1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL JURISDICTION ARBITRATION PETITION (LODG.) NO. 234 OF 2008 Tohid Ashraf Furniturewala. ... Petitioner. V/s. Abdul Haq Shaikh Meherbaksh & Ors. .... Respondents. ....... Mr. C.S. Naidu i/b. M/s. C.R. Naidu & Co. for the Petitioner. Mr. D.H. Mehta for Respondent 3. ........ CORAM : DR. D.Y. CHANDRACHUD, J. 26TH MARCH 2008. P.C. :- An application has been made in the Petition, which arises under Section 9 of the Arbitration and Conciliation Act, 1996, for an order of injunction restraining the Respondents from disposing of or encumbering certain immovable property and for the appointment of a receiver. 2. The subject matter of the dispute is land admeasuring 7496.7 2 square meters, at Juhu, upon which there are 7 buildings. The buildings are fully tenanted comprising of about 200 tenants. On 10th March 2004, a notice was issued by the Custodian of Enemy Property under the Enemy Property Act, 1968. A Certificate of Vesting came to be issued on 5th April 2004. The order passed by the Custodian was challenged in proceedings under Article 226 of the Constitution of India by the Respondents herein (Writ Petition 1296 of 2004). The Court has been informed during the course of the hearing of these proceedings that pending the hearing and final disposal of the Petition, an interim order was passed restraining the Respondents from creating third party rights. Both the learned Counsel have stated that there is no dispute about this factual position. On 2nd August 2006, a Memorandum of Understanding was entered into between the Respondents, claiming to be Mutawallis of a Wakf-Alal-Aulad, with the Petitioner by which the property was agreed to be sold to the Petitioner subject to the orders in Writ Petition 1296 of 2004. The total agreed consideration was Rs.3.91 crores, out of which an amount of Rs. 51 lakhs was paid on 25th July 2006. The balance of Rs. 3.40 crores was to be paid within a period of 15 days of the Respondents obtaining clearance as specified in clauses 3 2,3 and 4 of the agreement. Clause 2 contained a recital of the actions which had been taken by the Custodian of Enemy Property and of the Writ Petition pending before this Court. The Respondents represented that they would try and obtain clearance from the custodian and/or a final order from the Court that the property is not enemy property within a period of six months from the execution of the agreement. Clause 3 of the agreement then provides as follows :- “ THE VENDORS have declared that in Writ Petition 1296 of 2004 the High Court of Judicature at Bombay had passed Interim Order restraining “THE VENDORS” from creating any third party rights in respect of the said property more particularly described in the Schedule hereinunder written. This Memorandum of Understanding is subject to the said interim order getting vacated within a period of six months from the date hereof. However, in the event the said order not being vacated then in that event this Memorandum of Understanding will come to an end however “THE PURCHASER” will have option to extend the time. “THE VENDORS” shall try and get the said interim order vacated and/or get 4 the notices issued by the Custodian of Enemy Properties set aside which are subject matter of the aforesaid Petition 1296 of 2004 within 6 months from the date hereof, or within the extended time if any, failing which Memorandum of Understanding will come to an end and “THE VENDORS” shall return to “THE PURCHASER” an amount of deposit paid by him on the signing of this Memorandum of Understanding without any interest.” 3. Under clause 4 of the M.O.U., the Vendors agreed to obtain a no objection certificate if required by law for the completion of the sale, from the Wakf Board or in the alternative a legal opinion from Senior Counsel named therein clarifying that no such No Objection Certificate was required. This was to be also done within a period of six months. Finally, under clause 12 it was provided that upon all clearance being obtained under clauses 2, 3 and 4 if the purchaser defaulted in making the balance payment, it would be open to the Vendors to terminate the agreement by giving a notice of 15 days making time the essence of the contract for the payment of the balance. 5 4. The MOU executed between the parties recites in clause 3 that in Writ Petition 1296 of 2004 there was an interim order passed by this Court restraining the Vendors from creating any third party rights. Despite a clear prohibition, the parties entered into the MOU “subject to the said interim order getting vacated within a period of six months”. The agreement then stipulated that if the order was not vacated, then the M.O.U. would come to an end subject to the right of the Petitioner as purchaser to extend time. Prima-facie, it is evident that the Petitioner entered into the M.O.U. conscious of the prohibition contained in the order of the Division Bench restraining the creation of third party rights. The contention of the Petitioner is that the period of six months prescribed by clause 3 of the agreement expired on 2nd February 2007; however, under clause 3 the Petitioner was entitled to extend time. The manner in which an extension of time has been pleaded is to be found in paragraph 13 of the Arbitration Petition which is to the following effect :- “ Petitioner states that in order to assist the Respondents to expedite the process before the Custodian of Enemy Property 6 and part payment of consideration amount the Petitioner has from time to time made payments totally aggregating to Rs.10,00,000/- to Mr. Amjad Aziz Meherbaksh. The said amount has been duly received by the said Amaj Aziz Meherbaksh. Petitioner submits that the conduct of the Petitioner in making payment implicitly means that he had agreed to extend the MOU. It is further submitted that the acceptance of the aforesaid amount by Amjad Aziz Meherbaksh aggregating to Rs.10 lakhs also signifies that he understood that the Petitioner had duly extended the MOU.” 5. Hence, the only basis in the Arbitration Petition for the plea that the petitioner had extended time is the alleged payment of Rs.10 lakhs. The Respondents have denied the receipt of Rs.10 lakhs. There is admittedly no letter by the Petitioner exercising the option to extend time and the only issue which has been therefore urged before the Court is whether by conduct, time was extended beyond 2nd February 2007. 6. In this regard, it would be material to advert to certain relevant 7 events. On 11th September 2007, the Respondent addressed a communication to the Petitioner recording that in clause 3 of the MOU dated 2nd August 2006 it was stipulated by the parties that in the event that the interim order of the Court was not vacated within six months, the M.O.U. would come to an end. By a cheque enclosed with the letter, the Respondents returned an amount of Rs.51 lakhs paid in deposit and set up the plea that the M.O.U. had come to an end as a result of the interim order passed by the Division Bench not having been vacated within the stipulated period of six months. The Petitioner thereupon waited for over two months to address a reply dated 23rd November 2007 to the notice of termination. In the reply to the notice of termination, there is a reference to the payment of an amount of Rs. 51 lakhs, in paragraph 4. There is also a reference to the payment of a further sum of Rs.15 lakhs in paragraph 7. These amounts, it is admitted, were paid in cheque. Significantly there is absolutely no reference in the reply to the alleged payment of Rs.10 lakhs which has been set up for the first time in paragraph 13 of the Arbitration Petition. Apart from this fact, it is material to note that in paragraph 13 of the Arbitration Petition as well, no details have been furnished of the 8 manner in which the alleged payment of Rs.10 lakhs was effected. During the course of the hearing of the Arbitration Petition, Counsel appearing on behalf of the Petitioner stated that an amount of Rs.10 lakhs was allegedly paid in cash. The absence in the reply to the notice of termination, to the payment of Rs. 10 lakhs is a significant omission. The only basis on which the plea of the extension of time is set up is in paragraph 13 viz.; the payment of Rs.10 lakhs. Prima-facie that plea cannot be the accepted, for the purpose of deciding the Arbitration Petition under Section 9 of the Arbitration and Conciliation Act, 1996. The Court has been informed that in the meantime, after the notice of termination dated 11th September 2007, the Respondent entered into an agreement to sell on 29th October 2007 with a third party. On 26th November 2007, the Custodian of Enemy Property granted his conditional no objection. On 14th December 2007, consent terms were filed before the Division Bench by which the order passed by the Custodian of Enemy Property was withdrawn. The Arbitration Petition was filed on 19th March 2008 nearly four months after the notice of termination. 9 7. For all these reasons, it is not possible to accept the contention of the Petitioner that there was by conduct the exercise of the option to extend time under clause 3 of the agreement dated 2nd August 2006. Undoubtedly, as was held by the Supreme Court in Swarnam Ramchandran V/s. Aravacode Chakungal Jayapalan (2004 8 SCC 689) time is presumed not to be of the essence of a contract relating to the sale of immovable property (at para 12 page 694) and whether time is of the essence is a matter to be decided on the basis of the intention of the parties. The present case is, however, one where despite an order of injunction issued by the Division Bench of this Court restraining the Vendors from creating third party rights, the Vendors purported to enter into an MOU with the Petitioner. The MOU expressly provided that it would come to an end unless the interim order passed by the Division Bench in the pending Writ Petition was vacated within a period of six months. Though the Petitioner was granted an option to extend time, there is admittedly no extension of time by a written document, and for the reasons already indicated, the plea that there was an extension by the payment of Rs. 10 lakhs in cash cannot be prima-facie accepted at this stage. 10 8. On behalf of the Petitioner, it has been submitted that the conduct of the Petitioner in not demanding the repayment of the initial deposit of Rs.51 lakhs and the subsequent payment of Rs.15 lakhs would show an intention to extend time. These payments were made admittedly prior to the expiry of the period of six months that is stipulated in the agreement. Prima-facie, no payment has been made after the expiry of the period of six months nor is there any conduct that would justify an inference that the Petitioner has exercised the option of extension. 9. Counsel appearing on behalf of the Respondent has stated that the Respondent is ready and willing to deposit an amount of Rs.66 lakhs in the Court. Counsel appearing on behalf of the Petitioner has however submitted that he would not at the present stage press any relief in terms of a direction to the Respondent to deposit the amount at this stage. 10. As a result, there is no merit in the Arbitration Petition and the 11 Petition shall stand dismissed. However, while doing so, it is clarified that the observations contained in this order are confined only to the disposal of the application for an interim measure of protection under Section 9 of the Act. The Arbitral Tribunal shall not consider itself to be bound by these findings as an expression of a conclusive option by this Court on the merits of the case. ------