Case Note & Summary
The appellant, M/s Devtree Corp. LLP, purchased a property from the original owner who was a party to a development agreement containing an arbitration clause. The respondent, M/s Bhumika North Gardenia, had filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 against the original owner, seeking interim relief. During the pendency of that Section 9 proceeding, the appellant purchased the property. The trial court allowed the Section 9 petition and passed an interim order against the original owner. The appellant, who was not a party to the arbitration agreement, challenged the order under Section 37(1)(b) of the Act. The High Court framed two issues: whether a non-signatory purchaser is bound by the arbitration clause, and whether the principle of lis pendens applies to Section 9 proceedings. The Court held that the arbitration clause binds the purchaser as it runs with the land, and that a Section 9 proceeding is a legal proceeding attracting lis pendens under Section 52 of the Transfer of Property Act, 1882. Consequently, the appellant, having purchased the property during the pendency of the Section 9 proceeding, is bound by the interim order. The appeal was dismissed.
Headnote
A) Arbitration Law - Binding Effect of Arbitration Clause on Non-Signatory - Transfer of Property - A person who purchases property from a party to an arbitration agreement is bound by the arbitration clause if the property is the subject matter of the agreement - The arbitration clause runs with the land and binds the transferee - Held that the purchaser steps into the shoes of the vendor and is bound by the arbitration agreement (Paras 1-10).
B) Arbitration Law - Lis Pendens - Section 9 of Arbitration and Conciliation Act, 1996 - A proceeding under Section 9 is a legal proceeding and the principle of lis pendens under Section 52 of the Transfer of Property Act, 1882 applies - A purchaser during the pendency of a Section 9 proceeding is bound by the order passed therein - Held that the transferee cannot defeat the interim order by purchasing the property (Paras 11-20).
Issue of Consideration
(a) Whether a person who is not a party to the arbitration agreement, and purchases the property from a person who is a party to the agreement, is bound by the arbitration clause that is binding on his vendors? (b) Whether a person who purchases the property which is the subject matter of a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996 is bound by the principle of lis pendens?
Final Decision
The appeal is dismissed. The order dated 15.04.2024 in AA No.15002/2024 passed by the V Addl. District Judge, Session Judge, Bengaluru Rural is upheld.
Law Points
- Arbitration clause binding on non-signatory transferee
- lis pendens applies to Section 9 proceedings
- Section 9 order can be enforced against subsequent purchaser
Case Details
2024 LawText (KAR) (07) 67
Miscellaneous First Appeal No. 2978 of 2024 (AA)
Anu Sivarman, Anant Ramanath Hegde
Sri. Uday Holla, Senior Counsel for Sri. Hiran Krishnaswamy, Adv. (for appellant); Sri. C.K. Nanda Kumar, Senior Counsel a/w Sri. Sushal Tiwari, Adv. for C/respondent
M/S Bhumika North Gardenia
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Nature of Litigation
Appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 against an order passed under Section 9 of the Act.
Remedy Sought
Appellant sought to quash and set aside the order dated 15.04.2024 in AA No.15002/2024 passed by the V Addl. District Judge, Session Judge, Bengaluru Rural, allowing the Section 9 petition.
Filing Reason
Appellant purchased property from a party to an arbitration agreement during the pendency of a Section 9 proceeding and was aggrieved by the interim order passed against the original owner.
Previous Decisions
The trial court allowed the Section 9 petition and passed an interim order against the original owner. The appellant challenged that order in this appeal.
Issues
Whether a non-signatory purchaser of property is bound by the arbitration clause in the agreement between the vendor and another party?
Whether the principle of lis pendens applies to proceedings under Section 9 of the Arbitration and Conciliation Act, 1996?
Submissions/Arguments
Appellant argued that it is not a party to the arbitration agreement and therefore not bound by the arbitration clause or the Section 9 order.
Respondent argued that the arbitration clause runs with the land and binds the purchaser, and that lis pendens applies to Section 9 proceedings.
Ratio Decidendi
A person who purchases property from a party to an arbitration agreement is bound by the arbitration clause if the property is the subject matter of the agreement. Additionally, a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996 is a legal proceeding, and the principle of lis pendens under Section 52 of the Transfer of Property Act, 1882 applies, binding any transferee during the pendency of such proceeding.
Judgment Excerpts
Whether a person who is not a party to the arbitration agreement, and purchases the property from a person who is a party to the agreement, is bound by the arbitration clause that is binding on his vendors?
Whether a person who purchases the property which is the subject matter of a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996 is bound by the principle of lis pendens?
Procedural History
The respondent filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 before the V Addl. District Judge, Session Judge, Bengaluru Rural, which was allowed on 15.04.2024. The appellant, who purchased the property during the pendency of that petition, filed this appeal under Section 37(1)(b) of the Act.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 9, Section 37(1)(b)
- Transfer of Property Act, 1882: Section 52
