M/S L.R.Builders Pvt. Ltd vs M/S Saini Motors And Others on 27 September, 2013

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Punjab-Haryana High Court

M/S L.R.Builders Pvt. Ltd vs M/S Saini Motors And Others on 27 September, 2013

A plot of land measuring 4805 sq. yards alongwith Sehan measuring 660 sq. yards and thus totaling 5465 sq. yards bearing Municipal No. B-29-24, G.T.Road, Sherpur Chowk, Ludhiana, vested in pursuance to sale-deeds in M/s Saini Motors/respondent No.1, of which respondents No.2 and 3 are partners being brothers. It appears that the loan was availed of by the partnership firm from the State Bank of India/respondent No.5 having its branch at Chandigarh and the aforesaid property was mortgaged for securing the loan. The loan Arb. Case No. 89 of 2011 2 became apparently irregular resulting in outstanding. A sum of ` 15,25,45,877.02/- was outstanding as on 31.10.2004 with interest @ 12.25% per annum with monthly rests w.e.f. 01.11.2004.

2. In order to repay the loan outstanding and to develop the aforesaid property, a Memorandum of Undertaking (MOU) was executed on 14.08.2006 with the intention that the petitioner, a Private Ltd. Company, would construct and build a multiplex complex and deposit the payments in the 'no-lien account' of respondent No.5 bank. This MOU culminated in a Tripartite Agreement dated 03.01.2007. Certain collateral documents in the form of General Power of Attorneys and agreements to sell were also executed.

3. The Tripartite Agreement dated 03.01.2007 contains an arbitration clause No. 28 which reads as under:-

"28. That in the event of any question or dispute arising under in connection with and incidental to and/or interpretation or scope of this agreement or relating hereto, the same shall be referred to any Arbitrator mutually acceptable to all the parties and the decision of the Arbitrator shall be final and conclusive, the provisions of the Arbitration and Conciliation Act, 1996 and the Statutory modifications, amendments and/or re-enactment thereof from time to time shall apply to such arbitration. The parties shall bear and pay their own costs, charges and expenses of the proceedings for the arbitrator. The place of arbitration shall be at Chandigarh. The reference to arbitration shall not include the disputes relating to the non- payment of dues to the bank and its right to enforce under the loan documents and under this agreement".

Arb. Case No. 89 of 2011 3

4. The Tripartite Agreement was, however, followed with another agreement dated 16.07.2007 taking into consideration the General Power of Attorneys executed on 23.01.2007 and 10.04.2007 as also the Agreement to Sell dated 16.07.2007. It is relevant to reproduce Clause-5 of this agreement which reads as under:-

"5. That so long as the balance compromise amount of ` 13,32,50,000.00 (Rupees thirteen crores thirty two lacs and fifty thousand only) or such other amount as may be agreed vide a one-time lump-sum payment towards a full and final settlement of the balance compromise amount instead of the staggered payment schedule to the State Bank of India, all clauses/reference in the Tripartite Agreement dated January 3, 2007 relating to the rights and interests of the 'Owners/Builder' hereby stand modified and all arrangements regarding escrow accounts etc. are hereby superseded (especially clauses 7 to 27). The Owners further covenant, undertake and assure the Builders that they shall continue without alteration or modification the registered General Power of Attorney executed in favour of the Builders on 10th January, 2007 and shall not revoke or attempt to revoke or cancel this document".

5. In terms of the aforesaid Tripartite Agreement, the bank was to handover the custody of the mortgaged property to the petitioner for development purposes with no right of possession of the land and the legal possession to remain with the bank till the dues of the bank were cleared. The parties proceeded in pursuance of the Tripartite Agreement and monies were deposited by the petitioner from time to time. It is, however, the say of respondents No.1 to 4 that there were Arb. Case No. 89 of 2011 4 defaults on the part of the petitioner in complying with the financial obligations, which resulted in very basis of the agreement being violated. The said respondents thus submit that they had to approach the third party M/s Green Star Buildcon Pvt. Ltd. so as to clear the dues of respondent No.5 bank. It is this which again given rise to the disputes between the petitioner on one hand and respondents No.1 to 3 (respondent No.4 acting on behalf of respondent No.3 as his attorney) on the other hand.

6. The aforesaid situation resulted in exchange of public advertisements and exchanges of notices inter-se the parties. It transpired that the private respondents had revoked the General Power of Attorney and had also terminated the Tripartite Agreement dated 03.01.2007 as also the agreement dated 16.07.2007. The petitioner preferred an application under Section 9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as 'the said Act') in the District Courts at Ludhiana and also issued a notice dated 23.02.2011 invoking the arbitration clause and seeking appointment of Arbitrator in terms of Section 11 of the said Act. Since no Arbitrator was appointed within the statutory period, the present petition under Section 11 of the said Act has been filed.

7. The application has been contested by the respondents. One aspect of the pleadings of the private respondents is based on the alleged failure of the petitioner to fulfill the terms of the Tripartite Agreement and not making the payments under the 'One Time Settlement' (OTS) scheme to the bank which according to the private Arb. Case No. 89 of 2011 5 respondents nullified the Tripartite Agreement and subsequent agreement dated 16.7.2007. It was in order to save the property that the private respondents claimed that they entered into agreement with M/s Green Star Buidcon Pvt. Ltd. which is not a party to the present petition though civil disputes are pending inter-se the parties.

8. It has also been averred that the private respondents were under coercion and undue influence and thus compelled to execute the agreement to sell dated 16.07.2007, though learned counsel for the said respondents does not dispute that no proceedings were filed for cancellation of this agreement nor were any complaints made till the disputes arose.

9. The substratum of the plea of learned counsel for the private respondents is that the agreement dated 16.07.2007 does not contain any arbitration clause and that agreement being in supersession of the Tripartite Agreement dated 3.1.2007, no arbitration agreement survived.

10. On the other hand, learned counsel for the petitioner submitted that a bare reading of the agreement dated 16.07.2007 specifically Clause-5 would show that only commercial terms stood superseded, more specifically clauses 7 to 27 as mentioned in Clause 5 of the agreement dated 16.7.2007 and not the arbitration clause contained in the Tripartite Agreement dated 03.01.2007. This was the reason that the Tripartite Agreement was made as Annexure to the agreement dated 16.7.2007, an aspect not disputed by learned counsel for the private respondents.

Arb. Case No. 89 of 2011

11. Learned counsel for the private respondents sought to rely upon the judgment of the Bombay High Court in case Ivory Properties & Hotels Pvt. Ltd. Vs. Nusli Neville Wadia 2011(2) Arb. L.R. 479, on the proposition that where fraud has been levelled against an applicant and where serious triable issues relating to fraud arise between the parties, the same should not form the subject of reference to arbitration matter. The other judgment referred to is of Arbitration Case No. 151 of 2012 titled as Privilege Health Care Services Vs. DLF Qutab Enclave Complex decided by this Court on 26.7.2013, wherein application under Section 11 of the said Act was dismissed on the ground that the jurisdiction of the Arbitrator stood specifically excluded qua specific performance of the agreement by conferring jurisdiction on the Civil Court in respect of any such claims.

12. Learned counsel for the petitioner, on the other hand, referred to the judgment in Bharat Rasiklal Ashra Vs. Gautam Rasiklal Ashra and another 2012(2) Supreme Court Cases 144 to contend that in proceedings under Section 11 of the said Act, the Chief Justice or his designate would have to examine the issue and not relegate the parties to a suit merely on the basis that there are serious allegations of fraud and fabrication made, as that would defeat the very purpose of Section 11 of the said Act. Where such agreements have been performed in part, such a contention would not be entertained and it is only in very few cases, where an agreement which has not seen the light of the day is suddenly propounded or where an agreement had never been acted upon or where sufficient circumstances exist to doubt Arb. Case No. 89 of 2011 7 the genuineness of the agreement, the Chief Justice or his designate will examine these issues.

13. Learned counsel for the petitioner also referred to the judgment of the Division Bench of the Bombay High Court in case Sayyad Tahir Hussain Mainuddin Vs. The State of Maharashtra through.....2007(109) Bom.L.R. 1906 where the meaning of the word 'annex' has been discussed and it has been observed as under:-

"The meaning of word "annex" as per Concise Oxford English Dictionary, 11th Edition, means "add as an annexure or subordinate part", "an addition to a document". On considering plain dictionary meaning, it can be said that annexure would mean part and parcel of the document, at the most an extension on a separate piece of paper. In other words, the annexure would be otherwise integral part of the document. Therefore, what is integral part of the reference petition can be designated as annexure, as contemplated by Sub-rule (4) of Rule 6 and would require signature and verification of the petitioner by way of compliance of Sub-rule (4) of Rule 6."

14. It has thus been contended that once the Tripartite Agreement was made as annexure to the subsequent agreement dated 16.07.2007, the Tripartite Agreement would be an integral part of the subsequent agreement.

15. I am in complete agreement with the submissions advanced by learned counsel for the petitioner. The arbitration clause inter-se the parties in the Tripartite Agreement dated 03.01.2007 is not denied. The execution of the subsequent agreement dated 16.07.2007 is also not denied though general pleas about duress, coercion and undue influence Arb. Case No. 89 of 2011 8 etc. have been raised. The subsequent agreement specifically contains Clause-5 which supersedes the financial terms and conditions of the Tripartite Agreement dated 03.01.2007 and mentions that the clauses superseded are clauses 7 to 27 while annexing the Tripartite Agreement to the subsequent agreement dated 16.7.2007. Thus, there is no doubt that the arbitration clause which is agreed to does not stand superseded and was preserved. The factual matrix is so crystal clear that on this issue the private respondents have no case. As to what they did in the given facts of the case and as to who has to be blamed for it, is not for this Court to determine but to be determined by the Arbitrator.

16. I am of thus of the view that the disputes inter-se the petitioner and the private respondents are liable to be referred to the arbitration in terms of Clause 28 of the Tripartite Agreement dated 03.01.2007. Accordingly, I appoint Justice N.K.Sodhi, retired Chief Justice of Karnataka High Court, as sole Arbitrator to enter upon the reference and adjudicate the disputes inter-se the parties. The fee of the Arbitrator will be determined by the Arbitrator himself and a copy of the order be communicated to the Arbitrator forthwith.

17. In so far as respondent No.5-bank is concerned, learned counsel appearing for the said bank has stated that as all its dues stand paid, it is not really party to the dispute but continues to be in custody of the mortgaged documents and the legal possession of the land though actual physical possession is not with it. In so far as these two aspects are concerned, learned counsel for the bank states that the bank would abide by the award of the Arbitrator or any judicial orders Arb. Case No. 89 of 2011 9 pursuant to the same. So far as handing over the title documents and the legal possession is concerned, the same could not be given to the petitioner inspite the Tripartite Agreement, on account of the disputes having arisen between the petitioner and the private respondents. The bank would thus be bound by this statement.

18. I thus allow the petition but with costs quantified at ` 15,000/- payable by respondents No.1 to 4 to the petitioner in view of the dispute being commercial in nature and the matter being contested unnecessarily by the private respondents despite the clear arbitration clause inter-se the parties.

(SANJAY KISHAN KAUL) CHIEF JUSTICE 27.09.2013 'ravinder' Sharma Ravinder 2013.09.30 14:48 I attest to the accuracy and integrity of this document

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Punjab-Haryana High Court