[Arbitration Act] Scope Of Inquiry In Section 9 Petition Is Limited, Interpretation Of Contract Would Be Within Domain Of Arbitral Tribunal: Delhi High Court

The bench held that issues of fact or law are not to be determined finally at the Section 9 stage as they fall within the jurisdiction of the arbitral Tribunal. It held that the interpretation of the terms of the Contract/MoU and also the determination of its scope would also be within the domain of the arbitral tribunal.

Brief Facts:

Ishayu Builders and Developers Private Limited (“Respondent No. 2”) owns 6.755 acres of land in Sector-58, Gurgaon and was granted a license by the Director Town & Company Planning, Haryana, Chandigarh, to develop an IT/Cyber Park Colony on the land. The building plan for the IT Park Colony was approved by the DTCP and revised on 19.04.2018. According to the license, Respondent No. 2 was to construct and develop the IT Park Colony on 1.7793 acres of this land. Splendor Buildwell Private Limited (“Respondent No. 1”), engaged in real estate activities, developed and constructed South Tower B and North Tower D on 1.7457 acres of this land, consisting of IT Office Spaces named "Splendor Spectrum One".

Vijay Maheshwari (“Petitioner”) claimed that the parties entered into three identical Tripartite Agreements for the sale of office spaces 410, 411, and 412, totalling 3114 sq. feet on the fourth floor of the South Tower. The Petitioner paid Rs. 77,85,000/- for these units. The sale consideration for each unit was Rs. 46,71,000/-, and the Petitioner paid Rs. 25,95,000/- per unit, totalling Rs. 77,85,000/-. Alongside these agreements, Respondent No. 1 emailed an unsigned Memorandum of Understanding (MoU) to the Petitioner's son and agreed to lease the units within six months and provide an assured rental return of Rs. 50.63 per sq. ft. per month until the units were leased.

Respondent No. 1 issued an Allotment Letter reiterating the agreement details and MoU. The Petitioner claimed that the obligation to pay the assured return was a fundamental condition for her investment. However, Respondent No. 1 did not return the signed MoU while providing signed copies of the Tripartite Agreements and Allotment Letter. Despite several follow-ups, including emails and communications, the Petitioner received no intimation regarding the conveyance deed execution for the units. On 04.08.2021, the Petitioner noticed Rs. 20,00,000/- credited to her account by Respondent No. 1, which was acknowledged via email. The Petitioner claimed a balance of Rs. 31,53,236/- was still owed. An additional Rs. 10,00,000/- was paid by Respondent No. 1 on 23.03.2022.

A meeting on 18.08.2023 between the Petitioner's son and Respondent No. 1's representatives resulted in an offer to refund Rs. 2.75 crores to the Petitioner if Respondent No. 1 could not fulfil its obligations. Subsequently, Respondent No. 1 remitted Rs. 47,85,000/- as a full and final settlement. The Petitioner argued that Respondent No. 1 unfairly refunded the principal amount paid after more than three years of value appreciation of the units. The Petitioner never consented to the refund or the allotments' cancellation and issued a Notice of Arbitration on 25.01.2024, demanding execution of the conveyance deed and payment of unpaid assured returns, or opting for arbitration by an independent arbitrator. The Petitioner approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) seeking ad interim Order thereby restraining Respondents from encumbering, selling, offering of sale, alienating, disposing of, transferring in any manner or creating any third-party interest in the office spaces bearing No. 410, 411 and 412.

Observations by the High Court:

The High Court held that the scope of inquiry at the Section 9 stage is confined to the grant of interim relief. The High Court, referring to the case of KSL & Industries Ltd. v National Textiles Corporation Ltd., clarified that under Section 9, the issues of fact and law should not be conclusively determined, as this is within the jurisdiction of the arbitral tribunal. The interpretation of contractual terms and the determination of their scope fall within the domain of arbitration. The High Court held that the court should follow the same principles applicable to Order XXXIX Rules 1 and 2 of the Civil Procedure Code when dealing with applications under Section 9.

The High Court noted that Rs. 20,00,000 was credited to the Petitioner's account, which she initially assumed to be part of the assured return proposed in the unsigned MoU. Subsequent emails clarified that the Petitioner acknowledged the receipt but was unaware of the payment's specifics, assuming it to be against the minimum guarantee calculated under the supposed terms of the MoU. Another payment of Rs. 10,00,000 followed, but the Petitioner continued to seek the full refund of her investment.

The High Court found that the Petitioner consistently sought the refund of her money and did not pursue the execution of Conveyance Deeds. It held that the Petitioner's demand for assured returns based on an unsigned and unfinalized MoU could not be upheld. The communications between the parties confirmed that the Petitioner's primary objective was the return on her investment, not the completion of the property transactions.

Moreover, the High Court noted that the Respondents already sold two of the units and entered into an agreement to sell the third which itself negated any possibility of the Petitioner establishing a prima facie right, title, or interest in the units. Given that the Petitioner's claims were monetary and she already received the principal amount, the High Court found no balance of convenience in her favour. Consequently, there was no irreparable loss or injury to the Petitioner.

The High Court also noted that the Petitioner already initiated the arbitration process for resolving her grievances related to refunds and payments. Therefore, the High Court held that the Petitioner was not entitled to any relief under Section 9 of the Arbitration Act.

Case Title: Vijay Maheshwari Vs Splendor Buildwell Private Limited And Anr

Citation: 2024 LiveLaw (Del) 720

Case Number: O.M.P.(I) (COMM.) 42/2024 & I.As. 2446/2024, 4723/2024

Advocate for the Petitioner: Mr. Sahil Sethi & Mr. Vikash Kumar, Advocates.

Advocate for the Respondent: Mr Jeevesh Nagrath, Mr Arjun Gaur, Mr Rajat Gupta & Mr Manish Prakash, Advocates.

Date of Judgment: 10th June, 2024

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