Vishvendra Singh Jat v. Godavari Shilp Kala Hospitality Private Limited
2019-07-20
PRAKASH GUPTA
body2019
DigiLaw.ai
JUDGMENT : Prakash Gupta, J. 1. The instant Civil Misc. Appeal has been preferred against the impugned order dated 17.05.2019 passed by the learned Additional District and Sessions Judge No. 4, Bharatpur whereby the said Court dismissed the application filed by the appellant-defendant under Order 7, Rule 11 of the Civil Procedure Code, 1908 (hereinafter "the CPC") read with Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter "the Act of 1996"). 2. Brief facts giving rise to the instant civil miscellaneous appeal are that the respondent-plaintiff instituted a civil suit under Order 37 of the CPC for recovering a sum of Rs. 14,16,00,000. It was averred by the respondent-plaintiff in its plaint that the plaintiff had taken certain properties belonging to the appellant-defendant on lease and for this, a lease agreement was signed between the parties on 10.01.2011 and the same was registered before the Sub-Registrar, Bharatpur on 17.01.2011. However, after a lapse of a couple of years, some differences arose between the parties and it difficult to reconcile the differences, the lease deed/agreement was terminated vide letters dated 20.06.2014 and 31.12.2014. 3. As per the appellant-defendant since the terms contained in the letters dated 20.06.2014 and 31.12.2014 were not complied with, a suit was filed before the Rent Tribunal, Bharatpur. The appellant-defendant moved an application for issuance of recovery certificate before the Tribunal, after which a compromise was arrived at by the parties on 02.02.2016. The Rent Tribunal passed its decree on the basis of the compromise deed dated 03.02.2016. However, the appellant-defendant contended that the respondent-plaintiff did not comply with the decree and did not hand over vacant possession of the premises let out. The appellant-defendant also averred in his application that all the adjustments regarding the monetary transactions between the parties were done as per the terms and conditions of the lease deed dated 17.01.2011. Despite that, another suit was filed by the respondent-plaintiff before the civil court. The appellant-defendant, relying on the terms and conditions of the lease deed dated 17.01.2011, more particularly clause 27 thereof, contended that since the said clause in the lease deed dated 17.01.2011 mandatorily required all the disputes arising between the parties to be adjudicated by an arbitrator as per the provisions of the Act of 1996, the suit filed by the respondent-plaintiff was not maintainable and liable to be dismissed at the outset. 4.
4. I have heard learned counsel for the parties. 5. Mr. R.K. Agarwal, learned senior counsel, repeating the averments contained in the application filed under Order VII, Rule 11 contended that the suit filed by the respondent-plaintiff was not maintainable in view of clause 27 of the lease deed/agreement dated 17.01.2011 which required all disputes between the parties to be referred and decided by an independent arbitrator and as per the provisions contained in the Act of 1996. Further, Mr. Agarwal also contended that an arbitration agreement, being an independent agreement, the existence of which is not dependent on the existence of the main contract, can be invoked by the parties even after the main contract is terminated, frustrated or repudiated. To support his arguments, Mr. Agarwal relied on the judgment given by the Hon'ble Apex Court in SMS Tea Estates Private Limited vs. Chandmari Tea Company Private Limited, (2011) 14 SCC 66 and Enercon (India) Limited and others vs. Enercon GMBH and Another, (2014) 5 SCC 1 . A. Ayyaswamy vs. A. Paramasivam and Others, JT 2016 (12) SC 276. 6. On the other hand, the learned counsel for the respondents Mr. Sharad Joshi supported the impugned order and relied on the judgment given by the Delhi High Court in the case of Felex Enterprises vs. V. Sreenivas and Others, C.S. (OS) No. 1382/2008 decided on 07.09.2019 and the judgment given by the Hon'ble Supreme Court in the case of The Branch Manager, Magma Leasing and Finance Limited and Ors. vs. Potluri Madhavilata and Ors., (2009) 10 SCC 103 . 7. After hearing the learned counsel for both the parties at length and perusing the material on record, in my opinion, the only issue that requires adjudication is whether or not, the learned court below was justified in rejecting the application filed by the appellant-defendant. 8. It has been vehemently contended by the learned counsel for the appellant Mr. Agarwal that the Court below erred in rejecting the application filed by the appellant since it failed to take note of the fact that the lease deed dated 17.01.2011 executed between the parties had an arbitration clause which required all disputes arising between the parties to be settled/adjudicated by an independent arbitrator and hence, the suit was barred by Section 8 of the Act of 1996. Further, as per Mr.
Further, as per Mr. Agarwal, the Court below also erred to take note of the settled law that an arbitration clause/agreement is independent of the main contract and the termination, repudiation or frustration of the main contract does not automatically imply an end of the arbitration agreement. 9. The first judgment on which reliance was placed by the learned counsel for the appellant is SMS Tea Estates Private Limited (supra). In the said case, the issue that came up for consideration before the Hon'ble Apex Court was whether or not, an arbitration clause in a document which requires compulsory registration, can be acted upon, if the document itself has not been registered. Answering in the affirmative, the Hon'ble Supreme Court had noted that an arbitration agreement is independent of the other terms of the contract and even if the substantive/main contract is repudiated, frustrated or terminated, the arbitration clause does not automatically come to an end. The observations made by the Court in that case are reproduced below:- "12. We may therefore sum up the procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registrable) and which is not duly stamped: (i) The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable. (ii) If the document is found to be not duly stamped, Section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under section 33 of the Stamp Act and follow the procedure under section 35 and 38 of the Stamp Act. (iii) If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the Court or before the Collector (as contemplated in section 35 or 40 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped. (iv) Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.
(iv) Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment. (v) If the document is not registered, but is compulsorily registrable, having regard to section 16(1)(a) of the Act, the court can delink the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the respondent in the application demonstrates that the arbitration agreement is also void and unenforceable, as pointed out in para 8 above. If the respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator. (vi) Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration." 10. The next case law relied on by Mr. Agarwal is Enercon (supra). Though the main issue in this case was regarding the determination of the seat of arbitration as opposed to the venue of arbitration, certain observations had been made by the Hon'ble Court regarding the independence of an arbitration agreement/clause and the continuance thereof even if the main contract itself is void/voidable. The observations made by the Hon'ble Supreme Court are quoted below: "83. In our opinion, the Courts have to adopt a pragmatic 67 Page 68 approach and not a pedantic or technical approach while interpreting or construing an arbitration agreement or arbitration clause. Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the Court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition. In other words, a common sense approach has to be adopted to give effect to the intention of the parties to arbitrate.
Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the Court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition. In other words, a common sense approach has to be adopted to give effect to the intention of the parties to arbitrate. In such a case, the court ought to adopt the attitude of a reasonable business person, having business common sense as well as being equipped with the knowledge that may be peculiar to the business venture. The arbitration clause cannot be construed with a purely legalistic mindset, as if one is construing a provision in a statute. We may just add here the words of Lord Diplock in The Antaios Compania Neviera SA vs. Salen Rederierna AB, 31 which are as follows: "If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense." We entirely agree with the aforesaid observation. This view of ours is also supported by the following judgments which were relied upon by Dr. Singhvi: In Visa International Limited (supra), it was inter alia held that: "25. ... No party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances. 26. What is required to be gathered is the intention of the parties from the surrounding circumstances including the conduct of the parties and the evidence such as exchange of correspondence between the parties...." Similar position of law was reiterated in Nandan Biomatrix Ltd. (supra), wherein this court observed inter alia as under: 28. This Court in Rukmanibai Gupta vs. Collector, Jabalpur has held (at SCC p. 560, para 6) that what is required to be ascertained while construing a clause is "whether the parties have agreed that if disputes arise between them in respect of the subject-matter of contract such dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement". 69 Page 70 29. In M. Dayanand Reddy vs. A.P. Industrial Infrastructure Corpn.
69 Page 70 29. In M. Dayanand Reddy vs. A.P. Industrial Infrastructure Corpn. Ltd., this Court has held that: (SCC p. 142, para 8) "8. ... an arbitration clause is not required to be stated in any particular form. If the intention of the parties to refer the dispute to arbitration can be clearly ascertained from the terms of the agreement, it is immaterial whether or not the expression arbitration or 'arbitrator' or 'arbitrators' has been used in the agreement." (original emphasis supplied) 30. The Court is required, therefore, to decide whether the existence of an agreement to refer the dispute to arbitration can be clearly ascertained in the facts and circumstances of the case. This, in turn, may depend upon the intention of the parties to be gathered from the correspondence exchanged between the parties, the agreement in question and the surrounding circumstances. What is required is to gather the intention of the parties as to whether they have agreed for resolution of the disputes through arbitration. What is required to be decided in an application under Section 11 of the 1996 Act is: whether there is an arbitration agreement as defined in the said Act." 84. It is a well recognized principle of arbitration jurisprudence in almost all the jurisdictions, especially those following the UNCITRAL Model Law, that the Courts play a supportive role in encouraging the arbitration to proceed rather than letting it come to a grinding halt. Another equally important principle recognized in almost all jurisdictions is the least intervention by the Courts. Under the Indian Arbitration Act, 1996, Section 5 specifically lays down 70 Page 71 that : "Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part". Keeping in view the aforesaid, we find force in the submission of Dr. Singhvi that the arbitration clause as it stands cannot be frustrated on the ground that it is unworkable." 11. A bare perusal of the observations as reproduced above reveals that the Hon'ble Supreme Court in SMS Tea Estate (supra) and also in Enercon (supra) was not dealing with a situation wherein the parties to a contract containing an arbitration clause, by mutual consent substituted the old contract with a new one. Hence, the reliance on the two case laws is misconceived. 12.
Hence, the reliance on the two case laws is misconceived. 12. The answer to the controversy involved in the instant case can be directly drawn out from the judgment given by the Hon'ble Apex Court in Union of India vs. Kishorilal Gupta and Bros, AIR 1959 SC 1362 . In this case, the Hon'ble Court was pleased to observe that if a contract containing an arbitration clause is substituted by a new contract which does not have any provision for referring the parties to arbitration, the parties cannot rely on the old contract and invoke the arbitration clause. The operative portion of the said judgment reads as under:- "The following principles relevant to the present case emerge from the aforesaid discussion: (1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but none the less it is an integral part of it; (2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio; (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two falls many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes." 13.
In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes." 13. The said view has been reiterated by the Hon'ble Supreme Court in National Insurance Company Limited vs. Boghra Polyfab Private Limited, (2009) 1 SCC 267 , the Hon'ble Supreme Court observed as follows: "29. It is thus clear that the arbitration agreement contained in a contract cannot be invoked to seek reference of any dispute to arbitration, in the following circumstances, when the contract is discharged on account of performance, or accord and satisfaction, or mutual agreement, and the same is reduced to writing (and signed by both parties or by the party seeking arbitration): (a) Where the obligations under a contract are fully performed and discharge of the contract by performance is acknowledged by a full and final discharge voucher/receipt. Nothing survives in regard to such discharged contract; (b) Where the parties to the contract, by mutual agreement, accept performance of altered, modified and substituted obligations and confirm in writing the discharge of contract by performance of the altered, modified or substituted obligations; (c) Where the parties to a contract, by mutual agreement, absolve each other from performance of their respective obligations (either on account of frustration or otherwise) and consequently cancel the agreement & confirm that there is no outstanding claims or disputes." 14. Coming to the facts of the instant case, though it is true that a lease-deed had been executed between the parties on 17.01.2011 but indisputably, the said lease-deed had been terminated by the parties with mutual consent on 31.12.2014. Since some issues still remained undecided between the parties, a suit was filed before the Rent Tribunal, Bharatpur but before the learned Tribunal could decide the case on merits, a compromise was arrived at between the parties on 02.02.2016 and the Rent Tribunal had decreed the suit on 03.02.2016 based on the compromise deed. It is also not disputed that the said compromise deed dated 02.02.2016 did not have any arbitration clause.
It is also not disputed that the said compromise deed dated 02.02.2016 did not have any arbitration clause. Thus, in my opinion, once the parties, by mutual consent had put an end to the lease deed dated 17.01.2011 and entered into a compromise deed, which did not have any arbitration clause, the original agreement i.e. the lease deed dated 17.01.2011 was substituted by a new agreement i.e. the compromise deed dated 02.02.2016. Having arrived at a compromise and substituted the lease-deed dated 17.01.2011 with a new contract, the appellant-defendant cannot invoke the arbitration clause and contended that the suit is barred by Section 8 of the Arbitration and Conciliation Act, 1996 and that the disputes should be referred to an arbitrator. 15. The judgment given in A. Ayyaswamy (supra) as relied on by the counsel for the appellant-defendant is not applicable to the facts and circumstances of the instant case. In that case, the Hon'ble Court was dealing with the question as to whether disputes between parties to an agreement containing an arbitration clause can be referred for arbitration notwithstanding the fact that one of the parties to the agreement puts serious allegation of fraud and misrepresentation on the other party. The Hon'ble Court while distinguishing its earlier judgment rendered in N. Radhakrishan vs. Maestro Engineers and Others, (2010) 1 SCC 72 , had observed that though allegations of fraud and misrepresentation require a detailed examination of evidence and hence, such disputes should ordinarily be left with civil courts but this cannot be followed in each and every case. While dealing with the issue, the Hon'ble Court had incidentally delved into the meaning arbitrable and non-arbitrable. 16. Another feeble attempt was made by Mr. Agarwal to challenge the legality of the order dated 17.05.2019 by contending that the suit filed by the respondent-plaintiff was also barred by Section 47 of the CPC and that the respondent-plaintiff should have filed an application for execution of the decree dated 03.02.2016 rather than filing a fresh suit altogether. After going through the pleadings as also the averments made by the appellant-defendant in his application filed under Order VII, Rule 11 of the CPC before the court below, I find that the said ground was neither taken in the application nor urged before the learned court below.
After going through the pleadings as also the averments made by the appellant-defendant in his application filed under Order VII, Rule 11 of the CPC before the court below, I find that the said ground was neither taken in the application nor urged before the learned court below. Hence, the appellant-defendant cannot be allowed to take the said ground for the first time in the instant appeal. In any case, since suit for recovery is summary, the appellant-defendant can very-well take the said ground in his leave to defend. 17. In the light of the observations made in the foregoing paragraphs, I find that the instant Misc. Appeal is devoid of any substance, is liable to be dismissed and is accordingly dismissed. No order as to costs.