Limitation Began On Refusal To Perform: Karnataka HC Upholds Arbitral Award In Housing Society's Favour

The Karnataka High Court has upheld an arbitral award directing a landowner to execute sale deeds for the remaining sites under a development agreement.

It held that the society's claim was not barred by limitation because the agreement did not prescribe a fixed date for execution of the remaining sale deeds, and limitation began only when performance was refused.

A division bench of Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha dismissed an appeal by landowner A.R. Abdul Razak against an order upholding the arbitral award. The award directed execution of the remaining sale deeds at the agreed rate of ₹620 per sq. ft. and rejected his counterclaim.

"We find considerable force in the submissions of the learned counsel appearing for the respondent-society. Admittedly, the development agreement [Ex.P1] does not specify any fixed date for execution of the remaining sale deeds. Consequently, the second limb of Article 54 of the Limitation Act, 1963 becomes applicable namely, limitation commences when the plaintiff has noticed that the performance is refused.", the court held.

The dispute arose from a development agreement executed on October 27, 2010, between Abdul Razak and two other landowners and Ashritha House Building Co-operative Society for the formation of a residential layout.

Under the agreement, the society was responsible for obtaining approvals, developing the layout and paying the agreed consideration. The rate, initially fixed at ₹495 per sq. ft., was later revised to ₹620 per sq. ft.

The Mysore Urban Development Authority (MUDA) released 73 sites on September 1, 2012, another 23 sites on February 28, 2013 and the final 25 sites on November 8, 2017. The society paid about ₹13.83 crore to the landowners, and sale deeds for 84 sites were executed in favour of its members.

A dispute arose after Abdul Razak declined to execute sale deeds for the remaining 37 sites. He claimed that he had received a smaller share of the consideration than the other landowners. He also sought additional payment and a larger share of the sites.

The society invoked the arbitration clause in 2019. On August 31, 2023, the sole arbitrator directed execution of the remaining sale deeds at the agreed rate of ₹620 per sq. ft. The arbitrator also rejected Abdul Razak's counterclaim. The commercial court later upheld the award, leading to the present appeal.

The high court agreed with the arbitrator's finding that the development agreement did not prescribe a fixed date for execution of the remaining sale deeds. It noted that the final batch of sites was released only on November 8, 2017. The court observed that the society completed the development work, complied with the statutory requirements and secured release of all the sites before calling upon the landowners to execute the remaining sale deeds.

"The contention of the appellant that certain sites have been registered prior to 2017 does not, by itself, establish that the claim became time barred. The dispute before the learned sole Arbitrator concerned the execution of sale deeds with respect to the remaining sites after completion of the project. The society had already paid substantial consideration of approximately `13.83 crores and the sale deeds in respect of 84 sites had been executed.", the court ruled.

The court further observed that the correspondence between the parties showed respondents 2 and 3 were willing to execute the sale deeds. Abdul Razak alone refused to perform his obligation through his reply dated February 23, 2019. It held that a clear and unequivocal refusal to perform arose only in 2019.

The court also held that the society's payment of about ₹13.83 crore and the execution of sale deeds for 84 sites were inconsistent with the contention that it had abandoned its rights under the agreement. Finding no patent illegality or perversity in the arbitral award, it dismissed the appeal.

For Appellant: Senior Advocate Shashi Kiran Shetty, Advocates S. Ismail Zabiulla, Govardhan Reddy, Rachel Raju Alice, Chand Pasha

For Respondents: Advocates Sreedhar N.G., Nandish C.B., K. Chandranath Ariga