M/S Ayyanna Infra Private Limited vs. Sri. Chava Hanumantharao

Facts

M/s. Ayyanna Infra Private Limited (Applicant) filed an Arbitration Application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator. The dispute arose from a development agreement dated 29.04.2015 and a supplementary deed dated 31.10.2015, entered into between the applicant and the respondent's father, the late owner of a parcel of land. The applicant, a construction company, developed residential complexes on the land. Disputes emerged regarding the payment of service tax, VAT, and GST on the land owner's share of constructed area, as well as claims for damages and maintenance charges. Following the land owner's death, the respondent became the successor-in-interest. The applicant had previously issued notices invoking arbitration, but the respondent did not respond, leading to the present application.

Held

The Court held that Clause 19 of the development agreement contains a valid arbitration clause. It was also not denied that a serious dispute existed with regard to GST in respect of the land owner's share of flats and damages. The Court found the respondent's contention that there is no arbitrable dispute to be devoid of merit. Exercising jurisdiction under Section 11(6) of the Act, the Court's concern is only with the existence of a prima facie dispute, not the manner in which the claim is made or its legal scrutiny. The Court further held that it is for the arbitrator to decide whether the judgment of the CESTAT in M/s. Vasantha Green Projects vs. CCT, Rangareddy Commissionerate is applicable to the instant dispute. Consequently, the arbitration application was allowed, and Sri Mangari Rajender, District Judge (Retired), was appointed as the arbitrator to adjudicate the claims and disputes between the parties.

Key Issues

1. Whether there exists a prima facie arbitrable dispute between the applicant and the respondent arising out of the development agreement and supplementary deed, invoking Clause 19 of the development agreement. Petitioner's Contention: The petitioner argued that the exchange of notices and replies clearly indicates claims and counter-claims between the parties, necessitating resolution by an arbitrator as per Clause 19 of the development agreement. Respondent's Contention: The respondent vehemently argued that no arbitrable dispute exists. They contended that the builder's alleged failure to complete construction cannot be a camouflage to invoke the arbitration clause. The dispute concerning damages and GST payment, they argued, must be resolved before the appropriate forum and cannot be decided by an arbitrator. The respondent also relied on the CESTAT Hyderabad decision in M/s. Vasantha Green Projects vs. CCT, Rangareddy Commissionerate, which held that service tax on the land owner's share is not required if tax was paid on the builder's share, and that the applicant's claim for Rs.2,31,97,500/- is baseless and depends on the Supreme Court's decision in a pending civil appeal.