High Court of Karnataka

Nitesh Urban Development Pvt. Ltd. Vs. Brigadier Peter Anthony Lopes and Ors.

MANU/KA/0473/2019

11.02.2019

Arbitration

Where there is merely a possibility of parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement

In facts of present case, the Petitioner and Respondent Nos. 1 to 4 entered into joint development agreement on 25th November, 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 29th January, 2013 to terminate the joint development agreement, to which the Petitioner responded by submitting a reply. The Petitioner thereafter filed an application under Section 9 of the Arbitration and Conciliation Act, 1996. However, the Respondent Nos. 1 to 4 on 12th September, 2014 sold Schedule B and C properties to Respondent No. 5. On 22nd July, 2015, the Petitioner issued a legal notice for appointment of an arbitrator to resolve the dispute between the parties. The Petitioner, thereafter filed an application to implead Respondent No. 5. Respondent No. 5 was impleaded in Section 9 of the Act, in the absence of any objection by it.

In present petition, under Section 11 of the Act, 1996, 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.

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. 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.

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.

In order dated 11th April, 2018, the Division Bench of present Court held that, joint development agreement pertains to Schedule B & C properties. Indeed, as per the averments made in the appeal memo, '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. Question of appellant specifically enforcing the joint development agreement in respect of both Schedule B & C properties would not arise.

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.

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 the specific stand of the Respondent No. 5 that, he is not claiming any title or interest through Respondent Nos. 1 to 4. 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.

Clause 27.4 of the agreement is not an arbitration clause and Respondent No. 5 cannot be subjected to arbitration proceeding. Present Court does not find any reason to disagree with the view taken by the Division Bench of this Court. There is no 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.

Tags : Agreement Dispute Reference

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