M/S. JANARDHANA ENTERPRISES, A REGISTERED PARTNERSHIP FIRM v. M/S. FINE SERVE HOSPITALITY

purpose of convenience, the parties are referred to as per their ranking before the District Judge.

3. The brief facts of the case are as follows: On 07.02.2011, Karnataka State Road Transport Corporation (for short 'KSRTC') entered into a contract titled as 'Build, Operate and Transfer (BOT)’ with the petitioner M/s.Hospitality Services India Private Limited. As per the said contract, the petitioner had to construct hotel and lodge in Survey No.79/1 on NH-4 at Metikurki, Hiriyur, Chitradurga District, Karnataka and operate the same by paying certain rents to KSRTC. Clause-16 of the said agreement permitted the petitioner to sub-let the property. In compliance with the said agreement, the petitioner constructed a hotel and lodge named as KSRTC - 'Atithya Midway Plaza'.

4. On 20.04.2015, the petitioner entered into two sub- lease agreements with the respondent to run the KSRTC - Atithya Midway Plaza and a lodge on payment of certain rents. The respondent filed O.S.No.97/2015 against the petitioner before the Additional Civil Judge & JMFC, Hiriyur for permanent - 4 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 injunction not to dispossess it without adopting due process of law. Pending that suit, the petitioner filed A.A. No.3/2017 before the Principal District And Sessions Judge, Chitradurga, under Section - 9 of the Act 1996, seeking an order to the respondent for payment of all the arrears of rent forthwith, payment of future rents, furnishing of proof of remittance of tax deducted at source, etc. As per Rule 10(d) of High Court of Karnataka Arbitration (Proceedings before the Courts) Rules, 2001 the said case ought to have been registered as an Arbitration Application (AA) but the Trial Court has erroneously classified it as an Arbitration Suit (AS). For the sake of convenience it shall be referred to as classified by the Trial Court.

5. The respondent contested the said petition denying the arrears of rent and other allegations made against it. The respondent contended that it has complied with all the terms and conditions of the sub-lease agreement. It was further contended that the application filed in O.S. No.97/2015 by the petitioner, was rejected by the said court and on the ground that no case is made out to grant relief under Section-9 of the Act 1996. It was also contended that such application is filed - 5 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 without invoking the arbitration clause and seeking appointment of an Arbitrator and on that ground also, the petition is not maintainable.

6. Learned District Judge on hearing the parties, by the impugned judgment and order held that as per the records produced before him the arrears of rents were not paid. So far as the maintainability of the petition, it was held that when there is an arbitration clause in the agreement, filing of a petition before the High Court for appointment of an Arbitrator amounts to initiation of arbitration proceedings. The said judgment in challenged before this Court in the above appeal on the following grounds: i) That the dispute was not arbitrable. ii) The impugned order is violative of Rule - 9(2) and (4) of High Court of Karnataka Arbitration (Proceedings Before the Courts) Rules, 2001 (for short 'Rules 2001’). iii) CMP No.185/2017 filed by the petitioner was dismissed at its behest. Therefore, arbitration under Section-9 of Act 1996 cannot be invoked. - 6 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019

7. On 23.06.2021, this Court on hearing the parties allowed the appeal on the on the following grounds: i) CMP 185/2001 was dismissed on respondents own submission that in view of judgment of the Hon'ble Supreme Court in the case of Himangni Enterprises Vs. Kamaljeet Singh Ahluwalia1 and judgment of this Court in the case of M/s.Paton Constructions Private Limited Vs. M/s. Lorven Projects Limited and Another2, the matter is not arbitrable. ii) Since the arbitration proceedings are not initiated, the impugned order is violative of Rule-9(4) of the aforesaid Rules 2001 and Section-9(2) of the Act 1996 and the orders have to be automatically vacated.

8. The petitioner filed R.P. No.617/2022 seeking review of the judgment of this court dated 23.06.2021 on the ground that the order suffers from error apparent on the face of record. A Co-ordinate Bench of this Court by the judgment dated 17.11.2023, allowed the Review Petition No.617/2022 on the following grounds: 1 2017 (10) SCC 706 2 ILR 2017 KAR 3016 - 7 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 i) The judgment of the Hon'ble Supreme Court in the case of Himangni Enterprises’ referred to supra, was over-ruled by the later judgment of the Hon'ble Supreme Court in the case of Vidya Drolia and others vs. Durga Trading Corporation3 . ii) Before the Hon'ble District Judge even before

30.11.2018, on 08.01.2017 itself, the petitioner had issued notice to the respondent seeking appointment of an Arbitrator. Thus, the arbitration proceedings had commenced. iii) The above said two facts was unnoticed by this Court while passing the judgment dated 23.06.2021 and the same amounts to error apparent on the face of the records.

9. During the course of the arguments, the learned counsel for the appellant Sri.Ashok Hande, fairly conceded that he does not press the ground that the dispute was not arbitrable. In view of the subsequent developments of law namely, the judgment of Seven Judges Bench of the Hon'ble 3 2021 (2) SCC 1 - 8 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 Supreme Court in the case of Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899, in Re.4 But he submits that the lease agreements which contained the arbitration clause were insufficiently stamped. Therefore, the learned District Judge was in error on acting on such agreements. He further submitted that due to such insufficiency of stamps the agreement becomes invalid and Section-8 of the Act 1996 bars referring such agreement to arbitration thereby the application under Section-9 of Act 1996 was also untenable. He further contended that Section-9 of Act 1996 can be invoked only if arbitration proceedings are initiated. While filing proceedings before the District Judge, the proceedings were not initiated. Though CMP 185/2017 was initiated.

10. Learned counsel for the appellant further submitted that though the petitioner filed second application in CMP No.378/2022 under Section-11(6) of the Act 1996 withdrew that, therefore no interim relief could be granted exercising powers under Section - 9 of the Act 1996. In support of his 4 (2024) 6 SCC 1 - 9 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 contention, he relied on the judgment of this Court in M/s.Paton Constructions’ case referred to supra. ANALYSIS

11. The impugned judgment is purportedly passed exercising the powers under Section-9(1)(ii) of Act 1996, which reads as follows:

9. Interim measures, etc., by Court.— [(1)] A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court— (i) xxx (ii) for an interim measure of protection in respect of any of the following matters, namely:— (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or - 10 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it. (2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine."

12. A reading of the above provisions show that though such petition can be filed even before the Arbitral proceedings Section-9(2) of Act 1996, mandatorily arbitral proceedings shall commence within a period of 90 days from the date of such interim order. - 11 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019

13. In exercise of the powers under Section-82 of the Act 1996, this Court has framed the Rules 2001. Rule-9(4) of said Rules, is relevant for the purpose of this case, reads as follows: "9. Application for interim measure, etc - (1) xxx (2) xxx (3) xxx (4) In the case of an application for interim measure made before initiating arbitral proceedings, if the arbitral proceedings are not initiated within three months from the date of the presentation of the Application under Section 9, any interim order granted shall stand vacated without any specific order being passed by the Court to that effect.

14. Reading of the above Rules shows that if the arbitration proceedings are not initiated within three months from the date of presentation of application under Section-9 of Act 1996, any interim order granted shall stand vacated without any specific order being passed in that regard. In the present case, the arbitration application was filed on

01.03.2017, admittedly at that point of time the petitioner had not filed any petition under Section-11 of the Act 1996 for - 12 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 appointment of an arbitrator. The records produced before this court show that though the petitioner filed CMP No.185/2017 before this Court under Section - 11 of the Act 1996, the petitioner withdrew that application on 09.08.2018 as not maintainable. Subsequent to that, the petitioner filed another petition CMP No.378/2022 and that was also withdrawn on

10.11.2022 with liberty to commence appropriate proceedings, after issuing fresh notice.

15. Respondent has not placed anything before this Court to show that subsequently any proceeding was initiated. Whereas the appellant contend that no such proceedings were initiated. The impugned order is passed in the year 2018. In view of Section-9(2) of Act 1996 and Rule9(4) of Rules 2001, in the absence of initiation of the arbitration proceedings the impugned interim order has no legs to stand.

16. A Coordinate Bench of this Court in the case of M/s.Paton Constructions’ case referred to supra has held that if arbitral proceedings in respect of the dispute are not commenced within the period stated in Section-9(2) of Act - 13 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 1996 and Rule-9(4) of Rules 2001, the order under Section 9 stands vacated automatically.

17. Further, from a reading of Section-9(2) it can be gathered that the exercise of the powers to grant interim measure is akin to Order-39 Rule-1 and 2 of CPC and great caution has to be exercised for that. It was not the contention of the petitioner that the respondent is likely to flee away or there are no means to recover the amount, if at all arbitration award is passed against the respondent for the alleged sum. The respondent had contended that it had paid the arrears of rent. In the guise of exercising the power under Section - 9(1)(ii)(b) of Act 1996 i.e., securing the amount of dispute of arbitration, the Court under Section-9(1) of the Act 1996, cannot sit as an arbitrator and decide the dispute.

18. The reading of the records of this case shows that learned District Judge instead of exercising the powers under Section-9(1)(ii)(b) of the Act 1996, has virtually passed the arbitration award which is the jurisdiction of the Arbitral Tribunal. On that count also, the impugned order is liable to be set-aside. - 14 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019

19. The contention of the appellant's counsel that the agreements containing the arbitration clause was insufficiently stamped therefore, the arbitration clause could not have been invoked by the Tribunal, cannot be countenanced, in view of the Seven Judges bench judgment of the Hon'ble Supreme Court referred to supra. In the said judgment, the Hon'ble Supreme Court while considering the interplay of the Stamp Act and Arbitration Act with reference to Sections-8 and 11 of the Act 1996, has held that though insufficiently or inadequately stamped agreements are inadmissible in evidence, in view of Section - 35 of the Indian Stamp Act 1899, such agreements are not rendered void or void ab-initio or unenforceable. It was held that non-stamping or inadequate stamping is a curable defect and any objection in that regard must be examined by the Arbitral Tribunal and that falls within the ambit of the Arbitral Tribunal. However, on the other grounds discussed above the impugned order is liable to be set-aside. Hence, the following: ORDER i) The appeal is allowed. - 15 - NC: 2024:KHC:36492-DB MFA No. 668 of 2019 ii) The impugned judgment and order passed in A.S.No.3/2017, dated 30.11.2018, passed by the Principal District and Sessions Judge, Chitradurga is hereby set-aside. iii) The petition in A.S. No.3/2017 is hereby dismissed with costs. Sd/- (K.S.MUDAGAL) JUDGE Sd/- (VENKATESH NAIK T) JUDGE JJ List No.: 2 Sl No.: 42 CT: BHK