Madras High Court
Rufi Real Estates And Investments ... vs M/S.Sri Renga Property Developers Pvt. ...
Author: C.Saravanan
Bench: C.Saravanan
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON PRONOUNCED ON
12.10.2018 11.01.2019
CORAM
THE HONOURABLE MR. JUSTICE C.SARAVANAN
Original Petition No.480 of 2013 and
Civil Revision Petition No.35 of 2016
and
C.M.P.No.180 of 2016
O.P.No.480 of 2013
Rufi Real Estates and Investments Private Ltd.,
rep. By M.203, The Retreat by Mint Homes,
Senthil Nagar, Sowripalayam Road,
Coimbatore – 641 028. ... Petitioner
vs.
1.M/s.Sri Renga Property Developers Pvt. Ltd.,
(A company registered under the
Company's Act, 1956)
No.68, Bharathi Park Road,
7th Cross, Saibaba Colony, Coimbatore.
2.R.Rajahram
3.Mrs. Jayalakshmi
4.Pradeep Kumar
5.Mrs.Preethi ... Respondents
http://www.judis.nic.in
2
PRAYER: Petition filed under Section 11(6) of the Arbitration and
Conciliation Act, 1996 for appointment of an independent Arbitrator to
resolve the disputes between the parties.
For Petitioner : Mr.S.Ramesh for Mr.T.Balaji
For Respondents : Mr.R.Parthasarathy
C.R.P. PD No.35 of 2016
1.M/s.Sri Renga Property Developers Pvt. Ltd.,
rep. By its Managing Director Mr.Rajahram
having its place of business at
68, Bharathi Park Road, 7th Cross Street,
Saibaba Colony,
Coimbatore – 641 011.
2.R.Rajahram ... Petitioners
vs.
M.s,/vaithi Holdings (P) Ltd.,
rep. By its Authorized representative
Mr.P.Murugan,
M.203, The Retreat by Mint Homes,
Senthil Nagar, Sowripalayam Road,
Coimbatore – 641 028. ... Respondents
PRAYER: Petition filed under Article 227 of Constitution of India, to set
aside the order dated 17.06.2014 passed in I.A.No.170 of 2014 in
O.S.No.449 of 2013 by the 1st Additional District Judge at Coimbatore.
For Petitioner : Mr.R.Parthasarathy
For Respondents : Mr.Ramesh for Mr.T.Balaji
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3
COMMON ORDER
By this common order both these two cases are being disposed with the consent and request of the counsel for the respective parties.
2. O.P.No. 480 of 2013 has had chequered history. Earlier, by an order dated 25.10.2013, this Court had appointed late Honourable Justice Ms.K.Suguna as the sole arbitrator to resolve the dispute between the parties thereto.
3. Aggrieved by the said order, the promoter filed S.L.P (Civil) No 37701 of 2013. By an interim order dated 25.10.2013, the Honourable Supreme Court stayed all further arbitration proceeding pursuant to the order dated 25.10.2013.
4. Later by an order dated 11.7.2014 in S.L.P (C).No. 37701 of 2013, the Honourable Supreme Court, set aside order dated 25.10.2013 passed by this court in O.P.No. 480 of 2013 with the observation that this Court had not dealt with all the arguments of the counsel for the parties at all and therefore the matter was to be reconsidered by this Court afresh.
5. It is pursuant to the aforesaid order of the Honourable Supreme http://www.judis.nic.in 4 Court, the present O.P.No.480 of 2013 was taken up for hearing. At the request of the counsel for both the parties the above C.R.P was also taken up for hearing for a joint disposal by this order.
6. Though, the case was remanded back to this Court with the above observation, the promoter (the petitioner in C.R.P. No.35 of 2016/ 1 st respondent in O.P. No.480 of 2013) has confined the arguments in this remand proceeding and stated that as the transactions are composite are composite, all the disputes should be resolved together in single arbitration proceeding and independent resolution of dispute will not serve the interest of any of the parties.
7. The dispute between the parties herein arises on account three building projects that were being promoted and developed by M/s.Sri Renga Property Developers Private Limited (referred to as the promoter) the petitioner in C.R.P No. 35 of 2016/ 1st Respondent in O.P No.480 of 2013 and subsequent agreements with the petitioner in O.P.No 280 of 2013 namely Rufi Real Estates and Investments Private Limited (the Investor), Mint Homes Pvt. Ltd.(the Marketing Company) and sale of UDS in lands in favour of the respondent in CRP (PD) No.35 of 2015 (referred to as purchaser). The three companies other than the purchaser are sister companies and having common directors.
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8. Following chart describes the parties to the disputes in these two cases:-
Nature of transaction IN O.P.No.480 of 2013
PETITIONER RESPONDENTS
Investment Agreement Rufi Real Estates and M/s.Sri Renga Property
dated 21.07.2009 Investments Private Developers Private
Limited Limited (Promoter)
(Investor)
Mr.R.Rajahram
Mrs.Jayalakshmi
Mr.Pradeep Kumar
Mrs.Preethi
IN C.R.P (PD) No.35 of 2016
PETITIONER RESPONDENTS
Sale M/s.Sri Renga Property M/s.Vaithi Holdings (P)
Developers Private Limited Ltd., (Purchaser) (Promoter) Mr.R.Rajahram
9. The two petitioners in C.R.P (PD) No.35 of 2016 are first and the second respondent in O.S.No. 449 of 2013. The promoter is represented by Mr.R.Rajahram in his capacity as the Managing Director of the Promoter. The other respondents in the O.P.No 480 of 2013 are the family members of Mr.R.Rajahram.
10. O.P.No. 480 of 2013 has been filed under section 11 (6) Of the Arbitration and Conciliation Act, 1996 by the Investor for appointment of an arbitrator to hear and decide the disputes arising out of Investment http://www.judis.nic.in 6 Agreement dated 21.7.2009 signed with the said promoter represented by its Managing Director Mr.R.Rajahram.
11. On the other hand, C.R.P.(PD) No.35 of 2016 has been filed to set aside fair and decretal order dated 17.6.2014 passed by the First Additional District Judge, Coimbatore in made in I.A.No.170 of 2014 in O.S.No. 449 of 2013 on the ground that all the disputes between them should be decided together in an arbitration proceeding under Investment Agreement between the promoter and the investor dated 21.07.2009 as they form part of the same transaction in respect of which the O.P.No.480 of 2013 has been filed.
12. C.R.P.(PD) No.35 of 2016 has been filed by the first two respondents in O.P.No. 35 of 2016 against namely M/s.Vaithi Holdings (P) Ltd (referred to as purchaser), though it is not a party to the said Investment Agreement dated 21.7.2009.
13. The promoter represented by its Managing Director (MD), Mr.R.Rajahram, had earlier signed of three separate joint development agreements dated 16.07.2006, 06.09.2006 and 10.09.2006 with the respective owners of the land.
14. The promoter is stated to have paid considerations to the http://www.judis.nic.in 7 respective land owners and its M.D. was holding a power of attorney from them to construct and develop villas /pent houses and apartments in three parcels of land and to transfer UDS in the lands to prospective buyer of individual residential units.
15. Names of three project which were being developed by the promoter are as follows: :-
(i)Renga’s Greenland at Nehru Nagar, Kallapatti Road, on 3.88 acres of land;
(ii)Renga Greenhoods at Singanallur, Kallapatti Road, 44 apartments on 1.09 acres of land; and
(iii)Renga Cedars located at Vilankurichi Road, Pilamedu for building house and pent house 28 and apartments on 0.40 acres of land.
16. Earlier, the promoter together with respondent No.2 to 5 in O.P.No.480 of 2013 had taken finance from their bankers namely Oriental Bank of Commerce and had offered 60% of its share as builders share of constructed area in the three projects as a collateral security . The directors of the promoter are family members.
17. The promoter had simultaneously also sold rights to various buyers who had invested in these villas, apartments, pent houses etc that was being promoter by it.
18. The promoter was however unable to mobilize the required http://www.judis.nic.in 8 finance to complete projects and was therefore looking for a strategic investor to additionally to invest in them to complete the three projects.
19. It was under these circumstances an Investment Agreement dated 21.07.2009 was signed between the investor and the promoter namely the 1st respondent in O.P.No.480 of 2013/ 1st petitioner in C.R.P.(PD) No.35 of 2016.
20. Under the Investment Agreement, the investor agreed to invest by infusing Rs.4 Crores into these projects over a period of time. In this connection, earlier a MOU dated 24.06.2009 was signed between investor and the promoter represented by its Managing Director.
21. The said agreement contains an Arbitration Clause to resolve the dispute in case of any dispute. The said arbitration clause reads as under: -
“Arbitration Clause:
In case of dispute or difference, if any, arising out of this Agreement or touching upon this Agreement between the parties hereto during the progress of or after construction of the building, then and in such an event the same shall be referred to Arbitration under Arbitration and Conciliation Act, 1996 or any statutory modifications or reenactment thereof and rules made there under.”
22. On the same day, yet another agreement dated 21.07.2009 titled Marketing and Service Agreement was signed between the promoter and http://www.judis.nic.in 9 the Marketing company (M/s. Mint Homes (P) Ltd.). Clause 6 of the agreement also contemplates an arbitration clause to resolve dispute between them. It reads as under:
“Arbitration Clause:
In case of dispute or difference, if any, arising out of this Agreement or touching upon this Agreement between the parties hereto during the progress of or after construction of the building, then and in such an event the same shall be referred to Arbitration under Arbitration and Conciliation Act, 1996 or any statutory modifications or reenactment thereof and rules made there under.”
23. The promoter represented by the 2nd respondent and the 5th respondent in O.P. No.480 of 2013 and the respondents No.2 to 4 in O.P.No.480 of 2013 had also signed a Guarantee Agreement dated 30.07.2009 guaranteeing repayment of Rs.4 crores that was to be paid by the investor to the promoter over a period of time as per the Investment Agreement dated 21.07.2009.
24. They also signed two Supplemental Agreements dated 5.8.2009 respectively with the Marketing company and the investor to record certain omissions in the earlier agreements.
25. Respondent Nos.2 and 5 in O.P. No.480 of 2013 had also deposited title deeds of the lands in the three projects on 11.08.2009 as collateral security in favour of the investor to secure the repayment of amount under the aforesaid Investment Agreement dated 21.7.2009. http://www.judis.nic.in 10
26. Later by three separate sale deeds, the 2 nd respondent in O.P. No.480 of 2013/2nd petitioner in C.R.P.(PD) No.35 of 2016 as Power of Attorney of the respective land owners transferred the ownership in the land in favour of the Purchaser, the respondents in CRP (PD) No.35 of 2016 in consideration of the latter discharging the loans of the promoters.
27. Mean while, the promoter is said to have got into serious financial problem and was facing proceedings under the provision of the SARFAESI Act, 2002.
28. It is stated that to avoid consequences under the SARFAESI Act, 2002, purchaser offered to buy out the promoter’s shares in these projects which was subject to bank security. The purchaser thus paid the amount directly to the Bank.
29. Under these circumstances, the promoter executed sale deeds in favour of the purchaser, namely M/s.Vaithi Holdings (P) Ltd, in consideration of latter directly discharging the loans of the promoter with their Bankers.
30. Since these transactions were facilitated by the M.D. of the Investor who is also the MD of the two other companies namely the purchaser company and the marketing company, it is stated that all the http://www.judis.nic.in 11 transactions are composite in nature.
31. In Renga Greenlands, out of 59 villas, the purchaser namely M/s.Vaithi Holdings (P) Ltd. has purchased Undivided Share UDS in land in respect of 29 villas. Earlier right over 13 villas had already been sold by the promoter independently to individual buyers and therefore only one remained with it .
32. Similarly, in respect of Renga Greenwoods at Singanallur Village, out of 44 flats, 21 flats had been directly sold by the promoters while the purchaser M/s. Vaithi Holdings (P) Ltd. purchased rights over 5 flats. 18 flats were to be allotted to the original land owners, with whom the promoter had originally signed a Joint Development Agreement.
33. In the last project, namely Renga Cedars, the promoter, had proposed construction of 20 apartment with single block with land owners share of 5 flats. The purchaser M/s.Vaithi Holdings (P) Ltd. purchased right over 11 flats. The rights on four flats had been sold to third parties by the promoters independently.
34. Though UDS have been sold, the constructions have not been completed by the promoter and individual investors have been forced to approach Consumer Forum against the promoters . http://www.judis.nic.in 12
35. Under these circumstances, the purchaser purchased the unsold stock of land from the promoter in the three projects between Feb, 2010 to May,2010 by different sale deeds.
36. Having purchased the land in the three projects, the purchaser namely M/s. Vaithi Holdings (P) Ltd. also started exercising independent rights over the land and independently started construction by obtaining necessary fresh permission from Thathapatti Town Panchayat. This was objected by the promoter.
37. Under these circumstances, the promoter initiated criminal proceedings against the purchaser and its M.D who is the MD of the investor and the marketing company. The said criminal complaint however later came to be dismissed vide Order dated 22.2.2017, by the Sub Judicial Magistrate, Coimbatore, in C.C. NO.671 of 2012 on the ground that the dispute was of civil nature and therefore no criminal offence was made out against M.D. of the investor and others named therein.
38. The purchaser namely M/s.Vaithi Holdings (P) Ltd., the respondent in C.R.P(PD) No. 35 of 2016 filed O.S.No.449 of 2013 before the First Additional District Judge, Coimbatore against the promoter and its http://www.judis.nic.in 13 M.D. for a permanent injunction to restrain the promoter and its men from interfering with peaceful possession over the land conveyed to it.
39. In the said proceedings, the promoter, filed I.A.No.170 of 2014 under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the dispute for arbitration in terms of the Arbitration clause in Investment Agreement dated 21.07.2009 to which the Purchaser is not party.
40. It is in the background of these transactions, the two cases have arisen.
41. The promoter stated that the all the dispute formed part of a composite transaction and therefore there cannot be an independent resolution of dispute in the suit and dispute should to be referred to an arbitration proceeding by directing the purchaser to be a party to the arbitration proceeding under Investment Agreement dated 21.07.2009.
42. By an order dated 17.06.2014, the lower Court has dismissed the application filed under Section 8 of the Arbitration and Conciliation Act, 1996 stating that there is no specific agreement to substantiate that the Directors of Rufi Real Estate & Investment (P) Ld., and Mint Homes (P) Ltd. are one and the same.
43. The Lower Court also held that the purchaser M/s.Vaithi http://www.judis.nic.in 14 Holding (P) Ltd., has obtained 29 sale deeds between Feb, 2010 to May,2010 and there was no mention about the alleged underlying agreement with the other two companies and since the three companies are distinct and legal entities, the agreement between the respondent (petitioner in I.A.No.170/14) and the other two companies are of no relevance. Under these circumstances, the IA was dismissed. Aggrieved by the same, the CRP has been filed.
44. It was also submitted on behalf of the purchaser that the sale of suit property in its favour an independent of the two agreements dated 21.07.2009 signed between the promoter Sri Renga Property Developers (P) Ltd., investor Rufi Real Estate & Investments (P) Ltd., and the marketing company Mint Homes (P) Ltd.
45. It is based on the arbitration clause in the Investment Agreement dated 21.7.2009, O.P.No.480 of 2013 has been filed under Section 11 (6) of the Act.
46. This is partly resisted by the respondents therein on the ground that though they are in principle willing to submit for an arbitration, the case cannot be resolved without the purchaser and the marketing company being made party the arbitration proceeding and therefore prayed for allowing of the C.R.P. http://www.judis.nic.in 15
47. In O.P.No.480 of 2013, the investor as petitioner has claimed that it has advanced a sum of Rs.2,57,39,913/- to the promoter on various dates while the promoter has claimed that it has received only a sum of Rs.1,69,00,000/- only and therefore the investor was in breach of the agreement. This dispute necessarily has to be resolved under an arbitration in view of the dispute and arbitration clause.
48. Since the promoter had not consented for appointment of a sole arbitrator, necessarily, an arbitrator has to be appointed under Section 11(6) of the Act. The promoter and its directors the family members of the M.D who have signed the agreements have forfeited their right in the light of the decision of Hon’ble Supreme Court in Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151 wherein it was held as follows:-
“19.…….. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of http://www.judis.nic.in 16 the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.”
49. Therefore, an arbitrator has to be appointed and the respondents in O.P No.48 of 2013 cannot be delay the said appointment.
50. Only question that remains to be answered in these two proceedings is whether the promoters can force the purchaser to be a party to the arbitration proceeding or not.
51. They want their grievance against all the three concerns namely the Investor, Marketing Company and Purchaser to be resolved under the umbrella of a single arbitration under the Investment Agreement even though there is no separate arbitration clause for resolving their dispute between the purchaser and the promoter. The promoter has merely executed sales deeds in favour of the purchaser.
52. It was stated that sale deeds executed in favour of purchaser M/s.Vaithi Holding (P) Ltd., was on the understanding that the constructions would be carried out by the promoter and the project would be funded by Mr.Raj Natarajan through two of his company namely, investor company viz. M/s.Rufi Real Estates & Investments (P) Ltd. (the petitioner in O.P.No.480 of 2013) and the purchaser namely M/s.Vaithi http://www.judis.nic.in 17 Holding (P) Ltd. the respondent in CRP No.35 of 2016 and marketed by the marketing company M/s.Mint Home (Pvt). Ltd as per the Marketing and Management Agreement.
53. According to the promoter, the sale deed was executed pursuant to an underlying arrangement and on the assurance of the Managing Director, Mr.Raj Natarajan of the investor, M/s.Rufi Real Estates and Investment (P) Ltd., to finance complete and market the three projects and therefore if any dispute was to be resolved as per the Arbitration Clause in the principal Investment Agreement separate suit was not maintainable.
54. The Lower Court also held that though the Directors are one and the same, Company is a separate legal entity and a distinct juristic person, which can sue and can be sued.
55. The learned counsel for the promoter viz petitioner in C.R.P (PD) No.35 of 2016 submitted that the dispute cannot be resolved under the arbitration clause in the Investment Agreement dated 21.7.2009 signed between the parties in O.P.No 480 of 2013 unless there is a composite resolution all dispute inter se by including the purchaser namely M/s.Vaithi Holdings (Pvt.) Ltd. (the respondent C.R.P (PD) No.35 of 2016) in light of the amended Section 8 of the Arbitration Act, 1996 which reads as under:-.
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8. Power to refer parties to arbitration where there is an arbitration agreement:-
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement, shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference arbitration under sub-section (1) and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.) (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
56. In this connection, the learned counsel for the promoter, the petitioner in C.R.P (PD) No.35 of 2016/respondents in O.P.No. 480 of 2013 referred to the decision of the Honourable Supreme Court Chloro Controls India Private Ltd Versus Severn Trent Water Purification http://www.judis.nic.in 19 INC (2013) 1 SCC 641.
57. It was submitted that though the said decision was rendered in the context of enforcement of foreign award, nevertheless was relevant to the facts of the present case as Section 8 of the Act has now been amended and is pari materia with Section 45 of the Act and therefore the ratio laid therein was applicable to the facts of the present case.
58. It was submitted that since the transactions are composite in nature and all the three companies are sister concern of each other. It was submitted that M/s. Mint Investment Private Limited (the marketing company) , M/s.Rufi Real Estates and Investment Pvt Ltd. ( the investor) have signed collateral agreements with promoter. The promoter has executed sale deed in favour M/s.Vaithi Holdings (Pvt.) Ltd. (the Purchaser) in respect of the very same properties for which the other two companies have signed the agreement.
59. Since the promoter has dispute both with the investing, marketing and the purchasing company, the dispute should be compositely resolved by making the purchaser also party to the arbitration proceeding under the umbrella of the same arbitration proceeding and not by way of the separate suit in O.S.No.449 of 2013 before the First Additional District Judge, Coimbatore. http://www.judis.nic.in 20
60. It was submitted that in Chloro Controls India Private Ltd Versus Severn Trent Water Purification INC (2013) 1 SCC 641, it was held that even a non signatory to an agreement can also be subjected to an arbitration without consent in view of the specific use of the expression “any person claiming to or under” in Section 45 of the Arbitration and Conciliation Act, 1996 unless the transactions were not of composite nature.
61. It was held that the expression “any person” clearly refers to “the parties” who are necessarily party or signatory to the arbitration agreement.In Para 167 and 168, it was observed as under:
167.Section 45 is a provision falling under Chapter I of Part II of the 1996 Act which is a self-contained Code.
The expression ‘person claiming through or under’ would mean and take within its ambit multiple and multi-party agreements, though in exceptional case. Even non-signatory parties to some of the agreements can pray and be referred to arbitration provided they satisfy the pre-requisites under Sections 44 and 45 read with Schedule I. Reference of non-
signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible.
168. In the facts of a given case, the Court is always vested with the power to delete the name of the parties who are neither necessary nor proper to the proceedings before the Court. In the cases of group http://www.judis.nic.in 21 companies or where various agreements constitute a composite transaction like mother agreement and all other agreements being ancillary to and for effective and complete implementation of the Mother Agreement, the court may have to make reference to arbitration even of the disputes existing between signatory or even non-signatory parties. However, the discretion of the Court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously.
62. Section 45 and amended section 8(1) of the Act reads as under:
Se Section 8(1) S Section 45 8. Power to refer parties to 45.Power to judicial arbitration where there is authority to refer parties to an arbitration agreement:- arbitration.- (1)A judicial authority, before Notwithstanding anything which an action is brought in a contained in Part 1 or in the matter which is the subject of Code of Civil Procedure, 1908 an arbitration agreement, shall, (5 of 1908, a judicial authority, if a party to the arbitration when seized of an action in a agreement or any person matter in respect of which the claiming through or under parties have made an him, so applies not later than agreement referred to in the date of submitting his first section 44, shall, at the statement on the substance of request of one of the the dispute, then, parties or any person notwithstanding any judgment, claiming through or under decree or order of the Supreme him, refer the parties to Court or any Court, refer the arbitration, unless it finds that parties to arbitration unless it the said agreement is null and finds that prima facie no valid void, inoperative or incapable arbitration agreement exists. of being performed. http://www.judis.nic.in 22 63. It is the case of the promoter that though the investment agreement is dated 21.7.2009 with the Investor, statutory modification
in Section 8 of the Act, as amended with effect from 23rd March, 2015 will apply in the agreement in light of The judgment of the Honourable Supreme Court in Thyssun StalLunion GMBh Versus Steel Authority of India (1999) 9 SCC 334: SC.
64. It was submitted that as per the decision of the Hon’ble Supreme Court, , “Parties can agree to the applicability of the new Act even before the new Act comes into force and when the old Act is still holding the field .” There it was held that there was nothing in the language of Section 85(2)(a) which bars the parties from so agreeing. There is, however, a bar that they cannot agree to the applicability of the old Act after the new Act has come into force when arbitral proceedings under the old Act have not commenced though the arbitral agreement was under the old Act.
65. The learned counsel for the promoter submitted that in the light of language employed in the arbitration clause in the Investment Agreement viz. “or any statutory modifications or reenactment thereof and rules made there under”, read with Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 it clear that amended Section 8 is applicable to the facts of the present case. to the facts of the present http://www.judis.nic.in 23 case.
66. It was specifically submitted that the arbitration clause has factored statutory modifications or re-enactment and the rules made thereunder and therefore the amendment contained in section 8 of the Act to be applied in the light of the decision of the Honourable Supreme Court in Thyssen Stahlunion GmbH versus Steel Authority of India Ltd (1999) 9 SCC 334.
67. It was submitted that the expression “unless otherwise agreed” in Section in Section 26 of the 2015 amendment Act as in Section 85(2)(a) of the Act which fell for consideration in Thyssen Case makes it clear that if the parties were clear in their minds that they would be bound by any statutory modification or re-enactment of that Act which would govern the arbitration.
68. The Supreme Court in Thyssen Case observed that “ When the agreement uses the expressions “unless otherwise agreed” and “law in force” it does give an option to the parties to agree that the new Act would apply to the pending arbitration proceedings. That agreement can be entered into even before the new Act comes into force and it cannot be said that agreement has to be entered into only after the coming into force of the new Act.”.
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69. It was therefore submitted that though the scope of section 8 prior to amendment was restricted and confined to only “a party” to an agreement, it is now open for the court to allow a party though not specifically signatory to the agreement to be bound by the arbitration clause in the light of the decision of the Honourable Supreme Court in Chloro Controls (India) Private Limited.
70. It was further submitted that in Cheran Properties Ltd versus Kasturi & Sons Ltd 2018 SCC Online 431., it was held that the principles enumerating in Chloro Controls (India) Private Limited cannot be given restricted interpretation and will apply to all of companies.
71. The learned counsel further drew my attention to the decision of the Court in the following two cases:-
i) Ratna Infrastructure Project Private Limited versus Meja Uruja Nigam private limited 2017 SCC Online Delhi 7808 SC:
ii) Ameeta Lal Chand Shah and others versus Risabh Enterprises and Another 2018 SCC Online SC 487.
72. Per contra the counsel for the Investor, the petitioner in O.P.No. 480 of 2013 / the respondent CRP (PD) No. 35 of 2016 submitted that a resolution was passed on 22.6.2009 by all the respondents of the promoter company in O.P.No. 480 of 2013 wherein only there is only reference to the http://www.judis.nic.in 25 Investment Agreement with the investor and the purchaser was not in contemplation and therefore the transactions were not composite in nature even though the sale deeds were executed in respected of the same land for which the Investment and Marketing Agreements were signed.
73. It was submitted that if the subsequent sale to the purchaser M/s.Vaithi Holdings Private Limited was to be a part of the composite transaction, there would have been a reference to it at that point of time if not before.
74. It was submitted that there was not a single communication between the parties at any stage, linking any of the agreements with the subsequent sale and therefore submitted that the CRP was liable to be dismissed.
75. It was submitted that Investment Agreement dated 21.07.2009 which the basis of the arbitral proceeding discloses the maximum investment to an extent of Rupees 4 crores only.
76. Only disputes regarding the amount actually paid or payable or not paid under alone can be subject matter of arbitration. The independent dispute of the purchaser even if it relates to project for http://www.judis.nic.in 26 which agreement was signed, cannot be referred to arbitration in absence of an arbitration agreement.
77. It was further submitted that since the account of the promoter was on the verge of being declared as a NPA by its bankers namely Oriental Bank of Commerce, the purchaser namely M/s.Vaithi Holdings Private Limited stepped in and discharged the dues of the promoter and in consideration of the same sale deeds were executed by the promoter without any pre- condition.
78. It was further submitted that sale transactions are independent transactions and have nothing to do with the Investment Agreement dated 21.07.2009.
79. It was further submitted that no objection certificate was also given by the promoter to the bankers for sale in favour of the purchaser viz., M/s.Vaithi Holdings Private Limited. Therefore, to link the said transaction and the dispute arising thereto is not permissible.
80. It is stated that the promoter can have no objection with the purchaser as the sales were absolute sale. Further the promoter itself has issued specific letters for handling over of all the original sale deed to the purchaser namely M/s.Vaithi Holdings Private Limited. http://www.judis.nic.in 27
81. Therefore, the attempt in the present CRP was merely delay tactics to frustrate the rights of the purchaser and delay and avoid the consequence for its failure to complete the construction in time.
82. The purchaser further has claimed to have spent a sum of ? 5.5 crores which is an independent transaction and is not connected with the investment transaction between the promoter and the investor though purchaser is a related to the investor and the land purchased is in respect of the very same project for which investment and marketing and Management agreement were signed.
83. It was further submitted that the sale deed was of the year 2010 and can not be challenged beyond the limitation of three years. Therefore, on this count also the case of the promoter in the above Civil Revision Petition was without merits.
84. Learned Counsel further submitted that none of the judgments cited on behalf of the counsel for the promoter actually furthered purchaser and investors case and therefore prayed for dismissal of the CRP and requested for appointment of an arbitrator for resolution of dispute between the promoter and the investor.
85. Learned counsel for the purchaser and Investor distinguished the http://www.judis.nic.in 28 judgments cited by the learned counsel and draw my attention to the following cases:
1. 2000(5) SCC 531 Sukanya Holdings Pvt. Ltd Vs. Jayesh Pandya and others
2. S.N.Prasad Vs Mannet Finance Ltd and others2011(1) SCC 320
3. Deustsche Post Bank Home Finance Ltd Vs Taduri Sridhar and another2011(11) SCC 375
4. Amit Lalchand Shah and another Vs Rishab Enterprises.
2018 SCC Onlince SC 487
86. I have considered the impugned order passed by the lower court I.A. No.170 of 2014 O.S.No. 449 of 2013. I have also considered the rival contentions, case laws cited on behalf of the either side and the documents.
87. It is clear that there is no agreement between the promoter company and the purchaser for resolution of dispute between them by way of arbitration.
88. The promoter was in financial distress when the purchaser stepped in and purchased the UDS in the land which had been earlier offered as a security to the Bank by their promoter for the loan taken by them.
http://www.judis.nic.in 29
89. The said purchase whether was intended to save the project and/or to allow the promoter to continue with the project by itself or was intended to allow the purchaser to exercise an independent right over them may have given an independent cause of action to the promoter against the purchaser. However, that would be independent cause of action interse between them.
90. In absence an agreement to resolve the dispute by way of arbitration, the purchaser cannot be forced into the arbitration proceeding between investor and promoter for which O.P.No.480 of 2013 has been filed.
91. Amendment to section 8 of the Arbitration and Conciliation Act, 1996, does not permit an unwilling third party and/or a non signatory to an agreement to be forced into an arbitration unless facts establish otherwise.
92. A non signatory to an agreement can file an application under Section 8 of the Act before a court before which a suit is filed to refer the case to arbitration, if such a party claims right through a person who is party an agreement which has an arbitration clause. http://www.judis.nic.in 30
93. This is plain and clear from a reading of amended Section 8(1) of the Act which is inspired from Section 45 of the Act.
94. In Cheran Properties Limited v Kasturi and Sons Limited 2018 SCC OnLine SC 431, while dealing with post award case, it was observed as under:-
“38. The decision in Indowind arose from an
application under Section 11 of the Arbitration and
Conciliation Act 1996. Indowind was not a signatory to the contract and was held not to be a party to the agreement to refer disputes to arbitration. In Indowind it was held that an application under Section 11 was not maintainable.”
95. The decision of the Hon’ble Supreme Court in Indowind Energy Limited v. Wescare (India) Limited, (2010) 5 SCC 306 was distinguished with the above observation stating that it was before the decision in Chloro Control Case and that “The present case does not envisage a situation of the kind which prevailed before this Court in Indowind. The present case relates to a post award situation. case does not envisage a situation of the kind which prevailed before this Court in Indowind. The present case relates to a post award situation.”
96. Though the decision of the Hon’ble Supreme Court in Chloro Control Case has been affirmed in Cheran Properties case, Cheran http://www.judis.nic.in 31 Properties case was essentially rendered in the context of Section 35 of the Arbitration and Conciliation Act, 1996 which also uses similar expression as in amended Section 8 and Section 45.
97. The Hon’ble Court further held that the fact that the appellant there (Cheran Properties Ltd.) was not a party to the arbitral proceedings will not conclude the question as to whether the award can be enforced against it on the ground that it claims under a party. Essentially, the Court is called upon to consider whether the test embodied in Section 35 is fulfilled in the present case, so as to bind the appellant. Though the Court discussed the decision rendered in Chloro Controls India case, it was not on the strength of the reasoning in para 73 of the said case.
98.In Charan Properties case, reference was made to Section 35 of the Arbitration and Conciliation Act, 1996 which postulates that an arbitral award “shall be final and binding on the parties and persons claiming under them respectively”. It was observed that the expression “any persons claiming under them” in Section 35 widens the net of those whom the arbitral award binds. It does so by reaching out not only to the parties but to those who claim under them, as well.
99.It was held that “The expression “persons claiming under them” is a legislative recognition of the doctrine that besides the http://www.judis.nic.in 32 parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings. Having derived its capacity from a party and being in the same position as a party to the proceedings binds a person who claims under it. The issue in every such a case is whether the person against whom the arbitral award is sought to be enforced is one who claims under a party to the agreement.
100. The Hon’ble Court there held that, “The expression “persons claiming under them” is a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings. Having derived its capacity from a party and being in the same position as a party to the proceedings binds a person who claims under it. The issue in every such a case is whether the person against whom the arbitral award is sought to be enforced is one who claims under a party to the agreement.”
101. The Court further observed as under:
“29. As the law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which http://www.judis.nic.in 33 they have entered into them may reflect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-signatory bound by an arbitration agreement, the Court approaches the matter by attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them. Therefore, factors such as the relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of subject matter and the composite nature of the transaction weigh in the balance. The group of companies doctrine is essentially intended to facilitate the fulfillment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories.
The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory.”
102. The Honourable Supreme Court in para 73 of Chloro Controls (India) Private Limited has observed as under:
“73. A non-signatory or third party could be subjected to http://www.judis.nic.in 34 arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non- signatory parties would fall within the exception afore-discussed.”
103. In Chloro Controls India case, while dealing with Section 45 of the Act in para 69 by the Hon’ble Supreme Court observed as under:-
“69. We have already noticed that the language of Section 45 is at a substantial variance to the language of Section 8 in this regard. In Section 45, the expression “any person” clearly refers to the legislative intent of enlarging the scope of the words beyond “the parties” who are signatory to the arbitration agreement. Of course, such applicant should claim through or under the signatory party. Once this link is established, then the court shall refer them to arbitration. The use of the word “shall” would have to be given its proper meaning and cannot be equated with the word “may”, as liberally understood in its common parlance. The expression “shall” in the language of Section 45 is intended to require the court to necessarily make a reference to arbitration, if the conditions of this provision are satisfied. To that extent, we find merit in the submission that there is a greater obligation upon the judicial authority to make such reference, than it http://www.judis.nic.in 35 was in comparison to the 1940 Act. However, the right to reference cannot be construed strictly as an indefeasible right. One can claim the reference only upon satisfaction of the prerequisites stated under Sections 44 and 45 read with Schedule I of the 1996 Act. Thus, it is a legal right which has its own contours and is not an absolute right, free of any obligations/limitations.”
104. For the promoter to invoke the exception discussed in paras 69 and 73 of the decision of the Hon’ble Supreme Court in Cholro Control Case, there should be atleast some documents to substantiate that the transaction was composite transaction and was intertwined with either the Investment Agreement and/or Marketing and Management Agreement. In this case this has not been demonstrated.
105. Further, the purchaser was not in contemplation when these agreements were signed with the investor and the marketing company by the promoter.
106. Even as per the decision of the Supreme Court in Chloro Control Case, only in cases involving execution of multiple agreements, where two essential features exist; firstly, all ancillary agreements are relatable to the mother agreement and secondly, performance of one is so intrinsically interlinked with the other agreements that they are incapable of being beneficially performed without performance of the others or severed from the rest. The intention of the parties to refer all the disputes between all the parties to the Arbitral Tribunal is one of the determinative http://www.judis.nic.in 36 factors.
107. In the present case, no clause in the agreement or communication has been produced to show intrinsic nature of the transaction linking the Investment Agreement and/or the Marketing and Management Agreement with Sale for a composite reference to arbitration.
108. Even if the specific language in the arbitration clause permits parties to invoke the amended Section 8 of the Arbitration and Conciliation Act, 1996 when read in conjunction with Section 26 of the Amendment Act, 2015, it is not for either the promoter and/or the purchaser or for that matter, the marketing company as a signatories to the respective Investment Agreement and the Construction Management and Marketing Service Agreement both dated 21.7.2009 to insist that a non-signatory to agreement to be bound by the arbitration clause contained therein.
109. Therefore, the request made under Section 8 of the Act though made prior to the amendment brought the Arbitration and Conciliation Act, 1996 vide The Arbitration and Conciliation (Amendment), of 2015 could not be entertained even if amendment is held applicable to the case.
110. As the transactions under the respective agreements and http://www.judis.nic.in 37 the sale agreement in the present case are not composite in nature as the purchaser was not in contemplation. It would have been different if there was substitution of the agreement with a new agreement or an amendment to the agreement at the time sale of the land in favour of the purchaser to bring the sale within the purview of these agreements. However, this exercise was not carried out.
111. Dispute has to be decided in a suit under Section 9 of CPC between them in a court of law inasmuch as there was no clause binding agreements linking the transaction to submit themselves to an arbitration proceeding. The purchaser has also not claimed any rights either from the promoter or investor from the marketing company under the Investment Agreement or under the Marketing and Management Agreement both dated 21.7.2009.
112. The purchaser may have stepped into the shoes of any other purchasers. Mere fact that purchaser purchased the UDS and decided to carry on construction independently may have given rise to an independent and separate cause of action. The promoter has an independent cause of action against purchaser as also against its director. However, that does not mean that the promoter can insist on a unwilling party who is stranger to the agreement to be bound by an arbitration clause. http://www.judis.nic.in 38
113. Therefore, as a signatory to the respective agreement neither the promoter nor the investor or for that matter even the marketing company cannot compel the purchaser to submit an arbitration proceeding in terms of the arbitration clause contained in the respective agreements as the transaction of sale was neither contemporaneous with the execution of Investment Agreement nor a composite transaction intrinsically connected with each other without whose performance other is not permissible.
114. No case for interference has been made out to interfere with the impugned fair and decretal order dated 17.6.2014 in I.A.No. 170 of 2014 in O.S.No. 449 of 2013 impugned in C.R.P (PD) No. 35 of 2016 under Section 115 of the Civil Procedure Code.
115. Order of the lower court cannot be faulted as it has not committed any mistake on fact, or on merits or any jurisdictional error while dismissing the above application filed by the promoters under Section 8 of the Act inasmuch as three entities namely the investor, purchaser and marketing company are distinct legal entities and the transaction prima facie do not appear to be composite transaction.
116. In the light of the above discussion, C.R.P (PD) No. 35 of 2016 filed under section 115 Of the Code of Civil Procedure is liable to be dismissed and is hereby dismissed.
117. Viewed from a slightly different angle, the post amendment to http://www.judis.nic.in 39 the Act, the Courts have limited role under Section 11(6) of the Act to examine the issue minutely in the light of the decision of the Hon’ble Supreme Court in Duro Felguera S.A Vs. S.A.Gangavaram Port (2017) 9 SCC 729. There, his lordship Hon’ble Mr.Justice Joseph Kurian as he was then observed as under:
“59.The scope of the power under Section 11)6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. (SBP and Co. V. Patel Engg. Ltd., (2005) 8 SCC 618) and Boghara Polyfab (National Insurance Co. Ltd. V. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117). This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists – nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”
118. As the agreement contemplates resolution of dispute between the parties to the agreement, it is not necessary to deal merits of the case in detail. Therefore, the promoter may if advised, take steps to implead the purchaser as a proper party in the arbitration proceeding only for determination of counter claim if any against the investor for any breach latter may have committed in the Investment Agreement dated 21.07.2009.
119. Therefore,it would be for the arbitrator before whom such dispute is referred to decide on merits whether the promoter is entitled to implead the purchaser to resolve the dispute arising out Investment http://www.judis.nic.in 40 Agreement alone between the Investor and the Promoter.
120. The parties in these proceedings are litigating and have ignored the rights of the independent purchasers who have invested in the projects initiated by the promoter. The promoter has also not allowed purchaser to complete the project to the extent it sold the UDS to the purchaser. The dispute has also stalled the project leaving independent purchasers.
121. Under these circumstances, the Hon’ble Mr.Justice F.M.IBRAHIM KALIFULLA, (Retd.), Supreme Court of India and former Judge of this High Court residing at Plot No.158-B, Door No.22, Sivananda Salai, Gill Nagar Extension, Choolaimedu, Chennai – 94 is appointed as a sole Arbitrator to resolve the dispute between the Promoter and Investor in terms of the Investment Agreement dated 21.07.2009.
122. Learned Arbitrator may entertain a limited application from the promoter to implead the purchaser namely M/s.Vaithi Holdings Pvt. Ltd only for the purpose of counter claim alone if any that may be filed by the promoter.
123. The learned Arbitrator evolve procedure and set deadlines for parties to comply while conducting the arbitral proceedings.
124. The Investor shall also obtain consent of the learned Arbitrator and file the same before the Registry. Such consent shall be filed within 15 days of communication of this order which shall form part of the record of http://www.judis.nic.in 41 this Court.
125. The learned Arbitrator is at liberty to fix fees in consonance with the Fourth schedule to the Act.
126. With these observation, the O.P.No.480 of 2103 stands allowed and C.R.P (PD) No.35 of 2016 stands dismissed and the order dated 17.06.2014 in I.A.No.170 of 2014 in O.S.No.449 of 2013 on the file of the the 1st Additional District Judge at Coimbatore is upheld. Miscellaneous application stand closed in the light of the present order.
11.01.2019
Internet : Yes/No
Index : Yes/No
Arul
To
The 1st Additional District Judge,
Coimbatore.
http://www.judis.nic.in
42
C.SARAVANAN,J.
Arul
Pre-delivery order made in
Original Petition No.480 of 2013 and
Civil Revision Petition No.35 of 2016
and
C.M.P.No.180 of 2016
11.01.2019
http://www.judis.nic.in