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M/s. First Futuristic Holdings Limited, Authorised Signatory Kovilakuntla Balasubramanyam & Others v/s M/s. Prabhu Constructions, by its Proprietor, K.E. Prabhu

    W.P. No. 28644 of 2017 (GM-CPC)

    Decided On, 12 August 2020

    At, High Court of Karnataka

    By, THE HONOURABLE MR. JUSTICE N.S. SANJAY GOWDA

    For the Petitioners: B.K. Sampath Kumar, Advocate. For the Respondent: Kiran Kumar, Advocate.



Judgment Text

(Prayer: This writ petition is filed under Article 227 of the Constitution of India praying to quash the impugned order passed by the LII Additional City Civil and Sessions Judge [CCH No. 53] Bengaluru City on IA No. 1 and IA No. 2 DTD: 19.4.2017 in Ex.No. 871/2016 at Annexure-J.)

1. The undisputed facts in this writ petition are as follows:

The first petitioner and the respondent had entered into an agreement, whereby, the respondent had undertaken to construct an apartment complex called ‘Lotus Palace’. It appears that disputes arose between the first petitioner and the respondent and the first petitioner terminated the contract. It appears that the first petitioner had issued a cheque in a sum of Rs.40,00,000/- to the respondent and the said cheque has been dishonoured resulting in initiation of proceedings under Section 138 of the Negotiable Instruments Act (for short hereinafter referred to as “N.I. Act”), before the XLII Additional Chief Metropolitan Magistrate in CC No. 7281/2015.

2. During the pendency of the proceedings before the Chief Metropolitan Magistrate, the petitioners and the respondent settled their differences and on 24.08.2015, filed a memo before the Chief Metropolitan Magistrate regarding the settlement and the Chief Metropolitan Magistrate on the basis of the Memo referred the matter to the Lok-Adalath.

3. The Lok-Adalath on 03.09.2015, took up the joint memo for consideration and after hearing the parties, proceeded to accept the joint memo and disposed of the complaint in terms of the joint memo. The first petitioner, by the same order, was also acquitted of the offence punishable under Section 138 of the N.I. Act. Thus, the proceedings initiated under Section 138 of the N.I. Act came to an end with the acceptance of the joint memo/compromise.

4. It may be pertinent to state here that the joint memo was in fact an application filed under Section 320 of Cr.P.C., which contemplated compounding of the offences and acquitting the accused.

5. In the said application/compromise, it was agreed that the respondent would be given nine cheques totally amounting to Rs.1,50,57,644/-. The nine cheques were all post dated cheques. It appears that the post dated cheques issued by the petitioners were dishonoured and since the compromise/application filed before the Magistrate enabled the respondent to execute the compromise, an Execution petition in Ex Case No 871/2016 was filed on 31.03.2016.

6. During the pendency of this execution petition, the respondent appears to have filed an application before the Chief Metropolitan Magistrate requesting for drawing up of an award. The Chief Metropolitan Magistrate by his order dated 29.08.2016, proceeded to direct the drawing up of an award as per the terms of the compromise. This order was passed at the instance of the respondent and the petitioners were not heard in the matter.

7. As stated above, the execution had been filed seeking to execute the compromise that had been filed before the Magistrate in CC No.871/2016. In the said execution petition, the petitioners filed two applications. I.A.No.1 was filed under Section 47 r/w Section 151 of CPC., for dismissal of the execution petition as not maintainable and I.A.No.2 was filed under Section 151 of CPC., for the same relief i.e., for dismissal of the execution petition as not maintainable.

8. The Executing Court after hearing the parties, by the impugned order has dismissed the said applications-I.A.Nos. 1 and 2. The petitioners who were the Judgement Debtors in the said Execution case are thus before this Court challenging the dismissal of their applications.

9. Learned counsel for the petitioner Sri.B.K. Sampath Kumar, contended that the very initiation of the execution proceedings on 31.03.2016 was non est, since the award had been drawn up only on 07.09.2016. He contended that since the matter had been referred to the Lok-Adalath by the Court, the award would not become enforceable until it was directed to be drawn up by the Court. It was his submission that it was the Court which referred the matter to the Lok-Adalath and the Court would therefore not loose control over the proceedings even if a Joint Memo was recorded and accepted before the Lok-Adalath. He submitted that the acceptance of the joint memo by the Lok-Adalath by itself did not result in an award. In other words, he contended that unless the award had been drawn up by the Court in terms of the settlement arrived at between the parties at the Lok-Adalath, the Execution Petition could not be maintained. He submitted that since, the execution had been filed six months before the award was ordered to be drawn up, the same could not have been entertained by the Executing Court and the same ought to have been rejected.

10. Learned counsel for the petitioner also contended that as per the compromise petition, the respondent would be entitled to the sums mentioned in the compromise petition only on raising of the bill/invoice and issuing a certificate for structural stability for the apartment complex ‘LOTUS PALACE’. He contended that this tantamounted to the compromise petition being a conditional decree and the question as to whether the conditions were complied with or not would have to be considered by the executing Court and it could not have entertained the execution petition as if the decree was unconditional.

11. In support of his argument, learned counsel relied upon the judgment of the Apex Court in the following cases;

1) AIR (2010) 8 SCC 24 in the case of Afcons Infrastructure Limited and Another Vs. Cherian Varkey Construction Company Private Limited and Others

2) AIR 2012 Madras 108 in the case of, M/S. Central Bank of India Vs. Debt Recovery Tribunal, Coimbatore and Anr.

3) AIR 1969 Allahabad 296 in the case of Habib Mian and another Judgment-debtors Vs. Mukhtar Ahmad and another Decree-holders.

12. Learned counsel for the respondent on the other hand contended that under the provision of the (CORRECTED VIDE CHAMBER ORDER DATED: 23.09.2020.) Legal Services Authorities Act, 1987 (for short hereinafter referred to as “the said Act”), there was no concept of drawing up of an award. He contended that the moment the joint memo/compromise was accepted by the Lok-Adalath, the same became an award as contemplated under Section 21 of the said Act. He contended that every award of the Lok-Adalath is deemed to be a decree of the Civil Court under Section 21 of the said Act and every award made by the Lok-Adalath would be final and binding on all the parties to the dispute. He therefore, contended that once the compromise petition was accepted by the Lok-Adalath, it was not permissible for the petitioners to contend that no award had been passed.

13. He also submitted that the first three instalments for a sum of Rs.15,00,000/-; Rs.15,00,000/- and Rs.20,00,000/- were not paid inasmuch as the post dated cheques had been dishonoured and as a consequences of the said breach, the respondent had an absolute right to execute the compromise. He also submitted that since the first three instalments were not paid, he was not obliged to fulfil any obligation under the compromise since the compromise petition itself allowed him to withhold his obligation.

14. It is not in dispute that in the proceeding initiated under Section 138 of the N.I.Act, the Complainant (the respondent herein) and the Accused (the petitioner herein) filed a memo indicating that they had settled the matter amongst themselves. On filing of the said memo, the matter was referred to the Lok-Adalath by the Magistrate. The Lok-Adalathjas thereafter passed the following order;

“Case called before LokAdalath

Case taken before Loka-Adalath in the presence of conciliators.

Complainant, Accused and Advocate for Complainant and Accused are present before the Lok Adalath. With the intervention of the conciliators parties agreed to settle the matter. Accordingly they filed joint memo and submitted that they have settled the dispute in Lok Adalath.

Hence, I proceed to pass following:

:ORDER:

Joint memo is hereby allowed.

Complaint is disposed of in terms of joint memo.

Accused is hereby acquitted for the offence punishable U/s 138 of N.I.Act.

Judicial Member.

Sd/-

Non Judicial Member”

15. In order to consider the submissions of the Learned Counsel for the petitioner, it will have to be examined as to whether this order passed by the LokAdalath on 03.09.2015 amount to an award as contemplated under the said Act.

16. Section 19(5) of the said Act contemplates that a Lok-Adalath would have jurisdiction to determine and to arrive at a compromise or settlement between the parties to a dispute in respect of any case pending before any Court for which the Lok-Adalath is organized.

17. Section 20 of the said Act states that in any case pending before a Court, the parties to the case agree the referring the case to the Lok-Adalath for settlement and that the Court is prima facie satisfied that there are chances of such settlement, the Court is obliged to refer the case to the Lok-Adalath.

18. In the instant case, it is not in dispute that both the parties in the Section 138 proceedings filed a Joint Memo and sought for reference of the case to the Lok-Adalath and since the Court was satisfied that there was bright chances of settlement, the matter was referred to the Lok-Adalath.

19. The Lok-Adalath, in turn, accepted the application filed under Section 305 of Cr.P.C., and compounded the offences and acquitted the accused, subject to the terms mentioned therein.

20. The principal arguments of the learned counsel is that this particular compromise petition by itself cannot be considered as an award until it is ordered to be drawn up by the Magistrate. It is his contention that the exercise of drawing up of an award was made subsequently, that is, when the respondent made an application for drawing up of an award and an award had been ordered to be drawn up without hearing the petitioner and thus there was no enforceable award at all. It is his contention that since an execution petition was filed six months before drawing up of the award, the entire proceedings was non est.

21. It is to be stated that this argument of the learned Counsel is not sustainable and devoid of merits.

22. The Central Authority, under the said Act has framed the National Legal Services Authority (Lok Adalth) Regulation, 2009. (CORRECTED VIDE CHAMBER ORDER DATED: 23.09.2020.) Regulation 17 of the said regulation reads as under:

“17. Award-(1) Drawing up of the award is merely an administrative act by incorporating the terms of settlement or compromise agreed by the parties under the guidance and assistance from Lok Adalat.

(2) When both parties sign or affix their thumb impression and the members of the Lok Adalat countersign it, it becomes an award (see a specimen at Appendix I) Every award of the Lok Adalat shall be categorical and lucid and shall be written in regional language used in the local court or in English. It shall also contain particulars of the case, viz., case number, name of court and names of parties, date of receipt, register number assigned to the case in the permanent register (maintained as provided under regulation 20) and date of settlement. Wherever the parties are represented by counsel, they should also be required to sign the settlement or award before the members of the LokAdalat affix their signature.

(3) In case referred to Lok Adalat from a court, it shall be mentioned in the award that the plaintiff or petitioner is entitled to refund of the court fees remitted.

(4) Where the parties are not accompanied or represented by counsel, the members of he Lok Adalat shall also verify the identity of parties, before recording the settlement.

(5) Member of the Lok Adalat shall ensure that the parties affix their signatures only after fully understanding the terms of settlement arrived at and recorded. The members of the Lok Adalat shall also satisfy themselves about the following before affixing their signatures:

(a) that the terms of settlements are not unreasonable or illegal or one-sided; and

(b) that the parties have entered into the settlement voluntarily and not an account of any threat, coercion or undue influence.

(6) Members of the Lok Adalat should affix their signatures only in settlement reached before them and should avoid affixing signatures to settlement reached by the parties outside the Lok Adalat with the assistance of some third parties, to ensure that the Lok Adalats are not used by unscrupulous parties to commit fraud, forgery, etc.

(7) Lok Adalat shall not grant any ball or a divorce by mutual consent.

(8) The original award shall form part of the judicial records (in pre-litigation matter, the original award may be kept with the Legal Services Authority or Committee, concerned) and a copy of the award shall be given to each of the parties duly certifying them to be true by the officer designated by the Member Secretariat or Secretary of the High Court Legal Services Committee or District Legal Services Authority or, as the case may be, the Chairman of Taluk Legal Service Committees free of cost and the official seal of the Authority concerned or committee shall be affixed on all awards.”

(underlining by me)

23. As could be seen from Regulation 17(1) and (2) of said (CORRECTED VIDE CHAMBER ORDER DATED: 23.09.2020.) Regulation, the drawing up of the award is merely an administrative act of which, terms of settlement or compromise are incorporated. In fact Sub-clause (2) clearly states that whenever both the parties to the settlement sign or affix their thumb impression and the members of the Lok-Adalath counter sign it, it becomes an award. It is thus, clear that the drawing up of an award is not concomitant for filing an execution. In fact, the Act does not even contemplate the drawing up of a formal award. A correct reading of the Regulation 17 would indicate that a moment the joint memo or compromise is filed before the Lok-Adalath and signed by both the parties and thereafter, the same is counter signed by the Lok-Adalath, an award comes into existence.

24. It is thus clear that the acceptance of the joint memo on 03.09.2015 by the Lok-Adalath by the affixture of signatures of the members of the Lok Adalath, by itself, created an award in the eye of law. Thus, as a consequence, the compromise petition on its acceptance by the parties in the Lok-Adalath became an enforceable award.

25. The argument of the learned counsel that an enforceable award was passed only on 29.08.2016 when the Magistrate directed drawing up of an award cannot be accepted in the light of the aforementioned statutory regulations.

26. If, thus, an award was deemed to have come into existence on 03.09.2015 itself, the filing of the execution petition on 31.03.2016 cannot be said to be premature or non est. I am therefore, not inclined to accept the argument of the learned counsel.

27. The decision relied upon by the learned counsel also do not support his contention.

28. In (2010) 8 SCC 24, the Apex Court has merely considered the alternative dispute resolution processes that are available and the procedure that was to be followed. In fact, in Paragraph 38, the Apex Court had itself stated that the settlement agreement in a conciliation or a settlement award of the Lok-Adalath may not require the seal of approval of the Court for its enforcement when they are made in a direct reference by the parties without there being intervention of the Court.

29. In the instant case, admittedly, the matter was referred to the Lok-Adalath at the instance of the parties themselves and without the intervention of the Court. In fact, the matter was referred to the Lok-Adalath only on the filing of the joint memo by the parties. The Magistrate did not, at any point of time, by himself come to the conclusion that there existed a possibility of settlement which required the matter to be referred to the Lok-Adalath. Thus, the reliance placed by the learned counsel on the observation that in a reference made by the Court, the settlement arrived at would have to be placed before the Court for recording it and for disposal in its terms cannot be accepted.

30. It is, therefore, clear that the Execution petition filed by the respondent was valid and the Executing Court was justified in proceeding to execute an award.

31. The other argument of the learned counsel that the compromise was a conditional compromise and since one of the condition imposed in the compromise had not been accepted, this had rendered the award unenforceable cannot be accepted.

32. It is not in dispute that the first three instalments mentioned in the compromise petition were not adhered to. Under the terms of the compromise, only on or before the date of payment of the fourth instalment, the complainant was require

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d to raise his bill and issue a certificate on structural stability. Since, the first three instalments itself were not paid, the question of the learned counsel relying upon the condition that the respondent was required to raise an invoice before the date of payment of the fourth instalment and issue a certificate would not at all come into play. 33. Clause (10) of the compromise petition reads as follows: “If the Accused fails to honourany of instalment payments as per the agreed terms of compromise, then the Accused shall liable to pay 18% per annum for the defaulted payment and if it is continued more than 2 (two) months, the complainant is at liberty to execute this compromise. If in case the Complainant does not fulfil its part of obligation the Accused may withhold his obligation.” 34. A reading of the said clause makes it clear that even if any one of the instalment payment was not adhered to, then the petitioner would not only become liable to pay 18% per annum of the defaulted payment but at the same time the Complainant (the respondent herein) would be at liberty to execute the compromise. In the light of this clause in the compromise petition, the argument of the learned counsel that it was a conditional decree and the conditions were not adhered to and therefore the Execution could not be maintained, cannot be accepted. 35. The citation relied upon by the learned counsel in AIR 1969 Allahabad 296 has not bearing in this case, since, this was not a case of a conditional decree. 36. The reliance placed upon by the learned counsel on the decision rendered in 2012 Madras 108 can also have no application since in that case, the Tribunal had refused to accept a compromise entered into between the Bank and the Borrower. 37. In the result, it is clear that there is absolutely no merit in this writ petition and the same is accordingly dismissed.
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