J.M. Combines v. Navodaya Mass Entertainment Ltd.

M. Chockalingam, J.:—These two appeals have arisen from a common order dated 09.06.2008 passed by a learned single Judge of this Court in O.P Nos. 37 and 362 of 2007 respectively. O.P No. 37 of 2007 was filed to set aside the Award dated 16.10.2006 made in Arbitration Case No. 1 of 2003 on the file of the 2nd respondent in so far as it rejected the claim of the petitioner towards minimum guarantee payments for the remainder of the agreement, namely, from 15.07.2003 to 15.04.2009 at the rate of Rs. 69,416/- per month, totalling a sum of Rs. 47,89,704/- with interest, while O.P No. 362 of 2007 was filed to set aside the award dated 16.10.2006 made by the 2nd respondent.

2. The above said O.Ps were filed under the following circumstances;

The petitioner in O.P No. 34 of 2007 and the 1st respondent entered into an agreement on 30.07.1998, whereby it was agreed that the petitioner should procure, install and operate in the amusement park ‘Kishkinta’ maintained by the 1st respondent, an amusement ride for both adults and children called as ‘Slam Bob’. The collection from the said ride would be shared in the ratio of 60:40 by the petitioner and the 1st respondent in the first year and thereafter, in the ratio of 50:50. The agreement was in force for a period of 10 years and it was also renewable. It also provided for a guarantee minimum gross collection, whereby the 1st respondent would guarantee a minimum gross collection of Rs. 10 lakhs for the first year and Rs. 8.33 lakhs for the subsequent 9 years. The petitioner installed the said equipment on 16.04.1999 and on from 16.04.1999, the operation commenced and the ride became functional. The 1st respondent defaulted in making payments from the year 2000-2001 onwards. Despite repeated demands, the 1st respondent did not come forward to make the payments. Hence, the petitioner issued a lawyer's notice on 27.01.2003 calling upon the 1st respondent to pay the outstanding amount of Rs. 9 lakhs and odd with interest at 24% per annum. The 1st respondent issued a reply on 19.02.2003 stating that they had not entered into any agreement and the ride has had frequent break down and it becomes unsafe for operation. Thus, the dispute arose between the parties and the matter was referred to the 2nd respondent Arbitrator. The petitioner made a claim for a sum of Rs. 13,94,240/- together with a sum of Rs. 69,416/- per month for six years. The 2nd respondent by an award dated 16.10.2006, allowed the first claim, namely, Rs. 13,94,240/- with interest at 12% per annum, but disallowed the minimum guaranteed amount at Rs. 69,416/- per month for 69 months July, 2003. Aggrieved by the disallowed claim, the petitioner has filed O.P No. 37 of 2007. Aggrieved over the entire award, the 1st respondent has filed O.P No. 362 of 2007. Thus, these two original petitions came to be filed.

3. The learned single Judge, on scrutiny of the materials available and also hearing the submissions made on either side, has upheld the award and dismissed O.P No. 362 of 2007 filed by the 1st respondent. Hence, these two appeals have arisen at the instance of the petitioner and the 1st respondent respectively.

4. Advancing the arguments on behalf of the petitioner, Mr. M. Murari, the learned counsel would submit that the learned single Judge ought to have seen that the 2nd respondent erred in rejecting the claim for the balance period from 19.02.2003 while admitting the claim for minimum guarantee for the period between the year 2000 and 2003; that the learned single Judge ought to have seen that the 2nd respondent Arbitrator having correctly come to the conclusion that the 1st respondent had failed to effect payments in terms of the agreement and having awarded amounts in respect thereof, erred in rejecting the claim for the period beyond 19.02.2003; that the learned single Judge ought to have seen that the 2nd respondent, the Arbitrator erred in relying on the letter dated 19.02.2003 of the 1st respondent to reject the claim of minimum guarantee for the balance period, which was only a reply to the petitioner's lawyer's notice; that the learned Judge should have seen that no such notice was given and consequently the question of default on the part of the petitioner never arose and consequently the question of termination did not arise; that the learned single Judge has not taken into consideration the terms of the clauses in the agreement, particularly, clause Nos. 13, 14.2 and 16 while passing orders in the original petitions and hence, the finding of the learned single Judge in respect of disallowing the claim, has got to be set aside.

5. On the contrary, the learned senior counsel for the 1st respondent would submit that the alleged agreement executed between the parties was not authorised by the 1st respondent nor placed before the Board of Directors of the Company and hence the agreement was not binding on the 1st respondent and was null and void and without jurisdiction; that the Arbitrator, having accepted that the petitioner was not entitled to the balance claim from 19.02.2003 onwards, has not allowed the claim from the period from 16.04.2003 to 15.07.2003; that the interest awarded was excessive; that even if there was any arbitration clause in the agreement, the petitioner can only file application before this Court for appointment of an Arbitrator and he cannot appoint an Arbitrator individually and hence, the appointment of Arbitrator and the proceedings were without jurisdiction and the order passed by the learned single Judge has got to be set aside.

6. The Court has paid its anxious consideration on the submissions made by the learned counsel on either side and made a scrutiny of all the materials available. The parties are hereinafter referred to as they are described in O.P No. 37 of 2007.

7. It is not in controversy that an agreement was entered into between the parties on 30.07.1998, in which the petitioner agreed to procure, install and operate in the amusement park ‘Kishkinta’ maintained by the 1st respondent. The parties also agreed the ratio in the collection and also the agreement was in force for a period of ten years, which was also renewable. It also stipulated for a guaranteed minimum gross collection, whereby the 1st respondent would guarantee a minimum gross collection of Rs. 10 lakhs for the first year and Rs. 8.33 lakhs for the subsequent 9 years.

8. As rightly pointed out by the learned single Judge, from the available materials and the evidence adduced, the Arbitrator has come to the conclusion that the agreement was acted upon between the parties and the Arbitrator was also appointed as per clause 16 of the said agreement. The learned single Judge has affirmed the award of the Arbitrator that the first claim of the petitioner, namely, Rs. 13,94,240/- was established along with 12% interest per annum. But in respect of the minimum guaranteed amount for the balance period, the Arbitrator has rejected the claim. The learned single Judge has agreed with the view taken by the Arbitrator, which, in the considered opinion of the Court, is not correct. It would be more appropriate to reproduce clause 16 and 14(2) of the Arbitration Agreement. Clause 16 reads as follows:

“All disputes arising out of this agreement shall be referred to an arbitrator to be agreed between the parties and failing such agreement within 10 days from the receipt of such notice in writing, the disputes or difference shall on application of either party be referred to an arbitrator nominated by the second party”

Clause 14(2) reads as follows:

“In the event the second party commits default of the terms and conditions of this agreement, the first party shall issue a written notice to the second party to make good such default within 15 days from the date of receipt of the written notice specifying the nature of default and if the second party fails to make good the default, the first party shall be entitled to terminate this agreement on the 16th day after such notice. If the first party delays in enforcing, waives or otherwise fails to enforce its rights hereunder, such delay, waiver or failure shall not operate as waiver of any breach, waiver of default or right occurring or accruing after such default. In the event the first party exercising the rights, the first party shall take over the ownership of the said ride at the then market value as certified by a Chartered Engineer or at the depreciated value as per Income Tax Act, whichever is higher, to run and operate the facilities and to cease all payments foreseen in this agreement as payable to the second party to recover all the damages and loss of profit to which the first party is entitled to”.

9. While rejecting the claim as to the minimum guaranteed amount for the balance period, the Arbitrator has stated as follows:

“Regarding the claim for the balance period, it must be pointed out that the respondent herein had on 19.02.2003 informed the claimant that the Ride had become unsafe. However, no reply has been given to the said letter which only leads to the conclusion that the claimant did not dispute this fact”.

10. It is clear from Clause 13, the agreement would be in force for a period of ten years from the date of commercial operation of the ride thereafter, unless terminated by the conduct of the parties or as provided in the agreement. Nothing is noticed by the Court to hold that the agreement was terminated by the conduct of the parties. As per clause 14(2), whenever there was a default on the part of the second party, namely, the petitioner, the first party, namely, the first respondent, should issue a written notice to make good such default within 15 days from the date of receipt of the written notice specifying the nature of default. Secondly, if the second party failed to make good the default, the first party was entitled to terminate the agreement on the 16th day after such notice. Admittedly, the 1st respondent has sent a letter on 19.02.2003 stating that the ride has become unsafe and this letter was relied on by the Arbitrator to reject the claim. It is pertinent to point out that the letter dated 19.02.2003 sent by the 1st respondent was only a reply to the petitioner's lawyer's notice for recovery of the dues. It is not in controversy that the 1st respondent, who fell in due for a long time, had not made the payment, which necessitated the petitioner to send a lawyer's notice for recovery of the dues.

11. It could be seen from the agreement that if the second party, namely, the petitioner, was found in default of the terms and conditions, there could not be any impediment for the first party, namely, the 1st respondent, to issue a written notice to make good such default within 15 days. No such notice was issued by the 1st respondent. Apart from that, even after that notice, if there was a failure on the part of the petitioner, the first party/1st respondent could terminate the contract. But, in the instant case, neither a notice was issued pointing to the default that the ride has become unsafe nor put the petitioner on notice to set it right and there was no termination of the agreement and all would go to show that the 1st respondent has committed a default in payment of the dues for a long period and after receipt of the lawyer's notice from the petitioner, has come forward with a false plea that the ride had become unsafe. Having failed to make payment of the dues, as agreed upon by the parties, it is not proper on the part of the 1st respondent to make a false plea to deny the lawful claim of the petitioner. Under such circumstances, the reasoning adduced by the Arbitrator, which was subsequently affirmed by the learned single Judge, has got to be rejected as unsound and thus, the petitioner is entitled to the balance, as claimed by him for the period from 15.07.2003 to 15.07.2009 and hence, the contentions putforth by the learned senior counsel for the 1st respondent do not carry any merit and they are liable to be rejected.

12. In so far as the interest is concerned, the Arbitrator has awarded 12% interest, which is just and reasonable and hence, it has got to be affirmed.

Accordingly, (i) O.S.A No. 34 of 2009 is allowed, leaving the parties to bear their costs.

(ii) O.S.A No. 144 of 2009 is dismissed, leaving the parties to bear their costs. Consequently, connected M.P is closed.