Indian Kanoon - Search engine for Indian Law

Whether approved for reporting? Yes.

1. Impugned in both Arbitration Applications is the Award dated 27th January 2012, passed by the Arbitrator, appointed by this Court vide order dated 5th June 2009 in A.A. no.32/2008. Applications are taken ad seriatim.

2. Respondents plead that they approached petitioners with a proposal that respondents were owning an industrial plot of land admeasuring 08 Kanals situated at SIDCO Industrial estate, Bari Brahmana, Jammu, which respondent no.1 had acquired by means of a lease for a period of 90 years from J&K SIDCO vide registered Lease Deed dated 16th December 1995. Respondents also represented to petitioners that respondent no.2 is permanently registered SSI Unit and had a sanctioned power load of 1,000 KVA vide PDD Order no.289 of 1995 dated 29th September 1995. Respondents, it is averred, further represented that they were holding another industrial plot of land admeasuring 16 Kanals situated in SIDCO Industrial Estate, Bari Brahmana, Jammu, on lease hold basis in favour of respondent no.1, for which respondent no.2 was fully authorised to enter into a Memorandum of Understanding with petitioners. Based upon the representation made by respondents, petitioners agreed to purchase leasehold rights in respect of two Industrial Plots admeasuring 08 Kanals and 16 Kanals situated in SIDCO Industrial Estate, Bari Brahmana, Jammu, for total consideration of Rs.4.61 Crores, subject to the condition that respondent no.2 would get the leasehold rights transferred to a company to be formed and subject to further condition that respondents were able to get the power connection of 1000 KVA changed in the name of the said company to be formed and the purpose of use of said power connection changed to induction furnace for steel melting and that permission would be granted to change existing shareholders and directors of aforesaid company to be formed and subject to further condition that respondents would get permission of land existing in favour of respondent no.1, transferred in favour of said company to be formed in which ultimately petitioners were to be shareholders and directors. Accordingly, a memorandum of understanding dated 18th March 2008 was executed between parties and as provided under said MOU, petitioners paid a sum of Rs.1.01 crore to respondents immediately on signing of said MOU and balance sum was to be paid. In terms of MOU, in addition to a sum of Rs.1.01 crore already paid on signing aforesaid MOU, another sum of Rs. 1.85 crores, was to be paid by petitioners to respondents upon fulfilment of various conditions. According to petitioners, balance sum of Rs.1.75 crore was to be paid by petitioners within 21 days of the grant of permission for transfer of land belonging to respondent no.1 in favour of company taken over by petitioners and against delivery of physical vacant possession of said property to petitioners or aforesaid company to be formed which by then shall belong to petitioners. Despite the fact that petitioners had paid a sum of Rs.1.01 crore to respondents till execution of MOU which was executed as far as back on 18th March 2008, respondents have miserably failed to take steps as were otherwise envisaged under said MOU dated 18th March 2008, inasmuch as respondents failed to form company / intimate to petitioners about its formation as was to be done immediately after execution of said MOU and further failed to take any permission/NOC from power department for using connection of 1000 KVA for new activity i.e. steel melting and for transfer of said connection in the name of private limited company so formed for new line of activity, i.e. steel melting and that respondents further failed to take any permission for new line of activity, i.e. steel activity.

13. I have heard learned counsel for parties and considered the matter.

14. Mr Harish Malhotra, learned senior counsel representing petitioners (Mr Ramesh Chand Kathuria and Mr Ashish Jain), to augment case set up by petitioners and after reiteration of factual submissions adumbrated in Arbitration Application, has tirelessly argued that upon execution of MOU and as mentioned in MOU as well, petitioners paid Rs.1.01 Crore to respondents and balance amount was to be paid in the manner and mode as stated in MOU. In terms of MOU, another sum of Rs.1.85 Crore was to be paid by petitioners to respondents upon fulfilment of various conditions, including: that respondents would convert proprietary concern of M/s J. K. Alloys into a private limited company; that lease would be changed by lessor in the name of private limited company; that NOC would be had from PDD for using power connection of 1000 KVA for new activity i.e. steel melting, or power connection of 1000 KVA would be transferred in the name of private limited company, so formed for new line of activity i.e. Steel Melting; that necessary permission for manufacturing of new line of activity would be had from Industries Department; that permission to change shareholding of private limited company, would be obtained from lessor; that respondents would handover/deliver physical possession of 08 Kanals of leasehold land, belonging to M/s J. K. Alloys and transfer of entire shareholding of said company in favour of petitioners or their nominees; that responsibility of getting NOC from J&K State Pollution Control Board for new line of activity, i.e. Steel Melting, would be of petitioners; that all expenses for getting necessary permissions as per clause 2(iii) would be borne by petitioners. According to learned counsel for petitioners, respondents have miserably failed to take steps as were otherwise envisaged in terms of MOU dated 18th March 2008 inasmuch as respondents failed to form company/ intimated petitioners about its formation as was to be done immediately after execution of MOU and further failed to take any permission/NOC from Power Department for using connection of 1000 KVA for new activity, i.e. steel melting and for transfer of said connection in the name of private limited company so formed for new line activity, i.e. steel melting and that respondents also failed to take any permission for new line of activity, i.e. steel activity.

16. Learned senior counsel for the petitioners, to counterblast the impugned Award, has stated that impugned award is in violation of the contract between the parties and that the MOU as based upon the reciprocal obligations and the second payment of Rs.1.85 crore, was liable to be paid on fulfilment of the conditions as contained in the MOU. He states that the first step, the respondents were to take, was to convert their proprietary concern of M/s J. K. Alloys into a private limited company. He contends that it was admitted by the respondents in evidence that they have failed to convert the proprietary concern of M/s J. K. Alloys into a private limited company and instead had got a new company incorporated. Incorporation of a new company was not in consonance with the MOU and could not serve the purpose for which the MOU was executed. Unless the proprietary concern of M/s J.K. Alloys is converted into a private limited company, the lease, which was in the name of M/s J.K. Allays, could not have been transferred in favour of any other company and in such an eventuality it would tantamount to subletting and if the proprietary concern is converted into a private limited company, then in that eventuality there was no subletting and lease would have been easily transferred to the said company. Respondents have failed to complete second step, which was the change of lease from M/s J. K. Alloys, to the name of company, which was to be formed under first step. Similarly, respondents have also failed to get NOC from PDD for using power connection of 1000 KVA for new activity, i.e. steel melting and further failed to transfer power connection in the name of a private limited company, which was to be formed pursuant to first step. Thereafter, permission was to be sought from Industries Department for manufacture of new line of activity, i.e. steel melting. Respondents have tried to project that Industries Department could not grant necessary permission for manufacture of new line of activity, i.e. steel melting, as petitioners did not get project report prepared. There was no responsibility under agreement for petitioner to get DPR prepared whereas DPR was to be got prepared from ITCO, which was requirement of Industries Department and petitioners were only to give inputs or data required for said purpose, which was accordingly given to respondents by petitioners as is even admitted by respondents in evidence. Thus, it was a clear- cut case in evidence that respondents miserably failed to fulfil any of conditions contained in clause 2(iii) (a) (b) (c)

ltd. company so formed for the new line of activity i.e. Steel Melting, whichever is the requirement as per govt. rules.

(d) That the Industries Department has accorded the necessary permission for the manufacturing of new line of activity i.e. Steel Melting.

(e) That the above-mentioned amount of Rs.1,85,00,000/- (One Crore Eighty-Five Lacs only) would be paid within 21 days, against the completion of the above formalities.