IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 07TH DAY OF DECEMBER, 2017 PRESENT THE HON’BLE MR.JUSTICE B.S.PATIL AND THE HON’BLE MR.JUSTICE ARAVIND KUMAR MFA NO.7172 OF 2017(AA) Between:
Hotel Maikhana A Partnership Firm Having its office at S.B.Temple Road, Bramhpur, Gulbarga – 585 102.
Also at M/s Anjar Associates, Hotel Mayura Baridshahi, Dr. Ambedkar Circle, Bidar Represented by its Partner Taranath Shetty.
(By Sri. Krishna Kumar S.R, Advocate for M/s Dua Associates) And:
…Appellant Karnataka State Tourism Development Corporation Limited, No.49, 2nd Floor, Khanija Bhavan, Race Course road, Bengaluru – 560 001.
…Respondent (By Sri. Gururaj Joshi, Advocate for C/R) This MFA is filed under Section 37(1)(b) of the Arbitration and Conciliation Act 1996, against the order dated 22.08.2017 passed in A.A.No.151/2015 on the file of the XXX Additional City Civil and Sessions Judge, Bangalore City, dismissing the application filed under Section 9 of Arbitration and Conciliation Act 1996.
This MFA coming on for Orders this day, B.S.Patil J, delivered the following:-
J U D G M E N T This appeal is filed under Section 37(1) (b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’ for the sake of brevity), challenging the order dated 22.08.2017 passed in Arbitration Application No.151/2015, thereby dismissing the application filed under Section 9 of the Act.
2. The respondent herein is a State Government undertaking, namely Karnataka State Tourism Development Corporation (hereinafter referred to as ‘KSTDC’ for the sake of brevity). Property bearing No.8-9-583 situated at Udgir Road, Bidar, measuring 88,460/- sq.ft. with a constructed premises, was given by the respondent to the applicant/appellant herein for the purpose of running a hotel. The Concession Agreement dated 27.09.2003, entered into between the parties, in this connection, provided that appellant herein shall not part with the property or create any encumbrance; that he would not be entitled to use the project/asset for any other purpose other than the one for which the property was granted, but inclusive of any other incidental and ancillary purposes. The applicant was entitled to carry on alterations, modifications and additions. In consideration of the Concession Agreement, the appellant was required to make payment as per schedule-3 of the agreement enumerated therein.
3. When the applicant/appellant took over the establishment and started carrying on the business as per the terms and conditions of the agreement, a dispute arose between both of them regarding alleged violation of the terms and conditions of the agreement. Miscellaneous petition No.146/2014 was filed before this Court seeking appointment of Arbitrator as per the terms of the Concession Agreement. The petition was later on withdrawn on 21.08.2015. During the pendency of the proceedings before this Court in C.Mis.No.146/2014, respondent issued a notice of termination dated 28.02.2015 terminating the agreement. The appellant wrote back on 24.04.2015, requesting the KSTDC to withdraw the termination notice.
4. At that stage, an application came to be filed under Section 9 of the Act seeking interim measure invoking Section 9 of the Act. In the application, the appellant sought for the following reliefs:
“To restrain the respondent from terminating the Concession Agreement dated 27.09.2003, consequently, pass an order preventing the respondent from or any person claiming through or under them from entering upon and take possession and control of the project asset/project facilities as set out in the Schedule-1, pending disposal of the Arbitration Proceedings, or in the alternative pass such other order/s as this Hon’ble Court deem fit to pass on the facts and in the circumstances of the case, in the interest of justice and equity.”
5. The application was resisted by the respondent contending inter alia that while execution of the Concession Agreement was admitted, the respondent was constrained to terminate the agreement on account of violation of the terms of the agreement by the appellant by not paying service tax and also by subletting and parting with the portion of the project asset in favour of third party. It was also urged that since the Concession Agreement had been terminated on 28.02.2015 and as there was Clause-4 in the Agreement, which provided for taking over of the project, the applicant/appellant was not entitled for any interim measure as prayed for. It was further urged that, apart from letting out the shops to various persons, the applicant had erected a function hall on the western side of the property, which was used for marriage functions.
6. After hearing both parties, the Court below framed necessary points for consideration i.e.: whether the applicant had made out prima facie case in its favour for grant of interim measure; whether balance of convenience was in favour of the applicant; and also as to whether the applicant was able to establish that irreparable loss or injury would be caused to it, if interim order as sought for was not granted. The Court below has answered these points in the negative and has consequently, dismissed the application. Aggrieved by the same, the present appeal is filed.
7. We have heard learned counsel for both parties. Learned counsel appearing for the appellant, Sri. Krishna Kumar, placing reliance on the judgment of the Apex Court in the case of STATE OF U.P. AND OTHERS VERSUS MAHARAJA DHARMANDER PRASAD SINGH AND OTHERS - AIR 1989 2 SCC 505, strongly contends that the respondent, with best of its title, had no right to attempt to resume possession of the property by resorting to extra judicial methods, namely, by use of force even after the so called termination of the Concession Agreement. He points out that the respondent has illegally locked the premises along with valuable belongings of the appellant which have been kept inside the Hotel premises and as a result, appellant has been deprived of day to day business and the income that it was earning.
8. Learned counsel appearing for the respondent, Sri. Gururaj Joshi, vehemently contends that as per Clause 8.3 of the Concession Agreement, once the agreement was terminated, the respondent herein had the right of re-entry to take possession without recourse to the Court of Law. He urges that the said act cannot be termed as illegal. He relies on the judgment in the case of COX & KINGS LTD VERSUS. INDIAN RAILWAY CATERING AND TOURISM CORPORATION LTD. AND ANOTHER REPORTED IN AIR 2012 7 SCC 3391 to contend that no mandatory injunction can be granted to the appellant herein.
9. In the light of the respective contentions, the points that arise for our consideration are as follows:
1. Whether in the facts and circumstances of the case, action of the respondent in unilaterally attempting to take over possession of the property by enforcing Clause 8.3 of the Concession Agreement dated 27.09.2003, is legally justified?
2. Whether the appellant/applicant has made out prima facie case for grant of interim relief as sought for by him and has established the requisite ingredients for protecting his interest by issuing interim order in the nature of temporary injunction?
10. There is no dispute between the parties regarding execution of Concession Agreement. It is also not in dispute that applicant was carrying on hotel business in the premises in question. The allegations based on which the Concession Agreement was sought to be terminated is that applicant had violated the terms of the Concession Agreement by not paying service tax and by subletting the property in favour of third party. This dispute regarding violation of terms of the agreement and legality of the termination is the subject matter of Arbitration. Indeed by order dated 20.11.2017, on the joint request and also based on a joint memo filed by both parties, this Court has appointed Mr. Justice N. Kumar, Retired Judge of this Court as a sole Arbitrator. Therefore, the question now is whether during the pendency of the arbitration proceedings, interim measure as sought for by the appellant deserves to be granted.
11. As already pointed out, in the judgment rendered by the Apex Court in the case of STATE OF U.P. AND OTHERS VERSUS MAHARAJA DHARMANDER PRASAD SINGH AND OTHERS reported in AIR 1989 2 SCC 505, the Apex Court after surveying the entire law on the point, has laid down that a lessor based on his title had no right to resume possession of the property extra-judicially by using force from the lessee upon termination of lease or by forfeiture or otherwise. The observation made in paragraph 30 and 31 of the said judgment can be usefully extracted hereunder:
30. A lessor, with the best of title, has no right to resume possession by use of force, from a lessee, even after the expiry or earlier termination of the lease by forfeiture or otherwise. The use of the expression ‘re-entry’ in the lease deed does not authorise extra-judicial methods to resume possession. Under law, the possession of a lease, even after the expiry or its earlier termination is juridical possession and forcible dispossession is prohibited; a lessee cannot be dispossessed otherwise than in due course of law. In the present case, the fact that the lessor is the state does not place it in any higher or better position. On the contrary, it is under an additional inhibition stemming from the requirement that all actions of government and governmental authorities should have a ‘legal pedigree’. In Bisham v. State of Punjab this Court said: (SCR pp. 79-80) We must, therefore, repel the argument based on the contention that the petitioners were trespassers and could be removed by an executive order. The argument is not only specious by highly dangerous by reason of its implications and impact on law and order.
Before we part with this case, we feel it our duty to say that the executive action taken in this case by the State and its officers is destructive of the basic principle of the rule of law.
31. Therefore, there is no question in the present case of the government thinking of appropriating to itself an extra-judicial right of re-entry. Possession can be resumed by government only in a manner known to or recognized by law. It cannot resume possession otherwise than in accordance with law. Government is, accordingly, prohibited from taking possession otherwise than in due course of law.
12. Though this judgment has been rendered in the context of a lease and although learned counsel for respondent, Sri. Gururaj Joshi submits that the present agreement which is a Concession Agreement is not a lease but is in the nature of a license, without expressing any final opinion with regard to the nature of the transaction, we are of the view that in the facts and circumstances of the case, having regard to the nature of obligations undertaken by both parties in terms of the agreement, whereunder the respondent has put the appellant in possession of the property enabling it to run a hotel business for a period of 30 years in consideration of annual amount to be paid as per the payment schedule enumerated in Schedule-3 appended to the agreement, with a clause for re-entry, we do not find that any exception can be claimed by the respondent – State undertaking from the application of law laid down in the judgment cited above.
13. The consequences regarding the rights of the respondent are no different in the matter of taking recourse to such extra judicial methods of taking over possession. The respondent cannot, in our view take recourse to extra judicial methods or extra legal methods to forcibly take possession by throwing out the occupant of the premises namely, the appellant herein on the specious plea that it has terminated the agreement due to certain alleged violations of the terms of the agreement. If such consequence is permitted in law, it would certainly lead to serious repercussions, as a Government organization, like the present respondent can then unilaterally terminate the agreement although duration of the same is for three decades at its whims and fancies and thereafter forcibly enter the property.
14. Reliance placed by the learned Counsel for the respondent on the judgment of the Apex Court in the case of COX & KINGS LTD. VS INDIAN RLY. CATERING & TOURISM CORPORATION LTD. & ANR.
– (2012) 7 SCC 587, is not apposite to the facts and the question involved in the present case. In the said case, a joint venture company was incorporated by the petitioner and respondent, wherein they were equal shareholders for operating luxury tourist train. The luxury train was leased by the respondent to the joint venture company. Dispute arose between the shareholders with regard to the working of the joint venture agreement. This resulted in termination of the lease by the respondent. Petitioner-Cox & Kings Ltd., initiated proceedings under Section 9 of the Arbitration & Conciliation Act, 1996, for stay of termination of lease and also for a direction to continue the operation till the month of April 2002. In that context, the Apex Court held that mandatory order of injunction to operate the train once the lease agreement/arrangement had been terminated could not be granted. However, the suggestions made regarding the operation of the train by IRCTC with liberty to the parties to appoint the Arbitral Tribunal to settle their dispute was accepted. In the facts of the present case, there is no such mandatory injunction prayed for. Therefore, the ratio laid down in the above case has no application to the facts of the present case. On the other hand, the ratio laid down by the Apex Court in the case of STATE OF U.P. & OTHERS VS MAHARAJA DHARMANDER PRASAD SINGH & OTHERS – (1989) 2 SCC 505 is applicable to the facts of the present case. Hence, keeping in mind the ratio of the Apex Court in Maharaja Dharmander Prasad’s case referred to above, we are of the clear view that contention urged by learned counsel for respondent, cannot be accepted. The Court below has erred in proceeding on the basis that since Clause 8.3 clothed the respondent with right to re-enter upon termination of the agreement, it would not be necessary for the respondent to take legal recourse by approaching the Court of Law.
15. Indeed the notice of termination does not state that in view of Clause 8.3, the respondent intended to re-enter the property and take possession unilaterally. On the other hand, as per paragraph 7 of the notice, what has been stated is that termination of the Agreement would be effective from 30.04.2015 and therefore, the appellant should quit and deliver vacant possession of the property on the said day to the authorised officer of the Corporation which shows that it stopped short of acting in any extra legal manner by adopting extra legal methods. However, the subsequent action discloses that respondent has taken recourse to such extra legal methods by attempting to lock the premises. Hence, we find that the appellant has made out prima facie case and balance of convenience lies in its favour, as the appellant has been subjected to recurring loss by excluding it from running the business in the premises.
16. In so far as the allegations made regarding sub-lease and violation of some of the terms of the Concession Agreement, the appellant apart from denying the same, has filed an affidavit dated 30.11.2017 before this Court giving an undertaking to the following effect:
1. That, it will abide by the terms and conditions of the Concession Agreement dated 27.09.2003.
2. That, it will not act in any manner contrary to/violate the terms of the Concession Agreement dated 27.09.2003.
3. That, it will not sublet or part with possession of the project asset in favour of third party.
4. That, appellant will utilize the facilities of the project in accordance with the Concession Agreement.
17. In the light of this undertaking given and keeping in mind the fact that the KSTDC is not going to gain anything by dispossessing the appellant from the premises but on the other hand being a Government Undertaking, it would get periodical payments in terms of the Concession Agreement as per the schedule of payment, we are of the considered view that prayer made in the application deserves to be granted. We are of the view that the order passed by the Trial Court not being in confirmity with the well established principles of law, deserves to be set aside.
Accordingly, the appeal is allowed. Order under challenge is set aside. The respondent is restrained from entering upon and taking possession and control of the project asset/project facilities as set out in Schedule-1 of the Concession Agreement dated 27.09.2003, pending disposal of the arbitration proceedings.
As an Arbitrator has been already appointed, the Registry is directed to communicate the order dated 20.11.2017 to the learned Arbitrator. He is requested to enter upon arbitration and dispose of the matter as expeditiously as possible.
As suggested by learned counsel for both parties, the arbitration proceedings shall be governed by the Arbitration Centre-Karnataka (International & Domestic) Rules, 2012.
Since the main appeal is disposed of, I.A.No.1/2017 does not survive for consideration and it is accordingly dismissed.
SD/- JUDGE Bmc SD/- JUDGE