Full Judgment Text
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CASE NO.:
Appeal (civil) 1531 of 1999
PETITIONER:
Union of India
RESPONDENT:
M/s Banwari Lal & Sons (P) Ltd.
DATE OF JUDGMENT: 12/04/2004
BENCH:
CJI V.N. KHARE & S.H. KAPADIA.
JUDGMENT:
J U D G M E N T
KAPADIA, J.
M/s Banwari Lal & Sons (P) Ltd. \026 respondent herein is
the owner of the property situated at 6, Ansari Road, Darya
Ganj, New Delhi bearing municipal nos.4407-4412
admeasuring total area of 50328 square feets on which there are
two bhawans named as Gopal Krishna Bhawan and Radha
Krishna Bhawan along with garages, pump-house, godowns,
store-room etc. The covered area is 20426.80 square feets
whereas the balance area is an open area admeasuring 29901.20
square feets. (See: Legend at page 52 of the paper-book). Four
flats on the first floor in Gopal Krishna Bhawan were
requisitioned by Delhi Administration 27.9.1950 under
Requisition and Acquisition of Immoveable Property Act, 1952
(hereinafter referred to as "the said Act"). On 13.3.1959, the
remaining property was requisitioned under the said Act.
Before the said Act lapsed on 10.3.1987, a notification under
section 4 of the Land Acquisition Act was issued on 6.3.1987
for acquisition of the entire property. On 10.3.1987, declaration
under sections 6 and 17 of the Land Acquisition Act was
published. Aggrieved, the respondent herein filed CWP
No.2385 of 1988, which was allowed by the High Court by
judgment dated 4.2.1991 and Shri T.V.R. Tatachari, former
Chief Justice of Delhi High Court was appointed as sole
arbitrator to determine the damages w.e.f. 10.3.1987, payable
by Delhi Administration to the respondent in respect of the
property. The SLP taken out against the said judgment by the
appellant was dismissed by this Court vide order dated
21.3.1991. Appellant was, however, allowed time to vacate the
property by 31.3.1993. On 18.11.1991, the arbitrator made and
published the award directing the appellant to pay damages at
the rate of Rs.5,81,770/- per month w.e.f. 10.3.1987, to which
objections under sections 30 and 33 of the Arbitration Act,
1940 were filed by the appellant. The said objections were
dismissed by the learned single Judge on 12.7.1995. Being
aggrieved, the appellant appealed to the division bench of the
High Court. By the impugned judgment dated 22.1.1999, the
High Court dismissed the appeal. Against that judgment, the
appellant has filed this appeal by way of special leave.
Under the award, damages have been fixed @ Rs.15/- per
sq. ft. per month in respect of the covered area admeasuring
28518 sq. ft. whereas damages have been assessed @ Rs.10/-
per sq. ft. per month for larger open spaces shown in the sketch
earmarked as ’X-1, X-3 and X-4’. For smaller open spaces,
earmarked as ’X-2, X-5’, damages have been assessed at the
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rate of Rs.7/- per sq. ft. per month. The property has been
considered as commercial for assessing the damages at the
above rates.
Dr. Rajeev Dhavan, learned senior counsel and Shri
Goburdhan appearing on behalf of the appellant submitted that
the assessed damages at Rs.10/- per sq. ft. per month for larger
open spaces was highly usurious and illegal. He submitted that
the arbitrator had erred in assessing damages of Rs.1.54 lakhs
per month for open land separately vis-‘-vis the built up area
particularly when the open land was part of the main building.
In this connection, he urged that when damages were assessed
for built up portion at Rs.15/- per sq. ft. per month, there was no
question of the arbitrator once again assessing damages for
open spaces at Rs.10/- per sq. ft. per month. He pointed out
that 22 flats were in a dilapidated condition which has not been
taken into account. It was next contended that in the present
case the respondent had accepted the rent for the said property
in its entirety of Rs.40793/- per month till February, 1988
without any objection, which fact ought to have been
considered by the arbitrator while assessing damages.
As can be seen from the facts enumerated above, the said
Act lapsed on 10.3.1987, however, a notification was issued
under section 4 of the Land Acquisition Act on 6.3.1987 for
acquisition of the entire property which was challenged by the
respondent in the High Court successfully. The SLP preferred
by the appellant was dismissed on 21.3.1991, however, time
was given to the appellant to vacate the property by 31.3.1993.
On the basis of these facts, it was urged on behalf of the
appellant that the arbitrator had erred in assessing damages on
the assumption that the possession of the appellant after
10.3.1987 was illegal and in the nature of trespass. In this
connection, it was contended that use and occupation of the
property was not illegal but permissive particularly when this
Court permitted the appellant to continue in possession till
31.3.1993 and, therefore, the respondent was not entitled to
claim mesne profits but it was only entitled to rent. In this
connection, it was further contended that prior to 10.3.1987 the
property was under acquisition and, therefore, it fell outside the
provisions of Delhi Rent Control Act. However, when the
requisition period expired on 10.3.1987, the said property came
under Delhi Rent Control Act w.e.f. 10.3.1987. This property
was taken out from the purview of the Rent Act w.e.f.
1.12.1988 vide Delhi Rent Control (Amendment) Act, 1988
and, therefore, the damages for the period 10.3.1987 to
30.11.1988 could be assessed only on the basis of rent and not
on income/profit method. It was further pointed out that the
arbitrator has awarded damages for built-up area @ Rs.15/- per
sq. ft. per month (carpet area) by comparing the said property
with the property at 2/10, Ansari Road, Darya Ganj, New Delhi.
However, the respondent did not prove its claim. No valuation
report was relied upon in support of its claim; no valuer was
examined and no assessment proceedings under municipal law
was relied upon in support of the claim of the respondent.
Accordingly, it was submitted that the High Court had erred in
dismissing the objections to the said award.
Mr. Ashish Bhagat, learned counsel appearing on behalf
of the respondent submitted that before lapse of the said Act on
10.3.1987, notification under section 4 of the Land Acquisition
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Act for acquisition of the entire property was issued on
6.3.1987, which acquisition was subsequently struck down by
the High Court on 4.2.1991. The SLP taken out against the said
judgment by the appellant was dismissed by this Court on
21.3.1991. According to the learned counsel, in view of the
above facts, possession of the property by the appellant after
10.3.1987 was wrongful and illegal and in the nature of trespass
and, therefore, the arbitrator was right in assessing the damages
for wrongful use and occupation of the respondent’s property
after 10.3.1987. It was urged that this Court had struck down
the acquisition proceedings and consequently it was not open to
the appellant to contend that they were in permissive use and
occupation of the property. Since the appellant was trespasser
in use and occupation of the property, they were liable to pay
damages. It was urged that order dated 21.3.1991 passed by
this Court in the SLP gave time to the appellant of two years to
vacate the property but that would not make the possession of
the appellant lawful or permissive. Consequently, the arbitrator
was right in assessing the damages on the basis the appellant
was liable to pay damages/mesne profits to the owners for
wrongful use or occupation of the property.
As regards the question of quantum of damages awarded
by the arbitrator, it was submitted that since occupation and
possession of the said property by the appellant was illegal and
in the nature of trespass, damages were assessed on the basis of
income/profit which the respondent would have received or
realized from the said property if its possession had been
surrendered to them by 10.3.1987, when the said Act lapsed.
According to the learned counsel, the said property was capable
of being let out for commercial purposes, as held by the
arbitrator and for calculating income or profit
receivable/realizable it was necessary to ascertain the rate per
square feet and also the area of the property on which damages
were to be calculated. In support of the rates, respondent had
examined three witnesses and on the basis of their evidence, the
arbitrator has assessed the damages. Learned counsel submitted
that the quantum of damages is assessed on the basis of
marketability of the property on the date when possession ought
to have been handed over to the respondent and in cases where
the property is in occupation of a trespasser, damages cannot be
based on rental basis. It was also urged that for computing
damages for illegal occupation, after 10.3.1987, rent payable by
the appellant during the period of requisition cannot be taken
into account and, therefore, the arbitrator was right in
quantifying the damages on the basis of the market value of the
property on 10.3.1987. In this connection, it was submitted that
in fact the appellant had agreed before the arbitrator to the rate
of Rs.15/- per square feet for covered area and for open area,
the appellant had left the rate for calculation purposes to the
arbitrator and, therefore, these questions need not be reopened
or re-agitated before this Court in this appeal by way of special
leave under Article 136 of the Constitution. In this connection,
reliance has been placed on several judgments of this Court.
Two issues arise for determination in this civil appeal,
namely, \027 whether the use and occupation of the property by
the appellant after 10.3.1987 was wrongful and illegal and in
the nature of trespass; and \027 whether the arbitrator had failed
to take into account relevant factors in assessing damages
awarded in favour of the respondent.
At the outset, we may point out that there are different
methods of valuation, namely, income/profit method, cost of
construction method, rent method and contractors’ method. In
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the present case, the arbitrator has applied the income/profit
method. The above two issues are interconnected, as the
arbitrator has assessed damages on the assumption that after
10.3.1987, the occupation and possession of the property was
wrongful and illegal and in the nature of trespass. Accordingly,
he has assessed damages on the footing that the respondent was
entitled to mesne profits. This assumption was wrong as the
appellant was given time by this Court to remain in possession
up to 31.3.1993. In Law of Damages & Compensation by
Kameshwara Rao (5th Edn., Vol. I Page 528], the learned
author states that right to mesne profits presupposes a wrong
whereas a right to rent proceeds on the basis that there is a
contract. But there is an intermediate class of cases in which
the possession though not wrongful in the beginning assumes a
wrongful character when it is unauthorisedly retained and in
such cases, the owner is not entitled to claim mesne profits but
only the fair rent. In the present case, in view of the
permission granted by this Court enabling the appellant to use
and occupy the property up to 31.3.1993, it cannot be said that
the possession of the appellant was illegal and wrongful and in
the nature of trespass. In the circumstances, damages were
claimable not on the basis of mesne profits but on the basis of
fair rent. Even assuming for the sake of arguments that the
arbitrator was right in applying income/profit method, the
arbitrator has erred in not taking into account the expenses
which the appellant was required to bear for maintenance of the
property (including payment of taxes). The said property was
under requisition up to 10.3.1987. The fair rent of the property
was Rs.40793/- which was accepted by the respondent up to
28.2.1988, which fact has not been considered by the arbitrator.
In the municipal records, the value of the building which is in
dilapidated condition was shown at Rs.27700/- which was 10%
of the original cost, which fact has also not been taken into
account by the arbitrator. Similarly, there was no reason for the
arbitrator to assess damages for open larger spaces @ Rs.10/-
per sq. ft. per month when these open spaces form part of the
main building for which damages were assessed @ Rs.15/- per
sq. ft. per month. The respondent did not submit the valuation
report in support of its claim for damages. No valuer was
examined on behalf of the respondent-claimant. In the present
case, buildings were old and their age has not been taken into
account by the arbitrator particularly when the said property is
sought to be compared with the property situated at 2/10,
Ansari Road, Darya Ganj, New Delhi. No sale instances have
been put in evidence. The evidence of three witnesses who
were examined on behalf of the respondent was not cogent and
reliable for the purposes of assessing the damages. These three
witnesses were laymen and they were not experts on valuation.
The arbitrator has not taken into account the discounting
factors, such as, the age of the building, dilapidated condition of
the buildings, dilapidated condition of the flats, expenses to
upgrade the buildings etc. There is no evidence to support the
rate of Rs.15/- per sq. ft. per month for built up area. There is
no reason as to why the carpet area and not the built up area has
been taken into account. The point which we would like to
emphasize is that large number of relevant factors have not
been taken into account by the arbitrator while awarding the
damages to the extent of Rs.6.5 crores (approximately).
Before us, it was vehemently urged on behalf of the
appellant that reasonableness of the reasons given by an
arbitrator in making his award cannot be challenged in a special
leave petition. In the present case there was no violation of
rules of natural justice. It was urged that it may be possible that
on the same evidence, the Court might have arrived at a
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different conclusion than the one arrived at by the arbitrator, but
that by itself is no ground for setting aside an the award of the
arbitrator. In support of the above argument, reliance was
placed on the judgment of this Court in the case of Municipal
Corporation of Delhi v. M/s Jagan Nath Ashok Kumar & Anr.
reported in [AIR 1987 SC 2316]. We do not find any merit in
this argument. In that matter on facts this Court found that the
reasons given by the arbitrator were cogent and they were based
on material on record. Hence, the said judgment has no
application to the facts of the present case.
As stated above, the respondent has not relied upon
valuation report in support of his claim for damages. It has not
examined an expert valuer in support of its claim. The
arbitrator has given his award based on evidence of laypersons.
The sales/lease instances do not appear to be comparable. In
such matters, arbitrators are required to apply correct principles
of valuation. As stated above, in this case the age of the
property, the dilapidated condition of the property, the rent paid
for the property prior to 10.3.1987 have not been taken into
account. Even the principles of valuation based on
income/profit method have not been correctly appreciated. The
municipal assessment has also not been taken into account.
Without the relevant factors being taken into account, it was not
open to the arbitrator to award a sum of Rs.6.5 crores
(approximately) as damages. In the case of K.P. Poulose v.
State of Kerala & Anr. reported in [AIR 1975 SC 1259] it has
been held by this Court that an award can be set aside when an
arbitrator has mis-conducted the proceedings. Misconduct
refers to legal misconduct which arises if the arbitrator on the
face of the award arrives at a decision ignoring material
documents. In the case of Trustees of The Port of Madras v.
Engineering Constructions Corporation Limited reported in
[AIR 1995 SC 2423] it has been held by this Court that in the
case of a reasoned award, the Court can interfere if the award is
based upon a proposition of law which is unsound in law and
which erroneous proposition of law vitiates the decision of the
arbitrator. The error of law must appear from the award itself.
In the present case, the arbitrator was required to assess
damages by applying correct principles of valuation. As
discussed above, on facts of this case, damages were required to
be assessed for use and occupation of the premises after
10.3.1987 by the appellant under the orders of the Court. The
rent method for assessing damages has not at all been
considered by the arbitrator while assessing damages. Even
while applying the income/profit method, the expenses, the cost
of investment etc. have not been taken into account. Therefore,
the impugned award stood vitiated.
For the aforestated reasons, this civil appeal stands
allowed and the impugned judgment and order of the High
Court is quashed and set aside. Consequently, we set aside the
award dated 18.11.1991 passed by the arbitrator and remit the
matter to him for disposal in accordance with law. If the said
arbitrator is not available, the High Court shall appoint another
arbitrator who shall decide the matter within three months from
the date of appointment. In the facts and circumstances of the
case, there shall be no order as to costs.