACT, 1996, WITH SUCH OTHER
INCIDENTAL RELIED AS DEEM FIT AND PROPER UNDER THE FACTS
AND CIRCUMSTANCES OF THE CASE, TO SECURE THE ENDS OF
JUSTICE AND EQUITY.
THIS APPEAL, COMING ON FOR FURTHER HEARING, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
HON'BLE MR JUSTICE VENKATESH NAIK T
ORAL JUDGMENT
(PER: HON'BLE MRS JUSTICE K.S.MUDAGAL)
This appeal is preferred challenging the judgment and
award dated 30.11.2018 in A.S.No.3/2017, passed by the
Principal District and Sessions Judge, Chitradurga. By the
impugned judgment and order, the learned District Judge has
allowed the application filed by the present respondent under
Section-9 of the Arbitration and Conciliation Act, 1996 (for
short '1996 Act') and directed the appellant to pay a sum of
Rs.81,56,124/- as arrears of rent, to be paid within a period of
thirty days.
2. The appellant was the respondent and the
respondent was the petitioner in A.S.No.3/2017 before the
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Principal District and Sessions Judge, Chitradurga. For the
purpose of convenience, the parties are referred to as per their
ranking before the District Judge.
3. The brief facts of the case are as follows:
On 07.02.2011, Karnataka State Road Transport
Corporation (for short 'KSRTC') entered into a contract titled as
'Build, Operate and Transfer (BOT)' with the petitioner
M/s.Hospitality Services India Private Limited. As per the said
contract, the petitioner had to construct hotel and lodge in
Survey No.79/1 on NH-4 at Metikurki, Hiriyur, Chitradurga
District, Karnataka and operate the same by paying certain
rents to KSRTC. Clause-16 of the said agreement permitted the
petitioner to sub-let the property. In compliance with the said
agreement, the petitioner constructed a hotel and lodge named
as KSRTC - 'Atithya Midway Plaza'.
4. On 20.04.2015, the petitioner entered into two sub-
lease agreements with the respondent to run the KSRTC -
Atithya Midway Plaza and a lodge on payment of certain rents.
The respondent filed O.S.No.97/2015 against the petitioner
before the Additional Civil Judge & JMFC, Hiriyur for permanent
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injunction not to dispossess it without adopting due process of
law. Pending that suit, the petitioner filed A.A. No.3/2017
before the Principal District And Sessions Judge, Chitradurga,
under Section - 9 of the Act 1996, seeking an order to the
respondent for payment of all the arrears of rent forthwith,
payment of future rents, furnishing of proof of remittance of tax
deducted at source, etc. As per Rule 10(d) of High Court of
Karnataka Arbitration (Proceedings before the Courts) Rules,
2001 the said case ought to have been registered as an
Arbitration Application (AA) but the Trial Court has erroneously
classified it as an Arbitration Suit (AS). For the sake of
convenience it shall be referred to as classified by the Trial
Court.
5. The respondent contested the said petition denying
the arrears of rent and other allegations made against it. The
respondent contended that it has complied with all the terms
and conditions of the sub-lease agreement. It was further
contended that the application filed in O.S. No.97/2015 by the
petitioner, was rejected by the said court and on the ground
that no case is made out to grant relief under Section-9 of the
Act 1996. It was also contended that such application is filed
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without invoking the arbitration clause and seeking
appointment of an Arbitrator and on that ground also, the
petition is not maintainable.
6. Learned District Judge on hearing the parties, by
the impugned judgment and order held that as per the records
produced before him the arrears of rents were not paid. So far
as the maintainability of the petition, it was held that when
there is an arbitration clause in the agreement, filing of a
petition before the High Court for appointment of an Arbitrator
amounts to initiation of arbitration proceedings. The said
judgment in challenged before this Court in the above appeal
on the following grounds:
i) That the dispute was not arbitrable.
ii) The impugned order is violative of Rule - 9(2) and
(4) of High Court of Karnataka Arbitration (Proceedings
Before the Courts) Rules, 2001 (for short 'Rules 2001').
iii) CMP No.185/2017 filed by the petitioner was
dismissed at its behest. Therefore, arbitration under
Section-9 of Act 1996 cannot be invoked.
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7. On 23.06.2021, this Court on hearing the parties
allowed the appeal on the on the following grounds:
i) CMP 185/2001 was dismissed on respondents own
submission that in view of judgment of the Hon'ble
Supreme Court in the case of Himangni Enterprises Vs.
Kamaljeet Singh Ahluwalia1 and judgment of this Court
in the case of M/s.Paton Constructions Private Limited
Vs. M/s. Lorven Projects Limited and Another2, the
matter is not arbitrable.
ii) Since the arbitration proceedings are not initiated,
the impugned order is violative of Rule-9(4) of the
aforesaid Rules 2001 and Section-9(2) of the Act 1996
and the orders have to be automatically vacated.
8. The petitioner filed R.P. No.617/2022 seeking
review of the judgment of this court dated 23.06.2021 on the
ground that the order suffers from error apparent on the face
of record. A Co-ordinate Bench of this Court by the judgment
dated 17.11.2023, allowed the Review Petition No.617/2022 on
the following grounds:
2017 (10) SCC 706
ILR 2017 KAR 3016
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i) The judgment of the Hon'ble Supreme Court in the
case of Himangni Enterprises' referred to supra, was
over-ruled by the later judgment of the Hon'ble Supreme
Court in the case of Vidya Drolia and others vs. Durga
Trading Corporation3 .
ii) Before the Hon'ble District Judge even before
30.11.2018, on 08.01.2017 itself, the petitioner had
issued notice to the respondent seeking appointment of
an Arbitrator. Thus, the arbitration proceedings had
commenced.
iii) The above said two facts was unnoticed by this
Court while passing the judgment dated 23.06.2021 and
the same amounts to error apparent on the face of the
records.
9. During the course of the arguments, the learned
counsel for the appellant Sri.Ashok Hande, fairly conceded that
he does not press the ground that the dispute was not
arbitrable. In view of the subsequent developments of law
namely, the judgment of Seven Judges Bench of the Hon'ble
2021 (2) SCC 1
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Supreme Court in the case of Interplay between Arbitration
Agreements under Arbitration and Conciliation Act, 1996 &
Stamp Act, 1899, in Re. But he submits that the lease
agreements which contained the arbitration clause were
insufficiently stamped. Therefore, the learned District Judge
was in error on acting on such agreements. He further
submitted that due to such insufficiency of stamps the
agreement becomes invalid and Section-8 of the Act 1996 bars
referring such agreement to arbitration thereby the application
under Section-9 of Act 1996 was also untenable. He further
contended that Section-9 of Act 1996 can be invoked only if
arbitration proceedings are initiated. While filing the
proceedings before the District Judge, the proceedings were not
initiated. Though CMP 185/2017 was initiated.
10. Learned counsel for the appellant further submitted
that though the petitioner filed second application in CMP
No.378/2022 under Section-11(6) of the Act 1996 withdrew
that, therefore no interim relief could be granted exercising
powers under Section - 9 of the Act 1996. In support of his
(2024) 6 SCC 1
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contention, he relied on the judgment of this Court in
M/s.Paton Constructions' case referred to supra.
ANALYSIS
11. The impugned judgment is purportedly passed
exercising the powers under Section-9(1)(ii) of Act 1996, which
reads as follows:
9. Interim measures, etc., by Court.--
[(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) xxx
(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
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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."
12. A reading of the above provisions show that though
such petition can be filed even before the Arbitral proceedings
Section-9(2) of Act 1996, mandatorily arbitral proceedings shall
commence within a period of 90 days from the date of such
interim order.
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13. In exercise of the powers under Section-82 of the
Act 1996, this Court has framed the Rules 2001. Rule-9(4) of
said Rules, is relevant for the purpose of this case, reads as
follows:
"9. Application for interim measure, etc -
(1) xxx
(2) xxx
(3) xxx
(4) In the case of an application for interim measure
made before initiating arbitral proceedings, if the
arbitral proceedings are not initiated within
three months from the date of the presentation
of the Application under Section 9, any interim
order granted shall stand vacated without any
specific order being passed by the Court to that
effect.
14. Reading of the above Rules shows that if the
arbitration proceedings are not initiated within three months
from the date of presentation of application under Section-9 of
Act 1996, any interim order granted shall stand vacated
without any specific order being passed in that regard. In the
present case, the arbitration application was filed on
01.03.2017, admittedly at that point of time the petitioner had
not filed any petition under Section-11 of the Act 1996 for
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appointment of an arbitrator. The records produced before this
court show that though the petitioner filed CMP No.185/2017
before this Court under Section - 11 of the Act 1996, the
petitioner withdrew that application on 09.08.2018 as not
maintainable. Subsequent to that, the petitioner filed another
petition CMP No.378/2022 and that was also withdrawn on
10.11.2022 with liberty to commence appropriate proceedings,
after issuing fresh notice.
15. Respondent has not placed anything before this
Court to show that subsequently any proceeding was initiated.
Whereas the appellant contend that no such proceedings were
initiated. The impugned order is passed in the year 2018. In
view of Section-9(2) of Act 1996 and Rule9(4) of Rules 2001, in
the absence of initiation of the arbitration proceedings the
impugned interim order has no legs to stand.
16. A Coordinate Bench of this Court in the case of
M/s.Paton Constructions' case referred to supra has held that
if arbitral proceedings in respect of the dispute are not
commenced within the period stated in Section-9(2) of Act
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1996 and Rule-9(4) of Rules 2001, the order under Section 9
stands vacated automatically.
17. Further, from a reading of Section-9(2) it can be
gathered that the exercise of the powers to grant interim
measure is akin to Order-39 Rule-1 and 2 of CPC and great
caution has to be exercised for that. It was not the contention
of the petitioner that the respondent is likely to flee away or
there are no means to recover the amount, if at all arbitration
award is passed against the respondent for the alleged sum.
The respondent had contended that it had paid the arrears of
rent. In the guise of exercising the power under Section -
9(1)(ii)(b) of Act 1996 i.e., securing the amount of dispute of
arbitration, the Court under Section-9(1) of the Act 1996,
cannot sit as an arbitrator and decide the dispute.
18. The reading of the records of this case shows that
learned District Judge instead of exercising the powers under
Section-9(1)(ii)(b) of the Act 1996, has virtually passed the
arbitration award which is the jurisdiction of the Arbitral
Tribunal. On that count also, the impugned order is liable to be
set-aside.
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19. The contention of the appellant's counsel that the
agreements containing the arbitration clause was insufficiently
stamped therefore, the arbitration clause could not have been
invoked by the Tribunal, cannot be countenanced, in view of
the Seven Judges bench judgment of the Hon'ble Supreme
Court referred to supra. In the said judgment, the Hon'ble
Supreme Court while considering the interplay of the Stamp Act
and Arbitration Act with reference to Sections-8 and 11 of the
Act 1996, has held that though insufficiently or inadequately
stamped agreements are inadmissible in evidence, in view of
Section - 35 of the Indian Stamp Act 1899, such agreements
are not rendered void or void ab-initio or unenforceable. It was
held that non-stamping or inadequate stamping is a curable
defect and any objection in that regard must be examined by
the Arbitral Tribunal and that falls within the ambit of the
Arbitral Tribunal. However, on the other grounds discussed
above the impugned order is liable to be set-aside. Hence, the
following:
ORDER
i) The appeal is allowed.
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ii) The impugned judgment and order passed in
A.S.No.3/2017, dated 30.11.2018, passed by the
Principal District and Sessions Judge, Chitradurga is
hereby set-aside.
iii) The petition in A.S. No.3/2017 is hereby dismissed
with costs.
Sd/-
(K.S.MUDAGAL)
JUDGE
Sd/-
(VENKATESH NAIK T)
JUDGE
JJ
CT: BHK
