IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE MONDAY, THE 25TH AUGUST 2008 / 3RD BHADRA 1930 AR.No. 45 of 2007() --------------------------- PETITIONERS : ----------------- 1. ALICE JOSEPH, W/O. LATE JOSEPH, PUTHULLIL HOUSE, ERNAKULAM 2. P.J.JOHN, S/O. LATE JOSEPH, PUTHULLIL HOUSE, ERNAKULAM. BY ADV. SRI.VINOD RAVINDRANATH RESPONDENTS: ---------------------- 1. V.THIRUVENKITAM, SEEMATTI SADANAM, K.K.ROAD, KOTTAYAM. 2. BEENA KANNAN, SEEMATTI SADANAM, K.K.ROAD KOTTAYAM. BY ADV. SRI.K.GOPALAKRISHNA KURUP FOR R1 & 2 SRI.P.I.GEORGEKUTTY FOR R1 & 2 THIS ARBITRATION REQUEST HAVING COME UP FOR ADMISSION ON 25/08/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: PIUS C. KURIAKOSE, J. ----------------------------------------------- AR. No. 45 OF 2007 ----------------------------------------------- Dated this the 25th day of August, 2008 O R D E R This arbitration request has been filed by the petitioners who had entered into Annexure-A agreement on 6-10-2001 with one Seethalakshmy who is no more. The first respondent is the husband of Seethalakshmy and the second respondent is her daughter. Annexure-A agreement is in respect of 16.780 cents of land in Ernakulam Village covered by sale deed No. 2673/72 of the Sub Registry, Ernakulam. The petitioners were co-owners of the subject land having 5/8 undivided shares on the same. On the terms of Annexure-A the petitioners agreed to transfer the entirety of their shares on the subject land to Smt.Seethalakshmy and Smt.Seethalakshmy who was represented in Annexure-A by her husband, first respondent power holder would agree to construct and complete a building complex on the above property after demolishing the entire building which existed on the land including the building portion in which the petitioners were carrying on restaurant business under the name and style “Blooms Restaurant”. The agreement was that the petitioners would be allotted with a constructed area of 750 sq. ft. on the ground floor with a separate facility for wash and toilet AR. N0. 45/07 -2- together with proportionate undivided share on the land occupied by the building. According to the petitioners they have performed all their obligations under Annexure-A and have executed registered assignment deeds in favour of Smt.Seethalakshmy. But Smt.Seethalakshmy did not discharge her obligations even with the extended period of time. Clause 7 of Annexure- A is a valid arbitration clause and the same reads as follows: “In the event of any dispute in connection with and arising out of the agreement, failure to perform the contract as above the parties shall resolve the same by Arbitration under the Arbitration and Conciliation Act, 1996.” When it was noticed that Smt.Seethalakshmy was not taking any steps for nominating arbitrator despite request in that regard by the petitioners, petitioner sent registered lawyer notice to Smt.Seethalakshmy on 11-3-2007 requesting her to suggest the name of arbitrator who can be appointed for resolving the dispute. Annexure-B is copy of that notice. To Annexure-B the first respondent sent Annexure-C reply informing that Smt.Seethalakshmy is no more. Thereafter the petitioners sent Annexure-D notice to the respondents. To Annexure-D respondents however, through their advocate issued Annexure-E reply contending inter alia that Annexure- A contract itself is void and unenforceable and therefore Arbitration and Conciliation AR. N0. 45/07 -3- Act has no application in the matter. According to the petitioners, the contentions in Annexure – D are unsustainable and hence they have filed the arbitration request for an order to appoint an arbitrator for resolving the dispute between the parties with respect to Annexure-A. 2. A detailed counter affidavit has been filed by the first respondent on behalf of the second respondent also. It is pointed out that on the terms of Annexure-A, building complex is to be constructed and completed on the schedule property after demolishing the existing building within a period of 3 years from 5-10-2001 and constructed area of 750 sq. ft. on the ground floor is to be allotted to the petitioners. Any proceeding before a court of law seeking specific performance of a contract is to be instituted within a period of three years from the date fixed for performance. Therefore in view of section 43 read with section 21 of the Arbitration and Conciliation Act the present request is barred by the Law of Limitation. It is then contended that the first clause in Annexure-A relied on by the applicants suggests that the consideration for the agreement is “in pursuance of the promises and in consideration of the surrender of possession and cessation of the business of the “Blooms Restaurant” a business which had acquired reputation and goodwill and which is identified with the location and the place of business”. The sale in AR. N0. 45/07 -4- favour of Seethalakshmy by the petitioners is all absolute rights including the entirety of the petitioners interest in Blooms Restaurant. Therefore Annexure-A is to be treated as an agreement without consideration and hence void. 3. It is then contended that Annexure-A agreement is executed on the next day of the date of the last one of the sale deeds executed by the petitioners in favour of Seethalakshmy. The consideration is set out as actual cash consideration paid and received. Annexure-A to the extent it endeavours to introduce some other consideration for the sales amounts to variation of the consideration set out in a written registered sale deed this is not permissible under law and hence invalid. It is also contended that the agreement is a compulsorily registrable document in view of the provisions of the Registration Act and therefore is bad for want of registration. It is then contended that any request for arbitration can be favourably considered only if the same is made on the basis of a valid and subsisting agreement. There is no valid and subsisting agreement in this case and hence the A.R. is to be rejected. 4. It is further contended that agreement for arbitration is a personal contract between the parties to Annexure-A. Being a personal contract it has terminated upon the demise of AR. N0. 45/07 -5- Smt.Seethalakshmy. It is also contended that substantially the agreement sought to be enforced by the petitioners is an agreement for consideration of a building. Since the terms of such construction and the nature of the building proposed are not precisely stated and also since it is clear that actual possession of the entire land upon which the building is proposed to be constructed has not been given to Smt.Seethalakshmy the agreement suffers from the voice of vagueness and hence not enforceable. It is further contended that performance of Annexure-A agreement is possible only on account of various contingencies such as the tenants in occupation of portions of the building being vacated and the proposed site being allotted in the final decree for partition to be passed in favour of respondents who have now stepped into the shoes of Smt.Seethalakshmy the petitioners' vendee. It is also pointed out that the construction necessarily has to be subject to the Municipality Act and Rules. The agreement therefore is bad for uncertainty and therefore there cannot be arbitration proceedings in implementation of clause 7 in the uncertainty contract. 5. It is then contended that no construction is now possible in view of the fact that the proposed Kochi Metro Rail Project passes through this property. The order was issued by the Tahsildar and AR. N0. 45/07 -6- Executive Magistrate,Kanayannur prohibiting all constructions in the area on the reason that the area is within the Metro Rail Project. That order is under challenge in a writ petition. Moreover, R1(a) notification dated 27-2-2008 has not been promulgated by the Land Acquisition Authority proposing to acquire the subject land for Kochi Metro Rail Project. Therefore due to reasons beyond their control the contract has become incapable of performance. 6. It is then pointed out that the attempt of Smt.Seethalakshmy to evict the tenant from building No.40/9797 situated on the land on which the building complex is to be constructed was not successful. The RCP was dismissed and even the appeal failed. Ext.R1(b) is copy of the judgment in RCA. It is then submitted that what was transferred to Smt.Seethalakshmy was only 5/8 undivided share of the applicant on the site of the proposed building complex. The partition suit O.S.312/88 filed against the petitioners and others is pending final disposal. None of the sharers so far has got separate possession of their shares and thus nobody is able to deal with the properties separately. Specific enforcement of the agreement is impossible on that reason also. It is then pointed out that one V.J.Mathew co-owner of the remaining 3/8 undivided share of the land filed a suit against the applicants and also Smt.Seethalakshmy for injunction restraining AR. N0. 45/07 -7- constructions and that the said suit has been decreed. 7. To the above counter affidavit the second petitioner has filed a detailed reply affidavit reiterating the contentions of the petitioners. It is stated in the reply affidavit that the time fixed by Annexure-A was specifically extended for one more year from 1-10-2004 and thus time for compliance of the agreement now stands extended till 4-10-2005. Since what is produced as Annexure-A does not contain the reverse of the first page of the agreement. This endorsement is not visible from Annexure-A. Hence a full text of the agreement together with the reverse page is annexed as Annexure-F. Annexure -G copy of the lawyer notice dated 1-10-2005 sent to Smt.Seethalakhmy and Annexure-H reply notice sent on behalf of Smt.Seethalakshmy are relied on to show that the period of the agreement was extended. 8. I have heard Sri.T.Krishnan Unni, learned senior counsel for the petitioner and Sri.K.Gopalakrishna Kurup, learned counsel for the respondents. Mr.Krishnan Unni would draw my attention to clause 7 of Annexure-F agreement. He drew my attention also to Annexures - B, D, E and F. He submitted that in view of the extension of period of performance of Annexure- A it cannot be stated that the remedy of specific performance has become time barred. The learned senior counsel conceded referring to section 20 of the Specific Relief Act that AR. N0. 45/07 -8- decree in specific performance is always a matter within the discretion of the court or the competent authority. But he would submit referring to section 21 of the Specific Relief Act that the court or the competent authority can award compensation for breach of contract either in addition to or in substitution of performance of the contract. According to him, even if it is found that the contract has become incapable of being performed specifically then also the arbitrator can award compensation provided it is established that the respondents or their predecessor in interest has caused breach of the contract. The arbitration clause in this case encompass all conceivable disputes which can arise between the parties out of and in relation to Annexure- A. The dispute regarding arbitrability and the validity of Annexure A itself is a dispute which can be resolved by this court tentatively for the purpose of this arbitration request Mr.Krishnan Unni relied on in this context on the judgment of the Constitution Bench of the Supreme Court in (2005)8 SCC 618. Sri.Gopalakrishna Kurup, learned counsel for the respondents would resist all the submissions of Mr.Krishnan Unni tenaciously. Mr.Kurup would highlight before me Annexure- A agreement and particularly clause 2 which indicates that the right which the petitioners had over the property in question was only an undivided moiety of 5/8. He would submit that the entire AR. N0. 45/07 -9- consideration agreed upon for the property conveyed as per sale deeds executed in favour of late Seethalakshmy a very substantial amount equivalent to the market value of the property for that matter was readily paid. Mr.Kurup would refer to section 56 of the Contract Act and submit that agreement in Annexure -A to construct a building complex on the subject land is agreement to perform an impossible act and hence void. Mr.Kurup argued that in the light of the authoritative pronouncement of law by the Constitution Bench of the Supreme Court it is for the Chief Justice or the designated Judge to decide on the question whether the arbitration agreement is valid and the further question whether any issue survives for arbitration. For the same proposition he relied on the judgment of the Supreme Court in Sree Ram Mills Ltd. v. Utility Premises (P) Ltd. (2007) 4 SCC 599 and would highlight before me the observations of the Supreme Court in paragraphs 20, 22 and 27. He referred to the judgment of Justice P.Krishnamoorthy in Ambikakumari v. Ramakrishnan, 1991(2) KLT 728 in support of the argument that Annexure -A agreement is without consideration. 9. I have considered the rival submissions addressed at the Bar in the light of the contentions raised by the parties and the law noticed from the statutory provisions referred to and the judicial precedents AR. N0. 45/07 -10- cited. The Constitution Bench of the Supreme Court in SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618 at paragraph 39 indicated as to what exactly are the matters which the Chief Justice or the designated Judge is expected to decide on considering applications under section 11 of the Arbitration and Conciliation Act, 1996. It is held as follows: “Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.” Ultimately at paragraph 47 of the majority judgment their Lordships have summarised their conclusions as follows: AR. N0. 45/07 -11- i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power. ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to another Judge of the Supreme Court. iii) In case of designation of a Judge of the High Court of of the Supreme Court, the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute. iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. v) Designation of a District Judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act. vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act. Vii) to (xii) ......... .... ..........” AR. N0. 45/07 -12- Clause 7 of Annexure-A certainly means an arbitration agreement as defined by section 7 of the Arbitration and Conciliation Act, 1996. The first question which will have to be considered is whether it can be said that the claim of the petitioners to have specific enforcement of the agreement is bad for limitation in view of section 43 read with section 21 of the Arbitration and Conciliation Act. Annexure -F would clearly show that the period for performance of agreement had been extended till 4-10-2005. That being so, it is idle to contend that the remedy of specific performance if sought for in a civil court stands barred to the petitioners. Thus the contention that the applicants claim is a stale one is only to be repelled. 10. Now as for the contention that Annexure -A agreement is void for want of consideration that the agreement has become incapable of performance due to subsequent events beyond the control of the parties and not even their contemplation. It is seen that these contentions are raised mainly on the basis of the express recitals regarding consideration in the sale deeds executed by the petitioners and the situation that despite all the efforts of the petitioners they will not be able to obtain possession of the land on which the building is to be constructed. Most importantly the promulgation of the notification under section 4(1) under the Land Acquisition Act in view of the AR. N0. 45/07 -13- avowed public purpose of establishing the Kochi Metro Rail Project is also highlighted. It would appear as if there is considerable merit in the argument of the respondent that since the properties are under the acquisition proceedings for the purpose of Kochi Metro Rail Project it has become impossible for the respondents to fulfill their obligations under Annexure -A has force. But at the same as rightly submitted by Mr.Krishnan Unni on the basis of section 21 of the Specific Relief Act the question as to who was in breach first whether the original respondent could have discharged her obligations under Annexure- A within the extended period of the agreement will be of relevance. It may be possible for the respondent to claim compensation even when it is found that specific performance is not legally possible. I therefore tentatively held that disputes survived between the petitioners and the respondent over Annexure -A agreement to be resolved in terms of clause 7. Hence I am inclined to allow the arbitration request and to appoint an independent and impartial arbitrator. The name of Justice B.M.Thulasidas, retired Judge of this court known for integrity was suggested and it was submitted by the counsel for the respondent that in case this court is keen to allow the application there will not be objection regarding the person. Accordingly, allowing the A.R. Justice B.M.Thulasidas, retired Judge of this court is appointed as arbitrator AR. N0. 45/07 -14- for settling the disputes which have arisen between the parties in respect of and over Annexure- A agreement. It is made clear that the findings entered herein regarding the merits of the various contentions raised by the respondent will only tentative and the respondent is permitted to raise all contentions regarding the arbitrability of the disputes before the arbitrator. Arbitrator will invite pleadings and if counter claims are received the arbitrator will adjudicate upon and settle counter claims also. The arbitrator will enter on reference and make and publish his award without undue delay. (PIUS C.KURIAKOSE, JUDGE) ksv/-