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2001 DIGILAW 109 (KAR)

KHODAY INDIA LIMITED v. DLF INDUSTRIES LTD.

2001-02-02

R.GURURAJAN

body2001
GURURAJAN, J. ( 1 ) M/s. KHODAY India Ltd. , the appellant/plaintiff has presented this appeal aggrieved by the orders passed in IA III and IV by the First Addl. Civil Judge (Senior Division) Bangalore Rural District, Bangalore on 28. 10. 99 in O. S. No. 617/98. The appellant M/s. Khoday India Ltd. , is a plaintiff and respondent M/s. DLF Industries Ltd. , is defendant before the Trial Court. They would be referred to as per their rankings before the Trial Court. ( 2 ) FACTS: The Appellant/plaintiff is a Company having its registered office at Bangalore. It underwent certain financial problems resulting in their approaching the defendant/respondent for monetary assistance for a sum of Rs. 5,03,23,200/ -. The defendant agreed to extend the financial assistance subject to certain conditions. The terms were of a sale of 10084 Oakwood barrels owned by the plaintiff and after sale the same Oakwood barrels would be leased back to the plaintiff by way of 2 lease agreements. The other condition is that the repayment of the loan amount would be in the form of lease rentals for every quarter; Parties agreed for the same and agreements were entered into between the parties termed as two lease finance agreements dated 1. 12. 94 and 23. 3. 95. In terms of these agreements plaintiff issued 24 cheques each, 12 cheques for Rs. 39,14,400/- each and 12 cheques for Rs. 9,71,110. 65 each. Thus covering entire loan transaction inclusive of interest at the rate of 20% p. a. Later it appears the cheques were dishonoured and an amicable settlement was arrived at in the matter. The plaintiff gave a unilateral proposal thereby enclosing 14 fresh cheques covering the liability. Thereafter a fax was also sent with regard to this proposal. The plaintiff requested the respondent to return the cheques while securing loanamount with a letter to accept the unilateral proposal. Neither the cheques were returned nor'there was any acceptance in the matter. The lease finance agreements expired on 1. 12. 97 and 23. 3. 98. Later the respondent contend that these lease finance agreements were nothing but lease agreements and not finance agreements. Neither the cheques were returned nor'there was any acceptance in the matter. The lease finance agreements expired on 1. 12. 97 and 23. 3. 98. Later the respondent contend that these lease finance agreements were nothing but lease agreements and not finance agreements. In the circumstances the plaintiff filed a suit in OS No. 617/98 before the first Additional Rural Civil Judge (Senior Division) (for short Trial judge, Bangalore) seeking for declaration declaring that the plaintiff is the owner of 10084 Oakwood barrels and amounts should be settled in addition to other prayers. ( 3 ) THE defendant entered appearance and subsequently filed twoapplications, one purporting to be under Arbitration and Conciliation act 1996 (for short Arbitration Act) and another application under order 7 Rule 11 of the Code of Civil procedure (for short CPC ). Those applications were objected to by this plaintiff. The trial Judge heard these two applications and passed the impugned order ordering return of the plaint for presentation before the competent Court / forum. Plaintiff is before this Court challenging tne said findings in this appeal. The defendant has filed a cross appeal aggrieved by the order of presenting before a competent Court/forum. ( 4 ) IT may not be out of place to mention here that the agreementsdo provide for arbitration in the matter. This very plaintiff had filed an arbitration case in Arbitration Case No. 2/99 under Section 14 of the Arbitration Act. The said petition was dismissed by a detailed order by the Arbitration Court holding that the Courts at Bangalore have no jurisdiction in terms of this very agreement. The Courts also went into the merits of the matter in that order. This plaintiff aggrieved by that order of the Aribtration Court filed CRP No. 2015/ 99 before this Court. This Court by its order dated 28. 7. 99 ruled that the Courts at Bangalore have no jurisdiction in view of a clause in the agreement. This Court set aside the findings on merits in its order. The said order it appears was taken to Supreme Court and the same was dismissed by the Apex Court. This Court by its order dated 28. 7. 99 ruled that the Courts at Bangalore have no jurisdiction in view of a clause in the agreement. This Court set aside the findings on merits in its order. The said order it appears was taken to Supreme Court and the same was dismissed by the Apex Court. ( 5 ) THE Trial Judge after hearing the parties in the impugned orderruled that in the light of the earlier order passed by this Court in crp No. 2015/97 and in the light of the clause in the agreement the courts in Bangalore have no jurisdiction. The Trial Judge was of the view that the plaints has to be returned in terras of the provision of CPC for presentation before a competent Coart/forum. ( 6 ) THE matter was keenly contented by me parties. Plaintiff-appellant is represented before this Court by Mr. Nagendra Naidu, learned Counsel for the appellant and Sri Seth. learned Counsel assisted by Smt. Nagveni, Advocate of this Bar appearing for respondent. Elaborate arguments were addressed by the respective counsels with regard to their respective pleas. ( 7 ) MR. NAIDU, argued at length to contend that the Trial Court iswrong in relying on an order passed in the earlier Civil Revision petition. That order came to be passed in terms of an arbitration clause under the Arbitration Act. According :o him a reading of the present plaint would show that the Courts at Bangalore have jurisdiction in terms of the pleadings raised in the plaint. He argued that the Trial Judge has committed an error in us failure to exercise its jurisdiction. ( 8 ) PER contra Counsel for the respondent vehemently contendedbefore me that this very issue was before the "trial Court in arbitration proceedings and that was also the subject matter before this Court. This Court has ruled categorically that the Courts at Bangalore have no jurisdiction to try the matter. That order has been confirmed by this Court; which again is confirmed by the Supreme Court. In addition the Counsel contended that this very plaintiff initiated certain proceedings in the Delhi High Court and the Deihi High Court passed orders ordering the plaintiff to raise these questions before the arbitrator. Arbitrator has now rejected his case. According to the defendants Counsel all these issues could be thrashed out before the arbitration proceedings. In addition the Counsel contended that this very plaintiff initiated certain proceedings in the Delhi High Court and the Deihi High Court passed orders ordering the plaintiff to raise these questions before the arbitrator. Arbitrator has now rejected his case. According to the defendants Counsel all these issues could be thrashed out before the arbitration proceedings. According to him tnese proceedings are nothing but an attempt to drag on the proceedings by the plaintiff. ( 9 ) MATTER was heard and reserved. Threrafter the Counsel forplaintiff mentioned to me that this Company is merged with other company and in view of that merger the petition filed by them in the delhi High Court has been dismissed. The defendant's Counsel produced the order of Delhi High Court accepting the merger and also produced the subsequent arbitration notice after merger. He argued that the merger is nothing to do wan the matter. Anyway all these matters can be urged in arbitration proceedings according to him. ( 10 ) AFTER hearing the parties on either side I pass the followingorder. ( 11 ) BEFORE I take up to the merits of the matter both Counselagree that I can take note of the subsequent development of pending arbitration proceedings between the same parties arising from the same transaction. Even otherwise the Supreme Court in a case reported in AIR 1973 SC 171 ruled that the Court can take cognizance of subsequent developments in the matter. ( 12 ) ADMITTED facts reveal that their exists two agreementsproviding for certain financial transactions between them. The facts further reveal that this plaintiff initiated certain proceedings under the Afbitration Act. The said proceedings ended in failure for want of jurisdiction by Courts at Bangalore in terms of the contract. The said matter was taken up before this Court and this Court approved the decision of the Trial Court but however set aside the findings on merits. The order of this Court is confirmed by the Supreme Court now. ( 13 ) THESE facts are available on record when the learned Trialjudge heard the matter. ( 14 ) PLAINT filed by the plaintiff referred to these two agreementsdated 1. 12. 94 and 23. 12. 95. Reference has been made to these agreements and the subsequent transactions, correspondences in continuation of these agreements. In the prayer the plaintiff has. sought for the following reliefs: "1. ( 14 ) PLAINT filed by the plaintiff referred to these two agreementsdated 1. 12. 94 and 23. 12. 95. Reference has been made to these agreements and the subsequent transactions, correspondences in continuation of these agreements. In the prayer the plaintiff has. sought for the following reliefs: "1. Pass a judgment and decree of declaration, declaring that the plaintiff is the owner of the 10084 Oakwood barrels, lying at khoday India Ltd. , (Distillery Division) No. 54, Kannayakana agrahara, Anekal Tq. , Bangalore. 2. Pass a judgment and decree of mandatory injunction, directing the defendant to furnish the statement of account in terms of the lease deeds, dated 1. 12. 94 and 23. 3. 95; and settle the account as between the plaintiff and the defendant. 3. Pass a judgment and decree of mandatory injunction directing the defendant to deliver all the unpresented and dishonoured cheques issued by the plaintiff and other demand promissory notes and such other documents executed by the plaintiff and/or any other authorised representatives of the plaintiff, to the plaintiff; 4. Pass a judgment and decree of permanent injunction restraining the defendant from presenting the cheques specified in document No. 7 to the Plaint encashment and; 5. Grant such other reliefs, as this Hon'ble Court deems fit and proper to grant, in the circumstances of the case, including award of the costs of this suit. ," ( 15 ) ACCORDING to the plaintiff these transactions are held to besham transactions by the income tax department. Therefore it can maintain a suit at Bangalore. According to him the agreements cannot be relied upon for the purpose of exclusion of jurisdiction at bangalore. I am afraid that this argument is not available to the plaintiff. The plaintiff in several places refer to these agreements and also contend that these agreements are not lease agreements but only financial agreements. The execution of agreements are not denied. It is also not the case of plaintiff that these agreements are to be set aside as nullity. In these circumstances the learned Judge was of the view that in the absence of any challenge to the agreements the clauses i the agreement had to be referred to for the purpose of jurisdiction. The agreement admittedly provide for exclusion of Bangalore Courts. In these circumstances the learned Judge was of the view that in the absence of any challenge to the agreements the clauses i the agreement had to be referred to for the purpose of jurisdiction. The agreement admittedly provide for exclusion of Bangalore Courts. In some what similar circumstances though not under civil proceedings this very question was elaborately discussed and decided against the plaintiff, the said decision is challenged before this Court and this Court categorically ruled that the Trial Court was right in excluding jurisdiction of the Bangalore courts. That decision as mentioned earlier is accepted by the plaintiff. Therefore it cannot be said that the Trial Court has committed any error in ordering return of the plaint for want of jurisdiction. Mr. Naidu argued that present set of facts would not bar the jurisdiction of bangalore and this argument cannot be accepted. ( 16 ) AS rightly argued by defendant's Counsel all these issuescan be raised in the pending arbitration proceedings. . Further I cannot shut my eyes to the subsequent developments in the; case on hand. Plaintiff challenged the appointment of the arbitrator before the Trial court and the Trial Court ruled that the Courts at Bangalore have no jurisdiction, the same has been confirmed by this Court and the apex Court. Subsequently this very plaintiff approached the Delhi high Court and the High Court passed certain interlocutory orders on which the arbitrator acted upon and passed adverse order against this plaintiff. In the light of the subsequent devloprnents in the case on hand. I cannot say, that notwithstanding these developments the plaintiff be permitted to adjudicate by way of civil proceeding once again notwithstanding this pending proceedings Moreover these very issues can certainly be raised in the pending arbitration proceedings by the plaintiff. There is no obstruction or difficulties pleaded in the matter. Even the subsequent merger would not come in the way of plaintiff raising this issue before the Arbitrator. There is no estopel pleaded before me on account of these proceedings. Therefore I am clearly of the view that subsequent proceedings do come in the way of the plaintiff maintaining parallel proceeding? in respect of the same matter. Mr. Seth's argument has to be accepted in view of subsequent participation/objections and decision of the Court and the order of Delhi High Court in arbitration proceedings, the present plaint has to be returned. in respect of the same matter. Mr. Seth's argument has to be accepted in view of subsequent participation/objections and decision of the Court and the order of Delhi High Court in arbitration proceedings, the present plaint has to be returned. ( 17 ) I shall be referring to a few judgments cited at the Bar. ( 18 ) COUNSEL for the appellant/plaintiff referred to me the judgmentof the Supreme Court in U. P. RAJKIYA NIRMAM NIGAM LTD. vs indure PVT. LTD. AND OTHERS, a judgment in STATE OF mizoram vs BIAKCHHAWNA, a judgment reported in KHADI AND village INDUSTRIES COMMISSION, BOMBAY vs N. S. PAL, and decision in SRI DHIRAJ GHOSH vs UNION OF INDIA AND another. ( 19 ) PER contra the learned Counsel for the contesting respondentrelied on the judgment of Supreme Court in PANAND GAJAPATHI raju AND OTHERS vs PVG RAJU (DEAD) AND OTHERS, and in BABAR All vs UNION OF INDIA AND OTHERS , and in olympus SUPERSTRUCTURES PVT. LTD. vs MEENA VIJAY khetan, and in M/s. ANGILE INSULATIONS vs M/s. DAVY ashmore INDIA LTD. AND ANOTHER and a decision in wellington ASSOCIATES LTD. vs KIRIT MEHTA, and decision in M/s. M. LAXMI AND CO. , vs DR. ANANT R. DESHPANDE AND another. ( 20 ) COUNSEL for the plaintiff in supports his contention by relyingon Section 9 of CPC and also Section 8 of the Code to contend that the Civil Court jurisdiction is not ousted. He relies on a judgment of Supreme Court in AIR 1995 (1)SCC 156 and AIR 1976 SC 85. In the case on hand the Trial Court has nowhere ruled that it cannot decide the issues. All that the Court has said is that since the appellant has not questioned the existence of the agreement in terms of the agreement, he has to move the Delhi Courts for relief. Therefore in my view the said judgments dealing with the bar of jurisdiction in AIR 1976 SC 85 and AIR 1995 (1) SCC 156 has no application to the facts of this case. Insofar as the dispute with regard to the arbitral agreement the Counsel relies on AIR 1996 SC 1373 . That was a case with regard to arbitration proceedings in terms of the Arbitration Act 1940. Insofar as the dispute with regard to the arbitral agreement the Counsel relies on AIR 1996 SC 1373 . That was a case with regard to arbitration proceedings in terms of the Arbitration Act 1940. In the case on hand admittedly the parties are governed by 1996 Act, therefore that judgment is also of no assistance to the appellant. On the other hand the judgments of the supreme Court relied on by the respondent is applicable to the facts of the case. In JT 2000 (4) 590 the Supreme Court noticed the 1996 act as under in para 5: "the conditions which are required to be satisfied under sub- section (1) and (2) of Section 8 before the Court can exercise its powers are (1) there is an arbitration agreement (2) a party to the agreement brings an action in the court against other party; (3) subject matter of the action is the same as the subject matter of the arbitration agreement, (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision create a right in the person bringing the action to have the dispute adjudicated by Court, once the other party has submitted his first statement of defence. But if the party who wants the matter to be referred to arbitration applies to the Court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the Court referring the parties to arbitration " ( 21 ) WHEN read carefully it shows that in such circumstances it isobligatory for the appellate Court to refer the parties to Arbitration, in view of the arbitral proceedings under the Act. ( 22 ) IN this connection I may refer to Section 16 itself which readsas under: "competence of arbitral tribunal to rule on its junsdiction- (1) the arbitral tribunal, may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. 2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of the arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3), and, where the arbitral tribunal takes a decision rejecting the plea continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an applications for setting aside such an arbitral award in accordance with Section 34. " a reading of the same would show that the arbitration tribunal can also decide with respect to the existence or validity of an arbitration agreement. In the case on hand the complaint in the pleadings in the suit can as well be considered by the arbitral tribunal. " a reading of the same would show that the arbitration tribunal can also decide with respect to the existence or validity of an arbitration agreement. In the case on hand the complaint in the pleadings in the suit can as well be considered by the arbitral tribunal. ( 23 ) THE Supreme Court again in the case of Olympussuperstructures P. Ltd. vs Meena Vijay Khetan and others (supra), has ruled in para 14 as under: "it will be noticed that under the Act of 1996 the arbitral tribunal is now invested with power imder sub Clause (1) of section 16 to rule on its own jurisdiction including on any objection with respect to the existence or validity of the arbitration agreement and for that purpose the arbitration clause which forms part of the contract shall be treated as an agreement independent of other terms of the contract and any decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure affect the validity of the arbitration clause. This is clear from sub clause (b) of Section 16 (1) which states that a decision by the arbitral tribunal that the main contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. ( 24 ) THIS judgment squarely covers the case on hand. 25- Again in a case in (1995)1 SCC 156 the Supreme Court indicated in paras 7 and 8 that in view of the special procedure prescribed under the ACT by implication what can be raised before the arbitrator is prohibited to be taken cognizance by a Civil Court under Section 9 impliedly. ( 25 ) IN the light of these judgments I have no doubt in my mind that what is disputed or raised by way of an issue in the present suit can as well be raised before the arbitrator and therefore the court is right in rejecting the plaint in terms of the agreements and in the absence of the challenge to those agreements. ( 26 ) MR. Naidu further contended that the defendant Company has now merged and the amalgamation of Company looses its identity and therefore notwithstanding the existence of the agreement still he can maintain a suit at Bangalore. I am afraid this contention is not available to the appellant. ( 26 ) MR. Naidu further contended that the defendant Company has now merged and the amalgamation of Company looses its identity and therefore notwithstanding the existence of the agreement still he can maintain a suit at Bangalore. I am afraid this contention is not available to the appellant. The Delhi High Court has permitted the merger and the merger agreement is dear to that effect. Now in view of the order Delhi High Court and an Arbitrator is appointed and a notice is issued to him. Therefore the reliance on Saraswathi industrial Syndicate cannot have any effect insofar as this case is concerned and that decision was rendered in different circumstances. ( 27 ) IN these circumstances taking an over all view of the earlier orders of the Courts, the non challenge of the agreement and subsequent development before the Arbitral tribunal in the case I am not inclined to interfere with the impugned order in this appeal. In view of my finding in the light of the subsequent development coming in the way of a subsequent suit no further orders are necessary with regard to the questions raised in the cross appeal as to whether the Court can order presentation of plaint before any other forum after return. The Cross Appeal is rendered infructuous in view of my findings in this appeal. ( 28 ) IN the result this appeal is rejected Crosr, Appeal is ordered as having become infructuous and no orders are necessary in view of my order in MFA No. 2551/2000. However, I make it clear any one of my observations made in the course of this order shall not be construed to be a finding on merits in the pending Arbitral proceedings. These findings are rendered only for the purpose of exclusion of jurisdiction of Bangalore Court;, on the basis of facts and materials placed before this Court. ( 29 ) NO order as to costs. --- *** --- .