Bombay High Court
Housing Society Ltd. vs Maharashtra Airport Development ... on 29 November, 2013
Bench: R.D. Dhanuka
.. 1 .. ARBPL-1999/13
IN THE HIGH COURT OF JUDICATURE AT BOMBAY.
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION (L)NO.1999 OF 2013
Chaurangi Builders & Developers
Pvt. Ltd.
Formerly known as Reatox Builders
& Developers Pvt. Ltd.
A company incorporated under the provisions
of the Companies Act, 1956, having its
registered office at 3/341, 1A, Rajiv Co-operative
Housing Society Ltd., Bandra-Kurla Complex,
Bandra (East), Mumbai-400 051. ... petitioner.
V/s.
Maharashtra Airport Development Company
Ltd. (MADC)
A company incorporated under the provisions of
Companies Act 1956 and having its registered
office at 8th floor, World Trade Centre, Cuffe Parade,
Mumbai 400 005. ... respondent.
Mr R. S. Apte, Senior Advocate a/w Ms Najakiyo i/b P.M.Havnur for petitioner.
Mr D. J. Khambatta, Senior Advocate a/w I. J. Nankani, H. S. Khokawala,
Rahul Totla i/b M/s Nankani & Associates for respondent.
CORAM : R.D.DHANUKA J.
DATED : NOVEMBER 29, 2013.
JUDGMENT :
By this petition filed under Section 37(2)(b) of the Arbitration and
Conciliation Act 1996 (hereinafter referred as "Arbitration Act" for short)
petitioner seeks to impugn the order dated 12th November 2013 passed by the
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learned arbitrator rejecting the application filed by the petitioner under Section
17 of the Arbitration Act. Some of the relevant facts which emerge from the
pleadings and documents filed by both the parties are summarized as under :
2. (a) On 24 June 2005, respondent published a tender notice in the
newspaper for development of a modern township of MIHAN and invited offers
from the experienced developers for development of a modern township to
meet housing requirement of MIHAN. Vide notification dated 29 th May 2007,
the Ministry of Commerce and Industries, Government of India notified
MIHAN as Special Economic Zone (SEZ) pursuant to the provisions of the SEZ
Act 2005.
(b) On 22 September 2005, M/s Reatox Builders and Developers
who had submitted their bid @ Rs.72 lacs per acre was selected as successful
bidder for development of the modern township. A letter of intent came to be
issued in favour of the said builder. On 6 January 2006 the respondent
specified the details of land to be allocated to the said builder. On 2 March
2006, the said builder paid the first installment towards land cost of
Rs.4,46,40,000/- for 31 acres of land to the respondent. On 17 April 2006 the
respondent issued No Objection Certificate (NOC) for development of the said
township subject to final approval of all plans and necessary permissions from
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the Planning Authority and all other approvals to be obtained from the
competent authorities. On 26 April 2006, M/s Reatox Builders and Developers
came to be incorporated as a private limited company viz., Reatox Builders &
Developers Pvt. Ltd. On 23 May 2006, respondent issued a Certificate of
Confirmation for allocation of 31 acres of land and confirmed the schedule of
the land. On 9 June 2006 Airport Authority of India (Airport Authority of
India) approved height up to 61 meters for the buildings in the modern
township. On 22 June 2006, respondent entered into development agreement
for development of the modern township with the appellant. Name of M/s
Reatox Builders and Developers Pvt. Ltd. was changed with the new name M/s
Chaurangi Builders and Developers Pvt. Ltd., the appellant herein. The
Terms and Conditions of the development agreement were recorded in the said
agreement entered into by and between the parties. It is the case of the
appellant that the appellant obtained financial assistance by way of working
capital limit of Rs.20 crores from bank/financial institute on 28 th December
2006 and created security interest in favour of the bank/financial institute
interalia over the said land of 31 acres. respondent gave counter guarantee
of Rs.20 crores in respect of the said land to be developed by the petitioner.
On 30 March 2007, respondent issued a commencement certificate for
construction of buildings up to 18 floors on the basis of approved height of
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61 meters sanctioned by Airport Authority of India. Appellant paid second
installment of Rs.4,46,40,000/- on 24 April 2007 to the respondent towards
land cost/development fee.
(c ) On 29 May 2007, Ministry of commerce & Industry,
Government of India issued a notification notifying MIHAN as Special
Economic Zone (SEZ) which undertook authorized operation to develop in
non-processing area of SEZ for the residential modern township projects
including the said land of 31 acres allotted to the petitioner in the SEZ
entailing compliance of SEZ norms for the development of the said land. On
24 August 2007 respondent executed Power of Attorney in favour of the
appellant to do various acts in connection with the said land including to sell,
dispose of, assign, transfer nominate and/or alienate in any manner
whatsoever, all and singular tenement/apartments, flats, parking spaces, shops
in the modern township. On 16 August 2007, Ministry of Commerce &
Industry, Department of Commerce granted approval to the petitioner in
respect of the multi product SEZ including construction of 2082 flats subject
to compliance of procedure in terms of SEZ Act 2005 and Rules of 2006.
Appellant paid third installment to the respondent on 26 December 2007 in the
sum of Rs.4,46,40,000/-.
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(d) It is the case of the appellant that since the respondent did not
consider the proposed second runway in MIHAN, petitioner was requested to
obtain height clearance from Airport Authority of India on account of proposed
second runway. It was necessitated in view of the anticipated reduction of
height of the buildings. It is the case of the appellant that vide letter dated 4 th
March 2008, appellant informed the respondent that the appellant would not
be able to adhere to the time schedule stipulated in the development
agreement and requested for extension of time for completion of the project.
On 3 April 2008 respondent agreed to allocate additional land of 11.644 acres
to the petitioner @ Rs.80 lacs per acre. It is the case of the petitioner that the
petitioner was not compensated by the respondent in respect of the loss
suffered by the petitioner in view of the reduction of height but the said
allotment was at the prevailing market value. The petitioner agreed to
develop the additional land of 11.644 acres. On 29 April 2008, the petitioner
paid 4th installment to the respondent in the sum of Rs. 4,46,40,000/- for 31
acres of land.
(e) On 12 May 2008, the appellant and the respondent entered into
co-development agreement which entitled the petitioner to identify customers
and unit holders for occupying the units in the project. On 12 May 2008,
petitioner paid a sum of Rs.4,46,40,000/- towards land costs/development to
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the respondent in respect of the additional land of 11.644 acres. On 17 th June
2008, the petitioner paid Rs. 2.20 crores towards land costs/development in
respect of the additional land of 11.644 acres.
(f) On 27 October 2008 Airport Authority of India issued height
clearance only up to 43.3 meters thereby reducing the height by 17.7 meters.
On 13 February 2009, the respondent issued second Commencement
Certificate to the petitioner and granted development permission to construct
the buildings with 13 floors with built up area of 213303.560 sq. meters. On
18 November 2009, the petitioner submitted construction schedule for 36
months to the respondent. On 16 February 2010, the petitioner made a
request to the respondent for extension of time to complete the construction
and for adjustment of the balance amount payable by the petitioner towards
land costs/development fee in respect of the two lands against the
consideration/purchase price payable by the respondent to the petitioner in
respect of the Low Income Group (LIG) Units to be constructed by the
petitioner in view of the alleged loss of about Rs.80 crores suffered by the
petitioner owing to the height reduction by the Airport Authority of India. On
29 March 2010, the respondent entered into a development agreement and
further executed Power of Attorney in favour of the petitioner for development
of the additional land of 11.644 acres on the terms and conditions recorded
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therein. On 13 July 2010 in the 41 st meeting of Board of Approval on account
of objection from Department of Revenue about sale of residential units of the
township to general public, Board of Approval granted approval for transfer of
authorized portion in the non processing area in favour of co-developer
subject to the condition that condition of sale was removed from the
agreement between the developer and co-developer as well as from Power of
Attorney granted by the respondent.
(g) On 14 July 2010, the petitioner borrowed term loan of Rs.105
crores from the Vijaya Bank for completion of the modern township. The
sanction terms were further modified on 22 nd September and 3rd June 2011.
On 14 July 2010, the respondent executed a Letter of Guarantee (Counder
Guarantee) of Rs.105 crores in favour of Vijaya Bank and permitted the
petitioner to offer the said land of 31 acres and the additional land of 11.644
acres as security to the bank.
(h) On 22 July 2010, the Airport Authority of India revised the
approved height of the buildings in the modern township by increasing the
height from 43.3 meters to 54.3 meters. It is the case of the petitioner that in
the local newspapers at Nagpur an article was published defaming the project
and the petitioner. Objections were raised about the legality of the project by
the local media and such articles published till December 2011. On 24 July
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2010, the petitioner and the respondent executed fresh development
agreement for development of 31 acres of land. On 26 July 2010, the
development agreement dated 24 July 2010 was registered with the Sub
registrar of Assurances, Nagpur. On 4 August 2010, the Board of Approvalrd
of approval communicated its decision about removal of condition of sale,
which necessitated correction in the development agreement dated 24 July
2010 by way of replacement of term 'sale' with the term 'lease' which
correction came to be carried out by executing correction deed on 14 August
2010. The said correction deed and fresh Power of Attorney were duly
registered on 17 August 2010. On 23 August 2010 the petitioner obtained
confirmation from the respondent whether the petitioner can lease the flats in
the modern township to general public/persons outside SEZ area anywhere
around the world i.e. for leasing the flat, area/state/country was not restricted.
It is the case of the petitioner that on 30 September 2010 respondent sought to
cancel the allotment of additional land of 11.644 acres to the petitioner and
offered the refund of payment made by the petitioner with interest.
(i) On 27 October 2010, Guidelines came to be issued for
development of Special Economic Zone which restricted sale of units only to
persons related to SEZ. On 24 November 2010 the petitioner submitted
drawings for 16 floors as a result of height revision by Airport Authority of
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India as on 13 January 2011. Based on the progress report it is the case of the
petitioner that the petitioner completed the overall physical work of about 34%
in the First City Project.
(j) On 25 March 2011, Board of Approval directed the
Development Commissioner, MIHAN-SEZ to take strict action against the
petitioner for its proposal to sell flats to general public. On 7 April 2011, the
Development Commissioner issued a show cause notice to the respondent for
issuing letter dated 23 August 2010 to the petitioner allowing them to sell the
units to general public/persons outside SEZ. It is the case of the petitioner that
that on 6 June 2011, Vijaya Bank granted its approval for takeover of loan by
Indiabulls and assignment & transfer of the security interest in favour of the
Indiabulls. On 17 June 2011, Indiabulls issued sanction note for sanction of
loan of Rs.155 crores to the petitioner. On 18 June 2011, the petitioner
requested the respondent to give consent to the said takeover of the loan by
Indiabulls and to transfer the existing counter guarantee in favour of
Indiabulls. On 18 July 2011, the respondent addressed a letter to the Deputy
Commissioner, MIHAN-SEZ and confirmed that imposing the provisions of
guidelines on a project that was started much earlier, appeared to be unfair.
On 26 July 2011, Director, Ministry of Commerce & Industry issued a show
cause notice to the respondent for issuing letter dated 23 August 2010 to the
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petitioner and calling upon to explain in writing to Board of Approval as to
why the letter of approval granted to them for whole of the area established as
MIHAN-SEZ should not be suspended for a period of one year and why
administrator be not appointed to discharge the function of the Developer.
(k) On 18 August 2011 and 2nd September 2011, petitioner
requested the respondent for consent to Indiabulls and transfer of counter
guarantee of Rs.105 crores to Indiabulls. It is the case of the petitioner that on
13 September 2011 Vijaya Bank certified the construction value of the project
completed so far to be at Rs.213.44 crores. On 14 October 2011, the
repayment schedule of term loan of Vijaya Bank started. On 18 November
2011, petitioner once again requested the respondent to give consent to
Indiabulls for transfer of counter guarantee.
(l) On 2 January 2012, Vijaya Bank conveyed to the petitioner
about the term loan account of Rs.105 crores turning non performing asset
(NPA). On 21st February 2012, the Vijaya Bank issued a notice under Section
13(2) of Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest, 2002 calling upon the petitioner to pay the
amount due along with interest. On 21 February 2012, the said Vijaya Bank
freezed the account of the petitioner at Mumbai branch. In the month of
February 2012, the said Vijaya Bank invoked counter guarantee submitted by
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the respondent for encashment. It is the case of the respondent that the said
Vijaya Bank has frozen the Fixed Deposits of the respondent lying with the said
bank in the sum of Rs.157 crores. The said Vijaya Bank has also filed
proceedings before the Debt Recovery Tribunal against the petitioner and the
respondent in respect of said loan transaction. The petitioner requested the
bank to withdraw the notice vide letter dated 10 April 2012 and by another
letter of even date requested the respondent for giving consent to Indiabulls
and to transfer the counter guarantee. It is the case of the petitioner that on
12 April 2012, the Vijaya Bank granted its approval for takeover of loan by
Indiabulls and assignment and transfer of the security interest in favour of
Indiabulls. It is the case of the petitioner that vide letter dated 18 April 2012,
the Vice Chairman and Managing Director of the respondent forwarded the
proposal to its Chairman for sanction of consent to transfer the counter
guarantee from Vijaya Bank to M/s Indiabulls Financial Services Ltd. This
letter was not on record before the arbitral tribunal and is sought to be relied
upon by the petitioner in this proceedings.
(m) On 23 April 2012, Vijaya Bank issued possession notice to the
petitioner and obtained symbolic possession of the three plots which was
subject matter of the development agreement. On 28 April 2012, the
petitioner requested the Vijaya Bank to restrain from taking any further steps
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and to withdraw the notices. On 14 May 2012, respondent issued
termination notice to the petitioner calling upon the petitioner to deposit a
sum of Rs.121 crores with the respondent for payment to the bank within
seven days. On 17 May 2012, petitioner replied to the termination notice.
According to respondent, the petitioner did not give any reply on merits of the
termination notice and did not dispute the correctness of the reasons of
termination notice issued by the respondent. On 18 May 2012, petitioner filed
writ petition (L) No.1414 of 2012 in this Court impugning the termination
notice dated 14 May 2012. The petitioner obtained ex-parte status quo order
by making an application before the vacation Court on 21 May 2012. On 23
May 2012, Vijaya Bank freezed accounts of the petitioner at Nagpur branch.
On 1 June 2012 name of the petitioner was changed from Reatox Builders &
Developers Pvt. Ltd. to Chourangi Builders & Developers Pvt. Ltd.
(n) On 25 June 2012, Division Bench of this Court passed an order
in the writ petition filed by the petitioner that the order of status-quo shall not
prevent either of the parties from issuing notices. On 16 July 2012
respondent addressed two letters both dated 16 July 2012 and terminated
letter of intent dated 22 September 2005, agreement dated 22 June 2006,
Power of Attorney dated 24 August 2007, Agreement dated 24 July 2010,
Correction deed dated 14 August 2010 and Power of Attorney dated 14 August
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2010 in respect of 31 acres of land and called upon the petitioner to pay a sum
of Rs.5.96 crores and terminated agreement dated 29 March 2010 and Power
of Attorney dated 29 March 2010 in respect of additional land of 11.644 acres
and called upon the petitioner to pay Rs.3.65 crores. On 21 July 2012,
petitioner replied to two termination letters and denied the allegations. It is
the case of the petitioner that joint meeting was held between the petitioner,
officers of bank and the respondent in which the proposal to regularize term
loan of the bank was discussed.
(o) On 10 September 2012 petitioner submitted a fresh proposal to
Vijaya Bank to regularize the term loan of the bank and to issue fresh sanction
of Rs.155 crores. On 10 December 2012, Vijaya Bank rejected the said proposal
of the petitioner. On 6 May 2013, Division Bench of this Court dismissed writ
petition No.2850 of 2012 as withdrawn and granted liberty to the petitioner to
take recourse to Dispute Resolution Mechanism provided in Clause 19 of the
agreement dated 24 July 2010 and continued ad interim relief for a period of
six weeks from the said date to enable the petitioner to take the appropriate
steps. On 17 May 2013, petitioner filed arbitration petition (L) No.640 of
2013 under Section 9 of the Arbitration Act for interim measures. On 13 May
2013, petitioner invoked arbitration clause under two development agreements
and issued a letter to the learned arbitrator who was named under the
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development agreement who agreed to act as sole arbitrator and gave his
consent vide letter dated 15 May 2013. On 31 May 2013 petitioner filed a
statement of claim and application under Section 17 of the Arbitration Act
before the learned arbitrator. On 7 June 2013, learned arbitrator passed an ad
interim order in application filed under Section 17 for a period of six weeks
from 7 June 2013. By an order dated 7 June 2013, then learned arbitrator
recused himself from the arbitration proceedings. On 9 July 2013, this Court
passed an order in arbitration petition (L) No.640 of 2013 and appointed Shri
Justice S. P. Kurdukar, former Judge of Supreme Court as the substituted
arbitrator by consent of parties. Both the parties filed their pleadings before
the learned arbitrator. Learned arbitrator continued the order of status quo
till 19 August 2013. By an order dated 12 November 2013, learned arbitrator
passed a detailed order refusing to grant the interim measures in favour of the
petitioner and rejected the application filed under Section 17 of the Arbitration
Act. Learned arbitrator stayed the operation of said order dated 12 November
2013 till 25 November 2013 and directed the petitioner to issue 48 hours
notice to the respondent before moving this Court for ad interim order or
interim reliefs. Being aggrieved by the said order dated 12 November 2013,
petitioner has filed this appeal under Section 37 of the Arbitration Act.
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(p) On 25 November 2013, the respondent through the learned
senior counsel made a statement that no further action would be taken
pursuant to the order passed by the learned arbitrator till 28 November 2013.
In view of the difficulties of the learned senior counsel appearing for the
petitioner on 28th November 2013, learned senior counsel for the respondent
extended the statement made by him till 29 November 2013. On 29 November
2013, this Court heard both the learned senior counsel appearing for parties at
length.
3. Mr R. S. Apte, learned senior counsel appearing on behalf of the
petitioner made following submissions :
(a) petitioner has submitted tender on the premise that the height
of the buildings which would be permitted to be constructed on the plots in
question was 61 meters. petitioner had submitted plans accordingly. Height
of a building was however reduced by the Airport Authority of India on 27
October 2008 from 61 meters to 43.3 meters and subsequently increased on 27
February 2010 to 54.3 meters. It is submitted that by virtue of reduction of
such height from 61 meters to 43.3 meters, the petitioner who had proposed to
construct the buildings consisting of 18 floors was required to construct
buildings consisting of 13 floors only. petitioner had entered into various
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agreements in respect of the flats proposed to be constructed beyond 13 floors
and had received various amounts from the flat purchasers. In view of the
reduction of height by the Airport Authority of India, several such flat
purchasers were required to be accommodated in the portions from the first
floor to 13th floor. Some of the flat purchasers had cancelled their bookings
which were required to be refunded by the petitioner the amounts paid by
them. It is submitted that the additional land allotted by the respondent to the
petitioner was at market price and not in lieu of the compensation demanded
by the petitioner due to reduction of height by the Airport Authority of India.
(b) It is submitted that there was no reference to SEZ in the first
agreement entered into between the parties. In view of the notification issued
by the SEZ subsequently imposing restriction on sale, their sale of flats
constructed and proposed to be constructed was seriously affected. The
petitioner was informed for the first time on 7 th April 2011 that such decision
was taken by SEZ as far back as on 8 August 2007. There was negative media
campaign against the petitioner during the period between 23 July 2010 and
18 December 2011 which seriously affected the project of the petitioner and
also financially. petitioner had already invested Rs.300 crores and had already
constructed 550 flats which comprise of 34% of the total work awarded. It is
submitted that petitioner was not responsible because of such notification
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issued by SEZ which was conveyed to the petitioner for the first time on 7
April 2011 that is much after making huge investments by the petitioner and
completion of about 34% work.
(c ) It is submitted that under the terms of the development
agreement, the respondent agreed to issue counter guarantee in favour of the
Vijaya Bank from whom the petitioner borrowed Rs.105 crores. In view of the
breaches committed by the respondent, petitioner could not complete the
construction and could not sell the flats and could not repay the loan amount
of the Vijaya Bank and as a result thereof the said account with Vijaya Bank
declared the account of the petitioner as NPA. Vijaya Bank also issued notice
under Section 13(2) of the Securitization Act against the petitioner and took
symbolic possession of the plots handed over to the petitioner/developer by
the respondent.
(d) Learned senior counsel then placed reliance on Clause 3.7 of
development agreement and submits that in view of such clause, respondent
could not have created any obstruction against the petitioner from performing
their obligation under development agreement and could not have terminated
the agreements. It is submitted that under clause 19.3 read with Clause 20.1
of the development agreement, no action for termination of development
agreements could be taken by the respondent at all. It is submitted that there
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is no provision for termination of development agreements under those
agreements. Claim for damages was not an adequate remedy. The learned
arbitrator has rejected the application under Section 17 contrary to the
provisions of the contract by wrong interpretation of the provisions. It is
submitted that respondent ought to have allowed the petitioner to perform
their part of contract and ought to have issued the counter guarantee in favour
of M/s Indiabulls. Reliance is placed on clause 3.7 which provides for
furnishing counter guarantee by the respondent. It is submitted that since no
counter guarantee was issued by the respondent in favour of Indiabulls though
Vijaya Bank had agreed for transfer of loan, Vijaya Bank took coercive steps
against the petitioner, freezed the accounts of the petitioner, declared the
account of the petitioner as NPA and took symbolic possession of the plots.
(e ) Learned senior counsel submits that in view of the violation of
SEZ norms committed by the respondent, SEZ has issued show cause notices to
the respondent. Learned senior counsel submits that the SEZ withdrew the
embargo only on 28 November 2011. It is submitted that the respondent has
committed fraud upon the petitioner by suppressing the notification issued by
SEZ much earlier and thus termination was bad and illegal on this ground
alone. Learned arbitrator has misunderstood the submissions of the petitioner
regarding allegations of fraud in the impugned order and has not considered
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those submissions.
(f) Learned senior counsel placed reliance on a letter/note dated
18 April 2012 annexed at page 907 of the appeal paper book signed by the
Vice Chairman and Managing Director of the respondent to the Chief
Minister/Chairman of the respondent recommending the proposal for
approval. Learned senior counsel submits that under the said proposal, the
Vice Chairman of the respondent agreed that it was worthwhile to consider the
proposal of the petitioner to issue counter guarantee to M/s Indiabulls
Financial Services Ltd., otherwise the respondent was unable to pay Rs.105
crores to Vijaya Bank which shall adversely affect the credibility of the
respondent in the market and would have repurcussion on the image of the
respondent as well as the Government. The learned senior counsel sought to
place reliance upon some of the paragraphs of the said note dated 18 April
2012 in support of his submission that the respondent has suppressed the said
writing though the learned arbitrator had directed the respondent to furnish
inspection of the documents. The said writing was relied upon to submit that
the respondent has committed fraud upon the petitioner. Based on this
writing, learned senior counsel submits that even according to respondent,
respondent would be unable to pay even Rs.105 crores to Vijaya Bank and
thus if petitioner succeeds in arbitration proceedings, petitioner would not be
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able to recover any amount from the respondent and thus learned arbitrator
ought to have stayed the termination. It is submitted that the petitioner thus
have good chances of succeeding in their claim for specific performance before
the learned arbitrator and for declaration that the termination effected by the
respondent is totally bad and illegal. Learned senior counsel submits that the
petitioner had applied for copy of the said writing under the provisions of
Right to Information Act and has obtained a copy thereof. Mr Khambatta,
learned senior counsel for the respondent strongly opposed the reliance placed
by the petitioner on this writing on the ground that this writing was not part of
the record before the learned arbitrator and thus cannot be relied upon by the
petitioner in this proceedings for the first time. It is also opposed on the
ground that the said writing is an opinion of the Vice Chairman and admittedly
the said opinion/proposal of the Vice Chairman of the respondent has not been
accepted or approved by the Chairman of the respondent.
(g) Mr Apte, learned senior counsel then submits that the arbitral
tribunal has not considered the entire matter in correct perspective and has
rejected the arbitration application filed by the petitioner without considering
all the relevant submissions made by the petitioner. Learned senior counsel
sought to tender additional affidavit affirmed on 25 November 2013 for
placing certain additional facts on record. Mr Khambatta learned senior
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counsel strongly opposes tendering of affidavit at this stage on the ground that
though the said affidavit was affirmed as far back as on 25 November 2013
and the matter was moved by the petitioner before this Court on 25 November
2013, copy thereof was not served upon the respondent which shows the
malafide intention of the petitioner to somehow delay the outcome of this
proceedings. Learned senior counsel objected to this affidavit on the ground
that no new facts can be brought on record in this appeal filed under Section
37 of Arbitration Act for the first time which was not part of the record before
the learned arbitrator.
4. Mr Khambatta learned Senior Counsel appearing for the respondent
made the following submissions :
(a) Letter of intent was issued in favour of the petitioner on
22.9.2005 for development of the modern Township. The petitioner was fully
aware of the notification issued by SEZ. My attention is invited to the Co-
Development Agreements entered into between the petitioner and the
respondent on 12.5.2008 and more particularly recital (f) which records that
the petitioner had been granted formal approval for setting up a multi product
SEZ township by the Ministry of Commerce and Industries, Government of
India vide letter dated 6.11.2006 and by the Government of India, Ministry of
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Commerce on 29.5.2007 pursuant to the provisions of Special Economic Zone
Act, 2005. The parties had agreed to develop the plots as per SEZ Act, 2005
and SEZ Rules 2006. Under clause 1.1.1 it was agreed that the said agreement
shall be Co-development agreement along with Annexures attached thereto
and shall include modifications, alterations, additions or deletion thereto made
in the agreement after the date of execution of the said agreement subject to
the provisions of SEZ Act 2005 and SEZ Rules,2006. Clause 2 provided that
the Co-Developer would be entitled to identity the customers for identifying
the plots put up in units which was as per the agreement and subject to
obtaining all necessary permissions required in the meeting of obligations of
the SEZ Act, 2005 and SEZ Rules, 2006. It is submitted that the petitioner was
thus fully aware about their obligations that the lands were covered by SEZ
areas and/or subject to notification issued by the government under the
provisions of SEZ Act and SEZ Rules.
(b) It is submitted that the Airport Authority of India had reduced
the height and thereafter further increased the height of the buildings. The
petitioner continued to work and did not terminate the agreements inspite of
reduction of height by AAI. My attention is invited to the letter dated 3.4.2008
addressed by the respondent to the petitioner allotting additional land which
worked down to11.644 acres to make good the area loss which had taken
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place due to change of height on various conditions recorded therein. The
petitioner accepted the allotment of the additional land admeasuring 11.644
acres and was satisfied with the said plot. It is submitted that the petitioner
was thus fully compensated in respect of the area loss due to change of height
by the Airport authority of India and thus could not make any grievance in
respect of reduction of height by the Airport Authority of India. The petitioner
also did not make any further claim nor referred the dispute in respect of the
compensation and accepted the additional plot of land and entered into a
separate agreement in respect thereof. It is submitted that the petitioner has
finally entered into a Final Development agreement in respect of the said
additional plot of land on 29.3.2010 and Final Development Agreement in
respect of 31 acres on 24.7.2010. It is submitted that the petitioner was fully
aware of the restrictions imposed by the SEZ on sale of the tenements when
co-development Agreement was entered into between the parties.
(c) Learned Senior Counsel placed reliance on clause 2.5.1 of the
Development Agreement and submits that the petitioner was obliged to
complete the construction within 24 months from the date of signing of the
power of attorney. It is submitted that even according to the petitioner, till the
month of January, 2011 the petitioner could complete only 34 % of the work.
Since January, 2011 the petitioner had stopped the work on the plot
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admeasuring 31 acres and has not commenced any work on the plot
admeasuring 11.644 acres. The learned senior counsel placed reliance on
clause 16 (i) (ii) (v) and (vi) which provides for some of the events of default.
It is submitted that the petitioner had not paid the entire development fee
and/or revenue share payable in accordance with the provisions of the
Agreement. The petitioner committed material breach of the provisions of the
agreement by repudiating the provisions by declaring themselves not to be
bound for enforcement and initiated measures to enforce the counter
guarantee furnished by the respondent and got freezed the fixed deposits of
the respondent lying with Vijaya Bank. The petitioner did not adhere to the
schedule of construction and did not furnish to the respondent the
implementation of plans and programmes which the petitioner was under an
obligation to furnish regularly from time to time. Since the petitioner did not
make any payment to Vijaya Bank the said bank initiated measures under
section 13 (4) of the Securitisation Act by taking possession of the two plots on
23.11.2012 and filed proceedings before the Debt Recovery Tribunal against
the respondent also. The learned senior counsel submits that the respondent
was thus, justified in terminating the Development agreement. The petitioner
did not give any reply controverting the reasons recorded in the termination
letter and gave a very vague and cryptic reply. My attention is invited to clause
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7.5 of the Development Agreement which records that the developer shall be
solely responsible for arranging of the funds and shall act in accordance with
the provisions of the Agreement and standards of reasonable and prudent
developer. It is submitted that the respondent was thus not liable to issue a
fresh counter guarantee in favour of Indiabulls.
(d) In so far as the submission of the petitioner that there is no
right of termination provided under the Development Agreement and thus the
termination was bad and illegal on that ground alone is concerned,
Mr.Khambatta learned senior Counsel submits that in view of the events of
default having taking place and since the petitioner did not rectify the
breaches, the respondent was justified in terminating the Development
Agreement. If according to the petitioner the respondent was responsible for
non-compliance of the terms of the contract, even the petitioner could have
terminated the Agreement. It is submitted that power to terminate the
Agreement in case of breach vests under the provisions of the contract Act and
even if there was no specific power in the Development Agreement,it did not
preclude either of the party to terminate the contract in the event of other
party committing breaches. It is submitted that the learned Arbitrator was
thus, right in rejecting the application filed by the petitioner.
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(e) It is submitted by the learned senior counsel that the petitioner
had proposed that the respondent shall furnish the counter guarantee for 36
months. No work was re-started by the petitioner after January, 2011. The
petitioner was never ready and willing to carry out the work within the
stipulated period of time and even after November, 2011. My attention is
invited to the sanction note dated 17.6.2011 from M/s Indiabulls which
records that the said company had proposed to sanction loan in favour of the
petitioner up to 155 crores in two trenches, the first trench for not exceeding
36 months from the date of first disbursement of the said loan subject to
submission of corporate guarantee by the respondent and subject to mortgage
of the lands of the respondent on which the petitioner was required to carryout
the entire construction. My attention is drawn to the contract provisions which
provides that the petitioner to carry out the entire construction within 24
months from the date of issuance of power of attorney. It is submitted that
thus the respondent was not liable or obliged to issue fresh counter guarantee
on the terms proposed by the petitioner and M/s Indiabulls.
(f) Mr. Khambatta learned senior counsel invited my attention to
the application filed by the petitioner under section 17 of the Arbitration and
Conciliation Act,1996 before the learned Arbitrator and more particularly para
67 thereof. It is the case of the petitioner themselves that in order to
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successfully complete the modern township the respondent was obliged to do
various acts such as further extension of time for approval of the project,
renewal of technical approval of the petitioner and the validity for further 10
years, submission of counter guarantee, to afford loan to the project give
consent to transfer and to secure the investors. It is submitted that petitioner's
own pleadings filed before the learned Arbitrator demonstrates that the
petitioner was not ready and willing to comply with their part of the
obligations. The learned senior counsel also invited my attention to the Writ
petition filed in this Court (Writ Petition No.2850 of 2012) by the petitioner
and in particular para 4 in which it is averred by the petitioner that the
petitioner had prepared for all the arrangements for projects and required
various compliance from the respondent that is withdrawal of termination
orders forthwith, renewal of the Development Agreement in respect of 31 acres
and 11.644 acres for next 10 years to complete the project, renewal of fresh
technical approvals having validity up to 10 years, submission of counter
guarantee to the bank for its loan to the project,Execution of tripartite
Agreement etc. Even in the rejoinder filed before the learned Arbitrator the
petitioner contended that the petitioner would require 10 years extention for
completion of the project. Learned senior Counsel submitted that the
petitioner did not terminate the Development Agreement and was thus, bound
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to complete the construction as per the Development Agreement and was not
discharged with compliance of their obligations under those two agreements.
(g) The petitioner admittedly has no money and was not in a
position to arrange for any funds, when petitioner stopped construction.
Learned senior counsel submit that in the arbitration proceedings the
petitioner has already quantified the claim of damages in the sum of
Rs.68,69,67,9,188/-. It is submitted that the petitioner cannot seek specific
performance of these agreements. In any event if the petitioner succeeds in
the arbitration proceedings the petitioner would be compensated in terms of
money.
(h) Mr. Khambatta learned Senior Counsel appearing for the
respondent invited my attention to the ad interim order passed by this Court in
Writ Petition No.2850 of 2012 and submits that the said order was obtained by
the petitioner without issuing any notice to the respondent from the vacation
court. Status quo order passed by the vacation court continued from time to
time. He placed reliance on the order passed by this court in Arbitration
Petition (L) No.629 of 2013 between he same parties by which order this Court
has prima facie held that termination of the contract cannot be stayed by this
Court under section 9 of the Arbitration and Conciliation Act, 1996.
(i) The learned Senior counsel placed reliance on the Judgment of
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the Supreme Court in COX AND KINGS INDIA LIMITED VS INDIAN
RAILWAYS CATERING AND TOURISM CORPORATION LIMITED reported
in (2012) 7 Supreme Court Cases 587 and in particular para 26 in support of
his submissions that remedy of the petitioner would lie in an action for
damages. Para 26 of the said Judgment of the supreme court in case of COX
AND KINGS LIMITED reads thus :
" It is no doubt true that the petitioner has invested large sums of money in the
project, but that cannot entitle it to pray for and obtain a mandatory order of inunction
to operate the train once the lease agreement arrangement had been terminated. We are
also unable to accept Mr.Rohatgi's submission that the joint venture agreement was akin
to a partnership. Such submission had been rightly rejected by the Division Bench. As
rightly pointed out by the Division Bench of the High Court, the petitioner's remedy if
any, would lie in an action for damages against IRCTS for breach of any of the terms and
conditions of the Joint venture agreement and the memorandum of understanding. "
(j) Mr Khambatta learned Senior Counsel appearing for the
respondent placed reliance on the Judgment of this Court in case of MAYTAS
INFRA LIMITED vs UTILITY ENERGYTECH AND ENGINEERS PVT.LTD &
ORS 2009 (4) Bom C.R.143 and in particular para 11 thereof in support of his
submissions that the Court cannot compel a party to continue with the
contract. It is difficult for the Court to supervise the performance of the
contract based upon such type of public project. Para 11 of the said Judgment
reads thus :
" The Court cannot compel the respondent to continue with the contract. It is difficult
for the court even to supervise such performance of contract, based upon such type of
public project,I see there is no material and reason to grant interim injunction as sought
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by invoking section 9 of the Act. "
(k) Learned Senior counsel then placed reliance on the Judgment
of this Court in the case of MILAN COMMERCIAL VS ASIAN HEALTHCARE
reported in (2010) 2 Bom.C.R. 295 and in particular paras 56 and 57 in support of
his submissions that in case of a commercial contract if parties had taken a
decision based on commercial wisdom and material available with them and
terminated the contract and enter into a fresh contract the Court cannot
compel such party to continue with the work/project only through the
debarred party. The facet and importance of completion of the project within
the stipulated time just cannot be overlooked. Paras 56 and 57 of the said
Judgment reads thus :
56. " Once in a commercial contract like this, if parties have taken decision
based upon the commercial wisdom and material available with them, and terminated
the contract and entered into fresh contract, the Court cannot compel such party to
continue with the work/project only through the debarred party. The facet and
importance of completion of the project within the stipulated time just cannot be
overlooked. The contract, as alleged, if terminated illegally and/or any breach of various
clauses the aspect of compensation/damages subject to proof and the evidence need to be
kept in mind while considering the case of the plaintiff or the supporting defendants.
(Maytas Infra Limited vs Utility Energytech and Engineers Pvt.Ltd & ors) 2009 (4) Bom
C.R. 143 (O.S.)
57. " Timely completion of the project was the object of the company and the
JVA. The plaintiff just cannot defend/support company's defaults and financial
unstability and breaches of the obligations, to claim injunction, interim relief in such
fashion. All these factors, in my view goes against the plaintiff and other supporting
defendants."
(l) On the issue whether the contract could be terminated though
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there was no specific clause under those agreements for termination is
concerned, Mr. Khambatta learned senior Counsel placed reliance on the
Judgment of the Delhi High Court in case of RAJASTHAN BREWERIES
LIMITED VS STROH BREWERY COMPANY reported in AIR 2000 DELHI
450 in para 20 in support of his submissions that even in the absence of
specific clauses the parties could terminate the agreement in the event of
happening of the events specified therein in the contract Para 20 of the said
Judgment reads thus :
20. " Even in the absence of specific clause authorising and enabling either party to
terminate the agreement in the event of happening of the events specified therein from the
very nature of the agreement, which is private commercial transaction, the same could be
terminated even without assigning any reason by serving a reasonable notice. At the
most, in case ultimately it is found that termination was bad in law or contrary to the
terms of the agreement or of any understanding between the parties or for any other
reason, the remedy of the appellants would be to seek compensation for wrongful
termination but not a claim for specific performance of the agreements and for that view
of the matter learned single Judge was justified in coming to the conclusion that the
appellant had sought for an injunction seeking specifically enforce the agreement. Such
an injunction is statutorily prohibited with respect of a contract which is determinable in
nature. The application being under the provisions of Section 9 (ii) (e) of the Arbitration
and Conciliation Act, relief was not granted in view of Section 14 (I) (c) read with
Section 41 of the Specific Relief Act. It was rightly held that other clauses of Section 9 of
the Act shall not apply to the contract, which is otherwise determinable in respect of
which the prayer is made specifically to enforce the same. "
(m) Mr Khambatta learned senior Counsel for the respondent then
submitted that the petitioner ought to have shown readiness and willingness
all through out from the beginning till the end for seeking specific performance
of the agreement which the petitioner failed to demonstrate before the learned
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Arbitrator in these proceedings.
(n) In so far as the internal note dated 18.4.2012 annexed at
Exhibit-N to the Petition, is concerned, it is submitted that the said document
was not relied upon before the learned Arbitrator and cannot be considered by
this Court for the first time. It is submitted that in any event the respondent
did not take any action on the said opinion of the Vice-Chairman which was
for approval of the Chairman of the respondent. No action on the said note
was taken by the respondent. It is submitted that in any event since no decision
was taken and was not conveyed to the petitioner, no reliance on such internal
note can be placed by the petitioner. If the said document would have been
produced by the petitioner before the learned Arbitrator by filing an Affidavit,
respondent could have been given an opportunity to explain the said note.
The petitioner cannot be thus permitted to rely upon the said note which is in
the nature of opinion expressed by the Vice-Chairman of the respondent on
which no action is taken by the respondent. The said proposal given by the
Vice-Chairman does not give any right in favour of the petitioner.
(o) In so far as the proposal regarding counter guarantee in favour
of M/s Indiabulls is concerned, it is submitted by the learned Senior Counsel
that the said proposal had already been rejected by the respondent as far back
as in the month of May 2012.
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(p) it is submitted that the respondent is proposing to file a
counter claim against the petitioner before the learned Arbitrator. In view of
the defaults committed by the petitioner in not clearing the dues of Vijaya
Bank the said Vijaya Bank has filed proceedings against the petitioner as well
as the respondent before the Debt Recovery tribunal by taking possession of
the lands which was handed over to the petitioner by the respondent for
development. The fixed deposits of Rs.117 crores which was deposited by the
respondent with Vijaya Bank as and by way of security has been freezed by the
said Vijaya Bank. The petitioner thus cannot plead that the respondent did not
have funds to pay to the petitioner their alleged dues.
(q) In so far as the allegation of fraud made by the petitioner
against the respondent are concerned, it is submitted by Mr Khambatta learned
senior Counsel that the petitioner first filed a Writ petition in this Court and
thereafter withdrew the said Petition with liberty to file arbitration proceedings
and got the Arbitrator appointed. In the written arguments filed before the
learned arbitrator the petitioner pleaded fraud and submitted that in view of
such allegations of fraud involved, the matter was required to be referred to
the civil court. It is submitted that the petitioner thus deliberately delayed the
proceedings by raising all sorts of frivolous objections and got the status quo
order continued which is causing serious prejudice to the rights of the
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respondent. It is submitted that the learned Arbitrator has thus rejected the
plea of fraud raised by the petitioner.
(r) In so far as the affidavit filed on 25.11.2013 sought to be
tendered by Mr Apte learned senior counsel for the petitioner is concerned the
learned senior Counsel for the respondent strongly protested against tendering
of such an affidavit at this stage. Learned senior counsel pointed out that
though the said Affidavit was affirmed on 25.11.2013 when this matter was on
board, the petitioner deliberately did not serve copy thereof and seeks to
tender the affidavit today, after completion of substantial arguments, with a
view to further delay the outcome of these proceedings and with a view to get
the status quo order continued. It is submitted that in any event this Court
cannot permit the petitioner to rely upon the additional affidavit at this stage.
(s) It is lastly submitted by the learned senior counsel that the
learned Arbitrator has dealt with each and every issue at length and has taken
a prima facie view that the termination cannot be stayed and the order of the
learned Arbitrator being not perverse, this court shall not interfere with such
reasoned order passed by the learned Arbitrator. Mr Khambatta invited my
attention to the findings recorded by the learned Arbitrator in the impugned
order.
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5. In the rejoinder, Mr Apte learned Senior Counsel appearing for
the petitioner submits that if the petitioner would not have been ready and
willing to comply with their part of the obligations the petitioner would not
have invested more than Rs.300 crores. Since the petitioner has already
invested more than 300 crores and 34 % of the work was already completed it
was not possible for the petitioner to terminate the contract and to come out of
the project. It is submitted that M/s Indiabulls is a registered financial
institution which had already sanctioned substantial amounts of loans but in
view of the respondent refusing to furnish bank guarantee in favour of M/s
Indiabulls the said transaction did not materialise. The counter guarantee
furnished by the respondent in favour of Vijaya Bank is without any time limit.
It is submitted that the respondent has not rejected the proposal of the
petitioner to submit the guarantee in favour of M/s Indiabulls on the ground
that the said company was seeking counter guarantee for a period of 36
months. It is submitted that the petitioner has not abandoned the work. The
meetings were held from time to time between the parties till September,
2012. It is submitted that even today, various investors are ready to purchase
the property and to lend various amounts and the petitioner is ready and
willing to recommence the project. It is submitted that the order thus passed
by the learned arbitrator deserves to be set aside and the status quo order shall
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continue till the disposal of the arbitration proceedings.
6. Mr R. S. Apte learned senior Counsel for the petitioner placed
reliance on the Judgment of the Supreme Court in the case of
S.P.CHENGALVARAYANAIDU VS. JAGANNATH reported in AIR 1994
SUPREME COURT 853 in support of his submissions that withholding vital
documents which are relevant to a litigation amounts to fraud on the Court. It
is submitted that since the respondent did not furnish the note submitted by
the Vice Chairman of the respondent which clearly demonstrates breach of the
respondent and their proposal to issue counter guarantee in favour of the M/s
Indiabulls, the said document being vital documents having been suppressed
by the respondent thus in view of such fraud committed by the respondent,
the impugned order be set aside and the learned arbitrator be directed to
consider the said documents of the respondent. In so far as the judgment
relied upon by Mr.Khambatta are concerned, Mr.Apte submitted that those
judgments are not applicable to the facts of this case and are not
impermissible.
7. I have given my anxious consideration to the rival submissions
made by both the learned Senior Counsel.
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REASONS AND CONCLUSIONS :
8. A perusal of the Development Agreements, entered into between
the parties it is clear that the the respondent had proposed to construct a
modern township in order to meet housing requirements of MIHAN and was a
public project. The petitioner was issued a letter of intent. The petitioner was
required to develop the plots of land in accordance with the terms and
conditions recorded in the letter of intent and in the development agreement.
The petitioner was also under obligation to comply with all the provisions of
law and the conditions as may be imposed by the authorities. Airport authority
of India Ltd had approved the height up to 61 meters of the buildings in the
modern townships. Subsequently, the height was reduced by the Airport
Authority of India Ltd from 61 meters to 43.2 meters on 27.10.2008 and
subsequently increased on 27.2.2010 to 54.30ft. The petitioner had made a
claim for compensation in view of the area reduced due to reduction of height
originally permitted. The respondent had considered such representations and
claim of the petitioner. Vide letter dated 3.4.2008 the respondent informed the
petitioner that the respondent had agreed to make the good loss which had
taken place due to change of height on various conditions set out therein. The
petitioner was allotted exact area of land which worked out to 11.644 acres on
payment of Rs.80,00,000/- per acre. The petitioner accepted the said
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allotment made by the respondent and entered into the Development
Agreement in respect of that plot on the terms and conditions recorded
therein. The learned Arbitrator has considered this issue at length in para 13
to 15 of the impugned order. The petitioner was fully aware of the topography
of the project and were aware that as the said plot was adjacent to the Airport
at Nagpur, clearance from the Airport Authority of India Ltd was necessary.
9.
It is not in dispute that inspite of reduction of height, the
petitioner accepted the additional plot of land and chose to enter into final
development agreement on 24.7.2010 and second Development agreement on
29.3.2010. The learned Arbitrator has in my view, rightly rendered a prima
facie view that the petitioner could not attribute any delay to the respondent.
The petitioner had with open eyes and with full knowledge that certain
approvals and permissions would be necessary from the Airport Authority of
India Ltd had entered into a Development Agreement on 22.6.2006 as well as
Final Development Agreement dated 24.7.2010 and has thus rightly rejected
the submissions of the petitioner that the delay was attributable on the part of
the respondent due to change of height by the Airport Authority of India Ltd.
10. As far as the submission of Mr.Apte learned senior Counsel for the
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petitioner that in view of the restrictions of sale introduced by SEZ during the
execution of the project by the petitioner and in view of the negative media
campaign against the petitioner during the period from 23.7.2010 to
18.12.2011, the respondent not having informed about the notification to the
petitioner the project of the petitioner got effected resulting in financial
problem is concerned, it is not in dispute that the Notification was issued by
SEZ on 29.5.2007. A perusal of the co-development agreement dated
12.5.2008 entered into between the parties clearly indicates that the schedule
lands proposed to be developed operated and maintained by the Co-developer
was under process of SEZ for the township, the developer had been granted
formal approval for setting up of multi-project by the Ministry of Commerce
and Industry, Government of India vide letter dated 6.11.2006 and further
vide letter dated 29.5.2007 pursuant to the provisions of Special Economic
Zones, 2005 authorising the operations and known processing for residential
modern township project. The Co-developer had proposed that he should be
permitted to apply to the board of approval under section 3 (12) of the Special
Economic Zone, 2005. The Board had recognised the petitioner a Co-
Developer. The petitioner was described as the Co-Developer under the said
Co-development Agreement. The respondent was described as the developer.
Thus, it is clear that at least on the date of execution of the co-development
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agreement on 12.5.2008 the petitioner was fully aware of the notification
issued by the government.
11. I am inclined to accept the submissions made by Mr.Khambatta
learned senior Counsel for the respondent that the petitioner had knowledge
about the applicability of the provisions of SEZ Act and SEZ Rules and the
notification issued by the Government from time to time which was made
applicable to the agreements entered into between the parties. The petitioner
did not raise any such issue even when the petitioner entered into two final
development agreements on 29.3.2008 and 24.7.2010 in respect of the plots
admeasuring 11.644 acres and 31 acres respectively. The learned Arbitrator
has dealt with this issue in paras 16 to 18 of the impugned order. The learned
Arbitrator has prima facie held that it was made clear to the petitioner about
the status of the land and consequently of the project they had agreed to
complete the project within 24 months. The learned Arbitrator rightly rejected
the contentions of the petitioner that they were not knowing about the SEZ
Rules and such allegations were far from truth and an after thought attempt
and was accordingly rejected. In my prima facie view, the findings of the
learned Arbitrator is correct and no interference is warranted.
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12. In so far as the submission of Mr.Apte learned senior Counsel for
the petitioner that it was obligation on the part of the respondent to issue a
counter guarantee in favour of the M/s Indiabulls in terms of clause 3.7 is
concerned, it is not in dispute that the respondent had furnished counter
guarantee in favour of Vijaya Bank to secure the loan of Rs.105 crores availed
of by the petitioner. The petitioner committed default in making repayment of
the loan to Vijaya Bank as a result whereof the said Vijaya bank declared the
accounts of the petitioner as non-performing assets and issued a notice under
section 13 (2) of the Securitisation Act. The said Vijaya Bank also invoked the
counter guarantee issued by the respondent in the sum of Rs.105 crores and
freezed fixed deposit of Rs.117 crores which was given as a security to the
Vijaya Bank by the respondent. It is not in dispute that the said Vijaya Bank
has already filed proceedings against the petitioner and the respondent before
the Debt Recovery Tribunal. On perusal of clause 3.7 of the Agreement dated
24.7.2010 it is clear that the counter guarantee required to be furnished by the
respondent was for loan as per approved DPR and approved by the respondent
and such a guarantee was to be valid till end of April 2012 unless further
extended. On a perusal of sanction letter of M/s Indiabulls, it is clear that M/s
Indiabulls had proposed to sanction loans to the petitioner on the condition
that the said loan was to be in two trenches first trench to be for a period of 36
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months. According to the said sanctioned note one of the conditions was that
the respondent shall furnish counter guarantee for the sum of the amounts
sanctioned.
13. In my view, Mr.Khambatta learned Senior Counsel appearing for
the respondent is right in his submission that the respondent was not bound to
furnish any counter guarantee on fresh terms and conditions not agreed under
the Development Agreement and also on the ground that the petitioner had
already committed default to Vijaya Bank as a result thereof counter guarantee
already submitted by the respondent was invoked and fixed deposits of Rs.117
crores lying with Vijaya Bank was freezed. On perusal of the pleading filed
before the learned Arbitrator by the petitioner and in the Writ Petition filed in
this Court which was forming part of the record before the learned Arbitrator
and in this court, it is clear that the petitioner wanted to seek various
directions against the respondent. It was averred by the petitioner that the
petitioner would be able to complete the project after various terms and
conditions proposed by the petitioner including the submission of counter
guarantee for a period of 10 years was complied by the respondent. In my
prima facie view, the respondent was right in rejecting the proposal of the
petitioner that the respondent shall submit the counter guarantee in favour of
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M/s Indiabulls on the terms and conditions of loan approved by M/s
Indiabulls.
14. A perusal of clause 7.1 of the Agreement indicates that the
petitioner was solely responsible for arranging the funds required for
development in accordance with the provisions of the agreement and in
accordance with the standard of a reasonable prudent developer. The learned
arbitrator has dealt with this issue at length in para 19 to 26 of the impugned
order. The learned arbitrator has taken a prima facie view that the respondent
was justified in exercising their discretion that no counter guarantee be given
afresh in favour of the financial company like M/s Indiabulls and the learned
arbitrator would thus not interfere with the discretion exercised by the
respondent. The learned arbitrator has interpreted clause 3.7 of the
agreement and also clause 7.1 and has rendered a prima facie finding that the
petitioner was responsible for arranging for the funds. The proposal of M/s
Indiabulls was for Rs.155 crores and extension of time for 36 months from the
date of sanction was inconsistent and not compatible with the terms and
conditions entered into between the parties. It is held that no fault could be
found with the respondent. It is held that respondent had committed no
default in carrying out their obligation under the contract. The respondent
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cannot be faulted on the ground that they have failed in their obligation under
clause 3.7 by not giving counter guarantee in favour of M/s Indiabulls. In my
view the learned arbitrator has rightly rejected the submissions of the
petitioner and has rightly not interfered with the exercise of discretion by the
respondent in view of the provisions of the Agreement entered into between
the parties. The respondent had already landed into trouble in view of the
petitioner not repaying the loans availed from Vijaya Bank. The respondent in
these circumstances were not expected to issue a fresh counter guarantee and
more particularly on the terms and conditions proposed by M/s Indiabulls and
were justified in rejecting the said proposals. In my prima facie view, the
prima facie findings of the learned Arbitrator is correct and no interference is
warranted with this finding.
15. Next submission of Mr.Apte learned senior counsel for the
petitioner is that the petitioner was discriminated by the respondent by giving
unfair treatment in comparison with other developers who were similarly
situated and who had not completed the work. The Agreement with the
petitioner came to be terminated whereas no action was taken against other
developers. It is not in dispute that the petitioner had already filed a Writ
Petition in this Court impugning the action on the part of the respondent
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which Petition was withdrawn by the petitioner with liberty to file arbitration
proceedings.
16. The learned Arbitrator has dealt with this issue in paras 27 to 29
of the impugned order and has rightly rejected this submission upon
considering the Judgment of the Supreme Court in case of INDIA OIL
CORPORATION vs. AMRITSAR GAS SERVICES reported in 1991 (1)
SUPREME COURT CASES 533. In my view, the agreement between the
parties was commercial and Article 14 of the Constitution of India would not
apply for consideration in a contractual matter and the same has to be decided
strictly in accordance with the terms and conditions of the agreement entered
into between the parties and also in accordance with the provisions of Specific
Relief Act, 1963 and Indian Contract Act. There is no merit in the submission
of Mr Apte learned Senior Counsel for the petitioner that action of the
respondent was discriminatory.
17. In so far as the submission of Mr Apte learned Senior counsel that
there was no provision under the agreement entered into for termination of the
agreement and thus the termination of the agreement by the respondent was
illegal and contrary to the provisions of terms of the agreement is concerned it
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is not in dispute that clause 16.1.1. of the agreement provides for events of
default. The petitioner did not pay the development fees, revenue share
payable to the respondent in accordance with the provisions of the agreement.
The petitioner had abandoned the work by themselves repudiating the
contract. No work has been carried out admittedly by the petitioner since
January 2011. The petitioner did not adhere to the schedule of construction
and did not furnish to the respondent implementation plan and progress
report. In view of the default of the petitioner in making repayment to Vijaya
Bank the counter guarantee furnished by the respondent came to be invoked
and fixed deposits of the respondent in the sum of Rs.117 crores lying with
Vijaya Bank came to be freezed. The project came to a standstill since January
2011. The petitioner has no funds in hand and could not get any other
arrangement. The petitioner was demanding fresh terms and conditions for
completing the project from the respondent.
18. In these circumstances, in my prima facie view, the respondent
was justified in terminating the contract. In my view, even though there is no
provision in the contract entered into between the parties permitting either
party to terminate the contract, since events of default on the part of one party
had already occurred, other party is entitled to terminate the contract under
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the provisions of the Indian Contract Act. If the submission of Mr.Apte
learned Senior Counsel is accepted, in the absence of specific clause permitting
either of the party to terminate the contract even if breaches are committed is
accepted, no contract can be terminated even if one party has committed
breach and the other party would have to continue his contractual rights. In
my view, in such a situation, the provisions of the Indian Contract Act would
be attracted. In my prima facie view, the respondent was thus justified in
terminating the contract. I am in agreement with the view expressed by the
Delhi High Court in case of Rajasthan Breveries Ltd. (supra).
19. The learned srbitrator has dealt with this issue in paras 30 and 31
of the impugned order and has rendered a prima facie finding that the
petitioner is neither ready nor willing to perform their part of the contract due
to financial difficulties and it was difficult to expect that the petitioner would
complete the project as per the Development Agreement and the respondent
has thus taken into account various circumstances relating to default on the
part of the petitioner and has rightly terminated the said agreements. In my
view, the learned Arbitrator has rightly come to such a prima facie conclusion
based on the documents placed on record and interpretations of the terms and
conditions. No infirmity can be found in the findings rendered by the learned
Asmita 47/53
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arbitrator.
20. In paras 32 to 37 of the impugned order, the learned arbitrator has
considered the issue of readiness and willingness on the part of the petitioner
to perform the development agreement at length. The learned Arbitrator has
adverted to the judgment of the Supreme Court in case of His Holiness
Ganesh Acharya reported in 1996 (4) SCCs 5266 and judgment of COX AND
KINGS INDIA LIMITED VS. INDIAN RAILWAYS CATERING AND TOURISM
CORPORATION LIMITED reported in 2012 (7) Supreme Court Cases 587
and has rightly held that termination cannot be stayed. The learned Arbitrator
has followed the supreme court judgment in case of His Holiness Ganesh
Acharya (supra) in which it is held that readiness means capacity of a party to
perform a contract which includes his financial position to pay the purchase
price.
21. In my prima facie view, the petitioner was not ready and willing to
comply with their part of the obligation. The petitioner has not carried out any
work since January 2011. Even according to the petitioner they have
completed only 34 % work. The petitioner has no funds and their accounts
with Vijaya Bank are already freezed and Vijaya Bank has already taken
Asmita 48/53
.. 49 .. ARBPL-1999/13
symbolic possession of the lands on which the development was to be carried
out by the petitioner. In my prima facie view, the learned Arbitrator was right
in rejecting the Arbitration Application to stay the termination notice. No
infirmity can be found with the conclusions drawn by the learned Arbitrator.
I am in agreement with the view of the learned single Judge of this court in
case of Maytas Infra Ltd (supra) that court cannot compel a party to continue
with the contract.
22. In so far as the issue of fraud canvassed by Mr.Apte learned senior
Counsel for the petitioner is concerned, a perusal of the record indicates that
allegations are made in the rejoinder before the Arbitral Tribunal. In the
written arguments filed before the learned arbitrator, it was urged by the
petitioner that in view of the serious allegations of fraud, the matter is required
to be referred to a civil Court for adjudication. The petitioner sought liberty to
withdraw Writ Petition and to file arbitration proceedings. No such plea was
raised by the petitioner while obtaining leave to withdraw the Writ Petition.
After filing of the arbitration proceedings, the petitioner raised the issue of
fraud to be referred to the civil court. The learned arbitrator has dealt with
this issue at length in paras no. 41 to 44 of the impugned order. The learned
arbitrator in my view has rightly rejected the submission of the petitioner
Asmita 49/53
.. 50 .. ARBPL-1999/13
regarding allegation of fraud. No such plea could be raised for the first time in
rejoinder. The learned arbitrator also considered the fact that there was no
specific pleading relating to fraud and misrepresentation and cheating in the
statement of claim and thus could not be permitted. In my view the learned
Arbitrator is right in rejecting the plea of fraud and no infirmity can be found
with the impugned order on this issue. Conduct of the petitioner would
indicate that such a plea was raised out of frustration.
23. As far as internal note relied upon by the petitioner for the first
time is concerned it is not in dispute that the petitioner had not relied upon
any such document before the learned arbitrator. By such note submitted by
the Vice Chairman of the respondent to the Chairman expressing his opinion
and sought approval. Such a proposal has not been neither accepted by the
respondent nor any decision thereon was conveyed to the petitioner. In my
view, since no action was taken by the respondent on such note, no
cognizance could be taken of such opinion/note/proposal for seeking approval.
In my view, Mr Khambatta learned Senior counsel appearing for the
respondent is right in his submission that if the petitioner would have
produced such note before the learned arbitrator on an affidavit, the petitioner
would have opposed production of such a writing being taken on record or in
Asmita 50/53
.. 51 .. ARBPL-1999/13
any event would have explained the so called admission in such writing on the
part of the respondent before the learned arbitrator. In my view, this court
cannot take cognizance of such document in these proceedings for the first
time. In any event since no action was taken on such note by the respondent
or no action was conveyed to the petitioner no reliance thereon can be placed
by the petitioner.
24.
The Supreme Court in the case of COX AND KINGS LTD supra held
that though a party had invested a large sum of money in the project, but that
cannot entitle it to pray for a mandatory order to operate the contract once it is
noted that the remedy of the petitioner would be if any in action for damages
against the respondent for beach of any of the terms and conditions of the
Joint Venture agreement and MOU. Similar view has been taken by the
learned Single Judge of this Court in the case of MILAN COMMERCIAL PVT.
LTD VS ASIAN HEALTHCARE (supra). In my view, the arbitrator has rightly
not stayed the termination of the agreement effected by the respondent. A
perusal of the pleadings before the learned arbitrator and in the writ petition
which was on record before the learned arbitrator, it is clear that the petitioner
was pressing demand of the additional terms and conditions for completion of
the project. In my view, the readiness and willingness of a party has to be all
Asmita 51/53
.. 52 .. ARBPL-1999/13
throughout. The petitioner has not carried out any work since January 2011.
Neither the Court nor the learned arbitrator can rewrite the contract and direct
a party to withdraw the termination notice and enter into a fresh contract on
the terms and conditions proposed by another party.
25. In my prima facie view, in view of the status quo order passed by
this Court which has been continued form time to time the public project of
this magnitude has been stalled for no fault of the respondent and the learned
arbitrator was thus justified in refusing to continue such status quo order in
favour of the petitioner. In the event of the petitioner succeeding in the
arbitration proceedings and if termination of the agreement is found to be
illegal the petitioner can be compensated in terms of money.
26. In my view, termination of the Agreement thus cannot be stayed.
There is no infirmity found by this Court in the order passed by the Arbitral
Tribunal. The impugned order is a reasoned order and is passed after
considering the submissions of the parties at length, documentary evidence
and provisions of law and thus no interference is warranted by this court.
27. In my view, the Petition is devoid of merits and is accordingly
Asmita 52/53
.. 53 .. ARBPL-1999/13
rejected.
28. Mr. Apte learned senior Counsel appearing for the petitioner seeks
continuation of the statement made by Mr. Khambatta learned senior counsel
appearing for the respondent. Mr. Khambatta on instructions has opposed
such a request. Application made by Mr. Apte for continuation of the statement
is accordingly rejected.
30. No order as to costs.
(R.D.DHANUKA, J.)
Asmita 53/53
