Bombay High Court
Bks Galaxy Realtors Llp (Previously ... vs Sharp Properties, Mumbai And Ors on 11 November, 2024
Author: R. I. Chagla
Bench: R. I. Chagla
2024:BHC-AS:43164
sr.15-AS -IA-9968-22024 WITH ARA-72-2024.doc
Vina Khapde
(P.S.)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL NO.72 OF 2024
WITH
INTERIM APPLICATION NO.9968 OF 2024
IN
Digitally
signed by ARBITRATION APPEAL NO.72 OF 2024
VINA
VINA ARVIND
ARVIND KHADPE
KHADPE Date:
2024.11.11
15:28:32
1. Bks Galaxy Realtors LLP
+0530
(previouslyknown BKS Galaxy Realtors
Pvt. Ltd.),
having its registered office at, 1301/02, Appellants /
Bhumiraj Costarica, Sector-18, Sanpada, Applicants/ Orig.
Navi Mumbai - 400 705 .. Plaintiffs
2 Proviso Builders and Developers
having office at
1201/02, Bhumiraj Costarica,
Sector-18, Sanpada,
Navi Mumbai - 400 705.
3 Brijmohan Gupta
4 Kashish Gupta
5 Sanjay Gawande
6 Siddhant Gawant
(Appellant Nos.3 to 6
being the Designated partner of BKS Galaxy
Realtors LLP and partner of Proviso Builders
and Developers all having address at
1201/02, Bhumiraj Costarica,
Sector-18, Sanpada,
Navi Mumbai-400705
Versus
1 Sharp Properties
having its registered office at,
328, Pragati Industries Estate316,
N. M. Joshi Marg, Delisle Road,
Lower Parel, (East),
Mumbai 400011
2 Ramnik Gala
being the Partner of Sharp Properties
having address at
A-11, Ajinkya Apartments,
80, Tagore Road,
Santacruz (W),
Mumbai 400 054
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3 Hasmukh Gala
being the partner of Sharp Properties
having address at
901, Joy While House,
Tagore Road,
Santacruz (w),
Mumbai - 400054
4 Sacchanand Lalwani
Being the partner of Sharp Properties
residing at
1102, Garden Court,
MMGS Road,
Opp. Sunshine Plaza,
Dadar (E),
Mumbai-400014
5 Mukesh Rekhani
Being the partner of
Sharp Properties
having address at
22nd Floor, Ambience Court,
Sector 19, Vashi,
Navi Mumbai - 400703
6 Lakhani Industries Limited
C2, Cuffee Castle
GD Somani Road,
Ganesh Murti Nagar,
Cuffe Parade,
Mumbai - 400 005
7 Eurrestra Industries Limited
Eurrestra Compound, NR Royal Park,
Ramnagar, Navi Mumbai,
Thane - 400 078
8 Kulbir Rekhi
Being the designated Parner
of BKS Galaxy Realtors LLP
having address at,
1201/02, Bhumiraj Costarica,
Sector 18, Sampada, Respondents/
Navi Mumbai - 400705. .. orig. Defendants
....................
Mr. Pravin Samdhani, Senior Advocate a/w Mr. Mayur
Khandeparker, Ms. Aneesha Cheema, Ms. Darshia Parekh, Mr. Parth
Jasani and Ms. Sneha Golecha i/b M/s. Purnanand & Co. for the
Appellants.
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Dr. Virendra Tulzapurkar, Senior Advocate a/w Mr. Siddhesh Bhole
i/b. SSB Legal and Advisory for Respondent No.1.
Mr. Nikhil Sakhardande, Senior Advocate a/w Mr. Siddhesh Bhole,
Ms. Shubhra Swami i/b. SSB Legal and Advisory for Respondent
No.2.
Mr. Siddhesh Bhole a/w Mr. Apoorva Kulkarni i/b. SSB Legal and
Advisory for Respondent Nos.3 to 5.
Ms. Vinodini Srinivasan (through V.C.) Mr. Dharmesh Jain, Ms.
Roshni Naik i/b. Mr. Anil Agarwal for Respondent Nos.6 & 7.
...................
CORAM : R. I. CHAGLA J.
JUDGMENT RESERVED : OCTOBER 07, 2024
JUDGMENT PRONOUNCED NOVEMBER 11, 2024
JUDGMENT:
1. By this Arbitration Appeal, the Appellants are seeking to set
aside the impugned order dated 2nd May, 2024 passed by the Civil
Judge, S.D. Belapur, in below exhibit 14 in Special Civil Suit No.87 of
2024. The impugned order was passed rejecting the Application filed
by the Appellants under Section 8 of the Arbitration and Conciliation
Act, 1996 (for short, "Arbitration Act") for referring the
aforementioned Suit for Arbitration. The present Arbitration Appeal
has been filed by the Appellants under Section 37 of the Arbitration
Act.
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2. Brief background of the facts is necessary to be stated as
under:-
(a) The Respondent No.6 was erstwhile owner of the land being
Gat Nos.51(2), 56 and 57(2) admeasuring 5 acres or
thereabouts situated at Thane Belapur Road, Village Dighe,
Kalwa, District Thane, (for short, "subject property").
(b) The Respondent No.7 had owned and was seized of a factory
structure situated on the subject property.
(c) An unregistered Memorandum of Understanding ((MoU
2015) dated 8th September, 2014 was executed by
Respondent No.6 in favour of Respondent No.1 for transfer
of the subject property on the terms and conditions recorded
therein and for a total sale consideration of
Rs.58,50,00,000/- (plus capital gains tax).
(d) The Respondent no.1 as owner executed an unregistered
Joint Development Agreement dated 7th October, 2014 in
favour of Appellant Nos.1 and 2 (as Developers) for joint
development of the subject property.
(e) The terms of the Joint Development Agreement were
subsequently amended under Addendum dated 26th
November 2014.
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(f) The Respondent No.1 had failed to comply with their
obligations under the Joint Development Agreement. The
dispute ensued between Respondent No.6 and 1 and it was
agreed between them that Respondent No.6 would transfer
the undivided share i.e. 75:25 in favour of Appellant Nos.1
and 2 respectively. This was in the year 2014 and 2015.
(g) A registered Agreement for Sale ("the said Agreement") was
executed on 5th November, 2015 in respect of the subject
property between Respondent No.6 (as the owner);
Appellant Nos.1 and 2 (as purchasers); Respondent No.7 (as
the first confirming party); and Respondent 1 (as the second
confirming party). By the said Agreement, Respondent No.6
had agreed to sell the subject property in favour of Appellant
Nos.1 and 2. It is necessary to note that in Clause 16 of the
said Agreement it is provided that Appellant No.1 and 2 with
Respondent No.1 will execute a separate Agreement in
writing identifying all the obligations of the Second
confirming party as provided in the said Agreement. Clause
35 provides for Arbitration Clause.
(h) On 5th November, 2015, in pursuance to Clause 16 of the
said Agreement, an unregistered Memorandum of
Understanding ("MoU 2015") was executed between the
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Appellant Nos. 1 and 2 with Respondent No.1 on the stamp
paper of Rs.100/- detailing the obligations of Respondent
No.1 to be complied with under the said Agreement and
specifying the consideration payable to Respondent No.1 on
successful compliance of the obligations. In the operative
portion of the MoU 2015, it is provided that Respondent
No.1 would be entitled to a monetary consideration of
Rs.3500/- per square feet of the saleable area. Further
Respondent No.1 shall comply with all obligations /
responsibilities / duties in the said Agreement / MoU 2015
on or before 31st December, 2015 subject to which balance
payment shall be payable to Respondent No.1. Further, in
the operative portion, it is provided that the responsibilities,
duties and entitlements of the said Agreement and MoU
2015 shall be read jointly and not separately.
(i) As a security for the monetary consideration payable to
Respondent No.1 for compliance of obligations of the said
Agreement which are detailed in MoU 2015, Appellant No.1
and 2 had issued an Allotment Letter dated 5 th November
2015 in favour of Respondent No.1
(j) Respondent No.6 and 7 executed a registered Conveyance
Deed dated 2nd March, 2022 in favour of Appellant No.1 and
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2 in the ratio of 75:25 as the undivided share in the subject
property. It is pertinent to note that Appellant No.2 had
thereafter transferred 25% undivided share in the subject
property in favour of Appellant No.1.
(k) Respondent No.1 to 5 filed Special Civil Suit No.87 of 2024
("Suit") before the Civil Judge, Senior Division, Belapur,
C.B.D. Belapur, Navi Mumbai for the following prayers:-
(a) That this Hon'ble Court be pleased to declare that
the said MoU and said Allotment Letter dated 05
November 2015 is subsisting, valid and binding on
the Defendants 1 to 9.
(b) That this Hon'ble Court be pleased to declare that
the Plaintiff No.1, has 50% rights in the total
constructed area in the construction undertaken or to
be undertaken by the Defendant No.1 and 2 on the
said Property and entitlement of 50% rights in total
area of the said Property.
(c) That this Hon'ble Court be pleased to direct the
Defendants No.1 to 7 to allot and or enter into
Agreement for sale of 50% of the total flats and
shops in the buildings being constructed on the suit
lands, in the name of the Plaintiff No.1 before
entering into any further Allotment / Agreement Sale
/ Sale Deed with any 3 rd party in respect to and
shop / flat in the buildings/s being constructed on
the suit lands.
(l) In an Application taken out by Respondent No.1 to 5 for
ex-parte temporary injunction (Exh.5), the Trial Court
granted the ex-parte injunction vide order 6th April, 2024 in
favour of Respondent No.1 restraining Appellant No.1 and 2
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from creating third party rights in the subject property over
constructed area to the extent of 50% out of commencement
certificate dated 12th April, 2023 till further orders.
(m) The Appellants filed an Application under Section 8 of the
Arbitration Act on 16th April, 2024 inter alia on the grounds
that (i) the Agreement for sale dated 5 th November, 2015
contained an Arbitration Clause (Clause No.35); (ii) the
MoU and the Allotment Letter were documents executed in
furtherance of the said Agreement; (iii) the performance of
the MoU / the Allotment Letter was dependent on the said
Agreement; and (iv) the said documents were interlinked,
had to be jointly considered and were not separate and
distinct from each other.
(n) By the impugned Order dated 2nd May, 2024, the Application
filed by the Appellants under Section 8 of the Arbitration Act
was rejected.
(o) Being aggrieved by the impugned order, the present
Arbitration Appeal under Section 37 of the Arbitration Act
has been filed.
3. Mr. Samdhani, learned Senior Counsel appearing for the
Appellants has submitted that the Agreement for Sale dated 5 th
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November, 2015 (referred to as "the said Agreement") is the main /
principal document and all other documents therein are intertwined
and integrally connected. He has submitted that the said
Agreement, the MoU and the Allotment Letter are all executed on the
same day and simultaneously. He has in support of these submissions
referred to the averments made in the plaint and more particularly the
paragraphs of the Plaint and corresponding page numbers in the
Arbitration Appeal Paper Book wherein the said Agreement, the Mou
and the Allotment Letter have been expressly referred to: (para "H" at
page 152, para 56 at 153, para 57(d) at page 155, para 57(e) at page
157, para 57(f) at page 158, para 57(h) at page 159, para 58 at page
159, paras (ii) and (iii) at page 160, para 58 (iv) at page 161, para (vi)
at page 162 and para 59(a) at page 163). Mr. Samdhani has submitted
that the said Agreement, MoU and Allotment letter are part of one
transaction. In law, they constitute an integral part of one transaction.
This factual position has been admitted in the plaint.
4. Mr. Samdhani has submitted that the said Agreement is the
principal document. The Arbitration Clause contained therein also
applies to all subsidiary and integral connected documents in respect
of a single transaction. In support of his submission, he has placed
reliance upon the decisions of the Supreme Court as under :-
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Decisions Referred paragraphs
1 Ameet Lalachand Shah and ors. Vs. Rishabh - 24-26, 28, 30
Enterprises and anr.1
2 Sushma Shivkumar Daga and anr. Vs. - 21, 24 to 26, 34, 35
Madhukumar Ramkrishnaji Bajajand ors. 2
3 Sushma Shivkumar Daga and anr. Vs. - 8, 13 to 15, 24, 25
Madhukumar Ramkrishnaji Bajajand ors. 3
4 Chloro Controls India Private Limited Vs. - 11, 151-158
Severn Trent Water Purification Inc. And
Ors. 4
5. Mr. Samdharni has submitted that absence of Arbitration
Clause in the subsidiary documents is immaterial. The learned Trial
Court erred in holding that the MoU does not have an Arbitration
Clause thereby treating the MoU as a stand-alone document
overlooking that the MoU was one of the subsidiary documents to the
principal document i.e. the said Agreement.
6. Mr. Samdhani has submitted that at the stage of Application
under Section 8 of the Arbitration Act, only a prima facie enquiry is
required and not a mini trial. In support of his submission, he has
placed reliance on the following judgments:-
Ameet Lalchand Shah and Ors. (supra) (paragraph 28);
Sushma Shivkumar Daga (supra) (paragraphs 25 and 35);
1 (2018) 15 SCC 678
2 2021 SCC OnLine SC 1683
3 2023 SCC OnLine SC 1683
4 (2013) 2 Supreme Court Cases 641
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Sanjiv Prakash Vs. Seema Kukreja and Ors.5 (paragraphs 21
to 23);
SBI General Insurance Co. Ltd Vs. Krish Spinning 6 (paragraphs
94, 102);
Ajay Madhusudan Patel and Ors. Vs. Jyotrindra S. Patel and Ors. 7
(paragraphs 59, 63, 65,68, 79)
DLF Limited Vs. PNB Housing Finance Ltd. And Ors.8
(paragraphs 32-37);
7. Mr. Samdhani has submitted that in the present case, the
learned Trial Court conducted a mini trial and rendered a finding
contrary to the admitted position in the plaint. The Legislative intent is
to lean in favour of relegating parties to an arbitration for a speedy
trial and to bring the matter to a logical end. In support of his
submission, he has relied upon Govind Rubber Limited Vs. Louis
Dreyfus Commodities Asia Private Limited9 at paragraph 17 and Ameet
Lalchand Shah and Ors. (supra) at paragraph 30.
8. Mr. Samdhani has submitted that the Arbitration Clause is
very wide in its language and a similar Arbitration Clause was also
considered by the Supreme Court in Renusagar Power Co. Ltd. Vs.
General Electric Co.10 (paragraph 25). He has submitted that the
5 (2021) 9 Supreme Court Cases 732
6 2024 SCC OnLine SC 1754
7 2024 SCC OnLine SC 2597
8 2024 SCC Onlline Del 2165
9 (2015) 13 SCC 477
10 (1984) 4 SCC 679
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subject matter of the Suit and reliefs sought therein are squarely
covered under the Arbitration Clause under the said Agreement.
9. Mr. Samdhani has submitted that the reliance placed by the
learned Trial Court and Respondent Nos.1 to 5, on the Judgment of the
Supreme Court in NBCC (India) Vs. Zillion Infraprojects Pvt. Ltd. 11
more particularly paragraphs 6, 11, 14, 22, 23, 26 and 28 is erroneous
for the following reasons :-
a. The argument before the Supreme Court was that the
Arbitration Clause contained in the tender document is
incorporated by reference in the Letter of Intent. The argument
was not that the Letter of Intent was a subsidiary document to
the tender document (main document). The said Agreement, in
the present case, itself contemplates the subsidiary documents
(MoU and Allotment Letter). The present case is one of single
contract in respect of one transaction, the terms of which are
contained in three documents, as admitted in the Plaint.
b. In the case of NBCC (India) (supra), the Letter of Intent
provided that all the conditions of Tender were applicable,
unless modified by the Letter of Intent. The dispute redressal
mechanism provided under the letter of intent clearly modified
and intentionally departed from the dispute redressal
mechanism under the Tender, by use of expression "alone" and
"only", thus expressly excluding the Arbitration Agreement
contained in the Tender.
11(2024) 7SCC 174
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c. In the instant case, the clauses and the language of the said
Agreement and the averments in the body of the plaint, leave
no manner of doubt that the MoU and the Allotment Letter are
intertwined and integrally connected to the said Agreement and
the same form part thereof.
10. Mr. Samdhani has submitted that the argument of
Respondent No.1 to 5 that there has been (i)accord and satisfaction;
and (ii) novation is based on the plea that the Sale Deed being
executed which does not contain an Arbitration Clause, is an
argument which finds no place in the plaint and infact the case in the
plaint is to the contrary.
11. Mr. Samdhani has submitted that the plea of accord and
satisfaction and novation cannot be adjudicated in the scope of enquiry
under Section 8 read with Section 16(1)(b) of the Arbitration Act. He
has in support of his submission, placed reliance upon the various
decisions of the Supreme Court as under :-
Sanjiv Prakash Vs. Seema Kukreja and Ors (supra) at paragraphs
21 and 23;
SBI General Insurance Co. Ltd Vs. Krish Spinning (supra) at
paragraphs 45, 48 to 51, 53, 54, 92, 93, 96, 101;
Ajay Madhusudan Patel and Ors. Vs. Jyotrindra S. Patel and Ors.
(supra) at paragraphs 59, 63, 65, 66, 68, 79.
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12. Mr. Samdhani has submitted that the argument of
Respondent Nos.1 to 5 is on the basis of Arbitration Act, 1940 for
which they have relied upon the decision of the Supreme Court in
Union of India Vs. Kishorilal Gupta & Bros.12 , which is incompatible
with Arbitration Act, 1996, more particularly Section 16(1)(b) thereof.
Mr. Samdhani has submitted that the decision of the Supreme Court in
Union of India Vs. Kishorilal Gupta & Bros . (supra) is completely
redundant, as held by the Supreme Court in Interplay between
Arbitration Agreements under Arbitration and Conciliation Act, 1996
and stamp Act, 1899 13 , more particularly at paragraph 116 and in
Sanjiv Prakash Vs. Seema Kukreja and Ors (supra) at paragraph 23.
13. Mr. Samdhani has submitted that the argument of
Respondent Nos.1 to 5 that this is not a case of single transaction and /
or the said Agreement is separate and district from the MoU is contrary
to the admitted position in the plaint read with the said Agreement
and the MoU. In the plaint, Respondent No.1 to 5 have stated that the
MoU and the Allotment Letter are a part of the said Agreement.
Further, the argument that in the said Agreement the transaction was
only for sale of land is factually incorrect in as much as the owner and
the 2nd confirming party i.e. Respondent No.6 and 1 respectively, were
12 AIR 1959 SC 1362
13 (2024) 6 SCC 1
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under obligation to obtain various permissions for development of the
said property, including obtaining full Commencement Certificate, and
change of user from industrial to residential. He has submitted that the
Plaintiffs' contention in the Suit is that they are entitled to the benefit
under the MoU on the basis that their obligations under the said
Agreement being discharged, whilst avoiding the Arbitration
Agreement contained therein to ascertain performance thereof.
14. Mr. Samdhani has submitted that there is clear distinction
between the principles of incorporation by reference and documents
being part of one transaction contained in the said Documents wherein
the main / mother agreement contains an Arbitration Clause. He has
submitted on facts, it is an admitted position in the plaint that there is
only one transaction. In the circumstances, the judgment of the
Supreme Court in NBCC (India) Vs. Zillion Infraprojects Pvt. Ltd.
(supra) is inapplicable to the case in hand. He has accordingly
submitted that the impugned order be set aside and the subject matter
of the Suit be referred to Arbitration under Arbitration Clause in the
Agreement.
15. Dr. Tulzapurkar, the learned Senior Counsel appearing for
Respondent Nos.1 to 5 has submitted that the impugned order is a well
reasoned order and there is no error committed by the learned trial
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Judge in rejecting the Application of the Appellants who are original
Defendant Nos.1 and 2 in the Suit on the ground that no case is made
out under Section 8 of the Arbitration Act.
16. Dr. Tulzapurkar has submitted that the claims in the Suit do
not arise out of a single transaction. The transaction mentioned in the
said Agreement is different from the transaction in the MoU and the
Allotment Letter. The object of the said Agreement was getting the
properties which are subject matter of Agreement for Sale transferred
from the owners i.e. Defendant Nos 8 and 9 who are Respondent Nos.6
and 7 to the Arbitration Appeal. The MoU pertains to the allotment
and transfer of certain units to the Plaintiffs by Defendant nos.1 and 2
on the terms and conditions mentioned therein. The rights and
obligations arising under the MoU and the Allotment Letter are distinct
and separate from those mentioned in the said Agreement. In fact, on
a proper reading of the MoU and the Allotment Letter, the Plaintiffs
became entitled to claim rights after the culmination of the said
Agreement in a Conveyance and they become enforceable only after
Conveyance is executed in pursuance of the said Agreement.
17. Dr. Tulzapurkar has submitted that once a Conveyance is
executed the object, purpose and effectiveness or validity of the said
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Agreement comes to an end. The rights if any in respect of the Suit
property are enforceable under the Conveyance. He has submitted that
in the instant case, there is a Conveyance executed by the owners i.e.
Defendant Nos. 8 and 9 (Respondent Nos. 6 and 7 herein) in favour of
the Appellants. Thus, efficacy of the said Agreement is over and
alongwith that the Arbitration Clause also comes to an end. The said
Agreement stands discharged and does not continue to have any legal
effect.
18. Dr.Tulzapurkar has in support of this contention placed
reliance on the decision of the Supreme Court in Union of India Vs.
Kishorilal Gupta & Bros (supra), paragraphs 8, 9 and 10 as well as the
decision of the Karanataka High Court in Smt. Nagamma & Ors. Vs.
Rudrayya & ors. 14 at paragraph 6, 7 and 8.
19. Dr.Tulzapurkar has submitted that the observations of the
Supreme Court in Interplay between Arbitration Agreements under
Arbitration and Conciliation Act, 1996 and stamp Act, 1899 (supra)
relied upon by the Appellants to contend that the Arbitration Act, 1996
renders the Judgment in Union of India Vs. Kishorilal Gupta & Bros
(supra) redundant, are not applicable to the facts of the present case
14 WP NO.105278 of 2018 (GM-CPC) dated 25 July, 2024
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as Respondent No.1 and 2 have not contended that the said
Agreement is null & void, or frustrated or breached. The decision in the
case of Union of India Vs. Kishorilal Gupta & Bros (supra) states that
once the Agreement ceases to exist, the Arbitration Clause contained in
it also perishes. In the case in hand, by virtue of the execution of the
Conveyance (Sale Deed), the said Agreement comes to an end and
thus, the Arbitration Clause perishes.
20. Dr.Tulzapurkar has submitted that the entitlement of the
Plaintiffs to receive the portion of the property / value thereof arises
only after a Conveyance is executed subject to the terms and conditions
or on the terms mentioned in the MoU and the Allotment Letter and
not on the terms and conditions or subject to terms and conditions
mentioned in the said Agreement. He has submitted that the
transaction covered by the MoU and the Allotment Letter are quite
distinct and different from the said Agreement and which are to be
enforced only in terms of the MoU and the Allotment Letter, without
any reference to the said Agreement. He has submitted that the rights
which are sought to be enforced by the said Suit arise only under the
MoU and the Allotment Letter to which two documents the owners i.e.
Defendant Nos.8 and 9 are not parties at all. He has submitted that
accordingly the contention of the Appellants that there is one
transaction is untenable.
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21. Dr.Tulzapurkar has submitted that the entitlement of
Respondent Nos.1 to 5 will be triggered as soon as the Conveyance is
executed as recorded in Clause 10 read with Clauses 15(j) and 15(l)
of the said Agreement. He has also referred to Clause 19 of the said
Agreement which categorically records the understanding between the
parties viz. "inter alia agreed between the parties that following steps
shall be taken by the owners for giving effect to the transaction of sale
and upon the completion of the following, the owners shall execute
Deed of Conveyance in favour of the Purchasers...". He has further
referred to the understanding recorded in the MoU at page 105 to the
Arbitration Appeal which reads as under :-
"Sharp Properties have agreed to sell their 50%
entitlement in the proposed residential / commercial
project on Plot bearing Gut No.51(2), 56 and 57(2) at
Dighe (Airavali), Navi Mumbai to M/s. BKS Galaxy
Realtors Pvt. Ltd. and proviso Builders & Developers at
the rate Rs.3500/- (Rupees Three Thousand Five
Hundred Only) per sq. ft of the salable area to be
calculated as defined below, on the payment terms as
mentioned below and subject to documentation
regarding Final Conveyance Deed between Purchasers
and Owners..."
22. Dr.Tulzapurkar has submitted that similar understanding is
also recorded in the letter of allotment at page 112 of the Arbitration
Appeal.
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23. Dr.Tulzapurkar has submitted that though there is reference
in the Plaint to the said Agreement, it is only a historical reference and
not because the said Agreement is the subject matter of the Suit. The
nature of the Suit described in the Plaint after the title shows that the
Suit is for declaration, injunction, recovery and specific performance in
respect of the MoU and the Allotment letter. He has also referred to
the prayers in the Suit which refers to the MoU and the Allotment
Letter and by which the specific performance has been sought by
entering into the Agreement for sale of 50% of the total flats and shops
in the building to be constructed in the name of Plaintiff No.1 before
entering into any further Allotment Agreement or Sale Deed with any
third party. Thus, there is no right claimed by the Plaintiffs under the
said Agreement and the Suit itself is not covered by the said Agreement
containing the Arbitration Clause.
24. Dr.Tulzapurkar has submitted that where there is no specific
reference to the Arbitration Clause in the said Agreement, the
Arbitration Clause does not get incorporated or becomes applicable or
governs the rights under the MoU and the Allotment letter. He has
submitted that it is a settled position in law that unless there is a
specific reference to the Arbitration Clause in a subsequent Agreement
and which Clause is part of the earlier Agreement, the said Clause is
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not applicable for enforcement of the subsequent Agreement. He has
placed reliance upon the decision of the Supreme Court in NBCC
(India) Vs. Zillion Infraprojects Pvt. Ltd. (supra) at paragraph 17.
25. Dr.Tulzapurkar has submitted that the attempt of the
Appellants to distinguish the said case viz. NBCC (India) Vs. Zillion
Infraprojects Pvt. Ltd. (supra) on the ground that there were two
contracts therein, is also not tenable as the present case is also a case
of two contracts, one governed by the said Agreement and the other
governed by the MoU and the Allotment letter. In fact, there is general
statement of law in paragraph 30 of NBCC (India) Vs. Zillion
Infraprojects Pvt. Ltd. (supra) that a general reference would not have
the effect of incorporating the Arbitration Clause.
26. Dr.Tulzapurkar has referred to paragraph 24 of the decision
of the Supreme Court in the case of MR. Engineers and Contractors Pvt
Ltd. Vs. Som Datt Builders Ltd.15 wherein the Supreme Court has held
that the Arbitration Clause from another contract can be incorporated
into the contract where such reference is made only by a specific
reference to Arbitration Clause.
15 (2009) 7 SCC 695 para 24).
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27. Dr.Tulzapurkar has submitted that the obligations of the
Plaintiffs mentioned in the said Agreement were to become part of the
subsequent independent Agreement in terms of Clause 16 of the said
Agreement. Thus, the parties intended that there was a need to
execute a separate writing categorically identifying all the obligations
of the first party and also for consideration and terms and conditions
to be mentioned therein. He has submitted that a separate writing on
the parties own showing is an independent and separate writing
without containing any Arbitration Clause. This shows that the parties
never intended to agree to go for arbitration in respect of the disputes
under such independent agreement.
28. Dr.Tulzapurkar has submitted that the contention of the
Appellants that the Arbitration Clause in the said Agreement is
applicable to MoU and the Allotment letter is not sustainable at all.
Arbitration Appeal is therefore liable to be dismissed with costs.
29. Ms. Srinivasan, learned counsel appears through V.C. on
behalf of Respondent Nos. 6 and 7. Respondent Nos. 6 and 7 have
supported the submissions advanced by Respondent Nos. 1 to 5.
Further, they have raised the submission that Respondent No.6 and 7
not being parties to the MoU cannot be referred to Arbitration.
Respondent Nos. 6 and 7 have also contended that they were only
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concerned with the Sale of the said land and were not made aware of
the existence or contents of the MoU . Respondent Nos. 6 and 7 have
also contended that they are not connected to the dispute in the Suit
and have been made formal parties therein.
30. I have heard the rival submissions. In my view, the
Agreement for sale (referred to herein as "the said Agreement") has
come to an end by the execution of the Deed of Conveyance / Sale
Deed. It is well settled that once a Conveyance is executed, the object,
purpose, effectiveness and validity of the Agreement for sale comes to
an end. In the present case, the Conveyance Deed has been executed
by the owners i.e. Defendant Nos. 8 and 9 (Respondent Nos.6 and 7
herein) in favour of the Appellants. Thus, the Arbitration Clause in the
said Agreement comes to an end as the said Agreement stands fully
discharged and does not have any legal effect upon the execution of
the Conveyance.
31. An attempt was made on behalf of the Appellants to contend
that the decision in Union of India Vs. Kishorilal Gupta & Bros. (supra)
is rendered redundant in view of the subsequent decision of the
Supreme Court in the case of Interplay between Arbitration
Agreements under Arbitration and Conciliation Act, 1996 and stamp
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Act, 1899 (supra). However, this contention on behalf of the
Appellants is not acceptable in view of there being no contention on
behalf of Respondent Nos.1 to 5 that the Agreement for Sale is null &
void, or frustrated or breached.
32. In Union of India Vs. Kishorilal Gupta & Bros. (supra), the
Supreme Court has held that if parties to an earlier contract substitute
it with another contract, the Arbitration Clause in the original contract
also perishes with it. This has been observed in paragraph 115 of
Interplay between Arbitration Agreements under Arbitration and
Conciliation Act, 1996 and stamp Act, 1899 (Supra). Although in
paragraph 116 of the said decision, the Supreme Court has held that
its prior decisions in Damodar Valley Corpn. Vs. K.K. Kar 16 and Union
of India Vs. Kishorilal Gupta & Bros. are redundant, this would be
confined to the context of the plea that the contract is void, illegal or
fraudulent affecting the entire contract alongwith the arbitration
clause. This is on account of the enactment of the Arbitration Act, 1996
enabling Indian Courts to give effect to the separability presumption
with general impetus. Paragraphs 115 and 116 of the said decision
read thus :-
" 115. The separability presumption has
undergone a significant evolution in India. Initially, the
16 (1974) 1 SCC
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Indian courts viewed an arbitration agreement as an
integral part of the underlying contract without any
existence beyond such contract. For instance, in Union of
India v. Kishorilal Gupta & Bros., the issue before this
Court was whether an arbitration clause in the original
contract survived after the enactment of a subseuent
contract. K. Subba Rao (as the learned Chief Justice then
was) considered Heyman but distinguished it on the
ground that it only dealt with repudiation, where rights
and obligations of parties survive the termination of
contract. It was held that in situations where the original
contract is superseded by a subsequent contract, the
arbitration clause in the original contract will also cease to
exist. K. Subba Rao, J., speaking for the majority, held that
first, an arbitration clause is a collateral term of a contract
as distinguished from its substantive terms, but nonetheless
it is an integral part of it; second, the existence of the
underlying contract is a necessary condition for the
operation of an arbitration clause; third, if the underlying
contract was non est in the sense that it never came legally
into existence or was void ab initio, the arbitration clause
also cannot operate; fourth, if the parties put an end to a
validly executed contract and substitute it with a new
contract, the arbitration clause of the original contract also
perishes with it; and fifth, in situations such as repudiation,
frustration, or breach of contract, only the performance of
the contract comes to an end, the arbitration clause persists
because the contract continues to exist for the purposes of
disputes arising under it.
116. In Damodar Valley Corpn. Vs. K.K. Kar, a
two-Judge Bench of this Court held that the plea that a
contract is void, illegal or fraudulent affects the entire
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contract along with the arbitration clause. However, the
enactment of the Arbitration Act in 1996 enabled the
Indian Courts to give effect to the separability presumption
with greater impetus. Section 16(1)(b), which provides
that a decision by the Arbitral Tribunal that the contract is
null and void shall not entail ipso jure the invalidity of the
arbitration clause, renders the decisions in Kishorilal Gupta
and Damodar Valley Corpn. redundant. Consequently,
even if the underlying contract is declared null and void, it
will not ipso jure result in the invalidity of the arbitration
agreement.
Thus, the said decision refers to Section 16(1)(b) of the Arbitration
Act which provides that a decision of the Arbitral Tribunal that the
contract is null and void shall not entail ipso jure the invalidity of the
Arbitration Clause.
33. The findings of the Supreme Court in Interplay between
Arbitration Agreements under Arbitration and Conciliation Act, 1996
and stamp Act, 1899 (supra) do not disturb the finding in Union of
India Vs. Kishorilal Gupta & Bros. (supra), namely that if the parties
put an end to a validly executed contract, the arbitration clause of the
original contract also perishes with it. In the present case, by
subsequently executing the Conveyance Deed / Sale Deed, the said
Agreement has come to an end and with it the Arbitration Clause also
perishes.
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34. I also find much merit in the submission on behalf of
Respondent Nos.1 to 5 that the MoU and the Allotment letter are a
separate transaction from the said Agreement. Further, the claims in
the present Suit do not arise out of a single transaction. The
obligations in the MoU and the Allotment letter are to be performed in
accordance with the terms therein and the entitlement of Respondent
Nos. 1 to 5 will be triggered as soon as the Conveyance Deed is
executed.
35. This is clear not only from the MoU at page 105 of
Arbitration Appeal which has been extracted above, but also from the
said Agreement and in particular Clauses 10, 15(j) and 15(l) thereof.
Further, this is also clear from the Allotment letter at page 112 to the
Arbitration Appeal. Thus, I do not find any merit in the submissions on
behalf of the Appellants that the Agreement for Sale is the main /
principal document and the MoU and the Allotment letter are
intertwined and integrally connected. This finding is on the
presumption that the Agreement for sale is still in existence and its
efficacy is not over upon the execution of the Conveyance Deed.
36. I further find merit in the submission on behalf of
Respondent Nos.1 to 5 that the reference in the Plaint to the said
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Agreement is only by way of historical reference and not because the
said Agreement is the subject matter of the Suit. The Suit is for
declaration, injunction, recovery and specific performance in respect of
the MoU and Allotment Letter and not in respect of the said Agreement
which has comes to an end by execution of the Conveyance.
[
37. The Appellants have contended that the decision of the
Supreme Court in NBCC (India) Vs. Zillion Infraprojects Pvt. Ltd. Is
not applicable to the present case. There is an attempt made by the
Appellants to contend that the said case was one of two contracts as
against the present case of a single transaction. I do not find any such
distinction. In my view, the present case is also one where there are
two contracts i.e. one governed by the said Agreement and another
governed by the MoU and the Allotment Letter. Thus, I find that the
decision of the Supreme Court in NBCC (India) Vs. Zillion Infraprojects
Pvt. Ltd. is applicable to the present case.
38. Further, in NBCC (India) Vs. Zillion Infraprojects Pvt. Ltd.
(supra), the Supreme Court has also held that there must be a specific
reference to the arbitration clause contained in a prior document, in
the subsequent document which the parties are enforcing. In MR.
Engineers and Contractors Pvt Ltd. Vs. Som Datt Builders Ltd . (supra),
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it is held that a general reference to a prior agreement in the
subsequent agreement would not have the effect of incorporating the
arbitration clause from the prior agreement into the subsequent
agreement between the parties. In the present case, there is only a
general reference of the prior Agreement of Sale / the said Agreement,
in the MoU which is the subsequent agreement. There is absence of
any specific reference to the arbitration agreement in the MoU. Hence,
there is no incorporation of the arbitration agreement by reference in
the MoU. The MoU is a separate writing which does not contain any
arbitration clause. This would equally be apply to the Allotment letter
and hence the parties to the MoU and the Allotment letter never
intended to go for arbitration in respect of the disputes under the
independent agreement.
39. The Judgments which have been referred to by the
Appellants in support of their contention that under Section 8 of the
Arbitration Act only a prima facie inquiry is required and not a mini
trial, are not applicable in the present case as there is no question of
any mini trial. It is a matter of law that the said Agreement having
merged into the Deed of Conveyance / Sale Deed is rendered
redundant which in turn makes the arbitration clause ineffective.
40. I accordingly do not find any infirmity in the findings of the
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Trial Court that upon the execution of the Sale Deed the rights,
obligations and responsibilities in the said Agreement for Sale have
perished by the virtue of it having merged into the Sale Deed.
41. In view thereof, the above Arbitration Appeal is dismissed.
There shall be no order as to costs.
42. In view of dismissal of Arbitration Appeal, Interim
Application No.9968 of 2024 does not survive and is disposed of.
Vina Khadpe [ R. I. CHAGLA J. ]
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