M-S SHREE RAM MILLS LTD. v. M-S UTILITY PREMISES (P) LTD

Citation: [2007] 4 S.C.R. 279

Court: Supreme Court of India

Bench: H.K. SEMA, V.S. SIRPURKAR

Case summary

M-S SHREE RAM MILLS LTD. v. M-S UTILITY PREMISES (P) LTD.pdf

Judgment text

-... M/S SHREE RAM MILLS LTD. v. MIS UTILITY PREMISES (P) LTD. .. MARCH 21, 2007 [H. K. SEMA AND V. S. SIRPURKAR, JJ. ] . -.. >- Arbitration and conciliation Act, 1996-Section 11(6)-Agreement of providing an area oflandfor development entered into between the parties- Another agreement came to be entered into when only a part ofthe agreed area was made available-Memorandum of Understanding (MoV) entered into to settle the dispute by payment of compensation-Aggrieved party . repudiated the MoU and invoked Arbitration Clause under the Agreement- ' Petition before High Court for appointment ofan Arbitrator was allowed- Correctness of-Held, High Court under the Act only records a prima facie finding about the existence oflive issue between the parties before initiating Arbitration proceeding-Arbitration Tribunal can go into the question of -'· live issue and limitation while deciding the dispute.

""' Appellant-company entered into an agreement with respondent-company for providing an area for development ofland owned by the appellant Later, a second agreement came to be executed between the parties since the appellant could make available only a part of the agreed area to the respondent. A Memorundum ofUnde"'Standing (MoU) was entered into by the Parties to settle the disputes for a compensation amount. The respondent received a part payment of the compensation amount. Thereafter, the respondent cancelled '1 the MoU and returned the amount received. The respondent invoked the Arbiti;-ation Clause under the two agreement by a notice to the appellant on the g_~ound that the appellant failed to transfer the full extent ofagreed FSI as per the first agreement. When the appellant denied its liability, an Arbitration Petition was failed by the respondent before High Court under section 11(6) ofthe Arbitration and Conciliation Act, 1996 for appointing an Arbitrator.

A Designated Judge of the High Court allowed the petition. --~ In appeal to this Court, the appellant contended that there was no live -f issue in existence in between the parties since the respondent entered into a MoU giving up part ofits claim under the first agreement; that the respondent cannot unilaterally cancel the MoU and invoke the Arbitration Clause under the agreements; that the claim of the respondent, ifany, had become barred by limitation; that the High Court, in the Arbitration Petition, has already givJ! n findings regarding the existence of live claim and limitation and hence, it is for this Court to test the correctness of the findings. The respondent contended that since the liabilities under the first ' . .

agreement were constantly being negotiated and renegotiated in so many proceedings and hence, it cannot be said that the issue between the parties was dead and barred by time; that the issues, as to whether there was any live issue or not and the issue of limitation, could be decided by the Arbitral Tribunal under sectio~ 16 of the Act since the High Court has not finally decided such issues. ' . . t Dismissing the appeal, the C! >urt HELD: 1. 1. A ChiefJustice or his Designate of the High Court, under section 11 (6) of the Arbitration and Conciliation Act, 1996, has to examine as to whether the claim is a dead one or whether the i;arties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. In examining_this, ifthe parties have recorded thelr satisfaction rega'rding finanCiaI claims, there will be no question of any. is-sue remaining.

It is in this sense that the High Court has to examine as to ~vhether 'there remains anything to b~ decided be~ween the parties'in respect of the agreement and ,whether the parties are still at issue on a~y such mattir. If the Chief Justice. does not, decide the issue, in that ,) event it is for him to locate such is~ue ~nd record the satisfaction that. such , ·' l issue exists between the pa"rties. It is only in that sense that the findings on a 'tive' issue is given. It is only for the purpos~ of finding out whether the - ' 1 . , .. a~pitral procedure has to be started that the.. Chief Justice has to record satisfaction that there remains a live issue in between the parties. (Para 27) - f • . 1. 2. The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the tapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement.

It would be appropriate to leave· the question regarding the live claim to be decided by the Arbitral )- Tribunal. All that he has to do is to record his satisfaction that the parties ( I have Closed their rights and the matter has not been barred by limitation. ' f- SHREE RAM MILLS LTD. "· UTILITY PREMISES (P) LTD 28\ -. ,.. _ Thus, where the Chief Justice comes to a findings that there exists a live issue, then naturally this finding would include a finding that the respective claims of the parties tiave not become barred by limitation. When there was a live issue, the question of limitation automatically gets resolved. Where the negotiations were still on, there would be no question of starting of the limitation period. ! Paras 27 and 3011289-E-G; 292-G; 293-AI SBP & Co. v. Patel Engineering Ltd. & Anr.. f20051 8 SCC 618; and Hari Shankar Singhania & Ors. v. Gaur Hari Singhania & Ors. , f2006J . t sec 658, referred to. 1. 3. This Court has no jurisdiction to decide.

as to whether the respondents were within their rights to repudiate the MoU and serve the notice of arbitration. The very fact that the parties chose to create the MoU suggests that it was never treated to have closed and in that sense it was still a live issue. It would be only for the Arbitral Tribunal to decide the effect of the respondent having signed the MoU. On facts, there was no final settlement of the issue even by the MoU. If that was so, there was live issue in between the parties and the parties were at loggerheads on that issue. .. , ! Para 29) (292-F-GI . I Nathani Steels Ltd. v. Associated Constructions, f1995J Supp. 3 SCC 324, distinguished. 1. 4. The claim of the respondent cannot be said to have become dead firstly because of lapse of limitation. The Arbitral Tribunal can also go into the question of limitation for the claims in between the parties.

Since the issue between the parties is still alive, there would be no question ofstining the arbitration proceedings by holding that the issue has become dead by . _.. limitation. jPara 31 I (293-F-G; 294-A-BJ Group Chimique Tunisien SA v. Southern Petrochemicals Industries Corpn. Ltd, f2006) 5 SCC 275, referred to. CIVIL APPELLA,TE JURISDICTION: Civil Appeal No. 1523 of2007. From the Order dated 11. 8. 2006 of the High Court of Judicature at Bombay in A. A. No. 12312005. Harish N. Salve, Shyam Diwan, Saurabh Agarwal, Lalit Kataria, Ruby Singh Ahuja, Debmalya Banerjee and Manik Karanjawala for the Appellant. K. K. Venugopal, R? njit Kumar, Sushi! K. Teki-iwal, Venkateswara Rao Anumolu for the Respondent. The Judgment of the Court was delivered by V. S. SIRPURKAR, J. 1. Leave granted. 2.

An order under Section 11(6) ofthe Arbitration and Conciliation Act, 1996 (hereinafter called as "the Act" for short) appointing Arbitrators, passed by the Designate Judge of the Bombay High Court is questioned in this appeal at the instance of Shree Ram Mills Ltd. (hereinafter called "the petitioner"). 3. The said order is assailed mainly on two grounds, firstly, that there was no live issue in existence in between the parties and the learned Judge erred in holding that there was a live issue in between the parties and secondly that the claim had become barred by limitation between the parties. As against this the respondents Mis. Utility Premises (P) Ltd. , supported the order and pointed out that in pursuance of the order passed not only had the Arbitrator been appointed but they had also chosen the third Arbitrator to preside over the Arbitral Tribunal and the Arbitral Tribunal had commenced its proceedings. Presently the proceedings before the Arbitral Tribunal are stayed. 4.

It has, therefore, to be decided as to whether the order passed under Section 11(6) of the Act appointing the Arbitrators is good order in law particularly in the· w~e of the above two objections. 5. Following undisputed facts would have to be borne in mind before approaching the questions raised. 6. The appellant is a company incorporated under the Companies Act, 1956, so also the respondent. The appellant company became a sick industrial unit sometime in the year 1987 under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SICA"). It was ordered to be wound up in the year 1994 and on approaching the Board For Industrial and Financial Reconstruction (BIFR) a rehabilitation scheme was worked out whereby IDBI was appointed as an operating agency under the scheme. The Asset Sale Committee approved the sale of 1. 20 lakh sq. ft. FSI owned by the appellant company to the respondent for a total sale consideration of Rs. 21.

60 crores and accordingly an agreement came to be executed in between ,the . :. parties on 27. 4. 1994. This was a Joint Development Agreement between the .. SHREE RAM MILLS LTD. r. UTILITY PREMISES (P) LTD. [V. S. SIRPURKA! i:. J. ] 283 parties in respect of the land owned by the appellant. By Clause 1 of the agreement, the area mentioned for development was between 86,000 sq. ft to 1. 20 lakh sq. ft. Clause 15 of the said agreement provides that the land owner, the appellant herein, shall not create any encumbrance or third party rights. By Clause 19 the appellant had undertaken to add additional FSI. By Clause 22 the period was fixed for utilization of the full FSI covered under the agreement. Clause 24 was the Arbitration Clause to resolve the disputes, if any, between the parties. The property covered was described in the Third Schedule of the said agreement which mentions 1. 20 lakh sq. ft. FSI. 7.

After this agreement a second agreement came to be executed in between the parties on 18. 7. 1994. This was necessitated because the appellant herein could make available only 86,725 sq. ft. FSI. Under this second agreement it was agreed to by the appellant herein that the further land admeasuring 2500 sq. mtrs. would be allowed to be developed by the respondent. The said 2500 sq. mtrs. land was reserved by Bombay Municipal Corporation for Municipal Primary School and playground. However, the appellant herein undertook to shift the said reservation to some other property of the appellant at the cost of the respondent. There was an arbitration clause vide Clause No. I0 in this agreement also. 8. On 9. 11. 1994 there was a Tripartite Agreement between the appellant and respondent herein along with one Bhupendra Capital and Finance Limited whereby 50% of the appellant's entire interest under the Agreement dated 27. 4. 1994 and 18. 7. 1994 was agreed to be transferred. 9. On 22. 6.

1996 the agreement dated 18. 7. 1994 was cancelled by mutual consent as. the parties were unable to agree on the cost of shifting the reservation which was agreed to in the agreement dated 18. 7. 1994. It was, 'I therefore, agreed vide clause 5 that the respondent and the third party ~..... _, brought in, i. e. , Bhupendra Capital and Finance Ltd. , would have no right or claim in respect of the said property belonging to the appellant and more particularly described in the First Schedule, save and except, the 86725 sq. ft. FSI. 10. On 28. 6. 1996 the respondent herein entered into an Assignment Agreement with Ansal Housing and Construction to build flats on the area with FSI of 86725 sq. ft. 11. On 4. 5. 2001 the respondent herein had filed a petition under Section 9 of the Act seeking injunction and appointment of Receiver in respect of 2500 sq. mtrs. of land. However, that was dismissed by the High Court on the ground that the area was covered under the agreement dated 18. 7.

1994 and it was cancelled by an agreement dated 22. 6. 1996 and, therefore, the application was not maintainable. The appeal against this order also failed vide order dated 3. 6. 2002. 12. On 12. 9. 2001 respondent and one Santosh Singh Bagla who was the Promoter of the respondent company, filed application before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) contending therein that the promoters ofthe petitioner company were guilty ofmisfeasance and hence those acts were liable to be inquired into. It was secondly prayed that the Board of Directors of the appellant company should be superseded. It was thirdly prayed that the injunction be issued restraining the appellant "from selling or transferring the lands. This application was dismissed by AAIFR leaving the parties to get the disputes adjudicated before an appropriate forum. It is to be noted here that a specific statement was made before the AAIFR by the respondent herein that the sale of 1.

20 lakh sq. ft. was not the subject matter of the application as the separate proceedings were being contemplated before the appropriate forum. -- 13. On 11. 6. 2002 the respondent served a notice invoking the arbitration clause under agreements dated 27. 4. 1994 and 18. 7. 1994 on the ground that the petitioner had denied its liability to transfer the FSI beyond 86725 sq. ft. though it was bound to make available FSI of 1. 20 lakh sq. ft. to the respondents. 14. The respondent and Shri Santosh Singh Bagla filed a writ petition in the Delhi High Court on 26. 7. 2004 whereby they challenged the order passed by the AAIFR dated 12. 9. 2001. Though the respondents had, in their appeal before AAIFR, claimed that the sale of 1. 20 Iakh sq. ft. of FSI was not ::. ,. the subject matter of that application, it was all the same prayed before the ,.... - High Court in the writ petition that the appellant should be restrained from transferring SHREE RAM MILLS LTD. '" UTILITY PREMISES(P) LTD. [V.

S. SIRPURKAR, J. ] 291 It, however, seems that the respondent wriggled out ofthe MoU and cancelled it and chose to serve the arbitration notice for appointment of the arbitrators. 29. Learned counsel Shri Salve points out that this was not possible as the respondent could not wriggle out of the commitment made in the MoU and could not have unilaterally cancelled the MoU as the respondent had accepted to give up their claim for a consideration of Rs. l . 20 crores and had accepted part payment of Rs. I0 lakhs out of the same. We must state here that it will not be for us to decide as to whether the respondents were within their rights to repudiate the MoU and serve the notice of arbitration. What would be the rights of the parties on account of entering into a MoU dated 19. 1. 2005 would not be for us to decide sitting in this jurisdiction. We have only to adjudge as to whether the parties were still at loggerheads as regards . ... the present issue.

The very necessity felt on their part for a MoU would suggest that the issue was not closed. Shri Salve argues that the respondents could not be allowed now to revert back on the agreement dated 27. 4. 1994 once it had chosen to close the issue by entering iitto the MoU dated 19. 1. 2005. Learned Senior Counsel sought our finding on that. We have D. already clarified that it will not be for us to give that finding. In our opinion the very fact that the parties chose to create the MoU dated l9. l. 2005 suggests that the order regarding 1,20,000 sq. ft. of FSI was never closed or atleast was never treated to have closed and in that sense it was still a live issue. Learned counsel Shri Savle relied upon the decision in Nathani Steels Ltd. v. AssociatedConstructions, [I995] Supp. 3 SCC 324. Our attention was drawn particularly to contents of paragraph 3 which are as under: "....

once there is a full and final settlement in respect any particular dispute or difference in relation to a matter covered under the Arbitration clause in the contract and that dispute or difference is finally settled by and between the parties, such a dispute or difference does not remain to be an arbitrable dispute and the Arbitration clause cannot be invoked even though for certain other matters, the contract may be in subsistence. Once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or difference is amicably settled by way of a final settlement by and between the parties, unless that settlement set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was mistake and proceed to invoke the arbitration clause.

Ifthis is permitted the sanctity of contract, the settlement also being a contract would be whQlly lost and it would be open to one party to take the benefit under the settlement and then to question the same on the ground of mistak:e without having the settlement set aside" Though. the observations at the first blush appear to be in favour of the appellants, on the closer look they are not so. This was a case where in a contract the pai;ties had amicably settled their disputes and the parties also did not dispute that the they have arrived at such a settlement. It is under those circumstances that the observations were made. However,. we do not think that the facts in the present case suggest that there was a full and final settlement in between the parties in respect of the. issue regarding 1,20,000 sq. ft.

ofFSl and that a MoU was signed wherein the respondent and Bhupendra Capital & Finance Limited who was the party to the third agreement, acknowledged that they were left with rights limited to 86,725 sq. ft. of FSI. It must be seen that there is no reference whatsoever to any consideration as regards the 1,20,000 sq. ft. ofFSI, much less to the figure ofRs. l. 20 crores in ·this MoU. As to what would be the effect of this MoU on the rights of the respondent herein would not be for us to go into but it is certain that the issue had not been settled completely. In Nathani 's case (supra) the issue was admittedly settled and that was not disputed by the parties thereto. Here the parties and more particularly the respondents are seriously disputing that the issue regarding 1,20,000 sq. ft. of FSI . was finally settled in between the parties. It would be only for the Arbitral Tribunal to decide the effect of the respondent having signed the MoU.

We have pointed out earlier that this MoU cannot be said to be in the nature of a contract. In Nathani 's case the settlement was viewed as a contract and it was, therefore, reiterated that if the parties are allowed to wriggle out oftheir obligation from the contract, no sanctity would be left to the settlement which are in the nature of a contract. It is for this reason that, in our opinion, the decision in Nathani'. s case is not applicable to the present facts. We also reiterate at this juncture that the cloud on 2500 sq'. mtrs. of land which is inexplicably connected with the FSI of 1,20,000 sq. ft. created by the undertaking given before the Delhi High Court still remains looming large and remained so even ~n the date of the MoU. It is for this reason_ also that we are of the clear opinion that there was no final settlement ofthe issue regarding 1,20,000 sq. ft. ofFSI even by the MoU dated 19. 1. 2005.

If that was so,' it is clear that there was live issue in between the parties and the parties were at loggerheads on that issue. 30. ·Once we have come to the conclusion that the learned Designate Judge was right in holding that there was a live issue, the question of SHREE RAM MILLS LTD. r. UTILITY PREMISES (P) LTD. [V. S. SlRPURKAR.. 1) 293 limitation automatically gets resolved. This Court in Hari Shanker Singhania's case (supra) held that till such time as the settlement talks are going on directly or by way of correspondence no issue arises and with the result the clock of limitation does not start ticking. This Court observed: "Where a settlement with or without conciliation is not possible, then comes the stage of adjudication by way of arbitration. Article 137 as construed in this sense, then as long as parties are in dialogue and even the differences would have surfaced it cannot be asse11ed that a limitation under Article 137 has commenced.

Such an interpretation will compel the parties to resort to litigation/ arbitration even where there is serious hope of the parties themselves resolving the issues. The learned Judges of the High Court, in our view have erred in dismissing the appellants' appeal and affirming the findings of the learned Single Judge to the effect that the application made by the appellants under Section 20 of the Act, 1940 asking for a reference was beyond time under Article 137 ofthe Limitation Act.. As. already noticed, the correspondence between the parties in fact, bears out that every attempt was being made to comply with and carry out the reciprocal obligations spelt out in the agreement between the parties. -- These observations would clearly suggest that where the negotiations were still on, there would be no question of starting of the limitation period. 31.

According to Shri Salve, learned counsel appearing on behalfof the appellants the clock had started ticking against the respondents in relation to the agreement dated 27. 4. 1994 and they could have had only three years per:1d for filing a suit as per Article 137 of the Limitation Act and as such the claim made with reference to that agreement cannot be arbitrable now in the year 2005. We do not agree. It is for this reason alone that we have given the complete history of the negotiations in between the parties. The things ( do not seem to have settled even by 19. 1. 2005 but that would be for the Arbitral Tribunal to decide. We only observe, at this stage, that the claim of the respondent cannot be said to have become dead firstly because of the settlement or because of lapse of limitation. What is the effect of MoU dated 19. 1. 2005; was the respondent justified in repudiating the said MoU; and what is the effect of repudiation thereof on the earlier agreement dated 27. 4.

1994 would be for the Arbitral Tribunal to decide. In Groupe Chimique Tunisien SA v. Southern Petrochemicals Industries Corpn. Ltd, [2006] 5 SCC 275 this Court had clearly held in para I0 that the Arbitral Tribunal can also go into -( the question of limitation for the claims in between the parties. We have discussed this subject only to hold that since the issue in between the parties is stiII alive; there would be no question ofstifling the arbitration proceedings by holding that the issue has become dead by limitation. We leave the question of limitat,ion also upon the Arbitral Tribunal to decide. 1 32. In view ofthe foregoing discussion we are of the clear opinion that the learned Designate Judge was right in appointing the Arbitrator under Section 11(6) of the Act, We, therefore, proceed to dismiss the Civil Appeal with no order as to costs. B. S. Appeal dismissed.