CMA/1103/2009 of M/s. Essel Enterprises, a proprietory concern, Vs M/s. Idea Cellular Limited on 30 December 2009

THE HON’BLE SRI JUSTICE V.V.S. RAOAND

THE HON’BLE SRI JUSTICE B.N.RAO NALLA

CIVIL MISCELLANEOUS APPEAL No.1103 of 200930.12.2009

Between:

M/s.Essel Enterprises, represented by itsProprietrix, Smt.Sri Latha

AND

… Appellant

M/s.Idea Cellular Limited, represented by their GPA andAuthorized Signatory, Sri Arun Madhav Bhagavatula,Senior Manager (Legal), And another

... Respondents

THE HON’BLE SRI JUSTICE V.V.S. RAOAND

THE HON’BLE SRI JUSTICE B.N.RAO NALLA

CIVIL MISCELLANEOUS APPEAL No.1103 of 2009

JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao)

This is an appeal under Section 37 of Arbitration andConciliation Act, 1996 (the Act, for brevity) by the first respondent,namely, M/s.Essel Enterprises (hereafter, Essel) in O.P.No.528 of2009. The said O.P. was filed on the file of the Court of III AdditionalChief Judge, City Civil Court, Hyderabad, under Section 9 of the Act byM/s.Idea Cellular Limited (hereafter, Idea) for appointment of advocatecommissioner to seize its material and stock from Essel’s warehousesituated at premises No.3-6-27/A, Hira Apartments, Skyline,Hyderabad (hereafter, warehouse). They also filed interlocutoryapplication being I.A.No.886 of 2009 for appointment of advocatecommissioner to seize the stock. The said application was allowed on18.3.2009 on condition of Idea depositing Rs.37,60,617/-. The amountwas deposited and advocate commissioner seized the entire stocklying in Essel’s warehouse. Thereafter, Essel filed I.A.No.1210 of2009 for withdrawal of the said amount, and the said application waspartly allowed permitting Essel to withdraw Rs.12,31,212/- from out ofthe total deposit. Another application being I.A.No.3540 of 2009 forwithdrawal of balance amount having been dismissed by docket order as not maintainable, Essel is in appeal before this Court.

Indisputably the impugned order is non-speaking one. Courtshave repeatedly held that when the trial Courts deal with interlocutoryapplications, they shall have to be disposed of by recording briefreasons, especially when such interlocutory orders are appealable to ahigher Court. Unless and until such reasons are recorded, theappellate/ revisional Court would be denied an opportunity to know themental process of the trial Judge while passing an order. In theordinary course, we would have remitted the matter for the Court belowfor recording reasons. Arbitration Act is based on UNCITRAL ModelLaw 1985, which envisages abundant flexibility in pre and postarbitration stages. In view of this, we have heard elaboratesubmissions made on behalf of Essel and Ideal and deem it proper todispose of the matter on merits.

The admitted and indisputable facts are the following. By aLetter of Intent (LoI) dated 18.2.2008, Idea appointed Essel asLogistics Outsourcing Operator for a period of 11 months upto31.12.2008. The same was extended upto 31.3.2009 by another LoIdated 29.1.2009. Clause (i) of first LoI and clause (h) of second LoIprovide for resolution of disputes by arbitration. The logisticsoutsourcing involves Starter User Kit (SUK) packing, their dispatch,distribution of Recharge Coupons (RCs), inventory management, MISreports, dispatch of advertising material etc. The first LoI provides forremuneration to Essel in paragraph (b) of LoI. Disputes arose betweenthe parties with regard to payment of slab rates. Alleging that Esselillegally withheld material worth Rs.88,00,00,000/- and advertisementmaterial worth Rs.21,00,000/-. Idea filed O.P.No.528 of 2009 seekingrelief of appointment of advocate commissioner to seize stock fromEssel’s warehouse. In the said O.P., it was averred that Essel made ademand of Rs.37,60,617/- as on 16.3.2009 and that only a sum ofRs.12,31,212/- is due and payable by Idea to Essel. I.A.No.886 of2009 was filed seeking similar relief. After hearing both the sides,learned Additional Chief Judge appointed advocate commissioner tomake inventory and seize material and stock of Idea as per stockreport of March 2009 annexed to O.P. including advertising material oncondition of Idea depositing the disputed amount mentioned hereinabove. On 20.3.2009, warrant of commission was executed. Esselfiled counter affidavit in I.A.No.886 of 2009 for its dismissal and almostsimultaneously filed I.A.No.1210 of 2009 seeking permission towithdraw the entire amount deposited by Idea. This was opposed. On22.4.2009, the Court below partly allowed the said application to anextent of permitting withdrawal of Rs.12,31,212/-.

In the mean while, parties agreed to refer the dispute to arbitration. On 18.7.2009, the arbitrator gave schedule of proceedings,which stipulated timeliness for filing claim statement, and statement ofdefence. Even before Idea could file their statement, arbitratorwithdrew from reference on health grounds. Some time in September2009, Essel filed another application being I.A.No.3540 of 2009 forpermission to withdraw balance amount of Rs.25,29,400/- alleging thatIdea is not interested to proceed with arbitration, due to which Essel issuffering hardship. It was dismissed. It may also be mentioned that anew arbitrator was appointed who held first sitting on 13.12.2009. Ideasought time for filing claim statement upto 09.1.2010. Yet anotheraspect of the matter is that this Court in CMAMP No.2046 of 2009,passed interim orders on 18.11.2009 and the same reads as under.

In spite of service of notice on the respondents, theyare called absent. None appears for them. Therefore, havingconsidered the background of the case and perused the orderpassed by the Court below, we are convinced that by dulyprotecting the interest of respondents, the petitioner can bepermitted to withdraw an amount of Rs.20,00,000/- (Rupeestwenty lakhs only) lying to the credit of O.P.No.528 of 2009 onthe file of the Court of the III Additional Chief Judge, City CivilCourt, Hyderabad, on condition that the petitioner herein,namely, M/s.Essel Enterprises, shall furnish immovableproperty as security to the satisfaction of the Court below.

It is brought to our notice that in furtherance of the above order,Essel has furnished a flat of 1,500 Sq.ft plinth area at Deccan Towersin Hyderabad and an extent of Acs.4.00 of land in Shamshabad villageas security and the Court below has ordered to issue the cheque for anamount of Rs.20,00,000/- in favaour of Essel.

Essel’s Counsel has taken us through the paper book of about200 pages in support of his submissions that prima facie claim of Esselis sustainable and that the interests of Idea are well safeguarded evenif the amount is ordered to be withdrawn. He also points out that as abailee he has a lien on material and stock of Idea and by reason ofseizure order, such lien has been lost. Per contra,Senior Counsel forIdea sustains the impugned order contending that the order inI.A.No.1210 of 2009 having become final, another application isunsustainable merley on the ground that there is a delay in arbitration. According to Senior Counsel, when Essel admits that there is adispute with regard to balance amount payable to them by Idea,application to withdraw the same is not maintainable, unless the rightto receive the same is established and amount is crystallized inarbitration proceedings. We have considered these submissions andare persuaded to accept the submissions of Idea for the reasons thatwould follow in the subsequent paragraphs.

In paragraph 16 of their Original Petition, Idea made thefollowing averment.

“The petitioner submits that according to them and asper the price slab they are due and liable to pay therespondents only a sum of Rs.12,31,212/-. However, therespondents made a demand for Rs.37,60,617/- as on16.3.2009 which the petitioner is not liable to pay them. However, the petitioner for the purpose of present petitionsubmits that they are willing to deposit the admitted amount ofRs.12,31,212/- subject to result of the arbitration proceedingsthat is proposed to be initiated by them against therespondents.”

The above averment was also reiterated in paragraph 17 of theaffidavit accompanying I.A.No.886 of 2009. In her counter affidavit tothe main O.P., as well as in her counter to I.A.No.886 of 2009, theproprietrix of Essel made the following averments.

16. In reply to Paragraph 16, I submit as follows:

(a) I submit that as per the above the petitioner is entitled to anamount much more than Rs.37,60,612/- as certain claims andextra works were not taken into consideration while submittingthe claims on 16.3.2009 and they have been now specified inparagraph 14 supra. This respondent also reserves its rightto set up claims over and above raised herein before theappropriate forum provided for under the law.

(b) The amount which the petitioner has admitted as dueviz., Rs.12,31,212/- is with respect to the months ofDecember 2008 to February 2009. For the month ofMarch 2009 the amount due is Rs.3,08,469.80, has to bepaid even going by their interpretation of the slab.

(c) Instead of offering to deposit the said amount in the O.P.,had the petitioner made the said payment to the respondentits bona fides would been established. On the other hand thisestablishes that only to procure the interim orders they havemade such an offer.

(d) The petitioner ought to have noticed that the respondenthas lien over the material till it receives the amounts due to it. This respondent is entitled for the admitted amount to bepaid to it and only such of the amounts which are underdisputes alone have to go for resolution by invoking theremedies provided for under law.

(emphasis supplied)

As already noticed, in her application being I.A.No.1210 of 2009,proprietrix of Essel sought permission to withdraw entire amountdeposited by Idea for enforcement of seizure order. The same wasordered and the amount of Rs.12,31,212/- was withdrawn from out ofthe total deposit made by the Idea. While passing the said order, thelearned Additional Chief Judge made the following observations.

Conclusion

It is seen from the rival contentions that both sides areblaming each other contending that there is breach of terms ofcontract. But, in my view, this is an aspect to be consideredby the arbitrator as to which party committed breach ofterms. Similarly, the arbitrator has to decide about thedamages, if any, to be made by the petitioner. At this stage, Ifeel the admitted amount can be permitted to be withdrawn bythe petitioner since there is dispute with regard to the rest ofthe amount, which is in deposit. Further, it is recited in thecounter filed by the 1[st] respondent that the petitioner wasentitled to a sum of Rs.12,31,212/-. Under thesecircumstances, I am inclined to permit petitioner to withdrawthis admitted amount of Rs.12,31,212/- from out of the totaldeposit of Rs.37,60,618/- and rest of the amount can be keptin deposit till the dispute is settled.

In one of their communications, Essel represented by thesecond respondent, who is none other than husband of proprietrix,furnished the particulars of the amounts due – SUK Rs.34,09,447/-,RC Rs.2,84,347/-, Nokia bulk invoices Rs.39,217/- and Misc.,Rs.27,604/- (we have omitted decimals) totaling Rs.37,60,617/-. Out ofthis, Idea admitted an amount of Rs.12,31,212/- as due and payable toEssel. The Court below directed Idea to deposit disputed amount. Then Essel filed counter claiming admitted amount followed byI.A.No.1210 of 2009 for withdrawal of entire deposited amount. Whenwithdrawal of total amount is rejected, nothing prevented Essel to fileappeal under Section 37 of the Act. They did not do so. They actedupon the order and withdrew the permitted amount. Therefore, thoughordinarily the principle of res judicata does not apply to interlocutoryproceedings, having regard to the admissions made by Essel that theyare entitled to withdraw admitted amounts, the Court below was right inrejecting the application as not maintainable. There is a seriousdispute about slab rate claimed by Essel and as extracted hereinabove and they admit that, “only such of the amounts which are underdisputes have to go for resolution by invoking the remedies providedfor under law.” Therefore, we find no merit in this appeal.

In the result, for the above reasons, the appeal is dismissed andthe interim order dated 18.11.2009 in CMAMP No.2046 of 2009 standsrescinded. The parties shall bear their respective costs.

_______________

(V.V.S.RAO,J)

December 30, 2009

YS

__________________

(B.N.RAO NALLA, J)

CMAMP Nos.2184 of 2009 and 2046 of 2009

In view of the final orders in CMA No.1103 of 22009, these twoCMPs are accordingly disposed of.