After Execution Of Sale Deed, Arbitration Clause Mentioned In Agreement For Sale Becomes Ineffective: Bombay High Court

Additionally, the court held that the Agreement having merged into the Deed of Conveyance / Sale Deed is rendered redundant which in turn makes the arbitration clause ineffective.

Brief Facts:

The Appellant has filed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 to set aside the order passed by the Civil Judge. The respondent entered into a Joint Development Agreement with the appellant for joint development of a property. Then, an Agreement for Sale was executed and the respondent No. 6 agreed to sell the property to Appellant Nos.1 and 2, an arbitration clause was also given in this agreement. After this certain dispute arose between the parties and the respondent filed an application in the Trial Court for ex-parte temporary injunction. And the Trial Court granted the ex-parte injunction in favor of the respondent. Aggrieved by this order, the appellants filed an application under Section 8 of the Act on the grounds that the Agreement for sale contained an Arbitration Clause, the MoU and the Allotment Letter were documents executed in furtherance of the Agreement, the performance of the MoU / the Allotment Letter was dependent on the Agreement and the documents were interlinked, had to be jointly considered and were not separate and distinct from each other. However, the court rejected the appellants' application and then the present appeal under Section 37 was filed.

Observation of the court:

The court held that the Agreement for sale has come to an end by the execution of the Deed of Conveyance / Sale Deed. It is well settled that once a Conveyance is executed, the object, purpose, effectiveness and validity of the Agreement for sale comes to an end. Therefore, the arbitration clause in the Agreement comes to an end as the Agreement stands fully discharged and does not have any legal effect upon the execution of the Conveyance.

Further, the court held that the MoU and the Allotment letter are a separate transaction from the Agreement. Further, the claims in the present suit do not arise out of a single transaction. The obligations in the MoU and the Allotment letter are to be performed in accordance with the terms therein and the entitlement of Respondent Nos. 1 to 5 will be triggered as soon as the Conveyance Deed is executed.

Moreover, the court held that the reference in the plaint to the Agreement is only by way of historical reference and not because the Agreement is the subject matter of the suit. The suit is for declaration, injunction, recovery and specific performance with respect to the MoU and Allotment Letter and not in respect of the Agreement which has comes to an end by execution of the Conveyance.

Thereafter, the court noted that the judgments which was referred by the Appellants in support of their contention that under Section 8 of the act only a prima facie inquiry is required and not a mini trial, are not applicable in the present case as there is no question of any mini trial. It is a matter of law that the Agreement having merged into the Deed of Conveyance / Sale Deed is rendered redundant which in turn makes the arbitration clause ineffective.

Finally, the court dismissed the Arbitration Appeal and upheld the order of the Trial Court that upon the execution of the Sale Deed the rights, obligations and responsibilities in the Agreement for Sale have perished by the virtue of it having merged into the Sale Deed.

Case Title: Bks Galaxy Realtors LLP v. Sharp Properties

Case Number: 2024:BHC-AS:43163

Counsel for the Petitioner: Mr. Pravin Samdhani, Senior Advocate a/w Mr. Mayur Khandeparker, Ms. Aneesha Cheema, Ms. Darshia Parekh, Mr. Parth Jasani and Ms. Sneha Golecha i/b M/s. Purnanand & Co. for the Appellants.

Counsel for the Respondent: Dr. Virendra Tulzapurkar, Senior Advocate a/w Mr. Siddhesh Bhole i/b. SSB Legal and Advisory for Respondent No.1. Mr. Nikhil Sakhardande, Senior Advocate a/w Mr. Siddhesh Bhole, Ms. Shubhra Swami i/b. SSB Legal and Advisory for Respondent No.2. Mr. Siddhesh Bhole a/w Mr. Apoorva Kulkarni i/b. SSB Legal and Advisory for Respondent Nos.3 to 5. Ms. Vinodini Srinivasan (through V.C.) Mr. Dharmesh Jain, Ms. Roshni Naik i/b. Mr. Anil Agarwal for Respondent Nos.6 & 7.

Date of Judgment: 11.11.2024

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