Case Note & Summary
The dispute arose from a development agreement dated December 27, 2010, between Shree Naman Developers Private Limited and Premier Textile Processors for developing land admeasuring approximately 8959.50 sq.mtrs. Initially, Premier was entitled to 45% of the constructed area and Naman to 55%, but a Supplemental Development Agreement dated July 21, 2017, altered the sharing to Premier receiving 45% of net sales revenues. The project involved six towers, with five constructed, four having Occupation Certificates, and the fifth awaiting OC. Over 250 flats had been sold, but Premier, the landowner, had received nothing beyond the initial payment at the time of the Development Agreement. Premier initiated arbitration and sought interim relief under Section 17 of the Arbitration and Conciliation Act, 1996. The arbitral tribunal, by order dated January 4, 2025, modified on April 7, 2025, directed Naman to provide an unconditional bank guarantee or fixed deposit of Rs.93.54 crores, computed based on sales revenue until September 25, 2023, and to disclose sales revenue from September 25, 2023 to December 31, 2024, with further security based on that disclosure and monthly revenue reporting thereafter. Naman challenged this order under Section 37 of the Act, arguing that two adjustments—Rs.58.03 crores for occupation of BKC premises and Rs.27.47 crores for factory closure delay—should have been factored in, that RERA escrow and lender obligations prevented payment, and that the Section 17 intervention was premature. The High Court found no merit in the appeal. It held that the disclosure directions were not perverse and were necessary to preserve the subject matter of the arbitration, as Premier had been kept in the dark about revenues despite its entitlement. The court rejected the BKC adjustment because the usage was based at best on an oral agreement, which could not contain an arbitration clause under Section 7, and the supplemental agreement did not allude to BKC premises. The factory closure delay contention was vague and late. The court upheld the tribunal's finding that RERA escrow requirements did not excuse contractual obligations to share net revenues, and that the project being substantially completed justified interim protection. Accordingly, the High Court dismissed the petition and upheld the impugned order, except for a minor modification that did not affect the substance.
Headnote
A) Arbitration and Conciliation - Interim Relief under Section 17 - Security Deposit and Revenue Disclosure - Arbitration and Conciliation Act, 1996, Section 17 - The arbitral tribunal directed the developer to furnish an unconditional bank guarantee or fixed deposit of Rs.93.54 crores and to disclose sales revenue, in order to protect the landowner's 45% share of net sales revenues under a development agreement. The High Court found the directions not perverse and upheld them, noting the landowner had received nothing beyond initial payment and disclosure was necessary to preserve the subject matter of the arbitration. Held that the directions were in line with the mandate of preserving the subject matter of the arbitration agreement (Paras 1-8). B) Arbitration and Conciliation - Written Arbitration Agreement - Oral Agreement Not Arbitrable - Arbitration and Conciliation Act, 1996, Section 7 - The developer claimed an adjustment of Rs.58.03 crores for the landowner's occupation of its BKC premises under an alleged oral license agreement, to reduce the security amount. The tribunal rejected the adjustment on the ground that no written agreement governed the BKC occupation, and the oral agreement could not contain an arbitration clause. The High Court agreed, given that the supplemental agreement executed after six years of occupation did not allude to BKC premises. Held that an oral agreement cannot be the basis of an arbitration claim under Section 7 (Paras 9-11). C) Arbitration and Conciliation - Interim Relief - Delay in Factory Closure Not Ground to Deny Interim Protection - Arbitration and Conciliation Act, 1996, Section 17 - The developer contended that the landowner's delay in closing a factory caused additional expenditure of Rs.27.47 crores, which should offset the security. The tribunal found the contention vague and late in the day, and the High Court agreed, observing that it could not deter the tribunal from granting interim protection for current revenue entitlements. Held that stale claims of delay did not justify interference with interim measures (Paras 12-13). D) Real Estate Regulation - RERA Escrow Requirements - Contractual Obligations Not Excused - Arbitration and Conciliation Act, 1996, Section 17 (in the context of RERA regulatory compliance) - The developer argued that RERA escrow requirements and lender agreements prevented payment of revenue share to the landowner. The tribunal held that regulatory compliance did not excuse contractual obligations, and the High Court upheld this view, stating that RERA escrow requirements safeguard project funds but do not bar distribution of net revenues to owners. Held that RERA compliance does not override inter se contractual obligations (Paras 14-17). E) Arbitration and Conciliation - Premature Intervention - Maintainability of Section 17 Application - Arbitration and Conciliation Act, 1996, Section 17 - The developer argued that the Section 17 application was premature as nothing was payable until completion of all six towers. The tribunal rejected this, noting the project was substantially completed with five towers built and over 250 flats sold, and the High Court found no fault. Held that the tribunal was justified in granting interim protection based on current project status and realized revenues (Paras 2, 4, 14, 17).
Issue of Consideration
Whether the arbitral tribunal's order under Section 17 directing security deposit and disclosures was perverse or erroneous; whether amounts claimed by Naman for BKC premises occupation and factory closure delay should be adjusted against security; whether RERA escrow and lender obligations excused non-payment; whether Section 17 intervention was premature.
Final Decision
The High Court dismissed the petition and upheld the impugned order of the Arbitral Tribunal. It found no case for interference with the directions for an unconditional bank guarantee or fixed deposit of Rs.93.54 crores, disclosure of sales revenue until December 31, 2024, further security based on such disclosure, and monthly revenue reporting. Minor modifications not affecting the substance were noted.
Law Points
- Section 37 appeal against Section 17 interim order
- interim relief to protect revenue share
- written arbitration agreement required for oral claims
- RERA escrow requirements do not excuse contractual obligations
- disclosure of revenues necessary to preserve subject matter
- adjustments for alleged oral license and factory delay not entertainable at interim stage
