Arbitration Clause Cannot Be Invoked For Matters Already Adjudicated & Concluded By Arbitral Tribunal & Judiciary: Karnataka High Court
The Karnataka High Court dismissed a Civil Miscellaneous Petition filed under Section 11(5) of the A&C Act, seeking an appointment of a Sole Arbitrator.
The Karnataka High Court held that an arbitration clause cannot be invoked for matters that have already been adjudicated and concluded by both the Arbitral Tribunal and the Judiciary.
The Court held thus in a Civil Miscellaneous Petition filed under Section 11(5) of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking appointment of a Sole Arbitrator to resolve the dispute and difference between the parties in terms of a clause of the registered lease deed.
A Single Bench of Justice Sachin Shankar Magadum observed, “The only potential recourse available to the petitioner, if any, would be through a competent civil court, as the liberty granted in the Section 34 judgment pertains solely to seeking relief in an appropriate legal forum outside of arbitration. The arbitration clause embedded in the agreement dated 31.03.2009 cannot be invoked for matters that have already been adjudicated upon and concluded by both the Arbitral Tribunal and the judiciary, including the Hon'ble Apex Court.”
The Bench said that the Arbitrator’s decision, which upheld the validity of the termination of the contract, stands as final and binding since the Petitioner chose not to challenge this specific finding under Section 34 of A&C Act.
Advocate Pradeep Nayak represented the Petitioner while Advocate Tejas S.R. represented the Respondent.
Facts of the Case
A registered lease deed was executed in 2009 and the Petitioner contended that the lease agreement was unlawfully terminated by the Respondent, compelling the Petitioner to invoke the arbitration clause. Subsequently, the High Court allowed the Petition and appointed a Sole Arbitrator to adjudicate the dispute and after considering the merits of the case, the Arbitrator issued an Arbitral Award which partially ruled in favour of the Petitioner. The said award directed the Respondent to refund both the security deposit and expenses incurred for constructing the perimeter wall, amounting to a total sum of Rs. 6,28,49,016/-.
Being dissatisfied, the Respondent filed an Application under Section 34 of A&C Act before the District and Sessions Court, challenging the validity of the award. The Court set aside the award, thereby nullifying the relevant portions of the Arbitrator’s decision. The Petitioner filed an Appeal before the High Court, which upheld the impugned Judgment. This decision was further affirmed by the Supreme Court.
Issue For Determination
The central issue that arose for consideration before the Court was whether the setting aside of the arbitral award under Section 34 A&C Act, which has been upheld by higher judicial forums, grants the Petitioner the right to initiate fresh arbitral proceedings based on the same arbitration clause invoked earlier.
Court’s Observations
The High Court after hearing the contentions of the counsel, noted, “The unambiguous language in the second paragraph of the operative portion underscores that while liberty was granted to approach the appropriate forum, such a forum does not encompass arbitration under the provisions of the Arbitration and Conciliation Act. Consequently, the petitioner's claim under Section 65 of the Indian Contract Act falls outside the ambit of the arbitration clause and cannot be adjudicated by an arbitrator.”
The Court said that the Petitioner has no legal entitlement to seek a refund of either the upfront payment or the expenses related to the construction of the perimeter wall through arbitration and the issue of refund has thus been conclusively settled in favour of the Respondent.
“Given that both critical issues, the legality of the contract’s termination and the refund of amounts claimed have attained finality through due legal process, the petitioner cannot invoke the arbitration clause again on the same grounds. The petitioner’s attempt to initiate fresh arbitration proceedings under Section 21 of the Arbitration and Conciliation Act is therefore fundamentally misconceived and legally impermissible”, it further observed.
The Court also noted that the core issues of contract termination and refund have already attained finality through decisions affirmed by the Apex Court.
"Unlike the cases cited, where arbitration proceedings or statutory interpretations were central to the dispute, the present matter concerns the enforceability of an arbitration clause after the underlying disputes, termination and refund have been conclusively resolved by judicial proceedings”, it added.
The Court, therefore, concluded that the Petitioner’s claim under Section 65 of the Indian Contract Act, 1872 (ICA) or any related legal principle cannot be entertained within the domain of arbitration.
Accordingly, the High Court dismissed the Petition.
Cause Title- Starlog Enterprises Limited v. Board of Trustees of New Mangalore Port Trust (Case Number: Civil Misc. Petition No. 372 OF 2023)
Appearance:
Petitioner: Advocates Pradeep Nayak, Sanjana M., and Akshita Goyal.
Respondent: Advocates Tejas S.R. and Fathima Naha.
