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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
B.P. Colabawalla, J.
YUSUFKHAN @ DILIP KUMAR - Appellant
Vs.
PRAJITA DEVELOPERS PVT LTD. - Respondent
Arbitration Petition No. 1012 of 2018
Decided On : 25-03-2019
The Court set aside the impugned order passed by the Arbitral Tribunal directing the petitioner to furnish an undertaking not to alienate or encumber or part with possession of the property which was the subject-matter of the arbitration to the extent of Rs.25 crores till the arbitration proceedings are concluded. The Court held that the Tribunal was wholly unjustified in directing respondent No.1 to give an undertaking that he will not alienate or encumber or part with possession of the property which was the subject-matter of the arbitration to the extent of Rs.25 crores till the arbitration proceedings are concluded. It was irrelevant whether the undertaking was in respect of specific property (i.e. a certain specific portion of the developed property that fell to the share of respondent No.1) or any other unencumbered personal property belonging to respondent No.1.
Fact of the Case:
The petitioner and the respondent entered into a Development Agreement dated 23rd June, 2006 for the development of a property. The petitioner was to receive 50% of the developed area and residential car parking spaces. The remaining 50% of the developed area and residential car parking spaces was the entitlement of the joint Developers i.e. Sharyans and respondent No.2 and the same was to be divided equally between them. The petitioner filed Arbitration Petition No. 829 of 2015 under Section 9 of the Arbitration and Conciliation Act, 1996 seeking an order of injunction restraining respondent No.1 from (a) dispossessing the petitioner from the said property; and (b) creating any third party rights, title or interest in respect of the said property. The petition was dismissed by the Court vide its detailed order dated 14th January, 2016. The petitioner filed a petition under Section 11 of the Act seeking the constitution of an Arbitral Tribunal in terms of Clause 14 of the Development Agreement dated 23rd June, 2006. This petition was withdrawn with liberty to file a suit as recorded in the Court's order dated 25th July, 2016 read with the order dated 5th August, 2016. After withdrawal of the Section 11 Petition, respondent No.1 preferred a Special Leave Petition to the Supreme Court. In this SLP, leave was granted and after noting the facts of the case, the Supreme Court, vide its order dated 30th August, 2017, opined that they saw no justification for the demand of the petitioner to seek specific performance of the agreement dated 23rd June, 2006. In these circumstances, the Supreme Court was of the opinion that permitting the continuance of the suit (Commercial Suit No.295 of 2016) for specific performance of the Development Agreement dated 23rd June, 2006 and which is more than a decade old, and that too against a person from whom the petitioner had secured development rights only to the extent of 25% of the monetary benefit of the development potential as against the rights of respondent No.1 along with respondent No.2 who are correspondingly entitled to 75% of the monetary benefit, would be unjust. The Supreme Court accordingly directed respondent No.1 to deposit an amount of Rs.20 crores in the Registry of the Supreme Court and which the petitioner was allowed to withdraw subject to them handing over possession of the said property. The petitioner filed its statement of claim and supporting documents before the Arbitral Tribunal. On the date of the preliminary meeting before the Arbitral Tribunal, the petitioner also moved an application under Section 17 of the Act seeking the following reliefs:- "(a) That this Hon'ble Tribunal may be pleased to direct the Respondents to maintain status-quo in respect of minimum 50% of the property, including Development Potential of the said share and the FSI/Built up area etc., in the subject property being the land admeasuring 2056 square meters and bearing Plot No. 16 of Pali Hill Estate in the village of Danda (Bandra) Taluka - Andheri, Bandra, Mumbai - 400 051 pending the hearing and final disposal of the present arbitral proceedings. (b) That this Hon'ble Tribunal may be pleased to restrain the Respondents from creating any third party rights in respect of minimum 50% of the property, including Development Potential of the said share and the FSI/Built up area etc., in favour of any other party. (c) That this Hon'ble Tribunal be please to restrain the Respondents from acting in any manner, or giving effect to the Development Agreement dated 21/3/2016 executed by Respondent No.1 with the new Developers, in respect of minimum 50% of the property, including Development Potential of the said share and the FSI/Built up area etc. (d) For such other and further reliefs as this Hon'ble Tribunal may deem fit in the facts and circumstances of the present case."
Finding of the Court:
The Court held that the principles laid down in the Code of Civil Procedure, 1908 for the grant of interlocutory remedies must furnish a guide to the Court when it determines an application under Section 9 of the Act. The underlying principles of Order XXXVIII Rule 5 of the CPC therefore have to be borne in mind while deciding an application under Section 9(ii)(b). The Court further held that the Tribunal was wholly unjustified in directing respondent No.1 to give an undertaking that he will not alienate or encumber or part with possession of the property which was the subject-matter of the arbitration to the extent of Rs.25 crores till the arbitration proceedings are concluded. It was irrelevant whether the undertaking was in respect of specific property (i.e. a certain specific portion of the developed property that fell to the share of respondent No.1) or any other unencumbered personal property belonging to respondent No.1.
Issues: Whether the principles laid down in the Code of Civil Procedure, 1908 for the grant of interlocutory remedies must furnish a guide to the Court when it determines an application under Section 9 of the Act.
Ratio Decidendi: The Court held that the principles laid down in the Code of Civil Procedure, 1908 for the grant of interlocutory remedies must furnish a guide to the Court when it determines an application under Section 9 of the Act. The underlying principles of Order XXXVIII Rule 5 of the CPC therefore have to be borne in mind while deciding an application under Section 9(ii)(b). The Court further held that the Tribunal was wholly unjustified in directing respondent No.1 to give an undertaking that he will not alienate or encumber or part with possession of the property which was the subject-matter of the arbitration to the extent of Rs.25 crores till the arbitration proceedings are concluded. It was irrelevant whether the undertaking was in respect of specific property (i.e. a certain specific portion of the developed property that fell to the share of respondent No.1) or any other unencumbered personal property belonging to respondent No.1.
Final Decision: The Court set aside the impugned order passed by the Arbitral Tribunal directing the petitioner to furnish an undertaking not to alienate or encumber or part with possession of the property which was the subject-matter of the arbitration to the extent of Rs.25 crores till the arbitration proceedings are concluded.
B. P. Colabawalla, J.
Admit. Respondents waive service. By consent of the parties, the Arbitration Petition is taken up for hearing and final disposal.
2. This Arbitration Petition has been filed under Section 37 of the Arbitration and Conciliation Act, 1996 (for short "the Act") challenging the order dated 31st May, 2018 passed by the Arbitral Tribunal (for short the "impugned order") under Section 17 of the Act. By the impugned order, the Tribunal directed the petitioner to furnish an undertaking to the effect that he will not alienate or encumber or part with possession of the property which was the subject-matter of the arbitration to the extent of Rs.25 crores till the arbitration proceedings are concluded. It was further clarified that this undertaking shall be in respect of a specific property i.e. certain specific portion of the developed property that falls to the share of the petitioner or any other unencumbered personal property of the petitioner.
3. At the outset, when I went through the impugned order, I found that there are several inconsistencies therein. I was therefore inclined to set aside the impugned order and remand it back to the Arbitral Tribunal for a fresh decision. However, both the learned Senior Counsel appearing in the matter (for the petitioner as well as respondent No.1 - the contesting respondent) stated before me that they do not seek a remand and would rather have me decide whether the order passed by the Tribunal is justified or otherwise. It is in these circumstances that I have proceeded to hear the present Arbitration Petition.
4. Before adverting to the legal submissions canvassed by both the parties, it would be necessary to advert to a few basic facts. The subject-matter of the arbitration proceedings is a Development Agreement dated 23rd June, 2006. The petitioner herein is respondent No.1 before the Arbitral Tribunal. Respondent No.1 herein is the claimant and respondent No.2 herein is respondent No.2 before the Arbitral Tribunal. For the sake of convenience, I shall refer to the parties as they were arrayed before the Arbitral Tribunal.
5. Respondent No.1 before the Tribunal is 95 years old. The claimant is a company incorporated under the Companies Act, 1956 and is engaged in the business of construction and development of properties. Respondent No.2 also is a company engaged in the same business. It is not in dispute that respondent No.1's wife, her brother and nephew are the Directors and only shareholders of respondent No.2.
6. As set out in the petition, pursuant to several indenture of leases, respondent No.1 before the Tribunal acquired leasehold rights in respect of various properties admeasuring 2,016 square meters situated at Pali Hill, Bandra (West), Mumbai (for short the "said property") for a period of 999 years and on the terms and conditions mentioned therein. On this property, a bungalow was also built. Pursuant thereto, the name of respondent No.1 is entered in the property card of the said property.
7. In order to develop the said property, a Development Agreement dated 23rd June, 2006 was executed between respondent No.1, Sharyans Private Limited (for short "Sharyans") and respondent No.2, whereby respondent No.1 granted development rights jointly to Sharyans and respondent No.2 in respect of the said property. Under the said Development Agreement, Sharyans and respondent No.2 were to develop the said property by consuming the FSI available as also by loading TDR as was permissible by the Development Control Regulations of Greater Mumbai. Under this Development Agreement, Sharyans and respondent No.2, as joint Developers, were to give 50% of the developed area to respondent No.1 along with 50% of the car parking spaces. The remaining 50% of the developed area and residential car parking spaces was the entitlement of the joint Developers i.e. Sharyans and respondent No.2 and the same was to be divided equally between them. Under this Development Agreement, the de
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