M.C. Abdul Khader vs K. Moidu

V.K. Bali, C.J.—The prayer made in this application filed u/s 11(6) of the Arbitration & Conciliation Act, 1996, hereinafter referred to as ''Act of 1996'', is for appointment of Arbitrator in the dispute between the petitioner and respondent. It has, inter alia, been pleaded in the application that the petitioner and respondent are businessmen. They entered into an agreement for sale of a plywood manufacturing unit called "Sulthan Veneer" including 33 cents of property for a sale consideration of Rs. 58.50 lakhs. The terms and conditions were reduced into writing and signed by both parties. The property and unit were having a heavy financial liability towards Kerala Financial Corporation and the respondent represented to the petitioner that K.F.C. has agreed to settle the loan amount for an amount of Rs. 38 lakhs. Believing the said representation of the respondent, petitioner paid an amount of Rs. 5,00,000/- to the Corporation and took possession of the Unit. He is stated to have paid an A.R. No. 16 of 2006 amount of Rs. 7,00,000/- to the respondent directly. So,altogether he had spent nearly Rs. 15,00,000/- towards themaintenance of the Unit. Subsequently, it came to light that in fact the respondent was cheating the petitioner by representing that K.F.C. had agreed to settle the account for Rs. 38 lakhs. The respondent never turned up to take any steps to settle the liability as agreed. It is gathered from the Corporation that they had not given any promise to settle it for Rs. 38 lakhs. The respondent, in the meanwhile, came to the Unit and took possession of the Unit. In the agreement Annexure-I, there is an arbitration clause. Clause-9 pertaining to arbitration reads as follows:

THAT, in case any dispute arises between the parties hereto on both the part, the matter shall be referred to arbitration as per Indian Arbitration Act, 1940.

Pursuant to notice issued by this Court, respondent has entered appearance and contested the matter by filing a counter affidavit. It has inter alia been pleaded in the counter affidavit that the Arbitration Request is not maintainable. Even A.R. No. 16 of 2006 though the respondent had entered into an agreement with thepetitioner on 10.1.2005 for the sale of the plywoodmanufacturing Unit including 33 cents of property belonging tothe respondent, the possession of either the Unit or the landedproperty was never handed over to the petitioner. He denied thecontention of the petitioner that the petitioner paid Rs. 5,00,000/- to K.F.C. and took possession of the Unit from the K.F.C. In fact, the petitioner had not acted in terms of the agreement Annexure-I and under that circumstance, the respondent paid the amount to K.F.C. In order to settle the financial liabilities. He denied the contention of the petitioner that the petitioner paid Rs. 7,00,000/- directly to him and spent nearly Rs. 15,00,000/- towards the maintenance of the Unit. It is further contended that in so far as agreement Annexure-I is concerned, the same would be void as in terms of Clause-4 thereof, the petitioner had not paid an amount of Rs. 14,50,000/- by 9.1.2006, failure of which was to render the agreement void. In so far as the pleadings with regard to 2nd agreement Annexure-II extending the time is concerned, the respondent contends that the same is a forged one. With a view to substantiate the contention of forgery in A.R. No. 16 of 2006 respect of second agreement extending the time, reliance has been placed on the order passed by the District Court, Kasaragod, Annexure-B dated 18th March, 2006, which came into being on an application filed by the petitioner u/s 9 of the Act of 1996. It may be mentioned that the order Annexure-B has already been challenged in appellate forum.

On the facts as fully detailed, learned Counsel for the petitioner states that even if Annexure-B is to be ignored, at this stage or up to the time the appeal is disposed and that too in favour of the petitioner, the request for arbitration has to be considered on the strength of Clause-9 of Annexure-I. Per contra, learned Counsel for the respondent contends that agreement Annexure-I would be void as the petitioner did not make the payment as envisaged in Clause-4 thereof. He contends that it is not even the case of the petitioner that payment as envisaged in Clause-4 of the agreement has been made.

I have heard learned Counsel for the parties and with their assistance examined the records of the case.

There is no dispute that in both agreements Annexure-I and II there is a clause for referring the case for A.R. No. 16 of 2006 arbitration in case of dispute. The petitioner, as per thecontention raised by the learned Counsel representing him, for the time being relies on Annexure-I for referring the matter to Arbitrator by assuming that agreement Annexure-II may not be correct, in terms of the order passed by the District Court, Kasaragod, which of course is subject matter of appeal. The only discordant view of the counsel for the respondent for Annexure-I is on account of the non-payment of the petitioner the amount mentioned in Clause-4 thereof. I have gone through the petition and in particular paragraph 1 thereof, where it is the positive case of the petitioner that the amount as mentioned in Clause-4 was paid. Learned Counsel for the respondent contends, during the course of argument, that it may be the case of the petitioner that he had paid the amount, but actually it has not been paid.

In view of Clause-9 in Annexure-I for referring the dispute to an arbitrator, the request for arbitration cannot be declined, even though it is a different matter that the Arbitrator appointed to determine the dispute shall first go into the question of payment having been made by the petitioner as pleaded in para 1 of the application for arbitration. The A.R. No. 16 of 2006 Arbitrator is appointed by specifically mentioning that he would determine the controversy between the parties in view of agreement Annexure-I and agreement Annexure-II shall be taken into consideration during the pendency of the arbitration only if the appeal preferred by the petitioner is accepted.

In the facts and circumstances as mentioned above, this application is allowed. Shri.K.Iswar Bhat, Advocate, Bank Road, Kasaragod, PIN - 671 121 (Phone No. 04994 - 222178) is appointed as Arbitrator to go into the dispute between the parties, which shall also include the payment of money made by the petitioner in terms of Clause-9 of agreement Annexure-I.

Disposed of accordingly. I.A. No. 28 of 2006 shall stand closed.