Section 9 Of The Arbitration Act Does Not Envisage The Restoration Of Terminated Contract: Delhi High Court

The bench of Justice Chandra Dhari Singh held that the Court while exercising powers under Section 9 of the A&C Act cannot direct specific performance of a determinable contract. It held that a contract which in its nature determinable cannot be specifically enforced under Section 14(d) of the Specific Reliefs Act, therefore, the Court cannot do something that is statutorily prohibited.

The Court further held that the Court would not direct specific performance of the contract when the petitioner had failed to prove its readiness and willingness to perform.

It further held that the element of general inflation, the rise in the price of the subject property and the time consumed would be relevant parameters while considering an application for the specific performance of the contract.

Facts

The parties entered into a collaboration agreement dated 15.05.2018 whereby the petitioner agreed to develop commercial and residential complexes on the land owned by the 1^st respondent. In terms of the agreement, the respondent was to pay an amount of Rs. 5.96 crores as a non-refundable earnest money deposit and certain portion of the developed land were also to be given to the 1^st respondent as a consideration for the agreement.

Accordingly, the petitioner issued certain post-dated cheques in favour of the 1^st respondent to discharge its liability towards the payment of earnest money. However, a cheque to the tune of Rs. 1,46,50,000/- was dishonoured due to ‘insufficient funds’. Accordingly, the parties entered into the First Supplementary agreement and the scope of the project work was accordingly reduced.

In terms of the agreement, the petitioner was to obtain all the permissions necessary for the development work. However, there were delays in obtaining the requisite clearances and permissions. In the meantime, the parties entered into the second supplementary collaboration agreement dated 17.08.2020 (its authenticity denied by the petitioner as having been illegally entered into between the 1^st and 2^nd respondents).

Thereafter, the first respondent issued the letter of termination of the collaboration agreement on 29.09.2021. However, the petitioner claimed to have not been served with this notice and became aware of termination both the notice and the second supplementary agreement only on 14.12.2022 when it received intimation regarding the subject property being put for sale.

Accordingly, the petitioner approached the Court under Section 9 of the A&C Act to restrain the respondent from disturbing the status quo and not create any third party rights in the subject property.

Contention of the Parties

The petitioner sought to restrain the respondent from disturbing the status quo and creating any third-party interest in the subject property on the following grounds:

• The agreement was an indeterminable agreement and the termination letter has been issued against the provisions of the agreement, therefore, the same is invalid.
• The Second Supplementary Collaboration Agreement is a forged and fabricated agreement. It is a result of the collusion between the 1^st and 2^nd respondent (an erstwhile partner in the petitioner company). The 2^nd respondent was not authorised to execute the said agreement, therefore, it has no legal force.
• The petitioner has already paid the agreed amount of Rs. 4.21 Crores as the Earnest Money deposit, moreover, it is already in possession of the subject property. It has already obtained several clearances and the others are pending approval and it has incurred huge costs in the process. It has shown complete readiness and willingness to perform the agreement, therefore, the agreement must be specifically enforced in terms of Section 10 of the Specific Reliefs Act.
• The second supplementary agreement was supported by a fabricated document.

The respondents objected to the maintainability of the petition on the following grounds:

• The agreement has already been terminated, therefore, it cannot be specifically enforced.
• The petitioner has failed to prove it readiness and willingness to perform the contract. It is not in position to complete the project work to is crippling financial condition and on account of huge delay in the getting the required approvals.
• The termination letter was issued on account of the petitioner’s continuous failure to keep pace with the agreed timeline in getting the approvals from the authorities for the commencement of the project work.
• The DTCP, Haryana has already returned the petitioner’s application for grant of lice for the project, therefore, on becoming aware of this fact, the respondent issued the letter of termination.
• The petitioner cannot claim specific performance of the contract merely on the ground that it has deposited an amount of Rs. 4.21 Crores as the current value of the subject property is more than 100 crores.
• The arbitration agreement stood terminated with the termination of the main agreement. Moreover, the petitioner has failed to demonstrate even a single arbitral dispute giving rise to any cause of action for filing of the petition.
• The Second Collaboration agreement was validly executed between the parties as it has been countersigned/executed by the 2^nd respondent who was an erstwhile partner and the authorised representative of the petitioner.
• The Second Collaboration Agreement conferred the right on the 1^st respondent to terminate the agreement, therefore, the agreement was determinable agreement, the specific performance of which cannot be granted in view of Section 14(d) r/w Section 16 of the Specific Reliefs Act.

Analysis by the Court

The Court observed that the agreement has already been terminated vide letter dated 29.09.2021, therefore, the Court exercising powers under Section 9 of the A&C Act cannot restore it. It held that that the scope of Section 9 of the A&C Act does not envisages relief in the nature that would restore a contract which already stands terminated.

The Court also observed and ruled that the petitioner has failed to demonstrate is readiness and willingness to perform the contract which is a sine-qua-non for the grant of specific performance of the agreement. It held that readiness and willingness are two distinct requirements. The readiness pertains to the capacity of the party to perform the agreement whereas willingness deals with the conduct of the party.

The Court held that the petitioner has failed to satisfy both the condition as it has failed to demonstrate that is has the financial capacity to complete the agreement in view of the admitted position that it is going through serious financial difficulties, the delays in obtaining the required clearances and permissions cast serious doubts on its conduct.

The Court held that the petitioner has only paid an amount of Rs. 4.21 Crores as against the actual value of the property that is around Rs. 120 Crores, therefore, it is not entitled to discretionary equitable relief of specific performance. The Court relied on the judgment of the Hon’ble Apex Court in Saradamani Kandappan vs S. Rajalakshmi & Ors ; (2011) 12 SCC 18 wherein the Court held that the Court while considering a relief of specific performance of contract in relation to immovable property is obliged to take initial notice of the phenomenal rise in the price of real estate.

Next, the Court examined the issue related to the determinability of the contract. It held that regardless of the authenticity of the second collaboration agreement, the 1^st respondent was entitled to terminate the agreement as it was commercial agreement that can always be terminated even without an express termination clause (reliance placed on Rajasthan Breweries Limited V. the Stroh Brewery Company; 2000 SCC OnLine Del 481)

The Court held that the Court while exercising powers under Section 9 of the A&C Act cannot direct specific performance of a determinable contract. It held that a contract which in its nature determinable cannot be specifically enforced under Section 14 (d) of the Specific Reliefs Act, therefore, the Court cannot do something that is statutorily prohibited.

Accordingly, the Court dismissed the petition.

Case Title: Yash Deep Builders v. Sushil Kumar Singh, OMP (I) (COMM) 401 of 2022

Citation: 2023 LiveLaw (Del) 252

Counsel for the Petitioner: Mr.Rajiv Nayar, Senior Advocate with Mr. Rishi Agrawal, Mr.Karan Luthra, Ms.Aarushi Tiku, Mr.Shravan Niranjan and Mr.Satyam Agarwal, Advocates.

Counsel for the Respondents: Mr.Neeraj Malhotra, Senior Advocate with Mr.Rajiv Virmani, Mr.Gaurav Jain, Mr. Atul Malhotra and Mr.Amit Kumar and Mr.Anuj Malhotra and Reda Tayyaba, Advocates for respondent no. 1 Ms. Radhika Bishwajit Dubey, Advocate for respondent no. 2

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