After the Sale Deed is signed, the arbitration clause in the Sale Agreement is no longer legally valid, according to the Bombay High Court.
The Bombay High Court noted that an Arbitration Clause in the Sale Agreement has no legal impact once the Conveyance or Sale Deed is executed. The Court was reviewing an Arbitration Appeal related to a decision that denied the Appellants’ request under Section 8 of the Arbitration and Conciliation Act, 1996 to send the case to Arbitration. Justice R.I. Chagla, in a single-bench ruling, stated, “In my opinion, the Sale Agreement has ended with the execution of the Conveyance/Sale Deed. It is well established that once a Conveyance is executed, the purpose and validity of the Sale Agreement cease. In this case, the Conveyance Deed was executed by the owners, Defendant Nos. 8 and 9, in favor of the Appellants. Therefore, the Arbitration Clause in the Agreement is no longer valid as the Agreement is fully discharged and has no legal effect after the Conveyance is executed.”
The Petitioner was represented by Senior Advocate Pravin Samdhani, while the Respondent was represented by Senior Advocate Virendra Tulzapurkar. The Appellants’ Senior Counsel argued that the Sale Agreement is the main document, and all related documents are interconnected. He claimed that the Agreement, the MoU, and the Allotment Letter were all signed on the same day and are part of a single transaction. He contended that legally, they form an integral part of one transaction, asserting that the Agreement is the primary document and its Arbitration Clause applies to all related documents in this context.
Reliance was placed on several cases, including Ameet Lalachand Shah and others vs. Rishabh Enterprises and others, and Sushma Shivkumar Daga and others vs. Madhukumar Ramkrishnaji Bajaj and others, as well as Chloro Controls India Private Limited vs. Severn Trent Water Purification Inc. and others. It was argued that the lack of an Arbitration Clause in the subsidiary documents is not significant, and the Trial Court made a mistake by stating that the MoU lacks an Arbitration Clause. This view treated the MoU as an independent document, ignoring that it is part of the main Agreement. The argument continued that during the application process under Section 8 of the Arbitration Act, only a preliminary examination is needed, not a full trial. The Trial Court, however, conducted a mini trial and reached a conclusion that contradicted the accepted facts in the plaint. The speaker emphasized that the law aims to favor arbitration for quicker resolutions and to conclude matters effectively, citing Govind Rubber Limited vs. Louis Dreyfus Commodities Asia Private Limited and Ameet Lalchand Shah and others.
Counsel for the Respondent argued that the Plaintiffs can only claim their share of the property or its value after a Conveyance is executed, based on the terms outlined in the MoU and the Allotment Letter, not the Agreement. He stated that the transactions in the MoU and the Allotment Letter are separate from those in the Agreement and should be enforced according to the MoU and Allotment Letter alone, without considering the Agreement. He emphasized that the rights the Plaintiffs are trying to enforce come solely from the MoU and the Allotment Letter, making the Appellants’ claim of a single transaction invalid.
He also pointed out that while the Plaint mentions the Agreement, it is merely a historical note and not the basis of the Suit. He explained that the nature of the Suit, as described in the Plaint, indicates it seeks a declaration, injunction, recovery, and specific performance related to the MoU and the Allotment Letter. He highlighted that the Suit’s prayers reference these documents, seeking specific performance for the sale of 50% of the total flats and shops in the building to be constructed in the name of Plaintiff No.1 before any further agreements with third parties. He asserted that the Plaintiffs do not claim any rights under the Agreement, and the Suit does not fall under the Agreement that includes the Arbitration Clause.
He argued that if the Arbitration Clause is not specifically mentioned in the Agreement, it does not apply to the rights under the MoU and the Allotment letter. He noted that it is a well-established legal principle that without a specific reference to the Arbitration Clause in a new Agreement, which is part of the earlier Agreement, that Clause cannot be enforced in the new Agreement. The Court concluded that the Agreement for sale ended with the signing of the Deed of Conveyance / Sale Deed. The Supreme Court’s findings regarding the relationship between Arbitration Agreements under the Arbitration and Conciliation Act, 1996, and the Stamp Act, 1899, do not change the ruling in Union of India Vs. Kishorilal Gupta & Bros. It states that if parties terminate a valid contract, the arbitration clause also ends. In this case, the execution of the Conveyance Deed / Sale Deed ended the Agreement and the Arbitration Clause with it, the Court noted.
The Court supported the Respondent’s argument that the MoU and the Allotment letter are distinct from the Agreement and that the claims in this Suit do not stem from a single transaction. The Court stated, “I do not see any validity in the Appellants’ claim that the Agreement for Sale is the main document and that the MoU and the Allotment letter are closely linked. This conclusion assumes that the Agreement for Sale is still valid and has not lost its effect after the Conveyance Deed was executed.”
The Court agreed with the Respondent’s argument that the mention of the Agreement in the Plaint is merely historical and not the focus of the Suit. The Court stated, “The Suit seeks a declaration, injunction, recovery, and specific performance related to the MoU and Allotment Letter, not the Agreement, which has ended with the execution of the Conveyance.” It noted that the MoU only makes a general mention of the previous Agreement of Sale, and there is no specific mention of the arbitration agreement within the MoU. Therefore, the arbitration agreement is not included in the MoU. The MoU is a distinct document that lacks an arbitration clause, and the same applies to the Allotment Letter. Thus, the parties involved in the MoU and Allotment Letter did not intend to pursue arbitration for disputes arising from the separate agreement.
The Court concluded that the Trial Court’s finding was correct, stating that once the Sale Deed was executed, the rights and responsibilities from the Agreement for Sale ceased to exist as they merged into the Sale Deed. Consequently, the Appeal was dismissed.
Cause Title: Bks Galaxy Realtors LLP vs. Sharp Properties (2024:BHC-AS:43163)
Appearances:
Appellant: Senior Advocate Pravin Samdhani, Advocate Mayur Khandeparker, Advocate Aneesha Cheema, Advocate Darshia Parekh, Advocate Parth Jasani, Advocate Sneha Golecha
Respondent: Senior Advocate Dr. Virendra Tulzapurkar, Senior Advocate Nikhil Sakhardande, Advocate Siddhesh Bhole, Advocate Shubhra Swam , Advocate Siddhesh Bhole, Advocate Vinodini Srinivasan, Advocate Dharmesh Jain, Advocate Roshni Naik, Advocate Anil Agarwal.
