writ petition nos.27600-601/2015 (gm-cpc) -...
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 11TH DAY OF SEPTEMBER 2015
BEFORE
THE HON'BLE MR. JUSTICE A.V.CHANDRASHEKARA
WRIT PETITION NOs.27600-601/2015 (GM-CPC)
BETWEEN:
SMT. RASHMI SOLANKI AGED ABOUT 56 YEARS D/O AIR COMMANDER LATE JAGADEVA CHANDRA R/O AT T.3, ORCHID APARTMENTS
10TH CROSS, 1ST MAIN, GREEN PARK LAYOUT BANASWADI BANGALORE- 560 046.
…PETITIONER
(BY SRI. K. SUMAN, ADV.)
AND: SRI. B.S. SHAM SUNDER AGED ABOUT 57 YEARS S/O LATE SADASHIVAIAH R/O SRISTI RESIDENCY
R
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MAGADI ROAD AGRAHARA DASARAHALLI CIRCLE BANGALORE- 560 040
...RESPONDENT
(BY SRI.B.M. SHYAM PRASAD SR. ADV. FOR SRI. G. B. SHARATH GOWDA, ADV.)
THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE ORDER DATED 28.3.2015 VIDE ANN-C, PASSED BY THE SENIOR CIVIL JUDGE AND JMFC., MAGADI IN O.S. NO.55/2015 WHERE UNDER THE COURT BELOW HAS GRANTED THE
INTERIM ORDER RESTRAINING THE PETITIONER FROM ALIENATING THE SUIT SCHEDULE PROPERTY AND THE ORDER DATED 22.6.2015 VIDE ANN-F, PASSED BY THE SENIOR CIVIL JUDGE AND JMFC MAGADI IN O.S. NO.55/2015 REJECTING I.A. NO.3 FILED BY THE PETITIONER UNDER SECTION 8(1) OF
THE ARBITRATION AND CONCILIATION ACT AND TO CONSEQUENTLY ALLOW I.A. NO.3 AS PRAYED FOR BY THE PETITIONER.
THESE PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 29.07.2015 COMING ON
FOR PRONOUNCEMENT OF ORDERS THIS DAY,
A.V.CHANDRASHEKARA, J., MADE THE FOLLOWING:
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O R D E R
Both these petitions filed under Article 227 of
Constitution of India are directed against the order
dated 28.3.2015 and 22.6.2015 passed by the
learned Senior Civil Judge & JMFC, Magadi in
O.S.55/2015. Several grounds have been urged in
these petitions.
2. The petitioner in these petitions is the lone
defendant in the said suit bearing O.S.55/2015 filed
by the respondent herein for the relief of specific
performance of contract based on an agreement
stated to have been executed by the defendant on
19.6.2013 in his favour.
3. Parties will be referred to as plaintiff and
defendant as per their ranking before the trial court
in O.S.55/2015.
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4. The fact leading to the filing of these
petitions are as follows:
The case of the plaintiff is that defendant, who
is the petitioner herein has executed an agreement of
sale dated 19.6.2013 agreeing to execute the regular
sale deed in respect of converted lands in erstwhile
Sy.Nos.4, 5, 6 and 7 of Varthur Narsipura Village,
Tavarekere Hobli, Bangalore South Taluk and
converted agricultural lands in erstwhile Sy.Nos.7,
10 and 13 of Varthur Village, Tavarekere Hoblic,
Bangalore South Taluk. The said agreement of sale
contains several clauses and one such clause No.12
relates to the resolution of any dispute arising
between the parties relating to agreement of sale only
through Arbitration and Conciliation Act, 1996 only.
5. Inspite of several demands, defendant did
not come forward to execute regular sale deed in
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terms of the agreement of sale and therefore, plaintiff
was constrained to file a suit for relief of specific
performance before the court of Civil Judge & JMFC
Magadi.
6. Soon after filing of the suit, notices and
summons were issued on I.As. to the defendant
returnable by 28.3.2015. On 28.3.2015, defendant
No.1 appeared and requested the court to permit him
to file objections to the application filed under Order
39 Rules 1 and 2 of CPC. Counsel for the plaintiff
insisted for passing an order on I.A. filed under
Order 39 Rules 1 and 2 of CPC and to restrain the
defendant from alienating the suit property till the
next date of hearing. Therefore, the learned Judge
chose to grant an order of temporary injunction
against alienation to be in force till 9.4.2015.
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Subsequently, the interim order was extended from
time to time.
7. In the meantime, the application i.e., I.A.3
was filed in terms of Section 8(1) of Arbitration and
Conciliation Act, 1996 by the defendant and
supported by the affidavit sworn to by him. As per
clause-12 of the agreement of sale, any dispute
arising between first and second party with regard to
the sale will have to be referred to a single arbitrator
to be appointed by both the parties mutually. This
application was filed before filing of the written
statement, requesting the court to refer the matter to
arbitration. Objections were filed to the application
bearing I.A.3 by the plaintiff. After hearing the
learned counsel for the parties, the learned Judge
has chosen to dismiss I.A.3 vide 22.6.2015. It is this
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order, which is called in question on various grounds
as set out in the memorandum of petition.
8. Both the learned counsel for the parties
have submitted their arguments at length and have
relied upon number of decisions of Hon’ble Apex
Court. After going through the records and hearing
the arguments of the learned counsel for the parties:
1) When all the requirements of Section 8 of
Arbitration and Conciliation Act, 1996 are complied
with, whether refusal to refer the matter to the
arbitration under Section 8 of the Act is justified on
the ground that the vendor has created third party
right by alienating the entire portion of the schedule
land prior to or after the filing of suit for specific
performance of contract ?
2) Whether the trial court is justified in extending the
order of temporary injunction granted against
alienation of the suit schedule properties from time
to time?
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POINT-(1)
9. Plaintiff has relied upon the agreement of
sale stated to have been executed by the defendant in
his favour dated 19.6.2013 regarding sale of land
measuring 5 acres 5 guntas of converted agricultural
land in erstwhile Sy.Nos.4, 5, 6 and 7 and converted
agricultural land measuring 9 acres 35 guntas in
erstwhile Sy.Nos.7, 19 and 13 of Varthur Narasipura
Village, Tavarekere Hobli, Bangalore South Taluk.
10. Consideration agreed between the parties
is Rs.40 Lakhs per acre. A sum of Rs.65 Lakhs is
stated to have been received by the defendant as
advance sale consideration out of the agreed sale
consideration by way of cash on the same day of
agreement i.e., 19.6.2013. He is stated to have
agreed to receive the balance consideration of Rs.5
Crores 35 Lakhs within 4 months from the date of
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agreement of sale. Clause 12 found in the agreement
is in respect of resolution of any dispute through
arbitration. The same reads as under:
“Clause 12. In case of any dispute arises between the first party and second party with regard to the sale, arising from this agreement to sell, then such dispute is referred to a single arbitrator mutually appointed by both parties”
11. During the pendency of the suit, defendant
has chosen to alienate a portion of the schedule
property in favour of one person by name
Sri.Byatappa through a registered sale deed.
Therefore, plaintiff has filed an application under
Order 1 Rule 10(2) of CPC to bring the said Byatappa
as necessary party. In this regard, notice has been
issued to Byatappa, who has purchased the portion
of the schedule property.
12. The fact that application came to be filed
under Section 8(1) of Arbitration and Conciliation
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Act, 1996 by the defendant in the trial court before
filing of the written statement is not in dispute. Copy
of the application I.A.3 and affidavit sworn to by the
defendant are made available. The defendant has
sworn to an affidavit stating that it is obligatory on
the part of the trial court to refer the parties to
arbitration in terms of Clause 12 of the agreement.
Objections to I.A.3 disclose that the said agreement
does not bind Sri.Byatappa, who has chosen to
purchase the property during the pendency of the
suit. Therefore, the cause of action cannot be
bifurcated. It is mentioned in the objections filed by
the plaintiff to I.A.3 that defendant has chosen to
alienate 6.15 acres in favour of Sri.Byatappa and
that he is a necessary party for effective
determination of the dispute.
13. It is argued that Sri.Byatappa is not a
party to the agreement of sale dated 19.6.2013 and
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therefore, covenants found in the agreement of sale
do no bind Byatappa and plaintiff has independent
right to proceed the case against Byatappa in the
civil proceedings. It is argued that the defendant
having sold the portion of the property in favour of
Byatappa contrary to the covenants of the agreement
of sale, entire arbitral clause in the agreement of sale
is frustrated and hence, civil court alone is
competent to deal with the matter in terms of Section
9 of CPC.
14. The learned Judge has passed a detailed
order referring to various decisions cited by the
learned counsel before the Court. Necessary
reasoning is found in paragraphs 18 and 19 of the
order passed by the learned Judge on 22.6.2015.
What is observed by the learned Judge is that
dispute cannot be bifurcated in respect of defendant
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and also in respect of C.Byatappa, who has
purchased the portion of the property during the
pendency of the suit. Hence, it is observed that it is
not possible to accept the contention of the
defendant. The learned Judge of the trial court has
held that the decisions relied upon by the learned
counsel for the defendant are not applicable to the
facts of the case and decisions furnished by the
learned counsel for the plaintiff are applicable to the
facts of the case. In the light of third party interest
being created during the pendency of the suit and in
the light of Byatappa being a necessary party and in
the light of application filed under Order 1 Rule 10(2)
of CPC, I.A.3 filed under Section 8(1) of Arbitration
and Conciliation Act, 1996 is stated to be not
maintainable.
15. Section 8 of the Arbitration and
Conciliation Act, 1996 is as follows:
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8. Power to refer parties to arbitration where there is an arbitration agreement.—
(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
16. Section 8 of the Arbitration and
Conciliation Act, 1996 contemplates some departures
from Section 34 of repealed Arbitration Act, 1940.
Section 34 of Arbitration Act, 1940 contemplates the
stay of the suit; whereas, Section 8 of the Arbitration
and Conciliation Act, 1996 mandates reference. The
discretion vested under Section 34 of Arbitration Act,
1940 and that has been taken away by the new Act.
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Direction to make reference is not only mandatory,
but the arbitration proceedings to be commenced or
continued and conclusion there on by means of
arbitral award remains unhampered by the pendency
of the suit.
17. The learned senior counsel Sri.B.M.Shyam
Pasad for the respondent herein has relied upon the
decision of the Hon’ble Apex Court in the case of
Sukanya Holdings (Pvt.) Ltd. v. Jayesh. H.Pandya
and another [(2003) 5 SCC 531] to contend that
where a suit is commenced in respect of matter
which falls partly within the arbitration agreement
and partly outside and which involves parties some
of whom are parties to the arbitration agreement and
some are not so, Section 8 of the Arbitration and
Conciliation Act, 1996 is not attracted. It is further
held that there is no provision for bifurcating the suit
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in parts one to be referred to the arbitration for
adjudication and other to be decided by the civil
court.
18. Another decision of the Hon’ble Apex
Court relied upon by the learned counsel for
respondent is Rashtriya Ispat Nigam Ltd. and
Another v. Verma Transport Co.[(2006) 7 SCC
275]. The learned counsel has further relied upon
the decision of Everest Holding Limited v. Syam
Kumar Shrivastava and others [(2008) 16 SCC
774] to contend that if there is any dispute between
the parties to the agreement arising out of or in
relation to the subject matter, all such disputes have
to be adjudicated upon and decided through the
process of arbitration. Further, in paragraph 24 of
the decision rendered in Everest Holding Limited’s
case, the Hon’ble Apex Court has held that the
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decision rendered in Sukanya Holdings (P) Ltd. came
to be distinguished in a subsequent decision of Apex
Court in the case of Rashtriya Ispat Nigam Ltd. v.
Verma Transport co. in order to pinpoint the
distinction drawn.
19. Reliance is placed on yet another decision
of Hon’ble Apex Court in the case of Vidur Impex
and Traders Private Limited and others vs. Tosh
Apartments Private Limited and Others [(2012) 8
SCC 384]. In the said decision, provisions of Order 1
Rule 10 and 9 of CPC has been discussed with
reference to the right of the party to move the civil
court inspite of clause regarding arbitration found in
the agreement of sale. As per the facts of the said
case, there was a transfer of property during the
pendency of the suit filed for relief of specific
performance. As could be seen from the facts and
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circumstances of the case, there was suppression of
material facts from the purview of the court and
therefore, the transferees had ordered to impose cost.
20. The learned counsel for the petitioner
Sr.K.Suman has relied upon several decisions in
support of the stand taken up by the petitioner and
one such decision of the Hon’ble Apex Court is
M/s.Sundaram Finance Limited and another v.
T.Thankam [2015 (2) Supreme 66]. In paragraph
15 of the said decision, it is specifically held that the
Court has to see whether its jurisdiction is ousted
and not whether it has jurisdiction. It is further held
that if an application has been filed in terms of
Section 8 of the Arbitration and Conciliation Act,
1996 after having complied all the requirements, civil
court has no option but to refer the parties to
arbitration. In the decision of M/s.Sundaram
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Finance Limited, following decisions have been relied
upon:
a) P. Anand gajapathi Raju v. PVG Raju (Dead) [(2002) 4 SCC 539]
b) Hindustan Petroleum Corporation Limited v. Pinkcity Midway Petroleums [(2003) 6 SCC 503]
c) Branch Manager, Magma Leasing and Fianance Limited v. Potluri Madhvilata [(2009) 10 SCC 103]
d) Sukanya Holdings P Ltd. v. Jayesh Pandya [(2003) 5 SCC 531]
e) Orix Auto Finance (India) Limited v. Jagamandar Singh [(2006) 2 SCC 598]
21. Discussion found in paragraphs 16 and 17
in the case of Sukanya Holdings Pvt. Ltd. has been
referred to in paragraph 13 of decision rendered in
M/s.Sundaram Finance Limited. The said paragraph
13 in the case of M/s.Sundaram Finance Limited is
relevant and same is extracted hereinbelow:
“13.……………….. 16. The next question which requires consideration is — even if there is no provision for partly referring the dispute to arbitration, whether such a course is
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possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed. 17. Secondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and the other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums.”
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22. According to the Hon’ble Apex Court
in the case of M/s.Sundaram Finance Limited, there
is lot of difference between the two approaches. Once
it is brought to the notice of the court that its
jurisdiction has been taken away in terms of the
procedure prescribed under a special statute, the
civil court should first see whether there is ouster of
jurisdiction in terms or compliance of the procedure
under the special statute. It is also made clear that
general law should yield to the special law.
Paragraph 15 of the said decision is relevant and
same is extracted hereinbelow:
“15. Once an application in due compliance of Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statue, the civil court should first see whether
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there is ouster of jurisdiction in terms or compliance of the procedure under the special statute. The general law should yield to the special law – generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court.”
23. In the light of specific observations made
by Hon’ble Apex Court in the case of M/s.Sundaram
Finance Limited, the approach adopted by the trial
court in rejecting the application filed in I.A.3 under
Section 8(1) of the Arbitration and Conciliation Act
1996 is incorrect and improper and the same needs
to be corrected by this court in terms of Article 227
of Constitution of India. Hence, point No.1 is
answered in the negative.
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24. Point No.2 - In view of reference made
under Section 8(1) of Arbitration and Conciliation
Act, 1996 and in view of mandate being clearly
explained by the Hon’ble Apex Court in the latest
decision rendered in the case of M/s.Sundaram
Finance Limited’s case, the question of continuing
the order of temporary injunction against alienation
granted earlier by the learned judge of the trial court
does not survive. Hence, point No.2 is answered in
the negative.
25. In view of answering both the points in the
negative and in the light of the latest decision of
Hon’ble Apex Court rendered in the case of
M/s.Sundaram Finance Limited’s case having same
quorum equivalent to the quorum of the decision
rendered in Sukanya Holdings’s case, petitions are to
be allowed.
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ORDER
Petitions filed under Article 227 of Constitution
of India directed against the order dated 28.3.2015
and 22.6.2015 passed by the learned Senior Civil
Judge & JMFC, Magadi in O.S.55/2015 are allowed
in entirety.
The impugned order passed by the learned
Judge in granting an order of temporary injunction
against alienation and in regard to refusal of
reference to the arbitration are set aside.
Consequently, learned Judge is expected to
pass an order in terms of Section 8 of Arbitration and
Conciliation Act referring the matter to the
Arbitration.
Parties to bear their own costs.
Sd/- JUDGE
DM