Telangana High Court

St. Marys Educational Society vs Meridian Educational Society on 13 February, 2023

Bench: A.Abhishek Reddy

       THE HON'BLE SRI JUSTICE A. ABHISHEK REDDY

             ARBITRATION APPLICATION No.51 OF 2022
ORDER:

This application is filed under Section 11 (6) of the

Arbitration and Conciliation Act, 1996 (for short 'the Act'), seeking

appointment of a sole Arbitrator to adjudicate the claims and

disputes arising from Agreement for Sale dated 28.12.2018,

Business Transfer Agreement dated 11th March, 2019, and notice

invoking arbitration dated 15th December, 2021, issued by the

applicant.

Brief facts of the case are that the respondent-Meridian

Educational Society has approached the applicant-St. Mary's

Educational Society and offered to sell a school at Kukatpally and

after negotiations two separate agreements dated 28.12.2018 were

entered by the parties for the purpose of sale and transfer of

immovable property of Meridian School located in Kukatpally,

Hyderabad, to the applicant herein for a total sale consideration of

Rs.36,00,00,000/-. Further, a Business Transfer Agreement dated

11.03.2019 was also executed for the purpose of transfer of entire

business of the school as a going concern to the applicant for a

purchase consideration of Rs.6,50,00,000/-. In pursuance of sale

agreement dated 28.12.2018, the applicant has paid an amount of

Rs.3,00,00,000/- as earnest money deposit and it was agreed that

out of the balance consideration amount of Rs.33,00,00,000/-,

Rs.30 crores is payable directly to LIC Housing Finance Limited

towards clearance of Mortgage/security created by the respondent

over the schedule property and Rs.3 crores is payable upon

execution and registration of deed of conveyance. It was also

agreed that the acquisition transaction has to be completed by

31.03.2019. As the respondent could not obtain NOC from LICHF

Limited, it was mutually agreed by the parties to extend the sale

date for a further period of thirty days vide Supplementary

Agreements dated 31.03.2019 to both the Sale Agreement and the

Business Transfer Agreement. Further, pursuant to the

Supplementary Agreement dated 31.03.2019 to the Sale

Agreement, an additional amount of Rs.3,50,00,000/- was also

paid by the applicant to Butta Infrastructure Pvt Ltd., at the

written request of the respondent herein. In spite of the same, the

respondent failed to obtain NOC from LICHF Limited within the

extended timeline. Even the two conditional NOCs issued by the

LICHF Limited were cancelled for non-payment of the amounts.

Further, the LICHF Limited had issued a possession notice dated

10.02.2020 under the provisions of the SARFAESI Act taking

symbolic possession of the subject property. Therefore, the

applicant by invoking clause 11.2 of the sale agreement dated

28.12.2018 and clause 27.2 and 27.3 of the Business Transfer

Agreement dated 11.03.2019 had issued notice dated 15.12.2021

proposing Sri Seshasayana Reddy, a retired Judge of this Hon'ble

High Court, as the sole arbitrator, to which the respondent had

issued a reply notice dated 13.01.2022 stating that both the said

agreements were terminated by them and therefore the arbitration

clauses thereof cannot be invoked. Hence, the applicant was

constrained to file the present Arbitration Application seeking

appointment of an arbitrator for resolving the disputes.

A counter has been filed by the respondent mainly stating

that the respondent was always willing to proceed with the

transaction, as agreed. But, the applicant has never corresponded

with the respondent showing its readiness to complete their part of

the agreement. Therefore, as a matter of abundant caution, the

respondent has terminated the said agreement of sale dated

28.12.2018 and Business Transfer Agreement dated 11.03.2019

for non-payment of balance sale consideration and further the

advance payment of Rs.6.50 crores was forfeited and the same was

duly informed to the applicant. It is further stated that the

applicant has lodged a complaint against the respondent and its

members basing on which FIR No.366/2021 of PS Madhapur

(Guttala) was registered for the offence punishable under Sections

406 and 420 read with 34 of Indian Penal Code and therefore the

applicant again cannot file the present application seeking

appointment of an Arbitrator. Hence, it is prayed to dismiss the

application.

Heard Sri Md. Ameruddin, learned counsel for the applicant,

and Ms Niyatha, learned counsel for the respondent.

The learned counsel appearing on behalf of the respondent

has opposed the Arbitration Application on the ground that the

applicant has already filed a criminal complaint vide

FIR No.366/2021 of PS Madhapur (Guttala) dated 02.04.2021

alleging that the respondent did not have any intention to honour

the agreements entered between the parties. Learned counsel for

the respondent has vehemently argued that once the applicant has

lodged a criminal complaint alleging that the respondent did not

have any intention to honour the agreement right from the

inception, then the contract itself is voidable and therefore the

present application seeking appointment of Arbitrator is not

maintainable. Learned counsel has strongly placed reliance on

Section 19 of the Indian Contract Act, 1872 and also the ratio laid

down in Balfour v. Balfour1 to contend that the present

application seeking appointment of Arbitrator is one without

jurisdiction.

Rebutting the said contention, the learned counsel for the

applicant has stated that the applicant is free to approach different

1 1919 RCB 571

Forums for redressal of its grievance as violation of terms of

contract has both criminal and civil liability. Therefore, the

applicant has lodged a criminal complaint against the respondent

herein and also pursuing the arbitration proceedings as available

to him under the Act and inconsonance with the same, it has filed

the present arbitration application and has relied on the

judgments of the Hon'ble Supreme Court in Olympus

Superstructures Pvt. Ltd., v. Meena Vijay Khetan and others2

and Priti Saraf & Another v. State of NCT of Delhi & Another

in Criminal Appeal No(s).296 of 2021 [arising out of SLP (Crl.)

No(s).6364 of 2019]

Perused the record.

The Hon'ble Supreme Court in Priti Saraf (referred supra)

has held that insofar as initiation of arbitral proceedings is

concerned, there is no correlation with the criminal proceedings.

Thus, there is no bar for the applicant to avail both the remedies

i.e. initiating criminal as well as arbitral proceedings,

simultaneously.

Learned counsel has laid much stress on Section 19 of the

Indian Contract Act, 1872, which reads as under:

"19. Voidability of agreements without free consent:- When consent to an agreement is caused by coercion fraud or misrepresentation, the agreement is a contract, voidable at the option of the party whose consent was so caused.

2 (1999) 5 SCC 651

A party to contract, whose consent was caused by fraud or misrepresentation, may if he thinks fit, insist that the contract shall be performed and that he shall be put in the position in which he would have been if the representation made had been true."

A reading of the above provision of law shows that whenever

a person is induced for entering into a contract on the basis of

some misrepresentation, fraud or coercion then the contract is

voidable at the instance of the party who has been induced for

entering into that contract.

With all due respect to the learned counsel for the

respondent, the reliance on Section 19 of the Contract Act is

misplaced and far-fetched and the said provision is not applicable

to the facts of this particular case. Even though the learned

counsel for the respondent has relied on 1919 RCB 571, the same

is distinguishable on facts and therefore not of an avail.

The only thing that matters for initiating arbitral proceedings

is 'whether there is any arbitration clause in the agreement

entered between the parties or not'.

For the purpose of deciding the present application, the

Court has only to see whether there is an arbitrable dispute

between the parties and whether the agreement/s entered between

the parties have an arbitration clause to refer the matter to an

arbitrator.

In this particular case, clause 11.2 of the Sale Agreement

dated 28.12.2018 and clause 27.2 and 27.3 of the Business

Transfer Agreement dated 11.03.2019 provide for arbitration in

case of any disputes between the parties.

In IBI Consultancy (India) (P) Ltd. v. DSC Ltd.3, the

Hon'ble Supreme Court while dealing with the Arbitration

Application filed under Section 11(6) read with Section 11(9) of the

Arbitration and Conciliation Act, for appointment of an arbitrator

to adjudicate the disputes that have arisen between the parties

therein in connection with the contracts in question, has held, at

para 8, as under:

8. The first and the foremost thing is the existence of an arbitration agreement between the parties to the petition under Section 11 of the Act and the existence of dispute(s) to be referred to arbitrator is condition precedent for appointing an arbitrator under Section 11 of the Act. It is also a well-settled law that while deciding the question of appointment of arbitrator, the court has not to touch the merits of the case as it may cause prejudice to the case of the parties. The scope under Section 11(6) read with Section 11(9) is very limited to the extent of appointment of arbitrator. This Court has to see whether there exists an arbitration agreement between the parties and if the answer is in the affirmative then whether the petitioner has made out a case for the appointment of arbitrator.

3 (2018) 17 SCC 95

Further, in Duro Felguera, S.A. v. Gangavaram Port

Ltd.,4 the Hon'ble Supreme Court, at para 59, has held as under:

"The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected."

For the afore-stated reasons and in view of the law laid down

by the Hon'ble Supreme Court in IBI Consultancy (India) (P) Ltd.

and Duro Felguera, S.A. (referred supra), this Court deems it fit

to allow the Arbitration Application and refer the matter for

arbitration to be conducted by a sole arbitrator.

In the result, the present Arbitration Application is allowed

appointing Ms. G. Sridevi, retired Judge of this High Court, as the

sole Arbitrator to arbitrate on the disputes between the applicant

and the respondent and the said arbitrator shall enter on reference

and proceed with, as enjoined by the Act. The respondent is

entitled to raise all legally tenable objections before the Hon'ble

Arbitrator.