N. SRINIVASA v. M-S KUTTUKARAN MACHINE TOOLS LTD

Citation: [2009] 2 S.C.R. 852

Court: Supreme Court of India

Bench: TARUN CHATTERJEE, DALVEER BHANDARI

Case summary

N. SRINIVASA v. M-S KUTTUKARAN MACHINE TOOLS LTD.pdf

Judgment text

' . {2009] 2 S. C. R. 852 ' N. SRINIVASA v. MIS KUTTUKARAN MACHINE TOOLS LTD. Civil Appeal Nos. 1098 of 2009 _ • FEBRUARY 18, 2009 1 [TARUN CHATTERJEE AND DALVEER BHANDARI, JJ] ·, •, Arbitration and Conciliation Act, 1996/Code of Civil Procedure, 1908 : ~ s. 910. 39 rr. 1 and 2 - Agreement for sale of immovable I .. property - Sale aeed ·not executed within stipulated time - Vendor seeking time from the vendee ..... ; Thereafter, vendor . I refusing to perform its part of contract - On apprehension of . creation ofthird party interest in disputed property, applications by vendee for injunction and interim injunction from· transfer, ~ 0 ) ? lieQation and'creation bf third party interest - Plf? a of vendor I' that time being essence of the contract, ·it was not bound to t~ execute the deed - Grant of interim injunction by trial court l Denied by High Court - 'on appeal, held: Trial Court rightly ! ;1111 I granted interim injunction - Issues in respect of the contract .....

E· ' were to be decided in arbitration proceedings - Interim l y _measures were necessary till the conclusion of arbitration proceedings in order to prevent irreparable loss and injury to vendee ~ In a contract relating to immovable property, time J ·cannot be essence of contract - Direction to the vendee to r- ' deposit the balance amountin fixed deposit in favour of vendor to be kept with the arbitrator - Contract. Respondent entered into agreement to sell a plot of land with the appellant. Amount towards advance was G. paid to the respondent at the time of execution of the · agreement. Balance amount was to be paid at the time of registration of the sale deed. When the appellant came to " j,. know that the respondent was trying to sell off the property -~. ,:~ to some other party, he approached the responden,t for)~~~;;. 852 . • -~("" ·. ' ' ' . , N. SRINIVASAV M/S KUTTUKARAN MACHINE · 853 TOOLS LTD. - i execution of the deed.

Respondent refused to perform · its part of the contract until and unless the appellant paid the sale consideration higher than as was initially agreed upon. Appellant filed an application u/s 9 of Arbitration and - · Conciliation Act, 1996 for injunction and under 0. 39 r. 1 and 2 r/w s. 151 CPC for temp. orary injunction seeking' restraint to the respondent from alienating, altering or creating any third party interest in respect-of the property. Respondent took the plea that since time was essence of the contract and the appellant having failed to perform his part of the obligation of the contract, respondent was not bound to execute the sale deed. Trial Court allowed the applications on the ground that there were serious issues required to be tried before the arbitrator; and that the appellant had successfully made out prima facie case o for grant of injunction sought by him. Appeal was filed before High Court. In the meantime, arbitrator was also appointed.

High Court set aside the order of trial court subject to conditic;>n that the respondent deposited the amount received as advance in fixed deposit, till the .. disposal of the dispute before the arbitrator. Hence the present appeal. Partly allowing the appeal, the Court HELD. 1. 1 The appellant, in the facts and circumstances of the case, had successfully made out a prima facie case for grant of injunction in the manner granted. by the· trial court. The respondent has not de. nied the agreement for sale. The only ground taken by the respondent is that since time was the essence of the contract and the appellant had failed to perform his part ·G of the contract within the time specified in the said agreement for sale, the question of grant of injunction from transferring, alienating or creating an1 third party interest in respect of the property in dispute would not arise at all. [Para 11] [861-8] A·· 1.

2 Trial Courtwasjustified in directing the parties to maintain status quo in the matter of transferring, alienating or creating any third party interest as prima facie it has been proved that the respondent was trying to sell the property in dispute to a third party, thus alienating the riglitS'ofthe property. in dispute, which would have caused frreparable damage to the appellant. [Para 12] [863-D] 1. 3 High Court by vacating the order of status quo granted by the trial court, practically, had limited the scope ... of the arbitration to the extent that the right of the appellant to receive back the amount with or without compensation would be taken 'away, if ultimately his allegations are found to ·be true·. 'Though, the appellant has been denied the •; be~efit. •of injunction but since the application was u/s.

9 of Arbitration and Conciliation Act, 1996 for interim , measur~, to sec_u·re the interest of the appellant in the event of his succeeding to an award before the arbitrator, it would be i. n the interest of justice to put the appellant on terms. [Para 11] [861-F] · I .. 1. 4 If an order restraining the respondent from creating any,third party interest or from transferring the property in dispute is not granted till an award is passed, the appellant shall suffer irreparable loss and injury and the entire award if passed in his favour, would become ). totally· negated. [Para 11] [862-E] F· Mahaiwal Khewaji Trust . (Regd. ),,. Faridkot vs: Baldev Dass AIR 2005 SC 104 - relied on. 2. 1 In a contract for sale of immovable property, • normally it is presumed that time is not the essence· of the contract. Even if . there is an express stipulation to that effect, the· said presumption can be rebutted. To find out • ... .

whether tinie was essence of the contract, it is better to refer to the terms arid conditions of the contract itself. [Para 11] [862-D-E] TOOLS LTD. -~ 1 2. 2 The High Court had failed to appreciate that in the contract relating to immoveable property, time cannot be the essence of contract. In any event even in such a case, the arbitration clause would survive and the dispute would be required to be resolved. That being the position, pending disposal of the arbitration proceeding, interim 8 measure to safeguard the interest was required to be taken.

Since the appellant was required to furnish the nil encumbrance certificate till the date of transaction to show that there was no charge over the property and further since the property was to be kept vacant at the time of the execution of the sale deed, time cannot be held to be the essence of the contract in the facts and circumstances of the case and accordingly, the interim measure was necessary to prevent irreparable loss and injury. [Para 13] [864-8-D] 2. 3 The disputes raised by the parties can only be determined by the sole arbitrator and when admittedly, an arbitrator has been ~ppointed to decide such dispute, the parties should be directed to maintain status quo in the matter of transferring, alienating or creating any third party interest in the same till the award is passed by the sole arbitrator. [Para 17] [866-E] 3.

Considering the fact that some time would be required for the arbitrator to pronounce his award wherein the question whether time was the essence of the contract or not would be required to be determined and if the parties are directed to maintain status quo in respect of the property in dispute, till such award is passed, and for that reasons, the respondent would not be entitled to transfer, alienate the property in dispute during the pendency of the Arbitration proceeding and considering the balance of convenience and inconvenienc'e of the parties, it is proper to direct the appellant to deposit the balance amount in fixed deposit for a minimum period of six months initially in favour of the respondent and renew the same till the disposal of dispute before the Arbitrator. , A· The original fixed~eposit receipt shall be kept with the , -arbitrator. In the event of failure of deposit of the aforesaid .

amoun\, the order of status quo, shall automatically stand vacated and the order of the High Court, vacating the order . of status-quo, shall immediately come into operation. [Para 18] (866:-F-H; 867-A-B] Case Law Reference AIR 2005 SC 104 Relied on. Para 11 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1098 of 2009 · ' From the,Judgement and Order dated 16. 04. 2007 passed by the Hon'ble High Court of Karnatak at Bangalore iri M. F. A. No. 1201. 4 of,2006 (AA)wherein the Hon'ble High Court partly ··allowed the appeal · 0 R. F. Nariman, Joseph P~okkatt. Nikhil Majithia, Prashant Kumar, (M/SAP. & J ~hambers) for the Appellant. DushyantA. Dave T. Raja, Gopal Singh, for the Respondent. The Judgement of the Court was delivered by TARUN CHATTERJEE, J. 1. Leave granted. ) . ·. ' 2. This appeal has been filed at the instance of the appellant by special-leav~ against the jud_gment and-final order _of the High Court of Karnataka at BangaloreinM. F. A No.

120~4/ 2006 (AA), dated 16th ofApril 2007, setting aside . the order · dated 23rd of September, 2006 passed by the VI Additional-City Civil J1:1dge, Bangalore, and vacating the order of status quo · granted on condition that the respondent shall depgsit a sum of Rs. 2,50,000,00/- [Rupees two crores fifty lacs] within the time : . specified in the impugned order. ·3. The facts leading to the filing of this appeal may ~e summarized as follows : The respondent became the owner of Plot No. 19.. :A, II Phase, Industrial Area, (carved Survey No. 40 and 41, Chokkasandra Village, Yeshwanthpur Hobli, Bangalore North . Taluk), measuring about 10568 square meters (hereinafter " referred fo as the 'property in dispute') by a sale-deed dated 11th of November 2001 executed by the Karnataka Industrial B . Area Development Board. The appellant and the respondent entered into an agreement for sale of the property in dispute on 21st of December 2005 for a sum of Rs.

6,99,04,079/- in which an advance of Rs. 2,00,00,250/- (Two Crore Two Hundred Fifty Only) was paid to the respondent~at the time of executing the agreement for sale. One of the stipulation in the agreement for. ·sale was that the balance amount of the. consideration money ·~ · shall be paid to the respondent at the time of registration of the Sale Deed which shall be executeo within sixty days from the . date of execution of the agreement for sale. The agreement for sale specifically mentioned that it was the obligation of the respondent to keep the title good till the execution and registration of the sale deed and further to keep thej)roperty in dispute free from all encumbrances· or ctiarges. It was also agreed that the respondentshall pay (! II rates, taxes and cesses . in regard to the property in dispute upto the date of sale and all dues prior to the Sale Deed. It was further. agreed that in case ,.

ofdispute, the same should be referred toArpitration under the provisions of Arbitration and Co~ciliation Act, . 1996 (in short the · 'Act'). The respondent borrowed funds from. KSllDC and various other finahcral institutions fm installation of ·\1arious kinds. of rtlachifleries in the factory thereby created equitat;>le mortgage by way of d~posit of title deeds with various financial institutions. It was clearly understood that at the time of registration of the sale deed, vacant and peaceful physical possession of property in dispute would be delivered by the respondent to the appellant and that the re~pondentwould be bound to remove all plants and machineries from their factory in order to deliver. possession to the appellant after clearing all its dues to the various financial. institutions and keep the title deed ready.

For the purpose of execution of the sale deed, the appellant started doubting its bona-fide and, therefore, by a letter/notice dated 18th of February 2006 called upon the respondent to execute the sale deed so \ that the vacant possession of the property in dispute could be delivered to him. On 20th of February 2006, the appellant received a letter from the respondent asking him to complete s the sale transaction on the very next day i. e. on 21st of February 2006. After the receipt of the letter mentioned above, the appellant approached the respondent and requested the respondent to perform their part ·af the obligation. The respondent assured the appellant that they wou. ld require some ; more time to remove the machineries from the property in c dispute ~s they were in large numbers and very huge in size.

They also informed the appellant that they required some more time to mak~ alternative arrangement of other premises where their plants and machineries could be kept as they were very expensive and involved a lot of money. As the appe! lant had 0 already paid an amount of Rs. 2,00,00,250/- to the respondent, he had no choice but to keep quiet. The appellant, however, having believed the version of the respondent that they had difficulty in shifting all the machineries within a short notice kept quiettill he realized that the intention of the respondent was not honest as he found that the respondent was trying to sell the property in dispute to some other party at a much higher price. Having found that the respondent was not interested to execute .

the sale deed as agreed upon, he approached the respondent st on 21 of June, 2006 to execute the sale deed, when he also · intimated the respondent that he was ready and willing to perform his part of the contract to execute the sale deed, the respondent refused to perform its part of the contract and informed that they would not execute the sale deed until and • unless the appellant agreed to pay a· higher sale consideration G. over and above what was agreed to between the parties. Having found that the respondent was trying to sell the property in dispute to a third party at a higher price, the appellant filed an application under Section 9 of the Act on 23rd of June 2006, before the City Civil Judge, Bangalore, for injunction restraining the ·respondent from alienating, altering or creating any third party interest in . TOOLS LTD. [TARUN CHATIERJEE, J. ] respect of the property in dispute.

With the application, the ·~ 1 appellant also filed an application under Order 39 Rule 1 and 2 read with Section 151 CPC for temporary injunction restraining the respondent from transferring, alienating or creating any third party interest in the same. 4. The respondent entered appearance and denied the material allegations made in the application for injunction. ltwas the specific case of the respondent that since time was the r ... essence of the contract and the appellant having failed to perform his part of the obligation of the contract, the respondent was not bound to execute the sale deed and therefore, the agreement r+' for sale was cancelled by the respondent. Accordingly,· it was alleged by the respondent that the application for injunction must be rejected. 5. The Addi.

City Civil Judge at Bangalore by his order dated 23rd of September 2006 allowed the application filed by the appellant, intera/ia, on a finding that "there are serious issues to be tried before the arbitrator and that the appellant has successfully made out a prima facie case for grant of injunction in the manner prayed for in the application. " The learned Addi. City Civil Judge, Bangalore, while disposing of the application for injunction, came to a finding prima facie that the respondent intended to sell the property in dispute to some other persons ~ at a higher price as it was found that the intending purchasers were frequently visiting for the purpose of purchasing the property in dispute. The Addi. City Civil Judge, Bangalore, therefore, held prima facie that the respondent was likely to sell the property in dispute and if it was sold, it would make the award ofthe learned Arbitrator infructuous for which, the appellant shall suffer irreparable loss and injury.

Accordingly, upon the aforesaid findings, the Addi. City Civil Judge, Bangalore disposed of the application for injunction directing the parties to maintain status quo in the matter of transferring, alienating and creating any third party interest in respect of the property in dispute. 6. It is against this order of Addi. City Civil Judge, Bangalore, an appeal was filed by the respondent under Section 34 (1) of the Act before the High Court. ·---- -~ 7. Before proceeding further, it may be kept on record that in the meantime, an application was filed under Section 11 of the Act by the appellant before the High_Court forappoiritment . of an Arbitrator. The High Court by its order dated 2ih of February 2007 appointed a retired Judge of the High Court as the sole Arbitrator to decide the disputes raised by the parties. - ; ' ' -8. The appeal filed by the _respondent against the order of the Addi.

City Civil Judge, Bangalore directing the parties to m~aintain status quo, was taken up for hearing by-the High Court and the High Court, by its impugned order, set aside the order of the AddL City CivilJudge, Bangalore and made a final order in the follo~ing manner : -"1 . AppeaUs ~llowed in part. ---· · 2. The order dated 23. 9. 2006 passed by theVI Addi. City ·civil Judge, Bangalore City in A. A. No. 48/06 is set aside - - subject to the condition that the appellant deposits a. sum ' of RS. 2;50,00,000/- (Rupees two ·crores and fifty lakhs) only in,fixed deposit for a·minimum period of six months_ initially in a nationalized bank and renew the sa. me till the - · disp appellate court and the High Court were justified in permitting the respondent to change the nature of the property by putting up construction as a/so by permitting the alienation of the property, whatever may be conditions on which the same is done. " 12.

Going by the ratio of the abovementioned decision, it is clear that the VI Addi. City Civil Judge, Bangalore, was justified in directing the parties to maintain status quo in the matter of transferring, alienating or creating any third party interest as prima facie it has been proved that the respondent was trying to sell the property in dispute to a third party, thus alienating the rights of the property in dispute, which would have caused irreparable damage to the appellant. 13. From a bare perusal of the findings of the High Court ~ reversing the order of the trial Court and rejecting the application for injunction, it would be evident that the appellant had failed to make out a prima facie case for grant of an order of injunction in his favour.

But in view of our discussions made hereinabove, we are of the view that the Additional City Civil Judge, Bangalore was fully justified in directing the parties to maintain status quo as to the nature and character of the property in dispute till the award is passed by the Sole Arbitrator as we have already held -I that if the order of the status quo is not granted and respondent is permitted to sell the property in dispute to a third party, complications will arise and the third party interest will be created, for which the award, if any, passed in favour of the appellant ultimately, would become nugatory. As noted herein earlier, one .. of the main issues for the purpose of deciding the application r ___,__. for injunction was whether time was the essence of the contract · or. not. By the impugned order, the High Court had failed to · appreciate thatin the contract relating to immoveable property, time cannot be the essence of contract.

In any event even in such a case, the arbitratiop clause would survive and the dispute would be required to be resolved. That being the position, pe_nding disposal of the arbitration proceeding, interim measure to safeguard the interest was required to be taken. The High i. <. Court also, in our view, had failed to appreciate the material on record as the agreement and the correspondences produced by the parties to the effect that since the appellant was required to furnish the nil encumbrance certificate till the date of transaction to show that there was no charge over the property · and fu~her since the property was to be kept vacant at the time of the execution of the sale deed, time cannot be held to be the ,; essence of the contract in the facts and circumstances of the case and accordingly, the interim measure was necessary to prevent irreparable loss and injury.

However, the question whether the time was the essence of the contractor not"is· to be decided by the Arbitrator in the arbitration proceeding and for ! ; that reason only the High Court had also left open such issue to be decided by the learned Arbitrator and in this connection, the High (;ourt observed as follows :- ~ . ·"As such the contentions with regard to survivability of the arbitration clause and the dispute as to whether time is the essence of the contract are issues which are within the realm of the Arbitrator and accordingly, we do not wish to pronounce on the same and therefore, we do not see reason to refer to the arguments and case law referred in this regard. " 14. Since the High Court had not at all gone into the question ... regarding whether time was the essence Of the contract OJ not, it is not necessary for us to go into the question as the same shall be decided by the Arbitrator while passing the award. As .

noted herein earlier, the respondent while opposing the -f -- -... . ,,, application for grant of injunction, pleaded that the prayer of the appellant for grant of injunction in respect of the property in dispute should be refused because admittedly, the time to execute the deed by the appellant had expireq in the meantime. As we have already held that one of the main issues to be ..... decided by the Arbitrator is Whether time was the essence of ... I the contract or not, which was not decided by the High Court while reversing the order of the Additional City Civil Judge, Bangalore and in view of the fact that there is no dispute that a sum of Rs.

2,00;00,250/- (Two Crores and Two Hundred Fifty) has been paid by the appellant to the respondent at the time of execution of the agreem~nt for sale and in view of the fact that there is no dispute that the parties had entered into an agreement for sale on certain terms and conditions, out of which one of the conditions was whether the time was the essence of the contract or not which shall be decided by the Sole Arbitrator, we do not find any ground as to why the order directing the status quo in the matter of transferring, alienating or creating any third party interest passed by the Additional City Civil Judge, Bangalore shall not be maintained till the award is passed by the Arbitrator.

That apart, the survivability of the Arbitration clause in the agreement was also questioned by the respondent in their objection to the application for injunction but since that question ' has also been kept open for the decision ofthe Arbitrator by the High Court as well, we have no hesitation in our mind to hold that since . the said question shall also be decided by the Arbitrator while deciding the disputes between the parties, there is no ground why the order of status quo granted- by the trial court shall not be maintained till the award is passed by the Arbitrator. 15. It is well settled that even . if an agreement ceases to exist, the Arbitration clause remains in force and any dispute pertaining to the agreement ought to be resolved_ according to the conditions mentioned in the Arbitration clause.

Therefore, in our view, the High Court was not justified in setting aside the -order of the trial Court directing the parties to maintain status quo in the matter of transferring, alienating or creating any third lr _......... J party interest in the same till the award is passed by the sole Arbitrator. 16. It was not disputed by the High Court in the impugned ~' order that the respondent wa3 trying to sell off the property in .. . ... , . dispute to some other third party which, in our view, would also cause enormous loss and hardship to the ,appellant. It is not in disp~te that the appellant had paid a sum of Rs. 2,00,00,250/- (Two Crores ~nd Two Hundred Fifty) as advance to the • respondent at the time of executing the agreement for sale. At the same time, it may not be out of place to mention that it was the specific case of the appellant that the respondent had failed to hand over vacant possession of the property in dispute within the period specified in the agreement and.

for that reason only, he could not perform his part of the contract. ) 17. lri view of our discussions made herein above, we are of the view that the disputes raised by the parties can only be determined by the sole Arbitrator and when admittedly, an Arbitrator ·has been appointed to decide such dispute, the parties should be directed to maintain status quo in the· matter l of transferring, alienating or creating any third party interest in ( the same till the award is passed by the sole Arbitrator. 18.

At the same time, considering the fact that some time t would be required for the Arbitrator to pronounce his award f wherein the question whether time was the essence of the l contract or not would be required to be determined and if the I parties are directed to maintain status quo in respect of the l property in dispute, till such award is passed, and for that i reasons, the respondent would not be entitled to transfer, alienate I the property in dispute during the pendency of the Arbitration :j proceeding and considering the balance of convenience and ,.. inconvenience of the parties, we feel it proper to direct the -~ appellant to deposit the balance amount of Rs. 4,99,03,829/- ·J "\ (FourGrores Ninety Nine Lacs Three Thousand Eight Hundred Twenty Nine) within a period of three months from the·date of ~ . :' l ) ~ TOOLS LTD. [TARUN CHATIERJEE, J. ] .

supply of a copy of this order to the VI Additional City Civil Judge, Bangalore, in fixed deposit for a minimum period of six months __ initially in a nationalized bank in favour of the respondent and re. new the same till the disposal of dispute before the Arbitrator. The original fixed deposit receipt shall be kept with the arbitrator. In the event of failure of deposit of the aforesaid amount, the order of status quo, as granted by the VI Additional City Civil Judge, Bangalore and affirmed by us, shall automatically stand vacated and the order of the High Court, vacating the order of status quo, shall immediately come into operation. 19. In the ligflt·of the discussions made hereinabove, we set aside the order of the High Court and restore the order of the VI Additional City Civil Judge, Bangalore subject to the· conditions mentioned hereinabove. 20. For the reasons aforesaid, the appeal is allowed to the extent indicated above. There will be no order as to costs. K. K. T.

Appeal party allowed •