Court’s Decision
The Bombay High Court rejected Oberoi Realty Limited’s petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim measures to restrain purchasers from dealing with or disposing of two high-end apartments. The Court held that the requirements of Section 9 were not satisfied, particularly since there was no arbitration clause between the parties and no enforceable agreement for sale. The Court concluded that:
“A case for grant of interim measures under Section 9 is not made out as there is no prima facie enforceable agreement containing an arbitration clause.”
The Court found that Oberoi’s attempt to seek an injunction over the disputed apartments, pending arbitration, was misconceived and the application was dismissed.
Facts
Oberoi Realty Limited sought relief against a purchaser to restrain them from dealing with two specific apartments situated in a luxury real estate project in Mulund (West), Mumbai. Oberoi claimed that a letter of intent had been executed with the purchaser in 2013, and the agreed consideration had been partially paid. Although no registered agreement for sale was executed, possession was allegedly handed over to the purchaser.
Subsequently, disputes arose, and Oberoi claimed that the purchaser had failed to pay the remaining dues. Alleging breach, Oberoi invoked the arbitration clause purportedly embedded in the original letter of intent and filed a Section 9 petition to protect its rights in the two apartments.
The purchaser, on the other hand, contended that the alleged letter of intent was superseded and not a valid agreement under the Maharashtra Ownership of Flats Act, 1963 (MOFA). They claimed to have lawfully acquired rights, and that Oberoi had no subsisting claim over the apartments.
Issues
- Whether the letter of intent between Oberoi and the purchaser amounted to an enforceable contract under the Maharashtra Ownership of Flats Act, 1963?
- Whether there existed a valid arbitration agreement between the parties?
- Whether the requirements under Section 9 of the Arbitration Act were satisfied to justify interim protection?
Petitioner’s Arguments
Oberoi Realty argued that a binding agreement existed in the form of the letter of intent, which contained an arbitration clause. It claimed that the purchaser had taken possession of the apartments and failed to pay the balance consideration. It sought an injunction restraining the respondent from dealing with or disposing of the apartments pending arbitration.
It was further contended that even in the absence of a registered agreement, the Court should recognize the substantial part-performance and grant interim protection to preserve the subject matter of arbitration.
Oberoi relied on various decisions to argue that interim relief can be granted even before the commencement of arbitration proceedings, provided the arbitration clause exists and rights are in jeopardy.
Respondent’s Arguments
The respondents challenged the maintainability of the petition on the ground that there was no registered agreement for sale, as mandated by the Maharashtra Ownership of Flats Act, 1963. They argued that the letter of intent was not a legally binding agreement and did not comply with statutory requirements.
Further, they denied the existence of any arbitration clause and contended that the letter of intent had been novated or superseded. The respondents also questioned the locus of Oberoi to seek injunctions when possession had been handed over years ago and there was no ongoing arbitration.
It was submitted that the petitioner was attempting to misuse Section 9 to initiate proceedings in a matter where no legal arbitration agreement existed.
Analysis of the Law
The Court examined the provisions of Section 9 of the Arbitration and Conciliation Act, 1996 which empower the Court to grant interim measures before, during, or after arbitral proceedings. However, the primary precondition is the existence of an arbitration agreement that governs the dispute.
The Court observed that under MOFA, an agreement for sale must be registered and in writing. A mere letter of intent without registration, without detailed terms, and without statutory compliance cannot form the basis of enforceable contractual rights.
It reiterated that an interim measure under Section 9 cannot be sought in anticipation of arbitration when the agreement itself is statutorily unenforceable.
Precedent Analysis
The Court referred to and distinguished several decisions:
- Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan (1999) 5 SCC 651 – Reaffirmed that only disputes arising from enforceable contracts can be referred to arbitration.
- Garware Wall Ropes Ltd. v. Coastal Marine Constructions (2019) 9 SCC 209 – Held that arbitration clause in an unregistered agreement requiring registration under law is unenforceable until registration is complete.
- Vidya Drolia v. Durga Trading (2021) 2 SCC 1 – Recognized that courts must refuse reference to arbitration when the agreement is void or non-existent under law.
The Court emphasized that interim relief under Section 9 cannot be granted in aid of a non-existent arbitral proceeding arising from an unenforceable document.
Court’s Reasoning
The Court found that the petitioner had failed to establish that the letter of intent constituted a valid and binding agreement under MOFA. It had neither been registered nor did it contain specific, enforceable terms regarding sale and consideration. Consequently, the arbitration clause embedded therein was also unenforceable.
Since no arbitration could be initiated based on such a document, Section 9 relief was unavailable. The Court observed:
“There is no subsisting contract; therefore, no arbitration can be invoked. Relief under Section 9 is only ancillary to valid arbitration proceedings.”
The Court also criticized the petitioner for approaching the Court nearly a decade after the alleged transaction and for attempting to assert proprietary rights over apartments long handed over.
Conclusion
The Bombay High Court dismissed the petition filed under Section 9 of the Arbitration and Conciliation Act by Oberoi Realty Limited. It held that in the absence of a valid agreement and arbitration clause, no relief can be granted under Section 9. The Court found no urgency or prima facie case to support the grant of interim measures and upheld the statutory safeguards under the Maharashtra Ownership of Flats Act, 1963.
Implications
- Clarifies that Section 9 relief is not available where the underlying agreement is not legally enforceable.
- Reiterates the requirement of registered sale agreements under MOFA for real estate transactions.
- Reinforces that arbitration clauses in unregistered or statutorily invalid documents are not enforceable.
- Warns against belated invocation of arbitration rights in long-settled real estate transactions.
Cases Referred
- Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan – Explained scope of arbitrable disputes.
- Garware Wall Ropes Ltd. v. Coastal Marine Constructions – Held arbitration clauses in unregistered documents unenforceable.
- Vidya Drolia v. Durga Trading – Courts must refuse arbitration when agreement is void under law.
FAQs
Q1. Can a letter of intent in a real estate transaction be treated as an agreement for sale under MOFA?
No. A letter of intent that is not registered and does not contain the statutory elements under MOFA cannot be treated as an enforceable agreement for sale.
Q2. Is an arbitration clause in an unregistered agreement enforceable?
No. As per the Supreme Court’s ruling in Garware Wall Ropes, the arbitration clause in a document requiring registration is also unenforceable unless the document is registered.
Q3. What are the requirements for seeking interim relief under Section 9 of the Arbitration Act?
There must be a valid arbitration agreement, an impending or ongoing arbitral proceeding, and urgency or threat to the subject matter which requires court protection.