Bangalore District Court
M/S Mysore Stoneware Pipes And ... vs Sri Raghavendra Enterprises on 3 September, 2024
KABC170008432024
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.AP.No.59/2024
Dated on this 3rd day of September 2024
Petitioner M/s. Mysore Stoneware Pipes and
Potteries Limited,
Having its Registered Office at:
No.452, 11th Cross, 6th Main,
Sadashivanagar,
Bengaluru-560080.
Represented by
Mr.Rajiv H Ramahalli,
Executive Director.
(By Sri. Pramod Nair, Senior Counsel
for Sri. Vamshi Krishna,
for Petitioner)
// versus //
Respondent Sri.Raghavendra Enterprises,
A registered Partnership Firm,
Having its office at:
11th Cross,
Near Government Girls School,
Malleshwaram,
Bengaluru-560003.
Represented by its Partner
Mr.L.S.Prabhakar.
(Sri. G. Krishnamurthy, Senior Counsel
for Sri. P.B. Ajit, for Respondent)
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CT 1390_Com.AP.59-2024_Judgment.doc
KABC170008432024
Date of Institution of suit : 18/03/2024
Nature of the suit : Agreements relating to
immovable property
used exclusively in
trade and commerce
Date of commencement of :
recording of the evidence
Date on which the : 03/09/2024
Judgment was pronounced.
: Year Month/ Day/s
Total duration /s s
00 05 16
JUDGMENT
This is a petition under Section 34 of the Arbitration and Conciliation Act filed by the respondent before the Arbitral Tribunal challenging the arbitral award passed by the learned sole arbitrator dated 21-12-2023 in AC 652 of 2022, granting the relief of specific performance of the sale agreement dated 4-3-2021.
2. On issuance of notice of the present petition to the respondent / claimant before the arbitral tribunal, the respondent has entered appearance through counsel and filed detailed objections to the present petition. 3
CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024
3. Thereafter, I have heard the arguments of both sides and perused the records of the case.
4. The only point that arises for my consideration is :-
Whether the impugned arbitral award dated 21-12-2023 passed by the learned sole arbitrator in AC 652 of 2022 calls for interference under Section 34 of the Arbitration and Conciliation Act?
5. My answer to the above point is in the negative, for the following :-
REASONS
6. The facts in brief are that, disputes arose between the parties out of a sale agreement dated 4-03-2021 executed by petitioner herein and two others in favor of the respondent herein / claimant before the arbitral tribunal. Under the said sale agreement, the petitioner herein agreed to sell 1 Acre 13.471 Guntas of land in survey No. 79 of Soladevanahalli village, Hesaragatta Hobli, Bangalore North Taluk, to the respondent herein /Claimant. In view of the dispute between the parties and in view of arbitration clause contained in the said agreement, the respondent herein / Claimant issued 4 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 notice under section 21 of the Arbitration and Conciliation Act suggesting the name of Learned Arbitrator. Since the petitioner herein did not concur for appointment of the said arbitrator, the respondent herein filed CMP 334 of 2022, and Hon'ble High Court of Karnataka has appointed the Learned Sole Arbitrator to decide the dispute between the parties.
7. On the learned arbitrator entering upon the reference, the respondent herein / claimant filed claim statement before the learned arbitrator pleading that, the claimant is registered partnership firm and respondent is the owner of the Schedule Property and the respondent has executed registered sale agreement dated 4-3-2021, agreeing to sell the Schedule Property to the claimant for total sale consideration of Rs. 3,93,82,700 and received advance sale consideration amount of Rs. 1 crore under the said sale agreement and agreed to receive the balance sale consideration amount at the time of registration of the sale deed and the stipulated period for completion of the sale transaction was 6 months. It is pleaded that, the respondent deliberately delayed the transaction and avoided the claimant which constrained the claimant to cause 5 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 legal notice dated 29/11/2021. At that stage, the claimant was constrained to file AA-220 of 2021, seeking interim protection to restrain the respondent from alienating the schedule property which was allowed and interim order was granted restraining alienation. Contending that the claimant is always ready and willing to perform its part of the contract and is ready with the balance sale consideration amount and it is the respondent who has not come forward to execute the sale deed, the claimant sought for specific performance of the registered sale agreement dated 4-3-2021 and also raised alternative prayer for refund of the advance sale consideration amount of Rs. 1 crore.
8. The respondent [Petitioner herein] entered appearance before the learned arbitrator and filed detailed statement of defense. While the respondent admitted the due execution of the registered sale agreement dated 4-3-2021, the defense was raised that the performance of the sale agreement has been rendered impossible, since, the respondent has come to know that claimant is party related to one of the directors of the respondent and consequently performance of the sale 6 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 agreement falls foul of the order of the NCLT which is clear that the properties of the company should be alienated only in favor of third parties and not to related parties. Further, it was contended that, one Abdul Rahman has staked claim for 1 acre 20 guntas of land in the same survey No. and in view of the said litigation, execution of sale deed by respondent is not possible. It was contended by the respondent that, at the time of entering into the sale agreement, the respondent was unaware of the close relationship between the claimant and Mr. R.P. Trivikram, who is the former MD of respondent company and only recently, the respondent has become aware that, in fact, claimant is nothing but a shell entity set up by said MR. Trivikram to purchase the schedule property. It was contended that, the wife of said Mr. Trivikram is squatting over the Schedule Property and therefore this conduct disentitles the claimant from seeking specific performance. It was contended that, after realizing that the claimant is related to Trivikram, on further probing and investigation, respondent has become aware that, claimant is only a conduit of Trivikram and even the advance sale consideration of Rs. 1 crore under the sale agreement has 7 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 been funded by Trivikram. With these various contentions, the respondent prayed for dismissal of the claim.
9. The claimant filed a rejoinder to the statement of defense.
10. On the basis of the rival pleadings of both sides, the learned arbitrator has framed the following issues;
1) Whether the claimant proves that it is ready and willing to perform its part of the obligation under the agreement of sale deed 4-03-2021?
2) Whether the claimant is entitled for specific performance of agreement of sale deed 4-3-2021?
3) In the alternative, whether the claimant proves that they are entitled to recover a sum of Rs. 1 crore, with interest at 18% per annum from 4-3-2021 till date of realization?
4) Whether the respondent proves that it is impossible to perform the obligation under the agreement of sale deed 8 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 4-3-2021 due to the order dated 20-6- 2017 passed by Honorable NCLT in CP No. 13 of 2016?
5) Whether the respondent proves that because of the claim of Abdul Rahman, it is impossible to perform the obligation under the agreement of sale deed 4-3- 2021?
6) What orders?
11. Thereafter, in the inquiry before the learned arbitrator, the partner of claimant was examined as PW1 and he got marked Ex. P1 to P40. On behalf of the Respondent, representative of respondent was examined as RW1 and a representative of M/s Emlak Ventures Private Limited, which is the confirming party No. 1 in the sale agreement, was examined as RW2. The respondent got marked Ex. R1 to R28.
12. Thereafter, after hearing the arguments of both sides, the Learned Arbitrator has allowed the claim and granted specific performance of the sale agreement dated 4-3-2021 with the direction to the claimant to pay or deposit the 9 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 balance sale consideration amount and obtain the registered sale deed and in case of respondent's failure to execute the sale deed, to obtain the sale deed through process of court, and also held that, the claimant is entitled to take possession of the Schedule Property on "as is where is" basis.
13. Aggrieved by the said arbitral award allowing the claim, the respondent before the arbitral tribunal is before this court seeking setting aside of the arbitral award under section 34 of the Arbitration and Conciliation Act.
14. Sri. Pramod Nair, Learned Senior Counsel for Petitioner, has essentially urged three contentions before me. Firstly, he argued that the claimant failed to prove readiness and willingness to perform its part of the contract. He submitted that, readiness and willingness includes financial capacity to pay balance sale consideration amount and the law is well settled that readiness and willingness has to be shown from day one till obtaining the sale deed. He submitted that. under the sale agreement. Rs. 1 crore was paid as advance sale consideration amount and admittedly. the balance sale 10 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 consideration amount due and payable was Rs. 2.93 crores. He highlighted that, to show the financial capacity to pay the balance sale consideration amount, the claimant has produced the documents at Ex. P21 to P23. Ex. P21 is a certificate issued by bank stating that claimant is maintaining current account and the balance as on 11-11- 2021 is Rs. 2.94 crores. Ex. P22 is the communication issued by the same bank stating that Claimant is maintaining two fixed deposits of total value of Rs 2.95 crores and Ex. P23 are the FD receipts. Thereby, he submitted that the financial capacity of the claimant to pay the balance sale consideration amount is forthcoming only from 11-11-2021, whereas the six months fixed for completing the sale transaction as stipulated under the sale agreement expired on 4-9-2021. Thereby he submitted that for a period of nearly two months there is a gap in the documents produced by the claimant to show its financial capacity to pay the balance sale consideration amount and this aspect of the matter has not been appreciated by the learned arbitrator, thereby, resulting in error which vitiates the entire award. Learned Senior Counsel further argued that, during the arbitral proceedings, 11 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 the respondent / petitioner herein had filed application under section 19 of the Act seeking direction to the claimant to furnish details of the individual who has transferred or lent any money to the claimant from 01-01-2021 till date and on the said application, the learned arbitrator passed an order dated 13-10-2023 holding that, if for any reason, claimant is withholding any relevant evidence which will throw light on the issue in controversy, adverse inference can be drawn, but, at the time of passing the award, the learned arbitrator has not drawn any adverse inference and instead passed the award in favor of the claimant. Thereby, he submitted that, the learned arbitrator has committed patent illegality and error in passing the award. The second contention is that, there is sufficient material on record and also forthcoming from the cross-examination of PW1 that the claimant is a related entity to Mr. Trivikram, who is the former MD of Respondent company and therefore the sale deed if executed will result in alienation of the property to a related party of respondent company, thereby violating the orders of the NCLT. Thirdly, Learned Senior Counsel argued that, there is sufficient material brought on record to show that, Claimant 12 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 is only a shell entity set up by Mr. Trivikram for purchasing the Schedule Property. He argued that, Mr. Trivikram is trying to do indirectly what cannot be done directly, viz. purchasing the Schedule Property and therefore, in effect, the sale agreement is a Benami transaction in which the consideration is being furnished by Mr. Trivikram and the property is being purchased in the name of the claimant. Thereby, he submitted that the very sale agreement is entered into in order to circumvent the law and such transactions are specifically prohibited under the Benami Transactions Prohibition Act and thereby he argued that the object of the sale agreement being contrary to law, the sale agreement is rendered void under Section 23 of the Indian Contracts Act and without appreciating these contentions which were elaborately raised in the written submissions, the learned arbitrator by cryptic observation has rejected the contention at paragraph 21 by simply holding that the contention regarding Benami transaction is unacceptable since there is no material on record to show that Trivikram invested money in the claimant company. In this regard, Learned Senior Counsel argued that, when the respondent sought for details 13 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 regarding individuals who have invested or lent money to the claimant, the Learned Arbitrator did not direct claimant to furnish the said material and instead held that adverse inference can be drawn. But while passing the award, the Learned Arbitrator, instead of drawing adverse inference, has simply observed that there is no material to show that Trivikram has invested money in the claimant company and said contention is not available to a third party. Thereby, he argued that the Learned Arbitrator has gone back on his own orders and committed patent illegality. Apart from this, he submitted that, there is sufficient material on record to show that the entire consideration amount for the transaction has been furnished by Mr. Trivikram and the property is being purchased in the name of the claimant and thereby, it is evidently a Benami transaction and liable to be stuck down only on this ground and learned arbitrator committed an error in awarding the claim. With these contentions he prayed to allow the petition and set aside the impugned arbitral award.
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15. Per contra, Sri. G. Krishnamurthy, Learned Senior Counsel for Respondent / claimant before the Arbitral Tribunal, besides supporting the impugned award, joined issues with the contentions raised by Learned Senior Counsel for Petitioner. He submitted that, so far as readiness and willingness of the claimant is concerned, there is a specific admission in the objection statement filed by petitioner herein in Commercial AA 220 of 2021 and considering the said specific admission and the nature of the defense raised in the said Commercial AA 220 of 2021 by the petitioner herein, there is no question of the petitioner calling upon the claimant to prove readiness and willingness. Even otherwise, he submitted that, out of the sale consideration amount of Rs. 3.93 crores, a considerable portion of Rs. 1 crore is already paid as advance sale consideration under the sale agreement. And in respect of the remaining sale consideration of Rs. 2.93 crores, as early as in the year 2021 itself, the claimant had the said amount in its bank account which is later kept in FD, reserving the same for payment of balance sale consideration amount and in this regard documents are produced before the learned arbitral tribunal. Thus, he 15 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 contended that the claimant has adequately approved its readiness and willingness to perform its part of the contract. In so far as the second contention that the claimant constitutes a related party, and hence alienation to the claimant false foul of the NCLT order is concerned, he highlighted that the Learned Arbitral Tribunal has taken note of the fact that NCLT has specifically approved the sale of Schedule Property in favor of the claimant. Insofar as question of Benami transaction is concerned, he submitted that, in fact no such contention has been taken in the defense statement filed by the petitioner herein before the arbitral tribunal and therefore, being a purely factual contention, the petitioner is disentitled from raising the said contention before this court. He submitted that, in any event, the source of funds is irrelevant in a specific performance suit and in this regard relied upon the ruling of Hon'ble Apex Court in the case of Ashok Sharma v Akhilesh Tiwari in 2018 (4) MPJR [SC] 67. With these contentions, he prayed to dismiss the present petition.
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16. Having considered the rival contentions, at the outset, it is to be noted that, the sale agreement which is the subject matter of the present proceedings is a registered agreement dated 4-3-2021. There is absolutely no dispute regarding due execution of the said agreement by the petitioner herein in favour of the claimant before the arbitral tribunal, namely respondent herein. For the sake of convenience, henceforth in this order the parties are referred as per their rank before the arbitral tribunal. In fact, the due execution of the sale agreement is not disputed in the statement of defence and on the other hand, contention raised is that the performance of the said sale agreement has become impossible due to certain reasons. By taking up the said stand, it is clear that the respondent does not dispute due execution of the sale agreement. In a claim for specific performance, once the execution of the sale agreement is not disputed, for all practical purposes, the only other question that remains to be decided is whether the claimant has proved its readiness and willingness to perform its part of the contract. Be it noted that by the amendment of 2018 the discretion vested in the court to refuse specific performance 17 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 has been taken away and the present agreement is subsequent to 1-10-2018 which is the date on which the said amendment act came into force. In this regard, reference may be made to the law laid down by Hon'ble Apex Court in the case of Katta Sujatha Reddy v. Siddamsetty Infra Projects (P) Ltd., (2023) 1 SCC 355 : 2022 SCC OnLine SC 1079 at page 376, as follows;
52. This provision, which remained in the realm of the courts' discretion, was converted into a mandatory provision, prescribing a power the courts had to exercise when the ingredients were fulfilled. This was a significant step in the growth of commercial law as the sanctity of contracts was reinforced with parties having to comply with contracts and thereby reducing efficient breaches.
54. Having come to the conclusion that the 2018 Amendment was not a mere procedural enactment, rather it had substantive principles built into its working, this Court cannot hold that such amendments would apply retrospectively.
58. In the case at hand, the Amendment Act contemplates that the said substituted provisions would come into force on such date as the Central Government may appoint, by notification in the Official Gazette, or different dates may be appointed for different provisions of the Act. It may be noted that 1-10-2018 was the 18 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 appointed date on which the amended provisions would come into effect.
59. In view of the above discussion, we do not have any hesitation in holding that the 2018 Amendment to the Specific Relief Act is prospective and cannot apply to those transactions that took place prior to its coming into force.
(Emphasis Supplied)
17. Therefore, to the present transaction, it is the Specific Relief Act, as it stands post 2018 amendment, which is applicable and therefore, if the due execution of the sale agreement and readiness and willingness on the part of the claimant is established, then, it means that there is no further discretion in the Learned arbitrator to refuse specific performance.
18. Therefore, the important question which arises is whether the claimant has proved its readiness and willingness to perform its part of the contract. In this regard, the stand taken by the respondent at the earliest point of time in the objection statement in Commercial A.A. 220 of 2021 may be taken note of. The said objection statement filed by the respondent is marked as Ex. P. 14. In the said objection statement, at paragraph 3, firstly, respondent admits that 19 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 respondent is the absolute owner of the schedule property. At paragraph 8, the respondent states that the respondent is handicapped in executing the sale deed due to various circumstances, that is, the conversion of the land has been cancelled by the Deputy Commissioner, and as the same property is in litigation in Commercial O.S. No. 987 of 2021. At paragraph 9 of the said objection, it is stated that non- execution of the sale deed by respondent is bona fide and not intentional, and as per clause 3 of the agreement, the respondent had agreed to provide necessary application and documents as and when required by the concerned authorities for obtaining conversion and katha required for sale of the Schedule Property and since the conversion of the land is cancelled by DC and the property is in litigation, the respondent is unable to execute the sale deed. In Paragraph 13, the due execution of the sale agreement and receipt of advance sale consideration of Rs. 1 crore is duly admitted. At paragraph 15, there is the most important admission regarding readiness and willingness on the part of the claimant and the same has also been extracted by the learned arbitrator and I deem it proper extract the same, as follows; 20
CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 "The averments made at paragraph 8 that claimant was ready and willing to perform its part of the contract and that they made repeated requests to the respondent to provide information about status of conversion and updation of katha for schedule property in favor of the respondent is admitted as true and correct. On 4-9-2021 i.e. even after expiry of six months period as specifically agreed under the agreement of sale dated 04-03-2021 the applicant made efforts to know the status of the conversion & katha in respect to the schedule property; as such the respondent was unable to provide them information with respect to the same; as such, the conversion couldn't take place as accepted. The applicant issued the letter dated 14-09-2021, notifying that applicant is ready with the balance sale consideration and also requesting the respondent to intimate about the status of the conversion & khata in respect of Schedule Property is admitted as true and correct as the same is accepted by the respondent. As such, respondent had every intention to hand over the property as per the absolute sale deed [sic], dated 4-3-2021, but respondent is handicapped in executing the same, as the conversion of the land was cancelled by the Deputy Commissioner vide order dated 11-10-2021, and the same Schedule Property is part of above-mentioned suit executed by respondent against M/s Supra Exports, represented by its proprietrix, Mrs. Sudha Trivikram and which is pending."
(Emphasis Supplied)
19. Therefore, in the above objection statement which is filed by the respondent in Com AA 220 of 2021, there is a 21 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 specific admission that the claimant has always been ready and willing to perform its part of the contract. There is also an admission that the claimant had issued letter dated 14-09- 2021 notifying that it is ready with the balance sale consideration amount and requesting to execute sale deed and the stand taken by Respondent [Petitioner herein] is that the respondent is handicapped from executing the sale deed due to cancellation of the conversion by Deputy Commissioner and due to suit pending against M/s Supra Exports.
20. Learned Senior Counsel for Respondent herein [Claimant] by relying upon the ruling of Hon'ble Apex Court in the case of Sangramsinh P. Gaekwad v Shantadevi P. Gaekwad reported in (2005) 11 SCC 314 submitted that, as per the law laid down in the said ruling of Hon'ble Apex Court, judicial admission by themselves can be made the foundation of the right of the parties and such admissions are admissible proprio vigore against the maker thereof. Thereby, Learned Senior Counsel for Claimant submitted that, in the face of the said admission made by the respondent in 22 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 pleadings filed in Commercial AA 220 of 2021 there is nothing further which remains for the claimant to prove insofar as readiness and willingness is concerned.
21. As against this, Learned Senior Counsel for Petitioner argued that, in a suit for specific performance, it is the bounden duty and obligation and burden on the claimant to prove readiness and willingness and this burden is not waived off or lightened in any way by admission made by the respondent. In this regard, he relied upon the ruling of Hon'ble High Court of Karnataka in Punny Akat Philip Raju v Dinesh Reddy reported in ILR 2016 Karnataka 2252 for the proposition of law that, even where the plaintiff's evidence regarding readiness and willingness and capacity to pay balance sale consideration amount is not challenged, the plaintiff has to prove the same to the satisfaction of the court by producing documents to show that, he was in possession of requisite funds to pay the balance sale consideration amount. Thereby, Learned Senior Counsel for Petitioner vehemently argued that, since readiness and willingness has to be proved to the satisfaction of the court, it is not enough 23 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 for claimant to merely rest upon admission of the respondent, and it is for claimant to independently prove, that too, with documentary evidence that he had the requisite funds.
22. Having considered the rival contentions in this regard, it is to be noted that, from the bank records that Ex. P21 to P23, it is an undisputed position that, as on 11-11- 2021, the claimant had balance of Rs. 2.95 crores in its bank account which was sufficient to pay the balance sale concentration amount, which is Rs. 2.93 crores. Thereafter, the said amount has been kept in FD as per the bank record at Ex. P22 and FD receipts at Ex. P23. Therefore, there can be no serious dispute that, at least as on 11-11-2021, the claimant had sufficient funds to pay the balance sale consideration amount. As already noted Supra, in the objections to Commercial AA 220 of 2021, respondent admits that claimant had issued email dated 14-09-2021 calling upon the respondent to execute the sale deed. Therefore, it is clear that the claimant has shown due diligence in calling upon the respondent to come forward and complete the sale transaction Hence, there can be no doubt about the 24 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 willingness of the claimant to perform its part of the contract. However, the dispute in this case is about the readiness of the claimant to perform its part of the contract, since readiness includes within itself financial capacity to pay the balance sale consideration amount. Although the claimant has produced the documents at Ex. P21 to P23 to show that the claimant was possessed of the funds to pay the balance sale consideration amount from 11-11-2021 onwards is concerned, it is the contention of the Learned Senior Counsel for Petitioner herein that the well-settled law is that, the financial capacity should be shown from the date of sale agreement till the date of obtaining the decree of specific performance. The contention is that, the claimant has failed to show that claimant was possessed of requisite funds from the date of sale agreement that is 4-3-2021 up to 11-11-2021, which is the date on which, according to Ex. P21, the claimant had sufficient funds in its bank account. Learned Senior Counsel for Petitioner submitted that the claimant has deliberately suppressed to produce its bank statement before the tribunal and instead preferred to produce a certificate issued by the bank stating that the claimant was possessed of 25 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 a balance of Rs. 2.94 crores as on 11-11-2021. He submitted that, if the bank account extract had been produced, it would show that, in fact, from 4-3-2021 up to 11-11-2021, the claimant did not have any funds at all. He submitted that, claimant is a shell entity which is constituted only for the purpose of present transaction and is wholly funded by Mr. Trivikram and therefore, the claimant has no funds of its own and if the bank statement had been produced, this fact would have become evident and to suppress the same, the bank statement has not been produced.
23. This contention cannot be accepted because the law is settled that, all that the claimant is expected to prove to the satisfaction of the court is its financial capacity to raise the balance sale consideration amount. No doubt the said financial capacity has to be shown right from day one till the last day i.e. right from the date of sale agreement till the date of obtaining the decree of specific performance. But it is not necessary that, during this entire period, the claimant is expected to maintain bank balance or to deposit the balance sale consideration into court. All that is necessary is that 26 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 there should be some documents on the basis of which the court can draw a reasonable inference that claimant could have raised the balance sale consideration amount, if it was called upon to do so. Therefore, I do not agree with the submission of Learned Senior Counsel for plaintiff that, merely because Ex. P21 Bank Certificate discloses that the claimant had sufficient balance only from 11-11-2021, it means that the claimant did not have the financial capacity earlier to 11-11-2021. This is because the claimant is not expected to maintain the bank balance equivalent to balance sale consideration amount payable from day one till date of decree. It is only the financial capacity of the claimant which has to be ascertained and not whether the claimant had the said amount in its bank account or whether the claimant deposited the said amount into court. In the case on hand, the claimant has paid advance sale consideration of Rs. 1 crore out of the total sale consideration of Rs. 3.93 crores. The sale agreement is dated 4-3-2021 and as per the terms of the sale agreement, the sale transaction had to be completed within 6 months. This clause is contained in paragraph 3 of the sale agreement which is as follows;
27
CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 "The vendor company has agreed to provide necessary application and documents as and when required by the concerned authorities for obtaining conversion and katha required for sale of the Schedule Property. The vendor shall reimburse the expenses paid to the concerned authorities towards obtaining the same. The Vendar Company has undertaken to pay up to date property tax in respect of the Schedule Property till date of registration and execution of the sale deed in favor of the purchaser.
The Vendor Company has represented that they would execute the registered sale deed in favor of the purchaser after conversion and katha document are obtained or within 6 months, whichever is earlier."
(Emphasis Supplied)
24. Therefore, as per above clause 3 of the sale agreement, it was first necessary for the vendor i.e. respondent to obtain conversion and katha document. It is only in case the conversion and katha document could not be obtained that even without the same the vendor agreed to execute the sale deed within six months This is the intention of the parties forthcoming from the specific clause in the agreement under which the vendor has represented that it will execute the sale deed in favor of the purchaser after conversion and katha documents are obtained or within 6 months, whichever is earlier. Therefore, the claimant having paid substantial 28 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 amount of Rs. 1 crore had to pay the balance sale consideration of Rs. 2.93 crores only on respondent obtaining the conversion and Khata document or in case said documents could not be obtained, then the claimant had to be prepared and ready with the balance sale consideration amount on lapse of six months. Admittedly, as per the stand taken by the respondent in objection statement in Com AA 220 of 2021 the respondent failed to obtain the katha document and conversion. Therefore, within six months period, the claimant was not called upon to arrange the balance sale consideration amount, because the respondent had failed in obtaining the conversion and katha document. Immediately after six months, i.e. on 14-09-2021, the claimant has admittedly issued an email stating its readiness and willingness to perform its part of the contract. This email is admitted by Respondent in its Objections to Com AA 220/2021. Within two months thereafter, on 11-11-2021, the claimant had maintained in its bank account balance of Rs 2.95 crores, which is sufficient to cover the balance sale consideration amount. From this material on record, and from the candid admission made by respondent in the 29 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 objection in Com.AA 220 of 2021, wherein specifically the readiness and willingness of the claimant is admitted, it follows that the claimant has produced sufficient material to show that it had the capacity to raise the balance sale consideration amount as and when it became necessary for the purpose of getting the sale deed in its favor. At the cost of repetition, it is to be noted that, the claimant is not expected to have ready money in its bank account or to deposit the money into the court, but what is required is for the claimant to show that it had the capacity to raise the balance sale consideration amount and the claimant has abundantly established the same to the satisfaction of the arbitral tribunal in view of the above material on record already discussed supra. Therefore, the finding of the learned arbitrator that the claimant has proved its readiness and willingness to perform its part of the contract is perfectly in accordance with law and does not call for interference and certainly cannot be interfered under Section 34 of the Arbitration and Conciliation Act, since, re-appreciation of evidence is impermissible under Section 34 of the Act. 30
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25. Before considering the two other principal contentions raised in the present petition, i.e. sale to a related party being barred by NCLT order and the contention that the sale agreement is void for being a Benami transaction, I deem it proper to quickly consider the other defenses raised by the respondent in its statement of defense. The contention that the performance of the sale agreement has been rendered impossible due to order of the DC cancelling the conversion and due to litigation having been raised by one Abdul Rahman and due to pendency of the litigation with M/s Supra exports, cannot be accepted because in a suit or claim by the purchaser for specific performance of sale agreement, any defect in title of the vendor is irrelevant. In other words, when the purchaser is willing and ready to purchase the property, subject to all the litigation and defects, it does not lie in the mouth of the vendor to refuse performance on the grounds of alleged defect in the vendor's title or property. Therefore, these contentions were rightly rejected by the learned arbitrator. Another contention raised in the statement of defense was that the wife of Mr. Trivikram, is squatting over the Schedule Property and this conduct disentitles the 31 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 claimant from seeking discretionary remedy of specific performance. This contention has to be stated only to be rejected because even conceding that M/s Supra Exports is squatting on the property, said M/s Supra Exports is not the claimant before the tribunal and therefore, the conduct of some third party cannot be attributed to the claimant to refuse specific performance.
26. Having disposed of these ancillary contentions raised in the statement of defence, let me now focus my attention on the second important ground raised to deny specific performance. In this regard, it is contended that, the order of the NCLT dated 20-6-2017 makes it clear that the company property can be alienated only to third parties and therefore it is contended that the sale agreement for sale of the company property to claimant who is related party to Mr. Trivikram who is one of the parties before the NCLT falls foul of the NCLT order. The said order of NCLT dated 20-6-2017 is marked as Ex. R4 The perusal of Ex. R4 discloses that it is an order passed by NCLT on the basis of joint compromise memo 32 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 filed by the parties. In the said order, it is specifically recited as follows;
"Under this compromise, both sides agreed to sell the immovable property of first respondent company to third party and to distribute the sale proceeds as dividend among the parties."
27. Therefore, it is to be noted that by the said orders, Hon'ble NCLT has only recorded a compromise entered into between the parties. This order has to be understood in view of the subsequent order passed by the NCLT dated 31-05- 2021, which is marked as Ex. P-29. At paragraph 7 of the said orders at Ex. P29, it is stated as follows;
"Further in respect of land measuring approximately 1 acre 13.471 Guntas in Survey No 79 currently in occupation of M/s. Supra Exports, the company agreed to sell the land to M/s. Sri Raghuvendra Enterprises having registered office at 91 / 2, 4th Main, 13th Cross, near Government Girls' School, Malleshwaram, Bangalore 560003, represented by its partner, Mr. Prabhakar LS, after receiving the sale consideration at the rate of Rs. 3.25 crores per acre, totalling to Rs. 3,93,82,700, wherein Emlak Ventures Pvt. Ltd. shall be consenting / confirming witness / party. As this sale of property is made strictly in compliance with the provisions of Clause 5 [c] and 5 [d] of the JCP dated 14-06-2017 with express prior approval of Petitioner No. 1 and R1 and no further approvals are required obtained."
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28. Thereafter, in the operative portion of the orders, the supplementary joint compromise petition containing the above term is taken on record and declared to be binding on the parties.
29. Therefore, on consideration of both the orders of Hon'ble NCLT, it becomes clear that, the earlier order dated 20-6- 2017 of the NCLT that, the company property shall be sold to third parties, was passed on the basis of compromise petition. Thereafter, the parties filed a supplementary compromise petition containing the clause that Schedule Property herein shall be sold to the claimant herein and said supplementary compromise petition has been taken on record by the NCLT and declared to be binding on the parties. It is admitted position that the subsequent order of NCLT at Ex. P29 dated 31-5-2021 has attained finality and has not been challenged by the petitioner herein. Therefore, in the face of the said order at Ex. P29 of the NCLT itself approving the sale of Schedule Property in favor of the claimant herein, it does not lie in the mouth of the Petitioner herein [Respondent before Arbitral Tribunal] to contend that the performance of the sale 34 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 agreement will result in violation of the NCLT order. The learned arbitrator has rightly taken note of the order at Ex. P29 at paragraph 20 of the impugned award and therefore, rightly rejected the contention of respondent. Therefore, on this ground, the arbitral award does not call for interference.
30. Now let me consider the third and final ground raised in the present petition to challenge the arbitral award and on which the greatest emphasis was laid by the Learned Senior Counsel for Petition. This contention is based on the premise that, claimant is only a shell entity created for purpose of the present transaction which is entirely funded and driven by one Mr. Trivikram and since Mr. Trivikram cannot directly purchase the property, he has set up the claimant, only as a name giver to purchase the property and the entire funds have flown from Mr. Trivikram. In support of this contention, learned senior counsel for petitioner highlighted that, the claimant is a partnership firm which has been constituted with meager capital of just Rs. 1 lakh and the firm is registered only on 22-1-2021 which is just one and a half months prior to the sale agreement. He has highlighted that. 35
CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 RW2, who is the representative of Emlak Ventures, has specifically testified that, it was at the instance of Mr. Trivikram, that Emlak Ventures proposed the name of the claimant as purchaser of the Schedule Property. He further argued that, it is principally because the funds have flown from Mr. Trivikram that the claimant has withheld its bank account statements from the arbitral tribunal and thereby, he submitted that, the arbitral tribunal ought to have drawn adverse inference and held that, it is Mr. Trivikram who is funding the entire transaction whereas the property is being purchased in the name of the claimant and thereby, he submitted that, the transaction under the sale agreement is a benami transaction and since the object of the said agreement is to circumvent the law and since the Benami Transactions Prohibition Act specifically declares any Benami transaction as illegal, it follows that, the said agreement is void under Section 23 of the Contract Act and therefore, could not have been specifically enforced. He argued that. without appreciating these contentions. the Learned Arbitral Tribunal by cryptic observation at paragraph 21 that, there is no material on record to show that Mr. Trivikram invested money 36 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 in the claimant company and this contention is not available to third party, has rejected this contention, and therefore, he argued that, on this ground, the arbitral award calls for interference.
31. In support of his argument, Learned Senior Counsel for Petitioner relied upon the ruling of Madhya Pradesh High Court in case of Sathish Kumar Khandelwal v. Rajendra Jain reported in 2020 SCC Online MP 3009 for the proposition of law that, if agreement of sale suffers from vice of benami transaction, then it falls in the category of contract forbidden by law and hence it is in-executable in an action for specific performance.
32. Having considered the above submissions, I am unable to accept the same for the following reasons. In order to ascertain whether the transaction involved in the present case is a Benami transaction, it is necessary to refer to the definition of Benami transaction contained in Benami Transactions Prohibition Act as follows;
"benami transaction" means,--
(A) a transaction or an arrangement--37
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(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and
(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by-- (i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;
(ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose;
(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as jointowners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or (B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or (C) a transaction or an arrangement in respect of a property where the owner of the property is not 38 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 aware of, or, denies knowledge of, such ownership;
(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious; Explanation.--For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,-- (i) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property; (ii) stamp duty on such transaction or arrangement has been paid; and (iii) the contract has been registered.
33. Transactions as defined by B to D supra have no application to the present case because admittedly in the present case it is not even the allegation that transaction has been carried out in a fictitious name or the owner of the property is unaware or denies knowledge of ownership or that the person providing the consideration is not traceable or fictitious. On the other hand, it is the contention in the present case that, the property is being transferred to the claimant whereas the consideration has been provided by Mr. Trivikram. In other words, it is contended that present 39 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 transaction involves Benami transaction as defined by clause A supra.
34. If so it is necessary to consider the entire definition provided by Clause A which consists of two parts i.e. clauses
(a) and (b). If the complete definition of Benami transaction as provided under clause A is seen, it is noted that, a transaction can be said to be a Benami transaction only where both the conditions laid down by clause [a] and [b] are satisfied i.e. in order for a transaction to be a benami transaction, it is not only necessary that property should be transferred or held by one person for consideration provided or paid by another person, but it is also necessary that the property is held for the immediate or future benefit of the person who provided the consideration. It is only if both these conditions are fulfilled that a transaction can be termed as a benami transaction. By its very nature, the second condition can be fulfilled only after the sale transaction is complete, because it is only after completion of the sale transaction that it can be ascertained whether the property is being held by the name giver for the 40 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 benefit of the person who provided the consideration. Therefore, in order to be a Benami transaction as defined under Clause A of the Act, it is necessary that, the sale transaction should be complete. Even before completion of the sale transaction, it cannot be said to be Benami transaction because it is only after the sale transaction is complete that it can be ascertained whether the name giver is holding the property for the benefit of the person who actually provided the consideration. Therefore, when the transaction can be said to be benami transaction only on completion of the sale transaction and execution of the sale deed, prior thereto, it is not possible for the court to refuse specific performance on the ground that, after completion of the sale transaction it may constitute a benami transaction. In this regard, I am fortified by the law laid down by Division Bench of Hon'ble High Court of Karnataka wherein while considering the question whether specific performance of sale agreement can be refused on the ground that, it will violate Section 79A, 79B and Section 80 of the Karnataka Land Reforms Act, Hon'ble High Court of Karnataka opined that, since the bar of said provisions is attracted only after completion of the sale 41 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 transaction, it will not come in the way of granting specific performance of sale agreement. In this regard, reference may be made to the law laid down by Hon'ble High Court of in the case of Shivannappa Sidramappa Prantur v. Virupaxappa Allappa Bagi, 1980 SCC OnLine Kar 75 :
ILR 1980 Kar 702 at page 704
6. In our view, the court below committed no error in refusing to frame an additional issue as prayed for by the petitioner. Firstly as pointed out by the court below, there was no plea in the written statement pleading want of jurisdiction. Further, the issue as to whether the plaintiff was an agriculturist or not is not a material issue for consideration in the suit which is for specific performance of the agreement to sell agricultural lands. Though section 80(1) of the Act prohibits the sale of agricultural lands to a non-agriculturist the proviso to the said section specifically provides that the Assistant Commissioner having jurisdiction over the area or any officer not below the rank of an Assistant Commissioner authorised by the State Government in this behalf in respect of any area, may grant permission to a person who is not an agriculturist to purchase agricultural lands if he bona fide intends taking up agriculture.
Therefore, an agreement to sell agricultural lands even to a non-agriculturist is not a contract in contravention of the provisions of the Act. Section 83 of the Act provides for an inquiry, by the competent authority in respect of any sale made in contravention of Section 80 and to declare such sale as null and void. Therefore, the said section applies only to completed transactions and not to any agreement to sell agricultural 42 CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 lands. Hence, section 83 is not at all attracted to the facts of the present case. As there is no bar in the Act for entering into an agreement to sell agricultural lands, even in favour of a non- agriculturist the question as to whether the intending purchaser is an agriculturist or not at all a relevant issue for consideration in a suit for specific performance of the agreement to sell agricultural lands.
(Emphasis Supplied)
35. The same principle is applicable even to the present case, because even in the present case, it is only after completion of the sale transaction and execution of the sale deed that it can be ascertained whether the claimant is holding the property for and on behalf of and for the benefit of Mr. Trivikram. Therefore, the bar of Benami transaction will not come in the way of granting specific performance of the agreement. Accordingly, I hold that, the arbitral award does not call for interference even on this ground. Accordingly, answering the point for consideration in the negative, I proceed to pass the following :-
ORDER The petition under Section 34 of the Arbitration and Conciliation Act, is hereby dismissed, with cost.43
CT 1390_Com.AP.59-2024_Judgment.doc KABC170008432024 Office to issue soft copy of this judgment to both sides, by email, if furnished.
[Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 03rd day of September, 2024] (Sri. S. Sudindranath) LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT; BANGALORE.