((-1-)) IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.645 OF 2005 IN ARBITRATION PETITION NO.78 OF 2005 Shree Ram Mills Limited, Avadh Building, Ganpatrao Kadam Marg, Lower Parel Division, Mumbai 400 013. Appellant versus 1. Kalpataru Construction Overseas Pvt.Ltd; 111, Maker Chamber-IV, Nariman Point, Mumbai 400 021. 2. Vijay nfrastructure Technolo- gies Pvt. Ltd; 8, Vithalwadi, Kalbadevi, Mumbai 400 002. Respondents Mr.Vinod Bobde, Mr.Jimmy Pochkanwalla and Mr.Shyam Diwan - Sr.Counsel with Mr.P.A.Sawant and Mr.Sameer Garad i/by M/s.Khaitan & Jaykar for appellant. Mr.I.Chagla, F.Divtre, Mr.D.Khambhata - Sr.Counsel with Mr.M.S.Doctor i/by M/s.Federal & Rashmikant for respondent no.1. Ms.Pratibha Mehta i/by M/s.Little & Co. for respondent no.2. CORAM : DR.S.RADHAKRISHNAN AND CORAM : DR.S.RADHAKRISHNAN AND CORAM : DR.S.RADHAKRISHNAN AND S.C.DHARMADHIKARI, JJ. S.C.DHARMADHIKARI, JJ. S.C.DHARMADHIKARI, JJ. DATE OF RESERVING THE JUDGEMENT : 06.10.2005 DATE OF RESERVING THE JUDGEMENT : 06.10.2005 DATE OF RESERVING THE JUDGEMENT : 06.10.2005 DATE OF PRONOUNCING THE JUDGEMENT : 27.10.2005 DATE OF PRONOUNCING THE JUDGEMENT : 27.10.2005 DATE OF PRONOUNCING THE JUDGEMENT : 27.10.2005 ORAL JUDGEMENT : (PER - S.C.DHARMADHIKARI, J.) :- ORAL JUDGEMENT : (PER - S.C.DHARMADHIKARI, J.) :- ORAL JUDGEMENT : (PER - S.C.DHARMADHIKARI, J.) :- ((-2-)) 1. This appeal under section 37 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act") read with clause 15 of the Letters Patent challenges an order passed by a learned Single Judge in Arbitration Petition No.78 of 2005. By the order under challenge, the learned Single Judge has, on a petition filed by the first respondent herein, under section 9 of the Arbitration Act, passed the following order:- " ... ... ... ORDER (i) Interim order in terms of prayer clause a(ii) and a(iv). (ii) In case the Petitioners deposit an amount of Rs.13.30 crores in this Court and furnish a bank guarantee of a nationalised bank in the terms in which it is contemplated by the contract between the parties dated 28-6-2004 to the satisfaction of the Prothonotary & Sr. Master of this Court, within a period of eight weeks from today, interim order in terms of prayer clause a(i) shall stand granted. (iii) In that event, the Receiver shall take possession of the property and appoint the Petitioners to be his agent in possession of the property on usual terms and conditions, but without security and royalty. It is clarified that in that event the Petitioners shall be entitled to develop the property in accordance with law. ((-3-)) (iv) Petitioners shall be at liberty to apply for further reliefs, if necessary, either from the court or from the Arbitral Tribunal. (v) In case the bank guarantee is furnished and the amount is deposited, the amount shall be invested in a fixed deposit in a nationalised bank during the pendency of the Arbitration proceedings. In relation to the bank guarantee, the Respondents shall be at liberty to make an application for further orders either before the Court or before the Arbitral Tribunal. (vi) In case the Petitioners fail either to deposit the amount of Rs.13.30 crores as directed above or to furnish the bank guarantee within the period mentioned above, this order shall stand vacated and the petition shall be treated as dismissed. It is clarified that the amount shall be deposited and the bank guarantee shall be furnished by the Petitioners with due notice to the Respondents. (vii) Petition disposed of." 2. Prayer clauses a(ii) and a(iv) of the Arbitration Petition claim an injunction against the appellant and the second respondent, restraining them from selling, alienating, transferring, parting with possession or creating any third party rights in any manner whatsoever in respect of the property which is more particularly described at Exhibit A-1 and Exhibit-T to the Arbitration Petition. The said prayer also seeks relief with regard to certain areas which are described at Exhibit A-2 of the ((-4-)) petition. The prayer clause a(iv) of the Arbitration Petition seeks an injunction in respect of a larger property, which is described in Exhibit-A. A reference would be made to these reliefs in some details in the latter part of this judgement. 3. For appreciating the appellant’s challenge to the impugned order, a reference to few facts is necessary. Appellant is the original respondent no.1 to the above Arbitration Petition, whereas, first respondent is the original petitioner thereto. Original respondent no.2 is impleaded in this appeal as second respondent. 4. The parties shall be referred to as per the nomenclature in the Arbitration Petition. 5. Petitioner as well as first respondent are companies incorporated under Companies Act, 1956 and have their registered office at Mumbai. The petitioners are engaged in business of acquiring, constructing, developing, marketing and selling immovable properties. 6. Respondent no.1 is the owner of immovable properties in Mumbai. It is a part of "S.Kumar’s ((-5-)) Group". It is owned and controlled by members of Kasliwal Family. It is contended that second respondent is also a group company. 7. Respondent no.1 is the owner and absolutely and well and sufficiently entitled to twelve adjoining pieces and parcels of land situate at Lower Parel in Mumbai, being partly freehold and partly perpetual leasehold, bearing C.S. Nos.288, 289, 1/1540, 2/1540, 3/1540, 1547, 1548, 1549 and 1550 of Lower Parel Division and also bearing C.S.Nos.309, 210 and 1/1539 of Lower Parel Division (corresponding Plot Nos.245 and 246 of Worli Estate Scheme No.52) totally admeasuring 67,785.50 sq. mtrs. or thereabouts with buildings and structures standing thereon. The said lands and buildings are hereinafter referred to as "the larger property". By an Agreement dated 28th June 2004 styled as a "Memorandum of Understanding" (for short "MOU") between the petitioners and the respondents, the respondent no.1, with the consent and concurrence of respondent no.2, inter alia, agreed to grant assign and convey to the petitioners lands admeasuring in aggregate 20,955.40 sq. mtrs. (out of the said larger property) situate at G.M.Bhonsale Marg, Mumbai (hereinafter referred ((-6-)) to as "the said property"). Under the said MOU, the petitioners were also granted the exclusive right to utilize the FSI of the said property on the basis of existing FSI ratio of 1:1:33 i.e. a total net FSI of 3,00,000 sq. ft. on the said property, as therein provided. 8. The total consideration for the said transfer was Rs.105.30 crores, being an amount of Rs.86.30 crores payable by the petitioners to the respondents under the MOU and an amount of Rs.19 crores agreed to be paid at the respondents’ request to "Ajit Enterprises", a nominee of the respondents, which the petitioners believe is a partnership firm of the "S.Kumars Group" and of the Kasliwal family. Eventually, on 10th December 2004, an "Addendum to the MOU" was entered into at the request of the respondents, whereunder the amount payable under the MOU was agreed to be Rs.105.30 crores, payable to the respondents. The arrangement with "Ajit Enterprises" was accordingly cancelled. The said MOU dated 28th June 2004 and the said Addendum thereto dated 10th December 2004 are part of one and the same transaction and are one agreement and are hereinafter referred to as "the said Agreement". The petitioners annexed copies of ((-7-)) the MOU and the Addendum thereto as Exhibits-B and B-1 to the petition. 9. Acting under and in pursuance of the said MOU, the petitioners by their cheque dated 28th June 2004 bearing No.781766 drawn on ICICI Bank Limited, duly deposited with the respondents’ advocates, a sum of Rs.5 crores, as recorded by the petitioners’ advocates’ letter dated 29th June 2004, wherein a request was also made for various documents. On or about 7th September 2004 the petitioners made payment of a further sum of Rs.5 crores to the respondents as provided in the said MOU, pending compliance by the respondents of various issues. 10. The further case of the petitioners is that at the request of the respondents, their Architect was deputed to assist and co-operate in the matter of obtaining approval for the revised lay-out and for sanction of plans etc.. There is a reference to the correspondence with regard to the approved revised lay-out, building plans and title of the first respondent to the larger property. 11. In the petition, there is a reference to the ((-8-)) meeting held on 10th November 2004 wherein several aspects with regard to the completion of transaction were discussed. The minutes of the meeting were prepared and signed by the respondents, and according to the petitioners, they are false and incorrect. There is a reference to the further meeting held on 28th November 2004 where again the matters were discussed. The petition then refers to the correspondence after this meeting. It is contended that the respondents did not comply with their obligations under the MOU during the time specified. It is contended that as per the Addendum the consideration was modified and it was to be Rs.105.30 crores instead of Rs.86.30 crores. It is contended that acting on the Addendum, further sums were paid and thus petitioners paid a sum of Rs.30.00 crores. it is then contended that necessary documents were to be exchanged, drafts of which were also forwarded. 12. We need not discuss these aspects in details because admittedly the matter is pending before the Arbitral Tribunal. It is contended by the petitioners that they forwarded drafts as also complied with other requisitions. They even ((-9-)) consented to mortgage of a large property. It is also contended that since there was no response from the respondents, a meeting was held on 6th January 2005 where again, without prejudice, proposals were placed for consideration. It is contended that at this meeting the respondents demanded a higher amount for the transaction to be completed. It is alleged that petitioners took all steps for completing the transfer and the transaction. 13. It is contended that one of the requirement was furnishing of draft of Deeds of Bank Guarantees in favour of the respondents to secure the payments of Rs.57.5 crores, as provided in the agreement. The respondents initially suggested alterations in the wordings of the said guarantees but the same were not acceptable to the petitioners’ bankers. The correspondence with the bank is also referred to. Ultimately, it is contended that by a letter dated 14th January 2005 the petitioners’ advocate addressed a letter to the respondents’ advocate and recorded all facts and reconfirmed that the assignment in the clause of the bank guarantee was in order. The petitioners’ advocate called upon the respondents’ advocate to fix a meeting ((-10-)) to finalise the last draft of the Deed of Conveyance and Assignment. Instead of replying to this letter, at a meeting the representatives of parties on 17th January 2005, demand for increased amount was repeated by the respondents. 14. It is in this context that the petitioners contended in their petition that they are and have, at all material times, been ready and willing to provide said bank guarantees and to make the payment under the agreement. They have made all arrangements for the same and are and have at all material times been ready and willing to complete the transaction as per the agreed terms even though the respondents have failed to do so. 15. The petitioners have recorded in their advocates’ letter dated 11th February 2005 the entire development and the conduct of the respondents in demanding higher sums. They have also recorded in this letter that the respondents have started entertaining offers from others with regard to the property and/or considering developing the same by themselves. In this letter the petitioners called upon the respondents to desist in doing so. ((-11-)) 16. After referring to the terms and conditions incorporated in the documents and reciprocal obligations, it is contended by the petitioners that having paid a sum of Rs.30.00 crores and expressed readiness and willingness as aforesaid, it is clear that the petitioners are entitled to specific performance of the agreement which is valid, subsisting, in full force and effect and binding on the parties. It is contended that monetary sums would not be the compensation and relief for non performance of the agreement. Disputes and differences having thus arisen, the matters are being referred to Arbitration. 17. It is in these circumstances that in the petition, averments and prayers are made for interim measures from the Court for protection of the rights. The averments in this behalf are in paras 4(a), 4(b), 5(e) and 5(f). In para 6 of the petition it is contended that balance of convenience for grant of interim and ad-interim reliefs is in favour of petitioners and they have made out a strong prima facie case. If interim and ad-interim reliefs are not granted, grave and irreparable loss, injury and damage will be caused which could not be compensated in monetary ((-12-)) terms. 18. As noted above, it is this petition instituted on 14th February 2005 which was entertained by the learned Single Judge. 19. Upon being served with the papers, the first respondent namely appellants before us, filed their reply. It is their case that the complete arrangement between the parties is reflected not only in the MOU and Addendum but also in the gist of the meetings dated 10th November 2004 and 24th November 2004 and the correspondence referred to in the affidavit in reply. The bona fides of the petitioners were challenged inasmuch as it was contended that an attempt is made to revive the transaction and freeze the valuable property when the same is repudiated by the petitioners by not performing their obligations in time and/or committing breach thereof. Therefore, the petition is liable to be dismissed. 20. It is contended that the arrangement between the parties is that of development of an immovable property by a builder as a commercial venture for profit. The nature of the arrangement being such the petitioner is not ((-13-)) entitled to specific performance and damages would be adequate and complete relief. Without prejudice to the aforesaid, it was contended that as S.Kumar Group was in immediate need of about Rs.100.00 crores latest by October 2004 for financing its group companies particularly the Maheshwar Hydro Electric Project, the first respondent proposed to sell as aforesaid a part of the said property representing 20,955 sq. mtrs. (FSI of 3,00,000 sq. ft.), which is referred to as the Developable Land in the said MOU.. These funds were needed by October 2004 mainly in order to start the construction of Maheshwar Hydro Electric Project in the dry season. It was, therefore, made abundantly clear to the petitioner that any delay in receiving the consideration for the sale of suit property would result in the Maheshwar Hydro Electric Project being delayed beyond the critical dry season and may require even the Project to be abandoned exposing the first respondent to severe penalties and claims besides severe losses in excess of Rs.700 crores (Seven hundred crores). It was therefore, absolutely necessary for the first respondent to raise these funds from sale of the Developable Land latest by October 2004. If the respondent no.1 had to undertake development ((-14-)) themselves, it would take more than a year before the funds required by them could be raised. This was well known to the petitioners who all along assured the first respondents that they would ensure that the funds from the property transaction would be received by the first respondents well within the stipulated period of four months. 21. Reliance was placed by respondent no.1 on clause-5 of the Agreement which provided for furnishing of unconditional bank guarantees to the tune of Rs.57.50 crores. Reliance was also placed on clauses 14 and 15 thereof. It was then contended that the first respondent’s principal obligation under the MOU was to obtain a duly sanctioned layout from the Bombay Municipal Corporation under Regulation 58 of the DCR, obtain approval of the Monitoring Committee under the provisions of Regulation 58 of the DCR, obtain ULC permission for residential user and obtain IOD for 3,00,000 sq. ft. FSI in addition to making out a clear and marketable title. Pursuant to the MOU, the first respondent have duly fulfilled all these obligations required to be complied with by them under clauses 2 and 3 of the MOU and have demonstrated their ability to ((-15-)) fulfil the obligations under clause 4 of the MOU which stage has till not arrived in view of the defaults of the petitioner in making payment and securing bank guarantees. 22. It was contended that the first respondent has fulfilled various requirements as enlisted by the petitioner and details whereof are furnished at Exhibit-VIII of the affidavit in reply. Respondent no.1 thereafter placed reliance upon several letters and other documents in support of their contention that complete compliance was made by them. 23. It was contended that the petitioner being unable to procure Assignable Bank Guarantees Assignable Bank Guarantees Assignable Bank Guarantees has raised frivolous issues strictly not related to the completion of transaction. They neither completed transaction nor made payment nor furnished the bank guarantees within the agreed period or the extended period, but itself repudiated the contract by non performance in time. The reasons for the petitioner not being entitled to any reliefs in the petition are set out in details in para 7 of the affidavit in reply. As far as the aspect of non furnishing of the bank guarantees, in the affidavit in reply ((-16-)) the contention raised is realizing the petitioner’s inability to procure the assignable bank guarantees, the first respondent suggested another alternative to bank guarantee viz. of receiving monies directly from the petitioner in place of bank guarantee after deducting interest costs of first respondent in encashing the bank guarantee. However, the petitioner failed to respond to this. Even in the personal meeting of 20.12.2004, the first respondents requested the Chairman of the petitioner to arrange for the moneys directly. However, the Chairman of the petitioner clearly expressed his inability to arrange for the funds directly, or to get the required bank guarantees issued. It was under these circumstances that the four days grace period was agreed setting the date of 24.12.2004 for completion of the transaction. Even by that date the petitioner failed and neglected to perform its obligations. This was a clear repudiation by the petitioner. 24. On 06.01.2005 Mr.Bhansali of the petitioner met with the Directors of the first respondent wherein he once again reiterated the petitioner’s inability to arrange for the assignable bank guarantees. It was therefore, clear by then that ((-17-)) the petitioner had repudiated the arrangement under the MOU.. In the said meeting, the first respondent accepted the repudiation and also discussed the issue of refund of Rs.30 crores received from the petitioner. Thus, the arrangement between the parties was put an end to. It was in these circumstances, that another meeting was arranged on 17.01.2005 between the directors of the first respondent and the directors of the petitioner wherein the petitioner used abusive language and instead of any substantive discussions regarding refund of Rs.30 crores, the meeting ended on a sour note. 25. In details, the issue, as to whether the petitioners were at all interested in completing the transaction and fulfilling their obligations under the agreement, is specifically raised in the affidavit in reply. 26. Since something turns on the ambit and scope of the powers of the Court under section 9 of the Arbitration and Conciliation Act, 1996, a reference to the averments in para 12 of the affidavit in reply becomes necessary. The same reads thus :- ((-18-)) "12. Without prejudice to the aforesaid, I submit that in any case, the Petitioner is not entitled to any relief in respect of the property described in Exhibits-A and A-2 to the Petition. In this context, I say that the present petition has been filed under Section 9 of the Arbitration and Conciliation Act, 1996. Under the said Section 9, reliefs can be granted only in respect of property which is the subject matter of the agreement, under which arbitration is invoked. In the present case, the property described in Exhibits A and A-2 to the petition, is not the subject matter of the said MOU or the said addendum, and, therefore, in the present petition, no relief can be granted in respect of the same." 27. The entire petition was thus dealt with. There are appropriate denials and assertions. First respondent has set out their independent pleas and has also placed reliance upon certain clauses in the agreement and correspondence to support the same. This detailed affidavit in reply together with several annexures came to be filed on 21st March 2005. 28. It appears that when the arbitration petition was placed before the learned Single Judge at initial stage, parties tendered minutes of order recording following :- " Without prejudice to all the rights and contentions of the parties and only in order to enable the First Respondent to ((-19-)) file an affidavit in reply, counsel appearing for the First Respondent states that for a period of two weeks from today: 1. The First Respondent shall maintain status quo in respect of Plot No.5A which is shown on the Relocation Plan annexed hereto, a copy of which is made available to the Petitioners and is also shown on the Plan Exhibit "T" to the Petition in blue bounded line. It is however, clarified that the demolition of the building "Avadh", partly situated on the said Plot No.5A shall continue, without prejudice to the rights and contentions of the parties. 2. The First Respondent shall also maintain status quo with regard to Plot No.3(MP), Plot No.4 (PG), Plot No.6 (RG) and Plot No.8 (MHADA) shown on the said Relocation Plan as well as Plot Nos.4A and 3A also shown on the Plan annexed hereto where the proposed relocation of "MP and PG" areas is to be done. 3. It is however clarified that the statement of status quo will not prevent the First Respondent from carrying out the relocation of Plot Nos.3 and 4 (MP and PG) respectively, in the event of the BMC permitting the relocation of the said Plot Nos.3 and 4 (MP and PG). In that event the First Respondent will hand over the said Plot Nos.3A and 4A respectively to MCGM in accordance with the DC Regulations. 4. It is further clarified that the First Respondent shall keep the areas required for the purpose of providing the accesses to Plot No.5A as shown in black colour on the Plan Exhibit "T" to the petition. 5. It is also further clarified that the statement of status quo with regard to Plot Nos.6(RG) and 8 (MHADA) will not prevent First Respondent from taking such steps as may be necessary to surrender the said Plots to BMC and MHADA as provided in MOU (Exhibit "B" to the petition). ((-20-)) 6. Counsel states that the First Respondent has not till date created any third party rights nor alienated or transferred or encumbered with any of the aforesaid Plots and areas save and except as disclosed in the correspondence and documents furnished to the petitioners. 7. Counsel further states that agreement between the Respondent No.1 and Respondent No.2 dated 27th June 1996 pertaining to Plot No.5A has been cancelled pursuant to the deed of Cancellation dated 21st December, 2004 and the Respondent No.2 has no right, title, interest or claim of any nature whatsoever in the said Plot No.5A." 29. No doubt this arrangement was till the arbitration petition was heard and disposed of. So also it was without prejudice to the rights and contentions of both sides. It further appears that the arrangement was arrived at to enable the first respondent (appellant herein) to file their affidavit in reply. 30. After affidavits were filed by both sides, the petition was placed before the learned Single Judge for hearing and final disposal. By order under challenge, the learned Single Judge allowed the