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2011 Supreme(Kar) 11
High Court of Karnataka
THE HONOURABLE MR. JUSTICE JAWAD RAHIM
Munnu Bai, Bangalore & Others
Versus
M/s. B & B Infrastructure Ltd., Bangalore, rep. by its Managing Director & Others
C.R.P.No.301 of 2010
Decided on : 05-01-2011
For the Petitioners:S. Sreevatsa, Sr. Counsel along with Sangamesh R.B. Advocates.
For the Respondents: R1 to R3 -V. Sreenidh for Sreenidhi, Law Chambers.
Headnote:ARBITRATION AND CONCILIATION ACT, 1996 - Section 8: [Jawad Rahim, J] Revision against court referring dispute between the parties for Arbitration - Validity - Held, The provision of Section 8 of the Arbitration Act envisages the judicial authority before whom an action is brought in a matter which is the subject matter of an arbitration agreement his statement, refer the parties to Arbitration. It refers to ’parties to the arbitration agreement’. Sub-Section (1) and (2) cannot be read in isolation, but have to be read with sub-Section (1) of Section 7 of the Act which defines an arbitration agreement.
"Arbitration agreement" means ’an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.’ The form of agreement is spelled out in sub-Section (2). Thus, a combined reading of Sections 7 and 8 shows - firstly, to ascertain existence of an arbitration agreement and secondly, the parties to the agreement.
Section 2(h) of the Act defines ’party’ as ’a party to an arbitration agreement’. In the instant case, the joint development agreement is inter-se between the petitioner and 1st respondent/Company, represented by its managing director-Bhaskar Raju and Anupama Raju. Indisputably the arbitration clause in the agreement dated 15.5.2003 has to be construed as to mean and include only the petitioners and 1st respondent/Company and such agreement under Section 7 of the Act will be an arbitration agreement between those parties only. It undoubtedly excludes the 3rd defendant.
As the petitioners have made serious allegations against the 3rd defendant of alleged fraud to benefit the 1st respondent/Company and as the 3rd defendant is not a party to the arbitration agreement, the Trial Court could not have referred the dispute to arbitration in exercise of power conferred under Section 8. Being of this view, the impugned order is not sustainable as it amounts to frustrating the legal course adopted by the petitioners against the person who is not party to the arbitration agreement.
ARBITRATION AND CONCILIATION ACT, 1996 - Sections 8 & 7: [Jawad Rahim, J] Reference to arbitration - Dispute regarding joint development agreement - Agreement executed inter se between petitioners and respondent company - Arbitration clause in agreement was meant for and included only petitioners and respondent Company, as said agreement was an arbitration agreement only between parties and excluded Managing Director of Company - Serious allegations were made against Managing Director of alleged fraud to benefit company - Held, Said Managing Director not being party to arbitration agreement, reference of dispute to arbitration would be improper.
1. Petitioners herein have called in question the order dated 18.10.2010 in O.S.5146/10 (on I.A.III) filed under Section 8 of the Arbitration and Reconciliation Act, 1996, whereby the learned trial judge has referred the dispute between the parties for arbitration.
2. Heard Sri S. Srivatsa, learned senior counsel representing the petitioners and Sri Sreenidhi for the contesting respondent.
3. Before adverting to the contentious issues raised, legal and factual, urged by the learned counsel on both sides, a brief reference to the factual matrix would be necessary. It is:
a) Petitioners claim to have transacted with M/s B and B Infrastructure Limited, a company registered and incorporated under the Companies Act, 1956, (hereinafter referred to as the 1st respondent company, for short) for joint development of the
property owned by them. The terms and conditions of the venture were incorporated into an agreement dated 15.5.2003 styled as ‘Agreement for Development and Marketing’ which contained several covenants for putting the project in execution. However, the main condition appears to be that 1st respondent company would invest
its money and build residential and commercial complexes on the property which would be marketed to prospective buyers and the share of the petitioners together as also the 1st respondent company would be in the ratio of 30:70. In other words, after the project is complete, 1st respondent company would be entitled to 70% share in the
superstructure so built to use it in the manner it desires for commercial exploitation. Similarly, petitioners are reserved the right to utilize 30% of the structure in terms of the agreement.
b) In pursuance to the agreement, petitioners appear to have parted with their land on which construction commenced, but is not yet complete. During this period, certain events occurred, straining the relationship between the parties, of course not to the extent of severing the tie created under the agreement. The agreement subsists and is enforceable against each other.
c) It is also material to note and as is canvassed by the learned counsel on both sides, petitioners are joint owners who joined together for a common cause to partake in the project and entered into binding contract with the 1st respondent company, a juristic
person. However, it is on record that the juristic person was represented by its managing director, Sri S.K. Bhaskar Raju and director, Smt. Anuipama B. Raju. They are no doubt signatories to the agreement in question, but have done so as representing M/s B & B Infrastructure Limited.
d) To ensure smooth progress of the project and its execution, petitioners together executed a deed of general power of attorney in favour of the 1st respondent company dated 15.5.2003 on the date of the agreement itself appointing the 1st respondent
company as its attorney to present, do and perform all acts, deeds and things which they would do to complete the project. The authority so conferred is spelled out in the deed annexed to the petition. It is not in dispute.
e) The grievance of the petitioners is, in the recent past, they have learnt that the director of the company, Smt. Anupama Raju allegedly misused the power of attorney executed in favour of the company and executed a deed of sale dated 11.11.2005 in favour of the 1st respondent company (party to the grant) selling unto it 70% of the
undivided share in the immovable property which was made available for the joint venture. Petitioners allege such transfer by Anupama Raju was without valid authority as she had, at no point of time, been appointed by them as attorney to represent them. Besides, they also apprehend that the transfer so effected is with a sinister design to deprive them of their property and cause impediments in the claim which they can legitimately enforce under the joint agreement. In fact, a serious apprehension is entertained in their mind that the transaction virtually infringes their rig
