Ayyappan Ashokan v. K.P. Indrapalan

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE V.G.ARUN THURSDAY, THE 30[TH] DAY OF SEPTEMBER 2021 / 8TH ASWINA,** ## **1943** ## **OP(C) NO. 865 OF 2021** **AGAINST THE ORDER/JUDGMENT IN CMA(Arb) 1/2020 OF PRINCIPAL SUB COURT,ALAPPUZHA, ALAPPUZHA PETITIONER/S:** AYYAPPAN ASHOKAN AGED 37 YEARS S/O P.V.ASHOK KUMAR, NANICHAM HOUSE, VADAKKEVILA P.O.MADANADA, KOLLAM-691 010. BY ADVS. RAMEEZ NOOH SHRI.SIRAJ ABDUL SALAM **RESPONDENT/S:** K.P.INDRAPALAN AGED 57 YEARS S/O K.G.PURUSHOTHAMAN, INDRAPRASTHAM, CHARUMOOD, MAVELIKKARA, ALAPPUZHA-690 505. BY ADVS. M.G.KARTHIKEYAN NIREESH MATHEW ## **THIS OPC HAVING BEEN FINALLY HEARD ON 26.07.2021,** **THE COURT ON 30.09.2021 DELIVERED THE FOLLOWING:** O.P.(C) No.865 of 2021 -2- ## **JUDGMENT** **Dated this the 30[th] day of September, 2021** **The petitioner and the respondent entered into Ext.P1 partnership agreement with the objective of conducting a bar attached hotel by name 'M/s.Hotel Sixer. As per the terms of the partnership agreement, petitioner is eligible for 10% of the total share of profits and the respondent, for 90%. Dispute arose regarding the conduct of business by the respondent and thereupon, invoking the arbitration clause in the agreement, the petitioner filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the District Court, Alappuzha ('the Act' for short) and obtained Ext.P3 interim order, requiring the respondents to maintain a separate account with regard to the income derived from the day-today business and to** O.P.(C) No.865 of 2021 -3- **submit the particulars of that account before the court and also injuncting the respondents from obstructing the petitioner's entry to the hotel.** **2. The respondents on the other hand filed an arbitration request before this Court, pursuant to which a retired District Judge was appointed as the sole Arbitrator. Pending the arbitral proceedings, the respondents tried to renew the FL3 licence of the hotel. The petitioner raised objection before the Commissioner of Excise and also filed WP(C) No.11275 of 2020 before this Court. In spite of the objection and pendency of the writ petition, the FL3 licence was renewed. Thereupon, the writ petition was closed reserving petitioner's liberty to file appeal before the Commissioner of Excise. Accordingly, the petitioner filed Ext.P5 appeal.** **3. The star classification issued to M/s. Hotel Sixer by the Ministry of Tourism,** O.P.(C) No.865 of 2021 -4- **Government of India was due to expire on 15.07.2020. At that juncture, the petitioner filed Ext.P6 representation before the Hotel and Restaurants Approval and Classification Committee (HRACC) (South) raising objection against grant of reclassification till the dispute between the partners is resolved through arbitration. Based on the objection, the HRACC (South) issued Ext.P7 communication informing the petitioner that the application for reclassification will not be processed till the final outcome of the arbitral proceedings.** **4. In the meanwhile, the respondents approached this Court by filing WP(C) No.12847 of 2020 seeking a declaration that M/s. Hotel Sixer is entitled to continue the business on the strength of the bar licence renewed for the year 2020-2021, till a decision is taken by the HRACC (South). The hotel business is being continued on** O.P.(C) No.865 of 2021 -5- **the strength of the interim orders issued in the writ petition.** **5. Pending WPC No.12847 of 2020, the respondent moved Ext.P8 application before the Arbitral Tribunal under Section 17 of the Act, seeking a clarification to the effect that the pendency of the arbitration proceedings is not a legal bar in the HRACC (South) issuing certificate of classification. The petitioner filed Ext.P9 objection contending that the application is not legally maintainable as the relief sought does not fall within the purview of the Act and is not the subject matter of the arbitration agreement or the dispute. In spite of the objection, the Arbitral Tribunal issued Ext.P10 order, clarifying that the pendency of the arbitral proceedings is not at all a legal bar for renewal of classification as per law and usual norms. Aggrieved, the petitioner preferred** O.P.(C) No.865 of 2021 -6- **an appeal before the Commercial Court, Alappuzha. The appeal stands dismissed by Ext.P11 order. Hence, the original petition.** **6. Sri.Millu Dandapani, learned Counsel for the petitioner submitted that the clarification sought by the respondent being beyond the scope of the partnership agreement and the dispute referred to arbitration, the Arbitral Tribunal had exceeded its jurisdiction in issuing Ext.P10 order. It is contended that this crucial legal aspect was also not considered by the appellate court. In support of the contention, reliance is placed on the decision of the Apex Court in** _**Booz Allen and Hamilton Inc v. SBI Home Finance Ltd and others [(2011) 5 SCC 532]**_ **. The further contention is that, since the mismanagement of the hotel and the allegation of misappropriation and defalcation of accounts is pending in arbitration, the clarification granted under** O.P.(C) No.865 of 2021 -7- **Ext.P10 will cause substantial prejudice to the petitioner.** **7. In reply, Sri.M.G.Karthikeyan, learned Counsel for the respondent drew attention to Section 5 of the Act, which limits the extent of judicial intervention to the minimum, even under Article 227. In support of this contention, reliance is placed on the decision in** _**Deep Industries Limited v. Oil and Natural Gas Corporation Ltd and another [(2020) 15 SCC 706]**_ **Referring to Section 17 of the Act, it is contended that the Arbitral Tribunal is vested with the authority to pass an order in the nature of Ext.P10 and the appellate court had rightly declined to interfere with the order. The learned Counsel referred to the decision in** _**State of Goa v. Praveen Enterprises [(2000) 12 SCC 581]**_ **to contend that the jurisdiction of the arbitrator to decide disputes is curtailed only when the** O.P.(C) No.865 of 2021 -8- **arbitration agreement requires specific disputes to be referred to the arbitration and stipulates that the arbitrator will have jurisdiction to decide only the disputes so referred. Drawing attention to Clause 22 of Ext.P1 agreement it is contended that the jurisdiction of the arbitrator is not limited in any manner by the said clause. Finally, it is contended that there is no** _**bona fides**_ **behind the challenge, the petitioner being a partner with only 10% share holding, and the attempt being to scuttle the functioning of the hotel.** **8. Before proceeding to decide the questions canvassed, it is necessary to consider the scope of intervention in a pending arbitral proceedings. Section 5 of the Arbitration Act stipulates that notwithstanding anything contained in any other law for the time being in force, in matters covered by Part I, no judicial** O.P.(C) No.865 of 2021 -9- **authority shall intervene except as provided in the Part. Section 17 of the Act vests the Arbitral Tribunal with the power to order interim measures. As per Section 17(1)(ii)(e), the Arbitral Tribunal can grant such other interim measures of protection as may appear to be just and convenient. In the instant case, the functioning of the hotel would have been adversely affected if the application for reclassification was kept pending by the HRACC (South), as proposed in Ext.P7 communication. Reading of Ext.P7 shows that the sole reason for refusal to process the application was the information given by the petitioner about the dispute and the pendency of arbitration proceedings. Being so, it was well within the powers of the Arbitral Tribunal to have clarified the position by stating that mere pendency of the arbitral proceedings is not a legal bar in** O.P.(C) No.865 of 2021 -10- **respect of renewal of classification as per law and usual norms. In this regard, it may be profitable to refer to the observation of the Honourable Supreme Court at paragraphs 16 and 17 of** _**Deep Industries**_ **(supra), which is extracted hereunder;** _**“16. Most significant of all is the non obstante clause contained in Section 5 which states that notwithstanding anything contained in any other law, in matters that arise under Part I of the Arbitration Act, no judicial authority shall intervene except where so provided in this Part. Section 37 grants a constricted right of first appeal against certain judgments and orders and no others. Further, the statutory mandate also provides for one bite at the cherry, and interdicts a second appeal being filed [see Section 37(2) of the Act].**_ _**17. This being the case, there is no doubt whatsoever that if petitions were to be filed under Articles 226/227 of the Constitution against orders passed in appeals under Section 37, the entire arbitral process would be derailed and would not come to fruition for many years. At the same time, we cannot forget that Article 227 is a constitutional provision which remains untouched by the non obstante clause of Section 5 of the Act. In these circumstances, what is important to note is that though petitions can be**_ O.P.(C) No.865 of 2021 -11- _**filed under Article 227 against judgments allowing or dismissing first appeals under Section 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by us hereinabove so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction.”**_ **9. For addressing the contention of the petitioner that the clarification beyond the scope of the arbitration dispute, it is essential to have a look at arbitration clause in Ext.P1** ## **agreement, is extracted hereunder;** _**“22. Any dispute or difference of opinion which may arise between the partners or their representatives with regard to the construction, effect or meaning of any clause or clauses of this Deed or any part thereof; or in respect of the accounts, profits and losses of the business of the firm; or with regard to rights and liabilities of the partners under this deed or in respect of the dissolution or winding up of the business of the firm or relating to any other affairs of the firm shall be referred of the firm or relating to any other affairs of the firm shall be referred to and settled by arbitration and the proceedings of such arbitration shall be governed by the Indian Arbitration and Conciliation Act, 1996.”**_ **The aforementioned clause does not in any** O.P.(C) No.865 of 2021 -12- **manner curb or curtail the scope of arbitration. On the other hand, the clause provides for arbitration of not only the rights and liabilities of the partners and dissolution or winding of the business of the firm, but also disputes relating to any other affairs of the firm. The conduct of the hotel including its classification is definitely part of the affairs of the firm. Being so, the clarification given under Ext.P10 order is not beyond the scope of the dispute referred to arbitration. As such, the dictum laid down by the Apex Court in** _**Praveen Enterprises**_ **does not apply to the facts of the instant case.** **In the result, the original petition is dismissed.** **Sd/V.G.ARUN** **JUDGE** **Scl/** O.P.(C) No.865 of 2021 -13- ## **APPENDIX OF OP(C) 865/2021** ## PETITIONER EXHIBITS - EXHIBIT P1 TRUE COPY OF THE DEED OF PARTNERSHIP DATED 10.1.20213 ENTERED INTO BETWEEN THE PETITIONER AND THE RESPONDENT - EXHIBIT P2 TRUE COPY OF THE FIR NO 1610/2017 DATED 13.12.2017 REGISTERED ON THE FIRS OF NOORANADU POLICE STATION AGAINST THE RESPONDENT - EXHIBIT P3 TRUE COPY OF THE INTERIM ORDER DATED 23.12.2017 IN CMP NO 492/2017 PASSED BY THE ADDITIONAL DISTRICT COURT-1 ALAPPUZHA (VACATION BENCH) - EXHIBIT P4 TRUE COPY OF ORDER DATED 5.4.2018 IN IA NO 124/2018 IN OP(ARB) NO 2/2018 PASSED BY THE ADDITIONAL DISTRICT COURT-1 MAVELIKKARA - EXHIBIT P5 TRUE COPY OF THE MEMORANDUM OF APPEAL DATED 20.6.2020 FILED BY THE PETITIONER BEFORE THE COMMISSIONER OF EXCISE - EXHIBIT P6 TRUE COPY OF THE REPRESENTATION DATED 20.6.2020 FILED BY THE PETITIONER BEFORE THE REGIONAL DIRECTOR, INDIA TOURISM - EXHIBIT P7 TRUE COPY OF THE E-MAIL COMMUNICATION DATED 6.7.2020 OF THE REGIONAL DIRECTOR (SOUTH), HOTEL & RESTAURANTS APPROVAL AND CLASSIFICATION COMMITTEE (HRACC) (SOUTH) - EXHIBIT P8 TRUE COPY OF THE APPLICATION DATED 18.7.2020 IN IA NO 2/20 IN AR NO 7/2018 FILED BY THE RESPONDENT U/S 17 OF THE ARBITRATION & CONCILIATION ACT 1996 BEFORE THE ARBITRAL TRIBUNAL, THIRUVANANTHAPURAM - EXHIBIT P9 TRUE COPY OF THE COUNTER AFFIDAVIT DATED 28.7.2020 FILED BY THE PETITIONER IN IA NO 2/2020 IN A.R NO 7/2018 BEFORE THE ARBITRAL TRIBUNAL, THIRUVANANTHAPURAM ## O.P.(C) No.865 of 2021 -14- EXHIBIT P10 TRUE COPY OF THE ORDER DATED 17.8.2020 PASSED BY THE SOLE ARBITRATOR IN IA NO 2/2020 IN AR NO 7/2018 EXHIBIT P11 TRUE COPY OF THE ORDER DATED 17.3.2021 PASSED BY THE HON'BLE COMMERCIAL COURT, ALAPPUZHA IN CMA9ARB) NO 1/2020 EXHIBIT P12 TRUE COPY OF THE PROCEEDINGS IN AR NO 7/2018 ON THE FILES OF ARBITRAL TRIBUNAL