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2014 DIGILAW 106 (PAT)

CECON Engineers India Private Limited v. Shanta Devi

2014-01-22

NAVANITI PRASAD SINGH

body2014
ORDER The present application under section 11(6) of the Arbitration and Conciliation Act, 1996 (for short `the Act’) has been filed by the two petitioners. It was originally filed as against opposite parties no. 1 to 10 being first set and opposite parties no. 11 to 20 being opposite party second set, but in course of the proceedings the petitioners agreed to delete opposite party second set i.e. opposite parties no. 11 to 20. As such this application subsists only in relation to opposite party first set. Petitioner no.2 is the builder, whereas, petitioner no.1 is the Project Partner and opposite party first set are the land-lords. 2. Pleadings being complete, with consent of the parties, this application was heard for final orders. 3. Shri Jagannath Singh, learned counsel appeared for the petitioners in support of the application and Shri Lalit Kishore, learned senior counsel and Principal Additional Advocate General argued on behalf of opposite party first set. 4. It appears that opposite party first set were in possession of certain lands contiguous to Boring Road in the town of Patna. Petitioner no.2 being a builder entered into an agreement with the land owners-opposite party first set for commercial development of the plot of land as aforesaid. He got building plan sanctioned and started development work, but could not make any substantial headway. He then persuaded one M/s Magestic Construction to join as Project Partner and the work again started with consent of opposite party first set, but again partial constructions having been made, the work got stranded and the said M/s Magestic Construction withdrew with consent of the land-lords. Then petitioner no.1 came forward and agreed to become Project Partner to complete the project and, accordingly, a Tripartite Agreement was executed between petitioner no.1 being Project Partner, petitioner no.2 being the builder and opposite party first set (land-lords) being agreement dated 17.09.2002, which is Annexure 1 to this application. This agreement, inter alia, provided for division of built up area as amongst the parties. They authorized the builder and the Project Partner to settle premises to get rent, which would partly finance completion of the project. This agreement, inter alia, provided for division of built up area as amongst the parties. They authorized the builder and the Project Partner to settle premises to get rent, which would partly finance completion of the project. The said agreement also had a clause for arbitration in case of dispute, which is clause 19 of the Tripartite Agreement, which is quoted hereunder :– “Clause-19-That dispute/differences, if any, arising out of this agreement shall be decided, resolved and settled by three arbitrators, one from each part of the parties hereto and decision of majority shall be final and binding upon the parties hereto this Agreement.” 5. The construction was to be over and completed by the year 2005. It appears that one of the premises in the Commercial Complex, which was being developed known as Harihar Chambers, was allotted to one Dr. Madan Mohan Prasad. When possession was not being given to him, he filed a request case before this Court being Request Case No. 28 of 2006 against the original developer and others including petitioner no.2. The matter was referred to arbitration and on 28.012008, an arbitral award was passed, inter-alia, directing petitioner no.2 to deliver possession of the premises, as claimed, to the said claimant i.e. Madan Mohan Prasad. As noticed above, the builder was permitted to realize rents from premises, which had been constructed to enable him to finance the project and complete the same. In the year 2008, he suddenly found that those tenants stopped paying rent to him. He was then forced to file eviction suits in the civil court in the year 2008. In these suits, these tenants took a plea that they were paying rents to the land-lords i.e. opposite party first set and challenged the right, title and interest of the petitioners to claim rents. 6. Thus, it now became clear that the land-lords i.e. opposite party first set took control of the entire building to the exclusion of the builder and the Project Partner (the petitioners). As per the Tripartite Agreement, each had a defined share in the building. Thus, the petitioners claimed allocation of their shares in the built-up properties by virtue of the Tripartite Agreement, which apparently they are now being deprived of. As per the Tripartite Agreement, each had a defined share in the building. Thus, the petitioners claimed allocation of their shares in the built-up properties by virtue of the Tripartite Agreement, which apparently they are now being deprived of. This being resisted by opposite party first set and there being a dispute with regard to allocation of shares as per the Tripartite Agreement, the petitioners seek reference to arbitration as per Clause 19 of the Tripartite Agreement. They, accordingly, issued notice to opposite party first set, which is Annexure 6 to this application. This not having been responded by opposite party first set, he moved this Court. This application having been filed, notices were issued to all the parties including opposite party second set, but most of the opposite parties could not be served notices and ultimately the Court had to direct steps being taken for substituted service and, accordingly, notices were published in the newspaper. It is pursuant thereto that the parties chose to appear. 7. Learned counsel for the petitioners submits that all that the petitioners want is that the built-up property should be divided as per the Tripartite Agreement, which is being resisted by opposite party first set (the land-lords), who have taken over the entire property to the exclusion of the petitioners as has now been disclosed in the suits and proceedings as referred to above. Thus, there is a dispute arising from the Tripartite Agreement and there being an arbitration clause, which is valid and alive, the matter should be referred to arbitration through Court as inspite of notice prior to this application, opposite party first set have not abided by the arbitration clause. 8. Resisting the claim of the petitioners, Shri Lalit Kishore, learned senior counsel appearing for opposite party first set, opposite party second set having been deleted, submits with reference to the seven Judges’ Constitution Bench decision of the Apex Court in the case of SBP & CO. Vs. Patel Engineering Ltd., since reported in (2005) 8 S.C.C. 618 , that before dispute could be referred to arbitration, this Court must be satisfied that the dispute was alive, subsisting and arbitrable. To be more specific, what he submits, is that the Tripartite Agreement having come to an end in the year 2005, the arbitration agreement also ended and as such there was no clause for arbitration subsisting. To be more specific, what he submits, is that the Tripartite Agreement having come to an end in the year 2005, the arbitration agreement also ended and as such there was no clause for arbitration subsisting. His further submission would be that the dispute did not arise out of the Tripartite Agreement as whatever action land-lords took, they took after the Tripartite Agreement had ceased to operate and those actions were de hors the Tripartite Agreement and as such they could not raise a dispute in relation to the Tripartite Agreement, which could be referred to arbitration and lastly it was submitted that the dispute as being sought to be referred is barred by limitation, for which reliance has been placed on the two decisions of the Apex Court in the case of Panchu Gopal Bose Vs. Board of Trustees for Port of Calcutta, since reported in (1993) 4 SCC 338 and in the case of Steel Authority of India Vs. J. C. Budharaja, since reported in (1999) 8 S.C.C. 122 . 9. On the other hand in reply thereto, learned counsel for the petitioners submits that as per the Tripartite Agreement, the petitioners were entitled to their share in the built-up property, which was to be the consideration payable to them for building the property. Their act of putting together finances and building the property on the land of the opposite party first set was not gratuitous nor intended to be so. Even if the Tripartite Agreement was to be rescinded, then the proportion of division, which was the compensation, had to be honoured as per the Tripartite Agreement, wherein shares were allocated. There being serious dispute with regard to allocation, whereby the land-lords totally excluded the petitioners as is now evident, a dispute has arisen notwithstanding the cessation of the Tripartite Agreement or its rescinding or its expiry. For disputes arising there from, the arbitration clause, which is always treated as a clause independent would still subsist and be available, for which reference has been made to section 16(1)(a) and (b) of the Act as well as the judgment of the Apex Court in case of M/s Magma Leasing & Finance Limited Vs. Potluri Madhavilata, since reported in (2009) 10 SCC 103 . Potluri Madhavilata, since reported in (2009) 10 SCC 103 . It is further submitted on behalf of the petitioners in response to the contention raised on behalf of opposite party first set that so long as the Tripartite Agreement providing for division of property in the constructed built-up area, had subsisted and if the petitioners had got their shares, then the land-lords opposite party first set are required to show how they were divested of their interest by opposite party first set de hors the Tripartite Agreement. They (opposite party first set) do not take stand that they have now forcefully taken possession of the entire property to get rid of the petitioners. That would show that the division in accordance with the Tripartite Agreement has not been made. Whatever was with the petitioners as per the Tripartite Agreement is also being taken away by the land-lords contrary to the Tripartite Agreement. Thus, there is a dispute of division of immovable property arising out of the Tripartite Agreement. The dispute is alive, subsisting and by virtue of the arbitration clause is arbitrable. The dispute having arisen after the award in the earlier reference application, as also the stand taken by the tenants in the eviction cases and notices having been issued in terms of section 11(6) of the Act in September, 2011, it could not be said that the proceedings were barred; inasmuch as in terms of section 21, the arbitral proceedings commenced when the petitioners requested for the dispute to be referred to arbitration and sent notices to the opposite parties. This is so as has been held in the case of Visakhapatnam Port Trust Vs. M/s Continental Construction Company, since reported in (2009) 4 S.C.C. 546 . 10. Having heard the matter at length on several dates, in my view, the petitioners must succeed in getting the matter referred to arbitration as per clause 19 of the Tripartite Agreement. That there is a dispute with regard to apportionment of shares in immovable property in the shape of constructed area as provided for in the Tripartite Agreement is not disputed by Shri Lalit Kishore, learned senior counsel opposing the reference. That there is a dispute with regard to apportionment of shares in immovable property in the shape of constructed area as provided for in the Tripartite Agreement is not disputed by Shri Lalit Kishore, learned senior counsel opposing the reference. Thus, one thing is clear that a dispute arising from the Tripartite Agreement subsists, but, as noticed earlier, he submits that the Tripartite Agreement having ended in the year 2005, it ended clause 19, the arbitral clause, as well and hence resort to clause 19 cannot be taken. The answer to this is to be found with reference to section 16(1)(a) and (b) of the Act as noticed earlier. It is now well-settled that arbitration clause in an agreement is a distinct agreement itself. The agreement is for construction development of building and an arbitration clause for referring dispute arising out from that agreement is itself a distinct agreement. Even if the first agreement is rescinded, terminated or expired, disputes being there in relation to first agreement, the second agreement continues to operate and will not stand expired and rescinded in any manner. That is the spirit of section 16(1)(a) and (b) of the Act and this is what has been held by the Apex Court in the case of M/s Magma Leasing Finance Limited (supra). I can also refer to the case of M/s Reva Electric Car Co. (P) Ltd. Vs. Green Mobil, since reported in (2012) 2 SCC 93 in this regards. Thus, this issue as raised by opposite party first set is decided against them. 11. The dispute being there and the arbitration clause being there, the only question is whether it is barred as the dispute has to be alive, subsisting and arbitrable. From the facts noted earlier, it is apparent that denial of apportionment of property came to be put forward when the petitioners found that they could not comply with earlier arbitral award because land-lords had put some one else in possession of the premises, to which the petitioners were entitled to and further when the tenants took the stand challenging right, title and interest of the petitioners in the premises and acknowledging the land-lords to be the owners of the entire premises. It is upon this that notices were issued calling upon the land-lords to proceed for settlement through arbitration, which was apparently within three years of the stand being taken. It is upon this that notices were issued calling upon the land-lords to proceed for settlement through arbitration, which was apparently within three years of the stand being taken. Petitioners have rightly relied on the judgment of the Apex Court in the case of Visakhapatnam Port Trust (supra), wherein with reference to section 37(3) of the Arbitration Act, 1940, which is in pari materia to section 21 of the present Act, the Court held that arbitration proceedings are deemed to have commenced when notice is served by one party upon the other. Thus, it cannot be said that the proceedings are barred by limitation and as such not alive. 12. Thus, I find that there being a dispute arising from the Tripartite Agreement with regard to apportionment of shares in the immovable property and there being arbitral clause and opposite party first set having not agreed or responded to notices for arbitration, it is a fit case, in which this Court should refer the matter to arbitration in terms of clause 19 of the Tripartite Agreement. 13. In that view of the matter, this reference application is allowed. As each party is required to give one name of an Arbitrator, the arbitral tribunal is to consist of three persons, I direct each of the parties i.e. petitioner no.1, petitioner no.2 and opposite party first set to give and exchange names of two Arbitrators each within a fortnight from today. Parties would give objection if any against any person named within next fifteen days in the Court so that the Court may then appoint the arbitral tribunal of three persons; one from each of the three parties as aforesaid. 14. For compliance of the order aforesaid, put up this matter under the heading ‘For Orders’ on 28th of February, 2014.