Madras High Court
Mrs.K.Kalaiarasi vs M/S.Zenith Builders (P) Ltd on 12 February, 2020
Equivalent citations: AIRONLINE 2020 MAD 105
Author: P.T.Asha
Bench: P.T.Asha
O.P.No.23 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 12.02.2020
CORAM
THE HONOURABLE Ms.JUSTICE P.T.ASHA
O.P.No.23 of 2020
&
A.No.181 of 2020
Mrs.K.Kalaiarasi ... Petitioner
-Vs.-
M/s.Zenith Builders (P) Ltd.,
Rep. by it's Managing Director,
Mr.V.Pandurangan
No.80/5,T.M.Maistry Street,
Thiruvanmiyur,
Chennai – 600 041. ... Respondent
Prayer: Original Petition filed under Section 34 of the
Arbitration and Conciliation Act, 1996 praying to set aside the
award dated 07.01.2019 passed by the learned Hon'ble
Arbitrator Tmt. Justice Aruna Jagadeesan (Retired).
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For petitioner : Mrs. Hema Sampath
Senior Counsel
for Mr.M.A.Mohamedh Ali &
D.Segaran
For Respondent : Mr. K.Ramu
Counsel for Caveator
ORDER
The respondent before the arbitral Tribunal has filed the above Original petition challenging the award dated 07.01.2019 directing the petitioner herein to pay a sum of Rs.1,29,54,007/- together with interest at the rate of 18% per annum from the date of claim till date of realization. In order to appreciate the challenge to the said award it is necessary to briefly narrate the facts that has culminated in the filing of the petition under Section 34 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the 1996 Act.
2. The petitioner herein along with her husband claimed to own the lands situate in Survey No.237/1 (82.34 cents) and 2/27 http://www.judis.nic.in O.P.No.23 of 2020 Survey No.237/2 (66.72 cents) totally admeasuring an extent 1 Acre 49 Cents at Mannivakkam village, Chengalpattu Taluk, Kancheepuram District. They had approached the respondent herein, who had carved a niche for themselves in the construction business, for developing their lands. After negotiations, a memorandum of understanding dated 11.01.2013 was entered into between the parties and on the date of the execution of the memorandum of understanding, the respondent had initially paid a sum of Rs.10,00,000/- as refundable interest free security deposit.
3. The agreement was to construct residential flats in the said premises with the respondent taking 55% undivided share and the petitioner 45% thereon. The agreement between the parties contemplated payment of a sum of Rs.1,00,00,000/- towards security deposit and the respondent who had paid Rs.10,00,000/- on the execution of the memorandum of understanding undertook to pay the balance of Rs.90,00,000/- on the date of the execution of the Joint Venture agreement 3/27 http://www.judis.nic.in O.P.No.23 of 2020 after the respondent had obtained the approval for developing the property and putting up construction from the authorities concerned.
4. On 12.04.2013, the petitioner and the respondent entered into a Joint Development Agreement (JDA) and the original intent of putting up residential flats was given up and it was decided that in its place, Villas would be constructed. Consequently, the parties are reworked the sharing of the constructed area and the land amongst themselves. The petitioner was to take a super built up area of 43% along with equivalent undivided share. The respondent on the other hand was to take back 57% of the super built up area and an equivalent undivided share. The balance security deposit of Rs.90,00,000/- was also paid on the date of execution of the joint venture agreement.
5. The respondent would state that the amount payable towards security deposit had been obtained by them by 4/27 http://www.judis.nic.in O.P.No.23 of 2020 obtaining a loan from the Tamil Nadu Mercantile Bank. Thereafter, in keeping with the terms and conditions of the JDA, the petitioner had executed seven Powers of Attorney in favour of the respondent. The Powers of Attorney were irrevocable since they were coupled with interest. The respondent had thereafter put up a compound wall around the property to secure the same and had spent considerable amounts towards the construction of the compound wall, survey of the land, subdivision of the lands and towards brokerage and commissions.
6. The respondent had in addition to the security deposit of Rs.1,00,00,000/- paid an additional sum of Rs.65,00,000/- for the above services. However, on 12.08.2013, the petitioner had unilaterally without notice to the respondent cancelled all the Powers of Attorney contending that the respondent had put up illegal construction without approval. Since the petitioner was guilty of a breach of contract and as the respondent had suffered a loss of income on account of the said breach they had 5/27 http://www.judis.nic.in O.P.No.23 of 2020 invoked the arbitration clause by issuing a notice dated 14.03.2017 naming an arbitrator and seeking the consent of the petitioner. Though, the petitioner had agreed to submit the dispute to arbitration, however, she had refused to give her consent for appointing the arbitrator named by the respondent.
7. Since the petitioner was not coming forward to arbitrate the dispute, the respondent was constrained to move this Court seeking appointment of an arbitrator O.P.No.385 of 2017. Pending the petition, the petitioner had given an undertaking in application in A.No.2012 of 2017 on 07.07.2017 that they would not alienate the property. The said undertaking was recorded and ultimately this Court by order dated 07.07.2017 in O.P.No.385 of 2017 was pleased to appoint the arbitrator. The learned arbitrator had also entered reference.
8. The respondent had filed a claim statement claiming a total sum of Rs.2,54,54,007/- detailed herein below:
“a) Refund of admitted amounts paid and spent by the 6/27 http://www.judis.nic.in O.P.No.23 of 2020 claimant towards refundable security deposit and construction cost etc., Rs.1,65,00,000/-
b)Payment due to the claimant towards reimbursement of interest suffered and paid by the claimant on account of loan account Rs.94,54,007/-
c)Damages towards loss of anticipated Profit due to breach of contract Rs.50,00,000/-
d)Anticipated loss of business on account of unlawful retention of claimant's money by the respondent Rs.50,00,000/-
e)Compensation for mental agony and Mental torture undergone by the claimant on account of breach of agreements Rs.25,00,000/-
f)Payment of cost incurred by claimant on account of legal expenses Rs.5,00,000/-
Total Rs.3,89,54,007/-
Less amounts paid Rs.1,35,00,000/-
Total claim Rs.2,54,54,007/-”
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9. After the appointment of the arbitrator, just before the first hearing the petitioner came forward with the partial settlement and requested the respondent to withdraw the criminal proceedings. Accordingly, on 01.09.2017, a memorandum of understanding was entered into between the respondent and the petitioner in and by which the petitioner had undertaken to pay a sum of Rs.1.35 Crores in lieu of the respondent withdrawing the two criminal Original Petitions initiated against the petitioner.
10. The respondent in their claim statement would further contend that the above memorandum of understanding was only with reference to criminal Original Petitions and there is a categoric understanding that the memorandum of understanding is without prejudice to the contention made by the respondent before the arbitral Tribunal. The respondent would further contend that as they have borrowed loan from the Tamil Nadu Mercantile Bank they were unable to repay the Bank in view of 8/27 http://www.judis.nic.in O.P.No.23 of 2020 the non-payment of the amounts by the petitioner. The respondent also contended that by investing such a huge amounts into the contract and not receiving the desired profit / income the respondent had suffered not only a monetary loss but was also unable to utilize the said sum for some other business.
11. The petitioner herein had filed a defense statement alleging that the respondent / claimant had committed a breach of the terms of the contract. According to the petitioner, clause 7 of the memorandum of understanding clearly stipulated that approval had to be obtained within a period of six months from the date of the memorandum of understanding. Further clause
9 would stipulate that if the approval is not got within the said period of six months, the memorandum of understanding would stand terminated. Clause 8 provided that if the sanctions were not forthcoming, the owner could exercise the option either to extend the time for obtaining approvals or to return the security deposit. Once the security deposit was refunded the contract 9/27 http://www.judis.nic.in O.P.No.23 of 2020 would stand terminated.
12. The petitioner had further taken a plea that consequently the memorandum of understanding and the JDA were deemed to have been terminated. The petitioner further justified the cancellation of the Powers of Attorney on the ground that the respondent had attempted to put up constructions in the property which was violative of the terms of the memorandum of understanding. The petitioner further took a plea that she had utilized the security deposit in the belief that the respondent would undertake and complete the project.
13. The petitioner further contended that instead of instituting a suit for recovery of money, the respondent was using the Police to threaten the petitioner into paying. The petitioner further contend that the sum of Rs.1.35 Crores paid by them pursuant to the subsequent memorandum of understanding was towards full and final settlement of the respondent and the respondent could not claim any additional 10/27 http://www.judis.nic.in O.P.No.23 of 2020 amounts over and above the sum of Rs.1.35 Crores.
14. The petitioner had taken out an additional defence apart from raising a counter claim. They had contended that the claim made by the respondent was hit by limitation since the proceedings had been initiated much after the cancellation of the Powers of Attorney by the petitioner on 12.08.2013. It was her contention that the notice invoking the arbitration which was issued only on 14.03.2017 was much beyond the period of limitation. The counter claim of Rs.3,74,38,570/- was claimed by the petitioner under the heads of damages which had been incurred towards the loan that had been taken by her husband and the amounts that was spent on the litigation on account of the various proceedings that had been initiated by the respondent before various fora.
15. The learned arbitrator after perusing the pleadings had raised the following issues:
“1.Was there a reasonable cause for the 11/27 http://www.judis.nic.in O.P.No.23 of 2020 respondent to terminate the memorandum of understanding dated 11.01.2013 and Joint Venture Agreement dated 12.04.2013?
2.Was there any sufficient and reasonable cause for the respondent to revoke and cancel the registered power of attorney (7 nos) all dated 15.04.2013 on 12.08.2013?
3.Whether the registered Powers of Attorney (7 nos) executed by the respondent in favour of the claimant is one coupled with interest and thus irrevocable?
13.Whether any prior notice is mandatory under the Agreements before canceling the 7 GPAs?
14.Whether the claimant is liable to refund to the counter claimant a sum of Rs.35,00,000/- said to have been paid over and above the refundable security deposit?
4.Whether there is any breach of contract? If so, which party is liable for breach?
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12.Whether there is any breach of contract? If so, which party is liable for breach?
5.Whether time is the essence of contract between the parties?
6.Whether the agreements between the parties are void and unenforceable?”
16. The learned arbitrator after considering the evidence on record, the arguments advanced and perusing the pleadings had allowed the claims at S.Nos. (a), (b) and (f) and had dismissed claims under heads (c), (d) and (e). The learned arbitrator had also proceeded to award interest at 18% per annum from the date of claim till date of realization.
17. The learned arbitrator had come to the above conclusion by holding that the period of six months for obtaining approval was not sacrosanct and the fact that the parties had entered into a JDA thereafter would clearly prove that the same has been given a go by. The learned arbitrator had also come 13/27 http://www.judis.nic.in O.P.No.23 of 2020 to the conclusion that the petitioner did not come forward with a definite reason for canceling the Powers of Attorney, since at every stage of the proceedings the reasons kept differing. That apart, the learned arbitrator found that the petitioner had not communicated the cancellation of the Powers of Attorney to the respondent.
18. With reference to plea of limitation the arbitrator had extensively dealt with the same in paragraphs 7.23 and 7.24 of the award and ultimately came to the conclusion that the claim was not barred by limitation. The counter claim was rejected by the learned arbitrator on the ground that the amounts claimed related to loans obtained by the respondent's husband which was not the subject matter of the JDA or the memorandum of understanding.
19. The learned arbitrator after taking into consideration the various Judicial pronouncements on the issue of awarding pendente lite interest had come to the conclusion that the 14/27 http://www.judis.nic.in O.P.No.23 of 2020 respondent was entitled to interest since the cancellation of the Powers of Attorney had taken place even before the six month period had expired and further the termination was unilateral without any intimation to the respondent. That apart, the clause in the agreement clearly stated that the refundable security did not earn interest till the completion of the two contingencies, namely, completion of the project and termination as per clause 8. In the instant case, since the petitioner had unilaterally terminated the contract, interest would be leviable from the date of such termination.
20. It is challenging the said award that the respondent is before this Court.
21. Mrs.Hema Sampath, learned Senior counsel arguing on behalf of the petitioner would primarily attack the award on the issue of limitation and would also challenge the award on the ground of interest. With reference to the issue of limitation it is her contention that limitation would commence from 11.07.2013 15/27 http://www.judis.nic.in O.P.No.23 of 2020 when, under the memorandum of understanding, the six months period for obtaining the approval had come to an end. She would further contend that the arbitrator had overlooked the fact that the limitation had started ticking from 11.07.2013 when the time for obtaining approval had come to an end and if not at least from 12.08.2013 when the petitioner had cancelled the Powers of Attorney.
22. She would therefore contend that the contract are deemed to have been terminated on 11.07.2013. Any acknowledgment thereafter in the year 2017 would not enure to the benefit of the respondent. She would further contend that in the memorandum of understanding subsequently executed by the parties a sum of Rs.1.4 Crores was ultimately fixed as the full and final payment that was due and payable to the respondent and the same having been paid the respondent cannot seek to once again initiate the arbitration with reference to remaining amounts which would amounts to a double enrichment. She would rely upon the following Judgement with 16/27 http://www.judis.nic.in O.P.No.23 of 2020 reference to the issue of limitation:
i) 1991 (1) CTC 329 – Kulandaisami and another Vs. Lourdusami with particular reference to paragraph Nos.15, 17, 22 and 24 therein.
ii) 2008-3-L.W. 259 – K.Jeyaraman Vs.
M/s.Sundaram Industries Ltd., through its Special
Officer.
23. Her next ground of attack was the levy of interest on the amounts which she would contend is totally in contravention to the agreement entered into between the parties. It is her contention that once the parties had agreed that the security deposit would not attract levy of interest the arbitrator was clearly in error in granting the same. In support of this contention she would rely on the Judgement reported in 2019 (1) CTC 757 – Chillara Kalyan and others Vs. M/s.Berggruen Estate Projects Private Limited, having their office at Span Centre, 6th Floor, South Avenue, Santa Cruz West, Mumbai – 400 054.
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24. Per contra, learned counsel for the respondent would counter the arguments put forward by the learned Senior counsel appearing on behalf of the petitioner by contending that the Claim Petition was very much within the period of limitation since there has been no termination as contemplated under the terms of the contract. He would contend that as per clause 8 of the JDA the termination would happen only upon the petitioner refunding the security deposit. Admittedly, the same had not taken place prior to the filing of the Claim Petition before the learned arbitrator.
25. He would further contend that the original memorandum of understanding was modified in the JDA and further the area that was agreed to be developed under the two agreements were slightly different. Under the earlier memorandum of understanding the land comprised in S.No.237/2 measuring 83 cents and the 2nd item which belonged to the husband of the petitioner measuring an extent of 88 18/27 http://www.judis.nic.in O.P.No.23 of 2020 cents was the property in question, out of which the joint venture area was an extent of 58,531.32 Sq.ft land. Under the JDA the land which was said to belong to the petitioner was an extent of 82.34 cents that of her husband which is described as Item 2 was 66.72 cents. The original memorandum of understanding was superseded and the terms of the agreement clearly stated that the memorandum of understanding would stand terminated upon the execution of the JDA.
26. The learned counsel for the respondent would therefore contend that the plea of limitation would fail in view of the above factors. That apart, the claim has been lodged within a period of three years from the date of cancellation of the Powers of Attorney. As regards the contention of the petitioner that since the contracts did not contemplate payment of interest on the security deposit the arbitrator had overreached the terms of the reference, the learned counsel for the respondent would contend that the security deposit would not earn interest till such time as the agreement is alive. The petitioner by canceling 19/27 http://www.judis.nic.in O.P.No.23 of 2020 the Powers of Attorney even before the period for getting the approval by conduct had terminated the agreement. The terms of the agreement contemplate that in the event of the petitioner not deciding to extend the time limit for getting the approval, the security deposit ought to be returned to the respondent. However, such a refund has not taken place immediately and the petitioner had utilized the security deposit for purchasing another property which is evident from the very claim statement. In these circumstances, he would contend that the respondent is entitled to interest from the date of cancellation of the Powers of Attorney.
27. He would further submit that they had borrowed money from Tamil Nadu Mercantile Bank and other small financiers only to pay the security deposit and commence the initial work on the land believing that the petitioner would go ahead with the contract. The said amounts continue to bear interest. Therefore, he would contend that the award of interest was very much within the terms of the contract and legally due 20/27 http://www.judis.nic.in O.P.No.23 of 2020 to the respondent. He would rely upon the Judgement of the Delhi High Court passed by the learned single Judge in O.M.P.(COMM) 576/2016 and I.A.No.15795/2016 and confirmed upto the Honourable Supreme Court in respect of the power of the arbitrator to grant pendente lite interest amounts which has been classified as interest free deposit. The learned Judge after elaborately dealing with the various Judicial pronouncements on the subject had held that once the defect liability period had expired then the amounts would earn interest. He had therefore upheld the award of interest by the arbitrator. This Judgment was taken up on appeal and the Judgment was upheld by the Division Bench. Subsequently, the Special Leave Petition was also dismissed by the Honorable Supreme Court by its order dated 03.10.2017.
28. In the light of the above, the learned counsel for the respondent would contend that the arbitrator was justified in awarding the interest.
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29. Heard the counsels on either sides and perused the papers.
30. Though several grounds have been raised in the petition filed under Section 34, the learned Senior Counsel appearing on behalf of the petitioner had restricted her arguments primarily on two points:
i) Limitation
ii) Interest.
31. The argument that the limitation would commence from 11.07.2013 which was the close of the 6th month period granted under the memorandum of understanding is totally misdirected. The terms of the memorandum of understanding particularly clause 20 would state that the memorandum of understanding would remain valid and binding upon the parties till the date of entering into JDA. The JDA was entered into between the parties on 12.04.2013. The JDA however does not stipulate a time frame for obtaining the sanction and approvals, 22/27 http://www.judis.nic.in O.P.No.23 of 2020 it only states that within 24 months from the date of receipt of planning permission from the DPCP the respondent would complete the construction. The cause of action for the dispute arose by virtue of the cancellation of Powers of Attorney by the petitioner despite clause 16 of the JDA stipulating that the petitioner shall not revoke the Powers of Attorney.
32. The invocation of the arbitration clause and the request for reference to arbitration was made by the respondent vide their letter dated 14.03.2017 which is well within the three years period and therefore the contention that the claim is barred by limitation does not hold good. The provisions of Section 21 of the 1996 Act clearly stipulates that the request for reference would be the commencement point of arbitral proceedings. Therefore, the finding of the arbitrator that the claim is well within the limitation is correct.
33. As regards the award with reference to the payment of interest, the finding of the arbitral tribunal is well within the 23/27 http://www.judis.nic.in O.P.No.23 of 2020 provisions of Section 31 (7) (a) of the 1996 Act. The cause of action for the levy of interest would arise from the date when the Powers of Attorney had been cancelled and the respondent was prevented from proceeding with the development work. The arbitrator has elaborately dealt with the said issue on facts and legally come to the conclusion that the interest was payable by the petitioner to the respondent. This Court does not wish to interfere with the said finding and the order which is well within the terms of the contract as well as the provisions of the 1996 Act.
34. The Judgments relied upon by the petitioner does not apply to the facts of the instant case and is therefore not taken into consideration. The other arguments that was put forward by the learned Senior counsel that the parties had recorded full satisfaction of the award by entering into memorandum of understanding marked as Ex.C.21 dated 01.09.2017 does not fly in the face of the said memorandum of understanding. A reading of the memorandum of understanding would clearly 24/27 http://www.judis.nic.in O.P.No.23 of 2020 indicate that the same has been entered into only for the purpose of settling the two criminal proceedings that were pending against the petitioner and her husband and the agreement clearly stated that the settlement was only with reference to criminal cases and without prejudice to the contentions of the respondent before the learned arbitrator. Therefore it cannot be countenanced that the petitioner's claim had terminated with memorandum of understanding , Ex.C.21 been executed. The claim is also made only after giving credit to the said sum of Rs.1,35,00,000/- received under the terms of this memorandum of understanding, Ex.C.21.
35. The sum claimed under clause (b) of the claim relates to the reimbursement of interest suffered by the respondent in servicing the loan borrowed by them. Interest under this head has been calculated from the date of borrowal and not from the date of cancellation of the Powers of attorney on 12.08.2013. The learned counsel for the respondent would fairly concede that they are entitled to claim interest on the said loan only 25/27 http://www.judis.nic.in O.P.No.23 of 2020 from 12.08.2013 and he has no objection to the same being modified to that of the above extent.
36. In the result, the award is modified with reference to claim (b) in so far as the interest payable would be calculated only from the date of cancellation of the Powers of attorney i.e., 12.08.2013. In all other respects the challenge under Section 34 of the Arbitration and Conciliation Act, 1996, stands dismissed. Consequently, connected Application is also closed. No costs.
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Internet : Yes/No
Index :Yes/No
Speaking / Non-Speaking
kan
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P.T. ASHA. J,
kan
O.P.No.23 of 2020
&
A.No.181 of 2020
12.02.2020
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