Delhi High Court

Indiabulls Real Estate Limited vs M/S Virasat Agro Foods Pvt. Ltd. & ... on 5 May, 2010

Author: Manmohan

                                                                                   #1
$~
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+      ARB.P. 398/2009

INDIABULLS REAL ESTATE LIMITED ..... Petitioner
                    Through Mr. Darpan Wadhwa with
                            Mr. Ankit Shah, Mr. Akshay
                            Ringe and Ms. Rohana Hameed,
                            Advocates
             versus
M/S VIRASAT AGRO FOODS
PVT. LTD. & ANR.                             ..... Respondents
                  Through                    Mr. Hemant Chaudhri with
                                             Mr. Dhananjay Kumar Singh,
                                             Mr. S.W. Haider and Mr. Amit
                                             Mishra, Advocates for R-1.
                                             Mr. Pallav Saxena, Advocate for R-2.


%                                  Date of Decision : May 05, 2010

CORAM:
HON'BLE MR. JUSTICE MANMOHAN

1. Whether the Reporters of local papers may be allowed to see the judgment? No.
2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be reported in the Digest? Yes.


                               JUDGMENT

MANMOHAN, J (ORAL)

1. Mr. Pallav Saxena, learned counsel for respondent no. 2 has

today across the bar tendered a reply affidavit. The same is taken on

record.

2. Present petition has been filed under Section 11 of Arbitration

and Conciliation Act, 1996 (hereinafter referred to as ―Act, 1996‖).

3. Mr. Darpan Wadhwa, learned counsel for petitioner submits that

petitioner has invoked the arbitration clause as it seeks to recover

monies due and payable under the Share Purchase Agreement (in short

―Agreement‖) dated 4th December, 2008. He drew my attention to

Clause 9.7 of the Agreement which contains the arbitration clause. The

said Clause 9.7 reads as under :-

"9.7 Disputes, if any, that may arise between the Parties with respect to this Agreement, or interpretation of terms, or its performance or execution unless resolved mutually shall be referred to a mutually agreed arbitrator and law under the provisions of Indian Arbitration Act shall be applicable to all proceedings. The venue of arbitration shall be Gurgaon/Delhi.

4. On other hand, Mr. Hemant Chaudhry, learned counsel for

respondent no. 1 submits that the matter cannot be referred to

arbitration as the underlying understanding under the Agreement was

that respondent no. 2 would be able to purchase land admeasuring

11.30 acres situated at Tehsil Sohna, District Gurgaon, Haryana.

According to him, even though the said land was transferred in the

name of respondent no. 2 company, it was later on learnt by respondent

no. 1 that there were injunction orders restraining the owners of the

land from selling the said property to respondent no. 2. Consequently,

Mr. Chaudhry submits that the Agreement is vitiated by fraud and the

priority which the respondent no. 2 company had with regard to

colonisation licence did not materialise. In this connection, he relies

upon the judgments of Supreme Court in N. Radhakrishnan Vs.

Maestro Engineers & Ors. reported in (2010) 1 SCC 72 and India

Household and Healthcare Ltd. Vs. LG Household and Healthcare

Ltd. reported in (2007) 5 SCC 510.

5. Mr. Chaudhry lastly submits that respondent no. 1 has filed a suit

in Civil Court at Gurgaon seeking declaration that the Agreement

executed between the petitioner and respondent no. 1 is null and void

and an injunction order has been passed by the trial court. The said

order is reproduced hereinbelow :-

"Present : Mr. M.S. Vashishta Adv., for the plaintiff.

Summons issued to the defendant no. 1 received back with the report of refusal. Case called several times since morning. It is already 2.30 PM. None has appeared on behalf of defendant no. 1. Now defendant no. 1 to be summoned by way of substituted service i.e., munadi for 8.10.2009. Notice to remaining defendants no. 2 to 17 be also issued for that date. Till further orders the defendant no. 1 is restrained from taking any steps in pursuance to cheque No. 21863 drawn on Axis Bank Limited, Sector 14, Gurgaon, amount of Rs. 9.75 crores. Now to come upon the date fixed."

6. In rejoinder, Mr. Wadhwa points out that land at Sohna was to be

sold by third parties and not the petitioner and injunction order with

regard to land, if any, was passed against the said third parties and not

the petitioner.

7. Mr. Wadhwa also states that petitioner has filed an application

under Section 8 of the Act, 1996 seeking reference of the suit filed at

Gurgaon for arbitration.

8. Before I deal with the rival contentions, I may point out that the

Supreme Court in National Insurance Company Ltd. vs. Boghara

Polyfab (P) Ltd. reported in (2009) 1 SCC 267 has clearly outlined the

issues which have to be determined by this Court before making a

reference under Section 11 of the Act, 1996. The relevant portion of

said judgment is reproduced as under:

"22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration."

(emphasis supplied)

9. As far as the territorial jurisdiction is concerned, since

Mr. Wadhwa has made a statement that petitioner shall be seeking relief

of only recovery of monies against respondent no. 1--which has a

registered office at New Delhi - I am of the view that this Court has

territorial jurisdiction to entertain and decide the present Section 11

petition.

10. As far as allegation of fraud is concerned, it is settled law that

even though the word ‗fraud' has been ritually repeated, it would not

prevent even a civil court from dismissing a suit under Order 7 Rule 11

of Code of Civil Procedure, 1908. (Refer to I.T.C. Limited Vs. Debts

Recovery Appellate Tribunal and Ors. reported in (1998) 2 SCC 70).

11. In the present case, I find that even if I were to accept respondent

no. 1's plea that fraud, if any, is alleged to have been committed, the

same would be attributable to the owners of the land in question and not

the petitioner. In fact, in the Agreement executed between petitioner

and respondent no.1 there is no representation and/or warranty given by

petitioner that either the aforesaid land is free from litigation or that the

petitioner would ensure that DTCP, Haryana grants the colonisation

licence. In this connection, I may refer to some of the relevant clauses

of the Agreement, which read as under :-

"AND WHEREAS the Purchaser has conducted a due diligence with respect to the Company, the land owned by the Company and with respect to the license applied before the Director, Town and Country Planning, Haryana and the Purchaser is satisfied with the due diligence conducted by it.

                    xxxx           xxxx           xxxx           xxxx




               3.      Consideration and Payment.
                     xxxx         xxxx         xxxx             xxxx

              3.2     The Parties understand that applications for grant of

commercial license made by the Company for development of land admeasuring 11.30 acres situated at Kherki Dhaula, Tehsil Sohna, Distt. Gurgaon and owned by M/s. Padmini Technologies Limited (said Land), the details of which is shown in Annexure - I of this Agreement, is pending before the competent authorities. In no circumstances the Seller shall ever have any responsibility or liability of any kind whatsoever towards obtaining the Letter of Intent (LOI) / said license in respect of the said Land.

3.3 The Seller shall be entitled to encash the undated cheque for Rs. 9,75,00,000/- on the 30th day from the LOI being issued by the authorities or 31.07.2009 whichever is earlier.

xxxx xxxx xxxx xxxx 3.6. The Purchaser has represented that it is at an advanced stage of acquiring, either in its own favour or in favour of its nominee, the entire rights and title in the said Land admeasuring 11.30 acres situated at Kherki Dhaula, Tehsil Sohna, Distt. Gurgaon. As a security towards the payment of balance sale consideration along with interest thereon, if any, as mentioned under this Agreement by the Purchaser, the Purchaser shall cause the mortgage of said Land admeasuring 11.30 acres situated at Village Kherki Dhaula, Tehsil Sohna, Distt. Gurgaon in favour of the Seller simultaneous to the execution of this Agreement by the Parties. The mortgage for this purpose shall be only equitable mortgage by depositing the original title deeds of the said Land with the Seller and the Seller shall enforce the mortgage only on default of the Purchaser with respect to payment of the entire Sale Consideration under the Share Purchase Agreement including any interest thereon. The said mortgage shall be redeemed as soon as the entire sale consideration is received by the Seller in terms of clause 3.3 of this Agreement or the sale consideration along with interest thereon is paid by the Purchaser in terms of clause 3.5. Non encashment of the said cheque or non payment of balance sale consideration along with interest thereon as envisaged in clause 3.5 shall

be deemed as default on part of the Purchaser for the purpose of exercising redemption of the mortgage.

xxxx xxxx xxxx xxxx

5. Representations and Warranties of the Seller and the Company xxxx xxxx xxxx xxxx

5.5 The applications for grant of license on the said Land applied by the Company are subsisting as on the date of execution of this Agreement. The Purchaser has to its satisfaction conducted the due diligence of the said applications and the Purchaser agrees that the Seller shall in no way be liable and be held responsible for any actions of the concerned authorities with respect to the said applications.

12. From the aforesaid clauses, it is apparent that petitioner had

given no warranty with regard to either the title of the land that was

being purchased by respondent no. 2 from third parties or with regard to

the colonisation licence. Moreover, independent due diligence had

been carried out by respondent no. 1 at its own risk and costs.

Consequently, for any defect in the title of the land and any fraud

perpetrated by the owners of the land, it cannot be said that the

Agreement executed between the parties is vitiated by fraud.

13. In any event, the arbitration clause in the Agreement is not

disputed. Since the arbitration clause is a severable one, it would

survive even if the Agreement is held to be void.

14. I am further of the opinion that pendency of the proceedings as