[CASE NUMBER] ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/PETN. UNDER ARBITRATION ACT NO. 132 of 2018 [PRECEDENT] Appearance: MR [ENTITY], SR. ADVOCATE WITH MR [ENTITY]) for the Petitioner MR [ENTITY], SR. ADVOCATE WITH MR [ENTITY]) for the Respondents No. 1 MR [ENTITY], SR ADVOCATE WITH MR [ENTITY]) for the Respondents No. 2,3,4,5 MR. [ENTITY]) for the Respondents No. 6,7 CORAM: HONOURABLE MR.JUSTICE [ENTITY] Date : 13/12/2019 ORAL ORDER
1. The petitioner has filed present Arbitration petition for the following reliefs :
"A That this Hon'ble Court may be pleased to appoint an Arbitrator, either Hon'ble Justice [ENTITY],former Judge, High Court of Gujarat and or any other arbitrator may be appointed on behalf of the Respondents, both the Arbitrator may jointly appoint the presiding Arbitrator and constitute the Tribunal, with directions to enter into reference, complete the proceedings and give the Award within such time as this Hon'ble Court will be pleased to determine;
B That this Hon'ble Court may be pleased to order interim and ad- interim reliefs in terms of clause
C for costs; and D FURTHER such other and further
reliefs as this Hon'ble Court deem fit on the facts and circumstances of the present case"
Thus, essentially the petitioner is challenging the denial and delay by respondents in appointment of Arbitrator and prays for appointment of Arbitrator under [SECTION] of the [ACT] (hereinafter referred to as 'the Act' for short)
2. Brief facts of the present case, as could be culled out from the memo of petition deserve to be set out as under :
2.1 The petitioner is a statutory Limited Liability Partnership Firm constituted under the provisions of the [ACT]. The petitioner is engaged into the business of development of land by carrying out construction of various premises including residential commercial and other industrial premises and to market and dispose of the same structure.
2.2 The respondents are the owners of land in question admeasuring 108555 sq.mt situated at Vadodara as described in Schedule I of Agreement to Sell dated 14.12.2010. The petitioner was desirous of acquiring the said land from respondents and respondents were willing to sell the land in question to petitioner together with all the rights and they entered into an agreement to sell dated 14.10.2010 and the respondents have duly received and acknowledged the receipt of the consideration of an amount of Rs.7,50,00,000/- as a part of the consideration from the [ENTITY] Madrid Country LLP on signing of the agreement to sale.
It is the case of petitioner that till date, the petitioner made the payment of Rs.78,22,81,375/- including the betterment charges to be payable by respondents towards the petitioner as per the terms and conditions of the Agreement. Since few months, the petitioner has been making requests to respondents for execution of the 'Deed of Conveyance' in favour of end user as agreed between the parties as per clause 9 of the agreement to sell. The petitioner received various complaints/legal notices from end user due to default and/or delay on respondents' part in execution of the Deed of Conveyance in favour of the end uses. Since repeated demand, as the respondents have not paid any heed, the petitioner issued legal notice dated 8.4.2019.
2.3 Inspite of such specific and time bound notice, there has been no response and on the contrary, the petitioner received a letter from IDBI Bank dated 19.4.2018 seeking clarifications regarding the notice received from the respondent nos. 1 to 5 by IDBI Bank, for suspension of the Current Accounts of [ENTITY] Madrid County. In response thereto, the petitioner has submitted detailed representation and clarification explaining the reasons for non- suspension of the accounts. However, the petitioner received a letter from IDBI Bank intimating the Debit Freeze of accounts until the further instructions by both the parties. The petitioner also receive a letter from Kotak Mahindra Bank regarding the de-freezing of the Bank account. The petitioner is put to the loss and damage as the loan installments were getting paid from this account and due to the omission/conduct on behalf of the respondents, the end customers and day to day affairs of the petitioner entity are affected, adding to the loss in terms of money and reputation to the petitioner.
2.4 On 25.5.2018, due to complete silence on the part of the respondents, the petitioner was left with no other option but to issue another notice invoking the Arbitration clause and nominating the Arbitrator on behalf of the petitioner.
2.5 The petitioner received an interim reply dated 1.6.2018 to the notice issued by the petitioner, wherein, the respondents had denied the contents of the notice, however, had not even complied with the clause 18 and had deliberately tried to delay the constitution of the Arbitral Tribunal. The petitioner received a reply from respondent no. 6 nominating Shri [ENTITY], Former Judge, High Court of Gujarat to act as Arbitrator on behalf of respondents. In the similar matter between similar parties, the respondent nos. 1 to 5 have appointed Shri [ENTITY], Former Judge, High Court of Gujarat on their behalf. Thereafter, bases on the said reply received, the petitioner has requested Shri [ENTITY], Former Judge, High Court of Gujarat to appoint the presiding arbitrator in consultation with Shri [ENTITY], Former Judge, High Court of Gujarat. Accordingly Shri [ENTITY], Former Judge, High Court of Gujarat have had a telephonic conversation with Shri [ENTITY], Former Judge, High Court of Gujarat and have agreed to nominate Shri [ENTITY], Former Judge, Supreme Court of India to act as Presiding Arbitrator jointly and same was accepted by Shri [ENTITY], Former Judge, Supreme Court of India on 14.6.2018.
3. Learned counsel for the petitioner submitted that the petitioner has invoked arbitration agreement as contained in clause-18 of the Agreement to Sell dated 14.12.2010 and the existence of the arbitration agreement is not disputed. The agreement to sell describes the petitioner as Party of Second part, represented by its designated partner Mr. [ENTITY] and he has also signed the agreement on behalf of the petitioner. By a resolution dated 14.12.2010, he is appointed as the Principal Officer of the LLP and is authorized to manage and conduct the affairs of the LLP and to take all decisions regarding the LLP as to its business and assets. Shri [ENTITY] as such is authorized on behalf of LLP to issue demand notice and also to maintain the petition on behalf of the LLP. Without prejudice, the contention whether Shri [ENTITY] can represents the interest of petitioner LLP or not is an issue which can be gone into under [SECTION] of the Act.
4. Learned counsel for the petitioner submitted that as per [SECTION] of the Act, scope of an application under [SECTION] is restricted only to examination of the existence of an arbitration agreement and in support of this submission, he relied on decision in case of [ENTITY] S.A vs. Gangavaram Port Limited, reported in AIR 2017 SC 5070. He also relied upon the decision in case of M/s. [ENTITY] Trading Pvt. Ltd vs. Pradyuat Deb Burman, reported in (2019) 8 SCC 714 and submitted that in view of provisions contained in [SECTION], the examination by this Court is restricted to only existence of an arbitration agreement.
5. Learned counsel for the petitioner submitted that the respondents have submitted that pending the petition, the parties have entered into consent terms on 15.4.2019 and because of which, petition does not survive. Learned counsel for petitioner submitted that examination of this submission would also tantamount to examining merits, which in view of bar of [SECTION] of the Act is not warranted. It is also submitted that said consent terms is not signed by all the parties to the Agreement to Sell. The respondent no. 6 is not party to Agreement to Sell.
6. Learned counsel for the petitioner submitted that when there is no dispute as to the existence of the arbitration agreement, the present petition is required to be allowed.
7. Learned counsel for respondent has placed on record the written submission on behalf of respondent, which in verbatim reproduce hereunder for ready reference :
"1. Shri [ENTITY], purported to be authorized as the designated partner of [ENTITY] Madrid County LLP, has preferred the present petition seeking inter alia, constitution of Arbitral Tribunal for adjudicating the purported disputes between the parties under the Agreement to Sell dated 14.12.2010. Development Agreement dated 14.12.2010 and Development Agreement dated 30.04.2013.
2. In absence of the production of Development Agreement dated 30.04.2013, the disputes thereunder cannot be referred to arbitration. The reliefs, seeking reference of the purported disputes under the Development Agreement dated 30.04.2013, therefore, has to be rejected.
EXISTENCE OF AN ARBITRATION AGREEMENT :
3. The petitioner has sought constitution of the Arbitral Tribunal for adjudication of the purported disputes under the Agreement to Sell dated 14.12.2010 and the Development Agreement dated 14.12.2010.
The agreement to Sell dated 14.12.2010 provides for Dispute Resolution by an Arbitral Tribunal consisting of one arbitrator appointed by 'Parties of the First Part' and 'Party of the Second part', who shall appoint one more arbitrator. The Development Agreement dated 14.12.2010 also provides for Dispute Resolution by an Arbitral Tribunal consisting of three arbitrators.
4. Shri [ENTITY], in the capacity as the designated partner of [ENTITY] Madrid County LLP has issued notice dated 25.05.2018 to the Respondents, invoking the arbitration clause - Clause 18 in the Agreement dated 14.12.2010 for reference of disputes arising out of the default on your part due to non- compliance in executing the Deed of Conveyance in spite various requests and reminders.
5. Pending the proceeding, the parties have amicably resolved the disputes arising out of [CASE NUMBER] especially arbitration arising out of and in connection with Clause 18 of Agreement to Sell dated 14.12.2010 along with Development Agreement as executed on 14.12.2010 comprehensively also read with Development Agreement dated 30.04.2013. The terms further provide "33). The parties hereby agree that this settlement agreement / consent terms is final between the parties having overriding effect over any agreements or transactions whatsoever which took place before the date of this settlement agreement and this agreement be treated as consent award between the parties. This document has been witnessed by Shri [ENTITY] S/o. Smt. [ENTITY] and Shri [ENTITY]. In the aforesaid contest, it becomes pertinent at this juncture that Shri [ENTITY] in his email dated 01.05.2019 (at pg-262), has admitted the implementation of the terms and Shri [ENTITY] acting on the terms and executed the documents / Sale deeds as per the condition of the terms.
6. The mutually agreed terms dated 15.4.2019 contains comprehensive terms and conditions and consciously does not contain an arbitration clause. The parties had entered into a fresh contract contained in the terms dated 15.04.2019, which does not even indicate the saving of any disputes arising under the original contract, rather provides the terms an overriding effect to the earl agreements. The said terms are nothing but a pure and simple novation of the original contract by mutual consent. The arbitration agreement contained in the agreements dated 14.12.2010 would, therefore, cease to exist and cannot be resorted as the purported surviving disputes and the obligations thereunder stood overridden by the subsequent terms. The Respondents rely upon the judgment of the Apex Court reported in [PRECEDENT]
7. The issue of examination of existence of arbitration clause in view of the terms dated 15.04.2019 is within the jurisdiction of this Hon'ble Court under [SECTION] of the [ACT].
ARBITRATION PETITION IS NOT MAINTAINABLE : 8. Shri [ENTITY] has preferred the
present petition purportedly on behalf of [ENTITY] Madrid County LLP. The Partnership Agreement dated 02.12.2010 and the Minutes of Meeting dated 14.12.2010 restricts the powers of the Principal Officer of the LLP. Paragraph 9 of the meeting dated 14.12.2010 reads as under :
"The Chairman further informed the Partners that the matters pertaining to financings, Development Agreements, Sale or mortgage of business,
appointment of contractors, dissolution of LLP, bankruptcy, material actions, and other reserved matters not being the day to day operation matters, require the detailed discussions, understanding and consent of the partners.
Thereafter the Chairman tabled the matters requiring the detailed discussions of the Partners and after due consideration passed the following resolution.:
"RESOLVED THAT , the Designated Partners, on the behalf of LLP, do hereby accord their consent that the following matters shall be undertaken only after having been obtained affirmative vote in the meeting of the Designated partners as and when required,
(i) xxx xxx
(xi) making the decision to institute any lawsuit where the contested amount exceeds Rs.25,00,000/-
(Rupees twenty five lakhs only);
(xii) making any decision or taking any action that is not in the ordinary course of business or operations of the Company; and xxx"
9. It is an admitted fact that [ENTITY] Partners were never consulted nor have consented or have made an affirmative vote authorizing the institution of the present proceedings or has ratified the authority of Shri [ENTITY] to move the present petition, where admittedly the contested amount does not exceed Rs.25,00,000/-. In absence, therefore, Shri [ENTITY], in whichever capacity, had no authority to act for and on behalf of [ENTITY] Madrid County LLP.
Consequentially, the present petition filed purportedly on behalf of [ENTITY] Madrid County LLP is not maintainable. The issue of the authority of a party instituting a proceeding is not a mere procedural defect or a technical objection, but touches the root and very authority of a party to maintain the petition. The Respondent relies upon the judgment reported in [CASE NUMBER], wherein, the Hon'ble Court has held, " Therefore, unless the power to institute a suit is specifically conferred on a particular director, he would have no authority to institute a suit on behalf of the Company. Needless to state that such a power can be conferred by Board of Directors only by passing the resolution in that regard. Individual directors are vested with only such powers as are available to them either under the Memorandum or Articles of the Company, or otherwise by the Board of Directors. A Managing Director also does not have any power to manage the affairs of the Company over and above those available to the Board; the Managing Director can exercise only such powers as have been delegated to him. A company cannot orally authorize another person to sign a plaint on its behalf. A company can act only as provided under its Articles of Association. The Provisions of [SECTION] of the [ACT] read with [SECTION] stipulate that pleadings of a Corporation shall be signed by an authorized Director, Secretary or other Principal Officer."
Similar view has been taken in the judgments reported in [PRECEDENT] and (2010) 11 SCC
10. In view thereof, the present petition is not maintainable. Additionally, Shri [ENTITY], representing the common interest of the partners of [ENTITY] Madrid County LLP, had no authority to invoke the arbitration clause and to nominate an arbitrator, which he has done under the notice dated 25.05.2018. Consequentially, the present petition is not required to be entertained, pertinently as Shri [ENTITY] by himself is not a party to the agreement as per [SECTION] read with [SECTION] of the [ACT].
11. The contention that Shri [ENTITY] is a signatory to the Agreement to Sell dated 14.12.2010 and, therefore, can maintain the petition, is misconceived. The parties to the agreement were the [ENTITY] Family and Shri [ENTITY] as the parties to the First Part and [ENTITY] Madrid County LLP, represented by the designated partner Shri [ENTITY] being the Party to the Second Part. The party, therefore, is [ENTITY] Madrid County LLP and not Shri [ENTITY], and additionally Shri [ENTITY] has executed such agreement representing [ENTITY] Madrid County LLP supported by the positive vote and consent of [ENTITY] Partners. However, there is no consent and positive vote to the [ENTITY] Partners authorizing Shri [ENTITY] to invoke the arbitration clause or to prefer the present proceedings and, therefore, the present petition, at the instance of Shri [ENTITY], would not be maintainable.
UNWORKABILITY OF THE ARBITRATION CLAUSE : 12. A notice dated 25.05.2018,
invoking the arbitration clause, was issued to the Respondents in their capacity as the land owners under instructions of Shri [ENTITY], designated partner of [ENTITY] Madrid County LLP. It would be relevant that Smt. [ENTITY] is not a party to the Agreement to Sell dated 14.12.2010, whereas Shri [ENTITY] is not a party to the Development Agreement dated 14.12.2010.
13. Surprisingly, a reply dated 13.06.2018 has been addressed by Shri [ENTITY], partner of [ENTITY] Madrid County LLP, agreeing to arbitrate the issue and had nominated a Hon'ble Judge (Retd.) to act as an arbitrator. The said notice encloses a communication dated 13.06.2018 addressed by the learned advocate on behalf of [ENTITY] Madrid County LLP to the Hon'ble Judge (Retd.) requesting for his confirmation to be appointed as Arbitrator on behalf of [ENTITY] Madrid County LLP. It appears that subsequently the words 'the us in the matter of has been inserted. The Hon'ble Judge (Retd.) was pleased to accord his consent on the said communication.
14. Surprisingly, on the next day i.e. on 14.06.2018, a communication has been issued by the nominated Hon'ble Arbitrators to the suggested Presiding Arbitrator, pointing out "The claimant has appointed / nominated the undersigned Mr. Justice former Judge, High Court of Gujarat from other side, [ENTITY] and 6 others have nominated undersigned to act as Arbitrator from their side". It is a matter of record and evident from the communication dated 13.06.2018 that [ENTITY] family had at no point nominated the Hon'ble Judge (Retd.)
15. The [ENTITY] family has (as also apparent from the position taken by them during the course of hearing) changed its position and also are in disagreement and disputes with the [ENTITY] family. The agreements envisage the disputes between the Parties of the First Part and Party of the Second Part and not the disputes inter se between the Parties of the First Part and with the Party to the Second part.
16. The agreements provide for reference of disputes to two arbitrators
- one appointed by each party to the difference. In this case, there are three parties to the differences and since the parties have not agreed to a single arbitrator, then the alternative provision for appointment of two arbitrators, one by each of the parties to the difference would be inappropriate and unworkable. Resultantly, there would be no arbitration agreement which could be resorted for reference of disputes. The Respondents rely upon the judgments reported in [PRECEDENT] and [PRECEDENT].
GENERAL SUBMISSIONS :
17. The objections of the respondent with respect to the existence of the Arbitration Agreement and the maintainability of the petition are within the province of powers under [SECTION] of the [ACT].
18. The Respondents are the owners of lands and have not received the balance consideration of Rs.75 crores (approx) and also has not received their share as the partners of the firm i.e. [ENTITY] Madrid County LLP, despite the firm, by now receiving Rs.245 crore (appox) from allotting plots on the lands owned by the Respondents. The complete effort is to deprive the land owners of their legitimate dues and dupe the Respondents as the partners.
19. It would be pertinent that the Respondents have raised disputes with respect to usurpation of authority on behalf of [ENTITY] Madrid County LLP by Shri [ENTITY] by addressing a notice dated 19.12.2018, which is as such is a subject matter of a different agreement and beyond the present petition. Any orders passed by this Hon'ble Court on the petition made by Shri [ENTITY] would prejudice rights of the parties under the LLP agreement (which is not the subject matter of the petition).
20. In any event, the Respondents have made strong objection to the nomination of the referred arbitrators and, therefore, neighter of the Hon'ble arbitrators be appointed.
21. In the circumstances, the petition may be dismissed."
8. The Court has heard learned counsels for the parties at length and perused the documents attached with the matter.
9. The following indisputed factual aspects emerging therefrom deserves to be set-out as under :-
(i) The existence of agreement to sell dated 14.12.2010 between the respondents and the present petitioner has not been disputed by any party and which could be said to be governing agreement between all the parties.
(ii) The Clause-18 of the said agreement to sell deserve to be reproduced hereunder, existence whereof has also not been denied by any party.
18. Dispute Resolution 18.1 In the event of any dispute, controversy or, difference ("Dispute") of whatever nature, arising under, out of, in connection with or relating to the enforcement, performance or the terms and conditions of this Agreement, such Dispute shall be settled through good faith negotiation amongst the parties to such Dispute. In the event that such Dispute cannot be resolved by negotiation within thirty (30) days of the Dispute having arisen, such Dispute shall be referred to binding arbitration and determined, subject to the terms contained herein, in accordance with the provisions of the [ACT] or any amendment thereto read with the Arbitration Agreement comprised in this Clause 18.
18.2 The place of arbitration and the seat of arbitral proceedings shall be Vadodara, India. Any arbitral proceeding begun pursuant to any reference made under this Agreement shall be conducted in English language. The decision of the arbitral tribunal and any award given by the majority of arbitral tribunal shall be final and binding upon the Parties.
18.3 The arbitral tribunal shall be composed of one sole arbitrator determined by the Parties herein, if the Parties so agree. Failing such agreement within a period of ten (10) days of the end of the conciliation process provided for in Clause 18.1 hereof, the arbitral tribunal shall comprise of such number of arbitrators, being one arbitrator appointed by Parties of the First Part and one arbitrator appointed by the Party of the Second Part within a period of fifteen (15) days from the end of the 10 day period referred to in this Clause. The arbitrators so appointed shall appoint one more arbitrator within a period of fifteen (15) days of their appointment and where such additional arbitrator has not been selected on account of a difference of opinion amongst the arbitrators, the additional arbitrator shall be appointed in accordance with the provisions of the [ACT].
18.4 The Parties, recognizing the necessity that any arbitral proceeding be concluded expeditiously, agree:
a. to carry out in full, promptly and without delay such procedural orders or directions as may be made by the arbitral tribunal from time to time;
b. to carry out in full, promptly and without delay such interim measures of protection as may be ordered by the arbitral tribunal;
c. to co-operate with each other and with the arbitral tribunal in the conduct of any arbitral proceeding with a view to enabling the arbitral tribunal to conclude the proceeding (so far as may be practicable), by means of a final arbitral award within a period of six months from the date upon which recourse to arbitration was initiated by the service of a notice of arbitration.
d. that questions of procedure may be decided by the presiding arbitrator, as he or she deems fit, and that the presiding arbitrator is authorized accordingly.
e. The arbitral tribunal may determine in their discretion, that
(a) no oral hearing is held (unless it considers any such hearing to be either necessary or appropriate) and (b) accordingly any arbitral proceeding be conducted (in whole or in part) upon the basis of documents and other materials.
f. The arbitral tribunal shall have the power to award costs to the parties.
18.5 The award rendered in any arbitration commenced hereunder may be entered in any court having jurisdiction for its enforcement. Each Party agrees that he shall not appeal to any court from the decision of the Tribunal. Each party agrees that he shall not commence or maintain a suit or legal proceeding concerning a dispute hereunder until the dispute has been determined in accordance with the arbitration procedure provided for herein and then only for enforcement of the award rendered in such arbitration.
18.6 During the pendency of any arbitration each party shall continue to perform its obligations hereunder and no Party shall exercise any remedies hereunder arising by virtue of the matters in dispute.
18.7 It is further agreed that if the arbitration under this Clause continues beyond a period of 6 (six) months, then in that case, either the Parties of the First Part or Party of the Second Part, may seek termination of this Agreement in respect of the land and to the extent not already brought under the development for the purpose of business of the Purchaser. It is agreed that nay loss arising to any Party on exercise of the option granted under this Clause 18.7 shall also be deemed to be included as part of the Dispute referred to the Arbitrator.
Schedule 1 Description of Sail Land All that piece and parcel of land being agricultural land situated in Village Bhayali, District - Vadodara, Registration District Sub District - Vadodara i.e. the land totally admeasuring approximately 108555 square meters Sq. mtrs. (App. 11,68,486 Sp.fts) comprehensively described in detail in Schedule 1 of this agreement and totally consisting of and referred as (Division A) bearing Block Nos. 585 consisting of R.S.No.647, 673 & 674 and Block No., 603 consisting of R.S.No.665/1, and bearing block No.609 and bearing Block No.610 consisting of R.S.No.667/1 and bearing block No.616 consisting of R.S. No.679, and bearing Block No.618 consisting of R.S. No.682, approximately admeasuring 46539 Sq. mtrs. AND (Division B) bearing Block No.600 consisting of R.S. NO.667 and Block No. No.601 consisting of R.S.No.662 and Block No.606 consisting of R.S. No.670 and Block No.607 consisting ofR.S. No.669, and Block No.611 consisting of R.S.No.668 and Block No.586 consisting of R.S.No.642, and Block No.587 consisting of R.S.No.672, and Block No.588 consisting of R.S.No.650, approximately admeasuring 40871 Sq.mtrs AND (Division C) bearing Block No.584 consisting of R.S. No.646, approximately admeasuring 4350 Sq. mtrs. AND (Division D) bearing Block No.589 consisting of R.S. No.653, approximately admeasuring 9207 Sq. mtrs AND (Division E) bearing Block No.621 consisting of R.S. No.685, approximately admeasuring 7588 Sq. mtrs included in the residential zone of the Vadodara Urban Development Authority [VUDA] map and the said land is bonded on four sides by the following:
On or towards East : 24 mtrs Atladra - Bhayali Public Road On or towards West : Nel naliyo rasto / internal approach road On or towards North : Agricultural land bearing R.S.No.648 On or South : Agricultural land bearing R.S.No.677 Map of the Said Land (Enclosed and marked as "X") Schedule 2 Schedule of the Payment The Amount payable to the Owners shall be determined in the manner provided in the Schedule herein:
1. Beginning with 2nd December, 2010 and at the end of each of the quarters (each quarter shall be of three months) following thereafter ["the Quarter-end"], the Purchaser shall prepare a complete account of receipts from the members or potential members during the quarter immediately preceding the Quarter End, within 3 [three] days from the Quarter End ["Quarterly Receipts"]
2. The receipts from the members or potential members shall mean and include all the receipts from the members, potential members, either directly or through one or more financial institution, towards booking, development charges, infra-structure payments, reimbursement of expenses, modification, penalties, interest, compensation, forfeiture of the payments made, cancellation charges, variation charges, up-gradation charges, special payments for the location, contribution towards common infra-
structure, etc. on the Said Land. The receipts from the members shall also include the receipt of any nature whatsoever from any person for the use of any part of the Said Land or any structure or facility thereon.
3. Thirty per cent of the Quarterly Receipts shall be computed ["Owners' Entitlements"] shall be worked out.
4. If for any quarter, the Owners' Entitlement is less than the amount payable as per the table below ["Minimum Payments"], then Minimum Payments shall be made by the Purchaser to the Owners, else the Owners' Entitlement shall be paid to the Owners on or before expiry of 7 (seven) days from the Quarter End.
Table of Minimum Amounts Payable Number of On or before the period mentioned Minimum Installment herein from the date of this Amount to Agreement be paid (In Rs. In Lacs) 1 One Year [1 Year] 436.45 2 Fifteen Months [1 Year 3 Months] 436.45 3 Eighteen Months [1 Year 6 Months] 436.45 4 Twenty One Months [1 Year 9 Months] 436.45 5 Twenty Four Months [2 Years] 436.45 6 Twenty Seven Months [2 Years 3 months] 436.45 7 Thirty Months [2 Years 6 months] 436.45 8 Thirty Three Months [2 Years 9 months] 436.45 Note: All the payments made on account of "Owners' Entitlement", other than the down payment, on or before the First installment becoming due, shall be appropriated towards Minimum Payments starting from the First Installments.
5. Entire balance payment shall be made by the Purchaser in one or more installments on or before expiry of sixty months [5 years] from the date of this Agreement. The remaining/entire balance payment of the sale price shall be paid consisting of the quantum which shall be at least i.e. minimum amount of Rs.436.45 Lakhs or 30% of the amount received in collection from the members for an during each quarter which ever is higher.
6. It is further agreed that the payment as per the Owners' Entitlement shall be payable even beyond the above said 8 installments and till such time the entire Sale Price is not paid.
7. For enabling the Owners to satisfy the correctness of the payments, the Owners shall have a right to get the accounts and other records of the Purchaser verified, examined, audited or inspected by any person or persons appointed by the Owners ["Auditors"] and in case where Auditors are appointed, then:
a. the Purchaser shall provide all necessary support and access to information and record as may be reasonably required by the Auditors. b. All cost, charges and expenses for the Auditors shall be borne by the Owners. However, in case where the Auditors detect deviation in the computations made by the Purchasers beyond 5% (five per cent) of the amount/ amounts stated by the Purchasers, then the cost, charges and expenses of the Auditors shall be borne by the Purchasers.
c. The Owners shall not require the accounts, records and other documents of the Purchaser verified more than once in a period of 12 (twelve) months, provided no discrepancy has been noticed in the immediately preceding verification."
(iii) The second party in the agreement to sell dated 14.12.2010 is a limited liability partnership firm under the provisions of the [ACT].
(iv) As per [SECTION] of the [ACT] the petitioner is a body corporate and is a legal entity distinctly separate from its partners.
For ready reference, [SECTION] of the [ACT] deserves to be set-out as under :-
3. Limited liability partnership to be body corporate. (1) A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.
(2) A limited liability partnership shall have perpetual succession.
(3) Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership."
(v) The close perusal of the development agreement of the even date between the parties and the institution of the petitioner would reveal that the land owners party to the agreement to sell are partners in the petitioner limited liability firm.
(vi) There exists also a development agreement between the land owners who are party to agreement to sell and the petitioner limited liability partnership firm of the even date.
(vii) The petitioner has invoked Clause-18 by sending notice for arbitration on 25.05.2018 and that factum has also not been disputed.
(viii) One of the partner of land owners is said to have sent in reply nominating the arbitrator as if he had authority to represent all the land owners' notice recipient and in turn the petitioner also named their arbitrator and both the arbitrators in turn chose the 3rd arbitrator. But, this entire action is questioned by the present respondent no.6 on the submission that the said respondent was siding with the petitioner, sent in letter of reply without there being consultation with other owners and therefore, the entire exercise is questionable.
(ix) The parties had attempted to bring about an amicable resolution of dispute, which gave rise to casting of an agreement dated 15.04.2019 during the pendency of this petition, which has been held-out by the respondents against the petitioner for resisting this petition.
(x) The petitioner contended that the agreement has not been signed by all the parties is in fact of no avail to anyone.
(xi) The respondents have taken various defences of lack of authority in the petitioner to bring about the action in the form of present petition for seeking appointment of arbitrator, non- workability of the arbitration clause and agreement and non-maintainability of the petition and novetia in the form of 15.04.2019 agreement, which have been disputed by the petitioner.
10. The main contentions raised by the respondent for resisting this petition are that the present petition is not competent to be filed by the petitioner as the authorized partners lacked the authority for bringing about this petition on the basis of the clauses in the agreement. This contention is resisted by the petitioner on the basis that the said contention is misconceived and may not be justified as the respondents have unfairly resisted the entire proceedings and brought about stalemate resulting into greater loss of reputation and revenue to the firm. The letter and spirit of the agreement to sell ought to have been followed by all the concerned. The owners being partners in the firm i.e. limited liability firm and therefore, their non-cooperation in bringing about amicable resolution and resistance to the reference of arbitration in itself is an unfair and illegal attempt to thwart the proceedings taking advantage of their individual capacity which cannot be of any help to them as they cannot take-up this issue at this stage when the petition u/[SECTION] of the [ACT] is being considered.
11. The respondents have also contended that the subsequent documents dated 15.04.2019 being novatia in contract expressly gives-up the other contentions and being binding on the parties, the same needs to be taken into consideration for assessing and examining the prayers made in this petition. The petitioners have resisted this contention on the ground that the said so-called agreement cannot be said to be an agreement so as to bind the parties especially when the parties have themselves not work it out in accordance with the terms therein nor are there sign of requisite parties to the documents.
12. The respondents contended that the arbitration clause is not workable and therefore, in such a situation, relying upon the decision cited in the submission, the court may not entertain this petition and dismiss the same.
13. This Court is of the view that the present petition, prayers and rival contentions are required to be examined in light of the provision of [SECTION] of the [ACT]. The scope of [SECTION] after amendment is time and again explained by the Supreme Court in various decision right from [ENTITY] S.A. (supra) till [ENTITY] Trading Private Limited (supra).
14. The scope of [SECTION] of the Act also needs to be borne in mind, which would clearly indicate that the contentions in respect of the lack of authority in invoking the arbitration clause, which will have bearing upon the arbitration proceedings also is open to be examined by the arbitrators that may be appointed. The other contentions qua non- workability of the agreement and the subsequent agreement dated 15.04.2019 being seriously disputed by the parties also could be a question to be gone into by the arbitrator under the exercise of powers as envisaged u/[SECTION] of the [ACT]. The Court is of the view that the respondents being partners in the petitioner, questioning the signatory of the petition to file this petition is not an issue that may deter this Court in examining the submission for appointment of arbitrators as the petitioner is a limited liability firm and body corporate as prescribed under the provisions of [SECTION] of the [ACT] and the body corporate therefore, is an entity different than its partner and hence, the authorization or lack of authorization could also be a question gone into u/[SECTION] of the [ACT] and therefore, this Court need not elaborately delve thereupon.
15. This Court is also of the view that non- workability of the arbitration clause and existence of subsequent agreement, which has been disputed by the petitioner i.e. agreement dated 15.04.2019 also could not be elaborately examined by this Court in view of the legal proposition prevalent after the amendment in the [ACT]. The undisputed aspects set-out hereinabove would clearly indicate that the scope of [SECTION] warrants only a limited inquiry and when this Court is satisfied qua the existence of arbitration clause and when other issues are capable of being examined by the arbitrator themselves in light of the Clause-16 of the [ACT], this Court need not elaborately delve upon those aspects at this stage.
16. The Court needs to be mindful of the fact that the present proceedings are only for the purpose of appointment of Arbitrator and as recently held by the Supreme Court in case of [ENTITY] Trading Private Limited Vs. Pradyuat Deb Burman, reported in (2019) 8 Supreme Court Cases 714, the Court while examining the matter under [SECTION] of the [ACT] need not elaborately go into any other aspect except the existence of the arbitration clause. The following observations of the Supreme Court may be extracted and reproduced hereinbelow for ready reference:
"6. Thus, it can be seen that after the [ACT], [SECTION] has been omitted because appointment of arbitrators is to be done institutionally, in which case the Supreme Court or the High Court under the old statutory regime are no longer required to appoint arbitrators and consequently to determine whether an arbitration agreement exists.
7. Prior to [SECTION], this Court in several judgments beginning with SBP & Co. vs. [ENTITY] Engineering Ltd. and Anr., 2005 8 SCC 618 has held that at the stage of a [SECTION] application being filed, the Court need not merely confine itself to the examination of the existence of an arbitration agreement but could also go into certain preliminary questions such as stale claims, accord and satisfaction having been reached etc.
8. In [PRECEDENT], this Court in a case which arose before the insertion of [SECTION] dismissed a [SECTION] petition on the ground that accord and satisfaction had taken place in the following terms: -
"31. Admittedly, no-dues certificate was submitted by the contractee company on 21-9-
2012 and on their request completion certificate was issued by the appellant
contractor. The contractee, after a gap of one month, that is, on 24-10-2012, withdrew the no- dues certificate on the grounds of coercion and duress and the claim for losses incurred during execution of the contract site was made vide letter dated 12-1-
2013, I.e. after a gap of 3 (three-and-a-half) months whereas the final bill was
settled on 10-10-2012. When the contractee accepted the final payment in full and final satisfaction of all its claims, there is no point in raising the claim for losses incurred during the execution of the contract at a belated stage which creates an iota of doubt as to why such claim was not settled at the time of submitting final bills that too in the absence of exercising duress or coercion on the contractee by the appellant contractor. In our considered view, the plea raised by the contractee company is bereft of any details and particulars, and cannot be anything but a bald assertion. In the circumstances, there was full and final settlement of the claim and there was really accord and satisfaction and in our view no arbitrable dispute existed so as to exercise power under [SECTION] of the Act. The High Court was not, therefore, justified in exercising power under [SECTION] of the Act."
9. The 246th Law Commission Report dealt with some of these judgments and felt that at the stage of a [SECTION] application, only "existence" of an arbitration agreement ought to be looked at and not other preliminary issues. In a recent judgment of this Court, namely, [PRECEDENT], this Court adverted to the said Law Commission Report and held:
([PRECEDENT])
11. This position was further clarified in Boghara Polyfab as follows:
"22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under [SECTION], the duty of the Chief Justice or his designate is defined in [PRECEDENT]. This Court identified and segregated the preliminary issues that may arise for consideration in an application under [SECTION] 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] 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."
12. As a result of these judgments, the door was wide open for the Chief Justice or his designate to decide a large number of preliminary aspects which could otherwise have been left to be decided by the arbitrator under [SECTION] of the [ACT]. As a result, the Law Commission of India, by its Report No. 246 submitted in August 2014, suggested that various sweeping changes be made in the [ACT]. Insofar as SBP & Co. (supra) and Boghara Polyfab (supra) are concerned, the Law Commission examined the matter and recommended the addition of a new sub-section, namely, sub- section (6A) in [SECTION]. In so doing, the Law Commission recommendations which are relevant and which led to the introduction of [SECTION] are as follows:
29. The Supreme Court has had occasion to deliberate upon the scope and nature of permissible prearbitral judicial intervention, especially in the context of [SECTION] of the Act.
Unfortunately, however, the question before the Supreme Court was framed in terms of whether such a power is a "judicial" or an "administrative" power -
which obfuscates the real issue underlying such
nomenclature/description as to -
-the scope of such powers - i.e. the scope of arguments which a Court (Chief Justice) will consider while deciding whether to appoint an arbitrator or not - i.e. whether the arbitration agreement exists, whether it is null and void, whether it is voidable etc.; and which of these it should leave for decision of the arbitral tribunal.
-the nature of such intervention - i.e. would the Court (Chief Justice) consider the issues upon a detailed trial and whether the same would be decided finally or be left for determination of the arbitral tribunal.
30. After a series of cases culminating in the decision in SBP v. [ENTITY] Engineering, (2005) 8 SCC 618, the Supreme Court held that the power to appoint an arbitrator under [SECTION] is a "judicial" power. The underlying issues in this judgment, relating to the scope of intervention, were subsequently clarified by [ENTITY] J. in [PRECEDENT], where the Supreme Court laid down as follows -
"22.1. The issues (first category) which 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] 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 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:
(a) Whether a claim 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)?
(b) Merits of any claim involved in the arbitration."
33. 14. A reading of the Law Commission Report, together with the Statement of Objects and Reasons, shows that the Law Commission felt that the judgments in SBP & Co.
(supra) and Boghara Polyfab (supra) required a relook, as a result of which, so far as [SECTION] is concerned, the Supreme Court or, as the case may be, the High Court, while considering any application under [SECTION] is to confine itself to the examination of the existence of an arbitration agreement and leave all other preliminary issues to be decided by the arbitrator."
10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment as [SECTION] is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment [ENTITY], S.A. (supra) - see paras 48 & 59.
11. We, therefore, overrule the judgment in United India Insurance Company Limited (supra) as not having laid down the correct law but dismiss this appeal for the reason given in para 3 above.
12. Mr. [ENTITY] now requests us for an extension of the status quo order granted by the trial court for a period of one week from today so that he may adopt other proceedings. This request is granted.
17. In view of the latest position in law, as declared by Supreme Court in case of [ENTITY] (supra), there is hardly any room for this Court under [SECTION] of the [ACT] to embark upon any probe in respect of the contentions qua the question of entitlement to seek arbitration especially when the existence of arbitration cause is not denied. The parties' conduct, subsequent agreement, attempt to compromise or referring the dispute, are of subject matter of rival contentions to be placed before the arbitrator, that may be appointed, as the scope of [SECTION] of the [ACT] is wide enough to permit the parties to agitate and take out all permissible contentions available under law.
18. The parties have not agreed for the name suggested by one party on earlier occasion, therefore, this Court is of the view that when this Court has concluded the issue that dispute in question is required to be referred for arbitration, the Court is of the view that let there be one more opportunity to all the concerned for arriving at mutual agreeable name for Arbitrators.
19. Hence, the the matter is ordered to be kept on 20.12.2019 for further order. In case if the parties by then agree for mutual name, else the Court will appoint Arbitrators and refer the dispute for adjudication. The Court leaves liberty to the parties to take up all permissible and admissible contentions and issue before the Arbitrators and observations of this Court shall not deter them, as they are prima- facie and rendered only for adjudicating the question of reference of dispute to the Arbitrators.
([ENTITY], J.)
-: FURTHER ORDER :-
Shri [ENTITY], learned Senior Counsel for the respondent seeks stay of this order for three weeks so that the Supreme Court could be approached.
The request for staying of this order is strongly opposed by the learned counsel for the petitioner.
The Court is of the view that the adjournment originally ordered in this matter is 20.12.2019, instead that matter is now adjourned to 10.01.2020 so that in the meantime, if party so choses, may avail time for challenging this order.
([ENTITY], J.) [ENTITY]