Full Judgment Text
1
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 11 DAY OF FEBRUARY 2019
BEFORE
THE HON’BLE MR. JUSTICE ALOK ARADHE
C.M.P. NO.270 OF 2015
BETWEEN:
NITESH URBAN DEVELOPMENT PVT LTD.,
A COMPANY REGISTERED UNDER THE
COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
TH
NITESH TIMESQUARE, 7 FLOOR
NO.8, M G ROAD, BANGALORE
REP. BY ITS AUTHORIZED REPRESENTATIVE
MR K B VEERABRAHMAM
S/O K VEERABRAHMAM
AGED ABOUT 53 YEARS.
… PETITIONER
(By Mr.S.SRIRANGA, ADV.)
AND:
1. BRIGADIER PETER ANTHONY LOPES
AGED ABOUT 70 YEARS
S/O DR. A M LOPES.
2. MRS. JENNIFER LOPES
AGED ABOUT 62 YEARS
W/O BRIG PETER ANTHONY LOPES.
3. MRS. NALINI DESA (NEE LOPES)
AGED ABOUT 41 YEARS
D/O BRIG PETER ANTHONY LOPES AND
MRS. J. LOPES.
4. MR. VERNON MARIO LOPES
AGED ABOUT 37 YEARS
S/O BRIG PETER ANHTONY LOPES AND
MRS. J. LOPES.
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RESPONDENTS 1 TO 4
RESIDING AT NO.21, (OLD NO.67)
RICHMOND ROAD
RICHMOND TOWN
BANGALORE-560025.
… RESPONDENTS
(Mr.SANTHOSH H.R., ADV. FOR R1 TO R4
Mr.JANEKERE C.KRISHNA, ADV. FOR R5)
- - -
This CMP is filed under Section 11(6) of the Arbitration
and Conciliation Act 1996, praying to appoint an Arbitral
Tribunal to adjudicate and resolve the dispute that have
arisen under the joint development agreement dated 25-11-
2011 (Annexure-A) between the petitioner and the
respondents & etc.
This CMP having been heard and reserved for orders
on 08.02.2018 , coming on for pronouncement this day, this
Court pronounced the following:
ORDER
Sri.S.Sriranga, learned counsel for the petitioner.
Sri.Santhosh H.R., learned counsel for the
respondent Nos.1 to 4.
Sri.Janekere C.Krishna, learned counsel for
respondent No.5.
2. The petition is admitted for hearing. With
consent of the learned counsel for the parties, the same
is heard finally.
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3. In this petition, under Section 11 of the
Arbitration and Conciliation Act, 1996 (hereinafter
referred to as ‘the Act’ for short), the main issues which
arise for consideration are, whether Clause 27.4 of the
agreement is an arbitration agreement and whether
respondent No.5 who is third party to the agreement
can be subjected to arbitration proceeding. The ancillary
issues which arises for consideration are about the
effect of order dated 11.04.2018 passed by Division
Bench of this Court in MFA No.8190/2016 and whether
the petitioner has bifurcated the parties and the claims
which is impermissible in law. In order to appreciate the
issues involved in this proceeding, the background facts
which lie in a narrow compass may be referred to.
4. The petitioner and respondent Nos.1 to 4
entered into joint development agreement on
25.11.2011 for development of properties mentioned in
schedule B and C annexed to the agreement. A
memorandum of understanding was executed by the
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petitioner and the respondents to enforce the execution
and registration of the joint development agreement.
The petitioner paid a sum of ` 7.5 lakhs to the
respondent Nos.1 to 4 which was refundable on the first
day of the month following the date of completion as
defined in joint development agreement. The
respondent Nos.1 to 4 issued a notice on 29.01.2013 to
terminate the joint development agreement, to which
the petitioner responded by submitting a reply on
05.03.2013. The petitioner thereafter filed an
application under Section 9 of the Act on 09.08.2014.
However, the respondent Nos.1 to 4 on 12.09.2014 sold
Schedule B and C properties to respondent No.5. On
22.07.2015, the petitioner issued a legal notice for
appointment of an arbitrator to resolve the dispute
between the parties on or about 07.11.2015. The
petitioner, thereafter filed an application to implead
respondent No.5 on 30.08.2017. It is noteworthy that
respondent No.5 was impleaded in Section 9 of the Act,
in the absence of any objection by it.
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5. Learned counsel for the petitioner submitted
that Clause 27.4 of the joint development agreement
contains an arbitration clause and the petitioner had
given a notice on 22.07.2015 for appointment of an
Arbitrator. The respondent Nos.1 to 4 have sold the
properties in favour of respondent No. 5. Therefore, he
is successor in interest of respondent Nos.1 to 4 and
any person claiming through a party can be made party
to the arbitration proceeding. It is also argued that in a
proceeding under Section 9 of the Act, the application
for impleadment of respondent No. 5 was allowed in the
absence of any objection by it. In support of the
aforesaid submissions, reference has been made to the
decisions of the Hon’ble Supreme Court in ‘CHLORO
CONTROLS INDIA (P) LTD. Vs. SEVERN TRENT
WATER PURIFICATION INC.’ (2013) 1 SCC 641
AND ‘PURPLE MEDICAL SOLUTIONS PRIVATE
LIMITED Vs. MIV THERAPEUTICS INC. AND
ANOTHER’ (2015) 15 SCC 622.
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6. On the other hand, learned counsel for
respondent No. 5 submitted that the provisions of the
Arbitration and Conciliation (Amendment) Act, 2015, do
not apply to the fact situation of the case as the arbitral
proceeding commenced on 25.07.2015. The parties
have not agreed to be governed by Amendment Act
2015. It is further submitted that existence of arbitral
agreement is a sine-qua non and intention to arbitrate
must be unequivocal. It is urged that arbitral clause
has to be strictly construed. It is pointed out that in the
absence of any agreement between the petitioner and
respondent No.5, the petition is liable to be dismissed
qua respondent No.5. It is also submitted that the
Division Bench of this Court in MFA No.8190/2016 has
held that joint development agreement is an escrow
document and not an agreement. The attention of this
Court has also been invited to paragraphs 12 and 13 of
the aforesaid decision of the Division Bench. It is also
urged that the joint development agreement is not an
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arbitral agreement. It is also urged that bifurcation of
parties or claims is not permissible. In support of
aforesaid submissions, reference has been made to the
decisions of the Hon’ble Supreme Court in
‘WELLINGTON AND ASSOCIATES LTD. VS KIRIT
MEHTA’ (2000) 4 SCC 272, ‘JAGDISH CHANDER VS
RAMESH CHANDER AND ORS.’ (2007) 5 SCC 19,
‘SUKANYA HOLDINGS PVT. LTD. VS JAYESH
H.PANDYA AND ORS.’ (2003) 5 SCC 531 and
decision dated 04.12.2018 passed by the Hon’ble
Supreme Court in ‘ SP SINGLA CONSTRUCTIONS PVT.
LTD. VS STATE OF HIMACHAL PRADESH AND ORS.’
and decision of Delhi High Court in O.M.P. (I)
114/2015 DATED 05-05-2015 IN ‘VLS FINANCE
LTD. VS BMS IT INSTITUTE PRIVATE LIMITED AND
ORS.’
7. Learned counsel for the petitioner, by way of
rejoinder reply, submitted that the clause dealt with by
the Hon’ble Supreme Court in Wellington Associates
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Ltd. ( supra) is not in parimateria with Clause 27.4 in
the instant case. It is further submitted that in
Jagadish Chander’s case (supra) , the Hon’ble
Supreme Court did not deal with the issue whether the
expression ‘may’ in the arbitration clause can be read as
‘shall’. While referring to the decision of the Hon’ble
Supreme Court in ‘ASHAPURA MINE-CHEM LIMITED
Vs. GUJARAT MINERAL DEVELOPMENT
CORPORATION’ (2015) 8 SCC 193 , it is submitted
that an arbitration agreement would survive
notwithstanding termination of memorandum of
understanding and even if memorandum of
understanding does not fructify into a full fledged
agreement.
8. I have considered the submissions made on
both sides and have perused the record. Section 7 of
the Act deals with the expression of ‘arbitration
agreement’ and provides that arbitration agreement
means an agreement by the parties to submit to
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arbitration all or certain disputes which have arisen or
which may arise between them in respect of defined
legal relationship, whether contractual or not. The
intention to refer the dispute to the arbitration must be
clearly discernable from the terms of the agreement. At
this stage, it is relevant to take note of Clause 27.4 of
the agreement which reads as under:
“27.4 In the event of the parties being
unable to resolve the dispute by conciliation
as above or within such further time as the
Parties may mutually agree, the dispute may
be referred by either party to arbitration by a
panel of three arbitrators (one to be
appointed by First Party, the other by Second
Party and third by the two arbitrators) in
accordance with the provisions of the
Arbitration and Conciliation Act, 1996 or any
re-enactment or modification thereof and shall
be decided by such Arbitral Tribunal. The
award shall be final and binding on the
parties.”
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9. The Hon’ble Supreme Court in the case of
Wellington Associates Limited (supra) dealt with the
clause in the agreement which provided that any
dispute or differences between the parties may be
referred to arbitration in pursuance of Arbitration Act,
1940, and held that the aforesaid clause is merely an
enabling provision and where the intention of the
parties is clear, it is preceded by a clause couched in
mandatory language. Thus, it was held that the
aforesaid clause was not a firm or mandatory arbitration
clause. Similar view was taken in Jagdish Chander’s
case (supra) and it was held that existence of an
arbitration agreement under Section 7 is a condition
precedent for appointment of an arbitrator under
Section 11 of the Act and therefore, it is not permissible
to appoint in the absence of arbitration or mutual
consent. It was further held that intention of the parties
to enter into the arbitration agreement shall have to be
gathered from the terms of the agreement. If the terms
of the agreement clearly indicate an intention on the
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part of the parties to the agreement to refer their
disputes to a private Tribunal for adjudication and a
willingness to be bound by the decision of such Tribunal
on such disputes, it is arbitration agreement. While
there is no specific form of an arbitration agreement,
the words used should disclose a determination and
obligation to go to arbitration and not merely
contemplate the possibility of going for arbitration.
Where there is merely a possibility of the parties
agreeing to arbitration in future, as contrasted from an
obligation to refer disputes to arbitration, there is no
valid and binding arbitration agreement. Similar view
has been taken by the Hon’ble Supreme Court in ‘ VIJAY
KUMAR SHARMA Vs. RAGHUNANDAN SHARMA’
(2010) 2 SCC 486, ‘STATE OF ORISSA Vs.
BHAGYADHAR DASH’ (2011) 7 SCC 406 AND
‘KARNATAKA POWER TRANSMISSION
CORPORATION LIMITED Vs. DEEPAK CABLES
(INDIA) LIMITED’ (2014) 11 SCC 148.
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10. In view of the aforesaid enunciation of law by
the Hon’ble Supreme Court, the arbitration clause in the
instant case, does not require the parties to mandatorily
refer the dispute to the arbitration but indicate a desire
or hope to have the disputes settled by an arbitration,
or a tentative arrangement to explore arbitration as a
mode of settlement if and when a dispute arises. Thus,
the aforesaid agreement is an agreement requiring or
contemplating a further consent or consensus before a
reference, is not an arbitration agreement, but an
agreement to enter into an arbitration agreement in
future. Thus Clause 27.4 cannot be termed as an
arbitration clause.
11. Admittedly, the joint development agreement
dated 25.11.2011 executed between the petitioner and
respondent Nos.1 to 4 was for joint development of a
total extent of 24037 square feet that is Schedule B
property and item Nos.1 and 2 of Schedule C property.
This fact is evident from the recital made in the
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agreement, the relevant extract of which is reproduced
below:
“Whereas the schedule ‘A’ Property thus
consists of the Schedule ‘B’ herein and Item
No.1 and 2 of the Schedule ‘C’ herein. The
entire Property described in Schedule ‘A’ herein
and the Schedule ‘C’ herein form a composite
block and together referred to as the Schedule
Property for convenience.”
12. From close scrutiny of the joint development
agreement, it is evident that Schedule B property
belonged to Lopes Family whereas item Nos.1 and 2 of
Schedule C property belong to Bankien and Rego Family
and Andrade Family, respectively. The Bankien, Rego
and Andrade families, who are owners of item Nos.1
and 2 of the schedule C property have not been
impleaded in this petition.
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13. The Division Bench of this Court by an order
dated 11.04.2018 passed in MFA No.8190/2016, an
appeal under Section 37(1)(b) of the Act which was
preferred against an order dated 04.11.2016 by which
application under Section 9 of the Act filed by the
petitioner was rejected, in paragraphs 12 and 13 has
held as under:
“12. It is indeed an admitted fact that the
joint development agreement pertains to
Schedule B & C properties. Indeed, as per
the averments made in the appeal memo at
paragraph 9, ‘C’ Schedule property was yet
to be acquired and sale deed in respect
thereof, had to be obtained, and it was for
this reason, the joint development
agreement was kept with an advocate who
agreed to act as an Escrow agent for the
appellant and respondents 1 to 4. If that is
so, question of appellant specifically
enforcing the joint development agreement
in respect of both Schedule B & C properties
would not arise. As rightly submitted by the
learned Counsel for the respondent, even if
findings recorded by the Trial Court stating
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that respondent no.5 who had purchased the
property not being a party to the arbitration
proceedings, hence, Section 9 petition could
not be maintained against third party is not
a correct proposition in law, fact remains
that recital in the joint development
agreement is to the effect that petitioner
owned ‘C’ Schedule property and in that
capacity he had entered into an agreement
although the actual fact being that ‘C’
Schedule property was not owned by the
petitioner.
13. It is well established that for grant of
injunction by way of interim measure,
applicant has to establish prima facie case
and balance of convenience must lie in his
favour. In the instant case, ‘C’ Schedule
Property could not have been made part of
the agreement as it was not owned by the
petitioner. joint development agreement
pertains to both B & C schedule properties.
In the absence of owners of both B & C
schedule properties being parties to the Joint
development agreement, specific
performance of the said agreement prima
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facie appears to be impermissible. Therefore,
for the purpose of finding out the whether
prima facie case has been made out by the
appellant for grant of interim measure, we
are of the view that no such case is made
out and hence, dismissal of the application
by the court below cannot be found fault
with. Although we are not in agreement with
some of the reasons assigned by the court
below, as we find that no prima facie case
was made out for grant of interim measure,
order passed by the court below dismissing
the arbitration application filed under Section
9 of the Act does not call for interference.”
14. Thus, it was held that the agreement is an
escrow agreement and therefore, the question of
enforcing the same does not arise. It was further held
that Schedule C property could not be made part of the
agreement as the petitioner was not the owner of the
same and the joint development agreement pertains to
Schedule B and C properties and in the absence of
owners of Schedule B and C properties, no relief can be
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granted. The aforesaid finding has a material bearing on
the controversy involved in this petition. This Court
finds no reason to differ with the view taken by the
Division Bench of this Court in the aforesaid mentioned
case.
15. Sofar as submission made by the learned
counsel for the petitioner that decision in Chloro
(supra) and
Control India’s case Purple Medical
Solution (supra) apply to the fact situation of the case
and therefore, respondent No.5 can be subjected to the
arbitration agreement, suffice it to say that in the
aforesaid decisions, it was held by the Hon’ble Supreme
Court that if a third party is claiming or sued through a
party to the arbitration agreement and there are
principal and subsidiary agreements and such third
party signatories to subsidiary agreements, in such a
case, third party may be referred to the arbitration. In
the instant case, the joint development agreement
pertains to Shcedule B and C properties and owners of
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Schedule B and C properties are not parties to the
arbitration agreement. It is also pertinent to note that
it is the specific stand of the respondent No.5 that he is
not claiming any title or interest through respondent
Nos.1 to 4. Therefore, the aforesaid decisions have no
application to the fact situation of the case. It has
already been held that Clause 27.4 does not madatorily
require the parties to refer the dispute to the
arbitration. Therefore, the same cannot be considered
as an arbitration clause. Therefore, the aforesaid
contention made by the petitioner is also negatived.
17. In view of preceding analysis, it is evident that
Clause 27.4 of the agreement is not an arbitration
clause and respondent No.5 cannot be subjected to
arbitration proceeding. This Court does not find any
reason to disagree with the view taken by the Division
Bench of this Court in the order dated 11.04.2018
passed in MFA No.8190/2016. Therefore, it is not
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necessary to deal with other contentions made by the
learned counsel for the parties.
18. In the result, I do not find any merit in the
petition. However, the same is disposed of with the
liberty to the petitioner to take recourse to such remedy
as may be available to the petitioner under the law.
Sd/-
JUDGE
RV