Bharat Sanchar Nigam Limited v. Elahi Traders Kannur

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE P.N.RAVINDRAN & THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN THURSDAY, THE 21ST DAY OF JANUARY 2016/1ST MAGHA, 1937 Arb.A.No. 38 of 2014 () ------------------------ AGAINST THE ORDER IN OP (ARB) 86/2005 of DISTRICT COURT,THALASSERY DATED 31-01-2014 APPELLANTS: -------------- 1. BHARAT SANCHAR NIGAM LIMITED (BSNL) SANCHAR BHAVAN, 20, ASHOKA ROAD NEW DELHI-110 001. 2. DEPUTY GENERAL MANAGER (MARKETING BSNL) CELLULAR MOBILE SERVICES, KERALA TELE COMMUNICATIONS OFFICE OF THE CHIEF GNERAL MANAGER, TELECOME, BSNL KERALA TELECOME CIRCLE, THIRUVANANTHAPURAM-695 033. BY ADV. SRI.MATHEWS K.PHILIP,SC, BSNL RESPONDENT: - ---------------- ELAHI TRADERS KANNUR REGISTERED FIRM , REG. NO.2134/90) BY ITS MANAGING PARTNER, K.K.MUHAMMED KUNHI, HAJI ROAD KANNUR. ## BY ADV. SRI.T.G.RAJENDRAN THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 21-012016, ALONG WITH ARBA. 45/2015, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **P.N.RAVINDRAN & ANU SIVARAMAN, JJ.** **= = = = = = = = = = = = = = = = = = = = = = = =** **Arbitration Appeal Nos.38 of 2014 & 45 of 2015 = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 21[st] day of January, 2016** ## **JUDGMENT** ## **Anu Sivaraman, J.** These appeals are preferred by the Bharat Sanchar Nigam Limited against the common order of the District Court, Thalassery in O.P.(Arb) No.86 of 2005 and O.P.(Arb) No.226 of 2007. The appellant in Arbitration Appeal No.45 of 2015 was the the petitioner in O.P.(Arb) No.226 of 2007 and the appellants in Arbitration Appeal No.38 of 2014 were the respondents in O.P.(Arb) No.86 of 2005. O.P.(Arb) No.226 of 2007 was filed by the appellant under section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the award passed by the arbitrator on 05.02.2007. O.P.(Arb) No.86 of 2005 was filed by the respondent herein under section 9 of the Arbitration and Conciliation Act, 1996 seeking an order of injunction restraining the appellant in Arbitration Appeal No.38 of 2014 from taking steps to realise the amounts awarded by the arbitrator. 2. The matter arose from an agreement of franchise entered into between the appellant and the respondent. The respondent herein was appointed as an authorised dealer of the appellant for marketing and **2** Arbitration Appeal Nos.38 and 45 of 2015 distribution of mobile phone connections as per an agreement dated 09.10.2002. As a condition for appointment, a bank guarantee for the sum of Rs.5,00,000/- was furnished by the respondent. The respondent had canvassed and recommended customers for the BSNL post paid cellular connection. It is alleged by the appellants that five of such connections were procured on the basis of fraudulent identity documents and the subscribers refused to pay the bills issued to them. The amounts covered by the bills remaining unpaid in respect of the said five customers was Rs.11,47,908/-. The appellants raised a claim against the respondent seeking to recover the said amount since according to the appellants it was the responsibility of the respondent to collect, verify and grant connections as also to collect amounts due under the bills issued to customers. Notice was sent by the franchisee on 19.03.2005 for referring the dispute to arbitration. An officer of the appellant was appointed as arbitrator on 31.03.2005. The appellant submitted statement of claims on 23.06.2005 and the respondent on 01.07.2005. A revised claim was preferred by the appellants showing the total amount due as Rs.10,38,757/-. 3. The arbitrator considered the statements preferred by the parties as well as the evidence adduced and came to a conclusion that the appellants had given the connections to all the customers **3** Arbitration Appeal Nos.38 and 45 of 2015 canvassed by the respondent after receiving the documents which were collected by the respondent and forwarded to the company. It was therefore found that it was the responsibility of the service provider as well to verify the documents produced by the intending customers. It was also found that the failure to de-activate the connections on overstepping the credit limit can also not be attributed to the respondent. The respondent had collected a security deposit of Rs.3000/- each from the intending customers. The credit limit of each customer being Rs.3000/-, if the connection had been de-activated by the appellant on non-payment of the bill after achieving the credit limit, no loss would have been caused to the BSNL. It was also held that there was no evidence of any intention on the part of the respondent to defraud the appellant. On this reasoning, the arbitrator held that responsibility for the loss caused due to the non-payment of bills by the fraudulent customers had to be apportioned between the appellant and the respondent in the ratio 90:10. It was therefore held that penalty to the extent of 10% of the total amount admissible towards incentive/bonus for marketing/retention is leviable on the dealer (respondent) for contributory negligence on their part and is adjustable against the amount payable to it. **4** Arbitration Appeal Nos.38 and 45 of 2015 4. Aggrieved by the award of the arbitrator, the appellant preferred O.P.Arbitration No.226 of 2007 under section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the award. In the meanwhile, the bank guarantee furnished by the respondent in terms of the agreement for an amount of Rs.5,00,000/- had been enforced by the appellants and the amount stood withdrawn and appropriated. The respondent therefore filed O.P.Arbitration No.86 of 2005 under section 9 of the Arbitration and Conciliation Act, 1996 seeking an injunction restraining the appellant from taking steps to realise the amount of Rs.11,47,908/- or any part thereof and for repayment of the amount appropriated by encashing the bank guarantee furnished by the respondent. 5. The District Court considered the rival contentions and held that there are no grounds available for setting aside the award of the arbitrator in terms of section 34(2) of the Act. Relying on the decisions of the Hon'ble the Supreme Court in **ONGC Ltd. v. Saw Pipes Ltd.** [(2003) (5) SCC 705] and **Hindusthan Construction Co.Ltd, Mumbai v. State of Kerala and another** (2013(2) KHC 738) the court below held that there are no grounds made out for interference with the award. O.P.(Arb) No.226 of 2007 was dismissed. O.P.(Arb) No.86 of 2005 was allowed in part restraining the appellants **5** Arbitration Appeal Nos.38 and 45 of 2015 in Arbitration Appeal No.38 of 2014 from enforcing and appropriating the bank guarantee until proper quantification is made in terms of the award. Aggrieved by the orders passed by the District Court, the present appeals have been filed. 6. Heard Sri.Mathews K. Philip, learned counsel appearing for the appellants and Sri.T.G.Rajendran, learned counsel appearing for the respondent. Learned counsel for the appellants would contend that the agreement between the parties provided for collection and verification of records relating to identity and address of the intending customers by the franchise and therefore the respondent was liable for the loss caused to the appellant by non-payment of the bills by the fraudulent customers. It is submitted that since the address as well as the identity particulars furnished by the five customers were false, the appellant had no means to recover the amounts defaulted by them. In the above circumstances, it is submitted the finding of the arbitrator is completely perverse and the District Court ought to have set aside the award. 7. Learned counsel appearing for the respondent would, on the other hand, submit that it had only collected and forwarded the applications with the necessary details to the appellant and it was the appellant which had issued the connections to the customers. It is **6** Arbitration Appeal Nos.38 and 45 of 2015 also contended that since a credit limit was provided for each customer, it was the responsibility of the appellant to deactivate the connections once such limits were transgressed and that the respondent can, by no stretch of imagination, be held liable for the consequences that followed the failure on the part of the appellant to deactivate the connections in time. 8. We have gone through the pleadings and the materials on record and have considered the contentions advanced on either side. The dispute between the parties was referred to arbitration in accordance with the arbitration clause contained in the franchise agreement. The arbitrator was an officer of the appellant. All the contentions available had been raised by the parties before the arbitrator and the parties had participated in the proceedings as well. The award of the arbitrator was challenged on the ground that it was factually erroneous. The court below found that the award had not been challenged on any of the grounds available under section 34 of the Arbitration and Conciliation Act, 1996. The court has also found that the arbitrator had considered the rival contentions and that its procedure or competence had not been assailed by the appellant. It was in the above view of the matter that O.P.(Arb).No.226 of 2007 filed by the appellant was dismissed. Consequently, the action of the Arbitration Appeal Nos.38 and 45 of 2015 **7** appellants in seeking to encash the bank guarantee furnished by the respondent was found to be bad in law and the injunction sought for in O.P.(Arb) No.86 of 2005 was granted. 9. Section 34 of the Arbitration and Conciliation Act, 1996 provides for limited grounds on which an award in arbitration can be set aside. As noticed by the court below, none of the grounds referable to section 34(2) were even pleaded by the appellants in O.P.Arb.No.226 of 2007. In the above circumstances, no exception can be taken to the decision of the court below in refusing to interfere with the award. The grant of injunction in O.P.(Arb).No.86 of 2005 was only consequential to the order passed in the O.P.(Arb).No.226 of 2007. In the above circumstances, we are of the opinion that there is no material irregularity or illegality in the order of the court below. These appeals fail and are accordingly dismissed. No costs. sd/- **P.N.Ravindran, Judge** sd/- **Anu Sivaraman, Judge** sj TRUE COPY P.A.TO JUDGE