Karnataka High Court
Cornerstone Properties Pvt Ltd vs Shri. K G Kodandarama on 13 February, 2020
Author: B.Veerappa
Bench: B. Veerappa
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF FEBRUARY, 2020
BEFORE
THE HON'BLE MR. JUSTICE B. VEERAPPA
CIVIL MISCELLANEOUS PETITION NO.131/2018
BETWEEN:
Cornerstone Properties Pvt. Ltd.,
A Company incorporated under
The Companies Act, 1956,
Having its Registered Office at
#540, CMH Road, Indiranagar,
Bangalore - 560 038.
Represented by its Authorised
Signatory Mr.Kiran Poonacha. ...Petitioner
(By Sri.K.S.Ponnappa, Advocate for
Sri.M.V.Sundararaman, Advocate)
And:
Shri.K.G.Kodandarama,
Son of late Giddanna Reddy,
Aged about 53 years,
Residing at No.648, 23rd Main,
21st Cross, II Sector, HSR Layout,
Bangalore - 560 102. ...Respondent
(By Sri R.V.S. Naik, Senior Counsel for
Sri.T.Suryanarayana, Advocate)
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This Civil Miscellaneous Petition is filed under
Section 11(5) of the Arbitration and Conciliation Act,
1996 praying to i) appoint an Arbitrator on behalf of the
respondent as this Hon'ble Court may deem fit and refer
the disputes raised by the petitioners to Arbitration as
contemplated in Annexure - A, dated 18.01.2012;
This Civil Miscellaneous Petition coming on for
Admission this day, the Court made the following:
ORDER
The present Civil Miscellaneous Petition is filed under Section 11(5) of the Arbitration and Conciliation Act, 1996 for appointment of arbitral Tribunal to adjudicate the dispute in terms of clause 17 of the Memorandum of Understanding dated 18.01.2012 as per Annexure- A entered into between the parties.
2. It is the case of the petitioner that the petitioner is a company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of real estate development. On the representation made by the respondent to the petitioner that the respondent is the absolute owner of the land 3 measuring an extent of 100 acres and also that he had negotiated with the owners of the neighboring lands collectively measuring 50 acres i.e., schedule 'A' and schedule 'B' properties, the petitioner and the respondent have entered into a Memorandum of Understanding dated 18.01.2012 (MOU) for joint development and construction of residential villas in the schedule properties. The respondent had represented to the petitioner that his title to schedule 'A' property was good, marketable, subsisting and that no one else had any right, title interest or share therein and he would purchase schedule 'B' property free from all encumbrances. Accordingly, the petitioner was required to pay a sum of Rs.12,50,00,000/- to the respondent as refundable security deposit and a further sum of Rs.12,50,00,000/- as non-refundable security deposit. A sum of Rs.2,01,00,000/- was paid by the petitioner to the respondent as part of the refundable deposit at the time of execution of the MOU.
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3. It is further case of the petitioner that on the request made by the respondent that he was in need of further funds in order to carry out his obligations under the MOU, a further advance of Rs.2,00,00,000/- was paid by the petitioner towards performance of the respondent's obligations under the MOU. Same was recorded in a supplementary Agreement dated 27.02.2012 entered into between the petitioner and the respondent. In terms of clause 3 of the agreement, further payments under the agreement are to be made on a pro-rata basis, subject to the respondent getting the lands registered in his name as contemplated under the MOU. Thus, in all the petitioner had paid a total sum of Rs.04,01,00,000/- to the respondent as on the date of the MOU and the Agreement. The respondent was required to complete his obligations under the MOU and the agreement within six months of execution of the MOU, but has failed to do the same despite several years have lapsed. The petitioner was always ready and 5 willing to perform his obligations under the MOU and the Agreement and render his assistance to the respondent in every manner possible to ensure that he can carryout his obligations under the MOU without any hindrance.
4. It is further contended that the petitioner was owing to the vast tracts of land involved and the enormity of the project, the petitioner had created a department within its organization with in-house advocates, planners etc., to work closely and to achieve the object of completing the project within the time stipulated. The requirement to ensure that the documents are properly collated, indexed, collection of additional documents, interaction with advocates, obtaining title reports, making detailed master plans etc., cost significant sums of money and the failure on part of the respondent to comply with his obligations has resulted in tremendous losses to the petitioner. Therefore, the petitioner was constrained to issue a legal 6 notice to the respondent dated 26.02.2014. Same was served on the respondent, but the respondent failed to reply and failed to act in terms of his obligations under the MOU and the Agreement. The petitioner issued arbitral legal notice dated 08.03.2017 nominating a retired District and Sessions Judge as sole arbitrator to resolve the dispute. Same was replied by the respondent on 24.02.2018 stating that in terms of clause 17 of the MOU, the nomination of sole arbitrator is not maintainable. Therefore, the petitioner is before this Court for the relief sought for.
5. I have heard the learned counsel for the parties to lis.
6. Sri K.S.Ponnappa for Sri M.V.Sundaraman, learned counsel appearing for the petitioner reiterating the averments made in the Civil Miscellaneous Petition contended that there is no dispute with regard to execution of Memorandum of Understanding dated 7 18.01.2012 and the subsequent Agreement dated 27.02.2012 entered into between the parties for completion of the project. He would further contend that in terms of the arbitral clause, any dispute between the parties arising out of the Memorandum of Understanding, each party is entitle to appoint one arbitrator and the two arbitrators will appoint the third arbitrator. Accordingly, a legal notice came to be issued by complying the provisions of Section 11(5) of the Arbitration and Conciliation Act. Inspite of the same, the respondent not complied the terms and conditions of the Memorandum of Understanding. Therefore, sought to allow the present Civil Miscellaneous Petition.
7. Per contra, Sri R.V.S. Naik, learned Senior counsel for Sri T.Suryanarayan, the learned counsel appearing for the respondent submits that in view of clause 17 of the Memorandum of Understanding entered into between the parties, which stipulates that each party shall be entailed to appoint one arbitrator 8 and the third arbitrator would be appointed by the two arbitrators. Therefore, the arbitral Tribunal is to be constituted, but in the legal notice issued by the petitioner dated 08.03.2017 nominating sole arbitrator is not permissible. He would further contend that the petitioner has violated the terms and conditions of the Joint Development and agreement and not the respondent. Therefore, sought to dismiss the present Civil Miscellaneous Petition.
8. Having heard the learned counsel for the parties, it is an undisputed fact that the petitioner and the respondent entered into the Memorandum of Understanding dated 18.01.2012 for construction and development in the schedule properties. According to the petitioner he had paid total sum of Rs.4,01,00,000/- to the respondent as on the date of execution of MOU and the Agreement. In terms of the agreement, the respondent is required to comply the obligations under the MOU within six months from the date of execution, 9 but despite several years have lapsed, the respondent failed to do so. Therefore, the petitioner issued a legal notice. It is the specific case of the respondent that the petitioner has violated the terms and conditions of the MOU and the Agreement. Though, the agreement stipulates appointment of arbitral Tribunal, the petitioner has nominated only one arbitrator which is impermissible.
9. In view of the rival contentions urged by the learned counsel for both the parties, it is not in dispute that both the parties have entered into MOU dated 18.01.2012 and there exists arbitral clause which reads as under;
"Clause 17: Arbitration and Jurisdiction 17.1 In the event of any dispute between the parties on any aspect arising out of this Memorandum of Understanding, the same shall be referred to arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996. Each party shall be entitled to appoint one Arbitrator and the two Arbitrators will appoint a third Arbitrator.10
The Arbitration will be held in Bangalore and the language of the arbitration shall be English. The decision of the Arbitrator shall be final and binding on both the parties. 17.2 The Courts of Bangalore alone shall have jurisdiction to decide any legal disputes arising between the parties."
10. A careful perusal of the above clause, it is clear that each party is entitle to appoint one arbitrator and the third arbitrator would be appointed by the two arbitrators. Therefore, in terms of the said clause, arbitral Tribunal is to be constituted and not the sole arbitrator to adjudicate the dispute between the parties. The petitioner has complied the provisions of Section 11(5) of the Act by issuing legal notice to the respondent nominating sole arbitrator which is only the technicality. When there is no dispute between the parties with regard to existence of the memorandum of Understanding dated 18.01.2012, the Agreement dated 27.02.2012 and the arbitral clause, there is no 11 impediment for this Court to appoint the arbitral Tribunal
11. For the reasons stated above, the Civil Miscellaneous Petition is allowed. Hon'ble Dr. Justice N.Kumar, former Judge of this Court is appointed as arbitrator on behalf of the petitioner and the Hon'ble Justice R. Gururajan, former judge of this Court is appointed as arbitrator on behalf of respondent as suggested by the counsel for the parties and the two Hon'ble judges shall appoint the third arbitrator to constitute the arbitral Tribunal to adjudicate the dispute in terms of Clause 17 of the Memorandum of Understanding dated 18.01.2012 the Agreement dated 27.02.2012 entered into between the parties.
12. It is needless to observe that the Senior most judge would be the chairperson of the arbitral Tribunal.
13. Registry is directed to send a copy of this order to the Hon'ble Justice Dr. N.Kumar and Hon'ble 12 Mr. Justice R. Gururajan as well as to the Arbitration Centre for reference forthwith.
Sd/-
JUDGE PN/-