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Judgment
R.Raghunandan Rao, J
The applicants 2 to 4 are said to have purchased land, under various registered deeds of sale and had thereafter, incorporated the 1st respondent company and subsequently constructed a hotel building in the name of the said 1st applicant in D.No.46-22-30 and 46-22-30(A), Assessment No.54528A covered by Block No.23, Sy.Nios.650, 651, 652 of Dondapathy Village, within the limits of Greater Visakhapatnam Municipal Corporation, Visakhapatnam.
After running the hotel for some time, the 1st respondent put up the hotel for sale and after mutual negotiations and necessary approvals from the general body, the said hotel was sold to the respondent herein, under a registered deed of sale dated 30.03.2012, for a sum of Rs.9.90 crores.
Apart from the sale of the immovable property, there were two more transaction between the parties. Under the first transaction, the immovable assets in the hotel were sold by the applicants to the respondent, for a sum of Rs.3.10 crores and there is no dispute that the entire amount of Rs.3.10 crores had been paid to the applicants. Apart from this, it appears a sister concern known as “Talasila Infra and Mobile Hotels” had also sold its immovable assets to the respondent herein, for a consideration of Rs.2.00 crores. However, only a sum of Rs.70 lakhs was paid and a sum of Rs.1.30 crores was retained as security deposit for the purposes which are described below.
It appears that the 1st applicant, as well as the applicants 2 to 4 had certain outstanding issues in relation to the hotel of the 1st applicant and the respondent had sought a security deposit to ensure that all the outstanding issues are cleared by the applicants.
In pursuance of this arrangement, a Memorandum of Understanding was executed between the applicants and the respondent on 31.03.2012. This Memorandum of Understanding stipulated that the applicants would clear the issues and liabilities set out in clauses 1 to 6 and inform the respondent after all the said liabilities and issues raised in these clauses had been cleared by the applicants. Upon such information being given, the respondent was to pay the security deposit of Rs.1.30 crores, within one month of such information being given by the applicants.
There is some ambiguity as to the actual amount kept as security deposit as the security deposit is shown at Rs.1.30 crores in the recitals of the Memorandum of Understanding while the last paragraph of the Memorandum of Understanding says that the security deposit that has to be returned is Rs.1.25 crores. In any event, it is the case of the applicants themselves that the security deposit is Ac.1.25 crores and as such, the discrepancy need not detain this Court any further.
The Memorandum of Understanding also stated that in the event of the respondents not clearing the amount, applicants would be entitled to interest @ 18% per annum from the date of default of the said payment. The applicants contend that all the conditions set out in clause 1 to 6 of the Memorandum of Understanding had been complied with by the applicants and thereafter the respondent had been approached for paying the security deposit retained by the respondents. It is contended by the applicants that despite various requests, there was no answer from the respondent.
As the Memorandum of Understanding in clause 7 of the agreement had provided for arbitration in the event of any disputes arising, the applicants had got legal notice dated 11.03.2015, issued to the respondent, calling upon the respondent to either pay the amount of Ac.1.25 crores along with interest, within 3 days from the date of receipt of the notice failing which, the respondent was required to give consent, for appointment of an arbitrator, named in the notice.
This notice which was sent by registered post with acknowledgment due, appears to have been returned by the respondent with the noting “Doors Locked”. It appears that another notice was again sent and even this notice was returned with the noting “Company Closed”. The said notings make it clear that notices were served on the address of the respondent and the noting that the doors had been locked would not detract from the fact that it must be deemed that notice had been served on the respondent.
As there was no response from the respondent, the applicants have approached this Court, by way of an application under Section 11 of the Arbitration and Conciliation Act, 1996, for appointment of an Arbitrator. It is also contended that the arbitrator named in the notice had not proceeded with the arbitration and in any event since consent of the respondent was not obtained for the appointment of the said arbitrator, it would be necessary and appropriate that this Court to appoint an arbitrator.
After the application had been filed before this Court, notices were directed to be sent by the respondent. As the said notices were being returned unserved, this Court had permitted the petitioner to take out substituted service, by way of paper publication and the same was carried out by publishing the notice in the local newspaper on 14.02.2020 and proof of the said service had also been filed before this Court on 26.02.2020. However, there was no response from the respondent and the respondent has not chosen to appear before this Court.
In view of the fact that the respondent was served with notice, by way of publication in the newspaper, and has chosen not to appear before this Court, the said respondent is set ex parte.
A perusal of the Memorandum of Understanding would show that a sum of Rs.1.25 crores has been kept aside with the respondent, as security deposit, and the same was to be returned to the applicants, within a period of one month after the applicants had informed the respondent that all the terms set out in the Memorandum of Understanding had been complied by the applicants. The applicants contend that they had complied with all the said terms and had called upon the respondent to pay the security deposit, as per the terms of the Memorandum of Understanding. As the amounts had not been paid, the respondent would be liable to pay the security deposit along with interest @ 18% per annum as set out in the Memorandum of Understanding itself.
Since the Memorandum of Understanding executed by both the applicants as well as the respondent contains a clause for referring disputes arising between the parties, to arbitration, and since there does appear to be a dispute between the parties which was raised by the applicants, by way of the notice dated 31.08.2015, it would be appropriate to appoint an arbitrator and refer the dispute to the said arbitrator, for resolution of the said dispute.
A further development in the case, that requires to be noticed is the fact that the applicants had also approached the District Court in Visakhapatnam in A.O.P.No.1257 of 2015, under Section 9 of the Arbitration and Conciliation Act, 1996, for attachment of the hotel property, pending arbitration. This application was allowed by the VI Additional District Judge, Visakhapatnam, by an order dated 22.03.2017 after setting the respondent ex parte.
For the aforesaid reasons, the Arbitration Application is allowed and Sri B.Seshasayana Reddy, Former Judge of the Hon’ble High Court of Andhra Pradesh, H.No.10-1-128/1/1, Rajasree Residency, Flat No.201, 2nd floor, Paradise Hotel Line, Masabtank, Hyderabad-5000028 is appointed as the Arbitrator for considering and disposing of the claims of the applicants as set out in the Arbitration Application filed before this Court.
The arbitrator shall fix his fee in accordance with the provisions of the Arbitration and Conciliation Act, 1996. It shall also be open to the arbitrator to consider all claims raised by the applicants, in accordance with the claims made in the Arbitration Application and also such objections with the respondent may raise in relation to these claims. There shall be no order as to costs.
Miscellaneous petitions, pending if any, shall stand closed.