Bangalore District Court
Surya Babu vs M/S Kiran Builders on 12 June, 2024
KABC170022612022
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.A.P.No.82/2022
Dated on this 12th day of June 2024
Petitioner M.Surya Babu,
S/o late Venkataramanaiah Setty,
Aged about 64 years,
Residing at No.2, 2nd Cross,
Cambridge Layout, Ulsoor,
Bengaluru-560008.
(By Sri.R.Chandrashekar, Advocate)
// versus //
Respondent M/s. Kiran Builders,
A Partnership Firm,
Having its office at No.G-5,
Ramamashree Chambers, No.37,
Lady Curzon Road,
Bengaluru-560001.
Represented by its Managing Director
Sri. Vishal S. Chhabbria.
(By Sri.B.S.R, Advocate)
Date of Institution of suit : 24/08/2022
Nature of the suit : Joint Venture
Agreements
Date of commencement of :
recording of the evidence
Date on which the : 12/06/2024
Judgment was pronounced.
2
CT 1390_Com.A.P.82-2022_Judgment.doc
KABC170022612022
: Year Month/ Day/s
Total duration /s s
01 09 19
JUDGMENT
This is a petition under section 34 of the Arbitration and Conciliation Act, filed by the respondent before Learned Arbitrator, challenging the arbitral award passed by the Learned Arbitrator dated 4-7-2022 in Arbitration Proceedings No. 01 of 2017, whereby the Learned Arbitrator has directed petitioner herein [Respondent before Learned Arbitrator] to pay Rs. 1,41,61,733 along with interest at 10% per annum from 2-6-2017 till date of realization to the Claimant [Respondent herein]
2. The respondent who was the claimant before the Learned Arbitrator has entered appearance through Counsel and filed detailed objections to the present petition.
3. During the pendency of the present petition, the petitioner has filed IA No. 3 to 5 under Section 151 of CPC seeking certain directions to the respondent and also filed IA No. 6 seeking leave to produce one additional document and 3 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 these applications are considered along with the main petition.
4. I have heard the arguments of both sides and perused the records of the case.
5. The points that arise for my consideration are as follows:-
1) Whether the arbitral award passed by the Learned Sole Arbitrator dated 4-7-2022 in Arbitration Proceeding No. 1 of 2017 calls for interference under Section 34 of the Arbitration and Conciliation Act?
2) What is the appropriate order to be passed on IA No. 3 to 6 filed by the petitioner which are pending consideration?
6. My answer to the above points are :-
Point No. 1 : In the negative, Point No. 2 : As per finding for the following :-
REASONS Point No. 1 :-
7. The facts in brief are that, undisputedly the petitioner herein [hereinafter referred to as the land-owner] is the 4 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 owner of site bearing No. 6 to 11 totally measuring 11,478 sq. ft. situated at Chakkalappa block, Benniganahalli, KR Puram Hobli, Bangalore East Taluk, Bangalore. Admittedly, the land-
owner entrusted the development of the said property to respondent herein [hereinafter referred to as the developer] under Joint Development Agreement dated 08-08-2013 [hereinafter JDA] and on the same date, the land-owner also executed GPA in favor of the developer. Under the JDA, the developer paid Rs. 60 lakhs as refundable security deposit to land-owner and the same was repayable without interest on completion of the project and handing over of possession of land-owner's share of construction to the land-owner. Admittedly, the developer obtained the sanction plan and commenced the construction.
8. It is here that the dispute between the parties begins. According to the developer, he has completed the project within the stipulated period and handed over the possession of all flats fallen to the share of the land-owner except two flats which is retained towards return of security deposit 5 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 amount. The case of the developer is that when he requested the land-owner to refund the security deposit amount and pay certain legitimate expenses and payments which were payable as per the terms of the JDA, the land-owner raised frivolous grounds that construction work is still pending and issued frivolous legal notice dated 02-06-2017 and although the same was suitably replied to, the land-owner filed OS- 4039 of 2017 seeking mandatory injunction against the developer to complete the pending work and the developer entered appearance in the said suit and filed application under section 8 of the Arbitration & Conciliation Act which was allowed and the suit was dismissed relegating the parties to arbitration. Thereafter, the parties have appointed a retired district judge as the learned sole arbitrator who has entered upon the reference.
9. Before the learned arbitrator, the developer filed claim petition reiterating the above facts and stating that he has completed the project within the stipulated period and therefore, he is entitled to refund of security deposit amount 6 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 and various other sums as detailed in the annexure to the claim petition and thereby, claiming sum of Rs.1,97,18,927 as on date of reply [i.e. as on 08-06-2017] and by adding accumulated interest up to the date of claim petition, the developer laid claim before the learned arbitrator for recovery of total sum of Rs. 2,05,25,326 along with interest at 18% per annum.
10. The landowner filed a detailed statement of objections and also raised a counterclaim. In the objection statement filed by the landowner, the stand taken was that the project was not completed within time, due to which, the landowner was constrained to issue legal notice dated 02-06-2017 mentioning all the pending work which is yet to be completed. In the reply to the said legal notice, the developer has admitted that various works are pending. Thereby, the landowner contended that since the project is not completed and even otherwise the possession of the flats has not been handed over to landowner, the developer is not entitled to refund of the security deposit amount of Rs. 60 lakhs. On 7 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 various grounds, the landowner also denied his liability to pay the sums under various heads as claimed by the developer. In addition, the landowner contended that due to non-completion of the work by the developer, the landowner was constrained to get the work done through third parties and thereby sustained damages and expenditure. With these contentions, the landowner not only prayed for dismissal of the claim petition but also raised a counterclaim to direct the developer to complete all unfinished works in the flats allotted to landowner's share and also to direct the developer to pay Rs. 60 lakhs as damages to the landowner.
11. The developer / claimant filed objection statement to the said counterclaim raised by the landowner.
12. On completion of the pleadings, the Learned arbitrator framed the following issues;
1) Whether the claimant proves that it has constructed the building in accordance with the terms of the joint development agreement, agreement for sharing of apartments and according to specifications?
8
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022
2) Whether the claimant proves that respondent is liable to pay Rs.
2,03,25,326/= with interest at the rate of 18% per annum from 08-09-2017 till realization of the same in full to the claimant?
3) Whether the respondent proves that claimant has not constructed the building as per the terms of joint development agreement, agreement of sharing of apartments and according to specifications?
4) Whether the respondent proves that claimant is liable to pay an amount of Rs. 60 lakhs as damages to the respondent?
5) Whether the parties are entitled for costs?
6) What award or order?
13. Thereafter, both sides adduced evidence before the Learned arbitrator and the managing partner of the claimant / developer was examined as PW-1 and on behalf of the claimant Ex. C-1 to C-144 were marked. The Respondent before the arbitral tribunal namely the landowner examined himself as DW-1 and got marked Ex. R-1 to R-20. 9
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022
14. Thereafter, the Learned Arbitrator heard the arguments of both sides and has passed the impugned award essentially holding that the construction work is completed within time by the developer and possession of 10 flats have been handed over to the landowner. Further held that for certain minor incomplete works, the developer is liable to pay Rs. 10 lakhs as compensation to the landowner. The Learned Arbitrator partly allowed the various sums of amounts claimed by developer. The Learned Arbitrator further held that the landowner is entitled to deduct Rs. 10 lakhs payable to landowner from Rs. 60 lakhs security deposit amount liable to be refunded by the landowner to the developer. Ultimately, the Learned Arbitrator directed the landowner to pay to the developer total sum of Rs. 1,41,61,733 with interest at 10% per annum from 02-06-2017 till date of realization and also directed the landowner to maintain status quo in respect of two apartments namely S-205 and T-301, till repayment of entire dues by the landowner.
15. Aggrieved by the said arbitral award, the landowner is before this court in present petition.
10
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022
16. At the outset, it is to be noted that the law is well settled that a petition under section 34 of the Arbitration and Conciliation Act is not an appeal against the arbitral award and this court cannot sit as an appellate authority over the arbitral award. The scope for interference in section 34 petition is confined to the specific grounds enumerated in section 34 of the Act. For ready reference, the relevant provisions of section 34 [2] and [2A] of the Arbitration and Conciliation Act is extracted as follows;
(2) An arbitral award may be set aside by the Court only if--
(a) the party making the application 45[establishes on the basis of the record of the arbitral tribunal that]--
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains 11 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
46 [Explanation 1.--For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,--
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.--For the avoidance of doubt, the test as to whether there is a contravention with the 12 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 fundamental policy of Indian law shall not entail a review on the merits of the dispute.] 47 [(2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.]
17. Plain reading of the above statutory provision makes it clear that, in a petition under section 34 of the Act, the court can interfere with the arbitral award only if the petitioner before the court establishes on the basis of the records of the arbitral tribunal that either party was under some incapacity or the arbitral agreement is invalid or the petitioner was not given proper notice of appointment of arbitrator or arbitration proceedings or was otherwise unable to present his case or the award deals with a dispute outside scope of submission for arbitration or the composition of the arbitral tribunal or the arbitral procedure was contrary to the agreement of the parties. In the case on hand, on close reading of the grounds raised in the present petition, it is clear that the petitioner 13 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 has not raised any of the above grounds falling within Section 34 (2) (a) of the Act. In fact, on perusal of the grounds of the present petition, it is clear that, all the grounds raised in the present petition fall within the scope of section 34 [2] [b] [ii] and Section 34 [2A] i.e. all the grounds raised in the present petition are either that the arbitral award is in contravention of fundamental policy of Indian law or that the arbitral award is vitiated by patent illegality appearing on the face of the award.
18. Therefore, in this background, let me briefly analyse the findings of the arbitral tribunal to see whether any of the findings of the arbitral tribunal is either in contravention of fundamental policy of Indian law or basic notions of morality or justice or is vitiated by patent illegality appearing on the face of the award.
19. If the rival pleadings of both sides before the learned arbitrator is analysed, it is noted that, there is no dispute that the landowner entrusted the development of the property to the developer under the joint development agreement and 14 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 also executed GPA of even date in favour of the landowner. There is further no dispute in respect of subsequent sharing agreement entered into between the parties. There is further no dispute that the developer had commenced construction work on the property. These facts are not in dispute because in the statement of objection filed by the respondent, the averments of paragraph 2 to 6 of the claim petition is not disputed and at paragraph 3 of the objections, it is stated that "further averment that the claimant had started construction work in schedule property after obtaining the plan sanction may be true but the averment that claimant completed the same is denied as false."
20. The crux of the dispute between the parties as is evident from the above statement made in paragraph 3 of the objection statement is whether the project work was completed within the stipulated period. The case of the petitioner as set out at paragraph 13 of the claim statement is that, as per the JDA, the time period for completion of the project was 24 months from date of commencement certificate 15 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 with further grace period of 6 months and since commencement certificate is dated 30-6-2014, the time for completion of the project would expire on 30-12-2016. It is the case of the claimant / developer that as against the last date for completion on 30-12-2016, he had completed the work and applied for occupation certificate to BBMP on 8-7- 2016 itself and therefore, well within the stipulated period, he had completed the construction work.
21. On the other hand, the contention of the petitioner herein / landowner is that, the entire work of the apartments allotted to the landowner's share as per the specifications of the JDA were never completed, much less within the stipulated time. To corroborate this contention, it is highlighted that when the landowner caused a legal notice dated 2-6-2017 explaining all the pending works, in the reply to the same caused by the developer dated 19-6-2017, there is an admission about certain works due and pending. Thereby, it is contended that the construction work as per the specifications were never completed by the developer and in 16 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 the objection statement filed before the Learned arbitrator by the landowner at paragraph 21, a specific statement is made that "It is admitted that the respondent has already undertaken the hardship of completing the pending works at his cost, which is well within the knowledge of the claimant." At page 17 of the objection statement filed by the landowner, it is contended that, in the reply dated 19-6-2017, the developer admits that painting work and installing sink in the kitchen would be done, which implies pending unfinished work. At page 18 of the objection statement, at the end of paragraph 22, a statement is made by the landowner as follows;
"The claimant instead of completing the construction of the flats of the respondent in all respects is now relying on the specifications mentioned in the joint development agreement and thereby failed to adhere to gentlemanly understanding between the parties to the proceedings."
(Emphasis Supplied)
22. By making the said statement, it is clear that some of the pending works complained of by the landowner fall outside the specifications of the JDA and the landowner is 17 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 relying upon what he terms as "gentlemanly understanding"
between the parties to claim that such pending works are the responsibility of the developer. At paragraph 20 of the objection statement of landowner, the various pending works are stated as follows;
Teak wood for main doors with frame. Claimant has used substandard local wood.
Box type grills to be installed in the balconies.
Change the open and close direction of the kitchen area.
Install wash basin in kitchen area.
Cementing and fixing tiles in puja room.
Complete electrification in the flat.
Complete the painting work.
Installing grill in main door.
Installing elevated platform in the bedroom.
Installing mesh in the bathrooms.
Identify point for cable and telephone lines.
23. In the objections to the counterclaim filed by the developer, these pending works are refuted in the table at 18 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 paragraph 2 by contending that, teak wood doors are provided for the main door and the statement that substandard wood is used is a false statement, providing MS grills to the balconies is outside the specifications, changing the direction of close open in the kitchen area conveys no meaning, sink is already provided in the kitchen, Puja room tiles were not laid since landowner wanted change in specifications by seeking for more expensive tiles and the tiles as per specifications will be laid, electrification and painting work is completed, installing grill to the main door is outside the specification and laying of elevated platform conveys no meaning and providing mesh in the bathroom is outside the specification and provision of cable and telephone lines are already provided.
24. In the face of these rival contentions, with developer on one hand contending that he has completed the project work well within the stipulated time and landowner on the other hand contending that there are number of pending works, the 19 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 Learned Arbitral Tribunal has taken a very reasonable and rational approach.
25. Firstly, the Learned Arbitrator records the categorical finding at paragraph 44 of the award that as per Ex. C-6, commencement certificate is issued on 30-6-2014 and therefore as per the JDA, the construction work had to be completed within 24 months with grace period of 6 months i.e. the work had to be completed on or before 28-12-2016. Then the Learned Arbitrator refers to Ex. C-9 occupancy certificate and observes that, reference serial No. 1 of the said occupancy certificate it is clear that the developer had applied for occupancy certificate on 8-7-2016 and from paragraph 2 of occupancy certificate it is forthcoming that the inspection of the building took place on 21-11-2016 by officers of Town Planning Section. Thereafter on the basis of the inspection the occupancy certificate is issued on 4-2-2017. The Learned Arbitrator rightly observes that, although occupancy certificate is issued subsequent to the stipulated period i.e. stipulated period ended on 28-12-2016 whereas the 20 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 occupancy certificate is issued on 4-2-2017, the fact remains that, well within the stipulated period on 8-7-2016 itself the developer had applied for occupancy certificate and the building was also inspected well within the last date for completion of construction that is on 21-11-2016. Thereby the Learned Arbitrator rightly holds that, this shows that, within the last date for completion of construction i.e. at least latest by 21-11-2016, construction to the extent necessary for issuance of occupancy certificate had been completed. Having recorded the said findings the Learned Arbitrator holds at end of paragraph 44 as follows;
"These documents show that construction to the extent necessary for issue of occupancy certificate was completed within the stipulated time."
26. Then at paragraph 47 the Learned Arbitrator records the following finding;
"I may also mention here that if the building is constructed in compliance with building bylaws which does not require any structural changes all the safety measures have been complied with and necessary clearances are taken then it can be safely held that construction of the building is complete. If some work has remained unattended which is capable of rectification 21 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 without requiring any structural changes it cannot be a ground to deny the entire claim of the claimant. At the most if it is found that claimant has not completed the interior or other work as agreed it can be a ground to adequately compensate the respondent monetarily."
27. Thereby in essence the approach of the Learned Arbitrator is that the construction to the extent required for issuance of occupancy certificate was completed and on this basis the Learned Arbitrator holds that the construction was substantially complete. If there are any pending works despite issuance of occupancy certificate, the opinion of the Learned Arbitrator is that, it can only be minor in nature which can be rectified without requiring any structural changes and therefore on that ground the relief claimed by the developer for refund of security deposit amount cannot be denied but, at the most, the land-owner can be compensated by awarding damages to the extent of the incomplete work.
28. This finding was vehemently attacked by Learned Counsel for the petitioner / land-owner by contending that the Learned Arbitrator has equated completion of work with 22 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 issuance of occupancy certificate. He submitted that, issuance of occupancy certificate is based upon certain broad parameters and is a statutory requirement whereas completion of the work should be as per the specifications stated in the JDA and therefore, only because occupancy certificate is issued, it does not mean that, all the work as agreed under the JDA has been completed, particularly, when it is admitted by the developer in the reply to legal notice that certain work is pending. I am unable to accept this submission for two reasons. The approach of the Learned Arbitrator that issuance of occupancy certificate would imply that the work is substantially complete is perfectly in accordance with law in the absence of respondent being able to prove that any major work was not completed. In other words, on issuance of occupancy certificate an inference could be drawn that construction work is complete. It is to be noted that, in construction matters there will always be some minor and small works which will have to be done at the last moment. For such minor and insignificant works the entire claim of the developer of having completed the project cannot 23 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 be negated. Even otherwise, as per the specific stand taken by the landowner in the objection statement already adverted to Supra, the landowner claims to have himself completed all pending works by incurring expenditure. Therefore, the Learned Arbitrator was perfectly justified in holding that, on issuance of occupancy certificate the work would be deemed to be complete and if there is any pending works which has been got done by the landowner by incurring expenditure then the landowner can claim damages to the extent of expenditure incurred by him for doing the said works. At this stage itself, it is relevant to note that the Learned Arbitrator has recorded specific finding which is perfectly in consonance with the material on record that the landowner in his side of evidence has not produced any bills or other documents to show the expenditure incurred by him for having got the pending works completed. Therefore, although the Learned Arbitrator has rightly held that, in the absence of producing the bills and material to show the expenditure incurred, adverse influence has to be drawn against the landowner, the Learned Arbitrator has still exercised discretion and awarded 24 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 Rs. 10 lakhs towards the counterclaim of the respondent at paragraph 65, page 53 of the award. This portion of the award has not been challenged by the developer and therefore has attained finality.
29. Therefore, the approach of the Learned Arbitrator is perfectly in accordance with law and even otherwise, even if another view was possible, it is not open for this court in a section 34 petition to interfere with such a well-reasoned award.
30. Secondly, it is to be noted that, at paragraph 65 of the award the Learned Arbitrator has referred in detail to the evidence on record and from page 51 of the award onwards referred to each one of the pending works claimed by the landowner and concluded by holding at page 52 that, except the work of painting and fixing of tiles on the floor and walls of the puja room, all other work appears to be completed. This is a purely factual finding based on well-reasoned appreciation of the material on record and hence does not call for interference in a section 34 petition. 25
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022
31. In view of the above discussion I am of the view that the conclusion of the Learned Arbitrator that the work was completed within the stipulated period by developer except for couple of minor works for which Learned Arbitrator has awarded Rs. 10 Lakhs to the landowner, is in accordance with law and cannot be interfered with in this petition.
32. The next important area of dispute between the parties is whether the possession of all the flats [except two flats retained as security for refund of amounts payable] have been given to the landowner by the developer. In this regard, it is the stand of the claimant / developer, at paragraph 14 of the claim petition that 10 flats have been handed over to the landowner as on 9-2-2016 and possession of 2 remaining flats is retained by the developer, since the said apartments are held as security for the amounts payable by the landowner to the developer. As against this, the stand of the landowner at paragraph 10 of the statement of objection is that only 2 flats were handed over to his possession. 26
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022
33. The question of handing over possession is important because as per the terms of the JDA, it is only on handing over of the possession of the completed flats that the liability of the landowner to refund the security deposit amount would arise. The Learned Arbitrator has dealt with question of handing over of possession of the flats at paragraph 59 of the award. Essentially, Learned Arbitrator has held that in an email dated 10-09-2016 at Ex. C-50 sent by developer to landowner, developer has asserted that possession of all apartments except two apartments retained as security are handed over. When the said email was confronted to RW1 landowner, he admits that he might have received the said email and also admits that he did not send reply. On this basis, the Learned Arbitrator has come to the conclusion that the possession of 10 flats have been handed over to the landowner. Apart from this, a little earlier in the same paragraph, the Learned Arbitrator refers to Ex. R-2 email in which landowner has admitted having received the keys of six apartments and he has referred to cross-examination of RW1 wherein RW1 has admitted that he has sold three 27 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 apartments. The Learned Arbitrator refers to the fact that in the objection statement, there is a general denial that possession of none of the flats have been handed over. On the basis of the above material, Learned Arbitrator has reached the conclusion that the developer has proved handing over possession of 10 flats to the landowner. This finding of the Learned Arbitrator was vehemently attacked by Learned counsel for Petitioner/ landowner on the ground that merely because reply is not issued to email, the Learned Arbitrator could not have jumped to the conclusion that possession of the 10 flats have been handed over to the landowner. It is to be noted that, it is not merely on the ground that reply is not issued to Ex. C-50 that Learned Arbitrator has recorded the finding regarding handing over possession of 10 flats to the landowner. On the other hand, Learned Arbitrator has referred to the conduct of landowner in asserting in pleadings and examination in chief that possession of apartments was not given and thereafter admitting in Ex. R-2 that he has received keys of six apartments and thereafter admitting in cross-examination that he has sold three of the said 28 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 apartments and on the basis of the cumulative material on record, Learned Arbitrator reaches the conclusion that the possession of 10 flats have been given and only two flats are retained by the developer as security. In my view, this finding of the Learned Arbitrator that the possession of 10 flats has been given cannot be said to be either perverse or contrary to the record so as to warrant interference in a section 34 petition because the said finding is based on material on record and more importantly, as already noted supra, the landowner has taken a specific stand in objection statement at Paragraph 21 as follows;
"It is admitted that the respondent has already undertaken the hardship of completing the pending works at his cost, which is well within the knowledge of the claimant."
(Emphasis Supplied)
34. It stands to reason that, without taking the possession of the flats, the landlord could not have undertaken the completion of the pending works. Therefore by the very stand taken by the landowner in the objection statement that he 29 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 has got the pending works completed shows that the landowner has taken possession of all 10 apartments. Accordingly, I hold that the crucial findings of the learned arbitrator that the entire project work was completed within the stipulated time and that the possession of 10 flats have been handed over by developer to landowner cannot be faulted and certainly cannot be interfered in a section 34 petition.
35. Once this conclusion is reached, it follows that the finding of the learned arbitrator that the developer is entitled to refund of security deposit amount of Rs. 60 lakhs subject to deduction of Rs. 10 lakhs towards pending work cannot be faulted since as per the specific terms of the JDA, on completion of the work and handing over of possession of the flats, the developer is entitled to refund of security deposit amount.
36. Let me now turn my attention to the other amounts awarded by the learned arbitrator under the various heads claimed by developer. In this regard, at paragraph 48 of the 30 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 award, the learned arbitrator has taken note of the various amounts under the various heads as claimed by the developer. The learned arbitrator has also taken note that although in the claim petition, total sum claim was Rs. 2,03,25,326/=, the said claim is now reduced in view of service tax appeal having been partly allowed in favor of the developer and the claim is limited to Rs. 1,76,83,758/=.
37. The first amount claimed is Rs. 60 lakh refundable security deposit amount which is already discussed supra and therefore, the discussion need not be repeated.
38. The second claim is for Rs. 16,61,534/= towards pro rata charges and expenses. The learned arbitrator at paragraph 49 has noted that although the claim in the petition is for Rs. 16,61,534/=, this claim is now reduced to Rs. 16,26,365/= since the developer is unable to produce receipts for the remaining amount. Out of the said amount, as observed by the learned arbitrator at paragraph 50, the landowner admits his liability only to the extent of Rs. 4,39,407/= which is in respect of deposits to statutory 31 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 authorities such as BESCOM and BWSSB. The relevant clause of the JDA which has to be referred to and on the basis of which this claim is made by the developer is paragraph 4 (i) which is as follows;
"Further, the first party shall bear and pay the following expenses relating to first party's constructed area;
i) Any applicable tax including sales tax, service tax, VAT work contract if any, leviable on the owner's constructed area under any law and BESCOM, KPTCL, BWSSB deposits, transformer, LT / HT lines, other equipment, cabling, piping, panel, other charges / levies required to be paid to BESCOM, KPTCL, BWSSB in relation to first party's constructed area."
39. In this regard, the landowner admits liability only in respect of statutory deposits which are made to BESCOM, BWSSB and BBMP. The Learned arbitrator has interpreted the above clause of the JDA and concluded at paragraph 52, page 38 that said clause covers not only deposits but it also covers other equipment including cabling, piping, panel and 32 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 other equipments and on that basis on analysis of the invoices and bills produced by the developer at paragraph 52 of the award, the Learned arbitrator has concluded that all the amounts claimed under the head of pro rata charges except Rs. 2,50,000 which is the penalty imposed by BBMP for deviation from the sanction plan are payable by the landowner. The Learned Arbitrator has rightly held that the compounding fee or penalty imposed for deviation from sanctioned plan cannot be levied on landowner because deviation is not the fault of the landowner but attributable to the developer. Therefore, by deducting Rs. 2,50,000 from the claimed amount, the remaining amount is awarded under the head of pro rata charges expenses. In this petition, it is not open to the petitioner to challenge the purely factual finding based on the various bills and invoices produced by the developer. With regard to awarding of this amount, the only contention of the Learned Counsel for Petitioner / Landowner is that the interpretation of the Learned Arbitrator at paragraph 52 that said subclause not only covers deposits to statutory authorities but also covers other equipment 33 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 including cabling, piping, panel and other equipments is erroneous and perverse and therefore calls for interference. This contention cannot be accepted because on plain reading of clause 4 (i) of the JDA, it is clear that the landowner has accepted to bear the cost relating to his constructed area not only of BESCOM, KPTCL, BWSSB deposits but also transformer, LTHT lines, other equipments, cabling, piping, panel and other charges or levies required to be paid to BESCOM, KPTCL, BWSSB in relation to his constructed area. The contention of the Learned Counsel for petitioner that the words "other charges, levies required to be paid to BESCOM, KPTCL, BWSSB" occurring at the end of clause 4 (i) controls the earlier words viz. transformer, LTHT lines, other equipments, cabling, piping, panel etc. so that it is only the amounts paid under the said heads to statutory authorities which is payable by landowner cannot be accepted because it is against the plain language of the said sub-clause. Accordingly, this finding of the Learned Arbitrator awarding amount under the head of prorata charges expenses cannot be faulted.
34
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022
40. However, I find that there is one small arithmetical error in the finding recorded by the Learned Arbitrator at paragraph 52 which is as follows. As already noted Supra, the Learned Arbitrator observes at paragraph 49 that the claim under the head of prorata charges expenses is limited by the developer to Rs. 16,26,365. Out of the said amount Rs. 2,50,000 is disallowed on the ground that it is compounding fee for deviation from sanction plan which is attributable exclusively to developer and cannot be levied on landowner. Therefore if Rs. 2,50,000 is deducted from Rs. 16,26,365 it comes to Rs. 13,76,365/=. However the Learned Arbitrator has awarded Rs. 14,11,534 by deducting Rs. 2,50,000 from Rs. 16,61,534 forgetting that although that was the amount claimed, the developer has himself limited his claim to Rs. 16,26,365. Be that as it may, this is a purely arithmetical error which could have been got corrected by landowner, if so desired, by recourse to section 33 (1) (a) of the Act. Anyhow this ground of arithmetic error is neither raised nor available in present petition under Section 34 of the Act. Accordingly, I hold that this finding of the Learned Arbitrator awarding Rs. 35
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 14,11,534 towards pro rata charges expenses cannot be found fault with.
41. The next head of award of the Learned Arbitrator is to a sum of Rs. 46,26,400 towards cost of additional construction of 4454 square feet given to the share of respondent at the rate of Rs. 1,600 per square feet. In this regard the main contention of the petitioner herein is based upon paragraph 1 (B) (c) of the JDA which reads as follows;
"However, it is mutually agreed upon that the construction cost is fixed at Rs. 1,600 per square feet irrespective of any escalation and hence the first party shall pay a sum of Rs. 800 per square feet for the said additional construction proportionate to such TDR. The second party shall incur remaining sum of Rs. 800 or any further escalated expenses if any. The said available additional super built area owing to acquisition of TDR shall also be shared by the first party and second party equally at the ratio of 50% : 50%."
42. Relying upon this clause of the JDA, it is the contention of Learned Counsel for Petitioner-Landowner that landowner has to pay only Rs. 800 per square feet for additional construction and therefore the Learned Arbitrator committed error in awarding amount at the rate of Rs. 1600 per square 36 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 feet for additional construction of 4454 square feet allotted to landowner. In my view, the Learned Arbitrator has not committed any error, much less an error which can be interfered in section 34 petition for the following reason. In order to understand the consequence of the above clause of the JDA, it is necessary to understand what is the meaning to be attributed to the words "additional construction". This meaning is clear from the last sentence of the clause which says that available additional super built area owing to acquisition of TDR shall be shared between the two parties equally. Therefore, when the JDA contemplates payment of Rs. 800 per square feet by landowner in respect of additional construction, what it really means is that landowner should pay Rs. 800 per square feet not for additional construction allotted to him but for entire additional construction which has become available due to acquisition of TDR and which entire additional construction has to be divided amongst the parties equally. In the case on hand, there is no dispute that, total additional construction available was divided equally between landowner and developer and half portion of the said 37 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 additional construction which has been allotted to landowner comes to 4454 square feet. It is the same thing to say that landowner should pay Rs. 800 per square feet for total additional area acquired by acquisition of TDR viz. double of 4454 square feet and it is the same thing to say that the landowner has to pay Rs. 1600 per square feet for 4454 square feet. Therefore, no fault can be found with the finding of the learned arbitrator in this regard.
43. The next head awarded by the learned arbitrator is Rs. 27,74,958 which is paid as service tax by developer for services rendered to landowner in respect of construction. Again, in this regard, there is no dispute that said sum of Rs. 27,74,958 has been paid by the developer to the department. The only contention of the petitioner / landowner before the arbitral tribunal which is reiterated before me is that Ex. R-4 which is notice issued by service tax department clearly holds that the statutory liability to pay service tax for services offered is on the developer and not on the landowner. The relevant clause of the JDA dealing with this aspect of the 38 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 matter is clause 3 of Ex. C-2 JDA which lays down that the sales tax, service tax, VAT, work contract etc. as applicable on the share of respective constructions shall be paid and borne by respective parties. Therefore, what transpires from the above material is that the statutory liability to pay service tax is on the developer, but by above clause of the contract, the parties have contractually agreed to shift the liability to pay the service tax from the developer to the landowner. There is no dispute that service tax is imposed only upon the landowner's share of construction. This is because the developer has rendered services of construction to the landowner by constructing landowner's share and for that service rendered, service tax is imposed. Obviously, no service tax would be imposed upon the developer's share because the developer by putting up the construction is not offering services to any third party, but constructing his own portion of the building. Therefore, the service tax is imposed upon the landowner's share only and as per above clause 3 of the JDA, the parties have agreed that service tax applicable to their respective portions shall be borne by respective party. 39
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 There is no dispute that developer has paid service tax of Rs. 27,74,958. Therefore, the learned arbitrator taking into consideration clause 3 of the JDA was perfectly justified in allowing the said claim and directing the landowner to pay the said service tax and there is no error committed by the learned arbitrator in recording the said finding much less any error that can be interfered under section 34 of the act.
44. The next head of amount awarded is Rs. 3,28,689 being the monthly maintenance for 15 months. As already held supra, learned arbitrator has rightly held that the possession of 10 flats has been handed over by developer to landowner. Under the JDA, the liability to pay maintenance accrues from date of taking possession and therefore, learned arbitrator reached the correct conclusion in holding that landowner is liable to pay for the monthly maintenance. The contention in challenging the said finding is two fold. Firstly, that the possession has never been handed over which has already been rejected by me supra. Secondly, the contention is that the liability to pay monthly maintenance arises only after 40 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 notice is issued by developer calling upon the landowner to take possession. This contention cannot be accepted since, under clause 8 (a) of the JDA, the liability to pay taxes, rates, electricity charges and other services in respect of the owner's share commences from either date of taking physical possession or expiry of one month from the date of service of notice that owner's share is ready for occupation. Therefore, even if no notice in writing is issued as contemplated under clause 8 (a), if the possession of the owner's share is taken by the landowner, then the liability to pay maintenance accrues. Therefore, the learned arbitrator was perfectly justified in awarding maintenance charges for 15 months. The learned arbitrator has also awarded Rs. 20,152 which is the electricity charges payable for landowner's portion of the building. There is no serious dispute in this regard since electricity bills are produced and as I have already rejected the contention that possession was not handed over. Accordingly, on overall appreciation of the material on record, the learned arbitrator was perfectly justified in awarding the various sums under the various heads as discussed supra.
41
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022
45. The learned arbitrator has awarded 10% interest on the sums held due and payable from date of legal notice. This finding of the learned arbitrator is not only reasonable but also in consonance with section 31 (7) of Arbitration and Conciliation Act and therefore, in accordance with law. As already noted supra, in the present petition, the grounds raised are only general grounds or grounds falling within scope of Section 34 (2) (b) (ii) or 34 (2A) i.e. award is in conflict with public policy of India or award is vitiated by patent illegality. In view of the above discussion, I conclude that the findings of the learned arbitrator do not suffer from any error, much less, error apparent on the face of record and therefore, the award does not call for interference. All the grounds raised in present petition are only reiteration of the contentions already taken before the learned arbitrator and contending that arbitrator committed error. As already noted supra, there is no error committed by the learned arbitrator and therefore, the arbitral award does not call for interference under section 34 of the act. Accordingly, I answer point No. 1 in the negative.
42
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 Point No. 2 :-
46. During the pendency of the present petition, the petitioner has filed IA No. 3 to 5 seeking certain directions.
These directions are sought in view of orders passed by my Learned Predecessor dated 6-1-2023 while disposing of IA No.
1. In the said orders, this court stayed the enforcement of the impugned arbitral award subject to petitioner / landowner depositing 60% of the award amount and furnishing bank guarantee for remaining 40% and further held that on depositing the amount and furnishing bank guarantee, petitioner can seek appropriate order in relation to vacating the status quo order passed in respect of two apartments. It is to be noted that the developer has claimed to have retained two apartments as security for payment of amounts due to developer and in the operative portion of the impugned award, the learned arbitrator has directed the landowner to maintain status quo in respect of the said two apartments till all the payments under the award are cleared by the landowner. My learned predecessor, while staying the award subject to deposit of amount and furnishing bank guarantee, 43 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 reserved liberty to the landowner to seek vacation of the status quo order. Having complied with the conditions imposed by this court for deposit of amount and furnishing of bank guarantee, in terms of the said order, the petitioner is seeking certain directions under IA No. 3 to 5.
47. Under IA No. 3, the petitioner seeks direction to respondent developer to hand over the keys of the flats. Under IA No. 4, the petitioner seeks direction to landowner to return the original title deeds. Under IA No. 5, the petitioner seeks vacation of the orders of status quo passed by the learned arbitrator. In my view, none of the reliefs sought under IA No. 3 to 5 survives since the petition itself has been disposed off and therefore it is for both sides to execute and enforce the award as per law. This court in a petition under section 34 of the Arbitration and Conciliation Act cannot give directions beyond what has been awarded in the arbitration award. Therefore, this court cannot issue direction to the respondent to hand over the keys of the two flats nor can this court direct the respondent / developer to hand over original title deeds to 44 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 the landowner. In so far as vacation of status quo order is concerned, no doubt my learned predecessor had reserved liberty to landowner to seek vacation of status quo order after depositing the amount and furnishing bank guarantee. But obviously, since the present petition has itself been disposed off, any interim arrangements contemplated during the pendency of the petition also comes to an end and therefore, now, there is no question of vacating the status quo order, but it is only for the both sides to comply and enforce the award and since the award is being upheld, it follows that, it is for the landowner to satisfy the amount ordered to be paid under the award and till then, the status quo order would continue as ordered in the award. Accordingly, IA No. 3 to 5 are rejected.
48. IA No. 6 is also filed by the petitioner seeking leave to produce one additional document which is the bank statement. In the affidavit in support of the said application, it is contended that towards purchase of TDR, the landowner had paid Rs. 49 lakhs out of which Rs. 29,51,775 is 45 CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 reflected in the bank account and remaining Rs. 19,48,225 was paid by way of cash and this aspect has been ignored by the Learned arbitrator. No purpose would be served in taking the said bank account on record since the Learned arbitrator at paragraph 53, page 39 of the award has specifically referred to the fact that a question was put to RW1 landowner that he has paid Rs. 29,51,775 to developer towards 50% of DRC rights for which landowner has replied that he has paid more than the said amount. Therefore, it is clear that, by putting the said suggestion, the developer also admits payment of Rs. 29,51,775 by the landowner to the developer towards TDR rights. Even as per the affidavit in support of IA No. 6, the bank statement which is produced does not reflect payment of any higher amount because as per the affidavit, remaining amount of Rs. 19,48,225 was paid by cash which is obviously not reflected in the bank statement. Therefore, the additional document produced is totally irrelevant and has no bearing on the case and accordingly IA No. 6 is rejected and I proceed to pass the following :-
46
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022 ORDER The petition under section 34 of the Arbitration and Conciliation Act is hereby dismissed, with cost.
IA No. 3 to 6 filed by the petitioner are also rejected.
Office to issue soft copy of this judgment to both sides, by email, if furnished.
[Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 12th day of June, 2024] (Sri. S. Sudindranath) LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT; BANGALORE.47
CT 1390_Com.A.P.82-2022_Judgment.doc KABC170022612022