Equivalent Citation: AIR2009SC2217, 2009(4)AWC3837(SC), JT2009(4)SC440, 2009(4)KarLJ623, 2009(6)MhLJ331(SC),
2009(3)SCALE762, (2009)5SCC182
IN THE SUPREME COURT OF INDIA
Civil Appeal No. 1098 of 2009 (Arising out of SLP (C) No. 7939 of 2007)
Decided On: 18.02.2009
Appellants: N. Srinivasa
Vs.
Respondent: Kuttukaran Machine Tools Ltd.
Hon'ble Judges: Tarun Chatterjee and Dalveer Bhandari, JJ.
Acts/Rules/Orders:
Arbitration and Conciliation Act, 1996 - Sections 9, 11 and 34(1); Civil Procedure Code (CPC) - Section
151 - Order 39, Rules 1 and 2
Cases Referred:
Maharwal Khewaji Trust (Regd.), Faridkot v. Baldev Dass MANU/SC/0912/2004
Contract – Property – Injunction – Section 9 of the Arbitration and Conciliation Act, 1996 – Order
39 and section 151 of the Civil Procedure Code, 1908 – Respondent owner of suit property –
Appellant entered into agreement for sale of suit property with Respondent – Appellant paid
advance to Respondent at execution of agreement for sale – Balance amount of consideration to
be paid to Respondent at registration of Sale Deed – Sale Deed provided for reference to
Arbitration in case of disputes – Appellant realized intention of Respondent dishonest when he
found Respondent trying to sell suit property to some other party at much higher price –
Respondent refused to perform its part of contract and informed appellant its unwillingness to
execute the sale deed to appellant until and unless he agreed to pay higher sale consideration
over and above as agreed between them when appellant intimated his willingness to perform his
part of contract to execute sale deed – Appellant filed application under section 9 of Act of 1996
and Order 39 Rule 1 and 2 read with section 151 of CPC for injunction restraining Respondent
from alienating, altering or creating any third party interest in respect of suit property – City Civil
Judge allowed application filed by appellant – Appeal filed by Respondent under section 34(1) of
Act of 1996 before High Court – High Court allowed appeal – Hence, present appeal – Held,
appellant made out prima facie case for grant of injunction – Civil Judge justified in directing
parties to maintain status quo in matter of transferring, alienating or creating any third party
interest as prima facie proved that Respondent trying to sell suit property to third party causing
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irreparable damage to appellant – Time not to be essence of contract in contract relating to
immoveable property – Disputes raised by parties only be determined by sole Arbitrator –
Respondent not be entitled to transfer, alienate suit property during pendency of arbitration
proceedings – Direction to appellant to deposit balance amount – Decision of High Court set aside
– Decision of Civil Judge restored – Appeal allowed.
Tarun Chatterjee, J.
1. Leave granted.
2. This appeal has been filed at the instance of the appellant by special leave against the judgment and
final order of the High Court of Karnataka at Bangalore in M.F.A No. 12014/2006 (AA), dated 16th of April
2007, setting aside the order dated 23rd of September, 2006 passed by the VI Additional City Civil Judge,
Bangalore, and vacating the order of status quo granted on condition that the respondent shall deposit a
sum of Rs. 2,50,000,00/- [Rupees two crores fifty lacs] within the time specified in the impugned order.
3. The facts leading to the filing of this appeal may be summarized as follows:
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 (hereinafter referred to as the `property in dispute') 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 21 st 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. The agreement for sale specifically mentioned that it was the obligation of the
respondent to keep the title good till the execution and registration of the sale deed and further to keep
the property in dispute free from all encumbrances or charges. It was also agreed that the respondent
shall pay all rates, taxes and cesses in regard to the property in dispute upto the date of sale and all dues
prior to the Sale Deed. 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 (in short the `Act'). 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. For the purpose of execution of the sale deed, the appellant
started doubting its bona-fide and, therefore, by a letter/notice dated 18th of February 2006 called upon
the respondent to execute the sale deed so that the vacant possession of the property in dispute could be
delivered to him. On 20th of February 2006, the appellant received a letter from the respondent asking him
to complete the sale transaction on the very next day i.e. on 21 st of February 2006. After the receipt of the
letter mentioned above, the appellant approached the respondent and requested the respondent to
perform their part of the obligation. The respondent assured the appellant that they would require some
more time to remove the machineries from the property in dispute as they were in large numbers and very
huge in size. They also informed the appellant that they required some more time to make alternative
arrangement of other premises where their plants and machineries could be kept as they were very
expensive and involved a lot of money. As the appellant had already paid an amount of Rs. 2,00,00,250/-
to the respondent, he had no choice but to keep quiet. The appellant, however, having believed the
version of the respondent that they had difficulty in shifting all the machineries within a short notice kept
quiet till he realized that the intention of the respondent was not honest as he found that the respondent
was trying to sell the property in dispute to some other party at a much higher price. Having found that the
respondent was not interested to execute the sale deed as agreed upon, he approached the respondent
on 21st of June, 2006 to execute the sale deed, when he also intimated the respondent that he was ready
and willing to perform his part of the contract to execute the sale deed, 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
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higher price, the appellant filed an application under Section 9 of the Act on 23rd of June 2006, 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.
4. The respondent entered appearance and denied the material allegations made in the application for
injunction. 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.
5. The Addl. City Civil Judge at Bangalore by his order dated 23rd of September 2006 allowed the
application filed by the appellant, inter alia, on a finding that "there are serious issues to be tried before
the arbitrator and that the appellant has successfully made out a prima facie case for grant of injunction in
the manner prayed for in the application." The learned Addl. City Civil Judge, Bangalore, while disposing
of the application for injunction, came to a finding prima facie that the respondent intended to sell the
property in dispute to some other persons at a higher price as it was found that the intending purchasers
were frequently visiting for the purpose of purchasing the property in dispute. The Addl. City Civil Judge,
Bangalore, therefore, held prima facie that the respondent was likely to sell the property in dispute and if it
was sold, it would make the award of the learned Arbitrator infructuous for which, the appellant shall
suffer irreparable loss and injury. Accordingly, upon the aforesaid findings, the Addl. City Civil Judge,
Bangalore disposed of the application for injunction directing the parties to maintain status quo in the
matter of transferring, alienating and creating any third party interest in respect of the property in dispute.
6. It is against this order of Addl. City Civil Judge, Bangalore, an appeal was filed by the respondent under
Section 34(1) of the Act before the High Court.
7. Before proceeding further, it may be kept on record that 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 by its order dated 27th of February 2007 appointed a retired Judge of the High Court as the sole
Arbitrator to decide the disputes raised by the parties.
8. The appeal filed by the respondent against the order of the Addl. City Civil Judge, Bangalore directing
the parties to maintain status quo, was taken up for hearing by the High Court and the High Court, by its
impugned order, set aside the order of the Addl. City Civil Judge, Bangalore and made a final order in the
following manner:
1.Appeal is allowed in part.
2. The order dated 23.9.2006 passed by the VI Addl. City Civil Judge, Bangalore City in A.A. No. 48/06 is
set aside subject to the condition that the appellant deposits a sum of Rs. 2,50,00,000/- (Rupees two
crores and fifty lakhs) only in fixed deposit for a minimum period of six months initially in a nationalized
bank and renew the same till the disposal of dispute before the Arbitrator. The original fixed deposit
receipt shall be surrendered to the arbitrator.
3. In the facts and circumstances, there shall be no order as to costs.
9. It is this order of the High Court, which was challenged by way of a Special Leave Petition, which on
grant of leave, was heard in the presence of the learned Counsel for the parties.
10.We have heard the learned Counsel for the parties and examined the impugned order as well as the
order of the trial court and also the allegations made in the application for injunction and the objections
thereto in depth and in detail. The impugned order of the High Court would show that if the respondent
deposits a sum of Rs. 2,50,00,000/-, the order of status quo granted by the Addl. City Civil Judge,
Bangalore in the matter of transferring, alienating, altering and creating any third party interest, shall stand
vacated and the application for injunction filed by the appellant shall stand rejected.
11. In our view, the appellant, in the facts and circumstances of the case, had successfully made out a
prima facie case for grant of injunction in the manner granted by the Addl. City Civil Judge, Bangalore. It
is not in dispute that the appellant and the respondent had entered into an agreement for sale of the
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property in dispute inter alia on the terms and conditions already mentioned herein earlier. The
respondent has not denied such agreement for sale. The only ground taken by the respondent is that
since time was the essence of the contract and the appellant had failed to perform his part of the contract
within the time specified in the said agreement for sale, the question of grant of injunction from
transferring, alienating or creating any third party interest in respect of the property in dispute would not
arise at all. At the same time, it must be kept in mind that it would be open to the respondent to transfer,
alienate or create any third party interest in respect of the property in dispute before passing the award by
the sole Arbitrator in which one of the main issues would be whether time was the essence of the contract
or not. It is evident from the impugned order of the High Court that by vacating the order of status quo
granted by the trial court, practically, the High Court had limited the scope of the arbitration to the extent
that the right of the appellant to receive back the amount with or without compensation would be taken
away, if ultimately his allegations are found to be true. Though, the appellant has been denied the benefit
of injunction but since the application was under Section 9 of the Act for interim measure, to secure the
interest of the appellant in the event of his succeeding to an award before the arbitrator, it would be in the
interest of justice to put the appellant on terms. It is also evident from the impugned order that the High
Court has made it clear that the observations in the same shall not be understood to have limited the
power of the arbitrator to consider the disputes on all its aspects including grant of specific performance of
the contract, but by vacating the interim relief to the appellant, the High Court had made the entire
arbitration proceeding infructuous and by dint of vacation of the interim order of the trial Court, the
respondent shall be in a position to transfer, alienate the property in dispute to a third party by which third
party right shall be created and the appellant shall suffer enormous injury. Furthermore, if, at this stage,
the respondent is permitted to transfer, alienate or create any third party interest in respect of the property
in dispute, then the award, if passed in favour of the appellant by the Arbitrator, would become nugatory
and it would be difficult for the appellant to ask the respondent to execute the sale deed when a third
party interest has already been created by sale of the property in dispute and by possession delivered to
the third party. In a contract for sale of immovable property, normally it is presumed that time is not the
essence of the contract. Even if there is an express stipulation to that effect, the said presumption can be
rebutted. It is well settled that to find out whether time was essence of the contract, it is better to refer to
the terms and conditions of the contract itself. Further more, the High Court, in our view, has failed to
appreciate that by the impugned order they have also limited the scope of arbitration if ultimately the
allegations made by the appellant are found to be true. That is to say, if an order restraining the
respondent from creating any third party interest or from transferring the property in dispute is not granted
till an award is passed, the appellant shall suffer irreparable loss and injury and the entire award if passed
in his favour, would become totally negated. In this connection, it is imperative to refer to a judgment of
this Court in the case of Maharwal Khewaji Trust (Regd.), Faridkot v. Baldev Dass
MANU/SC/0912/2004 : AIR2005SC104 , which observed as follows:
Unless and until a case of irreparable loss or damage is made out by a party to a suit, the court should
not permit the nature of the property being changed which also includes alienation or transfer of the
property which may lead to loss or damage being caused to the party who may ultimately succeed and
may further lead to multiplicity of proceedings. In the instant case no such case of irreparable loss is
made out except contending that the legal proceedings are likely to take a long time, therefore, the
respondent should be permitted to put the scheduled property to better use. We do not think that in the
facts and circumstances of this case, the lower appellate court and the High Court were justified in
permitting the respondent to change the nature of the property by putting up construction as also by
permitting the alienation of the property, whatever may be conditions on which the same is done.
12. Going by the ratio of the abovementioned decision, it is clear that the VI Addl. City Civil Judge,
Bangalore, was justified in directing the parties to maintain status quo in the matter of transferring,
alienating or creating any third party interest as prima facie it has been proved that the respondent was
trying to sell the property in dispute to a third party, thus alienating the rights of the property in dispute,
which would have caused irreparable damage to the appellant.
13. From a bare perusal of the findings of the High Court reversing the order of the trial Court and
rejecting the application for injunction, it would be evident that the appellant had failed to make out a
prima facie case for grant of an order of injunction in his favour. But in view of our discussions made
hereinabove, we are of the view that the Additional City Civil Judge, Bangalore was fully justified in
directing the parties to maintain status quo as to the nature and character of the property in dispute till the
award is passed by the Sole Arbitrator as we have already held that if the order of the status quo is not
granted and respondent is permitted to sell the property in dispute to a third party, complications will arise
and the third party interest will be created, for which the award, if any, passed in favour of the appellant
ultimately, would become nugatory. As noted herein earlier, one of the main issues for the purpose of
deciding the application for injunction was whether time was the essence of the contract or not. By the
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impugned order, the High Court had failed to appreciate that in the contract relating to immoveable
property, time cannot be the essence of contract. In any event even in such a case, the arbitration clause
would survive and the dispute would be required to be resolved. That being the position, pending disposal
of the arbitration proceeding, interim measure to safeguard the interest was required to be taken. The
High Court also, in our view, had failed to appreciate the material on record as the agreement and the
correspondences produced by the parties to the effect that since the appellant was required to furnish the
nil encumbrance certificate till the date of transaction to show that there was no charge over the property
and further since the property was to be kept vacant at the time of the execution of the sale deed, time
cannot be held to be the essence of the contract in the facts and circumstances of the case and
accordingly, the interim measure was necessary to prevent irreparable loss and injury. However, the
question whether the time was the essence of the contract or not is to be decided by the Arbitrator in the
arbitration proceeding and for that reason only the High Court had also left open such issue to be decided
by the learned Arbitrator and in this connection, the High Court observed as follows:
As such the contentions with regard to survivability of the arbitration clause and the dispute as to whether
time is the essence of the contract are issues which are within the realm of the Arbitrator and accordingly,
we do not wish to pronounce on the same and therefore, we do not see reason to refer to the arguments
and case law referred in this regard.
14. Since the High Court had not at all gone into the question regarding whether time was the essence of
the contract or not, it is not necessary for us to go into the question as the same shall be decided by the
Arbitrator while passing the award. As noted herein earlier, the respondent while opposing the application
for grant of injunction, pleaded that the prayer of the appellant for grant of injunction in respect of the
property in dispute should be refused because admittedly, the time to execute the deed by the appellant
had expired in the meantime. As we have already held that one of the main issues to be decided by the
Arbitrator is whether time was the essence of the contract or not, which was not decided by the High
Court while reversing the order of the Additional City Civil Judge, Bangalore and in view of the fact that
there is no dispute that a sum of Rs. 2,00,00,250/- (Two Crores and Two Hundred Fifty) has been paid by
the appellant to the respondent at the time of execution of the agreement for sale and in view of the fact
that there is no dispute that the parties had entered into an agreement for sale on certain terms and
conditions, out of which one of the conditions was whether the time was the essence of the contract or not
which shall be decided by the Sole Arbitrator, we do not find any ground as to why the order directing the
status quo in the matter of transferring, alienating or creating any third party interest passed by the
Additional City Civil Judge, Bangalore shall not be maintained till the award is passed by the Arbitrator.
That apart, the survivability of the Arbitration clause in the agreement was also questioned by the
respondent in their objection to the application for injunction but since that question has also been kept
open for the decision of the Arbitrator by the High Court as well, we have no hesitation in our mind to hold
that since the said question shall also be decided by the Arbitrator while deciding the disputes between
the parties, there is no ground why the order of status quo granted by the trial court shall not be
maintained till the award is passed by the Arbitrator.
15. It is well settled that even if an agreement ceases to exist, the Arbitration clause remains in force and
any dispute pertaining to the agreement ought to be resolved according to the conditions mentioned in the
Arbitration clause. Therefore, in our view, the High Court was not justified in setting aside the order of the
trial Court directing the parties to maintain status quo in the matter of transferring, alienating or creating
any third party interest in the same till the award is passed by the sole Arbitrator.
16. It was not disputed by the High Court in the impugned order that the respondent was trying to sell off
the property in dispute to some other third party which, in our view, would also cause enormous loss and
hardship to the appellant. It is not in dispute that the appellant had paid a sum of Rs. 2,00,00,250/- (Two
Crores and Two Hundred Fifty) as advance to the respondent at the time of executing the agreement for
sale. At the same time, it may not be out of place to mention that it was the specific case of the appellant
that the respondent had failed to hand over vacant possession of the property in dispute within the period
specified in the agreement and for that reason only, he could not perform his part of the contract.
17. In view of our discussions made herein above, we are of the view that the disputes raised by the
parties can only be determined by the sole Arbitrator and when admittedly, an Arbitrator has been
appointed to decide such dispute, the parties should be directed to maintain status quo in the matter of
transferring, alienating or creating any third party interest in the same till the award is passed by the sole
Arbitrator.
18. At the same time, considering the fact that some time would be required for the Arbitrator to
pronounce his award wherein the question whether time was the essence of the contract or not would be
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required to be determined and if the parties are directed to maintain status quo in respect of the property
in dispute, till such award is passed, and for that reasons, the respondent would not be entitled to
transfer, alienate the property in dispute during the pendency of the Arbitration proceeding and
considering the balance of convenience and inconvenience of the parties, we feel it proper to direct the
appellant to deposit the balance amount of Rs. 4,99,03,829/- (Four Crores Ninety Nine Lacs Three
Thousand Eight Hundred Twenty Nine) within a period of three months from the date of supply of a copy
of this order to the VI Additional City Civil Judge, Bangalore, in fixed deposit for a minimum period of six
months initially in a nationalized bank in favour of the respondent and renew the same till the disposal of
dispute before the Arbitrator. The original fixed deposit receipt shall be kept with the arbitrator. In the
event of failure of deposit of the aforesaid amount, the order of status quo, as granted by the VI Additional
City Civil Judge, Bangalore and affirmed by us, shall automatically stand vacated and the order of the
High Court, vacating the order of status quo, shall immediately come into operation.
19. In the light of the discussions made hereinabove, we set aside the order of the High Court and restore
the order of the VI Additional City Civil Judge, Bangalore subject to the conditions mentioned
hereinabove.
20. For the reasons aforesaid, the appeal is allowed to the extent indicated above. There will be no order
as to costs.
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