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Contingent Contract cannot be decided in the limited jurisdiction of Courts under Section 11 of Arbitration Act: Telangana High Court

In the case of D. Ravinder Reddy v. Smt. C. Geethanjali(ARBITRATION APPLICATION No.147 OF 2021) decided through the learned bench led by Justice K. Lakshman, stated that  the scope of interference of the courts under section 11 of the Arbitration Act is extremely limited and the court should only refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis.

Facts of the Case:- The applicant who was a developer had entered into a development agreement with the respondent. As per the agreement, the applicant was to finish construction of fifty percent of the built-up share of the Respondents within 15 months from the date of obtaining sanction from the GHMC with a grace period of 3 months. According to the applicant who alleged that he had incurred huge amounts to obtain sanction for constructing the given complex but when the sanction was in its final stages a dispute arose between the parties regarding the sharing of buildup area and so the applicant sent an arbitration notice but the responded refused to appoint any arbitrator and so an application was filed by the applicant seeking to appoint an arbitrator. This Arbitration Application was filed under Sec 11 Of the A & C Act 1996 which talked about the appointment of a sole arbitrator, who would solve disputes between the parties.

Judgment: The counsel of the respondent contended that the arbitration agreement cannot be invoked by the applicant as it failed to obtain the sanction, which was one of the major terms of the agreement under clause 2, which was pre-conditional and hence a binding term. The agreement though executed was never acted upon by the Applicant, so no arbitral dispute exists.

In this case, the respondent replied on the existence of contingency of something i.e. acquiring of sanction by GHMC, this type of agreement falls under sec 31 of Indian contract act 1872. According to a contingent contract, it will only become enforceable when the condition of something to happen or not to happen is fulfilled so it will only be enforceable under sec 32, if the unforeseen condition of the contract is fulfilled and if no the contract becomes void.

Since both, the parties agreed that there exists an arbitration agreement to settle the dispute the court under sec 11 exercising its limited jurisdiction on the dispute to arbitration, asked the respondent to approach the arbitrator, to answer his questions on whether the agreement was acted upon or not and whether the sanction was rejected because of the Respondents, etc. shall be decided by an arbitrator and so the application was hence allowed.

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JUDGEMENT REVIEWED BY MANAL NASEEM

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