Bangalore District Court
In 1. Mr. P.R.Seshadri S/O Late vs In 1. Mr. P.R.Seshadri S/O Late on 31 August, 2019
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IN THE COURT OF LXXXII ADDL.CITY CIVIL & SESSIONS
JUDGE,BANGALORE CITY.(CCH.83)
Dated, this the 31st day of August 2019.
PRESENT:Sri.Jagadeeshwara.M.,B.Com,LL.B.,
LXXXII Addl.City Civil & Sessions Judge, Bangalore.
Com.AS.No.178/2017 c/w Com.AS.No.89/2018
Plaitiff in M/s Suranya Developers, A
partnership firm, having its
Com.AS.No.178/2017
registered Office at No.90,
K.B.Homes, Munekolala, Bangalore
560 037, represented by its
Managing Partner Mr. Y.Madhu.
(By M.G.C.&Co.- Advocate)
Plaintiff` in 1. Mr. P.R.Seshadri S/o late
P.R.Ramanathan, aged about 65
Com.AS.No.89/2018
years, Office at: No.7, Gulmohar
Enclave, Bangalore 560 017.
2. M/s Lightspro Pvt.Ltd., A company
having its registered Office at No.6,
Gulmohar Enclave, Airport Whitefield
Road, Marathalli, Banglore560 017,
represented by its Director
P.R.Seshadri.
(By Sri.Ganapathi HegdeAdvocate)
VS
Defendants in 1. Mr. P.R.Seshadri S/o late
P.R.Ramanathan, aged about 65
Com.AS.No.178/2017
years, Office at: No.7, Gulmohar
Enclave, Bangalore 560 017.
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2. M/s Lightspro Pvt.Ltd., A company
having its registered Office at No.6,
Gulmohar Enclave, Airport Whitefield
Road, Marathalli, Banglore560 017,
represented by its Director
P.R.Seshadri.
Defendants in 1. M/s Saranya Developers, A
Com.AS.No.89/2018 partnership firm, having its
registered Office at No.90,
K.B.Homes, Munnekolala, Bangalore
560 037, represented by its
Managing Partner Mr. Y.Madhu S/o
Y.Bhaskar, aged 34 years.
2. Justice B.N.Krishnan (Retd.)
No.109, Double Road, Indiranagar,
2nd stage, Bengaluru 560 038.
COMMON JUDGMENT
IN COM. A.S. NOS. 178/2017 & 89/2018
These two petitions are filed U/Sec.34 of Arbitration and
Conciliation Act 1996 against the award dated 1.12.2017 passed by the
sole arbitrator.
2. Mr. P.R.Seshadri and M/s Lightspro Private Ltd. were the
claimants and M/s Saranya Developers was respondent in the Arbitral
proceeding. Claimant therein claimed the declaration that Joint
Development Agreement and General Power of Attorney dated 25.2.2013
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stand terminated on 6.1.2016 and are incapable of enforcement, and also
claimed liquidated damages of Rs.67,60,000/- for the delay caused by the
respondent therein in construction of apartment building. Respondent
therein filed its counter and requested to dismiss the claim of the claimant.
After completion of pleadings and after giving opportunity to both sides to
place their oral and documentary evidence and after hearing both sides,
learned Arbitrator passed Award dated 1.12.2017 allowing the claim of the
claimants in part and declaring that Contract of Development as per JDA
has been validly terminated, and directed the claimant to pay Rs.95Lakhs
to the respondent therein with 15 days which shall carry interest at 18% per
annum in case of failure to pay it within 15days.
M/s Saranya Developers has filed petition U/Sec.34(2)(a)(iv) of the
Arbitration and Conciliation Act 1996, challenging the Award dated
1.12.2017 and has requested to set aside the Award. Mr. P.R.Seshadri and
M/s Lightspro Private Limited have filed petition U/Sec.34 of Arbitration
and Conciliation Act 1996, which has been registered as
Com.A.S.No.89/2018, challenging the direction in the Award to pay Rs.95
lakhs to the respondent therein, and also challenging the Award dismissing
the claim for liquidated damages.
3. M/s Saranya Developers, who is plaintiff of
Com.A.S.No.178/2017 and defendant of A.S.No.89/2018 would be
referred to as 'Developer'. Mr. P.R.Seshadri and M/s Lightspro Private
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Limited who are the plaintiffs of Com.A.S.No.89/2018 and defendants of
Com.A.S.No.178/2017 would be referred to as 'Land Owners'
hereinafterwards.
4. Brief facts of the case are as under:
(a) Memorandum of Understanding (MOU) dated 21.8.2011 was
entered into between the Developer and Land Owners for construction of a
multi-storied residential apartment complex in site Nos.3 & 4 formed in
Sy.No.47/2 of Munekolala village, Varthur Hobli, Bangalore East Tluk. In
the said MOU, it was shown that site No.3 belongs to Mr.P.R.Seshadri and
Site No.4 belongs to M/s Lightsporo Pvt.ltd. It was agreed by the
Developer to pay Rs.50 Lakhs as interest free refundable deposit and a
sum of Rs.50 Lakhs towards non-refundable consideration to the Owners.
In the MOU dated 21.8.2011, it was agreed by the Developer to pay
Rs.50Lakhs towards interest free refundable deposit to the Owners at the
time of execution of Joint Development Agreement (JDA). Thereafter, for
sometime, nothing material transpired between the parties. Subsequently
on 25.2.2013 parties had entered into JDA and on the same day, Land
Owners executed General Power of Attorney in favour of Developer. As
per the terms of MOU dated 21.8.2011 and JDA dated 25.2.2013, the
Developer had to construct the residential complex at its cost and thereafter
it would be entitled to 55% of the undivided share in the composite
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property and Land Owners would be entitled to 45% of the super built up
area and the terrace space should be shared by both the parties in the ratio
of 55% and 45%. As per the terms of MOU, JDA and General Power of
Attorney, land owners had to handover the properties to the developer
without any encumbrance, court attachments, pending litigations etc. But,
factually there were litigations pending in OS No. 26033/2011, OS
No.1472/2012, OS No.1545/2013 and OS No.1473/2013. Subsequently,
Writ petition No.51279/2015 was filed by the land owners in the matter of
litigation started by Mr.Manjunath, who happens to be the person belonged
to schedule caste and who attacked the sale deeds made in favour of land
owners, under the PTCL Act. Due to this reason, it appears, contract had
become impossible of performance. Therefore, since developer did not
commence construction work, land owners terminated development
agreement by issuing notice dated 6.1.2016 and then they issued notice
dated 24.5.2016 invoking arbitration clause and then they obtained
statusquo order against the developer in AA No.113/2016, the petition filed
under Sec.9 of Arbitration & Conciliation Act, 1996, from City Civil
Court, Bangalore (CCH.45), which was in force as on the date of claim
petition filed by them to the Arbitral Tribunal. Accordingly dispute arose
between the parties. Land owners filed petition in CMP No.140/2016
under Sec.11 of the Act 1996 before the Hon'ble High Court of Karnataka,
for appointment of Arbitrator. Accordingly, Hon'ble Mr.Justice
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B.N.Krishnan(Retd.) was appointed as Sole Atbitrator and thereby Arbitral
Tribunal was constituted.
(b) Land owners filed claim statement before the Arbitral Tribunal
contending that developer had to deliver their share of the apartments
building within 24 months from the date of Development Agreement and
within another three months of grace period. If there is any delay in
delivering possession, developer has agreed to pay liquidated damages at
the rate of Rs.10,000/- per day for the delayed period. Time was agreed to
be essence of the contract. Despite several requests made by them,
developer did not commence construction. Hence, they had no other
option, but to terminate the Development Agreement and they issued
notice dated 6.1.2016 terminating the Development Agreement and called
upon the developer to pay liquidated damages. Subsequently they issued
notice dated 24.5.2016 invoking Arbitration Clause of the Agreement. As
per Clause-1(c) of the Development Agreement, Developer is liable to pay
sum of Rs.20Lakhs towards liquidated damages. Developer has also
executed a Letter of Discharge on 12.3.2013 whereby the Developer
unconditionally declared that it was aware of the short comings of the
documents which confirmed the title of the Land Owners over the
composite property and land owners were unable to take any responsibility
to clear the said short-comings and therefore, land owners paid a sum of
Rs.5Lakhs to the Developer towards the cost associated with rectification
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and improvement of the title to the composite property and said Letter of
Discharge would override th provisions of JDA. Accordingly, land owners
in their claim statement have sought for a declaration that JDA and also
General Power of Attorney dated 25.2.2013 stand terminated as on
6.1.2016 and are incapable of enforcement and sought for recovery of
liquidated damages and also refund of Rs.5lakhs paid to the developer
pursuant to the discharge letter. As an alternative relief of recovery of
liquidated damages, they had also sought for recovery of Rs.83,12,500/- at
the rate of Rs.15,000/- p.m., for each apartment from 25.5.2015, the date of
completion of apartment building as per the Development Agreement, to
the date of filing of their claim statement.
(c) Developer being the respondent in the Arbitral Tribunal, filed its
counter contending that arbitration case is not maintainable under law or
on facts. Land owners had made several reciprocal promises and then they
have failed to perform the said promises and they are not entitled to get any
relief under the Specific Relief Act. There was a reciprocal commitment
on the part of the land owners to handover the properties to the Developer
without any encumbrance, court attachments, pending litigations etc.
There were several pending litigations such as OS No.26033/2011, OS
No.1472/2012, OS No.1473/2013 and OS No.1545/2013 and also WP
No.51279/2015 on the file of Hon'ble High Court of Karnataka. Therefore,
the contract had become impossible for performance until and unless these
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pending litigations were cleared. Developer has denied that it failed to
perform its obligations under the Contract. It was pleaded by the
Developer that the land owners failed to perform the reciprocal promises.
Further, it was also pleaded by the developer that Apart from the payment
of Rs.50Lakhs as on the date of MOU, it had also paid another sum of
Rs.50Lakhs to the land owners as on the date of JDA and thereby in all
Rs.1,00,00,000/- was paid to the land owners. It has spent a sum of
Rs.50Lakhs for cleaning, fencing, constructing the compound and digging
borewell in the composite property. The Deputy Commissioner has
passed an order in respect of 2 acres of land in Sy.No.42/2 of Munekolala
village holding that the said properties were granted lands in favour of one
Chandrasekara. The Dy.Commissioner remanded the matter to
Asst.Commissioner for fresh enquiry and as against that, land owners have
preferred WP No.51279/2011(SC/ST) before the Hon'ble High Court of
Karnataka and obtained stay order. Developer has denied execution of
Letter of Discharge on 12.3.2013 in favour of land owners by receiving
Rs.5Lakhs. It was pleaded by the Developer that the said letter of
discharge is fabricated and forged record. The delay in performance of
agreement is wholly due to non-performance of reciprocal promises by the
land owner. Accordingly Developer had requested to dismiss the claim
statement of the land owners.
(d) As noted above, after completion of the pleadings and after
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giving opportunity to both sides to place their oral and documentary
evidence and after allowing the claim of the land owners in part and
declaring that contract of development as per JDA has been validly
terminated, learned Arbitrator directed the land owners to pay Rs.95 Lakhs
to the Developer within 15days which would carry interest at 18% pa, in
case of failure to pay it within 15days. As noted above, both parties have
challenged the said order.
5. Now, grounds urged in Com.AS.No.89/2018 which is filed by the land
owners can be summed up as under:
(a). The impugned Award to the extent of directing the land owners
to pay Rs.95,00,000/- to the Developer is wholly arbitrary and same is
liable to be set aside since there was no any counter claim made by the
Developer in that regard.
(b). The Award directing the land owners to pay Rs.50Lakhs to the
Developer towards expenses incurred such as fending, putting up
compound wall and digging borewell is patently illegal since Developer
has not produced proof materials relating to alleged expenses.
(c). The Award rejecting the claim of land owners for liquidated
damages is arbitrary, patent illegal and against to public policy since it is
against to the terms and conditions of Development Agreement.
Accordingly, land owners have requested to set aside the Arbitral Award
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dated 1.12.2017 in so far as it relates to Awarding refund of Rs.95 lakhs
with interest at the rate of 18% per annum and to set aside the Award in so
far as it relates to rejection of claim of land owners for liquidated damages
and for cost.
6. Now, grounds urged in Com.AS.No.178/2017 which is filed by the
Developer, can be summed up as under:
(a) Learned Sole Arbitrator has failed to appreciate the crux of the
transaction and hence, arrived at a wrong conclusion.
(b) Learned Arbitrator failed to appreciate the fact that subsequently
on 25.2.2013 Land Development Agreement came to be executed between
the very same parties, despite there being no sanctioned plan obtained from
BBMP. Further, the refundable deposit of Rs.50lakhs was not demanded
by the land owners.
(c) It is the case of land owners before the Arbitrator that subsequent
to execution of the JDA, the Developer had executed Letter of Discharge
on 12.3.2013 under which, the land owners have claimed to have paid a
sum of Rs.5Lakhs to the Developer. The execution of Letter of Discharge
dated 12.3.2013 is specifically and categorically denied by the Developer.
(d) The Arbitrator failed to appreciate the fact that Developer did
not perform their part of the Act by completing the construction within 24
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months or thereafter the grace period of 3 months form the date of
execution of JDA, as they did not obtain plan sanction with respect to
residential apartment complex. The Arbitrator further erred by not
appreciating the fact that the purchase of the schedule properties by land
owners was hit under the Prevention of Transfer of Certain Lands Act and
hence, they did not get necessary permission for construction. Added to
that, there were several litigations pending in OS No.26033/2011,
15452/2013, 1473/2013, 1472/2012 and Writ Petition No.51279/2015. For
the reasons, performance of the Contract under JDA became impossible for
the Developer. Pre-condition to complete construction and entering into
JDA was to obtain Plan Approval from the concerned authorities
immediately after the execution of MOU, which was not done by the land
owners and even then, the land owners received considerable sum of Rs.50
Lakhs and made the Developer to invest equal sum of money for fencing,
putting up compound and digging up the borewells.
(e). Learned Arbitrator has misinterpreted the clauses of the JDA
dated 25.2.2013. The said JDA shall have to be read in conjunction with
MOU dated 21.8.2011.
(f) Learned Arbitrator has failed to notice the malafide intention of
the defendants in terminating the JDA dated 25.2.2013 at the fag end of all
litigations were about to be compromised.
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(g) Learned Arbitrator failed to note that the land owners who have
received Rs.50 Lakhs from the Devoper, have invested the said advance
amount on some other immovable properties. Moreover, market value of
the schedule properties also considerably gone up. Had there been the said
amount of Rs.50Lakhs remained with the Developer, the same could have
fetched a land which is free from encumbrance and litigation and thereby
multifolded the money. The land owners abruptly terminated the JDA and
therefore, termination is bad in law. When the termination of JDA is bad in
law, the Power of Attorney executed along with the same shall have to
continue.
(h) Learned Arbitrator failed to consider that if at all there is no
Supplementary or Sharing Agreement, the same cannot be taken into
consideration to terminate the JDA. The construction plan is pre-condition
for commencement of work in the project. The sanctioning of plan is
directly and proportionately related to right, title, interest and possession of
the owner of the property. The learned Arbitrator failed to consider the
stamp duty and registration charges paid by the land owners while
registering the JDA and Power of Attorney dated 25.2.2013.
(i) Learned Arbitrator has erred in arriving at a decision that the land
owners validly terminated the power of attorney dated 25.2.2013, without
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having any justification.
(j) According to the JDA dated 25.2.2013, the terms and conditions
shall have to come into effect only after obtaining the plan sanction from
BBMP with respect to schedule properties. Therefore, till the plan is
sanctioned, no disputes can be referred or dealt with. Henc,e Clause-18 of
the JDA dated 25.2.2013 can only come into effect hereafter dispute arises.
As there is no dispute to be tried by the Sole Arbitrator, the very
proceedings before the Sole Arbitrator is not in accordance with law and
hence, the Award passed therein is required to be set aside. Accordingly,
Developer has requested to set aside the Arbitral Award dated 1.12.2017 .
7. From the above, the following points have arisen for my consideration:
1)Whether M/s Saranya Developers, who is Developer of
Com.A.S.No.178/2017 has made out grounds as contemplated
under Sec.34(2)(a)(iv) of Arbitration & Conciliation Act to
set aside impugned Arbitral Award ?
2) Whether Mr.P.R.Seshadri and M/s Lightspro Private Ltd., , who are
plaintiffs of Com.A.S.No.89/2018 have made out grounds to
modify the impugned award as sought for ?
3) What Order ?
8. Parties have produced necessary records of the arbitration such as
copy of claim statement, counter statement, copies of evidence, copies of
Exs.R.16 to R.22 etc.
9. I have heard arguments of both sides and I have
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carefully gone through the notes of arguments submitted by both
sides.
10. My findings to the above points are as under:
Point No.1 & 2: Negative
Point No.3 : As per final order
for the following:
REASONS
11. Point Nos.1 & 2 : It is submission of learned advocate for land
owners and it is also contended in the notes of argument that though
Memorandum of Understanding was executed on 21.8.2011 and power of
attorney was executed on 25.2.2013 by the owners of the land in favour of
Developer and then Land Development Agreement was executed on
25.2.2013, since no work was performed by the Developer, the land
owners have terminated the agreement on 6.1.2016. Even in the counter
filed by the Developer in the Arbitration proceeding, it was contended that
performance of the Land Development Agreement was impossible. The
Developer has not sought for specific performance of the Agreement.
There has been no claim by the Developer for refund of Rs.50Lakhs and
therefore, Developer is not entitled for refund of the said amount which
was paid as non-refudable deposit. Though Arbitral Tribunal has correctly
upheld the terms and conditions of the Agreement, but it has wrongly
directed the land owners for refund of Rs.95lakhs to the Developer.
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Further, it is also submission of learned advocate that in the absence of
necessary records produced by the Developer to show the amount of
Rs.50Lakhs spent for the work, learned Arbitral Tribunal has directed the
land owners to pay Rs.50Lakhs towards expenses etc., spent by the
Developer. Though land owners have clearly made out the grounds to
award liquidated damages as per the terms of the Agreement due to non-
commencement of the work by the Developer, but learned Arbitration
Tribunal has failed to consider this fact. Accordingly, learned advocate has
requested to modify the Arbitral Award by granting liquidated damages
payable by the Developer to the land owners and to accept rest of the part
of the Arbitral Award.
12. On the other hand, it is submission of learned advocate for
Developer that claim of the land owners before the Arbitration Tribunal
was not maintainable since claimants/land owners had failed to perform
their reciprocal promises under the JDA. Land owners failed to furnish the
details of the clearance of all the litigations as agreed in the JDA. Title of
the claimants in the subject matter of the lands is not clear. They have
failed to clear all the pending litigations. They misrepresented the
Developer relating to their title in the lands. Therefore, JDA has become
impossible of performance. Further it is also submission of learned
advocate for Developer that the Award dated 1.12.2017 is against to the
public policy since learned Arbitrator has failed to consider the nature of
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dispute relating to alleged discharge letter at Ex.P.18 and he has wrongly
accepted unproved letter of discharge. Learned Arbitrator has failed to
consider that the land owners cannot get benefit of their mis-deeds and
mistakes. Accordingly, learned advocate for Developer has requested to
allow petition of Commercial AS.No.178/2017 and to set aside the Arbitral
Award and to dismiss the petition of land owners filed in
Com.AS.No.89/2018.
13. At this stage itself it is relevant to note that the execution of
Memorandum of Agreement dated 21.8.2011 and JDA dated 25.2.2013 is
undisputed fact. Alleged letter of discharge dated 12.3.2013, said to have
been executed by the Developer to the land owners by receiving
Rs.5Lakhs, is disputed one. The details of the dates of the facts are as
under:
a) The MOU was entered in
to between the parties on 21.8.2011.
b) The Development Agreement between the parties came to be executed
on 25.2.2013.
c) The alleged Letter of Discharge is dated 20.12.2013
d) The time for completion of the project as per the Agreement is 24
months and grace period of three months, the work should
be completed by 25.5.2015.
e) There was Order of the City Civil Court for maintenance of statusquo,
passed on 1.7.2016.
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After going through the nature of dispute between the parties, learned
Arbitral Tribunal has framed the points for consideration as under:
1. a) Whether the respondent issued letter of discharge dated
12.3.2013 and whether the provisions of the Development
Agreement with respect to the responsibilities of the claimant
stand over ridden as stated in the letter ?
b) Whether the respondent received a sum of Rs.5,00,000/-
from the claimants at the time of letter of discharge ?
2. Whether there is breach of agreement by the respondent ?
3. Whether the Development Agreement and Power of Attorney
stand validly terminated as alleged by the claimants ?
4. Whether the claimants have suffered financial loss on account
of breach of agreement by respondent ?
5. Whether the claimants are entitled to recover the liquidated
damages of Rs.67,60,000/- from respondent ?
OR
Whether the claimants are entitled to recover un-liquidated
damages of Rs.1,03,12,500/- from respondent ?
6. Whether claimants suffered mental agony, harassment and
anguish on account of breach of contract by respondent and
whether therefore claimants are entitled to recover not less
than Rs.20,00,000/- ?
7. Whether the claimants are entitled for refund of
Rs.5,00,000/- ?
8. Whether the claimants are entitled to the declaration and other
relief sought ?
9. To what other reliefs are the parties entitled to ?
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Not only above points considered by the Arbitral Tribunal, but also the
following points, as could be seen from para-11 of the Award, were also
taken for consideration:
"i) Whether time was the essence of the contract between the
parties ?
ii) Whether the time of joint development agreement, the respondent
paid a sum of Rs.50 lakhs as non-refundable deposit ?
iii) Whether the respondent executed the letter of discharge Ex.P.18
whether, therefore, covenants which had to be complied with by
the claimants are not attracted ?
iv) Whether at the time of letter of discharge a sum of Rs.5Lakhs
was paid by the claimants to the respondent ?
After considering the nature of claim of land owners and nature of
objection taken by the Developer and the materials such as oral and
documentary evidence placed by the parties, circumstances and
probabilities of the case, learned Arbitration Tribunal has recorded final
findings as under:
"25. With these findings we may now proceed to record the findings
on the several points raised in this proceedings.
26. (i) Points 1(a) and 1(b) and point No.7 are answered in favour of
the claimants.
(ii) Points No.2 and 3: In view of the discussion made supra it cannot
be said that respondent has committed a breach of agreement. As
parties have stipulated in their MOU and JD Agreement certain
conditions and that they are to be complied with by concurrence of
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parties and as there is no such concurrence and further pendency of
the case in relation to the opposition of Manjunath to the sales in
favour of claimants, respondent is justified in stating that the contract
has become impossible of performance. If that is so, claimants are
also justified in terminating the contract. Neither of the parties could
be blamed for landing themselves in this condition. In that view of
the matter, there could be no question of either of the parties
committing breach of contract. Though the claimants have urged
other grounds to justify the termination of the contract, the contract
having become impossible of performance for the reasons adverted
to already, point No.3 has to be answered in favour of the claimants
and not for the reasons referred to supra. Therefore, point No.2 is
answered against the claimant and point No.3 is answered
affirmatively but for the reasons referred to earlier.
(iii) Points 4,5 and 6: When I have answered point No.2 against the
claimants there could be hardly any question of claimants being
compensated for any alleged financial loss sustained by them.
Therefore, it is clear that they are not entitled to either liquidated
damages or un-liquidated damages as sought for. Even in respect of
harassment and anguish alleged to have been suffered by the
claimants, they cannot in any way be compensated as my finding on
the question of breach of contract by respondent is against the
claimants. The period for which damage is claimed is not correctly
calculated. If the entire case of the claimants were to be accepted,
the project should have been completed by 25.5.2015. The order of
status quo from the City Civil Court which has admittedly been
obtained at the instance of the claimants is 1.7.2016. Therefore, there
could be no question of any damages being sought for non-
completion of the project beyond 1.7.2016. At best they would, if the
entire case of the claimants is accepted, damages could be claimed
for the period from 25.5.2015 to 1.7.2016. That would come to less
than 14 months. This cannot have any kind of impact on the question
of award of compensation to the claimants in view of the findings on
the other points. Therefore, points No.4, 5 and 6 are answered
against the claimants.
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(iv) Having regard to the findings recorded as above, it has to be held
that claimants are entitled for the declaration that the contract for
development has been validly terminated because of fact that it has
become impossible of performance in view of the very conditions
incorporated in the JDA and for the reasons that the parties have not
come to any kind of concurrence in respect of this aspect which are
as per the terms of the contract, are a condition precedent for even
commencement of construction.
(v) The claimants have to refund the refundable advance taken by
them under the MOU i.e., Rs.50 lakhs. They are to reimburse the
respondent in a sum of Rs.50 laksh for the amounts spent by them for
fencing, putting up compound and digging of bore wells. The
claimants are entitled to refund Rs.5 lakhs given to the respondent at
the time of letter of discharge. Therefore, the respondent would be
entitled to get Rs.95 lakhs from the claimant.
26. In the result, there shall be an award in the following terms:
(1) It is declared that the contract of development as per JDA has
been validly terminated.
(2) The claimant shall pay to the respondent the sum of Rs.95 Lakhs
within 15 days from this day.
(3) If the claimants fail to make payment to the respondent, then the
respondent is entitled to recover the said amount with interest at
the rate of 18% per annum from this day till the date of payment.
(4) In the peculiar circumstances of the case parties are directed to
bear their own costs."
After going through the materials, learned Arbitrator has declined to accept
the contention of claimants that time is the essence of contract agreed to
between the parties,for the reasons that though time agreed for completion
of the project is 24 months from the date of Development Agreement and
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three months grace period, but as per Clause-5.1 of the MOU, separate
allocation agreement is required to be entered into between the parties for
allocation of 45% due to the land owners, with the sanctioned drawings
specifically ear marking apartments and car parkings interalia which is pre-
condition for the commencement of the work at site and as per Clause-6.1
of the JDA, the Developer shall commence the construction after obtaining
plan of approval from the concerned authority. As per Clause-3.1 of the
JDA, the Developer shall construct the building as per the working
diagrams and sketches concurred by the parties. But, no such working
diagram or sketch was prepared and therefore, there is no further question
of concurrence of the parties in that regard. There has been no mutual
agreement entered into for allocation of the plots to the owner of the lands
and to the Developer. Entering into of such supplementary or sharing
agreement is a pre-condition for commencement of the work in the project
and since there is no such agreement came into existence, obtaining
sanctioned plan and preparation of the work diagram and concurrence of
the parties have not come into existence. Thus, commencement of the
work of the project itself is subject to certain conditions and those
conditions have not been complied with and therefore, learned Arbitrator
has declined to accept the contention of the land owners that time is the
essence of the contract.
14. So far payment of Rs.50 Lakhs made by the Developer to the
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land owners at the time of MOU as 'refundable security deposit' and
then alleged payment of another sum of Rs.50 Lakhs by the Developer
to the land owners as 'non-refundable security deposit' at the time of
execution of JDA is concerned, it is held by the learned Arbitrator that
payment of Rs.50 lakhs made at the time of MOU as refundable
security deposit is admitted fact. But, land owners have disputed the
alleged payment of another some of Rs.50 lakhs as non-refundable
security deposit at the time of execution of JDA. As per Clause-11.2
of the JDA refers to the payment of Rs.50Lakhs on the date of
execution of JDA through cheque Nos.008153 and 008154 for
Rs.25Lakhs each dated 21.8.2011 drawn on State Bank of Travancore,
Marathahalli branch, Bangalore. The same payment through said
cheques were also shown in MOU. Admittedly MOU was entered
into between the parties on 21.8.2011. The JDA was entered into
between the parties on 25.2.2013. When the same cheques were
shown in the MOU for Rs.50Lakhs as refundable security deposit and
as per Clause-11.3 of the MOU, the Developer shall pay the remaining
amount being refundable consideration of Rs.50 Lakhs to the owners
at the time of registration of JDA and General Power of Attorney and
since same cheques are also shown in the JDA, it cannot be accepted
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that any further sum apart from the sum of Rs.50 Lakhs through
cheques shown in MOU dated 21.82001, was paid by the Developer to
the land owners under the JDA. Argument canvassed by the
Developer before the learned Arbitrator that another sum of Rs.50
Lakhs on the date of JDA was paid by cash to the owners, was not
accepted by the learned Arbitrator on the ground that there is no
mention in the JDA in that regard and no other records are placed to
show another sum of Rs.50 Lakhs towards non-refundable fund was
paid on the date of JDA. This finding recorded by the learned
Arbitrator based on the materials placed by the parties and after
appreciation of those materials properly.
15. So far execution of letter of discharge is concerned, it is
relevant to note that it was contended by the claimants/land owners in
the Arbitration proceedings that the work of attending and clearing the
pending litigations was entrusted by the land owners to the Developer
for which, land owners paid Rs.5 Lakhs to the Developer and as such,
Developer executed the letter of discharge in that regard. The said
letter of discharge was produced in the Arbitration proceedings as
Ex.P.18. Developer disputed the said letter of discharge and also
signature on it. It is observation of learned Arbitrator that except
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mentioning that signatures on the letter of discharge are forged by the
claimants/land owners and those signatures are not that of Managing
Partner of the Developer, no serious attempt was made by the
Developer to show in what respect the signatures found on the letter of
discharge vary from the admitted signatures. After comparison of the
signatures of the letter of discharge, which was produced and marked
as Ex.P.18 and after going through the nature of oral evidence of the
parties and also other materials and circumstances of the case, learned
Arbitrator has observed that the contention of the Developer that letter
of discharge is a fabricated document and signatures have been forged,
cannot be accepted. Developer has not examined the attesting witness
of the letter of discharge by name Sridhar, who is admittedly attesting
witness of the JDA, to prove that letter of discharge is fabricated and
signatures therein were forged. Accordingly learned Arbitrator has
held that Developer has received sum of Rs.5 Lakhs from the land
owners by executing the letter of discharge.
16. Relating to the several cases in relation to the subject matter
of property being pending in the courts is concerned, it is observation
of learned Arbitrator that the contention of Developer that land owners
did not disclose the pendency of all the cases, is of practically no use
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since except WP No.51279/2015 pending before the Hon'ble High
Court of Karnataka, all other cases have been closed and therefore,
knowledge or otherwise of these cases will not have any kind of impact on
the several contentions advanced by the parties. One Mr.Manjunath
claiming to be a person belonged to scheduled caste attacked the sale deeds
made in favour of land owners and he had approached the
Asst.Commissioner to annul the said sale deeds. The said
Asst.Commissioner accepted the contention of said Mr.Manjunath.
Revision petition had been filed before the Dy.Commissioner against the
order of the Asst.Commissioner. Dy.Commissioner remanded the matter to
the Asst.Commissioner to hold further enquiry. Land owners approached
the Hon'ble High Court of Karnataka by means of writ petition against the
said order of the Dy.Commissioner and got the stay of further proceedings.
17. At this stage itself, it is relevant to note that during the course of
argument of these petitions, learned advocate appearing for Developer has
conceded that the said Mr.Manjunath claiming to be a person belonged to
scheduled caste attacked the sale deeds made in favour of the land owners
and issue in that regard is still pending. This issue comes under the
provisions of PTCL Act [Prevention of Transfer of Certain
Lands(Scheduled Caste and Scheduled Tribes) Act]. Due to this reason,
Developer in its objection statement filed in Arbitration proceedings, has
contended that contract has become impossible of performance until suits
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are cleared and writ petition before the Hon'ble High Court of Karnataka is
cleared. Copy of objection statement which was filed by the Developer in
the Arbitration proceedings, is produced in the instant petitions. Relevant
portion of para-16 of the said objection statement is as under:
"The respondents can always take up the contention that the Joint
Development Agreement which is in the nature of an agreement, has
become impossible of performance for the reasons of certain
litigations on the schedule properties which were not cleared by the
owners. In view of the same, the respondents have every right to
state that the contract has become impossible of performance and
until and unless the pending litigations such as OS No.26033/2011,
OS No.1545/2012, OS No.1473/2013, OS No.1472/2012 and the
writ petition before the Hon'ble High Court of Karnataka in WP
No.51279/2015 are cleared with the acknowledgements or certified
copies of the same."
Thus, in the Arbitral proceedings it was clear cut statement of the
Developer that the JDA which is in the nature of an agreement, has become
impossible of performance. As noted above, one Mr.Manjunath claimed to
be a person belonged to scheduled caste attacked the sale deeds made in
favour of the land owners relating to the subject matter of the lands and
that issue comes under the provision of PTCL Act and the said issue is still
pending. Therefore, it cannot be said that the Developer can enforce his
right of specific performance of the MOU dated 21.8.2011 and the JDA
dated 25.2.2013.
18. Based on the materials placed by the parties, it is also observation
in the Award that admittedly claimants had applied for approval of
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sanctioned plan to BBMP and office note by BBMP in relation to the plan
submitted for approval regarding development of the property. But, by
considering the remand order of the Dy.Commissioner relating to the
dispute of one Mr.Manjunath claiming to be a person belongs to scheduled
caste who attacked the sale deeds made in favour of the land owners
relating to the subject matter of the lands, there is no scope to say that the
BBMP has not turned down the request to develop the project as per the
MOU and JDA. Further, it is also observed in the Award that admittedly
parties have not entered into allocation agreement. It will not be open to
any court or to the Arbitration Tribunal to itself undertake the job of
allocating flats to the rival parties. The aspect regarding allocation was
expected to be decided only by mutual agreement between the parties.
Further, it is also observed in the Award that the contract of construction
regarding development has practically been unenforceable or impossible
of performance since preliminary steps which ought to have been
undertaken by the parties consequent upon the JDA, such as allocation
agreement, supplementary agreement etc., have not been done by the
parties.
19. It was contended by the Developer in the Arbitration proceedings
that it had attended to the cleaning of the property to proceed with the
construction and dug few bore wells and enclosed the land by compound.
It is observed in the Award that this contention of the Developer has not
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been denied by the land owners in their re-joinder. Further, it was
contention of the Developer that it has spent a sum of Rs.50lakhs in
relation to those steps taken. This contention has not been denied by the
land owners seriously. Developer has produced some records which were
marked as Exs.R.16 to R.22 in the Arbitral proceedings in support of its
contention that it spent Rs.50Lakhs towards expenses for cleaning, fencing,
construction of compound wall and digging bore wells. After going
through these records which were produced by the Developer as Exs.R.16
to R.22, it is observed in the Award that the contention of the Developer in
respect of the expenditure of Rs.50lakhs being not disputed in the rejoinder
filed by the land owners, the said contention of the Developer is to be
accepted. Though in the Award in page-21, it is observation that though
respondent has not produced all the documents evidencing the expenditure
of Rs.50Lakhs, a few of them have been produced at Ex.R.16 to R.22,
learned Arbitrator has directed the land owners to pay Rs.50lakhs towards
the expenses by considering the circumstances and the time spent etc.
20.So far request of land owners in their petition in
Com.AS.No.89/2018 to modify the Award dated 1.12.2017 is concerned,
absolutely there are no grounds to consider their request for the reasons
that despite their title not being clear in the subject matter of the lands due
to pendency of various litigations including the litigation under PTCL Act,
they had entered into MOU and JDA with the developer by receiving
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Rs.50Lakhs under the MOU towards refundable security deposit in the
year 2011. No doubt, total amount spent by the Developer towards
expenses for clearing the land, fencing, enclosing compound and for
digging bore wells etc., as per Ex.P.16 to P.22, is Rs.10,92,174/- only, but
by considering the circumstances of the case and more particularly land
owners despite having knowledge of the pendency of litigations including
the litigation under the PTCL Act were pending relating to the subject
matter of the lands and their title in the lands was not clear, had entered
into MOU and JDA with the Developer and thereby they received
Rs.50Lakhs towards refundable security deposit in the year 2011 and
though other litigations came to be closed, but litigation under the PTCL
Act is still pending and thereby performance of the agreement became
impossible. Due to this reason, it appears, though amount spent by the
Developer as per the bills Exs.P.16 to P.22 is about Rs.10lakhs, still,
learned Arbitrator has directed the land owners to refund said sum of
Rs.50lakhs by deducting sum of Rs.5Lakhs already paid under the letter of
discharge. Therefore, there are no valid grounds made out by the land
owners to modify the Award dated 1.12.2017.
21. It is relevant to note that no suitable steps or stand or claim was
taken by the Developer in the Arbitration proceedings for the reasons that,
as noted supra, in the objection statement filed by it before Arbitral
Tribunal, it has clearly admitted by the Developer `that Joint Development
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Agreement which is in the nature of an Agreement has become impossible
of performance for the reasons of certain litigations on the schedule
properties which were not cleared by the owners. Even in the ground No.E
of the petition of Commercial AS.No.178/2017, which has been filed by
the Developer under Sec.34(II)(a)(iv) of Arbitration & Conciliation Act,
1996, it is stated by the Developer as under:
"E. The Sole Arbitrator had failed to appreciate the fact that Appellant did
not perform their part of the act by completing the construction within 24
months or thereafter the grace period of three months from the date of
execution of Joint Development Agreement, as they did not obtain plan
sanction with respect to residential apartment complex, which were to
come on the said properties. It is also not denied by the respondents that
the sanctioned plan was not given by BBMP for the reasons that there
existed several pending disputes with respect to the schedule properties.
The same came to be discussed in detail in the Award passed by the Sole
Arbitrator. In addition to the above, the purchase of the schedule
properties by the respondents was hit under the prevention of transfer of
certain lands Act and hence, the Appellants did not get necessary
permission for construction. As an added salt to the wound, there were
several pending litigations such as OS No.26033/2011, OS
No.15452/2013, OS No.1473/2013, OS No.1472/2012 and writ petition
No.51279/2015. For the said reasons, performance of the contract under
Joint Development Agreement became impossible for the Appellants."
Having urged as noted above, it is further contention of the Developer that
learned Arbitrator has failed to notice that the respondents cannot take the
benefit of their mis-deeds and mistakes. There is no suitable counter claim
made by the Developer in the Arbitration Tribunal either for specific
performance of the Agreement or for payment of liquidated damages or
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any other damages to it by the land owner or any other suitable claim.
Objection statement was filed by the Developer to the claim of the land
owners before the Arbitration Tribunal simply requesting to reject the
claim of the land owners. After coming to know and having taken the
specific stand by the Developer that, performance of the contract under
Joint Development Agreement became impossible, the Developer should
have made suitable counter claim before the Arbitration Tribunal claiming
suitable damages payable by the land owners. It is not understandable
why such claim for damages was not made by the Developer. Therefore,
there is no meaning in the say of the Developer that land owners have no
right to terminate the JDA and GPA. When it is admitted by the Developer
that performance of the contract under the JDA became impossible, there is
no meaning to keep the Contract under the JDA alive or to contend that
land owners have no right to terminate JDA and GPA. Arbitral Tribunal has
considered all the materials properly and after appreciation of the materials
in perspective, it has passed the Award. It is held by the Hon'ble Apex
Court in (1989)1 SCC 411 (Puri Construction Private Limited Vs.
Union of India) that the Court deciding objections against the award
cannot examine correctness of the award on merits by re-appreciating
evidence. When a court is called upon to decide the objections raised by a
party against an Arbitration Award, the jurisdiction of the court is limited,
as expressly indicated in the Arbitration Act, and it has no jurisdiction to sit
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in appeal and examine the correctness of the award on merits with
reference to the materials produced before the Arbitrator. The court cannot
sit in appeal over the views of the Arbitrator by re-examining and re-
assessing the materials. Further, it is also held by Hon'ble Apex Court in
(2015)5 SCC 698 (Navodaya Mass Entertainment Limited Vs. J.M
Combines) that re-appraisal of material on record by the court and
substituting its own view in place of arbitrator's view, not permissible in
absence of perversity, merely because two views are possible. Once the
Arbitrator has applied his mind to the matter before him, court cannot re-
appraise said matter as if it were an appeal. Even if two views are
possible, view taken by the Arbitrator would prevail. In view of this
proposition of law and for the above discussed reasons, there are no
grounds to set aside Arbitral Award. Therefore, these points are answered
in the 'Negative'.
22. Point No.3: For the reasons stated above, I proceed to pass the
following:
ORDER
These two petitions filed U/S.34 of the Arbitration & Conciliation Act,1996 are dismissed.
Under the circumstances of this case, both parties shall bear their own cost.
33Com.AS.No.178/2017 C/w Com.AS.No.89/2018 Keep original Judgment in Com.AS.No.178/2017 and its copy in Com.AS.No.89/2018.
(Dictated to the JW, typed by her, corrected and then pronounced by me in Open Court, on this the 31st day of August, 2019.) (JAGADEESWARA.M.) LXXXII Addl. City Civil & Sessions Judge,