REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1098 OF 2009

(Arising out of SLP (C) No.7939 of 2007)

N. Srinivasa …Appellant
Versus
M/s. Kuttukaran Machine Tools Ltd. ..Respondent

JUDGMENT

TARUN CHATTERJEE, J.

1. Leave granted.

2. This appeal has been filed at the instance of the

appellant by special leave against the judgment

and final order of the High Court of Karnataka at

Bangalore in M.F.A No. 12014/2006 (AA), dated

16th of April 2007, setting aside the order dated

23rd of September, 2006 passed by the VI

Additional City Civil Judge, Bangalore, and

vacating the order of status quo granted on

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 condition that the respondent shall deposit a sum

of Rs.2,50,000,00/- [Rupees two crores fifty lacs]

within the time specified in the impugned order.

3. The facts leading to the filing of this appeal may be

summarized as follows: -

The respondent became the owner of Plot No.19-A, II

Phase, Industrial Area, (carved Survey No. 40 and 41,

Chokkasandra Village, Yeshwanthpur Hobli, Bangalore North

Taluk), measuring about 10568 square meters (hereinafter

referred to as the ‘property in dispute’) by a sale-deed dated

11th of November 2001 executed by the Karnataka Industrial

Area Development Board. The appellant and the respondent

entered into an agreement for sale of the property in dispute

on 21st of December 2005 for a sum of Rs.6,99,04,079/- in

which an advance of Rs.2,00,00,250/- (Two Crore Two

Hundred Fifty Only) was paid to the respondent at the time

of executing the agreement for sale. One of the stipulation in

the agreement for sale was that the balance amount of the

consideration money shall be paid to the respondent at the

time of registration of the Sale Deed which shall be executed

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within sixty days from the date of execution of the agreement

for sale. The agreement for sale specifically mentioned that it

was the obligation of the respondent to keep the title good till

the execution and registration of the sale deed and further to

keep the property in dispute free from all encumbrances or

charges. It was also agreed that the respondent shall pay all

rates, taxes and cesses in regard to the property in dispute

upto the date of sale and all dues prior to the Sale Deed. It

was further agreed that in case of dispute, the same should

be referred to Arbitration under the provisions of Arbitration

and Conciliation Act, 1996 (in short the ‘Act’). The

respondent borrowed funds from KSIIDC and various other

financial institutions for installation of various kinds of

machineries in the factory thereby created equitable

mortgage by way of deposit of title deeds with various

financial institutions. It was clearly understood that at the

time of registration of the sale deed, vacant and peaceful

physical possession of property in dispute would be delivered

by the respondent to the appellant and that the respondent

would be bound to remove all plants and machineries from

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their factory in order to deliver possession to the appellant

after clearing all its dues to the various financial institutions

and keep the title deed ready. For the purpose of execution of

the sale deed, the appellant started doubting its bona-fide

and, therefore, by a letter/notice dated 18th of February 2006

called upon the respondent to execute the sale deed so that

the vacant possession of the property in dispute could be

delivered to him. On 20th of February 2006, the appellant

received a letter from the respondent asking him to complete

the sale transaction on the very next day i.e. on 21st of

February 2006. After the receipt of the letter mentioned

above, the appellant approached the respondent and

requested the respondent to perform their part of the

obligation. The respondent assured the appellant that they

would require some more time to remove the machineries

from the property in dispute as they were in large numbers

and very huge in size. They also informed the appellant that

they required some more time to make alternative

arrangement of other premises where their plants and

machineries could be kept as they were very expensive and

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involved a lot of money. As the appellant had already paid an

amount of Rs.2,00,00,250/- to the respondent, he had no

choice but to keep quiet. The appellant, however, having

believed the version of the respondent that they had difficulty

in shifting all the machineries within a short notice kept

quiet till he realized that the intention of the respondent was

not honest as he found that the respondent was trying to sell

the property in dispute to some other party at a much higher

price. Having found that the respondent was not interested

to execute the sale deed as agreed upon, he approached the

respondent on 21st of June, 2006 to execute the sale deed,

when he also intimated the respondent that he was ready

and willing to perform his part of the contract to execute the

sale deed, the respondent refused to perform its part of the

contract and informed that they would not execute the sale

deed until and unless the appellant agreed to pay a higher

sale consideration over and above what was agreed to

between the parties. Having found that the respondent was

trying to sell the property in dispute to a third party at a

higher price, the appellant filed an application under Section

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9 of the Act on 23rd of June 2006, before the City Civil Judge,

Bangalore, for injunction restraining the respondent from

alienating, altering or creating any third party interest in

respect of the property in dispute. With the application, the

appellant also filed an application under Order 39 Rule 1

and 2 read with Section 151 CPC for temporary injunction

restraining the respondent from transferring, alienating or

creating any third party interest in the same.

4. The respondent entered appearance and denied the

material allegations made in the application for injunction. It

was the specific case of the respondent that since time was

the essence of the contract and the appellant having failed to

perform his part of the obligation of the contract, the

respondent was not bound to execute the sale deed and

therefore, the agreement for sale was cancelled by the

respondent. Accordingly, it was alleged by the respondent

that the application for injunction must be rejected.

5. The Addl. City Civil Judge at Bangalore by his order

dated 23rd of September 2006 allowed the application filed by

the appellant, inter alia, on a finding that “there are serious

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issues to be tried before the arbitrator and that the appellant

has successfully made out a prima facie case for grant of

injunction in the manner prayed for in the application.” The

learned Addl. City Civil Judge, Bangalore, while disposing of

the application for injunction, came to a finding prima facie

that the respondent intended to sell the property in dispute

to some other persons at a higher price as it was found that

the intending purchasers were frequently visiting for the

purpose of purchasing the property in dispute. The Addl.

City Civil Judge, Bangalore, therefore, held prima facie that

the respondent was likely to sell the property in dispute and

if it was sold, it would make the award of the learned

Arbitrator infructuous for which, the appellant shall suffer

irreparable loss and injury. Accordingly, upon the aforesaid

findings, the Addl. City Civil Judge, Bangalore disposed of

the application for injunction directing the parties to

maintain status quo in the matter of transferring, alienating

and creating any third party interest in respect of the

property in dispute.

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6. It is against this order of Addl. City Civil Judge,

Bangalore, an appeal was filed by the respondent under

Section 34 (1) of the Act before the High Court.

7. Before proceeding further, it may be kept on record that

in the meantime, an application was filed under Section 11 of

the Act by the appellant before the High Court for

appointment of an Arbitrator. The High Court by its order

dated 27th of February 2007 appointed a retired Judge of the

High Court as the sole Arbitrator to decide the disputes

raised by the parties.

8. The appeal filed by the respondent against the order of

the Addl. City Civil Judge, Bangalore directing the parties to

maintain status quo, was taken up for hearing by the High

Court and the High Court, by its impugned order, set aside

the order of the Addl. City Civil Judge, Bangalore and made a

final order in the following manner :

“1.Appeal is allowed in part.

2. The order dated 23.9.2006 passed by the VI Addl.

City Civil Judge, Bangalore City in A.A.No.48/06 is
set aside subject to the condition that the appellant
deposits a sum of RS.2,50,00,000/- (Rupees two
crores and fifty lakhs) only in fixed deposit for a

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minimum period of six months initially in a
nationalized bank and renew the same till the
disposal of dispute before the Arbitrator. The
original fixed deposit receipt shall be surrendered to
the arbitrator.

3. In the facts and circumstances, there shall be no

order as to costs.”

9. It is this order of the High Court, which was

challenged by way of a Special Leave Petition, which

on grant of leave, was heard in the presence of the

learned counsel for the parties.

10.We have heard the learned counsel for the parties

and examined the impugned order as well as the

order of the trial court and also the allegations made

in the application for injunction and the objections

thereto in depth and in detail. The impugned order of

the High Court would show that if the respondent

deposits a sum of Rs.2,50,00,000/-, the order of

status quo granted by the Addl. City Civil Judge,

Bangalore in the matter of transferring, alienating,

altering and creating any third party interest, shall

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 stand vacated and the application for injunction filed

by the appellant shall stand rejected.

11. In our view, the appellant, in the facts and

circumstances of the case, had successfully made out a

prima facie case for grant of injunction in the manner

granted by the Addl. City Civil Judge, Bangalore. It is not in

dispute that the appellant and the respondent had entered

into an agreement for sale of the property in dispute inter

alia on the terms and conditions already mentioned herein

earlier. The respondent has not denied such agreement for

sale. The only ground taken by the respondent is that since

time was the essence of the contract and the appellant had

failed to perform his part of the contract within the time

specified in the said agreement for sale, the question of grant

of injunction from transferring, alienating or creating any

third party interest in respect of the property in dispute

would not arise at all. At the same time, it must be kept in

mind that it would be open to the respondent to transfer,

alienate or create any third party interest in respect of the

property in dispute before passing the award by the sole

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Arbitrator in which one of the main issues would be whether

time was the essence of the contract or not. It is evident from

the impugned order of the High Court that by vacating the

order of status quo granted by the trial court, practically, the

High Court had limited the scope of the arbitration to the

extent that the right of the appellant to receive back the

amount with or without compensation would be taken away,

if ultimately his allegations are found to be true. Though,

the appellant has been denied the benefit of injunction but

since the application was under Section 9 of the Act for

interim measure, to secure the interest of the appellant in

the event of his succeeding to an award before the arbitrator,

it would be in the interest of justice to put the appellant on

terms. It is also evident from the impugned order that the

High Court has made it clear that the observations in the

same shall not be understood to have limited the power of

the arbitrator to consider the disputes on all its aspects

including grant of specific performance of the contract, but

by vacating the interim relief to the appellant, the High Court

had made the entire arbitration proceeding infructuous and

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by dint of vacation of the interim order of the trial Court, the

respondent shall be in a position to transfer, alienate the

property in dispute to a third party by which third party right

shall be created and the appellant shall suffer enormous

injury. Furthermore, if, at this stage, the respondent is

permitted to transfer, alienate or create any third party

interest in respect of the property in dispute, then the award,

if passed in favour of the appellant by the Arbitrator, would

become nugatory and it would be difficult for the appellant to

ask the respondent to execute the sale deed when a third

party interest has already been created by sale of the

property in dispute and by possession delivered to the third

party. In a contract for sale of immovable property, normally

it is presumed that time is not the essence of the contract.

Even if there is an express stipulation to that effect, the said

presumption can be rebutted. It is well settled that to find

out whether time was essence of the contract, it is better to

refer to the terms and conditions of the contract itself.

Further more, the High Court, in our view, has failed to

appreciate that by the impugned order they have also limited

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the scope of arbitration if ultimately the allegations made by

the appellant are found to be true. That is to say, if an order

restraining the respondent from creating any third party

interest or from transferring the property in dispute is not

granted till an award is passed, the appellant shall suffer

irreparable loss and injury and the entire award if passed in

his favour, would become totally negated. In this connection,

it is imperative to refer to a judgment of this Court in the

case of Maharwal Khewaji Trust (Regd.), Faridkot vs. Baldev

Dass [AIR 2005 SC 104 in para 10], which observed as

follows:

“Unless and until a case of irreparable loss or damage is

made out by a party to a suit, the court should not permit
the nature of the property being changed which also
includes alienation or transfer of the property which may
lead to loss or damage being caused to the party who
may ultimately succeed and may further lead to
multiplicity of proceedings. In the instant case no such
case of irreparable loss is made out except contending
that the legal proceedings are likely to take a long time,
therefore, the respondent should be permitted to put the
scheduled property to better use. We do not think that in
the facts and circumstances of this case, the lower
appellate court and the High Court were justified in
permitting the respondent to change the nature of the
property by putting up construction as also by permitting
the alienation of the property, whatever may be
conditions on which the same is done.”

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12. Going by the ratio of the abovementioned decision, it is

clear that the VI Addl. City Civil Judge, Bangalore, was justified in

directing the parties to maintain status quo in the matter of

transferring, alienating or creating any third party interest as

prima facie it has been proved that the respondent was

trying to sell the property in dispute to a third party, thus

alienating the rights of the property in dispute, which would

have caused irreparable damage to the appellant.

13. From a bare perusal of the findings of the High Court

reversing the order of the trial Court and rejecting the

application for injunction, it would be evident that the

appellant had failed to make out a prima facie case for grant

of an order of injunction in his favour. But in view of our

discussions made hereinabove, we are of the view that the

Additional City Civil Judge, Bangalore was fully justified in

directing the parties to maintain status quo as to the nature

and character of the property in dispute till the award is

passed by the Sole Arbitrator as we have already held that if

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the order of the status quo is not granted and respondent is

permitted to sell the property in dispute to a third party,

complications will arise and the third party interest will be

created, for which the award, if any, passed in favour of the

appellant ultimately, would become nugatory. As noted

herein earlier, one of the main issues for the purpose of

deciding the application for injunction was whether time was

the essence of the contract or not. By the impugned order,

the High Court had failed to appreciate that in the contract

relating to immoveable property, time cannot be the essence

of contract. In any event even in such a case, the arbitration

clause would survive and the dispute would be required to

be resolved. That being the position, pending disposal of the

arbitration proceeding, interim measure to safeguard the

interest was required to be taken. The High Court also, in

our view, had failed to appreciate the material on record as

the agreement and the correspondences produced by the

parties to the effect that since the appellant was required to

furnish the nil encumbrance certificate till the date of

transaction to show that there was no charge over the

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property and further since the property was to be kept

vacant at the time of the execution of the sale deed, time

cannot be held to be the essence of the contract in the facts

and circumstances of the case and accordingly, the interim

measure was necessary to prevent irreparable loss and

injury. However, the question whether the time was the

essence of the contract or not is to be decided by the

Arbitrator in the arbitration proceeding and for that reason

only the High Court had also left open such issue to be

decided by the learned Arbitrator and in this connection, the

High Court observed as follows :-

“As such the contentions with regard to survivability

of the arbitration clause and the dispute as to whether
time is the essence of the contract are issues which
are within the realm of the Arbitrator and accordingly,
we do not wish to pronounce on the same and
therefore, we do not see reason to refer to the
arguments and case law referred in this regard.”

14. Since the High Court had not at all gone into the

question regarding whether time was the essence of the

contract or not, it is not necessary for us to go into the

question as the same shall be decided by the Arbitrator while

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passing the award. As noted herein earlier, the respondent

while opposing the application for grant of injunction,

pleaded that the prayer of the appellant for grant of

injunction in respect of the property in dispute should be

refused because admittedly, the time to execute the deed by

the appellant had expired in the meantime. As we have

already held that one of the main issues to be decided by the

Arbitrator is whether time was the essence of the contract or

not, which was not decided by the High Court while reversing

the order of the Additional City Civil Judge, Bangalore and in

view of the fact that there is no dispute that a sum of Rs.

2,00,00,250/- (Two Crores and Two Hundred Fifty) has been

paid by the appellant to the respondent at the time of

execution of the agreement for sale and in view of the fact

that there is no dispute that the parties had entered into an

agreement for sale on certain terms and conditions, out of

which one of the conditions was whether the time was the

essence of the contract or not which shall be decided by the

Sole Arbitrator, we do not find any ground as to why the

order directing the status quo in the matter of transferring,

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alienating or creating any third party interest passed by the

Additional City Civil Judge, Bangalore shall not be

maintained till the award is passed by the Arbitrator. That

apart, the survivability of the Arbitration clause in the

agreement was also questioned by the respondent in their

objection to the application for injunction but since that

question has also been kept open for the decision of the

Arbitrator by the High Court as well, we have no hesitation in

our mind to hold that since the said question shall also be

decided by the Arbitrator while deciding the disputes

between the parties, there is no ground why the order of

status quo granted by the trial court shall not be maintained

till the award is passed by the Arbitrator.

15. It is well settled that even if an agreement ceases

to exist, the Arbitration clause remains in force

and any dispute pertaining to the agreement ought

to be resolved according to the conditions

mentioned in the Arbitration clause. Therefore, in

our view, the High Court was not justified in

setting aside the order of the trial Court directing

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 the parties to maintain status quo in the matter of

transferring, alienating or creating any third party

interest in the same till the award is passed by the

sole Arbitrator.

16. It was not disputed by the High Court in the impugned

order that the respondent was trying to sell off the property

in dispute to some other third party which, in our view,

would also cause enormous loss and hardship to the

appellant. It is not in dispute that the appellant had paid a

sum of Rs.2,00,00,250/- (Two Crores and Two Hundred

Fifty) as advance to the respondent at the time of executing

the agreement for sale. At the same time, it may not be out

of place to mention that it was the specific case of the

appellant that the respondent had failed to hand over vacant

possession of the property in dispute within the period

specified in the agreement and for that reason only, he could

not perform his part of the contract.

17. In view of our discussions made herein above, we are of

the view that the disputes raised by the parties can only be

determined by the sole Arbitrator and when admittedly, an

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Arbitrator has been appointed to decide such dispute, the

parties should be directed to maintain status quo in the

matter of transferring, alienating or creating any third party

interest in the same till the award is passed by the sole

Arbitrator.

18. At the same time, considering the fact that some time

would be required for the Arbitrator to pronounce his award

wherein the question whether time was the essence of the

contract or not would be required to be determined and if the

parties are directed to maintain status quo in respect of the

property in dispute, till such award is passed, and for that

reasons, the respondent would not be entitled to transfer,

alienate the property in dispute during the pendency of the

Arbitration proceeding and considering the balance of

convenience and inconvenience of the parties, we feel it

proper to direct the appellant to deposit the balance amount

of Rs.4,99,03,829/- (Four Crores Ninety Nine Lacs Three

Thousand Eight Hundred Twenty Nine) within a period of

three months from the date of supply of a copy of this order

to the VI Additional City Civil Judge, Bangalore, in fixed

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deposit for a minimum period of six months initially in a

nationalized bank in favour of the respondent and renew the

same till the disposal of dispute before the Arbitrator. The

original fixed deposit receipt shall be kept with the arbitrator.

In the event of failure of deposit of the aforesaid amount, the

order of status quo, as granted by the VI Additional City Civil

Judge, Bangalore and affirmed by us, shall automatically

stand vacated and the order of the High Court, vacating the

order of status quo, shall immediately come into operation.

19. In the light of the discussions made hereinabove, we set

aside the order of the High Court and restore the order of the

VI Additional City Civil Judge, Bangalore subject to the

conditions mentioned hereinabove.

20. For the reasons aforesaid, the appeal is allowed to the

extent indicated above. There will be no order as to costs.

…………………….
J.
[Tarun Chatterjee]

New Delhi; …………

………….J.

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February 18, 2009. [Dalveer
Bhandari]

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