Delhi High Court
Ranjeet Combine vs B.N. Khanna on 21 December, 1999
Equivalent citations: 2000(3)ARBLR348(DELHI), 86(2000)DLT687
Author: J.B. Goel
Bench: J.B. Goel
ORDER J.B. Goel, J.
1. Petitioner has filed this petition (A.A. 18/99) under Sections 8, 9 & 11 of the Arbitration Act 1996 (for short the Act) for appointment of an arbitrator for deciding the disputes arising between the parties out of agreement of collaboration.
2. The facts are that the respondent was a member of the Diplomatic Enclave Extension Co-operative Housing Building Society Ltd. (for short the Society). He was not allotted a plot of land; and it appears that on his writ petition, this Court on 28.2.1991 had directed the Society to carve out and allot a plot of land measuring 400 sq. yards to him. That order was upheld by the Supreme Court on 29.1.1992. The plot was not allotted and on 6.11.1992 this Court in CCP 175/91 again gave directions. Before the plot of land was actually allotted, the petitioner and respondent entered into an agreement of collaboration on 29th March, 1993 (the date and month of the agreement have not been given in the copy placed on record. However, learned counsel state that it was entered into on 29.3.1993.) The agreement provided that on the possession of the plot being delivered, the petitioner will construct residential dwelling units on ground floor, first floor, second floor and basement with servant quarters on top floor at his own cost and expenses after obtaining requisite permissions, sanctions and approvals of all the concerned authorities in the name of the respondent. The petitioner was to pay to the respondent Rs. 45 lakhs in three install-ments - Rs.7.50 lakhs at the time of the execution of the agreement, Rs.20.00 lakhs at the time of delivery of the possession to him and remaining Rs.17.50 lakhs at the time the building plan was sanctioned. In consideration thereof, the respondent had agreed to sell to the petitioner or his nominee rights in respect of first floor and second floor with terrace and proportionate land rights. The petitioner could enter into agreements to sell with prospective buyers in respect of flats to be built on first and second floors during or after the building was completed and the respondent would join in such agreements /conveyance. In Clause 7 it was also agreed that:-
"That the owner undertakes irrevocably to constitute the Developers or their nominee (s) as their general attorney by separate document for negotiating and finalizing sale/transfer of first and second floor with usage of terrace rights and for submitting applications requisitions, approvals, sanctions, documents of building or other materials statutory to be done and performed in connection with the development construction and completion of the said residential building. The owner will apply and obtain the Income Tax Clearance Certificate on the basis of the consideration in the name of the nominee intimated by the developers for the first and second floor units at their own cost."
3. It is the case of the petitioner that first installment of Rs.7.5 lakhs was paid by him to the respondent at the time of execution of the aforesaid agreement. Thereafter the petitioner kept making inquiry from the respondent as to when he would get the possession of the plot but the respondent did not disclose it. In December, 1998 he came to know that plot No. 4-A, West End Colony, New Delhi was allotted to respondent by the DDA and the respondent was carrying out construction thereon after getting building plan sanctioned clandestinely in or about February, 1997 in breach of an agreement. He approached the respondent and offered Rs.20 lakhs as agreed and asked to hand over the possession of the plot for construction by him but the respondent refused it and has committed breach of the agreement.
4. It is alleged that the disputes arising between the parties are refer-able to arbitrator in accordance with Clause 18 of the agreement between the parties.
5. The respondent filed replies to both the applications and also filed separate application for vacating the interim injunction denying and disputing the claim of the petitioner taking broadly the following objections:-
(1) The petitioner is seeking specific performance of the agreement which relief being discretionary can be granted by the court and not by an arbitrator.
(2) The arbitration clause is void and cannot be given effect to.
(3) The agreement relied cannot be specifically enforced in view of Sections 14 and 41 of the Specific Relief Act because:-
(a) Alternative remedy by way of compensation would be available in case the agreement is held to be valid.
(b) The agreement was terminated vide notice dated September 24, 1996 which was duly served on the petitioner.
(c) The agreement is vague and uncertain as it does not describe the terms in sufficiently precise manner about the nature of the building or the quality of workmanship, the type of material, fittings and fixtures to be provided.
(d) The petitioner has no substantial interest in performing the contract, it being a business project for him.
(e) The respondent requires the house for his own use.
(f) Permission under Section 269UD of the Income Tax Act has not been obtained.
(g) The agreement became impossible or unlawful as under the terms of the sub lease executed in his favor, the respondent cannot sell, transfer, assign or otherwise part with possession of the whole or any part of the building to another person who is not a member of the Society.
(h) The agreement is void, unlawful and against public policy.
(i) The agreement was got entered into by deceit and fraud practiced on the respondent and no payment of Rs.7.5 lakhs was paid.
(j) The respondent had obtained possession on 7.9.1994, lease in his favor was executed on 2.11.1994, building plans were got sanctioned on 7.2.1997, construction has been raised incurring huge expenditure and basement an ground floor have been constructed which is within the knowledge of the petitioner. The petitioner is guilty of undue delay, laches and acquiescence;
(k) The petitioner has never shown readiness and willingness to perform his part; and
(l) The petitioner is guilty of concealment of material facts and also of making misrepresentation.
6. Learned counsel for the respondent has contended that the arbitration Clause 18 relates only to the interpretation of the agreement and it does not cover other disputes arising between the parties and there is no dis-pute about the interpretation. The disputes raised are not referable for arbitration. As such this petition is not maintainable. He has relied on K.K. Modi Vs. K.N. Modi & Ors. .
7. Whereas learned counsel for the petitioner has contended that Clause 18 of the agreement is an arbitration agreement and that for determining the question whether there is an arbitration agreement, intention of the parties has to be seen and in this case the intention of the parties is clear that the disputes arising out of the agreement are to be resolved through arbitration otherwise there was nothing of which interpretation was required to be given by an arbitrator. In any case the disputes raised/involved need interpretation of its various clauses to determine whether there is a valid agreement to sell and if so if it could be specifically enforced. These disputes squarely fall within the arbitration clause. He has relied on The Printers (Mysore) Pvt. Ltd. Vs. Pothan Joseph , Union of India Vs. Salween Timber & Construction Co. (India) & Ors. and M/s. Sudarshan Trading Company Vs. The Government of Kerala & Anr. .
8. Two questions arise (1) whether Clause 18 of the Arbitration agreement amounts to an arbitration agreement and (2) whether the disputes involved as manifested in the pleadings of the parties are covered by the arbitration agreement.
The arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if the disputes arise between them in respect of the subject matter of the contract such disputes shall be referred to arbitrator, then such an arrangement would spell out an arbitration agreement. (Smt. Rukmani Bai Gupta Vs. The Collector, Jabalpur & Ors. ).
9. The rules of construction and interpretation of arbitration agreement are the same as apply to agreements generally. While interpreting the agreement the court has to give effect to the intention of the parties as evidenced by the agreement itself without being over technical in its interpretation. Such interpretation must be gathered from the whole contract.
10. In Union of India Vs. M/s. D.N. Revri & Ors. , it was laid down:- "That a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than invalidate it. It would not be right while interpreting the contract entered into between the two lay parties to apply strict rules of construction which are ordinarily applicable to a conveyance and other formal document. The meaning of such a contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow pedantic and legalistic interpretation."
11. In K.K. Modi's (supra), The Supreme Court has noticed the attributes that must be present for an agreement to be considered as an arbitration agreement. .
Clause 18 of the agreement relied as arbitration agreement reads as under:-
"That any dispute between the parties to this agreement in regard to the interpretation to the agreement or any other supplement shall be referred to the arbitration under the provisions of the Indian Arbitration Act. Any award given by the arbitrator shall be final and binding on the parties of this agreement."
On the tests and law laid down by the Supreme Court, this clause, in my view, is an arbitration agreement between the parties. This answers first question.
12. The second question is what disputes are covered by this arbitration agreement. That the parties had entered into the agreement of collaboration on 29.3.1993 and also receipt of Rs.7.50 lakhs in pursuance of the said agreement are not disputed in the written statement filed by the respondent. The disputes between the parties also arise out of the said agreement. The question, therefore, is what is the meaning of the expression. "...Any dispute between the parties to this agreement in regard to the interpretation to this agreement or any other supplement..."
The agreement in question does not require any expert's interpretation of the meaning or its terms nor any expert or a named arbitrator has been agreed by the parties.
13. In the case of The Printer (Mysore) Pvt. Ltd. (supra), Clause 4 of the agreement therein which contains arbitration agreement provided that "If in the interpretation or application of the contract any difference of opinion arises between the parties the same shall be referred to arbitrator." Interpreting this Clause it was held that "the words 'interpretation or application of the contract' are frequently used in arbitration agreement and they generally cover disputes between the parties in regard to the construction of the relevant terms of the contract as well as their effect, and unless the contract compels a contrary construction, a dispute in regard of the working of the contract would generally fall within the clause in question. It is not easy to appreciate what kind of dispute according to the High Court would have attracted paragraph 4 when it refers to a difference of opinion in the application of the contract".
As held in M/s. Sudershan Trading Co. (supra) (at page 902) once there is no dispute as to the contract what is the interpretation of that con-tract is a matter for the arbitrator and on which Court cannot substitute its won decision.
14. This arbitration clause in question would cover the disputes between the parties arising out of the agreement of collaboration regarding its working and implementation including disputes arising if breach is committed by one or the other party thereof.
These disputes could be resolved by arbitration.
This petition is, accordingly, allowed. Mr. Justice C.L. Chaudhary (Retd.), a retired Judge of this Court is hereby appointed as an arbitrator for deciding the disputes arising between the parties out of the agreement of collaboration undated, now agreed to have been entered into on 29.3.1993.
The arbitrator will fix his fee with the consent of the parties. In case there is no such agreement, the fee will be fixed by this Court.
I.A.760/99 & I.A. 1750/9915. In application (I.A. 760/99) under Section 9 of the Arbitration Act, 1996 the petitioner seeks the following relief:- "To restrain the respondent etc. from carrying on construction, transferring, selling, alienation encumbering, parting with possession or otherwise entering into any transaction with any third party and/or otherwise creating any third party rights/interest in the property in question i.e. 41-A, West End Road or any part thereof."
16. On this application an interim order restraining the respondent etc. from transferring, selling or in any manner creating any third party interest or making any further construction was passed on 25.1.1998. That interim order has been continued. The respondent has filed I.A. 1750/99 for vacating this injunction.
17. The agreement in question is a building contract coupled with agreement to sell first and second floors of the property on which the construc-tion was to be raised. Section 10 of the Specific Relief Act (for short "SRA") deals generally with the case of contracts which may be specifically enforced subject to the exercise of discretion by the court to the contrary in the given circumstances. Specific performance of the contract may be enforced - (a) when there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or (b) when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief. Under Explanation there-to, unless and until the contrary is proved, the court shall presume: (1) that the breach of a contract to transfer immovable property cannot be adequately relieved by compensation in money.
18. Section 14 enumerates the contract which cannot be specifically en-forced. However, sub-section (3) thereof contains certain exceptions and clause (c) thereof, so far as relevant, provides as under:-
"14. Contracts not specifically enforceable.-
(1) xx xx xx xx xx xx xx (2) xx xx xx xx xx xx xx (3) Notwithstanding anything contained in clause (a) or clause (c) or clause (d) of sub-section (1), the court may enforce specific performance in the following cases:-
(a) xx xx xx xx xx xx xx
(b) xx xx xx xx xx xx xx
(c) Where the suit is for the enforcement of a contract for the construction of any building or the execution of any other work on land;
Provided that the following conditions are fulfillled, namely-
(i) the building or other work is described in the contract in terms sufficiently precise to enable the court to determine the exact nature of the building or work;
(ii) the plaintiff has substantial interest in the performance of the contract and the interest is of such nature that compensation in money for non-performance of the contract is not an adequate relief; and
(iii) the defendant has, in pursuance of the contract, obtained possession of the whole or any part of the land on which the building is to be constructed or other work is to be executed."
19. The present case would also fall under this excepted category. However, Section 20 provides that the jurisdiction to decree specific performance is discretionary and the Court is not bound to grant such relief merely because it is lawful to do so; the discretion of the court is not arbitrary but sound and reasonable guided by judicial principles and capable of correction by a court of appeal.
20. The ordinary rule is to grant specific performance the such a case and it ought to be denied only when equitable considerations point of its refusal and the circumstances show that damages would constitute an adequate relief. Prakash Vs. Augad Lal .
21. In the present case it is within realm of the arbitrator to grant appropriate relief.
22. Section 9 of the Act provides for certain measures which could be taken by the court. So far as is relevant it provides:-
"9. Interim measures by court.-
(i) xx xx xx xx xx xx
(ii) xx xx xx xx xx xx
(d) interim injunction or the appointment of a receiver.
(e) such other interim measure of protection as may appear to the court to be just and convenient.
23. This power to some extent is similar to the power of a court while trying a suit, under Order 39, Rules 1 and 2 and Order 40, Rule 1 CPC.
24. The principles for grant of temporary injunction are well settled. These principles have been recently reiterated by the Supreme Court in the case of Gujarat Bottling Co. Ltd. & Others Vs. Coca Cola Company & Others as under:- "The grant of an interlocutory injunction during the tendency of legal proceedings is a matter requiring the exercise of discretion of the Court. While exercising the discretion the Court applies the following tests (1) whether the plaintiff has prima facie case; (2) whether the balance of convenience is in favor of the plaintiff; and (3) whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed. The decision whether or not to grant an interlocutory injunction has to be taken at a time when the existence of the legal right asserted by the plaintiff and its alleged violation are both contested and uncertain and remain uncertain till they are established at the trial on evidence. Relief by way of interlocutory injunction is granted to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favor at the trial. The need for such protection has, however, to be weighed against the correspondent need of the defendant to be protected against injury resulting from his having been pre- vented from exercising his own legal rights for which he could not be adequately compensated. The Court must weigh one need against another and determine where the balance of convenience lies."
25. It has further been emphasized that the conduct of the parties is of utmost importance. In this respect, it has been observed as under:- "Under Order 39 of the Code of Civil Procedure, jurisdiction of the Court to interfere with an order of interlocutory or temporary injunction is purely equitable and, therefore, the Court, on being approached, will, apart from other considerations, also look to the conduct of the party invoking the jurisdiction of the Court, and may refuse to interfere unless his conduct was free from blame. Since the relief is wholly equitable in nature, the party invoking the jurisdiction of the Court has to show that he himself was not at fault and that he himself was not responsible for bringing about the state of things complained of and that he was not unfair or inequitable in his dealings with the party against whom he was seeking relief. his conduct should be fair and honest.
26. Learned counsel for the respondent has contended that in the circum-stances the petitioner is not entitled to specific performance of the agreement, firstly, the property is not transferable under the terms of sub lease granted in favor of the respondent; secondly, the agreement was cancelled by the respondent on 24.9.1996 and thirdly, the petition is highly belated and suffers from laches, waiver and acquiescence.
27. These are disputed by the learned counsel for the petitioner. To the first contention his reply is that under the new scheme applicable to leasehold properties in Delhi, the property could be converted into freehold and on such conversion there would be no bar against transfer. Secondly, it is the conduct of the respondent which is unfair and highly reprehensible and dishonest because he took substantial part payment of Rs. 7.50 lakhs, concealed from the petitioner that he has taken possession of the plot of land, stealthily got building plan sanctioned and awarded the construction work to a third party and on the other hand the petitioner has been ready and willing to perform his part of the agreement. And there is no delay or lacks or waiver or acquiescence on the part of the petitioner as he has approached the Court as soon as he came to know the facts.
28. The Supreme Court in Mademsetty Satyanarayan Vs. G. Velloji Rao and Others, AIR 1965 1405 (at page 1410), after considering the English and Indian case law about the effect of delay in approaching the Court for the relief of specific performance laid down as under:
".......While in English mere delay or laches may be a ground for refusing to give a relief of specific performance, in India mere delay without such conduct on the part of the plaintiff as would cause prejudice to the defendant does not empower a Court to refuse such a relief. But as in England so in India, proof of abandonment or waiver of a right is not a pre-condition necessary to disentitle the plaintiff to the said relief, for if abandonment or waiver is established, no question of discretion on the part of the Court would arise. We have used the expression "waiver" in its legally accepted sense, namely, "waiver" is contractual, and may constitute a cause of action; it is an agreement to release or not to asset a right; see Dawson's Bank Ltd. Vs. Nippou Menkwa Kabushiki Kaisha, 62 Ind. App. 100 at p. 108 It is not possible or desirable to lay down the circumstances under which a Court can exercise its discretion against the plaintiff. But they must be such that the representation by or the conduct or neglect of the plaintiff is directly responsible in inducting the defendant to change his position to his prejudice or such as to bring about a situation when it would be inequitable to give him such a relief."
29. Again in Jiwan Lal and Others Vs. Brij Mohan Mehra and another , reference has been made with approval to the following principle laid down by Lord Selborne in Lindsay Petroleum Co. Vs. Hurd, (1870) 5 PC 221 at page 239 as under:-
"The doctrine of laches in courts of equity is not an arbitrary or technical doctrine. Where it would be practically unjust to give a remedy either because the party has by his conduct done that which might fairly be regarded as an equivalent to a waiver of it or where by his conduct and neglect he has, though perhaps not waiving that remedy put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are most material."
30. Thus delay would be a ground for refusing specific performance; (a) If the circumstances are such that the delay may properly raise an inference that the plaintiff has waived or abandoned his right. While mere laches is not sufficient to disentitle the plaintiff to the relief for specific performance, if either the delay has prejudiced the defendant or the delay amounts to abandonment or waiver or acquiescence, the court will refuse to grant the relief, (b) if on account of delay there might have been such a change of circumstances that specific performance would prejudice the defendant, that is, where the delay has induced the defendant to alter his position to his detriment, and (c) if on account of the delay, the rights of innocent third person have intervened.
31. In other words where a claimant knows that a party against whom he has a claim is altering his position in the belief that the claimant has abandoned or will not enforce his claim and even then, the claimant does nothing, his inaction may bar is claim for specific performance even within the period of limitation.
32. No doubt, in the case of contracts for sale of land, time is not, as a rule of the essence of the contract, however, even then under Section 46 of the Contract Act it has to be performed within a reasonable time. So, if there is unreasonable delay on the part of one party, it would be open to the other party to put an end to the contract by giving a notice of its termination.
Equity will not assist where there has been undue delay on the part of the party to the contract.
33. Coming to the facts of the present case, the agreement was entered into on 29.3.1993. The respondent as member of the society was held to be entitled to a plot of land measuring 400 sq. yard vide order dated 28.2.1991 of this Court passed in writ petition and which order was upheld by the Supreme Court on 29.1.1992. The plot was not allotted. A Contempt Petition (CCP 175/91) was filed and this Court again on 6.11.1992 directed the Society to carve out a plot for the respondent. As stated by the respondent in reply, a plot was allotted, possession given and a perpetual sub lease was executed in his favor on February 2, 1995. He also got building plans sanctioned thereafter and as is stated by the petitioner, in December, 1998 he found building was being constructed on the land allotted to the respondent. Two photographs filed with the petition show that the ground floor and perhaps basement also had already been completed and further construction for first floor was going on. There is a time gap of about 5-3/4 years from the date of agreement and over three years when sub lease was executed and possession was delivered to the respondent and then after getting the building plan sanctioned construction was commenced. There is no material on record to show what steps were taken by him to pursue the matter with the respondent or to find out the status about allotment of land to the respondent by the DDA. The right of the respondent for allotment of a plot had stood crystallized on 29.1.1992 when Supreme Court had dismissed SLP of the respondent. The actual allotment of land was a matter of weeks or months after this Court again so ordered on 6.11.1992. This fact must be within the knowledge of the petition on 29.3.1993 when the entered into the agreement. Long delay in pursuing the matter by the petitioner prima facie remains unexplained.
34. This may give rise to an inference of waiver or abandonment against the petitioner. The work of construction in the meantime apparently has been given to another builder, perhaps, Duggal Associates Private Ltd. who have already completed the work of foundation, basement, ground floor and were raising construction on upper floors when interim injunction against further construction was issued by this court on the application of the petitioner on 25.1.1999. Third party interest has obviously intervened. These circumstances would be relevant consideration to determine while considering whether relief of specific performance could be granted. Also as appears from letter dated November 10, 1994 (annexure R-3) respondent had expressed intention to terminate the agreement in question and wanted to settle the matter with the petitioner and then vide another notice dated 24.9.1996 sent through his advocate by registered post addressed to the petitioner and his proprietorship concern, the respondent had notified that the plot of land had already been allotted to him by the Society, denied that any payment has made to him by the petitioner and alleged that the agreement was obtained by fraud and had terminated the said agreement. Though the receipt of these notices is denied by the petitioner, however, this circumstance would be considered while considering the claim for specific performance and other disputes arising before the appropriate forum.
35. The conduct of the respondent might be unfair and dishonest, however, the petitioner would have to stand on his own legs and prove his bona fides as well as other things to be entitled to the relief of specific performance. As noticed above, there is long delay in coming to this court and that would not justify the grant of interim protection by way of temporary injunction under Section 9 of the Act in the facts and circumstances and thereby stopping the raising of further construction. Such a course will cause more loss and harm to respondent than to the petitioner. The respondent as owner of the land is entitled to raise construction. Balance of convenience is also not in favor of the petitioner. Whether damages or specific performance would be appropriate relief has to be determined by the arbitral tribunal.
36. In the circumstances, I do not find a valid ground for grant of interim relief as claimed under Section 9 of the Act. However, the construction of the building shall be subject to the final decision in the arbitral proceedings and the respondent shall not sell, part with possession or otherwise create third party interest in the building that may be constructed or in any part thereof. These applications are, accordingly, partly allowed.
37. Nothing stated herein will be treated as expression of opinion on merits.
Interim order granted on 25.1.1999 is hereby vacated.
A.A. 18/99, I. As. 760/99, 1750/99, 2114/99 and 7545/99 stand disposed of.