1

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 11TH DAY OF SEPTEMBER 2015

BEFORE

THE HON'BLE MR. JUSTICE A.V.CHANDRASHEKARA

WRIT PETITION NOs.27600-601/2015 (GM-CPC)

BETWEEN:

SMT. RASHMI SOLANKI AGED ABOUT 56 YEARS D/O AIR COMMANDER LATE JAGADEVA CHANDRA R/O AT T.3, ORCHID APARTMENTS

10TH CROSS, 1ST MAIN, GREEN PARK LAYOUT BANASWADI BANGALORE- 560 046.

…PETITIONER

(BY SRI. K. SUMAN, ADV.)

AND: SRI. B.S. SHAM SUNDER AGED ABOUT 57 YEARS S/O LATE SADASHIVAIAH R/O SRISTI RESIDENCY

R

2

MAGADI ROAD AGRAHARA DASARAHALLI CIRCLE BANGALORE- 560 040

...RESPONDENT

(BY SRI.B.M. SHYAM PRASAD SR. ADV. FOR SRI. G. B. SHARATH GOWDA, ADV.)

THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE ORDER DATED 28.3.2015 VIDE ANN-C, PASSED BY THE SENIOR CIVIL JUDGE AND JMFC., MAGADI IN O.S. NO.55/2015 WHERE UNDER THE COURT BELOW HAS GRANTED THE

INTERIM ORDER RESTRAINING THE PETITIONER FROM ALIENATING THE SUIT SCHEDULE PROPERTY AND THE ORDER DATED 22.6.2015 VIDE ANN-F, PASSED BY THE SENIOR CIVIL JUDGE AND JMFC MAGADI IN O.S. NO.55/2015 REJECTING I.A. NO.3 FILED BY THE PETITIONER UNDER SECTION 8(1) OF

THE ARBITRATION AND CONCILIATION ACT AND TO CONSEQUENTLY ALLOW I.A. NO.3 AS PRAYED FOR BY THE PETITIONER.

THESE PETITIONS HAVING BEEN HEARD AND

RESERVED FOR ORDERS ON 29.07.2015 COMING ON

FOR PRONOUNCEMENT OF ORDERS THIS DAY,

A.V.CHANDRASHEKARA, J., MADE THE FOLLOWING:

3

O R D E R

Both these petitions filed under Article 227 of

Constitution of India are directed against the order

dated 28.3.2015 and 22.6.2015 passed by the

learned Senior Civil Judge & JMFC, Magadi in

O.S.55/2015. Several grounds have been urged in

these petitions.

2. The petitioner in these petitions is the lone

defendant in the said suit bearing O.S.55/2015 filed

by the respondent herein for the relief of specific

performance of contract based on an agreement

stated to have been executed by the defendant on

19.6.2013 in his favour.

3. Parties will be referred to as plaintiff and

defendant as per their ranking before the trial court

in O.S.55/2015.

4

4. The fact leading to the filing of these

petitions are as follows:

The case of the plaintiff is that defendant, who

is the petitioner herein has executed an agreement of

sale dated 19.6.2013 agreeing to execute the regular

sale deed in respect of converted lands in erstwhile

Sy.Nos.4, 5, 6 and 7 of Varthur Narsipura Village,

Tavarekere Hobli, Bangalore South Taluk and

converted agricultural lands in erstwhile Sy.Nos.7,

10 and 13 of Varthur Village, Tavarekere Hoblic,

Bangalore South Taluk. The said agreement of sale

contains several clauses and one such clause No.12

relates to the resolution of any dispute arising

between the parties relating to agreement of sale only

through Arbitration and Conciliation Act, 1996 only.

5. Inspite of several demands, defendant did

not come forward to execute regular sale deed in

5

terms of the agreement of sale and therefore, plaintiff

was constrained to file a suit for relief of specific

performance before the court of Civil Judge & JMFC

Magadi.

6. Soon after filing of the suit, notices and

summons were issued on I.As. to the defendant

returnable by 28.3.2015. On 28.3.2015, defendant

No.1 appeared and requested the court to permit him

to file objections to the application filed under Order

39 Rules 1 and 2 of CPC. Counsel for the plaintiff

insisted for passing an order on I.A. filed under

Order 39 Rules 1 and 2 of CPC and to restrain the

defendant from alienating the suit property till the

next date of hearing. Therefore, the learned Judge

chose to grant an order of temporary injunction

against alienation to be in force till 9.4.2015.

6

Subsequently, the interim order was extended from

time to time.

7. In the meantime, the application i.e., I.A.3

was filed in terms of Section 8(1) of Arbitration and

Conciliation Act, 1996 by the defendant and

supported by the affidavit sworn to by him. As per

clause-12 of the agreement of sale, any dispute

arising between first and second party with regard to

the sale will have to be referred to a single arbitrator

to be appointed by both the parties mutually. This

application was filed before filing of the written

statement, requesting the court to refer the matter to

arbitration. Objections were filed to the application

bearing I.A.3 by the plaintiff. After hearing the

learned counsel for the parties, the learned Judge

has chosen to dismiss I.A.3 vide 22.6.2015. It is this

7

order, which is called in question on various grounds

as set out in the memorandum of petition.

8. Both the learned counsel for the parties

have submitted their arguments at length and have

relied upon number of decisions of Hon’ble Apex

Court. After going through the records and hearing

the arguments of the learned counsel for the parties:

1) When all the requirements of Section 8 of

Arbitration and Conciliation Act, 1996 are complied

with, whether refusal to refer the matter to the

arbitration under Section 8 of the Act is justified on

the ground that the vendor has created third party

right by alienating the entire portion of the schedule

land prior to or after the filing of suit for specific

performance of contract ?

2) Whether the trial court is justified in extending the

order of temporary injunction granted against

alienation of the suit schedule properties from time

to time?

8

POINT-(1)

9. Plaintiff has relied upon the agreement of

sale stated to have been executed by the defendant in

his favour dated 19.6.2013 regarding sale of land

measuring 5 acres 5 guntas of converted agricultural

land in erstwhile Sy.Nos.4, 5, 6 and 7 and converted

agricultural land measuring 9 acres 35 guntas in

erstwhile Sy.Nos.7, 19 and 13 of Varthur Narasipura

Village, Tavarekere Hobli, Bangalore South Taluk.

10. Consideration agreed between the parties

is Rs.40 Lakhs per acre. A sum of Rs.65 Lakhs is

stated to have been received by the defendant as

advance sale consideration out of the agreed sale

consideration by way of cash on the same day of

agreement i.e., 19.6.2013. He is stated to have

agreed to receive the balance consideration of Rs.5

Crores 35 Lakhs within 4 months from the date of

9

agreement of sale. Clause 12 found in the agreement

is in respect of resolution of any dispute through

arbitration. The same reads as under:

“Clause 12. In case of any dispute arises between the first party and second party with regard to the sale, arising from this agreement to sell, then such dispute is referred to a single arbitrator mutually appointed by both parties”

11. During the pendency of the suit, defendant

has chosen to alienate a portion of the schedule

property in favour of one person by name

Sri.Byatappa through a registered sale deed.

Therefore, plaintiff has filed an application under

Order 1 Rule 10(2) of CPC to bring the said Byatappa

as necessary party. In this regard, notice has been

issued to Byatappa, who has purchased the portion

of the schedule property.

12. The fact that application came to be filed

under Section 8(1) of Arbitration and Conciliation

10

Act, 1996 by the defendant in the trial court before

filing of the written statement is not in dispute. Copy

of the application I.A.3 and affidavit sworn to by the

defendant are made available. The defendant has

sworn to an affidavit stating that it is obligatory on

the part of the trial court to refer the parties to

arbitration in terms of Clause 12 of the agreement.

Objections to I.A.3 disclose that the said agreement

does not bind Sri.Byatappa, who has chosen to

purchase the property during the pendency of the

suit. Therefore, the cause of action cannot be

bifurcated. It is mentioned in the objections filed by

the plaintiff to I.A.3 that defendant has chosen to

alienate 6.15 acres in favour of Sri.Byatappa and

that he is a necessary party for effective

determination of the dispute.

13. It is argued that Sri.Byatappa is not a

party to the agreement of sale dated 19.6.2013 and

11

therefore, covenants found in the agreement of sale

do no bind Byatappa and plaintiff has independent

right to proceed the case against Byatappa in the

civil proceedings. It is argued that the defendant

having sold the portion of the property in favour of

Byatappa contrary to the covenants of the agreement

of sale, entire arbitral clause in the agreement of sale

is frustrated and hence, civil court alone is

competent to deal with the matter in terms of Section

9 of CPC.

14. The learned Judge has passed a detailed

order referring to various decisions cited by the

learned counsel before the Court. Necessary

reasoning is found in paragraphs 18 and 19 of the

order passed by the learned Judge on 22.6.2015.

What is observed by the learned Judge is that

dispute cannot be bifurcated in respect of defendant

12

and also in respect of C.Byatappa, who has

purchased the portion of the property during the

pendency of the suit. Hence, it is observed that it is

not possible to accept the contention of the

defendant. The learned Judge of the trial court has

held that the decisions relied upon by the learned

counsel for the defendant are not applicable to the

facts of the case and decisions furnished by the

learned counsel for the plaintiff are applicable to the

facts of the case. In the light of third party interest

being created during the pendency of the suit and in

the light of Byatappa being a necessary party and in

the light of application filed under Order 1 Rule 10(2)

of CPC, I.A.3 filed under Section 8(1) of Arbitration

and Conciliation Act, 1996 is stated to be not

maintainable.

15. Section 8 of the Arbitration and

Conciliation Act, 1996 is as follows:

13

8. Power to refer parties to arbitration where there is an arbitration agreement.—

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

16. Section 8 of the Arbitration and

Conciliation Act, 1996 contemplates some departures

from Section 34 of repealed Arbitration Act, 1940.

Section 34 of Arbitration Act, 1940 contemplates the

stay of the suit; whereas, Section 8 of the Arbitration

and Conciliation Act, 1996 mandates reference. The

discretion vested under Section 34 of Arbitration Act,

1940 and that has been taken away by the new Act.

14

Direction to make reference is not only mandatory,

but the arbitration proceedings to be commenced or

continued and conclusion there on by means of

arbitral award remains unhampered by the pendency

of the suit.

17. The learned senior counsel Sri.B.M.Shyam

Pasad for the respondent herein has relied upon the

decision of the Hon’ble Apex Court in the case of

Sukanya Holdings (Pvt.) Ltd. v. Jayesh. H.Pandya

and another [(2003) 5 SCC 531] to contend that

where a suit is commenced in respect of matter

which falls partly within the arbitration agreement

and partly outside and which involves parties some

of whom are parties to the arbitration agreement and

some are not so, Section 8 of the Arbitration and

Conciliation Act, 1996 is not attracted. It is further

held that there is no provision for bifurcating the suit

15

in parts one to be referred to the arbitration for

adjudication and other to be decided by the civil

court.

18. Another decision of the Hon’ble Apex

Court relied upon by the learned counsel for

respondent is Rashtriya Ispat Nigam Ltd. and

Another v. Verma Transport Co.[(2006) 7 SCC

275]. The learned counsel has further relied upon

the decision of Everest Holding Limited v. Syam

Kumar Shrivastava and others [(2008) 16 SCC

774] to contend that if there is any dispute between

the parties to the agreement arising out of or in

relation to the subject matter, all such disputes have

to be adjudicated upon and decided through the

process of arbitration. Further, in paragraph 24 of

the decision rendered in Everest Holding Limited’s

case, the Hon’ble Apex Court has held that the

16

decision rendered in Sukanya Holdings (P) Ltd. came

to be distinguished in a subsequent decision of Apex

Court in the case of Rashtriya Ispat Nigam Ltd. v.

Verma Transport co. in order to pinpoint the

distinction drawn.

19. Reliance is placed on yet another decision

of Hon’ble Apex Court in the case of Vidur Impex

and Traders Private Limited and others vs. Tosh

Apartments Private Limited and Others [(2012) 8

SCC 384]. In the said decision, provisions of Order 1

Rule 10 and 9 of CPC has been discussed with

reference to the right of the party to move the civil

court inspite of clause regarding arbitration found in

the agreement of sale. As per the facts of the said

case, there was a transfer of property during the

pendency of the suit filed for relief of specific

performance. As could be seen from the facts and

17

circumstances of the case, there was suppression of

material facts from the purview of the court and

therefore, the transferees had ordered to impose cost.

20. The learned counsel for the petitioner

Sr.K.Suman has relied upon several decisions in

support of the stand taken up by the petitioner and

one such decision of the Hon’ble Apex Court is

M/s.Sundaram Finance Limited and another v.

T.Thankam [2015 (2) Supreme 66]. In paragraph

15 of the said decision, it is specifically held that the

Court has to see whether its jurisdiction is ousted

and not whether it has jurisdiction. It is further held

that if an application has been filed in terms of

Section 8 of the Arbitration and Conciliation Act,

1996 after having complied all the requirements, civil

court has no option but to refer the parties to

arbitration. In the decision of M/s.Sundaram

18

Finance Limited, following decisions have been relied

upon:

a) P. Anand gajapathi Raju v. PVG Raju (Dead) [(2002) 4 SCC 539]

b) Hindustan Petroleum Corporation Limited v. Pinkcity Midway Petroleums [(2003) 6 SCC 503]

c) Branch Manager, Magma Leasing and Fianance Limited v. Potluri Madhvilata [(2009) 10 SCC 103]

d) Sukanya Holdings P Ltd. v. Jayesh Pandya [(2003) 5 SCC 531]

e) Orix Auto Finance (India) Limited v. Jagamandar Singh [(2006) 2 SCC 598]

21. Discussion found in paragraphs 16 and 17

in the case of Sukanya Holdings Pvt. Ltd. has been

referred to in paragraph 13 of decision rendered in

M/s.Sundaram Finance Limited. The said paragraph

13 in the case of M/s.Sundaram Finance Limited is

relevant and same is extracted hereinbelow:

“13.……………….. 16. The next question which requires consideration is — even if there is no provision for partly referring the dispute to arbitration, whether such a course is

19

possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed. 17. Secondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and the other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums.”

20

22. According to the Hon’ble Apex Court

in the case of M/s.Sundaram Finance Limited, there

is lot of difference between the two approaches. Once

it is brought to the notice of the court that its

jurisdiction has been taken away in terms of the

procedure prescribed under a special statute, the

civil court should first see whether there is ouster of

jurisdiction in terms or compliance of the procedure

under the special statute. It is also made clear that

general law should yield to the special law.

Paragraph 15 of the said decision is relevant and

same is extracted hereinbelow:

“15. Once an application in due compliance of Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statue, the civil court should first see whether

21

there is ouster of jurisdiction in terms or compliance of the procedure under the special statute. The general law should yield to the special law – generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court.”

23. In the light of specific observations made

by Hon’ble Apex Court in the case of M/s.Sundaram

Finance Limited, the approach adopted by the trial

court in rejecting the application filed in I.A.3 under

Section 8(1) of the Arbitration and Conciliation Act

1996 is incorrect and improper and the same needs

to be corrected by this court in terms of Article 227

of Constitution of India. Hence, point No.1 is

answered in the negative.

22

24. Point No.2 - In view of reference made

under Section 8(1) of Arbitration and Conciliation

Act, 1996 and in view of mandate being clearly

explained by the Hon’ble Apex Court in the latest

decision rendered in the case of M/s.Sundaram

Finance Limited’s case, the question of continuing

the order of temporary injunction against alienation

granted earlier by the learned judge of the trial court

does not survive. Hence, point No.2 is answered in

the negative.

25. In view of answering both the points in the

negative and in the light of the latest decision of

Hon’ble Apex Court rendered in the case of

M/s.Sundaram Finance Limited’s case having same

quorum equivalent to the quorum of the decision

rendered in Sukanya Holdings’s case, petitions are to

be allowed.

23

ORDER

Petitions filed under Article 227 of Constitution

of India directed against the order dated 28.3.2015

and 22.6.2015 passed by the learned Senior Civil

Judge & JMFC, Magadi in O.S.55/2015 are allowed

in entirety.

The impugned order passed by the learned

Judge in granting an order of temporary injunction

against alienation and in regard to refusal of

reference to the arbitration are set aside.

Consequently, learned Judge is expected to

pass an order in terms of Section 8 of Arbitration and

Conciliation Act referring the matter to the

Arbitration.

Parties to bear their own costs.

Sd/- JUDGE

DM