IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF JULY, 2019 BEFORE BETWEEN:
THE HON' BLE MR. JUSTICE B. VEERAPPA C.M.P. No.9/2016 M/S VINOD MARKETING PVT. LTD., A PRIVATE LIMITED COMPANY REGISTERED UNDER THE PROVISIONS OF THE COMPAINES ACT 1956, HAVING ITS REGISTERED OFFICE AT NO.17, 1ST FLOOR, 1ST CROSS, 5TH A BLOCK, KORAMANGALA, BANGALORE-560 095.
REPRESENTED BY ITS MANAGING DIRECTOR MR VINOD BOOB.
(BY SRI P. B. RAJU, ADVOCATE A/W SRI KARTHIKEYAN B. S. IYER, ADVOCATE) AND:
... PETITIONER 1. M/S DODDABALLAPUR SPINNING MILLS PVT. LTD. A PRIVATE LIMITED COMPANY REGISTERED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT MILL AT OTC POST, DODDABALLAPUR - 561205.
BANGALORE DISTRICT.
PRESENTLY OFFICE REGISTERED AT NO. 14, SRILAKSHMI PRIYA 8TH ‘B’ MAIN, RMV EXTENSION SADASHIVANAGAR, BANGALORE - 560 080.
REPRESENTED BY ITS MANAGING DIRECTOR MRS. NIVEDITA.
2. MRS. NIVEDITA D/O MR. BHOJE GOWDA BAGAMANE AGED ABOUT 59 YEARS R/AT NO.14, SRILAKSHMI PRIYA, 8TH "B" MAIN, RMV EXTENSION, SADASHIVANAGAR, BANGALORE-560 080.
3. MR. NITHIN BAGAMANE S/O MR. BHOJE GOWDA BAGAMANE AGED ABOUT 48 YEARS 22/12, VITTAL MALLYA ROAD, OPP UB CITY, BANGALORE-560 001.
... RESPONDENTS (BY SRI K. V. SATISH, ADVOCATE FOR R1 TO R3) … THIS CMP IS FILED UNDER SECTION 11(5) OF THE ARBITRATION AND CONCILIATION ACT 1996, TO APPOINT AN ARBITRATOR ON BEHALF OF THE RESPONDENTS TO ADJUDICATE THE DISPUTE BETWEEN THE PARTIES IN RESPECT OF THE OUT STANDINGS DUE AND OTHER CLAIMS OF THE PETITIONER AND BE PLEASED TO REFER THE MATTER FOR ADJUDICATION BY MEANS OF ARBITRATION UNDER CLAUSE 5 OF THE DEED OF PERSONAL GUARANTEE AGREEMENT DATED: 21/06/2006 IN THE INTERESTS OF JUSTICE AND CIRCUMSTANCES OF THE CASE.
THIS CMP COMING ON FOR HEARING THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER The petitioner has filed the present Civil Miscellaneous Petition under the provisions of Section 11 Sub-clause (5) of the Arbitration and Conciliation Act, 1996 (for short, ‘The Act’) to appoint a Sole Arbitrator to adjudicate the dispute in terms of Clause (5) of the Deed of Personal Guarantee Agreement dated 21.6.2006 entered into between the parties.
2. It is the case of the petitioner that it is a Private Limited Company established in the year 1993 and engaged in the business of textiles and other related products. It is pioneer in converting cotton fiber into cotton yarn of various counts and has been involved in this activity from past 15 years. The respondent is a Private Limited Company engaged in the manufacture and spinning of cotton yard. It used to entrust job works to respondent No.1-Company and hence, respondent No.1 continued to function. Accordingly two agreements of even date were entered on 21.6.2006. For the sake of convenience and understanding, it was agreed between the parties that one agreement dated 21.6.2006 was called as the Main Agreement and the second agreement dated 21.6.2006 was called as the Deed of Personal Guarantee and were executed. The main agreement was with regard to operation of the Job Work and other allied obligations arising under the said agreement between the parties. The second agreement namely the Deed of Personal Guarantee was executed by respondent Nos.2 and 3 wherein personal guarantees were offered for the outstanding dues of respondent No1, in the event, the respondent No.1 failed to keep up the financial commitment towards the petitioner.
3. It is the further case of the petitioner that the loan amount taken by the 1st respondent was secured and guaranteed by respondent Nos. 2 and 3. The same necessitated execution of the Deed of Personal Guarantee (2nd agreement). The 2nd respondent, who is also the Managing Director of respondent No.1- Company undertook personal guarantee of the loan along with respondent No.3, who is not a Director of respondent No.1-Company. Respondent No.3 is the younger brother of respondent No.2, who offered to guarantee the amounts payable by respondent No.1- Company to the petitioner-Company.
4. It is the further case of the petitioner that in both the agreements dated 21.6.2006 referred to above, there is a clear and unequivocal acknowledgment of the amounts due to it from respondent No.1-Company. In the Main agreement entered into between itself and respondent No.1, in Clause-20, respondent No.1- Company has categorically assured the petitioner that it shall secure repayment of the loan by creating a charge over the movable and immovable assets of the Company subject to the satisfaction of the existing change in favour of Corporation Bank. Respondent No.1- Company had further assured to handover the title documents in respect of the immovable properties to the petitioner-Company which shall be accompanied by a Memorandum of Deposit of Title Deeds duly signed by respondent No.1 for creating an equitable mortgage in favour of the petitioner-Company. It was also agreed that respondent No.1-Company shall intimate creation of charge to the Registrar of Companies by filing required forms. It was further agreed that the original title deeds shall be kept by the petitioner-Company in a bank locker and that the same shall be released to respondent No.1-Company after repayment of the amounts due by respondent No.1. Inspite of the same, 1st respondent-Company failed to create charge or deposit or title settling with the Corporation Bank.
5. It is the further case of the petitioner that the second agreement dated 21.6.2006 entered into by respondent Nos. 1 to 3 in favour of the petitioner- Company, relating to deposit of title deeds with it and creation of charge with the Registrar of Companies, has been specifically agreed to as per Clause (2) of the said Agreement. In the said agreement, it has been specifically stated that the property belonging to respondent No.1-Company whose title deeds have to be deposited is the land measuring 10 acres 29 guntas situated at Basattihalli of Doddaballapur in which the mills of respondent No.1-Company is located.
6. It is the further case of the petitioner that as on the date of appointment of its Arbitrator i.e, 20th August, 2014, its total claim against the respondent is Rs.2,96,62,323/ (Rupees Two Crores Ninety Six Lakhs Sixty Two thousands and three hundred and twenty three only), but respondent No.1 along with respondent Nos.2 and 3 failed and refused to pay the outstanding dues and had been making all attempts to avoid the same despite several pleas and requests made by it and therefore, it issued legal notice to the respondents on 23.6.2014, but the respondents have not replied to the same. Hence the petitioner is before this Court in the present Civil Miscellaneous Petition for the relief sought for.
7. The respondent Nos.1 & 2 filed objections to the main civil miscellaneous petition specifically contended that the petition filed by the petitioner for the relief sought for is barred by limitation and the proceedings initiated by the petitioner for recovery of money has been dismissed by the award dated 1.6.2016. It is further contended that the petitioner has not provided neither the list of documents nor copies of the annexures especially Annexures-F to L referred to in the petition and that they are not aware of what they are and hence, all those annexures are denied in toto. They have further contended that the petitioner has not approached this Court with clean hands and has suppressed the material facts in as much as he has given up his claims unconditionally. Therefore, the present civil miscellaneous petition is not maintainable.
8. It is further contended that admittedly a sum of Rs.105 lakhs was acknowledged towards loan outstanding inclusive of interest payable by the 1st respondent to the petitioner under the agreement dated 21.6.2006. Further the 1st respondent also paid a sum of Rs.1,64,30,748/- to the petitioner between the period 23.8.2006 and 31.1.2009 as per Annexure-R1. In response to the Debit Note dated 23.6.2009 raised by the petitioner, respondent No.1 replied on 30.6.2009 denying the liability to pay any amount as per Annexures-R2 and R3 respectively. On 12.3.2010, the petitioner issued notice to the 1st respondent claiming a sum of Rs.75,40,203/- towards the total outstanding amount due and payable stating that if the same is complied with, legal proceedings would be initiated as per Annexure-R4. Hence, the petitioner on 23.4.2010 filed A.A.14/2010 before the Court of the District Judge, Bangalore Rural District, Bangalore under Section 9 of the Arbitration and Conciliation Act, 1996 against all the respondents herein seeking interim orders and to initiate arbitration proceedings as per Annexure-R5.
9. The learned District Judge passed an interim order subject to the condition that the petitioner shall approach the High Court for appointment of Arbitrator within 15 days failing which the interim order granted stands vacated automatically. It is their further case that the petitioner issued a notice on 27.1.2012, to all the respondents claiming a sum of Rs.1,17,36,798/- in full and final settlement which was not paid, invoking the arbitration clause of the Agreements dated 21.6.2006 and for nomination of Arbitrator from its side and a copy of the same is produced as Annexure-R7.
10. It is further stated that respondent No.1 has categorically stated under Notes on Accounts that no provision has been made in the Books for the demand made by the petitioner and accordingly, it had disputed the said claim. Hence, it contended that it may be noted that there is no acknowledgement of any debt or liability made by respondent No.1 after 31.1.2009. It is their further contention that the 1st respondent had made excess payments to the petitioner as against a sum of Rs.105 lakhs towards loan amount repayable within 13.5% simple interest and hence a sum of Rs.1.64 Crores has been admittedly paid. Therefore, they sought for dismissal of the civil miscellaneous petition.
11. It is also contended in the statement of objections that respondent No.1 filed CMP 138/2011 under Section 11(5) of the Act to enforce the arbitration clause as contemplated under the first agreement dated 21.6.2006 and this Court appointed an Arbitrator to adjudicate the dispute. Accordingly, the Arbitrator adjudicated the disputes in AC 1/2013 and rejected the claim of the respondent on 1.6.2016 which is the subject matter in A.S.14/2016 pending on the file of the City Civil Court, Bengaluru. Therefore, sought to dismiss the civil miscellaneous petition.
12. I have heard the learned Counsel for the parties to the lis.
13. Sri P.B. Raju along with Sri Karthikeyan B.S. Iyer, learned Counsel for the petitioner reiterating the grounds urged in the petition contended that admittedly there were two agreements on the same day i.e., on 21.6.2006 one is the Main Agreement and another is the Deed of Personal Guarantee executed by respondent Nos. 2 and 3. The existence of second agreement namely the Deed of Personal Guarantee is not in dispute. He also contended that in terms of clause (5) of the second agreement dated 21.6.2006, there exists an arbitration clause. They also contended that the petitioner has complied with the provisions of Section 7 (5) of the Act. They would further contend that as per the second agreement, the loan taken by the 1st respondent was secured and guaranteed by respondent Nos.2 and 3 which necessitated execution of the Deed of Personal Guarantee (2nd agreement) by respondent Nos.2 and 3.
14. He further contended that the first agreement dated 21.6.2006 was entered into only between petitioner and respondent No.1 and has nothing to do with respondent Nos.2 and 3. The claim made by the 1st respondent on the basis of the first agreement in CMP 138/2011 for appointment of Arbitrator came to be allowed and in pursuance of the same, Arbitrator initiated proceedings in AC 1/2013 and rejected the claim of respondent No.1 on 1.6.2016. Mere filing a memo before the learned Arbitrator in Arbitration Case No.1/2013 that respondent-petitioner herein has decided not to file any counter claim in the Arbitration Proceedings and intends to defend the matter, does not facilitate to file a separate petition to enforce the conditions of the second agreement i.e., Deed of Personal Guarantee, dated 21st June, 2006 entered into between the parties.
15. He would further contend that admittedly the claim made by the 1st respondent came to be rejected which is subject matter in AS 14/2016 pending before the City Civil Judge and therefore, there is no impediment for the petitioner to file a separate petition to enforce the condition in the second agreement i.e., Deed of Personal Guarantee executed by respondent Nos.2 and 3. Therefore, he sought to allow the civil miscellaneous petition.
16. In support of his contentions, learned Counsel for the petitioners relied upon the dictum of the Hon’ble Supreme Court in the case of State of Goa –vs- Praveen Enterprises reported in (2012) 12 SCC 581 especially para-32.
17. Per contra, Sri K.V. Satish, learned Counsel for respondent Nos. 1 to 3 while reiterating the averments made in the statement of objection mainly contended that the 1st respondent has paid excess due i.e., Rs.1,64,30,748/- to the petitioner as per Annexure- R1 produced along with statement of objections before this Court. Once the petitioner received the entire amount, question of filing fresh petition on the same ground would not arise. Therefore, he contended that the present civil miscellaneous petition is not maintainable.
18. He would further contend that in view of the categorical memo filed by the present petitioner before the Arbitral Tribunal in Arbitration Case No.1/2013 that the counter claim is not in dispute under the Arbitration and Conciliation Act, 1996, it has decided not to file any counter claim in that case and it intends to defend the matter. Therefore, he would further contend that the present civil miscellaneous petition is not maintainable in view of the provisions of Order 2 Rule 2 of the Code of Civil Procedure and accordingly, sought to dismiss the civil miscellaneous petition.
19. In support of his contentions, learned Counsel for the respondents relied upon the judgment of the Delhi High Court in the case of Kohinoor Rubber Works Pvt. Ltd.-vs- Union of India reported in LAWS (DLH)-2006-3-198 with regard to paragraphs -4 and 7 where the respondent had clearly made an application for removing the counter-claim from the purview of pending reference before the Arbitrator with liberty to file fresh reference, it was held that it is not necessary that the reference ought to have been made before the very same arbitrator, nor was it necessary that the fresh reference be made before the award in the pending reference. Moreover, the petitioner therein did not object to the withdrawal of the counter-claim under these circumstances. Therefore, the petition was dismissed holding that the petitioner therein cannot be permitted to object to the arbitration proceedings with regard to the subsequent claim made by the respondent which is pending arbitration. Therefore, the learned Counsel for the respondents further contended that the petitioner has categorically filed a memo in the earlier arbitration proceedings – Arbitration Case No.1/2013 that he has no counter claim and therefore, the present civil miscellaneous petition is not maintainable.
20. Having heard the learned Counsel for the parties, it is an undisputed fact that there were two agreements entered into between the parties. The main agreement dated 21.6.2006 is entered into between the petitioner and the 1st respondent and the second agreement called as Deed of Personal Guarantee is executed by respondent Nos.1 to 3 and respondent Nos.2 and 3 stood as Personal Guarantor on behalf of respondent No.1. It is also not in dispute that the 1st respondent filed CMP 138/2011 under the provisions of Section 11(6) of the Act before this Court for enforcement of the main agreement and this Court allowed the said civil miscellaneous petition by appointing the Sole Arbitrator. The learned Arbitrator, who adjudicated the matter in Arbitration Case No.1/2013 rejected the claim of the 1st respondent on 1.6.2006 which is the subject matter in A.A.14/2010 pending on the file of City Civil Court, Bengaluru for adjudication between the parties. It is the specific contention of the learned Counsel for the respondents that the respondent No.1 has paid an excess amount due to the petitioner as per Annexure-R1 i.e., Rs.1,64,30,748/- as on 31.1.2009.
21. It is also not in dispute that the present petitioner has filed a memo on 2.4.2014 in Arbitration Case No.1/2013 arising under CMP 138/2011 stating that it has decided not to file any counter claim in that Arbitration Proceedings and it intends to defend the matter.
22. It is also not in dispute that the petitioner issued a legal notice to the respondents demanding the amounts due payable from 1st respondent to it. In response to the said legal notice, the respondent by Annexure-L dated 10.2.2012 in categorical terms has stated as under:
“With reference to your letter dated 27.01.2012 regarding the appointment of Arbitrator on your behalf, we request you not to proceed the matter in the High Court as we are making all efforts to settle your outstanding dues as soon as possible. We are having lot of financial difficulties and we are trying our best to clear your outstanding at the earliest.”
The said annexure is disputed by the learned Counsel for the respondents. But the fact remains that, there were two agreements executed on the same day on 21.6.2006 i.e., first agreement is the Main Agreement and the second agreement is the ‘Deed of Personal Guarantee’. The arbitration clause as contemplated is under Clause 5 of the Agreement dated 21st June, 2006 entered into between the parties is also not in dispute which reads as under:
“5. In the event of any dispute or difference between the parties arising out of this agreement, the same shall be referred to and settled by arbitration. The Arbitral tribunal shall consists of three arbitrators, two of them to be nominated by each party to the dispute and the third arbitrator or umpire to be nominated by the two arbitrators. The arbitration proceedings shall be in accordance with the Arbitration and Conciliation Act, 1996 or any enactments in substitution thereof. The venue of the arbitration proceedings shall be at Bangalore. It is also agreed and understood that any dispute is arising out of this agreement and undertaking by Mrs. Niveditha regarding non disposal of her shareholdings in DSM and / or personal guarantee of Mrs. Nivedita and Mr. Bagamane for the due repayment of monies due by DSM to VML are also subject to arbitration in the manner above. The venue of such arbitration proceeding shall be at Bangalore.”
23. It is also not in dispute that before filing the present civil miscellaneous petition, the petitioner has complied with the provisions of Section 7(5) of the Act by issuing legal notice, but the respondents have not replied to the same.
24. In view of the admitted facts stated supra, though according to the respondents, 1st respondent has cleared the amount as long back as on 31.1.2009, there was no necessity to reply as per Annexure-L dated 10.2.2012, admitting the amount due to the petitioner and requesting time to pay the amount. Though same is disputed, this Court cannot venture to enquire into the documents under the provisions of Section 11 (5) of the Act.
25. The Hon’ble Supreme Court had an occasion to consider the separate claim under the provisions of Section 11 of the Act in the case of State Of Goa vs M/S Praveen Enterprises reported in (2012) 12 SCC 581 wherein at paragraph-32, it has been held as under:
32. A counterclaim by a respondent presupposes the pendency of proceedings relating to the disputes raised by the claimant. The respondent could no doubt raise a dispute (in respect of the subject-matter of the counterclaim) by issuing a notice seeking reference to arbitration and follow it by an application under Section 11 of the Act for appointment of arbitrator, instead of raising a counterclaim in the pending arbitration proceedings. The object of providing for counterclaims is to avoid multiplicity of proceedings and to avoid divergent findings. The position of a respondent in an arbitration proceeding being similar to that of a defendant in a suit, he has the choice of raising the dispute by issuing a notice to the claimant calling upon him to agree for reference of his dispute to arbitration and then resort to an independent arbitration proceeding or raise the dispute by way of a counterclaim, in the pending arbitration proceedings.
26. In view of the aforesaid dictum, the existence of two agreements and also that there is no dispute with regard to existence of arbitration clause by the 2nd respondent, there is no impediment for the petitioner to file a separate petition – CMP 9/2016 (present petition) before this Court to enforce the second agreement Deed of Personal Guarantee executed by respondent Nos.2 and 3 as well as does not bar in filing a memo in the earlier proceedings specifically stating that the present petitioner has proceeded in filing counter claims in the present arbitration proceedings, means proceedings arising out of A.A.1/2013, but it has not stated anything about the second agreement entered into between the parties. Therefore, the contention of the learned Counsel for the respondents that the present civil miscellaneous petition is not maintainable and cannot be accepted.
27. Though the learned Counsel for the petitioner relied upon the dictum of the Delhi High Court in the Kohinoor’s case stated supra, wherein it was a case where an application came to be filed by the respondents for withdrawal of the counter claim from the purview of the pending reference before the Arbitrator with liberty to file a fresh reference, it was held that it is necessary to file fresh reference before the award in the pending reference and moreover, the petitioner therein did not oppose for withdrawal of the counter-claim under those circumstances. Therefore, it was held that the petitioner therein cannot be permitted to object to the arbitration proceedings with regard to the subsequent proceedings made by the respondent which is pending arbitration. The said judgment is quite reverse to the facts and circumstances of the present case and it has no application to the present case.
28. Admittedly in the present case, it is not the case of the petitioner that he has filed a memo with regard to non-contesting the matter in respect of both claims. What was stated in A.A.1/2013 was that the present petitioner has decided not to file any counter claim in the present arbitration proceedings and it does not mean that it applies to both agreements. Therefore, the petitioner has made out a case for appointment of an Arbitrator as prayed for.
29. For the reasons stated above, Civil Miscellaneous Petition is allowed. The Hon’ble Sri Justice L. Sreenivasa Reddy, Former Judge of this Court, is appointed as the sole Arbitrator to adjudicate the dispute between the parties in terms of Clause (5) of the Second Agreement dated 21st June, 2006 (Deed of Personal Guarantee) in accordance with law.
30. All the contentions urged by the parties are left open to be urged before the learned Arbitrator.
31. Registry is directed to send a copy of this order to – The Hon’ble Sri. Justice L. Sreenivasa Reddy, Former Judge of this Court as well as to the Arbitration Centre forthwith for reference.
Sd/- Judge Nsu/-