THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.24 of 2010 Date:28th June, 2011 Between: G.Adinarayana …Applicant A n d 1. M/s. Pioneer Buildings Company & Anr. …Respondents *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.24 of 2010 ORDER: This Arbitration Application has been taken out by G.Adinarayana under sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996 (for short, “the Act”), seeking appointment of an arbitrator to adjudicate the disputes that have arisen between the parties out of the development agreement, dated 01.04.2006 and the subsequent agreement, dated 25.08.2006. 2. The applicant and 2nd respondent-G.Nagaraju are brothers and they are the owners of 30 cents of land comprising Survey No.282/2A1 situated in Anantapur. They entered into a development agreement, dated 01.04.2006 with the 1st respondent on 01.04.2006. As per Clause 6 of the development agreement, land owners had given general power of attorney in favour of the builder-1st respondent. Subsequently, the said clause came to be deleted under an agreement, dated 25.08.2006. The term of completion of the construction also came to be stipulated in the subsequent agreement, dated 25.08.2006 i.e. 14 months from 01.04.2006 to 30.06.2007, failing which the builder undertook to pay Rs.12,500/- per month. The builder- 1st respondent constructed 30 flats. Some disputes cropped up with regard to the apportionment of flats that have come up and also shops that have been constructed abutting the flats. The applicant and his brother, who has been arrayed as 2nd respondent, executed sale deeds in respect of certain flats and whereas, his brother-2nd respondent executed sale deeds independently in respect of certain flats. The applicant claims that the builder-1st respondent has not delivered the possession of the flats as agreed in the development agreement, dated 01.04.2006. Apprehending execution of sale deeds by the builder-1st respondent contrary to the terms of the development agreement, dated 01.04.2006, the applicant approached the District and Sessions Judge, Anantapur, under Section 9 of the Act, by filing O.P.No.166 of 2009 and obtained interim injunction on 24.03.2009. The O.P. came to be disposed of by the District Judge, Anantapur, on 19.01.2010. Relevant portion of the order needs to be noted and it is thus: “12. The learned counsel by pointing out the guidelines issued by the Hon’ble Supreme Court contended that a time limit has to be imposed, so that there can be an end to the litigation at some point of time, which argument appears to be reasonable and justifiable, particularly when seen from the point of view of the petitioner who having taken interim orders in the month of March, 2009, has not invoked Clause 17 of the agreement for appointment of an Arbitrator. In fact from what happened in this case, it can be said that neither party is interested in getting an Arbitrator appointed to settle the disputes, which is not a welcome situation. (13) Keeping in view the caution given by the Hon’ble Supreme Court in the cited decision and also the fact that there are disputes between the parties, which can be settled by invoking Clause 17 of the agreement, dt.1.4.06 i.e., by appointment of an Arbitrator to settle the disputes, it is found proper and justifiable to order as follows:- There shall be an injunction to the first respondent builder not to alienate or create any third party interest over the property earmarked as per the schedule of the Development agreement to the extent of the share of the owners. This protection order shall remain in force only for a period of three months from today, in case both parties have not take any steps to get the matter decided under the Arbitration Act. In case an Arbitrator is appointed to settle the disputes, as per Clause 17 of the Agreement, dt.1.4.06, this interim order shall continue till conclusion of the Arbitration proceedings. No costs.” The builder-1st respondent filed C.M.A.No.458 of2009. In the said C.M.A., an interim order came to be passed on 03.12.2009 directing the 1st respondent-builder not to alienate or create any third party interest over the property earmarked as per the schedule in the agreement to the extent of shareholders. The applicant invoked the arbitration clause in the development agreement, dated 01.04.2006 and issued notice, dated 12.02.2010, proposing any one of the three namely Sri K.Tirupathaiah, Sri T.Kullayappa and Sri P.Pedda Nagappa as an arbitrator to settle the disputes. The 1st respondent-builder, having received the notice, neither consented for the names proposed by the applicant nor issued any reply. Hence, this application seeking the relief stated supra. 3. Notice to the 1st respondent-builder came to be ordered on 30.03.2010. Initially, the builder alone has been shown as the respondent in the application. Subsequently, the applicant filed an application being Application No.700 of 2010 seeking impledment of G.Nagaraju, as 2nd respondent in the Arbitration Application. The said impleadment application came to be ordered on 02.09.2010. 4. The 1st respondent-builder filed counter-affidavit resisting the application. The 2nd respondent did not choose to enter appearance either in person or through a counsel. 5. The counter-affidavit of the 1st respondent-builder in brief is:- Execution of the development agreement, dated 01.04.2006 and the subsequent agreement, dated 25.08.2006, are not disputed. It is stated in the counter-affidavit that the applicant and his brother, who has been impleaded as 2nd respondent, have got more than what they are entitled as per development agreement towards their share and they disposed of the flats fell to their share either jointly or individually and therefore, they are not entitled to any more share in the flats constructed pursuant to the development agreement, dated 01.04.2006. The flats as well as the shops sold by the applicant and 2nd respondent jointly and 2nd respondent individually have been stated in the counter-affidavit. The 1st respondent took the plea that the application filed by the applicant individually is not maintainable, since the development agreement is between the applicant and the 2nd respondent on one side and the 1st respondent on the another side. Unless the applicant and the 2nd respondent together invoke arbitration clause in the development agreement, the application filed by the applicant in his individual capacity seeking appointment of arbitrator is not maintainable. It is also stated in the counter-affidavit that the 1st respondent is not responsible for the inter se disputes between the applicant and the 2nd respondent in respect of the apportionment of the flats fell to their share pursuant to the development agreement. For better appreciation, I may refer the relevant portion of the counter-affidavit, which reads as hereunder: “The respondent reiterates that the sole applicant did not thought of seeking reference as the parties to the agreement have exercised their rights on the share of the constructed areas as per the agreement by transferring the same to third parties under registered documents. As the parties to the agreement have deliberately altered the terms of agreement by creating interest of third parties under registered sale documents, the arbitral reference in the absence of third parties at this stage cannot be allowed. The parties to the agreement as such cannot invoke arbitral clause for reference as the third parties interest have been created in the subject matter of the agreement. Even the order obtained by the applicant from the District Court, Anantapur under Section 9 of Arbitration Act also is illegal as undisputedly by the time such application is filed the applicant has not even issued notice raising any claim with the second party to the agreement. Even during the pendency of the said application under Section 9 of the Arbitration Act, the applicant did not choose to seek for reference by filing application before the Hon’ble Court. These facts clearly shows that the applicant has misused the provisions under Section 9 of the Arbitration Act only with an intention to blackmail the respondent by making false claim. The respondent is taking steps to challenge the order in O.P.No.166 of 2009 before the Hon’ble Court. It is to be submitted that from out of the pleadings in the application, it is clear that the applicant never raised any claim till February, 2010 and even in the present application the claim if any of the applicant is not clear whether it arises out of the first agreement or second agreement. The applicant has to establish that he has got an equal share with Mr.G.Nagaraju from out of 25% share entitlement to the first party under agreement which consist of 2 members i.e., the applicant and his brother. If the interse allotment of entitlement of 12.5% share of the applicant and his brother is not born out of the terms of the agreement and the dispute between the parties is only governed by the arbitral clause, the application for reference at the behest of one of the members of the first party that too in the absence of clear entitlement of their interest shares, the present application for reference is misconceived and not maintainable as the parties to the agreements themselves have altered the factual situation with regard to the shares of the constructed area by creating third parties interest. The application for reference for arbitration after creation of third parties rights and in their absence is misconceived and cannot be maintained.” 6. The applicant placed on record the reply affidavit. It is stated in the reply affidavit that the 1st respondent-builder has to give to the land owners 25% of the total residential constructed area and 50% of the shops constructed area on 60 feet road face, 25% in the parking space behind the shops, 50% in the road side shops and 25% in remaining space after deducting the place for the construction of road side shops for parking. In a way, it is stated in the reply affidavit that there are many disputes between the parties relating to the development agreement and they are required to be resolved by taking recourse to Clause 17 of the development agreement, dated 01.04.2006. 7. Heard learned counsel appearing for the applicant and learned counsel appearing for the 1st respondent-builder. 8. Learned counsel appearing for the applicant submits that there are various disputes that have arisen between the parties relatable to the development agreement, dated 01.04.2006 and the said disputes are required to be resolved by taking recourse to Clause 17 of the development agreement, in which case, the application deserves to be allowed. Learned counsel refers Clause 17 of the development agreement, dated 01.04.2006 in support of his submissions. He also placed reliance on the judgment of the Supreme Court in SBP & CO. v. Patel Engineering Ltd.[1]. 9. Per contra, learned counsel appearing for the 1st respondent- builder submits that the application filed by the applicant without joining his brother viz., G.Nagaraju, who is one of the first party to the development agreement, dated 01.04.2006, is not maintainable. In a way, his contention is that the applicant and his brother G.Nagaraju together constitute one party and therefore, any application seeking appointment of arbitrator is required to be filed by the applicant and his brother G.Nagaraju together. Learned counsel refers the development agreement in support of his contention. He would also contend that the applicant and his brother together executed sale deeds in respect of flats fell to their share and therefore, there is no dispute, which is required to be resolved by taking recourse to Clause 17 of the development agreement. It is also contended by him that the application is liable to be dismissed since material facts have been suppressed. According to him, the material facts suppressed by the applicant are relating to execution of sale deeds in respect of the flats that fell to the share of him and his brother together. 10. I have gone through the development agreement, dated 01.04.2006 and the subsequent agreement, dated 25.08.2006. The applicant and his brother, who has been impleaded as 2nd respondent, constitute one party and the 1st respondent herein constitute the another party and they entered into the development agreement, dated 01.04.2006. As per the terms of the development agreement, the builder-1st respondent undertook to complete the construction of residential complex within 14 months from the date of approval of the plans for the construction of the said residential complex. The shares, to which the parties to the development agreement are entitled to, have been detailed in Clause 8 of the development agreement, dated 01.04.2006. The subsequent agreement, dated 25.08.2006, is only in respect of modification of the period within which the complex is to be completed. There is also modification with regard to the amount which the builder-1st respondent is required to pay in the event of not completing the construction within the stipulated period. The general power of attorney given to the 1st respondent in the development agreement came to be deleted in the subsequent agreement. The subsequent agreement is not in substitution of the development agreement. It is only in respect of modification of certain terms and conditions stipulated in the original agreement. 11. It is the contention of the applicant that the 1st respondent has not completed the construction within the stipulated period and that he and his brother are not been put in possession of the specified share as per the development agreement. The applicant issued a notice, dated 12.02.2010, invoking the arbitration clause and proposing the names of the arbitrators. The 1st respondent did not choose to respond to it. There are disputes between the parties such as the flats allotted to the applicant and his brother are not in accordance with the development agreement. The disputes have been specified in para.5 of the reply affidavit. 12. The objection raised by the 1st respondent builder is that the application filed by the applicant without joining his brother G.Nagaraju as one of the applicants cannot be sustained, since the brother of the applicant, who constitute one of the 1st party, has been shown as 2nd respondent in the instant application. For the reasons best known to him, the 2nd respondent did not choose to enter appearance to resist the application. The question is whether the applicant and the 2nd respondent have been put in possession of the constructed area as agreed in the development agreement. Essentially, these disputes are required to be resolved by taking recourse to the arbitration clause provided in the development agreement, dated 01.04.2006. Indeed, the applicant issued a notice, dated 12.02.2010 invoking the arbitration clause and proposing the names of the arbitrators. The 1st respondent having received the notice, neither consented for the names proposed by the applicant, nor issued any reply. In that view of the matter, I find that the applicant made out valid ground for appointment of arbitrator for resolving the disputes between the parties that have arisen out of the development agreement, dated 01.04.2006 and the subsequent agreement, dated 25.08.2006. 13. Accordingly, the Arbitration Application is allowed. Sri B.C.Obulesappa, Advocate, Anantapur, is appointed as an arbitrator for resolution of the disputes between the parties that have arisen out of the development agreement, dated 01.04.2006 and the subsequent agreement, dated 25.08.2006. He shall fix his own fee. No order as to costs. ______________________ B.SESHASAYANA REDDY, J. Date:28th June, 2011. cs THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.24 of 2010 Date: 28th June, 2011 [1] (2005) 8 SCC 618