Karnataka High Court

M/S. Sbr Infra Buildtech vs M/S. Apya Capital Services Private ... on 26 July, 2024

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 26TH DAY OF JULY, 2024

                     PRESENT

   THE HON'BLE MRS JUSTICE ANU SIVARAMAN

                       AND

THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE

       COMMERCIAL APPEAL NO. 225 OF 2024

BETWEEN:

M/S SBR INFRA BUILDTECH,
A PARTNERSHIP FIRM,
REGISTERED UNDER THE INDIAN
PARTNERSHIP ACT 1932, HAVING ITS OFFICE AT
SY NO 24/5, SBR HORIZON SEEGEHALLI,
BENGALURU - 560067,
REPRESENTED BY ITS MANAGING PARTNER
MR T VENUGOPAL.
                                       ...APPELLANT
(BY SRI SIDDHARTH SUMAN, ADVOCATE)

AND:

M/S. APYA CAPITAL SERVICES PRIVATE LIMITED,
A COMPANY INCORPORATED UNDER THE PROVISION
OF THE COMPANIES ACT 1956
HAVING ITS REGISTERED OFFICE AT FLAT NO.22,
TOWER 6, PEBBLE BAY, RAJ MAHAL VILAS - II,
RAMAKRISHNAPPA LAYOUT,
NAGASHETTY HALLI, BENGALURU - 560094,
REPRESENTED BY ITS AUTHORIZED SIGNATORY
MS DURGA G.
                                      ...RESPONDENT

(BY SRI CHINTAN CHINNAPPA, ADV. FOR C/RESPONDENT)
                              -2-




      THIS    COMMERCIAL      APPEAL    IS    FILED    UNDER
SECTION 13 (1a) OF THE COMMERCIAL COURTS ACT 2015
UNDER SECTION 37 (1) (b) OF THE ARBITRATION AND
CONCILIATION ACT 1996 PRAYING THAT THIS HON'BLE
COURT BE PLEASED:


      (i)    TO CALL FOR THE RECORDS AND SET ASIDE
THE     ORDER     DATED   10.06.2024    IN   COM.     AA.   NO.
148/2024 PASSED BY HON'BLE LXXXVII ADDITIONAL CITY
CIVIL       AND   SESSIONS     JUDGE     AT     BANGALORE,
COMMERCIAL COURT CCH-88 ON THE APPLICATION FILED
BY THE RESPONDENT APPLICANT UNDER SECTION 9 OF
THE ARBITRATION AND CONCILIATION ACT, 1996 AND TO
DISMISS THE APPLICATION FILED UNDER SECTION 9 OF
THE ARBITRATION AND CONCILIATION ACT, 1996 IN THE
COURT BELOW IN COM.A. NO. 148 2024.


        (ii) TO AWARD COSTS AND GRANT SUCH OTHER
RELIEFS AS THIS HON'BLE COURT DEEMS FIT AND
EXPEDIENT IN THE CIRCUMSTANCES OF THE CASE, IN
THE INTERESTS OF JUSTICE AND EQUITY.


      THIS APPEAL HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT ON 23RD JULY, 2024 AND COMING ON FOR
PRONOUNCEMENT         THIS   DAY,      ANANT    RAMANATH
HEGDE J., PRONOUNCED THE FOLLOWING:


CORAM:       HON'BLE MRS JUSTICE ANU SIVARAMAN
             AND
             HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
                                  -3-




                        CAV JUDGMENT

(PER: HON'BLE MR JUSTICE ANANT RAMANATH HEGDE)

This appeal is directed against the order under Section

9 of the Arbitration and Conciliation Act, 1996 (Hereinafter

referred to as the 'Act of 1996' for short). In terms of the

impugned order, Section 9 Court has allowed the

application filed by the present respondent and restrained

the appellant from selling/alienating/encumbering/creating

third party rights over 'C' schedule property and also

restrained them from collecting any money, receivables,

directly or indirectly till the disposal of the arbitration

proceeding.

2. It is brought to the notice of this Court that a writ

petition No.12181/2024 is pending before this Court

wherein the present appellant has challenged the order

passed by Section 9 Court in a review petition filed by the

respondent seeking review of the order dismissing the

earlier Section 9 application filed by the respondent in

respect of Schedule - A and B properties.

3. The learned counsel appearing for the appellant and

the learned Senior counsel appearing for the respondent

jointly submit that the contention in this appeal and the

writ petition being substantially the same (in so far as

merits or demerits of both Section 9 applications),

requested the Court to pass appropriate orders covering

properties involved in both Section 9 applications.

Accordingly, the present order is passed which shall apply

to properties covered in both Section 9 applications.

4. The appellant before this Court is a developer and

the respondent is a Marketing Service Provider to sell the

properties developed by the appellant. The contractual

relationship between the appellant and the respondent is

governed by the Marketing Services Agreement dated

19.10.2022. Various terms and conditions have been

incorporated in the agreement defining the rights and

responsibilities of the appellant and the respondent.

5. Admittedly, the appellant had hired the services of

the respondent to market the property covered in the

agreement dated 19.10.2022. The respondent claims that

excluding 6% of the total properties developed, it has the

exclusive right to sell the properties. The respondent is

entitled to certain commission agreed upon by the parties

which are specifically enumerated in schedule II of the

agreement dated 19.10.2022.

6. Clause 3.4 of the agreement provides for termination

of the agreement. The fees payable to the respondent are

also set out in Clause F of Schedule I.

7. Clause 3.4 also stipulates that in case, the

agreement is to be terminated, then the developer can

terminate the agreement after giving 30 days' notice in

writing to the respondent.

8. The appellant claims that the agreement is

terminated with immediate effect by issuing an email on

05.04.2023. The appellant further also claims that on

22.05.2023, the agreement is once again terminated with

immediate effect by sending one more email. In both

emails referred to above, the agreement is terminated

with immediate effect without giving 30 days' notice as

contemplated under clause 3.4 of the agreement. On this

premise, the respondent contends that the termination is

invalid and the agreement still subsists. The appellant

would contend that the respondent has agreed to abide by

the conditions mentioned in the termination notice and the

respondent has treated the agreement as terminated. It is

also the contention of the appellant that after the

termination notice dated 05.04.2023, the respondent has

not acted as the service provider in terms of the

agreement.

9. During the course of the hearing, both the parties

admitted that 210 customers out of 235 customers who

approached through the respondent have agreed to

purchase the properties developed by the appellant.

10. The respondent has invoked Section 9 of the Act of

1996 on the premise that the appellant is in arrears of

commission/service charges payable to the respondent to

the tune of Rs.11,73,95,985/- after deducting Rs.1.75

crores. Respondent also claimed that the alleged

termination of the agreement is illegal. Thus, the

respondent claims that it is entitled to provide marketing

services in respect of all other properties covered by the

agreement dated 19.10.2022.

11. The appellant contends that the respondent is

entitled to 5% of the agreed sale consideration amount,

and 60% of the said amount is to be paid only after 20%

of the sale consideration amount is paid by the purchaser

as well as the balance amount released by the financier.

12. The respondent's entitlement to 5% of the

consideration amount on the minimum sale consideration

amount agreed is not in dispute. Additional revenue

sharing @ 5.5% if the property is sold at a higher price

than the benchmark price fixed under the agreement is

also not in dispute. However, what is the disputed breakup

of said 5% or 5.5% amount payable? This question

involves the interpretation of the clause relating to the

payment schedule.

13. It is an admitted position that the respondent has

not yet marketed the flats in the 'C' schedule property.

The respondent submits that the necessary approval from

the competent authority is received recently and the

appellant issued a notice terminating the contract which

though not invalid, came in the way of the respondent

going ahead with the marketing of the properties in the 'C'

schedule.

14. Whether the agreement is validly terminated or not

requires consideration. Whether the respondent has

waived 30 days notice of termination of the agreement by

its conduct also requires consideration.

15. The right of the appellant to terminate the contract

is very much recognised and the respondent does not

have any right over the properties in question. This being

the position, even if the termination of the contract is

illegal, a claim for specific performance, at the instance of

the respondent, to compel the appellant to enter into a

sale deed in favour of the purchaser identified by the

respondent, prima facie may not be maintainable. Thus,

the remedy for the respondent in case of breach of the

agreement is to recover the service charges and damages

if any.

16. During the course of the hearing, it is submitted by

the learned counsel for the appellant that in case, all the

agreements for sale in respect of 210 units result in

absolute sale deeds, then the respondent approximately

would be entitled to Rs.8.5 crores towards commission. It

is further submitted that on deducting Rs.1.75 crores

already paid, and Rs.86,08,276.00 paid to the channel

partners of the respondent, the appellant at the most

would be liable to pay Rs.5.88 crores.

17. After hearing both parties, this Court indicated that

there has to be some interim measure to secure the

interest of the respondent.

18. In the above-said background, the appellant has

offered, as an interim measure, to provide some security

to the respondent's claim that it has provided 210

customers to purchase the flats developed by the

appellant.

19. The respondent has claimed that the security is to

be offered not only in respect of the service charges

payable to the respondent in respect of 210 customers

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provided by the appellant but also to be paid in respect of

the claim arising from the illegal termination of the

agreement.

20. Interpreting the clause relating to the payment,

respondent claims that it has already provided service

worth approximately Rs.16.40 crores and the respondent

is prevented from providing service in respect of unsold

units and the respondent is losing the profits which it

would have made by further sales.

21. It is also required to be noticed that the respondent

is claiming his right to market the units in the 'C' schedule

and damages for not allowing it to market the same. It is

not possible at this juncture to assess the damages as it

cannot be predicted that the respondent would have

managed to sell the remaining units. Admittedly, no sale

agreements have been entered into in respect of the

properties in the 'C' schedule. Thus, there is no question of

unpaid service charges or commission in respect of 'C'

schedule property.

- 11 -

22. It is an admitted position that Rs.1.75 crores is

already paid to the respondent. Respondent in his

application has claimed that Rs.11,73,95,985/- is due

(deducting Rs.1.75 crores) towards the services rendered.

The said figure of Rs.11,73,95,985/- is on the assumption

that all the 235 sale agreements will translate into the sale

deeds. Admittedly, the respondent can claim full payment

of 5% or 5.5% commission as the case may be, only after

execution of the sale deed. Before completion of the sale

deeds, respondent is only entitled to a certain percentage

of 5% or 5.5% fees agreed upon.

23. In the backdrop of the above-mentioned facts, the

impugned order is not sustainable. In the first place, the

restraint order could not have been passed with respect of

6% of the total properties since the developer has the

exclusive right to sell the same, even under the agreement

dated 19.10.2022. The absolute restraint order against the

appellant from selling the units is also not justified as the

respondent does not have a right over the properties.

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Thus, this Court is of the view that the interim order needs

modification.

24. Considering the above-mentioned factors, as an

interim measure, to balance the equity, till the application

under Section 17 is heard by the Arbitral Tribunal, this

Court deems it appropriate to direct the appellant to

furnish security to the tune of Rs.10.00 crores, keeping

open all the questions relating to the interim measure to

be adjudicated under Section 17 of the Act of 1996. This

order is made also taking into account that both parties

have agreed and requested this Court to appoint an

arbitrator to resolve the dispute.

25. Hence, the following interim measures are passed:

(i) The appellant shall furnish security to the tune of

Rs.10.00 crores (Rupees Ten Crores only) to the

satisfaction of the Commercial Court. Any security offered

shall be free from all or any encumbrance and the

respondent shall have first charge over the same.

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(ii) Till furnishing of security as ordered, the appellant

shall not alienate, or create any third party charge over

the properties, excluding 6% of the properties over which

appellant has exclusive right to sell.

(iii) On acceptance of security the appellant is permitted

to sell or otherwise deal with the properties, and on sale or

receipt of the installment amount from 210 purchasers

brought by the respondent, the amount/commission due

to the respondent under the agreement dated 19.10.2022,

shall be paid within 15 days from such receipt of the sale

consideration and on such payment, the value of the