2009 Supreme(SC) 298

Supreme Court of India
THE HONOURABLE MR. JUSTICE TARUN CHATTERJEE & THE HONOURABLE MR. JUSTICE DALVEER BHANDARI
N. Srinivasa
Versus
M/s. Kuttukaran Machine Tools Ltd.
Civil Appeal No.1098 of 2009 (Arising out of SLP (C) No.7939 of 2007)
Date of Judgment : 18-02-2009

IMPORTANT POINT
Issues like time being essence of contract and survivability of the Arbitration clause are within jurisdiction of Arbitrator.
Arbitration clause remains in force even if the agreement ceases to exist.
In a contract relating to immoveable property, time cannot be the essence of contract.

Headnote:(a) Code of Civil Procedure, 1908 – Order 39 Rule 1 and 2 r/e Section 151 and section 9, Arbitration and Conciliation Act, 1996 – Agreement between parties for sale of disputed property – Respondent taking one stand that time was of essence of the agreement appellant was not ready – It an issue to be decided by arbitrator – Trial court rightly granted temporary injunction on alienation etc. of the property – High Court, by setting aside injunction and vacating status quo, making arbitration infructuous – By setting aside injunction respondent was allowed to alienate the property – Thereafter even if the arbitrator decided in favour of appellant it would be of no avail – High Court failing to appreciate that in a contract relating to immoveable property, time cannot be the essence of contract and that the interim measure was necessary to prevent irreparable loss and injury. (Para 11, 12, 13)

       AIR 2005 SC 104 – Relied upon

       (b) Arbitration law – Issues like time being essence of contract and survivability of the Arbitration clause – Within jurisdiction of Arbitrator – High Court erroneously vacating order of status quo – Directed to be maintained till the award is passed by the Arbitrator. (Para 14, 18)

       (c) Arbitration and Conciliation Act, 1996 – Section 7 – Arbitration clause remains in force even if the agreement ceases to exist – High Court erred in setting aside order of status quo till the arbitral award is passed. (Para 15)

       Facts of the case:

       The respondent became the owner of Plot No.19-A, II Phase, Industrial Area, (carved Survey No. 40 and 41, Chokkasandra Village, Yeshwanthpur Hobli, Bangalore North Taluk), measuring about 10568 square meters by a sale-deed dated 11th of November 2001 executed by the Karnataka Industrial Area Development Board.

       The appellant and the respondent entered into an agreement for sale of the property in dispute on 21st of December 2005 for a sum of Rs.6,99,04,079/- in which an advance of Rs.2,00,00,250/- (Two Crore Two Hundred Fifty Only) was paid to the respondent at the time of executing the agreement for sale. One of the stipulation in the agreement for sale was that the balance amount of the consideration money shall be paid to the respondent at the time of registration of the Sale Deed which shall be executed within sixty days from the date of execution of the agreement for sale. It was further agreed that in case of dispute, the same should be referred to Arbitration under the provisions of Arbitration and Conciliation Act, 1996.

       The respondent borrowed funds from KSIIDC and various other financial institutions for installation of various kinds of machineries in the factory thereby created equitable mortgage by way of deposit of title deeds with various financial institutions. It was clearly understood that at the time of registration of the sale deed, vacant and peaceful physical possession of property in dispute would be delivered by the respondent to the appellant and that the respondent would be bound to remove all plants and machineries from their factory in order to deliver possession to the appellant after clearing all its dues to the various financial institutions and keep the title deed ready.

       The appellant called upon the respondent to execute the sale deed so that the vacant possession of the property in dispute could be delivered to him.

       The respondent refused to perform its part of the contract and informed that they would not execute the sale deed until and unless the appellant agreed to pay a higher sale consideration over and above what was agreed to between the parties.

       Having found that the respondent was trying to sell the property in dispute to a third party at a higher price, the appellant filed an application under Section 9 of the Act before the City Civil Judge, Bangalore, for injunction restraining the respondent from alienating, altering or creating any third party interest in respect of the property in dispute. With the application, the appellant also filed an application under Order 39 Rule 1 and 2 read with Section 151 CPC for temporary injunction restraining the respondent from transferring, alienating or creating any third party interest in the same.

       It was the specific case of the respondent that since time was the essence of the contract and the appellant having failed to perform his part of the obligation of the contract, the respondent was not bound to execute the sale deed and therefore, the agreement for sale was cancelled by the respondent. Accordingly, it was alleged by the respondent that the application for injunction must be rejected.

       The Addl. City Civil Judge at Bangalore allowed the application filed by the appellant directing the parties to maintain status quo.

       An appeal was filed by the respondent under Section 34 (1) of the Act before the High Court.

       In the meantime, an application was filed under Section 11 of the Act by the appellant before the High Court for appointment of an Arbitrator. The High Court appointed a retired Judge of the High Court as the sole Arbitrator to decide the disputes raised by the parties.

       The appeal filed by the respondent against the order of the Addl. City Civil Judge, Bangalore directing the parties to maintain status quo was allowed in part.

       Finding of the Court:

       Impugned judgment is not sustainable.

       Result:

       Appeal allowed.