Telangana High Court

Babina Kandhari vs M/S. Legend Estates Pvt. Limited on 15 March, 2024

Author: K. Lakshman

Bench: K. Lakshman

                                    1




          HONOURABLE SRI JUSTICE K. LAKSHMAN

          ARBITRATION APPLICATON No.153 OF 2023

ORDER:

Heard Sri Sai Chandra Haas, learned counsel for the Applicant and

Ms. Rubaina S. Khatoon, learned counsel appearing for Respondents.

2. This Arbitration Application is filed under Section 11 (5) and

(6) of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act')

for appointment of arbitrator to adjudicate all the claims and disputes

between the Applicant and Respondents in terms of Memorandums of

Understanding (MOUs) dated 14.06.2006 and 22.05.2009.

CONTENTIONS OF THE APPLICANT:-

3. The Applicant is wife of late Manpreet Singh Kandhari. He

was in the real estate business. Respondents are well acquainted with him

since early 2000's, the same was continued and culminated into business

and financial relationship involving both the Applicant and Respondents.

Initially Respondents, Applicant and her husband were first introduced to

each other in the year 2004 and 2nd Respondent approached the Applicant

and her husband for development of his land situated in Himayatnagar

area into a residential complex and they have entered into necessary

agreements. The same was successfully completed. 2nd Respondent again

approached Applicant and her husband in the year 2006 stating that

Respondents are the absolute owner of land admeasuring a total extent of

Ac.23.11 guntas situated in Sy.No.350/E/1/2/3, 350/E/4/5/6, 360/AA and

350/E at Chevella Village and Mandal, Ranga Reddy District and they

were intending to develop the same by plotting in form of approved

layout. They stated that they were in need of finances and requested to

provide loan of Rs.87,50,000/- and after investment, they would pay back

the Applicant an amount of Rs.1,62,50,000/- by 30.04.2007. The

Applicant accepted the said proposal. The Respondents have issued post-

dated cheques. He has also furnished security in the form of plotted land

admeasuring 15000 sq.yards in the said area worth Rs.1,62,50,000/-.

Husband of the Applicant and Respondents were entered into agreement.

The Respondents agreed that they will buy back the said property at the

rate of Rs.1083,33 per sq.yard payable on or before 30.04.2007. MOU

dated 14.06.2006 was executed between Respondents and the

Applicant's husband on specific terms and conditions. The Respondents

have issued two post-dated cheques dated 16.06.2006 and 30.04.2007.

Respondents could not abide by the timelines for payments as per the

said MOU dated 14.06.2006. Respondents and husband of the Applicant

was again re-negotiated and entered into another MOU dated 22.05.2009

wherein total due amount liable to the Applicant was revised from

Rs.1,62,50,000/- to Rs.1,64,02,000/-. The Respondents have agreed to

pay the said amount by 20.02.2010 and have issued two post-dated

cheques.

4. As per Clause No.5 of the MOU dated 22.05.2009, it is agreed

by the Applicant's husband that if there was any default or failure to

abide by the terms of the revised MOU dated 22.05.2009, the Applicant

can re-negotiate with Respondents on fresh terms and conditions as

necessary apart from adopting all the terms and conditions contained in

MOU dated 14.06.2006 including the arbitration clause and other

applicable clauses. The Respondents again defaulted and requested

Applicant not to encash the security cheques. On insistence of the

Applicant and her husband, the Respondents had issued two more

cheques both dated 26.10.2010. The Respondents have made certain

amounts to the tune of Rs.38,64,000/- on 21.02.2011, they had also given

5 new cheques, dated 21.02.2011 for a total sum of Rs.1,25,38,000/-,

while acknowledging an amount of Rs.38,64,000/- vide letter dated

21.02.2011. Respondents have finally paid partial amount of

Rs.1,15,00,000/- by August, 2011 vide various other modes and different

cheques. Thus, balance of Rs.49,00,000/- was due to the Applicant and

her husband and the same was acknowledged by the respondents vide

letter dated 21.08.2011. Respondents proposed the Applicant to take

balance amount of Rs.49,00,000/- as handloan offered by her and her

husband with monthly interest for a term of 9 years, interest payable at

24.5%p.a. Thus, monthly payable interest to the Applicant was

Rs.1,00,000/-. In furtherance of the revised oral handloan agreement in

August, 2011, Respondents started paying monthly interest payable

worth Rs.1,00,000/- every month from August, 2011 onwards to the

account of the Applicant and the same is even reflected in her bank

account. Her husband died in February, 2011. Applicant being the wife

and legal heir of Mr. Manpreet Singh Kandhari in assets and liabilities,

continued the business-cum-financial relationship with Respondents as

per MOU dated 14.06.2006, 22.05.2009 and oral handloan agreement in

August, 2011. Monthly payments were also being directly paid by

Respondents to her account every month. Respondents used to default

and delay payments of monthly interest. Respondents promptly paid the

interest amount from August 2011 till November, 2014 but surprisingly

since November, 2014, they had stopped paying monthly interest as

agreed to the Applicant. Thereafter, they issued a cheque dated

20.02.2015 for Rs 5,00,000/- to Applicant. The same was dishonoured

with an endorsement 'stop payment'. On insistence of the Applicant,

Respondents have issued a cheque dated 12.12.2015 for an amount of

Rs.30,00,000/- towards monthly interest and requested the Applicant to

present the same in January, 2016. Respondents informed the Applicant

not to present the cheques since they are facing some financial problems.

5. During March, 2016, Applicant and her children had approached

Respondents and requested for payment of both principal and interest.

They issued cheques dated 25.03.2016 for an amount of Rs.20,00,000/-

towards part payment. They also issued three signed cheques dated

03.08.2016, 17.01.2017 and 28.04.2017. The respondents requested the

Applicant not to encash the same. They again issued two cheques dated

21.06.2019 and 28.06.2019 for an amount of Rs.5,00,000/- each. On

presentation, the same were dishonoured for the reason 'insufficient

funds.' Elders and well wishers also intervened in the matter between the

Applicant and Respondents for resolution of the dispute. The respondents

accepted to settle the dues. The Respondents failed to pay said amount.

6. According to the Applicant, Respondents have to pay an amount

of Rs.3,69,78,596/- in all. They also approached Mr. Suresh Reddy,

Member of Parliament (MP) and Danam Nagender, Member of

Legislative Assembly (MLA), family friend of Applicant, who called 2nd

respondent on 16.03.2022 insisted upon payments. 2nd respondent

promised to clear the dues in April, 2022 but failed. In October, 2022,

more particularly, on 10.10.2022, they promised to clear at least one

Crore. Thus, according to the Applicant, the Respondents are due and

liable to pay of Rs.1,97,62,713/- towards principal amount,

Rs.1,72,15,882/- towards interest and in all Rs.3,68,78,596/- to the

Applicant. Thus, there are disputes between the Applicant and

Respondents which are arbitral. Therefore, the Applicant invoked

Arbitration clause i.e. clause No.13 of MOU dated 14.06.2006 by way of

issuing legal notice dated 29.03.2023 requesting payment and again got

issued notice dated 01.05.2023 suggesting the name of Arbitrator, Sri

Justice M.S.K. Jaiswal, Former Judge of the High Court of Judicature at

Hyderabad for the State of Telangana and Andhra Pradesh, to adjudicate

the disputes in respect of outstanding dues liable to the Applicant.

Respondents issued reply dated 15.06.2023 making false and baseless

allegations against the Applicant. Therefore, the Applicant was

compelled to file the present Arbitration Application seeking to appoint

Arbitrator.

7. The Respondents filed counter contending that the present

Arbitration Application is not maintainable since there is no agreement

between the Applicant and Respondents in terms of Section 7 (3) of the

Act. The entire due amount payable to Applicant under two MOUs was

cleared by 19.11.2014. Applicant has approached the Respondents during

January, 2015, with a new offer to purchase the penthouse in 1-2-593/3,

Legend Kandhari Building, Ganganmahal Road, Hyderabad as the

respondents constructed the said residential complex. The respondents

showed interest to purchase the said penthouse and issued various

cheques from 20.02.2015 to 28.06.2019 towards sale consideration.

During the course of time from 2015 to 2019, the Applicant put constant

pressure on Respondents to purchase the said penthouse to help in their

financial needs. However, during the purchase of the said penthouse,

negotiation were going on with the building association and the

Respondents were informed that several offers were being made to other

individuals by the Applicant's family for the purchase of the same

without informing the Respondents. The Applicant concealed the fact

that the penthouse is in litigation as it has been illegally constructed.

Owing to the suspicious and legal consequences, the Respondents kept

taking back the cheques and issuing new cheques after every negotiation.

Finally they came to know the said penthouse was already sold to third

party without consent of Respondents. While they were constantly

making sale considerations, due to which Respondents have immediately

stopped payments and did not issue any further cheques after 2019

onwards towards the sale consideration. The Applicant is trying to

mislead this Court by clubbing the loan payable under the MOU which

was cleared in the year 2014 with the sale consideration cheques issued

by the Respondents for a totally different purpose of buying a penthouse

upon Applicant's pressure. There is no agreement between the Applicant

and respondents. There are no disputes between the Applicant and

Respondents. There is no agreement much less oral agreement between

the Applicant and Respondent and therefore, appointment of arbitrator

does not arise.

8. Both the learned counsel for the Applicant and Respondents

have made their submissions.

9. Sri Sai Chandra Haas, learned counsel for the Applicant has

relied on the principle aid down by the Apex Court in M.R. Engineers &

Contractors Pvt. Ltd vs Som Datt Builders Ltd 1, Bharat Sanchar

Nigam Limited vs M/S Nortel Networks India Pvt. Ltd. 2 a judgment

of High Court of Andhra Pradesh in Rashtriya Ispat Nigham Limited

vs. SENCON Systems Private Limited 3, in Hema Khattar vs. Shiv

Khera 4, in Suhma Shivkumar Daga v. Madhurkumar Ramkrishaanji

(2009 7 SCC 696

(2021) 5 CC 738

MANU/AP/0713/2023 = order dated 02.05.2023 Arb.Appln.No.102 of 2015.

AIR 2017 C 1793

Bajaj 5, in Vijay Ganesh Gondhlekar vs. Indranil Jairaj Damale 6, Full

Bench judgment of Apex Court in Hindustan Apparel Industries vs.

Fair Deal Corporation 7 and Full Bench judgment of Kerala High Court

in Ramakrishnan vs. Parthasardhy 8.

10. Learned counsel appearing for the respondents placed reliance

on the principle laid down by the Apex Court in NTPC vs. SPML Infra

Limited 9, and N.N.Global Mercantile (P) Ltd. vs. Indo Unique Flame

Ltd. 10.

11. The aforesaid facts would reveal that the husband of the

Applicant i.e. late Manpreet singh Kandhari and 1st respondent have

entered into MOU dated 14.06.2006 on the specific terms and conditions

mentioned therein with regard to development of schedule -A and B

properties mentioned therein. They have entered into another MOU dated

22.05.2009 on the specific terms and conditions mentioned therein on the

ground that due to some unavoidable circumstances, the said MOU dated

14.06.2006 could not be completely acted upon and after deliberations

2023 INSC 1081

2007 (6) MHLJ 419

AIR 2000 GUJ 261

2003 (9) AIC 593

(2023) 9 SCC 385

2023 INSC 1066

and negotiations, they have entered into the said MOU. Clause No.5 of

the MOU dated 22.05.2009, it is mentioned that in the event of any

default on the part of the 1st respondent herein in payment of any part

thereof within the stipulated time, the Applicant has option either to re-

negotiate with the respondents on fresh terms and conditions or take legal

action as according to law. Other terms and condition contained in MOU

dated 14.06.2006 shall remain as it is and may be read as part and parcel

of the affidavit.

12. It is not in dispute that the husband of the applicant died on

29.02.2012.

13. According to the Applicant, respondents have paid interest

after death of her husband and in proof of the same, she has filed copies

of statement and also cheques etc. Therefore, according to her,

Respondents have to pay the aforesaid amounts of Rs.3,69,78,596/-

towards principal and interest.

14. Whereas, according to the Respondents, they have cleared the

amounts covered under both the MOUs by 19.11.2014 itself. The

cheques and other aspects are with regard to fresh transaction i.e. for

purchase of the penthouse in 1-2-593/3, Legend Kandhari Building,

Ganganmahal Road, Hyderabad. Thus according to Respondents, there is

no agreement between the Applicant and Respondents. There are no

disputes between the Applicant and Respondents much less arbitral

disputes.

15. Thus, virtually there is no agreement in writing between the

Applicant and Respondents. In paragraph No.16 of the affidavit filed in

support of the present application, the Applicant has clearly stated that in

furtherance of the revised oral hand loan agreement in August, 2011,

Respondents have also started paying monthly interest payable worth

Rs.1,00,000/- every month from August, 2011 onwards to the account of

Applicant and the same is even reflected in Bank account details as well.

But the respondents disputed the oral agreement.

16. In the light of the same, Section 7 of the Act deal with the

arbitration agreement and it is extracted below:-

7. Arbitration agreement.

(1) In this Part, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means which provide a record of the agreement; or

(c)an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

Thus, there should be an agreement in writing between the parties.

17. In N.N. Global Mercantile Private Limited (supra), referring

to the principle laid down by it in M/S Duro Felguera S.A vs M/S.

Gangavaram Port Limited 11, 7 Judge Bench of the Apex Court

considering the scope of Section 11 (6) (a) of the Act, held that the scope

of examination under Section 11(6A) should be confined to the existence

of an arbitration agreement on the basis of Section 7. Similarly, the

validity of an arbitration agreement, in view of Section 7, should be

restricted to the requirement of formal validity such as the requirement

AIR 2017 SC 5070

that the agreement be in writing. This interpretation also gives true effect

to the doctrine of competence-competence by leaving the issue of

substantive existence and validity of an arbitration agreement to be

decided by arbitral tribunal under Section 16. Thus, the Apex Court

clarified the position of law laid down in Vidya Drolia vs. Durga

Trading Corporation 12 in the context of Section 8 and Section 11 of the

Arbitration Act.

18. The Apex Court also further held that the burden of proving

existence of Arbitration agreement generally lies on the party seeking to

rely on such agreement. In jurisdictions such as India, which accept the

doctrine of competence-competence, only prima facie proof of the

existence of an arbitration agreement must be adduced before the referral

court. The referral court is not the appropriate forum to conduct a mini-

trial by allowing the parties to adduce the evidence in regard to the

existence or validity of an arbitration agreement on the basis of evidence

ought to be left to the arbitral tribunal. This position of law can also be

gauged from the plain language of the statute.

(2021) 2 SCC 1

19. When the referral court renders a prima facie opinion, neither

the arbitral tribunal, nor the court enforcing the arbitral award will be

bound by such a prima facie view. If a prima facie view as to the

existence of an arbitration agreement is taken by the referral court, it still

allows the arbitral tribunal to examine the issue in-depth. Such a legal

approach will help the referral court in weeding out prima facie non-

existent arbitration agreements. It will also protect the jurisdictional

competence of the arbitral tribunals to decide on issues pertaining to the

existence and validity of an arbitration agreement.

20. In NTPC (supra), the Apex Court held that the pre-referral

jurisdiction of the courts under Section 11(6) of the Act is very narrow

and inheres two inquiries. The primary inquiry is about the existence and

the validity of an arbitration agreement, which also includes an inquiry as

to the parties to the agreement and the applicant's privity to the said

agreement. These are matters which require a thorough examination by

the referral court. The secondary inquiry that may arise at the reference

stage itself is with respect to the non-arbitrability of the dispute.

21. It was further held that as a general rule and a principle, the

arbitral tribunal is the preferred first authority to determine and decide all

questions of non-arbitrability. As an exception to the rule, and rarely as a

demurrer, the referral court may reject claims which are manifestly and

ex-facie non-arbitrable. Explaining the said position, flowing from the

principles laid down in Vidya Drolia (supra), Apex Court in a

subsequent decision in Nortel Networks (supra) held as follows:

"45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute..."

Thus, the Apex Court further held that the standard of scrutiny to

examine the non-arbitrability of a claim is only prima facie. Referral

courts must not undertake a full review of the contested facts; they must

only be confined to a primary first review and let facts speak for

themselves. This also requires the courts to examine whether the

assertion on arbitrability is bona fide or not. The prima facie scrutiny of

the facts must lead to a clear conclusion that there is not even a vestige of

doubt that the claim is non-arbitrable. On the other hand, even if there is

the slightest doubt, the rule is to refer the dispute to arbitration.

22. The Apex Court further held that the limited scrutiny, through

the eye of the needle, is necessary and compelling. It is intertwined with

the duty of the referral court to protect the parties from being forced to

arbitrate when the matter is demonstrably non-arbitrable. It has been

termed as a legitimate interference by courts to refuse reference in

order to prevent wastage of public and private resources. Further, as

noted in Vidya Drolia (supra), if this duty within the limited compass is

not exercised, and the Court becomes too reluctant to intervene, it may

undermine the effectiveness of both, arbitration and the Court. Therefore,

the Apex Court or a High Court, as the case may be, while exercising

jurisdiction under Section 11(6) of the Act, is not expected to act

mechanically merely to deliver a purported dispute raised by an applicant

at the doors of the chosen arbitrator, as explained in DLF Home

Developers Limited v. Rajapura Homes Pvt. Ltd 13.

AIR OnLine 2021 SC 759

23. Thus, this Court has to come to a prima facie opinion with

regard to existence of arbitration agreement and arbitration clause. This

Court has to scrutinize in a limited manner through eye of the needle with

regard to existence of arbitration agreement, arbitral clause and disputes.

This Court is not expected to act mechanically merely to deliver a

purported dispute raised by an applicant at the doors of the chosen

arbitrator.

24. In the light of the aforesaid principle, as discussed supra, there

is no agreement in writing between the Applicant and Respondents. The

MOUs dated 22.05.2006 and 22.05.2009 are between the husband of

Applicant and Respondents. According to the Respondents, they have

also cleared the said amount due by 19.11.2014. The husband of the

Applicant died in February, 2011. Even according to the Applicant, the

respondents have paid certain amounts by dated 19.11.2014. The

Applicant has filed the present application referring clause No.13 of the

MOU dated 14.06.2006. The said clause extracted below:-

In case of any disputes arising between the parties hereto touching these presents, the matter shall be referred to a sole arbitrator, the award passed by the arbitrator shall be final and binding on both the parties and the relevant provisions of the Arbitration & Reconciliation Act, 1996 shall apply and

arbitration proceeding shall be held at Hyderabad and in English Language and the courts at Hyderabad only shall have exclusive Jurisdiction over the subject matter.

25. As discussed supra, the said MOU is between the husband of

the Applicant and Respondents. Admittedly, the Applicant is not a party

to the said MOU. In paragraph No.16 of the present application, the

applicant himself referred about oral agreement. Thus, in the absence of

an agreement in writing in terms of Section 7 of the Act, Applicant

cannot file an application and seek for appointment of Arbitrator. Thus,

in my considered view, there are no disputes much less arbitral disputes

between the Applicant and Respondents. Therefore, this Arbitration

Application is liable to be dismissed.

26. Therefore, this Arbitration Application is dismissed.

Consequently, miscellaneous petitions, if any, pending in this

Arbitration Application shall stand closed.