Assunta Balu Developers and Others vs Ramamurthy

Rathnakala, J—These appeals are filed challenging the common judgment passed by the 4th Additional City Civil & Session Judge, Mayo Hall Unit, Bengaluru, in A.C. No. 10002/1994 and Misc. No. 10002/1996, whereby the award passed by Arbitrator was made a rule of the Court (in A.C. No. 10002/1994) and the petition filed by the appellant to reject the award was dismissed (in Misc. No. 10002/1996).

Appellant No. 1 is the partnership firm and appellant Nos. 2 to 5 are the partners (hereinafter referred to as ''the Developer'') who entered into joint development agreement (hereinafter referred to as the ''the J.D.A.'') with the respondent/landlord through his G.PA. (hereinafter referred to as ''the landlord'') to develop his property.

On 14.11.1991, a joint development agreement was entered into between the appellants/Developer and the respondent/landlord. Since the appellants failed to develop the property, the landlord filed an application under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as ''the Act'') before the Court below with due notice to the Developer. The Developers though put in their appearance through their Counsel, did not file objections statement to application and said application came to be allowed. Sole arbitrator was appointed and the matter was referred for arbitration; arbitration proceeding were held with the participation of both and the award was passed on 26.10.1995 and was submitted to the Court.

In A.C. No. 10002/1992, the appellants filed their application under Sections 30 and 33 of the Act challenging the award and filed separate petition under the same statutory provisions seeking to reject the Award which came to be registered in Misc. No. 10002/1996. They challenged the very arbitration agreement itself as void: the authority of the power of attorney holder to enter into agreement for joint development and the marketable right of the said property to the landlord was disputed. That apart, several issues were raised like lack of valid title with the landlord for want of registration of the Award through which landlord acquired title, inability of the award to perform misconduct of arbitral proceedings, want of dispute that could be arbitrated, bad reference order etc. were the grounds of attack on the Award. After giving audience to both, the Court below has passed the impugned order thereby made the Award rule of the Court and dismissed Developers petition in Misc. No. 10002/1996.

Sri S.V. Bhat, learned Counsel for the appellants in both appeals submits that the joint development agreement -Ex. P.2 was not disputed and also there was no dispute by the appellants about violating the terms and conditions of the arbitral agreement. The appellants had entered into agreement trusting the title of the owner of the property. The title of the respondent was traceable to the award made rule of the Court in A.C. No. 10013/1983, in a dispute between the respondent Ramamurthy and others including K. Marappa Reddy, who was alleged to be the original owner. The said award was not registered but has been made a rule of the Court. Marappa Reddy is an advocate, he made the appellants to believe that the title was good and marketable. As per the arbitration agreement, the first appellant was required to construct the multistoried apartment building on the said site at his cost. In consideration, he was entitled for 60% undivided right and interest and share in the site etc. and remaining 40% undivided right and interest will remain in the name of the owner of the property. Due to several reasons, he could not complete the construction. The landlord terminated the agreement in terms of the notice dated 02.05.1995 and called upon the Developer to join him in referring the dispute to arbitration. The Developer did not respond to the notice. The landlord filed A.C. No. 10002/1994 before the Court below. The Developer though put in appearance did not contest the matter. Sole arbitrator was appointed and the dispute was referred for arbitration. Reserving right to challenge the order of reference, the appellant participated in the arbitration proceedings, raised several questions including the validity of the joint development agreement. The arbitrator without considering his objection and counter claim, the arbitrator allowed the claim of Developer and filed award to the Court.

The learned Counsel while tackling the controversy between the parties submits that, when there was no contest to the notice issued by the respondent, there was no dispute to be referred for arbitration, the arbitration agreement did not confer the General Power of Attorney holder to enter into agreement. The application seeking better particulars, production of the documents and for permission to file additional statement of objections was rejected by the arbitrator. They had also contended that the respondent was a fictitious person, they had filed an application seeking direction to the respondent to appear in person before the Court below but the Court rejected the application. The arbitration agreement is basically void, as having become frustrated and incapable of enforcement. The order of reference is invalid and the award is vitiated. The impugned order is illegal for not examining the invalidity of the Award, the Court below ought to have addressed the valid contentions available for him under Section 30(a) and (c) of the Act. Entire proceedings is procedurally vitiated right from the inception, for not following the procedure under Arbitration Rules 1940 (hereinafter called as ''the Rules'').

In reply, Sri K. Giridhar along with Sri KMarappa Reddy, learned Counsel for the respondent/landlord submits that, the Developer failed to comply the terms of the J.D.A., when contacted, they demanded money from the landlord, when he refused to pay money, they abandoned the work: the landlord presented the post dated cheque as ''security towards good conduct'' to the Bank and it bounced. This matter was informed to the Developer through registered notice. The landlord revoked the J.D.A. and also detached from the possession certificate dated 15.11.1991 and called upon the Developers to vacate and hand over the possession of the suit property but the appellants did not respond and that necessitated the landlord to file the petition before the arbitrator. Both parties participated in the arbitration proceedings and filed their respective claims. The landlord claimed damages of Rs. 48,41,000/- with interest at the rate of 18% and Rs. 35,00,000/- with interest. The arbitrator on overall consideration of the matter, rejected the claim of the appellants and awarded Rs. 28,00,000/- in favour of the respondent. The objections raised by the developer about arbitral agreement, it''s unenforceability etc., ought to have been raised prior to Court ordered reference. They slept over the matter and knowing fully the nature of dispute participated in the proceeding before the Arbitrator. The objection if any ought to have been taken by them prior to reference. Having entered into agreement and having issued the cheque in favour of Ramamurthy. the appellants are estopped from questioning the identity, his title of the suit property and the jurisdiction of the arbitrator to adjudicate the dispute and the appeal is liable to be rejected.

At the outset it shall be borne in mind that the Developer never disputed the allegation of breach of contract alleged against him. Now, it is the submission at the Bar that during the pendency of the appeal, without the assistance of the executing Court, the landlord took over possession of the property, sold the same to third party, who is none other than a family member of the GPA and the property is developed by putting up construction.

Admittedly, on the failure of the Developer to cope up with the terms of the J.D.A., the landlord caused notice to them and revoked the J.D.A. In the same notice, Developer was called upon to settle the claims of the landlord in view of violation of the J.D.A., otherwise to join him for reference to an Arbitrator in terms of the Act. Now it is canvassed for the Developer that J.D.A. having been revoked under the notice dated 02.05.1994, there was no pending dispute between the parties under the said J.D.A. which required to be resolved or adjudicated under arbitral proceeding. If the landlord intended to pursue any claim against Developer, that could be only by way of civil remedy before the competent Court.

The procedureal defect that draws our attention is, petition is filed under Section 20 of the Act, which shall be registered as a original suit by virtue of Section 20(2) of the Act, but the case on hand is registered as A.C. petition. As per the mandatory requirement of Section 20, the petition shall be in form No. 1 and reference order shall be in form No. 2 and Award in Form No. 5 of the Appendix to the Rules. That is not the fact in the case on hand. The reference order shall be, shall denote the dispute to be adjudicated by the Arbitral Bench as enumerated in the form No. 2 of Appendix to Rules. In the order of reference no such difference which has to be adjudicated in the arbitration between the parties is listed. The Developer who did not file objections to the petition filed under Section 20 of the Act, has participated in the arbitral proceedings and had disputed the title of the landlord and had also filed application calling upon better application. However, the Arbitrator had rejected the said application. In one breath the arbitrator observed that being satisfied with the title of the landlord, the Developer entered into agreement, again in another breath, arbitrator recorded that it is not a civil Court to give finding about the validity of the previous arbitral award and the title of the landlord. In that view of the matter, the question of valid title of the landlord and the feasibility or enforceability of the contract remained unsolved even after award was passed. The landlord having no other provision under the Act to challenge the interim order or the steps taken during the conduct of the procedure, has rightly challenged all those conducts of arbitration and the orders passed on interim application after the award is filed in the Court.

The arbitrator has allowed the claim of landlord without assigning any reason. The counter claims of Developer which is rejected in entirety are also not supported by reasons. It is only after an Award is filed in the Court, the Developer gets scope under Section 30 of the Act to seek for setting aside of the Award, which provision reads thus:

"30. Grounds for setting aside award:-

An award shall not be set aside except on one or more of the following grounds, namely-

(a) that an arbitrator or umpire has misconducted himself or the proceedings;

(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35;

(c) that an award has been improperly procured or is otherwise invalid."

The Court below has not entertained the objection raised against the Award since it was of the view that these objections do not fall within the ambit of Section 30 of the Act. The application filed by the Developer seeking direction to produce the landlord Ramamurthy to appear before the Court is also rejected. The way the discussion is made at Para No. 17 of the impugned order exposes that the Court below was unable to fathom the objection regarding misconduct of proceedings and validity of Award. The opinion of Court appears that by not filing objection before the reference order was passed, the appellant cannot question legality of agreement. The Developer had raised contentions in his petition filed under Sections 30 and 33 of the Act, which in our opinion definitely touches the root of the matter.

At this stage, we refrain from expressing our opinion to sustainability or otherwise of the objection raised by the Developer against the Award in AC. No. 10002/1994 and Misc. No. 10002/1996. Our concern is, without addressing the legal contention available under law for the Developer under Sections 30 and 33 of the Act, the Court below has ordered the Award rule of the Court, which in our opinion is failure on the part of the Court to exercise jurisdiction vested in it under the Act. The Apex Court in the case of The Union of India (UOI) Vs. Shri Om Prakash, AIR 1976 SC 1745 : (1976) 4 SCC 32 : (1976) 3 SCR 998 : (1976) 8 UJ 450 , held that "......The words "or is otherwise invalid" in Clause (c) of Section 30 are wide enough to cover all forms of invalidity including invalidity of the reference......"

If a party files an application for setting aside the award within the time allowed, the said application shall be registered as a suit and the said applicant shall be treated as plaintiff in accordance with Rule No. 7 which reads as under:

"7. If any party interested in the award makes an application for setting aside the award within the time allowed for the purpose under the law, the application shall be registered as a suit, the applicant being treated as a plaintiff and the parties to the award other than the applicant being treated as defendants and the proceedings thereafter shall be continued as in the case of a suit."

In the present case, the petition filed by the Developer is registered as Misc. petition that is another flow in the procedure adopted by the Court.

Not only the Court below has committed procedural error but has omitted to address the legal contentions raised by the Developer against the Award. In that view of the matter, we are of the considered opinion that the Court below shall reconsider the matter and record its findings in certain terms, in respect of all the legal contentions advanced by the Developer.

Hence, appeals are allowed.

The impugned judgment passed by the 4th Additional City Civil & Session Judge, Mayo Hall Unit, Bengaluru, in A.C. No. 10002/1994 and Misc. No. 10002/1996 is set aside

Both cases are remanded to the Court below for reconsideration, in the light of the observations made supra, with a direction to dispose of the cases as expeditiously as possible.

Without waiting for the notice from the Court below, parties shall appear before the concerned Court on 24.08.2015 at 11.00 a.m. and collect the necessary date of hearing.

No order as to costs.

In view of the disposal of main appeals, I.A. Nos. 1/2008 and 1/2013 in M.F.A. No. 6435/2008, do not survive for consideration and hence they are disposed of as having become infructuous.