Desai Homes vs Dr.K.M.Jacob @ Yacob

G.Girish, J.

The petitioner, a builder and developer partnership firm, entered into an agreement dated 02.01.2002 with the respondent for the construction of a multi-storied building consisting of commercial rooms and office rooms in the 30 cents of land belonging to the respondent. As per clause 19 of the said agreement, dispute regarding the interpretation of any clause of that agreement or the part to be performed by the parties to the agreement shall be referred for arbitration by two arbitrators among whom one has to be appointed by the petitioner and the other by the respondent. Alleging non-co-operation on the part of the respondent, for the appointment of arbitrators as above for the resolution of a dispute relating to the alleged failure of the respondent to execute sale deed in accordance with the terms of that agreement, the petitioner has filed this Arbitration Request under Section 11(5) of the Arbitration and Conciliation Act, 1996.

As per the terms and conditions of Annexure-I agreement executed by the petitioner and the respondent on 02.01.2002, the respondent is said to have received an amount of Rs.15,00,000/- from the petitioner towards compensation for the demolition of the building which existed in the 30 cents of land belonging to him. The aforesaid agreement further provides that the petitioner is entitled to 55% of the undivided share in the property and built-up area, and the remaining 45% shall be retained by the respondent. As regards the sale of the portions of the building so constructed in the said property, the agreement stipulated that all amounts due as value of undivided share in the land to the extent of 55% of the total area, and construction made to the extent of 55% of the super built up area, shall be collected exclusively by the petitioner from the purchasers concerned, and that the respondent has to execute the necessary sale deeds in that regard as and when requested by the petitioner. After the completion of the construction, at the request of the petitioner, the respondent is said to have executed sale deed in favour of persons who entered into agreement with the petitioner for the purchase of shops and office spaces to the extent of 58% (8668 sq.ft) out of the 55% of super built up area set apart to the petitioner as per the terms of the agreement. The remaining 42% (6264 sq.ft) out of the super built up area allotted to the petitioner, is said to be remaining with the petitioner as unsold. According to the petitioner, many prospective purchasers showed interest in respect of shop No.18 (610 sq.ft) which formed part of the building portion retained by the petitioner, and that after the receipt of full consideration, the petitioner requested the respondent to execute sale deed pertaining to that portion of the built up area and undivided share in the land in favour of such prospective purchasers, but the respondent evaded from the execution of sale deed saying one reason or other. Since the above refusal on the part of the respondent was against the terms of Annexure-I agreement, the petitioner issued a lawyer’s notice calling upon the respondent to execute the sale deed, as requested. To the above notice, the respondent is said to have issued a reply notice contending false and untenable grounds. Thereupon the petitioner is said to have issued notice to the respondent under Section 11 of the Arbitration and Conciliation Act, 1996 appointing an Advocate as Arbitrator on its part to resolve the dispute with the respondent. To the above notice, the respondent is said to have sent a reply raising false and untenable contentions. It is in the above circumstances that the petitioner has approached this Court for the appointment of arbitrator.

The respondent appeared through his counsel and filed counter affidavit contending that the matters relating to execution of sale deed in accordance with the terms of agreement, cannot be referred for arbitration since clause No.22 of Annexure I agreement provided for the institution of a suit for specific performance in the event of refusal of the respondent to execute the sale deeds as requested by the petitioner. It is the further contention of the respondent that a suit for specific performance for the execution of sale deed in respect of those portions of the building and undivided share of land held by the petitioner, is hopelessly barred by limitation. According to the respondent, the attempt of the petitioner is to try whether the above bar of limitation could be circumvented by opting for the appointment of an arbitrator.

Heard the learned counsel for the petitioner and the learned counsel for the respondent.

Clause 19 of Annexure I agreement which contains the arbitration clause, reads as follows:

“19. In case of any dispute regarding the interpretation of any clause or the part to be performed by the parties to this agreement, the same shall be referred to arbitration of the two arbitrators to be appointed one by the Promoters & Builders and one by the owner and the decision of the arbitrators shall be final and binding on the parties to this agreement. If the two arbitrators fail to arrive at a joint decision, the dispute shall be referred to an umpire appointed jointly by the arbitrators and the decision of the umpire is final and binding on the parties to this agreement.”

As per the stipulations contained in the aforesaid clause, the following disputes between the parties shall be referred to arbitration.

(i) Any dispute regarding the interpretation of any clause of Annexure I agreement.

(ii) Any dispute about the part to be performed by the parties to Annexure I agreement.

The dispute involved in this case pertains to the alleged refusal on the part of the respondent to execute sale deed as requested by the petitioner in respect of those portions of the building, and the undivided share of land held by the petitioner, in favour of the prospective purchasers who had approached the petitioner to purchase the aforesaid building portion and undivided share. Obviously, the above complaint relates to the non-performance of an obligation on the part of the respondent, which Annexure-I agreement requires him to fulfil. However, the respondent would contend that the alleged omission on his part to perform the above obligation, is not an arbitrable dispute in view of Clause (22) of Annexure-I agreement, which provides for the institution

of  a  suit  for  specific  performance  at  the  instance  of  the petitioner.

For the sake of convenience, Clause 22 of Annexure-I agreement is extracted hereunder:

“If the Owner fail or neglect to complete the sale and sale deed is not executed, signed, registered even after the building is ready for possession as mentioned in Annexure-II and after providing all the amenities except electricity, then the Promoters & Builders can file a suit for specific performance of the contract and get the contract specifically enforced through court and get the sale deed executed through court and can recover the costs incurred by the Promoters & Builders from the Owner. The delay so occurred will have to be compensated by the Owner at the rate of Rs.25/- per sq.ft per month on 55% of the area which is shown in Annexure I.”

It is true that the above clause of Annexure-I agreement protects the right of the petitioner to institute a suit for specific performance of contract, if the respondent fails or neglects to execute sale deed, as requested by the petitioner, after the construction of the building is over and it is ready for possession. The said clause also provides for penalty by way of compensation to be paid to the petitioner @ Rs.25/- per sq.ft. per month for the delay being caused in the execution of sale deed, as per the request of the petitioner. However, the wordings of the said clause cannot be interpreted as giving a meaning of exclusion of applicability of Clause (19) of Annexure-I agreement with regard to the option to refer the disputes to arbitration. By the import of the words ‘promotors and builders can file a suit for specific performance of the contract’, in Clause (22) of Annexure-I agreement, the real intention of the parties can only be to provide an additional option to the petitioner to take recourse to a suit for specific performance, and thus, to protect the right of the petitioner to opt for a litigation despite the existence of an arbitration clause covering the said issue in the agreement between the parties.

Referring to the origin of dispute resolution by way of arbitration, and the subsequent travails and tribulations arising in the course of arbitration as a result of the matter being dragged to courts, the Apex Court observed in Guru Nanak Foundation v. M/s.Rattan Singh and Sons [AIR 1981  SC  2075]  at  the  opening  paragraph  of  the  said decision as follows:

“1. Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940 ('Act' for short). However, the way in which the proceedings under the Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with 'legalese' of unforeseeable complexity. This case amply demonstrates the same.”

In Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others [(2011) 5 SCC 532], the Apex Court held that an agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but create only a personal obligation, and hence if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable.

Going by the above dictum of the Apex Court, it is clear that there is absolutely no legal embargo in referring a dispute relating to the specific performance of an agreement for sale, to arbitration. As there is no inherent bar in the arbitrability of such a dispute, clause 22 of Annexure-I agreement cannot be taken as a provision incorporated to oust the scope of arbitration in respect of a complaint of refusal to execute the sale deed in accordance with the terms of that agreement.

The learned counsel for the respondent would contend that by incorporating Clause (22) in Annexure-I agreement subsequent to Clause (19) dealing with the reference of the matter to arbitration, the only intention of the parties was to exclude the applicability of arbitration when the issue related to the non-performance of the part of the respondent in executing sale deed, as requested by the petitioner. It is not possible to accept the above argument of the learned counsel for the respondent in view of the tenor of the words used in Clause (22), especially, the phrase ‘can file a suit’. It is the well accepted principle of law that while deciding the question whether a dispute which had arisen in connection with an agreement between the parties, where there is an arbitration clause, is arbitrable or not, the normal presumption shall be in favour of the arbitrability unless there is an express bar incorporated thereunder, or the issue is of such a nature that the resolution by way of arbitration is impossible. Anyway, going by the terms of Clause (19), dispute regarding the interpretation of any clause of Annexure-I agreement, is also a matter which has to be referred for arbitration. That being so, the question whether Clause (22) of Annexure-I agreement excludes the applicability of Clause (19) in respect of the disputes pertaining to the failure or neglect to complete the sale and execute sale deed, can also be decided by the Arbitrator. Accordingly, it is made clear that the arbitrability of the issue as well as the jurisdiction of the Arbitrator to proceed with this matter, in view of the enabling provisions contained in Clause (22), giving the option to the petitioner to institute a suit for specific performance, shall also be dealt with by the Arbitrator untrammelled by any of the observations made by this Court in this order.

In the result, the Arbitration Request stands allowed as follows :

(i) Sri.P.Mohanadas,  Retd.District  Judge,  8D, Courtyard Apartment, Vennala P.O, Ernakulam, Pin-682028 is nominated as the sole Arbitrator to arbitrate upon the disputes that have arisen between the petitioner and the respondent within the purview of Annexure-I agreement.

(ii) The learned Arbitrator is at liberty to rule on his own jurisdiction if the parties raise such a dispute.

(iii) The Registry is directed to communicate a copy of this order to the learned Arbitrator within a period of ten days from today and to obtain a Statement of Disclosure from the learned Arbitrator as provided under Section 11(8) read with Section12(1) of the Act.

(iv) Once the Disclosure Statement is obtained from the learned Arbitrator, the Registry shall issue the certified copy of this order to the learned Arbitrator, with a copy of the said statement appended to it, retaining the original of the same by this Court.

(v) The fees of the learned Arbitrator shall be governed by the Fourth Schedule of the Act.

(vi) The learned Arbitrator shall decide the manner in which the fees and expenses of the arbitration proceeding has to be paid by the parties.

(vii) The parties will appear before the learned Arbitrator on such date and place as decided by the learned Arbitrator.

(viii) All contentions of the parties are left open to be raised before the learned Arbitrator.