Marine Container Services (South) Pvt. Ltd. v. Atma Steels Ltd..

K.S Gupta, J.— This order will govern the disposal of OMP 51/97 & AA 127/97.

AA 127/97 under Section 11(3) of Arbitration and Conciliation Act, 1996 (for short ‘the Act') was filed, interalia, alleging that petitioner is a incorporated under the Companies Act, 1956. A. Raja Financial Advisor had been authorised by the petitioner company to sign and verify the petition under a power of attorney dated 18th October 1995. Petitioner company acquires machines/equipments and leases them out to aspiring lessees. The respondent was/is carrying business in steels and approached the petitioner in New Delhi for leasing steel rollers. In pursuance of lease agreement executed between the parties on 22nd March 1993 the petitioner gave steel rollers on lease to the respondent. Duration of lease was 3 years. Under the lease agreement the lease money was agreed to be Rs. 1,75,000/- for first 11 months and Rs. 2,75,000/- for balance 25 months. The respondent paid Rs. 25 lakhs by way of advance and this amount was agreed to be adjusted @ Rs. 1 lakh per month towards lease money. It is further alleged that respondent issued post dated cheques for payment of said lease money. So far the respondent has been paid Rs. 31,50,000/- including amount of advance towards lease money leaving a balance of Rs. 31,50,000/- payable by it. As post dated cheques towards balance lease money issued by the respondent including A—3 to A-17 filed with the petition were dishonoured, the petitioner was compelled to file a complaint on the basis thereof under section 138 of Negotiable Instrument Act against the respondent. It is also alleged that respondent further owes a sum of Rs. 24,39,075/- towards additional finance charges and Rs. 10,000/- as bank charges. Since the respondent to pay the balance total amount of Rs. 55,99,075/- the petitioner company sent a notice on 18th January 1997 calling upon it to pay that the said amount and also to deliver the steel rollers. This notice was served on the respondent on 22nd January 1997 but it has neither sent reply thereto nor complied with the demand made therein. It is further stated that under article 32 of the lease agreement dated 22nd March 1993 the disputes/differences between the parties are to be referred to arbitration of two arbitrators, one to be nominated by each of them. By the letter dated 24th February 1997 sent to the respondent the petitioner invoked the said arbitration clause. In Para No. 14 of petition the details of disputes which have arisen for determination are given as under:—

“a) Whether the respondent is liable to pay a sum of Rs. 31,50,000/- towards principal ?

b) Whether the respondent is liable to pay interest charges of Rs. 24,39,075/- until 24th February 1996 ?

c) Whether the respondent is liable to pay interest @ 36% p.a on Rs. 31,50,000/- from 25th February 1996 till the date of realisation ?

d) Whether the respondent is liable to pay Rs. 10,000/- towards bank charges ?

e) Whether the respondent is liable to pay lease charges @ Rs. 1,75,000/- per month from 23rd March 1996 until delivery of equipments; and

f) Whether the respondent is liable to return the steel rollers in working condition and if they are not in working condition whether the respondent is liable to pay compensation ?”

It is stated that respondent has failed to nominate an arbitrator within 30 days from the receipt of said letter dated 24th February 1997. It was prayed that Arbitrators Tribunal be constituted by the court and said disputes be referred to it for determination.

Respondent contested the petition by filing reply. It is denied that petition has been signed and verified by A. Rajasekarn or that he is an authorised signatory under the power of attorney dated 18th October 1992. This power of attorney is not attested/authenticated in accordance with law. Although it is admitted that answering respondent is carrying on business in steels but it is denied that it executed any agreement on 22nd March 1993 or steel rollers were delivered under this agreement to it by the petitioner. It is claimed that blank papers containing signatures on behalf of answering respondent have been misued by the petitioner. It is denied that answering respondent paid Rs. 25 lakhs towards advance which carried no interest. It is alleged that blank cheques were exchanged with a view to create book entry. It is denied that petitioner was to be paid lease amount @ Rs. 1,75,000/- for 36 months and said amount of advance was to be adjusted @ Rs. 1 lakh per month towards the amount of lease instalments as alleged. Dishonoured cheques marked Es. A-3 to A-17 filed along with the petition, are without consideration. It is denied that notice dated 18th January 1997 was served on answering respondent. It is stated that no such notice could be served upon it as at that time flat No. 201, Ansal Bhawan was not in possession of answering respondent. It had delivered vacant possession of said flat pursuant to the decree passed by Ms. Indermeet Kochhar, Additional District Judge in case Lt. Col. Gurdev Singh v. Atma Steel Ltd. It is pleaded that all proceedings against answering respondent have been ordered to be suspended by Board for Industrial and Financial Reconstruction under the provisions of SICA. Receipt of petitioner's letter dated 24th February 1997 has, however, not been specifically denied. It is asserted that there cannot be any reference to arbitration of the alleged disputes as claimed by petitioner company.

In the rejoinder filed to the reply, it is emphatically denied that petitioner has misused the blank papers containing signatures on behalf of respondent or that cheques were issued by the respondent to create book entry as alleged. It is stated that authentication of power of attorney is not required under the Registration Act.

In aforesaid OMP under Section 9 of the Act which came to be filed about one and a half months before the filing of said AA 127/97, the petitioner company has sought the relief for delivery of steel rollers by the respondent in addition to making direction to the respondent to pay Rs. 19,25,000/- towards lease charges for the period April 1996 to February 1997 and make payment of lease charges thereafter @ Rs. 1,75,000/- per month till the disposal of petition. Since the averments made in OMP and the reply filed thereto by respondent are similar to those made in AA 127/99 and reply filed thereto, those need not be repeated here.

I have heard Ms. Bina Gupta for petitioner and Sh. Jagdeep Singh for respondent in both the matters.

In support of the averments made in petition that petition is signed and verified by a duly authorised person, the petitioners has filed affidavit of A. Rajsekaran as also photostat copy of power of attorney dated 18th October 1995. In the face of this affidavit and power of attorney the objection taken in reply about petition not being signed and verified by A. Rajasekran and h, being not a constituted attorney/authorised signatory of petitioner, deserves to be repelled being without merit.

The petitioner is alleged to have sent notice dated 18th January 1997 by registered AD post to the respondent calling upon it to pay the amounts due as also to handover possession of steel rollers. This notice is stated to be served on the respondent on 22nd January 1997. Letter dated 24th February 1997 is further alleged to have been sent by the petitioner to the respondent invoking arbitration clause No. 32. Photostat copies of said notice dated 18th January 1997, postal receipt and original AD bearing the date of receipt as 22nd January 1997 are placed on the files. It is stated in the notice that steel rollers were leased out to the respondent under the agreement executed on 22nd March 1993, the respondent paid Rs. 25 lakhs as advance; the respondent had agreed to pay Rs. 1,75,000/- per month towards lease charges until the expiry of 36 months and said amount of advance which was not to carry any interest, was to be adjusted towards lease charges @ Rs. 1 lakh per month from the commencement of 12th instalment. It is further stated therein that respondent has failed to pay 18 instalments, totalling a sum of Rs. 31,50,000/- and petitioner is entitled to recover that amount together with additional finance charges. The respondent was, therefor, called upon to clear the said amount within 21 days and deliver possession of steel rollers within two days of the receipt of notice failing which legal action was thereatened to be initiated against it. Said notice was sent on the address of 201, Ansal Bhawan, New Delhi. Needless to repeat that in the replies filed in both the cases receipt of said notice has been denied. It is further alleged that notice could not be served as possession of alat No. 201, Ansal Bhawan had been delivered presumably to the landlord pursuant to a decree passed by an Additional District Judge in case Lt. Col Gurdev Singh v. Atma Steels Ltd. It is pertinent to note that date, month and year of handing over possession of said flat have not been disclosed by the respondent. It may further be noticed that in OMP 51/97, by the order dated 19th March 1997 Sh. Sidharth Sharma Advocate, was appointed as Local Commissioner to visit the premises of respondent and make report with regard to the condition of steel rollers and prepare inventory thereof. The report of Local Commissioner dated 11th April 1997 is placed at pages 45 to 47 on the file of OMP. A bare perusal thereof goes to show that the Local Commissioner alongwith officials of petitioner company on 5th April, 1997 visited the office of respondent in Ansal Bhawan, Connaught Place where Harbhajan Singh, director of respondent met and he on being apprised about the court's order dated 19th March 1997, hesitatingly told the Local Commissioner that steel rollers were lying in the factory at Ghaziabad. Thereafter on visiting respondent's factory at Ghaziabad the Local Commissioner found rollers lying there in good shape. Inventory thereof was prepared. This report clearly indicates that respondent was running office in Ansal Bhawan atleast upto 5th April 1997 and the plea raised in reply that notice could not have been served on Ansal Bhawan's address on 22nd January 1997 is totally dishonest. Aforesaid letter dated 24th February 1997 invoking arbitration clause was also sent by registered post. Copies of that letter and postal receipt too have been filed by petitioner company. Suffice it to say that in reply the respondent has not specifically denied the receipt thereof. Otherwise also as this letter was sent much before 5th April 1997 on the address of Ansal Bhawan, the respondent must have received it. At the cost of repetiton it may be stated that according to the respondent blank papers containing signatures on behalf of respondent have been misued for fabricating lease agreement dated 22nd March 1993 by the petitioner company. It has not been explained in the reply under what circumstances the respondent handed over alleged blank papers to petitioner company. Further, in the reply issuance of 36 post dated cheques including dishonoured cheques marked A-3 to A-17 is admitted by the respondent. In support of the stand taken that cheques were issued to create book entry and are without consideration the respondent seems to have neither served a notice or initiated any legal action for return of atleast dishonored cheques and/or claiming refund of amount of the cheques which were got encashed by petitioner company. In ordinary course of human conduct, after the receipt of said notice dated 18th January, 1997, the respondent should have sent a reply thereto denying the averments made therein. Thus, prima facie examination of said facts reveals that it is not a case of there being no transaction between the parties in regard to leasing of steel rollers and payment of lease charges by the respondent. Based on prima facie view the disputes as detailed in petition have to be referred to arbitration pursuant to arbitration clause No. 32. Moreover, Section 16 of the Act empowers the Arbitral Tribunal to rule on the objection of respondent with regard to non-existence of said arbitration agreement. In support of this view of mine, I am supported by a decision of the Supreme Court in Nimet Resources Inc. and another v. Essar Steels Ltd., 2000 (3) Arb.L.R 342 (SC). The order dated 22nd December 1997 heavily relied on behalf of respondent passed by BIFR in case No. 185/97 Re; Atma Steels Ltd, would not come in the way in referring the disputes in question to arbitration. Section 22(1) of Sick Industrial Companies (Special Provisions) Act, 1985 has no applicability as the rollers allegedly given on lease by petitioner company cannot be regarded as the property of respondent within the meaning of that section. (See: M/s. Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, Madras, AIR 1992 SC 1439 and M/s. Kotak Mahendra Finance Limited v. M/s. Deve Paints Limited, AIR 1997 Bombay 401).

Under aforesaid arbitration clause 32, reference of disputes/differences is to be made to two arbitrators, one to be nominated by each of the parties. Sub-section (1) of Section 10 of he Act says that parties are free to determine the number of arbitrators provided that such number shall not be an even number. Sub-section (2) provides that following the determination referred to in sub-section (1) the Arbitral Tribunal shall consist of a sole arbitrator. Since the respondent did not respond to petitioner's aforesaid letter dated 24th February 1997, taking note of said Section 10,the disputes as detailed in Para 14 in AA 127/97 need to be referred to a sole arbitrator. In the facts and circumstances, the reliefs as claimed in said OMP cannot be granted.

For the foregoing discussion, OMP 51/97 is dismissed while AA 127/97 is allowed with costs. Justice P.K Bahri (Retd) is appointed as sole arbitrator to decide the disputes referred to in Para 14 of the petition. He will fix his own fee which will be paid equally by the parties. He will make and publish the award in accordance with law. Parties will appear before him on 18th December 2000 at 11.00 AM.

Let a copy of this order be sent to the said arbitrator for information.