Telangana High Court
Babina Kandhari vs M/S. Legend Estates Pvt. Limited on 15 March, 2024
Author: K. Lakshman
Bench: K. Lakshman
1
HONOURABLE SRI JUSTICE K. LAKSHMAN
ARBITRATION APPLICATON No.153 OF 2023
ORDER:
Heard Sri Sai Chandra Haas, learned counsel for the Applicant and Ms. Rubaina S. Khatoon, learned counsel appearing for Respondents.
2. This Arbitration Application is filed under Section 11 (5) and (6) of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act') for appointment of arbitrator to adjudicate all the claims and disputes between the Applicant and Respondents in terms of Memorandums of Understanding (MOUs) dated 14.06.2006 and 22.05.2009. CONTENTIONS OF THE APPLICANT:-
3. The Applicant is wife of late Manpreet Singh Kandhari. He was in the real estate business. Respondents are well acquainted with him since early 2000's, the same was continued and culminated into business and financial relationship involving both the Applicant and Respondents. Initially Respondents, Applicant and her husband were first introduced to each other in the year 2004 and 2nd Respondent approached the Applicant and her husband for development of his land situated in Himayatnagar 2 area into a residential complex and they have entered into necessary agreements. The same was successfully completed. 2nd Respondent again approached Applicant and her husband in the year 2006 stating that Respondents are the absolute owner of land admeasuring a total extent of Ac.23.11 guntas situated in Sy.No.350/E/1/2/3, 350/E/4/5/6, 360/AA and 350/E at Chevella Village and Mandal, Ranga Reddy District and they were intending to develop the same by plotting in form of approved layout. They stated that they were in need of finances and requested to provide loan of Rs.87,50,000/- and after investment, they would pay back the Applicant an amount of Rs.1,62,50,000/- by 30.04.2007. The Applicant accepted the said proposal. The Respondents have issued post- dated cheques. He has also furnished security in the form of plotted land admeasuring 15000 sq.yards in the said area worth Rs.1,62,50,000/-. Husband of the Applicant and Respondents were entered into agreement. The Respondents agreed that they will buy back the said property at the rate of Rs.1083,33 per sq.yard payable on or before 30.04.2007. MOU dated 14.06.2006 was executed between Respondents and the Applicant's husband on specific terms and conditions. The Respondents 3 have issued two post-dated cheques dated 16.06.2006 and 30.04.2007. Respondents could not abide by the timelines for payments as per the said MOU dated 14.06.2006. Respondents and husband of the Applicant was again re-negotiated and entered into another MOU dated 22.05.2009 wherein total due amount liable to the Applicant was revised from Rs.1,62,50,000/- to Rs.1,64,02,000/-. The Respondents have agreed to pay the said amount by 20.02.2010 and have issued two post-dated cheques.
4. As per Clause No.5 of the MOU dated 22.05.2009, it is agreed by the Applicant's husband that if there was any default or failure to abide by the terms of the revised MOU dated 22.05.2009, the Applicant can re-negotiate with Respondents on fresh terms and conditions as necessary apart from adopting all the terms and conditions contained in MOU dated 14.06.2006 including the arbitration clause and other applicable clauses. The Respondents again defaulted and requested Applicant not to encash the security cheques. On insistence of the Applicant and her husband, the Respondents had issued two more cheques both dated 26.10.2010. The Respondents have made certain 4 amounts to the tune of Rs.38,64,000/- on 21.02.2011, they had also given 5 new cheques, dated 21.02.2011 for a total sum of Rs.1,25,38,000/-, while acknowledging an amount of Rs.38,64,000/- vide letter dated 21.02.2011. Respondents have finally paid partial amount of Rs.1,15,00,000/- by August, 2011 vide various other modes and different cheques. Thus, balance of Rs.49,00,000/- was due to the Applicant and her husband and the same was acknowledged by the respondents vide letter dated 21.08.2011. Respondents proposed the Applicant to take balance amount of Rs.49,00,000/- as handloan offered by her and her husband with monthly interest for a term of 9 years, interest payable at 24.5%p.a. Thus, monthly payable interest to the Applicant was Rs.1,00,000/-. In furtherance of the revised oral handloan agreement in August, 2011, Respondents started paying monthly interest payable worth Rs.1,00,000/- every month from August, 2011 onwards to the account of the Applicant and the same is even reflected in her bank account. Her husband died in February, 2011. Applicant being the wife and legal heir of Mr. Manpreet Singh Kandhari in assets and liabilities, continued the business-cum-financial relationship with Respondents as 5 per MOU dated 14.06.2006, 22.05.2009 and oral handloan agreement in August, 2011. Monthly payments were also being directly paid by Respondents to her account every month. Respondents used to default and delay payments of monthly interest. Respondents promptly paid the interest amount from August 2011 till November, 2014 but surprisingly since November, 2014, they had stopped paying monthly interest as agreed to the Applicant. Thereafter, they issued a cheque dated 20.02.2015 for Rs 5,00,000/- to Applicant. The same was dishonoured with an endorsement 'stop payment'. On insistence of the Applicant, Respondents have issued a cheque dated 12.12.2015 for an amount of Rs.30,00,000/- towards monthly interest and requested the Applicant to present the same in January, 2016. Respondents informed the Applicant not to present the cheques since they are facing some financial problems.
5. During March, 2016, Applicant and her children had approached Respondents and requested for payment of both principal and interest. They issued cheques dated 25.03.2016 for an amount of Rs.20,00,000/- towards part payment. They also issued three signed cheques dated 03.08.2016, 17.01.2017 and 28.04.2017. The respondents requested the 6 Applicant not to encash the same. They again issued two cheques dated 21.06.2019 and 28.06.2019 for an amount of Rs.5,00,000/- each. On presentation, the same were dishonoured for the reason 'insufficient funds.' Elders and well wishers also intervened in the matter between the Applicant and Respondents for resolution of the dispute. The respondents accepted to settle the dues. The Respondents failed to pay said amount.
6. According to the Applicant, Respondents have to pay an amount of Rs.3,69,78,596/- in all. They also approached Mr. Suresh Reddy, Member of Parliament (MP) and Danam Nagender, Member of Legislative Assembly (MLA), family friend of Applicant, who called 2nd respondent on 16.03.2022 insisted upon payments. 2nd respondent promised to clear the dues in April, 2022 but failed. In October, 2022, more particularly, on 10.10.2022, they promised to clear at least one Crore. Thus, according to the Applicant, the Respondents are due and liable to pay of Rs.1,97,62,713/- towards principal amount, Rs.1,72,15,882/- towards interest and in all Rs.3,68,78,596/- to the Applicant. Thus, there are disputes between the Applicant and Respondents which are arbitral. Therefore, the Applicant invoked 7 Arbitration clause i.e. clause No.13 of MOU dated 14.06.2006 by way of issuing legal notice dated 29.03.2023 requesting payment and again got issued notice dated 01.05.2023 suggesting the name of Arbitrator, Sri Justice M.S.K. Jaiswal, Former Judge of the High Court of Judicature at Hyderabad for the State of Telangana and Andhra Pradesh, to adjudicate the disputes in respect of outstanding dues liable to the Applicant. Respondents issued reply dated 15.06.2023 making false and baseless allegations against the Applicant. Therefore, the Applicant was compelled to file the present Arbitration Application seeking to appoint Arbitrator.
7. The Respondents filed counter contending that the present Arbitration Application is not maintainable since there is no agreement between the Applicant and Respondents in terms of Section 7 (3) of the Act. The entire due amount payable to Applicant under two MOUs was cleared by 19.11.2014. Applicant has approached the Respondents during January, 2015, with a new offer to purchase the penthouse in 1-2-593/3, Legend Kandhari Building, Ganganmahal Road, Hyderabad as the respondents constructed the said residential complex. The respondents 8 showed interest to purchase the said penthouse and issued various cheques from 20.02.2015 to 28.06.2019 towards sale consideration. During the course of time from 2015 to 2019, the Applicant put constant pressure on Respondents to purchase the said penthouse to help in their financial needs. However, during the purchase of the said penthouse, negotiation were going on with the building association and the Respondents were informed that several offers were being made to other individuals by the Applicant's family for the purchase of the same without informing the Respondents. The Applicant concealed the fact that the penthouse is in litigation as it has been illegally constructed. Owing to the suspicious and legal consequences, the Respondents kept taking back the cheques and issuing new cheques after every negotiation. Finally they came to know the said penthouse was already sold to third party without consent of Respondents. While they were constantly making sale considerations, due to which Respondents have immediately stopped payments and did not issue any further cheques after 2019 onwards towards the sale consideration. The Applicant is trying to mislead this Court by clubbing the loan payable under the MOU which 9 was cleared in the year 2014 with the sale consideration cheques issued by the Respondents for a totally different purpose of buying a penthouse upon Applicant's pressure. There is no agreement between the Applicant and respondents. There are no disputes between the Applicant and Respondents. There is no agreement much less oral agreement between the Applicant and Respondent and therefore, appointment of arbitrator does not arise.
8. Both the learned counsel for the Applicant and Respondents have made their submissions.
9. Sri Sai Chandra Haas, learned counsel for the Applicant has relied on the principle aid down by the Apex Court in M.R. Engineers & Contractors Pvt. Ltd vs Som Datt Builders Ltd 1, Bharat Sanchar Nigam Limited vs M/S Nortel Networks India Pvt. Ltd. 2 a judgment of High Court of Andhra Pradesh in Rashtriya Ispat Nigham Limited vs. SENCON Systems Private Limited 3, in Hema Khattar vs. Shiv Khera 4, in Suhma Shivkumar Daga v. Madhurkumar Ramkrishaanji 1 (2009 7 SCC 696 2 (2021) 5 CC 738 3 MANU/AP/0713/2023 = order dated 02.05.2023 Arb.Appln.No.102 of 2015. 4 AIR 2017 C 1793 10 Bajaj 5, in Vijay Ganesh Gondhlekar vs. Indranil Jairaj Damale 6, Full Bench judgment of Apex Court in Hindustan Apparel Industries vs. Fair Deal Corporation 7 and Full Bench judgment of Kerala High Court in Ramakrishnan vs. Parthasardhy 8.
10. Learned counsel appearing for the respondents placed reliance on the principle laid down by the Apex Court in NTPC vs. SPML Infra Limited 9, and N.N.Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd. 10.
11. The aforesaid facts would reveal that the husband of the Applicant i.e. late Manpreet singh Kandhari and 1st respondent have entered into MOU dated 14.06.2006 on the specific terms and conditions mentioned therein with regard to development of schedule -A and B properties mentioned therein. They have entered into another MOU dated 22.05.2009 on the specific terms and conditions mentioned therein on the ground that due to some unavoidable circumstances, the said MOU dated 14.06.2006 could not be completely acted upon and after deliberations 5 2023 INSC 1081 6 2007 (6) MHLJ 419 7 AIR 2000 GUJ 261 8 2003 (9) AIC 593 9 (2023) 9 SCC 385 10 2023 INSC 1066 11 and negotiations, they have entered into the said MOU. Clause No.5 of the MOU dated 22.05.2009, it is mentioned that in the event of any default on the part of the 1st respondent herein in payment of any part thereof within the stipulated time, the Applicant has option either to re- negotiate with the respondents on fresh terms and conditions or take legal action as according to law. Other terms and condition contained in MOU dated 14.06.2006 shall remain as it is and may be read as part and parcel of the affidavit.
12. It is not in dispute that the husband of the applicant died on 29.02.2012.
13. According to the Applicant, respondents have paid interest after death of her husband and in proof of the same, she has filed copies of statement and also cheques etc. Therefore, according to her, Respondents have to pay the aforesaid amounts of Rs.3,69,78,596/- towards principal and interest.
14. Whereas, according to the Respondents, they have cleared the amounts covered under both the MOUs by 19.11.2014 itself. The cheques and other aspects are with regard to fresh transaction i.e. for 12 purchase of the penthouse in 1-2-593/3, Legend Kandhari Building, Ganganmahal Road, Hyderabad. Thus according to Respondents, there is no agreement between the Applicant and Respondents. There are no disputes between the Applicant and Respondents much less arbitral disputes.
15. Thus, virtually there is no agreement in writing between the Applicant and Respondents. In paragraph No.16 of the affidavit filed in support of the present application, the Applicant has clearly stated that in furtherance of the revised oral hand loan agreement in August, 2011, Respondents have also started paying monthly interest payable worth Rs.1,00,000/- every month from August, 2011 onwards to the account of Applicant and the same is even reflected in Bank account details as well. But the respondents disputed the oral agreement.
16. In the light of the same, Section 7 of the Act deal with the arbitration agreement and it is extracted below:-
7. Arbitration agreement.
(1) In this Part, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.13
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means which provide a record of the agreement; or
(c)an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
Thus, there should be an agreement in writing between the parties.
17. In N.N. Global Mercantile Private Limited (supra), referring to the principle laid down by it in M/S Duro Felguera S.A vs M/S. Gangavaram Port Limited 11, 7 Judge Bench of the Apex Court considering the scope of Section 11 (6) (a) of the Act, held that the scope of examination under Section 11(6A) should be confined to the existence of an arbitration agreement on the basis of Section 7. Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement 11 AIR 2017 SC 5070 14 that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by arbitral tribunal under Section 16. Thus, the Apex Court clarified the position of law laid down in Vidya Drolia vs. Durga Trading Corporation 12 in the context of Section 8 and Section 11 of the Arbitration Act.
18. The Apex Court also further held that the burden of proving existence of Arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competence-competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the referral court. The referral court is not the appropriate forum to conduct a mini- trial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement on the basis of evidence ought to be left to the arbitral tribunal. This position of law can also be gauged from the plain language of the statute.
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(2021) 2 SCC 1 15
19. When the referral court renders a prima facie opinion, neither the arbitral tribunal, nor the court enforcing the arbitral award will be bound by such a prima facie view. If a prima facie view as to the existence of an arbitration agreement is taken by the referral court, it still allows the arbitral tribunal to examine the issue in-depth. Such a legal approach will help the referral court in weeding out prima facie non- existent arbitration agreements. It will also protect the jurisdictional competence of the arbitral tribunals to decide on issues pertaining to the existence and validity of an arbitration agreement.
20. In NTPC (supra), the Apex Court held that the pre-referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which require a thorough examination by the referral court. The secondary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute. 16
21. It was further held that as a general rule and a principle, the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral court may reject claims which are manifestly and ex-facie non-arbitrable. Explaining the said position, flowing from the principles laid down in Vidya Drolia (supra), Apex Court in a subsequent decision in Nortel Networks (supra) held as follows:
"45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute..."
Thus, the Apex Court further held that the standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral courts must not undertake a full review of the contested facts; they must only be confined to a primary first review and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bona fide or not. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of 17 doubt that the claim is non-arbitrable. On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration.
22. The Apex Court further held that the limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, the Apex Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator, as explained in DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd 13.
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AIR OnLine 2021 SC 759 18
23. Thus, this Court has to come to a prima facie opinion with regard to existence of arbitration agreement and arbitration clause. This Court has to scrutinize in a limited manner through eye of the needle with regard to existence of arbitration agreement, arbitral clause and disputes. This Court is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator.
24. In the light of the aforesaid principle, as discussed supra, there is no agreement in writing between the Applicant and Respondents. The MOUs dated 22.05.2006 and 22.05.2009 are between the husband of Applicant and Respondents. According to the Respondents, they have also cleared the said amount due by 19.11.2014. The husband of the Applicant died in February, 2011. Even according to the Applicant, the respondents have paid certain amounts by dated 19.11.2014. The Applicant has filed the present application referring clause No.13 of the MOU dated 14.06.2006. The said clause extracted below:-
In case of any disputes arising between the parties hereto touching these presents, the matter shall be referred to a sole arbitrator, the award passed by the arbitrator shall be final and binding on both the parties and the relevant provisions of the Arbitration & Reconciliation Act, 1996 shall apply and 19 arbitration proceeding shall be held at Hyderabad and in English Language and the courts at Hyderabad only shall have exclusive Jurisdiction over the subject matter.
25. As discussed supra, the said MOU is between the husband of the Applicant and Respondents. Admittedly, the Applicant is not a party to the said MOU. In paragraph No.16 of the present application, the applicant himself referred about oral agreement. Thus, in the absence of an agreement in writing in terms of Section 7 of the Act, Applicant cannot file an application and seek for appointment of Arbitrator. Thus, in my considered view, there are no disputes much less arbitral disputes between the Applicant and Respondents. Therefore, this Arbitration Application is liable to be dismissed.
26. Therefore, this Arbitration Application is dismissed. Consequently, miscellaneous petitions, if any, pending in this Arbitration Application shall stand closed.
_________________________ JUSTICE K. LAKSHMAN Date:15.03.2024 Note: Issue copy forthwith.
b/o. VVR.