Madras High Court
Mr.V.Anantha Narayanan vs M/S.Greenpeace Luxury Homes on 18 September, 2018
Author: P.T. Asha
Bench: P.T. Asha
IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on 07.09.2018 Pronounced on 18.09.2018 Coram The Honourable Ms. Justice P.T. ASHA O.P.No.623 of 2018 and O.A.No.835 of 2018 & A.Nos.6802 to 6805 of 2018 1.Mr.V.Anantha Narayanan 2.Mrs.Meenakshi 3.Mr.M.Baskar 4.Mrs.Prathiba ...Petitioners Versus M/s.Greenpeace Luxury Homes, LLP, Represented by its designated Partner Mr.Paul Rathna Kumar Earnarst. Having registered office at No.10, Natesan Salai, Ashok Nagar, Chennai 600 083. and Having Administrative Office at No.41, Vandalur Kelambakkam High Road, Pudupakkam Village, Tirupporur Taluk, Kancheepuram District 603 103. ...Respondent This Original Petition is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 praying to appoint an Arbitrator to resolve the disputes arising out of the agreement dated 15.11.2012 between the petitioners and the respondent. For Petitioners : Mr.R.Balachanderan For Respondent : No Appearance O R D E R
This Original Petition has been filed invoking the provisions of Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as Act) with reference to memorandum of Joint Venture Agreement (hereinafter referred to as JVA) dated 15.11.2012 entered into between the petitioners and the respondent herein. The petitioners who are the owners of the property, subject matter of the Joint Venture Agreement had desired to develop the property by way of joint development. The respondents had approached the petitioner herein and put across their proposal to construct and market villas in the property and after negotiations, a Memorandum of JVA dated 15.11.2012 was entered into between the petitioners and the respondent herein.
Issue in Controversy
2. Whether the invocation of Section 11(6) of the Act without resorting to the conciliation process as contemplated under Clause 13.5 is valid?
3. Salient features of the JVA dated 15.11.2012:
(i) The respondent would construct villas on the schedule property and out of this 40% was to be taken by the land owners, namely the petitioners herein and 60% was to be given to the respondent.
(ii) The petitioners were to give a power of attorney to the respondents to apply for plan approvals, layout sanctions, execute gift deeds in respect of the roads and open areas etc.
(iii) The respondent agreed to construct and market the super built up area on behalf of the petitioners.
(iv) For this purpose the petitioner had agreed to give a power of attorney immediately on obtaining the plan sanction authorising the respondents to mortgage and raise loans from financial institutions in respect of the 60% undivided share of property which fell to the share of the respondent and it was agreed that the mortgage will not cover the remaining 40% which was to be retained by the petitioners herein.
(v) The respondent had categorically agreed that any money that was to be raised by way of mortgage would only be used for the purpose of development of the schedule property.
(vi) The respondent has agreed to complete the construction within a period of 24 months from the date of obtaining the plan sanction. In fact the petitioners had given a power of attorney for the purpose of developing the schedule property and gifting the roads and other open areas to the Authorities.
(vii) The respondent was to pay a sum of Rs.2,50,10,001/- to the petitioners towards refundable interest fee and security deposit a sum of Rs.10,000/- alone was paid at the time of signing of the agreement. The parties had clearly agreed that time would be the essence of the contract.
(viii) The respondent had undertaken to obtain the plan sanction within a period of 6 months and within 24 months there from the project was to be completed.
(ix) Parties had agreed upon a dispute resolution mechanism under Clause 13.5 of this agreement and had undertaken to resolve the disputes by way of Arbitration and the Clause reads as follows:
13.5. Any dispute, controversy, claim of disagreement of kind whatsoever between or among the parties in connection with or arising out of this Agreement or the branch, termination, or invalidity thereof shall be referred to the finally resolved by Arbitration irrespective of the amount involved in the dispute or whether such disputes would otherwise be considered justifiable for resolution by any Court. The Parties expressly agree that they shall attempt to resolve through good faith any such disputes between the parties by mutual discussion. In the event deadlock, both parties shall nominate an Arbitrator of their choice and the nominated arbitrators shall appoint a Presiding Arbitrator who shall decide the dispute so referred to him in accordance with the Arbitration and Conciliation Act, 1996 (26 of 1996) then in force. The seat of Arbitration shall be in Chennai and be in English language. The Parties agree that the Arbitration Award so passes by the Presiding Arbitrator shall be final and binding on both the parties.
Further this agreement for Joint Development and its performance shall be governed by the laws of India and subject to exclusive jurisdiction of Courts in Chennai, India. Background of the dispute
4. The petitioners would submit that they had executed a power of attorney on 10.12.2012 to enable the respondent to obtain the plan sanctions and also to gift the roads and other open areas to the Public Authorities. It also appears that the respondent had obtained necessary planning permission for forming a layout from the Pudhupakkam Panchayat on 16.04.2013 and had also gifted the lands and parks to the Panchayat on 16.08.2013. Thereafter, the petitioner had executed the general power of attorney dated 23.12.2013 authorising the partner of the respondent firm to construct and sell the villas and buildings which was described as 'B' Schedule property and to present the necessary deeds for registration before the Jurisdictional Registrar/Sub-Registrar. This power of attorney authorized the respondent to raise loans/borrow from time to time sums of money/monies by mortgaging the share which was due to the respondent under the JVA. On the strength of this power, the respondent has, as the power agent of the petitioners, mortgaged 60% of the schedule property to M/s.Dewan Housing Finance Corporation Limited (hereinafter referred to as DHFCL) and borrowed a sum of Rs.25 Crores. It is seen that after obtaining the plan sanction and gifting the roads, parks etc., mortgaging the schedule property and collecting the money from DHFCL, nothing else has been done by the respondent in furtherance of the agreement of the joint development.
Prelude to the Arbitration proceedings
5. It is seen that the petitioners had addressed several letters and held meetings with the respondent to arrive at a solution for the respondent completing the project as promised. However, since all these attempts for settling the matter and getting the respondent to proceed further with the project had failed the petitioners herein issued a legal notice to the respondent invoking the Arbitration Clause and nominating Justice F.M.Ibrahim Kalifulla as the sole Arbitrator, in respect of the disputes that had arisen between the parties to the agreement dated 15.11.2012. In the notice invoking the Arbitration Clause and appointment of the Arbitrator, the petitioners had also highlighted how the respondent who had mortgaged the property (60% of it) and received a loan of Rs.25 Crores had diverted the funds and not utilized the said amount for the development of the project which is in strict violation of the agreed terms between the petitioners and the respondent. They had also highlighted the fact that despite several assurances by the respondent to proceed with the project, they were yet to execute this assurance and except for a model villa nothing else has been put up.
6. The respondent herein had originally sent an interim reply dated 23.04.2018, in which they had contended that the invocation of the Arbitration Clause was premature since Clause 13.5 contemplated a mutual discussion as a pre-requisite for nomination of the Arbitrators. The respondents had suggested the name of two Mediators and had sought time to send a detailed reply as they were in the process of collecting the entire documentation. The petitioners herein had sent a Rejoinder dated 18.05.2018, in and by which they turned down the request for conciliation extended by the respondents by stating that they had in good faith already exhausted several rounds of meeting to conciliate the issue wherein the petitioners had requested the respondent to perform their obligations under the contract and all of these have yielded no results and therefore, having failed in their attempts in conciliation, the petitioners sought for the appointment of an Arbitrator. The respondent has sent a very detailed reply to the Rejoinder dated 24.05.2008, in which they have made counter allegations against the petitioners which according to them were the reason for their inability to proceed further with the project. They have also denied the allegations of fraud that have been put forward by the petitioners in their legal notice. In the said reply notice, they have also referred to a proposal which was prepared and sent by the respondent to the petitioners on 09.03.2018, followed by telephonic discussions with the petitioners. After which they have stated that a reworked detailed action plan was prepared and sent to the petitioners through e-mail on 12.03.2018. They would contend that there was no follow up on this from the petitioners and the legal notice appointing the Arbitrator has come as bolt from the blue.
7. In the reply to the Rejoinder Notice dated 24.05.2008, the respondents have stated that they are ready to sit across the table and conciliate the dispute. Subsequent to the receipt of this reply dated 24.05.2008, the petitioner herein has moved this Court by filing an Application under Section 11(6) of the Act.
8. This Court by order dated 24.07.2018, was pleased to direct notice to the respondent returnable by 21.08.2018. Further, this Court had directed the respondent to file their counter within two weeks of the receipt of that notice. On 21.08.2018, this Court was pleased to adjourn the matter to 28.08.2018. On 28.08.2018, when the matter was listed, the learned Judge had recused himself as the counsel appearing for the respondent was personally known to him and thereafter, the matter was listed as 04.09.2018. However, the name of the respondent's counsel was not printed. Therefore, the Registry was directed to print the name of the respondent's counsel and the matter was adjourned to 05.09.2018. On 05.09.2018, the learned counsel for the petitioners had requested the matter to be posted the next day of 06.09.2018 and on 06.09.2018, the counsel for the petitioners had concluded his arguments. On all these occasions i.e., on 04.09.2018, 05.09.2018 & 06.09.2018, the respondent was neither represented nor was their counter filed. This Court therefore directed the matter to be listed under the caption, For Orders on 07.09.2018. On 07.09.2018, once again when the matter was taken up, none appeared for the respondent and therefore, this Court had reserved orders.
9. Mr.R.Balachanderan, the learned counsel who appeared on behalf of the petitioners would submit that the respondent had committed a breach of the terms of the JVA and therefore, invoking Clause 13.5 of the JVA, this Court should appoint the Arbitrator. He would further argue that all their attempts at arriving at a consensus with the respondent has ended in a failure. The counsel would also submit that they have now received a notice under Section 13(2) of the SARFAESI Act from DHFCL.
Discussion
10. On a perusal of the documents and hearing the arguments of the learned counsel for the petitioners, the following issues arise for consideration.
(a) Whether the filing of the Arbitration Application by the petitioners without exhausting the possibility of a conciliation as contemplated in Clause 13.5 of the JVA would be a bar to the appointment of an Arbitral Tribunal under Section 11(6) of the Act.
(b) Whether the steps taken by the petitioner to get the respondent to proceed with their obligation under the JVA can be treated as steps in aid of a conciliation?
11. A perusal of Clause 13.5 which has been extracted in paragraph No.3 supra would indicate that the parties to the agreement viz., the petitioners and the respondent had undertaken to resolve their disputes of any kind through Arbitration but they have also agreed that such reference to Arbitration would take place only in the event of a deadlock when the parties attempt to resolve their disputes through good faith, by mutual discussion. Therefore, a reading of this Clause clearly indicates that the first step that the parties had contemplated for resolving their disputes was to enter into a mutual discussion and that too through good faith. Only when this attempt is unsuccessful, the parties would proceed to nominate Arbitrator of their choice and these nominated Arbitrators would elect a Presiding Arbitrator.
12. The Bombay High Court had an occasion to deal with a similar Clause in its judgment in the case of Tulip Hotels Private Limited, Mumbai and another Vs. Trade Wings Limited, Mumbai and others reported in 2009 SCC Online Bom 1222. This was a case where the respondent had contended that the petition was premature as conciliation proceedings had not been held. Such a defence is taken though the respondents refused to conciliate. The learned Judge after considering the plethora of judgments had framed points for consideration one of which was whether Clause 19 of the SHA permits an unwilling party to avoid Arbitration. The learned Judge held as follows:
Even if conciliation is held to be binding still it does not mean that when it is not allowed to take place, the arbitration clause cannot be resorted to. Scheme of Clause 19 does not permit invocation of arbitration clause till the conciliation is first sought. Only if it takes place, the residue or same i.e. unsettled disputes can then be placed before the arbitrator. However, if it is avoided by one of the parties that does not mean that the other party is rendered a helpless spectator. Dispute resolution is the aim of clause 19 and it cannot be frustrated by any unwilling party. Language of Clause 19 requires the disputes to be first tried to be resolved through the intervention of a conciliator appointed by the Parties to the dispute with utmost speed. If it is not resolved within one month, then appointment of arbitrator is envisaged. Thus primacy given to fast resolution and hence non binding mode of dispute resolution is explicit. It is only because of the confidence which parties reposed in each other. Present applicants having duly invoked the conciliation clause, because of negative response or no response from the respondents they are fully justified in calling upon them to appoint the arbitrator.
13. The learned Judge has observed that an attempt to use the conciliation Clause to defeat the Arbitration arrangement itself is contrary to the spirit of the 1996 Act as well as the agreement between the parties. The Learned Judge rejected the respondent's contention that without exhausting the remedy of conciliation the applicants could not seek to have the Arbitrator appointed. Ultimately, the Application under Section 11 of the Act was dismissed as there was comprehensive suit pending in respect of the subject matter as third parties were also involved.
14. The Delhi High Court in its judgment in the case of J.K.Industries Ltd., Vs. D.S.Strategem Trade A.G. reported in 184 (2011) DLT 720 was dealing with an Application to set aside the Arbitral Award passed by the ICC International Court of Arbitration under Section 34 of the Arbitration & Conciliation Act, 1996. One of the grounds of challenge was that under ART 10 of the Agreement therein, parties were required to first explore the possibility of an amicable settlement of the dispute and only thereafter, resort to Arbitration. Without following this agreed procedure, the respondent therein had straightaway lodged a claim with the IICA and therefore, the entire Arbitration proceedings were initiated. It appears that this defence was also taken before the IICA and the IICA has held as under:
19. The Arbitral Tribunal, after considering the merits of the arguments, of both parties and studying clause 10, decided that the Claimant did meet the requirement of Clause 10.1 and he was right in submitting the dispute for arbitration to the ICC. Clause 10.1 does not require a specific means for the attempt to settle the dispute amicably. Nevertheless, the Claimant attempted this amicable settlement in meetings held in ITHACA on 20/21 February 1991. Moreover, the various times in which the Claimant agreed to extend the dates for shipments represent, in a sense, attempts to solve the disputes in an amicable way.
15. The learned Judge concurred with the opinion of the IICA and held that attempts to conciliate were taken by the claimant by extending the dates per shipments and it was the respondent who had failed to respond to these attempts.
16. Once again, the High Court of Delhi in its judgment in the case of Halidram Manufacturing Company Private Limited Vs. DLF Commercial Complexes Limited reported in 193 (2012) DLT 410 has held while dealing with the suit in which one of the defences was the existence of an arbitration Clause in which conciliation was decided to be the first step prior to arbitration. It was the defendant who had put forth the arbitration Clause to have the suit dismissed. The plaintiff had denied the execution of the arbitration agreement but ultimately, though the Court held that there was an agreement to resolve disputes through arbitration, it however held against the defendant on the ground that the defendant who had been served with the legal notice had neither attempted to conciliate in the reply sent by them to the legal notice issued by the plaintiff nor they had called upon the plaintiff for mutual discussion as envisaged in the Arbitration Clause 34 found in the Application form. The learned Judge has held as follows:
The defendant cannot be allowed to rely on the said clause for invoking arbitration proceedings and at the same time ignore the course of action of 'mutual discussion' contrived in the said clause. The conduct of defendant clearly is contrary to the mandate of the said clause and thus the stage to invoke arbitration proceedings before exhausting the first stage of mutual discussion does not arise. However, at this stage the defendant cannot be allowed to take shelter under the said clause for invoking the arbitration proceedings when it has retraced from the same. The defendant cannot be allowed to approbate and reprobate and thus in the facts of the case at hand is not entitled to relief.
17. Lastly, the High Court of Rajasthan (Jaipur Bench) in its judgment in M/s.Simpark Infrastructure Private Limited Vs. Jaipur Municipal Corporation reported in 2013 (1) WLN 111 was also dealing with the similar issue, wherein the respondent had taken out a preliminary objection to the Application under Section 11 of the Act by contending that the applicant therein had not taken interest to participate in the conciliation meetings and therefore, the invocation of the Arbitration Clause was contrary to Clauses 16.2 & 16.3 of the Agreement and ultimately held that the procedure of dispute resolution which has been agreed upon by the parties was to make conciliation a condition precedent for invoking the arbitration Clause and not exhausting the said Clause, the filing of the Application under Section 11 of the Act was premature.
18. The facts of the instant case has to be examined on a conspectus of all the above decisions. It is clear from these decisions that wherever the parties had entered into an Agreement whereunder they had agreed to an alternate mode of dispute resolution and such alternate mode of dispute resolution contemplates settlement through mutual discussions as a precursor to the arbitration proceedings, then the said agreement should be adhered to in letter and spirit.
19.1. In the instant case, it is seen that under the terms of the Agreement, the respondent was to complete the project by 14.05.2015. It is also seen that except for forming the layout, obtaining approval for the formation of layout, gifting roads and in open areas to the Municipality and mortgaging their share of the Schedule property to DHFCL, no further steps have been taken by the respondent. It is also seen that the petitioner has been periodically calling upon the respondent to complete the Project and have also been extending the period of performance by the respondent. It is for the first time in their reply to the Rejoinder that the respondent has come forward with a contention regarding the existence of a factory building which was causing a hindrance to the project. The JVA does not contain any recital with reference to such a factory building.
19.2. It is also seen that under the agreement, the respondents were required to deposit the pro rata shares of the land owners/petitioners herein of the sale consideration as and when they sell any Villa or flat in the schedule property. However, this has not been done by the respondent and when this was highlighted in the several letters/correspondences/e-mails sent by the petitioners, there has been no response in this regard. However, in their reply to the rejoinder, the respondents have contended that they were forced to return the advance as the parties had cancelled the bookings. This clearly proves the contention of the petitioners that the respondent was acting contrary to the terms of the Agreement. The fact that the petitioners have been slapped with a notice under Section 13(2) of the SARFAESI Act from DHFCL clearly shows that the respondent has not acted in good faith. The amount received by them as a mortgage loan has neither been infused into the project nor have they repaid DHFCL.
19.3. The attempts made by the petitioners to get the respondent to complete the project as promised has been unsuccessful. Therefore, I am of the opinion that the defence taken by the respondents in their reply and the reply to the Rejoinder is only an attempt to defeat the petitioners' right to invoke the Arbitration Clause and is only an exercise in futility since earlier rounds of mutual discussions have yielded no results. Further, Clause 13.5 contemplates mutual discussions, in good faith. This good faith has taken a beating in view of the respondent borrowing a sum of Rs.25 Crores from the DHFCL and diverting those funds without providing any accounts to the petitioners, despite the several demands and by their not keeping the petitioners informed about the bookings in respect of the proposed project in the Schedule property and not depositing the share of the petitioners to their escrow account. I am touching upon the merits of the transaction only to highlight the fact that the first part contemplated under Clause 13.5 has been fulfilled by the petitioners and therefore, they are entitled to invoke the second part of the Clause viz., seek an appointment of the Arbitrator as per the provisions of Section 11(6) of the Act.
20. In the result, this Original Petition is allowed. Mr.R.Sankaranarayanan, Senior Advocate, No.24, Lakshmanan Street, Opp: Brown Stone Apartment, Mahalingapuram, Chennai and Mr.N.L.Rajah, Senior Advocate, No.12, Gangai Street, Kalashetra Colony, Besant Nagar, Chennai 600 090, are appointed as the Arbitrators along with the Honourable Mr.Justice F.M.Ibrahim Kalifulla (Retd.), Supreme Court of India, Plot No.158-B, Door No.22, Sivananda Salai, Gill Nagar Extension, Choolaimedu, Chennai 600 094 to constitute the Arbitral Tribunal in keeping with the Procedure contemplated under Clause 13.5 of the JVA dated 15.11.2012. In the light of the Constitution of the Arbitral Tribunal, the Interlocutory Applications are closed with a liberty being granted to the petitioners to move the Arbitral Tribunal for the interim relief.
18.09.2018 mrr/bsm Index : Yes/No Speaking Order/Non-Speaking Order To
1.The Honourable Mr.Justice F.M.Ibrahim Kalifulla (Retd.), Supreme Court of India, Plot No.158-B, Door No.22, Sivananda Salai, Gill Nagar Extension, Choolaimedu, Chennai 600 094.
2.Mr.R.Sankaranarayanan, Senior Advocate, No.24, Lakshmanan Street, Opp: Brown Stone Apartment, Mahalingapuram, Chennai.
3.Mr.N.L.Rajah, Senior Advocate, No.12, Gangai Street, Kalashetra Colony, Besant Nagar, Chennai 600 090.
P.T.ASHA, J., mrr Pre-Delivery Order in O.P.No.623 of 2018 18.09.2018