M/S. Hbl Power Systems Limited And ... vs M/S. Shakthi Concrete Industries ...
2023 Latest Caselaw 1397 Tel

        HONOURABLE SRI JUSTICE P.NAVEEN RAO
                          &
       HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA


        CIVIL REVISION PETITION NO.324 OF 2023

                      Date: 24.03.2023

Between:

M/s. HBL Power Systems Limited,
Rep.by its Authorized representative
Sri N.Prabhakara Murthy, Deputy General
Manager, Regd.Office at 18-2-601,
Road No.10, Banjara Hills, Hyderabad
and another.
                                                .....Petitioners/
                                                 Respondents

and

M/s.Shakthi Concrete Industries Ltd., Rep.by Kanagiri Gyan Sagar, s/o.late K.Sreeramulu, Aged about 73 years, Occu:Managing Director, having regd.office At Flat No.603, Krishna Complex, Tilak Road, Abids, Hyderabad and another.

.....Respondents/ Claimants Dr.A.J.Prasad, s/o. A.M.V.Prasad Rao Aged about 72 years, Chairman and Managing Director, M/s.HBL Power Systems Ltd., Road No.10, Banjara Hills, Hyderabad and two others.

... Respondents

The Court made the following:

PNR,J & NBK,J CRP No.324 of 2023

HONOURABLE SRI JUSTICE P.NAVEEN RAO & HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA

CIVIL REVISION PETITION NO.324 OF 2023

ORDER: (per Hon'ble Sri Justice P.Naveen Rao)

Heard learned senior counsel Sri B.Rajeshwar Reddy for

the petitioners and the learned counsel Sri Keerthi Prabhakar

for the respondents.

2. By the order of the Additional Special Court in the Cadre

of District Judge for Trial and Disposal of Commercial Disputes

at Hyderabad, dated 02.12.2022 in I.A.No.79 of 2022 in

C.O.P.No.70 of 2022, the petition filed by the petitioners herein

is allowed granting stay of operation of the Award passed by the

Arbitrator on condition that the petitioners should deposit 50%

of the amount awarded calculating interest as per the Award till

the date of the order of the lower Court within a period of two

months from the date of the order. The Court below has also

permitted the respondent no.1 herein to withdraw 50% of the

amount deposited without furnishing any security. This Civil

Revision Petition is preferred against the said order to the extent

of permitting the respondent no.1 to withdraw 50 % of the

amount deposited without furnishing any security.

PNR,J & NBK,J CRP No.324 of 2023

3. Parties are referred to as claimants and respondents.

First claimant is a public limited company incorporated under

the Companies Act, 1956, represented by the second claimant.

The second claimant is the Managing Director having 49,50,000

lakhs equity shares of 10/- each. Sri Bhavani Rajiv Sagar,

the son of second claimant and Managing Director of M/s.SCIL

Infracon Private Limited (3rd respondent) was having 5,47,700

equity shares and Sri K.Venkateswara Prasad, brother of the

2nd claimant, was having 2300 equity shares of the 3rd

respondent, the total of which comes to 55 lakhs equity shares.

On 12.09.2009 M/s.HBL Power Systems Limited (1st

respondent) entered into a Memorandum of Understanding

(MoU) with the 3rd respondent agreeing to buy concrete towers

being manufactured by the 3rd respondent for a period of five

years. On 29.09.2009, 3rd respondent, the claimants and

M/s.Regal Corporate Services Private Limited jointly entered

into an agreement. According to this agreement, 3rd respondent

would repay unsecured loans within agreed period and buy 45

lakhs equity shares. On 30.09.2009, agreement was entered

into, where under 1st claimant agreed to sell and transfer 55

lakhs fully paid equity shares of 3rd respondent in favour of 1st

respondent for a total sale consideration of 7,51,25,000/-. On PNR,J & NBK,J CRP No.324 of 2023

13.03.2010 and 14.03.2011, two supplemental agreements were

executed by the parties to the original agreement and in all, 55

lakhs fully paid equity shares of 3rd respondent were sold under

three agreements. It is the allegation of the claimants that the,

first respondent only paid 4,63,93,344/- in piece meal,

leaving balance of 2,87,30,656/-, which together with interest

comes to 11,04,71,344/- by 31.08.2020.

4. In the above factual background, the claimants filed

application before this Court to appoint an Arbitrator to resolve

the inter se dispute. Claimants placed reliance on clause (ix) of

agreement dated 30.09.2009, which provides arbitration clause.

Consequently, Justice G.Krishna Mohan Reddy, Retired Judge,

was appointed as Arbitrator. The claimants have made in all

nine claims against the respondents. The respondents 1 to 3

have filed defence statement, adopted by the 4th respondent.

The respondents 1 to 3 made four (4) counter-claims. They

opposed the arbitral proceedings by contending that arbitration

clause (ix) in agreement dated 30.09.2009 is no more in force

consequent to subsequent supplemental agreements and,

therefore, arbitral proceedings are not maintainable. According

to the respondents, clause (vi) of the first supplement agreement

dated 10.03.2010 provides that said agreement supersedes all PNR,J & NBK,J CRP No.324 of 2023

prior oral or written negotiations, representations or agreements

reached by the parties.

5. This objection was not found favour with the Arbitrator.

The Arbitrator passed award holding that the first claimant is

entitled to 4,90,88,000/- with future interest at the rate of

12% per annum on the amount of 2,08,00,000/- from

01.06.2022 till the date of realization. The Arbitrator rejected

all the counter claims.

6. Aggrieved by the said Award, respondents 1 and 3 filed

C.O.P.No.70 of 2022 in the Special Court for Trial and Disposal

of Commercial Disputes, City Civil Court at Hyderabad. In the

said COP, respondents 1 and 3 filed I.A.No.79 of 2022 under

Section 36(2) of the Arbitration and Conciliation Act, 1996 (for

short, 'Act, 1996') seeking stay of enforcement of award. On

elaborate consideration of the respective submissions, the Court

below granted conditional stay directing the respondents 1 to 3

to deposit 50% of the decreetal amount and granted liberty to

the 1st claimant to withdraw 50% of the amount deposited

without furnishing any security.

7. Learned senior counsel fore the respondents 1 and 3

contended that Arbitrator grossly erred in awarding the amount PNR,J & NBK,J CRP No.324 of 2023

ignoring the evidence brought on record. According to the

learned senior counsel, first claimant is not doing any business

and has several liabilities, without any properties. It is therefore

contended that if the first claimant is permitted to withdraw the

amount and if the petitioners succeed before the trial Court, it

would be impossible to recover the said money.

7.1. Learned senior counsel would contend that as per the

deposition, in the cross-examination by Kanagiri Gyan Sagar

representing the 1st claimant, it is clear that he has admitted

that the amount covered by Issue no.(vii) in arbitration

application was adjusted in the Books of Accounts of 3rd

respondent and that claimants 1 and 2 are not entitled to

receive any amounts from the respondents 1 and 3. He has

clearly deposed that principal amount of 2.08 crores due as

on 31.01.2011 as per the books of accounts of the SIPL,

together with accrued interest @ 12% per annum would be paid

in one or more instalments on or before 31st March. These

assertions clearly point out that there was no amount due from

respondents 1 and 3 and that Arbitrator grossly erred in

awarding money in favour of the claimants.

PNR,J & NBK,J CRP No.324 of 2023

7.2. He would therefore submit that as there is no amount due

and that first claimant has no assets but several liabilities,

permitting the first claimant to withdraw 50% of the amount

deposited without security would cause grave prejudice,

inequitable and contrary to evidence on record.

7.3. Learned counsel for respondents do not deny the

deposition of Kanagiri Gyan Sagar in the cross-examination, but

would submit that the evidence on record before the Arbitrator

would clearly disclose that the amount quantified by the

Arbitrator is due to claimants and no error was committed by

the Arbitrator in awarding the amount. He would submit that

having succeeded before the Arbitrator, the claimant no.1

cannot be denied of receiving part amount awarded by the

Arbitrator. He would submit that as per the order of the Court

below, 1st claimant is entitled to withdraw only 25% of the

amount quantified by the Arbitrator and no illegalities are

committed by the Court below in permitting the 1st claimant to

withdraw 25% of the amount without furnishing any security.

He would submit that it is difficult to secure the security

towards 25% of the amount and not permitting the 1st claimant

to withdraw the amount, ordered by the Court below would

cause grave hardship to the 1st claimant.

PNR,J & NBK,J CRP No.324 of 2023

8. Having regard to the facts noted above and the

submissions urged, the short issue that requires consideration

is whether the Court below erred in permitting the 1st claimant

to withdraw 25% of the amount awarded by the Arbitrator

without furnishing any security.?

9. Learned senior counsel placed heavy reliance on the

decision of Hon'ble Supreme Court in Pam Developments Private

Limited vs. State of West Bengal1.

10. In Pam Developments Private Limited (supra), the crux of

the issue fallen for consideration before the Hon'ble Supreme

Court was whether the provision in Order XXVII Rule 8-A of

CPC is attracted in application filed under Section 34 of the Act,

1996 against the award of the Arbitrator. Order XXVII Rule 8-A

of CPC provides that no security as mentioned in Rules 5 and 6

of the Order XL1 should be required from the Government or

where the Government has undertaken the defence of the suit,

from any public officer sued in respect of an act alleged to be

done by him in his official capacity.

(2019) 8 SCC 112 PNR,J & NBK,J CRP No.324 of 2023

11. On analyzing the Order XL1 of CPC and relevant

provisions of the Act, 1996, Hon'ble Supreme Court held as

under:

"20. In our view, in the present context, the phrase used is "having regard to" the provisions of CPC and not "in accordance with" the provisions of CPC. In the latter case, it would have been mandatory, but in the form as mentioned in Rule 36(3) of the Arbitration Act, it would only be directory or as a guiding factor. Mere reference to CPC in the said Section 36 cannot be construed in such a manner that it takes away the power conferred in the main statute (i.e. the Arbitration Act) itself. It is to be taken as a general guideline, which will not make the main provision of the Arbitration Act inapplicable. The provisions of CPC are to be followed as a guidance, whereas the provisions of the Arbitration Act are essentially to be first applied. Since, the Arbitration Act is a self-contained Act, the provisions of CPC will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act.

22. Even otherwise a plain reading of Order 27 Rule 8-A CPC would make it clear that the same is only regarding security as mentioned in Rules 5 and 6 of Order 41 CPC, which is not to be demanded from the Government while considering the stay application filed by the Government. It, however, does not provide that the decretal amount cannot be required to be deposited in the appeal against a money decree.

xxxx

26. Arbitration proceedings are essentially alternate dispute redressal system meant for early/quick resolution of disputes and in case a money decree -- award as passed by the arbitrator against the Government is allowed to be automatically stayed, the very purpose of quick resolution of dispute through arbitration would be defeated as the decree- holder would be fully deprived of the fruits of the award on mere filing of objection under Section 34 of the Arbitration Act. The Arbitration Act is a special Act which provides for quick resolution of disputes between the parties and Section 18 of the Act makes it clear that the parties shall be treated with equality. Once the Act mandates so, there cannot be any special treatment given to the Government as a party. As such, under the scheme of the Arbitration Act, no distinction is made nor any differential treatment is to be given to the Government, while considering an application for grant of stay of a money decree in proceedings under Section 34 of the PNR,J & NBK,J CRP No.324 of 2023

Arbitration Act. As we have already mentioned above, the reference to CPC in Section 36 of the Arbitration Act is only to guide the court as to what conditions can be imposed, and the same have to be consistent with the provisions of the Arbitration Act."

12. From the above extracted paragraphs of the judgment, it

is clear that Hon'ble Supreme Court was holding that no special

treatment can be extended to the Government in arbitration

matters. The said decision has no application to the facts of

this case.

13. It is a money decree and in Appeal against money decrees,

ordinarily the Appellate Court grants stay of further proceedings

subject to condition of appellant depositing 100% of the

decreetal amount or part thereof. As rightly noticed by the Court

below, in matters arising out of award passed by the arbitrator,

the Civil Court may consider the application to stay the award

subject to imposing certain restrictions/conditions. On the facts

of a given case, it is open to the Civil Court to order depositing

the entire amount awarded by the Arbitrator or a portion of the

amount.

14. After a decision is made on the amount to be deposited by

the applicant in application under Section 34 of the Act, 1996,

the Civil Court may pass orders permitting the claimant to PNR,J & NBK,J CRP No.324 of 2023

withdraw the amount fully or partially. In the instant case, Civil

Court granted stay of further proceedings on award passed by

the Arbitrator subject to appellant depositing 50% of the

amount quantified by the Arbitrator and further granted liberty

to the claimant no.1 to withdraw 50% of the said amount.

15. In the normal circumstances, no interference is called for

in an order made in due exercise of discretion by the Civil Court

but in the facts of this case, the order of trial Court needs to be

modified to the extent of direction to withdraw 50% of the

amount directed to be deposited without furnishing any

security.

16. Prima facie, from the deposition of Kanagiri Gyan Sagar, it

appears, subject to consideration by trial Court in COP No. 70

of 2022, that there is no amount required to be paid by

respondents 1 and 3. Further, 1st claimant is not doing any

business.

17. That being so, prima facie, there is merit in the contention

that there are no amounts due from the respondents 1 and 3.

Further, there appears merit in the apprehension expressed by

the respondents 1 and 3 on recovery of amount in the event of

their succeeding in the application under Section 34. It appears PNR,J & NBK,J CRP No.324 of 2023

difficult to recover the amount as 1st claimant is not doing any

business activity and entire share capital was already

transferred. It is therefore necessary to safeguard the interests

of both parties and balance the rival claims. In the peculiar

facts of the case, the first claimant is permitted to withdraw

50% of the amount deposited by respondents 1 and 3 as

directed by the Court below by furnishing security.

18. Therefore, the Civil Revision Petition is disposed of,

granting liberty to the 1st claimant to withdraw 50% of the

amount directed to be deposited by the Civil Court, subject to

the 1st claimant furnishing security of immovable property value

of which is equivalent to the amount to be withdrawn. The

Order of the Court below dated 2.12.2022 made in I.A.No.79 of

2022 in C.O.P.No.70 of 2022 is modified accordingly. It is made

clear that there is no expression of opinion on any aspect. What

is discussed herein above is only for the purpose of considering

this Revision. Pending miscellaneous applications, if any, shall

stand closed.

___________________________ JUSTICE P.NAVEEN RAO

___________________________ NAGESH BHEEMAPAKA, J Date: 24.03.2023 Kkm/tvk PNR,J & NBK,J CRP No.324 of 2023

HONOURABLE SRI JUSTICE P.NAVEEN RAO & HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA

CIVIL REVISION PETITION NO.324 OF 2023

Date: 24.03.2023 kkm