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

The High Court of Delhi has held 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 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 1st 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 1st respondent as a consideration for the agreement. Accordingly, the petitioner issued certain post-dated cheques in favour of the 1st 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 1st and 2nd 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 1st and 2nd respondent (an erstwhile partner in the petitioner company). The 2nd 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 ...

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

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

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