1 PGK IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE Writ Petition No.570 of 2010 M/s.Pinak Bharat & Co. & anr. ... Petitioners (Orig.Defendants) V/s. Anil Ramrao Naik ... ... Respondent (Orig.Plaintiff) Mr.R.S. Tripathi for Petitioners. Mr.V.S. Kapse for Respondent. ----- CORAM : SMT.ROSHAN DALVI, J. DATED : 5th February, 2010 P.C. : 1.Rule. Rule is made returnable forthwith. 2.Petitioner No.1 is a Company and Petitioner No.2 is its partner (Petitioner). The Petitioner is the financier. The Respondent is a developer. 3.The development work of reconstruction of old buildings was stayed in the city of Mumbai by the order of the Supreme Court at the relevant time when the vires of the Development Control Regulations (DC Regulations) were being considered in the Apex Court. 2 4.The Respondent herein filed a Suit against the Petitioner in the Bombay city Civil Court at Mumbai being Suit No.1152 of 2007. This Suit was for a declaration that the period of 36 calendar months mentioned in the Memorandum of Understanding (MOU) dated 9.5.2003 executed between the parties be calculated from the month following next to the month of January 2007. The Suit was filed on 30th March 2007. The MOU between the parties was entered on 9.5.2003. The MOU was essentially because the Petitioner (Defendant in the Suit) financed the Respondent (Plaintiff in the Suit) to the extent of Rs. 1 Crore for his construction work. 5.Clause 5 of the MOU related to repayment of the loan granted by the Petitioners. 6.Under Clause 7 of the MOU if the developer did not commence and complete the construction and redevelopment work, the financier could invoke immediate repayment. 7.Under Clause 8 of the MOU, the financier had two options for the modes of repayment, one of which could be exercised by her. Option (a) in Clause 8 was to receive back Rs.1 Core with interest at 19% per annum 3 thereon compounded quarterly. Option (b) under Clause 8 was her entitlement to call upon the developer to sell to her commercial premises of 2500 sq. ft. built up area, upon which the loan would stand wholly adjusted. 8.Under Clause 9 of the MOU, notwithstanding anything else in the MOU if the developer failed to repay the secured loan with interest by the end of the 42nd month, the the financier would be entitled to buyback the right, title, interest, benefit and advantages acquired under those presents by him. The financier would then buyback the commercial premises of 2500 sq. ft., which was otherwise to be sold to her under Clause 8(b). 9.Under Clause 14 of the MOU, the developer was to execute an irrevocable Power of Attorney in favour of the financier to enable her to execute a Deed of Mortgage for fully securing her claims and dues receivable from the developer and to take possession of the unfinished construction work of the commercial premises of the building and to remain over the property until her dues were paid. 10.An incomplete type-written copy of the Plaint has been 4 annexed to the Petition as Exhibit-E. It shows the Plaint along with the MOU, Exhibit-A annexed thereto. The Plaint filed in the City Civil Court under Suit No. 1152 of 2007 has Annexures from A to V. All of them are not annexed, presumably as they are not taken to be material documents. However, I have been shown a copy of the letter dated 22.2.2005, Exhibit-K to the Plaint, also not annexed to this Writ Petition, which shows the option exercised by Petitioner No.2 / financier. She has exercised her option of receiving immediate payment with 19% interest as mentioned in Clause 8(a) of the Agreement. She has further stated that upon exercising that option, her option under Clause 8(b) of the agreement to receive 2500 sq. ft. of commercial premises has become defunct. A Power of Attorney (mentioned in Clause 14 of the MOU) has become null and void and would be returned and two undated cheques for Rs.1 Crore and Rs.68,51,590/- would also be returned. She, therefore, called upon the Respondent (developer) to make full payment of the entire amount of Rs.1 Crore plus interest within 30 days, failing which she would be forced to take necessary action for recovery of her dues. At-least as and from the option being exercised on 22.2.2005 all the other parts of the MOU admittedly were not in operation and had, in the words of Petitioner No.2 / financier herself, become defunct. 5 11.Consequent upon the option being exercised in the letter dated 22.2.2005, the Respondent / developer paid Rs.19 Lakhs representing interest for the year 2005 by 3 installments of Rs.4 Lakhs , Rs.10 Lakhs and Rs.5 Lakhs on 19.3.2005, 30.5.2005 and 17.6.1005, respectively. Petitioner No.1 / financier has accepted that amount and encashed those cheques. Mr.Kapse on behalf of the Respondent contends that the option has been fully exercised, it has been accepted by both the parties and Petitioner is estopped from relying on any other clause and exercising her option under Clause 8(b) of the MOU, which she herself stated, had become defunct. 12.Thereafter neither the principal nor the interest has been paid. 13.Instead the Respondent filed the Suit on 30th March 2007 and applied for extension of time. He was granted the extension on 3.9.2007 till 31.3.2009 in Notice of Motion No.1126 of 2007 taken out in that Suit upon hearing the Advocates of both the parties. Under that order, Petitioner / financier was restrained from acting upon and taking the steps pursuant to the Power of Attorney dated 9.5.2003 before the expiry of 2 years and 2 months to be calculated form January 2007. That 6 order has not been challenged and has come to be final. The amount of Rs.1 Crore with 19% interest compounded quarterly has not been paid even by 31.3.2009. 14.At the time the order dated 3.9.2007 was passed in the aforesaid Notice Motion, Petitioner / financier as Defendant No.2 in that Suit, had filed her Written Statement. The Written Statement is dated 23.7.2007. The Written Statement was submitted to be used as the reply of the Defendants in the interlocutory proceedings initiated by the Plaintiff. Considering the Plaint and the Written Statement, the aforesaid order came to be passed. 15.Defendant No.2 has not sought reference to arbitration in the Written Statement. Defendant No.2 has not even applied for amendment of the Written Statement. This was the first statement on the substance of the dispute filed by the Defendants in the Suit, who is the Petitioner / financier. 16.Well after the order was passed in the Notice of Motion and well after the period of extension granted by the Court expired and since no amount was paid as per the extension applied for and granted, Defendant No.2 took out her Notice of Motion on 8.9.2009, stating that the subject matter was covered by the arbitration 7 agreement and hence applying for dismissal of the suit and reference of the dispute between the parties to arbitration under Section 8 of the Act. 17.It was the case of Defendant No.2 that the MOU annexed to the Plaint did not show the page containing the arbitration clause on purpose and for ulterior motives to prevent reference of the dispute to arbitration. Mr.Kapse has shown me a xerox copy of the Plaint filed under No.1152 of 2007 in the City Civil Court, Mumbai. Xerox copy of the MOU dated 9.5.2003 is annexed as Exhibit-A to the Plaint. It indeed does not bear page 10, which contains the arbitration clause. It has clauses upto page 9. Clause 9 is incomplete. Page 9 is followed by page 11 which shows the execution clause. It is correct that the relevant clause is not annexed to the Plaint. It may also be correct that that was done on purpose. However, Defendant No.2 was a party to the MOU. She had not only executed the MOU but exercised her option under the MOU. When she exercised her option, she had herself stated how she would be required to be paid under Clause 8(a) of the MOU and that Clause 8(b) had become defunct. The letter has been signed by her personally as a partner of her Firm i.e. Petitioner No.1. She must be legitimately imputed the knowledge of not only Clause 8 of the MOU, but the entire of the MOU. If she sought 8 and required the dispute between the parties to be referred to arbitration, she should have applied at the first instance as required by law. 18.Under Section 8(1) of the Act, a party subject to an arbitration agreement has to apply not later than when submitting her first statement on the substance of the dispute to refer the dispute to arbitration. Her first statement on the substance of the dispute was her Written Statement filed on 23.7.2007. It could have as well been her Affidavit-in-reply since that would have been also her statement on oath on the substance of the dispute when she challenged the reliefs claimed in the Interim Application. This statement being filed as a Written Statement and being requested to be treated as a Reply in the interim proceedings could be both or either of the aforesaid nomenclatures. The fact remains that that would be her first statement on the substance of the dispute. Her legal right to have the dispute referred to arbitration, as granted under the law, was to be availed of by her under Section 8 of the Act as per the procedure established by that law. She failed to do so. 19.Mr.Tripathi on behalf of the Petitioners would contend that the statement is required to be in the main 9 proceedings as held in the case of Rashtriya Ispat Nigam Ltd. & anr. vs. Verma Transport Co., (2006) 7 SCC 275. Paragraph 36 of this judgment shows what is in fact the first statement on the substance of the dispute as contradistinguished with the expression written statement . It is held that the first statement would require submission of the party to the jurisdiction of the judicial Authority. If that statement shows that party has waived its right to invoke the arbitration clause, it would be the first statement on the substance of the dispute. It is observed that if the application is filed before actually filing the first statement on the substance of the dispute the party could not be said to have waived its right or acquiesced itself to the jurisdiction of the Court. In this case, the Written Statement has not been filed before filing the first statement on the substance of the dispute. It is the first statement on the substance of the dispute. It does not challenge the jurisdiction of the judicial Authority. Relying on that Written Statement, the Interim Application has been argued. It is merely a request to the Court also to refer to that first statement on the substance of the dispute as the reply of the Defendants in the Suit to the claim of the Plaintiff to interim reliefs. The step, that is required to refer the dispute to arbitration, has been allowed to lapse. The waiver of 10 the right to refer the matter to arbitration is seen from the Written Statement. Though in paragraph 39 of that judgment, it is observed that opposing a prayer for interim injunction is not disputing the substance of the dispute in the main proceedings since the supplemental and incidental proceedings are not a part of the main proceedings, filing of a Written Statement on the main substance of the dispute, whether it is filed at the interim stage or at the final stage, would tantamount to filing the first statement on the substance of the dispute, if the jurisdiction of the judicial Authority is not challenged and consequently, the right to refer the dispute to arbitration is waived despite the arbitration clause in the agreement between the parties. 20.The impugned order has considered the duty of the Court under Section 8 of the Act and thereafter the duty of the Court under Section 5, if an application is made and Section 8 is invoked. Upon seeing that Petitioner No.2 has filed the substance of the dispute and submitted herself to the jurisdiction of that Court and waived the right to invoke the arbitration clause, her Notice of Motion has been dismissed. 21.There is no material irregularity in that order. This Court in the Writ Petition cannot, therefore, interfere 11 with it. The Suit must, therefore, proceed. However, it may be clarified that the arbitration is an alternate remedy to adjudication. It is a remedy also contemplated under Section 89 of the Code of Civil Procedure. As and when the Suit proceeds, if the Court suo motu comes to a conclusion that the dispute between the parties would be better adjudicated upon in the alternative mode of arbitration or even mediation, the Court would certainly be entitled to refer the dispute to such alternative mode for settlement of the dispute. 22.Consequently, the Writ Petition is dismissed. Rule is discharged accordingly. 23.There shall be no order as to costs. (SMT.ROSHAN DALVI, J.)