1 arbp108-10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.108 OF 2010 M/s.Matrubhoomi Granites Pvt. Ltd. ....Petitioner V/s. Mukon Constructions Pvt. Ltd. ....Respondent Mr.S.U. Kamdar, Senior Counsel with Ms.Preeti B. Walimbe for the Petitioner. Dr.Virendra V. Tulzapurkar, Senior Counsel with Mr.Cyrus Ardeshir i/b M/s.Madekar & Co. for the Respondent. CORAM : S.J. VAZIFDAR, J. DATE : 20TH SEPTEMBER, 2010. P.C. :- 1. This is a petition under section 9 of the Arbitration and Conciliation Act, 1996 for interim reliefs to protect the petitioner’s rights under an agreement dated 13.9.2008. 2. Clause 2 of the agreement read as under :- “2. The Developer agrees to sell and transfer and arrange to transfer and the Transferee agrees to purchase and to obtain transfer of and acquire slum T.D.R. so as to avail of F.S.I. to the extent of construction of 3000 sq. mtrs equivalent to 32292 sq.ft. or thereabouts (with the incidental benefits if any) from and out of the Development Rights Certificate(s) to be granted /issued immediately after the date hereof by the Municipal Corporation of Greater Mumbai (MCGM) on recommendation of Slum Rehabilitation Authority (SRA) as stated hereinbefore. (hereinafter referred to as the said T.D.R.). “ The entire consideration for the sale fixed at Rs.1.00 crore 2 arbp108-10 (clause 5) was paid on the execution of the agreement (clause 6). The respondent agreed not to claim any further amount on any ground (clause 7). There is no dispute that the above clauses establish an agreement for the sale and transfer by the respondent to the petitioner of the T.D.R. as stated therein. 3. Dr.Tulzapurkar, the learned Senior Counsel appearing on behalf of the respondent however, submitted that the agreement was in fact not for the sale of the said T.D.R. He submitted that the transaction between the parties was a loan of Rs.1.00 crore by the petitioner to the respondent and the terms and conditions contained in the agreement were only to secure the repayment thereof. In support of this submission, Dr.Tulzapurkar relied upon various clauses of the agreement. 4. Referring to clause 4, he submitted that the T.D.R. was not yet available and would be available only in future. He submitted that it was not likely that the petitioner would pay the entire consideration even before the T.D.R. was generated. 5. The submission is not well founded. There is nothing unusual about such a provision. The project is a large one involving 11,000 sq. mtrs. I see nothing unnatural in the petitioner proceeding on the basis that the project would be implemented and thereupon the T.D.R. would be made available in phases as per the rules and regulations in force. After all the respondent is a developer. There is nothing unnatural about the petitioner presuming that the respondent would develop the property and would not merely leave it as it is without carrying out any work thereon. 3 arbp108-10 6. Dr.Tulzapurkar then placed reliance upon clauses 11, 12 and 16 which read as under :- “11. The Developers agree that unless all their obligations under these presents is discharged in full to the satisfaction of the Transferee, the Developer specifically agree and undertake that the Developers shall not be entitled to sell, transfer, assign, encumber, alienate deal with or dispose off the balance unsold TDR i.e. the total TDR less the said TDR to be generated on the said property and/or the said project of the SRA scheme to any other person or persons, entity or third party. 12. If due to any reason whatsoever the Developer fails or neglects to obtain or receive and transfer / endorse the said TDR as agreed within the stipulated period of three months from the date hereof, and/or if any of the terms, conditions and covenants as contained in this Agreement is not complied with by the Developer for any reason whatsoever, then in that event, the Transferee shall be absolutely entitled to, without any reference or recourse to or consent of the developer, to cancel and terminate this agreement and in such event, the Transferee shall at any time thereafter inform in writing to the developers of their intention to cancel and terminate this agreement and within 7 days thereafter, the developers shall be legally bound and liable to refund the amount paid under this agreement alongwith lumpsum damages of Rs. 1,24,00,000/- (Rupees One crore twenty four lacs only) against the cancellation and termination which damages will be proportionately increased for the period of delay in payment thereof beyond said expiry of 7 days PROVIDED HOWEVER it is clarified and confirmed that the cancellation and termination of this agreement shall become effective, valid and binding only against the receipt of the full and final amount stated hereinabove by the Transferee from the developers. Time shall be the essence for the provisions contained herein. 16. Without prejudice to the terms and conditions of this agreement, the Developer further agrees that in the event of failure or neglect on the part of the Developer to deliver / transfer / endorse the said TDR to the Transferee and/or their nominee (s) as agreed under these presents, within the grace period of 90 days from the expiry of stipulated time period of 90 days i.e. 180 days from the date hereof, the Transferee shall be entitled to all the Developer/s rights, interests, privileges and benefits in the 4 arbp108-10 said Project, and the said property and the total TDR including right to sell, transfer, deal with or dispose off the total TDR or part thereof or Constructions on the said property where the total TDR is generated together with the plant, machinery, fixtures, tenements or buildings standing thereon at that time at the risk and cost of the Developer and the same shall be deemed to have been vested in the Transferee provided further that the Transferee shall not object to or shall have no objection on the grounds whatsoever to the sale, transfer, assignment or vesting by reason of breaches provided in this clause and further that in the event of sale, transfer or vesting of all the rights of the said property, said project and total TDR in the Transferee, the Developer agrees to sign, execute and get registered a necessary agreement or and/or any other document or documents to effectively transfer the right, title and interest of the Transferee to that effect at the costs and expenses (including Stamp duty and registration charges) of the Developer immediately within the period of 30 days commencing from the date of failure or neglect and for the effective implementation of the provisions herein, have executed Power of Attorney in the favour of nominees of the Transferees, to be exercisable and enforced on expiry of the said grace period of 90 days PROVIDED HOWEVER that the Transferee shall be entitled to the sum paid under this agreement along with amount of damages as mentioned herein with further amount of proportionate damages for the delayed realization beyond the period of three months after further costs, charges, taxes etc. if applicable, and all the balance realization, if any, after retention of above sum, shall be forthwith refunded to the Developer”. 7. Clause 11 in fact entitles the petitioner to protect its rights under the agreement. It is of little assistance to the respondent especially at the interlocutory stage. The clause is consistent with both cases. 8. Clause 12 is also of no assistance to the respondent at least at the interlocutory stage. Clause 12 confers upon the petitioner an option of terminating the agreement in the event of the respondent being unable to make available the T.D.R. That the consequences of the petitioner terminating the agreement are drastic, in fact militates against the 5 arbp108-10 submission that the transaction between the parties is only one of a loan and that the agreement was entered into as a security to ensure due repayment thereof. The drastic consequences are far in excess of any reasonable return by way of interest. Had the transaction been only of a loan the return would normally not be to the extent of 120% within three months. It in fact indicates a provision for liquidated damages which is normally not the case where the transaction is only of a loan. 9. Clause 16 also does not support the respondent. The extent of protection granted would if at all support the petitioner. The T.D.R. agreed to be sold constitutes about 27.27% of the entire holding of the respondent. It is difficult to imagine security to this extent being furnished for a loan of only Rs.1.00 crore. 10. Dr.Tulzapurkar also relied upon the fact that although the T.D.R. was to be made available within three months from the date of the agreement, the petitioner made no demand for the same. On 9.7.2009, the respondent addressed a letter to the petitioner stating that they were trying to mobilise the resources and recorded that there was a delay in repayment of the loan. It was only in response to this letter that the petitioner by a letter dated 10.7.2009 stated that the transaction was not of a loan but one of sale and purchase of the said T.D.R. 11. I do not see how the above circumstances can be of any assistance to the respondent. That the petitioner waited for six months, cannot be held against it merely because it was entitled to the T.D.R. by that time. In a transaction of this nature, there is nothing unusual about a party waiting for six months for the vendor to perform the transaction of 6 arbp108-10 sale. 12. The subsequent correspondence in fact is of no assistance to the respondent. In fact it supports the petitioner as despite the petitioner having elaborately and clearly stated the true nature of the transaction is as contained in the said agreement, the issue was not really addressed by the respondent in equally strong term. 13. The petitioner has therefore made out a strong prima-facie case for an order protecting its rights. 14. I hasten to add that there is much to be said in the matter on both sides. The respondent has produce evidence which prima-facie at least indicates that on the date of the agreement i.e. 13.9.2008, the cost of 3000 sq.mtrs. T.D.R. would have been about Rs.6.50 crores, whereas the consideration under the agreement is only Rs.1.00 crore. While this is certainly a very important matter to be taken into consideration while considering the rival contentions I would not virtually non-suit the petitioner on this ground alone. To say the least, the disputes between the parties would require to be decided finally. 15. In that view of the matter, I do not intend granting an injunction of the nature sought by the petitioner as that will totally freeze the activities of the respondent. It is necessary to balance the equities at the interlocutory stage by protecting the petitioner’s interests on the one hand and ensuring that the respondent’s rights are not affected qua the rest of the property. This, in my view, can be done by granting an injunction in respect of the T.D.R. in tranches to wit by granting an injunction in respect 7 arbp108-10 of a percentage of the T.D.R. which is made available from time to time although under clause 11 the petitioner is entitled to protection with respect to the limited TDR itself. The property is always there. The respondent cannot be permitted to part with the entire property to third parties. In this manner, the petitioner’s rights over 3000 sq.mtrs., T.D.R. will be protected and the respondent would be in a position to develop the property to the remaining extent. 16. The learned counsel appearing on behalf of the Petitioner and the Respondent,upon taking instructions from the clients, state that they have agreed and decided that all the disputes and differences between them under the said agreement be referred to the sole arbitration of Mr. Justice S.S. Tipnis (Retd.). They state that they have authority from their clients to agree to the same. It is, accordingly, so ordered. The parties state that they will invite an order to that effect in the application filed by the Petitioner under section 11 being Arbitration Application (Lodg.) No.982 of 2010. 17. The petition is disposed of by the following order :- (a). Pending the award and for a period of twelve weeks thereafter, the respondent is restrained from alienating, encumbering, disposing of or creating any third party rights in respect of : i). one third of the T.D.R. as and when the same is made available, upto the aggregate required to avail of FSI of 3000 sq.mtrs. as per clause 2 of the agreement, and ii). its rights in respect of the entire property described prior to the T.D.R. being made available in respect thereof without the leave of the 8 arbp108-10 arbitrator. (b). The respondents shall immediately, upon being entitled to any TDR, inform the petitioner and it’s advocates of the same and furnish copies of the documents in connection therewith. (c). There shall be no order as to costs.