The Karnataka High Court has clarified that courts must preserve the status quo under Section 9 of the Arbitration and Conciliation Act, 1996, when parties have acted in a manner consistent with the continued operativeness of a Joint Development Agreement, even if contractual payment obligations remain contingent. This ruling reinforces the principle that interim relief is not merely about enforcing payment terms but about safeguarding the subject matter of arbitration.
Background & Facts
The Dispute
The dispute arises from a Joint Development Agreement (JDA) dated 15.08.2018 between the appellants, M/s Nitesh Asset Holdings (a partnership firm and its managing partner), and the respondents, Smt. B.R. Mythrai Setty and Dr. B.R. Ravindra Setty, who were landowners of two properties described as Schedule 'A' and Schedule 'B'. The JDA provided for joint development of the land, with the appellants undertaking construction and the respondents contributing the land. Crucially, possession of the land was not transferred at the time of signing.
Key Facts
- Schedule 'B' property is described as municipal nos. 41/1, 42/2, and 42/3, measuring 8,571 sq ft of undivided share in a total plot of 15,175 sq ft, with building comprising basement, ground, and first floors, and 50% rights over the terrace, located at Lavelle Road, Bengaluru.
- Clause 3.1.2 of the JDA stipulates that the appellants’ obligation to pay Rs. 3 crores arises only upon the respondents handing over vacant possession of the property without any tenancy and upon completion of title clearance.
- The appellants paid Rs. 40 lakhs on 14.08.2018 via three demand drafts, as required under Clause 3.1.1.
- Between 2018 and 2023, the appellants made additional payments totaling Rs. 2,55,50,000 in multiple tranches, with the last payment made on 30.08.2023.
- The respondents accepted all instalments without protest or reservation.
- No formal offer of vacant possession was made by the respondents to the appellants at any point.
- The appellants sent multiple communications requesting possession to commence development, which remained unacknowledged.
- The respondents filed COM.A.A. No. 137/2024 seeking restraint on the appellants from interfering with their possession of Schedule 'B' property.
- The appellants filed COM.A.A. No. 208/2024 seeking restraint on the respondents from alienating or encumbering Schedule 'B' property.
Procedural History
- 15.08.2018: Joint Development Agreement executed.
- 14.08.2018: First payment of Rs. 40 lakhs made via three demand drafts.
- 2018 - 2023: Appellants made 12 additional payments totaling Rs. 2,55,50,000; respondents accepted all without objection.
- 30.08.2023: Last payment made by appellants.
- 2024: Arbitral proceedings initiated.
- 14.07.2025: LXXXV Additional City Civil and Sessions Judge, Bengaluru, passed impugned order:
- Rejected appellants’ application under Section 9 for restraint on alienation of Schedule 'B' property.
- Directed creation of a charge of Rs. 2,55,50,000 over Schedule 'B' property.
- Permitted respondents to retain possession of Schedule 'B' property.
- 14.07.2025: Same order applied to both COM.A.A. No. 137/2024 and COM.A.A. No. 208/2024.
- 23.06.2026: Appeals filed under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996, heard by Division Bench of Karnataka High Court.
Relief Sought
The appellants sought:
- Interim restraint on respondents from alienating, encumbering, or creating third-party rights over Schedule 'B' property.
- Preservation of the subject matter of arbitration pending final award.
- Setting aside of the Commercial Court’s order dated 14.07.2025.
The respondents sought:
- Restraint on appellants from interfering with their peaceful possession of Schedule 'B' property.
- Protection of their proprietary interest pending arbitration.
The Legal Issue
The central question was whether a court, under Section 9 of the Arbitration and Conciliation Act, 1996, may refuse interim relief to a party seeking to preserve the subject matter of arbitration merely because a contractual payment obligation remains contingent, when the parties have consistently treated the agreement as operative through conduct and acceptance of payments.
Arguments Presented
For the Appellant
The appellants contended that their repeated payments of Rs. 2,55,50,000 over five years, accepted without protest by the respondents, demonstrated mutual recognition of the JDA’s continued validity. They relied on M/s. Ravi Kumar v. M/s. Suresh Enterprises to argue that conduct of parties can override literal interpretation of contingent clauses. They emphasized that the purpose of Section 9 is to preserve the status quo of the subject matter pending arbitration, and that allowing respondents to retain possession while denying appellants protection against alienation would render the arbitration futile.
For the Respondent
The respondents argued that Clause 3.1.2 of the JDA made payment of Rs. 3 crores a condition precedent to the obligation to hand over possession. They cited Sundaram Finance Ltd. v. NEPC India Ltd. to assert that courts cannot override express contractual terms. They maintained that since possession was never offered, the appellants were in default, and therefore, no interim protection was warranted. They further contended that the charge of Rs. 2,55,50,000 imposed by the Commercial Court was sufficient to protect the appellants’ interest.
The Court's Analysis
The Court examined the conduct of the parties and the language of Clause 3.1.2 of the JDA. It noted that while the payment of Rs. 3 crores was indeed contingent upon possession being handed over, the respondents had never offered possession, nor had they communicated any intention to do so. The Court observed that the appellants’ payments of Rs. 2,55,50,000 over five years, culminating in August 2023, were accepted without protest. This conduct, the Court held, indicated that the parties were treating the JDA as operative, despite the non-fulfilment of the condition precedent.
"The acceptance of instalments without reservation over a prolonged period cannot be ignored. It reflects a mutual understanding that the JDA remains alive and enforceable."
The Court further emphasized that the object of Section 9 is not to determine final rights but to preserve the subject matter of arbitration. The respondents’ possession of Schedule 'B' property was not in dispute, but the risk of alienation or encumbrance posed a real threat to the appellants’ claim for specific performance. The Commercial Court’s order, which allowed respondents to retain possession but imposed a charge, was deemed inadequate because it did not prevent the respondents from transferring or mortgaging the property.
The Court distinguished Sundaram Finance on the ground that it dealt with a clear breach of condition precedent, whereas here, the respondents had not even attempted to perform their part. The Court held that the appellants’ claim for specific performance was prima facie valid, and the status quo must be preserved to ensure the arbitration’s efficacy.
The Verdict
The appellants succeeded in part. The Court dismissed COMAP No. 491/2025 (appeal against respondents’ petition) and partly allowed COMAP No. 421/2025 (appellants’ petition). The Court directed that the parties maintain status quo in respect of Schedule 'B' property until the conclusion of the arbitral proceedings or until further orders by the arbitral tribunal. The respondents are restrained from alienating, encumbering, or creating any third-party rights over Schedule 'B' property. The charge of Rs. 2,55,50,000 imposed by the Commercial Court is upheld. The respondents may continue in possession, but no disposition of the property is permitted.
What This Means For Similar Cases
Conduct Can Override Literal Contractual Conditions
- Practitioners must now argue that persistent acceptance of partial payments without protest may establish implied waiver or modification of contingent conditions.
- In JDA disputes, courts will look beyond the text of the agreement to the parties’ conduct over time.
- A party cannot claim breach of a condition precedent while simultaneously accepting performance that presupposes the agreement’s continued validity.
Section 9 Relief Is Not Dependent on Proven Breach
- The threshold for interim relief under Section 9 is prima facie case and balance of convenience, not final determination of rights.
- Even if a party’s claim is contingent, the court must protect the subject matter if the arbitration’s purpose would be defeated without intervention.
- A charge alone is insufficient if the property’s integrity is at risk; specific restraint on alienation is required.
Arbitration Requires Preservation, Not Prejudgment
- Courts must avoid prejudging the outcome of arbitration by imposing conditions that favor one party’s interpretation.
- The role of the court under Section 9 is to preserve the status quo, not to enforce contractual obligations.
- Parties should be encouraged to resolve disputes through arbitration, not through interim litigation over technicalities.
