Medima LLC v. Balasore Alloys Ltd
- An Award was granted in favor of Medima LLC (Petitioner) by the ICC in proceedings governed by British law with the seat of arbitration in London, UK. Subsequently, to protect the outstanding amount payable by Balasore Alloys Ltd (Respondent) under the said Award, the Petitioner filed a post-award application under Section 9 of the Arbitration and Conciliation Act, 1996 (Act) in the Calcutta High Court (HC).
- However, the Respondent called into question the maintainability of the application on the following grounds:
- That as per the arbitration agreement between the parties, Section 9 of the Act was excluded.
- Section 9 of the Act does not allow the grant of any form of interim relief in post-award scheme passed in a foreign arbitration.
Issues at hand?
- Whether the arbitration agreement in the present case, providing for the substantive, curial as well as the law governing the arbitration agreement to be governed by British law, can be seen as 'an agreement to the contrary' under the proviso to Section 2(2) of the Act?
- Whether Section 9 of the Act can be made applicable to a foreign award made under the Rules of the International Chamber of Commerce in arbitration proceedings governed by British law with the seat of arbitration in London?
Decision of the Court
- At the outset, the HC discussed the 246th Report of the Law Commission which recommended a wider scope of Indian jurisdiction relating to arbitration seat outside India and, consequently, the successful insertion of proviso to Section 2 by the Amendment Act of 2016. HC referred to the decision of the Supreme Court (SC) in PASL Wind Solutions v. GE Power Conversion India1 wherein the proviso to Section 2(2) was analyzed to be relevant for interim orders in a foreign-seated arbitration where the assets were located in India.
- HC also perused Heligo Charters Pvt Ltd v Aircon Feibars2, Big Charter Pvt Ltd v. Ezen Aviation Pty Ltd3 & Raffles Design International v Educomp Professional Education4 wherein the need to obtain interim relief under Section 9 was acknowledged. HC advanced that to prove that the agreement between the parties lies within the purview of 'an agreement to the contrary' under the proviso to Section 2(2) of the Act, the opponent party must prove the prima facie intention to not subject the arbitration agreement to the application of Section 9 of the Act. HC further clarified that the absence of the word 'express' in the proviso cannot be interpreted so as to include an implied agreement within its boundaries and, therefore, the agreement must transparently express terms that the parties intend to exclude the operation of Section 9 from the purview of the said arbitration agreement. Therefore, HC answered the first issue in negative and in favor of the Petitioner.
- With regards to the second issue, the HC highlighted the language of proviso '... and an arbitral award made or to be made ...' in Section 2(2) and arrived at the conclusion that Section 9 would apply in a post-award scenario when the seat of arbitration is outside India. Furthermore, the Court advanced that an award-holder of an arbitration which took place outside India would be left hopeless if interim measures are not granted in relation to the assets of the award-debtor which are located in India. HC cited Bhatia International v. Bulk Trading S.A5 wherein the SC referred to Article 23.2 of the ICC Rules which were then in force and held that Section 9 would be applicable to International Commercial Arbitrations which take place outside India.
- Additionally, the HC applied the rule of harmonious construction after taking in account SC's decision in J.K. Cotton Spinning and Weaving Mills Co Ltd v. State of Uttar Pradesh6 and submitted that the last intention of the legislature in the present case would be to empower the courts to pass interim measures in a foreign seated arbitration post-award. In the light of the above, HC answered the second issue in affirmative.
HC's decision that Section 9 of the Act will apply to foreign arbitration unless the intention to exclude it is crystal clear in the arbitration agreement is noteworthy, as it captures the essence of the legislative intent of implementation of the arbitration and aligns with the position of law previously laid down by SC in PASL Wind Solutions. HC's decision remarkably erases all the ambiguity pertaining to the absence of the word 'express' in the proviso to Section 2(2) of the Act and clarifies the position of law with respect to the remedy available in India to the award-holder in a foreign seated arbitration.
Laureate Buildwell Pvt Ltd v. Charanjeet Singh
Civil Appeal No. 7042 of 2019
- Madhabi Venkatraman (Original Allottee) applied for allotment of a residential flat which was to be developed by the builder, Laureate Buildwell Pvt Ltd (Appellant). The original allottee paid the registration amount of INR 7,00,000 and further deposit of INR 32,33,657 out of the total sale consideration of INR 2,47,29,405. Thereafter, Appellant issued an allotment letter which stated that the possession of the flat would be handed over to the original allottee within 36 months of the issue of allotment letter, i.e., on or before October 15, 2015. Accordingly, the original allottee made payment of the first 7 instalments to the tune of INR 1,55,89,329 to the Appellant (Paid Amount).
- However, when the original allottee observed the slow pace of construction of the flat, she decided to sell the flat to a subsequent purchaser, Mr. Charanjeet Singh (Respondent), who was given assurance that the possession of the flat would be delivered on time. Accordingly, the original allottee and the Respondent agreed that the Respondent would pay an advance of INR 1,00,000 to the original allottee and the balance money out of the paid amount would be payable to the original allottee on or before October 15, 2015. It was also agreed that the Respondent would pay the outstanding instalments payable to the Appellant after transfer of flat to him.
- Since the possession was not delivered by October 2015, the Respondent did not make any further payments to the original allottee. Upon assurance from the Appellant that the possession would be delivered by June 2016, the Respondent entered into an agreement of sale with the original allottee.
- Thereafter, the original allottee requested the Appellant to transfer the flat in favor of the Respondent to which the Respondent submitted an undertaking to this effect. Subsequently, the Appellant issued an endorsement letter dated May 09, 2016, to the Respondent and confirmed receipt of payment of INR 1,93,70,883. However, the Respondent soon found out that the possession of the flat could not be delivered till the end of 2017. Hence, the Respondent sought refund of INR 1,93,70,883 with interest at 24% p.a. and thereby issued a legal notice to the Appellant. Ignoring the same, the Appellant demanded payment for further instalments. When the Respondent refused to pay the instalments, the Appellant threatened to cancel the deal and forfeit the amounts already paid.
- Aggrieved by the above-mentioned circumstances, the Respondent approached the National Consumer Disputes Redressal Commission (NCDRC) seeking directions to the Appellant to refund INR 1,93,70,883 with 24% interest along with compensation and litigation expenses. The NCDRC held that a flat purchaser cannot be made to wait indefinitely for seeking possession in light of SC's decision in Kolkata West International City Pvt Ltd v. Devasis Rudra7. The NCDRC noticed that though the promised date of delivery was way back in the year 2015, even as on date, the tower is far from completion. Hence, it directed the Appellant to refund the amount so far deposited with interest at 10% p.a. from the respective dates of deposit till the date of realization together with the cost of INR 25,000.
- Aggrieved by the ruling of NCDRC, the Appellant filed an Appeal before the SC.
Issue at hand?
- Whether a subsequent purchaser of a flat from the original allottee in an under-construction project stands on the same footing as the original purchaser and is entitled to same rights and relief?
Decision of the Court
- At the outset, SC observed that upon issue of the endorsement letter by the Appellant, the Respondent stepped into the shoes of the original allottee and became entitled to the same treatment, rights and relief that the original allottee would have been entitled to. The purchaser thus corresponds as a 'Consumer' and is entitled to move any forum under the Consumer Protection Act, 1986.
- SC noted that at times, original allottees seek funding from banks or financial institutions to finance their flat by mortgaging the property and in most cases, they have to start repaying instalments towards loan and interest after a certain period of time, even before the flats are ready. Therefore, if real estate projects are allowed to be prolonged for an indefinite period, it would have serious economic repercussions upon such original allottees. Hence, at times, the original allottees prefer to look for purchasers who are ready to step into their shoes and thus, the subsequent purchasers take over the obligations of the original allottee including payment of balance instalments.
- Referring to various decisions, SC noted that the objective with which the Consumer Protection Act, 1986 was laid down, was to address complaints of consumers and provide a forum for their quick redressal, thus providing better protection of consumers interests.
- SC overruled its previous rulings in HUDA v. Raje Ram8 and Wing Commander Arifur Rahman Khan & Anr v. DLF Southern Homes Pvt Ltd9, wherein it held that when the allottee in a housing project transfers his or her rights in favor of another, such a third party cannot claim equities to the same extent as the original allottee, especially as regards a claim for interest. In this regard, the SC opined that the per se bar to the relief of interest on refund cannot be considered good law.
- SC further observed that in instances where a purchaser who has stepped into the shoes of the original allottee of a housing project in which the builder has not honored its commitment to deliver the flat within a stipulated time, it cannot be said that the purchaser would not expect the performance of builder's obligation within a reasonable time. Such a conclusion would be arbitrary, provided large number of buyers might be waiting for possession of the promised flats, and thus, they are entitled to reliefs as provided under the Consumer Protection Act, 1986.
- SC noted that a purchaser while purchasing a flat has in his mind a reasonable timeframe for delay in possession of flat, of which he has knowledge of even while making the purchase, but even when such timeframe gets exceeded, the purchaser claims refund on an assessment that he too can (like the original allottee) no longer wait, and face intolerable burdens, the equities would have to be molded. Hence, it would be unfair to assume that the purchaser had knowledge of the delay.
- In view of the aforesaid, SC modified the order passed by NCDRC and directed the Appellant to refund the principal amounts with interest at 9% per annum from the date the Appellant acquired knowledge of the transfer or acknowledged it.
This judgment makes it crystal clear that the subsequent flat buyers or purchasers have the same rights as original allottees. In our opinion, this decision essentially brings a major relief to homebuyers who purchased flats from original allottees but were not delivered the possession on the ground of no privity of contract and/or other flimsy reason by the Developer, who are already in default. Considering the objective of the Consumer Protection Act, 1986, the SC has rightly held that the principle of equity is equally applicable on both the original allottee as well as the subsequent purchaser who purchased a flat from the original allottee, stepping into the shoes of an original allottee of a housing project and is entitled to claim interest on the refund of earnest money from the builder, in cases of indefinite delay in delivery of possession of the flat.
1. 2021 SCC Online SC 331
2. 2018 SCC Online Bom 1388
3. 2020 SCC Online Del 1713
4. 2016 SCC Online Del 5521
5. (2002) 4 SCC 105
6. AIR 1961 SC 1170
7. (2019) CPJ 29 (SC)
8. 2008 (17) SCC 407
9. 2020 SCC Online 667 (SC)
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