Court Requires Escrow Deposit for Arbitration Agreement Validity. Petitioner's Delay Tactics Fined.

The court upheld the lower courts' decisions, ruling that the deposit in the Escrow Account was a condition precedent for the arbitration agreement. Failure to fulfill this condition rendered the arbitration agreement inactive. The court found the petitioner's actions aimed to delay proceedings and evade tax obligations, depriving KDMC of rightful funds since 1996. The petitions were dismissed with costs, ordering the petitioner to pay Rs. 1,00,000/- for each petition to KDMC within two weeks. Failure to comply would result in dismissal of the appeals. The petitioner could deposit the amount in the Escrow Account within the same period to seek arbitration reference.

---

---

Issues Involved:
1. Validity of Arbitration Agreement under Section 8 of the Arbitration Act and Section 408 of the BPMC Act.
2. Condition Precedent for Arbitration: Whether the deposit of Rs. 6,68,76,000/- in Escrow Account is a condition precedent for referring the dispute to arbitration.

Detailed Analysis:

1. Validity of Arbitration Agreement:
The primary issue is whether the mere existence of an arbitration clause in the agreement obligates the court to refer the matter for arbitration under Section 8 of the Arbitration Act and Section 408 of the BPMC Act. The court highlighted that the provisions use the word "shall" for referring parties to arbitration, but this is contingent upon the existence of an arbitration agreement. The court must ascertain the existence of a valid arbitration agreement before referring the matter for arbitration. This principle is supported by the decision in National Insurance Company Limited vs. Boghara Polyfab Private Limited, where the Apex Court emphasized that the court must decide on the existence of an arbitration agreement. The court concluded that the existence of an arbitration clause does not automatically compel reference to arbitration; the court must first confirm the validity and existence of the arbitration agreement.

2. Condition Precedent for Arbitration:
The second issue is whether the deposit of Rs. 6,68,76,000/- in an Escrow Account is a condition precedent for referring the dispute to arbitration. The court examined the agreement dated 22nd April 2009, particularly Clauses 1, 2, and 6. Clause 1 required KDMC to issue a "No-Objection Certificate" (NOC) conditional upon the petitioner depositing the amount in the Escrow Account. Clause 2 complicated this by allowing the petitioner to deposit the amount within four months after receiving the third installment from the purchaser, effectively delaying the deposit until after the sale transaction. The court found that this arrangement allowed the petitioner to benefit from the agreement without fulfilling its obligations, thereby tricking KDMC into issuing the NOC without securing the tax dues. The court held that the deposit in the Escrow Account was indeed a condition precedent for the arbitration agreement to become effective. Without fulfilling this condition, the arbitration agreement does not come into existence.

Conclusion:
The court upheld the decisions of the lower courts, concluding that the deposit of the amount in the Escrow Account was a condition precedent to the arbitration agreement. Consequently, without fulfilling this condition, the arbitration agreement was not activated. The court also noted that the petitioner's actions were an attempt to delay the proceedings and avoid tax liabilities, depriving KDMC of legitimate funds since 1996. The petitions were dismissed with costs, and the petitioner was ordered to pay Rs. 1,00,000/- for each petition to KDMC within two weeks. If the costs were not paid within the stipulated time, the appeals filed by the petitioner would stand dismissed. The petitioner was also given the option to deposit the amount in the Escrow Account within the same period and renew its application for reference to arbitration.

---