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2006 DIGILAW 734 (CAL)

ZOOM DEVELOPERS PVT. LTD v. SMALL TOOLS MANUFACTURING CO. OF INDIA LTD

2006-11-27

INDIRA BANERJEE

body2006
Before Justice Indira Banerjee, JJ. ( 1 ) THE respondent No. 1, hereinafter referred to as STMC was the owner of a plot of land measuring about 76. 5 Cottahs at Premises no. 33/1a, Upen Chandra Banerjee Road, Kolkata 700054, hereinafter referred to as the said premises, situate outside the Original Side jurisdiction of this Court. ( 2 ) THE said premises was, however, mortgaged to the respondent-Bank as security for loans advanced by the respondent-Bank to STMC. In 1998 the Board for Industrial and Financial Reconstructions (BIFR)declared STMC a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985. ( 3 ) STMC preferred an appeal before the Appellate Authority for industrial and Financial Reconstruction, (AAIFR ). The appeal was, however, dismissed. Thereafter, STMC filed a writ petition being w. P. No. 1557 of 1998 in this Court challenging the order of AAIFR. ( 4 ) BY an order dated 19th April, 2000 in W. P. No. 1557 of 1998 this court approved the sale of the said premises to M/s. Shiva Technocom pvt. Ltd. at Rs. 10. 71 crores. It is alleged that the Shiva Technocom Pvt. Ltd. failed to pay the agreed consideration within the time stipulated in the order dated 19th April, 2000. ( 5 ) BY an order dated 8th June, 2000 this Court directed the forfeiture of the security deposit of the said Shiva Technocom Pvt. Ltd. and directed resale of the said premises. ( 6 ) AN appeal was preferred against the said order dated 8th June, 2000. The appeal was, however, dismissed. Thereafter, advertisements for sale of the said premises was issued. Pursuant to the sale notice the respondent No. 3, hereinafter referred to as the Martin Bum submitted its offer, which was accepted by the Division Bench. ( 7 ) THEREAFTER, a four-party agreement was executed between STMC, the respondent-Bank, Martin Burn and the petitioner, whereby it was agreed that the petitioner would procure Rs. 800 lacs for payment to the respondent-Bank. The amount would directly be paid by the petitioner to the Respondent-Bank. A further amount of Rs. 523 lacs would be paid by the petitioner to the owner, STMC through a non-lien account. 800 lacs for payment to the respondent-Bank. The amount would directly be paid by the petitioner to the Respondent-Bank. A further amount of Rs. 523 lacs would be paid by the petitioner to the owner, STMC through a non-lien account. ( 8 ) BY the aforesaid agreement, it was decided that the petitioner would provide finance for rehabilitation of STMC and would in turn have the sole and exclusive right to develop the said premises and to either sell or to retain the developed premises wholly or in part and realize the sale proceeds of any part of the said premises that might be sold. ( 9 ) IT was further agreed that the petitioner would pay the initial amount of Rs. 300 lacs to the STMC and to the respondent-Bank by 24th december, 2004. ( 10 ) IN Paragraph-11 of the petition, it is alleged that the petitioner paid Rs. 40 lacs to Martin Burn as per the particulars given in the said paragraph. Admittedly, as pleaded in the aforesaid paragraph, a further sum of Rs. 260 lacs which the petitioner had promised to pay remained outstanding. ( 11 ) BY an order dated 20th December, 2004, this Court extended the time for payment. On 15th January, 2005 Mr. Sujit Poddar, Regional director of the petitioner wrote a letter to Martin Burn, informing Martin burn that the petitioner was unable to make payment of Rs. 300 lacs as promised and that the four-party agreement was treated as cancelled. By the aforesaid letter Martin Burn was asked to locate another partner. A copy of the said letter was also marked to STMC. ( 12 ) THE petitioner contends that the Regional Director concerned was not authorized to write the letter and the letter was written by reason of a communication gap. ( 13 ) ACCORDING to the petitioner, immediately after issuance of the letter dated 15th January, 2005, the petitioner wrote a letter dated 17th january, 2005 to the respondent-Bank praying for extension of time of one month to make payment of the agreed amount of Rs. 300 lacs. The offer was rejected by the respondent-Bank by a letter dated 19th January, 2005. 300 lacs. The offer was rejected by the respondent-Bank by a letter dated 19th January, 2005. ( 14 ) IN the mean time, the Joint Receivers appointed by this Court by a letter dated 18th January, 2005 informed the STMC that they had no objection to M/s. Mayfair Vyapar Pvt. Ltd. being inducted in place of the petitioner upon payment of balance amount of Rs. 260 lacs. ( 15 ) IN the petition, it is contended that as per agreement, the agreement could not be assigned without consent of the other parties and as such there couid be no question of issuing 'no objection' in favour of mayfair Vyapar Pvt. Ltd. , a stranger to the agreement. ( 16 ) THE petitioner also filed an intervention application in a pending appeal arising out of W. P. No. 1557 of 1998 being A. P. O. T. No. 495 of 2000. The intervention application was not entertained. ( 17 ) BY an order dated 1st February, 2005 the Division Bench allowed martin Burn to make payment of Rs. 260 lacs and recorded that Martin burn had nothing further to do with the petitioner. ( 18 ) THE petitioner thereafter claims to have written a letter dated 10th February, 2005 expressing its eagerness to proceed with the agreement which, according to the petitioner was still valid and binding on all four parties thereto. ( 19 ) IT is alleged that the petitioner as token of its bona fides enclosed a cheque of Rs. 260 lacs in favour of Martin Burn. Martin Burn by a letter dated 14th February, 2005 returned the cheque of Rs. 260 lacs. ( 20 ) THE petitioner claims to have filed a Special Leave Petition in the Supreme Court against the orders passed by the Division Bench in the said A. P O. T. No. 495 of 2000. The Supreme Court by an order dated 10th May, 2005 observed that the finding of the Division Bench that the petitioner had nothing to do with the agreement, was only a prima facie observation which would not affect the rights of the parties. The Supreme Court by an order dated 10th May, 2005 observed that the finding of the Division Bench that the petitioner had nothing to do with the agreement, was only a prima facie observation which would not affect the rights of the parties. ( 21 ) ACCORDING to the petitioner Martin Burn had by its letter dated 14th February, 2005 informed the petitioner that the involvement of the petitioner in the project had come to an end and that the agreement dated 23rd December, 2004 had also come to an end with the order dated 1st february, 2005. ( 22 ) THE petitioner contends that in view of the order dated 10th may, 2005, it is not open to Martin Burn to contend that the agreement came to an end with the order dated 1st February, 2005 inasmuch as the observations made in the said order were found by the Supreme Court to be prima facie observations which were not to affect the rights and contentions of the respective parties. ( 23 ) BY a letter dated 28th May, 2005 the petitioner once again enclosed a cheque for Rs. 260 lacs and Rs. 68,169/- and reiterated their willingness to perform their part of the obligation. Martin Burn by a letter dated 1st June, 2005 refuted the contentions of the petitioner and refused to accept belated payment of Rs. 260 lacs. ( 24 ) DISPUTES having arisen, the petitioner has invoked the arbitration clause and has filed the instant application under Section 9 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the 1996 Act for the interim relief of appointment of Receiver over the said premises with a direction on the Receiver to take possession thereof with police help, and injunction restraining the respondents from disposing, transferring, encumbering, letting out, developing or dealing with the said premises in any manner whatsoever. ( 25 ) AS pleaded in the petition, the petitioner had been unable to mobilize funds to make payment of the balance amount of Rs. 260 lacs and had sought extension of time to make the aforesaid payment. In the mean time due to some communication gap the Regional Director of the petitioner wrote a letter dated 15th January, 2005 opting to back out of the agreement. ( 26 ) ACCORDING to the petitioner, none of the respondents had expressly accepted or acted upon the purported termination. In the mean time due to some communication gap the Regional Director of the petitioner wrote a letter dated 15th January, 2005 opting to back out of the agreement. ( 26 ) ACCORDING to the petitioner, none of the respondents had expressly accepted or acted upon the purported termination. By a letter dated 20th January, 2005 the petitioner expressly rescinded the cancellation letter. Admittedly, in the mean time, the Joint Receivers had given their no objection for induction of Mayfair Vyapar Pvt. Ltd. in place of the petitioner. It is alleged that such permission was given on 18th january, 2005. ( 27 ) ON behalf of the respondents objection has been taken to the jurisdiction of this Court to entertain and adjudicate the instant application on the ground that the said premises is situate outside the jurisdiction of this Court. ( 28 ) ON merits too, it is submitted that the petitioner is not entitled to any interim relief under Section 9 of the 1996 Act, inasmuch as the petitioner had itself withdrawn from the agreement. Thereafter STMC, the respondent-Bank and Martin Burn had entered into an agreement with the said Mayfair Vyapar Pvt. Ltd. ( 29 ) ON behalf of the respondents, it is submitted that in terms of clause 7 of the agreement dated 23rd December, 2004, Rs. 300 lacs was to be paid by the petitioner to the Respondent No. 2 by 24th December, 2004. In January, 2005 the petitioner was unable to fulfil its obligation. By a letter dated 15th January, 2005, the petitioner admitted its inability to make payment of Rs. 300 lacs and withdrew from the agreement giving liberty to Martin Burn to negotiate with others. Martin Burn accepted the repudiation, entered into an agreement with a third party and sought leave of the Receiver. ( 30 ) WITH regard to the allegation of the petitioner, of Sujit Poddar being unauthorized, the respondents argued that the same Sujit Poddar had executed the agreement on behalf of the petitioner. The submission of want of authority of the said Sujit Poddar, is according to the respondents, an afterthought. ( 30 ) WITH regard to the allegation of the petitioner, of Sujit Poddar being unauthorized, the respondents argued that the same Sujit Poddar had executed the agreement on behalf of the petitioner. The submission of want of authority of the said Sujit Poddar, is according to the respondents, an afterthought. ( 31 ) IT is not in dispute that the Regional Director of the petitioner, who had executed the agreement on behalf of the petitioner wrote a letter dated 15th January, 2005 to Martin Burn on behalf of the petitioner, pleading financial inability of the petitioner to make payment in terms of the agreement and withdrawing from the agreement. Whether the Regional director of the petitioner had authority to write the letter dated 15th January, 2005 or not, whether the subsequent letter of the petitioner was received by Martin Burn before acceptance of repudiation by the petitioner of the agreement, vide its letter dated 15th January, 2005, are issues to be adjudicated in the arbitration proceedings. ( 32 ) PRIMA facie it appears to this Court that the contention of the petitioner of Sujit Poddar not having authority is an afterthought, for it was sujit Poddar, who executed the agreement on behalf of the petitioner ( 33 ) IN any case, by executing the agreement Sujit Poddar represented to Martin Burn and the other respondents that he had been authorized by the company and if Martin Burn acted on the basis of cancellation letter written by Sujit Poddar, prima facie, Martin Burn cannot be faulted. If the Regional Director unauthorizedly wrote a letter, it is for the petitioner to initiate such appropriate proceedings as it be may advised against its Regional Director. The aforesaid observations are, however, only prima facie observations, without prejudice, and not to influence the decision in arbitration and/or in any other proceedings. ( 34 ) THE petitioner, prima facie, having indicated its financial inability to proceed with the agreement, expressed its wish to withdraw from the agreement and consented to the induction of another partner, this Court is not inclined to grant the petitioner the interim reliefs prayed for under section 9 of the 1996 Act. If the petitioner ultimately succeeds in the arbitration proceedings, damages would afford the petitioner adequate relief. If the petitioner ultimately succeeds in the arbitration proceedings, damages would afford the petitioner adequate relief. The grant of interim reliefs at this stage, after induction of Mayfair vyapar Pvt. Ltd. and after commencement of construction, would not be expedient, upon comparative assessment of the possible prejudice to the respondent by grant of relief, if the petitioner ultimately fails and the possible prejudice to the petitioner by refusal to grant interim relief if the petitioner ultimately succeeds. ( 35 ) THE respondents, have, however, raised a preliminary objection to the jurisdiction of this Court to entertain and decide this application. Under Section 2 (b) of the 1996 Act 'court' has been defined to mean the principal Civil Court of original jurisdiction in a District including the High court in exercise of its original jurisdiction having the jurisdiction, to decide the questions forming the subject-matter of the arbitration, if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such Principal Civil Court or any Court of Small causes. ( 36 ) THIS Court has, therefore, to consider whether this Court could have entertained a suit if the subject-matter of this arbitration had been the subject-matter of the suit. ( 37 ) THIS Court has, therefore, to analyze the exact nature of the disputes between the parties that might be referred to arbitration. The aforesaid agreement envisaged assignment of all rights in respect of the said premises including beneficial ownership of the said premises to the petitioner with sole and exclusive right to develop the said premises and to either retain or sell the whole or any part of the said premises upon construction and realize the sale proceeds thereof. The agreement further envisages payment of Rs. 300 lacs (Rs. 100 lacs to the respondent-Bank and Rs. 200 lacs to STMC) subject inter alia to possession of the said premises being handed over to the petitioner against payment as aforesaid. ( 38 ) THE relief in arbitration would essentially involve the relief of delivery of possession of the land to the petitioner in terms of the agreement apart from assignment of ownership of the said premises. 200 lacs to STMC) subject inter alia to possession of the said premises being handed over to the petitioner against payment as aforesaid. ( 38 ) THE relief in arbitration would essentially involve the relief of delivery of possession of the land to the petitioner in terms of the agreement apart from assignment of ownership of the said premises. In the instant application under Section 9 of the 1996 Act too, the petitioner has the relief of appointment of a Receiver to take possession at the said premises and for injunction restraining the respondents from selling the said premises or any part thereof. ( 39 ) IN the case of Cityscape Developers v. Alka Builders, reported in 2000 (1) CLT 346 a Division Bench of this Court held as follows:- "reading Section 9 with Section 2 (e) of the Act, it is clear that this Court could entertain the respondent No. 1 s application provided it had the territorial jurisdiction to do so. The territorial jurisdiction of this Court as a Court of original jurisdiction, has been prescribed by clause 12 of the Letters Patent. The relevant extract of Clause 12 lays down that the High Court- " (i) In the exercise of its Ordinary Original Civil Jurisdiction, shall be empowered to receive, try, and determine suits of every description, if, in the case of suits for land or other immovable property, such land or property shall be situated, or in all other cases if the cause of action shall have arisen, either wholly, or, in case the leave of the Court shall have been first obtained, in part, within the local limits of the ordinary original jurisdiction of the said High Court. " Thus, if the matter is a suit for land unless the land is within the territorial limits of this Court, the Court would have no jurisdiction. According to the appellant the land In question is the complex which admittedly is beyond he Court's jurisdiction. In an unreported decision in C. S. No. 493 of 1999 (21st Century construction Pvt. Ltd. and Anr. v. Smt. Saraswati Dalmia and Ors. According to the appellant the land In question is the complex which admittedly is beyond he Court's jurisdiction. In an unreported decision in C. S. No. 493 of 1999 (21st Century construction Pvt. Ltd. and Anr. v. Smt. Saraswati Dalmia and Ors. , judgment dated 27th October, 1995 this Court has held:- "it is generally accepted principle now a days that the only method for determining whether the facts of a particular case fall within the meaning of the words "suit for land" is to refer the essential nature of the relief sought. In other words does a suit in substance involve a controversy about land or immovable property? Is the Court called upon to decide conflicting claims to such property? Will the decree or order prayed for being about change in the title or possession to such land? Will the Court in granting the relief claimed have to decide the question of title to, management of land or other immovable property? If the answers to any of these is in the affirmative then the suit would be a suit for land. " The Court will have to ascertain what the primary object of the suit is by scrutinizing the application under Section 9. It appears to us that many of the reliefs prayed would affect the control and management of property outside the jurisdiction of this Court. No doubt prayers (f), (g), (h) and (I) relate to deposit of payment of monies and transfer of shares but these also relate to income either from the leases of the stalls in the complex or the maintenance of the complex. The object of the application under section 9 is not primarily to obtain accounts. The question of accounts would arise only after the leases and sales of stalls are complete. On the basis of reasoning aforesaid it must be held, at least prima facie, that the application is in substance a suit for land and this Court did not have the jurisdiction to entertain the same. " ( 40 ) IN the case of Adcon Electronics Ltd. v. Daulat and Anr. On the basis of reasoning aforesaid it must be held, at least prima facie, that the application is in substance a suit for land and this Court did not have the jurisdiction to entertain the same. " ( 40 ) IN the case of Adcon Electronics Ltd. v. Daulat and Anr. , reported in 2001 (7) SCC 698 the Supreme Court held that whether a suit was a suit for land or not had to be determined on the basis of the averments in the plaint as well as the reliefs claimed therein, Where the relief related to adjudication of title to land or immovable property or delivery of possession of land or immovable property, it would be a suit for land. In the case of adcon Electronics (supra) the Supreme Court affirmed the view expressed by the Federal. Court (Mahajan, J.) in the case of Moolji Jaltha. ( 41 ) THE petitioner has, in support of its submission submitted that this Court has territorial jurisdiction to entertain the application, referred to an unreported judgment of a Division Bench of this Court in the case of magma Leasing Ltd. v. Tong T. Co. Ltd. In the particular facts of the case of Magma Leasing Ltd. v. Tong T. Co. Ltd. (supra) the Division Bench found that the relief of appointment of Receiver over and sale of a flat outside the jurisdiction of this Court, was in the nature of an ancillary relief, the primary object of which was to preserve the assets of the respondents during the arbitration proceedings. ( 42 ) THOUGH not expressly stated in the judgment, it appears that the arbitration proceedings were essentially for enforcement of money claims. The petitioner also relied on the common judgment of the Division Bench dated 20th December, 2004 in the case of A. P. O No. 76 of 2002 (Cityscape developers Pvt. Ltd. v. Alka Builders Pvt. Ltd. and Anr.) and A. P. O. T. No. 280 of 2003 (Alka Builders Pvt. Ltd. and Anr. v. Cityscape Developers Pvt. Ltd.)whereby the Division Bench set aside the judgment and order of the learned single Judge, dismissing an application under Section 9 of the 1996 Act for interim relief of inter alia appointment of Receiver over and injunction in respect of property situate outside the Original Side Jurisdiction of this court, on the ground of want of terminal jurisdiction. . . ( 43 ) THE aforesaid judgment was also rendered in the particular facts of the case where the Division Bench accepted the finding of a different learned Single Judge of this Court that the subject-matter of dispute involving Cityscape Developers Pvt. Ltd. and Alka Builders Pvt. Ltd. being the subject-matter of arbitration proceedings was a joint venture agreement and did not involve any adjudication of title over land. ( 44 ) THE Division Bench observed "the title to the land admittedly belonged to the Calcutta Municipal Corporation, which is not even a party to the Arbitration proceedings His Lordship held that the dispute was clearly one for dissolution of partnership and sharing of profit arising out of the joint venture agreement. ( 45 ) BOTH the judgments relied upon by the petitioner are distinguishable on facts. It cannot, in this case, be held that the relief of appointment of Receiver to take possession of the said premises is an ancillary relief in aid of reliefs not connected with title or possession of land or immovable property. ( 46 ) BE it a suit or an application, the onus of establishing at least prima facie that the Court has jurisdiction lies upon the plaintiff the applicant invoking the jurisdiction of Court. ( 47 ) AN applicatiop under Section 9 of the 1996 Act stands on a different footing than an interlocutory application, in a suit. An application under Section 9 of the 1996 Act might be moved before or after commencement of arbitration proceedings. While the Court might look into the pleadings in the plaint, before entertaining an interlocutory application in a suit, this option is not always open to the Court in an application under Section 9 of the 1996 Act, where arbitration proceedings may not at all have commenced. ( 48 ) IN an application under Section 9 of the 1996 Act, the applicant would have to demonstrate that the Court in which the application has been moved has jurisdiction, territorial as well as pecuniary. ( 48 ) IN an application under Section 9 of the 1996 Act, the applicant would have to demonstrate that the Court in which the application has been moved has jurisdiction, territorial as well as pecuniary. ( 49 ) IN art application for interim relief, under Section 9 of the 1996 act where interim reliefs sought are appointment of Receiver over immovable property with direction on the Receiver to take possession of the immovable property and also relief of injunction in relation to the immovable property outside the jurisdiction, the onus would be on the applicant for interim relief to demonstrate that the nature of the reliefs that the applicant might seek in the proposed arbitration are not in the nature of reliefs in a suit for land. It is not for the Court to speculate the possible reliefs. ( 50 ) IN the Instant case, the respondents have in their affidavit-in-opposition take a specific objection to the jurisdiction of this Court to entertain this application. In the affidavit-in-reply there is not a whisper as to the nature of the reliefs that might be sought in the proposed arbitration that would take the subject-matter of the arbitration out of the purview of an arbitration for title and/or possession and/or control over land. In view of the finding of this Court that this Court lacks jurisdiction to entertain this application under Section 9 of the 1996 Act being A. P. No. 171 of 2005, the application being G. A. No. 2825 of 2006 is dismissed. ( 51 ) THIS Court has no option but to hold that this Court lacks territorial jurisdiction to entertain this application for this Court cannot but hold that if a suit were instituted in respect of the subject-matter of arbitration the same would be a suit for land. The instant application is accordingly rejected on the ground of want of territorial jurisdiction of this Court to entertain the instant application. The petition may be returned for presentation before the Court of appropriate jurisdiction. Any observations made above with regard to the merits are without prejudice and shall not influence the decision of the appropriate Court having jurisdiction.