Arbitration Case No.128 of 2007 -1- HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

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Arbitration Case No.128 of 2007

DATE OF DECISION: September 23, 2009

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Rakesh Kumar Garg . . . . Petitioner VS.

M/s. Vipul Ltd. . . . . Respondent ****

CORAM : HON'BLE MR.JUSTICE SURYA KANT

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1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporters or not?

3. Whether the judgment should be reported in the Digest? ****

Present: Mr. Harbhagwan Singh, Sr. Advocate with Mr. Rakesh Saxena, Advocate for the Petitioner

Mr. Ashok Aggarwal, Sr. Advocate with

Mr. Sanjay Vij, Advocate for the respondent

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SURYA KANT J.

In this petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, the petitioner seeks appointment of an Arbitrator in terms of 19 (Nineteen)-Buyer's Agreements dated 19th December, 2005 entered into between the parties.

[2]. The petitioner's case is that one plot admeasuring approximately 3.1875 acres was owned by M/s. Classic Real Estate Developers Pvt. Ltd. in which the petitioner, his family members and relatives are the shareholders. The other plot admeasuring 2.83 acres had earlier belonged to M/s. Tarupit Exports Pvt. Ltd. wherein also the petitioner's relatives were shareholders. The entire shareholding of M/s. Tarupit Exports has been bought by the respondent-Company under a Share-Purchase Agreement dated 19th Arbitration Case No.128 of 2007 -2- December, 2005 and in this manner, the respondent-company became owner of the plot measuring 2.83 acres, earlier owned by M/s. Tarupit Exports Pvt. Ltd. The respondent-Company thereafter entered into a Collaboration Agreement on 19th December, 2005 with M/s. Classic Real Estate Developers Pvt. Ltd. in terms whereof the parties agreed that the entire commercial area to be developed on both the plots, would be leased out to M/s. DELL International Services India Pvt. Ltd. on a built-to-suit basis and the ownership between the respondent and M/s. Classic was agreed to be in the ratio of 42 : 58. It is alleged that the respondent undertook the development of the two adjoining plots of land by constructing a commercial complex consisting of shops and offices etc., which was proposed to be further sold to various third party buyers by entering into the Buyers Agreements. The petitioner claims to be one such third party buyer who had entered into 19 (Nineteen) agreements dated 19th December, 2005 with the respondent for the purchase of commercial space in 'Vipul Towers' and under each agreement, the respondent allotted to the petitioner an FSI admeasuring 5000 sq.ft.@ 500/- per sq. ft at an aggregate consideration of 4.75 crores which the petitioner is stated to have paid in entirety. The petitioner alleges that contrary to the understanding between the parties that the 95000 sq.ft. area comprised in the commercial complex would be allotted/sold to the petitioner from out of the built-up areas on each of the two adjoining plots which were being commercially developed by the respondent so that about 47500 sq.ft. FSI area was allotted to him from each of the buildings being constructed on the said two plots, the respondent started selling its 42% share of built-up area comprised in the plot belonging to M/s. Classic without reserving Arbitration Case No.128 of 2007 -3- any space for the petitioner as per the Agreements. The respondent is said to have continued to sell/allot the entire 42% of its share in the building constructed on the land belonging to M/s. Classic without reserving any space for the petitioner despite a registered notice dated 11th December, 2006 sent by the petitioner expressing his reservations against such sale/allotments. The petitioner is said to have held several discussions/meetings and telephonic conversations with the representative of the respondent for handing over the possession of the allotted area under the Buyer's Agreements dated 19th December, 2005 but having found no favourable response, he was left with no option but to agree to the proposal given by the respondent that he would be allotted the agreed area in the complex on the land belonging to M/s. Tarupit. The respondent, however, once again failed to honour its commitment as per the obligations under the Buyers Agreements dated 19th December, 2005 and has not handed over the possession of 95000 sq.ft. built-up space in the commercial complex constructed on the two adjoining plots of land belonging to M/s. Classic and M/s. Tarupit, thereby giving rise to a dispute referable to an Arbitrator to be appointed under the 1996 Act in terms of the following Clause 12 of the Buyer's Agreements dated 19th December, 2005: -

12. That in case of any dispute and differences arising between the parties in relation to this Agreement or any act done in furtherance of this Agreement, then the matter will be referred for arbitration under the Arbitration and Conciliation Act, 1996. All arbitration proceedings will be held at Gurgaon. Gurgaon courts alone shall have the jurisdiction in all matters arising out of/touching upon or concerning this transaction. Arbitration Case No.128 of 2007 -4- [3]. While issuing notice to the respondent, the then Hon'ble the Chief Justice also directed that "no third party interest be created till the next date of hearing".

[4]. On February 25, 2008, the respondent's contention that while exercising jurisdiction under Section 11 of the Act, the Chief Justice does not constitute the `Principal Civil Court' of the District and, therefore, cannot issue any interim order or direction, was taken notice.

[5]. The matter thereafter has been listed before me under the orders of Hon'ble the Chief Justice.

[6]. As regards the question as to whether there exists a dispute referable to an Arbitrator for adjudication, learned counsel for the respondent fairly concedes and states at the bar that the dispute which has arisen between the parties falls within the ambit of Clause 12 of the Buyer's Agreements dated 19th December, 2005 and is referable for adjudication to an Arbitrator. On a suggestion, counsel for the parties agree that Hon'ble Mr. Justice V.S. Aggarwal, a former Judge of the High Court of Delhi who also adorned the Bench of this High Court, may be appointed as the sole Arbitrator as both the parties being located in Delhi/Gurgaon, it would not only be convenient but would also reduce their expenses as the Hon'ble former Judge is also stationed at Delhi. Accordingly, with the consent of the parties, Hon'ble Mr. Justice (Retd.) V.S. Aggarwal, is hereby appointed as the sole Arbitrator to adjudicate upon the disputes between the parties.

[7]. Having regard to the observations and guidelines laid down by the Hon'ble Supreme Court in a recent decision in Union of India vs. M/s. Singh Builders Syndicate, 2009 Vol-II, RCR (Civil) Arbitration Case No.128 of 2007 -5- 637 and also with a view to obviate any criticism that may come upon the worthy sole Arbitrator fixing his own fee, it appears proper to determine the fee of the sole Arbitrator on per-hearing basis subject to a optimum. Accordingly, it is directed that the sole Arbitrator shall be entitled to a fee of Rs.25000/- per-hearing subject to a maximum of Rs.10 lacs. Clerkage and other incidental charges shall be payable separately. The fee shall be deposited in a manner and proportion directed by the sole Arbitrator from time to time. The parties are directed to appear before the learned Sole Arbitrator on October 5, 2009 at 10.00 a.m. for further directions. [8]. The controversy, however, does not stand resolved with these directions. Counsel for the respondent strenuously urged that the respondent though has agreed to the appointment of the sole Arbitrator, nevertheless the interim order dated 10th December, 2007 passed by the then Chief Justice directing that third party interest shall not be created, is without any authority of law and is liable to be vacated. It was argued that the power to issue interim measures or protection under Section 9 of the Act can be exercised by a "Court" only as defined under Section 2(1)(e) of the Act which does not include the Chief Justice while exercising his powers under Section 11 of the Act. Reliance has been placed upon the decisions of Madhya Pradesh High Court in Nepa Limited vs. Manoj Kumar Agrawal, AIR 1999 Madhya Pradesh, 57 and of Allahabad High Court in M/s. ITI Ltd. Allahabad vs. District Judge, Allahabad, AIR 1998 Allahabad 313. Learned counsel also relied upon a decision of the Hon'ble Supreme Court in Rodemadan India Ltd. vs. International Trade Expo Centre Ltd. (2006) 11 Supreme Court Cases 651, wherein it is ruled that provisions of Section 42 of the Act regarding jurisdictional limitations are applicable only in Arbitration Case No.128 of 2007 -6- respect of a 'Court' defined in Section 2(1)(e) and do not apply to the Chief Justice or his nominee exercising power under Section 11(6) of the Act.

[9]. Per contra, counsel for the petitioner argued that in SBP & Co. vs. Patel Engineering Ltd. and another, (2005) 8 Supreme Court Cases 618, the Constitution Bench of the Hon'ble Supreme Court has authoritatively held that the powers conferred upon the Chief Justice under Section 11(6) of the Act are of 'judicial authority' and not persona designata nor are administrative in nature. Rather he exercises such judicial power/authority as a Presiding Judge. It is urged that every judicial authority has inherent powers to issue appropriate interim directions in the interest of justice, especially to pre-empt the erring party from frustrating the subject of dispute. It was argued that had the Chief Justice not protected the properties in dispute by way of interim order dated December 10, 2007, the very prayer of the petitioner to refer the dispute for adjudication to the Arbitrator would have become infructuous. He maintained that the interim order has prevented the respondent from trapping innocent allottees as well has protected the petitioner's interest, which could have been jeopardized by creating third party rights.

[10]. Section 2(1)(e) of the Act defines 'Court' to mean "the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject- matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes". Arbitration Case No.128 of 2007 -7- [11]. Section 9 of the Act enables the party before, during the pendency or at any time after the making of the arbitral award but before it is enforced, apply to 'COURT' "for any interim measure or protection" regarding preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement or such other interim measure or protection as may appear to the Court to be just and convenient.

[12]. Section 11(6) of the Act inter alia, provides that where the parties have failed to act as per the procedure for appointment of an Arbitrator or they are unable to reach to an agreement, anyone of them may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

[13]. Section 17 of the Act empowers the Arbitral Tribunal to issue interim measures as it may consider necessary in respect of the subject matter of the dispute. Similarly, Section 42 of the Act provides that if an application has been moved before a Court with respect to an arbitration agreement, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement or the arbitration proceedings shall be made in that Court only and in no other Court. [14]. In Nepa Limited (supra), the Madhya Pradesh High Court has taken the view that while exercising powers under Section 11(6) of the Act, the Chief Justice is not a `Court', therefore, cannot issue the interim measures permissible under Section 9 of the Act. The judgement explains that only that 'Court' which falls within the meaning of Section 2(1)(e) of the Act alone can exercise the powers under Section 9 of the Act. In M/s. ITI Arbitration Case No.128 of 2007 -8- Limited, Allahabad (supra), the expression 'Court' as defined in Section 2(1)(e) read with Section 42 of the Act has been elaborated. [15]. Learned counsel for the respondent, however, argued that the afore-stated decisions no longer hold the field for the reason that as per the interpretation of the law at the time when these decisions were delivered, the power of the Chief Justice under Section 11(6) of the Act, was held to be of 'administrative nature' leaving no occasion for him to exercise his powers as a 'judicial authority'. That view has since been overruled by the Constitution Bench in Patel Engineering Ltd case (supra), para 9 whereof reads as follows:-

"Normally, any tribunal or authority conferred with a power to act under a statute, has the jurisdiction to satisfy itself that the conditions for the exercise of that power existed and that the case calls for the exercise of that power. Such an adjudication relating to its own jurisdiction which could be called a decision on jurisdictional facts, is not generally final, unless it is made so by the Act constituting the tribunal. Here, sub-Section (7) of Section 11 has given a finality to the decisions taken by the Chief Justice or any person or institution designated by him in respect of matters falling under sub-Sections (4), (5) and (6) of Section 11. Once a statute creates an authority, confers on it power to adjudicate and makes its decision final on matters to be decided by it, normally, that decision cannot be said to be a purely administrative decision. It is really a decision on its own jurisdiction for the exercise of the power conferred by the statute or to perform the duties imposed by the statute. Unless, the authority satisfies itself that the conditions for exercise of its power exist, it could not accede to a request made to it for the exercise of the conferred power. While exercising the power or performing the duty under Section 11(6) of the Act, the Chief Justice has to consider whether the conditions laid down by the section for the exercise of that power or the performance of that duty, exist. Therefore, unaided by authorities and going by general principals, it Arbitration Case No.128 of 2007 -9- appears to us that while functioning under Section 11(6) of the Act, a Chief Justice or the person or institution designated by him, is bound to decide whether he has jurisdiction, whether there is an arbitration agreement, whether the applicant before him, is a party, whether the conditions for exercise of the power have been fulfilled and if an arbitrator is to be appointed, who is the fit person, in terms of the provision. Section 11(7) makes his decision on the matters entrusted to him, final."

[16]. In para 33 of the Report, it was further held " An appointment of an Arbitral Tribunal in

terms of Section 11 of the Act, is based on a power derived from a statute and the statute itself

prescribes the conditions that should exist for the exercise of that power. In the process of exercise of that power, obviously the parties would have the right of being heard and when the existence of the conditions for the exercise of the power are found on accepting or overruling the contentions of one of the parties it necessarily amounts to an order, judicial in nature, having finality subject to any available judicial challenge as envisaged by the Act or any other statute or the Constitution. Looked at from that point of view also, it seems to be

appropriate to hold that the Chief Justice exercises a judicial power while appointing an arbitrator." [17]. I have gone through the cited decisions as well as the above referred provisions of the Act.

[18]. It appears to me that a Court or judicial authority can invoke its inherent powers to issue interim measures/interlocutory directions only in respect of the subjects falling within their jurisdictional competence for the purpose of granting final relief. The interim orders are made in the aid of the final orders that the Arbitration Case No.128 of 2007 - 10 - Court may pass. An interlocutory order merges into the final order and does not survive after the final adjudication. As held by their Lordships of the Supreme Court in Patel Engineering Ltd. case (supra), the Chief Justice of a High Court or his nominee is required to invoke his adjudicatory authority to determine existence of an arbitration agreement; refusal or failure of the opposite party to agree on appointment of an Arbitrator; subsistence of the dispute and/or his own jurisdiction to appoint an Arbitrator. None of these adjudicatory powers, however, permit the Chief Justice or his nominee to travel into the merits of the dispute to be left within the domain of the Arbitrator only. In other words, the Chief Justice or his nominee, in exercise of their powers under Section 11 of the Act, cannot adjudicate, directly or indirectly, the merits of the dispute and, therefore, interim directions touching the merits of the dispute also cannot be issued under the said provision.

[19]. Similarly, Sections 9 and 17 of the Act also do not advance the petitioner's case for the grant of interim relief. While interim measure under Section 9 can be invoked only by a 'Court' as defined under Section 2(1)(e) of the Act which does not include the Chief Justice, his nominee or a Judicial Authority other than the Civil Court, Section 17 also becomes operational after the appointment of the Arbitrator as the interim measures under that provision can be invoked by the Arbitrator only. [20]. Under Section 24 of the Punjab Courts Act, 1918 only the 'District Court' has been defined to be the 'Principal Civil Court' of Original Jurisdiction and no Original Civil Jurisdiction has been conferred upon the High Court under the said Act. Even the High Court, therefore, does not fall within the ambit of 'Court' under Arbitration Case No.128 of 2007 - 11 - Section 2(1)(e) of the Act, to enable it to invoke jurisdiction under Section 9 of the Act and issue interim measures. [21]. For the reasons afore-stated, I am of the considered view that Hon'ble the Chief Justice, while exercising powers under Section 11 of the Act, was not competent to issue interim directions, therefore, the interim order dated December 10, 2007 is hereby vacated.

[22]. This, however, shall not preclude the petitioner to approach the worthy sole Arbitrator even before the date fixed for appearance of the parties, along with an application under Section 17 of the Act for the grant of interim protection and seek appropriate orders in accordance with law. The parties, if so advised, may appear before the sole Arbitrator on 26.09.2009 at 10.00 a.m. for consideration of the interim relief. [23]. Copy Dasti.

[24]. Let a copy of this order, duly attested by the Bench Secretary, be also made available to the parties to enable them to approach the learned Arbitrator.

(SURYA KANT)

JUDGE

September 23, 2009

shonkar