National Agriculture Co-op Marketing Federation of India v. S.A.

Introduction:

On April 22, 2020, the Supreme Court of India (“SC”), in National Agriculture Cooperative Marketing Federation of India v. Alimenta S.A. (“NAFED v. Alimenta S.A.”), set-aside an arbitral award in an international commercial Arbitration (“ICA”), on the ground of contravention of public policy of India.

Issues:

NAFED was an agency involved in canalizing for the Government of India (hereinafter, referred to as GOI), that obtained a license under the Export Control Order for export of goods. Alimenta S.A. was a company affiliated with the laws of Switzerland.

Both entered into a contract, “FOSFA-20” (a contract published by the Federation of Oil, Seeds and Fats Association Ltd.), on January 12, 1980, whereby NAFED were to export 5,000 metric tonnes of Indian Groundnut to Alimenta S.A.

NAFED could export only 1,900 metric tonnes of the commodity because the crops were damaged by the cyclone. To pacify the situation, through amendments to the original contract, it was agreed that NAFED would export the remaining 3,100 metric tonnes of the commodity to Alimenta S.A., in the following year 1981.

However, at the time of execution of the contract, NAFED claimed that its license to export had expired at the end of 1980 because of which it was prohibited under the Indian law i.e. the Export Control Order, from exporting. The GOI refused NAFED’s request to export the commodity after 1980 i.e. the license period would get expired.

Aggrieved by this, Alimenta S.A. initiated arbitration against NAFED which resulted in an arbitral award in favour of Alimenta S.A,  directing NAFED to pay compensation for failing to supply the commodity to Alimenta S.A.

Subsequently, Alimenta S.A. filed for execution of this arbitral award under Sections 5 and 6 of the erstwhile Foreign Awards (Recognition and Enforcement) Act, 1961 (“FARE Act, 1961”).

The Judgement:

The SC held that the arbitral award was against the public policy of India because it violated the fundamental policy of Indian law and the basic concept of “justice”

In conclusion, the SC held:

“Resultantly, the award is ex facie illegal, and in contravention of fundamental law, no export without permission of the Government was permissible and without the consent of the Government, the quota could not have been forwarded to next season. The export without permission would have violated the law, thus, enforcement of such award would be violative of the public policy of India.”

The arbitration ecosystem in India was already in a challenging position before the on-going COVID-19 pandemic, with numerous arbitral awards being challenged before Indian courts. Currently, the situation is exacerbated with business sentiments being low. In such a scenario, the ruling in NAFED v. Alimenta S.A. is not only contrary to the established position in law but may also discourage potential investments when it is most needed during this economic slowdown. Hence, a course correction is required immediately.

Conclusion:

There have been several instances where numerous arbitral awards have been challenged before the court of law. The arbitration system in India is already in a fledging position because it is affecting the business ecosystem. The ruling in NAFED v, Alimenta S.A could potentially discourage the potential investments in the country, especially when we are dealing with a big economic slowdown. It is also opposed to the established position in law. Therefore, a remedy is required for this right away.

Neelkamal Realtors Suburban Pvt. Ltd v. Union of India

Introduction:

A bunch of petitions was filed by the real estate developers and individual plot owners, challenging the constitutional validity of the Real Estate (Regulation and Development) Act(RERA). The decision was upheld by The Hon’ble High Court of Bombay.

Facts:

Several writ petitions were filed by Neelkamal RealtorsSuburban Private Limited and another, for the project against the Union of India and others, before the Hon’ble High Court of Bombay challenging the constitutional validity of provisions:  first proviso to Section 3(1), Section 3(2)(a) and (c), Explanation to Section 3, Section 4(2)(l)(C) & (D), Section 5(1) (b) 5(3) and the first proviso of Section 6, Sections 7,8,18, 22,38,40,46,59,60,61,63,64 of RERA (Regulation and Development) as being violative of the Articles 14, 19(1) (g), 20 and 300A of the Constitution of India.

Issues raised:

• Whether the provisions of RERA stated above are violative of Article 14, 19(1)(g), 20 and 300A of the Constitution?• Whether the provisions of RERA have retrospective/ retroactive application?

Contentions of the Petitioners:

The Petitioners challenged the validity of the above provisions of RERA on the following grounds:

• Absence of judicial member in the REAL (Regulation and Development) constituted under Section 46 (b) of RERA (Regulation and Development).

• Unreasonable restrictions placed by certain provisions of RERA (Regulation and Development), contrary to Article 19(1) (g) and violative of Article 14 of the Constitution.

• Retrospective/ retroactive application of certain provisions.

The allottees approaching Maha RERA (Maharashtra’s Regulation and Development Authority) Authorities pleaded for a grant of interest for delayed possession for their respective flats booked by them. The Agreement provided that the promoter was to hand over possession of the flat to the Allottees on 31.12.2014 with a grace period of one year i.e. by the end of 31.12.2015. The principal grievance is, the date stipulated has been deliberately ignored by the promoter.

Promoter principally emphasized the economic turmoil faced by them. He traveled through the entire report to show how the conditions worsened the development in the project and the promoters had to suffer a lot. The balance sheets were produced to show the quantum of losses successively suffered by them in the last three years.

From submissions from both sides, it can be concluded that the allottees do not want in each of the cases to withdraw from the project. The objection is the payment of interest for delayed possession.

The appeal preferred by Neelkamal Realtors Versus KeshavlalUpadhyay in which on 25th April 2015 where the promoter was declined to be entertained in respect of economic downturn or the non-availability of raw material. It was observed in the said order; the delay occasioned in completing the project cannot be attributed to being suffered by the allottee. The allottee was mandated under the terms of the agreement if he commits default to release interest @21% p.a. however when the turn of the Promoter comes, he took an umbrella to the legal provisions of MOFA (Maharashtra Ownership Flats ) to release interests @9% p.a. when committed default in making payment suffered liability of interest at 9% p.a. Therefore, no concession is extended to them in remittance.

The Promoters are directed to release interest from 7.7.2016 @ 10.05% p.a. The Promoter is at liberty to appropriate/adjust the interest if certain recoverable are due by the allottees.

Thus, the allottees’ two appeals are partly allowed.

Pioneer Urban Land & Infrastructure Ltd. v/s Govindan Raghavan

Civil appeal No. 12238 of 2018

Facts of the case:

In this case, the appellant builder launched a housing residential project in Gurugram. The respondent agreed to buy an apartment in the said project of the appellant for a sale consideration of Rs. 4,83,25,280/-. As per their agreement, the appellant had to make every possible attempt to apply for the Occupancy Certificate within thirty-nine months from the date of excavation with a grace period of 180 days. The appellant failed to comply with the agreement and the respondent filed a consumer complaint before NCDRC claiming deficiency of services and failure to hand over the possession of flat in the said project. The national commission passed an interim order restraining the appellant to reject the appointment of the flat made to the respondent till the pendency of the matter. During the course of the matter, the appellant issued the possession letter asking, since the finality of the flat the respondent must accept the flat instead of refund amount. But the National Commission in their final order regulated the appellant to refund the amount of the sale consideration along with the interest as it will be unfair to hand-in the possession of the flat after three years. The appellant filed an appeal claiming the respondent had a ‘Right of cancelation by the allottee’ under the agreement, and he should be bound by the agreement, and has no right to seek compensation.

Issues:

  1. Whether the right of cancellation by the allottee stands and the respondent is not entitled to compensation or not?
  2. Whether the interest stipulated on the compensation is valid or not?

Held:

The court held that the consumer complaint in the present case can be treated as a termination notice under the agreement. There was an inordinate delay in the handing over of the flat and there was a failure to abide by the contractual obligation of giving the occupancy certificate. Hence, the impugned order of the National commission is valid as there is a case of deficiency of service on behalf of the appellant and the respondent is entitled to the refund of sale consideration amount and legitimate compensation. The respondent should not be coerced to accept the flat after an unjustifiable delay in handing over the flat. The clauses of the agreement the appellant relied upon that established the interest rate are “unfair trade practices.” It is entirely one-sided and the court referred to the case stating “Article 14” of the Constitution guarantees to all people equality before the law and equal protection of the laws. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power.” So the national commission was right in awarding the interest on the compensation.

Conclusion

In the contractual agreements, where one party has the upper hand to take unfair advantage of another due to lack of information, then the court must assess based on facts and circumstances to cease the unreasonable clause from applying. These one-sided clauses encourage unfair trade practices that are exploited by the contractors to take advantage of a layman.

M/S. CENTROTRADE MINERALS AND METALS INC.V.HINDUSTAN COPPER LTD.

PARTIES OF THE CASE

  • APPELLANT: M/s. Centrotrade Minerals and Metals Inc.
  • RESPONDENT: Hindustan Copper Ltd.

CITATION: (2006) 11 SCC 245

BENCH: J. Rohinton Fali Nariman, J. Navin Sinha, J. B.R. Gavai

BRIEF FACTS 

Centrotrade Minerals and Metals Inc. and Hindustan Copper Limited entered into a contract for sale. After the contract had been acted upon, a dispute arose regarding the manner in which the same was done. Thus, Centrotrade invoked the arbitration clause in the contract. The arbitrator appointed by the Indian Council of Arbitration made a NIL award. Centrotrade subsequently invoked the second part of the said arbitration agreement. HCL, during the pendency of the proceedings before the arbitrator, filed a suit in the Court at Khetri, in the State of Rajasthan, questioning the initiation of the second arbitration proceeding before the International Chamber of Commerce. No interim order was passed, owing to which an appeal was preferred by HCL before the District Judge, which was also dismissed. In a revision filed by HCL, the High Court granted an injunction. Meanwhile, the sole arbitrator commenced arbitration proceedings. Centrotrade filed a special leave application before the Supreme Court of India, questioning the order of injunction passed by the Rajasthan High Court and by an order, the interim injunction was vacated. HCL, in a series of letters to the International Court of Arbitration and the arbitrator, maintained that the arbitration agreement was void, claiming that it was opposed to the public policy of India. 

Submissions by HCL were received by the arbitrator without any supporting evidence or any justification for not complying with the earlier orders passed by him. The arbitrator, however, considered the submissions made by HCL in making the award. The award held, inter alia, that, the Arbitration clause contained in the agreement was neither unlawful nor invalid and that, the Arbitrator had jurisdiction to decide his own jurisdiction in terms of the Arbitration and Conciliation Act, 1996 (ACA). HCL filed an application purported to be under Section 48 of the ACA, 1996, in the Court of the District Judge, Alipore, Calcutta. HCL also filed a suit before the Civil Judge, Senior Division, Alipore praying for a declaration that the ICC award was void and a nullity, additionally claiming for permanent injunction and damages. Centrotrade filed an application for enforcement of the original award in the Court of the District Judge, Alipore. Upon an application made in terms of Clause 13 of the Letters Patent of the Calcutta High Court by Centrotrade, the said execution case was transferred to the Calcutta High Court. A learned Single Judge of the said Court by a judgment and order allowed the said execution petition. Aggrieved by this, HCL preferred an appeal before the Supreme Court.

ISSUES

  1. Whether the Respondent was given a fair opportunity to present its case in the arbitration proceeding? 
  2. Interpretation of Section 48(1)(b) of the Arbitration and Conciliation Act,1996
  3. The authority of an arbitrator in the arbitration proceedings

JUDGMENT 

Centrotrade’s appeal was allowed, while HCL’s appeal of 2006 was dismissed. Further, the foreign award was enforced. 

Applying the principle of party autonomy, the Court held that parties are not prevented from entering into an agreement providing for non-statutory appeals so that their disputes and differences could preferably be settled without resorting to Court processes. The Court reasoned that on a combined reading of Section 34 and 35 of the ACA, 1996, an arbitral award would be final and binding on the parties unless it was set aside by a competent Court, on an application made by a party to the arbitral award. However, this does not preclude the autonomy of the parties to mutually agree to a procedure, whereby the arbitral award might be reconsidered by another arbitrator or panel of arbitrators, by way of an appeal. Wherein, the result of that appeal was accepted by the parties to be final and binding was subject to a challenge as provided under the ACA, 1996. The Supreme Court of India, further held that a multi-tier arbitration clause was also not contrary to the public policy of India, as there was nothing in the ACA, 1996 which restricted the autonomy of the parties to agree to an arbitration clause, with the pre-arrangement for appellate proceedings, before another arbitral tribunal.

V.N. SHRIKHANDE V. ANITA SENA FERNANDES

PARTIES OF THE CASE –

  • PETITIONER: V.N. Shrikhande
  • RESPONDENT: Anita Sena Fernandes

CITATION: (2011) 1 SCC 53

BENCH: J. G.S. Singhvi, J. Asok Kumar Ganguly

BRIEF FACTS

The appellant performed ‘Open Cholecystectomy’ on the respondent in 1993. After 9 years of intermittent pain, the respondent was admitted to a hospital in September 2002 and after a C.T scan of her abdomen, it was revealed that there was a well-defined rounded mass in the left lobe of the liver and an evaluation of FNAC was suggested.

After a successful operation, a Histopathology report revealed that several gauze pieces were found in her abdomen. After receiving the report of Histopathology, the respondent wrote letters to the appellant and demanded compensation on the grounds that due to his negligence, the gauze was left in her abdomen at the time of surgery in 1993, which she had to undergo by paying significant sums. It was also claimed that the negligence had caused her and her family, mental and physical stress.

The appellant claimed that every patient was told at the time of discharge, that he/she would meet him or write a letter or at least contact him, in case of any problem but the respondent never apprised him about her problem.

The respondent filed a complaint under Consumer Protection Act, 1986, and claimed compensation of Rs.50 Lakh by alleging that mass gauze had been left in her abdomen at the time of the operation due to the appellant’s negligence.

The appellant denied the allegation of negligence in his reply and averted that the respondent had never contacted him, complaining of any pain or discomfort. The State Commission dismissed the complaint on the ground that the same should have filed within the next 2 years after the operation was done, i.e. in 2006 but instead of 2 years, the complaint was filed after 9 years. The National Commission reversed the order. Hence, the appeal for the present case was made.

ISSUE

  1. Whether the complaint filed by the respondent falls within the period of limitation and did the State Commission committed an error by dismissing the same on the ground of it being time-barred?

JUDGMENT

The appeal was allowed. The impugned order was set aside and the complaint filed by the respondent was dismissed.

It was held by the Court that, in cases of medical negligence, no straitjacket formula can be applied for determining as to when the cause of action has accrued to the consumer. It was opined that any person of ordinary prudence who may have suffered pain and discomfort after surgery would have consulted the concerned surgeon or any other doctor and sought his advice but the respondent did nothing like this. There had been no reasoning on part of the respondent as to why she kept quiet for about 9 years despite the pain and agony. The long silence on her part militates against the bona fide intentions of the respondent’s claim for compensation. Hence, according to the Court, if the respondent would have simply contacted the appellant, the problem would have been discovered.

Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL & Ors.

Civil Appeal No. 1544 of 2020 (decided on 13/02/2020).

Facts of the case:

The appellant and Ravin Cables Limited entered into a joint ventures agreement with the respondent, i.e., Prysmian Cavi E Sistemi SRL (a company registered under the laws of Italy). Prysmian acquired 51% of shares in Ravin’s capital and paid a good consideration towards “control premium.” Ravin was adhered to be jointly managed by the CEO, and MD until the expiration of 6 months, after an interim period has ended. Prysmian removed the CEO and appointed a CFO at their discretion. This ungovernable mismanagement and control over Ravin led to disputes between the parties. The dispute between the shareholders arising out of Joint Venture Agreement (JVA) was referred to arbitration in London presided by Arbitral Tribunal governed by English law and a sole arbitrator was appointed. The award was passed in the favor of Prysmian rejecting all the counterclaims and this was not challenged before the court even though England’s Arbitration Act provided for one. The foreign award directed the transfer of securities by the Appellant from India to the Respondent based in Italy at a discount of 10%. As foreign exchange regulations (FEMA) require that such transfer be made at the prevailing fair market value, and no lesser, the Appellant resisting enforcement of the awards contended, the awards were in contravention of FEMA and as such, against the public policy of India thus being unenforceable in India. The award was never appreciated by the appellants before the English law. The award holder approached the Indian court for enforcement of the award and this was challenged under Section 48 of the act.

Issues:

The claims of appellants that can be compartmentalized into three, “pigeonhole grounds”-

  1. Whether the party was unable to present its case before the tribunal?
  2. Whether the tribunal failed to deal with contentions raised by the appellants under Section 48(1) (b) of the Arbitration and Conciliation Act?
  3. Whether the foreign award is against the public policy of India in contravention to the fundamental rule of Indian law?

Judgment:

The Hon’ble court noted the fact that the award holder for the execution of the award should have approached the English courts, but the foreign award was never challenged. The Supreme Court rejected the enforcement on the basis that the enforceability of a foreign award cannot be taken in isolation. The inability to present one’s case the court explicitly said that the issue must be raised while the hearing proceeding is in continuation and not after the award has been presented by the arbitrator to defer the enforcement of the award, providing it a narrow interpretation.

The public policy obstructs in a foreign award should be meticulously constructed. Mere an irrationality of an award does not perverse it to public policy. The Supreme Court applied another judgment stating “the arbitrator was guided in the form of jurisdictional errors, and the same was not interfered with by observing that narrow interpretation ought to be adopted under Section 34(2) (a) (iv). The Supreme Court thereby effectively applied the aforesaid principle laid down under Section 34(2) (a) (iv) to the cases falling under Section 48(2)(b) of the Act.” The challenge on the enforcement of the foreign award on grounds of misrepresentation of contract, violation of the provisions of the FERA Act, and ungovernable mismanagement and control over the company will fall outside the purview of Section 48(1)(b).

Under Section 48 of the act, the word, “may” be used that emphasizes the fact that the court has the discretion to deny and not mandate the enforcement of the foreign award. This distinction in verbatim was established in the case Cruz City Mauritius Holdings V. Unitech Limited held, “the word “may” and “shall” and the intention of the legislature of adopting similar language from Article V of the New York Convention held that whilst there is no absolute or open discretion to reject the request for declining to enforce a foreign award, it cannot be accepted that it is absent. It was held that the width of the discretion is narrow and limited, but if sufficient grounds are established, the court is not precluded from rejecting the request for declining enforcement of a foreign award.”

The Hon’ble Supreme Court catered three grounds on which the foreign award enforcement can be rejected,

  1. An invalid arbitration agreement that will affect the jurisdiction of the proceeding;
  2. Incapacity of parties to present itself
  3. It is in violation of ‘public policy’ under Section 48(2)(b).

The court may not enforce the award in the first case but in the latter two grounds, the court has the discretion to deny the award.

Conclusion:

The Supreme Court with the help of various judgments established a consensus between the Indian statute and foreign regulations concerning enforcement of the foreign award. The court respected the New York convention which laid the foundation of the Arbitration and Conciliation Act and protected the reasoning of the statute.

State of Gujarat (Chief Secretary) & Another v. Amber Builders

Civil Appeal No. 8307 of 2019

(@Special Leave Petition (Civil) No. 36095 of 2016)

Facts of the case

In this case, the respondent i.e., the contractor was given a job to strengthen a part of the national highway by the Gujarat state government. It was undisputed that it was a “works contract” between the State and Amber builders. The respondent finished the work and he was paid accordingly. However, the road got damaged, and he was called again for the repair of the said road. He claimed the damage was due to heavy rainfall and the repair was concluded. The state issued a notice upon the respondent to pay a sum for not doing the repair work, and it further withheld the security deposits and bills or remaining work. This notice was challenged by the respondent filing a writ petition in the Gujarat High court stating that the state cannot withhold the payable amount to the respondent for other contracts until their liability is defined by the court. The state countered saying there was a contract and the work done by the respondent was defective under it, they had gotten other contracts done from a different party. The Gujarat high court relied on another judgment and held in the favor of the respondent stating that “without crystallization of the potential recovery amount, the employer or the contractor cannot unilaterally recover the said amounts from the ongoing contract work of the same contractor in connection with another contract. It was further directed that the State could not recover the amounts sought to be recovered from the payments due and payable to the contractor in other contracts.” The judgment was challenged by the state before the Supreme Court.

Issue:

Whether on the procedural ground, the Gujarat High court lacked the jurisdiction to hear such a matter, and it should be referred to the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act (the tribunal) to grant interim relief or not?

Judgment

The Hon’ble court held that the tribunal has the jurisdiction to make interim orders concerning Section 17 of the Arbitration and Conciliation Act, 1996. The tribunal was established under section 3 of the Gujarat Act to exclusively deal with disputes of “work contract” entered by the state government with any other person that is defined under Section 2(k) of the Gujarat Act. The bench observed, “On a conjoint reading of the acts together, we are of the view that insofar as the powers vested in the Arbitral Tribunal under section 17 of Arbitration Act are concerned, such powers can be exercised by the tribunal constituted under the Gujarat Act because there is no inconsistency in these two acts as far as the grant of interim relief is concerned. This power is already vested in the tribunal under the Gujarat Act and section 17 of the act compliments these powers and therefore it cannot be said that provisions of section 17 is inconsistent with the Gujarat Act.” Thus, the contractor should have gone to the tribunal for a specific remedy and not the Gujarat High Court. The court granted liberty to the respondent to approach the tribunal for relief on merits.

Regarding the withholding of payments by the state, till the amount is crystallized or quantified by the court, the court gave its decision in favor of the respondent. The ruling of the high court on this matter is overruled by the Hon’ble Court in another decision.

Conclusion

The court in its judgment cleared out ambiguity regarding the tribunal’s power to grant interim relief. Due to the discrepancy, the parties failed to notice there is no limitation on the tribunal expressed in the statute that is terminating it from giving interim relief. As mentioned in the statute, the tribunal is competent to resolve “works contract” disputes and it will be efficient than approaching the court. The arbitration between the parties to seek relief is far more convenient than approaching the high court.

Vrajesh Hirjee v/s Skyline constructions

Brief Facts

The case arises from a possession dispute wherein the respondents failed to hand over the possession of a flat to the complainant within the agreed date of 31/12/2015. Owing to the same, the complainant had been seeking refund of his amount with interest under Section 18 of the Real Estate (Regulation and Development)Act, 2016 (RERA).

Issues

The main points of determination within the case were:

1. Whether there was an agreed date of transfer of possession?

2. Whether the respondents had failed to hand over the possession of the flat on the agreed date?

3. Whether the complainant was entitled to get a refund of the amount with interest?

Judgment

The Court ordered the respondents to pay the refund amount with simple interest at the rate of 10.55% per annum from the date of receipt till their repayment, along with stamp duty and registration charges, as well as the registration charges, costs and TDS amount.

Ratio

During its judgment, the Court placed reliance on Section 4 (1A) (ii) of MOFA which provides that before accepting advance payment or deposit that amounts to more than 20% of the sale price, the promoter is liable to enter into a written agreement for sale and mention in it the date by which the possession of the flat is to be handed over to the purchaser. Section 13(2) of RERA also casts a similar liability. The Court placed further reliance on the case of Fortune Infrastructure v/s. Trevor D’lima [(2018) 5 SCC 442] wherein the Hon’ble Supreme Court held that when no date of possession is mentioned in the agreement the promoter is expected to hand over the possession within reasonable time.

A period of three years was held to be “reasonable time”. Hence, the Court held that the respondents were liable to hand over the possession of the complainant’s flat by December 2014. As the complainant had contended that the agreed date of possession was December 2015, the Court decided that the agreed date was to be held as December 2015.

The Court also observed that under any circumstances, the respondents could not claim the extension of more than six months from the agreed date of possession in view of Section 8 (b) of Maharashtra Ownership Flats Act. Hence, the respondents were held to be liable to refund the complainant’s amount with interest at the prescribed rate.

The Court also upheld the decision in the case of Neelkamal Realtors Suburban Pvt. Ltd. v/s. Union of India (Writ Petition No. 2737 of 2013, Original Side), stating that the interest to be awarded on the amount under section 18 is not penal in nature but it is compensatory.

The Court also concurred with the reference to Section 8 of the MOFA wherein, on the promoter’s failure in giving possession in accordance with the terms of the agreement for sale, he is liable to refund the amount already received by him together with simple interest at the rate of 9% per annum from the date he receives the same till the date the amount and interest thereon is refunded. As Section 88 of RERA does not bar MOFA, the Court found that the adjudicating officer was entitled to award the interest from the date of default in addition to the compensation.

Moreover, the Court relied on explanation (ii) of Section 2 (za) of RERA which provides that the interest payable by the promoter to the allottee shall be from the date the promoter received the amount or any part thereof till the date of refund. As the respondents did not dispute the receipt of the amount, the Court held that the complainant was entitled to a refund and that the interest on the same was payable from the date of the receipt of the amount.

Dharmaratnakara Rai Bahadur & Ors. v. Bhaskar Raju Brothers & Ors

Bench: Hon’ble The Justice, B.R. Gavai, Surya Kant

Facts:

Appellant No. 1 – A charitable trust – and Respondent No. 1 entered into a lease deed agreement for 38 years for constructing a multipurpose auditorium on a piece of land owned by the appellant. For the same, refundable interest-free security deposit of Rs. 55,00,000/- was to be paid by the respondent. The respondent had also undertaken the responsibility of the eviction of tenants from the appellant’s land. A subsequent yet similar lease deed was executed between the parties in 1997. After some insignificant progress, certainly failed renegotiations took place between the parties. Except for paying initial amount of Rs. 25 lakhs towards the security deposit, the balance amount towards the security deposit was not paid by the respondents. Owing to the same, the appellants filed an Original Suit in the Bangalore City Civil Court in 2010. The Court granted an interim order of maintaining the status quo, and the same was challenged by the respondents.

After contesting for more than 2 years, in 2013 the respondents invoked the arbitration clause in the lease deed and issued a notice to the appellants. Subsequently, they filed a petition under Section 11(6) of the Arbitration Act before the High Court of Karnataka. The Court referred the matter to the Registrar (Judicial), who decided that the document in question was a lease deed and not an agreement to lease and therefore, directed the Respondent Nos. 1 and 2 to pay the deficit stamp duty and penalty of Rs. 1,01,56,388/- .

The respondents further filed their objections before the Karnataka High Court, which, without consideration of the Registrar’s report, passed the impugned order allowing the petition filed by the respondent Nos. 1 and 2 and invoking power under Section 11(6) of the Arbitration Act, appointed an Arbitrator to decide the dispute between the appellants and the respondents. Being aggrieved thereby, the appellants went before the Supreme Court.

Issues:

The main issues within the case were:

1. Whether the deed was a lease deed or an agreement to lease.

2. Whether it was insufficiently stamped.

3. If so, whether the Karnataka High Court was right in relying on an insufficiently stamped deed.

4. Whether clause 36 in the lease deed dated 12.3.1997 could be acted upon to enforce the arbitration clause contained therein.

Judgment:

The appeal was allowed. The impugned judgment and the order passed by the High Court of Karnataka was quashed and set aside. The petition/application filed by the respondents under Section 11 of the Arbitration Act was rejected. There was no order as to costs.

Ratio:

The Court observed that admittedly, both the lease deeds were neither registered nor sufficiently stamped as required under the Karnataka Stamp Act, 1957. Further, as per the Registrar’s report, the document of 1997 executed entered into between the parties was a lease deed and not an agreement to lease.

The Court placed reliance on its judgment in the case of SMS Tea Estates Private Limited vs. Chandmari Tea Company Private Limited 1 [(2011) 14 SCC 66] and held that when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not. It was also held that even when an objection on that behalf is not raised; the Court must consider the issue.

It was further held, that if the Court concludes, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899. It has also been held, that the Court cannot act upon such a document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, the document can be acted upon or admitted in evidence. Thus, the Court concluded that the lease deed containing the arbitration clause which is required to be duly stamped, was not sufficiently stamped and though the Registrar (Judicial) had directed the respondent Nos. 1 and 2 to pay deficit stamp duty and penalty the respondents failed to do so. Hence, the High Court erred in relying on the said lease in its judgment.

On account of invoking the Arbitration clause, the Court duly noted that the respondents were seeking to invoke the clause only after the appellants had filed a suit for injunction against the respondents, which they had contested for 2 years 3 months. The respondents were seen to be taking contradictory stands – treating the document as a lease deed before the City Civil Court, and as an agreement for developing the property after the property is made vacant by evicting the tenants – with respect to clause 5 of the document, which states, “The tenure of the lease shall be 38 years commencing from the date of signing of this lease deed.” It became clear from the same that the lease deed was for 38 years after its signing.

The Court further noted that the respondents had taken on the responsibility of obtaining and securing a vacant position of the land as well as sanctioning the building plans. They had also agreed on the non-effect of any tenant’s approach to the Court of law on the lease deed’s time period. Thus, as per the Court, no terms of the lease clarified the document as an agreement which was to be registered only after all the tenants were evicted and the building plans were sanctioned. Overall, the Court held that the High Court had erred in relying on the lease deed which was found to be insufficiently stamped and in brushing aside the report of the Registrar (Judicial) when the respondents had failed to pay the insufficient stamp duty and penalty as determined by the Registrar (Judicial) of the High Court of Karnataka.

Odisha v. Andhra Pradesh: Contempt of Court?

The State Government of Odisha has approached the apex court for initiating contempt proceedings against the State of Andhra Pradesh. The proceedings are the consequence of a border dispute. The former has alleged the latter of violating the existing state of affairs by taking over certain villages belonging to itself as agreed upon between the two, more than 50 years ago. The advocate presenting the case before the Chief Justice termed it as a grave constitutional crisis.

The villages in question are that of Kotia group and the same were the subject matter of a former suit filed by the Odisha Government in 2006. However, the suit was dismissed as it was considered non-maintainable under Article 131 of the constitution that vests the Supreme Court with original jurisdiction over any dispute arising between the states or between the center and state. Nevertheless, the order passed by the Court in the matter, recorded the earlier undertaking given by both the states in 1968 to maintain status quo. It is the violation of this undertaking agreed upon with the consent of both States, mentioned in the order that gives rise to the contempt petition. The AP government is not only alleged of taking over the three Gram Panchayats but also of holding elections in these territories in the near future. Odisha claims that the villages have always been under its administrative control and that it has undertaken several developmental activities in the region over the years. It further relies upon the Electoral Rolls prepared by the Election Commission of India to argue that the voters of these villages fall within Koraput Constituency of Odisha.

“Contempt” literally means disrespect or disgrace. The judiciary of India that is the Indian legal System hold an important position in law. The legal system of India is based on the Rule of Law which means that the law is supreme. To protect the justice system, laws on contempt of court have been made wherein the Supreme Court under Articles 129 and the High Court under Article 215 have been given the powers to adjudicate and punish for contempt.

In accordance to the Contempt of Court Act, 1971 section 2(a) there are two types of contempt :- Civil and Criminal contempt of court. Criminal contempt is when there is obstruction of judicial proceedings or scandalizing judicial proceedings whereas Civil contempt of court is when there is willful disobedience of any judgement, decree, writ, etc. made by the judge as in the present case the accused has been accused with.

The petition seeking urgent listing was agreed to be heard by the Court today i.e. 12th February, 2021.

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