Once Sale Deed Is Executed, Arbitration Clause In Agreement For Sale Has No Legal Effect: Bombay HC

The Bombay High Court observed that an Arbitration Clause in the Agreement for Sale does not have any legal effect upon the execution of the Conveyance/ Sale Deed.

The Court was considering an Arbitration Appeal against an order rejecting the Application filed by the Appellants under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the Suit for Arbitration.

The single-bench of Justice R.I. Chagla observed, " In my view, the Agreement for sale (referred to herein as “the said Agreement”) 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. In the present case, the Conveyance Deed has been executed by the owners i.e. Defendant Nos. 8 and 9 (Respondent Nos.6 and 7 herein) in favour of the Appellants. Thus, the Arbitration Clause in the said Agreement comes to an end as the said Agreement stands fully discharged and does not have any legal effect upon the execution of the Conveyance."

The Petitioner was represented by Senior Advocate Pravin Samdhani while the Respondent was represented by Senior Virendra Tulzapurkar.

Senior Counsel for the Appellants submitted that the Agreement for Sale was the main /principal document and all other documents therein are intertwined and integrally connected. He submitted that the said Agreement, the MoU and the Allotment Letter were all executed on the same day and simultaneously and are part of one transaction. It was his contention that in law, they constitute an integral part of one transaction. He submitted that the said Agreement is the principal document and the Arbitration Clause contained therein also applies to all subsidiary and integral connected documents in respect of a single transaction.

Reliance was accordingly placed on Ameet Lalachand Shah and ors. Vs. Rishabh Enterprises and anr., Sushma Shivkumar Daga and anr. Vs. Madhukumar Ramkrishnaji Bajajand ors., Sushma Shivkumar Daga and anr. Vs. Madhukumar Ramkrishnaji Bajajand ors., Chloro Controls India Private Limited Vs. Severn Trent Water Purification Inc. And Ors.

He submitted that absence of Arbitration Clause in the subsidiary documents is immaterial and the Trial Court erred in holding that the MoU does not have an Arbitration Clause thereby treating the MoU as a stand-alone document overlooking that the MoU was one of the subsidiary documents to the principal document i.e. the said Agreement.

He also submitted that at the stage of Application under Section 8 of the Arbitration Act, only a prima facie enquiry is required and not a mini trial and that in the present case, the Trial Court conducted a mini trial and rendered a finding contrary to the admitted position in the plaint. He argued that the Legislative intent is to lean in favour of relegating parties to an arbitration for a speedy trial and to bring the matter to a logical end and relied upon Govind Rubber Limited Vs. Louis Dreyfus Commodities Asia Private Limited and Ameet Lalchand Shah and Ors.

On the other hand, Counsel for the Respondent submitted that the entitlement of the Plaintiffs to receive the portion of the property / value thereof arises only after a Conveyance is executed subject to the terms and conditions or on the terms mentioned in the MoU and the Allotment Letter and not on the terms and conditions or subject to terms and conditions mentioned in the said Agreement. He submitted that the transaction covered by the MoU and the Allotment Letter are quite distinct and different from the said Agreement and which are to be enforced only in terms of the MoU and the Allotment Letter, without any reference to the said Agreement. He submitted that the rights which are sought to be enforced by the said Suit arise only under the MoU and the Allotment Letter to which two documents the owners and accordingly the contention of the Appellants that there is one transaction is untenable.

He further submitted that though there is reference in the Plaint to the said Agreement, it is only a historical reference and not because the said Agreement is the subject matter of the Suit. He also submitted that the nature of the Suit described in the Plaint after the title shows that the Suit is for declaration, injunction, recovery and specific performance in respect of the MoU and the Allotment letter. He also referred to the prayers in the Suit which refers to the MoU and the Allotment Letter and by which the specific performance has been sought by entering into the Agreement for sale of 50% of the total flats and shops in the building to be constructed in the name of Plaintiff No.1 before entering into any further Allotment Agreement or Sale Deed with any third party. He averred that there is no right claimed by the Plaintiffs under the said Agreement and the Suit itself is not covered by the said Agreement containing the Arbitration Clause.

He thus submitted that where there is no specific reference to the Arbitration Clause in the said Agreement, then Arbitration Clause does not get incorporated or becomes applicable or governs the rights under the MoU and the Allotment letter and added that it is a settled position in law that unless there is a specific reference to the Arbitration Clause in a subsequent Agreement and which Clause is part of the earlier Agreement, the said Clause is not applicable for enforcement of the subsequent Agreement.

The Court was of the view that the Agreement for sale has come to an end by the execution of the Deed of Conveyance / Sale Deed.

"The findings of the Supreme Court in Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and stamp Act, 1899 (supra) do not disturb the finding in Union of India Vs. Kishorilal Gupta & Bros. (supra), namely that if the parties put an end to a validly executed contract, the arbitration clause of the original contract also perishes with it. In the present case, by subsequently executing the Conveyance Deed / Sale Deed, the said Agreement has come to an end and with it the Arbitration Clause also perishes," the Court observed.

The Court agreed with the Respondent's submission that the MoU and the Allotment letter are a separate transaction from the said Agreement and that the claims in the present Suit do not arise out of a single transaction.

"....., I do not find any merit in the submissions on behalf of the Appellants that the Agreement for Sale is the main / principal document and the MoU and the Allotment letter are intertwined and integrally connected. This finding is on the presumption that the Agreement for sale is still in existence and its efficacy is not over upon the execution of the Conveyance Deed," the Court observed.

The Court further found merit in the submission of the Respondent that the reference in the Plaint to the said Agreement is only by way of historical reference and not because the said Agreement is the subject matter of the Suit.

"The Suit is for declaration, injunction, recovery and specific performance in respect of the MoU and Allotment Letter and not in respect of the said Agreement which has comes to an end by execution of the Conveyance," the Court observed.

"In the present case, there is only a general reference of the prior Agreement of Sale / the said Agreement, in the MoU which is the subsequent agreement. There is absence of any specific reference to the arbitration agreement in the MoU. Hence, there is no incorporation of the arbitration agreement by reference in the MoU. The MoU is a separate writing which does not contain any arbitration clause. This would equally be apply to the Allotment letter and hence the parties to the MoU and the Allotment letter never intended to go for arbitration in respect of the disputes under the independent agreement," the Court further observed.

The Court concluded that there is no infirmity in the Trial Court's finding that upon the execution of the Sale Deed the rights, obligations and responsibilities in the said Agreement for Sale have perished by the virtue of it having merged into the Sale Deed.

The Appeal was accordingly dismissed.

Cause Title: Bks Galaxy Realtors LLP vs. Sharp Properties (2024:BHC-AS:43163)

Appearances:

Appellant- Senior Advocate Pravin Samdhani, Advocate Mayur Khandeparker, Advocate Aneesha Cheema, Advocate Darshia Parekh, Advocate Parth Jasani, Advocate Sneha Golecha

Respondent- Senior Advocate Dr. Virendra Tulzapurkar, Senior Advocate Nikhil Sakhardande, Advocate Siddhesh Bhole, Advocate Shubhra Swam , Advocate Siddhesh Bhole, Advocate Vinodini Srinivasan, Advocate Dharmesh Jain, Advocate Roshni Naik, Advocate Anil Agarwal.

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