Allowed

M S Ramaiah Developers and Builders Pvt. Ltd. v. the Church of South India Trust Association

Karnataka HC15 Nov 2023CMP/58/2023

Case brief

AI extract

What is this about?

In a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, the Court considered objectionable allegations of fraud regarding the execution of a Lease Deed by the respondent's attorney. Applying the 'Avitel' two-test standard, the Court held the fraud did not vitiate the arbitration agreement.

What did the court decide?

The petition for appointment of a sole arbitrator was allowed; Hon'ble Sri. Justice Dinesh Maheshwari appointed as the sole Arbitrator.

M S Ramaiah Developers and Builders Pvt. Ltd. Vs the Church of… — Arbitration | Karnataka HC (2023)

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NC: 2023:KHC:40663 CMP No. 58 of 2023

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15^TH DAY OF NOVEMBER, 2023 BEFORE

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THE HON'BLE MR JUSTICE B M SHYAM PRASAD CIVIL MISC. PETITION NO. 58 OF 2023

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BETWEEN:

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M S RAMAIAH DEVELOPERS AND BUILDERS PVT LTD HAVING ITS OFFICE AT 2/4, MSRIT CAMPUS, MSRIT POST, MATTHIKERE, BENGALURU 560054 REP BY ITS DIRECTOR, SRI M R SEETHARAM. …PETITIONER

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(BY SRI. G. KRISHNA MURTHY, SENIOR ADVOCATE FOR SMT. G.K.BHAVANA.,ADVOCATE)

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AND:

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Digitally signed by NARASIMHA MURTHY VANAMALA Location: HIGH COURT OF KARNATAKA

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THE CHURCH OF SOUTH INDIA TRUST ASSOCIATION HAVING ITS REGISTERED OFFICE AT, NO 5, WHITES ROAD, RAYAPETTAH, CHENNAI 600004.

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HAVING ITS ADMINISTRATIVE OFFICE AT NO. 5/2, P V KOLI STREET, MYLAPORE, CHENNAI - 600004, REP BY CEO.

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…RESPONDENT

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(BY SRI. SRINIVASA RAGHAVAN, SENIOR ADVOCATE FOR SRI. P CHINNAPPA.,ADVOCATE)

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THIS CIVIL MISC. PETITION IS FILED UNDER SECTION 11(6) OF THE ARBITRATION AND

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CONCILIATION ACT, 1996, PRAYING TO APPOINT AN ARBITRATOR ON BEHALF OF THE RESPONDENTS OR AN ARBITRATOR ACCEPTABLE TO ALL THE PARTIES TO RESOLVE THE DISPUTES IN RESPECT OF THE LEASE DEED AGREEMENT PERTAINING TO THE SCHEDULE PROPERTY.

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THIS PETITION, COMING ON FOR FURTHER SUBMISSIONS, THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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The petitioner, who has the advantage of the registered Lease Deed dated 17.05.2019, has filed this petition for appointment of a former Judge as the sole arbitrator to resolve the dispute with the respondent, and the petitioner relies upon the agreement for arbitration in this Lease Deed which reads as under:

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“Any controversy of claim arising out of or relating to this Deed, any other connecting/connected deed or as regards the extend of the Powers extended under the General Power of Attorney or any other disputes directly or indirectly affecting either of the parties hither to or any breach of the terms of lease shall be resolved and settled amicably without hurting each other’s interests in the

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same; failing which the mater may be referred to the Arbitral Tribunal appointed by Mutual consent of the Parties and in accordance with the Provisions of the Arbitration and Conciliation Act, 1996 by nominating an Arbitrator on the part of the each of the parties hitherto and assist the Arbitrators to conclude the matter expediently. In case of failure of/non-compliance on the part of either of the parties the matter may be referred to the arbitration as provided under the Arbitration and conciliation Act, 1996, and the decision of the Arbitration authority shall be Final. The Jurisdiction for Arbitration shall be Bengaluru only.”

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2. Sri G. Krishna Murthy and Sri Srinivasa

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Raghavan, the learned Senior Counsels for the petitioner and respondent respectively, are heard for final disposal of the petition informing them that this Court, in the circumstances of the present case, would consider, if the agreement for arbitration can prevail, appointing a sole arbitrator as against a tribunal of three members. The learned Senior Counsels, while canvassing their rival submissions

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on whether this Court must reject the petition relegating the petitioner to work out its remedy in a civil proceedings on the ground of doubt about the due execution of the Lease Deed dated 17.05.2019, point out the disputed circumstances.

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According to the petitioner, the

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respondent, allegedly represented by its treasurer and CEO, Dr. John S. Dorai through his Power of Attorney holder, Sri Thyagaraj, has executed the Lease Deed dated 17.05.2019 agreeing to grant lease of the subject property¹ , and that the execution and registration of this lease deed is preceded by the Preliminary Agreement dated 02.03.2016. The petitioner contends that initially it was agreed between the petitioner and the respondent in this Preliminary Agreement that a formal lease deed shall be executed within a particular period, and that because the lease deed is not executed within the

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1 The property bearing site No.4, PID No. 81-1-4, M.G.Road, [near Mittal Tower], Bengaluru – 560 001

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agreed period, there is extension of time under the appropriate agreement/s with the lease deed ultimately being executed and registered on 17.05.2019. The petitioner specifically contends that it has taken possession of the subject property for a period of 21 [twenty-one] years reckoned from the rent commencement date. The Lease Deed dated 17.05.2019 refers to payment of Rs.60,00,000/- as Security Deposit by way of Demand Draft dated 16.05.2019 drawn on Karnataka Bank Limited, Nehru Nagar Branch, Bengaluru.

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The respondent contends that Dr. John S. Dorai, who was not even a member of the respondent’s Board, could not have represented the respondent as its treasurer or its CEO; that Dr. John S. Dorai has commenced proceedings under the provisions of Section 241 of the Companies Act, 2013 alleging mismanagement arraying the respondent and other office bearers; that though certain interim orders were granted, ultimately, the National

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Company Law Tribunal, Chennai [ NCLT ] has disposed of the application by its order dated 20.01.2020; that Dr. John S. Dorai has not called this order in question but Sri Thyagaraj has filed appeal in No. TA 15/2021 and the National Company Law Appellate Tribunal, Chennai has disposed of this appeal on 16.02.2023 affirming the NCLT’s order dated 20.01.2020.

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Further, the respondent relies upon certain circumstances to bolster its case that the dispute is not an ‘ Indoor Management Dispute ’ and that the petitioner must be relegated to work out its remedies in a properly instituted suit, and the circumstances emphasized in this regard are as follows:

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[A] The Power of Attorney dated 22.10.2018

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allegedly executed by Dr. John S. Dorai in favour of Sri Thyagaraj is not valid, and even if its validity is finally

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established, it could not have been relied upon to execute the Lease Deed dated 17.05.2019.

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[B] The Power of Attorney is executed for the period between 22.10.2018 and 20.11.2018, and the Lease Deed is executed on 17.05.2019. The validity of this Power of Attorney beyond 20.11.2018 is purportedly because of a Letter dated 29.12.2018 extending the time limit, but this Letter does not relate to the subject property but to a property in Mysuru.

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[C] The respondent has caused public notice dated 22.12.2018 warning general public

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about Dr. John S. Dorai and Sri Thyagaraj holding out that they represent the respondent, and notwithstanding this publication, the

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Lease Deed dated 17.05.2019 is

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executed.

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[D] There are various criminal complaints registered against the Dr. John S. Dorai and Sri Thyagaraj including the first information report in FIR No.326/2019,

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and the jurisdictional police have filed charge sheet after conclusion of the investigation.

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[E] Though the Lease Deed dated

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17.05.2019 records that a sum of Rs.60,00,000/is paid by way of Demand Draft, a sum of Rs.50,00,000/is transferred to the respondent’s account only on 19.11.2020. A further sum of Rs.50,00,000/- is transferred on 07.12.2020. The respondent, upon immediately coming to know about these transfers, has ensured that these amounts transferred back to the

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petitioner. If the first amount of Rs.50,00,000/- is transferred back on 08.12.2020 within a period of twenty days, the next amount is remitted back to the petitioner’s account on 23.02.2021 after necessary resolution as required in law.

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This Court must also record that the

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respondent has filed the suit in O.S.No.25554/2021 impugning the Power of Attorney dated 22.10.2018, and the suit is dismissed for default on 05.04.2021. However, it is stated on behalf of the respondent that as sufficient cause for non -prosecution could be shown, appropriate steps are being taken to ensure that the suit is reinstated. The petitioner has also filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 [for short, the ‘Arbitration Act ’], and the petitioner, as of today, has the advantage of an ex-parte interim order directing the

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respondent not to interfere with the petitioner’s possession in the subject property.

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Sri G. Krishna Murthy, the learned Senior Counsel for the petitioner, submits that the dispute raised by the respondent as regards who could represent the respondent in the execution of the Lease Deed is a dispute inter se the members of the respondent’s Board and such dispute cannot be cited to contest the present petition for the appointment of a sole arbitrator. The learned Senior Counsel emphasizes that in the peculiarities of this case, this Court must opine that the inter se dispute amongst the members of the respondent’s Board will not have public overtones so as to come within the exception against arbitral proceedings.

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Sri G. Krishna Murthy, relying upon the decision of the Hon’ble Supreme Court in Deccan Paper Mills Company Limited vs. Regency

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Mahavir Properties and Others² canvasses that only because fraud is alleged in the execution of the Lease Deed dated 17.05.2019, the agreement for arbitration cannot be ignored; and that the alleged civil wrong insofar as the petitioner, even if any, could be examined in the arbitral proceedings while the alleged criminal wrong by Dr. John Dorai and Sri. Thyagaraj, which cannot be decided in the arbitral proceedings, could be examined in the proper criminal proceedings.

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Sri Srinivasa Raghavan, the learned Senior Counsel for the respondent, on the other hand, submits that it is settled that where serious allegations of fraud are made, the two tests laid down by the Hon’ble Supreme Court in Avitel Post

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Studioz Ltd. and Others vs. HSBC PI Holdings [Mauritius] Ltd³ must be applied; the first test is to

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2 [2021]4 SCC 786

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3 2021(4) SCC 713

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verify whether it could be concluded that the agreement for arbitration does not exist and the second test is whether the question of fraud relates to public domain⁴ . The learned Senior Counsel emphasizes that even if one of the two tests is answered against arbitration, the petition for appointment of an arbitrator/ arbitral Tribunal must be rejected.

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Sri Srinivasa Raghavan argues that the

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petitioner relies upon a Preliminary Agreement to lease executed in the year 2016 with the subsequent agreements for extension of time during the years 2017 and 2018 and culmination of those agreements with the execution and registration of the Lease Deed dated 17.05.2019. The Lease Deed is executed by an

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4 (1) Does the plea of fraud permeate the entire contract and above all, the agreement of arbitration, rendering it void, or

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(2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.

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attorney, and the concerned Power of Attorney is executed by a person who has described himself as the Treasurer/CEO. The authority of this person to hold out himself as the Treasurer/CEO and constitute an attorney is in dispute. The Power of Attorney and the Letter of extension dated 29.12.2018 are a result of fraud so egregious that this Court must opine that the dispute is a nonstarter and even otherwise, it must be examined in a civil suit.

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Sri Srinivasa Raghavan next contends that in the present case, even if it could be argued that the second test is not satisfied, the first test is satisfied because neither Dr. John S. Dorai nor Sri Thyagaraj could represent the respondent and they rely upon the Power of Attorney and a Letter of extension which are demonstrably fraudulent rendering not just the Lease Deed dated 17.05.2019 but also the agreement for arbitration therein void.

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Insofar as the inter se dispute amongst the members of the Board, the learned Senior Counsel submits that the exception of Indoor Management Dispute cannot be invoked by the petitioner inasmuch as the petitioner has not undertaken the minimum due diligence that would be required to ascertain whether Dr. John S. Dorai could represent the respondent, and this would be evident with the publication of the notice on 22.12.2018.

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The Hon’ble Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. ,

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supra has declared thus in paragraphs 34 and 35 :

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“34. In a recent judgment reported as Rashid Raza [Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 : (2019) 4 SCC (Civ) 503], this Court referred to Sikri, J.'s judgment in Ayyasamy [A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386 : (2017) 1 SCC (Civ) 79] and then held : (Rashid Raza case [Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 : (2019) 4 SCC (Civ) 503] , SCC p. 712, para 4)

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“4. The principles of law laid down in this appeal make a distinction between serious

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allegations of forgery/fabrication in support of the plea of fraud as opposed to “simple allegations”. Two working tests laid down in para 25 are : (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.”

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35 . After these judgments, it is clear that “serious allegations of fraud” arise only if either of the two tests laid down are satisfied, and not otherwise. The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.”

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The petitioner relies upon the Lease Deed dated 17.05.2019 asserting that it is executed in continuance of the Preliminary Agreement dated 02.03.2016 and the obligation under the appropriate agreements. The respondent contends that Dr. John S. Dorai could not, either by himself or through his Attorney, execute the Preliminary Agreement dated 02.03.2016 or the later agreements and the Lease Deed and that there is fraud in bringing about these documents. It will have to be examined whether the respondent’s contentions against the Lease Deed dated 17.05.2019 could relate to this period.

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Further, the respondent relies upon assertions such as that the petitioner has failed to exercise even minimum due diligence; that the petitioner is unjustifiably invoking the exception of Indoor Management and that the petitioner has not even paid deposits as mentioned in the Lease Deed. The petitioner is not associated with the respondent’s

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management, and indeed, the respondent’s defenses will have to be decided as against this fact. The circumstances relied upon by the petitioner could be conclusive and held against the petitioner, but then, ultimately, these circumstances will have to be tested with due opportunity to both the petitioner and respondent to place on record their respective evidence. This Court, based on the material now brought on record, which is yet to be tested, is of the considered view that it would not be reasonable or fair to conclude that the case is so clear that it can be decided at this stage that the petitioner has not entered into agreement for arbitration.

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On the arbitrability of the allegations of fraud vitiating the Lease Deed dated 17.05.2019 and therefore the agreement for arbitration, this Court, must refer to the following enunciation by the Hon’ble Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI

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Holdings (Mauritius) Ltd :

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“In the light of the aforesaid judgments, para 27(vi) of Afcons [Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24 : (2010) 3 SCC (Civ) 235] and para 36(i) of Booz Allen [Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 : (2011) 2 SCC (Civ) 781] , must now be read subject to the rider that the same set of facts may lead to civil and criminal proceedings and if it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject-matter of such proceeding under Section 17 of the Contract Act, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so.”

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This Court, in the light of the afore, must conclude that neither of the required tests are satisfied and that the petitioner’s request for arbitration cannot be rejected nor that the petitioner must knock the doors of the civil Court despite the agreement for arbitration. Hence, the following

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ORDER

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[a] The petition is allowed.

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[b] Hon’ble Sri. Justice Dinesh Maheshwari, a former Supreme Court Judge, is appointed as the sole Arbitrator to enter reference of the dispute between the petitioner and the respondent.

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[c] The procedure for the conduct of the arbitral proceedings and the fee, subject to the decision of the Learned Arbitrator after hearing the petitioner and respondent, shall be so far as possible in terms of the Rules applicable to the Arbitration and Conciliation Centre (Domestic and International), Bengaluru.

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[d] The Registry is directed to communicate this order [through email] to the Arbitration and

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Conciliation Centre (Domestic and International), Bengaluru and Hon’ble Sri Justice Dinesh Maheshwari, a former Supreme Court Judge, Address: B-12, Kamla Nehru Nagar, First Extension, Jodhpur-342 008, (Rajasthan)/C-4, Upper Ground Floor(Rear), Green Park Extension, New Delhi-110 016 [E-mail: [email protected]] as required under the Appointment of Arbitrators by the Chief Justice of Karnataka High Court Scheme, 1996.

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In view of this order, the impleading

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applications are disposed of.

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Sd/JUDGE

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SA,NV

M S Ramaiah Developers and Builders Pvt. Ltd. v. the Church of South India Trust Association

Case brief

What is this about?

What did the court decide?

M S Ramaiah Developers and Builders Pvt. Ltd. v. the Church of South India Trust Association

Case brief

What is this about?

What did the court decide?

What the court decided

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