THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.1103 of 2009 30.12.2009 Between: M/s.Essel Enterprises, represented by its Proprietrix, Smt.Sri Latha … Appellant AND M/s.Idea Cellular Limited, represented by their GPA and Authorized Signatory, Sri Arun Madhav Bhagavatula, Senior Manager (Legal), And another ... Respondents THE HON’BLE SRI JUSTICE V.V.S. RAO AND 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 and Conciliation Act, 1996 (the Act, for brevity) by the first respondent, namely, M/s.Essel Enterprises (hereafter, Essel) in O.P.No.528 of 2009. The said O.P. was filed on the file of the Court of III Additional Chief Judge, City Civil Court, Hyderabad, under Section 9 of the Act by M/s.Idea Cellular Limited (hereafter, Idea) for appointment of advocate commissioner to seize its material and stock from Essel’s warehouse situated at premises No.3-6-27/A, Hira Apartments, Skyline, Hyderabad (hereafter, warehouse). They also filed interlocutory application being I.A.No.886 of 2009 for appointment of advocate commissioner to seize the stock. The said application was allowed on 18.3.2009 on condition of Idea depositing Rs.37,60,617/-. The amount was deposited and advocate commissioner seized the entire stock lying in Essel’s warehouse. Thereafter, Essel filed I.A.No.1210 of 2009 for withdrawal of the said amount, and the said application was partly allowed permitting Essel to withdraw Rs.12,31,212/- from out of the total deposit. Another application being I.A.No.3540 of 2009 for withdrawal 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. Courts have repeatedly held that when the trial Courts deal with interlocutory applications, they shall have to be disposed of by recording brief reasons, especially when such interlocutory orders are appealable to a higher Court. Unless and until such reasons are recorded, the appellate/ revisional Court would be denied an opportunity to know the mental process of the trial Judge while passing an order. In the ordinary course, we would have remitted the matter for the Court below for recording reasons. Arbitration Act is based on UNCITRAL Model Law 1985, which envisages abundant flexibility in pre and post arbitration stages. In view of this, we have heard elaborate submissions made on behalf of Essel and Ideal and deem it proper to dispose of the matter on merits. The admitted and indisputable facts are the following. By a Letter of Intent (LoI) dated 18.2.2008, Idea appointed Essel as Logistics Outsourcing Operator for a period of 11 months upto 31.12.2008. The same was extended upto 31.3.2009 by another LoI dated 29.1.2009. Clause (i) of first LoI and clause (h) of second LoI provide for resolution of disputes by arbitration. The logistics outsourcing involves Starter User Kit (SUK) packing, their dispatch, distribution of Recharge Coupons (RCs), inventory management, MIS reports, dispatch of advertising material etc. The first LoI provides for remuneration to Essel in paragraph (b) of LoI. Disputes arose between the parties with regard to payment of slab rates. Alleging that Essel illegally withheld material worth Rs.88,00,00,000/- and advertisement material worth Rs.21,00,000/-. Idea filed O.P.No.528 of 2009 seeking relief of appointment of advocate commissioner to seize stock from Essel’s warehouse. In the said O.P., it was averred that Essel made a demand of Rs.37,60,617/- as on 16.3.2009 and that only a sum of Rs.12,31,212/- is due and payable by Idea to Essel. I.A.No.886 of 2009 was filed seeking similar relief. After hearing both the sides, learned Additional Chief Judge appointed advocate commissioner to make inventory and seize material and stock of Idea as per stock report of March 2009 annexed to O.P. including advertising material on condition of Idea depositing the disputed amount mentioned herein above. On 20.3.2009, warrant of commission was executed. Essel filed counter affidavit in I.A.No.886 of 2009 for its dismissal and almost simultaneously filed I.A.No.1210 of 2009 seeking permission to withdraw the entire amount deposited by Idea. This was opposed. On 22.4.2009, the Court below partly allowed the said application to an extent 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 of defence. Even before Idea could file their statement, arbitrator withdrew from reference on health grounds. Some time in September 2009, Essel filed another application being I.A.No.3540 of 2009 for permission to withdraw balance amount of Rs.25,29,400/- alleging that Idea is not interested to proceed with arbitration, due to which Essel is suffering hardship. It was dismissed. It may also be mentioned that a new arbitrator was appointed who held first sitting on 13.12.2009. Idea sought time for filing claim statement upto 09.1.2010. Yet another aspect 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, they are called absent. None appears for them. Therefore, having considered the background of the case and perused the order passed by the Court below, we are convinced that by duly protecting the interest of respondents, the petitioner can be permitted to withdraw an amount of Rs.20,00,000/- (Rupees twenty lakhs only) lying to the credit of O.P.No.528 of 2009 on the file of the Court of the III Additional Chief Judge, City Civil Court, Hyderabad, on condition that the petitioner herein, namely, M/s.Essel Enterprises, shall furnish immovable property 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 Towers in Hyderabad and an extent of Acs.4.00 of land in Shamshabad village as security and the Court below has ordered to issue the cheque for an amount of Rs.20,00,000/- in favaour of Essel. Essel’s Counsel has taken us through the paper book of about 200 pages in support of his submissions that prima facie claim of Essel is sustainable and that the interests of Idea are well safeguarded even if the amount is ordered to be withdrawn. He also points out that as a bailee he has a lien on material and stock of Idea and by reason of seizure order, such lien has been lost. Per contra, Senior Counsel for Idea sustains the impugned order contending that the order in I.A.No.1210 of 2009 having become final, another application is unsustainable merley on the ground that there is a delay in arbitration. According to Senior Counsel, when Essel admits that there is a dispute with regard to balance amount payable to them by Idea, application to withdraw the same is not maintainable, unless the right to receive the same is established and amount is crystallized in arbitration proceedings. We have considered these submissions and are persuaded to accept the submissions of Idea for the reasons that would follow in the subsequent paragraphs. In paragraph 16 of their Original Petition, Idea made the following averment. “The petitioner submits that according to them and as per the price slab they are due and liable to pay the respondents only a sum of Rs.12,31,212/-. However, the respondents made a demand for Rs.37,60,617/- as on 16.3.2009 which the petitioner is not liable to pay them. However, the petitioner for the purpose of present petition submits that they are willing to deposit the admitted amount of Rs.12,31,212/- subject to result of the arbitration proceedings that is proposed to be initiated by them against the respondents.” The above averment was also reiterated in paragraph 17 of the affidavit accompanying I.A.No.886 of 2009. In her counter affidavit to the main O.P., as well as in her counter to I.A.No.886 of 2009, the proprietrix 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 an amount much more than Rs.37,60,612/- as certain claims and extra works were not taken into consideration while submitting the claims on 16.3.2009 and they have been now specified in paragraph 14 supra. This respondent also reserves its right to set up claims over and above raised herein before the appropriate forum provided for under the law. (b) The amount which the petitioner has admitted as due viz., Rs.12,31,212/- is with respect to the months of December 2008 to February 2009. For the month of March 2009 the amount due is Rs.3,08,469.80, has to be paid 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 respondent its bona fides would been established. On the other hand this establishes that only to procure the interim orders they have made such an offer. (d) The petitioner ought to have noticed that the respondent has lien over the material till it receives the amounts due to it. This respondent is entitled for the admitted amount to be paid to it and only such of the amounts which are under disputes alone have to go for resolution by invoking the remedies 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 amount deposited by Idea for enforcement of seizure order. The same was ordered and the amount of Rs.12,31,212/- was withdrawn from out of the total deposit made by the Idea. While passing the said order, the learned Additional Chief Judge made the following observations. It is seen from the rival contentions that both sides are blaming each other contending that there is breach of terms of contract. But, in my view, this is an aspect to be considered by the arbitrator as to which party committed breach of terms. Similarly, the arbitrator has to decide about the damages, if any, to be made by the petitioner. At this stage, I feel the admitted amount can be permitted to be withdrawn by the petitioner since there is dispute with regard to the rest of the amount, which is in deposit. Further, it is recited in the counter filed by the 1st respondent that the petitioner was entitled to a sum of Rs.12,31,212/-. Under these circumstances, I am inclined to permit petitioner to withdraw this admitted amount of Rs.12,31,212/- from out of the total deposit of Rs.37,60,618/- and rest of the amount can be kept in deposit till the dispute is settled. In one of their communications, Essel represented by the second 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 of this, Idea admitted an amount of Rs.12,31,212/- as due and payable to Essel. The Court below directed Idea to deposit disputed amount. Then Essel filed counter claiming admitted amount followed by I.A.No.1210 of 2009 for withdrawal of entire deposited amount. When withdrawal of total amount is rejected, nothing prevented Essel to file appeal under Section 37 of the Act. They did not do so. They acted upon the order and withdrew the permitted amount. Therefore, though ordinarily the principle of res judicata does not apply to interlocutory proceedings, having regard to the admissions made by Essel that they are entitled to withdraw admitted amounts, the Court below was right in rejecting the application as not maintainable. There is a serious dispute about slab rate claimed by Essel and as extracted herein above and they admit that, “only such of the amounts which are under disputes have to go for resolution by invoking the remedies provided for under law.” Therefore, we find no merit in this appeal. In the result, for the above reasons, the appeal is dismissed and the interim order dated 18.11.2009 in CMAMP No.2046 of 2009 stands rescinded. The parties shall bear their respective costs. _______________ (V.V.S.RAO,J) __________________ (B.N.RAO NALLA, J) December 30, 2009 YS CMAMP Nos.2184 of 2009 and 2046 of 2009 In view of the final orders in CMA No.1103 of 22009, these two CMPs are accordingly disposed of.