9911796707
TMI Blog2014 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for development of a modern township to meet housing requirement of MIHAN. Vide notification dated 29 th May 2007, the Ministry of Commerce and Industries, Government of India notified MIHAN as Special Economic Zone (SEZ) pursuant to the provisions of the SEZ Act 2005. (b) On 22 September 2005, M/s Reatox Builders and Developers who had submitted their bid @ Rs.72 lacs per acre was selected as successful bidder for development of the modern township. A letter of intent came to be issued in favour of the said builder. On 6 January 2006 the respondent specified the details of land to be allocated to the said builder. On 2 March 2006, the said builder paid the first installment towards land cost of Rs.4,46,40,000/- for 31 acres of land to the respondent. On 17 April 2006 the respondent issued No Objection Certificate (NOC) for development of the said township subject to final approval of all plans and necessary permissions from the Planning Authority and all other approvals to be obtained from the competent authorities. On 26 April 2006, M/s Reatox Builders and Developers came to be incorporated as a private limited company viz., Reatox Builders & Developers Pvt. Ltd. On 23 May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2006. Appellant paid third installment to the respondent on 26 December 2007 in the sum of Rs.4,46,40,000/-. d) It is the case of the appellant that since the respondent did not consider the proposed second runway in MIHAN, petitioner was requested to obtain height clearance from Airport Authority of India on account of proposed second runway. It was necessitated in view of the anticipated reduction of height of the buildings. It is the case of the appellant that vide letter dated 4th March 2008, appellant informed the respondent that the appellant would not be able to adhere to the time schedule stipulated in the development agreement and requested for extension of time for completion of the project. On 3 April 2008 respondent agreed to allocate additional land of 11.644 acres to the petitioner @ Rs.80 lacs per acre. It is the case of the petitioner that the petitioner was not compensated by the respondent in respect of the loss suffered by the petitioner in view of the reduction of height but the said allotment was at the prevailing market value. The petitioner agreed to develop the additional land of 11.644 acres. On 29 April 2008, the petitioner paid 4th installment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion of the modern township. The sanction terms were further modified on 22 nd September and 3rd June 2011. On 14 July 2010, the respondent executed a Letter of Guarantee (Counder Guarantee) of Rs.105 crores in favour of Vijaya Bank and permitted the petitioner to offer the said land of 31 acres and the additional land of 11.644 acres as security to the bank. (h) On 22 July 2010, the Airport Authority of India revised the approved height of the buildings in the modern township by increasing the height from 43.3 meters to 54.3 meters. It is the case of the petitioner that in the local newspapers at Nagpur an article was published defaming the project and the petitioner. Objections were raised about the legality of the project by the local media and such articles published till December 2011. On 24 July the petitioner and the respondent executed fresh development agreement for development of 31 acres of land. On 26 July 2010, the development agreement dated 24 July 2010 was registered with the Sub registrar of Assurances, Nagpur. On 4 August 2010, the Board of approvable of approval communicated its decision about removal of condition of sale, which necessitated correction in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Ministry of Commerce & Industry issued a show cause notice to the respondent for issuing letter dated 23 August 2010 to the petitioner and calling upon to explain in writing to Board of Approval as to why the letter of approval granted to them for whole of the area established as MIHAN-SEZ should not be suspended for a period of one year and why administrator be not appointed to discharge the function of the Developer. (k) On 18 August 2011 and 2nd September 2011, petitioner requested the respondent for consent to Indiabulls and transfer of counter guarantee of Rs.105 crores to Indiabulls. It is the case of the petitioner that on 13 September 2011 Vijaya Bank certified the construction value of the project completed so far to be at Rs.213.44 crores. On 14 October 2011, the repayment schedule of term loan of Vijaya Bank started. On 18 November 2011, petitioner once again requested the respondent to give consent to Indiabulls for transfer of counter guarantee. (l) On 2 January 2012, Vijaya Bank conveyed to the petitioner about the term loan account of Rs.105 crores turning non performing asset (NPA). On 21st February 2012, the Vijaya Bank issued a notice under Section 13(2) of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2012 in this Court impugning the termination notice dated 14 May 2012. The petitioner obtained ex-parte status quo order by making an application before the vacation Court on 21 May 2012. On 23 May 2012, Vijaya Bank freezed accounts of the petitioner at Nagpur branch. On 1 June 2012 name of the petitioner was changed from Reatox Builders & Developers Pvt. Ltd. to Chourangi Builders & Developers Pvt. Ltd. (n) On 25 June 2012, Division Bench of this Court passed an order in the writ petition filed by the petitioner that the order of status-quo shall not prevent either of the parties from issuing notices. On 16 July 2012 respondent addressed two letters both dated 16 July 2012 and terminated letter of intent dated 22 September 2005, agreement dated 22 June 2006, Power of Attorney dated 24 August 2007, Agreement dated 24 July 2010, Correction deed dated 14 August 2010 and Power of Attorney dated 14 August in respect of 31 acres of land and called upon the petitioner to pay a sum of Rs.5.96 crores and terminated agreement dated 29 March 2010 and Power of Attorney dated 29 March 2010 in respect of additional land of 11.644 acres and called upon the petitioner to pay Rs.3.65 crores. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue 48 hours notice to the respondent before moving this Court for ad interim order or interim reliefs. Being aggrieved by the said order dated 12 November 2013, petitioner has filed this appeal under Section 37 of the Arbitration Act. (p) On 25 November 2013, the respondent through the learned senior counsel made a statement that no further action would be taken pursuant to the order passed by the learned arbitrator till 28 November 2013. In view of the difficulties of the learned senior counsel appearing for the petitioner on 28th November 2013, learned senior counsel for the respondent extended the statement made by him till 29 November 2013. On 29 November 2013, this Court heard both the learned senior counsel appearing for parties at length. 3. Mr. R. S. Apte, learned senior counsel appearing on behalf of the petitioner made following submissions : (a) petitioner has submitted tender on the premise that the height of the buildings which would be permitted to be constructed on the plots in question was 61 meters. petitioner had submitted plans accordingly. Height of a building was however reduced by the Airport Authority of India on 27 October 2008 from 61 meters to 43.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan amount of the Vijaya Bank and as a result thereof the said account with Vijaya Bank declared the account of the petitioner as NPA. Vijaya Bank also issued notice under Section 13(2) of the Securitization Act against the petitioner and took symbolic possession of the plots handed over to the petitioner/developer by the respondent. (d) Learned senior counsel then placed reliance on Clause 3.7 of development agreement and submits that in view of such clause, respondent could not have created any obstruction against the petitioner from performing their obligation under development agreement and could not have terminated the agreements. It is submitted that under clause 19.3 read with Clause 20.1 of the development agreement, no action for termination of development agreements could be taken by the respondent at all. It is submitted that there is no provision for termination of development agreements under those agreements. Claim for damages was not an adequate remedy. The learned arbitrator has rejected the application under Section 17 contrary to the provisions of the contract by wrong interpretation of the provisions. It is submitted that respondent ought to have allowed the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to respondent, respondent would be unable to pay even Rs.105 crores to Vijaya Bank and thus if petitioner succeeds in arbitration proceedings, petitioner would not be able to recover any amount from the respondent and thus learned arbitrator ought to have stayed the termination. It is submitted that the petitioner thus have good chances of succeeding in their claim for specific performance before the learned arbitrator and for declaration that the termination effected by the respondent is totally bad and illegal. Learned senior counsel submits that the petitioner had applied for copy of the said writing under the provisions of Right to Information Act and has obtained a copy thereof. Mr. Khambatta, learned senior counsel for the respondent strongly opposed the reliance placed by the petitioner on this writing on the ground that this writing was not part of the record before the learned arbitrator and thus cannot be relied upon by the petitioner in this proceedings for the first time. It is also opposed on the ground that the said writing is an opinion of the Vice Chairman and admittedly the said opinion/proposal of the Vice Chairman of the respondent has not been accepted or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomers for identifying the plots put up in units which was as per the agreement and subject to obtaining all necessary permissions required in the meeting of obligations of the SEZ Act, 2005 and SEZ Rules, 2006. It is submitted that the petitioner was thus fully aware about their obligations that the lands were covered by SEZ areas and/or subject to notification issued by the government under the provisions of SEZ Act and SEZ Rules. (b) It is submitted that the Airport Authority of India had reduced the height and thereafter further increased the height of the buildings. The petitioner continued to work and did not terminate the agreements inspite of reduction of height by AAI. My attention is invited to the letter dated 3.4.2008 addressed by the respondent to the petitioner allotting additional land which worked down to11.644 acres to make good the area loss which had taken place due to change of height on various conditions recorded therein. The petitioner accepted the allotment of the additional land admeasuring 11.644 acres and was satisfied with the said plot. It is submitted that the petitioner was thus fully compensated in respect of the area loss due to change of height b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned senior counsel submits that the respondent was thus, justified in terminating the Development agreement. The petitioner did not give any reply controverting the reasons recorded in the termination letter and gave a very vague and cryptic reply. My attention is invited to clause 7.5 of the Development Agreement which records that the developer shall be solely responsible for arranging of the funds and shall act in accordance with the provisions of the Agreement and standards of reasonable and prudent developer. It is submitted that the respondent was thus not liable to issue a fresh counter guarantee in favour of Indiabulls. (d) In so far as the submission of the petitioner that there is no right of termination provided under the Development Agreement and thus the termination was bad and illegal on that ground alone is concerned, Mr. Khambatta learned senior Counsel submits that in view of the events of default having taking place and since the petitioner did not rectify the breaches, the respondent was justified in terminating the Development Agreement. If according to the petitioner the respondent was responsible for non-compliance of the terms of the contract, even the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that the petitioner was not ready and willing to comply with their part of the obligations. The learned senior counsel also invited my attention to the Writ petition filed in this Court (Writ Petition No.2850 of 2012) by the petitioner and in particular para 4 in which it is averred by the petitioner that the petitioner had prepared for all the arrangements for projects and required various compliance from the respondent that is withdrawal of termination orders forthwith, renewal of the Development Agreement in respect of 31 acres and 11.644 acres for next 10 years to complete the project, renewal of fresh technical approvals having validity up to 10 years, submission of counter guarantee to the bank for its loan to the project, Execution of tripartite Agreement etc. Even in the rejoinder filed before the learned Arbitrator the petitioner contended that the petitioner would require 10 years extention for completion of the project. Learned senior Counsel submitted that the petitioner did not terminate the Development Agreement and was thus, bound to complete the construction as per the Development Agreement and was not discharged with compliance of their obligations under those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior Counsel appearing for the respondent placed reliance on the Judgment of this Court in case of MAYTAS INFRA LIMITED vs UTILITY ENERGYTECH AND ENGINEERS PVT.LTD & ORS 2009 (4) Bom C.R.143 and in particular para 11 thereof in support of his submissions that the Court cannot compel a party to continue with the contract. It is difficult for the Court to supervise the performance of the contract based upon such type of public project. Para 11 of the said Judgment reads thus : " The Court cannot compel the respondent to continue with the contract. It is difficult for the court even to supervise such performance of contract, based upon such type of public project,I see there is no material and reason to grant interim injunction as sought by invoking section 9 of the Act. " (k) Learned Senior counsel then placed reliance on the Judgment of this Court in the case of MILAN COMMERCIAL VS ASIAN HEALTHCARE reported in (2010) 2 Bom.C.R. 295 and in particular paras 56 and 57 in support of his submissions that in case of a commercial contract if parties had taken a decision based on commercial wisdom and material available with them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be terminated even without assigning any reason by serving a reasonable notice. At the most, in case ultimately it is found that termination was bad in law or contrary to the terms of the agreement or of any understanding between the parties or for any other reason, the remedy of the appellants would be to seek compensation for wrongful termination but not a claim for specific performance of the agreements and for that view of the matter learned single Judge was justified in coming to the conclusion that the appellant had sought for an injunction seeking specifically enforce the agreement. Such an injunction is statutorily prohibited with respect of a contract which is determinable in nature. The application being under the provisions of Section 9 (ii) (e) of the Arbitration and Conciliation Act, relief was not granted in view of Section 14 (I) (c) read with Section 41 of the Specific Relief Act. It was rightly held that other clauses of Section 9 of the Act shall not apply to the contract, which is otherwise determinable in respect of which the prayer is made specifically to enforce the same. " (m) Mr Khambatta learned senior Counsel for the respondent then submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llegation of fraud made by the petitioner against the respondent are concerned, it is submitted by Mr Khambatta learned senior Counsel that the petitioner first filed a Writ petition in this Court and thereafter withdrew the said Petition with liberty to file arbitration proceedings and got the Arbitrator appointed. In the written arguments filed before the learned arbitrator the petitioner pleaded fraud and submitted that in view of such allegations of fraud involved, the matter was required to be referred to the civil court. It is submitted that the petitioner thus deliberately delayed the proceedings by raising all sorts of frivolous objections and got the status quo order continued which is causing serious prejudice to the rights of the respondent. It is submitted that the learned Arbitrator has thus rejected the plea of fraud raised by the petitioner. (r) In so far as the affidavit filed on 25.11.2013 sought to be tendered by Mr Apte learned senior counsel for the petitioner is concerned the learned senior Counsel for the respondent strongly protested against tendering of such an affidavit at this stage. Learned senior counsel pointed out that though the said Affidavit was af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der shall continue till the disposal of the arbitration proceedings. 6. Mr R. S. Apte learned senior Counsel for the petitioner placed reliance on the Judgment of the Supreme Court in the case of S.P.CHENGALVARAYANAIDU VS. JAGANNATH reported in AIR 1994 SUPREME COURT 853 in support of his submissions that withholding vital documents which are relevant to a litigation amounts to fraud on the Court. It is submitted that since the respondent did not furnish the note submitted by the Vice Chairman of the respondent which clearly demonstrates breach of the respondent and their proposal to issue counter guarantee in favour of the M/s Indiabulls, the said document being vital documents having been suppressed by the respondent thus in view of such fraud committed by the respondent, the impugned order be set aside and the learned arbitrator be directed to consider the said documents of the respondent. In so far as the judgment relied upon by Mr.Khambatta are concerned, Mr.Apte submitted that those judgments are not applicable to the facts of this case and are not impermissible. 7. I have given my anxious consideration to the rival submissions made by both the learned Senior Counsel. REAS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port 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. 10. As far as the submission of Mr.Apte learned senior Counsel for the petitioner that in view of the restrictions of sale introduced by SEZ during the execution of the project by the petitioner and in view of the negative media campaign against the petitioner during the period from 23.7.2010 to 18.12.2011, the respondent not having informed about the notification to the petitioner the project of the petitioner got effected resulting in financial problem is concerned, it is not in dispute that the Notification was issued by SEZ on 29.5.2007. A perusal of the co-development agreement dated 12.5.2008 entered into between the parties clearly indicates that the schedule lands proposed to be developed operated and maintained by the Co-developer was under process of SEZ for the township, the developer had been granted formal approval for setting up of multi-project b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner committed default in making repayment of the loan to Vijaya Bank as a result whereof the said Vijaya bank declared the accounts of the petitioner as non-performing assets and issued a notice under section 13 (2) of the Securitisation Act. The said Vijaya Bank also invoked the counter guarantee issued by the respondent in the sum of Rs.105 crores and freezed fixed deposit of Rs.117 crores which was given as a security to the Vijaya Bank by the respondent. It is not in dispute that the said Vijaya Bank has already filed proceedings against the petitioner and the respondent before the Debt Recovery Tribunal. On perusal of clause 3.7 of the Agreement dated 24.7.2010 it is clear that the counter guarantee required to be furnished by the respondent was for loan as per approved DPR and approved by the respondent and such a guarantee was to be valid till end of April 2012 unless further extended. On a perusal of sanction letter of M/s Indiabulls, it is clear that M/s Indiabulls had proposed to sanction loans to the petitioner on the condition that the said loan was to be in two trenches first trench to be for a period of 36 months. According to the said sanctioned note one of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent and not compatible with the terms and conditions entered into between the parties. It is held that no fault could be found with the respondent. It is held that respondent had committed no default in carrying out their obligation under the contract. The respondent cannot be faulted on the ground that they have failed in their obligation under clause 3.7 by not giving counter guarantee in favour of M/s Indiabulls. In my view the learned arbitrator has rightly rejected the submissions of the petitioner and has rightly not interfered with the exercise of discretion by the respondent in view of the provisions of the Agreement entered into between the parties. The respondent had already landed into trouble in view of the petitioner not repaying the loans availed from Vijaya Bank. The respondent in these circumstances were not expected to issue a fresh counter guarantee and more particularly on the terms and conditions proposed by M/s Indiabulls and were justified in rejecting the said proposals. In my prima facie view, the prima facie findings of the learned Arbitrator is correct and no interference is warranted with this finding. 15. Next submission of Mr.Apte learned senior couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.117 crores lying with Vijaya Bank came to be freezed. The project came to a standstill since January 2011. The petitioner has no funds in hand and could not get any other arrangement. The petitioner was demanding fresh terms and conditions for completing the project from the respondent. 18. In these circumstances, in my prima facie view, the 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. If the submission of Mr. Apte learned Senior Counsel is accepted, 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. In my view, in such a situation, the provisions of the Indian Contract Act would be attracted. In my prima facie view, the respondent was thus j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arbitrator. I am in agreement with the view of the learned single Judge of this court in case of Maytas Infra Ltd (supra) that court cannot compel a party to continue with the contract. 22. In so far as the issue of fraud canvassed by Mr.Apte learned senior Counsel for the petitioner is concerned, a perusal of the record indicates that allegations are made in the rejoinder before the Arbitral Tribunal. In the written arguments filed before the learned arbitrator, it was urged by the petitioner that in view of the serious allegations of fraud, the matter is required to be referred to a civil Court for adjudication. The petitioner sought liberty to withdraw Writ Petition and to file arbitration proceedings. No such plea was raised by the petitioner while obtaining leave to withdraw the Writ Petition. After filing of the arbitration proceedings, the petitioner raised the issue of fraud to be referred to the civil court. The learned arbitrator has dealt with this issue at length in paras no. 41 to 44 of the impugned order. The learned arbitrator in my view has rightly rejected the submission of the petitioner regarding allegation of fraud. No such plea could be raised for the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent. 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. Neither the Court nor the learned arbitrator can rewrite the contract and direct a party to withdraw the termination notice and enter into a fresh contract on the terms and conditions proposed by another party. 25. In my prima facie view, in view of the 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. 26. In my view, termination of the Agreement thus cannot be staye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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