Delhi High Court Grants Limited Relief to Indiabulls in ₹8,935 Crore Dispute: Restrains Ambience from Creating Third-Party Rights, Declines Deposit Order, and Directs Arbitration to Resolve Breach of Agreement Claims

Court’s Decision

The Delhi High Court was tasked with deciding whether Indiabulls should be granted interim relief under Section 9 of the Arbitration and Conciliation Act, 1996. The court noted that the matter involved serious contractual breaches regarding Agreements to Sell (ATSs) for housing units between Indiabulls and Ambience.

While acknowledging the allegations and counter-allegations, the court ordered limited interim relief by restraining Ambience from creating third-party interests in disputed units. The court directed that arbitration proceedings should resolve the disputes, declining to order Ambience to deposit the sums paid by Indiabulls.

Facts of the Case

1. Agreements to Sell (ATSs):
   • Indiabulls entered into multiple ATSs with Ambience for the purchase of residential units in Ambience Tiverton, Caitriona, and Creacion projects.
   • The total agreed sale consideration was approximately ₹8,935 crore, of which Indiabulls paid ₹6,380 crore.
2. Cancellations and Retention:
   • 33 units were canceled under cancellation deeds, leaving 273 units under dispute.
   • Ambience failed to execute sale deeds for the remaining units despite receiving substantial payments.
3. Settlement Deed:
   • A Settlement Deed dated 18 November 2022 was executed, whereby Ambience agreed to repay ₹2,344 crore to settle outstanding loans from Indiabulls.
   • Ambience claimed this deed subsumed obligations under the ATSs.
4. Arbitration Clause:
   • The ATSs contained an arbitration clause, leading Indiabulls to file petitions under Section 9 for interim measures.

Issues Identified

1. Contractual Breach:
   • Did Ambience breach the ATSs by failing to transfer units despite receiving payments?
2. Interim Relief:
   • Should Ambience be restrained from creating third-party interests in the disputed units?
3. Scope of Settlement Deed:
   • Did the Settlement Deed absolve Ambience of its obligations under the ATSs?
4. Deposit of Consideration:
   • Could the court direct Ambience to deposit amounts received from Indiabulls?

Petitioner’s Arguments (Indiabulls)

1. Breach of ATSs:
   • Ambience violated the terms of the ATSs by failing to transfer ownership of the units after receiving consideration.
2. Third-Party Interests:
   • Indiabulls alleged Ambience was creating third-party rights in the disputed units, jeopardizing its interest.
3. Settlement Deed Misuse:
   • The Settlement Deed was being used by Ambience to obscure its contractual obligations.
4. Interim Measures:
   • Indiabulls sought orders restraining Ambience from creating third-party interests and a direction to deposit the consideration paid.

Respondent’s Arguments (Ambience)

1. Security Agreements:
   • Ambience claimed the ATSs were not sales agreements but instruments to secure loans advanced by Indiabulls.
2. Loan Repayment:
   • ₹2,344 crore was repaid under the Settlement Deed, nullifying the ATSs.
3. Settlement Deed Supersedes ATSs:
   • Ambience argued that the Settlement Deed discharged obligations under the ATSs and allowed Ambience to sell the units.
4. No Evidence of Alienation:
   • Ambience contended there was no material proof that it was creating third-party rights in the disputed units.
5. Scope of Relief:
   • Ambience objected to interim relief directing deposit of amounts, arguing it exceeded the scope of Section 9 petitions.

Analysis of the Law

1. Section 9 of the Arbitration Act:
   • Section 9 allows courts to grant interim measures to protect the subject matter of disputes pending arbitration.
   • Relief can include restraining actions that affect arbitration outcomes, such as alienating disputed properties or securing amounts in dispute.
2. Prima Facie Case:
   • The court examined whether Indiabulls had a prima facie case of breach by Ambience and if irreparable harm would occur without interim relief.
3. Settlement Deed vs ATSs:
   • The court scrutinized whether the Settlement Deed nullified obligations under the ATSs. Ambience claimed the loans were repaid, but Indiabulls argued the ATSs were independent agreements for purchasing units.
4. Interim Measures and Equity:
   • The court balanced the need for preserving the rights of both parties against the principle of non-interference with arbitration.

Precedent Analysis

• Scope of Interim Relief:
  • The court noted precedents indicating that interim measures could secure disputed amounts or restrain alienation of properties to preserve arbitration’s subject matter.
• Order XXXVIII Rule 5 of CPC:
  • Though not strictly applicable, the principles guided the court in considering whether a direction to deposit sums was warranted.

Court’s Reasoning

1. Breach of ATSs:
   • The court found prima facie evidence of breach, as Ambience retained substantial payments without executing sale deeds or transferring possession.
2. Role of Settlement Deed:
   • The Settlement Deed did not explicitly extinguish obligations under the ATSs. The court noted ambiguities in Ambience’s reliance on it.
3. Third-Party Interests:
   • Indiabulls raised valid concerns about Ambience creating third-party rights in disputed units.
4. Deposit of Amounts:
   • The court declined to direct Ambience to deposit the amounts received from Indiabulls, stating this issue could be addressed in arbitration.

Conclusion

• The court restrained Ambience from creating third-party interests in the disputed units pending arbitration.
• It declined to direct Ambience to deposit the amounts paid, leaving this issue for the arbitral tribunal.

Implications

1. Preservation of Arbitration Subject Matter:
   • The order ensures the disputed units remain intact pending arbitration.
2. Clarity on Section 9 Relief:
   • The judgment underscores the balance courts must strike in granting interim measures without overstepping arbitration’s domain.
3. Contractual Obligations:
   • The case highlights the importance of explicit terms in agreements to avoid disputes over their enforceability.

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