Termsheet For Buyout Is Only In Nature Of An Offer Which Is Valid Till Definitive Agreement Is Entered Into: Karnataka HC
The Karnataka High Court held that the termsheet for buyout is only in the nature of an offer which is valid till the definitive agreement is entered into.
The Court held thus in a commercial appeal filed by a private company under Section 13(1-A) of the Commercial Courts Act, 2015 read with Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) against the order of the Additional City Civil and Sessions Judge, Commercial Court.
A Division Bench comprising Justice Anu Sivaraman and Justice Anant Ramanath Hegde observed, “From a reading of the Termsheet for Buyout dated 08.12.2022, it is clear that the said document is only in the nature of an offer, which is valid till Definitive agreement is entered into or for a period of 90 days from the date of execution, whichever is earlier. It is not in dispute before us that no Definitive Agreements had been entered into within a period of 60 days from the date of execution of the Termsheet for Buyout. It is also not in dispute that no amount has changed hands on the basis of the Termsheet for Buyout between the parties to the same.”
The Bench said that mere negotiations will not give rise to a binding contract and there must be formal acceptance of the offer made for a contract to be presumed to have come into effect.
Senior Advocate K.N. Phanindra represented the appellant while Senior Advocate K.G. Raghavan represented the respondent.
Facts of the Case -
The appellant had filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 ('the Act' for short) at the pre-arbitration stage, seeking to restrain the respondent from alienating or encumbering the petition schedule property, pending the contemplated arbitration proceedings. It was contended that the appellant - Company had entered into a proposal to the respondent and its sister concern for a Joint Development of several items of properties measuring 103 acres and 17 guntas of land situated at Hulimangala, Thirupalya and Maragondanahalli, Jigani Hobli, Anekal Taluk, Bengaluru Urban District for constructions and a few parcels of land for outright purchase. The offer was accepted by the respondent and its sister concern and a Memorandum of Understanding (MOU) was entered into for the above said project.
As per the said MOU, the appellant was to build up substantial parcels of properties on the basis of sanctioned plans approved by the competent authority. The appellant had also agreed to purchase certain land on outright purchase. The parties had successfully entered into and completed various contracts in respect of various properties in accordance with the MOU and large-scale construction activities were also carried out by the appellant and about 500 crores of rupees were paid as sale consideration towards the purchase and huge amounts were also expended by the appellant. In terms of the MOU, the respondent had agreed to sell 14.5 acres of land in favour of the applicant. The respondent had sold 9 acres 15 guntas in favour of the applicant by registered Sale Deed and the remaining 5 acres 15 guntas was the subject matter of the dispute before the Commercial Court.
The High Court after hearing the contentions of the counsel noted, “The Termsheet for Buyout dated 08.12.2022, which is on record as Annexure 'C' along with this appeal states that the subject property is 5 acres and 18 guntas in Sy.Nos.30/1, 30/3 and 31 and Sy.No.43 and 44/6 of Maragondanahalli Village, Jigani Hobli, Anekal Taluk, Bengaluru Urban District. Rs.38 crore is fixed as upfront consideration to buy the subject property from the purchaser. A time is provided for due diligence and the obligations of the purchaser and the seller are also provided in the Termsheet for Buyout. Further, it is specifically provided that within 60 days of the Execution Date of the OFFER after acceptance of the OFFER, the customary agreements ("Definitive Agreements") are to be entered into between the relevant parties.”
The Court added that the Termsheet for Buyout also specifically provides that the OFFER is valid for 90 days from the date of execution thereof or till execution of the Definitive Documents, whichever is earlier.
“We also notice that the Commercial Court has specifically taken note of the factual aspects of the matter and has found that the appellant herein was not a party to the MOU. The subject matter of the dispute was the rights of parties in terms of the Termsheet for Buyout entered into between the appellant and respondent. In the circumstances, the Commercial Court had come to the definite conclusion, after considering the wordings specifically, that the Termsheet for Buyout was only an offer and not a contract and that the interim relief was not liable to be granted”, it further noted.
The Court concluded that though several decisions have been relied on by the counsel appearing on either side, the essential question which requires to be considered at this stage of the proceedings is only whether there was a concluded contract between the parties which contained an arbitration clause and whether the order of the Commercial Court is liable to be interfered with.
Accordingly, the High Court dismissed the appeal and upheld the findings of the Commercial Court.
Cause Title- M/s Azeem Infinite Dwelling (India) Pvt. Ltd. v. M/s Patel Engineering Ltd.
Appearance:
Appellant: Senior Advocate K.N. Phanindra and Advocate Sunil P. Prasad.
Respondent: Senior Advocate K.G. Raghavan and Advocate Aditya Swarop.
