Bombay High Court
Jagdish Bastimal Mehta & Ans vs Hirachand Pukhraj Gulecha & Anr on 31 July, 2013
Author: D.Y.Chandrachud
Bench: D.Y.Chandrachud, S.C.Gupte
VBC 1/10 app355.13-31.7
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
APPEAL NO.355 OF 2013
IN
ARBITRATION PETITION NO.128 OF 2013
Jagdish Bastimal Mehta & Ans. ...Appellants.
Vs.
Hirachand Pukhraj Gulecha & Anr. ...Respondents.
....
Mr.Sandip Parikh with Mr.Lalit V.Jain for the Appellants.
Mr.Satyam N.Vaishnav with Ms.Nupur J.Mukharjee i/b. N.N.Vaishnava & Co.
for the Respondents.
.....
CORAM : DR.D.Y.CHANDRACHUD AND
S.C.GUPTE, JJ.
July 31, 2013.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
The appeal arises from a judgment rendered by the Learned Single Judge on an Arbitration Petition under Section 9 of the Arbitration and Conciliation Act, 1996. The Learned Single Judge has granted relief in terms of prayer clause (a) of the Petition which reads as follows :
"a) That this Hon'ble Court be pleased to pass an order of injunction restraining the Respondents, their agents, servants or anybody claiming through them from selling the 23 bungalows, situate at Vehaholi, Taluka Shahapur, dist. Thane, bearing C.T.S. Nos.131/2, 197/2 (part), 197/5 (part), 197/7 (part) 197/8, 196/6, in all admeasuring 25,630 sq. mts., for which the allotment letters as aforesaid are issued by the Respondents to the Petitioners under the said MOU dated 28 August 2912 as more particularly stated in Annexure 'A' to Exhibit 'D'."
2. Simply put, the issue is whether in a proceeding under Section 9, ::: Downloaded on - 27/08/2013 21:13:04 ::: VBC 2/10 app355.13-31.7 the Court has to make a final determination about the existence of an arbitration agreement. The principal submission of the Appellants which we have been called upon to consider is that when, in opposing an application under Section 9, a respondent contends that the agreement between the parties has been executed as a result of the exercise of coercion or undue influence, it is not sufficient for the Court to enter a prima facie finding and the Learned Single Judge was bound to determine conclusively and finally whether an arbitration agreement exists between the parties.
3. A brief reference to the factual background would be necessary.
4. The Appellants are carrying out the development of land at Shahapur, admeasuring 25,630 sq.mtrs. of which the First Appellant is the owner. The Second Appellant is a partnership firm in which the First Appellant is a partner. On 9 April 2012, a Power of Attorney was executed by the Appellants by which the Respondents were authorised to sell a part of the property. A stamp duty of Rs. 2.27 lakhs was admittedly paid by the Appellants and the Power of Attorney was registered. On 14 April 2012 an MOU was executed between the parties confirming in Clause 2, the advance of Rs. 2.50 crores by the Respondents to the Appellant for the development/construction of the property. On 16 May 2012, the Appellants executed another Power of Attorney against payment of stamp duty of Rs.4.40 lakhs and which admittedly has also been registered. On 4 August 2012, a notice was addressed on behalf of the Appellants by their Advocate to the Respondents stating that the Respondents had been appointed as ::: Downloaded on - 27/08/2013 21:13:04 ::: VBC 3/10 app355.13-31.7 Constituted Attorneys because the First Appellant was unable to attend the office of the Sub-Registrar for admitting the execution of documents in respect of the plot developed and sold by him. It was stated in the notice that the Respondents were appointed as Constituted Attorneys to lessen the burden of work of the First Appellant, but since his son has now joined the business, it was not necessary to continue with the Powers of Attorney which were revoked. On 28 August 2012, an MOU was executed between the parties which forms the subject matter of the dispute. The MOU records that an investment of Rs. 7.07 crores has been made by the Respondents in the project of the Appellants. Under the MOU, twenty three separate allotment letters were issued by the Appellants and the title deeds of the property were lodged in escrow with the father of the First Appellant. Cheques in the amount of Rs.2.50 crores were handed over to the Respondents in repayment of the moneys advanced. On 3 September 2012, the original Power of Attorney was allegedly taken by the Appellants from the Respondents.
5. On 19 November 2012, the Appellants instituted a suit before the Civil Judge, Junior Division, Shahapur seeking a declaration that the Power of Attorney dated 16 May 2012 has been duly terminated and for an injunction restraining the Respondents from acting upon the Power of Attorney. In paragraph 2 of the Plaint, there was an averment that the Power of Attorney has been executed since it was not possible for the First Appellant to handle the burden of attending the office of the Sub-Registrar and since his son has since joined in his business, he has cancelled and revoked the Power of Attorney.
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6. The Respondents instituted a Petition under Section 9 of the
Arbitration and Conciliation Act, 1996. The arbitration agreement is contained in Clause 15 of the MOU dated 28 August 2012. Before the Learned Single Judge, it was the contention of the Appellants that the MOU had been executed under undue influence and coercion. The Learned Single Judge has relied upon various circumstances more specifically referred to in the judgment for coming to the conclusion that there was no merit in the contention of the Appellants. The Learned Single Judge has inter alia recorded that the execution of the MOU and signatures of the Appellants have not been disputed. Moreover, apart from a bare denial of the receipt of consideration nothing further has been forthcoming. The Learned Single Judge has adverted to the affidavit in reply where the Appellants admit that they have received certain amounts from certain parties and that allotments have been made by them. The Learned Single Judge held that prima facie it appears that there was a security created by allotment of bungalows and advance amounts were received from the original Petitioners and their nominees. The Learned Single Judge has placed a considerable degree of reliance on the fact that in the notice dated 4 August 2012 that was issued for the revocation of the Power of Attorney, there was no allegation of undue influence and coercion. Similarly, even in the suit that was filed by the Appellants on 19 November 2012 which was much after the execution of the MOU, there was no allegation of undue influence or coercion. The only relief which was sought in the suit was a declaration that the Power of Attorney dated 19 April 2012 had been duly cancelled and revoked. There is no ::: Downloaded on - 27/08/2013 21:13:04 ::: VBC 5/10 app355.13-31.7 mention in the plaint of the MOU dated 25 August 2012. In this background, the Learned Single Judge has noted that the Appellants have not explained as to how the cheques in the total amount of Rs. 2.50 crores were issued in favour of twenty three allottees. In the circumstances, a prima facie case for the grant of an interim measure of protection was held to have been established. The Learned Single Judge has also held that in any event the arbitration agreement as recorded in the MOU is an independent document and the Petition under Section 9 for the purposes of claiming an interim measure of protection would be maintainable.
7. The first issue that warrants consideration is whether the Court while hearing a petition under Section 9 is required to render a final and conclusive determination on the existence of the arbitration agreement.
Section 9 enables parties to apply to the Court before, during or after the arbitral proceedings or any time after the making of an arbitral award before its enforcement under Section 36 inter alia for an interim measure of protection. The power under Section 9 is ancillary and is in aid of arbitral proceedings. The power which the Court exercises under Section 9 has to be distinguished with the jurisdiction of the Chief Justice or his designate when an application for the appointment of an Arbitrator is made under Section 11 of the Act. The condition precedent for the exercise of the jurisdiction under Section 11 is the existence of an arbitration agreement and an application being made by a party to the agreement for the appointment of an Arbitrator. The judgment of seven Judges of the Supreme Court in SBP & ::: Downloaded on - 27/08/2013 21:13:04 ::: VBC 6/10 app355.13-31.7 Co. vs. Patel Engineering Ltd,1 held that where an application is made before the Chief Justice under Section 11, he has to determine as to whether there is an arbitration agreement as defined under the Act and whether the person who has made the request is a party to the agreement. Subsequently, in National Insurance Co. Ltd. vs. Boghara Polyfab (P) Ltd.,2 the Supreme Court observed, following the judgment in SBP & Co. that the issues which may arise for consideration in an application under Section 11 fall into three categories, that is issues that the Chief Justice or his designate (i) Is bound to decide; (ii) May choose to decide; and (iii) Should leave to the arbitral tribunal to decide. Issues falling in the first category which the Chief Justice or his designate must decide include whether there is an arbitration agreement and whether a party who has applied under Section 11 is a party to such agreement. In the course of the judgment in Boghara Polyfab, the Supreme Court observed that when a contract contains an arbitration clause and the dispute arising under the contract is referred to arbitration without the intervention of the Court, the arbitral Tribunal can decide the following questions affecting its jurisdiction, namely, (i) Whether there is an arbitration agreement; (ii) Whether the arbitration agreement is valid; and (iii) Whether the contract in which the arbitration clause is contained is null and void, and if so, whether the invalidity extends to the arbitration clause as well. However, where the intervention of the Court has been sought in the appointment of an Arbitrator under Section 11, the issue as to whether an arbitration agreement exists and whether a party making a request is a party to the arbitration agreement are matters which must be determined by the Chief Justice or his 1 (2005) 8 SCC 618 2 (2009) 1 SCC 267 ::: Downloaded on - 27/08/2013 21:13:04 ::: VBC 7/10 app355.13-31.7 designate. Therefore, a clear distinction arises in a situation where a reference to arbitration has been made without the intervention of the Court in which case, the jurisdiction of the arbitral Tribunal is wide enough to encompass the issue as regards the existence and validity of the arbitration agreement and a situation where an application is made under Section 11 where the Chief Justice or his designate is duty bound to determine the existence of the arbitration agreement.
8. When an application under Section 9 is made before the Court, such an application is ancillary to or in aid of the arbitral proceedings. That is evident from the legislative intent in specifying that such an application can be made before arbitration proceedings commence; or at any time thereafter during the proceedings and even after the making of the arbitral award until it becomes enforceable under Section 36. The nature of the interim measures which the Court is competent to grant under Section 9 is suggestive of the fact that the object and purpose of proceedings under Section 9 is to preserve in essence, the subject matter of the arbitration so as to ensure that the fruit of the arbitration is not lost to one party by the conduct of the other to its detriment in the meantime. For the purpose of the proceedings under Section 9, the Court before which an application has been made for an interim measure has to make a prima facie determination of the existence of the arbitration agreement. Such a prima facie determination is necessary having due regard to the fact that the object of Section 9 is to provide an interim protection in aid of, incidental or ancillary to arbitration. But at this stage, the Court is not required to make a final or conclusive determination of ::: Downloaded on - 27/08/2013 21:13:04 ::: VBC 8/10 app355.13-31.7 the existence or validity of the arbitration agreement. If a reference to arbitration takes place without the intervention of the Court, the existence of an arbitration agreement is for the arbitral tribunal to decide. In a situation where the intervention of the Court is sought under Section 11, as Boghara Polyfab indicates, the initial or threshold determination of the existence of an arbitration agreement has to be made by the Chief Justice or his designate.
Hence, we are unable to accept the contention that the Court is required to render a final determination in a proceeding under Section 9 of the existence of the arbitration agreement.
9. The Learned Single Judge has come to the conclusion that prima facie there is no merit in the allegation of coercion or undue influence. During the course of the hearing, it has been submitted before the Court by Counsel for the Appellant that the basis of the allegation is that the niece of the First Appellant (brother's daughter) is married to the First Respondent's son. That in our view, is an extremely tenuous and improbable basis for holding that the MOU is vitiated by undue influence or coercion. On the contrary, prima facie, the contemporaneous record suggests to the contrary. Some of the salient aspects can be recapitulated. On 4 August 2012, when the Appellants issued an Advocate's notice purporting to terminate the Power of Attorney, this was on the ground that the Respondents had been appointed as Constituted Attorneys to relieve the Appellants of the burden of their own work and that position no longer continued. There was no allegation of fraud in regard to the execution of the Power of Attorney in the notice dated 4 August 2012.
The execution of the MOU dated 28 August 2012 is not in dispute and has not ::: Downloaded on - 27/08/2013 21:13:04 ::: VBC 9/10 app355.13-31.7 been denied. Significantly, the Appellants instituted a suit before the Civil Judge, Junior Division at Shahapur on 19 November 2012 after the execution of the MOU. In the Plaint in the suit, there is no allegation in regard to the MOU, nor is a cancellation of the MOU sought. It is inconceivable that the Appellants would not have set up a plea of undue influence or fraud when the suit was instituted in the Civil Court at Thane after the execution of the MOU. The Learned Single Judge was justified in holding that a prima facie case for the grant of interim relief was made out by the Respondents.
Admittedly, the title deeds of the property were lodged with the father of the First Appellant in escrow and twenty three letters of allotment have been issued in pursuance of the MOU besides which cheques in the amount of Rs.
2.50 crores were also issued. We find no error in the evaluation of facts by the Learned Single Judge. In any event, as a Court of appeal, we would not be inclined to interfere even if the Learned Single Judge has taken a possible view.
10. However, we clarify that the observations contained in the judgment of the Learned Single Judge and in the present judgment are confined to the evaluation of the material, prima face, for deciding the application under Section 9 and this shall not come in the way of the arbitral Tribunal deciding the issues that would arise in the arbitration. Similarly, and as we have already clarified, the issues which would arise before the designate of the Chief Justice in proceedings under Section 11 would not be concluded by any of the observations in this order.
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11. There is no merit in the appeal. The appeal is accordingly dismissed.
( Dr.D.Y.Chandrachud, J.) ( S.C.Gupte, J. ) ::: Downloaded on - 27/08/2013 21:13:04 :::