Sa. Duraisamy vs Millenia Realtors Pvt. Ltd.

Satish K. Agnihotri, Actg. C.J.

This application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) seeking appointment of an Arbitrator to adjudicate upon the disputes that have arisen between the petitioner and the respondent in connection with the Development Agreement dated 26.3.2004 and the subsequent letter of Undertaking dated 12.5.2006 issued by the respondents in furtherance to the Development Agreement.

The petitioner, along with M/s. Malar Publications Pvt. Ltd., entered into a Development Agreement with the respondent on 26.3.2004. In terms thereof, the respondent was to promote an I.T. on a land of an extent of 6.62 acres in Perungudi, Chennai, which had been in the ownership of the petitioner. The entitlement of the petitioner and M/s. Malar Publications, who were the land owners in terms of the Development Agreement, was 36% of the total saleable built-up area, which was computed at 2,15,400 sq.ft. and towards this extent, the petitioner and M/s. Malar Publications were allotted a block of five floors designated as Campus-IA I in RMZ Millenia-I. The Development Agreement envisaged the saleable built-up area to be conforming international standards, with facilities and fixtures comparable to the best of world standards. However, it turned out that the building did not conform to the specifications agreed upon and several discrepancies were noted, with the use of sub-standard materials and deviation between the sanctioned drawings and the actual constructions. On physical inspection, it was noticed that the materials used for construction of Campus-IA building were of inferior quality when compared to the specifications used in the building retained by the respondent, viz. Campus-IB. In terms of the Development Agreement, there was to be parity in terms of the quality of constructions of the building retained by the Developer and the one earmarked to the petitioner/land owners. It is the case of the petitioner that the respondent had, for their personal gains, deliberately chosen to use sub-standard and inferior quality materials in constructing the building earmarked for the land owners. When these discrepancies were brought to the notice of the respondent, they agreed for a compromise package, which was reduced to writing on 12.5.2006.

It is the further case of the petitioner that in furtherance to the present understanding and agreement, the respondent had paid a sum of Rs.2,30,00,000/- and also agreed to allot an extent of 5000 sq. ft. of land in Millenia-II to the petitioner/land owners or in the alternative, pay them a sum of Rs.4,00,000/- per month till such time the tenants M/s. Customer Operational Services Chennai Pvt. Ltd. occupied the premises in Campus-IA of RMZ-Millenia-I. According to the petitioner, this arrangement was recorded in writing on 12.5.2006. As per the arrangement, out of the entitlement of the land owners, i.e. 36% of the total land, the petitioner was entitled to 93% and M/s. Malar Publications were entitled to the remaining share of 7%. It is submitted that M/s. Malar Publications had conveyed their share in favour of one Mr. Balasubramaniam Adityan and that both of them jointly assigned their rights in respect of the compensation as provided in the letter dated 12.5.2006 issued by the respondent, in favour of the petitioner. The petitioner submits that he called upon the respondent to make the payment of Rs.4,00,000/- commencing 12.5.2008 till such time the aforesaid tenant occupied Campus-IA, which was meant to be the petitioner/land owners share. It was further agreed that the respondent would obtain sanction for an area of 6045 sq. ft. In Millenia-I within two years from 12.5.2006, failing which the respondent would convey an extent of 6045 sq. ft. of saleable built up area in Millenia-II, and that the said portion would be re-conveyed to the respondent on obtaining the sanction. Since the respondent failed to obtain the sanction during the aforesaid two year period, the petitioner called upon them to execute the sale deed for 6045 sq. ft. of land, in terms of the Compromise Agreement, which was a derivative of the Development Agreement dated 26.3.2004.

It is the case of the petitioner that though he had called upon the respondents to adhere to the Compromise Agreement dated 12.5.2006, his legitimate demands were neglected. In view of the respondent''s abject disregard to the performance of their obligations and breach of the agreement, the petitioner invoked the arbitration clause envisaged in the Development Agreement dated 26.3.2004 and appointed a retired Judge of this Court as their arbitrator, calling upon the respondent to nominate their arbitrator, so as to enable the two arbitrators to identify the Umpire. The respondent replied on 16.3.2009 that the Compromise Agreement did not stipulate the arbitration clause and hence, no arbitrator could be appointed in this case. Therefore, the petitioner has approached this Court for the relief as stated above.

The respondent has filed a detailed counter statement stating, inter alia, that it was the petitioner who was all along raising illegal, untenable claims and demands and it was on this account that execution of the Assignment Agreement and other related documents was being deferred, consequent to which the respondent suffered financial losses. It is stated that the respondent had on many occasions made it clear that no duty was cast upon them to perform the obligations in terms of the Development Agreement and whatever the respondent had offered gratuitously was only by way of a goodwill gesture and could not in any way be attributed to the respondents admission of their fault. Having not repudiated the above stand of the respondent, the petitioner is now stopped from contending otherwise. Therefore, the respondent contends that the Compromise Agreement dated 12.5.2006 as a document is void and unenforceable in law. It is submitted that none of the disputes raised by the petitioner relate to the Development Agreement and revolve around the subsequent Compromise Agreement/letter dated 12.5.2006 and hence, there is no nexus with the Development Agreement which contemplates arbitration and the present claims raised by the petitioner.

I have heard the learned counsel for the parties and perused the materials placed on record.

Clause 31 of the Development Agreement dated 26.3.2004 entered into between the petitioner and the respondent deals with resolution of disputes by way of arbitration and it reads as under:-

In the event of any dispute/differences arising between the parties hereto with regard to the performance of this agreement or in respect of any issues arising therefrom, the matter shall be resolved through a conciliation process between the parties; should there be a failure of this process, within one week from the date of such failure, each of the parties shall identify an arbitrator of their choice. The Arbitrators so selected will be at liberty to identify an umpire. The dispute shall be referred to arbitration under the provisions of Arbitration and Conciliation Act, 1996.

The venue of arbitration shall be Chennai and the Courts of Chennai shall have exclusive jurisdiction in respect of matters incidental thereto.

From a perusal of the factual matrix narrated hereinabove, it is clear disputes had arisen between the parties in relation to the Development Agreement dated 26.3.2004 as well as the subsequent compromise arrangement entered vide letter dated 12.5.2006, which could not be resolved by way of mutual conciliation. On the other hand, there were claims and counter claims raised from both sides. In fact, the respondent has seriously controverted the claim of the petitioner before this Court by filing an exhaustive counter affidavit. Therefore, the petitioner rightly invoked the arbitration clause and appointed their arbitrator. However, the respondent challenged the very existence of the arbitration clause contained in the Development Agreement dated 26.3.2004, in view of the execution of the subsequent letter dated 12.5.2006. The respondents also relied on the decisions of the Supreme Court rendered in M.R. Engineers and Contractors Pvt. Ltd. Vs. Som Datt Builders Ltd., and Young Achievers Vs. IMS Learning Resources Pvt. Ltd., .

I am afraid the aforesaid decisions may not come to the rescue of the respondents. In both those cases, the parties had executed certain agreements/contracts which contained an arbitration clause, but after disputes arose, they entered into sub-contracts which specifically superseded the earlier contracts and therefore, it was held that the arbitration clause contained in the earlier contracts would not come to the rescue of the parties and therefore, the claim for arbitration of the disputes was rejected. However, in the case on hand, though the parties agreed to resolve the disputes by executing the subsequent agreement dated 12.5.2006, that arrangement also failed to achieve the desired result. The petitioner attributes even this failure to the respondents not adhering to the terms of the arrangement dated 12.5.2006. Therefore, the respondent cannot wriggle out of the arbitration clause contained in the earlier agreement by citing the subsequent arrangement, which admittedly did not contain such arbitration clause.

In view of the above, I am of the opinion that the petitioner has made out a case for appointment of an independent arbitrator for resolution of the disputes arising between the parties. Accordingly, with the consent of both sides, Thiru. Justice K.P. Sivasubramanian, a retired Judge of this Court, is hereby appointed as the Sole Arbitrator for resolving the disputes arising between the petitioner and the respondent in connection with the Development Agreement dated 26.3.2004 and the subsequent compromise agreement/letter dated 12.5.2006. The learned Arbitrator shall enter upon the reference and after issuing notice to the parties and upon hearing them, pass an award as expeditiously as possible, at any rate within a period of six months from the date of issuance of the notice. The learned Arbitrator is at liberty to fix the remuneration and other incidental expenses relating to the arbitration, which shall be borne by both the parties equally. The original petition is accordingly allowed.