IN THE HIGH COURT OF JUDICATURE AT PATNA MA No.659 of 2008 Dr.Priya Ranjan Kumar Singh, Son of late Kameshwar Prasad Singh, Resident of Mohalla-Patliputra, P.S.-Patliputra, town and District Patna. -----Opp. Party/Appellants Versus 1. M/s Chitra Developers and Marketing Private Limited, through its Director, Sri Vikas Kumar, Son of Sri Someshwar Lal, having its Office at 307, Adharshila Complex, South Gandhi Maidan, town and district Patna. 2. Sri Vikas Kumar, son of Sri Someshwar Lal, Director M/S Chitra Developers and Marketing Private Limited, resident of Flat No. 613 B Lotus apartment, Road No. 1F, New Patliputra Colony, P.S. Patliputra, town and district Patna. ------Applicants/Respondents. ------------- For the Appellants : Mr. Tarakant Jha, Sr. Adv. : Mr. Anjani Kr. Sinha, No. 1 Adv. For the Respondent No. 1 : Mr. V. Nath, Adv. : Mr. Ajay K. Singh, Adv. : Mr. Md. Walique Rahman, Adv. For the Respondent No. 2 : Dr. K.N. Singh, Sr. Adv. : Mr. Satish Kr., Adv. : Mr. Radha Mohan Pandey, Adv. -------------- P R E S E N T HON'BLE MR. JUSTICE MIHIR KUMAR JHA Mihir Kumar Jha,J This Miscellaneous Appeal is directed against the order dated 29.09.2008 passed in Miscellaneous Case No. 171 of 2008 allowing the prayer of the applicants/respondents under Section 9 of the Arbitration and Consolidation Act (hereinafter to be referred to as „the Act‟) restraining the opposite party appellant from interfering in the work of construction 2 of the respondents in accordance with the development agreement dated 1.9.2002. 2. Facts required to be noticed for the purposes of this appeal lie in a narrow compass. The appellant being the owner of the land had entered into a development agreement with the respondents on 1.9.2002 for the purposes of getting a multistoried building constructed. Such clause of development agreement in fact was also acted upon by the parties, inasmuch as, a plan for multistoried building was also approved by Patliputra Housing Co-operative Society on 3.5.2007 and arrangement for loan from Housing and Urban Development Corporation (HUDCO) was also made wherein HUDCO had sanctioned the loan in the month of September, 2007. There is also no dispute that it was in terms of the aforesaid development agreement that a plan was submitted to Patna Regional Development Authority (PRDA) and PRDA had also accorded approval of such plan on 24.12.2007. Clause-12 of the aforesaid development agreement reads as follows:- “That the builders will construct the total super builtup floor area of the 3 land owner share as detailed in schedule- A of this agreement within 3(Three) years from the date of the sanction of the final plan of the proposed multi storied building/apartment/flats by the competent authorities with a further grace period of 6(Six) months, provided the delay is not caused due to hindrance from Government bodies/natural calamities/land owners/defects in land documents etc. which may be beyond the control of the builders.” 3. Though the construction of multistoried building by the respondents under the aforementioned agreement was to be completed by 24.12.2010, it is said that on 6.6.2008, the appellant had entered into some sort of memorandum of understanding with another builder „Apana Awas Construction‟ and pursuant thereto, a separate development agreement was also executed by the appellant on 16.8.2008 for construction of the same building and the same land with the aforesaid Apana Niwas Construction. There is also no dispute between the parties that the second development agreement was executed on 16.8.2008 without annulling the first development agreement of the appellant with the respondents dated 1.9.2002. 4 4. It was at this stage that the respondents had approached the civil court by filing an application under Section 9 of the Act on 19.9.2008 wherein after giving the details of the earlier development agreement and making further statement as with regard to the incurring liabilities by the respondents for completion of the multistoried building, it was stated in paragraph no.13 and 14 of the application that the appellant had started negotiating with other persons and was likely to create third party interest in the land, the subject matter of development agreement. Since the paragraph nos. 13 & 14 are the only two relevant paragraphs which were capable of inviting an interim order under Section 9 of the Act, they are quoted hereinbelow:- “13. That the applicants state that when they have reached such an advance stage with the project, the opposite party, with ill motive and for the purpose of mounting undue pressure for extorting more money and profit has started negotiating with other persons and is likely to create third party interest in the land subject matter of the development agreement and has stopped co-operating in the proceeding of the project. 14. That the intention of the opposite party has been mala fide and in 5 order to make undue gain and profit at higher amount he is out to frustrate the agreement with the applicant by alienating transferring or encumbering the plece of land given to the applicant for development and it has been necessary to preserve the subject matter till the dispute is decided in arbitration.” 5. From a perusal of the said application filed by the respondents before the court below, it would be clear that not a word was said in the said application as with regard to either the memorandum of understanding dated 6.6.2008 between the appellant and Apna Awas Construction or the development agreement between the same parties dated 16.8.2008, while making the prayer for grant of interim relief of the following nature:- “It is, therefore, prayed that Your honour may graciously be pleased to admit this applicant, issue notice to opposite party, and after hearing the parties be further pleased to grant interim relief to the applicants for preservation of the property of the project under the development agreement and to restrain the opposite party from creating third party interest in the land subject matter of the development agreement, by alienating, transferring or encumbering, the same in any manner.” 6 6. From the records, it appears that when the said miscellaneous case was filed before the District Judge on 19.9.2008, the same was registered and directed to be put up with office note before the District Judge on 22.9.2008. On 22.9.2008, when the case was placed for admission before the District Judge, he had admitted the same and had directed for issuance of notice to the opposite party appellant fixing 26.9.2008 for hearing and had transferred the case to the court of Additional District & Sessions Judge, FTC IV, Patna for disposal. The transferee court appears to have received the record on 25.9.2008 and had directed the case to be placed on the date fixed by the District Judge i.e. 26.9.2008. On 26.9.2008, the Additional District Judge, FTC IV, Patna had again adjourned the case for hearing on 29.9.2008 and on 29.9.2008 it had only after hearing the counsel for the respondents passed the impugned order relevant portion whereof reads as follows:- “4. I perused the above said development agreement and the documents produced on behalf of the applicant. On careful perusal of the clause 8, 12 and 28 7 of the aforesaid development agreement executed and registered between the applicant and the opposite party it is clearly apparent that there is eminent danger of the property being the subject matter of arbitration agreement to be alienated, destroyed or its nature might be changed by the opposite party. Thus I find that the applicant has been able to satisfy to invoke the jurisdiction under Section of the Arbitration and Conciliation Act. I am also of the view that there is prima facie case and balance of convenience in the favour of the applicant. 5. On considering the above facts and circumstances I direct the applicant to take steps for initiation of arbitration proceeding in accordance with law within one year and in the meantime the opposite party is hereby restrained from interfering in the work of the applicant likely to be done according to the development agreement. The opposite party is also restrained from creating and third party interest in the property by sale, transfer, mortgage or any agreement with stranger.” 7. Mr. Tara Kant Jha, learned senior counsel appearing on behalf of the appellant while assailing the aforesaid impugned order has submitted that the court below has been totally misguided in exercise of its power under Section 9 of the Act, inasmuch as, it has not even cared to look into the relevant provision of development agreement which 8 itself provide for adjudicating the dispute between the parties through an arbitration. In this context, he has submitted that in the whole of the application, there was no averment that the respondents had ever communicated its intention in writing to refer the matter to the arbitrator and therefore, the appellant and respondents being bound by the terms of the agreement, the respondents could not have been favoured with the impugned order even by way of interim relief. He has further submitted that assuming that power under Section 9 can be invoked even before the dispute has been referred to the arbitrator, even then such exercise of power under Section 9 has to be based on some materials and an interim order cannot be passed merely for asking. Mr. Jha has also explained that when nothing was done by the respondents even after a lapse of a period of almost one year from the date of approval of the plan by the Patliputra Cooperative Society despite full cooperation extended by the appellant to the respondent, the appellant in the interest of the property and requirement of the building 9 in question had proceeded to execute another development agreement with M/s Apna Awas Construction on 16.8.2008 after giving due intimation to the respondents. He has summed up his submission that the court below while passing the impugned order has virtually allowed the application of the respondents under Section 9 of the Act, by an interim order itself and that too without even affording an opportunity of hearing to the appellant and its indulgence to the respondents by giving them period of grace of one year only for enabling them to invoke the clause of the arbitration cannot be countenanced in law. 8. Mr. V. Nath, learned counsel for the respondent no.1 and Dr. K.N. Singh, learned senior counsel for the respondent no.2, however, have submitted that there is no infirmity in the impugned order passed by the court below, inasmuch as, the appellant was not justified in executing the second development agreement on 16.8.2008 without cancelling of the subsisting first development agreement with the respondents. In this 10 context, Mr. Nath has also defended the impugned order of the court below by taking a plea that there was no way requirement in law that a party to this agreement containing clause of arbitrating cannot seek interim relief under Section 9 of the Act without invoking the arbitration clause. 9. In the opinion of this Court, this appeal is fit to be allowed only on the ground that the impugned order amounts to virtually allowing the application filed by the applicant-respondents as a whole even without hearing of the appeal, inasmuch as, for one year which the appellant has been restrained from interfering in the work of the respondents likely to be done according to their development agreement and by giving this period of one year to the respondents only for initiation of the arbitration proceedings. This however is against the spirit of Section 9 of the Act, which reads as follows:- “9. Interim measures, etc. by court.- A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a 11 court:- (i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure of protection in respect of any of the following matters, namely:- (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the court to be just and convenient, And the court shall have the 12 same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.” 10. From a bare reading of Section 9 of the Act, it would be clear that only by way of interim measure of protection, the court can pass an order for the preservation of the property even by granting interim injunction but it cannot choose to enforce the agreement nor it can in exercise of power under Section 9 pass an order which may have the effect of permanent injunction. In other words, an interim under Section 9 can only be by way of interim measure of protection for preservation and/or interim custody of the subject matter of the arbitration agreement in terms of Section 9(ii)(a) of the Act. Thus when Thus, when in the impugned order, the court below has restrained the appellants from interfering with the work of the respondents likely to be done according to the development agreement, it has proceeded to enforce the development agreement between the parties. It cannot be the scope of an order under Section 9 of the Act. Moreover, when the court below by the impugned order has granted time limit 13 of one year to the respondents for invoking arbitration clause and at the same time has restrained the appellant from interfering in the work of the petitioner, the same no longer remains in the domain of an interim measure or an interim injunction as contemplated under Section 9 of the Act and acquired shape of almost a permanent injunction. 11. This Court in fact is dismayed, shocked and surprised as to how the court below and from which provision of law could grant period of one year for allowing the respondents to invoke the arbitration clause and initiate the arbitration proceeding. Section 9 of the Act does not say so and Section 11 of the Act containing the provision with regard to appointment of arbitrators by the Court also does not lay down a period of one year required for appointment of arbitrator. Thus, the embargo created under the impugned order for a period of one year was wholly impermissible in law and against the provision of Section 9 of the Act. An interim measure as envisaged under Section 9 of the Act for protection of the 14 property in question under the development agreement of the appellant and respondents did not require a period of one year for invoking the arbitration clause. 12. That apart, this Court could have understood that if there was a case of such emergency though there was none as per the averments made in the application filed by the respondents in this case, which could have at best directed for maintaining status quo as with regard to the land in question being the subject matter of the development agreement till service of notice and appearance of the appellant but an order directly restraining the appellant for a period of one year and in fact till the initiation of arbitration proceeding for the purposes of such restraint order for its being continued in terms of Section 17 of the Act was highly undesirable and in fact wholly beyond the scope of Section 9 of the Act. The heavens was not going to fall if even a third party interest was created by the appellant, inasmuch as, the rights of the parties even in that respect were well covered by the provision of 15 development agreement dated 1.9.2002. 13. The subsequent discovery of the respondents as with regard to the memorandum of understanding dated 6.6.2008 of the appellant with the Apna Awas Construction and the consequential development agreement dated 16.8.2008 cannot come to the rescue of the impugned order wherein the court below was not even apprised with regard to these facts, inasmuch as, the court below had passed the impugned order without taking into consideration these facts. The respondents, in fact were themselves unaware about the same as is clear from the reading of their application under Section 9 of the Act. In that view of the matter, while this Court has only noticed such events from the counter affidavit filed by the respondents but then they cannot be looked into for justifying the impugned order, inasmuch as, they were not the basis for passing its order. 14. As noted above, the impugned order in fact has virtually allowed the application of the petitioner and has given an all time or a permanent protection instead of 16 an interim measure of protection as contemplated under Section 9 of the Act which is only by way of temporary measure in the cases in which arbitral proceeding is yet to commence. The scope of Section 9 in fact was gone into by the Apex Court in the case of Firm Ashok Traders & Anr. Vs. Gurumukh Das Saluja & Ors. reported in 2004(3)SCC 155 wherein while holding that the reliefs which the court may allow to a party under clause (i) & (ii) of Section 9 of the Act flow from the power vested in the court, exercisable by reference to contemplated, pending or completed arbitral proceeding, it has been laid down that the Court is conferred with the same power for making the specified orders as it has for the purpose of and in relation to any proceeding before it, though the venue of the proceeding in relation to which the power under Section 9 is sought to be exercised is the Arbitral Tribunal. The law in this regard to the scope of order under Section 9 has been explained by the Apex Court in the following words:- “17. There are two other factors which are weighing heavily with us and which we proceed to record. As per the law laid down by this Court in Sundaram Finance 17 Ltd. an application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings. What does that mean? In Sundaram Finance Ltd. itself the Court has said: (SCC p. 488, para 19) It is true that when an application under Section 9 is filed before the commencement of the arbitral proceedings, there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings. Section 9 permits application being filed in the court before the commencement of the arbitral proceedings but the provision does not give any indication of how much before. The word “before” means, inter alia, “ahead of; in presence or sight of; under the consideration or cognizance of”. The two events sought to be interconnected by use of the term “before” must have proximity of relationship by reference to occurrence; the later event proximately following the preceding event as a foreseeable or “within-sight” certainty. The party invoking Section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the court that the arbitral proceedings are actually contemplated or manifestly intended (as Sundaram finance Ltd. puts it) and are positively going to commence within a reasonable time. What is a reasonable time will depend on the facts and circumstances of each case and the nature of interim relief sought for would itself 18 give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. The purpose of enacting Section 9, read in the light of the Model Law and UNCITRAL Rules is to provide “interim measures of protection”. The order passed by the court should fall within the meaning of the expression “an interim measure of protection” as distinguished from an all- time or permanent protection. 18. Under the A&C Act, 1996, unlike the predecessor Act of 1940, the Arbitral Tribunal is empowered by Section 17 of the Act to make orders amounting to interim measures. The need for Section 9, in spite of Section 17 having been enacted, is that Section 17 would operate only during the existence of the Arbitral Tribunal and its being functional. During that period, the power conferred on the Arbitral Tribunal under Section 17 and the power conferred on the court under Section 9 may overlap to some extent but so far as the period pre- and post- the arbitral proceedings is concerned, the party requiring an interim measure of protection shall have to approach only the court. The party having succeeded in securing an interim measure of protection before arbitral proceedings cannot afford to sit and sleep over the relief, conveniently forgetting the “proximately contemplated” or “manifestly intended” arbitral proceedings itself. If arbitral proceedings are not commenced within a reasonable time 19 of an order under Section 9, the relationship between the order under Section 9 and the arbitral proceedings would stand snapped and the relief allowed to the party shall cease to be an order made “before” i.e. in contemplation of arbitral proceedings. The court approached by a party with an application under Section 9, is justified in asking the party and being told how and when the party approaching the court proposes to commence the arbitral proceedings. Rather, the scheme in which Section 9 is placed obligates the court to do so. The court may also while passing an order under Section 9 put the party on terms and may recall the order if the party commits breach of the terms.” 15. There is yet another compelling reason for this Court to interfere with the impugned order, inasmuch as, the same is also in clear violation of the principle of natural justice. It has to be noted that the District Judge by his order dated 22.9.2008 while admitting the case had already issued notice to the appellant before transferring it to the Additional District Judge, FTC-IV for its disposal but the Additional District Judge, FTC-IV without even making enquiry or recording the fact as with regard to the service of notice on the appellant, had 20 proceeded to pass the impugned order which virtually has decided the whole case filed by the respondents. The submission of Mr. Nath that the power under Section 9 of the Act is akin to the power of the Court under Order XXX1X, Rule 1 & 2 of the C.P.C., inasmuch as, Section 9 also provides for an interim measure of protection by way of interim injunction akin Section 9(ii)(d) of the Act has to be also appreciated in the backdrop of the three situations as contemplated under Section 9 of the Act. Such exercise of power by way of interim measure under Section 9 in itself envisages that the same can be exercised by a court either before commencement of arbitration proceeding or during arbitration proceeding or even at any time after making of the arbitral award but before its enforcement under Section 36 of the Act. 16. In the opinion of this Court, whereas Section 9(ii)(b) and (c) of the Act would only govern the cases during pendency of arbitrary proceeding or at any time after making of the arbitral award, the provision under Section 9(ii)(a)(d) and (e)