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2014 (2) TMI 113 - HC - Companies LawRejection of appeal u/s 17 - Transfer of counter guarantee - Termination notice - Held that - A perusal of the Development Agreements, entered into between the parties it is clear that the the respondent had proposed to construct a modern township in order to meet housing requirements of MIHAN and was a public project. The petitioner was issued a letter of intent. The petitioner was required to develop the plots of land in accordance with the terms and conditions recorded in the letter of intent and in the development agreement. The petitioner was also under obligation to comply with all the provisions of law and the conditions as may be imposed by the authorities. Airport authority of India Ltd had approved the height up to 61 meters of the buildings in the modern townships. Subsequently, the height was reduced by the Airport Authority of India Ltd from 61 meters to 43.2 meters on 27.10.2008 and subsequently increased on 27.2.2010 to 54.30ft. The petitioner had made a claim for compensation in view of the area reduced due to reduction of height originally permitted. The respondent had considered such representations and claim of the petitioner. Inspite of reduction of height, the petitioner accepted the additional plot of land and chose to enter into final development agreement on 24.7.2010 and second Development agreement on 29.3.2010. The learned Arbitrator has in my view, rightly rendered a prima facie view that the petitioner could not attribute any delay to the respondent. The petitioner had with open eyes and with full knowledge that certain approvals and permissions would be necessary from the Airport Authority of India Ltd had entered into a Development Agreement on 22.6.2006 as well as Final Development Agreement dated 24.7.2010 and has thus rightly rejected the submissions of the petitioner that the delay was attributable on the part of the respondent due to change of height by the Airport Authority of India Ltd - A perusal of the Agreement indicates that the petitioner was solely responsible for arranging the funds required for development in accordance with the provisions of the agreement and in accordance with the standard of a reasonable prudent developer. Respondent was justified in terminating the contract. In my view, even though there is no provision in the contract entered into between the parties permitting either party to terminate the contract, since events of default on the part of one party had already occurred, other party is entitled to terminate the contract under the provisions of the Indian Contract Act - in the absence of specific clause permitting either of the party to terminate the contract even if breaches are committed is accepted, no contract can be terminated even if one party has committed breach and the other party would have to continue his contractual rights - Arbitrator has rightly come to such a prima facie conclusion based on the documents placed on record and interpretations of the terms and conditions. No infirmity can be found in the findings rendered by the learned arbitrator. Petitioner was not ready and willing to comply with their part of the obligation. The petitioner has not carried out any work since January 2011. Even according to the petitioner they have completed only 34 % work. The petitioner has no funds and their accounts with Vijaya Bank are already freezed and Vijaya Bank has already taken symbolic possession of the lands on which the development was to be carried out by the petitioner - though a party had invested a large sum of money in the project, but that cannot entitle it to pray for a mandatory order to operate the contract once it is noted that the remedy of the petitioner would be if any in action for damages against the respondent for beach of any of the terms and conditions of the Joint Venture agreement and MOU - arbitrator has rightly not stayed the termination of the agreement effected by the respondent. A perusal of the pleadings before the learned arbitrator and in the writ petition which was on record before the learned arbitrator, it is clear that the petitioner was pressing demand of the additional terms and conditions for completion of the project. In my view, the readiness and willingness of a party has to be all throughout. The petitioner has not carried out any work since January 2011. Status quo order passed by this Court which has been continued form time to time the public project of this magnitude has been stalled for no fault of the respondent and the learned arbitrator was thus justified in refusing to continue such status quo order in favour of the petitioner. In the event of the petitioner succeeding in the arbitration proceedings and if termination of the agreement is found to be illegal the petitioner can be compensated in terms of money - termination of the Agreement thus cannot be stayed. There is no infirmity found by this Court in the order passed by the Arbitral Tribunal. The impugned order is a reasoned order and is passed after considering the submissions of the parties at length, documentary evidence and provisions of law and thus no interference is warranted by this court - Decided against Petitioner.
Issues Involved:
1. Reduction of building height by Airport Authority of India. 2. Notification by SEZ and its impact on the project. 3. Obligation of respondent to issue counter guarantee. 4. Allegations of fraud and suppression of documents. 5. Termination of the development agreements. 6. Discrimination against the petitioner compared to other developers. 7. Readiness and willingness of the petitioner to perform contractual obligations. Detailed Analysis: 1. Reduction of Building Height by Airport Authority of India: The petitioner submitted a tender based on the assumption that buildings could be constructed up to 61 meters. However, the Airport Authority of India reduced the height to 43.3 meters on 27 October 2008, later increasing it to 54.3 meters on 27 February 2010. The petitioner claimed this reduction led to financial losses and requested compensation. The respondent compensated by allocating additional land (11.644 acres) at market price. The arbitrator found that the petitioner was aware of the height restrictions and had accepted the additional land, thus rejecting the claim of delay attributed to the respondent. 2. Notification by SEZ and Its Impact on the Project: The SEZ notification issued on 29 May 2007 imposed restrictions on the sale of flats, which the petitioner argued affected their project. The co-development agreement dated 12 May 2008 indicated that the petitioner was aware of the SEZ rules. The arbitrator concluded that the petitioner was fully aware of the SEZ restrictions and had entered into subsequent agreements with this knowledge. The arbitrator rejected the petitioner's claim that the SEZ notification was an afterthought attempt to shift responsibility. 3. Obligation of Respondent to Issue Counter Guarantee: The petitioner argued that the respondent was obligated to issue a counter guarantee for a loan from Indiabulls, as per clause 3.7 of the agreement. The respondent had previously issued a counter guarantee for a loan from Vijaya Bank, which the petitioner defaulted on, leading to the freezing of the respondent's fixed deposits. The arbitrator found that the respondent was not obligated to issue a fresh counter guarantee under new terms proposed by Indiabulls, especially given the petitioner's default with Vijaya Bank. 4. Allegations of Fraud and Suppression of Documents: The petitioner alleged that the respondent committed fraud by not disclosing a note from the Vice Chairman recommending the issuance of a counter guarantee to Indiabulls. The arbitrator rejected this claim, noting that the petitioner did not raise the issue of fraud in the initial pleadings and that the note was an internal document not acted upon by the respondent. The arbitrator found no merit in the fraud allegations. 5. Termination of the Development Agreements: The respondent terminated the agreements due to the petitioner's failure to complete the project, non-payment of fees, and abandonment of work since January 2011. The petitioner argued that the agreements did not explicitly allow for termination. The arbitrator held that under the Indian Contract Act, a party could terminate a contract if the other party committed breaches. The arbitrator found the respondent justified in terminating the agreements due to the petitioner's defaults. 6. Discrimination Against the Petitioner Compared to Other Developers: The petitioner claimed unfair treatment compared to other developers who had not completed their projects. The arbitrator rejected this claim, noting that the agreements were commercial contracts and Article 14 of the Constitution (equality before law) did not apply. The arbitrator emphasized that the agreements should be interpreted strictly according to their terms and relevant laws. 7. Readiness and Willingness of the Petitioner to Perform Contractual Obligations: The petitioner argued that they had invested significant funds and completed 34% of the work, demonstrating readiness and willingness to perform. The arbitrator found that the petitioner had not carried out any work since January 2011, had no funds, and their accounts were frozen by Vijaya Bank. The arbitrator concluded that the petitioner was not ready and willing to perform their obligations and upheld the termination of the agreements. Conclusion: The court upheld the arbitrator's decision, finding no merit in the petitioner's claims. The termination of the agreements was justified due to the petitioner's defaults, and the respondent was not obligated to issue a fresh counter guarantee. The allegations of fraud were dismissed, and the court emphasized that commercial contracts must be interpreted strictly according to their terms. The petition was rejected, and the request for continuation of the status quo order was denied.
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