FAO No.404 of 2009 -1 - IN THE PUNJAB AND HARYANA HIGH COURT AT CHANDIGARH FAO No.404 of 2009 (O&M) Date of decision : 30.5.2009 Fornax Real Estate Ltd. ..Appellants. Vs. M/s Chandigarh Spun Pipe Co. and others. ..Respondents. CORAM: HON'BLE MR.JUSTICE RAKESH KUMAR JAIN Present : Mr.Chetan Mittal, Sr.Advocate with Mr.Amit Jhanjhi, Advocate for the appellants. Mr.Ashok Aggarwal, Sr.Advocate with Mr.J.S.Sidhu, Advocate for the respondents. RAKESH KUMAR JAIN, J. Two appeals bearing FAO Nos.404 of 2009 (O&M) and 5327 of 2008 (O&M) arising out of the same impugned order passed by District Judge, Chandigarh dated 15.12.2008 are being disposed of by a common order as identical question of law and facts are involved in these appeals. However, the facts are being extracted from FAO No.404 of 2009. The impugned order has been passed by the District Judge, Chandigarh on an application filed by the appellant under Section 9 of the Arbitration and Conciliation Act, 1996 (for short `the Act'). Broadly, the facts of the case are that the respondents are the owners of Plot No.29, 29-A measuring 24660.50 sq. yards situated in Industrial Area, Phase-I, Chandigarh. Vide agreement dated 4.2.2008, the FAO No.404 of 2009 -2 - respondents agreed to sell the aforesaid land to the appellant for a consideration of Rs.175.00 Crores and received a sum of Rs.17.50 Crores towards part payment at the time of execution of the agreement. The appellant purchased the property for developing a Commercial Complex for which the appellant was to bear the conversion charges as initially the plots were allotted for industrial purposes. As per Clause 2.10 of the Agreement, the respondents were to apply before 18.3.2008, in the name of and at the cost of the appellant for change of land use, before the Competent Authority. At that time, the conversion charges were Rs.20,000/- per sq.yards. The respondent applied for conversion of land use by way of an application dated 17.3.2008 duly signed by the respondents attorney, along with a demand draft No.211400 dated 17.3.2008 for a sum of Rs.4,93,21,000/- towards the first installment of conversion fee @ Rs.20,000/- per sq.yards along with nine post dated cheques issued in favour of the Chandigarh Housing Board towards the balance installments of commercial charges. On 31.7.2008, Chandigarh Administration informed the respondents that vide order dated 14.7.2008, the Finance Department had ordered that in case of application for conversion received on or after 18.12.2007, the conversion fee would be Rs.29,713/- per sq.yard instead of Rs.20,000/- per sq.yard and returned nine post dated cheques. However, the Administration did not return the demand draft of Rs.4,93,21,000/-. Copy of the said letter was sent by the respondents at the residence of an employee of the appellant at Chandigarh on 1.8.2008 and returned nine post dated cheques asking the appellant to deposit the balance 10% as initial payment and rectify the amount of nine cheques for submission within 10 days. In the application filed under Section 9 of the Act, the appellant further pleaded FAO No.404 of 2009 -3 - that the appellant and respondents had entered into the agreement dated 4.2.2008 on the basis of prevalent rate of conversion @ Rs.20,000/- per sq.yard. It was not foreseen that Chandigarh Administration would amend the statutory scheme with retrospective effect from 18.12.2007 materially altering the basis on which the agreement had been entered into. On 2.8.2008 the appellant wrote a letter to the respondents that as conversion charges prevailing at the time of execution of the agreement were no longer applicable, therefore, they may refund the amount of Rs.17.50 Crores along with interest. On 3.8.2008, at 6.12 P.M. the respondent transmitted a fax letter to the appellant asking them to be present before the Competent Authority on 4.8.2008 at Chandigarh for execution of the sale deed. It is also pleaded that the respondents wrongly terminated the General Power of Attorney dated 4.2.2008 executed by them in favour of Satinder Singh Virk, Authorised Signatory of the appellant disabling the appellant from seeking relief from Chandigarh Administration in relation to the application for conversion or refund of Rs.4,93,21,000/-. On 12.8.2008, the respondents again wrote a letter intimating the forfeiture of the `part payment made' and further demanded a sum of Rs.4,64,74,000/-. Thus, in the application, it was alleged that as per Clause 15 of the Agreement dated 4.2.2008, the dispute arising between the parties from the agreement is referable to the Arbitrator and as such, a relief was sought for direction to the respondents to secure the amount of Rs.17.50 Crores with interest @ 18% per annum compounded quarterly and for direction to the respondents to restore a sum of Rs.4,93,21,000/- to the appellant by obtaining refund from Chandigarh Administration and also from restraining the respondents from alienating the plots No.29 and 29A. In the written statement, it was alleged by the FAO No.404 of 2009 -4 - respondents that as per Clause 2.10 of the agreement, the vendee was to bear the applicable statutory fee for change of land use and negotiations were not effected on the understanding that conversion rate was Rs.20,000/- per sq.yard. It was rather averred that the appellant was to bear applicable statutory conversion fee. On intimation received vide letter dated 31.7.2008 from the Estate Office, UT Chandigarh regarding change of designated agency of the scheme from Chandigarh Housing Board to Estate Office, UT Chandigarh and charging conversion fee @ Rs.29,713/- per sq.yard w.e.f. 18.12.2007, respondent No.2 delivered nine cheques to the appellant on 1.8.2008 for meeting the statutory requirements for conversion. It was also averred that respondents have neither claimed refund nor have any intention to seek refund of Rs.4,93,21,000/-. Since the appellant is not interested in purchasing the property, therefore, dispute has arisen and the agreement was got frustrated` but for the illegal termination by the appellant unilaterally because the appellant did not appear before the Sub Registrar on 4.8.2008 for the execution of the sale deed and thus, committed default in terms of the provisions of the agreement and as such, payment towards the part payment has been forfeited. It was also claimed in the written statement that the respondents are entitled to damages of Rs.4,64,74,000/- spent to relocate the Industrial Unit running in the premises No.29, Industrial Area, Phase-I, Chandigarh. It was also alleged that power of attorney dated 4.2.2008 made in favour of Satinder Singh Virk has been rightly cancelled as the respondent failed to come present for the execution of the sale deed. After taking into consideration the rival contentions of both the parties, the learned Court below found that the execution of the agreement dated 4.2.2008 between the parties is not disputed. Payment of 10% of total FAO No.404 of 2009 -5 - sale consideration to the tune of Rs.17.50 Crore by the appellant to the respondent is also admitted. The appellant was to pay the requisite conversion fee for the change of land use and respondents executed a General Power of Attorney in favour of Satinder Singh Virk, authorised signatory of the appellant on 4.2.2008, who moved the application dated 17.3.2008 along with demand draft of Rs.4,93,21,000/- along with nine post dated cheques for change of land use. It is also not in dispute that on 31.7.2008 the Estate Officer, Chandigarh informed the respondents that conversion fee was to be paid @ Rs.29713/- per sq.yard and had returned nine post dated cheques forwarded by the respondent to the appellants. Clause 15 of the agreement also provides for arbitration in case of a dispute between the parties. After taking into consideration the aforesaid facts, the learned Court below found that main thrust of the argument of both the parties was whether to grant or not the injunction restraining the respondent from alienating the plot in question. The only prayer of the appellant is that the amount of Rs.17.50 Crores paid as part payment to the respondent be secured by getting it deposited in the Court along with interest and to obtain refund of Rs.4,93,21,000/- from Chandigarh Administration and to restore the same. Learned Court below while dealing with the aspect of securing the amount of Rs.17.50 Crores by getting deposited in the Court along with interest observed that “In the present case, it is still to be decided by the Arbitrator as to who committed the breach of contract and is liable for the amount. Again there is nothing to show that there is any impediment in recovering the amount, if any, awarded by the Arbitrator in favour of the petitioner. Thus, no order is to be passed for securing the amount of FAO No.404 of 2009 -6 - Rs.17.50 Crores by directing the respondents to deposit the same in the Court along with interest.” Insofar as the restoration of sum of Rs.4,93,21,000/- is concerned, it was observed that “it is not disputed that the said sum belongs to the petitioners and was deposited in the name of respondents through Sh.Satinder Singh Virk, an authorised signatory of the petitioner, in whose favour the respondents executed a General power of Attorney. The respondents have categorically pleaded in paras 12 and 14 of the written reply that they have neither claimed the refund nor have any intention to seek refund of the said amount. The agreement between the parties regarding the sale of plots has come to an end and the petitioner is not to get any permission from the authority for change of land use. Since the amount belongs to the petitioner, the petitioner is entitled to its refund. The petitioner cannot take refund of the amount as the same was deposited by the respondents through Sh.Satinder Singh Virk, in whose favour, they executed a power of attorney which has been cancelled by the respondents. In these circumstances, it will be just and convenient to direct the respondents to execute Special Power of Attorney in favour of Satinder Singh Virk, authorised signatory of the petitioner, in whose favour earlier power of attorney was executed enabling him to get refund of the said amount from Chandigarh Housing Board/Estate Office, UT Chandigarh. In the result, the respondents are directed to execute special power of attorney in favour of Satinder Singh Virk enabling him to get the refund of Rs.4,93,21,000/- from Chandigarh Housing Board/Estate Office, UT Chandigarh and to send the same directly to the petitioner or deliver the same in the Court within three weeks and they will not cancel the same till FAO No.404 of 2009 -7 - the refund is obtained and on receiving the said amount by the petitioner the said power of attorney will come to an end automatically. On the failure of the respondents to execute the power of attorney, order dated 27.9.2008 vide which the respondents were restrained from alienating the plots in question and from withdrawing the amount deposited with Chandigarh Housing Board/Estate Office, UT Chandigarh, shall continue and on the delivery of power of attorney, said order dated 27.9.20908 shall stand vacated.” The appellant Fornax Real Estate Ltd., in its appeal FAO No.404 of 2009, has questioned the first part of the order in respect of the amount of Rs.17.50 Crores, whereby the learned Court below has observed that no order is required to be passed for securing the amount of Rs.17.50 Crores by directing the respondents to deposit in the Court along with interest. Similarly, the respondents (M/s Chandigarh Spun Pipe Co. and others), in their appeal FAO No.5327 of 2008, have questioned the second part of the order of the Court below whereby it has been ordered to execute special power of attorney in favour of Satinder Singh Virk, authorised signatory of the appellant enabling him to get refund of Rs.4,93,21,000/- from Chandigarh Housing Board/Estate Office, UT Chandigarh. Before adverting to the respective argument raised by the counsel for the parties, it would be worthwhile to refer to the provisions of Section 9 of the Act, which is reproduced as under : 9. “Interim measures, etc. by Court. - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court - FAO No.404 of 2009 -8 - (i)for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or (ii)for an interim measure of protection in respect of any of the following matters, namely:- (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c)the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party) or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d)interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.” Sh.Chetan Mittal, learned counsel for the appellant is mainly aggrieved against the part of the order of learned Court below whereby it is observed that “No order is to be passed for securing the amount of Rs.17.50 Crores by directing the respondents to deposit the same in the Court along with interest.” It is contended that admittedly the appellant who is a vendee had paid Rs.17.50 Crores as part payment to the respondent/vendor and had FAO No.404 of 2009 -9 - also deposited a sum of Rs.4,93,21,000/- towards first installment as conversion fee with the Chandigarh Administration is entitled to a security of the amount of Rs.17.50 Crores. It is contended that on the one hand, the learned Court below had observed that in the present case, it is still to be decided by the Arbitrator as to who committed breach of contract and liable to pay and on the other hand it has been observed that there is nothing to show that there is any impediment in the recovery of the said amount, if any, by the arbitrator in favour of the appellant. Learned counsel for the appellant contends that the appellants are strongly apprehending that in case the respondent-vendor alienates the property in dispute to someone else creating a third party charge over it then it would create an impediment in the process of recovery of the said amount by the appellant. Therefore, it is contended that till the matter is referred to the Arbitrator or the matter in Arbitration is finally adjudicated, in order to secure the amount of Rs.17.50 Crores in terms of Section 9(b) of the Act, either the alienation of the property in dispute may be stayed or the respondent may be directed to deposit the amount in FDR or furnish a bank guarantee thereof. On the contrary, learned counsel for the respondents has vehemently argued that although the jurisdiction of the Court has been invoked under Section 9 of the Act yet the provisions for grant of interim injunction would be governed by Order 39 of the Code of Civil Procedure, 1908 (for short `CPC'), therefore, appellant has to make out a prima facie case in his favour along with balance of convenience and irreparable loss. Learned counsel for the respondents further argued that the contract has been violated by the appellants, therefore, they have a right to forfeit the amount of part payment. FAO No.404 of 2009 -10 - At this stage, as the learned Court below has observed that as per Clause 15 of the agreement dispute arising between the parties with respect to the agreement and interpretation of its Clauses has to be referred to the Arbitration but the stage is not set so as to decide as to whether it is the appellant who has committed breach of the contract or the respondent since it is yet to be decided by the Arbitrator, therefore, at this stage, it has to be seen as to how much amount which is in dispute is to be secured and for that purpose, I found that it would be just and expedient to direct the respondents not to alienate the property in dispute till the matter is decided by the Arbitrator. Coming back to the appeal filed by the respondents i.e. FAO No.5327 of 2008 wherein the finding of the learned Court below has been challenged whereby it has been ordered that amount deposited with the Chandigarh Administration be restored to the vendee. In this regard, the vendee has already made a categoric averment that they are not going to claim refund or to obtain credit, benefit or adjustment of Rs.4,93,21,000/- deposited with Chandigarh Administration. In this manner, this amount is very well secured with the Chandigarh Administration, therefore, it does not require to be returned to the vendee because in that eventuality, the matter with regard to the agreement between the parties which is the bone of contention would be meaningless. Thus, in my view, the said amount may be secured by directing the Chandigarh Administration to deposit that amount of Rs.4,93,21,000/- in the FDR fetching highest interest so that at the time of adjudication of the Arbitration proceedings, the said amount may be returned to either of the parties with interest. Thus, in view of the above observations, both the appeals filed FAO No.404 of 2009 -11 - by the appellant and the respondents are hereby allowed. It is ordered that the respondents shall not alienate the property in dispute till the adjudication of the arbitral proceedings and the amount of Rs.4,93,21,000/- paid by the appellant and deposited by the respondent with the Chandigarh Administration shall be deposited by the Administration in a Nationalized Bank by way of FDR securing the highest rate of interest to be paid to the party held entitled in terms of the arbitral award. (RAKESH KUMAR JAIN) 30.5.2009 JUDGE Meenu