Lis Pendens Principle Applies To Property Acquired During Section 9 Arbitration Proceedings: Karnataka High Court

The issue before the High Court was whether the transaction was affected by the principle of lis pendens as outlined in Section 52 of the Transfer of Property Act, 1882.

Section 52 of the Transfer of Property Act states that during the pendency of a suit or proceeding which directly involves a right to immovable property the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding in a manner that affects the rights of any other party under any decree or order that may be made therein. The principle of lis pendens is designed to ensure that the outcome of the suit or proceeding is not undermined by transfers of property during its pendency.

The High Court noted that the doctrine of lis pendens operates on the premise of public policy and ensures that the rights over an immovable property in question in a non-collusive proceeding remain unaffected by transfers during the ongoing litigation. Consequently, it held that any transfer made during the pendency of such proceedings does not impact the rights adjudicated upon by the court.

The Appellant argued that the proceeding under Section 9 of the Arbitration Act was not a suit and thus Section 52 of the TPA should not apply. However, the High Court found that a "proceeding" under Section 9 of the Arbitration involving a direct or substantial question relating to an immovable property falls within the ambit of Section 52 of the Transfer of Property Act. Therefore, it held that the doctrine of lis pendens applies to such proceedings.

The High Court held that the Appellant's remedy lay in seeking appropriate measures before the Arbitral Tribunal. It decided to modify the interim order to remain effective for 45 days from the date of notice by the Arbitral Tribunal or until the Tribunal's interim measures superseded it whichever was earlier. The Arbitral Tribunal was directed to decide on any interim measures.

Thus, the appeal was partially allowed.

Brief Background:

M/s Bhumika North Gardenia (Respondent) entered into a registered agreement to purchase certain immovable properties and paid an advance of Rs.80 lakhs out of a total sale consideration of Rs.16,14,37,500. Later, the vendors issued a notice to the Respondent and cancelled the sale agreement and informing that the advance amount was repaid. The Respondent insisted on specific performance of the agreement. M/s Devtree Corp. Llp. (Appellant) published a notice expressing its intention to purchase the properties. The Respondent filed an application under Section 9 of the Arbitration Act and sought interim measures against the vendors with only the Respondent and the vendors being parties to the proceeding. The Respondent initiated proceedings under Section 21 of the Arbitration Act against the vendors. The Section 9 petition reserved for orders. Then, the Appellant purchased the properties from the vendors. On January 2, 2024, the Section 9 Court passed an order restraining the vendors from alienating the properties. The Respondent filed a Section 9 application against the Appellant, a pendente lite purchaser. By the impugned order dated April 15, 2024, the Section 9 Court restrained the Appellant from alienating the properties. Feeling aggrieved, the Appellant challenged the Section 9 proceeding in the High Court.

The Appellant argued that the Section 9 application was not maintainable because under Section 7 of the Arbitration Act an arbitration agreement must be in writing and signed by the parties. It argued that the Appellant was not a party to the agreement and thus was not bound by the arbitration clause.

Case Title: M/s Devtree Corp. Llp. Vs M/s Bhumika North Gardenia

Case Number: MISCELLANEOUS FIRST APPEAL NO. 2978 OF 2024 (AA)

Advocate for the Appellant: Uday Holla and Hiran Krishnaswamy

Advocate for the Respondent: CK Nanda Kumar and Sushal Tiwari

Date of Judgment: 24^th July 2024

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