These appeals filed under Order 36 Rule 1 of Original Side Rules read with Clause 15 of the Letters Patent against the order dated 23.9.2008 passed by the learned single Judge in O.A.Nos.399 and 400 of 2008 For Appellant : Mr.Habibulla Basha, Senior Counsel for Mr.Srinath Sridevan For respondents : Mr.T.V.Ramanujam, Senior counsel for Mr.K.J.Rebello for R1 COMMON ORDER (Judgment of the Court was delivered by M.CHOCKALINGAM, J.) These two inter Court appeals have arisen from the order of dismissal of two applications viz., Application Nos.399 and 400 of 2008 filed under Section 9 of the Arbitration and Conciliation Act 1996 by the appellants herein.
2. The appellant filed the applications along with the affidavit with the following averments.
The appellant/applicant company is a real estate company based in Mumbai; that the respondents are part of the group of entitles known as Butterfly Group consisting of respondents 1 to 5 and three other companies; that the entities became sick units and it was referred to B.I.F.R. and the same is pending; that due to the financial difficulties, the properties belonging to the group was segregated into two, one belonging to the respondents and the other belonging to the other entities who are not parties before this Court; that the parties had entered into an agreement for transfer and for joint development on 25.10.2006; that the same was registered before the Sub-Registrar's office of Thiruporur; that as per the terms of the agreement, the respondents herein were to take loan from a financial institution to an extent of Rs.5 crores; that except for 'A' ad 'B' Schedule properties, all other properties are encumbered; that it was agreed between the parties that on the release of the property from mortgage or charge within four months and on the scheme before the B.I.F.R. sanctioned in respect of the 'C' schedule property, the project would go as one composite project; that as per the agreement it was agreed that the respondents group would procure approval from B.I.F.R. for the scheme of development and sale of other adjacent properties; that as per clause (n) the intention of the parties was to develop the property as one composite project; that the respondents would transfer to the appellant an undivided 64% share in the respective properties described in the schedule to the agreement for a consideration and grant the appellant an irrevocable and exclusive license to enter upon the said property and to execute an irrevocable power of attorney to the appellant and its nominees to enable them to perform and comply with their obligations; that under Clause 12, the applicant/appellant is required to make payment of Rs.100 lakhs before 3.5.2006 and Rs.700 lakhs for discharge of mortgages and Rs.200 lakhs after 30 days from the date of the respondents complying with their obligations as recited under Clause 12 (iii) of the agreement; that in terms of agreement, the applicant/appellant paid a sum of Rs.8 crores and the balance of Rs.2 crores is payable from and out of the amount due and payable by the applicant/appellant herein; that it was agreed between the parties that they may allocate between themselves the unsold units or any part thereof in the development project in the proportion of 36% to the respondents and 64% to the applicant/appellant herein only after the owners had repaid the entire liability to their respective secured creditors and their respective properties released from charge or mortgage and refunded the entire interest-free refundable deposit paid by the applicant/appellant to the tune of Rs.10 crores; that the respondents permitted the applicant/appellant to have access to the property under the leave and licence arrangement; that in the course of settling the dues, by taking loan facility from the Bank, the respondents approached the appellant for execution of a supplementary agreement whereby the Bank which the respondents had arrangement, called upon the appellant to give the details as regards the period for completing the project and to execute the document but the applicant/appellant resisted the same; that there was series of correspondence between the parties on this issue; that when the respondents insisted the applicant/appellant to execute the supplementary mandatory agreement, there arose differences between the parties and that the respondents took a stand in view of the attitude of the appellant, the contract is impossible of performance. Hence, the applications for injunction has been filed.
3. The said applications were resisted by the respondents with a common counter affidavit with the following averments.
The applications filed under
section 9 of the Arbitration and Conciliation Act 1996 is not maintainable; that the applicant has not enforceable right in the Eye of Law; that the applicant/appellant has no right in the immovable properties owned by the respondents and they cannot seek for any interim relief against the respondents who are real owners; that even in the main dispute they have no legally enforceable right against the respondents' property; that the dispute between the parties will be only in terms of money; that the properties belonging to the respondents 3 to 5 were mortgaged to Bank that the balance of 12.45 acres were not utilized and were lying vacant that Rs.40 crores were requested within a short time so as to avoid serious damage; that the applicant were of the firm view that it would be most beneficial that the entire 24.39 acres are to be developed as a single project for giving the maximum advantage; that in view of the very attractive proposal made by the applicant, it was agreed to shift the factories also and treat the entire area of 24.39 acres as a single unit; that the applicant came forward to pay an advance of Rs.10 crores to meet the pressing liability; that on 3.5.2006, a memorandum of Agreed Terms was entered into between the parties and it was agreed that the applicant would undertake the project called "Integrated Residential Development" and for which it was agreed to give a licence to the applicant to enter and construct the buildings of various kinds in the land owned by us and the gross realizations out of the said activities would be shared between the applicant and the respondents herein in the ratio of 64% for the applicant and 36% for the respondents; that a comprehensive agreement dated 25.10.2006 was entered into by the parties in which it was agreed that a similar agreement will be entered into in respect of the properties owned by the sick companies of the Butterfly Group; that in effect,the agreement dated 25.10.2006 covered an extent of 16.034 acres of land and even out of the said 16.034 acres of land, an extent of 3.584 acres of land which was owned by the respondents 3, 4 and 5 were mortgaged to Banks; that it is clear that the group was urgently in needs of Rs.40 crores so as to implement the terms of the Agreement; that the respondents are required to execute a power of attorney in favour of the appellant for the purpose of implementing the terms of the above agreement; that the applicant has paid a sum of Rs.8 crores as refundable adjustable interest free deposit to the first respondents which under the agreement is to be adjusted on 36% gross realizations share of the respondents; that the respondents have handed over the original title deeds in respect of the properties owned by the first and second respondents herein; that the applicant would assist and co-operate with the respondents for raising a sum of Rs.40 crores from Financial Institutions so as to relieve us from the financial burden; that the respondents were very anxious to start the project and complete it at the shortest possible time; that everything dependent on our raising Rs.40 crores; that immediately after signing the agreement the respondents approached IL&FS Financial Services Ltd.,a Mumbai based Financial Institution, which agreed to give Rs.40 Crores provided a Tripartite agreement between the applicant/ appellant, respondents and the said IL & FS wherein the rights of IL&FS will be secured in assisting the respondents; that the said proposal was not acceptable to the applicant and the applicant insisted that they should give the choice to take over the entire project under the agreement along with debt in case the respondents commits a default in repaying the said IL& FS; that the applicant has no intention to co-operate with the respondents in availing Rs.40 crores loan so that the obligations under the agreement can be complied with by the respondents; that the respondents had no option but to terminate the agreement dated 25.10.2006 which was terminated on 19.3.2008 and the power of attorney was also revoked by a deed of revocation and the same has been registered in the office of the Sub-Registrar, Triplicane; that the applicant on receipt of the termination notice made attempts to take possession of the properties and the same was prevented by the respondents; that the applicant had paid Rs.800 lakhs to the respondents is correct but it is a refundable/ adjustable deposit which the applicant agreed to adjust in the share of the respondents out of the development project; that in view of the conduct of the applicant, the same was forfeited by the respondents while terminating the agreement ; that the agreement was entered on 25.10.2006 and it was estimated at that time Rs.40 crores was needed by the respondents; that inspite of their being in financial difficulties, the respondents have spent huge amount in laying a Road believing that the applicant would act in accordance with the Terms agreed upon ; that nothing has been done and the lands are lying useless to the respondents; that the applicant has no vested right nor interest in the property; that the respondents are entitled to encumber the property and hence, the applications have to be dismissed.
4. The learned Single Judge, on enquiry of the applications has taken a view that the applicant/appellant was not entitled for temporary injunctions as asked for and dismissed those applications. Hence, these appeals.
5. Advancing the arguments on behalf of the appellants, the learned Senior counsel would submit that in the instant case, the respondents who were the owners of the property in question entered into an agreement dated 25.10.2006 with the appellant. It was understood by the parties, as could be seen from the agreement, that the intention of the parties was to develop the entire property as one composite project. It was also understood that it was for the respondents to raise Rs.40 crores so as to make it available for the appellant who is the promoter to develop the properties. The possession in respect of the properties were actually delivered to the appellant and the respondents/ owners of the property have also received Rs.8 crores, out of Rs.10 crores on different dates, which is an admitted position. The appellant having taken possession of the property has spent lot of money for laying 40 feet road to reach the property and for getting licence and other activities which fact was well known to the respondents. Nowhere the agreement give room for any termination of the said agreement.
6. Added further learned counsel, it is true that whenever dispute arises between the parties it has to be referred to arbitration. In the instant case, the application has been filed to refer the matter to arbitration after exchange of notices. Even Clause 27 of the agreement would show that "Notwithstanding the pendency of any dispute or other differences between the parties hereto and /or any arbitration proceedings, the KRUPL shall continue to be fully entitled and be bound to continue and complete the development of the said Property and exercise all its rights, powers, privileges, discretions and authority contained in this Agreement and also documents related or incidental hereto." Under such circumstances, the notice that was issued by the respondents terminating the contract was thoroughly invalid. It is the case where it did not depend on any contingency. It was thoroughly non co-operation on the part of the respondents in not making arrangement or allowing the appellant to continue the development process and all these notices and reply given by the respondents would clearly indicate that they have committed default. The appellant is also entitled to claim specific performance of the agreement for development and whether the relief could be granted or could not be granted are to be decided only in the arbitral proceedings. In the instant case, having taken money of nearly Rs.8 crores and not having taken any steps for arranging for clearance of the loans which were originally raised, now, the respondents should not be permitted to deal with the property either to encumber or to create any mortgage or even to develop the property. If it is allowed, it would not only go against the agreement but also against certain legal principles.
7. Added further learned counsel, the learned single Judge has passed an order of dismissal of the applications on the ground that there was no prima facie case made out by the appellant but in the foregoing paragraphs, the learned Single Judge has pointed out that there was prima facie case, but the applications were dismissed on the ground that there was no balance of convenience and if at all any damages sustained by the appellant that could be compensated by way of money. The view taken by the learned single Judge is erroneous, for the reason that the appellant is entitled for specific performance for the completion of the development as found in the agreement. Hence, it could not be compensated by way of money, as pointed out by the learned single Judge. Apart from that, the question of balance of convenience is in favour of the appellant for the reason that it was the respondents who had defaulted and deviated from the various clauses found in the agreement. The learned Single Judge has observed that there was non co-operation on the part of the appellant which was not correct. All the materials placed before the learned Single Judge would indicate that all possible co-operation was extended by the appellant. Having agreed to avail loan of Rs.40 crores from the third party financiers, the respondents had failed twice, during which time, the appellant has actually given the documents which were in the custody of the respondents but the respondents could not get such loan, for which, the appellant was not responsible. On the above circumstances, it has become necessary to preserve the property. So far as the respondents are concerned, they should not be allowed to deal with the properties. Further, even clause 27 of the agreement makes the appellant entitled to proceed with the construction and complete the same. Under such circumstances, two applications were filed seeking temporary injunction but the learned Single Judge has taken an erroneous view and has dismissed the applications which has got to be set aside by allowing both the appeals.
8. Contrary to the above contentions, the learned senior counsel appearing for the respondents would submit that it was an agreement for transfer and development. It is clearly understood that as per the agreement, originally, the properties in question were mortgaged to third parties and the respondents were in need of money and thus, funds have to be raised from the third party financiers which was actually known to the appellant. Under such circumstances, Clause No.30 of the agreement was also added which would clearly speak about the execution of further agreement which were to be entered into between the parties. In the instant case, the possession of the property was never handed over to the appellant and it was actually retained by the respondents. It is true that they have given Rs.8 crores. If at all, they are aggrieved, they could get back the amount. Originally, the title deeds (Property-A1 & A2) which were in custody of the appellant was given by the respondents only on the strength of the amount handed over to the respondents. In the instant case, the performance of the entire agreement depends on contingency of availing loan of Rs.40 crores from third party, bank or financier. In the instant case, it could not be done since the attempts made by the respondents did not fructify. If the amount is not availed by the respondents from the third party financier or bank to clear of the loan which was originally in existence, it is evident from the agreement that the appellant could not develop the property at all. It is quite clear that the respondents is unable to mobilise Rs.40 crores. Under such circumstances, such contingency agreement could not be performed, even then, the matter is referred to arbitration. The appellant cannot under such circumstances, ask for specific performance, on the contrary, it can only ask for damages in terms of money.
9. Added further learned counsel, in the instant case, originally, the property was mortgaged with the third parties/ banks and the liability which was stated to be made by the respondents was clearly mentioned in the agreement. Therefore, if an interim injunction is granted in favour of the appellant, the property could not be developed by either of the parties and there is likelihood of the respondents losing the property. Hence, the balance of convenience is in favour of the respondents. In a given case, when no prima facie case was made out, injunction has got to be necessarily refused.
10. Added further learned counsel, in the instant case, it is only an agreement for transfer and development, hence, it would not create any right in favour of the appellant or the appellant is not vested with any right over the property in question. Under such circumstances, the appellant is not entitled for interim injunctions as asked for. On appraisal of the materials, the learned Single Judge has taken a view that it is not a fit case for grant of injunction and has rightly dismissed the applications. Hence, the order passed by the learned single Judge has got to be affirmed.
11. The Court paid its anxious consideration on the submissions made and looked into the materials available on record.
12. It is not in controversy that the respondents are the owners of the property in question mentioned as A, B & C Schedule and they have entered into an agreement for transfer and development with the appellant on 25.10.2006. Clause 'N' of the agreement reads as follows:
"The intention of all the parties hereto is to develop the entire property as one composite Project. The owners have informed KRUPL and KRUPL is aware that the Owners propose to and shall procure a loan from another Bank/Financial Institution (hereinafter referred to as "the New Lender") to the extent of Rs.40,00,00,000/- (Rupees forty crores lonely) specifically and exclusively for the purpose of complying with their obligations set out in clauses 11(B) and 11(C) hereinafter, on the security initially of Property A and also of Properties B when the same are released from the charge/mortgage and Properties C when the Scheme of transfer and development of the same is sanctioned by BIFR and the said Properties are released from the Charge/mortgage of the respective Secured Creditors (in pursuance of Clause 11(B) Iviii) of this Agreement), subject to the specific conditions that the Agreement with the New Lender shall specifically provide for right of KRUPL to create a Second or a pari passu (if agreed) Charge/Mortgage ( and after the Charge/mortgage of the lending Banks Financial Institutions are released, the First Charge/Mortgage) in respect of Property A nd Properties B and C (Subject as aforesaid) for the financial facilities to be availed of by KRUPL for the development of the Entire Property KRUPL and the Owners shall co-operate with each other with respect to the above."
The above clause would make it clear that there is mentioning of Clause 11(b) and 11(c) which would indicate that the properties which are actually under B and C schedule were mortgaged and the respondents have raised loans. For the discharge of the loans, they are in need of documents and loans should be raised from the third party/ bankers. Thus, it would be quite clear that at the time when the agreement was entered into, the appellant should have known that the respondents was in need of Rs.40 crores for clearing the loans which were availed on the strength of the mortgage originally created on the two items of the properties in question. It is also an admitted position that twice the respondents had made all attempts to raise funds but they could not do so. Admittedly, the appellant has given Rs. 8 crores. The title deeds in respect of A1 and A2 Schedule was handed over to the appellant by the respondents and it continued to be in the custody of the appellant. It would be quite clear that unless and until the existing loan which was to be cleared by the respondents is not cleared, the property cannot be developed by the appellant at all. Thus, it is needless to say that the performance of the agreement depends on the clearance of the encumbrance already in existence namely what is referred to in the agreement. Hence, the performance of the agreement depends on contingency.
13. Now, it is made clear that as on today, the already existing loans could not be cleared by the respondents since he could not raise funds. Under such circumstances, as on today, the performance of the contract entered into between the parties depend on the contingency which could not be fortified even this day. The contention putforth on either side is that they have prima facie case in their favour and the balance of convenience also in their favour.
14. The court is of the considered opinion that in the instant case, to grant temporary injunction, first of all, there must be a prima facie case and the appellant must show the balance of convenience and if injunction is granted, it would merit or demerit the case on either side. After looking into the available materials, the Court is of the considered opinion that though the appellant is able to show that they have actually advanced money and have entered into an agreement and having a prima facie case to get the relief of injunction, the balance of convenience is not in favour of the appellant for the simple reason that it was an agreement entered into between the parties which depends on contingency that the existing loan should be cleared of by the respondents, but the respondents could not clear the loan. Therefore, as on today, the agreement could not be performed. The Court is afraid, whether, under such circumstances, even before the arbitrator, the appellant could ask for the performance of such a contract which depends on contingency. The appellant has come forward with a case that he had parted with a sum of Rs.8 crores on different dates which fact was admitted. The learned single Judge has pointed out that this amount of Rs.8 crores could be well compensated.
15. Further, it is noticed that the respondents is unable to discharge the loan already in existence by availing loan from third party financier which according to the respondents is Rs.40 crores, but, according to the appellant, it is only Rs.16 crores. Whatever it may be, it is an admitted position, as found in the agreement, the existing loans could be cleared only by availing loan from the third parties but the same has not been availed. It is true, there are clauses available to the effect that even if disputes arise and pending disputes, the appellant was entitled to continue the development and complete the same. But in the above said circumstances, it is not at all possible, since the appellant could not proceed in view of the non happening of the contingency referred to above. Under such circumstances, the balance of convenience is in favour of the respondents. It is further to be pointed out that the agreement entered into between the parties is not the one for specific performance of the contract for sale of property but it is only for transfer cum development of the property. It is a commercial agreement entered into between the appellant and the respondents for the purpose of making profit. Under such circumstances, the Court is of the considered opinion that though the appellant is able to show a prima facie case, the balance of convenience was only in favour of the respondents. Therefore, the circumstances do not warrant for grant of temporary injunction and the applications have been rightly dismissed by the learned Single Judge.
16. In the result, both the appeals fail and the same are dismissed leaving the parties to bear their costs.
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