THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.51 of 2010 Date: 18th November, 2011 Between: M/s.Maytas Ventures Farms Pvt. Ltd., A company incorporated under the Companies Act, 1956, having its registered office at 3rd Floor, Amogh Plaza, Begumpet, Hyderabad, rep. by its Authorised Signatory Mr.K.Gopala Krishnam Raju …Applicant A n d 1) Vegulla Sriranga Rao S/o Suryanarayana Aged about 58 years, R/o Rajeev Nagar Hyderabad 2) Vegulla Sai Venkata Ramana R/o Rajeev Nagar, Hyderabad. …Respondents *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.51 of 2010 ORDER: This Arbitration Application has been taken out by M/s.Maytas Ventures Farms Pvt. Ltd., under sub-sections (5) and (6) of Section 11 of the Arbitration and Conciliation Act, 1996, (for short, “the Act”), r/w. Scheme for appointment of Arbitrators, 1996, seeking appointment of an arbitrator to resolve the disputes relatable to the Memorandum of Understanding, dated 13.06.2007. 2. The case of the applicant, in brief, is as follows: M/s.Maytas Ventures Farms Pvt. Ltd. is a Company incorporated under the provisions of the Companies Act, 1956, having its registered office at 3rd Floor, Amogh Plaza, Begumpet, Hyderabad. Vegulla Sriranga Rao-1st respondent is the owner of land admeasuring Ac.2.46 cents in S.No.93 situated in Kakinada village, Ac.1.83 cents in S.No.93, Ac.0.63 cents in S.No.93 and the 2nd respondent is owner of land admeasuring Ac.0.50 cents in S.No.105/2 situated in Kakinada village, Kakinada Urban Mandal, East Godavari District. The applicant Company proposed to form a layout and to construct housing project in an extent of Ac.570 with a minimum contiguous area of Ac.450 comprising Survey Nos.2 to 17 and 31 to 108 of Medaline Village, Kakinada. The respondents entered into a Memorandum of Understanding, dated 13.06.2007, with the applicant for development of their land along with other lands under acquisition by the applicant in the vicinity. As per the terms of the Memorandum of Understanding, dated 13.06.2007, the respondents sought crop loss compensation till the layout is completed. The applicant Company agreed to pay annual crop loss compensation at the rate of Rs.10,000/- per acre per annum commencing from June, 2007, until the developed sites are handed over to the respondents. The extent of area, which the applicant has to hand over to the respondents, has been stated in the Memorandum of Understanding, dated 11.06.2007. The respondents received annual crop loss compensation for the year 2007-2008. Annual crop loss compensation has been increased from Rs.10,000/- to Rs.15,000/- per acre and the same has been paid to the respondents for the year 2008- 2009. The Government issued notification proposing to acquire the entire area of 570 acres along with adjacent land admeasuring 252 acres in the month of June, 2007 i.e. on 14.06.2007. The applicant persuaded the Government for de-notification and ultimately got de- notified the acquisition proceedings by the Government. A crisis occurred in Satyam Computers in the month of January, 2009. The respondents and other land owners apprehended that there was likelihood of documents executed by them being seized in connection with Satyam Computers episode. Therefore, the applicant entrusted the documents executed by the landowners with ‘Abhyudaya Rythu Sangham’ formed by the landowners for safe custody with a condition to return the documents to the applicant Company on demand. In the month of June, 2009, the applicant called the respondents and other land owners for the purpose of making payment of crop loss compensation to them. But, the land owners did not turn-up and dilly dallied the matter on one pretext or the other. The applicant Company on coming to know that the respondents and other land owners are trying to alienate the lands, got issued a telegraphic notice to the respondents and also to one M/s.Roaring Conch Realty Developers Pvt. Ltd., in favour of which, the respondents are contemplating to execute some documents to nullify the claim of the applicant. The respondents issued a reply notice stating that the applicant has given up its claim over the property by returning the original documents. Hence, the disputes arose between the applicant Company and the respondents relatable to the Memorandum of Understanding, dated 13.06.2007. The applicant invoked arbitration clause in the Memorandum of Understanding, dated 13.06.2007, and nominated Sri Justice P.L.N.Sarma, a Retd. Judge of High Court of A.P., as an arbitrator on its behalf and requested the respondents to appoint their arbitrator to proceed with the resolution of disputes. The respondents received the notice and issued reply, dated 07.02.2010 refusing to appoint arbitrator on their behalf. Hence, this application seeking the relief stated supra. 3. Notice to the respondents came to be ordered on 28.04.2010. The respondents entered appearance and filed counter affidavit admitting the execution of the Memorandum of Understanding, dated 13.06.2007. According to the respondents, they along with other landowners through their elected representatives persuaded the Government to withdraw the acquisition proposal. The applicant abandoned its project by returning the Memorandum of Understanding, dated 13.06.2007. After the respondents and the other Ryots got the lands deleted from the acquisition, the applicant started claiming the rights pursuant to the Memorandum of Understanding, dated 13.06.2007 to have unlawful gain. The applicant has not followed the procedure contemplated in the Memorandum of Understanding, dated 13.06.2007 for invoking the arbitration clause. Therefore, the application filed by the applicant is liable to be dismissed. It is also stated in the counter affidavit that there is no legal entity by name ‘land owners association’ and the said entity is an imaginary one and in which case, Clause 18 is nonest in law. The applicant has given up its claim over the land and transferred its interest in the land development project to M/s.Gold Coast Properties Pvt. Ltd. by entering into an agreement with it. The applicant issued a notice, dated 25.01.2010 to Chavvakula Sundara Rao, Chavvakula Satyanarayana Raju, Chavvakula Padmavathi, Chavvakula Sitamma, Chavvakula Srinivas, Chavvakula Venkata Lakshmi and Chavvakula Ganikamma and subsequently withdrew the same unconditionally. The nonpayment of crop loss subsequent to the year 2009-2010 itself is sufficient to infer that the applicant has abandoned the project and has given up its rights over the land covered under the Memorandum of Understanding, dated 11.06.2007. Once the applicant withdrew from the land development project by returning the original MOU, it cannot claim any rights pursuant to the MOU. The Memorandum of Understanding, dated 13.06.2007, has not been signed either by the applicant or its representative and therefore, it cannot be given effect. The applicant induced the respondents to sign in the Memorandum of Understanding, dated 11.06.2007. For better understanding of the plea of the respondents, I deem it appropriate to refer paras. 9 to 11 of the counter-affidavit, which read as hereunder: “9.It is further submitted that as the MOU contemplates that the parties enter into a further agreement i.e., Development Agreement- cum-GPA (Clause – 8) and an escrow agreement (clause – 10), it is nothing but an agreement to enter into another agreement/s. It is settled law that an agreement to enter into an agreement is not enforceable nor does it confer any right upon the parties. Therefore, the MOU is unenforceable in law and no Arbitrator can be appointed in terms of the said MOU by the Hon’ble Court by exercising power under Sec.11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”). 10. In view of clause – 15 of the MOU stating that “in the event of Ac.450.00 of land not being available for making lay out…. both parties shall not have any claim of whatsoever nature against the other party”, it is incumbent on the applicant to specifically aver in its application that it has at its disposal for development Ac.450.00 before claiming that it is entitled to have an arbitrator appointed under Clause – 18 of the MOU. There is no such averment in the affidavit filed in support of the Arbitration Application. The respondent reliably understands that the total extent of land available with the applicant is less than Ac.450.00. Since availability of Ac.450.00 is a precondition for enforcing the MOU, without any pleading in the application that it has that extent of land available to it for development, the applicant is not entitled to invoke clause – 18 of the MOU or enforce any clause in the said MOU. 11. The Arbitration Clause (clause no.18 of the MOU) states that one Arbitrator will be appointed by the applicant and another will be appointed by “Land Owners Association” and both arbitrators so appointed will in turn appoint an umpire. The respondent submits that there is no such entity by name “Land Owners Association”. The applicant has not mentioned in its affidavit filed in support of this application that such an Association exists or that a demand has been made by the applicant to such Association to appoint an arbitrator as mentioned in clause – 18 of the MOU. As there is no legal entity by name “Land Owners Association”, clause – 18 is null and void. It is settled law that if one of the parties who has to appoint an arbitrator is an imaginary party when the contract is made, there is no contract in the eye of law. Therefore, clause 18 is void in law.” 4. The applicant filed reply affidavit. It is stated in the reply affidavit that non-signing of the applicant or its representative on the Memorandum of Understanding, dated 13.06.2007, is of no relevance as the respondents admitted the terms of contract and accepted the crop loss compensation for the years 2007-2008 and 2008-2009. The respondents having accepted the crop loss compensation pursuant to the terms of the MOU cannot be permitted to contend that they have been induced or persuaded to sign the MOU. The applicant had neither withdrawn the MOU nor abandoned its project by returning the MOU. The Memorandum of Understanding, dated 13.06.2007, is a concluded contract and the same is enforceable under law. The respondents and other landowners failed to form an association and for their failure, the applicant cannot be found fault. The original MOU has been handed over to the “Abhyudaya Rythu Sangham” only for a custody to prevail on the respondents and other ryots to enter into a development agreement with the applicant and at no point of time, the MOU has been cancelled or terminated. Paras.17 and 18 of the reply affidavit need to be noted and they are thus: “17. As far as para.(13(i) is concerned, it is submitted that the further reference to the MOU dated 29.06.2009 with one Nekkanti Sushma Chowdary is an isolated case and no such agreements were entered into with the respondent or other respondents in this batch of Arbitration Applications. Under special circumstances and for consideration the transaction was made with the said Nekkanti Sushma Chowdary, it is absolutely false to say that similar agreements were entered into by the applicant with number of other parties/owners of agricultural lands. The case of Nekkanti Sushma Chowdary is a special category under consideration was withdrawn. Therefore, citing of the same is of no relevance. 18. As far as para. 124(ii) is concerned, there is no such transfer of rights of the MOU to M/s.Gold Coast Properties Pvt. Ltd. Citing the case of one N.Rajiv is also of no relevance. The applicant denies that they have transferred its interest in the development project to M/s.Gold Coast Properties Pvt. Ltd and by which we have not entitled to file this application. These facts are not relevance to Section 11(6) application. The respondent unfortunately raising more and more disputes which ought to be considered in arbitration in an application for appointment of Arbitrator. More the intensity of disputes more the need to appoint an Arbitrator. The apex Court categorically held that these are not the matters to consider under Section 11(6) of the Act.” 5. Heard Sri P.Sri Raghuram, learned counsel appearing for the applicant and Sri M.S.Ramachandra Rao, learned counsel appearing for the respondents. 6. Sri P.Sri Raghuram, learned counsel appearing for the applicant submits that execution of the Memorandum of Understanding, dated 11.06.2007, is not disputed by the respondent and so also acceptance of crop loss compensation for the years 2007-08 and 2008-09 amounts that the parties acted upon the terms of the MOU. As the respondents have taken a stand that the applicant has given up its claim over the land covered under the MOU, and whereas, the applicant disputed of its giving up its claim and thereby disputes arose between the parties and the said disputes are required to be resolved by taking recourse to the Clause 18 of the MOU. He would also submit that the applicant has given proper explanation for handing over the original of MOU to the “Abhyudaya Rythu Sangham” and the respondents have managed to get the original MOU into their custody. Only two pre-requisites are required for maintaining an application under sub-sections (5) & (6) of Section 11 of the Act and they are, firstly, whether there is an arbitration clause in the agreement, and secondly, whether the Court has jurisdiction to entertain the application. Once these two pre- requisites are satisfied, the disputes between the parties relatable to the agreement are required to be urged before the arbitrator. The respondents and other landowners have not formed any association and that non-forming of the association cannot be a ground to reject the application seeking appointment of arbitrator. In a way the contention of the learned counsel is that the applicant cannot be made responsible for the default of the respondents and other landowners in not forming the association. In support of his submissions, reliance has been placed on the following judgments: 1) Great Offshore Ltd. v. Iranian Offshore Engg. & Constructions Co.[1] 2) Om Construction Co. v. Ahmedabad Municipal Corporation[2] 3) Shakti Bhog Foods Ltd. v. Kola Shipping Ltd.[3] 4) Trimex International Fze Ltd., Dubai v. Vedanta Aluminium Ltd., India.[4] and 5) S.N.Prasad Hitek Industries (Bihar) Ltd. v. Monnet Finance Ltd.[5] 7. In S.N.Prasad Hitek Industries (Bihar) Ltd.’s case (5 supra), the Supreme Court observed that if in an application filed under Section 11 of the Act, the applicant asserts the existence of an arbitration agreement with each of the respondents and if the respondents do not deny the assertion in their statement of defence, the Court can proceed on the basis that there is an agreement in writing between the parties. 8. In Trimex International Fze Ltd.’s case (4 supra), the Supreme Court observed that once the contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialed by the parties would not affect either the acceptance of the contract so entered into or implementation thereof, even if the formal contract has never been initialed. The Supreme Court further observed that existence of an arbitration agreement can be inferred from a document signed by the parties, or an exchange of letters, telex, telegrams or other means of telecommunication, which provide a record of the agreement. In the absence of signed agreement between the parties, it would be possible to infer from various documents duly approved and signed by the parties in the form of exchange of e-mails, letter, telex, telegrams and other means of telecommunication. 9. In Shakti Bhog Foods Ltd.’s case (3 supra), the Supreme Court held that as far as the provisions of Section 7 of the Act are concerned, an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and furthermore an arbitration is considered to be in writing, if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement or an exchange of statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. 10. I n Great Offshore Ltd.’s case (1 supra), the Supreme Court considered Section 7 of the Act and observed that technicalities like stamps, seals and even signatures are red tape that have to be removed before the parties can get what they really want – an efficient, effective and potentially cheap resolution of their dispute. 11. Sri M.S.Ramachandra Rao, learned counsel appearing for the respondents submits that the Memorandum of Understanding, dated 13.06.2007, is not signed by the applicant or its representative, in which case, the applicant cannot place reliance on any one of the terms therein. The MOU contemplates execution of development agreement-cum-GPA apart from escrow agreement and therefore, it constitutes only an agreement to enter into an agreement, which is unenforceable in law. Even accepting the terms of MOU, there is no entity called ‘land owners association’ in which case, both the parties proceeded with misconception of facts, which vitiates the very MOU itself and once the document is void because of misconception of facts, no reliance can be placed on the terms therein. Even otherwise, since original MOU has been returned as further act pursuant to the MOU has become impossible due to the conduct of the applicant, it is deemed that each of the party is relieved of its respective obligations and no party can seek enforcement of the obligation on the part of the other party. The MOU contemplates of the applicant acquiring a minimum contiguous area of 450 acres and in the event of non- availability of such an extent, the terms of MOU ceases to operate. According to the learned counsel, there is no averment in the application that the applicant has been able to find contiguous area of 450 acres, which suggests that the clauses in the MOU have become unenforceable because of the applicant not being able to secure contiguous area of 450 acres for development and making residential plots. The very fact of returning the original MOU indicates of the applicant giving up its claim over the land. The applicant had not paid crop loss compensation for the year 2009-10 and that itself is sufficient to infer that the applicant has given up its claim over the land. Once the applicant ceased to have any claim over the land, there is no live dispute, which is required to be adjudicated by an arbitrator. In support of his contentions, reliance has been placed on the following judgments: 1) Karanji & Co. v. Indo-China T. Co.[6] 2) Damodar Vally Corporation v. K.K.Kar[7] 3) Tarsem Singh v. Sukhminder Singh[8] 4) Dresser Rand S.A. v. Bindlal Agro Chem.Ltd.[9] 5) Atul Singh v. Sunil Kumar Singh[10] 6) National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.[11] 7) Bharat Sanchar Nigam Ltd. v. Motorola India Pvt. Ltd.[12] 8) Union of India v. Onkar Nath Bhalla & Sons.[13] 9) Speech & Software Technologies (India) (P) Ltd. V. Neos Interactive Ltd.[14] 10) A.P. Tourism Development Corpn. Ltd. v. Pampa Hotels Ltd.[15] 11) Alva Aluminium Ltd. v. Gabriel India Ltd.[16], and 12) ManepalliUdaya Bhaskara Rao v. Kanuboyina Dharmaraju[17] 12. The Supreme Court in S.B.P.& CO. v. PATEL ENGINEERING LIMITED[18] and in NATIONAL INSURANCE CO.LTD., v. BOGHARA POLYFAB PVT.LTD.[19] has held that when an application is filed under Section 11 of the Act, the Chief Justice or his designate is required to decide only two issues, that is whether the party making the application has approached the appropriate Court and whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such agreement. Therefore, the Chief Justice exercising jurisdiction under Section 11 of the Act has to only consider whether there is an arbitration agreement between the application and the respondent. Any wider examination in such a summary proceeding will not be warranted. 13. In STATE OF ORISSA v. DAMODAR DAS [20] the Supreme Court held that a clause in a contract can be construed as an ‘arbitration agreement’ only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. 14. The applicant and the respondents entered into Memorandum of Understanding dated 13-6-2007. Under the Memorandum of Understanding, the applicant has to convert the agricultural land into house plots and allot developed plots in the ratio indicated therein. The respondents received crop loss compensation for the year 2007- 08 and 2008-09. It is sufficient to infer that the Memorandum of Understanding have acted upon the terms indicated therein. According to the respondents, the applicant has given-up the project and returned the original Memorandum of Understanding and in which case, it is to be construed that the parties to the Memorandum of Understanding mutually agreed to discharge of their respective obligations and thereby no disputes survive for adjudication. It is the version of the applicant that the Memorandum of Understanding has been handed over to Abhyudaya Rythu Sangham for custody and the respondents and other landowners managed to get the original Memorandum of Understanding from the Abhyudaya Rythu Sangham. Whether the respondents came into possession of the original Memorandum of Understanding consequent on the project being shelved out by the applicant or the respondents managed to secure the original Memorandum of Understanding from the Abhyudaya Rythu Sangham is a contentious issue which is required to be gone into by the Arbitrator. 15. A contention has been advanced by the learned Counsel appearing for the respondents that the Memorandum of Understanding contemplates execution of Development Agreement-cum-General Power of Attorney and escrow agreement and therefore the Memorandum of Understanding is nothing but an agreement to enter into an agreement, in which case the Memorandum of Understanding is neither enforceable nor does it confer any right upon the parties. 16. It is suffice to say that disputes have arisen between the applicant and the respondents relatable to the Memorandum of Understanding dated 11-6-2007. The very fact that the respondents accepted the crop loss compensation for two years suggests that the respondents have accepted the terms and conditions indicated in the Memorandum of Understanding. As per clause 18 of the Memorandum of Understanding all the disputes or differences shall be referred to Arbitration Tribunal consisting of an Arbitrator appointed by the Land Owners’ Association and one Arbitrator by the Developer i.e., the applicant. It is not the case of the respondents that the Land Owners formed an Association. Therefore the question of Land Owners’ Association appointing Arbitrator on behalf of the respondents does not arise. 17. It is contended by the learned counsel appearing for the respondents that under Section 7 of the Act, the arbitration agreement shall be in writing and as the MoU which contains an arbitration clause does not bear the signature of the applicant, the applicant cannot place reliance on the MoU. The contention of the learned counsel appears to be sound in the first blush, but on close scrutiny of the provisions of Section 7 of the Act, I do not detain myself long to reject the same. Section (7) of the Act reads as hereunder:- 7:Arbitration agreement (1) In this Part, " arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in- (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to