Karnataka High Court
M/S. Sbr Infra Buildtech vs M/S. Apya Capital Services Private ... on 26 July, 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF JULY, 2024
PRESENT
THE HON'BLE MRS JUSTICE ANU SIVARAMAN
AND
THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
COMMERCIAL APPEAL NO. 225 OF 2024
BETWEEN:
M/S SBR INFRA BUILDTECH,
A PARTNERSHIP FIRM,
REGISTERED UNDER THE INDIAN
PARTNERSHIP ACT 1932, HAVING ITS OFFICE AT
SY NO 24/5, SBR HORIZON SEEGEHALLI,
BENGALURU - 560067,
REPRESENTED BY ITS MANAGING PARTNER
MR T VENUGOPAL.
...APPELLANT
(BY SRI SIDDHARTH SUMAN, ADVOCATE)
AND:
M/S. APYA CAPITAL SERVICES PRIVATE LIMITED,
A COMPANY INCORPORATED UNDER THE PROVISION
OF THE COMPANIES ACT 1956
HAVING ITS REGISTERED OFFICE AT FLAT NO.22,
TOWER 6, PEBBLE BAY, RAJ MAHAL VILAS - II,
RAMAKRISHNAPPA LAYOUT,
NAGASHETTY HALLI, BENGALURU - 560094,
REPRESENTED BY ITS AUTHORIZED SIGNATORY
MS DURGA G.
...RESPONDENT
(BY SRI CHINTAN CHINNAPPA, ADV. FOR C/RESPONDENT)
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THIS COMMERCIAL APPEAL IS FILED UNDER
SECTION 13 (1a) OF THE COMMERCIAL COURTS ACT 2015
UNDER SECTION 37 (1) (b) OF THE ARBITRATION AND
CONCILIATION ACT 1996 PRAYING THAT THIS HON'BLE
COURT BE PLEASED:
(i) TO CALL FOR THE RECORDS AND SET ASIDE
THE ORDER DATED 10.06.2024 IN COM. AA. NO.
148/2024 PASSED BY HON'BLE LXXXVII ADDITIONAL CITY
CIVIL AND SESSIONS JUDGE AT BANGALORE,
COMMERCIAL COURT CCH-88 ON THE APPLICATION FILED
BY THE RESPONDENT APPLICANT UNDER SECTION 9 OF
THE ARBITRATION AND CONCILIATION ACT, 1996 AND TO
DISMISS THE APPLICATION FILED UNDER SECTION 9 OF
THE ARBITRATION AND CONCILIATION ACT, 1996 IN THE
COURT BELOW IN COM.A. NO. 148 2024.
(ii) TO AWARD COSTS AND GRANT SUCH OTHER
RELIEFS AS THIS HON'BLE COURT DEEMS FIT AND
EXPEDIENT IN THE CIRCUMSTANCES OF THE CASE, IN
THE INTERESTS OF JUSTICE AND EQUITY.
THIS APPEAL HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT ON 23RD JULY, 2024 AND COMING ON FOR
PRONOUNCEMENT THIS DAY, ANANT RAMANATH
HEGDE J., PRONOUNCED THE FOLLOWING:
CORAM: HON'BLE MRS JUSTICE ANU SIVARAMAN
AND
HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
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CAV JUDGMENT
(PER: HON'BLE MR JUSTICE ANANT RAMANATH HEGDE) This appeal is directed against the order under Section 9 of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as the 'Act of 1996' for short). In terms of the impugned order, Section 9 Court has allowed the application filed by the present respondent and restrained the appellant from selling/alienating/encumbering/creating third party rights over 'C' schedule property and also restrained them from collecting any money, receivables, directly or indirectly till the disposal of the arbitration proceeding.
2. It is brought to the notice of this Court that a writ petition No.12181/2024 is pending before this Court wherein the present appellant has challenged the order passed by Section 9 Court in a review petition filed by the respondent seeking review of the order dismissing the earlier Section 9 application filed by the respondent in respect of Schedule - A and B properties. -4-
3. The learned counsel appearing for the appellant and the learned Senior counsel appearing for the respondent jointly submit that the contention in this appeal and the writ petition being substantially the same (in so far as merits or demerits of both Section 9 applications), requested the Court to pass appropriate orders covering properties involved in both Section 9 applications. Accordingly, the present order is passed which shall apply to properties covered in both Section 9 applications.
4. The appellant before this Court is a developer and the respondent is a Marketing Service Provider to sell the properties developed by the appellant. The contractual relationship between the appellant and the respondent is governed by the Marketing Services Agreement dated 19.10.2022. Various terms and conditions have been incorporated in the agreement defining the rights and responsibilities of the appellant and the respondent.
5. Admittedly, the appellant had hired the services of the respondent to market the property covered in the agreement dated 19.10.2022. The respondent claims that -5- excluding 6% of the total properties developed, it has the exclusive right to sell the properties. The respondent is entitled to certain commission agreed upon by the parties which are specifically enumerated in schedule II of the agreement dated 19.10.2022.
6. Clause 3.4 of the agreement provides for termination of the agreement. The fees payable to the respondent are also set out in Clause F of Schedule I.
7. Clause 3.4 also stipulates that in case, the agreement is to be terminated, then the developer can terminate the agreement after giving 30 days' notice in writing to the respondent.
8. The appellant claims that the agreement is terminated with immediate effect by issuing an email on 05.04.2023. The appellant further also claims that on 22.05.2023, the agreement is once again terminated with immediate effect by sending one more email. In both emails referred to above, the agreement is terminated with immediate effect without giving 30 days' notice as contemplated under clause 3.4 of the agreement. On this -6- premise, the respondent contends that the termination is invalid and the agreement still subsists. The appellant would contend that the respondent has agreed to abide by the conditions mentioned in the termination notice and the respondent has treated the agreement as terminated. It is also the contention of the appellant that after the termination notice dated 05.04.2023, the respondent has not acted as the service provider in terms of the agreement.
9. During the course of the hearing, both the parties admitted that 210 customers out of 235 customers who approached through the respondent have agreed to purchase the properties developed by the appellant.
10. The respondent has invoked Section 9 of the Act of 1996 on the premise that the appellant is in arrears of commission/service charges payable to the respondent to the tune of Rs.11,73,95,985/- after deducting Rs.1.75 crores. Respondent also claimed that the alleged termination of the agreement is illegal. Thus, the respondent claims that it is entitled to provide marketing -7- services in respect of all other properties covered by the agreement dated 19.10.2022.
11. The appellant contends that the respondent is entitled to 5% of the agreed sale consideration amount, and 60% of the said amount is to be paid only after 20% of the sale consideration amount is paid by the purchaser as well as the balance amount released by the financier.
12. The respondent's entitlement to 5% of the consideration amount on the minimum sale consideration amount agreed is not in dispute. Additional revenue sharing @ 5.5% if the property is sold at a higher price than the benchmark price fixed under the agreement is also not in dispute. However, what is the disputed breakup of said 5% or 5.5% amount payable? This question involves the interpretation of the clause relating to the payment schedule.
13. It is an admitted position that the respondent has not yet marketed the flats in the 'C' schedule property. The respondent submits that the necessary approval from the competent authority is received recently and the -8- appellant issued a notice terminating the contract which though not invalid, came in the way of the respondent going ahead with the marketing of the properties in the 'C' schedule.
14. Whether the agreement is validly terminated or not requires consideration. Whether the respondent has waived 30 days notice of termination of the agreement by its conduct also requires consideration.
15. The right of the appellant to terminate the contract is very much recognised and the respondent does not have any right over the properties in question. This being the position, even if the termination of the contract is illegal, a claim for specific performance, at the instance of the respondent, to compel the appellant to enter into a sale deed in favour of the purchaser identified by the respondent, prima facie may not be maintainable. Thus, the remedy for the respondent in case of breach of the agreement is to recover the service charges and damages if any.
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16. During the course of the hearing, it is submitted by the learned counsel for the appellant that in case, all the agreements for sale in respect of 210 units result in absolute sale deeds, then the respondent approximately would be entitled to Rs.8.5 crores towards commission. It is further submitted that on deducting Rs.1.75 crores already paid, and Rs.86,08,276.00 paid to the channel partners of the respondent, the appellant at the most would be liable to pay Rs.5.88 crores.
17. After hearing both parties, this Court indicated that there has to be some interim measure to secure the interest of the respondent.
18. In the above-said background, the appellant has offered, as an interim measure, to provide some security to the respondent's claim that it has provided 210 customers to purchase the flats developed by the appellant.
19. The respondent has claimed that the security is to be offered not only in respect of the service charges payable to the respondent in respect of 210 customers
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provided by the appellant but also to be paid in respect of the claim arising from the illegal termination of the agreement.
20. Interpreting the clause relating to the payment, respondent claims that it has already provided service worth approximately Rs.16.40 crores and the respondent is prevented from providing service in respect of unsold units and the respondent is losing the profits which it would have made by further sales.
21. It is also required to be noticed that the respondent is claiming his right to market the units in the 'C' schedule and damages for not allowing it to market the same. It is not possible at this juncture to assess the damages as it cannot be predicted that the respondent would have managed to sell the remaining units. Admittedly, no sale agreements have been entered into in respect of the properties in the 'C' schedule. Thus, there is no question of unpaid service charges or commission in respect of 'C' schedule property.
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22. It is an admitted position that Rs.1.75 crores is already paid to the respondent. Respondent in his application has claimed that Rs.11,73,95,985/- is due (deducting Rs.1.75 crores) towards the services rendered. The said figure of Rs.11,73,95,985/- is on the assumption that all the 235 sale agreements will translate into the sale deeds. Admittedly, the respondent can claim full payment of 5% or 5.5% commission as the case may be, only after execution of the sale deed. Before completion of the sale deeds, respondent is only entitled to a certain percentage of 5% or 5.5% fees agreed upon.
23. In the backdrop of the above-mentioned facts, the impugned order is not sustainable. In the first place, the restraint order could not have been passed with respect of 6% of the total properties since the developer has the exclusive right to sell the same, even under the agreement dated 19.10.2022. The absolute restraint order against the appellant from selling the units is also not justified as the respondent does not have a right over the properties.
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Thus, this Court is of the view that the interim order needs modification.
24. Considering the above-mentioned factors, as an interim measure, to balance the equity, till the application under Section 17 is heard by the Arbitral Tribunal, this Court deems it appropriate to direct the appellant to furnish security to the tune of Rs.10.00 crores, keeping open all the questions relating to the interim measure to be adjudicated under Section 17 of the Act of 1996. This order is made also taking into account that both parties have agreed and requested this Court to appoint an arbitrator to resolve the dispute.
25. Hence, the following interim measures are passed:
(i) The appellant shall furnish security to the tune of Rs.10.00 crores (Rupees Ten Crores only) to the satisfaction of the Commercial Court. Any security offered shall be free from all or any encumbrance and the respondent shall have first charge over the same.
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(ii) Till furnishing of security as ordered, the appellant shall not alienate, or create any third party charge over the properties, excluding 6% of the properties over which appellant has exclusive right to sell.
(iii) On acceptance of security the appellant is permitted to sell or otherwise deal with the properties, and on sale or receipt of the installment amount from 210 purchasers brought by the respondent, the amount/commission due to the respondent under the agreement dated 19.10.2022, shall be paid within 15 days from such receipt of the sale consideration and on such payment, the value of the security offered by the appellant shall stand reduced proportionately.
(iv) Even in case, the appellant fails to offer security as mentioned above, the appellant is entitled to sell 6% of the properties without any restrictions, as such right is recognised under the agreement dated 19.10.2022.
(v) As suggested by both parties Sri Justice Ajit Gunjal (subject to his consent and availability) is appointed as the
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sole arbitrator to adjudicate the dispute between the parties.
(vi) The interim measure shall be in force till 30 days from the date of receipt of the notice by the Arbitral Tribunal or till any interim order is passed by the Arbitral Tribunal whichever is earlier.
(vii) The parties are at liberty to move the Arbitral Tribunal for appropriate interim measures under Section 17 of the Act of 1996.
(viii) If any application is filed before the Arbitral Tribunal for appropriate interim measures, the same shall be considered by the Arbitral Tribunal without being influenced by any of the observations made in this order as all observations made in this order are only confined to the application under Section 9 of the Act of 1996.
Appeal is allowed-in-part.
Sd/-
(ANU SIVARAMAN) JUDGE Sd/-
(ANANT RAMANATH HEGDE) JUDGE brn