Case Note & Summary
The litigation arose from a commercial arbitration dispute over a redevelopment project in Mumbai. Shree Naman Developers Private Limited (“Naman”), the developer, and Premier Textile Processors (“Premier”), the landowner, entered into a Development Agreement dated December 27, 2010 for developing land admeasuring approximately 8959.50 sq.mtrs. Initially, Premier was entitled to 45% of the constructed area and Naman 55%. By a Supplemental Development Agreement dated July 21, 2017, the parties changed the revenue-sharing arrangement to provide Premier 45% of the net sales revenues from the project. The project involved construction of six towers; five towers were constructed, with Occupation Certificates issued for four and the fifth awaiting OC. Over 250 flats had been sold, but Premier had received nothing beyond the initial payment made at execution of the Development Agreement. Naman contended that nothing was payable until completion of all six towers. Premier invoked arbitration and sought interim relief under Section 17 of the Arbitration and Conciliation Act, 1996. The Arbitral Tribunal, by an order dated January 4, 2025, modified on April 7, 2025, directed Naman to furnish an unconditional bank guarantee or fixed deposit of Rs.93.54 crores (computed based on sales revenue until September 25, 2023), to disclose all sales revenue generated after that date until December 31, 2024, to create further security upon such disclosure, and to provide monthly revenue disclosures thereafter. Naman filed the present appeal under Section 37 of the Act, challenging the impugned order. Naman raised three main grounds: first, that the Tribunal failed to adjust two amounts—Rs.58.03 crores for occupation of BKC premises by Premier under an alleged oral license, and Rs.27.47 crores for delay in closure of the factory—against the security. Second, that the Section 17 intervention was premature because the project was not complete. Third, that RERA escrow requirements and loan agreements with two lenders prevented any payment to Premier. Naman also argued that nothing was payable until the entire project was completed. The High Court examined the record and found no case for interference. On the disclosure obligations, the court held that Premier had been kept completely in the dark about its entitlements despite being the landowner and entitled to 45% of net sales revenues; therefore, directing disclosure was necessary to preserve the subject matter of the arbitration. On the BKC license claim, the court held that the alleged license fee arrears emanated from an oral agreement which could not contain an arbitration clause under Section 7 of the Act, and neither the Development Agreement nor the Supplemental Agreement made any allusion to BKC premises; thus the claim could not be adjusted. On factory closure delay, the court agreed that the contention was vague and raised too late. On RERA escrow, the court held that regulatory compliance did not excuse Naman's inter se contractual obligations to share net sales revenues with Premier, who was a co-developer under the Supplemental Agreement. The court noted that Naman had failed to disclose financial information to explain how obligations were pre-empted. Accordingly, the High Court dismissed the petition and upheld the impugned order, affirming the directions for bank guarantee/fixed deposit, disclosures, and monthly reporting.
Headnote
A) Arbitration - Interim Measures - Scope of Section 37 Appeal - Arbitration and Conciliation Act, 1996, Sections 17, 37 - The petition challenged the Arbitral Tribunal's interim order directing an unconditional bank guarantee of Rs.93.54 crores and disclosures. The High Court found no case made out for interference and upheld the impugned order. Held that the Tribunal's directions were well-founded and within its powers (Paras 1-6). B) Arbitration Agreement - Written Agreement Requirement - Oral License Agreement Not Arbitrable - Arbitration and Conciliation Act, 1996, Section 7 - Naman claimed an adjustment of Rs.58.03 crores for occupation of BKC premises based on an oral license arrangement. The court held that such an oral agreement could not contain an arbitration clause due to Section 7 requiring a written arbitration agreement, and no linkage was found in the Development or Supplemental Agreements. Held that the claim could not be raised in arbitration or reduce the security (Paras 9-11). C) Contract Law - Revenue Sharing and RERA Escrow - Regulatory Compliance Does Not Excuse Contractual Obligations - Real Estate (Regulation and Development) Act, 2016 (RERA), Not mentioned - Naman argued that RERA escrow requirements and lender agreements prevented payment of Premier's 45% net sales revenue share. The court held that RERA compliance does not excuse inter se contractual obligations between co-developers, and Naman kept Premier in the dark about financial information. Held that Naman must share net revenues and the Tribunal's analysis was correct (Paras 14-17). D) Interim Measures - Preservation of Subject Matter - Disclosure of Sales Revenues - Arbitration and Conciliation Act, 1996, Section 17 - The Tribunal directed disclosure of revenues until December 31, 2024 and monthly disclosures thereafter. The court found this direction justified because Premier had no information about its entitlements despite being landowner. Held that disclosure directions are in line with preserving the subject matter of arbitration (Paras 7-8). E) Factual Findings - Delay in Factory Closure - Rejection of Adjustment Claim - Not mentioned - Naman sought adjustment of Rs.27.47 crores for alleged delay by Premier in closing the factory within 120 days. The court agreed with the Tribunal that the contention was vague and raised late in the day. Held that no fault could be found with rejecting the adjustment (Paras 12-13).
Issue of Consideration
Whether the Arbitral Tribunal erred in directing unconditional security and disclosures without adjusting claims for BKC license fee and factory closure delay, and whether RERA escrow/lender agreements excused performance of revenue-sharing obligations.
Final Decision
The High Court dismissed the petition and upheld the Impugned Order, finding no case for interference. The directions for bank guarantee/fixed deposit, disclosure, and monthly reporting were affirmed.
Law Points
- Section 37 appeal against Section 17 order
- limited interference with interim orders
- oral agreement not arbitrable under Section 7
- RERA escrow does not excuse contractual revenue sharing
- disclosure preserves subject matter of arbitration
- net sales revenue sharing under supplemental development agreement
- co-developer obligations
