FACTS
In the present case of DLF Home Developers Limited vs Rajapura Homes Private Limited & Anr. (Arbitration Petition (Civil) No. 17 of 2020, with Arbitration Petition (Civil) No. 16 of 2020), the Supreme Court of India (“the Court”) has discussed, in depth, the various implications on Arbitral proceedings when there are more than one Agreement in question, in particular the implications on appointment of Arbitrator.
DLF Home Developers Limited (“the Petitioner”), is a Limited Liability Company involved in the business of providing development, management, and investment services concerning Real Estate Projects. The Petitioner and another company, Ridgewood Holdings Limited, entered into a Joint Venture (“JV”), in the year 2007-2008.
By virtue of the said JV, Ridgewood Holdings Limited invested in four Special Purpose Vehicles (“SPVs”), including Rajapura Homes Private Limited (herein,“Respondent No. 1”) and Begur OMR Homes Private Limited (the“Begur Company”; jointly referred to as“Respondents”) for developing residential projects in various cities across India. Both the Respondents were engaged in the construction, development, operations, and maintenance of such residential projects.
In June 2008, Ridgewood Holdings Limited transferred its stake in the JV to its affiliates, namely, Resimmo PCC (herein Respondent No. 2) and Clogs Holding BV. To effect the change of ownership, Respondent No. 1, Respondent No. 2, and the Petitioner executed a Share Purchase Agreement dated 08.07.2016 (“Rajapura SPA”) for the transfer of the Petitioner’s entire shareholding.
Subsequently, there were two agreements that were executed by the parties on 25.01.2017, namely, the DLF- Rajapura Homes Construction Management Services Agreement (“RCMA”) and the DLF-Southern Homes Construction Management Services Agreement (“SCMA”).
Under the RCMA, the Petitioner was to provide, inter alia, Construction Management Services to Respondent No. 1 for completion of the Rajapura Homes Project and in connection with the handover of sold units of the Rajapura Homes Project. Likewise, under the SCMA, the Petitioner had to provide similar services to the Begur Company for the completion of the Southern Homes Project and in connection with the handover of the sold units.
It is pertinent to note that both, RCMA and SCMA, contained identical Arbitration Clauses.
The Petitioner issued a written Notice dated 16.08.2019, certifying the completion of the Southern Homes Project and called upon the Begur Company to fulfil its subsequent obligation. However, the Begur Company, vide Reply dated 30.08.2019, refused to accept the Notice dated 16.08.2019 as a valid Notice of completion and alleged that there had been a delay in completing the construction projects and that the Petitioner had not complied with the “Information Covenant” contemplated in the SCMA. The Begur Company further stated that the Notice was incomplete and lacked the necessary documents.
Furthermore, the Petitioner issued another written Notice dated 26.10.2019, certifying the completion of the Rajapura Homes Project. Respondent No. 1, vide the Reply dated 27.01.2020, refused to accept it as a legitimate notice of completion and cited several reasons of delay and non-completion of the Rajapura Homes Project.
In the light of the differences between the parties, the Petitioner opted for Arbitration in order to resolve the disputes.
The Respondents issued two more notices stating that the disputes between the parties do not fall within the ambit of the SCMA and RCMA and refused to appoint a Sole Arbitrator. Aggrieved by the same, the Petitioner preferred two separate petitions under Section 11(6) read with Section11(12) of the Arbitration and Conciliation Act, 1996 (“the Act”), seeking for appointment of a Sole Arbitrator for resolution of all disputes arising from the SCMA and RCMA.
ISSUES
- Whether the nature of dispute sought to be referred for Arbitration in these two petitions falls under the ambit of Arbitration Clause(s) of RCMA and SCMA, governed by the Act?
- Whether the dispute can be governed only in terms of the Dispute Resolution Mechanism specified in the Rajapura SPA/Southern Homes SPA i.e., as per the rules of the Singapore International Arbitration Centre (“SIAC”) ?
- Whether the disputes should be referred to a consolidated and composite Arbitral Tribunal or should there be two separate Arbitral Tribunals to resolve the same?
CONTENTIONS OF THE PARTIES
The Petitioners contended that the Respondents acted unreasonably in not accepting the notice of completion. The Petitioners further argued that the rejection of the notice certifying the completion of Rajapura Homes Project and Southern Homes Project was allegedly done with the sole purpose of avoiding Respondents obligation to pay the “Fee” to the Petitioner.
The Petitioners also argued that the contention of the Respondents that the disputes in question cannot be governed under the RCMA and SCMA is legally and factually misconceived.
The Petitioner relied on the case of Vidya Drolia and Others v. Durga Trading Corporation, (2021) 2 SCC 1, and argued that that since the parties have not disputed the existence of Arbitration Clause or its core contractual ingredients contained in the SCMA and RCMA, the present dispute, in terms of the settled law, should be referred to Arbitration.
Further, citing the case of Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited, (2020) 2 SCC 455, the Petitioner contended that once the existence of the Arbitration Clause was established, all other incidental issues should be left to be decided by the Arbitrator as prescribed under Section 16 of the Act, which enshrines the principle of “Kompetenz Kompetenz”. Hence, the Petitioner’s primary argument was that that the Arbitral Tribunal would eventually rule whether or not the disputes between the parties fall under the terms of the SCMA and the RCMA.
Reliance was also placed on the case of P.R. Shah, Shares and Stock Brokers Private Limited v. BHH Securities Private Limited and Others, (2012) 1 SCC 594, the Petitioner contended that although the RCMA and SCMA are two separate agreements, they are inextricably interlinked, and since the dispute in question pertains to payment of ‘Fees’ to the Petitioner for its services under both the Construction Management Agreements, the disputes may be referred to a common and consolidated Arbitral Tribunal.
The Respondents contended that the disputes raised in the present Arbitration petitions exclusively fall within the ambit of Rajapura SPA and Southern Homes SPA; therefore, the differences between the parties could not be referred to Arbitration under the RCMA and SCMA. It was further alleged that, while the Petitioner was the intended beneficiary of the Rs.75 Crores to be deposited by Respondents, the economic interest of the beneficiary would remain confined to the undeveloped land, and the breaches on the part of the Petitioner in this regard.
The Respondents, therefore, contended that the instant disputes could only be resolved according to the Dispute Resolution Mechanism specified in the Rajapura SPA/Southern Homes SPA, i.e., as per the Rules of SIAC, along with the Seat and Venue of Arbitration at Singapore.
The Counsel, on behalf of the Respondents, relied on the case of Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan and Others, (1999) 5 SCC 651, and contended that in a situation where there are disputes and differences in connection with the main agreement and also disputes regarding other matters connected thereto, the Arbitration would be governed by the general Arbitration Clause of the main Agreement.
Lastly, the Respondent No. l placed reliance on the case of Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund and Ors, 2021 SCC Online SC 268, and argued that, as per the principles laid down in the said case, it is necessary to appoint separate Arbitral Tribunals under the RCMA and SCMA, though they may comprise of a Sole Arbitrator each.
DECISIONS AND FINDINGS
The Supreme Court (“the Court”) placed reliance on the judgement in the Vidya Drolia Case as mentioned above, wherein it was clarified that this Court, with a view to prevent wastage of public and private resources, may conduct ‘prima facie review’ at the stage of reference to weed out any frivolous or vexatious claims.
The Court opined that they are obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11(6-A) of the Act. Therefore, even when an Arbitration Agreement exists between the parties, it would not prevent the Court to decline a prayer for reference, if the dispute in question does not correlate to the said Agreement.
Addressing the first issue, the Court opined that the SPAs as well as the Construction Management Agreements are subsisting and have not been repudiated by the Parties. Both the sets of Agreements contain Arbitration Clauses that are not exactly similar to one another. Therefore, in order to determine the nature of Arbitral proceedings, the two groups of Agreements will have to be read harmoniously.
The Court observed that the nature of Arbitration Clauses in the present case is substantially different when compared with the Dispute Resolution Clause of the main Agreement, as stipulated in the Olympus Superstructure Case.
The Arbitration Clause of the Rajapura SPA/Southern Homes SPA did not have any overriding effect and was in no way broader or wider in scope when compared to the Dispute Resolution Clause of the RCMA/SCMA. Therefore, the Court held that it was difficult to construe that the Arbitration Clause of SPAs contemplates adjudication of the issues that are “connected with” or are “in relation” to the subject matter of the SPAs”.
The Court adjudged and reiterated that the Parties have neither denied that there is no ‘Arbitrable dispute’ between them nor have they challenged the existence of the Arbitration Clause(s) in the Construction Management Service Agreements. Considering that the primary twin-test envisioned under Section 11(6) of the Act was satisfied by the Petitioner, the Court was of the view that the instant Application(s) were maintainable. Therefore, the nature of disputes that have arisen between the parties, thus, could be adjudicated through Arbitral proceedings under the RCMA and SCMA.
Further, addressing the second issue, the Court observed that, the provisions of the RCMA/SCMA, and the Arbitration Clause therein, would as a logical corollary then be applicable to any dispute/difference concerning the performance of the construction related obligations and deposit of agreed amount by Respondents or payment thereof to the Petitioner.
Thus, when neither party had pleaded the infringement of the core provisions of the SPAs, it was difficult to accept outrightly that the subject-controversy falls within the ambit of the Arbitration Clause of the said Agreements and can be adjudicated only as per the rules of SIAC, with Seat and Venue at Singapore.
Finally, addressing the third issue, the Court opined that the RCMA and SCMA, though interlinked, are still two separate Agreements. However, it cannot go unnoticed that the Petitioner had committed breaches under both RCMA as well as SCMA, and that the genesis of the disputes lies in separate and distinct facts.
Since the “Fee” Clause provided that the “Fee” can only be calculated after taking into consideration various financial components of both the Rajapura Homes Projects and the Southern Homes Project, it was held that for the sake of avoiding wastage of time and resources, and to avoid any conflicting awards, that the disputes would be referred to a Sole Arbitrator.
AMLEGALS REMARKS
The Court held that the nature of the disputes that have arisen between the parties can be adjudicated through Arbitral proceedings under the Dispute Resolution Clause of the RCMA and SCMA.
This case discusses the various intricacies of Arbitral proceedings that come into play when there are more than one Agreement in question. Appointment of an Arbitrator is one of the primary stepping stones in the procedure of Arbitration and, on several occasions, the parties have contradictory views about the same.
In the backdrop of such contrasting views, it is of utmost importance that the Judiciary takes the right call for the appointment of an Arbitrator, based on the merits of the matter, as highlighted in the present case.
– Team AMLEGALS, assisted by Ms Raashi Goyal (Intern)
For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or vineeta.tekwani@amlegals.com.
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