S.K. Mehta vs Pradeep Saith

J.D. Kapoor, J.—The question for determination in the instant proceedings is whether license deed dated 18.3.1994, MOU and Mortgage Deed are ancillary to and part of the main agreement dated 18.3.1994 which was executed between the parties for redevelopment of A-49, Nozamuddin East, New Delhi or not as the respondent has resisted this application u/s 11 of the Arbitration and Conciliating Act, 1996 for appointment of Arbitrator on the ground that license deed does not contain the arbitration clause nor do the other documents viz. MOU and Mortgage Deed.

2 The facts relevant for deciding the application need to be put in brief.

On 18.3.1994, an agreement titled "Property Development Agreement for Redevelopment" was entered into between the parties to construct the entire property bearing No.A-49, Nizamuddin East, New Delhi comprising of entire lower ground floor (Basement), upper ground floor(ground floor) Duplex first plus second floor and terrace. In terms of this agreement, the owners share was entire first floor and the second floor (duplex) and 50% of the terrace rights. On the same day i.e. 18.3.1994, license deed was entered into between the parties. By virtue of this the property bearing No.A-54, Top Floor, Nizamuddin East, New Delhi, which was owned by the petition was given to the respondent for temporary occupation as a license to be redelivered to the petitioner against possession of the respondent share''s in A-49 Nizamuddin East, New Delhi.

Since the respondent demanded surety of Rs. six lacs from the petitioner, mortgage deed dated 18.3.1994 relating to flat no.2/14A, Jangpura A (First Floor), New Delhi, mortgaging the same with the respondent was also executed. On 19.3.1994, supplementary agreement was executed between the parties whereby it was agreed that lower ground floor (basement) which has fallen to the share of the respondent shall be purchased by the petitioner against minimum consideration of Rs. 15 lakhs.

At the outset, relevant clauses of the principle agreement dated 18.3.1994, license dee, MOU, mortgage deed and supplementary agreement need to be referred to.

Principle Agreement

Clause 22 is the main clause. It provides as under:-

"that the entire project shall be completed within fifteen months from the date of sanction of plans, except for reasons beyond the builder developers control such as strikes, war and riots and natural calamities like floods, earthquakes etc. If completion of construction is delayed as a result of which possession of the owners portion is not handed over to him as stipulated herein before, for each month of delay in offering possession, the builder developer shall pay Rs. 10,000/- (Rupees Ten thousand only) per month as compensation till the possession is offered to the owner. In addition a further sum of Rs. 5,000/- (Rupees Five thousand only) shall be paid by the builder developer to the owner in the event owner will be asked to re-deliver the possession of flat no.A-54, Top Floor, Nizammudin East, New Delhi, till the possession of his share in his own building is given. The builder developer undertakes the completion of the work to the satisfaction of the owner within a maximum period of 24 months from the date of this agreement in the event of their being any breach on part of builder developer the owner shall retrieve the whole property that is A-49, Nizammudin East, New Delhi 110 013 with all fixtures, fitting and superstructure as exclusively belonging to the owner. The builder developer shall not be entitled to claim any compensation of any kind whatsoever, however this clause will not be applicable in case of force kajeure. If there is any obstruction or hindrance in the course of construction of the project under the agreement for development of the property caused by the owner or third party or by statutory body in that event the period of twenty four months will be extended corresponding to the period of the delay in completion of project."

license Deed

Following clauses require reproduction. These are:-

"Clause 3: This accommodation is being temporarily provided to Mr. Saith and his family on a license basis till such a time when the possession of this re-developed property at A-49, Nizammudin East, New Delhi 110 013 as per the agreement, is handed to him.

Clause 5: The handing over and taking over the possession in the proposed building A-49, Nazammudin East (Top Floor), New Delhi, subject matter of the license, was also described in the main agreement which contains Arbitration Clause no.37 as referred to hereinbefore."

MOU

Clause IX of the MOU pertains to the handing over and taking over of the possession of respective properties. It reads as follows:-

"The owner shall handover the possession of Flat A-54 (Top Floor) Nizammudin East, New Delhi-110 013 to the builder or his nominee within 15 days of the completion of the building and taking possession of his share of building A-49, Nizammudin East, New Delhi 110 013, along with original documents of the title and mortgage deed (duly cancelled) dated 18th March, 1994 which relate to flat No.2/14-A, Jangpura-A (Ist Floor), New Delhi 110 014"

Mortgage Deed

Following clauses of Mortgage Deed are relevant. These are as under:-

"Whereas mortgagors are the owner of the first floor of property bearing no.2/14A, Jangpura ''A'' New Delhi, which was purchased by them vide agreement to sell, General Power of Attorney, will etc. on 18th day of May, 1992 from Shri Inder Sachdeva S/o Shri K.D.Sachdeva R/o Q-25, Jangpura Ext., New Delhi.

Whereas mortgagors have entered into an agreement to construct basement, ground floor, first floor and second floor at property bearing no.A-49, Nizammuddin East, New Delhi with the mortgage. The mortgage is the owner of property bearing no.A-49, Nizammuddin East, New Delhi.

Whereas mortgage has demanded a security of Rs. 6,74,000/-(Rupees Six lacs seventy four thousand only) from the mortgagors for constructing basement, ground floor, first floor and second floor after demolishing existing building bearing no.A-49, Nizamuddin East, New Delhi.

Whereas mortgagors are not in a position to give cash security of the aforesaid amount but has agreed to mortgage their property bearing No. @/14 A, Jangpura A, First Floor, New Delhi, to the mortgage, for which mortgagee has agreed."

Supplementary Agreement

Clauses 1 & 2 are relevant. These are as follows:-

"Clause 1:WHEREAS, the owner and builder/developer have entered into property development agreement for redevelopment dated 18.3.1994 on the terms and conditions mentioned in the said agreement.

Clause 2:AND WHEREAS, the parties have mutually agreed to make the terms and conditions of the present Supplementary Agreement as part and parcel of the said agreement dated 18th March, 1994."

Opposing the reference of disputes arising from the documents other than the Principal Agreement, Mr. Jagjit Singh, learned counsel for the respondent has contended with vehemence that subsequent agreements namely license deed, mortgage deed, MOU at best can be termed as documents evidencing discharge of the obligation of the parties contained in principal agreement between the parties only confined to the development, re-development and construction of the house bearing No.A-49, Nizamuddin East and nothing more and further, the principal agreement is only restricted to the development of A-49 Nizamuddin East.

According to Mr. Jagjit Singh, Clause 22 of the Principle agreement only gives a passing reference to A-54, top floor Nizamuddin East and Therefore license deed of the said property is an independent deed and has no relevance with the principle agreement which is only confined to development of the property in question.

Similarly it is contended that the words ''Pursuant to'' referred in the license deed connote only discharge of the obligation arising from the principle agreement dated 18.3.1994 and clauses 3 & 5 of the license agreements are independent of the terms of the principle agreement as these clauses have nothing to do with the re-development or construction of the property No.A-49 Nizamuddin East.

On the status of mortgage deed Mr.Singh''s contention is that it is an independent document inasmuch as this mortgage deed is in respect of the property No.2/14A first floor and this property in no way is connected with or relates to the property to be redeveloped by the petitioner and the property in respect of which license deed was executed.

As regards subsequent agreement, Mr.Singh contends that it is only an agreement to buy out the basement at the value of Rs. 15 lakhs and make good deficiency if any. The terms of this agreement are altogether independent and different from the principal agreement.

As regards MOU it, in the view of Mr. Singh, is again conciliation arrangement effected between the parties through the offices of Advocates Mr. N.K. Anand and Mr. Rajiv Sawhney. It is clear from clause (xi) that in the event of other disputes arising between the parties, the same shall be referred to the aforesaid two Advocates for settlement. According to Mr. Singh had this MOU been an integral part of the principal agreement, clause (xi) would not have been there as this clause would have been in the form of arbitration clause as referred in principal agreement.

Mr. Singh has, while enunciating the provisions of Section 16 of the Arbitration Act, contended that these are only confined to the question as to the existence or non-existence of the arbitration clause or where there is any implied existence of such a clause in the exchange of communication between the parties or execution of various agreements or deeds or MOU arrived at between the parties from time to time. In support of this proposition, learned counsel has relied upon Wellington Associates Ltd. v. Kirit Mehta (2000) SCC 272 wherein a view was taken that Section 16 does not exclude the jurisdiction of the court to decide the question whether arbitration clause exist or not though such jurisdiction has also been conferred upon the arbitrator.

In nut shell, contention of Mr. Singh is that the principal agreement is only confined to the terms and conditions of the redevelopment of the property and any dispute of any kind arising there from was agreed to be arbitrable and that neither does license deed nor MOU nor mortgage deed form part of the terms of the principal agreement as an independent arrangement was made between the parties through these documents and that had there been any intention to decide the disputes arising from the terms of these documents through arbitration, arbitration clause would have been incorporated in these documents also. It is merely a reference in these documents that these have been executed pursuant to the principal agreement and it does not confer upon them a status of ancillary documents or documents flowing from principal documents nor does this phrase make these documents an integral part of the principal agreement.

Mr. Deepak Dhingra, the learned counsel for the petitioner has countered these contentions effectively and forcefully. Accordingly to him license deed, supplementary agreement and MOU executed between the parties flow from the main agreement i.e. parent agreement dated 18.3.1994 for redevelopment of the property and all subsequent agreements certain specific clause that these agreements shall be read as part of the main agreement.

According to Mr. Dhingra, clause 22 stipulates delivery and redelivery of the property bearing No.A-54 which is irrespective of the license agreement. Delivery and Redelivery of this property is subject matter of the parent agreement and Therefore subject matter of the parent agreement and Therefore subject matter of reference for arbitration. It is further contended that license dated 18.3.1994 itself stipulates that this was entered into pursuant to the main agreement dated 18.3.1994. According to Mr. Dhingra through license deed, it was agreed between the parties that respondent shall redeliver the property bearing No.A-54, top floor, Niz. East simultaneously to the petitioner on handing over of A-49 ground floor Nizamuddin East to the respondent which itself is the subject matter of the main agreement which shows that this license deed is part and parcel of the main agreement and has no independent existence nor can it be segregated from the main agreement.

While refuting the contention of Mr. Singh as to the import of clause 3 of the supplementary agreement as referred above, Mr. Dhingra contended that merely because clause 3 of the supplementary agreement is in the form of undertaking or indemnification does not mean that the preceding clauses are not relevant and do not amount to agreement.

As regards nature of disputes and differences, respondent has according to Mr. Dhingra admitted in reply to the notice that there are disputes and differences and has also agreed for arbitration.

As regards the disputes, these have been referred in detail in the notice of 11.10.2000 addressed by the petitioner. These have also been detailed in the petition from clause (N) onwards.

Mr. Dhingra has further contended that license agreement is of the same date as the main agreement and was executed is of the same date as the main agreement and was executed pursuant to the main agreement. Secondly, license agreement dated 18.3.1994 is dependant upon the main agreement as it was only a temporary license granted to the respondent.

Similarly, according to Mr. Dhingra, the MOU is also extension of the principal agreement as this agreement also talks of the property bearing No.A-54, top floor, Nizamuddin East and is part and parcel of the agreement.

The respondent has, according to Mr. Dhingra, taken over possession of the ground floor of A-49 and at the same time is retaining the possession of A-54 merely on the excuse that quality of construction is not up to the mark and that builder has raised unauthorised construction and Therefore completion certificate cannot be issued by the authorities. It is contended by Mr. Dhingra that none of these documents provides for obtaining completion certificate. What was agreed between the parties is that respondent shall hand over possession of A-54 to the petitioner within 15 days of taking over possession of his share in the building A-49.

I have accorded my careful consideration to the rival contentions and scanned all the documents.

Admittedly the principal agreement contains the arbitration clause. It also refers to delivery and re-delivery of property bearing No.A-54, Top Floor. Nizamuddin East which is also subject matter of the license deed. The license deed does not contain the arbitration clause. Still the fact remains that clause 22 of the main agreement refers to the delivery and re-delivery of the property bearing No.A-54, Top Floor, Nizamuddin East.

The license deed provides that this deed was executed pursuant to the principal agreement dated 18th May, 1994 for the development of the property bearing No.A-54, Nizamuddin East. Clauses 3 and 5 of the license agreement also show that it is not an independent agreement. According to clause 3 the accommodation was primarily provided on a license basis till such time when the possession of re-developed property is handed over. Clause 5 also refers to handing over and taking over the possession of the property bearing No.A-54, Nizamuddin East for the redelivery of the possession.

Another significant fact is that license deed was also executed on the same day i.e. 18th March, 1994 when the principal agreement was executed.

As regards the supplementary agreement, petitioner had agreed to purchase lower ground floor of the property no.A-49 Nizamuddin East which in terms of the main agreement had fallen to the share of the respondent. Clause 4 is of great significance as it itself stipulates that the said agreement shall be essential part of the main agreement dated 18.3.1994.

Supplementary agreement further shows that neither is it an independent agreement nor an agreement which can be acted upon without complying with the terms of principal agreement. The following clauses manifestly demonstrate the fact that this agreement is part and parcel of the principal agreement:-

"Clause 1: Whereas, the owner and builder/developer have entered into property development agreement for redevelopment dated 18.3.94 on the terms and conditions mentioned in the said agreement.

Clause 2: And Whereas, the parties have mutually agreed to make the terms and conditions of the present supplementary agreement as part and parcel of the said agreement dated 18th March, 1994.

Clause 4: This agreement between the parties shall be an essential covenant of the agreement dated 18.3.94."

Seminary MOU itself postulates that it was effected because the parties had been under an agreement dated 18.3.1994 for construction of civil structure of the building i.e. basement, ground floor and first and second and the work is in the process of completion.

This is demonstrated by Clause 1 itself which is as under:-

"Clause 1: Whereas the parties above named are under an agreement dated 18.3.94 for construction of the civil structure of the building i.e. basement, ground floor, first and second floors and the work is in the process of completion."

Another relevant clause is clause 9 which specifically refers to handing over the possession of flat No.A-54, Top Floor, Nizamuddin East. Another significant clause is clause 12 which bound the parties by the principal agreement dated 18.3.94.

Similarly the following clause, apart from the clauses referred above of the mortgage deed ineluctably demonstrates that this document cannot be segregated or severed from the principal agreement:-

(xii) Subject to the above, the owner and the Builder shall remain bound by the agreement dated 18th March, 1994."

According to these clauses, only consideration was that the mortgagor had demanded a security of Rs. 6,74,000/- for constructing basement, ground floor, first floor and second floor after demolishing existing building bearing No.A-49, Nizamuddin East. It was specifically mentioned that the mortgagor is not in a position to give cash security of the aforesaid amount but has agreed to mortgage the first floor of the property bearing No.2/14 A, Jangpura A, to the mortgagee to which the mortgagee agreed.

The fact that respondent agreed for deciding disputes through arbitration when he sent the reply to the legal notice wherein disputes arising from the main agreement, license deed, mortgage deed, supplementary MOU were referred shows that as per his own understanding, the genesis of all these documents was principal agreement.

From any angle one may examine the matter, one cannot escape from the conclusion that the documents executed between the parties namely, license deed, mortgage deed or the supplementary MOU etc were integral part of the principal agreement and disputes arising from the main agreement are so interdependent and interlinked that these cannot be determined without referring to or relying upon these documents.

In other words, even if these documents are deemed independent documents, any kind of dispute arising between the parties would never be settled and determined finally as principal agreement is not only the edifice on which all other agreements or deeds stand but also is the source through which they flow and seek sustenance. Segregation or severance of any of these documents from the principal agreement is unimaginable.

Foregoing reasons persuade me to allow the application and refer all the disputes including those that arise from license deed, mortgage deed, MOU and supplementary agreement to the arbitration of Hon''ble Mr. Justice P.K. Bahri, Retd. Judge of this court. Learned Arbitrator shall fix his own fees.