High Court · 2010

Judgment

These second appeals are being disposed of by this common judgment as they involve almost identical questions of fact and law, though the respondents/plaintiffs in these two second appeals are different, while the appellant/defendant is common.

2. S.A.No.1066 of 2009 is against the judgment and decree in A.S.No.251 of 2008 on the file of III Additional Chief Judge, City Civil Court, Hyderabad, dated 06.08.2009 arising out of the judgment and decree in O.S.No.1031 of 2006 on the file of I Senior Civil Judge, City Civil Court, Hyderabad, dated 23.07.2008.

3. S.A.No.1067 of 2009 arises against the judgment and decree in A.S.No.252 of 2008 on the file of III Additional Chief Judge, City Civil Court, Hyderabad, dated 06.08.2009, arising out of the judgment and decree in O.S.No.1032 of 2006 on the file of I Senior Civil Judge, City Civil Court, Hyderabad, dated 23.07.2008.

4. O.S.No.1031 of 2006 is a suit for eviction of the appellant herein from the plaint schedule mulgi owned by the plaintiffs therein taken on lease by the appellant for carrying on business in sale of handloom textiles. The lease deed dated 01.04.1986 was for a period of twelve years and it was renewed for another five years with effect from 01.04.1998 under a fresh lease deed 08.07.1999. On expiry of the period of lease on 31.03.2003, the tenancy continued orally on

month to month basis with the monthly rent at Rs.8,575/-. The plaintiffs claimed the defendant to be at default in payment of rents from January, 2002 and to have not vacated the premises in spite of a notice to quit dated 01.05.2005. The defendant gave a reply notice dated 02.07.2005 disputing the demand, and hence, the suit for eviction of the defendant, arrears of rent at Rs.2,48,675/- and future mesne profits at Rs.10,000/- per month from June, 2005 till the delivery of possession apart from costs and other appropriate reliefs. The defendant resisted the suit contending that it was enhancing the rents from time to time as per the enhancement clause in the lease deed and as it was declared as a sick unit, the suit cannot be maintained in view of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. The notice of termination of tenancy was contended to be illegal, as such notice to a manufacturing company like the defendant should be a sixth months notice. The defendant also contended that it paid Rs.49,000/- even after filing of the suit and the suit is not maintainable in view of the arbitration clause in the lease agreement. The defendant is not in arrears of any rent and hence, the defendant sought for dismissal of the suit with costs.

5. O.S.No.1032 of 2006 was filed by the plaintiff therein for eviction of the appellant herein from the suit schedule property, wherein a similar lease dated 01.04.1986 was renewed with effect from 01.04.1998 under a fresh lease deed dated 08.07.1999. The lease was similarly claimed to be continuing even after the expiry of lease period on 31.03.2003 as a monthly tenancy with rent at Rs.8,575/-. The defendant was claimed to have defaulted in payment of rents since January, 2002 on which a notice to quit was issued on

01.05.2005 for which the defendant did not give any reply. The plaintiff claimed the defendant to be in arrears of rent to a tune of Rs.3,08,210/- . Hence, the suit for recovery of possession, arrears of rent and mesne profits at Rs.10,000/- per month from June, 2005 till the delivery of possession apart from costs and other appropriate reliefs. The defendant resisted this suit also with similar defence in all respects as that in the other suit.

6. The trial Court framed appropriate issues about the termination of the tenancy, propriety of the quit notice, existence of any arrears of rent, and entitlement to mesne profits in both the suits, and in both the suits, P.W.1 was examined respectively while marking Exs.A-1 to A-5 in O.S.No.1031 of 2006 and Exs.A-1 to A-6 in O.S.No.1032 of 2006.

7. In the judgment in O.S.No.1031 of 2006 dated 23.07.2008, the trial Court noted that I.A.No.1220 of 2006 was allowed on 16.03.2007 directing the defendant to deposit the admitted arrears of rent at Rs.2,99,635/- within one month. The defendant applied enlargement of time in I.A.No.2260 of 2007 while the plaintiffs therein applied for striking off the defence in I.A.No.1593 of 2007. I.A.No.2260 of 2007 was dismissed on 01.11.2007 while I.A.No.1593 of 2007 was allowed on 14.12.2007 striking off the defence. The trial Court concluded that the orders in both the interlocutory applications have become final and that I.A.No.463 of 2008 filed by the defendant to reject the plaint as being barred by the provisions of the Arbitration and Conciliation Act, 1996 (for short ‘Arbitration Act’) was dismissed on

19.06.2008. With that background, the trial Court considered that the evidence of P.W.1 was in reiteration of the allegations in the plaint and the trial Court, with reference to the decision reported in South Central Railways vs. Chem Equipments & Coolers[1], concluded that after the defendant filed written statement and participated in the trial, he cannot maintain any objection about the arbitration clause. The trial Court also concluded that the notice to quit in respect of the monthly tenancy was valid and decreed the suit with costs directing delivery of possession within three months. Arrears of rent were granted to a tune of Rs.1,23,675/- after adjustment of security deposit of Rs.1,25,000/-. Mesne profits were directed to be ascertained on a separate application.

8. The judgment of the trial Court in O.S.No.1032 of 2006 is also dated 23.07.2008. Similarly, I.A.Nos.1216 of 2006, 2261 of 2007, 1594 of 2007 and 464 of 2008 respectively filed by the parties for similar reliefs as in the other suit ended with similar results. The trial Court proceeded to reject the contentions of the defendant on identical grounds as in the other suit and arrears of rent were granted in a sum of Rs.54,675/- after adjustment of security deposit of Rs.1,25,000/- and the amount of Rs.69,000/- withdrawn by the plaintiff therein.

9. In A.S.No.251 of 2008 against the judgment and decree in O.S.No.1031 of 2006, the first appellate Court, after referring to the rival contentions and evidence, concurred with the trial Court in noting that the orders striking off the defence had become final and that the suit is not hit by the Arbitration Act and that the suit notice to quit is valid. The appeal was accordingly dismissed and similar was the judgment in A.S.No.252 of 2008 which was filed against the judgment and decree in O.S.No.1032 of 2006.

10. The defendant approached this Court with these two second appeals raising identical contentions that in view of the absence of any written statement, the plea about the applicability of the arbitration clause ought to have been considered. The defendant also contended herein that the notices to quit should have been for six months and any findings in interlocutory applications could have been successfully challenged by the defendant in the appeal, but the first appellate Court failed to consider such pleas on merits. The request for extension of time for deposit of arrears of rent, which the trial Court could have granted, was rejected under a misconception and it has to be noted that the entire arrears of rent were deposited to the credit of the suits during their pendency due to which the first appellate Court at least should have permitted consideration of the defence by remanding the matter. The defendant contended that the validity of the notices to quit, the validity of striking off the defence, maintainability of the suits in the face of arbitration clause are the three substantial questions of law which arise in these second appeals.

11. The second appeals were admitted on the questions of law stated in the grounds of appeals and Sri Murli Narayan Bung, learned counsel for the appellant in both the appeals and Sri S. Niranjan Reddy, learned counsel for the respondents in both the appeals are heard.

12. The following substantial questions of law arise for consideration in these second appeals:- (i) Whether the suits are maintainable in the light of the arbitration clauses in the lease agreements? (ii) Whether the notices to quit were invalid against the manufacturing company – defendant? (iii) Whether striking off of the defence is not legal? (iv) To what relief?

13. Point No.(i): Both the trial Court and the first appellate Court in both the matters placed reliance on a Division Bench decision of this Court in South Central Railways’s case (supra 1), wherein it was held that the defendant, who filed the written statement and participated in the trial, cannot maintain a petition for reference of the matter to arbitration. It is true that the lease agreements contain specific arbitration clauses for referring of any dispute between the parties concerned in the leases to arbitration, but neither party had applied for referring the matter to arbitration. While the plaintiffs respectively have approached the trial Court with the suits, the defendant in either case did not apply for referring the parties to arbitration before submitting its written statements in either suit. Section 8(1) of the Arbitration Act positively mandates such reference only if a party applies for such reference to arbitration, not later than the submission of the first statement of defence on the dispute. When the defendant admittedly did not take recourse to any such action and raised the question of non- maintainability of the suits in view of arbitration clauses for the first time only in the written statement and came up with an application for reference to arbitration or dismissal of the suits for violation of the arbitration clauses only at the end of the trial at the stage of arguments, the same could not have been entertained. Apart from the orders of dismissal of I.A.Nos.463 and 464 of 2008 having become final making the refusal to reject the plaints under Order VII Rule 11 C.P.C. also final, trial was held between the parties without any objection in all the subsequent stages of the suits also and in the absence of any change of circumstances, the plea of non-maintainability of the suits with reference to the arbitration clauses, therefore, is not available to the defendant.

14. Sri Murli Narayan Bung, learned counsel for the appellant, also referred to the decision in P. Anand Gajapathi Raju vs. P.V.G. Raju[2], wherein the Apex Court held that if the party who wants the matter to be referred to arbitration applies to the Court after submission of statement and the party who has brought the action does not object, there is no bar for the Court referring the parties to arbitration. The principle is unexceptionable but the plaintiffs herein have not applied or consented for referring the matter to arbitration, at any stage of the suits, including in I.A.Nos.463 and 464 of 2008 and therefore, such a consensual jurisdiction recognized by the Apex Court could not have been invoked by the trial Court or the first appellate Court.

15. Point No.(ii):- Notices to quit were of course as if the defendants are monthly tenants. The defendant might be a manufacturer of textile products but the purpose for which the mulgies were taken on lease was not a manufacturing purpose but a commercial purpose for sale of the textile products manufactured by the defendant. Sub-Section (1) of Section 106 of the Transfer of Property Act, 1882 is clear in its language that only leases of immovable property for agricultural or manufacturing purposes are deemed to be leases from year to year, terminable by a six months notice, and all other leases of immovable property for any other purpose are deemed by the provision to be leases from month to month, terminable by a fifteen days notice. If so, the notices to quit given herein could not have been considered invalid by the trial Court and the first appellate Court in view of the specific purpose of the lease being mentioned in both the lease deeds as only for carrying on textile business, which can by no means be considered as a manufacturing purpose, merely because the defendant is also a manufacturer. Therefore, notices to quit cannot be considered invalid on that ground. Even otherwise after amendment of the Transfer of Property Act by Central Act No.3 of 2002 with effect from 31.12.2002, any deficiency in specifying the period of notice is no longer material and Sri S. Niranjan Reddy, learned counsel for the plaintiffs, also brought to notice that in fact the respective suits were filed more than six months after the service of notices to quit on the defendant thereby showing the absence of any objection in the meanwhile due to not specifying of the period to quit in the notices. Hence, this point is also answered against the appellant.

16. Point No.(iii):- Order XV-A C.P.C. (State amendment) provides procedure to be followed in striking off the defence and the facts and circumstances of both the cases herein squarely fall within the provisions of the said Order XV-A C.P.C. The trial Court and the first appellate Court have noted in both the matters that the directions to deposit the arrears of rents respectively within the specified time were not complied with and the dismissal of the petitions for enlargement of time and allowing of the petitions for striking off the defence have become final in the absence of any further challenge by the defendant. Even if it were true that the defendant could have competently re- agitated the questions in the first appeals or herein even without earlier challenging the orders passed in the interlocutory applications, still, there appears no valid ground in fact or law for deviating from the orders striking off of the defence in both the suits in view of the admitted default by the defendant in making the deposit of amounts as directed by the trial Court within the time specified therein. Even if it were true that the amounts were subsequently deposited to the credit of the suits during the pendency of the suits, the same cannot erase the consequences of the default in compliance with the directions against the defendant which have become final and no provision or principle of law has been brought to notice which enables the trial Court or the first appellate Court to reconsider the earlier orders on any such ground. While the trial Court undoubtedly has jurisdiction to extend the time for deposit, when it exercises its jurisdiction not to extend the time, the same cannot be faulted and therefore, striking off of the defence also has to be upheld.

17. Point No.(iv): Sri Murli Narayan Bung, learned counsel for the appellant, also attempted to canvass that the plaintiffs could not have terminated the tenancy without adjusting the security deposits respectively before issuing notices to quit, but the provisions of the lease deeds themselves indicate that the termination of the leases and the security deposits could not have been interdependent on each other. The terms of the lease deed concerning security deposits clearly stipulate that the lessee is given the right to charge interest at the market rate if the security deposit is not refunded as per the terms of the lease deed.

18. Similarly the conditions in the lease deeds about the requirement of three months notice are applicable only to the lessee, if he intended to terminate the agreements before the expiry of the lease periods and the lessors were not stated to be bound by any such conditions.

19. Under the circumstances, the judgments and decrees of the trial Court and first appellate Court have to be confirmed by this Court in these second appeals.

20. Sri Murli Narayan Bung, learned counsel for the appellant, submitted that about 25 to 30 employees are working in the textile showrooms of the State owned Corporation and any sudden disruption of the business by dislocation of the premises will prejudice their livelihood and cause unemployment apart from prejudice to the business of the appellant. Learned counsel seeks that one year’s time may be granted to enable securing alternative accommodation and to enable making known to the customers of the appellant about shifting of the place of business. Sri S. Niranjan Reddy, while not opposing a reasonable time, was vehemently protesting against grant of one year’s time.

21. Having regard to the facts and circumstances of both the cases, grant of time for nine months subject to appropriate conditions may be reasonable and just.

22. Accordingly, both the Second Appeals are dismissed without costs and the appellant is granted time for nine months since today to vacate and deliver possession of the respective premises to the respective decree holders. This grant of time for nine months is subject to payment of rent by the appellant to the respective decree holders by 10th of each month and in the event of default, the decree holders are entitled to execute the respective decrees forthwith. If the mesne profits as directed by the respective decrees were to be determined in the meanwhile by the trial Court on merits, the grant of such time is also subject to deposit of such determined mesne profits by the appellant to the credit of the respective matters within one month from the date of such determination. ______________________ G. BHAVANI PRASAD, J 06th July, 2010 GHN [1] 2006(4) ALT 61 (D.B.) [2] 2000(4) SCC 539