1.Petitioner seeks appointment of an arbitrator to resolve disputes between the petitioner and the respondent arising out of an agreement dated 02.07.2012.
2.Brief facts are as under:
Petitioner and respondent executed the said agreement which was titled as 'Terms of Agreement [TOA]'. The petitioner is a company engaged in the business of running multiplexes and cinema houses. The respondent Page 1 of 16 O/IAAP/86/2014 ORDER agreed to supply space for multiplexes with six screens. Under the agreement, the respondent had to provide such premises as per the requirements of the petitioner for which drawings and designs were provided. The agreement contained arbitration clause in following terms:
"Dispute Resolution: In case of dispute, the Parties at the first instance shall settle it amicably. If it is not settled amicably, then panel of three arbitrators shall be appointed in accordance with Indian Arbitration and Conciliation Act, 1996. The cost of such arbitration proceedings shall be borne equally. The award shall be in writing and in English language. The place of Arbitration shall be at Ahmecabad."
3.It is undisputed that pursuant to such understanding, the respondent even commenced initial work for providing multiplexes as per the requirement of the petitioner and the petitioner, as agreed, deposited a sum of Rs. 5 lacs with the respondent for such purpose. However, later on, the relations between the parties became strained. According to the respondent, it was not possible to continue to work with the petitioner on account of multiple delays. The respondent, thereupon, issued a communication dated 25.03.2014, to the petitioner and Page 2 of 16 O/IAAP/86/2014 ORDER stated as under:
"With reference to the above, please be informed that in view of inordinate delay in getting our necessary reverts, responses and in your release of payment, it is now rendered unviable and hence impossible to continue with the proposed intended business transaction with the Cinepolis.
Therefore, we are informing you hereby to kindly treat the subject mentioned unregistered "Terms of Agreement" dated 27.06.2012 as terminated, cancelled and void permanently.
We are enclosing herewith the Cheque No. 000170 dated 25.03.2014 for an amount of Rs. 5,00,001/- (Rupees Five Lacs and One only) drawn on Bank of India (Ellora Park, Vadodara Branch), payable at Par, in favour of "Cinepolis India Private Ltd.", which you are requested to kindly acknowldege on receipt."
4.The petitioner replied to such communication under letter dated 11.04.2014 denying the allegations and returned the cheque of Rs. 5 lacs stating as under:
"Please note that Cinepolis has started its work on this project immediately after signing the Bindin Terms of Agreement and has already appointed its consultants for the Multiplex Site. We have started working on this project in full throttle and have appointed our Integrated Projects team to co ordinate with you for the handover of the site. We have incurred heavy expenditure on this project. Further, from time to time, we Page 3 of 16 O/IAAP/86/2014 ORDER have been updating you about the slow pace of your scope of work at the Multiplex site from your project team.
Based upon the above mentioned facts, we do not accept the termination of the Sublet Agreement, and request you to withdraw the termination with immediate effect. Please note that the termination made by you is unilateral in nature and is not accepted. We are returning the Cheque dated March 25th 2014 bearing number 000170 for Rs. 5,00,001/- alongwith this letter."
5.In view of such disputes, the petitioner, after issuing notice for appointment of an arbitrator filed this petition which is stoutly opposed by the respondent.
6.The main objections of the respondent for appointment of an arbitrator are two fold. Firstly, the respondent contends that the agreement itself having been terminated, the arbitration clause would not survive. Second objection of the respondent is that there was no binding agreement executed between the parties. The agreement in question, referred to as terms of agreement, did not bring into existence any concluded contract. It envisaged entering to a formal contract at later stage, which was never done. The agreement itself was subject to approval by the board of management of the petitioner Page 4 of 16 O/IAAP/86/2014 ORDER company which had to be communicated within 30 days which was also not done.
7.In background of such facts, learned counsel Mr. K.S.Nanavati for the petitioner submitted that:
• The arbitration clause was widely worded and would survive even after termination of the contract, particularly, when the agreement was terminated unilaterally by the respondent for alleged breach of the terms. In this connection, he relied on the judgement of the Supreme Court in case of Branch Manager, Megma Leasing and Finance Ltd. and anr reported in (2009) 10 SCC 103.
• Counsel further submitted that the agreement brought into existence final and binding contract envisaging mutual rights and obligations. The agreement was acted upon. Petitioner paid sum of Rs. 5 lacs to the respondent. The respondent had also initiated execution of the work. It was, later on, that the disputes between the parties surfaced. All such disputes would fall within the arbitration clause and therefore need resolution through arbitration.
arbitration clause would prevail and it would be within the purview of the arbitrator to decide the issue whether the agreement itself has come into existence or not. In this context, he relied on the decision in case of Enercon (India) Limited and ors vs. Enercon GMBH and anr reported in (2014) 5 SCC 1.
8. On the other hand, learned counsel Mr. Mehta for the respondent raised following contentions:
• The agreement itself was terminated alongwith which the arbitration clause also would be nullified.
• No concluded contract came into existence by mere signing of terms of agreement. Counsel relied on various terms of the said agreement to contend that the contract would come into existence only upon letter "definitive agreements" being executed by the parties.
• Counsel lastly submitted that even the agreement in question envisaged that the same Page 6 of 16 O/IAAP/86/2014 ORDER would be subject to board approval of the petitioner company within 30 days which, in the present case, was never done. My attention was drawn to the rejoinder affidavit dated 20.02.2015 in which, it was contended by the petitioner that the board had approved the project on 11.09.2012 which was not within 30 days as provided.
9. The objection, that upon termination of the agreement, the arbitration clause would not survive, would not need much discussion. The arbitration clause, as noted above, was widely worded. It provided that, in case of dispute, the parties would first attempt an amicable settlement failing which, the disputes would be resolved through a panel of three arbitrators. The agreement was terminated by the respondent under communication dated 25.03.2014 for alleged inordinate delay in getting reverts, responses and payments from the petitioner. It was, therefore, conveyed that "in view of such delays, it was impossible to continue the proposed intended business transaction with the petitioner....."
10. In case of Branch Manager, Megma Leasing and Finance Ltd. and anr (supra) Page 7 of 16 O/IAAP/86/2014 ORDER the Supreme Court discussed the issue of similar nature and concluded as under:
"14. The statement of law expounded by Viscount Simon, L.C. in the case of Heyman as noticed above, in our view, equally applies to situation where the contract is terminated by one party on account of the breach committed by the other particularly in a case where the clause is framed in wide and general terms. Merely because the contract has come to an end by its termination due to breach, the arbitration clause does not get perished nor rendered inoperative; rather it survives for resolution of disputes arising "in respect of" or "with regard to" or "under" the contract. This is in line with the earlier decisions of this Court, particularly as laid down in Kishori Lal Gupta & Bros.
15. In the instant case, clause 22 of the hire purchase agreement that provides for arbitration has been couched in widest possible terms as can well be imagined. It embraces all disputes, differences, claims and questions between the parties arising out of the said agreement or in any way relating thereto. The hire purchase agreement having been admittedly entered into between the parties and the disputes and differences have since arisen between them, we hold, as it must be, that the arbitration clause 22 survives for the purpose of their resolution although the contract has come to an end on account of its termination."
11. Coming to more contentious issue of an agreement binding the parties having come Page 8 of 16 O/IAAP/86/2014 ORDER into existence, it would be necessary to record some of the terms of the said agreement. In the said agreement, the respondent declared that:
"it has an untfettered and absolute fight to sublet part of developed permises constructed in the land bearing TP Scheme No. 28 FP No. 820 paiki and measuring approximately 21,604 sq.mts situated at Ahmedabad (the land) the Land is being developed into a Bus Terminal and Commercial Complex in Public Private Partnership [PPP] Model with Gujarat State Road Transport Corporation [GSRTC] by Sancube Infra Projects Private Limited [SPL] and offer Cinepolis the space for a multiplex in the Commercial Complex."
The petitioner declared that it intended to set up and operate the multiplexes as per its specifications and designs, as per the terms and conditions mentioned in the annexure. The respondent, under such agreement, agreed to:
"Provide Cinepolis space for a Multiplex("Premises") with 6 Screen and approximately 1234 Seats (the "Multiplex") on the 6th Floor of the Commercial Complex of approximately 47,000 sq.mts. Built up area which includes the Multiplex, Retail Shops, Food Court with parking space to accommodate 600 Cars and 300 Four Wheelers, on the aforementioned Land as per mutually accepted designs provided by Cinepolis as in Annexure 3 and the scope of work mentioned in the Annexure 2 (the Subletor Scope of Work)."
O/IAAP/86/2014 ORDER In this back ground, it was recorded that "the parties are exchanging this TOA to record the understanding reached between them."
12. Further terms of the agreement were as follows:
"1.1 The Subletor shall arrange to get constructed the Multiplex on the said Premises as per the requirements and specifications provided in Annexure 2 and the designs provided in Annexure 3, in accordance with the local building bye laws, National Building Code, Cinematograph Act, and sanctioned building plans, and hand over the same Cinepolis for interior fit-outs.
1.2 Cinepolis shall set up and operate the Multiplex as per the terms and conditions mentioned in Annexure 1.
1.3 The Subletor agrees to execute the parallel the necessary legal documents to elaborate the TOA and complete the formality to enable Cinepolis to operate the Multiplex.
1.4 The Parties agree that the future agreements shall adhere to the board terms and conditions enclosed thereto."
13. The said agreement contained several annexures. Annexure 1 pertained to the specifications of the multiplex format, its area and a document which was titled as "commercial terms and conditions." It included the total effective monthly rent, an Page 10 of 16 O/IAAP/86/2014 ORDER escalation clause, utility charges, interest free refundable security deposit as also various clauses pertaining to stamp duty and registration charges, legal charges, insurance payments etc. This annexure also contained commercial complex criterion which included arrangement for specified parking and non-compete for multiplexes.
14. Annexure 2 to this agreement pertained to developer's scope of work and contained various details, specifications of civil structure such as, roof construction, interior and exterior walls, wall finishing, doors and windows, plumbing and drainage, toilets and handicapped access, electricity, fire detection and protection, rolling shutters, box office and kiosks etc. Annexure 2A provided a detailed time table form commencement of the work till handing over the multiplexes for fitouts. Annexure 3 contained drawings. Annexure 4 pertained to common annual maintenance charges. Annexure 4A contained details for services for the multiplexes' operations.
15. The terms of the agreement therefore would have to be seen in light of such details, specifications regarding various Page 11 of 16 O/IAAP/86/2014 ORDER items in different annexures noted above. As noted, the petitioner desired to set up and operate a multiplex. The respondent claimed unfettered and absolute right to sublet part of the developed premises and agreed to provide space for multiplex with six screens to the petitioner for such purpose. It was, in this background, that the said agreement was entered into and which in my view ended into a concluded contract between the parties and was not a mere recording of minutes or some lose memorandum of understanding to be acted upon only after a formal agreement with specifications was entered into which, counsel for the respondent would refer to as a definitive agreement. Reference to the definition agreement in para 3 of the agreement only was for elaborating the detailed terms and conditions which should be executed and registered at the commencement of commercial operation of multiplex. This further definitive agreement which would contain elaborate details of terms and conditions. This agreement which was to be entered into in future, would, in no manner, take away the binding effect of the terms and conditions contained in the present agreement nor would the present document be anything other than a competed contract. As noted Page 12 of 16 O/IAAP/86/2014 ORDER earlier, the parties not only reduced the entire contract in writing of the said agreement which containing detailed clauses or bilateral rights and liabilities binding both sides but also took steps for setting up a multiplex for which the petitioner also made first payment of Rs. 5 lacs. The agreement contained detailed terms and conditions on which the right to use the multiplex would be granted tot he petitioner. Detailed provisions were made for collection of various charges and taxes. The arbitration clause contained in the said agreement, therefore, would be activated as soon as either party raised any dispute arising from the said agreement.
16. In case of Salarpuria Builders Pvt. Ltd. vs. Big Southern Inida Malls Pvt. Ltd. in Arbitration Petition No. 13 of 2015, the arbitration clause envisaged that the disputes arising between the parties concerning any question under the definitive agreements or its construction or effect etc. shall be referred to arbitration. In the said case, no definitive agreement admittedly had been excluded. When the arbitration clause envisaged reference to arbitrator to resolve any dispute arising out of such a definitive Page 13 of 16 O/IAAP/86/2014 ORDER agreement, the court found that reference to the arbitration cannot be made. Likewise, in case of VMS Engineer and Design Services (P) Ltd. vs. U.N.Mehta Institute of Cardiology and Resarch Centre, in Arbitration Petition No. 15 of 2014, it was held that signing of the contract itself had not taken place. It was observed that no signed agreement or contract was ever brought into existence. It was, in this background, observed that "in absence of any contract having been brought into existence, the question of implementation of arbitration clause contained in tender notice would not arise. Such arbitration clause would have been ofcourse binding to the respondent if the contract had been brought into existence between the respondent and the petitioner containing such arbitration clause either contractual or incorporation through reference. In the present case, the relations between the parties remained at the stage of letter of intent."
17. The last contention, that there was no approval from the board of directors, also cannot be accepted. Contrary to what was argued before me, the agreement did not envisage communication of the approval to the Page 14 of 16 O/IAAP/86/2014 ORDER respondent by the board of directors of the petitioner company. It only provided that the agreement shall be subjected to approval of the board confirmed within 30 days from the date of the agreement. The petitioner has, in the rejoinder affidavit, clarified that the board had approved the investment and also approved the project formally on 11.09.2012. This formal approval may be beyond 30 days envisaged in the said agreement, nevertheless there was nothing in the agreement to suggest that any slightest delay in the approval or any deviation in the time limit, would result into automatic termination of the contract. Even the respondent did not take steps in furtherance of cancellation of the said agreement. At no stage, till the respondent terminated the agreement on the ground of delay in getting responses and payments from the petitioner, the question of non approval by the board within 30 days was raised.
18. Under the circumstances I request Mr B.N.Mehta (Retd. Judge of the High Court), to act as sole Arbitrator to resolve the disputes. Petition is disposed of.
O/IAAP/86/2014 ORDER (AKIL KURESHI, J.) Jyoti Page 16 of 16