REPORTABLE

     IN THE SUPREME COURT OF INDIA              CIVIL APPELLATE JURISDICTION

            CIVIL APPEAL NO.1098 OF 2009               (Arising out of SLP (C) No.7939 of 2007)

N. Srinivasa                                                   …Appellant  

Versus

M/s. Kuttukaran Machine Tools Ltd.            ..Respondent

           J U D G M E N T

TARUN CHATTERJEE, J.

1. Leave granted.

2. This appeal has been filed at the instance of the

appellant  by  special  leave  against  the  judgment

and final order of the High Court of Karnataka at

Bangalore  in  M.F.A No.  12014/2006  (AA),  dated

16th of  April  2007,  setting aside  the order  dated

23rd of  September,  2006  passed  by  the  VI

Additional  City  Civil  Judge,  Bangalore,  and

vacating  the  order  of  status  quo  granted  on

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condition that the respondent shall deposit a sum

of Rs.2,50,000,00/-   [Rupees two crores fifty lacs]

within the time specified in the impugned order.  

3. The facts leading to the filing of this appeal may be

summarized as follows: -

The respondent became the owner of Plot No.19-A, II

Phase,  Industrial  Area,  (carved  Survey  No.  40  and  41,

Chokkasandra Village, Yeshwanthpur Hobli, Bangalore North

Taluk),  measuring about  10568 square  meters  (hereinafter

referred to as the ‘property in dispute’) by a sale-deed dated

11th of November 2001 executed by the Karnataka Industrial

Area Development Board. The appellant and the respondent

entered into an agreement for sale of the property in dispute

on 21st of December 2005 for a sum of Rs.6,99,04,079/- in

which  an  advance  of  Rs.2,00,00,250/-  (Two  Crore  Two

Hundred Fifty Only) was paid to the respondent at the time

of executing the agreement for sale. One of the stipulation in

the agreement for sale was that the balance amount of the

consideration money shall be paid to the respondent at the

time of registration of the Sale Deed which shall be executed

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within sixty days from the date of execution of the agreement

for sale.  The agreement for sale specifically mentioned that it

was the obligation of the respondent to keep the title good till

the execution and registration of the sale deed and further to

keep the property in dispute free from all encumbrances or

charges. It was also agreed that the respondent shall pay all

rates, taxes and cesses in regard to the property in dispute

upto the date of sale and all dues prior to the Sale Deed. It

was further agreed that in case of dispute, the same should

be referred to Arbitration under the provisions of Arbitration

and Conciliation Act, 1996 (in short the ‘Act’). The

respondent borrowed funds from KSIIDC and various other

financial  institutions  for  installation  of  various  kinds  of

machineries  in  the  factory  thereby  created  equitable

mortgage  by  way  of  deposit  of  title  deeds  with  various

financial institutions. It  was clearly understood that at the

time  of  registration  of  the  sale  deed,  vacant  and  peaceful

physical possession of property in dispute would be delivered

by the respondent to the appellant and that the respondent

would be bound to remove all plants and machineries from

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their factory in order to deliver possession to the appellant

after clearing all its dues to the various financial institutions

and keep the title deed ready. For the purpose of execution of

the sale  deed,  the appellant started doubting its bona-fide

and, therefore, by a letter/notice dated 18th of February 2006

called upon the respondent to execute the sale deed so that

the  vacant  possession of  the property  in dispute  could  be

delivered  to him.  On 20th of  February 2006,  the  appellant

received a letter from the respondent asking him to complete

the  sale  transaction  on  the  very  next  day  i.e.  on  21st of

February 2006. After the receipt of the letter mentioned

above,  the  appellant  approached  the  respondent  and

requested  the  respondent  to  perform  their  part  of  the

obligation. The respondent assured the appellant that they

would  require  some  more  time to  remove  the  machineries

from the property in dispute as they were in large numbers

and very huge in size. They also informed the appellant that

they  required  some  more  time  to  make  alternative

arrangement  of  other  premises  where  their  plants  and

machineries could be kept as they were very expensive and

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involved a lot of money. As the appellant had already paid an

amount of  Rs.2,00,00,250/-  to the respondent,  he had no

choice  but  to  keep  quiet.  The  appellant,  however,  having

believed the version of the respondent that they had difficulty

in  shifting  all  the  machineries  within  a  short  notice  kept

quiet till he realized that the intention of the respondent was

not honest as he found that the respondent was trying to sell

the property in dispute to some other party at a much higher

price. Having found that the respondent was not interested

to execute the sale deed as agreed upon, he approached the

respondent on 21st of June, 2006 to execute the sale deed,

when he also intimated the respondent that he was ready

and willing to perform his part of the contract to execute the

sale deed, the respondent refused to perform its part of the

contract and informed that they would not execute the sale

deed until and unless the appellant agreed to pay a higher

sale  consideration  over  and  above  what  was  agreed  to

between the parties. Having found that the respondent was

trying to sell  the property in dispute to a third party at a

higher price, the appellant filed an application under Section

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9 of the Act on 23rd of June 2006, before the City Civil Judge,

Bangalore,  for   injunction restraining  the  respondent  from

alienating,  altering  or  creating  any  third  party  interest  in

respect of the property in dispute. With the application, the

appellant  also  filed  an application under  Order  39 Rule  1

and 2 read with Section 151 CPC for temporary injunction

restraining  the  respondent  from transferring,  alienating  or

creating any third party interest in the same.  

4. The  respondent  entered  appearance  and  denied  the

material allegations made in the application for injunction. It

was the specific case of the respondent that since time was

the essence of the contract and the appellant having failed to

perform  his  part  of  the  obligation  of  the  contract,  the

respondent  was  not  bound  to  execute  the  sale  deed  and

therefore,  the  agreement  for  sale  was  cancelled  by  the

respondent.  Accordingly,  it  was  alleged  by  the  respondent

that the application for injunction must be rejected.    

5. The  Addl.  City  Civil  Judge  at  Bangalore  by  his  order

dated 23rd of September 2006 allowed the application filed by

the appellant,  inter alia, on a finding that “there are serious

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issues to be tried before the arbitrator and that the appellant

has successfully  made out a prima facie  case  for  grant of

injunction in the manner prayed for in the application.”  The

learned Addl. City Civil Judge, Bangalore, while disposing of

the application for injunction, came to a finding prima facie

that the respondent intended to sell the property in dispute

to some other persons at a higher price as it was found that

the  intending  purchasers  were  frequently  visiting  for  the

purpose  of  purchasing the property in dispute.   The Addl.

City Civil Judge, Bangalore, therefore, held prima facie that

the respondent was likely to sell the property in dispute and

if  it  was  sold,  it  would  make  the  award  of  the  learned

Arbitrator infructuous for  which, the appellant shall  suffer

irreparable loss and injury.  Accordingly, upon the aforesaid

findings, the Addl.  City Civil  Judge,  Bangalore  disposed  of

the  application  for  injunction  directing  the  parties  to

maintain status quo in the matter of transferring, alienating

and  creating  any  third  party  interest  in  respect  of  the

property in dispute.   

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6. It  is  against  this  order  of  Addl.  City  Civil  Judge,

Bangalore,  an  appeal  was  filed  by  the  respondent  under

Section 34 (1) of the Act before the High Court.  

7. Before proceeding further, it may be kept on record that

in the meantime, an application was filed under Section 11 of

the  Act  by  the  appellant  before  the  High  Court  for

appointment of an Arbitrator.  The  High Court by its  order

dated 27th of February 2007 appointed a retired Judge of the

High  Court  as  the  sole  Arbitrator  to  decide  the  disputes

raised by the parties.  

8. The appeal filed by the respondent against the order of

the Addl. City Civil Judge, Bangalore directing the parties to

maintain status quo, was taken up for hearing by the High

Court and the High Court, by its impugned order, set aside

the order of the Addl. City Civil Judge, Bangalore and made a

final order in the following manner :  

“1.Appeal is allowed in part.

2. The order dated 23.9.2006 passed by the VI Addl. City Civil Judge, Bangalore City in A.A.No.48/06 is set aside subject to the condition that the appellant deposits  a  sum  of  RS.2,50,00,000/-  (Rupees  two crores  and  fifty  lakhs)  only  in  fixed  deposit  for  a

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minimum  period  of  six  months  initially  in  a nationalized  bank  and  renew  the  same  till  the disposal  of  dispute  before  the  Arbitrator.  The original fixed deposit receipt shall be surrendered to the arbitrator.

3. In the facts and circumstances, there shall be no order as to costs.”

9. It  is  this  order  of  the  High  Court,  which  was

challenged by way of a Special Leave Petition, which

on grant of leave, was heard in the presence of the

learned counsel for the parties.  

10.We have heard the learned counsel  for the parties

and  examined  the  impugned  order  as  well  as  the

order of the trial court and also the allegations made

in the application for injunction and the objections

thereto in depth and in detail. The impugned order of

the  High Court  would  show that  if  the  respondent

deposits  a  sum  of  Rs.2,50,00,000/-,  the  order  of

status  quo  granted  by  the  Addl.  City  Civil  Judge,

Bangalore  in  the  matter  of  transferring,  alienating,

altering and creating any third party interest,  shall

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stand vacated and the application for injunction filed

by the appellant shall stand rejected.  

11. In  our  view,  the  appellant,  in  the  facts  and

circumstances  of  the  case,  had  successfully  made  out  a

prima  facie  case  for  grant  of  injunction  in  the  manner

granted by the Addl. City Civil Judge, Bangalore.  It is not in

dispute that the appellant and the respondent had entered

into an agreement for sale of the property in dispute inter

alia on the terms and conditions already mentioned herein

earlier.  The respondent has not denied such agreement for

sale.  The only ground taken by the respondent is that since

time was the essence of the contract and the appellant had

failed  to  perform his  part  of  the  contract  within  the  time

specified in the said agreement for sale, the question of grant

of  injunction  from transferring,  alienating  or  creating  any

third  party  interest  in  respect  of  the  property  in  dispute

would not arise at all.  At the same time, it must be kept in

mind that it  would be open to the respondent  to transfer,

alienate or create any third party interest in respect of the

property  in  dispute  before  passing  the  award  by  the  sole

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Arbitrator in which one of the main issues would be whether

time was the essence of the contract or not. It is evident from

the impugned order of the High Court that by vacating the

order of status quo granted by the trial court, practically, the

High Court had limited the scope  of  the arbitration to the

extent  that  the  right  of  the  appellant  to  receive  back  the

amount with or without compensation would be taken away,

if ultimately his allegations are found to be true.  Though,

the appellant has been denied the benefit of injunction but

since  the  application  was  under  Section  9  of  the  Act  for

interim measure,  to secure the interest of the appellant in

the event of his succeeding to an award before the arbitrator,

it would be in the interest of justice to put the appellant on

terms. It  is also evident from the impugned order that the

High Court  has made it  clear that the observations in the

same shall not be understood to have limited the power of

the  arbitrator  to  consider  the  disputes  on  all  its  aspects

including grant of specific performance of the contract, but

by vacating the interim relief to the appellant, the High Court

had made the entire arbitration proceeding infructuous and

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by dint of vacation of the interim order of the trial Court, the

respondent  shall  be  in  a  position to  transfer,  alienate  the

property in dispute to a third party by which third party right

shall  be  created  and  the  appellant  shall  suffer  enormous

injury.   Furthermore,  if,  at  this  stage,  the  respondent  is

permitted  to  transfer,  alienate  or  create  any  third  party

interest in respect of the property in dispute, then the award,

if passed in favour of the appellant by the Arbitrator, would

become nugatory and it would be difficult for the appellant to

ask the respondent to execute the sale  deed when a third

party  interest  has  already  been  created  by  sale  of  the

property in dispute and by possession delivered to the third

party.  In a contract for sale of immovable property, normally

it is presumed that time is not the essence of the contract.

Even if there is an express stipulation to that effect, the said

presumption can be rebutted.  It is well settled that to find

out whether time was essence of the contract, it is better to

refer  to  the  terms  and  conditions  of  the  contract  itself.

Further  more,  the  High  Court,  in  our  view,  has  failed  to

appreciate that by the impugned order they have also limited

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the scope of arbitration if ultimately the allegations made by

the appellant are found to be true. That is to say, if an order

restraining  the  respondent  from  creating  any  third  party

interest or from transferring the property in dispute is not

granted till  an award is  passed,  the  appellant  shall  suffer

irreparable loss and injury and the entire award if passed in

his favour, would become totally negated.  In this connection,

it is imperative to refer to a judgment of this Court in the

case of  Maharwal  Khewaji  Trust  (Regd.),  Faridkot  vs.  Baldev

Dass [AIR 2005 SC 104 in  para  10], which observed  as

follows:

“Unless and until a case of irreparable loss or damage is made out by a party to a suit, the court should not permit the  nature  of  the  property  being  changed  which  also includes alienation or transfer of the property which may lead to loss or damage being caused to the party who may  ultimately  succeed  and  may  further  lead  to multiplicity of  proceedings.  In the instant case no such case of  irreparable loss is made out except contending that the legal proceedings are likely to take a long time, therefore, the respondent should be permitted to put the scheduled property to better use. We do not think that in the  facts  and  circumstances  of  this  case,  the  lower appellate  court  and  the  High  Court  were  justified  in permitting  the  respondent  to change  the  nature  of  the property by putting up construction as also by permitting the  alienation  of  the  property,  whatever  may  be conditions on which the same is done.”

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12. Going by the ratio of the abovementioned decision, it is

clear that the VI Addl. City Civil Judge, Bangalore, was justified in

directing the parties to maintain status quo in the matter of

transferring, alienating or creating any third party interest as

prima  facie  it  has  been  proved  that  the  respondent  was

trying to sell the property in dispute to a third party, thus

alienating the rights of the property in dispute, which would

have caused irreparable damage to the appellant.   

13. From a bare perusal of the findings of the High Court

reversing  the  order  of  the  trial  Court  and  rejecting  the

application  for  injunction,  it  would  be  evident  that  the

appellant had failed to make out a prima facie case for grant

of an order of injunction in his favour.  But in view of our

discussions made hereinabove, we are of the view that the

Additional City Civil Judge, Bangalore was fully justified in

directing the parties to maintain status quo as to the nature

and  character  of  the  property  in  dispute  till  the  award is

passed by the Sole Arbitrator as we have already held that if

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the order of the status quo is not granted and respondent is

permitted  to  sell  the  property  in  dispute  to  a  third  party,

complications will arise and the third party interest will be

created, for which the award, if any, passed in favour of the

appellant  ultimately,  would  become  nugatory.   As  noted

herein  earlier,  one  of  the  main  issues  for  the  purpose  of

deciding the application for injunction was whether time was

the essence of the contract or not. By the impugned order,

the High Court had failed to appreciate that in the contract

relating to immoveable property, time cannot be the essence

of contract. In any event even in such a case, the arbitration

clause would survive and the dispute would be required to

be resolved. That being the position, pending disposal of the

arbitration  proceeding,  interim  measure  to  safeguard  the

interest was required to be taken. The High Court also, in

our view, had failed to appreciate the material on record as

the  agreement  and  the  correspondences  produced  by  the

parties to the effect that since the appellant was required to

furnish  the  nil  encumbrance  certificate  till  the  date  of

transaction  to  show  that  there  was  no  charge  over  the

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property  and  further  since  the  property  was  to  be  kept

vacant at the time of the execution of the sale  deed,  time

cannot be held to be the essence of the contract in the facts

and circumstances of the case and accordingly, the interim

measure  was  necessary  to  prevent  irreparable  loss  and

injury.  However,  the  question  whether  the  time  was  the

essence  of  the  contract  or  not  is  to  be  decided  by  the

Arbitrator in the arbitration proceeding and for that reason

only  the  High  Court  had  also  left  open  such  issue  to  be

decided by the learned Arbitrator and in this connection, the

High Court observed as follows :-   

“As such the contentions with regard to survivability of the arbitration clause and the dispute as to whether time is the essence of  the contract are issues which are within the realm of the Arbitrator and accordingly, we  do  not  wish  to  pronounce  on  the  same  and therefore,  we  do  not  see  reason  to  refer  to  the arguments and case law referred in this regard.”    

14. Since  the  High  Court  had  not  at  all  gone  into  the

question  regarding  whether  time  was  the  essence  of  the

contract  or  not,  it  is  not  necessary  for  us  to  go  into  the

question as the same shall be decided by the Arbitrator while

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passing the award.  As noted herein earlier, the respondent

while  opposing  the  application  for  grant  of  injunction,

pleaded  that  the  prayer  of  the  appellant  for  grant  of

injunction in respect  of  the  property  in dispute  should  be

refused because admittedly, the time to execute the deed by

the  appellant  had  expired  in  the  meantime.  As  we  have

already held that one of the main issues to be decided by the

Arbitrator is whether time was the essence of the contract or

not, which was not decided by the High Court while reversing

the order of the Additional City Civil Judge, Bangalore and in

view of the fact that there is no dispute that a sum of Rs.

2,00,00,250/- (Two Crores and Two Hundred Fifty) has been

paid  by  the  appellant  to  the  respondent  at  the  time  of

execution of the agreement for sale and in view of the fact

that there is no dispute that the parties had entered into an

agreement for sale on certain terms and conditions, out of

which one of the conditions was whether the time was the

essence of the contract or not which shall be decided by the

Sole  Arbitrator,  we do not  find any ground as  to  why the

order directing the status quo in the matter of transferring,

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alienating or creating any third party interest passed by the

Additional  City  Civil  Judge,  Bangalore  shall  not  be

maintained till the award is passed by the Arbitrator.  That

apart,  the  survivability  of  the  Arbitration  clause  in  the

agreement  was also questioned by the respondent  in their

objection  to  the  application  for  injunction  but  since  that

question  has  also  been  kept  open  for  the  decision  of  the

Arbitrator by the High Court as well, we have no hesitation in

our mind to hold that since the said question shall also be

decided  by  the  Arbitrator  while  deciding  the  disputes

between  the  parties,  there  is  no  ground why the  order  of

status quo granted by the trial court shall not be maintained

till the award is passed by the Arbitrator.             

15. It is well settled that even if an agreement ceases

to  exist,  the  Arbitration  clause  remains  in  force

and any dispute pertaining to the agreement ought

to  be  resolved  according  to  the  conditions

mentioned in the Arbitration clause. Therefore, in

our  view,  the  High  Court  was  not  justified  in

setting aside the order of the trial Court directing

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the parties to maintain status quo in the matter of

transferring, alienating or creating any third party

interest in the same till the award is passed by the

sole Arbitrator.  

16. It was not disputed by the High Court in the impugned

order that the respondent was trying to sell off the property

in  dispute  to  some  other  third  party  which,  in  our  view,

would  also  cause  enormous  loss  and  hardship  to  the

appellant.  It is not in dispute that the appellant had paid a

sum  of  Rs.2,00,00,250/-  (Two  Crores  and  Two  Hundred

Fifty) as advance to the respondent at the time of executing

the agreement for sale.  At the same time, it may not be out

of  place  to  mention  that  it  was  the  specific  case  of  the

appellant that the respondent had failed to hand over vacant

possession  of  the  property  in  dispute  within  the  period

specified in the agreement and for that reason only, he could

not perform his part of the contract.   

17. In view of our discussions made herein above, we are of

the view that the disputes raised by the parties can only be

determined by the sole Arbitrator and when admittedly, an

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Arbitrator  has been  appointed  to decide  such dispute,  the

parties  should  be  directed  to  maintain  status  quo  in  the

matter of transferring, alienating or creating any third party

interest  in  the  same  till  the  award  is  passed  by  the  sole

Arbitrator.    

18. At the same time, considering the fact that some time

would be required for the Arbitrator to pronounce his award

wherein the question whether time was the essence of the

contract or not would be required to be determined and if the

parties are directed to maintain status quo in respect of the

property in dispute, till such award is passed, and for that

reasons,  the  respondent  would  not  be  entitled  to  transfer,

alienate the property in dispute during the pendency of the

Arbitration  proceeding  and  considering  the  balance  of

convenience  and  inconvenience  of  the  parties,  we  feel  it

proper to direct the appellant to deposit the balance amount

of  Rs.4,99,03,829/-  (Four  Crores  Ninety  Nine  Lacs  Three

Thousand  Eight  Hundred  Twenty  Nine)  within  a  period  of

three months from the date of supply of a copy of this order

to  the  VI  Additional  City  Civil  Judge,  Bangalore,  in  fixed

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deposit  for  a  minimum period  of  six  months  initially  in  a

nationalized bank in favour of the respondent and renew the

same till  the disposal  of dispute before the Arbitrator.  The

original fixed deposit receipt shall be kept with the arbitrator.

In the event of failure of deposit of the aforesaid amount, the

order of status quo, as granted by the VI Additional City Civil

Judge,  Bangalore  and  affirmed  by  us,  shall  automatically

stand vacated and the order of the High Court, vacating the

order of status quo, shall immediately come into operation.

19. In the light of the discussions made hereinabove, we set

aside the order of the High Court and restore the order of the

VI  Additional  City  Civil  Judge,  Bangalore  subject  to  the

conditions mentioned hereinabove.      

20. For the reasons aforesaid, the appeal is allowed to the

extent indicated above.  There will be no order as to costs.

             ……………………. J.

         [Tarun Chatterjee]

New Delhi;                                ………… ………….J.

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February 18, 2009.                     [Dalveer Bhandari]

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