Bombay High Court
Kalpataru Ltd vs Middle Class Friends Corporative ... on 16 December, 2021
Bench: G.S. Patel
Kalpataru Ltd v Middle Class Friends CHSL
CARBPL11890-2021-J.doc
REPORTABLE
Shephali
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION (L) NO. 11890 OF 2021
Kalpataru Ltd,
a company registered under the provisions of
Companies Act 1956, and having its Registered
Office at 91, Kalpataru Synergy, Opposite
Grand Hyatt, Santacruz East, Mumbai 400 055 ...Petitioner
~ versus ~
Middle Class Friends Coop Hsg
Society Ltd,
a Cooperative Housing Society bearing
Registration No. B-470 of 1948 having its office
at NS Road, No. 10, Plot No. 3, JVPD Scheme,
Andheri, Mumbai - 400 409 ...Respondent
SHEPHALI appearances
SANJAY
MORMARE
FOR THE PETITIONER FOR THE RESPONDENT
Digitally signed
by SHEPHALI
SANJAY
"Kalpataru" "The Society"
MORMARE
Date: 2021.12.17
09:48:09 +0530 NH Seervai, Sr Advocate JD Dwarkadas, Sr Advocate
With SH Jagtiani, Sr Advocate, With Dr BB Saraf, Sr
Gulnar Mistry, Saket Mone Advocate, Aseem Naphade,
DK Sinha, Suneet Tyagi, Aditi Ameet Naik & Madhu
Chavan, H Vaswani, Shrey Gadodia, i/b Naik Naik & Co
Page 1 of 36
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Shah & Subit Chakrabarti
i/b Vidhii Partners
CORAM : G.S.Patel, J.
(through Video
Conferencing)
JUDGMENT RESERVED : 14th July 2021
JUDGMENT PRONOUNCED : 16th December 2021
JUDGMENT:
1. The Petitioner ("Kalpataru") is a real estate development
company. The sole Respondent ("the Society") is a cooperative
society of apartment owners.
2. Kalpataru's application is under Section 9 of the Arbitration
& Conciliation Act, 1996. It seeks interim relief pending arbitration.
The primary relief is to restrain the Society from acting on its
termination letter dated 18th May 2021. By this, the Society claims
it terminated a Letter of Intent or LoI dated 18th May 2019 for the
re-development of the Society's at the Juhu Vile Parle Development
Scheme or JVPDS.
3. The issue on which the parties are at loggerheads is as narrow
as it is not easy. Indeed, some weeks after I first reserved judgment,
I placed the matter again for further hearing on specific questions
that I put to both sides (in writing). They took a little time to
consider these and then addressed me briefly. They also put in
written submissions. Oddly enough, at the hearing both sides relied
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on one particular authority but with diametrically opposite
interpretations, only adding to the difficulty.
4. Given the manner in which the case unfolded before me, I
believe it is both appropriate and necessary to approach the matter
slightly differently from other cases. I begin this judgment,
therefore, with a statement of what it is, in my understanding, that I
am asked to decide. I have attempted to make this as concise as
possible. I then proceed to set out, very broadly, the principles that I
think must guide in cases like this. I follow this with a brief summary
of my conclusions. After that, I turn to the facts, which are largely
undisputed, the relevant documents and clauses of the LoI, the
termination letter and some other documents, and to a
consideration of the rival submissions and reasons for my
conclusions.
5. The question is in this general background. There is a LoI
between the parties. Kalpataru is to redevelop the Society's
property. The LoI specifically says there is to be a further agreement,
and it says what that further agreement is to contain. The LoI is,
however, itself detailed and complex. Kalpataru maintains that even
if the further agreement is not finalized -- the parties have not
reached a consensus on it -- the LoI itself is sufficiently detailed as
to the rights of the parties. It is, on its own, capable of specific
performance. While that is certainly for the arbitral tribunal to
consider, the fact that the LoI contemplates a further agreement
does not ipso facto render the LoI incapable of specific performance.
In other words, according to Kalpataru, every agreement that
requires a further agreement is not unenforceable only for that
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reason. The LoI is a 'concluded contract'. The later agreement is a
non-essential term of the bargain the parties struck.
6. In opposition, the Society argues that without the further
agreement, there is no concluded contract between the parties at all.
The LoI is an agreement to enter into an agreement, one that is for
that reason incapable of specific performance. But even if it is not
(i.e., not an agreement to enter into an agreement), without the later
agreement, the LoI is not enforceable: the respective rights and
liabilities of the parties are not decided or agreed. What Kalpataru
must build, how, when and to what specifications are all matters yet
undecided. If, therefore, Kalpataru can be shown to have been in
breach of time-lines and obligations, the Society is within its rights
to terminate the LoI.
7. I must, I believe, bear three things in mind while addressing a
case like this.
(1.1 The first is about the relative position of the parties. The
Society is evidently of extremely modest means. It does not
have the wherewithal to do the development or re-
development itself. Kalpataru is, by its own telling of it, a
reputed developer with considerable resources.
(1.2 The second aspect is about the property itself. This is
indubitably the Society's. Kalpataru does not own any of it.
Under the LoI, the recompense to Kalpataru in consideration
of it redeveloping the Society's property is the right to sell
additional built space -- the so-called 'free-sale' component
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-- in the open market. This is where Kalpataru stands to
make its gains; and these are likely to be considerable. It is the
Society that is vested with all rights in the property, including
the fullness of its development potential. Even the additional
Floor Space Index ("FSI") or buildability beyond that
required to reaccommodate the occupants belongs to the
Society. The right to this additional FSI is ceded by the
Society to its chosen developer as consideration for the
developer, at its cost, providing the Society with rebuilt
apartments for its members. Had it been possessed of
sufficient means, the Society could as well have appointed a
contractor on payment, and the Society would then have
retained to itself all rights over the free-sale additional FSI
portion. Consequently, the primary or supervening right in
property is the Society's.
(1.3 These two aspects coalesce in the third, which speaks to the
consequence of accepting the contentions of one side over the
other. We know this as the balance of convenience test, and it
is one of the three essential ingredients to the grant of any
form of interim relief. Accepting Kalpataru's case means,
necessarily, foisting a developer on an unwilling property
owner (I use the word 'owner' in its broadest sense here, only
for convenience). Kalpataru will get to decide what is built
and how, and there is a good deal of controversy about this on
record. The Society is left with virtually no recourse or
remedy in law, but, in contrast, accepting the Society's case
against Kalpataru does not totally denude Kalpataru of legal
remedies. On the other hand, accepting the Society's case
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means that Kalpataru's efforts and expenditure until now
count for nothing. Kalpataru specifically contends that the
entire termination is at the instigation of rival builder or
developer, which seeks to piggy-back on Kalpataru's work so
far: incurring none of the expenses or costs Kalpataru already
has, and yet getting an entitlement to the massive profits from
the free-sale component and additional buildability. This is
inevitable, Kalpataru says, for admittedly the Society is in no
position to 'self-redevelop', i.e., take up the work itself and
appoint its own Project Management Consultant or PMC,
contractor, architects and so on. This conflict in the balance
of convenience question is precisely what makes this a very
difficult case.
2. These three aspects are over and above the central question of
whether the further agreement is an essential term of the contract.
3. On considering the rival cases, I have not been persuaded to
grant Kalpataru the interim relief it seeks. My reasons follow.
4. In July 1966, the Society took a 99-year lease of the property
in question from the Maharashtra Housing & Area Development
Authority ("MHADA"). The plot is about 1928.92 sq mts at
JVPDS. Some time in 1970, the Society put my four buildings,
collectively called "My Little Home". Each is ground and three
floors. There are 32 apartments or flats in all. These are the only
constructions on the Society's plot.
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5. By 2019, the Society's buildings were about half a century
old, and needed re-development. In February 2019, the Society
issued a public notice in local newspapers inviting offers for re-
development of its property. The Society's PMC made available
tender or Bid Documents, including a Technical Bid and a Financial
Bid. Copies of these are annexed.
6. The proposal was for re-development of the land and
buildings. It contemplated use of the existing FSI and "Fungible
Compensatory FSI" permissible under the applicable Development
Control Regulations. The successful bidder was to deliver to the
Society new flats in newly built buildings for its members. The
remaining newly built flats were meant for the developer to sell to
recover costs. New purchasers (of the free-sale component) would
have to apply for membership of the Society. This is set out in
Clause 5.1.1.
7. Clause 7.22 of the General Conditions defined the Contract to
mean--
"the Registered Agreement papers, details of the
Company/Firm, all of the proformas, BID document list of
amenities and facilities together with the Letter of Intent
and any other documents specifically indicated herein and
the formal agreement executed between the Developer and
the Society. All these documents taken together shall be
termed as the contract."
8. Clause 9.4(d) of the Special Conditions of Contract (at pages
191-192 of the Petition) specifically required the execution of 'a
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regular contract agreement'. It also said that a failure to do so would
be a breach.
9. There is no doubt that clause 9.38 had an arbitration clause.
10. Clause 8.3 specifically said that all rights continued to vest in
the Society--
"Except sale proceeds of the saleable component of the
Developer as provided herein."
11. Kalpataru put in its bid. It made the shortlist. It was invited to
improve its commercial bid. After meeting the Society's Managing
Committee, it submitted a revised commercial offer with tentative
plans. It made a final commercial offer on 23rd May 2019. A month
later, the Society's General Body voted on Kalpataru's offer -- an
authorised officer from the office of the Cooperative Societies
Registrar was present -- and unanimously approved Kalpataru's
appointment as a developer. The Society informed Kalpataru of its
appointment on 25th July 2019.
12. Kalpataru insists this is 'the concluded contract': the
communication by the Society of its acceptance of Kalpataru's offer.
As we shall presently see, this is a vast over-simplification.
13. On 18th October 2019, the Society issued Kalpataru a Letter
of Intent. Clause 2 of the LoI says this:
a) It is hereby agreed that Kalpataru shall proceed to
have drafted and the Society and Kalpataru shall thereafter
mutually approve and settle within a period of 180 (one
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hundred and eighty) days from the date hereof, the
Proposed Development Documents (defined hereinafter)
that is: (i) the formal Agreement that shall be entered into
and executed by the Society and Kalpataru recording the
full and complete terms, conditions and provisions in
respect of the grant of the aforesaid rights and entitlements
to Kalpataru in respect of the Property, based
upon/incorporating the principle terms and conditions of
the Final Offer ("Proposed Agreement"), (ii) the Power of
Attorney to be executed by the Society in favour of
Kalpataru containing necessary powers, discretions and
authorities to undertake and complete the redevelopment of
the Property ("Proposed POA"), (iii) the Writings to be
executed by each of the Members of the Society and
Kalpataru under which they shall each, inter alia, confirm
that they shall observe, perform and comply with all the
terms and conditions of the Proposed Agreement and fully
co-operate with the redevelopment of the Prope1ty in terms
thereof, and also containing various representations,
declarations and undertakings regarding their respective
titles to their respective shares and flats ("Proposed
Members' Writings"), (iv) the format of the writing to be
executed by the Society, each of the Members respectively
and Kalpataru in respect of the Member's proposed new
flats in the redeveloped property ("Proposed New Flat
Writing") and (v) a Declaration made by the Society as to
its title to the Property and related matters ("Declaration").
The Proposed Agreement, the Proposed POA, the
Proposed Members' Writings, the Proposed New Flat
Writing and the Declaration are hereinafter collectively
referred to as the ("Proposed Development Documents").
(b) In the event of the parties hereto failing to execute
the Proposed Development Documents within 180 (one
hundred and eighty) days then both the parties herein shall
discuss amongst themselves and mutually extend in writing
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the period for execution of Proposed Development
Documents.
14. Clause 16 of the LoI says:
16. The parties agree that this LoI records the basic
understanding between the Parties in respect of the re-
development of the Property and the detailed
understanding on the basis thereof would form part of the
Proposed Development Documents.
15. In paragraph 22 of the Petition, Kalpataru reads this to mean
that--
the fundamental terms of the transaction were agreed
between the parties and set out therein, on the basis of
which the formal Proposed Development Documents as
described hereunder would be executed.
16. As we shall also see, this distinction between a 'basic
understanding' and 'fundamental terms' will prove determinative.
17. I do not think a microscopic examination of the
correspondence until December 2019 is necessary or even
permissible. I am not to hold a trial of any kind here. For instance,
Kalpataru alleges delay by the Society in approving the draft
Irrevocable Consents required from members. This, and similar
matters, are best left for another day and another proceeding.
18. I come immediately to 3rd December 2019, when Kalpataru
sent the Society a draft of the 'formal' Development Agreement
("DA"). Nothing came from the Society on this (or even the
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proposed Irrevocable Consents) for several weeks until about late
January or early February 2020. The Society responded with its
comments on the draft DA. Kalpataru replied and sought a meeting
in February 2020. A reminder from Kalpataru followed in early-
March 2020.
19. On 7th March 2020, the Society replied to Kalpataru's
reminders. It said that it had edited the draft DA in accordance with
what it called "agreed terms and conditions". It went on to insist
that its terms be incorporated, and until that was done, refused to
enter into any further discussions or even to provide the Irrevocable
Consents. This back-and-forth went on until 14th July 2020, when
the Society responded to Kalpataru's revised DA draft with more
updates. On 28th August 2020, the Society provided Kalpataru with
Irrevocable Consents of 18 of its 32 members. On 18th August 2020,
the two sides' representatives met. On 5th and 19th October 2020,
Kalpataru sent the Society a further revision of the draft DA with an
annexure of suggested amenities, and a synopsis of the points
discussed at the August meeting.
20. Then Kalpataru forwarded typical floor plans in mid-October
2020.
21. On 5th December 2020, the Society sent back to Kalpataru its
further revisions to the latest draft DA. More discussions followed.
Much of this seems to have been about the parking options. On 20th
January 2021, Kalpataru emailed the Society, saying that the Society
had now made changes even to clauses previously agreed in August
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2020. That notwithstanding, the parties' representatives met on
10th February 2021. Kalpataru asked for the Society's revisions to
the draft DA. On 25th/26th February 2021, the Society sent
Kalpataru a revised draft. Between March and May 2021, Kalpataru
gave the Society another parking option.
22. Kalpataru says that it was being led down the garden path.
For, even while documents were being exchanged (and I have largely
concentrated on the draft DA; there were many other documents),
and meeting were being held, the Society had opened negotiations
with one of Kalpataru's rivals, Dhyan Projects Pvt Ltd ("DPPL")
for the same project.
23. On 18th May 2021, the Society issued its Notice of
Termination. A copy is at Exhibit "MMM" at page 349. Kalpataru
replied on 23rd May 2021, disputing the termination.
24. Here is the Termination Clause 7.72 in full:
7.72 TERMINATION OF CONTRACT BY THE
SOCIETY
If the developer commits a breach of any terms of this
contract or any Act of Insolvency or shall be adjudged as
Insolvent or shall make an assignment or composition of the
greater part in number or amount of this creditors or (being
an Incorporated Company) shall have an order made against
him or pass an effective resolution for winding up either
compulsorily or subject to the supervision of the Court or
voluntarily or if the official assignee of the developer shall
repudiate the contract/or if the official assignee or
liquidator in such acts of insolvency or winding up shall be
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unable, within seven days after notice to him requiring him
to do so, to show to the reasonable satisfaction of the
Society/Consultant, that he is able to carry out and fulfil the
contract and if required by the Society to give security
thereof, if the Engineer shall certify in writing to the Society
that, in his opinion, the developer--
a) Has abandoned the contract,
Or
b) Has failed to commence the works, or has without
any lawful and reasonable excuse under these conditions
suspended the progress of the works for 30 days after
receiving from the Consultant/PMC written notice to
proceed;
Or
c) Has failed to remove materials from the site or to
pull down and replace the work within seven days after
receiving from the Consultant/PMC written notice that the
said materials or work were condemned and rejected by the
Consultant/PMC under these conditions;
Or
d) Has neglected or failed persistently to observe and
perform the acts, matters or things as per the terms and
conditions of the contract by written notice to perform and
act;
Or
e) Has to the detriment of good workmanship or in
defiance of the PMC instruction to the contract sub-let any
part of the contract,
Then in any of the said cases the society with the written
consent of the Consultant may notwithstanding any
previous waiver, after giving seven days' notice in writing to
the developer, determine the contract, but without hereby
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affecting the powers of the Consultant or the obligations of
the developer the whole of which shall continue in force as
fully as if the contract had not been so determined and as if
the works subsequently executed had been executed by or
on behalf of the developer.
25. The less said about this appalling drafting the better. Mr
Seervai's submission for Kalpataru on this clause is that the
Society's termination does not conform to a single one of these
conditions. Except for 'abandonment', every single one of the
grounds for termination requires a notice and a cure period or
option. Termination without cause by the Society is not
contemplated. The termination also requires there to be a
Consultant or a PMC to have formed an opinion, given a notice, etc.
26. In its termination letter of 18th May 2021, the Society's
grievance seems to have been the delay in finalizing the DA.
Specifically, it contended that Kalpataru was obdurate in not
accepting the Society's changes and revisions. On any reading of the
LoI, the Society said, the DA was to be finalized within 180 days,
i.e., by 17th April 2020. That time had not been extended "by
mutual agreement". Kalpataru had refused to accept the Society's
changes regarding the circumstances for termination, insisting that
the Society could not terminate for any reason at all -- and, on the
contrary, insisted that if Kalpataru delayed or defaulted, the Society
would take over and complete all of Kalpataru's obligations,
including building new flats and hand them over to Kalpataru.
Further, Kalpataru insisted now on extended the project completion
period from 24 months with a grace period of 12 months, a total of
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36 months, to a total of 42 months; and that too before a single brick
had been laid. More surprisingly, the Society said, Kalpataru refused
to incorporate the terms of the tender documents in the DA but
insisted that the DA would over-ride and supersede all tender
document terms. The Society also said that Kalpataru had delayed
sharing floor plans for a year and, in any case, had refused to share
the AutoCAD versions for the Society's architects to examine.
Kalpataru refused to accept the Society's suggestions and
requirements for changes to these plans. Among other things, it
refused to provide basement parking with an access ramp. Instead, it
had proposed mechanized systems for car parking, too expensive to
maintain. Though the Society refused, Kalpataru was adamant. The
Society maintained that it had not extended time for executing the
DA; the LoI had, therefore, expired by passage of time on 16th April
2020. Therefore, at its meeting on 14th May 2020, the General
Body of the Society, at which 30 of the 32 members attended,
resolved to terminate the LoI. Hence the termination. The Society
returned the Rs.7.5 lakhs deposited as earnest, demanded a return
of all documents and a confirmation of the resignations of the
architect and licensed surveyor.
27. Mr Seervai's submission is that the formal DA is not a
necessity. Its absence does not detract from the completeness of
what he calls 'the contract'. He maintains that the 'contract' --
which consists of all writings except the DA; the bid documents, the
LoI and all correspondence -- is sufficiently specific and complete.
All the requirements of a contract under Section 10 of the Contract
Act are met by the tender notice, the bid of offer (both technical and
financial), the resolution of the Society appointing Kalpataru, the
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actual letter of appointment of 25th July 2019, the LoI and all later
correspondence. The execution of the DA is not, he says, an
essential term of the contract.
28. Mr Seervai frames his propositions like this:
(1.1 Executing a DA is not an essential term of 'the contract'. An
agreement to execute a later document does not preclude the
existence of a valid contract unless the contract says that without the
later agreement and until it is executed, there is no valid contract at
all.
(1.2 The 'formal' document in this case is only to incorporate the
terms of the tender. It is, literally, a formality; and therefore is
dispensable.
(1.3 The terms of the draft DA are secondary. They do not alter
the bid documents and their acceptance.
(1.4 The definition of 'contract' (set out above, in clause 7.22 of
the General Conditions of Contract) lists everything, including
nebulous documents and also documents that are not contractual.
(1.5 The draft DA includes clauses that the Society terms
'unilateral deviations'. But these are subject to discussions and do
not dilute the binding nature of 'the contract'. These drafts of the
DA do not meet or concern the question of whether or not there is a
binding contract.
2. Kalpataru is, he submits, on this formulation entitled to
limited injunctive relief. A word on that at this stage: nothing in the
Petition or its prayers suggests that Kalpataru seeks only a 'limited'
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injunction. Prayer (a) is for a full-spectrum injunction against the
Society from acting on its termination letter or giving effect to it.
There is no way to limit this. In translation, it means that Kalpataru
must be allowed to continue as if there is no termination; and, read
with Mr Seervai's submissions, means that it is absolved of the need
to enter into a DA at all, or, alternatively, that the Society must
accept Kalpataru's draft DA and find a way to be happy with it. For,
self-evidently, there can be no interim order directing the parties to
agree on the draft DA.
3. Mr Seervai goes on to argue that the time-limit in the LoI of
18 months was extended by conduct of parties, for drafts of the DA
were still being exchanged until 13th May 2021. Meanwhile, he says,
the Society was in total breach of the terms of the LoI that mandated
confidentiality and forbade the Society from trucking with another
developer, actively engaging DPPL in May 2021.
4. Cutting through some of the surrounding clutter in
correspondence, the questions for determination are only these. Is
the requirement of a DA an essential term of the contract or is it an
idle formality? Without the DA, can the project proceed? If Mr
Seervai is right, and the DA is not essential, then he must get relief.
But if the DA is an essential term of the contract and, without it, the
project cannot possibly proceed, then no injunction can follow.
5. Before I turn to the authorities Mr Seervai cites, I note again
the definition of 'contract' in clause 7.22 (extracted earlier). It
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specifically says the contract includes 'the formal agreement', i.e.,
the DA.
6. Section 10 of the Contract Act says:
10. What agreements are contracts.
All agreements are contracts if they are made by the
free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby
expressly declared to be void.
Nothing herein contained shall affect any law in force
in India and not hereby expressly repealed by which any
contract is required to be made in writing or in the presence
of witnesses, or any law relating to the registration of
documents.
29. Mr Seervai first cites the Supreme Court decisions in
Kollipara Sriramulu v T Aswatha Narayana.1 The principle question
there was about specific performance of an oral agreement between
the partners of a firm for sale of their shares. The second question
that the Supreme Court addressed was 'whether the oral agreement
was ineffective because the parties contemplated the execution of a
formal document or because the mode of a payment of the purchase
money was not actually agreed upon.' The appellant contended that
'there was no contract because the sale was conditional upon a
regular agreement being executed and there was no such
agreement'. The Supreme Court rejected this argument. It held as
well-established that--
1 (1968) 3 SCR 387 : AIR 1968 SC 1028. We have used the SCC version.
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a mere reference to a future formal contract will not
prevent a binding bargain between the parties. The fact
that the parties refer to the preparation of an agreement by
which the terms agreed upon are to be put in a more formal
shape does not prevent the existence of a binding
contract.
(Emphasis added)
What matters, the Supreme Court said, is the intention of the
parties, and this depends on the facts of each case. There mere fact
that the persons desire to have a formal agreement drawn up does
not establish the proposition that, invariably, they cannot be bound
by a previous agreement. The Supreme Court cited with approval
the principle enunciated in Von Hatzfeldt-Wildenburg v Alexander,2
that whether or not the formal agreement is an essential term of the
contract is always a question of construction. If it is a condition or
term of the bargain, then without the formal agreement there is no
enforceable contract because the execution of the formal agreement
is a condition; unfulfilled, there is no contract at all. If, on the other
hand, it is merely an expression of the parties' desire, there is a
binding contract and the 'reference to a more formal document may
be ignored'. That is precisely what Mr Seervai would have me do
today.
30. In paragraph 4 of Kollipara, the Supreme Court referred to
the decision in Rossiter v Miller,3 Mr Seervai's next port of call. The
Kollipara decision cites this portion of Lord Cairns' decision in
Rossiter for the House of Lords:
2 (1912) 1 CH 284, 288.
3 [1878] 3 AC 1124 (HL).
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"If you find not an unqualified acceptance subject to the
condition that an agreement is to be prepared and agreed
upon between the parties, and until that condition is
fulfilled no contract is to arise then you cannot find a
concluded contract."
31. I must reproduce parts of Rossiter, since both Mr Seervai and
Mr Dwarkadas relied on these.
"I pause there for the purpose of pointing out to
your Lordships that in these conditions there are to be
found the terms -- and the detailed terms -- of a
contract, such as might reasonably be expected to be
proposed with regard to sales of plots of land of this
description. There is no doubt a stipulation that the
purchaser would be required to sign a contract
embodying these conditions. That is an obvious and
natural term, because the contemplation is that persons will
come in and will make offers of the price which is required
for the plots, and at that point the persons so offering will
not be bound by anything; it will be necessary to bind them,
and therefore they are told, beforehand, that at the time
when their offer is accepted, or along with the acceptance of
it, the matter will not be allowed to rest in dubio, or without
legal obligation, but that they will be required to sign
something which will bind them. But they are also told what
they will be required to sign; it will not be a contract at the
arbitrium of the vendors, not a contract the terms of which
they do not know, not a contract the provisions of which
they will see for the first time when it is offered to them to
sign, but a contract as to which the vendors are content,
beforehand, to bind and oblige themselves that it will
assume the shape of these stipulations, and no other shape.
That is what is stated to the purchasers by this printed form
of conditions.
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... It is not in any way a suspending of the making
of a contract until an agreement is determined upon and
is arranged. It is a letter recording the conclusion of a
contract so far as the vendors are concerned, ...
My Lords, I have only to say that -- but that I have
found the learned Judges in the Court of Appeal, for whose
opinion I have the greatest respect, taking a different view
-- I should have said that a clearer and simpler case of
an offer made and accepted by a correspondence
consisting of no more than three letters I have seldom
seen. Every term is made clear, by reference to an
elaborate scheme of conditions under which the sales
were to be made. The offer is recognised in terms by the
person who had made it, under his hand, and it is
accepted without the possibility of doubt or cavil by the
persons to whom the offer was made.
My Lords, the reference to the agreement in the first
letter is, I think, exactly what you might have expected to
find. I have pointed out that at that time the purchaser was
in no way bound, and therefore it was right in the vendors to
call upon him for the signature of the agreement which he
was bound to sign. But, as regards any legal consequence,
the moment he himself had written a letter in which he
had referred to the contract as a contract under the
terms and conditions of the articles of 1871, the vendors
might, if they had so desired it, have required the
agreement to be prepared and signed as a matter of
form, but as a matter of law it was to my mind perfectly
indifferent whether they did so or not. If they did so, if
an agreement had to be prepared and signed, it must be
an agreement exactly to the effect of the terms and
conditions of the paper of 1871, and no other terms and
conditions could have been introduced. If other terms
and conditions had been introduced, either party would
have had a perfect right not only to refuse to accept
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those other terms, but to insist upon an agreement in the
original terms of the paper of 1871.
My Lords, I therefore come to the conclusion that
there is here clearly and distinctly a concluded contract
with the terms expressed in this letter, subject to the
observation I have yet to make upon what I call the second
part of the case in reference to the use of the word
"authorized."
(Emphasis added)
32. Mr Seervai then took me through various parts of the record
in an attempt to establish that the contract was 'concluded' --
nothing remained to be decided. It was so concluded, he said, with
the appointment of Kalpataru and the issue of the LoI.
33. It is with this formulation that Mr Dwarkadas takes issue. The
arbitration agreement may survive any termination. Like Mr
Seervai, Mr Dwarkadas too relied on Note 3 below the financial bid
(at page 223). This says that the terms in the technical and financial
bid documents--
'are only broad guidelines which can be amended by the
society and the final terms and conditions will be agreed
upon by all the concerned parties before execution of the
Development Agreement.'
(Emphasis added)
34. This is also repeated in a note below the Financial Bid.
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35. Clause 5.9.2 of the tender document says that after the bid is
accepted, the Society will enter into a Development Agreement with
the selected bidder and--
'shall enter into a further agreement after the bidder has
completed all formalities and terms and conditions for
entering into further agreement for carrying out
construction work for the said Project.'
36. There is also the stipulation in Clause 16 of the LoI that the
LoI is only the broad understanding and a detailed understanding
based on the LoI was necessary.
37. All this must be read with clause 9.4(d) of the Special
Conditions of Contract, which requires the execution of a 'regular
contract agreement'.
38. Clause 8.1 at page 185 also has a provision that it is the
Society that must approve overall layouts. It alone has the right to
select a layout from options to be offered.
39. Then Mr Dwarkadas highlights Clause 2(a) of the LoI,
extracted above. This, he submits, sets a 180-day time-line for
execution of the DA. If that is not done, the project is abandoned.
Kalpataru specifically agreed to this in paragraph 8 of its offer
submission letter of 10th April 2019, when it said that if the contract
documents were not executed and work not commenced within the
prescribed period after the bid was accepted, the Society would be
entitled to treat the contract as abandoned. Any extension must be
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by mutual agreement. Clause 16 of the LoI says this is only the
'basic' understanding.
40. In paragraph 91 of the Petition, Kalpataru says that the
'contract' includes later correspondence. In paragraph 100, it says it
will execute the formal DA 'in accordance with the true terms of the
contract' and that it is also agreeable to executing the formal DA on
such terms as this Court or an arbitral tribunal suggests to bring
these conditions 'in line with the documents comprising the
contract'. Mr Dwarkadas submits that this is nothing but an
admission that there is only an inchoate contract and not a
concluded contract.
41. To the Affidavit in Rejoinder from page 432 is annexed a long
document. This is the draft DA with the revisions of each side
shown in mark-up. It is difficult to see how this document can, on
any rational basis, be said to be 'part of the contract', as Kalpataru
suggests: it is clearly a document yet to be finalized. Indeed, the
Society's affidavit says its members have not seen it. But on the face
of it, at least two proposed sections stand out. About the parking
method, there is clearly no understanding at all. The Society has
refused to accept mechanized parking; Kalpataru insists on it. But
more egregious is Kalpataru's proposal of the termination clause.
This is in draft clause 19 and, from any perspective, it is entirely
unconscionable. As the Society says, Kalpataru insisted that even if
there was a default on its part, and the Society terminated for cause,
the Society should be bound hand and foot to complete the
construction and to deliver the free-sale flats to Kalpataru. This is
simply unimaginable and I do not know how or on what basis
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Kalpataru could even have proposed it. As it stands, it amounts to
Kalpataru being rewarded -- fully -- even if it is in default and even
if the contract is validly terminated on account of Kalpataru's default.
This is the point the Society makes in paragraph 3(e) of its
termination letter.
42. Kalpataru's answer to the termination letter is of 23rd May
2021. A copy is at Exhibit "A" to the Affidavit in Rejoinder from
page 421. In response to paragraph 3(e) of the termination letter (the
Society's complaint about the slanted termination clause 19 in the
draft DA), Kalpataru does not say this is a mistake. It defends its
position in paragraph 4(c) at page 424. It claims this is a 'general
practice', i.e., to have the Society 'step in'. It goes on to say that the
Society was free to include a provision for liquidated damages.
43. Leaving aside the question of the suggestion itself being
unconscionable, what the draft DA unquestionably shows is that
while the parties may have generally agreed on the re-development,
they were a very great distance from a consensus on the actual
details of the project. Basic things like parking, layouts, termination
and compensation were not agreed.
44. Mr Dwarkadas is also, in my view, correct in his submission
that Kollipara is not in favour of the proposition Mr Seervai
advances, but actually against it. What Kollipara says, in my
understanding of it, is this: there is no universal or immutable rule
that every future agreement is an idle formality, or the earlier
contract is complete. This is case- and fact-dependent. It is a matter
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of construction of the contract. Was the later contract only a
formality? The word 'formal' is not determinative. The test is to see
what is left to be agreed. It is not a test of form. It is a test of
substance. If the parties agree that important and crucial aspects are
yet to be agreed and will be incorporated in a later agreement, the
earlier agreement is not enforceable. If, on the other hand, they have
agreed on everything but only desire that a later agreement embody
-- for the sake of good form (and perhaps in more obscure legalese)
-- what they have already agreed upon and nothing more of
substance, then the earlier contract is a concluded, enforceable
contract.
45. Projects like these always have two components. The first is
the rebuilding of the Society's homes. This is the members'
component. They must get their newly constructed flats. These
must be to the members' (and their Society's) specifications and
liking. The rationale is that the property is, after all, that of the
Society. The chosen developer does not get to dictate to members
what their flats should be like, how they should live or what kind of
parking they must accept. That choice is, and is only, that of the
members and the Society. The present contract, as we have seen,
envisages precisely this when it says that Kalpataru is to give
members a range of options from which to choose. The second
component is the free-sale component, Kalpataru's (or any
developer's) incentive and profit-centre. Here, the Society may have
next to no say. The second component is consideration from the
Society for the first. Viewed in reverse, the developer's rights to the
second component of free-sale component is the consideration for it
providing to members and the Society, free of charge, the first
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component of members' housing designed to the members'
specifications and liking. Consequently, if there is no agreement on
the first component -- the layout, the floor plans, the flat
dimensioning and layouts, the amenities, the parking -- the project
cannot and does not proceed. This is the essence of the DA. In the
contract documents other than the DA, this has not been specified.
It remained to be done, and this is the reason drafts of the DA were
being constantly exchanged and revised.
46. The legal consequence must, therefore, logically be that the
DA is an essential requirement. It is not an idle formality. The
project cannot proceed without it -- there is simply no agreement
on what is to be built for the members' component. If this be so,
Kalpataru's case must fail entirely. Add to this the fact that in its
petition Kalpataru expresses it willingness to complete the DA on
such terms as this Court or the arbitral tribunal may decide and it is
clear that the DA is no idle nice-to-have document but is of the very
essence. That suggestion, incidentally, is preposterous for it is not
for any court or tribunal to step into the agreement-making arena.
47. Most fundamentally, what this tells us is that there is no
consensus ad idem on an essential requirement of the contract: the
form, nature and precise configuration of the members' component.
Kalpataru cannot brush this aside.
48. I put this to the test a short while after I first reserved
judgment. I placed the matter back on board and handed down a list
of queries based on the draft DA, asking if Kalpataru could
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construct without these details being agreed. Almost predictably, I
got a wordy response from Kalpataru's legal team where a simple yes,
no or maybe might have served better. The rest is a decidedly mixed
bag. There is a table annexed to the response. It extracts portions of
the Tender and Bid documents and claims these are sufficient. In
some portions, that might be true. But that is not enough. An
excellent example is the portion in the draft DA about compensation
to the members (clause 5A). Kalpataru claims this is covered by
Clause 8.1 at page 186. Clearly, it is not. Clause 8.1 has no specifics
of the kind sought in Clause 5A of the draft. This is straining the
boundaries of what is possible.
49. In the context of a contract like this, what exactly does
'enforceable' mean? In the legal world, it connotes getting an order
to perform the contract. But, in practice, this means compelling one
side to actually do some specific work. Now this is an odd case. It is
not the Society that wants Kalpataru to do anything at all. It is
Kalpataru that makes the demand. And the demand is that the
Society should sign documents and make way for Kalpataru to
construct as Kalpataru wishes, no matter what the Society may want
or even need. 'Enforceability' at the Society's instance would mean
compelling Kalpataru to execute that which was agreed. In the
present case, Kalpataru's demand for 'enforceability' is to be
allowed to do as it almost as it pleases absent an agreement on
critical aspects of the all-important members' component. That can
never be permitted.
50. Mr Seervai's next submission seems to me very like reverse
engineering. It goes like this. If the Society claims there is no
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concluded contract -- and it must so claim to succeed, according to
Mr Seervai -- then there is no arbitration agreement either. But Mr
Dwarkadas accepts there is an arbitration agreement. Therefore
there must be concluded contract without the DA. Therefore the
DA is not an essential term of the contract. This syllogism is
fundamentally flawed. An arbitration agreement is an agreement
within an agreement. Certainly the LoI can be said to be an
agreement, one with an arbitration clause. But that would not
necessarily make it enforceable. The reliance on Section 10 of the
Contract Act in this context is an over-simplification. Every contract
is an agreement. But every agreement is not necessarily an
enforceable -- that is to say, concluded -- contract.
51. That is the substance of Mr Dwarkadas' case. Without the
DA in place, Kalpataru cannot enforce the contract; and to be clear,
the 'contract', no matter how often the word is repeated, is one thing
and one thing only: to build the Society new homes, deliver
possession and, in consideration for that, to have the right to the
free-sale component. To do the first leg of it, the DA is inescapable.
If only some terms were agreed and others not, the 'contract' is not
enforceable. That is all there is to it.
52. By a logical extension, what this means is that without the
DA, the very contract that Mr Seervai speaks of is presently
enforceable only by the Society. But had the DA been agreed on and
the Society had refused or failed to execute it, what then?
Undoubtedly Kalpataru could then have sought enforcement. But
this only reinforces Mr Dwarkadas' argument that without the DA
the contract is not enforceable by Kalpataru. Therefore, when Mr
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Seervai says the contract is presently enforceable without the DA,
what this really means is that the options contractually available to,
and only to the Society -- to choose a layout from among several
options, to decide for itself its preferred floor plans and amenities,
and so on -- must all be stripped from the contract. Kalpataru can
then build as it likes and leave the Society with no choice.
53. It is in this context that Mr Dwarkadas' reliance on the
decision of a Division Bench of this Court in Kalpataru Properties
Pvt Ltd v Majithia Nagar CHSL 4 is most apposite. Kalpataru (the
same as the present petitioner, or perhaps a sister concern or a
predecessor-in-title) was in appeal against an order of a learned
single Judge of this Court refusing interim relief in Kalpataru's
specific performance suit. The same question arose there: whether
there was a concluded contract. Kollipara was cited. The Division
Bench held there was no concluded contract, though there was a
tender. The difference perhaps was that tender said a concluded
contract would come into existence only upon the execution of a
formal agreement, squarely within the Kollipara and Rossiter frame.
For my purposes, what is important is paragraph 24, where the
Court looked at the relative position of the parties and explicitly
held that the society in question was entitled to insist on its
demands being met and encoded in a formal Development
Agreement.5
4 2014 SCC OnLine Bom 984.
5 In Heritage Lifestyle &Developers Ltd v Cool Breeze CHSL [2014 (3) Mh
LJ 376], RD Dhanuka J said that a very similar contract was one of which
specific performance could not be granted because an initial Memorandum of
Understanding left undecided many additional factors.
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54. In a very early case from 1955, Subodh Chandra Nandy & Ors v
Himanshu Bala Bose & Ors,6 a Division Bench of the Calcutta High
Court was asked to decide whether or not there was a concluded
contract. This came up from a preliminary decree in a partition suit
and the subsequent auction sale. The Division Bench held that if the
record showed that only some of the terms were agreed but that
others were to be negotiated, or were only broadly stated, the
conclusion was irresistible that there was no concluded contract.
Evidence of subsequent negotiations showing that parties had not
reached an agreement on those additional terms was enough to hold
there was no complete and concluded contract.
55. In the course of arguments, there were twice what I can only
now describe as diversions. The first was Kalpataru's outrage at the
Society's reproduction in its Affidavit in Reply of some portions of
the contract: the Society's office-bearer used the word 'registered'
instead of 'formal'. Mr Dwarkadas explained that, on affidavit. I have
let it pass. As I noted, the word 'formal' is not determinative, and
the 'formal' DA would have to be registered in any case.
56. The second was when Kalpataru contended that the Society
had taken 'mutually destructive stands', first by contending that
there was no concluded contract, and then by saying that there was a
contract but it was not enforceable, or that there were two contracts,
the later controlling the enforceability of the first. Mr Seervai was of
a mind to place much law before me on this. I do not think it makes a
whit of a difference. I have declined to address it for a simple reason.
6 1955 SCC OnLine Cal 257 : (1955-56) CWN 423.
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I see no conflict. Mr Dwarkadas was always at liberty to take an
alternative plea or even an inconsistent one. That would not have
made the DA any the less necessary or a non-essential term of the
contract. That is not to be determined by the pleadings. Kalpataru
cannot succeed on the basis of what the Society's lawyers choose to
argue or plead.
57. Far surer guides are (1) clauses in the contract; and (2) what
the parties actually did. As we have seen, at least at four places the
LoI and the tender documents all speak of these being only a 'basic
understanding' and of the need for a 'formal agreement', 'detailed
understanding', and 'regular contract agreement' yet to follow.
What Kalpataru wants now is to write out these requirements
altogether -- nothing but a wholesale rewriting of the LoI and the
tender document. But that is contrary to Kalpataru's own conduct.
It has never said in correspondence that the formal agreement --
whatever its name -- was unnecessary. It went on wrangling the
detailed terms of the draft DA with the Society. The draft DA and
its inconclusive quality, plus the fact that it evidently has to contain
material not yet decided, is the more telling circumstance by far.
Even at the simplest level, the fact that drafts of the DA were being
exchanged tells us that the parties had not agreed to bypass it.
Neither side saw it as dispensable.
58. But Kalpataru now says "it makes no difference what the
tender document said. It makes no difference that by bidding on that
document, we accepted its terms. It makes no difference what the
LoI said. The requirement for a formal agreement, a detailed
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understanding and a regular contract agreement are all unnecessary,
are idle formalities and are altogether dispensable."
59. And then it effectively goes further and says that Kalpataru
alone will decide the terms of the agreement. Or -- worse yet --
that Kalpataru will accept not what the Society says but what this
Court or an arbitral tribunal says. The Society can have no say even
on the construction details of the members' component of the
project. On its own, that is a breach of a fundamental term of the
contract. It is a ground for Kalpataru's ejectment.
60. The DA is not an idle formality. The fullness of the terms of
the construction were not agreed. They were to be part of the DA.
Even the final terms of 'termination by the Society' are inchoate,
and Kalpataru's draft suggestion on that in clause 19 of the draft DA
is utterly preposterous, untethered to any rational concept of law
and wholly unmoored from every concept of justice or of
contracting parties being on an equal footing. The DA is not just
required. It is an essential condition of the contract. Indeed, it is a
fundamental term of the contract.
61. Once this conclusion is reached, Kalpataru's contention that
the LoI, tender documents, bid documents and correspondence all
resulted in a concluded contract fails. Without the DA there is no
concluded contract. No question of enforcing the LoI arises.
Kalpataru has no such right. More brutally, and for the reasons I
have already discussed: unless Kalpataru reaches an understanding
with the Society about the construction and development of the
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members' component, Kalpataru has no enforceable contractual
rights at all. For this reason too, Kalpataru's submissions about the
so-called 'conflict in arguments' or 'want of pleadings' are all futile.
62. Notably, nowhere does Kalpataru say that terms of the DA
required were in fact settled and agreed, nor that despite such an
agreement, the Society refuses to execute the agreed DA. Instead, it
accepts that there is no agreement on the terms of the draft DA. And
Kalpataru itself proves that there is no agreement on the terms of
the draft DA.
63. Indeed, this is why up to this stage, it is only the Society that
can terminate. Kalpataru's right to seek enforcement or specific
performance arises only after the DA is executed. Before that, or
without it, arguably only the Society could have insisted on
performance by Kalpataru, but I am not asked to decide any such
case. I am certain, however, that without the DA, and on account of
a failure to have its terms agreed and to have it executed within the
time specified, the Society was within its rights to terminate the LoI.
64. I do not see a prima facie case by Kalpataru.
65. On the other two determinants, I am clear that the balance of
convenience is not in favour Kalpataru at all, for the reasons I have
twice discussed earlier. Far greater prejudice will be caused to the
Society if relief is granted than to Kalpataru if relief is denied. A
fourth factor: relief under Section 9 is discretionary and equitable. I
do not see equities falling in favour of Kalpataru, or, more
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accurately, I see very great inequities falling to the Society if I were
to accept Kalpataru's case.
66. The Petition is dismissed.
67. This is a matter in the Commercial Division and the statutory
requirement there is that costs must follow the event. If costs are
not awarded, a court must record reasons. In the facts of the case,
however, I leave it to parties to bear their costs. I do so because the
complexity of the transactional documents -- not aided by the
needless obscurity of their wording -- did not make the task easier
for either side or for me, and also because Kalpataru has
undoubtedly done some preparatory work on site.
68. The Society is, of course, now at liberty to avail of the
discount said to be presently available until 31st December 2021
from the MCGM in regard to certain FSI or development-related
premiums. This is on a without prejudice basis.
69. At Mr Seervai's request, and since there has been a statement
in operation since 23rd June 2021, when the Society said it would
not act on a MHADA-issued NOC or appoint another developer
until further orders, I will let that status continue until 10th January
2022. There are two reasons for that: first, the intervening court
holidays and my reluctance to impose on my colleagues sitting in the
vacation. Second, the very recent development of the unavailability
of the regularly rostered commercial appellate division bench
presided over by Mr Justice SJ Kathawalla. That roster has been
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presently assigned to the Division Bench over which I myself now
preside, and evidently therefore any appeal that Kalpataru files
against this order will have to go to yet another Bench, an alternate
to the one on which I serve. Hence this limited continuance.
70. I end this judgment with a suggestion, one I cannot fashion
into an order. It seems to me in the interest of both sides if they
adopt a practical and rational approach. Kalpataru is on site. It has
done some preparatory work. Fundamentally, two things alone need
to be addressed: the lopsided and indefensible termination clause
proposed in the draft DA, on which Kalpataru is irredeemably
wrong; and allowing the Society primacy in decision-making for the
members' component of the project. That is all there is to it. If the
two sides can see their way around this, a very great deal of time,
effort and money will be saved.
71. My thanks to Mr Seervai, Mr Dwarkadas and their juniors for
their assistance.
(G.S. PATEL, J.)
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