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2017 Supreme(Bom) 2440
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.C. Dharmadhikari, P.D. Naik, JJ.
Haresh Advani – Appellant
Vs.
Suraj Jagtiani – Respondent
Appeal No. 425 of 2015 in Arbitration Petition No. 846 of 2014 and Notice of Motion No. 1359 of 2015 in Appeal No. 425 of 2015 in Arbitration Petition No. 846 of 2014
Decided On : 22-09-2017
For the Petitioner:Janak Dwarkadas, Senior Advocate, Ankita Singhania, Kunaal Shah, Anirudh Kapoor, Siddharth Ranade and Deepan Shah i/by Kalpesh Joshi
For the Respondent: Birendra Saraf, Akshay Patil, C. Rashmikant, Poojma Kothari and Nikita Mishra i/by Federal & Rashmikant
A party cannot invoke Section 21 of the Specific Relief Act, 1963, to claim compensation in lieu of specific performance, if the party has effectively abandoned the claim for specific performance by deleting the necessary party from the arbitration proceedings and by filing a suit against the necessary party and the other party, seeking specific performance of the same agreements.
Headnote:
The appellant, Haresh Advani, challenged the majority award of the arbitral tribunal, which granted compensation to the respondent, Suraj, in lieu of specific performance of two agreements. The appellant argued that the award was vitiated by a serious and apparent error of law, as the tribunal had no jurisdiction to grant compensation under Section 21 of the Specific Relief Act, 1963, since specific performance could not be granted due to the involvement of a third party, Regency Hotels, who was not before the tribunal. The respondent, on the other hand, contended that the award was valid and that the tribunal had correctly applied Section 21. The court held that the tribunal's conclusion that specific performance ought not to be granted was correct, as the subject matter of the agreements was an immovable property belonging to Regency Hotels, and not to the appellant. However, the court also held that the tribunal erred in invoking Section 21 to grant compensation, as the conditions for invoking that provision were not satisfied. The court found that the appellant had effectively abandoned his claim for specific performance by deleting Regency Hotels from the arbitration proceedings and by filing a suit against Regency Hotels and the appellant in this Court, seeking specific performance of the same agreements. As a result, the appellant was not entitled to invoke Section 21 and claim compensation. The court dismissed the appeal, upholding the order of the learned Single Judge, which had upheld the majority award. The court also dismissed the appellant's Notice of Motion (L) No. 1359 of 2015, which sought to set aside the award.
Fact of the Case:
The appellant, Haresh Advani, and the respondent, Suraj, entered into two agreements, dated 6th October 2001 and 30th November 2002, respectively. The agreements related to the sale and purchase of shares in Regency Hotels Private Limited, a company owned by the appellant. Suraj initiated arbitration proceedings against the appellant, claiming specific performance of the agreements or, alternatively, compensation for breach of contract. The arbitral tribunal, by a majority decision, awarded compensation to Suraj in lieu of specific performance. The appellant challenged the award before the High Court under Section 34 of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The court held that the arbitral tribunal's conclusion that specific performance ought not to be granted was correct, as the subject matter of the agreements was an immovable property belonging to Regency Hotels, and not to the appellant. However, the court also held that the tribunal erred in invoking Section 21 of the Specific Relief Act, 1963, to grant compensation, as the conditions for invoking that provision were not satisfied. The court found that the appellant had effectively abandoned his claim for specific performance by deleting Regency Hotels from the arbitration proceedings and by filing a suit against Regency Hotels and the appellant in this Court, seeking specific performance of the same agreements. As a result, the appellant was not entitled to invoke Section 21 and claim compensation.
Issues: 1. Whether the arbitral tribunal erred in granting compensation to the respondent in lieu of specific performance, when specific performance could not be granted due to the involvement of a third party, Regency Hotels, who was not before the tribunal. 2. Whether the tribunal correctly applied Section 21 of the Specific Relief Act, 1963, in granting compensation to the respondent.
Ratio Decidendi: The court held that the arbitral tribunal erred in invoking Section 21 of the Specific Relief Act, 1963, to grant compensation to the respondent, as the conditions for invoking that provision were not satisfied. The court found that the appellant had effectively abandoned his claim for specific performance by deleting Regency Hotels from the arbitration proceedings and by filing a suit against Regency Hotels and the appellant in this Court, seeking specific performance of the same agreements. As a result, the appellant was not entitled to invoke Section 21 and claim compensation.
Final Decision: The court dismissed the appeal, upholding the order of the learned Single Judge, which had upheld the majority award. The court also dismissed the appellant's Notice of Motion (L) No. 1359 of 2015, which sought to set aside the award.
S.C. Dharmadhikari, J.
1. This appeal challenges the judgment and order of learned Single Judge dated 24th April 2015 passed in Arbitration Petition No. 846 of 2014.
2. Admit. Paper book dispensed with. The learned Advocate for respondent waives service. With the consent of parties, this appeal is disposed off finally by this judgment.
3. The short facts necessary to appreciate the arguments of learned Senior Advocate appearing for the appellant and that in reply of learned counsel appearing for the respondent, are set out in the following paragraphs.
4. The appellant before us was the original respondent before the arbitral tribunal. The respondent in this appeal is the claimant. We will prefer to refer to the parties by their nomenclature in the arbitral proceedings.
5. The award of the arbitrators came to be rendered on a dispute between the claimant and the respondent. M/s. Regency Hotels Private Limited ('Regency Hotels' for short) was the owner of a plot of land at Village Sahar, Taluka Andheri, Mumbai Suburban District. The issued share capital of Regency Hotels in the year 1995 was 24,500 shares of Rs. 100/- each aggregating Rs. 24.50 lakhs, of which 11,025 shares (45%) were held by claimant/respondent to this appeal and remaining 2,350 shares (10%) were held by Gul Kriplani. By an agreement dated 28th July 1996, three share holders agreed to sell 50% of their respective shareholding in this company to one Cherish Investment Private Limited. This agreement was subsequently terminated by the shareholders of the company.
6. On 6th July 1998, (and it would be better to refer to the parties now by their names; the respondent-claimant before us shall be referred to as Suraj and the appellant-original respondent as Haresh Advani) Suraj entered into an agreement to transfer his 45% shares in Regency Hotels to Haresh Advani upon terms and conditions, more particularly set out in this agreement. The said Suraj agreed to sell his entire shareholding in the company for a consideration of Rs. 5.8 crores payable in installments till 31st May 1999. Clause-4.1.1 of this agreement noted that in the event of failure or negligence on the part of Haresh Advani to pay the consideration in accordance with Clause-3 of the agreement, Suraj was entitled to terminate the said agreement and forfeit the amount paid by Haresh Advani, subject to maximum of Rs. 1.20 crores. Under Clause-5 of the agreement, the parties appointed Mr. Mahesh Jethmalani as escrow holder and agreed to deposit a copy of this agreement along with shares and share transfer forms duly executed by Suraj in favour of Haresh Advani and also a power of attorney in favour of the escrow holder authorizing him to execute fresh transfer forms in favour of Haresh Advani on completion of transaction. By letter of 6th July 1998, further understanding between the parties was recorded and in relation to voting rights.
7. On that very day namely 6th July 1998, the parties entered into a supplementary agreement, inter alia, recording that Haresh Advani was aware of the Cherish agreement and had agreed to purchase the shareholding of respondent Suraj in the said company subject to benefit and burden of Cherish agreement. Then a letter was addressed to escrow holder and we are not required to refer to the same. Further, according to Suraj, during the period between 6th July 1998 and 12th January 1999, Haresh Advani paid to Suraj only first two installments payable under the aforesaid agreement along with interest on account of delayed payment. On 12th January 1999, the parties entered into a supplementary agreement, inter alia, rescheduling the outstanding payments to be made by Haresh Advani to Suraj. Haresh Advani acknowledged that he has defaulted in making payment of the amount under the said agreement and agreed that balance sale consideration including interest amounting to Rs. 2,71,90,000/- would be paid by Haresh Advani to Suraj in the manner set out in this supplementary agreeme
