This Arbitration Application is filed under Section 11(c) of the Arbitration and Conciliation Act, 1996.
The case of the applicants is that they are self-employed persons and investors in the Respondent Company and the Respondent Company had approached the applicants for investing in their proposed Construction Project in respect of their house admeasuring 316.00 Sq. Yards bearing Municipal No.1-1-385/40, situated at Gandhinagar, Hyderabad, Telangana State. Accordingly, agreements were entered into between the applicants and the Respondent Company vide MOU dated 25.01.2012 and MOU dated 22.03.2013, as per which the applicants have invested an amount of Rs.1,00,00,000/- (Rupees one Crore) jointly as ‘Project Investor’ and Rs.10,00,000/- (Rupees ten lakhs only) by Applicant No.2 as ‘Investor’, respectively. It is also proposed to the applicants that the Second Floor comprising of 2,250 Sq. feet in the proposed properties as security for the investment of Rs.1.00 Crore soon after completion of construction of the Second Floor. However, even by the time of filing the present Arbitration Application, the construction has not started and the applicants made several demands to repay the amounts, but the respondent did not repay the said amounts to the applicants. Therefore, the applicants issued Notice dated 17.10.2015 for repayment of the amounts with assured interest indicating that, in default of repayment of the amounts, Arbitration proceedings will be initiated. Thereafter, a letter dated 17.12.2015 was issued to Sri Ranji Bhandari, since he was sole Arbitrator in terms of Clause No.1 in mutual responsibilities of the terms of MOU’s as the applicants and Respondent Company have agreed to refer all disputes, differences, claims etc. for arbitration to a sole Arbitrator i.e. Sri Ranji Bhandari. However, Sri Ranji Bhandari vide letter dated 24.12.2015 addressed to the applicants stated that due to old age and ill-health, he could not take up the arbitration and suggested for appointment of a fresh Arbitrator. However, as the respondent has not repaid the amounts, the applicants issued Notice dated 01.09.2016 invoking Arbitration clause and suggesting the names of three persons as Arbitrators. The same is replied by the respondent vide Reply Notice dated 02.11.2016 disputing the claim of the applicants on merits and refusing to appoint any Arbitrator. It is also stated that since the Respondent Company is indebted to various people in the market and their business is in financial losses and the respondents are on the verge of secreting away their assets in order to avoid litigations, the applicants filed C.O.P.No.166 of 2017 on the file of XXIV Additional Chief Judge, City Civil Court, Hyderabad, for interim measures of protecting their rights and monies and the said Court passed order on 23.06.2017 directing the Respondent Company to furnish security for the claimed sum within 72 hours, failing which the schedule property would be attached. Though the order of attachment was served on the Respondent Company, the Respondent Company has not taken any steps for furnishing security within 72 hours nor appeared before the Court. As such, the Bailiff of the said Court, as per the directions of the Warrant, proceeded for attachment after completion of 72 hours and attached the property as per the procedure. In view of the same, the applicants have no other go, except to file the present application under Section 11(c) of the Arbitration and Conciliation Act.
Counter affidavit is filed by the Respondent Company stating that the claim of the applicants is hopelessly barred by limitation, inasmuch as the applicants failed to take steps for appointment of an Arbitrator seeking resolution of various disputes within three years from 25.01.2012 i.e. the date of execution of the first MOU. It is also stated that the applicants cannot maintain a single proceeding in respect of two separate MOUs. That as per the MOUs, amount would be reimbursed only on completion of Project. Admittedly, the subject Project has not been completed and, as such, no cause of action or dispute has arisen as of now from the applicants to initiate the present application. The respondent states that the applicants have approached the respondent for investing in their proposed Construction Project, but the respondent never approached the applicants. The applicants had, in fact, undertaken to invest a total sum of Rs.30,00,000/- (Rupees thirty lakhs only), instead only a sum of Rs.10,00,000/- (Rupees ten lakhs only) was invested making it difficult for the respondent to continue the proposed Project. Applicant No.1 was also inducted as a Director of the Respondent Company and has been privy to and involved in delaying the Construction Project. Subsequent to the execution of MOUs, the applicants, after coming to know about the other Projects proposed to be taken by the respondent, had offered to invest their monies in the same and also offered to bring in other financial partners for the said Projects. Thus, in view of the said assurances, the respondent had undertaken two Projects at Coorg and Kochi, respectively. On such commitment, the Respondent Company had diverted all their manpower towards the said two proposed Projects. It is stated that the respondent has spent an amount of Rs.2,24,40,750/- towards development of the said Projects. Later the applicant had expressed their inability to invest and instead identified other investors. In spite of best efforts of the respondent, the subject Project could not be materialized due to the investors backing out at the last minute at the instance of the applicants and the applicants had offered further investment in a sum of Rs.30,00,000/- (Rupees thirty lakhs only) in the process of second MOU dated 22.03.2013, however, failed and invested only a sum of Rs.10,00,000/- (Rupees ten lakhs only) due to which the respondents were put to irreparable loss and injury. The Notice dated 17.10.2015 was issued to Ms. Shilpa Rau, one of the Directors of the Company, as such the same would not amount to a valid notice, as Ms. Shilpa Rau is not in the transaction in her personal capacity. That Notice dated 01.09.2016 was also issued to Ms. Shilpa Rau, as such the same is defective and the respondents never admitted their liabilities in the reply Notice dated 02.11.2016. No dispute has arisen between the parties, as such the question of nomination of Arbitrators would not arise, as the amount is to be paid after completion of the Project and since the Project has not been completed, no dispute has arisen between the parties, the cause of action would not arise.
Heard learned counsel for the applicants and learned counsel for the Respondent Company.
Learned counsel for the applicants submits that the MOU dated 25.01.2012 and MOU dated 22.03.2013 entered into between the applicants and the Respondent Company contain Arbitration Clause for resolving the disputes between the parties and as the disputes arise due to non-completion of the Project, the applicants have issued Notice dated 17.10.2015 for repayment of the amounts indicating that if the payments are not made, Arbitration Clause will be initiated. But, in spite of the same, the amounts due to the applicants were not paid by the Respondent Company, as such, Notice dated 01.09.2016 was issued to the Respondent Company invoking Arbitration Clause contained in the MOUs. However, the respondent replied to the same on 02.11.2016 denying the claim of the applicants on merits and stating that there is no arbitrable disputes. That the investment made by the applicants jointly vide MOU dated 25.01.2012 and the investment made by Applicant No.2 vide MOU dated 22.03.2013 are for development of one house belonging to the respondent i.e. for the very same Project, as such, a single application is maintainable. It is also contended that though two different MOU’s are entered, the parties are same and the purpose for which investment is made is also the same, as such, it is contended that a single application is maintainable. It is further contended that though Notice dated 17.10.2015 and Notice dated 01.09.2016 are issued to the Director of the Respondent Company and the said Director has replied to the said Notices, vide Reply Notice dated 02.11.2016 defending the Respondent Company, as such the contention of the Respondent Company that the Notice dated 17.10.2015 and Notice dated 01.09.2016 are defective cannot be accepted. The said Ms. Shilpa Rau had replied, admitting about execution of the MOU’s with the Respondent Company and replied other contentions. At the most, it is a technical plea, which cannot defeat the Arbitration Clause contained in the MOU’s. In support of his contentions, learned counsel for the applicants relied on a decision of the Apex Court in CHLORO CONTROLS INDIA (P) LIMITED vs. SEVERN TRENT WATER PURIFICATION INC. AND ORS. (2013) 1 SCC 641).
On the other hand, learned counsel for the Respondent Company, while reiterating the pleas raised in the counter affidavit, contended that a single Arbitration Application is not maintainable in respect of two 1 different MOU’s and also the Notice of Arbitration issued to one of the Directors of the Respondent Company is defective as the same is not issued to the Respondent Company. She also contends that there cannot be a composite reference in respect of two different MOUs. She further contends that the present Arbitration Application is barred by limitation and in support of her contention, she placed reliance on a decision of the Apex Court in DURO FELGUERA SA vs. GANGAVARAM PORT LIMITED (2017) 9 SCC 729).
In view of rival submissions and the contentions, the issues that arise for consideration are:
(1) Whether the MOU dated 25.01.2012 and MOU dated 22.03.2013 entered into between the parties contain Arbitration Clause and whether the same has been invoked?
(2) Arbitration Application is maintainable for appointment of an Arbitrator in respect of MOU dated 25.01.2012 and MOU dated 22.03.2013 entered into between the applicants and the Respondent Company?
(3) Whether the Notice dated 17.10.2015 issued to Ms. Shilpa Rau, one of the Director of the Respondent Company, is defective in nature in order to maintain this application?
ISSUE No.1 :
Admittedly, both the MOU’s contain identical arbitration clause and the same was invoked by the applicants vide Notice dated 01.09.2016 and the same was replied by the Respondent Company through its Director vide Reply Notice dated 02.11.2016, disputing the claim of the applicants only, but not the existence of Arbitration Clause. Since the Notice of Arbitration is dated 01.09.2016 i.e. after the Amendment Act, 2015 and introduction of Section 11(6-A) of the Act came into force, the only issue that needs to be considered in this application is, whether there is existence of Arbitration Agreement between the parties, nothing more and nothing less. (See (2017) 9 SCC 729 between DURO FELGUERA SA vs. GANGAVARAM PORT LIMITED – Para-59). In the present case, there is no dispute about the existence of Arbitration Clause. As such, the issue is answered in favour of the applicants, holding that there is Arbitration Agreement between the parties.
ISSUE No.2 :
The admitted facts are that the applicants entered into MOU dated 25.01.2012 with the Respondent Company for investing an amount of Rs.1.00 Crore for development of the house belonging to the Respondent Company and the applicants paid the said amount. It is also an admitted fact that Applicant No.2 entered into MOU dated 22.03.2013 with the Respondent Company for investing a further sum of Rs.30,00,000/- and an amount of Rs.10,00,000/- only was paid. In the first MOU dated 25.01.2012, it is categorically stated that the applicants have invested the amount for development of the said house of the MOU dated 25.01.2012 Respondent Company. In the second MOU dated 22.03.2013, the House number is not mentioned. However, in their Notice dated 17.10.2015 and Notice dated 01.09.2016 and also in this application, the assertion made by the applicants is that the said investment vide second MOU dated 22.03.2013 is for the very same purpose, and the same is not disputed by the Respondent Company. What all the respondent’s contention is that the amounts invested by the applicants will be repaid by the Respondent Company only after completion of the Project and since the Project has not been completed, no cause of action has arisen. The fact that both the MOU’s are for the development of the very same house belonging to the Respondent Company is not disputed. In view of the same, it can be construed that the first MOU dated 25.01.2012 for investment of Rs.1.00 Crore is for the development of the house belonging to the respondent and the second MOU dated 22.03.2013 for investment of Rs.30,00,000/- is for the development of the very same house. As such, the first MOU dated 25.01.2012 can be termed as a principal agreement and the second MOU dated 22.03.2013 can be termed as an ancillary agreement, as the same is in pursuance of the first MOU. The common defence taken by the respondent in respect of both the MOU’s for repayment of the amount is that the project could not be completed on account of fault of the applicants as they failed to pay the balance amount of Rs.20,00,000/- (Rupees twenty lakhs only) in pursuance of the second MOU dated 22.03.2013 and that the respondents have assured that they will get the investors for other projects undertaken by the Respondent Company at Coorg and Kochi, but failed to do so.
In view of the above facts and circumstances, this Court is of the considered opinion that both these MOU’s are intrinsically interlinked and the performance under these two MOU’s is common i.e. repayment of the amount with assured interest after completion of development of the house and both the MOU’s constitute a composite transaction i.e. investment of monies by the applicants in the Respondent Company for development of the house of the Respondent Company and repayment of the said amount to the applicants by the Respondent Company with assured rate of interest after completion of the Project. A composite transaction refers to a transaction, which is interlinked in nature, or where the performance of the agreements may not be feasible without the aid, execution and performance of the supplementary or ancillary agreements for achieving the common object and collectively having a bearing on the dispute.
In this case, the whole transaction between the parties is for investment of monies by the applicants for development of the house belonging to the Respondent Company and for that purpose, two MOU’s were entered into, one with Applicant Nos.1 and 2, and another with Applicant No.2 only, and the purpose in both the MOU’s is common. In view of the same, a single application is maintainable. It is to be seen that the judgment of the Apex Court relied upon by the learned counsel for the Respondent Company in GANGAVARAM PORT LIMITED’s case (supra 2) has no application to the facts of the present case, since in that case, the parties have split the work and contracts, the award of the contract was split into different parts for different works and different agreements were executed, some in respect of foreign companies and some in respect of subsidiary companies of the foreign companies. But, in the instant case, the respondent has not disputed that the investment is for common purpose for the very same Project and the nature of the work is not split into and no separate contracts are formed for different purposes.
The ratio laid down in CHLORO CONTROLS INDIA (P) LIMITED’s case (supra 1) relied upon by the learned counsel for the applicants and also AMITLAL CHAND SHAH AND OTHERS vs. RISHABH ENTERPRISES AND ANR. (2018) 15 SCC 67)supports the view taken by me, wherein the Apex Court held that in respect of all the agreements entered for execution of the work in respect of any single purpose or commission of a Project, a single Arbitration Application can be invoked and all parties can be covered by the Arbitr
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ation Clause in the agreement. The pleadings of the parties also go to show that the two agreements are interlinked and executed for investment of one Project and parties are same. Hence, the issue is answered in favour of the applicants. ISSUE No.3 : As far as the objection raised by the respondent in respect of issuance of Notice to one of the Directors of the Respondent Company, instead of issuing notice to the Respondent Company is concerned, Notice dated 17.10.2015 was issued to Ms. Shilpa Rau in the capacity of a Director of the Respondent Company and she also replied vide Reply Notice dated 02.11.2016 admitting execution of two MOU’s and disputed the claim of the applicants on merits, however, raising the same objection. In the counter affidavit also, the Respondent Company raised the same objection. The Reply Notice dated 02.11.2016 goes to show that it is issued by Ms. Shilpa Rau in the capacity of Director of the Respondent Company and it is nowhere disputed that she is not the Director of the Respondent Company. She has not denied the existence of Arbitration Clause. As such, it is only a technical plea raised by the Respondent Company to avoid their obligation under the MOU’s and this technical plea cannot defeat the right of the applicants for referring the disputes to the Arbitrator. In view of the same, this technical plea cannot be a ground for not maintaining this Arbitration Application. In view of the above facts and circumstances, the present Arbitration Application is liable to be allowed and it is accordingly allowed, nominating Sri Justice Neelam Sanjiva Reddy, Former High Court Judge, as an Arbitrator. As a sequel thereto, miscellaneous applications, if any, pending in this Arbitration Application, shall stand closed.