Sunil Manchanda And Ors. vs Ansal Housing And Construction ...
2004 Latest Caselaw 853 Del

JUDGMENT

R.C. Jain, J.

1. This is a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) read with the Scheme for Appointment of Arbitrators, 1996 seeking appointment of a retired Judge of the Supreme Court of India as a sole arbitrator to adjudicate upon the dispute and differences between the parties.

2. The petition has been filed on behalf of six petitioners namely Mr.Sunil Manchanda, M/s Puri Construction Ltd., M/s Florentine Estates of India Ltd., M/s Mad Entertainment Network Ltd., Mr.Arjun Puri and Mr.Mohinder Puri with the averments and allegations that the petitioners acting upon the representations of the Ansal Brothers of the respondent M/s Ansal Housing and Construction Ltd. entered into an agreement 'Development Agreement' on 14.10.2000 in regard to the development of approximately 19 acres of land in Sector 53, Gurgaon. Clause 51 of the agreement contains an arbitration agreement, which reads as under:

"51. All disputes arising out of or in connection with this Agreement shall be resolved y mutual discussions between the parties within 15 days of the said disputes arising, failing which, such disputes shall be referred to conciliation. If the conciliation proceedings fail to resolve the disputes then the disputes will be referred for Arbitration to a sole arbitration being a retired judge of the Supreme Court of India. The procedure of arbitration shall be as per the Arbitration & Conciliation Act, 1996. This Agreement shall be subject to the jurisdiction of Court at New Delhi and the venue of arbitration shall be at New Delhi."

3. The said Agreement is subject to the jurisdiction of the Delhi Courts and the disputes and differences arising out of or in connection with the said agreement are liable to be referred to a retired Judge of the Supreme Court of India for settlement. It is alleged that disputes and differences have arisen between the parties as the respondent repudiated his obligation to take up the work of construction and consequently the petitioner determined / rescinded the contract for development dated 14.10.2000 by a registered notice dated 07.6.2004. It is further alleged that the respondent has refused to perform and has further disabled himself from performing his promises in their entirety consequent to which the petitioners have put to an end to the contract and claimed damages from the respondent. On the other hand, the respondent has claimed damages from the petitioner and in addition claimed specific performance of the contract dated 14.10.2000 which he is not entitled to in view of the provisions of Sections 14(i)(a) and 14(i)(b) & (d) of the Specific Relief Act. The petitioner invoked the arbitration agreement by a registered notice dated 07.6.2004 and called upon the respondent to select a retired Judge of the Supreme Court of India to act as the Arbitral tribunal to adjudicate upon the disputes between the parties. The respondent in their letter dated 03.7.2004 acknowledged the receipt of the two notices sent by the petitioner for invoking the arbitration agreement and for appointment of a sole arbitrator and sought to set up a case that the contract dated 14.10.2000 created an interest in immovable property and started representing itself to be the owner in possession of the land. It is also alleged that the respondent has acted in fraud and has committed acts of variance and in subversion of the relationship intended by the contract. The petitioners have set out in detail the acts of commission and omission committed by the respondent in relation to the development agreement and it is not necessary to refer to each of them in this order. By a letter dated 07.10.2003 the petitioner called upon the respondent, inter alia, as under:

"(1) To render account of the EDC paid to DTCP Haryana and to quantify the quantum of default on this account and to rectify the default within 30 days.

(2)To render account of the charges expended on account of paying the renewal fee for the licenses during the currency of the development and to rectify such defaults as have occurred within a period of 30 days.

(3) To produce a certified copy of your contract with M/s Rajinder Kumar & Associates and the development plans prepared for the areas to be allocated to ITC Ltd and the sums of money paid to M/s Rajinder Kumar & Associates for this purpose and in the absence of the same to rectify the default within 30 days.

(4) To render accounts of sums paid to Lord Krishna Bank and to give a statement of the monies due and payable on this account in terms of the binding provisions of the agreement and to rectify / remedy the defaults with interest within 30 days.

(5) To produce any paper or document evidencing the issue of letters of allotment to ITC Ltd as provided in the agreement and failing which to rectify / remedy the default within 30 days.

(6) To produce the permission of the DTCP to take up any development work including the construction of a boundary wall or site office or any sample flat or failing which to seek condensation of the same within 30 days.

(7) To render account of the payment of security deposit in terms of clause 12 of the agreement and for such default pay interest and remedy the default within 30 days.

(8) To produce and supply for our record a complete set of the revised development plan stated to have been prepared by your office.

(9) To render account of steps taken to comply with the terms and conditions governing License Nos. 69 to 74 of 1996 and License Nos. 52 to 57 of 1997 issued by DTCP Haryana. In particular you are required to produce copies of bank guarantees required to be submitted to DTCP Haryana in terms of the said Licenses.

(10) To provide us with the statement of any development work taken up interalia relating to 100% power back-up, development of internal roads, sewerage, water supply and area lighting."

4. It is alleged that the respondent has failed to respond to the repeated demands of the petitioner and refused to perform and further disabled itself from performing under the terms of the agreement dated 14.10.2000. The respondent also refused to take any steps to comply with the requirements of the DTCP, Haryana. It is also stated that further continuance of the contract with the respondent would involve injury to ITC and DTCP and the conduct of the respondent at all points of time was totally immoral and opposed to public policy. It is also alleged that on 09.10.2003 the authorised representatives of the respondent met some of the petitioners and made various promises without any intention of performing the same. Promises were aimed to deceive the petitioners. In the said minutes following decisions were taken:

"A) Any demand over and above Rs.764 lacs in terms of the Court Order shall be shared equally by the ownerS and DEVELOPERS.

(4)It was also agreed that rate of interest applicable on payments due to one party to the other under the agreement dated 14.10.2000 shall be reduced to 10% p.a.instead of 18% p.a.

(5)It was agreed that DEVELOPES will arrange proportionate bank guarantee to be given to DTCP for internal development. In addition the DEVELOPOERS will also substitute Bank Guarantees for External Development Charges (EDC) submitted by the ownerS. EDC guarantee will be furnished within 45 days. Time will be of the essence. The owners shall arrange the balance bank guarantees for internal development. It was also agreed that DEVELOPER shall take immediate steps for renewal of licenses and also pay proportionate license renewal fee along with interest thereon, if any.

(6) i) As discussed in the past, the DEVELOPERS are revising the plans considering the current market scenario. A coy of the same shall be forwarded to the ownerS for their advise and comments immediately. The ownerS will advise the area to be earmarked for ITC.

ii) It was also agreed that DEVELOPERS and the owners shall jointly issue letter of allotment to ITC for an area of 69,166 sq.ft. inclusive of one car parking for each apartment and also finalise the revised plans immediately.

iii) The 'Letter of Allotment' to be given to ITC REF, shall be finalised immediately and handed over to the ownerS for onward submission with ITC or other Appropriate Forum."

B) 3. The DEVELOPERS will provide a letter to ownerS undertaking that they will discharge the EDC liability of Rs.764 lacs payable DTCP in the manner as given hereunder:-

a) Rs.400 lacs within 30 days of the Court Order setting the case filed by PCL against DTCP Haryana.

b) Balance Rs.364 lacs in Installments as given by the Court."

C) 2.i) The loan of Rs.600 lacs from LKB has been settled by L&T. Accordingly DEVELOPERS will repay this money to ownerS which the ownerS have agreed to accept by way of 30 equated monthly Installments. The first Installment shall be paid on receipt of clearance from ITC REF/settlement of ITC case amicably."

5. On 21.01.2004 the petitioners once again informed the respondent that they have failed to discharge the conditions precedent to their acquiring any rights under the development agreement; the earnest money due and payable to the petitioners has not been paid and, therefore, the petitioners were compelled to withdraw the forbearance they had shown in the discharge of the obligations of the respondents and tended to enforce their rights governed by the development agreement dated 14.10.2000. On 16.02.2004 the petitioners again put the respondent to notice, inter alia, stating as under:

"We had put you to notice by our letter dated 7th October 2003. You have taken no steps to remedy the breaches or to honour your obligations. We once again call upon you to remedy the infringement within 30 days of the receipt of this communication. By the same letter we had called upon you in terms of Section 11 of the Arbitration and Conciliation Act, 1996 to agree to refer the matter to arbitration of any of the following Supreme Court Judges (Retd.)

1. Hon'ble Mr.Justice S.Ranganathan

2. Hon'ble Mr.Justice M.N.Venkatachellaih"

6. In its reply dated 21.2.2004 the respondent admitted to set-up a case that the agreement dated 14.10.2000 stood valid by the minutes dated 19.10.2003. However, it was admitted by the respondent that it had not entered into the work for development and taking construction activity in terms of the said agreement. Vide a subsequent communication dated 12.5.2004 the respondent once again repudiated the material terms of the minutes dated 9.10.2003 relied upon by them as also repudiated its obligations to pay EDC of Rs.4.00 crores as promised by the minutes dated 9.10.2003. This was followed by another communication dated 28.5.2004 from the respondent and lastly on 07.6.2004 the respondent stated to have joined issues that the petitioners alleging that facts set out by the petitioners were false, vaxacious, mala fide and motivated.

7. It is also alleged that the petitioners had filed an OMP 4991/2002 against the State of Haryana, DTCP Haryana and others claiming several reliefs which was disposed of by an order dated 10.02.2004 making certain directions. The petitioners also filed a civil suit in this regard and made an application under Order 39 Rule 1 & 2 CPC against the defendant for securing their interest. Certain orders were came to be passed in the said proceedings. Petitioners had also filed an OMP 208/2004 of the Act which is stated to be pending. It is stated that disputes, which have been set out in clauses (i) to (xv) of para-41 of the petition, in relation to the legal interpretation of the terms of the contract and fundamental breaches as claimed have arisen between the parties arising out of and in relation with the agreement dated 14.10.2000 which needs to be referred to the sole arbitration of a retired Judge of the Hon'ble Supreme Court in terms of the arbitration agreement between the parties.

8. On being noticed, the respondent has filed preliminary objections to the petition. It is stated that the present petition is premature, misconceived and liable to be dismissed at the threshold as it is in violation of the clear and mandatory provisions of the agreement between the parties of which the present petition has been filed. On the strength of the arbitration agreement contained in clause 51 of the agreement it is stated that prior to initiation of arbitration or appointment of a sole arbitrator it is mandatory for the parties to engage in conciliation and the petitioner cannot wriggle out of this condition and since the envisaged conciliation has not been tried out, the present petition is premature and not maintainable. The petitioners controverter the objections by filing reply. It is stated that vide letter dated 25.7.2003 the petitioners invited the respondent to enter into conciliation proceedings in regard to the disputes indicated therein but the respondent vide its letter dated 01.8.2003 rejected the offer of the conciliation. Vide a subsequent letter dated 07.10.2003, Puri Construction Ltd finally communicated to the respondent that the conciliation proceedings were initiated but no follow-up action was taken at the end of the respondent and as such the conciliation proceedings have failed and were brought to end. It is denied that the petition is premature. It is also stated that under the provisions of Section 11 read with Section 5 of the Act, this Court has no jurisdiction to judicially intervene with reference to the disputes between the parties as the same are within the sole and exclusive jurisdiction of the sole arbitrator to be appointed and it is always open to the respondent to challenge the scope of the arbitration agreement before the arbitrator.

9. I have heard Mr.Arvind Nigam, learned counsel representing the petitioners and Mr.A.S.Chandhioke, advocate appearing on behalf of the respondent and have given my thoughtful consideration to their respective submissions. In the instant case the existence of an arbitration clause, being clause no.51 in the agreement as also that of disputes/differences, is accepted by the parties. Therefore, having regard to the settled legal position about the nature and scope of the present proceedings and the powers and functions of this Court/Judicial Authority, strictly speaking the petition deserves to be allowed and an arbitrator needs to be appointed in terms of the said arbitration agreement. In that view of the matter this Court is not obliged to examine the question as to whether the procedure prescribed in the arbitration agreement has, in fact, been followed before the invocation of the arbitration and seeking appointment of the arbitrator. In this view, I am fortified by the Constitution Bench decision of the Hon'ble Supreme Court in the case of Konkan Railways Corporation Limited and Anr. v. Rani Construction Pvt. Ltd . In that case the Hon'ble Supreme Court had the occasion to morefully consider the ambit and scope of the power of the Chief Justice or his nominee while deciding an application under Section 11 of the Arbitration and Conciliation Act, 1996. In the said case the Apex Court clearly laid down that there is nothing in Section 11 of the Arbitration and Conciliation Act, 1996 that requires a party other than the party making the request to be even noticed and it does not contemplate a response from the other party. The Apex Court further held that appointment of arbitrator by the Chief Justice or his designate is not a judicial function resulting in an adjudicatory order. Further, that Section 11 does not contemplate a decision on any controversy between the parties. It further held that the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of 30 days is over does not lead to the conclusion that the decision to nominate is adjudicatory. While disposing of an application under Section 11 containing an averment that the said period has passed, the Chief Justice or his designate has to make the appointment of an arbitrator. This is additionally for the reasons that Section16 of the Act empowers the Arbitral Tribunal to rule on its jurisdiction and the expression "that the Arbitral Tribunal may rule on any objections with respect to the existence or validity of the arbitration agreement" shows that the Arbitral Tribunal's authority under Section 16 is not confined to the width of its jurisdiction, but goes to the very root of its jurisdiction. It is, therefore, open for any party to challenge before the Arbitral Tribunal that it had been wrongly constituted.

10. After going through the material available on record, more particularly, the letter dated 7.10.2003 issued by the petitioner to the respondent, there remains no doubt that the procedure of conciliation talked in clause 51 of the agreement was put in service but failed. During the course of argument, learned counsel for the petitioner submitted that even if the respondent still think that despite the letter dated 7.10.2003 the conciliation has not come to an end, the petitioner even now rejects the invitation for commencement of the conciliation proceedings within the meaning of sub-section(3) of Section 62 of the Act. Therefore, looking at the matter from any angle, this Court must hold that the application deserves to be allowed and an arbitrator needs to be appointed in terms of the arbitration agreement.

11. In the result, this petition succeeds and is hereby allowed and Hon'ble Mr.Justice M.Jaganatha Rao, a retired Judge of the Hon'ble Supreme Court of India is hereby appointed as the sole arbitrator to resolve the disputes/differences including those detailed out in this petition and any other disputes/counter claims which may be raised by the respondent arising out of or in relation to the development agreement dated 14.10.2000. The sole arbitrator is requested to enter upon the reference and render his award as expeditiously as it may be practicable. It would be open to the learned arbitrator to fix his own remuneration. Parties are directed to appear before the sole arbitrator on 14th September, 2004 at 5.00 P.M.