TMI Blog2014 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation in view of the area reduced due to reduction of height originally permitted. The respondent had considered such representations and claim of the petitioner. Inspite of reduction of height, the petitioner accepted the additional plot of land and chose to enter into final development agreement on 24.7.2010 and second Development agreement on 29.3.2010. The learned Arbitrator has in my view, rightly rendered a prima facie view that the petitioner could not attribute any delay to the respondent. The petitioner had with open eyes and with full knowledge that certain approvals and permissions would be necessary from the Airport Authority of India Ltd had entered into a Development Agreement on 22.6.2006 as well as Final Development Agreement dated 24.7.2010 and has thus rightly rejected the submissions of the petitioner that the delay was attributable on the part of the respondent due to change of height by the Airport Authority of India Ltd - A perusal of the Agreement indicates that the petitioner was solely responsible for arranging the funds required for development in accordance with the provisions of the agreement and in accordance with the standard of a reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inue such status quo order in favour of the petitioner. In the event of the petitioner succeeding in the arbitration proceedings and if termination of the agreement is found to be illegal the petitioner can be compensated in terms of money - termination of the Agreement thus cannot be stayed. There is no infirmity found by this Court in the order passed by the Arbitral Tribunal. The impugned order is a reasoned order and is passed after considering the submissions of the parties at length, documentary evidence and provisions of law and thus no interference is warranted by this court - Decided against Petitioner. - ARBITRATION PETITION (L)NO.1999 OF 2013 - - - Dated:- 29-11-2013 - R.D.DHANUKA J. For the Petitioner : Mr R. S. Apte, Senior Advocate a/w Ms Najakiyo i/b P.M.Havnur For the Respondent : Mr D. J. Khambatta, Senior Advocate a/w I. J. Nankani, H. S. Khokawala, Rahul Totla R.D.DHANUKA J. JUDGMENT : By this petition filed under Section 37(2)(b) of the Arbitration and Conciliation Act 1996 (hereinafter referred as "Arbitration Act" for short) petitioner seeks to impugn the order dated 12th November 2013 passed by the learned arbitrator rejecting the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l institute on 28 th December 2006 and created security interest in favour of the bank/financial institute interalia over the said land of 31 acres. respondent gave counter guarantee of Rs.20 crores in respect of the said land to be developed by the petitioner. On 30 March 2007, respondent issued a commencement certificate for construction of buildings up to 18 floors on the basis of approved height of meters sanctioned by Airport Authority of India. Appellant paid second installment of Rs.4,46,40,000/- on 24 April 2007 to the respondent towards land cost/development fee. (c ) On 29 May 2007, Ministry of commerce Industry, Government of India issued a notification notifying MIHAN as Special Economic Zone (SEZ) which undertook authorized operation to develop in non-processing area of SEZ for the residential modern township projects including the said land of 31 acres allotted to the petitioner in the SEZ entailing compliance of SEZ norms for the development of the said land. On 24 August 2007 respondent executed Power of Attorney in favour of the appellant to do various acts in connection with the said land including to sell, dispose of, assign, transfer nominate and/or alienate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permission to construct the buildings with 13 floors with built up area of 213303.560 sq. meters. On 18 November 2009, the petitioner submitted construction schedule for 36 months to the respondent. On 16 February 2010, the petitioner made a request to the respondent for extension of time to complete the construction and for adjustment of the balance amount payable by the petitioner towards land costs/development fee in respect of the two lands against the consideration/purchase price payable by the respondent to the petitioner in om respect of the Low Income Group (LIG) Units to be constructed by the petitioner in view of the alleged loss of about Rs.80 crores suffered by the petitioner owing to the height reduction by the Airport Authority of India. On 29 March 2010, the respondent entered into a development agreement and further executed Power of Attorney in favour of the petitioner for development of the additional land of 11.644 acres on the terms and conditions recorded therein. On 13 July 2010 in the 41 st meeting of Board of Approval on account of objection from Department of Revenue about sale of residential units of the township to general public, Board of Approval gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes came to be issued for development of Special Economic Zone which restricted sale of units only to persons related to SEZ. On 24 November 2010 the petitioner submitted drawings for 16 floors as a result of height revision by Airport Authority of India as on 13 January 2011. Based on the progress report it is the case of the petitioner that the petitioner completed the overall physical work of about 34% in the First City Project. (j) On 25 March 2011, Board of Approval directed the Development Commissioner, MIHAN-SEZ to take strict action against the petitioner for its proposal to sell flats to general public. On 7 April 2011, the h Development Commissioner issued a show cause notice to the respondent for issuing letter dated 23 August 2010 to the petitioner allowing them to sell the units to general public/persons outside SEZ. It is the case of the petitioner that that on 6 June 2011, Vijaya Bank granted its approval for takeover of loan by Indiabulls and assignment transfer of the security interest in favour of the Indiabulls. On 17 June 2011, Indiabulls issued sanction note for sanction of loan of Rs.155 crores to the petitioner. On 18 June 2011, the petitioner requested t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter of even date requested the respondent for giving consent to Indiabulls and to transfer the counter guarantee. It is the case of the petitioner that on 12 April 2012, the Vijaya Bank granted its approval for takeover of loan by Indiabulls and assignment and transfer of the security interest in favour of Indiabulls. It is the case of the petitioner that vide letter dated 18 April 2012, the Vice Chairman and Managing Director of the respondent forwarded the proposal to its Chairman for sanction of consent to transfer the counter guarantee from Vijaya Bank to M/s Indiabulls Financial Services Ltd. This letter was not on record before the arbitral tribunal and is sought to be relied upon by the petitioner in this proceedings. (m) On 23 April 2012, Vijaya Bank issued possession notice to the petitioner and obtained symbolic possession of the three plots which was subject matter of the development agreement. On 28 April 2012, the petitioner requested the Vijaya Bank to restrain from taking any further steps Asmita 11/53 ::: and to withdraw the notices. On 14 May 2012, respondent issued termination notice to the petitioner calling upon the petitioner to deposit a sum of Rs.121 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of six weeks from the said date to enable the petitioner to take the appropriate steps. On 17 May 2013, petitioner filed arbitration petition (L) No.640 of 2013 under Section 9 of the Arbitration Act for interim measures. On 13 May 2013, petitioner invoked arbitration clause under two development agreements and issued a letter to the learned arbitrator who was named under the development agreement who agreed to act as sole arbitrator and gave his consent vide letter dated 15 May 2013. On 31 May 2013 petitioner filed a statement of claim and application under Section 17 of the Arbitration Act before the learned arbitrator. On 7 June 2013, learned arbitrator passed an ad interim order in application filed under Section 17 for a period of six weeks from 7 June 2013. By an order dated 7 June 2013, then learned arbitrator recused himself from the arbitration proceedings. On 9 July 2013, this Court passed an order in arbitration petition (L) No.640 of 2013 and appointed Shri Justice S. P. Kurdukar, former Judge of Supreme Court as the substituted arbitrator by consent of parties. Both the parties filed their pleadings before the learned arbitrator. Learned arbitrator continued the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted that the additional land allotted by the respondent to the petitioner was at market price and not in lieu of the compensation demanded by the petitioner due to reduction of height by the Airport Authority of India. (b) It is submitted that there was no reference to SEZ in the first agreement entered into between the parties. In view of the notification issued by the SEZ subsequently imposing restriction on sale, their sale of flats constructed and proposed to be constructed was seriously affected. The petitioner was informed for the first time on 7 th April 2011 that such decision was taken by SEZ as far back as on 8 August 2007. There was negative media campaign against the petitioner during the period between 23 July 2010 and 18 December 2011 which seriously affected the project of the petitioner and also financially. petitioner had already invested Rs.300 crores and had already constructed 550 flats which comprise of 34% of the total work awarded. It is submitted that petitioner was not responsible because of such notification issued by SEZ which was conveyed to the petitioner for the first time on 7 th April 2011 that is much after making huge investments by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 2011. It is submitted that the respondent has committed fraud upon the petitioner by suppressing the notification issued by SEZ much earlier and thus termination was bad and illegal on this ground alone. Learned arbitrator has misunderstood the submissions of the petitioner regarding allegations of fraud in the impugned order and has not considered those submissions. (f) Learned senior counsel placed reliance on a letter/note dated 18 April 2012 annexed at page 907 of the appeal paper book signed by the Vice Chairman and Managing Director of the respondent to the Chief Minister/Chairman of the respondent recommending the proposal for approval. Learned senior counsel submits that under the said proposal, the Vice Chairman of the respondent agreed that it was worthwhile to consider the proposal of the petitioner to issue counter guarantee to M/s Indiabulls Financial Services Ltd., otherwise the respondent was unable to pay Rs.105 crores to Vijaya Bank which shall adversely affect the credibility of the respondent in the market and would have repurcussion on the image of the respondent as well as the Government. The learned senior counsel sought to place reliance upon some of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide intention of the petitioner to somehow delay the outcome of this proceedings. Learned senior counsel objected to this affidavit on the ground that no new facts can be brought on record in this appeal filed under Section 37 of Arbitration Act for the first time which was not part of the record before the learned arbitrator. 4. Mr. Khambatta learned Senior Counsel appearing for the respondent made the following submissions: (a) Letter of intent was issued in favour of the petitioner on 22.9.2005 for development of the modern Township. The petitioner was fully aware of the notification issued by SEZ. My attention is invited to the Co- Development Agreements entered into between the petitioner and the respondent on 12.5.2008 and more particularly recital (f) which records that the petitioner had been granted formal approval for setting up a multi product SEZ township by the Ministry of Commerce and Industries, Government of India vide letter dated 6.11.2006 and by the Government of India, Ministry of Commerce on 29.5.2007 pursuant to the provisions of Special Economic Zone Act, 2005. The parties had agreed to develop the plots as per SEZ Act, 2005 and SEZ Rules 2006. Under clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on clause 2.5.1 of the Development Agreement and submits that the petitioner was obliged to complete the construction within 24 months from the date of signing of the power of attorney. It is submitted that even according to the petitioner, till the month of January, 2011 the petitioner could complete only 34 % of the work. Since January, 2011 the petitioner had stopped the work on the plot admeasuring 31 acres and has not commenced any work on the plot admeasuring 11.644 acres. The learned senior counsel placed reliance on clause 16 (i) (ii) (v) and (vi) which provides for some of the events of default. It is submitted that the petitioner had not paid the entire development fee and/or revenue share payable in accordance with the provisions of the Agreement. The petitioner committed material breach of the provisions of the agreement by repudiating the provisions by declaring themselves not to be bound for enforcement and initiated measures to enforce the counter guarantee furnished by the respondent and got freezed the fixed deposits of the respondent lying with Vijaya Bank. The petitioner did not adhere to the schedule of construction and did not furnish to the respondent the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r November, 2011. My attention is invited to the sanction note dated 17.6.2011 from M/s Indiabulls which records that the said company had proposed to sanction loan in favour of the petitioner up to 155 crores in two trenches, the first trench for not exceeding 36 months from the date of first disbursement of the said loan subject to submission of corporate guarantee by the respondent and subject to mortgage of the lands of the respondent on which the petitioner was required to carryout the entire construction. My attention is drawn to the contract provisions which provides that the petitioner to carry out the entire construction within 24 months from the date of issuance of power of attorney. It is submitted that thus the respondent was not liable or obliged to issue fresh counter guarantee on the terms proposed by the petitioner and M/s Indiabulls. (f) Mr. Khambatta learned senior counsel invited my attention to the application filed by the petitioner under section 17 of the Arbitration and Conciliation Act,1996 before the learned Arbitrator and more particularly para 67 thereof. It is the case of the petitioner themselves that in order to successfully complete the modern towns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the respondent from the vacation court. Status quo order passed by the vacation court continued from time to time. He placed reliance on the order passed by this court in Arbitration Petition (L) No.629 of 2013 between he same parties by which order this Court has prima facie held that termination of the contract cannot be stayed by this Court under section 9 of the Arbitration and Conciliation Act, 1996. (i) The learned Senior counsel placed reliance on the Judgment of the Supreme Court in COX AND KINGS INDIA LIMITED VS INDIAN RAILWAYS CATERING AND TOURISM CORPORATION LIMITED reported in (2012) 7 Supreme Court Cases 587 and in particular para 26 in support of his submissions that remedy of the petitioner would lie in an action for damages. Para 26 of the said Judgment of the supreme court in case of COX AND KINGS LIMITED reads thus : " It is no doubt true that the petitioner has invested large sums of money in the project, but that cannot entitle it to pray for and obtain a mandatory order of inunction to operate the train once the lease agreement arrangement had been terminated. We are also unable to accept Mr.Rohatgi's submission that the joint venture agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s subject to proof and the evidence need to be kept in mind while considering the case of the plaintiff or the supporting defendants. (Maytas Infra Limited vs Utility Energytech and Engineers Pvt.Ltd ors) 2009 (4) Bom C.R. 143 (O.S.) 57. " Timely completion of the project was the object of the company and the JVA. The plaintiff just cannot defend/support company's defaults and financial unstability and breaches of the obligations, to claim injunction, interim relief in such fashion. All these factors, in my view goes against the plaintiff and other supporting defendants." (l) On the issue whether the contract could be terminated though there was no specific clause under those agreements for termination is concerned, Mr. Khambatta learned senior Counsel placed reliance on the Judgment of the Delhi High Court in case of RAJASTHAN BREWERIES LIMITED VS STROH BREWERY COMPANY reported in AIR 2000 DELHI 450 in para 20 in support of his submissions that even in the absence of specific clauses the parties could terminate the agreement in the event of happening of the events specified therein in the contract Para 20 of the said Judgment reads thus : 20. " Even in the absen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the learned Arbitrator by filing an Affidavit, respondent could have been given an opportunity to explain the said note. The petitioner cannot be thus permitted to rely upon the said note which is in the nature of opinion expressed by the Vice-Chairman of the respondent on which no action is taken by the respondent. The said proposal given by the Vice-Chairman does not give any right in favour of the petitioner. (o) In so far as the proposal regarding counter guarantee in favour of M/s Indiabulls is concerned, it is submitted by the learned Senior Counsel that the said proposal had already been rejected by the respondent as far back as in the month of May 2012. (p) it is submitted that the respondent is proposing to file a counter claim against the petitioner before the learned Arbitrator. In view of the defaults committed by the petitioner in not clearing the dues of Vijaya Bank the said Vijaya Bank has filed proceedings against the petitioner as well as the respondent before the Debt Recovery tribunal by taking possession of the lands which was handed over to the petitioner by the respondent for development. The fixed deposits of Rs.117 crores which was deposited by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the petitioner submits that if the petitioner would not have been ready and willing to comply with their part of the obligations the petitioner would not have invested more than Rs.300 crores. Since the petitioner has already invested more than 300 crores and 34 % of the work was already completed it was not possible for the petitioner to terminate the contract and to come out of the project. It is submitted that M/s Indiabulls is a registered financial institution which had already sanctioned substantial amounts of loans but in view of the respondent refusing to furnish bank guarantee in favour of M/s Indiabulls the said transaction did not materialise. The counter guarantee furnished by the respondent in favour of Vijaya Bank is without any time limit. It is submitted that the respondent has not rejected the proposal of the petitioner to submit the guarantee in favour of M/s Indiabulls on the ground that the said company was seeking counter guarantee for a period of 36 months. It is submitted that the petitioner has not abandoned the work. The meetings were held from time to time between the parties till September, 2012. It is submitted that even today, various investors are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area reduced due to reduction of height originally permitted. The respondent had considered such representations and claim of the petitioner. Vide letter dated 3.4.2008 the respondent informed the petitioner that the respondent had agreed to make the good loss which had taken place due to change of height on various conditions set out therein. The petitioner was allotted exact area of land which worked out to 11.644 acres on payment of Rs.80,00,000/- per acre. The petitioner accepted the said allotment made by the respondent and entered into the Development Agreement in respect of that plot on the terms and conditions recorded therein. The learned Arbitrator has considered this issue at length in para 13 to 15 of the impugned order. The petitioner was fully aware of the topography of the project and were aware that as the said plot was adjacent to the Airport at Nagpur, clearance from the Airport Authority of India Ltd was necessary. 9. It is not in dispute that inspite of reduction of height, the petitioner accepted the additional plot of land and chose to enter into final development agreement on 24.7.2010 and second Development agreement on 29.3.2010. The learned Arbitrator h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicability of the provisions of SEZ Act and SEZ Rules and the notification issued by the Government from time to time which was made applicable to the agreements entered into between the parties. The petitioner did not raise any such issue even when the petitioner entered into two final development agreements on 29.3.2008 and 24.7.2010 in respect of the plots admeasuring 11.644 acres and 31 acres respectively. The learned Arbitrator has dealt with this issue in paras 16 to 18 of the impugned order. The learned Arbitrator has prima facie held that it was made clear to the petitioner about the status of the land and consequently of the project they had agreed to complete the project within 24 months. The learned Arbitrator rightly rejected the contentions of the petitioner that they were not knowing about the SEZ Rules and such allegations were far from truth and an after thought attempt and was accordingly rejected. In my prima facie view, the findings of the learned Arbitrator is correct and no interference is warranted. 12. In so far as the submission of Mr.Apte learned senior Counsel for the petitioner that it was obligation on the part of the respondent to issue a counter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner would be able to complete the project after various terms and conditions proposed by the petitioner including the submission of counter guarantee for a period of 10 years was complied by the respondent. In my prima facie view, the respondent was right in rejecting the proposal of the petitioner that the respondent shall submit the counter guarantee in favour of M/s Indiabulls on the terms and conditions of loan approved by M/s Indiabulls. 14. A perusal of clause 7.1 of the Agreement indicates that the petitioner was solely responsible for arranging the funds required for development in accordance with the provisions of the agreement and in accordance with the standard of a reasonable prudent developer. The learned arbitrator has dealt with this issue at length in para 19 to 26 of the impugned order. The learned arbitrator has taken a prima facie view that the respondent was justified in exercising their discretion that no counter guarantee be given afresh in favour of the financial company like M/s Indiabulls and the learned arbitrator would thus not interfere with the discretion exercised by the respondent. The learned arbitrator has interpreted clause 3.7 of the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a would not apply for consideration in a contractual matter and the same has to be decided strictly in accordance with the terms and conditions of the agreement entered into between the parties and also in accordance with the provisions of Specific Relief Act, 1963 and Indian Contract Act. There is no merit in the submission of Mr Apte learned Senior Counsel for the petitioner that action of the respondent was discriminatory 17. In so far as the submission of Mr Apte learned Senior counsel that there was no provision under the agreement entered into for termination of the agreement and thus the termination of the agreement by the respondent was illegal and contrary to the provisions of terms of the agreement is concerned it is not in dispute that clause 16.1.1. of the agreement provides for events of default. The petitioner did not pay the development fees, revenue share payable to the respondent in accordance with the provisions of the agreement. The petitioner had abandoned the work by themselves repudiating the contract. No work has been carried out admittedly by the petitioner since January 2011. The petitioner did not adhere to the schedule of construction and did not furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 32 to 37 of the impugned order, the learned arbitrator has considered the issue of readiness and willingness on the part of the petitioner to perform the development agreement at length. The learned Arbitrator has adverted to the judgment of the Supreme Court in case of His Holiness Ganesh Acharya reported in 1996 (4) SCCs 5266 and judgment of COX AND KINGS INDIA LIMITED VS. INDIAN RAILWAYS CATERING AND TOURISM CORPORATION LIMITED reported in 2012 (7) Supreme Court Cases 587 and has rightly held that termination cannot be stayed. The learned Arbitrator has followed the supreme court judgment in case of His Holiness Ganesh Acharya (supra) in which it is held that readiness means capacity of a party to perform a contract which includes his financial position to pay the purchase price. 21. In my prima facie view, the petitioner was not ready and willing to comply with their part of the obligation. The petitioner has not carried out any work since January 2011. Even according to the petitioner they have completed only 34 % work. The petitioner has no funds and their accounts with Vijaya Bank are already freezed and Vijaya Bank has already taken symbolic possession of the lands on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent on such note, no cognizance could be taken of such opinion/note/proposal for seeking approval. In my view, Mr Khambatta learned Senior counsel appearing for the respondent is right in his submission that if the petitioner would have produced such note before the learned arbitrator on an affidavit, the petitioner would have opposed production of such a writing being taken on record or in any event would have explained the so called admission in such writing on the part of the respondent before the learned arbitrator. In my view, this court cannot take cognizance of such document in these proceedings for the first time. In any event since no action was taken on such note by the respondent or no action was conveyed to the petitioner no reliance thereon can be placed by the petitioner. 24. The Supreme Court in the case of COX AND KINGS LTD supra held that though a party had invested a large sum of money in the project, but that cannot entitle it to pray for a mandatory order to operate the contract once it is noted that the remedy of the petitioner would be if any in action for damages against the respondent for beach of any of the terms and conditions of the Joint Vent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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