Karnataka High Court
Smt. Elizabeth Mathew vs Prof. S.K. Narayana And Anr. on 11 September, 1998
Equivalent citations: AIR1999KANT291, AIR 1999 KARNATAKA 291, (1999) 37 ARBILR 134
Author: R.P. Sethi
Bench: R.P. Sethi
ORDER R.P. Sethi, C.J.
1. Relying upon the Arbitration Clause in the Construction Agreement (Annexure-D), admittedly executed between the Petitioner and Respondent No. 2, a prayer has been made for reference of the dispute between the parties to an independent Arbitrator for adjudication in accordance with law.
2. No one has appeared for Respondent No. 2, but the claim of the Petitioner has vehemently been resisted by Respondent No. 1, mainly on the ground that as he was not a party to the Construction Agreement-Annexure-D, no reference could be made to the Arbitrator with respect to the disputes allegedly existing between the Petitioner and the aforesaid Respondent. It is contended that in the absence of an Arbitration Clause between the Petitioner and Respondent No. 1, the application filed being misconceived is liable to be dismissed.
3. Some of the facts necessarily required to be noticed for adjudication of the rival claims of the parties are that:
The second Respondent is the Proprietor of a Construction Company by name Shivashakthi Construction. An agreement was executed between the Respondents on 10th of September, 1992, whereby Respondent No. 1 had agreed to sell the property to an extent of 3,531 sq. feet to Respondent No. 2 for the purposes of developing and constructing six apartments on terms and conditions mutually agreed upon, which were, interpreted in the written agreement, copy of which has been produced along with the Application as Annexure-B. Respondent No. 1 also executed a general power of attorney in favour of Respondent No. 2 enabling and empowering him to do the construction and conduct negotiation. All persons interested in the purchase of the apartment were allegedly given to understand that the construction of the apartments was a joint venture of the Respondents. As per the development agreement entered into on 10th of September, 1992 between the Respondents, the apartment construction had to be completed and 50% of the apartments were to be handed over to the first Respondent, for occupation within 18 months from the date of the demolition of the existing structure. Petitioner and Respondent No. 2 entered into an agreement on 17-12-1993, by which it was agreed that the second Respondent would construct an apartment of the required specification and deliver the same to the Petitioner for a consideration fixed at Rs. 8,45,172/-. The consideration amount was further increased on mutually agreed terms, in consequence of which the Petitioner agreed to pay a total amount of Rs. 11,50,000/- in instalments as and when demanded by the second Respondent towards the construction and delivery of the apartment. According to the Petitioner a total sum of Rs. 14,91,976/- has so far been paid by her to the Respondents for land and apartment together including the telephone facility. It is further contended that in order to facilitate the construction, a tripartite agreement was entered into amongst the Respondents and the Petitioner. Initially, the construction of the building started in full swing, but later it was abandoned. The Petitioner has further submitted that she is presently residing in the United States of America with her husband and has been regularly making enquiries about the progress of the project. She claims to have been shocked and surprised to see an announcement in the newspaper that the first Respondent has cancelled the power of attorney executed in favour of the second Respondent. Both the Respondents are alleged to have committed breach of contract and are therefore liable to compensate the Petitioner. She has claimed a total amount of Rs. 33,59,160/- as damages along with interest at 24% per annum on account of breach of contract. Notice for payment of the amount of compensation was served upon the first Respondent, which was not replied by him. The first Respondent belatedly sent a reply on 15-10-1997 disputing the claim of the Petitioner. It is submitted that as there exists disputes covered by the Arbitration Clause, they are liable to be referred to the Arbitrator for adjudication. The Petitioner has mentioned the names of number of persons including retired Chief Justice and Judges of the High Court for being appointed as Arbitrators in accordance with the provisions of Section 11(5) of the Arbitration and Conciliation Act, 1996 (hereinafter called the Act).
4. In the statement of objections filed by Respondent No. 1, it is submitted that the Application of the Petitioner under Section 11(5) and (6) of the Act is not maintainable, as there is no subsisting agreement between the contesting parties. He has, however, admitted that he is the owner of the land, where the apartments were agreed to be constructed. He has also admitted the execution of the agreement between him and the second respondent on 10-9-1992. The execution of the General Power of Attorney in favour of Respondent No. 2 is also not disputed. The Second Respondent, the builder, is stated to have been authorised to sell 3/6th of the property described in the schedule and to build three apartments for his purpose. Three bedroom apartments and three car parking spaces were to be built at the cost of the builder and to be given to Respondent No. 1. Respondent No. 2 is slated to have committed various breaches of the agreement, resulting in great loss, injury, hardship and damages to Respondent No. 1. The assertion of the Petitioner that the construction of the apartment was a joint venture has been denied by Respondent No. 1. He has also expressed his ignorance regarding the payment of the amounts by the Petitioner to Respondent No. 2. The execution of tripartite agreement has also been denied. It is contended that by the agreement dated 14-12-1994, Respondent No. 2 acting for himself and as power of attorney holder of Respondent No. 1 seems to have agreed to sell 16.5% undivided share, right, title and interest in the property bearing No. 10, Palace Road Cross, Bangalore to the Petitioner. No part of the consideration is stated to have been paid to Respondent No. 1. The initial construction and thereafter abandoning of the construction activity is admitted. The liability to pay the amount claimed by the Petitioner has vehemently been denied. The Application of the Petitioner has been termed to be misconceived and thus liable to be rejected.
5. I have heard the learned Counsel for the parties and perused the record.
6. The Act has been enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. Section 7 of the Act defines the Arbitration Agreement to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Such agreement is required to be in writing. An arbitration agreement shall be deemed to be in writing, if it is contained in :
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
The present definition of the Arbitration Agreement is in fact an extended definition of such an agreement, as it existed in the Arbitration Act of 1940, since repealed. The essential elements of an arbitration agreement have been admitted to be that there must be a present or a future difference in connection with some contemplated affair; there must be an intention of the parties to settle the differences by private Tribunal; the parties shall be bound by the decision of such Tribunal. An arbitration agreement can be inferred from the letter of exchange, the telex, telegrams or other means of telecommunication, which provide a record of the agreement. An exchange of statements of claim and defence may also constitute an arbitration agreement. No particular form of agreement was prescribed under the repealed Act or the present Act. It is also not essential that submission be contained in a single piece of paper or document. It may be gathered from the correspondence passed between the parties. The execution of different documents by the parties would not come in the way of holding the existence of an arbitration agreement, if the intention of the parties can be held to be clear and unambiguous. It is the substance and not the form of the agreement, which is material and relevant.
In Union of India v. A.L. Rallia Ram, it was held that in order to constitute an arbitration agreement, it was not necessary that the agreement be incorporated in a formal agreement executed between the parties thereto nor was it required to be signed by the parties.
An arbitration clause in one contract can be incorporated into a subsequent contract provided at the time of incorporation it is found to be not inconsistent with the terms of the subsequent contract. Similarly, arbitration agreement may be contained in a collateral clause of another agreement.
While interpreting Section 2(a) of the Arbitration Act, 1940, the Supreme Court in Jugal Kishore Rameshwardas v. Mrs. Goolbai Hormusji, held:
"It may be argued that if the contract note is only intimation of a sale or purchase on behalf of the constituent, then it is not a contract of employment, and that in consequence, there is no agreement in writing for arbitration as required by the Arbitration Act. But it is settled law that to constitute an arbitration agreement in writing it is not necessary that it should be signed by the parties, and that it is sufficient if the terms, are reduced to writing and the agreement of the parties thereto is established."
7. Refuting the allegations made on behalf of Respondent No. 1, the learned Counsel for the Petitioner has relied upon the provisions of Section 2 of the Powers of Attorney Act, 1882, which provides:
"The donee of a power of attorney may, if he thinks fit, execute or do any instrument or thing in and with his own name and signature, and his own seal, where sealing is required, by the authority of the donor of the power; and every instrument and thing so executed and done, shall be as effectual in law as if it had been executed or done by the donee of the power in the name, and with the signature and seal, of the donor thereof."
The object of Section 2 is to effect an instrument executed by an agent. This Section proceeds on the assumption that there is power of delegation available or exercisable under the existing law and provides that the donee of a power might act for and in the name of principal. It only states the general principle of agency and does not override the provisions of the rule made under a different statute. Where an act purporting to be done under a power of attorney is challenged on the ground of being in excess of the authority conferred by the principal, it is necessary to show that on a fair construction of the whole instrument, the authority so conferred is to be found in the instrument either in express terms or by implication. Some of the principles governing the interpretation of the power of attorney would include to assume that a power is construed so as to include all incidental powers necessary for its effective execution.
8. The Supreme Court in J.K. Jain v. Delhi Development Authority, held that it was not necessary that the arbitration clause should be contained in the main agreement itself or that the parties were to sign the arbitration agreement itself. Mere denial by one of the parties of the existence of the arbitration agreement would not denude the Arbitrator of his jurisdiction.
The reliance of the learned Counsel for Respondent No. 1 on , M. Dayanand Reddy v. A. P. Industrial Infrastructure Corporation Ltd. is misplaced in view of the facts of the present case.
9. In the instant case, it is not disputed that Development Agreement was executed on 10-9-1992, whereby Respondent No. 1 agreed to give his land for development to Respondent No. 2. The Respondent No. 2 had agreed to complete the entire construction of the apartments on the land within the time specified. Clause 7 of the Agreement provided that:
"The Developer/Builder shall proceed with the construction of the apartments, by investing its own money and shall solely be responsible without recourse to the owner. The Developer/ Builder alone shall be entitled to any profit and bear any loss from the construction of apartments. The Developer/Builder shall be entitled to sell the remaining apartments, other than the Schedule 'B' apartments to prospective purchasers of the Developer/Builder's choice."
Clause 15 provided that:
"The owner shall execute agreements in favour of the prospective purchaser of the apartments, the relative undivided share of the land reserved therefor after the plan is sanctioned. However, owner shall execute the sale deed in favour of the Developer/Builder or the prospective purchasers only after the possession on delivery of flats as in Schedule B. The stamp duty and registration and other incidental charges shall be borne by the Developer/Builder or by the prospective purchasers. The owner cannot be called upon to liquidate the same at any time."
Clause 21 provided that in the event of any dispute arising out of the agreement, the Courts at Bangalore City shall have the jurisdiction.
It is also admitted that Respondent No. 1 executed the General Power of Attorney in favour of Respondent No. 2 on 12th of April, 1993 (Annexure-C), wherein Respondent No. 1 declared that :
"I have entered into a development agreement dated 10-9-1992 with M/s. Shivashakthi constructions, which is a proprietary concern of Mr. C. Revanna and having its office at No. 1/1, Museum Road, Bangalore-560001 hereinafter called 'the Developer/Builder', for the development, construction and completion of a multistoreyed residential complex on my said property. The builder has already obtained the sanction of plan from the Bangalore City Corporation vide L.P. 74/92-93".
Vide Condition No. 3, the Respondent No. 2 was authorised to execute all the instruments and assurances which he shall consider necessary to enter into or agree to such covenants and conditions as may be required for fully and effectually conveying the aforesaid property or a portion thereof and changing the katha in the name of the prospective purchasers. He further authorised his power of attorney holder to conduct, attend and defend any matters on his behalf in any Court of law including judicial or quasi judicial authorities in connection with or incidental to any of the purposes mentioned therein. Condition No. 6 provided :
"To convey, sell, the builders/developers share of undivided interest in the said property i.e. 3/ 6th share in the schedule property or any part thereof to any person or persons and to register the deed or deeds of such transfer in the above manner or in any other mode that may be deemed to be necessary by my Attorney subject to full payment of the amounts as per Clause 1 of the said Development Agreement."
The Respondent No. 1 unequivocally agreed to ratify and confirm all acts, deeds and things done by Respondent No. 2 in respect of the land, which was the subject matter of the development agreement. He further declared that he shall not terminate the power of attorney unilaterally or revoke the authority vested in the promoters or builders unless there was a breach in terms and conditions of the Development Agreement.
Construction agreement dated 17th of December, 1993 is admitted to have been executed between the Petitioner and Respondent No. 2 with respect to the property, the subject matter of Development Agreement-Annexure-B. Condition No. 16 of the Construction Agreement provided an arbitration clause. Agreement to sell undivided interest dated 14th of December, 1994 was executed between all the parties to this Petition, though Respondent No. 2 signed the aforesaid agreement on behalf of Respondent No. 1 in his capacity as power of attorney holder.
10. All the circumstances, noted herein above, and the execution of the documents between the parties leave no doubt that there existed an agreement between the parties, which provided reference of disputes, if any, to the Arbitrator in terms of the provisions of the Act. Though Respondent No. 1 is shown to have not signed the agreement containing the arbitration clause, yet the circumstances clearly point out that he was aware and had authorised the Respondent No. 2 to execute agreement on his behalf in respect of the matters regarding which Development Agreement was executed. It appears that both the Respondents though apparently showing to be in confrontation with each other, yet appear to be having hands together in gloves so far as the object of defeating the interests of the Petitioner are concerned. Accepting the plea of Respondent No. 1 would amount to frustrating the Construction Agreement because if the Petitioner raises a dispute only with Respondent No. 2, he would succeed in frustrating her claim on the ground of non availability of the land, where the apartments were to be constructed. Similarly, if the Petitioner is directed to approach the Civil Court for the enforcement of her rights against both the Respondents, the Respondent No. 2 may frustrate her claim on the plea of the existence of an Arbitration Agreement. The reference of disputes to the Arbitrator is however not likely to adversely affect the interests of any of the parties.
11. There is no denial of the fact that if the existence of an Arbitration Agreement is admitted, there do exist disputes between the parties, which are required to be settled in accordance with the provisions of law. The interests of the parties can also be safeguarded by appointing an Arbitrator whose integrity and intelligence is acknowledged to be beyond doubt.
12. Under the circumstances, this Petition is allowed in terms of Section 11(5) of the Act and Hon'ble Justice Rama Jois, Retired Chief Justice of Punjab and Haryana High Court, resident of Rajajinagar, Bangalore-10, is appointed as an Arbitrator for adjudication of all the disputes between the parties. The parties are at liberty to file their detailed claims and counter-claims before the Arbitrator. The Arbitrator is requested to enter upon the reference and submit his award expeditiously. Rs. 25,000/- is directed to be paid by the Petitioner initially as tentative fee of the Arbitrator, which shall be included in the cost of litigation in favour of the successful party.