Telangana High Court
M/S Abhishek Business Private Limited vs M/S Blue Nile Developers Pvt Ltd on 29 December, 2023
THE HONOURABLEJUSTICE SRI J. SREENIVASRAO
ARB.APPL.No.190 OF 2022
ORDER:
The Applicant filed this application under Section 11 (5) and (6) of
the Arbitration and Conciliation Act, 1996 (R/w settlement of appointment
of arbitrator), 1996 (for short "the Act") to appoint a sole arbitrator to
adjudicate the claims and disputes between the applicant and respondent
pursuant to the "Memorandum of Understanding" (brevity "MOU") dated
19.07.2012.
Factual Matrix:
2. The Applicant is a company incorporated under the Indian
Companies Act, 1956, engaged in various business activities, such as,
supply of industrial goods, commercial goods, household goods,
construction material, agriculture and wholesale trading. The applicant
submits that in 2012, the Respondent had approached the Applicant for
investment in a real estate project named "Pebble Beach Villas" in
Visakhapatnam. Accordingly, "MOU" was entered by both the parties on
19.07.2012, stipulating the joint development of the project with a 25%
equity investment by the Applicant. The project has to be completed within
a period of 24 months. The Applicant invested an amount of more than Rs.
7,50,00,000/- crores in the said project in three tranches. But, disputes
were arose with regard to land documentation, delays in approvals, and
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discrepancies arose. The Respondent failed to provide required project
information. Upon scrutiny, it was discovered that project funds were
misappropriated by the directors. The Applicant initiated insolvency
proceedings before NCLT (National Company Law Tribunal), which were
later withdrawn with a liberty to approach appropriate tribunal by its
order dated 08.09.2022.
2.1 That the applicant has demanded the respondent to return back the
investment made by it along with interest and further stated that it is no
longer interested in jointly developing the said project with the respondent
and also issued legal notice dated 14.04.2020 demanding the respondent
to pay a sum of Rs.2,25,00,000/- with interest on the ground that
respondent failed to adhere to the terms and conditions mentioned in
"MOU". Despite of several promises, respondent did not repay the full
investment made by the applicant and the project was also stalled. At that
stage, applicant got issued notice dated 14.07.2022 invoking the
arbitration clause IV-9 of "MOU" nominating Sri. B.Prakash Rao Retd.
High Court Judge, as the sole arbitrator. However, respondent has not
given consent nor issued any reply. Hence, the applicant filed present
application.
3. Respondent filed counter denying the allegations inter alia
contending that the claim made by the applicant for repayment of Rs.
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2,25,00,000/- with interest @18% from 2015, is time barred and the cause
of action arose in 2015 and suit for recovery of money shall be filed within
3 years, i,e., on and before 2018. The "MOU" is not properly stamped as
per the provisions of Indian Stamp Act, 1899 (for short, 'the Act') unless
and until such deficit stamp duty paid through proper procedure under
the Act. Applicant is not entitled to seek any relief much less the relief of
appointment of arbitrator basing upon the above said document.
4. Heard Sri Sheelam Ashok Reddy, learned counsel for the
applicant and Sri. P. Ramesh babu, learned counsel for the
respondent.
5. Learned counsel for the applicant submits that the applicant
company has entered into "Memorandum of Understanding" on
19th July, 2012 with the respondent intending to jointly develop the
project under the name and style of "Peddle Beach Villas" with a 25%
equity investment by the Applicant. The completion of said project within
24 months from the date of granting of plan of approval. The respondent
has committed several illegal activities, including gross mismanagement
and also misappropriation of funds and the respondent failed to repay the
principal amount of Rs. 1,20,73,000/- along with 18% interest from 2015.
In 2018, the respondent made a partial payment of Rs. 80,00,000/- which
was credited towards the interest on the principal amount. Thereafter, the
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respondent has not paid any further payment, resulting in default on both
the principal and accrued interest and the respondent liable to pay a total
amount of Rs. 2,25,00,000/- inclusive of the principal sum and interest at
the rate of 18%.
6. He further contended that in spite of several requests made by the
applicant through mails, respondent did not repay the amounts and at
that stage, the applicant got issued a legal notice dated 14.04.2020
demanding the respondent to pay a sum of Rs. 2,25,00,000/- including
interest. Regardless of the said notice, the respondent has neither
complied with the said demands nor replied to the said notice. Having left
with no other alternative, the applicant had issued notice dated
14.07.2022 invoking arbitration clause IV-9 of "MOU" nominating retired
High Court Judge as arbitrator. However, the respondent neither given
consent nor issued any reply. He further contented whether claim made by
the applicants within the period of limitation or not and whether the
"MOU" is required stamp duty or not those aspects will be decided by the
arbitral tribunal and the application under section 11(5)&(6) is
maintainable.
7. Per contra, learned counsel for respondent contented that the claim
made by the applicant in the application is barred by limitation and
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"MOU" is not properly stamped and required stamp duty and basing upon
such document the applicant cannot seek appointment of arbitrator.
8. Having considered the rival submissions made by the respective
parties and after perusal of the material available on record, it reveals that
the applicant company and the respondent have entered into a "MOU" on
19.07.2012, for a joint development of project styled and named "Peddle
Beach Villas". The specific claim of the applicant is that the respondent is
carrying out illegal activities, mismanagement and misappropriation of
funds, violating the terms and conditions of "MOU". The applicant got
issued legal notice dated 14.04.2020 demanding the respondent to return
back the investment made by it along with interest amount of
Rs.2,25,00,000/- on the ground that the respondent failed to adhere to
the "MOU" terms and stated in the said notice that the applicant is no
longer interest in jointly developing the said project with the respondent.
Despite of several promises, the respondent did not repay the full
investment and the project stalled. The applicant claims non-repayment of
principal amount of Rs.1,20,73,000/- with 18% interest since 2015.
When the respondent failed to repay the said amount, the applicant issued
notice dated 04.07.2022 invoking the arbitration clause IV-9 of "MOU"
dated 19.07.2012 seeking resolution for outstanding amounts by
nominating retired High Court Judge, as a sole arbitrator, to adjudicate
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the disputes between the parties. However, respondent has not given
consent nor issued any reply.
9. It is very much relevant to extract the clause IV-9 of the
Memorandum of Understanding dated 19.07.2012 which reads as follows:
9. This MOU supersedes any other oral or written agreement
between the First and Second Party. Any dispute between the
parties regarding matters contained in this MOU shall be resolved
by arbitration as per the Arbitration and Conciliation Act, 1996. The
Place of Arbitration shall be at Hyderabad, Andhra Pradesh and the
proceedings shall be in English. The Place of legal jurisdiction shall
be Hyderabad, Andhra Pradesh.
10. The objection raised by the respondent that the claim made by the
applicant is barred by limitation and the "MOU" was not properly stamped,
these aspects can gone into by the arbitral tribunal, as purview of section
11 or 8 of the Act is very limited, whether there is any arbitral disputes
between the parties or not. Admittedly, the parties have entered "MOU"
dated 19.07.2012 and disputes were arose between the parties. As per
clause IV-9 of "MOU" the parties agreed to settle the disputes through
arbitration. Hence, the view of this Court is that there is arbitral dispute
between the parties.
11. It is also relevant to place on record of the seven bench Judges of
the Hon'ble Apex court In M/s Bhaskar Raju and Brothers and Anr v.
M/s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar
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Chattram & Other Charities and Ors 1 , overruling the earlier the
judgments of N. N. Gobal mercantile (p) ltd. V. Indo Unique Flame
ltd. 2 and SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., 3
holding that Non-stamping or inadequate stamping is a curable defect and
an objection as to stamping does not fall for determination under Section 8
or 11 of the Arbitration Act. The concerned court must examine whether
the arbitration agreement is exist between the parties or not and all the
other objections and disputes including stamping of agreement falls within
the ambit of arbitral tribunal only.
12. It is already stated 'supra' that the objection raised by the
respondent that the claim made by the applicant is barred by limitation
and document "MOU" is not stamped properly, these aspects have to be
adjudicated by the arbitral tribunal and the application filed by the
applicant for seeking appointment arbitrator invoking clause IV-9 of
"MOU" dated 19.07.2012 is very much maintainable under Section 11 (5)
or (6) of the Act.
13. For the foregoing reasons as well as the law laid down by the
Hon'ble Apex Court, Sri. P. Naveen Rao, Retired High Court Judge,
H.No.3001, My Home Bhooja, Block-A, Plot Nos.22-24 & 31-33,
Raidurgam, K.V Raga Reddy District, Telangana state-500081 is
Curative Petition (C) No. 44 of 2023 (2023INSC1066)
2 2023 (7) SCC 1
3 (2011) 14 SCC 66
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appointed as sole Arbitrator, who will adjudicate the dispute between the
parties arising out of the "MOU" dated 19.07.2012.
14. The learned Arbitrator shall fix his own remuneration upon
deliberation and consultation with the parties. He shall also estimate the
cost and expenses for the secretarial assistance and other incidental
expenditure of the arbitration proceedings. The parties will bear the
expenses of the arbitration proceedings in equal share.
15. Accordingly, the Arbitration Application is allowed. No
costs.
As a sequel there to, miscellaneous applications, if any,
pending in this arbitration application, shall stand closed.
______________________
J. SREENIVAS RAO, J
Date: 29.12.2023
mar
