Delhi High Court
M/S Grand Reality Pvt. Ltd. vs Shri Nanak Mehta on 31 March, 2022
Author: Sanjeev Narula
Bench: Sanjeev Narula
NEUTRAL CITATION NO: 2022/DHC/001308
$~63
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 31st March, 2022
+ O.M.P. (COMM) 92/2021
M/S GRAND REALITY PVT. LTD. ..... Petitioner
Through: Mr. Akshay Makhija, Senior
Advocate with Ms. Seeratdeep Singh,
Mr. Vikas Bhadauria and Mr. Adarsh
Chamoli, Advocates.
versus
SHRI NANAK MEHTA ..... Respondent
Through: None.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J. (Oral):
1. The present petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter, the 'Act'] impugning the Award dated 19th March 2020 passed by a Sole Arbitrator appointed for adjudicating disputes arising out of an Agreement for Development dated 01st July, 2015 [hereinafter, 'Agreement'] executed between the Respondent
- M/s Grand Reality Pvt. Ltd. (Claimant in arbitration) and the Petitioner herein - Shri Nanak Mehta (Respondent in arbitration) for construction of Country Homes/ Villas on agricultural land (admeasuring 15 Bighas and 4 Biswas) bearing Khasra Nos. 113/ 23/2 (5-12), 24 (4-16), 25/1 (2.08), 25/2 (2-08) situated in Village Bijwasan, Tehsil Vasant Vihar, New Delhi O.M.P. (COMM) 92/2021 Page 1 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001308 [hereinafter, "Demised Land"].
2. At the outset, it must be noted that vide Judgment dated 23rd December 2021 in O.M.P (COMM) 33/2021, a challenge to the impugned Award, at the instance of the Respondent herein, has been rejected.
3. The facts of the case have been recounted in the aforenoted judgment and the same shall be deemed to be part of the present order. For the sake of brevity, in a nutshell, the dispute between the parties was as follows:
3.1. A Development Agreement dated 01st July, 2015 was executed between the parties for development of Demised Land owned by the Respondent. In terms of the Agreement, a sum of Rs. 2,04,85,000/- was paid to the Respondent (including payment of Rs. 84,50,000/- paid directly to the Bank at the behest of the Petitioner). The Respondent failed to comply with the condition precedent of handing over the vacant physical possession of the property to the Petitioner after getting the title cleared, on or before 07th April, 2016.
3.2. The Respondent sent a legal notice allegedly terminating the Development Agreement. In any event, the Petitioner also terminated the Development Agreement in terms of Clause 8 of the Development Agreement vide legal notice dated 03rd April, 2018. In such circumstances, Petitioner contended that Respondent became liable to refund the amount received, along with interest @ 24 % p.a. O.M.P. (COMM) 92/2021 Page 2 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001308 Proceedings under Section 9 of the Act:
3.3. Petitioner Company preferred a petition under Section 9 of the Act,1 to preserve the sub-stratum of the Development Agreement. The Court vide order dated 01st August, 2018, restrained the Respondent from creating any third-party interest or parting with the possession of the Demised Land, till the Respondent deposits a sum of Rs. 2.05 crores with the Registry of this Court in the form of Fixed Deposit Receipt (FDR). The said sum was deposited by the Respondent, as recorded in order dated 06th September, 2018.
Award:
3.4. On 06th September, 2018, this Court appointed Mr. S.M Chopra, Retired Additional District Judge, as the Sole Arbitrator. The proceedings culminated in an Award on 19th March, 2020, holding the following:
(i) The Petitioner herein shall pay to the Respondent herein Rs.
2,04,85,000/- from the proceeds of FDR No. 12452596 dated 14th August, 2018, deposited with ICICI Bank, Gurugram, with lien marked by Registrar General of the Court.
(ii) Petitioner shall pay to the Respondent interest to the extent of the difference between Rs. 2,04,85,000/- and the principal amount of the FDR of Rs. 2,05,00,000/- and the interest accrued on the said FDR till realization by the Respondent herein towards the satisfaction of the Award.
1O.M.P. (I.)(Comm.) 309 of 2018 titled Grand Reality Pvt. Ltd. v. Nanak Mehta.
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NEUTRAL CITATION NO: 2022/DHC/001308
(iii) In view of the lien marked in favour of the Registrar General of this Court on the aforesaid FDR, the Respondent to take appropriate steps before this Court towards the satisfaction of the Award.
4. Mr. Akshay Makhija, Senior Counsel for the Petitioner, states that challenge at the instance of the Petitioner is limited to the interest awarded. The findings rendered by the Arbitrator qua issues no. 2, 4, 7 and 8 are challenged, which can be broadly divided into two heads of (i) Breach of Contract, and (ii) Interest. His arguments are summarised as under:
(i) Breach of Contract:
4.1. On or before 06th April 2016 a sum of over Rs. 1,50,00,000/- was already paid by the Petitioner to the Respondent and even thereafter the Respondent continued to accept payments. As such, the Respondent had clearly acquiesced to the extended timelines and in fact there is no letter of protest in this regard issued by the Respondent.
4.2. The original title deed of the property in question was mortgaged with Corporation Bank, CGO Complex, Lodi Road, Delhi, for a loan financial facility availed by a sister concern of the Respondent, namely Mehta Offset Pvt. Ltd., a family run company of the Respondent.
4.3. Till the date of filing of the claim, Petitioner had made a payment of Rs. 2,04,85,000/- and the last payment was made on 02nd November, 2017. The payments were accepted by the Respondent without protest. Despite receipt of payment, there was inaction on the part of O.M.P. (COMM) 92/2021 Page 4 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001308 the Respondent and the property remained encumbered. The Respondent did not honour his commitment to utilize the amount received towards repayment to bank, and thus breached the contract. The Respondent, terminated the contract on 19th March, 2018, and thereafter, the Petitioner also issued a notice of termination on 03rd April, 2018. The default on part of the Respondent cannot be held against the Petitioner.
4.4. In view of the above, Mr. Makhija argues that the finding rendered by the Arbitrator in paragraphs no. 9 (qua issue no. 2) and 11 (qua issue no. 4) cannot sustain.
(ii) Interest:
4.5. Even if the Court was not inclined to interfere with the findings rendered in the aforenoted paragraphs, the Petitioner is entitled to succeed in setting aside the findings rendered qua issues No. 7 and 8.
The arbitrator has made a jurisdictional error to the extent of ignoring clause 8 of the Development Agreement.
4.6. Mr. Makhija also argues that the contractual stipulation as to termination, contained in Clause 8 of the Agreement, begins with the non-obstante condition - "That if for any reason whatsoever" - which gives the developer an option to terminate at any time and seek refund of amounts already paid, along with a contractually agreed-upon rate of interest of 24% per annum. Since the Respondent committed a breach of contractual stipulations, Petitioner therefore invoked the said clause and terminated the agreement.
4.7. In that light, the Arbitrator should have enforced the contractual O.M.P. (COMM) 92/2021 Page 5 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001308 stipulation and awarded interest at the rate of 24% p.a. instead of annual interest at the bank rate. An arbitrator's powers vest from the contract and he has no jurisdiction to travel beyond what has been specifically agreed between the parties.
4.8. Under Section 31 of the Act, it is provided that the Award shall, unless otherwise directed, carry interest @ 2% higher than the current rate of interest prevalent on the date of the Award.2 4.9. Mr. Makhija further clarifies that he does not dispute that the Petitioner is entitled to interest with effect from the date of termination (being 03rd April 2018), as observed by the Arbitrator, however, the direction for release of FDR amount only entitles them to interest with effect from 14th August, 2018, i.e., the date when the deposit was created. To that extent, the findings of the Arbitrator are erroneous. Thus, the tribunal erred in not granting interest from 03 rd April 2018.
5. The Court has considered the contentions as noted above.
6. Petitioner was required to make payment within the time stipulated under Clause 7 of the Agreement, which reads as follows.:
"7. (a) That out of the said refundable security amount of Rs.2,98,00,000/- (Rupees Two Crores Ninety Eight Lacs Only), the DEVELOPER has already paid a sum of Rs. 25,00,000/- (Rupees Twenty Five Lacs Only), as advance money and part payment to the Owner. The receipt of which the Owner hereby admit and acknowledge.
2Reliance placed on: NHAI v. ITD Cementation India Ltd, 2015 14 SCC 21; State of Haryana v. S. L. Arora, (2010) 3 SCC 690; Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, (1999) 9 SCC 283.
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(b) That the Developer shall further pay a sum of Rs. 25,00,000/- (Rs. Twenty Five Lakh only) on account of refundable security to the Owner by 20 July, 2015.
(c) That the balance payment of Rs. 2,48,00,000/- (Rs. Two Crores Seventy Seven Lakh only) on account of refundable security shall be paid by the Developer to the Owner in eight equal monthly installments of Rs. 25,00,000/- each starting from 20.08.2015 and the balance amount on 07.04.2016."
7. Under the aforenoted provision of the contract, the Petitioner was to make payment of Rs. 2.48 crores by 07th April, 2016, which was concededly made. Petitioner made payments up to 02nd November, 2017, which aggregated to less than the agreed amount. It therefore emerges that Petitioner did not strictly adhere to the payment schedule as envisaged under the Agreement. Therefore, the Petitioner was clearly in breach of the Agreement and the Arbitrator's finding to that effect cannot be faulted with. The court therefore finds no ground to upset the same.
8. In any event, Mr. Makhija's challenge to the findings qua issues no. 2 and 4 are only for the purpose of sustaining a challenge to the Award of interest, which according to him is on a much lower side. The Arbitrator has awarded interest on the amount ordered to be refunded, at bank rate of interest. This award of interest is to compensate the Petitioner, as the Respondent has been held to be in breach. At the same time, it must also be noted that the Agreement stood frustrated and both the parties terminated the contract. The Petitioner initially delayed in making the payments, but later on, instead of seeking specific performance, terminated the Agreement and sought recovery of the amount thereunder. This was perhaps because the development of the property was rendered impossible as it remained under mortgage with the bank. Therefore, Petitioner's insistence on enforcement of O.M.P. (COMM) 92/2021 Page 7 of 8 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/001308 contractual stipulation for claiming interest at the rate of 24% p.a., in the opinion of the court, is unsustainable. An Arbitrator has substantial discretion in awarding interest under Section 31(7) of the Arbitration and Conciliation Act, 1996. The award of interest at the bank rate is by way of compensation. In view of facts of the case, it is reasonable and warrants no interference.
9. That said, it is clarified that in light of the finding rendered by the Arbitrator, the Petitioner is entitled to interest amount with effect from 03rd April, 2018, at the rate applied under FDR No. 124525968 dated 14th August, 2018.
10. Subject to the above clarification, the present petition is dismissed.
SANJEEV NARULA, J MARCH 31, 2022/d.negi (corrected and released on 12th April, 2022) O.M.P. (COMM) 92/2021 Page 8 of 8 This is a digitally signed Judgement.