Partly allowed

Sri K a Anil Kumar v. Sri v Mahesh

Karnataka HC7 Dec 2020MFA/4620/2020

Case brief

AI extract

What is this about?

This appeal challenged an arbitral award against a District Court's refusal to set it aside. The court modified the interest rate in the award to 9% from the date of the award instead of 18% from the date of payment, affirming the refund directive.

What did the court decide?

The arbitral award was confirmed in principle but modified: interest on the sum of Rupees One Crore is reduced to 9% per annum from the date of the award.

Sri K a Anil Kumar Vs Sri v Mahesh — Arbitration | Karnataka HC (2020)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 7^TH DAY OF DECEMBER, 2020

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PRESENT

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THE HON’BLE MRS.JUSTICE B.V.NAGARATHNA

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AND

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THE HON’BLE MR.JUSTICE N.S.SANJAY GOWDA

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M.F.A.No. 4620 OF 2020 (AA)

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BETWEEN:

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Sri. K.A.Anil Kumar, Son of Murthy, Aged about 46 years, Resident of Anil Farms Maratikyathanahalli, Jayapura Hobli, Mysore Taluk, Mysore District – 570 086. … Appellant

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(By Sri. Brijesh Kalappa for Smt. Chandini.S, Advocate)

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AND:

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Sri. V.Mahesh, Son of Late Venkatachaliah, Aged about 41 years, Occ:Realty Business, Resident of No.905/105, 4^th Main, 5^th Cross, Vidyaranyapuram, Mysuru – 570 008.

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Presently residing at No.17 Gaganchambi Double Road,

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Near Jodi BasavaTemple, Kuvempunagar, Mysuru – 570 023.

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Sri. Sadath Ali Khan, Son of Habib Khan, Aged about 50 years, Residing at :34530, St. Mary’s First Cross, NarasimaharajaMoohalla, Mysuru – 570 007.

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Sri. A.Badarinath Kamath, Son of A.ShivanandKamath, Aged about 51 years, Residing at No.897, III Cross, M.C.Layout, Viajayanagar, Bengaluru – 560 040. … Respondents

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(By Sri. S.Rupesh Kumar, Advocate for C/R-1, Sri. K.Suresh Kumar, Advocate for R-2, Sri. Sunil Rao, Advocate for R-3)

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This appeal is filed under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 against the Judgment and Award Dated 28.09.2020 passed in Arbitration Suit No.5/2019 on the file of the Prl. District and Sessions Judge, Mysuru, dismissing the petition filed under Section 34 of the Arbitration and Conciliation Act 1996.

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This appeal, having been heard and reserved for Judgment, coming on for pronouncement this day, SANJAY GOWDA, J., delivered the following:

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JUDGMENT

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The undisputed facts leading to the filing of this appeal and the facts essential for disposal of appeal are as follows:

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On 16.09.2014, an agreement of marketing was entered into between Sri.K.A.Anil Kumar (the appellant herein), Sri.Sadath Ali Khan and Sri.A.Badrinath Kamath (respondent Nos.2 and 3 herein) with Sri.V.Mahesh (respondent No.1 herein). The essential terms of the marketing agreement were that respondent No.1 had agreed to procure customers for disposal of developed land i.e., residential sites to an extent of 50,000 sq.ft. Though, the price of land was fixed at 1,450/- per sq.ft., respondent No.1, under the marketing agreement was entitled to sell the same at a price higher than 1,450/- and retain the excess for himself.

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A sum of Rupees One crore was stated to have been paid as advance sale consideration at the rate of `200/- per sq.ft. The agreement of sale stated that the appellant and respondent Nos.2 and 3 had agreed to execute the sale agreements in favour of the prospective purchasers who were required to be identified/procured by respondent No.1 herein. The agreement also permitted respondent No.1 to adjust the advance amount of Rupees One crore which had been paid by him to the appellant by receiving advance sale consideration from the prospective purchasers. The agreement also provided for an arbitration clause of resolution of any dispute that may arise between the contracting parties.

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It appears that disputes arose regarding the compliance of the terms of the agreement. Consequently, an application was filed before this Court for appointment of an Arbitrator in CMP.No.251/2017. This Court, by an order dated 05.09.2018 appointed Sri.H.R.Deshpande as the Sole Arbitrator.

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Before the sole Arbitrator, respondent No.1 filed a

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claim statement in which he sought for a direction that the appellant and respondent Nos.2 and 3 be directed to release the entire extent of 50,000 sq. ft. of land which was released by MUDA. He sought for a further direction to demarcate the sites with clear boundaries to the sites which were comprised within 50,000 sq. ft. and specify the amenities available for sale of the said sites. In other words, respondent No.1 was enforcing his rights under the agreement which was titled as “Agreement for Marketing”.

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This claim was contested only by appellant. The appellant did not dispute the execution of the “Agreement for Marketing” and the receipt of a sum of Rupees One crore under the said agreement. However, he stated that respondent No.1 was unable to facilitate the sale of the first installment of 25000 sq.ft. within a period of four months from the date MUDA released the sites and, as a consequence, the appellant was not

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obliged to make payment for the balance sale consideration and therefore the appellant was not liable to refund the said sum of Rupees One crore.

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The appellant also went on to state that respondent No.1 after admitting his failure in marketing the sites indicated his interest in purchasing certain sites for himself and requested that the amount that he had paid as an advance under the marketing agreement be adjusted towards the sale consideration of the sites and the appellant accepted the offer and sold six sites to respondent No.1 under six sale deeds which were all dated 03.02.2016 (in respect of five sale deeds) and 10.02.2016 (in respect of one sale deed). He stated that sum total of the sale consideration indicated in the sale deeds added upto Rupees One crore and this proved that the sum of Rupees One crore had been repaid to respondent No.1.

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The appellant, thus, took up the plea that the agreement had to be terminated due to its nonperformance by respondent No.1 and the amount paid by respondent No.1 under the marketing agreement had been adjusted in the form of receipt of sale consideration for the sale of six sites to respondent No.1.

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The Arbitral Tribunal, on consideration of the said pleas and the evidence adduced before it, came to the conclusion that respondent No.1 was not entitled for the specific performance of the agreement of marketing dated 16.09.2014 and rejected the said claim. The Sole Arbitrator, however, directed the respondents to refund the advance amount of Rupees One crore to respondent No.1 herein together with interest at the rate of 18% p.a. from 16.09.2014 till its realization. The costs of the arbitral proceedings were also saddled on the respondents.

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Being aggrieved by the said arbitral award, an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’ for the sake of brevity) was made to set aside the award before the District Court.

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The District Court, on consideration of the arguments advanced before it, came to the conclusion that the arbitral award was not illegal, perverse or arbitrary and it did not shock the conscience of the Court. The District Court also came to the conclusion that the award was not opposed to the public policy of the country and as a consequence, the District Court proceeded to dismiss the application filed under Section 34 of the Act.

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It is against the award of the Arbitral Tribunal and the dismissal of the application under Section 34 of the Act, the present appeal has been preferred.

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Learned counsel for the appellant contended that the claim made before the Sole Arbitrator was essentially a claim for enforcing the rights under the marketing agreement, which was, in essence, a claim over an extent of 50,000 sq. ft. of land in the form of residential sites which was released by MUDA. He submitted that since the Arbitral Tribunal came to the conclusion that respondent No.1 was not entitled to the claim of 50,000 sq.ft of land, the Arbitral Tribunal could not have proceeded to direct the refund of Rupees One crore paid under the marketing agreement, especially, when there was no prayer made to that effect in the claim statement. In other words, it was his submission that the Arbitral Tribunal could have only passed an award directing conveyance of 50,000 sq.ft. of land and it could not have passed any other award since no other relief was claimed before it.

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He placed reliance on the decisions of the Supreme Court rendered in the case of Bachhaj Nahar Vs.

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Nilima Mandal and another - (2008) 17 SCC 491 and in the case of Adcon Electronics Pvt. Ltd. Vs. Daulat and Another - (2001) 7 SCC 698 to support his plea that the Sole Arbitrator was not justified in directing refund of Rupees One crore since the same was not specifically claimed as contemplated under Section 22 of the Specific Relief Act, 1963,(for short ‘the Act’)

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He also submitted that since the appellant had conveyed six sites to respondent No.1 and had adjusted the entire sum of Rupees One crore which had been paid under the agreement towards the sale consideration of the six sites, respondent No.1 would not be entitled to refund of any sum. He submitted that if the award were to be upheld, respondent No.1 would be getting a double benefit inasmuch as, after securing six sites worth a crore of rupees he would also be getting a further sum of Rupees One crore under the award and this would amount to an unjust enrichment, which would be

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opposed to public policy of the Country and therefore, the award could not be maintained.

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Learned counsel for the appellant also contended that the evidence on behalf of the claimant had been adduced through his Special Power of Attorney holder who had deposed that he was not aware of any of the facts and therefore, it would have to be held that there was no evidence adduced that would justify the passing of the award. He submitted that the Special Power of Attorney holder had been executed only for enabling the Attorney holder to depose before the Sole Arbitrator on

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the premise that he was well versed in the case and since, this Attorney holder exhibited ignorance about the actual facts during the course of the cross- examination, it would have to be held that there was no evidence at

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all to justify the reasoning of the Sole Arbitrator for passing of the award. Learned counsel also relied upon the judgment of the Supreme Court rendered in the case

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of Janki Vashdeo Bhojwani and Another Vs.

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Indusind Bank Ltd. and Others - (2005) 2 SCC 217 in support of his contention regarding the Special Power Of Attorney.

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Learned counsel for respondent No.1, on the other hand, contended that since it was an admitted fact that respondent No.1 had paid advance of Rupees One crore and no sites, muchless sites to an extent of 50,000 sq.ft were handed over to respondent No.1 for marketing under sale, the Arbitral Tribunal was justified in directing the refund of advance of Rupees One crore in view of the prayer to direct the appellant to hand over 50,000 sq.ft of land.

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He also submitted that the argument advanced that

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a sum of Rupees One crore had been repaid in the form of conveyance of six sites though receiving any sale consideration was completely untrue. He submitted that the marketing agreement which was the basis of the claim before the Sole Arbitrator was entered into on

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16.09.2014, whereas the recitals in the six sale deeds indicated that the sale consideration stated therein were paid on 15.09.2014 (in respect of five sites) and on 14.09.2014 (in respect of one site) which in itself indicated that even before the marketing agreement had been entered into, the sale consideration for the six sites had been paid and the conveyance of six sites could not be linked in any way to the alleged refund of Rupees One crore by way of conveyance of the six sites.

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We have considered the submissions of the learned counsel for the respective parties and also perused the material on record.

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The scope of judicial interference in a proceeding under Section 34 of the Act has been reiterated by the Apex Court in more than one decision and the Apex Court in the case of Navodaya Mass Entertainment Limited vs J.M. Combines - (2015) 5 SCC 698 after

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reviewing its earlier decisions has succinctly stated the proposition of law in these terms:

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“8. In our opinion, the scope of interference of the court is very limited. The court would not be justified in reappraising the material on record and substituting its own view in place of arbitrator’s view. Where there is an error apparent on the face of the record or the arbitrator has not followed the statutory legal position, then and then only it would be justified in interfering with the award published by the arbitrator. Once the arbitrator has applied his mind to the matter before him, the court cannot reappraise the matter as if it were an appeal an even if two views are possible, the view taken by the arbitrator would prevail.”

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We are therefore considering this appeal keeping in mind the above exposition of law by the Apex Court.

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The fact that the agreement for marketing was entered into between the 1^st respondent and the appellant and the respondents 2 and 3 and that a sum of

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Rupees One crore was paid as advance to respondent No.1 is not in dispute.

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It was the case of the appellant that respondent No.1 had miserably failed to discharge his obligations under the marketing agreement inasmuch as he was unable to procure a single consumer for sale of a site and consequently, it had to be assumed that there was an abandonment of contract on his part. He submitted that this failure to discharge his obligations under the Marketing agreement had disentitled respondent No.1 for refund of any amount paid under the agreement. In our view, this argument cannot be accepted for the following reasons.

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The agreement of marketing dated 16.09.2014 contains a clause regarding the consequences of failure

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in discharging the terms of the contract. The said clause reads as under:

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“11. Both the parties have mutually agreed that in the event of failure on the part on the Second Party to complete the process of sale of the residential sites measuring 50,000 Sq.Ft. carved in the schedule properties within the time period agreed herein, then the Second Party shall pay the balance sale consideration with respect to the 50000 Sq.Ft. of land in the schedule “B” property, failing which the First Party is at liberty to cancel this Agreement by repayment of the advance amount paid herein. In the event of failure on the part of the First Party to comply with the obligations under this agreement, then the Second party is at liberty to seek relief under the provision of Indian Contract Act and Specific Relief Act.”

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As could be seen from the said clause, the term of the agreement was that if respondent No.1 was unable to complete the process of sale for residential sites measuring 50,000 sq. ft. within the agreed time, he was required to pay the balance sale consideration in respect of this 50,000 sq.ft of land. In other words, the term of

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the contract was that if respondent No.1 failed to procure any customer to complete the sale consideration as per the terms of the marketing agreement, he was obliged to purchase the entire 50,000 sq.ft of land at the rate of `1,450/- per sq. ft. and the advance sale consideration paid by him would be deducted for out of the total sale consideration.

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It is thus clear that the appellant had the right to demand the payment of balance sale consideration and the appellant was not obliged to refund the advance sale consideration for Rupees One crore. If the term of the agreement did not contemplate a right in respondent No.1 to obtain the refund of Rupees One crore, then, obviously, the appellant would not offer to pay the said sum.

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To put it differently, if respondent No.1 failed to discharge his part of the bargain, he was obliged to pay the balance sale consideration and then the question of

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the appellant offering to refund the advance of Rupees One crore would never arise. The agreement, admittedly, did not provide for forfeiture of the advance paid. It is thus clear that the appellant was under no obligation under the terms of the agreement to refund the sale consideration of Rupees One crore, if respondent No.1 did not market the said sites as agreed under the marketing agreement.

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However, despite the above contractual term, the appellant put forth the contention that the contract got terminated because respondent No.1 was unable to market the sites and he requested conveyance of six sites in lieu of the advance amount of Rupees One crore that he had paid. It was the case of the appellant that he agreed to this offer and conveyed six sites in view of the sale consideration. This implies that the appellant conceded that it had agreed to refund a sum of Rupees One crore by conveying six sites and had not chosen to enforce his right under the agreement to demand

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payment of the balance sale consideration of the 50,000 sq ft of land at the rate of `1,450/- per sq. ft. It will therefore have to be assumed that the appellant admitted that respondent No.1 was entitled for refund of sum of Rupees One crore.

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In the background of this fact, it will now have to be considered whether a sum of Rupees One crore was repaid by the appellant to respondent No.1 in the form of conveyance of six sites to the appellant.

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The appellant has produced six sale deeds (Ex.R-10 to R-15) under which six sites had been conveyed to respondent No.1. In all these sale deeds, the sale consideration is stated to have been paid by respondent No.1 on 15.09.2014 (in respect of five sites) and on 14.09.2014 (in respect of one site). Admittedly, the marketing agreement was executed on 16.09.2014 and from the recitals of the sale deed, it is clear that the sale considerations mentioned therein were paid before the

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said marketing agreement was executed. This would therefore lead to the presumption that the money for purchasing the six sites were paid before the execution of the agreement of the marketing and the same cannot in any way be relatable to the sum of Rupees One crore paid under the agreement of the marketing which was admittedly executed on 16.09.2014.

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It is to be noticed here that six sale deeds were executed in the month of the February, 2016 and in all those sale deeds the recitals indicated that the sale consideration were made one day before the execution of the marketing agreement. This would thus clearly indicate that the six sites were purchased independently under a separate transaction in which the sale consideration was paid even before the agreement of marketing had been entered into.

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It is also to be noticed that the sale deeds were all executed on 03.02.2016, when, even according to the

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appellant there had been an abandonment of the agreement by respondent No.1 and the conveyances were being executed as a mode of repayment of the advance amount of Rupees One Crore. If the conveyances were really being made in lieu of refund of the sum of One crore, then the sale consideration for all the six sites should have clearly stated so and the recitals would not have stated that the sale consideration had been paid two years ago i.e., on 14.9.2014 and 15.9.2014. This singular factor would by itself indicate that the conveyance of six sites was an independent transaction unconnected with the alleged act of refunding of the advance sum of Rupees One crore.

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In fact, the sole Arbitrator has taken note of this fact and has came to the conclusion that the conveyance of six sites was an independent transaction and could not be related to the refund of the sale consideration of Rupees One crore. In our view, this reasoning of the

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Sole Arbitrator as affirmed by the District Court cannot be found fault with.

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It is to be stated here that the District Court while acting under Section 34 of the Act does not sit in an appeal over the award of the Sole Arbitrator and therefore, the reasoning of the Arbitral Tribunal for making an award on the merits of the claim cannot really be the subject matter of an application filed under Section 34 of the Act. The grounds urged by the appellant in support of his application under Section 34 of the Act were basically contentions advanced on merits

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of the claim, which could not be entertained by the District Court in view of the settled law that the District Court while exercising its powers under Section 34 of the Act does not sit in an appeal over the award.

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The argument of the learned counsel that the Tribunal could not have directed refund of sale

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consideration of Rupees One crore in view of Section 22(2) of the Specific Relief Act cannot also be accepted.

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As stated above, even according to the appellant, he had agreed to refund the sum of Rupees One crore paid as part of the sale consideration under the Marketing Agreement in the form of conveying six sites. Thus, the entitlement of respondent No.1 for refund of the sums paid by him under the agreement was not disputed at all by the appellant. If the appellant had proved before the Arbitral Tribunal that he had repaid the sum of Rupees One crore by conveying the six sites, then, the question of directing refund would not arise. However, in the instant case, the Arbitral Tribunal has noticed that the appellant had failed to prove that he had repaid the advance amount of Rupees One crore after he had admitted that he had agreed to refund the said sum and the Tribunal also found that the plea put forth by him that he had repaid the said sum of One crore by conveying six sites was not true. In this view of the

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matter, the Tribunal has ordered for refund of the sum of Rupees One crore and this in essence is an exercise of the equitable jurisdiction that the Tribunal possessed while considering a claim for specific performance and this exercise of equity, in our view, is just and proper and does not call for interference under Section 34 of the Act.

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The Apex Court in the case of Babu Lal Vs HazariKishoril Lal - (1982) 1 SCC 525 has explained the import of Section 22 of the Specific Relief Act as follows in paragraphs 11 to 14:

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“11. It was further argued by Mr.Shanti Bhushan that the landlady had absolutely no reason to stay in Bijnor because she was staying with her son in some other town. That by itself is hardly a good ground for the landlady who was a widow to server her connections with her won property. Moreover, we do not want to make any

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observations on the merits of this matter as the High Court has rightly remanded the case for a fresh decision on all the points involved.

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So far as the second point is concerned, viz., the question of allotment of the premises to the appellant, the High Court was fully justified in quashing the order of the District Supply Officer as affirmed by the District Judge because despite several opportunities no attempt had been made to approach the landlady to nominate a tenant. There is no evidence to show that either the prescribed authority or the Rent Control & Eviction Officer ever approached the landlady for making a nomination in respect of the premises vacated by the original tenant and she refused to do so. All that the landlady did was to ask for the release of the premises but even if this was refused it was incumbent on the Rent Control authorities to have fulfilled the essential conditions of the section 17(2) of the Act before

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making any allotment in favour of the appellant or for that matter any other person. It was suggested that as the landlady was not living in the premises which were locked up, Section 17(2) did not apply. We have already rejected this argument because even occupation of a part of a building by the owner which she may visit off and on is possession in the legal sense of the term and, therefore, it cannot be said that the provision of Section 17(2) would not apply and that the Rent Control authorities would make an allotment in favour of any person without giving an opportunity to the landlady or the landlord to exercise her/his privilege of nominating a tenant.

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We have already pointed out that the object of the Act seems to be to arm the owner with the power of nomination so as to protect him/her from unpleasant tenants or indecent neighbours who may make the life of the owner a hell. Moreover, the conduct displayed by the

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appellant in this case clearly shows that if he was thrust on the respondent without her being allowed an opportunity to nominate a tenant, it will violate the very spirit and tenor of Section 17(2) of the Act.

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As we are of the opinion that the order of the High Court has to be upheld we refrain from making any further observations on the merits or any aspect of the matter which have to be gone into afresh as directed by the High Court.”

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A reading of the said passage would indicate that the only purpose of Section 22 is to avoid multiplicity of suits and that the plaintiff may get appropriate relief without being hampered by procedural complications. In fact, in the said decision, the Apex Court has held that the power to direct handing over possession under Section 22 can be exercised even by the Executing Court. In this view of the matter, the argument that refund of money paid under the agreement could not

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have been ordered to be refunded without there being a plea cannot be accepted.

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The reliance placed upon by the learned Counsel for the appellant on the judgment of the Apex Court in the case of Bachhaj Nahar (supra) cannot be accepted since that was a case in which the Apex Court was considering the case of a necessity of pleadings in the context of a suit relating to the establishment of easement by way of prescription.

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Similarly the reliance placed on the case of Adcon Electronics (supra) cannot also be accepted because in that case the Apex Court was essentially dealing with the question as to whether a suit for specific performance of the agreement for sale of the suit property, wherein the relief of delivery of the suit property had not been claimed, could be considered as a suit for land for the purposes of Clause 12 of the Letters Patent. The Apex Court, while considering Clause 12 of the Letters Patent

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held that Section 22 was an enabling provision and in a suit for specific performance it was necessary for a plaintiff to seek for possession and if such a prayer was not made it cannot be treated as a suit for land. The said decision can thus clearly have no application to the facts of this case.

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In the instant case, the Arbitrator has taken the view that the appellant was not entitled to retain the money that he had received as part of the sale consideration and which he had admittedly agreed to refund by way of conveying the six sites. The Arbitrator has come to the conclusion that the appellant had failed to prove the conveyance in lieu of the refund and since he was retaining the land, he should be directed to refund of the sale consideration that he had received under the Marketing Agreement.

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In our view, the said award of the Arbitrator is just and proper and cannot be found fault with and the

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District Court has rightly refused to intervene in exercise of its powers under Section 34 of the Act.

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This brings us to the last question, which is, whether the Sole Arbitrator by the impugned award dated 14.05.2019 could have directed payment of interest at the rate of 18% per annum from the date of the award in view of the amendment to Section 31 (7) of the Act.

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Admittedly, in this case, the notice for referring the dispute to arbitration was made by issuance of a notice dated 14.09.2016 and thus the arbitration proceedings are deemed to have commenced only on 14.9.2016.

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It is to be stated here that Section 31 (7) of the Act was amended by Act 3 of 2016 and this amendment was with effect from 23.10.2015. It therefore follows that the amended provisions of the Arbitration Act would have to apply to the case on hand.

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By the Amending Act 3 of 2016, Section 31(7)(b) of the Act was substituted. Prior to the substitution, where arbitral award was for payment of money, the sum ordered to be paid by the arbitral award was to carry an interest of 18% per annum from the date of the award. However, by virtue of the substitution, the award, when it is for payment of money, is now required to carry an interest at the rate of 2% higher than the current rate of interest prevalent on the date of the award.

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The “current rate of interest” had been defined as the highest of the maximum rates at which interest is paid on different classes of deposits (other than those maintained in savings accounts) by different classes of scheduled banks in accordance with the directions issued by the RBI.

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The award was made on 14^th May 2019 and during this period the maximum rate of interest on deposits in scheduled banks hovered around 7% and it would

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therefore be appropriate that interest at 9% be awarded on the sum of Rupees One crore.

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As far as the date from which the interest becomes

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payable, it is to be noted that the Agreement of Marketing was entered into in the year 2014 and the reference for arbitration was sought for only in the year 2016. In this view of the matter, in our view, in the absence of a contractual term regarding payment of interest, the claimant would not be entitled for interest from the date of payment of Rupees One Crore or from the date of the agreement but would only be entitled to interest from the date of the award.

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Accordingly, the award for payment of interest is modified and it is held that respondent No.1 would be entitled to interest at the rate of 9% on the sum of Rupees One crore from the date of the award. In all other aspects the award is confirmed.

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The Appeal is thus allowed in part.

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Parties to bear their respective costs.

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Sd/JUDGE

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Sd/JUDGE

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KTY