Alok Aradhe ORDER
Alok Aradhe, J.
1. Sri. S. Sriranga, learned counsel for the petitioner.
Sri. Santhosh H.R., learned counsel for the respondent Nos. 1 to 4.
Sri. Janekere C. Krishna, learned counsel for respondent No. 5.
2. The petition is admitted for hearing. With consent of the learned counsel for the parties, the same is heard finally.
3. In this petition, under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act' for short), the main issues which arise for consideration are, whether Clause 27.4 of the agreement is an arbitration agreement and whether respondent No. 5 who is third party to the agreement can be subjected to arbitration proceeding. The ancillary issues which arises for consideration are about the effect of order dated 11.04.2018 passed by Division Bench of this Court in MFA No. 8190/2016 and whether the petitioner has bifurcated the parties and the claims which is impermissible in law. In order to appreciate the issues involved in this proceeding, the background facts which lie in a narrow compass may be referred to.
4. The petitioner and respondent Nos. 1 to 4 entered into joint development agreement on 25.11.2011 for development of properties mentioned in schedule B and C annexed to the agreement. A memorandum of understanding was executed by the petitioner and the respondents to enforce the execution and registration of the joint development agreement. The petitioner paid a sum of ` 7.5 lakhs to the respondent Nos. 1 to 4 which was refundable on the first day of the month following the date of completion as defined in joint development agreement. The respondent Nos. 1 to 4 issued a notice on 29.01.2013 to terminate the joint development agreement, to which the petitioner responded by submitting a reply on 05.03.2013. The petitioner thereafter filed an application under Section 9 of the Act on 09.08.2014. However, the respondent Nos. 1 to 4 on 12.09.2014 sold Schedule B and C properties to respondent No. 5. On 22.07.2015, the petitioner issued a legal notice for appointment of an arbitrator to resolve the dispute between the parties on or about 07.11.2015. The petitioner, thereafter filed an application to implead respondent No. 5 on 30.08.2017. It is noteworthy that respondent No. 5 was impleaded in Section 9 of the Act, in the absence of any objection by it.
5. Learned counsel for the petitioner submitted that Clause 27.4 of the joint development agreement contains an arbitration clause and the petitioner had given a notice on 22.07.2015 for appointment of an Arbitrator. The respondent Nos. 1 to 4 have sold the properties in favour of respondent No. 5. Therefore, he is successor in interest of respondent Nos. 1 to 4 and any person claiming through a party can be made party to the arbitration proceeding. It is also argued that in a proceeding under Section 9 of the Act, the application for impleadment of respondent No. 5 was allowed in the absence of any objection by it. In support of the aforesaid submissions, reference has been made to the decisions of the Hon'ble Supreme Court in 'CHLORO CONTROLS INDIA (P) LTD. Vs. SEVERN TRENT WATER PURIFICATION INC.' MANU/SC/0803/2012 : (2013) 1 SCC 641 AND 'PURPLE MEDICAL SOLUTIONS PRIVATE LIMITED Vs. MIV THERAPEUTICS INC. AND ANOTHER' MANU/SC/0139/2015 : (2015) 15 SCC 622.
6. On the other hand, learned counsel for respondent No. 5 submitted that the provisions of the Arbitration and Conciliation (Amendment) Act, 2015, do not apply to the fact situation of the case as the arbitral proceeding commenced on 25.07.2015. The parties have not agreed to be governed by Amendment Act 2015. It is further submitted that existence of arbitral agreement is a sine-qua non and intention to arbitrate must be unequivocal. It is urged that arbitral clause has to be strictly construed. It is pointed out that in the absence of any agreement between the petitioner and respondent No. 5, the petition is liable to be dismissed qua respondent No. 5. It is also submitted that the Division Bench of this Court in MFA No. 8190/2016 has held that joint development agreement is an escrow document and not an agreement. The attention of this Court has also been invited to paragraphs 12 and 13 of the aforesaid decision of the Division Bench. It is also urged that the joint development agreement is not an arbitral agreement. It is also urged that bifurcation of parties or claims is not permissible. In support of aforesaid submissions, reference has been made to the decisions of the Hon'ble Supreme Court in 'WELLINGTON AND ASSOCIATES LTD. vs. KIRIT MEHTA' MANU/SC/0232/2000 : (2000) 4 SCC 272, 'JAGDISH CHANDER vs. RAMESH CHANDER AND ORS.' MANU/SC/7338/2007 : (2007) 5 SCC 19, 'SUKANYA HOLDINGS PVT. LTD. vs. JAYESH H. PANDYA AND ORS.' MANU/SC/0310/2003 : (2003) 5 SCC 531 and decision dated 04.12.2018 passed by the Hon'ble Supreme Court in 'SP SINGLA CONSTRUCTIONS PVT. LTD. vs. STATE OF HIMACHAL PRADESH AND ORS.' and decision of Delhi High Court in O.M.P. (I) 114/2015 DATED 05-05-2015 IN 'VLS FINANCE LTD. vs. BMS IT INSTITUTE PRIVATE LIMITED AND ORS.'
7. Learned counsel for the petitioner, by way of rejoinder reply, submitted that the clause dealt with by the Hon'ble Supreme Court in Wellington Associates Ltd. (supra) is not in pari materia with Clause 27.4 in the instant case. It is further submitted that in Jagadish Chander's case (supra), the Hon'ble Supreme Court did not deal with the issue whether the expression 'may' in the arbitration clause can be read as 'shall'. While referring to the decision of the Hon'ble Supreme Court in 'ASHAPURA MINE-CHEM LIMITED Vs. GUJARAT MINERAL DEVELOPMENT CORPORATION' MANU/SC/0467/2015 : (2015) 8 SCC 193, it is submitted that an arbitration agreement would survive notwithstanding termination of memorandum of understanding and even if memorandum of understanding does not fructify into a full fledged agreement.
8. I have considered the submissions made on both sides and have perused the record. Section 7 of the Act deals with the expression of 'arbitration agreement' and provides that arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not. The intention to refer the dispute to the arbitration must be clearly discernable from the terms of the agreement. At this stage, it is relevant to take note of Clause 27.4 of the agreement which reads as under:
"27.4 In the event of the parties being unable to resolve the dispute by conciliation as above or within such further time as the Parties may mutually agree, the dispute may be referred by either party to arbitration by a panel of three arbitrators (one to be appointed by First Party, the other by Second Party and third by the two arbitrators) in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any re-enactment or modification thereof and shall be decided by such Arbitral Tribunal. The award shall be final and binding on the parties."
9. The Hon'ble Supreme Court in the case of Wellington Associates Limited (supra) dealt with the clause in the agreement which provided that any dispute or differences between the parties may be referred to arbitration in pursuance of Arbitration Act, 1940, and held that the aforesaid clause is merely an enabling provision and where the intention of the parties is clear, it is preceded by a clause couched in mandatory language. Thus, it was held that the aforesaid clause was not a firm or mandatory arbitration clause. Similar view was taken in Jagdish Chander's case (supra) and it was held that existence of an arbitration agreement under Section 7 is a condition precedent for appointment of an arbitrator under Section 11 of the Act and therefore, it is not permissible to appoint in the absence of arbitration or mutual consent. It was further held that intention of the parties to enter into the arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private Tribunal for adjudication and a willingness to be bound by the decision of such Tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement. Similar view has been taken by the Hon'ble Supreme Court in 'VIJAY KUMAR SHARMA Vs. RAGHUNANDAN SHARMA' MANU/SC/0072/2010 : (2010) 2 SCC 486, 'STATE OF ORISSA Vs. BHAGYADHAR DASH' MANU/SC/0813/2011 : (2011) 7 SCC 406 AND 'KARNATAKA POWER TRANSMISSION CORPORATION LIMITED Vs. DEEPAK CABLES (INDIA) LIMITED' MANU/SC/0290/2014 : (2014) 11 SCC 148.
10. In view of the aforesaid enunciation of law by the Hon'ble Supreme Court, the arbitration clause in the instant case, does not require the parties to mandatorily refer the dispute to the arbitration but indicate a desire or hope to have the disputes settled by an arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Thus, the aforesaid agreement is an agreement requiring or contemplating a further consent or consensus before a reference, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future. Thus Clause 27.4 cannot be termed as an arbitration clause.
11. Admittedly, the joint development agreement dated 25.11.2011 executed between the petitioner and respondent Nos. 1 to 4 was for joint development of a total extent of 24037 square feet that is Schedule B property and item Nos. 1 and 2 of Schedule C property. This fact is evident from the recital made in the agreement, the relevant extract of which is reproduced below:
"Whereas the schedule 'A' Property thus consists of the Schedule 'B' herein and Item No. 1 and 2 of the Schedule 'C' herein. The entire Property described in Schedule 'A' herein and the Schedule 'C' herein form a composite block and together referred to as the Schedule Property for convenience."
12. From close scrutiny of the joint development agreement, it is evident that Schedule B property belonged to Lopes Family whereas item Nos. 1 and 2 of Schedule C property belong to Bankien and Rego Family and Andrade Family, respectively. The Bankien, Rego and Andrade families, who are owners of item Nos. 1 and 2 of the schedule C property have not been impleaded in this petition.
13. The Division Bench of this Court by an order dated 11.04.2018 passed in MFA No. 8190/2016, an appeal under Section 37(1)(b) of the Act which was preferred against an order dated 04.11.2016 by which application under Section 9 of the Act filed by the petitioner was rejected, in paragraphs 12 and 13 has held as under:
"12. It is indeed an admitted fact that the joint development agreement pertains to Schedule B & C properties. Indeed, as per the averments made in the appeal memo at paragraph 9, 'C' Schedule property was yet to be acquired and sale deed in respect thereof, had to be obtained, and it was for this reason, the joint development agreement was kept with an advocate who agreed to act as an Escrow agent for the appellant and respondents 1 to 4. If that is so, question of appellant specifically enforcing the joint development agreement in respect of both Schedule B & C properties would not arise. As rightly submitted by the learned Counsel for the respondent, even if findings recorded by the Trial Court stating that respondent no. 5 who had purchased the property not being a party to the arbitration proceedings, hence, Section 9 petition could not be maintained against third party is not a correct proposition in law, fact remains that recital in the joint development agreement is to the effect that petitioner owned 'C' Schedule property and in that capacity he had entered into an agreement although the actual fact being that 'C' Schedule property was not owned by the petitioner.
13. It is well established that for grant of injunction by way of interim measure, applicant has to establish prima facie case and balance of convenience must lie in his favour. In the instant case, 'C' Schedule Property could not have been made part of the agreement as it was not owned by the petitioner. joint development agreement pertains to both B & C schedule properties. In the absence of owners of both B & C schedule properties being parties to the Joint development agreement, specific performance of the said agreement prima facie appears to be impermissible. Therefore, for the purpose of finding out the whether prima facie case has been made out by the appellant for grant of interim measure, we are of the view that no such case is made out and hence, dismissal of the application by the court below cannot be found fault with. Although we are not in agreement with some of the reasons assigned by the court below, as we find that no prima facie case was made out for grant of interim measure, order passed by the court below dismissing the arbitration application filed under Section 9 of the Act does not call for interference."
14. Thus, it was held that the agreement is an escrow agreement and therefore, the question of enforcing the same does not arise. It was further held that Schedule C property could not be made part of the agreement as the petitioner was not the owner of the same and the joint development agreement pertains to Schedule B and C properties and in the absence of owners of Schedule B and C properties, no relief can be granted. The aforesaid finding has a material bearing on the controversy involved in this petition. This Court finds no reason to differ with the view taken by the Division Bench of this Court in the aforesaid mentioned case.
15. So far as submission made by the learned counsel for the petitioner that decision in Chloro Control India's case (supra) and Purple Medical Solution (supra) apply to the fact situation of the case and therefore, respondent No. 5 can be subjected to the arbitration agreement, suffice it to say that in the aforesaid decisions, it was held by the Hon'ble Supreme Court that if a third party is claiming or sued through a party to the arbitration agreement and there are principal and subsidiary agreements and such third party signatories to subsidiary agreements, in such a case, third party may be referred to the arbitration. In the instant case, the joint development agreement pertains to Schedule B and C properties and owners of Schedule B and C properties are not parties to the arbitration agreement. It is also pertinent to note that it is the specific stand of the respondent No. 5 that he is not claiming any title or interest through respondent Nos. 1 to 4. Therefore, the aforesaid decisions have no application to the fact situation of the case. It has already been held that Clause 27.4 does not mandatorily require the parties to refer the dispute to the arbitration. Therefore, the same cannot be considered as an arbitration clause. Therefore, the aforesaid contention made by the petitioner is also negatived.
16. In view of preceding analysis, it is evident that Clause 27.4 of the agreement is not an arbitration clause and respondent No. 5 cannot be subjected to arbitration proceeding. This Court does not find any reason to disagree with the view taken by the Division Bench of this Court in the order dated 11.04.2018 passed in MFA No. 8190/2016. Therefore, it is not necessary to deal with other contentions made by the learned counsel for the parties.
17. In the result, I do not find any merit in the petition. However, the same is disposed of with the liberty to the petitioner to take recourse to such remedy as may be available to the petitioner under the law.
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