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Smart Summary

Factual and Procedural Background

The appellant, M/s Janardhana Enterprises, operates the "KSRTC - Athithya Midway Plaza" with restaurant and hotel facilities under two sub-lease agreements dated 20.04.2015 with the respondent, M/s Fine Serve Hospitality Services (India) Pvt. Ltd. The respondent holds a parental license deed dated 07.02.2011 with the Karnataka State Road Transport Corporation (KSRTC) on a Build Operate and Transfer (BOT) basis. The dispute arose over payment of rent under these agreements.

The appellant initiated O.S.No.97/2015 seeking protection against dispossession without due process. During these proceedings, the respondent filed A.A.No.3/2017 under Section 9 of the Arbitration and Conciliation Act, 1996 ("Act") seeking interim relief for recovery of arrears of rent, which was allowed by the Principal District and Sessions Judge, Chitradurga. The respondent also filed CMP No.185/2017 before this Court seeking appointment of an arbitrator under Section 11(6) of the Act, which was dismissed on 09.08.2018 with liberty to pursue remedy in accordance with law, following the Supreme Court's decision in Himangni Enterprises vs. Kamaljeet Singh Ahluwalia. The appellant challenged the Section 9 order by filing the present appeal under Section 37(1)(b) of the Act.

Legal Issues Presented

  1. Whether the dispute between the parties qualifies as an arbitral dispute under the Arbitration and Conciliation Act, 1996.
  2. Whether the interim relief granted under Section 9 of the Act by the Trial Court was sustainable, considering the dismissal of the petition for appointment of arbitrator and the limited duration of interim measures under Section 9(2) of the Act and Rule 9(4) of the Karnataka Arbitration Rules, 2001.
  3. Whether the Trial Court erred in allowing the respondent liberty to approach the arbitrator for future rent arrears despite the dismissal of the arbitration petition.

Arguments of the Parties

Appellant's Arguments

  • The dispute is not an arbitral dispute within the meaning of the Arbitration and Conciliation Act.
  • The interim relief granted under Section 9 has a limited life under Section 9(2) of the Act and Rule 9(4) of the Karnataka Arbitration Rules, 2001, and hence cannot be sustained indefinitely.
  • The dismissal of CMP No.185/2017 by this Court on the ground that the dispute is not arbitral in nature (per Himangni Enterprises judgment) supports the contention that even entertaining the Section 9 application is untenable.

Respondent's Arguments

  • The Trial Court rightly granted interim relief under Section 9 after appreciating the material facts, including the appellant withholding rent without reasonable cause.
  • The dismissal of CMP No.185/2017 does not preclude the respondent from invoking Section 9 of the Act for interim relief based on the merits of the case.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Himangni Enterprises vs. Kamaljeet Singh Ahluwalia, 2017 (10) SCC 706 Determination that disputes arising from leave and license agreements are not arbitrable and civil suit is maintainable. The Court relied on this precedent to hold that the dispute under the lease and license agreement is not an arbitral dispute, supporting dismissal of the petition for appointment of arbitrator and invalidating the Trial Court's liberty to approach arbitrator for future rent arrears.
M/s Paton Constructions Private Ltd. vs. M/s Lorven Projects Ltd. and another, ILR 2017 KAR 3016 Section 9(2) of the Arbitration Act mandates commencement of arbitral proceedings within ninety days of interim relief; otherwise, interim orders stand vacated. The Court applied this principle to hold that the interim relief granted under Section 9(1) automatically stands vacated after expiry of three months in absence of commencement of arbitral proceedings, rendering the impugned order unsustainable.

Court's Reasoning and Analysis

The Court observed that the respondent's petition for appointment of arbitrator under Section 11(6) was dismissed with liberty to pursue remedies in accordance with law, based on the Supreme Court's ruling in Himangni Enterprises. This dismissal reached finality, establishing that the dispute is not arbitrable under the Act.

The Trial Court failed to properly consider the dismissal order and erroneously allowed the respondent liberty to approach the arbitrator for future rent arrears, which was contrary to the High Court's decision in CMP No.185/2017.

The Court emphasized the mandatory nature of Section 9(2) of the Act and Rule 9(4) of the Karnataka Arbitration Rules, 2001, which require that arbitral proceedings commence within a prescribed period (ninety days or three months) following an interim order under Section 9(1). Since no arbitral proceedings were initiated within this period, the interim order automatically stood vacated.

Applying the precedent from M/s Paton Constructions, the Court concluded that the interim relief granted by the Trial Court was no longer legally effective and thus unsustainable.

Holding and Implications

The appeal is allowed and the impugned judgment and order dated 30.11.2018 passed by the Principal District and Sessions Judge, Chitradurga in A.A.No.3/2017 under Section 9 of the Arbitration and Conciliation Act is set aside.

The respondent is granted liberty to pursue recovery of rents through appropriate legal remedies in accordance with law, notwithstanding limitation periods under the Limitation Act, 1963. The Court’s decision does not establish any new precedent but clarifies the non-arbitrability of the dispute and the limited duration of interim relief under Section 9.

To access the original judgment, please Sign In or Subscribe.

    M/S. JANARDHANA ENTERPRISES v. M/S. FINE SERVE HOSPITALITY

    IN THE HIGH COURT OF KARNATAKA AT BENGALURU

    DATED THIS THE 23RDDAY OF JUNE, 2021

    PRESENT

    THE HON'BLE MRS.JUSTICE S.SUJATHA

    AND

    THE HON'BLE MR. JUSTICE E.S.INDIRESH

    M.F.A.No.668/2019 (AA)

    BETWEEN :

    M/s JANARDHANA ENTERPRISES

    A REGISTERED PARTNERSHIP FIRM

    HAVING ITS OFFICE AT VEDASRI,

    OPPOSITE TO SUBHAMANGALA

    KALYANA MANTAPA, 60 FEET ROAD,

    2NDSTAGE, VINOBHA NAGAR,

    SHIVAMOGGA - 577201 REP BY ITS PARTNER & AUTHORIZED PERSON Mr. M.S.MURALIDHARA ARAS ...APPELLANT

    (BY SRI ASHOK HANDE, ADV.)

    AND :

    M/s FINE SERVE HOSPITALITY

    SERVICES (INDIA) PVT. LTD.,

    A PVT. LTD. COMPANY INCORPORATED

    UNDER THE PROVISIONS OF COMPANIES

    ACT 1956, HAVING ITS REGISTERED

    OFFICE AT # 528, 2NDMAIN, 2NDCROSS,

    2NDPHASE, 5THSTAGE, BEML LAYOUT,

    RAJARAJESHWARI NAGAR, BANGALORE- 560098

    REP BY ITS MANAGING DIRECTOR

    Mr. SHASHIDHARA PADUVARY …RESPONDENT

    (BY SRI PRAVEEN HEGDE, ADV.)

    1

    THIS M.F.A. IS FILED UNDER SECTION 37(1)(b) OF

    ARBITRATION AND CONCILIATION ACT, PRAYING TO SET ASIDE

    THE ORDER PASSED BY THE HON'BLE PRINCIPAL DISTRICT & SESSIONS JUDGE, CHITRADURGA, IN A.A.No.3/2017 DATED 30.11.2018-ANNEXURE-A, IN ALLOWING THE PETITION/APPLICATION FILED BY THE RESPONDENT UNDER

    SECTION 9 OF THE ARBITRATION AND CONCILIATION ACT.

    THIS APPEAL COMING ON FOR HEARING, THIS DAY,

    S. SUJATHA, J., DELIVERED THE FOLLOWING:

    J U D G M E N T

    This appeal is filed by the appellant under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 ('Act' for short) challenging the judgment and order dated 30.11.2018 passed by the Principal District and Sessions Judge, Chitradurga ('Trial Court' for short) in A.A.No.3/2017, whereby the petition/application filed by the respondent herein under Section 9 of the Act has been allowed holding that the appellant herein - M/s Janardhana Enterprises shall pay Rs.81,56,124/- as arrears of rent to the respondent as on October, 2017 (i.e., total Rs.1,26,14,330 - Rs.44,58,206 (already paid) = Rs.81,56,124/-) within a period of 30 days. It has been further observed that the parties are at liberty to

    2

    approach before the Arbitrator under the provisions of law for their grievances and for arrears of future rent.

    2. The parties are referred to as per their status before this Court.

    3. Succinctly stated the facts are that the appellant is running "KSRTC - Athithya Midway Plaza"

    having restaurant and hotel facility situated in Sy.No.79/3 on NH4 at Metikurki, Hiruyur, Chitradurga District, Karnataka, under two separate sub-lease agreements both dated 20.04.2015 with the respondent who in turn has parental license deed dated 07.02.2011 with the Karnataka State Road Transport Corporation (KSRTC) on Build Operate and Transfer (BOT) basis. It is the contention of the respondent that it could not run the said midway plaza after taking over the project from KSRTC and constrained to find a new enterprise to run the show. Accordingly, the respondent entered into agreement of sub-lease of hotel etc., and agreement of

    3

    sublease of lodge, both dated 20.04.2015, with the appellant in view of the express permission of sub-lease under clause 16 in the parental deed of license dated 07.02.2011. The dispute has arisen between the parties regarding the payment of rent.

    4. It transpires that the appellant has filed O.S.No.97/2015 against the respondent before the Hon'ble Additional Civil Judge and JMFC, Hiriyur, seeking protection against the dispossession without due process of law. During the pendency of the said proceedings, the respondent has filed A.A.No.3/2017 before the Hon'ble Principal District and Sessions Judge, Chitradurga under Section 9 of the Act seeking interim relief of recovery of arrears of rent amongst other reliefs which was contested by the appellant. Meanwhile, the respondent has filed CMP No.185/2017 before this Court seeking appointment of Arbitrator under Section 11(6) of the Act and the same came to be

    4

    dismissed on 09.08.2018 recording the submissions made on behalf of the respondent/petitioner therein that in view of the dictum of the Hon'ble Supreme Court in the case of Himangni Enterprises vs. Kamaljeet Singh Ahluwalia reported in 2017 (10) SCC 706, the petition may be dismissed with liberty to pursue its remedy in accordance with law. Subsequent to the dismissal of the CMP No.185/2017, the impugned judgment and order has been passed by the Trial Court as aforesaid.

    5. Being aggrieved by the said judgment and order, the present appeal has been filed by the appellant.

    6. Learned counsel for the appellant submitted that the Trial Court grossly erred in allowing the petition filed under Section 9 of the Act. The ground of challenge to the impugned judgment and order is primarily on two counts. Firstly, that the subject

    5

    dispute is not an arbitral dispute coming within the purview of the Act. Secondly, interim relief granted as an interim measure under Section 9 of the Act has a limited life as per Section 9(2) of the Act and Rule 9(4) of the High Court of Karnataka Arbitration (Proceedings before the Courts) Rules, 2001 ('Rules, 2001' for short). It was further argued that the order passed by this Court in CMP No.185/2017 dismissing the petition on the submission made by the learned counsel appearing for the respondent herein that it is not an arbitral dispute in terms of the judgment of the Hon'ble Apex Court in Himangni Enterprises, supra, fortifies the same. Even entertaining the petition/application under Section 9 of the Act is wholly untenable.

    7. Learned counsel appearing for the respondent supporting the impugned judgment and order submitted that the interim relief has been rightly granted by the Trial Court having appreciated the

    6

    material aspects inasmuch as payment of rents withheld by the appellant without any reasonable cause. Learned counsel argued that dismissal of the CMP No.185/2017 would not preclude the respondent in invoking Section 9 of the Act seeking for the relief having regard to the merits of the case.

    8. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.

    9. As could be seen from the material on record, it cannot be gainsaid that CMP No.185/2017 filed by the respondent under Section 11(6) of the Act to refer the dispute between the parties to the arbitrator to settle the same as per the terms of the agreements dated 20.04.2015 has been dismissed and the same has reached finality. In such circumstances, in our opinion, the argument advanced by the learned counsel appearing for the appellant stands on a terra firma. It is

    7

    apparent that the Trial Court has passed the impugned judgment and order subsequent to the order passed by this Court in CMP No.185/2017 on 09.08.2018.

    10. In paragraph 10 of the impugned judgment, the Trial Court though noticed the filing of the CMP No.185/2017 before this Court sans looking into the said order of this Court, merely observed that the said petition came to be dismissed as not pressed. It is significant to note that the order of this Hon'ble Court is not dismissal simplictor as not pressed. For the purpose of clarity, we find it apposite to extract the relevant portion of the said order which reads thus:

    "After arguing the matter for some time, Sri. S. Shaker Shetty, learned counsel for the petitioner fairly submits that in view of the dictum of the Hon'ble Supreme Court in the case of Himangni Enterprises vs. Kamaljeet Singh Ahluwalia reported in 2017 (10) SCC 706, the petition may be dismissed with

    8

    liberty to pursue his remedy in accordance with law.

    The said submission is placed on record.

    Accordingly, the petition is dismissed with liberty as prayed for."

    11. The learned counsel for the appellant has referred to Himangni Enterprises, supra. The Hon'ble Apex Court in Himangni Enterprises, supra in paragraphs 19, 20, 21 has held thus:-

    "19. So far as Natraj Studio's case (AIR 1981 SC 537) (supra) is concerned there also, the landlord had filed a civil suit against the tenant in the Small Causes Court, Bombay claiming therein the tenant's eviction from the leased premises. There also, the tenant was inducted pursuant to "leave and license" agreement executed between the landlord and the tenant.

    20. The tenant filed an application under Section 8 of the Arbitration Act, 1940 contending therein that since the "leave and license" agreement contained an arbitration

    9

    clause for resolving all kinds of disputes arising between the parties in relation to the

    "leave and license" agreement and the disputes had arisen between the parties in relation to the "leave and license" agreement, such disputes could only be resolved by the arbitrator as agreed by the parties in the agreement. It was contended that the civil suit was, therefore, not maintainable and the disputes for which the suit has been filed be referred to the arbitrator for their adjudication.

    21. This Court (Three Judge Bench) speaking through Justice O. Chinnappa Reddy rejected the application filed by the tenant under Section 8 of the Act and held, inter alia, that the civil suit filed by the landlord was maintainable. It was held that the disputes of such nature cannot be referred to the arbitrator."

    12. In the light of the said judgment, the dispute arising out of the lease and license agreement as accepted by the respondent in the CMP cannot be

    10

    construed as an arbitral dispute. The dismissal of the petition seeking for the appointment of Arbitrator has not been considered by the Trial Court in a right perspective. The Trial Court's order in reserving liberty to approach the Arbitrator under the provisions of the Act for their grievance and for arrears of future rent is in direct contravention of the decision rendered by this Court in CMP. No such direction issued by the Trial Court contrary to the decision of the Hon'ble High Court is sustainable.

    13. Sub-Section (2) of Section 9 of the Act contemplates that where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.

    11

    14. Sub-section [1](ii) of Section 9 of the Act provides that a party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court for an interim measure of protection in respect of any of the matters specified therein.

    15. As per sub-rule (4) of Rule 9 of the Rules, 2001, in the case of an application for interim measure made before initiating arbitral proceedings, if the arbitral proceedings are not initiated within three months from the date of the presentation of the application under Section 9, any interim order granted shall stand vacated without any specific order being passed by the Court to that effect.

    16. These provisions are considered by the co- ordinate bench of this Court in M/s Paton Constructions Private Ltd., vs. M/s. Lorven Projects

    12

    Ltd., and another reported in ILR 2017 KAR 3016 and it is held that as per sub-section (2) of Section 9 of the Act, where a Court passes an order for any interim measure under Section 9(1) of the Act before commencement of the arbitral proceedings, the arbitral proceedings shall be commenced within the period stated in the sub-section. Commencement of the arbitral proceedings within the period stated in Section 9(2) of the Act is made mandatory by parliament to see that an order for any interim measure passed under Section 9(1) shall not continue to be in force indefinitely in the absence of the arbitral proceedings. Thus, it is held that the commencement of arbitral proceedings within the period stated in sub-section (2) is a requirement for the legal effectiveness of the order passed for any interim measure under Section 9(1) of the Act. Any other interpretation of sub-Section (2) will defeat the intention of the Parliament.

    13

    The said judgment is squarely applicable to the facts of the present case.

    17. Thus, in terms of sub-Section (2) of Section 9 of the Act and sub-rule (4) of the Rule 9 of the Rules, 2001, the impugned judgment and order passed under sub-section (1) of Section 9 as an interim measure stands automatically vacated on the expiry of three months from the date of presentation of the application under Section 9 of the Act. Viewed from any angle, the order impugned is not sustainable.

    18. Hence, the following

    ORDER

    (i) Appeal is allowed.

    (ii) The impugned judgment and order dated 30.09.2018 passed in A.A.No.3/2017 by the learned Principal District and Sessions Judge, Chitradurga is set aside. However, liberty is reserved to the

    14

    respondent/petitioner to pursue his remedy in accordance with law for recovery of rents in terms of the agreement and sub lease agreement of even date 20.04.2015 from the date of the rents become due

    notwithstanding the period of limitation prescribed under the Limitation Act, 1963.

    Sd/-

    JUDGE

    Sd/-

    JUDGE

    PMR

    15

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    M/S. JANARDHANA ENTERPRISES v. M/S. FINE SERVE HOSPITALITY
    (Jun 23, 2021)