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Bimal Ghosh & Ors. v. Smt. Kalpana Majumdar
Structured Summary of the Opinion (Ashim Kumar Banerjee, J.)
Factual and Procedural Background
The appellants owned a parcel of land in Siliguri (6 kathas, 9 chhataks) and entered into a development agreement with the respondent under which the respondent would construct a building at her cost, with 40% of the constructed area to be handed to the appellants and 60% to be retained by the respondent. The appellants executed a general Power of Attorney in favour of the respondent to carry out construction, development and sale of flats. A five-storied building was constructed. The respondent entered into agreements for sale with purchasers including Malabika Sarkar (who is the daughter of the named arbitrator, Mr. Arun Kumar Sarkar).
A dispute arose concerning certain additions/alterations made for Malabika Sarkar and alleged deviation from the sanctioned plan. The agreement named Mr. Arun Kumar Sarkar as sole arbitrator. The appellants referred the dispute to him. The respondent objected to his jurisdiction on grounds of personal interest through his daughter and commenced various applications.
The respondent filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 in the Siliguri Court seeking interim injunctions restraining the appellants from disturbing completion of interior work and from disposing/encumbering flats allotted to the respondent. The District Judge, Darjeeling granted the injunction by order dated 28 June 2007. The appellants appealed to the High Court; the appeal was admitted on 18 July 2007 and ultimately heard by the Court whose opinion is summarized here.
Legal Issues Presented
- Whether an application under Section 9 of the Arbitration and Conciliation Act, 1996 is maintainable in the circumstances, in particular whether the respondent had demonstrated the requisite willingness to refer the dispute to arbitration.
- Whether Section 14 of the Specific Relief Act (bar on suits for specific performance in certain cases) precluded the respondent's application under Section 9 when the dispute arises under a development agreement.
- Whether the reliefs sought by the respondent under Section 9 (prohibitory injunctions to protect remaining work and prevent encumbrance/disposal) are effectively proceedings for specific performance or are enforceable negative covenants distinct from specific performance.
- Whether the conduct or perceived conflict of interest of the named arbitrator affected the maintainability of the Section 9 application or the District Judge's order granting interim protection.
Arguments of the Parties
Appellants' Arguments (as summarized in the opinion)
- The Section 9 application was not maintainable because the respondent neither referred any dispute to the arbitrator nor expressed willingness to participate in arbitration.
- Even if there was a dispute, the relief sought was barred by Section 14 of the Specific Relief Act (i.e., the suit for specific performance of a development agreement is barred at the developer's instance).
- The personal character of the arbitrator was not in issue before the learned Judge and such an issue could not be agitated before the learned Judge; the learned Judge erroneously considered such a factor.
- The appellants, as owners, were responsible for any municipal violations and were entitled to terminate the agreement on the ground of deviation from the sanctioned plan.
Respondent's Arguments (as summarized in the opinion)
- The alleged deviation from the sanctioned plan was not established; and in any event it was a matter for the municipal corporation and not a relevant factor for an application under Section 9.
- Section 9 requires an expression of willingness to arbitrate; the respondent had shown willingness by filing an application under Section 11 (before the High Court) in addition to other proceedings.
- An application under Section 12 asking the named arbitrator to step down was pending; the respondent's contesting the named arbitrator did not amount to unwillingness to have the dispute resolved by arbitration.
- The dispute related to completion of interior work and the respondent's Section 9 application sought a prohibitory injunction so the work could continue — this was not equivalent to a proceeding under Section 14 Specific Relief Act for specific performance.
- The relief under Section 9 was to enforce negative covenants in the agreement (clauses such as 9.6, 11.1, 11.2) and not to obtain specific performance of the contract.
- Under Section 202 of the Contract Act, once the agent (respondent) acquired an interest by agreement between principal and agent, the principal could not unilaterally terminate the agreement; hence revocation of the Power of Attorney by the appellants was wrongful.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Vipin Bhimani v. Smt. Sunanda Das (AIR 2006 Cal 209) | The appellants relied on this Division Bench decision; the opinion indicates that that case involved a suit by the developer for specific performance of the development agreement. | The Court stated it would reserve comment on the Division Bench's ratio but found the facts distinguishable: in Vipin Bhimani the reliefs were for specific performance, whereas in the instant case the respondent sought injunctions to protect remaining work and prevent encumbrance. The Court held the ratio did not apply to the present facts. |
| Goodrike Group Ltd. v. Agricultural Income-tax Officer, Calcutta Range-I (2001 Vol II Calcutta High Court Notes p.104) | The appellants relied on this decision; the opinion does not describe the specific legal principle cited from this case. | The opinion does not record any specific application or reliance by the Court on this authority in its reasoning. |
| Ram Sarup Gupta (dead) by L.Rs v. Bishun Narain Inter College (All India Reporter, 1987 Supreme Court p.1242) | Relied on by the respondent; the opinion does not specify the exact principle cited from this decision. | The opinion lists this case among authorities relied on by the respondent but does not elaborate on its application in the Court's analysis. |
| Sundaram Finance Ltd. v. Nepc India Ltd. (AIR 1999 SC 565) | Relied on by the respondent; the opinion does not detail the rule or principle cited from this decision. | The opinion records the reliance but does not explicitly apply or discuss the decision in the Court's reasoning. |
| Anand Prasad Agarwalla v. Tarkeshwar Prasad (AIR 2001 SC 2367) | Relied on by the respondent; the opinion does not describe the specific legal point taken from this case. | The opinion lists the case among those cited by the respondent; the Court's reasoning does not explicitly reference its ratio. |
| Bhaskar Aditya v. Smt. Minati Majumdar (AIR 2003 Cal 178) | Relied on by the respondent; the opinion does not set out the principle cited. | The opinion includes this citation as authority relied upon but does not record specific application by the Court. |
| Firm Ashok Traders v. Gurumukh Das Saluja (AIR 2004 SC 1433) | Relied on by the respondent; the opinion does not state the precise rule cited from this case. | The opinion notes the reliance but does not expressly apply the case's ratio in its analysis. |
Court's Reasoning and Analysis
The Court addressed the threshold issue of maintainability of the Section 9 application. Its analysis proceeded in the following steps, as reflected in the opinion:
- The Court explained the scope of Section 9 of the Arbitration and Conciliation Act, 1996: it empowers a party to an arbitration agreement to approach the appropriate Court for interim protection of properties involved in the dispute either before or after initiation of arbitration proceedings. It is analogous to seeking interim relief under Order 39 in a civil suit but does not require a pending civil suit.
- The Court identified the pre-requisites for a Section 9 application: (a) existence of a valid arbitration agreement, (b) existence of a dispute, and (c) willingness to refer the dispute to arbitration. The Court found that the arbitration agreement was not in dispute and that existence of a dispute was established from the pleadings.
- On the critical point of willingness, the Court accepted the respondent's submissions that filing an application under Section 11 before the High Court, an application under Section 12 before the arbitrator, and the pleadings in the Section 9 application collectively manifested the respondent's willingness to have the dispute resolved through arbitration. Consequently, the Court held the Section 9 application to be maintainable and rejected the appellants' argument to the contrary.
- The appellants had also contended that Section 14 of the Specific Relief Act barred the respondent's reliefs (as in Vipin Bhimani). The Court examined Vipin Bhimani and observed that the facts of that case (a suit by the developer for specific performance) were materially different. In the present matter, the respondent sought prohibitory injunctions to protect works in progress and to prevent encumbrance of her share; thus, those reliefs could not be equated with a claim for specific performance as in Vipin Bhimani. The Court therefore found the ratio of Vipin Bhimani inapplicable to this dispute.
- The Court proceeded to an alternative viewpoint: even if the respondent herself lacked authority to initiate arbitration, the fact that the appellants had referred the dispute to the named arbitrator entitled the respondent to approach the Court under Section 9 because Section 9 permits any party to an arbitration agreement to seek interim protection before or after initiation of arbitration proceedings. The opinion records that appellants referred the dispute to the arbitrator by letters dated 9 May 2007, and thus, at the time the District Judge disposed of the Section 9 application (28 June 2007), arbitration proceedings were pending — reinforcing the Court's view that Section 9 jurisdiction existed.
- The Court acknowledged the arguments about the conduct and possible conflict of interest of the named arbitrator (including the lodging of a caveat), but declined to comment on the arbitrator's conduct as it was not strictly relevant to the determination before it.
- On the merits of the injunction, the Court reviewed the District Judge's order and the photographic evidence showing that construction was nearing completion. It held that interim measures to ensure completion of the remaining work and to preserve the status quo with regard to the respondent's allocation were necessary to protect the parties' interests and to prevent creation of third-party rights. The Court found no scope for interference with the District Judge's exercise of discretion in granting those protections.
Holding and Implications
Holding: The appeal is dismissed. The High Court affirmed the judgment and order of the learned District Judge dated 28 June 2007 which granted the respondent interim protections by way of injunction. The opinion specifically states: "The appeal fails and is hereby dismissed." The Court also ordered that there would be no order as to costs and that urgent xerox certified copies would be provided to the parties on application. Another judge (Tapas Kumar Giri, J.) concurred.
Implications:
- Direct effect: The interim injunctions granted by the District Judge (restraining the appellants from disturbing the respondent and her men and machinery in completing remaining interior work, and restraining the appellants from disposing/encumbering the respondent's allotted share) remain in force as upheld by the High Court.
- The Court concluded that the Section 9 application was maintainable either because the respondent had shown willingness to arbitrate (by filing Section 11 and Section 12 applications and pleadings) or because arbitration had already been initiated by the appellants; therefore Section 9 jurisdiction existed.
- No broader legal change or new precedent is stated to have been laid down by this opinion; the Court expressly found the cited Division Bench decision in Vipin Bhimani distinguishable on its facts and did not apply its ratio to the present matter.
This summary has been prepared strictly from the content of the provided opinion. No information not present in the opinion has been added.
Ashim Kumar Banerjee, J.:— Appellants are owners of a piece of land situated in the town of Siliguri in the District of Darjeeling measuring an area of 6 kathas, 9 chhataks. They entered into a development agreement with the respondent whereby it was agreed that the respondent, at her own cost, would construct a building on the said land in question out of which 40% of the constructed area would be handed over to the owners being the appellants and 60% would be retained by the respondent as her share in the property. Under the agreement, if there was any dispute between the parties, those disputes were to be referred to the sole arbitration of one Mr. Arun Kumar Sarkar, an advocate of Siliguri Court.
2. The appellants also executed general Power of Attorney in favour of the respondent giving her right to do all acts necessary for the purpose of construction, development and sale of the flats after construction on behalf of the appellants. Accordingly, a five-storied building was constructed on the said land in question. The respondent also entered into agreements for sale with various intending purchasers including one Malabika Sarkar who is also an advocate of Siliguri Court. She happens to be the daughter of Sri Arun Kumar Sarkar the named arbitrator. According to the respondent, Mrs. Sarkar wanted certain additions and/or alterations in her flat. The respondent obliged her by doing so which gave rise to the dispute between the appellants and the respondent. According to the respondent, the appellants refused to execute conveyance in favour of Malabika Sarkar on the plea of authorized construction. According to them the sanctioned plan was deviated by the respondent. The appellants referred the dispute to the named arbitrator Shri Sarkar. The respondent, however, did hot agree to submit to the jurisdiction of Shri Sarkar on the ground that he had personal interest in the property through his daughter. Moreover, he was also involved in the subject dispute between the parties through his daughter.
3. The respondent filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 before this Hon'ble Court. The said application was opposed by the appellants. It was pointed out before the learned single Judge that not only the arbitrator was named in the agreement but also he already entered upon reference as would appear from the minutes of the meeting held by the arbitrator. Considering the fact that the arbitration had already commenced, His Lordship dismissed the application made tinder Section 11 of the said Act of 1996 by judgment and order dated July 5, 2007.
4. The respondent also filed an application under Section 9 of the said Act of 1996 before the Siliguri Court, inter alia, praying for an order of injunction restraining the appellants from disturbing the respondent while continuing the remaining interior work in the said premises in question as also from disposing any of the flats allotted to the respondent under the agreement to any stranger or causing any encumbrance thereof. The said application was opposed by the appellants on the ground that the respondent deviated from the sanction plan by causing unauthorized construction in the premises. Hence, the said agreement was cancelled. The appellants also revoked the authority of the respondent given to her under the Power of Attorney. Hence, she was not entitled to any relief. The learned District Judge, Darjeeling by his judgment and order dated June 28, 2007 allowed the said application and restrained the appellants from disturbing the respondent and her men and machineries to continue remaining interior work in the premises in question as also from disposing and/or any encumbering any flat or any portion of the said premises belonging to the respondent's share to any stranger.
5. Being aggrieved by and dissatisfied with the judgment and order of the learned District Judge, the appellants preferred the instant appeal. The appeal was admitted by us on July 18, 2007. The appeal was finally heard by us on the above mentioned dates.
6. Mr. Pratap Chatterjee, learned Senior Counsel appearing for the appellants contended as follows:—
(i) The application under Section 9 was not maintainable as the respondent neither referred any dispute to the arbitrator nor did express her willingness to participate in the arbitration proceeding.
(ii) Assuming that the respondent did have a dispute to be referred to arbitration, such dispute was not maintainable to be brought under Section 9 in view of Section 14 of the Specific Relief Act where the suit for specific performance of a development agreement was barred at the instance of the developer.
(iii) Personel of the arbitrator was not under challenge before the learned Judge. In any event, such issue could not have been brought before the learned Judge as the same was not permissible in law. The learned Judge erroneously considered such factor.
(iv) The appellants being the owners of the properties were responsible for any violation under the Municipal Laws. Hence, they were within their right to terminate the agreement on the ground of deviation of the sanction plan.
7. In support of his contentions, Mr. Chatterjee relied upon All India Reporter 2006 Cal Page 209 (Vipin Bhimani v. Smt. Sunanda Das) and 2001 Volume — II Calcutta High Court Notes Page 104 (Goodrike Group Ltd. v. Agricultural Income-tax Officer, Calcutta Range-I).
8. Mr. Jayanta Mitra, learned Senior Counsel appearing for the respondent led by Mr. Aninda Kumar Mitra, learned Senior Counsel contended as follows:—
(i) The sanctioned plan was not deviated and, in any way, that was a subject-matter to be decided by the Corporation. The same could not be a relevant factor in an application under Section 9.
(ii) Pre-requisite of Section 9 was expression of willingness for referring the dispute to arbitration. The respondent was willing to have the dispute resolved through arbitration. Her willingness was proved by the factum of filing of application under Section 11 of the said Act of 1996.
(iii) The application made under Section 12 of the said Act of 1996 asking the named arbitrator to step down was pending for adjudication. The fact that the respondent did not agree to have the dispute resolved through sole arbitration of the named arbitrator, could not be termed as her unwillingness for resolution of dispute through arbitration.
(iv) The dispute that arose between the parties was on the issue of completion of the rest of the building being the interior work. The respondent initiated the proceeding under Section 9 for prohibitory injunction as against the appellants so that they could complete their construction work. Such proceeding could not be termed as a proceeding within the meaning of Section 14 of the Specific Relief Act.
(v) The proceeding under Section 9 was to enforce a negative covenant in the development agreement being Clauses 9.6, 11.1, 11.2 etc. which could not be termed as a proceeding for specific performance of the contract.
(vi) Under Section 202 of the Contract Act, once by the agreement between the principal and agent, if the agent acquired any interest, such agreement could not be terminated at the option of the principal. Hence, the revocation of Power of Attorney was wrongful.
9. In support of his contentions Mr. Mitra relied on the following decisions:—
(i) All India Reporter, 1987 Supreme Court Page 1242 (Ram Sarup Gupta (dead) by L.Rs v. Bishun Narain Inter College).
(ii) 1999, Volume-II, Supreme Court Cases, Page 479 : (AIR 1999 SC 565) (Sundaram Finance Ltd. v. Nepc India Ltd.).
(iii) 2001, Volume-V, Supreme Court Cases, Page 568 : (AIR 2001 SC 2367) (Anand Prasad Agarwalla v. Tarkeshwar Prasad).
(iv) 2003, Volume-II, Calcutta Law Times, Page 463 : (AIR 2003 Cal 178) (Bhaskar Aditya v. Smt. Minati Majumdar).
(v) 2004, Volume-Ill, Supreme Court Casest Page 155 : (AIR 2004 SC 1433) (Firm Ashok Traders v. Gurumukh Das Saluja).
10. Since the issue of maintainability was raised by the appellants, let us first deal with such issue.
11. Section 9 of the said Act of 1996, empowers a party to the arbitration agreement to approach the appropriate Court inter alia, before or after initiation of the arbitration proceeding to ask for interim protection of the properties involved in the subject dispute. It is really a power given to the plaintiff to seek interim protection under Order 39 in a civil suit. The only distinction is that in an application under Order 39, the pre-requisite was existence of a civil suit whereas under the said Act of 1996 there need not be any pending proceeding. The parties to the agreement can approach the appropriate Court at any time provided there is a valid arbitration agreement and an existence of a dispute. In the instant case, arbitration agreement was not in question. Both the parties accepted the said agreement. Existence of dispute was also not in question as would appear from the rival pleadings. This leaves us with the sole question of willingness. We are in complete agreement with Mr. Mitra that filing of application under Section 11 before the High Court, application under Section 12 before the arbitrator, apart from the pleadings in applications under Section 9 would expressly show that the respondent was willing to have the dispute resolved through arbitration. Hence, application under Section 9 was maintainable and the contentions to that extent raised by the appellants are rejected.
12. On the issue of maintainability, it was also contended that the application was not maintainable in view of the provisions of Section 14 of the Specific Relief Act. We have perused the Division Bench judgment in the case of Vipin Bhimani (AIR 2006 Cal 209) (supra). We reserve our comment on the ratio decided by the Division Bench as we feel that the same may not be relevant to decree the subject controversy before us. On perusal of the pleadings, it would appear that the respondent did not ask for specific performance of the agreement. She was rather interested to have enforcement of the negative covenant under the agreement by praying for an order of injunction.
13. The matter may be looked into from another angle. Assuming that the respondent could not have authority to raise any dispute to the arbitrator the very fact that dispute had already been referred to arbitration by the appellants automatically entitled to respondent to approach the Court under Section 9 as would be evident on a plain reading of the said Section whereby any party to an arbitration agreement was entitled to approach the Court before or after initiation of the arbitration proceedings. In the instant case, the arbitration proceeding was initiated by the appellants. The respondent in that event was entitled to approach the Court under Section 9.
14. The application made under section 9 was filed in December 2006 and the same was disposed of by the judgment and order dated June 28, 2007. Before the said application was disposed of the appellants by letters dated May 9, 2007 referred the dispute to the named arbitrator. Hence, on the day when the said application was disposed of, there had been an arbitration proceeding pending which empowered the Court to give necessary protection to any of the parties to the said arbitration under Section 9.
15. In the Case of Vipin Bhimani (AIR 2006 Cal 209) (supra) the suit was filed by the developer for specific performance of the development agreement as also for a decree directing the defendant to perform under the agreement. In the instant case, the respondent only prayed for an order of the injunction so that their remaining part of the work was not disturbed by the appellants as also to protect their right under the contract being 60% of the constructed area from being encumbered by the appellants. These reliefs, in our view could not be equated with the reliefs claimed in the case of Vipin Shimani (supra). Hence, the ratio decided therein, does not have any application herein.
16. Lot of arguments were made on the conduct of the arbitrator. Our attention was also drawn to the fact that the arbitrator lodged a caveat in this Hon'ble Court which was, however, denied by him through Mr. Chatterjee in course of hearing. We do not wish to make any comment on the conduct of the arbitrator as the same being not strictly relevant herein.
17. We have examined the well versed judgment and order of the learned District Judge and we do not find any scope of interference. The construction of the building is nearing completion as would appear from the photographs produced in Court. For the interest of both parties, the remaining work must be completed as it would enure benefit not only for preservation of the said property but also to the parties to the agreement. Similarly, the status quo with regard to the allocation of the respondent should also be maintained so that third party right is not created in between. Both such protections and/or interim measures were absolutely necessary for the interest of the parties. The learned District Judge very rightly gave those protections.
18. The appeal fails and is hereby dismissed.
10. There would be no order as to costs.
20. Urgent xerox certified copy would be given to the parties, if applied for.
Tapas Kumar Giri. J.:— 21. I agree.
Order accordingly.
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