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2007 DAILYLAW 2757 (DEL)

MADAN LAL LIMITED v. GROWTH TECHNO PROJECTS LTD

2007-10-30

Anil Kumar

body2007
ANIL KUMAR, J. ( 1 ) THIS order shall dispose of defendants' application under Section 8 of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator in terms of the Arbitration agreement between the parties. ( 2 ) THE plaintiff has filed the suit for recovery of a sum of rs. 1,20,15,443/- along with interest under Order XXXVII of the Code of the Civil procedure alleging inter alia that in the year 1999, plaintiff and its associated companies were looking for investment option in Delhi and defendant no. 2 represented himself to be a Director of defendant No. 1. It was represented that they are developing a residential complex in Shahdra and since defendants were looking for parties to invest in their project, the plaintiff and its associate companies were persuaded to invest by entering into agreement to sell. The plaintiff was represented that by an agreement of development dated 2nd April, 1987, the defendant No. 2 had acquired the rights of development of land measuring 323 bigha 11 biswa and 17 biswassi in village Karkardooma, shahdara, Delhi. Devidayal Builders and Developers and defendant No. 2 entered into a Development Collaboration Agreement dated 15th July, 1987 for the development, however, the development agreement was dissolved by a memorandum of understanding dated 26th May, 1989 whereby defendant No. 2 became absolute beneficiary of the development collaboration agreement dated 15th July, 1987 and all the rights of defendant No. 2 were assigned in favor of defendant No. 1 who became entitled for 38,00,000 sq. ft. . It was represented that the defendant no. 1 is entitled to sell or otherwise dispose of that area. ( 3 ) CONSEQUENTLY, the plaintiff and defendant No. 1 entered into 19 separate agreements for sell dated 18th April, 1999 for purchase of 20 flats in the residential complex. Under the said agreements to sell, the plaintiff paid to the defendant No. 1 an amount of Rs. 20,69,213/- towards part consideration for 19 flats. ( 3 ) CONSEQUENTLY, the plaintiff and defendant No. 1 entered into 19 separate agreements for sell dated 18th April, 1999 for purchase of 20 flats in the residential complex. Under the said agreements to sell, the plaintiff paid to the defendant No. 1 an amount of Rs. 20,69,213/- towards part consideration for 19 flats. It was categorically agreed between the plaintiff and the defendants that in the event of defendants' failure to obtain approved sanction plan from the appropriate authorities, it shall pay interest to the plaintiff on all amounts which the plaintiff has paid to the defendants as consideration for the purchase or any amount which shall be paid to the defendants on behalf of plaintiff along with interest at the rate of 24% per annum with quarterly rest. The plaintiff was also given liberty to terminate the agreement at any time by sending a communication to that effect and on termination, it was agreed that defendants shall refund all such amounts which will be paid by the plaintiff to the defendant no. 1 with interest at 24% per annum with quarterly rest. ( 4 ) THE defendant No. 2 also executed a personal guarantee for due performance of agreement entered into between defendant No. 1 and the plaintiff for the sale of flats and for refund of amount with interest in case of termination of the agreement. ( 5 ) IT is contended that since the agreement was terminated and the defendants failed to perform their part of agreement, they became liable to pay amount with interest and on their failure to pay the amount, the present suit was filed for recovery of Rs. 1,20,15,443/- which included the amount of rs. 20,69,213/- along with interest and penal interest payable by the defendants in terms of agreement dated 18th April, 1999. ( 6 ) THE application under section 8 of the Arbitration and Conciliation act, 1996 has been filed by the defendants contending inter alia that the plaintiff have neither relied upon nor produced a copy of another agreement dated 18th April, 1999 where other terms and conditions were agreed between the parties including for adjudication of disputes by arbitration in respect of the flat which was agreed to be sold by the defendant no. 1 to the plaintiff. 1 to the plaintiff. The other agreement to sell dated 18th April, 1999 (same date) clearly stipulated that in case the plaintiff does not wish to purchase, the residential units option shall be given to the defendants to buy back the said residential units and by the said agreement it was also agreed that the plaintiff shall exercise his option to sell the residential unit to the defendants at the rate of rs. 2,350/- per sq. ft. ( 7 ) ACCORDING to the defendants, the agreement to buy back the residential units was a supplementary agreement to be read with agreement to sell dated 18th april, 1999 executed between the plaintiff and defendants for which the suit for recovery of the amount has been filed by the plaintiff. ( 8 ) ACCORDING to the defendants, the supplementary agreement dated 18th april, 1999 contains an arbitration agreement between the parties which is as under:- "5. That in the event of any difference or disputes between the parties arising out of or under this agreement, the same shall be referred to arbitration of three arbitrators to be appointed by each of the parties and the third arbitrator to be appointed by both the arbitrators mutually. All such arbitration proceedings shall be held in New Delhi and the provision of arbitration and Conciliation Act, 1996 shall apply in this regard". ( 9 ) THE contention of the defendants is that since there is an arbitration agreement all the disputes raised by the plaintiff for recovery of amount including the interest and penal interest be decided by the arbitration and an arbitrator in terms of arbitration agreement be appointed. ( 10 ) THE application is contested by the plaintiff contending that the defendants have not come to this Hon'ble Court with clean hands and have concealed the material facts. It is contended that the supplementary agreement, "buy back", is not the basis of the present suit and as such the arbitration agreement incorporated in the buy back agreement cannot be invoked by the defendants for appointment of an arbitrator. According to the plaintiff, the cause of action has arisen between the parties on the basis of first agreement to sell between the plaintiff and the defendants dated 18th April, 1999 under which the plaintiff could terminate the agreement and recover the amount already paid along with interest and penal interest. According to the plaintiff, the cause of action has arisen between the parties on the basis of first agreement to sell between the plaintiff and the defendants dated 18th April, 1999 under which the plaintiff could terminate the agreement and recover the amount already paid along with interest and penal interest. The plea of the plaintiff is that since the residential units as had been agreed could not be constructed by the defendants, therefore, the second agreement, buy back agreement, could not be invoked which was for repurchase of the constructed residential units by the defendants from the plaintiff for which earlier agreement dated 18th April, 1999 (of the same date) was executed. ( 11 ) I have heard the learned counsel for the parties at length. The main contention of the learned counsel for the defendants is that buy back agreement dated 18th April, 1999 also refers to the agreement to sell dated 18th April, 1999 whereby a part of the consideration of the flat was paid by plaintiff to the defendants and the agreement for purchase of the flat could be terminated by the plaintiff at its option in which case the defendants were liable to return the consideration paid to them along with interest and penal interest. The supplementary agreement, buy back agreement, was only a contingent agreement which could have come into force on construction of residential units as had been agreed between the parties. Mere reference of the agreement to sell dated 18th April, 1999 in the buyback agreement dated 18th April, 1999, does not make it an agreement whereby the arbitration agreement in the buy back agreement can be interpolated to the agreement for the purchase of flat under which on termination of the agreement the defendants were liable to refund the entire amount with interest and penal interest. ( 12 ) THE agreement to sell of flat dated 18th April, 1999 was executed by the defendant no. 1 in favor of plaintiff and a personal guarantee agreement for performance of the terms of the agreement to sell of the flat by the defendant no. ( 12 ) THE agreement to sell of flat dated 18th April, 1999 was executed by the defendant no. 1 in favor of plaintiff and a personal guarantee agreement for performance of the terms of the agreement to sell of the flat by the defendant no. 1 to the plaintiff was also executed by the defendant No. 2 in favor of plaintiff under which the plaintiff was entitled to purchase the flat which was to be developed by the defendants and the said agreement which was mainly for the purpose of investment, could be terminated by the plaintiff by giving a notice and on termination of the agreement, the defendants were liable to pay back the amounts invested, the part of the consideration paid to the defendants, along with interest and penal interest. ( 13 ) THE `buyback" agreement is a distinct agreement and it was contingent upon the construction of the flat because only after the construction of the flat and payment of entire consideration and the title of the said flat being transferred in favor of plaintiff, the `buyback" agreement could come into force under which the plaintiff was entitled to sell the agreement to the defendants for the price agreed by the defendants. On perusal of the two agreements and in the facts and circumstances, it is apparent that the agreement to sell dated 18th April, 1999 executed by the defendant no. 1 in favor of the plaintiff and the guarantee agreement executed by defendant No. 2 in favour of plaintiff are distinct agreement with the `buyback" agreement executed between the plaintiff and defendants. An arbitration agreement in respect of buy back agreement after the construction of flat cannot be related back to the agreement to sell and the guarantee agreement executed by defendant No. 2 in favor of plaintiff. ( 14 ) LEARNED counsel for the plaintiff has relied on 95 (2002) Delhi Law times 290, Maruti Udyog Limited Vs. Mahalaxmi Motors Ltd. and another holding that an arbitration clause cannot be invoked where there is an admitted liability. In this matter, there was a dealership agreement between the parties and the liability was admitted and, consequently, the arbitration clause invoked by the defendants for appointment of arbitrator was not resorted to holding that there should be difference or disputes with regard to a particular liability arising out of terms of the agreement. In this matter, there was a dealership agreement between the parties and the liability was admitted and, consequently, the arbitration clause invoked by the defendants for appointment of arbitrator was not resorted to holding that there should be difference or disputes with regard to a particular liability arising out of terms of the agreement. Reliance has also been placed on AIR 2003 Supreme Court 2252, Sukanya Holdings Pvt. Ltd. Vs. Jayesh H. Pandya and another about the ambit of arbitration agreement. It was held that the matter which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, the arbitrator cannot be appointed. In the present case, the liability of defendant No. 2 is on the basis of personal guarantee agreement executed by defendant No. 2 in favor of plaintiff pursuant to agreement to sell dated 18th April, 1999. There is no liability of defendant No. 2 under the "buyback" agreement dated 18th April, 1999 and which agreement was contingent on completion of the flat and the transfer of the flat in favor of the plaintiff which was agreed to be repurchased from the plaintiff by the defendant No. 1 for an agreed consideration. Admittedly in the present case, the flat was not constructed and rights in the constructed flat had not been conveyed in favor of plaintiff and consequently if the flat was not constructed, the same could not be sold or transferred back to the defendants and consequently no disputes have arisen between the parties on the basis of `buyback" agreement. ( 15 ) ADMITTEDLY there is no arbitration agreement in respect to the agreement to sell dated 18th April, 1999 and the personal guarantee agreement executed by defendant No. 2 in favor of plaintiff. In AIR 2002 Bombay 8, Garden finance Ltd. Vs. Prakash Industries Limited, a single Judge of Bombay High Court had held that Section 5 of the Arbitration and Conciliation Act will not come in the way of the High Court entertaining the suit on the basis of lease agreement and the guarantee agreement executed by defendant No. 2. In this case, the subject matter of the suit was on the basis of two agreements, namely, the agreement of lease of equipment between the plaintiff and defendant No. 2 as also the agreement of guarantee between the plaintiff and the defendant No. 2. In this case, the subject matter of the suit was on the basis of two agreements, namely, the agreement of lease of equipment between the plaintiff and defendant No. 2 as also the agreement of guarantee between the plaintiff and the defendant No. 2. Though the agreement of lease had an arbitration clause but there was no arbitration agreement in respect of the agreement of guarantee and since the suit was filed against defendant No. 1 and defendant No. 2 and in case of defendant No. 1, there was an arbitration agreement whereas in case of defendant no. 2 there was no arbitration agreement, it was held that the suit would be maintainable. Similar is the position in the present case inasmuch as there is no arbitration agreement under the personal guarantee executed by defendant No. 2 in favor of defendant No. 1 pursuant to agreement to sell dated 18th April, 1999. Even agreement to sell dated 18th April, 1999 does not have any arbitration agreement. Consequently, section 5 will not come in the way of maintainability of the present suit and the defendants are not entitled to invoke section 8 of the Arbitration Act for appointment of an arbitrator. ( 16 ) IN the facts and circumstances, the inevitable inference is that there is no arbitration agreement between the parties in respect of the matters in controversies in the present suit for recovery of part of the consideration paid and the interest and the penal interest thereon. Consequently, in the facts and circumstances, the inevitable inference is that under the agreement to sell dated 18th April, 1999 under which a part of consideration was paid to the defendants which agreement could be terminated by the plaintiff and the defendants including defendant No. 2 who had executed a personal guarantee agreement were liable to refund the entire amount along with interest and penal interest, do not contain any arbitration agreement. Since the agreement to sell and the guarantee agreement executed by defendant No. 2 in favor of plaintiff do not contain any arbitration agreement, therefore, the disputes between the parties which are only pertaining to first agreement as the plaintiff has only sought recovery of part of the consideration paid by plaintiff to defendant along with interest and penal interest under the agreement to sell dated 18th april, 1999, the disputes raised in the present suits cannot be adjudicated by appointment of an arbitrator. ( 17 ) CONSIDERING all the facts and circumstances and law cited by the parties, the inevitable inference is that there is no arbitration agreement in respect of disputes which are the basis of the suit and consequently the application is dismissed. Learned counsel for defendants seeks time to file leave to defend application and reply to IA No. 11012/2006 without prejudice to the rights and contention of the plaintiff that the application for leave to defend has already been barred by time. The application for leave to defend be filed within 10 days from today. Reply, if any, be filed within four weeks thereafter. List on April 11, 2008.