M/S.Royale Chennai Realtors vs M/S.Vgn Developers Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED: 21.11.2019

CORAM

THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY

O.P.No.241 of 2018

1.M/s.Royale Chennai Realtors, LVR Centre, New No.7, Old No.4, Seshadri Road, Alwarpet, Chennai-600 018.

2.B.Sathyanarayana

3.B.Kumaravel Pandian ... Petitioners

vs.

1.M/s.VGN Developers Pvt. Ltd., Rep. By its Authorized Signatory K.Manivanna, No.15, Wallace Garden, II Street, Nungambakkam, Chennai-600 006.

2.Vanjulavalli

3.S.Narasimhan

4.S.Rajkumar ... Respondents

PRAYER : This Original petition has been filed under Section 34 of the

Arbitration and Conciliation Act, 1996 prayed to set aside the impugned Award

dated 04.01.2017 passed by the Arbitrator.

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For Petitioners : Mr.Samir S.Shah for M/s.D.Sai Kumaran & S.John

For Respondents : Mr.P.R.Raman, Senior Counsel for M/s.C.Seethapathy for R1

ORDER

This petition is filed under Section 34 of the Arbitration and Conciliation

Act, 1996 (the Arbitration Act) to set aside the Arbitral Award dated

04.01.2017 (the Award).

2. The dispute arises out of an Agreement of Sale dated 25.06.2010 (the

Agreement), which was executed by the parties to this petition. After the

execution of the Agreement, the vendors were unable to clear the defects in

title that were specified in the Agreement and therefore, supplementary

agreements were executed on 24.08.2010, 25.10.2010, 24.03.2011 and

25.06.2011. However, the said defects in title/encumbrances could not be

removed. In these circumstances, by letter dated 21.08.2012, the Petitioners

confirmed that the advance sale consideration would be refunded as per the

schedule of repayment set out in the said letter.

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3. This assurance was admittedly not complied with. Therefore, a

police complaint was given by the first Respondent on 26.11.2012 and a FIR

was registered on 24.12.2012. Subsequently, in proceedings before this Court

in Crl.O.P.No.30114 of 2012, the dispute was referred to the Mediation Centre

annexed to this Court and this resulted in a Mediation Interim Agreement

dated 16.04.2013 (the Mediation Agreement), whereby the Petitioner agreed

to repay a sum of Rs.14.50 crores as per the schedule of repayment set out in

clause I thereto. Once again, this undertaking was not complied with. Mean

while, by notice dated 05.03.2013, the first Respondent, through its lawyer,

terminated the Agreement and invoked the arbitration clause contained

therein. In the arbitration proceedings, the first Respondent prayed for an

award for a sum of Rs.29,01,57,261/- with interest thereon at 24% p.a.

4. Upon consideration of the pleadings, the learned Arbitrator framed

four issues, which are set out in paragraph – 6 of the Award. Both the parties

adduced oral evidence in the said proceedings through one witness each and

the first Respondent herein exhibited 15 documents as Exhibits C1 to C15 but

no documentary evidence was adduced by the Petitioners herein.

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5. Upon consideration of the pleadings, the evidence and the oral

arguments, the learned Arbitrator pronounced the Award, whereby a sum of

Rs.12,50,000/- was awarded to the first Respondent with interest thereon at

18% p.a. from 26.12.2011 till the date of payment and a sum of Rs.10 lakhs as

costs. The Award is challenged in this petition.

6. The learned counsel for the Petitioners raised five grounds to

challenge the Award. The first contention is that no dispute arose out of the

Agreement. In specific, his submission is that both by the assurance letter

dated 21.08.2012 and by the Mediation Agreement, the Petitioners agreed and

undertook to pay a sum of Rs.14.50 crores as per the schedule specified

therein. Consequently, according to the learned counsel for the Petitioners, no

dispute arose under the Agreement and in the absence of a dispute, there

cannot be an arbitration. The second submission is that there is no arbitration

agreement in respect of the dispute raised by the first Respondent. In order to

substantiate this submission, the learned counsel referred to the assurance

letter dated 21.08.2012 and the Mediation Agreement and contended that both

these documents superseded the Agreement. As a consequence, the arbitration

clause in the Agreement perished and the only option that is available to the

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first Respondent is to institute civil or criminal proceedings as specified in the

Mediation Agreement.

7. In order to emphasize this contention, the learned counsel pointed

out as to how in each of the supplementary agreements that were executed

pursuant to the Agreement, it was expressly mentioned that all the terms and

conditions of the Agreement would continue to be binding and that the

relevant supplementary agreement should be read as part and parcel of the

Agreement. By contrast, he submitted that no such stipulation is contained

either in assurance letter or in the Mediation Agreement.

8. The third submission is that the learned Arbitrator extensively dealt

with the alleged non-fulfillment of obligations by the Petitioner, whereas the

Agreement expressly stipulates at Clause 26 that the non-fulfillment of

liabilities and objectives by the parties of the first part shall not be considered

as a dispute. The fourth contention is that by notice of termination dated

05.03.2013, the first Respondent cancelled the Agreement and that,

consequently, the arbitration clause also perishes. The fifth contention is that

the Agreement does not provide for the payment of or specify the rate of

interest, whereas the award grants interest at the rate of 18% p.a.

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9. In response and to contrary, the learned Senior Counsel for the first

Respondent submitted that the Agreement was entered into with the

knowledge that there were defects in title, which were required to be

rectified by the vendors, and that it was in those circumstances that the

Agreement specified at clause 26 thereof that the purchasers would not be

entitled to specific performance and that in the event of the inability of

vendors to fulfill the liabilities and objectives of the Agreement, the vendors

would immediately refund the entire advance amount. He further submitted

that this does not in any manner imply that the dispute regarding the non-

refund of the advance amount is not a dispute in terms of clause 24 of the said

Agreement.

10. He referred, thereafter, to the order of the Collector dated

29.08.2011 whereby the patta in favour of the owner of the property was

cancelled by also recording that the Will that was executed in favour of the

owner is dubious and, perhaps, bogus. He referred to this document in order to

emphasise that the Agreement could not be specifically performed in these

facts and circumstances and that the first Respondent was entitled to the

refund of advance with interest thereon.

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11. As regards the contention that there is no arbitration agreement, he

pointed out that this contention was not taken by the Petitioners in the

Section 11 Petition before this Court as recorded by the learned Arbitrator in

paragraph – 22 of the Award.

12. In response to the contention that the Agreement stands superseded

by the Mediation Agreement, he pointed out that neither the assurance letter

dated 21.08.2012 nor the Mediation Agreement contain any indication that the

Agreement is superseded. In this connection, he further submitted that the

Mediation Agreement arises out of criminal proceedings before this Court and

not civil proceedings. Consequently, he submitted that it certainly cannot be

said that the Mediation Agreement superseded the Agreement.

13. The records were examined and the oral submissions of both the

learned counsel were carefully considered.

14. In order to test the first contention of the learned counsel for the

Petitioners, it is necessary to examine the arbitration clause in the Agreement,

namely, clause 24. On perusal of the above clause, it is clear that "any dispute

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between the parties shall be referred to a sole arbitrator to be appointed by

the parties by mutual consent". The use of the words 'any dispute' is indicative

of the breadth and amplitude of the clause and I see no reason to construe its

scope narrowly. The foundation of the contention of the learned counsel for

the Petitioners is that there is no dispute in view of the admission of liability

by the Petitioners. However, this contention cannot be countenanced because

whether there is refusal, failure or inability to pay a debt, it nonetheless

amounts to a dispute. For reasons aforesaid and keeping in view the wide

scope of the arbitration clause, I conclude that the dispute regarding to non

refunding of the advance with interest thereon qualifies as a dispute, which is

within the purview of the arbitration clause.

15. With regard to the second contention that the arbitration agreement

was superseded by the assurance letter and the Mediation Agreement, it is

evident on perusal of the said documents that the intention to supersede the

Agreement is not reflected therein. Moreover, as held by the Arbitral Tribunal,

this contention was not raised in the Section 11 Petition. Notwithstanding the

fact that a decision on such contention may have been relegated for

consideration by the arbitral tribunal by the Court, nothing prevented the

Petitioners from raising such contention in the Section 11 Petition.

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16. The third contention is that the arbitration clause perishes on

account of the termination of the Agreement. This contention is untenable for

the reason that the termination of the Agreement does not extinguish accrued

liabilities that have already arisen thereunder. Equally it is the settled position

that the arbitration clause does not perish upon termination of the relevant

agreement and, as per Section 16 of the Arbitration Act, survives even if the

Agreement is void or invalid. Therefore, this submission is rejected.

17. The last contention relates to interest being awarded in spite of the

fact that the Agreement does not provide for the payment of interest. In this

regard, it may be noted that the Agreement does not prohibit the grant of

interest. When the payment of interest is not prohibited under the Agreement,

interest is nothing but time value of money and, therefore, it may be awarded

by the Arbitral Tribunal under Section 31(7)(a) of the Arbitration Act, in

respect of the pre-reference and pendente lite period and under Section

31(7)(b) in respect of the post-Award period.

18. In this case, interest was awarded at the rate of 18% p.a. from

26.12.2011 until the date of realization. Considering the fact that this is a

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commercial transaction with a business entity and keeping in mind the interest

rates that prevailed during the the relevant time, it cannot be said that the

rate of interest awarded by the Arbitral Tribunal is unreasonable so as to

warrant interference.

19. For the aforesaid reasons, I conclude that no case is made out to set

aside the award. In the result, this Original Petition is dismissed.

21.11.2019

Speaking Order/Non-speaking Order

Index : Yes/No

Internet : Yes/No

kal

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SENTHILKUMAR RAMAMOORTHY,J

kal

O.P.No.241 of 2018

21.11.2019

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