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2020 DIGILAW 426 (TS)

Jai Santoshimatha Realtors v. V. Ravi Kumar

2020-05-19

A.RAJASEKHAR REDDY

body2020
ORDER : 1. This application is filed under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996, seeking to appoint an arbitrator to resolve the disputes between the applicant and the respondents arising out of the development agreement dated 22.02.2017 and to pass an award in accordance with law. 2. The case of the applicant, which is stated to be a partnership firm and represented by its Managing Partner, is that the respondents 1 and 2 are the owners of the subject property, and the applicant entered into development agreement-cum-General Power of Attorney dated 22.02.2017, with them, to develop the subject property into a commercial building, agreeing to share 40% to the developer, and 60% to the landowners in the built up area in the proposed building. As per the agreement, the applicant paid an amount of Rs. 50,00,000/- (Rupees fifty lakhs only) to the respondents towards refundable deposit, and that construction has to be completed within 18 months, with a further grace period of 6 months from the date of sanction and permissions to be obtained from Greater Hyderabad Municipal Corporation. 3. In the affidavit it is stated that the respondents mortgaged the subject property with the Reliance Housing Finance Limited and availed a loan of Rs. 9,90,00,000/- (Rupees nine crores ninety lakhs only) and created charge over the property. The case of the applicant is that as per the agreement, the respondents agreed to clear the mortgage and also agreed to pay service/GST payable in respect of their share of 60% of built up area. 4. In pursuance of the development agreement, necessary permissions were obtained from the GHMC vide No. 53227/HO/CA/CIR 10/2016 dated 17.05.2017, for construction of cellar, sub-cellar, ground plus five upper floors and accordingly the applicant commenced the construction. 5. It is stated that the respondents insisted for deviation of the sanctioned plan and to proceed with the construction as per the working plan, and undertook to obtain occupancy certificate. A supplementary agreement dated 22.03.2018 was executed between the parties, in modification of the terms of the development agreement-cum-general power of attorney dated 22.02.2017 and by virtue of the said supplementary agreement, the applicant was authorised to sell/lease its 40% share of the built up area on completion of laying of all the slabs. 6. A supplementary agreement dated 22.03.2018 was executed between the parties, in modification of the terms of the development agreement-cum-general power of attorney dated 22.02.2017 and by virtue of the said supplementary agreement, the applicant was authorised to sell/lease its 40% share of the built up area on completion of laying of all the slabs. 6. The further case of the applicant is that it completed the construction in all aspects, except laying the flooring and construction of washrooms, as the respondents failed to furnish the details of the location of the washrooms. It is stated that the applicant addressed e-mails dated 2.10.2018 and 4.10.2019 requesting the respondents to furnish the details of the location of the washrooms. But the respondents, issued reply dated 16.10.2018 with baseless allegations and the applicant vide letter dated 17.10.2018 replied the same. 7. The grievance of the applicant is that though it completed the construction and handed over the building, the respondents failed to return the deposit amount and also failed to pay GST amount to the extent of their 60% share and they also failed to clear the mortgage with the Reliance Housing Finance Limited and further they also could not obtain the occupancy certificate from the Greater Hyderabad Municipal Corporation. 8. In view of the above circumstances, the applicant got issued notice dated 19.09.2019 invoking the arbitration clause in the agreement and appointing Mr. Chalapthi Rao, Retired Additional District Judge, as an arbitrator on their behalf, and requesting the respondents to appoint an arbitrator of their choice on their behalf, within four weeks as contemplated under the development agreement dated 22.02.2017. Though the respondents received the notice, and failed to appoint an arbitrator on their behalf, the present arbitration application is filed under Section 11(5) and (6) of the Act. 9. Counter affidavit is filed on behalf of the respondents. In the counter affidavit, execution of the development agreement and the supplementary agreement between the parties is not disputed. It is denied that the applicant completed the project as per the agreements entered into between the parties. It is stated that the applicant has developed only its share i.e. 40% out of the total structure and left the remaining 60%, which is falling to the share of the respondents, and has let out its share, and enjoying the rents. It is denied that the applicant completed the project as per the agreements entered into between the parties. It is stated that the applicant has developed only its share i.e. 40% out of the total structure and left the remaining 60%, which is falling to the share of the respondents, and has let out its share, and enjoying the rents. It is stated that in response to the letters of the applicant dated 02.10.2018 and 4.10.2018, respondents have sent reply dated 16.10.2018. It is stated inter-alia that the applicant failed to discharge its obligation under the agreements, and without completing or fulfilling the terms and conditions of the developing agreement, with a mala-fide intention, wrongly demanded un-authorized amount of Rs. 71,25,788/- as GST. With these averments, the arbitration application is sought to be dismissed. 10. Head the learned counsel for the applicant, who, reiterating the averments made in the arbitration application, further submitted that there is no dispute with regard to the existence of arbitration agreement both in the original agreement, as well as in the supplementary agreement, and as the respondents failed to discharge their obligations under the agreements, the applicant issued notice invoking the arbitration clause and as the respondents received notice, but failed to nominate/appoint an arbitrator on their behalf, the present arbitration application is filed. Therefore, he seeks to allow the application and to appoint an arbitrator on behalf of the respondent, enabling both the arbitrators to appoint a presiding arbitrator, who shall pass award in accordance with law. 11. On the other hand learned counsel for the respondents while denying the claim of the applicant on merits, further submitted that in the development agreement dated 22.02.2017, the arbitration clause provides that each party i.e. the land owners and the developer has to appoint one arbitrator each and those appointed arbitrators would choose an independent arbitrator. But in the supplementary agreement dated 22.03.2018, the arbitration clause No. 16 merely provides that any dispute arising out of or in connection with this deed shall be governed by arbitration and the said arbitration proceedings shall be governed by the provisions of the Arbitration and Conciliation Act, 1996. He submits that there is inconsistency and ambiguity in both the agreements. 12. He submits that there is inconsistency and ambiguity in both the agreements. 12. Learned counsel for the respondents would further submit that in the notice dated 19.09.2019, the applicant indicated that if the respondents fail to appoint an arbitrator within four weeks from the date of notice, it would be constrained to file an arbitration application before this court. He submits that as per Section 11(4)(a) of the Act, if the party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party, then the court can appoint an arbitrator. Therefore, he submits that giving four weeks from the date of notice, is contrary to Section 11(4)(a) of the Act. Learned counsel further submits that the respondents received the notice on 25.09.2019 and they got issued reply on 30.10.2019 denying the claim of the applicants and raising counter claim. He submits that even without waiting for the statutory period under Section 11(4)(a) of the Act, the present applicant is filed and hence the same is premature. 13. Learned counsel for the respondents further submits that the notice issued by the applicant dated 19.09.2019 is not in proper format and it is very vague and does not make out a case for referring the matter to arbitration. Therefore, on this ground also the arbitration application is liable to be dismissed. 14. Learned counsel further submits that the applicant without completing or fulfilling the terms and conditions of the development agreement, and with a mala-fide intention, made wrongful demand of Rs. 71,25,788/- as GST, and in the reply issued by the respondents dated 30.10.2019, they have denied the claim of the applicant, and also made counter claim and also intimated that if the applicant fails to settle the amount mentioned in the notice, then they will have no other alternative, except to cancel the agreement dated 22.02.2017 and also the supplementary agreement dated 22.03.2018. Learned counsel submits that without settling the claim, the applicant has filed the present arbitration application, and hence this amounts to abuse of process of law. Therefore, he seeks to dismiss the arbitration application. 15. The execution of the Development Agreement cum General Power of Attorney dated 22.02.2017 and the supplementary agreement dated 22.03.2018 between the parties are not in dispute. 16. The respective arbitration clauses, in both the agreements, is required to be noticed. Therefore, he seeks to dismiss the arbitration application. 15. The execution of the Development Agreement cum General Power of Attorney dated 22.02.2017 and the supplementary agreement dated 22.03.2018 between the parties are not in dispute. 16. The respective arbitration clauses, in both the agreements, is required to be noticed. The Arbitration clause in the agreement dated 22.02.2017 is as under: In the event of there being any dispute with regard to this agreement or under this agreement or interpretation of any of the terms and conditions of this agreement, the same shall be referred to arbitration. Land owner and developer has to appoint one arbitrator each and those appointed arbitrators would choose independent arbitrator. The seat of such arbitrator shall be at Hyderabad. 17. The arbitration clause in the supplementary agreement dated 22.03.2018 reads as under: “16. Any dispute arising out of or in connection with this deed shall be governed by arbitration and the said arbitration proceedings shall be governed by the provisions of the Arbitration and Conciliation Act, 1996. The place of arbitration shall be Hyderabad and the court of Hyderabad shall alone have jurisdiction to entertain the dispute.” 18. Reading of above arbitration clauses in both the agreements dated 22.02.2017 and 22.03.2018 goes to show that under the first agreement, the parties have agreed that in case of dispute arising out of the agreement, the same shall be referred to arbitration and both the parties i.e. the land owner and the developer, shall be entitled to appoint one arbitrator each, and both of them would choose an independent arbitrator, who shall obviously be a presiding arbitrator. Under the second agreement dated 22.03.2018, the parties have agreed that any dispute arising out of the said deed, shall be governed by arbitration and the said arbitration proceedings shall be governed by the provisions of the Act. A combined reading of both the clause does not indicate that there is any inconsistency or ambiguity, and moreover both the agreements are interlinked. Hence, the contention of the learned counsel for the respondents in this regard is rejected. 19. The other contention of the learned counsel for the respondents is that the arbitration notice is not in proper format and no case is made out for appointment of an arbitrator. To consider this contention, the arbitration notice dated 19.09.2019 is required to be noticed and the same is extracted as under: 1. 19. The other contention of the learned counsel for the respondents is that the arbitration notice is not in proper format and no case is made out for appointment of an arbitrator. To consider this contention, the arbitration notice dated 19.09.2019 is required to be noticed and the same is extracted as under: 1. My client hereby draws your attention to the letter, dated 17.10.2018 addressed by my client with regard to obtaining the Occupancy Certificate from Greater Hyderabad Municipal Corporation and refund of deposit of Rs. 45 lakhs. 2. My client states that notice dated 19-02-2019 was caused in view of the orders passed in Crl. M.P. No. 6106 of 2018 by the Advocate Commissioner appointed in the proceedings initiated by Reliance Home Finance under Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 directing my client to handover vacant physical possession of the property. My client asked you to clear the dues of Reliance Home Finance and also the Mortgage over the property but you failed to comply with the same. 3. My client further states that the letter dated 05.07.2019 is addressed by my client asking you to reimburse the GST paid by my client as per the terms of development agreement-cum-general power of attorney, dated 22.02.2017 and supplementary agreement dated 22.02.2018 but you failed to pay the same. As you failed to discharge your obligations my client has no other option except to take recourse to legal proceedings in this regard. 4. My client further states that an Arbitration Agreement was entered between your and my client as incorporated in the Registered Development Agreement-cum General Power of Attorney dated 22.02.2017. The arbitration agreement envisaged appointment of one arbitrator by my client and another by you and such appointed arbitrators to appoint a third arbitrator for resolution of disputes arising out of the development agreement-cum-general power of attorney, dated 22.02.2017 and supplementary agreement dated 22.02.2018. My client hereby appoints Sri. Chalapathi Rao, Retired Additional District Judge as an arbitrator and you are therefore hereby called upon to appoint an arbitrator of your choice within four weeks from this day failing which my client will be constrained to approach the Hon'ble Court for appointment of an arbitrator for resolution of disputes between you and my client. 20. Chalapathi Rao, Retired Additional District Judge as an arbitrator and you are therefore hereby called upon to appoint an arbitrator of your choice within four weeks from this day failing which my client will be constrained to approach the Hon'ble Court for appointment of an arbitrator for resolution of disputes between you and my client. 20. The above arbitration notice clearly mentions the area of dispute between the parties and the intention of the applicant to resort to arbitration, and also appointing an arbitrator on its behalf, as agreed to between the parties, and requiring the respondents to appoint an arbitrator of their choice on their behalf, within four weeks from the date of the arbitration notice, with a default clause. In view of these facts and circumstances, it cannot be said that the notice invoking arbitration is vague, or that it is not in proper format. 21. In the decisions reported in Sarvesh Security Services Pvt. vs. Managing Director, DSIIDC the High Court of Delhi, held as under: “17. Hence, the arbitral proceedings commences on the date on which the request is made that the disputes be referred to arbitration. No particular format has been prescribed in the act for the purpose of making a request for reference of the disputes to arbitration. 18. Reference may be had to the judgment of the Supreme Court in Milkfood Ltd. vs. GMC Ice Cream (P). Ltd. (2004) 7 SCC 288 , wherein the Supreme Court held as follows:- “THE UNCITRAL Model Rules of Arbitration vis-à-vis provision of Section 14 of the English Arbitration Act, 1996 must be construed having regard to the decisions of the English courts as also this Court which addressed the form of notice to be given in order to commence the arbitration for the purpose of Section 34(3) of the Limitation Act. By reason of Section 14, merely the form of notice and strict adherence thereto has become redundant, as now in terms of Section 14 of the Arbitration Act there is otherwise no specific requirement as to the form of notice subject to any contract operating in the field. (See Paras 5-020, 5-027 and 5-028 of Russell on Arbitration, 22nd Edn.) Section 21 of the 1996 Act must be construed accordingly. It defines the moment of the commencement of arbitral proceedings.” 19. (See Paras 5-020, 5-027 and 5-028 of Russell on Arbitration, 22nd Edn.) Section 21 of the 1996 Act must be construed accordingly. It defines the moment of the commencement of arbitral proceedings.” 19. On the form of notice, an appropriate interpretation has also been stated in the Law Relating to ARBITRATION AND CONCILIATION, Ninth Edition by Learned Author Dr. P.C. Markanda, Mr. Naresh Markanda and Mr. Rajesh Markanda (Lexis Nexis). The learned authors have stated as follows:- “A “notice of arbitration” is a written communication by which the reference may be initiated. In the absence of any requirement contained in the arbitration agreement there are no specific requirements as to the form of the notice. The usual manner in writing of a letter by the claimants to the respondents seeking arbitration along with list of quantified disputes, if so required by the terms of the arbitration agreement. The giving of such notice is a matter inter partes and is a procedural and not a decisive step. Accordingly, its form and terms do not call for excessively strict scrutiny. If, in substance, a party communicates (i) an intention to resort to arbitration and (ii) a requirement that the other party should be something on his part on that regard, this will in general suffice to define the commencement of arbitration” 20. Clearly, no particular format is required for the purpose of invocation of the Arbitration Clause. The only requirement would be that with sufficient clarity petitioner should be able to communicate the invocation of the arbitration clause.” 22. As per the above judgment of the High Court of Delhi, which relied on the judgment of the Apex Court, it is clear that there is no specific requirement as to the form of notice and the only requirement is that the claimant should, in sufficient clarity, be able to communicate the invocation of the arbitration clause to the respondent. 23. In the present case, the applicant, as per the arbitration notice, which is extracted above, has in clear terms communicated its intention to invoke the arbitration. Therefore, the objection of the learned counsel for the respondents that the arbitration notice is vague, or that it is not in proper format, is without any substance and is hereby rejected. 24. The next contention of the learned counsel for the respondents is with regard to premature filing of the arbitration application. Therefore, the objection of the learned counsel for the respondents that the arbitration notice is vague, or that it is not in proper format, is without any substance and is hereby rejected. 24. The next contention of the learned counsel for the respondents is with regard to premature filing of the arbitration application. In the counter affidavit filed by the respondents, there is no averment in this regard. However, this being a legal plea, this court is inclined to consider the same in accordance with law. 25. To consider the above contention, Sections 21 and 11(4)(a) of the Act are required to be noticed and for ready reference, they are extracted as under: Section 21: Commencement of arbitral proceedings: Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. 11. Appointment of arbitrators: .... (3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. (4) If the appointment procedure in sub-section (3) applies: (a) party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party. (b)...... The appointment shall be made, upon request of a party, by the Supreme Court, or as the case may be, the High Court or any person or institution designated by such Court. 26. Reading of the above provisions goes to show that under Section 21, the arbitral proceedings would commence on the date on which the request of the dispute to be referred to arbitration, is received by the respondent, and under Section 11(4)(a), if a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party, the appointment of arbitrators shall be made by the High Court. 27. In the present case, the notice invoking the arbitration clause in the agreement was issued on 19.09.2019. As per the submission of the learned counsel for the respondents, the respondents received the notice on 25.09.2019. In the reply issued by the respondents on 30.10.2019, there is no averment that the respondents received the notice on 25.09.2019. 27. In the present case, the notice invoking the arbitration clause in the agreement was issued on 19.09.2019. As per the submission of the learned counsel for the respondents, the respondents received the notice on 25.09.2019. In the reply issued by the respondents on 30.10.2019, there is no averment that the respondents received the notice on 25.09.2019. In the reply, the relevant averments, with regard to notice, are as under: “....That in fact, you served notice to my client on 19th September, 2019 and the same has been came to my client's knowledge on 10th October, 2019 and immediately my client responded for this reply.” 28. The above averments in the reply notice show that the applicant served notice on the respondents on 19.09.2019 and it has come to the notice of the respondents on 10.10.2019. However, as per the submissions of the learned counsel for the respondents, the respondents received notice on 25.09.2019. This submission is without any basis and contrary to the stand taken in the reply, wherein it is stated that notice was served on 19.09.2019. Even otherwise, if the notice is taken to have been served on 25.09.2019, the period of thirty days from the said date, will end by 25.10.2019 and the applicant filed the present application on 25.10.2019. The respondents caused reply on 30.10.2019 i.e. after filing of the arbitration application, denying the request of the applicant. As the respondents have denied the request of the applicant for appointing an arbitrator on their behalf, this court is within its jurisdiction to entertain the application under Section 11(5) and (6) of the Act. Hence, the contention of the learned counsel for the respondents in this regard, is without any basis. 29. Since, there is no dispute with regard to existence of arbitration clause in the agreements, and the applicant issued statutory notice under Section 21 of the Act invoking the arbitration clause and the same has been received by the respondents, but as they failed to appoint an arbitrator on their behalf, this court is inclined to allow the arbitration application. 30. For the foregoing reasons, the arbitration application is allowed. 31. Sri. Mandadi Chalapathi Rao, Retired District Judge, is nominated as Arbitrator on behalf of the applicant. Sri. K. Sanga Reddy, Retired District Judge, is nominated as Arbitrator on behalf of the respondents. 32. 30. For the foregoing reasons, the arbitration application is allowed. 31. Sri. Mandadi Chalapathi Rao, Retired District Judge, is nominated as Arbitrator on behalf of the applicant. Sri. K. Sanga Reddy, Retired District Judge, is nominated as Arbitrator on behalf of the respondents. 32. The above said Arbitrators, shall follow the procedure agreed to between the parties in the agreement dated 22.02.2017 and nominate a third arbitrator, who shall be the Presiding Arbitrator. The Arbitrators, so nominated, shall pass an award in accordance with law. 33. The learned Arbitrators are entitled to fees as per the rates specified in the Fourth Schedule to the Act of 1996, inserted by Act 3 of 2016 with effect from 23-10-2015, which shall be borne by both parties in equal shares. 34. Interlocutory applications pending, if any, shall stand closed. No order as to costs. 35. Before parting with the case it is made clear that all the issues are left open to both the parties to agitate before the Arbitrators and the Arbitrators shall pass award on merits and in accordance with law, uninfluenced by finding or observation, if any, made in this order.