Cref Finance Limited v. Puri Construction Ltd. & Ors

Vikramajit Sen, J.— Ubi Jus Ubi Remedium is a Latinism which has become an integral part of jurisprudence. Considering the vituperous, vehement and vigourous opposition to this petition from Shri Mohinder Puri and the other Respondents represented by S/Shri Amarjit Singh Chandiok and Rajiv Nayyar, Senior Advocates, it is surprising that it was ubiquitously reiterated that the Orders dated 13.5.2000 passed by Justice S. Ranganathan are ad-invitum. All the more so since the petitioner only seeks jural protection virtually identical to these ad-invitum Orders. The grant of the relief was contested by the Respondents substantially on legal Objections, which is way the legal maxim came to mind. Of equal authority, tested by time, is the view expressed in Ashby v. White that “if a man has a right he must have a means to vindicate and maintain it, and a remedy if he is injured in the exercise and enjoyment of it; and indeed it is a vain thing to imagine a right without a remedy for want of right and want of remedy are reciprocal”.

The petitioner, CREF Finance Limited, (CREF) and Puri Construction Limited, (PCL), entered into an agreement on 10.11.1995 for floating a Joint Venture Company for property development. Since PCL already owned 22 acres of land and an additional 32 acres was required, the latter acreage was to be purchased in the name of CREF. As collateral for the investment to be made by CREF, an equitable mortgage of the 22 acres is stated to have been created in terms of PCL's letter dated 16.11.1995 It is not in dispute that by 30.7.1997 CREF had invested a sum of Rs. 39.59 crores in the Project. For discharging its liability PCL agreed to the transfer to CREF of built up space admeasuring 1,95,000 sq.ft to be delivered within 48 months in Block A, and within 60 months in Block B. These terms can be found in the Agreement dated 30.7.1997 (Annexure ‘H’). On 10.3.1998 a Development Agreement was executed between PCL and Larsen and Toubro Ltd. (L&T) to which CREF was a consenting witness. In this Agreement dated 10.3.1998, the prior contract dated 30.7.1997 was duly noticed and it was specifically mentioned that the latter would be appended thereto. The area of 1,95,000 Sq.ft was agreed to be drawn from PCL's allocations. This is only a board overview of the facts, since the disputes in contention have been adequately spelt out and dealt with in the Orders of Justice S. Ranganathan, the Sole Arbitrator appointed by this Court, in terms of the Orders dated 13.5.2000 Significantly, all the parties except L&T state that they are bound by and have no hesitation in complying with these Orders. The petitioner's grievance is that even after the passing of these Orders there appears to be a doublespeak by Shri Mohinder Puri, Respondent No. 3 inasmuch as he has indicated that the directions contained in para 7 of the Order of the Learned Sole Arbitrator shall be implemented without any demur. Para 7 reads as under:

“To sum up, PCL is directed to allot to CREF the entirety of the blocks marked as AR and A4 as well as 12 apartments covering an area of about 15000 Sq. ft. in Block B2. PCL will be at liberty to dispose of in favour of the third parties the rest of the area covered by the first phase of development. In consideration of such earmarked allotment, CREF is directed not to interfere directly or indirectly with, or cause any obstructions in the way of PCL and L&T disposing of other buildings in this phase of the project”.

In its letter dated 15.7.2000 PCL through its Managing Director Shri Mohinder Puri had informed the Advocates of the petitioner as under:

“In total compliance with the orders of the learned Arbitrator dt. 13.5.2000, we have allocated to your clients the entirety of the blocks marked as A3 & A4 in the development being undertaken by M/s. Larsen & Toubro Ltd. (L&T) in furtherance of the development agreement dt. 10.3.1998 which binds us, L&T and ITC Classic Real Estate Finance Ltd. (CREF Finance Ltd.). The apartments allocated in the entirety, however, exclude 3 apartments being apartment hos. A3-702, A3-303 & A3-401.

In further compliance of the said orders we have also allocated to your clients 12 apartments covering an area of about 15,000 Sq. ft. in Block B2.

We have already intimated M/s. Larsen & Toubro Ltd. about this allocation vide our letter dated 22.5.2000

You may kindly note that even the supplementary agreement dt. 31.12.1999 expressly provides that we will act as the agents of M/s. Larsen & Toubro Ltd. for the purpose of selling and marketing the built-up area that would be constructed in Schedule ‘B’ by your clients nominated developer M/s. Larsen & Toubro Ltd. Kindly note that any commitment made by us or any order passed by the learned Arbitrator which binds us also binds M/s. Larsen & Toubro Ltd. and the letter bearing Ref. No. LTCG/BLORE/PDBU/2060 Dt. 21.6.2000 written by Mr. H.S Chandrasekhar, General Manager, Larsen & Toubro Ltd. is nonest and it is not open to Mr. H.S Chandrasekhar to defy the orders of the learned Arbitrator.”

With the exchange of these letters it could be reasonably expected that all was well with the parties. This prognosis is far from correct.

In its letter dated May 31, 2000 the petitioner informed L&T of the Orders passed by the learned Sole Arbitrator and requested L & T not to sell any flat or space in Towers A3 and A4, and also ensure that the petitioner would get an area of 15,000 sq. ft. in Tower B2. In Reply, by their letter dated 21.6.2000, L&T has stated inter alia as follows:

“We are indeed surprised at Mr. Puri's written commitment in the arbitration proceedings because Mr. Puri as detailed in an agreement with us has indicated his willingness to allow us to sell the entire 3.8 lacs sq. ft. in the first phase. He has specifically agreed that no area in the first phase will be given to you. As such kindly, note that we will not be in a position to allot any area in the first phase of development of the 3.84 lacs Sq.ft. to you.”

It is the petitioner's case that it had reason to believe that the areas falling to its share, as per the Orders of the learned Sole Arbitrator dated 13.5.2000, are being sold by the Respondents herein. The petitioners state that they were alarmed on seeing advertisements issued by L&T in respect of these very areas.

In these circumstances the petitioners have prayed that orders be passed (a) directing that the areas mentioned by the Sole Arbitrator should be covered by allotment in their favour and (b) that interim injunction in respect of these properties be issued.

As stated above the petition has been vehemently opposed by all the Respondents including PCL and Mr. Mohinder Puri, Respondent No. 3, appearing in person. The Respondents, except L&T, did not assail the Orders passed by the Sole Arbitrator on 13.5.2000 Their contention is that the petition is not maintainable since Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’) cannot be availed of by the petitioner in the circumstances presently prevailing. It is further contended that these very prayers were asked for before the Arbitrator and having not been specifically granted, must be treated as having been declined. If so, principles analogous to res judicata would operate as a legal impediment in the granting of the reliefs prayed for. When the arguments in the case were concluded, Shri Sunil Malhotra appeared on behalf of L&T and undertook to file his vakalatnama. He submitted that the 25 per cent share of PCL, from which 1,95,000 sq.ft share of the petitioner was to be carved out, was from the different phases and not from the first phase. This is the reiteration of the stand taken by the L&T in their letter dated 21.6.2000 It is also contended that since the learned Sole Arbitrator was already seized of the matter this Court had no jurisdiction in respect of the disputes being adjudicated in those proceedings. Finally it is contended that proper remedy, if any, was for the petitioner to file a suit for injunction since L & T was not a party to the arbitration clause. Mr. Mohinder Puri, Respondent No. 3, supplemented these legal objections on two counts, (a) that there was no Arbitration Agreement between him personally and the petitioner and (b) since the property in dispute was located in Gurgaon this Court would have no jurisdiction under Section 16 of the Code of Civil Procedure.

I had enquired from the Learned Senior Counsel appearing for the parties whether they could cite any precedent in support of their respective contentions. It appears to by commonly agreed that on the legal demurrer raised, no prior decisions were available. On 19.7.2000, in the presence of Mr. Anees Ahmed, Mr. Anil Divan had relied on the judgment of Sundaram Finance Ltd. v. Nepc India Ltd., (1999) 2 SCC 479. The points at issue before the Apex Court were whether the Court had jurisdiction under Section 9 to pass interim orders even prior to the commencement of arbitration and secondly whether atleast a notice for he initiation and commencement of Arbitration Proceedings should be insisted upon as a precondition for the invocation of this Section. It was in these circumstances that the Court observed that “there were ample and untrammelled powers under Section 9 to grant relief even, in the absence of a notice”. To this extent, therefore, this decision does not shed any light on the legal nodus that has arisen in these proceedings. However the following observations, even if in the nature of obiter dicta, is of immense guidance to and binding on me. It reads as under:

“The reading of Section 21 clearly shows that the arbitral proceedings commence on the date on which a request for a dispute to be referred to arbitration is received by the respondent. It is in this context that we have to examine and interpret the expression “before or during arbitral proceedings” occurring in Section 9 of the 1996 Act. We may here observe that though Section 17 gives the Arbitral Tribunal the power to pass orders, the same cannot be enforced as orders, of a Court. It is for this reason that Section 9 admittedly gives the court power to pass interim orders during the arbitration proceedings.” (underlining added)

Section 9 of the Arbitration and Conciliation Act, 1996 reads as under:

“S.9 Interim measures etc. by court.-- A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court.

(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings: or

(ii) for an interim measure of protection in respect of any of the following matters, namely:—

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the court to be just and convenient,

and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.”

A plain reading shows that the Court has jurisdiction to pass orders until the Award is submitted for enforcement under Section 36 of the Act. In the present case the arbitral proceedings are current and consent Orders passed on 13.5.2000 had been invited by PCL represented by Shri Mohinder Puri. Although these orders have not been impugned, even before me, by the Respondents other than L&T, they cannot be enforced because of the legal embargo contained in Section 36 of the Act itself. In the hiatus created by the conjoint operation of Sections 34(8) and Section 36, a party to the Arbitration cannot be held remediless in this interregnum if the Court is convinced that interim protection, negative or positive, is called for. The Court has not been rendered impotent by the Act even where it desires to grant relief since the circumstances call for it. This would be a logical extension of the ratio established in the Sundaram Finance Ltd. case (supra), and especially in conformity with the opinion expressed in para 11 of the judgment, extracted above. Justice and equity would not countenance a Judge standing by as a mute spectator while a party renders an award worthless and practically unenforceable and nonimplementable.

The contention that the prayers had been made before the learned Sole Arbitrator and declined is also without legal substance, at this stage. It is common ground that the Orders dated 13.5.2000 were passed by consent of the contesting parties before the learned Sole Arbitrator. No inference can be drawn that they were declined. I cannot lose sight of the fact that the original partners in the development of the property in question were CREF and PCL, and also, that pursuant to the agreement arrived at between them, a substantial sum of approximately Rs. 40 crores has been ploughed in by CREF. L&T not only came into the picture subsequently, but the agreement between CREF and PCL was specifically stated to be appended and annexed to the subsequent Agreement for Development between PCL and L&T. The latter is not a third party, without notice, who was ignorant of the rights of CREF. It also appears to be a common case between L&T and PCL that the latter had been appointed as the Agent of L&T, inter alia, for the sale of the developed property. In these circumstances the commitment made by PCL and Shri Mohinder Puri in the Arbitral Proceedings must, at this interlocutory stage, be held to be binding on L&T. The argument that L&T is entitled to secure its investment, even if in the process the rights of the CREF are thrown to the winds, must be rejected forthwith. Learned counsel for L&T had submitted that while PCL undoubtedly had a 25 per cent share in the built-up area, these shares were scattered ths oughout the different phases. The argument continues that if this was so it was not open to the CREF to claim areas within the first phase. As observed above the commitments made by PCL before the learned Sole Arbitrator cannot be brushed aside. L&T has adopted a most unreasonable stand in arguing as a reiteration of the stance articulated in its letter dated 21.6.2000, that it has an unfettered right for the sale of properties, and statements made by its Agent are not binding on it, even at this incipient stage of the litigation.

No provision has been shown to me in support of the contention of the Respondents that once disputes have been referred to Arbitration, the Court have no further role to play in the consensual process of resolution of disputes. No doubt the Act's intendment is that the Court's interference in the arbitral process is to be eschewed, in this case, if orders are passed as prayed for it would complement and assist the proceedings. The Court is not impeding, interfering with or obstructing the functioning of the Arbitral Tribunal.

The Objections pertaining to territorial jurisdiction are yet to be decided by the learned Arbitrator and it would, therefore, be improper to go into this issue in detail. Suffice it to state that it is well recognised that even instances where immovable property is not situate within the territorial jurisdiction of a Court, if the parties are so located and the relief asked for can be enforced by their personal actions, objections of this genre would not be sustainable. In the present case the consent Orders dated 13.5.2000 can be implemented by the parties.

Mr. Mohinder Puri, Respondent No. 3 herein, was present before the learned Arbitrator and for him to now raise highly technical and suspicious objections that there is no subsisting Arbitration Clause between him and CREF have convinced me of his malafides and doublespeak. He has invited the Orders dated 13.5.2000 from the learned Sole Arbitrator, has not assailed these Orders before me and in one breadth stated their acceptance and applicability to him, in the other has assailed the petition on technicalities. Finally the argument that L&T is not a party before the learned Sole Arbitrator, and that no Arbitration Clause subsists between CREF and L&T would also not come in the way of Court granting equitable relief when circumstances called for it. As has been observed above L&T is not a stranger to the covenants between CREF and PCL. Having appointed the latter as its Agent it cannot be permitted to repudiate the agents actions in the summary and self-serving manner in which it has presently acted. It can also not be permitted to act contrary to the Development Agreement dated 10.3.1998

All Statutes must be viewed and interpreted with a proactive vision. This is not to say that Courts would be justified in granting interim orders and reliefs on the asking. Wherever the powers of the Court are invoked with the objective of supporting the arbitration, the Court must act with alacrity. This principle is recognised both in the United Kingdom and United States of America. The Supreme Court had cited with approval the English decision in The Channel Tunnel Group v. Balfour Beatty Construction Limited and Ors. (1993) (1) All.E.R 664. In Coppee-Lavalin v. Ken-Ren Chemicals and Fertilizers Ltd., (1994) 2 ALL.E.R 449 it has been observed by Lord Mustill that the court's intervention is not only permissible but highly beneficial where otherwise justice would be denied. Similar position was canvassed in the American decisions rendered in Murray Oil Products v. Mitsui & Co., 146 F.2d 381 and Albatross 5.5 Co. v. Manning Bros Inc., 95 F.Supp 459. If the Court has power to grant interim relief in anticipation of arbitral proceedings being commenced, there is no warrant for canvassing the stance that it did not have the complementary assistery power to ensure that the orders passed in arbitral proceedings are not rendered nugatory.

In these circumstances, at the present interlocutory stage, I restrain the Respondents, their agents and servants from transferring or creating, in any manner, directly or indirectly any third party rights in the Blocks A3 and A4 and also to the extent of 15,000 sq.ft in Block B2 of Kensington Park, Sector 53 and 54 of HUDA, Gurgaon, N.C.T of Delhi. The other prayers contained in the petition would be considered once the pleadings have been completed.

The Respondents may file their Replies, if any, within four weeks, Rejoinder, if any, within two weeks thereafter. List the matter for final disposal on 20.9.2000