IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.06.2011 CORAM : THE HONOURABLE Mrs.JUSTICE R.BANUMATHI and THE HONOURABLE Mr.JUSTICE V.PERIYA KARUPPIAH O.S.A.No.314 of 2010 Sri Krishna Tiles and Potteries (Madras) Pvt.Ltd., Flat No.A-1, Kumara Vijayam New No.187, Royapettah High Road Mylapore, Chennai – 600 004. ..... Appellant Vs. 1.All Government Staff Social Welfare Trust (Office No.27/31, Old Police Station Complex, Varadarajapuram, Ambattur, Chennai – 600 053) represented by its Chairman and Managing Trustee Mr.M.J.Pushparajah No.2, Babuji Street, S.V.Nagar Padur, Ambattur, Chennai – 600 053 and its Treasurer V.Devarajan and trustees A.Baskaran (Secretary) P.Govindrajan (Trustee) E.Chellappa (Trustee) 2.Mr.Justice T.Somasundaram (Retd.) New No.1, Old No.1686 15th Street, H Block Anna Nagar West, Chennai – 40. ... Respondents Prayer: Original Side Appeal filed under Order XXXVI Rule 1 of Original Side Rules read with Clause 15 of Letters Patent against the order dated 17.2.2010 made in O.P.No.382 of 2009 on the file of this Court. For Appellant : Mr.R.Thyagarajan,Sr.Counsel and Mr.V.Kuberan for M/s.Rank Associates For Respondents : Mr.V.Selvaraj (for R.1) R-2 – Arbitrator. https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT R.BANUMATHI,J. This intra Court Appeal arises out of the order dated 17.2.2010 made in O.P.No.382 of 2009, whereby the learned single Judge has confirmed the award of the Arbitrator directing execution of sale deeds in favour of the members of the 1st respondent Trust. 2. The facts in nutshell are as follows: The 1st respondent entered into an agreement with owners of subject property of an extent of 50.93 acres (comprising 15.87 acres in S.No.330, 14.75 acres in S.No.334, 15.60 acres in S.No.339 and 14.71 acres in S.No.342/1A) in Kavanur village, Arakkonam Taluk, Vellore District on 5.7.2006 to purchase the same by itself or its nominees. A deed of disclaimer dated 6.9.2006 (Ex.C.1) was executed by the 1st respondent Trust, wherein it was stated that the Trust entered into an agreement dated 5.7.2006 with the owners of the property for an extent of 50.93 acres. It was also confirmed that they nominated the appellant Company as purchaser of the said property. By the very same disclaimer deed, the Trust declared that they have abandoned all their rights, title and interest in favour of owners of the property. A sale deed (Ex.C.2) dated 7.9.2006 was executed by the erstwhile owners of the property and the appellant Company, wherein the 1st respondent Trust was shown as the confirming party. Ex.C.3 is the letter of undertaking dated 8.9.2006 executed by C.W.2 – K.S.Rangadorai and R.W.2 – R.S.Chandrasekaran in favour of the appellant Company, wherein it was stated that K.S.Rangadorai (C.W.2) and R.S.Chandrasekaran (R.W.2) were the mediators for the sale. On the same day 8.9.2006, Marketing Agreement (Ex.C.4) has been entered into between the 1st respondent Trust and the appellant Company, according to which, about 600 members of 1st respondent Trust are in need of plots for building houses and the Banks have come forward to sanction necessary loans to those members. In the said agreement, it was mutually agreed to plot out 50.93 acres of land owned by the appellant Company and to allot 75 percent of such plots to members of the 1st respondent Trust and to allot 25 percent of the plots to outsiders for consideration. 3. It is the case of the appellant before the Arbitrator that the office bearers of the 1st respondent offered to provide all assistance required for developing the subject property and for marketing. A sum of Rs.76,39,500/- was paid even before execution of sale deed and documents. The appellant acquired lands under the sale deed dated 7.9.2006 registered as document No.2831/2006 with Joint Sub Registrar- II, Arakkonam. As per the Marketing Agreement, the 1st respondent had undertaken to allot approved plots to members at the rate of Rs.30/- per sq.ft. as sale consideration; obtain plot approvals; collect Rs.3,000/- per plot from each allottee and pay to the appellant/claimant and to complete the sale transaction within six months; arrange to execute and https://hcservices.ecourts.gov.in/hcservices/ register sale deeds in favour of 600 members within six months from the date of DTCP approval for layout and to receive 20 paise per sq.ft. as donation from the appellant at the time of registration of sale deed in respect of each plot. However, the entire expenditure for obtaining approval was incurred by the appellant and no services were provided by the 1st respondent as undertaken. Therefore, in the 1st week of June, 2007, the appellant informed the 1st respondent that on account of failure of the 1st respondent to discharge its obligations and breach of terms of agreements and understandings, the 1st respondent has no right to deal with the property in any manner. However, the 1st respondent threatened to proceed with various activities. Therefore, the appellant was constrained to send a letter dated 5.6.2007 terminating the agreement and intention of appellant to initiate arbitration proceedings for the purpose of recovering the moneys paid to them. On coming to know the appellant's decision to issue notice, the 1st respondent has sent a letter dated 4.6.2007 (Ex.C.6) with a payment of Rs.3,00,000/- purported to be initial payments towards sale deeds in favour of 50 members, who opted for buying 2 plots each. The 1st respondent filed O.A.No.785 of 2007 under Section 9 of the Arbitration and Conciliation Act to restrain the appellant from alienating and creating any encumbrance over the property pending initiation of arbitration proceedings. The appellant also filed O.A.No.828 of 2007 under Section 9 to restrain the 1st respondent from dealing with the property. According to the appellant, the 1st respondent has to return the sum of Rs.75,39,500/- together with interest at the rate of 18% per annum from the date of demand being 5.6.2007. However, the 1st respondent has taken a stand that the appellant is legally bound to continue to sell the plots to its members. The appellant further claimed a sum of Rs.50,00,000/- from the 1st respondent towards compensation and damages for the loss and hardship caused to the appellant on account of breach committed by the 1st respondent. 4. The 1st respondent filed defence statement contending that a sum of Rs.76,39,500/- was paid in the name of Trust by Pay Order dated 6.9.2006. The 1st respondent Trust, in turn, after retaining Rs.1,00,000/- paid as advance to the original owners, the remaining amount of Rs.75,39,500/- was paid to Bharath Foundation of which R.S.Chandrasekaran is the Managing Partner and K.S.Rangadorai for the purpose of developing the property as house sites and for obtaining planning permission. It is learnt that apart from the sum of Rs.75,39,500/- paid to M/s.Bharath Foundation and K.S.Rangadorai the appellant paid a further sum of Rs.10,09,717/- to S.Paulraj of Bharath Foundation for completion of the development work and for obtaining planning permission. Accordingly, the total investment of appellant in the project is Rs.1,01,86,000/- towards sale consideration; Rs.75,39,500/- paid to Bharath Foundation and K.S.Rangadorai through the Trust and the sum of Rs.10,09,717/- paid to S.Paulraj of Bharath Foundation, totalling a sum of Rs.1,87,35,217/-. The Trust has to purchase the approved layout at Rs.30 per sq.ft. of about 600 grounds. https://hcservices.ecourts.gov.in/hcservices/ The total amount to be paid by the Trust by selling the plots including the property meant for public purpose is about Rs.4,32,00,000/-. The profit of the appellant as per the Agreement would be approximately Rs.2,44,64,783/-. After planning permission was obtained, the 1st respondent Trust called upon the appellant to execute the sale deed for 100 plots and submitted a demand draft for Rs.3,00,000/- drawn on Syndicate Bank, Ambattur Branch dated 4.6.2007 and since the appellant refused to receive the draft on 4.6.2007, a letter dated 5.6.2007 was sent by the Trust to the appellant to execute the sale deeds for 100 plots to begin with in terms of the agreement and that thereafter the 1st respondent Trust received letters dated 5.6.2007 and 7.6.2007 sent by the appellant repudiating the contract. The 1st respondent obtained injunction in O.A.No.785 of 2007 restraining the appellant from alienating or creating any encumbrance in the subject property. The appellant is legally bound to execute the sale deeds in favour of the Trust/nominees/members in terms of the agreement dated 8.9.2006 at the rate of Rs.30/- per sq.ft. of all the plots including saleable property meant for public purposes. On account of increase in price of land, the appellant is attempting to resile from the contract and the appellant cannot terminate the contract. The appellant cannot suspect the persons in whose favour the sale deeds have to be executed since the Trust has given the names of purchasers and the details in the letter dated 5.6.2007. The 1st respondent has fulfilled its obligations and denied their liability to return the sums of Rs.75,39,500/- and pay a sum of Rs.50,00,000/- towards compensation and damages. 5. The 1st respondent filed a counter claim to direct the appellant to execute and register the sale deeds transferring all plots meant for public purpose in favour of All Government Staff Social Welfare Trust/its nominees/its members in terms of the agreement dated 8.9.2006 (Ex.C.4) entered into between the appellant and the 1st respondent. The appellant filed a detailed rejoinder to the counter claim denying the averments in the statement of defence/counter claim. 6. The learned Arbitrator framed 7 issues. Before the Arbitrator, the parties adduced both oral and documentary evidence. On the side of the claimant/appellant, Exs.C.1 to C.22 were marked and C.Ws.1 to 3 were examined. On the side of 1st respondent Trust, Exs.R.1 to R.10 were marked and R.Ws.1 and 2 were examined. Upon consideration of oral and documentary evidence, the arbitrator dismissed the appellant's claim and decreed the counter claim holding that the 1st respondent is entitled to award directing the appellant to execute sale deeds and transfer all the approved plots and the learned arbitrator inter alia held as follows: ●Rs.76,39,500/- received by the 1st respondent Trust was utilised by the 1st respondent for the purpose of clearing the bushes and levelling the land. However, the work of laying of roads, construction of road side ditches have not been completed. https://hcservices.ecourts.gov.in/hcservices/ ●The appellant committed breach of the terms of the Marketing Agreement dated 8.9.2006 (Ex.C.4) and the termination of the agreement dated 8.9.2006 by the appellant by their notice Ex.C.5 is invalid. ●Even though work of laying roads and construction of road side ditches were not done as provided in clause 3 of the deed of of disclaimer that cannot be a ground for terminating the Marketing Agreement (Ex.C.4) in view of the offer of R.W.1. ●Laying of roads and construction of roadside ditches and provision of other amenities are meant for the benefit of purchasers of the plots and when the 1st respondent Trust is willing to purchase all the plots and as per the lay out plan and as per the terms of Ex.C.4, without calling upon the appellant to spend anything more than the amount already paid by them to the 1st respondent under clause 3 of Ex.C.1, the appellant cannot have any objection to execute the sale deeds in favour of the 1st respondent. 7. Being aggrieved by the dismissal of the Appellant's claim and decreeing of the counter claim of the 1st respondent, the appellant filed petition under Section 34 of the Arbitration and Conciliation Act in O.P.No.382 of 2009 seeking to set aside the award. Referring to the findings of the arbitrator, the learned single Judge held that the amount had been spent for the purposes mentioned in Clause 3 of Ex.C.1 and that the 1st respondent has rendered assistance to the appellant in obtaining the lay out, sanction of the plots and holding that the findings of the arbitrator are based upon the materials and that the factual findings recorded by the arbitrator, the learned single Judge dismissed the O.P.No.382 of 2009 finding that there is no ground to disturb the factual findings and well considered award. 8. Aggrieved by the dismissal of the Petition filed under Section 34, the appellant has preferred the appeal. We have heard the learned Senior Counsel Mr.R.Thyagarajan appearing along with Mr.Kuberan for the appellant. We have also heard Mr.V.Selvaraj, learned counsel appearing for the 1st respondent. 9. The award and the impugned order are assailed by the learned Senior Counsel for the appellant by contending that the agreement dated 8.9.2006 obligates the 1st respondent to perform various acts and when the 1st respondent has not performed the obligations, the appellant was justified in terminating the agreement and the learned arbitrator was not justified in restoring the original agreement. It was further submitted that the arbitrator is trying to enforce what is beyond the terms of reference which calls for interference. Taking us through the evidence, the learned Senior Counsel would further submit that when there was no plotting out, there is no scope for the arbitrator to direct the appellant to accept the offer. The contention of the appellant is that unless each plot is identified and the details are furnished as to the allotment of plots to the members of the 1st respondent Trust, the sale deeds cannot be executed and while so, the https://hcservices.ecourts.gov.in/hcservices/ learned arbitrator erred in directing the appellant to execute the sale deeds. 10. Mr.V.Selvaraj, the learned counsel appearing for the 1st respondent has submitted that the 1st respondent Trust has performed the obligations in terms of deed of disclaimer (Ex.C.1) and agreement dated 8.9.2006 and that the appellant is legally bound to execute the sale deeds in favour of the 1st respondent Trust/members/nominees in terms of the agreement dated 8.9.2006 at the rate of Rs.30/- per sq.ft. for all the plots including salable property meant for public purposes. The learned counsel would further submit that only on account of increase in prices of land, the appellant is attempting to resile from the contract and the learned arbitrator rightly held that the termination is not valid. The learned counsel would further submit that in a Petition under Section 34 to set aside the award, Court does not sit as an appellate Court and the scope of interference is very limited. Taking us through the materials on record and the award, the learned counsel would submit that the conclusion is based upon the materials on record and award does not suffer from any perversity warranting interference. 11. Before we consider the submissions, we need to keep in view mainly four documents- (i) Deed of disclaimer dated 6.9.2006 (Ex.C.1), wherein, the 1st respondent Trust confirmed that they nominated the appellant Company as purchaser of the subject property of 50.93 acres at Kavanur village and the fact of receiving a sum of Rs.75,39,500/- for performing certain obligations is also stated in the deed of disclaimer. (ii) Sale deed dated 7.9.2006 (Ex.C.2) for Rs.1,01,86,000/- between the erstwhile owners of the property and the appellant Company, wherein the 1st respondent Trust was shown as the confirming party. The sale deed refers to the agreement for sale in favour of the 1st respondent Trust and that the 1st respondent Trust nominated the appellant as vendors. (iii) On 8.9.2006, a letter of undertaking was executed by C.W.2 – Mr.K.S.Rangadorai and R.W.2 – R.S.Chandrasekaran in favour of the appellant Company; (iv) On 8.9.2006, marketing agreement (Ex.C.4) was entered into between the 1st respondent Trust and the Appellant Company, as per which it was mutually agreed to plot out 50.93 acres of land owned by the appellant Company and to allot 75% of such plots to the members of 1st respondent Trust and to allot 25% of the plots to outsiders for consideration. Ex.C.4 – agreement stipulates mutual obligations of both parties, which we would refer while dealing with the contentions. 12. The learned Senior Counsel for the appellant contended that by referring to letter of undertaking dated 8.9.2006 (Ex.C.3), the arbitrator has travelled beyond the agreement. It was submitted that Clause 20 of Ex.C.4 agreement contains the arbitration clause and the rights and obligations of the parties flow out of Ex.C.4 agreement dated 8.9.2006 and while so, by referring to Ex.C.3 and other documents and deciding upon the other issues, the learned Arbitrator travelled beyond https://hcservices.ecourts.gov.in/hcservices/ the terms of the agreement. In this regard, the learned Senior Counsel has drawn our attention to letter dated 23.8.2007 (Ex.C.16) in and by which the appellant Company called upon the 1st respondent Trust to repay the money of Rs.76,39,500/- paid to the 1st respondent and in the event of non-compliance, the appellant Company would be initiating arbitration proceedings and their intention to nominate Mr.Justice T.Somasundaram (Retd.) as the sole arbitrator to take up the dispute for arbitration. In its reply Ex.C.17 (3.9.2007), the 1st respondent Trust has stated "no objection" for Mr.Justice T.Somasundaram being appointed as arbitrator. In Ex.C.17, the 1st respondent has also stated that the dispute between the parties relate to the interpretation of the agreement dated 8.9.2006 entered between appellant and the 1st respondent Trust and that the said dispute has to be resolved by the arbitrator. 13. Laying emphasis upon Exs.C.16 and C.17, the learned Senior Counsel has submitted that the parties have understood that the dispute between the parties relate to the interpretation of the agreement dated 8.9.2006 and while so, the learned arbitrator by extensively referring to letter of undertaking (Ex.C.3) and other documents the learned arbitrator has gone beyond the terms of arbitration. 14. Placing reliance upon the above decision (2006) 1 SCC 86, it was contended that the arbitrator cannot go beyond the terms of the contract between the parties. For the very same proposition, reliance was also placed upon HINDUSTAN ZINC LTD. VS. FRIENDS COAL CARBONISATION, ((2006) 4 SCC 445). 15. In STATE OF RAJASTHAN VS. NAV BHARAT CONSTRUCTION CO., ((2006) 1 SCC 86), in paragraph No.27, the Supreme Court held as under: "27. ...... An arbitrator cannot cannot go beyond the terms of the contract between the parties. In the guise of doing justice he cannot award contrary to the terms of the contract. If he does so, he will have misconducted himself. Of course if an interpretation of a term of the contract is involved then the interpretation of the arbitrator must be accepted unless it is one which could not be reasonably possible. However, where the term of the contract is clear and unambiguous the arbitrator cannot ignore it." 16. The learned Senior Counsel for appellant contended that by referring to letter of undertaking dated 8.9.2006 (Ex.C.3) executed by C.W.2 – K.S.Rangadurai and R.W.2 – R.S.Chandrsekaran and the agreement between the 1st respondent Trust and Bharat Foundation and Ex.R.10 – vouchers, the learned arbitrator acted in disregard of the provisions of the terms of agreement, which vitiates the award. The learned Senior Counsel further submitted that the learned arbitrator acted in https://hcservices.ecourts.gov.in/hcservices/ contravention of the terms of agreement, which aspect was not properly considered by the learned single Judge. 17. Of course, clause 20 of the Marketing agreement dated 8.9.2006 between the appellant and 1st respondent Trust contains the arbitration clause and the arbitration proceedings pertains to the dispute revolving around Ex.C.4 agreement. But the deed of disclaimer (Ex.C.1); sale deed (Ex.C.2), Letter of undertaking (Ex.C.3) and agreement between the 1st respondent Trust and Bharat Foundation dated 21.7.2006 (Ex.R.9) are all interconnected. Letter of undertaking dated 8.9.2006 (Ex.C.3) also relate to marketing of land, which is the subject matter of arbitration. As held "by the Arbitrator", under letter of undertaking dated 8.9.2006 (Ex.C.3), C.W.2 and R.W.2 agreed to render some services regarding marketing of the land purchased under sale deed dated 7.9.2006 (Ex.C.2). Annexure to the Letter of undertaking (Ex.C.3) contains the cash flow statement. In the said annexure, it is mentioned that the appellant Company had to incur Rs.25 lakhs towards other expenses (development of land and D.T.C.P. Approval and the said Rs.25 lakhs form part of the estimated cost of the claimant). It is pertinent to note that the undertaking dated 8.9.2006 (Ex.C.3) was executed on the same day when the marketing agreement (Ex.C.4) was entered into between the appellant and the 1st respondent Trust. Elaborately referring to the terms of Exs.C.3 and C.4, the learned arbitrator held that Exs.C.1 to C.4 contain the terms governing the transactions between the claimant and the 1st respondent. Referring to Exs.C.1 and C.3 and Exs.R.9 and R.10, the learned arbitrator has also recorded findings as to how the money of Rs.75,39,500/- was spent by the 1st respondent Trust. There is no force in the contention that by referring to Ex.C.3 and Exs.R.9 and R.10, the learned arbitrator acted outside the framework of the agreement and beyond the terms of the agreement. There is no merit in the contention that the arbitrator has travelled beyond the scope of arbitration agreement. 18. As pointed out earlier, Deed of disclaimer (Ex.C.1) and agreement (Ex.C.4) contain mutual obligations to be performed by both the appellant and 1st respondent. As per Clause 3 of deed of disclaimer (Ex.C.1), the 1st respondent Trust received a sum of Rs.76,39,500/- from the appellant in full and final settlement of all the amounts due to them including the amounts paid by the 1st respondent Trust to the vendors, amounts expended by the 1st respondent Trust for development of property, proposed laying of roads, proposed expenses towards laying out the property as plots, providing for pathways and other amenities, providing necessary infrastructure and arranging to sell the same on behalf of staff social welfare Trust. The agreement dated 8.9.2006 (Ex.C.4) also enumerates the obligations of both the appellant and the 1st respondent. 19. The contention of the appellant Company is that after receiving huge payment of Rs.76,39,500/-, the 1st respondent Trust did not come https://hcservices.ecourts.gov.in/hcservices/ forward and discharge their obligations as agreed and the appellant had to do all the works in obtaining the plan approval from the Director of Town and Country Planning even though the sale had been agreed and undertaken by the 1st respondent and only by the efforts of the appellant, planning approval was obtained in Proceedings No.2 of 2007. Contention of the appellant is that the 1st respondent Trust failed to discharge its obligations under deed of disclaimer and on account of breach of failure to perform their part of obligations, the 1st respondent Trust lost all the rights. By ignoring the breach committed by the 1st respondent Trust, learned arbitrator committed patent error by referring to and accepting the evidence of R.W.1 to say that the 1st respondent Trust has performed its part of the obligations under deed of disclaimer (Ex.C.1). 20. Case of 1st respondent is that from out of Rs.76,39,500/-, after retaining Rs.1,00,000/- paid by them as advance to the original owners, remaining amount of Rs.75,39,500/- was paid to M/s.Bharat Foundation for the purpose of developing the property and they entered into the agreement dated 21.7.2006 (Ex.R.9) with Bharat Foundation. R.S.Chandrasekaran, who is the Managing Partner of Bharat Foundation, was examined as R.W.2. By the said agreement (Ex.R.9), Bharat Foundation agreed to remove the bushes in the land using JCB and further agreed to fill the pits and level the lands by bringing the earth from outside by the lorry. As per the terms of the agreement (Ex.R.9), the 1st respondent Trust agreed to pay Rs.1,50,000/- per acre to Bharat Foundation for carrying out the works mentioned in the agreement (Ex.R.9). Ex.R.10 are the vouchers showing payments to Bharat Foundation by the 1st respondent Trust on various dates from 12.9.2006 to 14.2.2007. 21. Referring to the agreement (Ex.R.9) between the 1st respondent Trust and Bharat Foundation and vouchers series (Ex.R.10) and the evidence of R.S.Chandrasekaran (R.W.2) and after detailed discussion, the learned arbitrator held that the sum of Rs.76,39,500/- received by the 1st respondent Trust from the appellant was utilised for the purpose of clearing the bushes and leveling the land in the schedule mentioned property. However, referring to the report of the Commissioner and other evidence, the learned arbitrator observed that the laying of the roads, construction of road side ditches and planting of stones demarcating the individual plots have not been completed. After consideration of the evidence of R.Ws.1 and 2, the learned arbitrator held that the laying of roads, construction of