* THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY + Arbitration Application No.93 of 2010 % 11-07-2011 # M/s. Lateef Brothers Real Estates and others ….Applicants Vs. $ Varun Constructions and others ..Respondents ! Counsel for the Applicants: Smt. Manjari S.Ganu Counsel for the Respondents 1 to 4 : Sri Madan Mohan Lal < Gist: > Head Note: ? Cases referred: (1982) 1 Supreme Court Cases 625 (2000) 10 Supreme Court Cases 178 (2011) 3 Supreme Court Cases 507 (2009)1 Supreme Court Cases 267 1994-DLT-53-501 1991-BCR-3-300 2003-DLT-106-460 1998-AIR (MAD)-0-363 THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.93 of 2010 (Dated : 11-07-2011) Between: M/s. Lateef Brothers Real Estates and others ….Applicants A n d Varun Constructions and others ..Respondents THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.93 of 2010 ORDER: This application has been taken out under sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator for resolution of the disputes between the applicant and the respondent arising out of the Development Agreement-cum-General Power of Attorney dated 3.2.2001. 2(a). The applicant No.1 is a partnership firm and applicants 2 and 3 are managing partners of the partnership firm. The partnership firm owns property bearing H.No.6-3-1099/1/1/, 2 & 2/3 comprising 5075 square yards forming Survey No.23 (part) and 20/4 (part) corresponding to TSNo.20/2 (part) and 20/1/A (part) situated at Somajiguda, Hyderabad. The partnership firm entered into Development Agreement dated 7.10.2000 with Varun Constructions-1st respondent. Thereafter, the partnership firm and the 1st respondent entered into Development Agreement-cum-General Power of Attorney dated 3.2.2001 with 5th respondent for development on the property. As per the Development Agreement-cum-General Power of Attorney dated 3.2.2001, the constructed built up area is agreed to be shared as follows:- (a) Applicant No.1 37% (b) Respondent No.1 13% (c ) Respondent No.5 50% The applicants 2 and 3 appointed the 2nd respondent who is the managing partner of 1st respondent firm and Sri V.Ananda Prasad, Managing Director of the 5th respondent firm as their General Power of Attorney. Accordingly, the 2nd respondent represented the applicants in receiving Flat Nos.201, 202, 203, 204, 205, 206, 207,208, 209, 210, 211, 303, 304, 305, 306, 307, 308, 309, 310, 311 and also 56% of Flat No.509 towards his 37% share in the constructed area. The 2nd applicant visited Hyderabad in September 2009 and went to the schedule property along with an engineer and found the actual constructed area on the property was more and the applicants should get more area towards 37% share than the area of the flats allotted to them under the revised sharing agreement. 2(b) The applicants issued a legal notice dated 27-11-2009 to the respondents calling upon them, particularly 5th respondent, to furnish the particulars as to total constructed area for the stilt, cellar and upper floors including the penthouses, total built up area allotted to the 1st respondent and 5th respondent respectively. Respondents 1 to 4 and 5 got issued reply notices dated 15.12.2009 and 18.12.2009 respectively. Respondents 1 to 4 in their reply notice took the plea that the applicants, after taking into account the construction of two penthouses on the terrace being flat Nos.601 and 602 had agreed under the revised sharing agreement dated 29.6.2005 to take flats in the 2nd floor, flat Nos.303 and 311 on the third floor in exchange to their original share in third and fifth floors and 67% in flat No.309 after deduction of the expenditure relating to the two penthouses. The 5th respondent stated in its reply notice dated 18.12.2009 that the 1st respondent has been in custody of area admeasuring 3169 Sft. over and above the area fallen to its share. According to the applicants, the development agreement dated 7.10.2000 and Development Agreement-cum-General Power of Attorney dated 3.2.2001 crystallize the right in respect of areas due to them under the said Development agreements and in no way transfer the title from the applicants firm or their nominees in the absence of registered sale deeds. 2(c ) After receiving the reply notice from respondents 1 to 4 and 5 respectively, the applicant got issued rejoinder notice dated 3.12.2009 to respondents 1 to 4 calling upon them to hand over area of 2444 square feet as per the Development Agreement and to account for the rent received by them. Respondents 1 to 4 issued a reply dated 7.1.2010 disputing the claim of the applicants. The applicants got issued another notice dated 28.1.2010 invoking the arbitration clause in the development agreement –cum-general power of attorney dated 3.2.2001 by nominating Hon’ble Sri Justice A.Gopala Rao , a retired Judge of the High Court as sole arbitrator for resolution of the disputes. Respondents 1 to 4 issued reply dated 10.2.2010 stating that there is no dispute which is required to be referred for arbitration. Hence, this application seeking the prayer stated supra. 3. Notice to respondents came to be ordered on 20.7.2010. Respondents 1 to 4 entered appearance and filed counter. The 5th respondent did not choose to enter appearance either in person or through a counsel. 4. The counter of respondents 1 to 4, in brief, is as follows:- (a) The applicant No.1 partnership firm has been dissolved. Therefore, the very application filed by the partnership firm is liable to be dismissed. The application is liable to be dismissed for non-joinder of erstwhile partners namely Khateeb Ahmed Lateef, Khateeb Afsar Lateef and Khateeb Sarwar Lateef . The said persons were major shareholders in the dissolved firm having 67% share and whereas the applicants 2 and 3 were having 16.5% share each. Execution of the development agreement-cum- general power of attorney dated 3.2.2001 is not disputed. Respondent No.5 has taken development of the project as per the terms of the said agreement and the sharing of the constructed area has been agreed. The flats fallen to the share of the parties have been detailed in annexure to the agreement dated 3.2.2001. The shares of each of the parties as agreed under Clause (18) of the agreement was :- Applicants -37%,1st respondent- 13% and 5th respondent -50% in all floors or as mutually agreed upon. (b) Originally, as per the mutual understanding with regard to the sharing of the constructed flats, flat Nos.304, 305, 306, 307 and 308 were allotted to the 1st respondent along with 33% share in Flat No.309 and the balance of 67% share in the said flat was allotted to the 1st applicant. The applicants were allotted 11 flats in second floor, 5 flats in third floor and three flats in the fifth floor. This apart, the applicants were allotted 67% share in flat No.309 ( 33% allotted to the first respondent herein) and 44% share in flat No.509 ( balance 56% allotted to the fifth respondent herein). (c ) Subsequently, a supplementary agreement for sharing of flats came to be executed on 29.6.2005. Under the said agreement, the entire 2nd floor and the entire third floor except flat Nos.301 and 302 were allotted to the applicants herein along with 56% share in Flat No.509, 44% share in Flat No.509 was allotted to the fifth respondent herein and flats bearing Nos.301, 302, 501, 502, 506 , 507, 508 and 602 were allotted to 1st respondent. The 5th respondent was allotted entire first floor and fourth floor flats and flat No.601. The said exchange of flats was done at the instance of the applicants, as it was easier for them to sell the flats in third floor than in fifth floor and also for a better price. Flat Nos.601 and 602 are the penthouses and the same were constructed in contravention of the sanctioned plan. The applicant has taken the entire flat No.309, which originally was under sharing with respondent No.1, in lieu of the penthouse bearing No.601 being allotted to the first respondent. The said exchange was done taking in view of its unauthorised construction the risk of the same being demolished and the amount that would be levied towards penalty by the Municipal Corporation and Fire Department for getting the same regularised. Since flat No.602 was constructed unauthorisedly, the same could not have been sold through a registered document and as such the applicants have opted for the entire share in flat No.309 and have prevailed upon the respondent No.1 to take the said flat No.602. The applicants have sold all their flats allotted to them. All the sale deeds have been executed by the applicant No.2 in favour of the purchasers for and on behalf of the then applicant No.1 firm. The sale deeds have been executed in the year 2005-06. In the earlier arbitration proceedings, these respondents claim that the 5th respondent delivered possession of the flats on 19.2.2007 and if that date is taken into consideration; the present application is barred by limitation. The applicants are guilty of suppressing material facts since the application is silent as to the proceedings conducted before the arbitrator and passing of award by arbitrator in respect of subject matter of this application. In the said proceedings, the arbitrator has engaged a technical person to inspect the flats constructed. The technical engineer, on the directions of the Arbitrator, measured the total area. The issue of shortfall in the constructed area on the 6th floor has also been considered in the said arbitration proceedings and the cost of such construction. None of the parties have raised any objection nor have filed any claim for the alleged shortfall in the constructed area before the Arbitrator. The allocation of flats came to be done as per the mutual understanding, convenience and taking in to view the easily marketable flats in the lower floors and the price that may fetch for the flats in the lower floors when compared to the flats in upper floors. The issue of excess area has already been dealt with by the Arbitrator under Issue No.12 and 13 of the Award. Flats were allocated as per the mutual understanding and as per the value. The same has been accepted by all the parties and possession was taken accordingly in the year 2005-2006 itself. The same were also sold by the applicants to third parties. Therefore, the respondents sought for dismissal of the application. 5. The applicants filed reply affidavit. It is stated in the reply affidavit that the agreement of sharing of flats will disclose the area of each flat and hence the said agreement cannot be said to be conclusive proof of the constructed area delivered to each party. It was the 2nd respondent who was dealing with the 5th respondent on behalf of the applicants as well as on behalf of the 1st respondent and made the applicants to believe that flats were allotted to them towards their 37% share in the constructed area. The earlier arbitration was not in respect of sharing of flats interse in between the applicants and the 1st respondent. The reference under earlier arbitration was in respect of disputes between Bhavya Constructions (P) Ltd. on one hand and contesting respondents herein on the other hand and the applicants had no knowledge about the same. Interse disputes with regard to sharing of flats in between the applicants and the contesting respondents were neither resolved by the Arbitrator nor the same were the subject matter before the Arbitrator. The 2nd respondent was handling the affairs of the applicants prior to cancellation of general power of attorney and all facts came to light only after cancelling the General Power of Attorney and as disputes with regard to sharing arose subsequent thereto, the present application is maintainable. 6. The applicants placed on record additional affidavit on 12.11.2010. In the additional affidavit, filing of O.P.no.1588 of 2006 by the 1st respondent on the file of II Additional Chief Judge, City Civil Court, Hyderabad under Section 9 of the Arbitration and Conciliation Act, 1996 seeking the relief of injunction has been detailed. The said OP came to be allowed granting injunction in favour of Bhavya Constructions-5th respondent. The applicants and the 1st respondent herein challenged the order by filing C.M.A.No.1126 of 2006 on the file of this court. Pending appeal, an agreement came to be executed between the parties on 19.2.2007 referring the disputes to an arbitrator, namely Sri P.V.Sanjay Kumar (presently, Justice P.V.Sanjay Kumar, a Judge of this Court), who passed an award dated 31.7.2008. Paras 3 and 4 of the additional affidavit need to be noted and they read thus:- “ 3)It is submitted that as can be seen from the order passed in CMA No.1126 of 2006 r/w order passed in OP No.1588/2006 possession of the flats mentioned in schedule therein (which included three flats allotted to the share of the applicants) was delivered only on 19-2-2007 and thereafter on the same day Arbitration Agreement was executed. It is submitted that the Power of Attorney granted by the applicants in favour of Respondent No.2 was revoked on 27-8-2008 and thereafter applicants started verifying all the aspects relating to the Development Agreement and only when Applicant No.2 came to Hyderabad in September, 2009, he realised that the area of unauthorised floor (which as regularised under BRS Scheme) was not taken into consideration while arriving at their 37% of share in the total constructed area as per the Development Agreement. Hence, they got issued the notice dated 27-11-2009 to which Respondent No.5 replied stating that the Respondent Nos. 1 to 4 are in occupation of excess area than 13% share allotted to them, which is admeasuring 3169 Sft. Out of which 2444 Sft belongs to the Applicants. The Respondent No.5 in the Annexure to their reply dated 18-12-2009 has also given break-up of the total constructed area and proportionate share of each of the parties. 4) It is also submitted that with regard to the area fallen to the share of Respondent Nos. 1 to 4 under the Development Agreement, Sale Deeds have not been executed either in their favour or in favour of their purchasers. In view of revocation of Power of Attorney by the Applicants which was earlier given to Respondent No.2, the Applicants have to execute the Sale Deeds. Hence, it can be seen that the Development Agreement so far has not been completely executed and as such the dispute now raised is well within limitation”. 7. Heard Smt. Manjari S.Ganu, learned counsel appearing for the applicants, and Sri Madan Mohan Lal, learned counsel appearing for the respondents 1 to 4. 8. Learned counsel appearing for the applicants submits that the applicants came to know of the actual constructed area through 5th respondent-Bhavya Constructions and thereby, disputes arose between the parties relating to the Development Agreement-cum-General Power of Attorney dated 03.2.2001 and thereupon, the applicants requested the respondents 1 to 4 under notice dated 31.12.2009 to handover the deficit area of 2444 square feet. Thereafter, the applicants through notice dated 28.1.2010 invoked arbitration clause in the Development agreement dated 3.2.2001 and nominated Hon’ble Sri Justice A.Gopala Rao, a retired Judge of the High Court as sole arbitrator for resolution of the disputes for which respondents 1 to 4 issued reply denying of there being any dispute with reference to Development Agreement-cum- General Power of Attorney dated 3.2.2001. In elaborating her arguments, learned counsel contends that all through, the 2nd respondent represented the applicants and kept the applicants in dark with regard to the pleas advanced before the earlier arbitrator and the applicants, on coming to know of the misdeeds committed by the 2nd respondent, revoked the General Power of Attorney and called upon the respondents to furnish exact extent of the constructed area. According to the learned counsel, interse dispute between the applicants and respondents 1 to 4 was not the subject matter before the earlier arbitrator who came to be appointed on initiation of proceedings by the 5th respondent. Learned counsel took me to the Award dated 31.7.2008 on the application moved by the 5th respondent. By referring the contents of the Award, learned counsel submits that it is the 2nd respondent, who represented the applicants before the earlier arbitrator. 9. In support of her submissions, reliance has been placed by the learned counsel on the following decisions:- (1) M/s. Bharat Heavy Electricals Limited, Ranipur v. M/s.Amar Nath Bhan Prakash[1] (2) Jayesh Engineering Works v. New India Assurance Co. Ltd[2] (3) Indian Oil Corporation Limited v. SPS Engineering Limited [3] (4) National Insurance Company Limited v. Boghara Polyfab Private Limited [4] I n M/s.Bharat Heavy Electricals Limited case ( 1 supra), the Supreme Court held that question whether there was discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract to be referred to arbitration. In Jayesh Engineering Works case (2nd supra), the Supreme Court held that whether the contract has been fully worked out and whether payment has been made in full and final settlement or any amount remains due to be paid are to be considered by the arbitrator when there is a dispute about such questions. I n Indian Oil Corporation Limited case (3rd supra), the Supreme Court held that the issue whether a claim barred by res judicata does not arise for consideration in proceedings under S.11 of the Act and while considering application under S.11, there can be no threshold consideration and rejection of a claim on ground of res judicata. I n National Insurance Company Limited (4th supra), the Supreme Court held that whether a contract has been discharged by performance is a mixed question of fact and law, and if there is a dispute in regard to that question, that is arbitrable. If the party, which has executed the discharge agreement/voucher, alleges fraud/coercion/undue influence practised by the other party and is able to establish the same, then obviously the discharge of such contract by such agreement/voucher is rendered void and cannot be acted upon. The Supreme Court has stated some illustrations in paragraph (52) of the cited judgment as to when the claims are arbitrable and when they are not. For better appreciation, I may refer paragraph (52) of the cited judgment, which reads as hereunder:- “(52) SOME illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject : (i) A claim is referred to a conciliation or a pre-litigation Lok adalat. The parties negotiate and arrive at a settlement. The terms of settlement are drawn up and signed by both the parties and attested by the Conciliator or the members of the Lok Adalat. After settlement by way of accord and satisfaction, there can be no reference to arbitration. (ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no claim certificate/full and final receipt. After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter. (iii) A contractor executes the work and claims payment of say rupees Ten Lakhs as due in terms of the contract. The employer admits the claim only for Rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of Rupees six Lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration. (iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The 'accord' is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration. (v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration. “ 10. Learned counsel appearing for the respondents 1 to 4 submits that there is no dispute, which is required to be resolved by taking recourse to the arbitration clause in the development agreement dated 3.2.2001, in which case, appointment of an arbitrator does not arise. He would also contend that Section 62 of the Contract Act recognises the right of the parties to agree to put an end to a contract. The mutual agreement to put an end to existing rights and obligations of the parties under a contract is not by way of novation. It is a decision of the contracting parties to put an end to the contract. In other words, it is termination of a contract simplicitor. If both parties agree to give up their respective rights and benefits under the original agreement as also they release each other from mutual burdens and obligations under the agreement, the discharge of one party from its obligation to perform further is a sufficient consideration for discharge of the other party from further performing its obligations under the Contract. He would also contend that the parties have mutually agreed to share the constructed area under the agreement dated 21st September 2005 and the said agreement is in continuation of the development agreement-cum- General Power of Attorney dated 03.2.2001, and as it is not the case of the applicants that flats allocated to their share as per the mutual understanding are not delivered in which case, no dispute subsists between the parties relatable to the development agreement-cum-General Power of Attorney dated 03.2.2001. In support of his submissions, learned counsel placed reliance on the following decisions:- (1) Unikol Battlers Limited v. Dhillon Kool Drinks[5] (2) Andheri Bridgeview Cooperative Housing Society Limited v. Krishnakant Anandrao Deo[6] (3) Union of India v. Pawan[7] (4) Group General Manager (C ),M/s.Oil and Natural Gas Corpn., Karaikal v. M.Gouthamchand Gothi[8] 11. It is not in dispute that the parties entered into development agreement dated 3.2.2001. As per the development agreement, the applicants/owners have to get 37% of all floors or mutually agreed upon, the respondents 1 to 4/agreement holders have to get 13% of all floors or mutually agreed upon and the 5th respondent/developer has to get 50% of all floors or mutually agreed upon. The existence of arbitration clause in the development agreement-cum-General Power of Attorney is also not in dispute. It provides