Full Judgment Text
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 02.05.2018
+ O.M.P. (COMM) 432/2016 & IA Nos.12248/2016 &
8497/2017
UNIVERSAL LAND AND FINANCE
COMPANY .....Petitioner
Versus
PEARL DEVELOPERS PVT. LTD. ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Raman Kapur, Sr. Advocate with
: Mr Dhiraj Sachdeva, Advocate.
For the Respondent : Mr A. K. Singla, Sr. Advocate with
: Mr Rahul, Advocate.
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner has filed the present petition under Section 34
of the Arbitration and Conciliation Act, 1996 (hereafter „the Act‟)
impugning an arbitral award dated 15.06.2016 (hereafter „the
impugned award‟) passed by the Arbitral Tribunal. The impugned
award was rendered by the Arbitral Tribunal in the context of the
disputes that had arisen between the parties in connection with the
“Agreement for Development” dated 24.04.1987 (hereafter „the
Agreement‟) and other supplementary agreements dated 23.02.1999,
04.11.2000 and 06.05.2002 respectively.
O.M.P. (COMM) 432/2016 Page 1 of 19
2. By the impugned award, the claims made by the petitioner,
which were in the nature of damages were rejected on the ground
that the petitioner had failed to establish any financial loss. The
counter claim preferred by the respondent was also rejected.
However, the Arbitral Tribunal has awarded a sum of ₹5 crores in
favour of the respondent. The petitioner has restricted the challenge
to the impugned award to the extent that it awards a sum of ₹5 crores
in favour of the respondent.
3. The petitioner has assailed the impugned award essentially on
two fronts. First, it is contended that since the Arbitral Tribunal had
found the respondent to be in breach of the contract between the
parties, the award of a sum of ₹5 crores in its favour is wholly
unsustainable. Second, the respondent had not raised any monetary
counter claims but had sought relief in the nature of specific
performance of the Agreement. It is contended that grant of any
compensation where none was sought by the respondent is contrary
to Section 21 (5) of the Specific Relief Act, 1963.
4. Briefly stated, the relevant facts necessary to address the
controversy are as under:-
5. The petitioner is a registered partnership firm and had entered
into the Agreement with the respondent for construction of 65
residential flats on a plot of land measuring 3200 sq. yards in village
Deoli, Delhi. As per the Agreement, 35% of built up area was to be
retained and owned by the petitioner and the balance 65% was to be
O.M.P. (COMM) 432/2016 Page 2 of 19
given to respondent along with ownership right. The construction
was to be completed within twenty four months from the date of
handing over the possession of the land. It was agreed that cost of
construction was to be borne by the respondent.
6. After the construction had commenced on the land, the
Municipal Corporation of Delhi (MCD) passed a demolition order.
The petitioner successfully challenged the demolition order before
the Appellate Tribunal, MCD and the appeal was decided in favour
of the petitioner by order dated 23.10.1990.
7. In the meantime, the respondent fell short of funds.
Accordingly, it obtained a sanction for a loan of ₹75 lakhs from LIC
Housing Finance Corporation Limited (hereafter „LIC‟) and the
parties entered into a tripartite agreement dated 18.03.1992 with the
LIC. In terms of the said agreement, the land in question was
mortgaged as security for due repayment of the sums due to LIC.
Although LIC had sanctioned a loan of ₹75 lakhs, it disbursed an
amount of only ₹49 lakhs.
8. A supplementary agreement dated 23.02.1999 was entered
into between the parties whereby twenty one months were granted to
the respondent for completion of the construction. However in lieu
of the extension of time, the share of petitioner was increased from
original 35% to 37.5% and consequently, and the share of the
respondent was reduced from 65% to 62.5%. It was further agreed
that if respondent failed to complete the construction on time,
O.M.P. (COMM) 432/2016 Page 3 of 19
petitioner would be at liberty to recover the possession of the
property along with damages.
9. The respondent again requested for the extension of time as
the work was not completed within time. Therefore, the parties
entered into another supplementary agreement dated 04.11.2000
extending the time for completion of the construction upto March
2001. All the terms and conditions as contained in the previous
agreements remained the same except an additional amount of ₹1
lakh refundable security was to be paid by the respondent to the
petitioner.
10. Subsequently, petitioner entered into another agreement dated
06.05.2002 to pool adjoining land measuring 850 sq. yard. However,
this agreement was not implemented due to non availability of the
said land.
11. The petitioner, by a legal notice dated 05.10.2004, terminated
the Agreement on the ground of failure of the respondent to perform
the same. Thereafter, the petitioner invoked the arbitration clause in
the Agreement by notice dated 12.03.2007.
12. The Arbitral Tribunal was constituted on 13.04.2010 by the
Indian Council of Arbitration. The petitioner filed a Statement of
Claims praying for a sum of ₹10 crores along with pendente lite
interest at the rate of 24% p.a. The respondent opposed the claim and
also raised a counter claim.
O.M.P. (COMM) 432/2016 Page 4 of 19
13. The arbitral proceedings culminated in passing of the
impugned award. The claim of petitioner was rejected and he was
directed to pay a lump sum amount of ₹5 crores. The Arbitral
Tribunal also awarded interest at the rate of 12% if the amount was
not paid within 2 month.
14. Aggrieved by the impugned award, the petitioner has filed the
present petition.
Submissions
15. The learned counsel appearing for the petitioner submitted that
the Arbitral Tribunal grossly erred in awarding any compensation as
no alternative relief of any compensation had been sought. He relied
upon on the provisions of Section 21(5) of the Specific Relief Act,
1963 and on the strength of the said provision contended that the
respondent was not entitled to any compensation without amending
the statement of claims. He relied on the decision of the Supreme
Court in Shamsu Suhara Beevi v. G. Alex And Another : (2004) 8
SCC 569 in support of his contention. He also contended that the
award of ₹5 crores in favour of the respondent was without any
basis. Lastly, he also urged that the petitioner had no opportunity to
counter any claim for compensation and thus the impugned award
also violates the fundamental policy of Indian Law, which requires a
fair opportunity to be granted to each party to meet the case set up
against him.
16. Mr A. K. Singla, the learned counsel appearing for the
O.M.P. (COMM) 432/2016 Page 5 of 19
respondent countered the aforesaid submissions made on behalf of
the petitioner. He submitted that the sum of ₹5 crores awarded by the
Arbitral Tribunal was not in the nature of any compensation but in
the nature of reimbursement. He submitted that Section 21 (5) of the
Specific Relief Act only bars the grant of compensation and not
reimbursement of expenditure incurred. He contended that the
decision of the Supreme Court in Shamsu Suhara Beevi v. G. Alex
And Another ( supra ) was not applicable as in that said case, the
Supreme Court had held that a compensation under Section 21 could
not be awarded in absence of a prayer made to the said effect; but,
the court had not made any observation restricting the power of a
court to grant reimbursement of expenses and costs incurred.
17. Mr Singla, also relied on the decision in the case of Jai
Narain Parasrampuria (dead) and others v. Pushpa Devi Saraf and
Others : (2006) 7 SCC 756 . On the strength of the said decision, he
submitted that damages could be awarded in substitution of an order
of specific performance on the principles of equity. He also relied on
the decisions in the case of Urmila Devi and Others v. Deity,
Mandir Shree Chamunda Devi through Temple Commissioner and
Others : (2018) 2 SCC 284 wherein the Court had awarded
compensation in lieu of specific performance for a contract, which
had become impossible to perform. He also referred to the decision
in the case of Jagdish Singh v. Natthu Singh : (1992) 1 SCC 647 .
Reasons and Conclusions:
O.M.P. (COMM) 432/2016 Page 6 of 19
18. At the outset, it is relevant to refer to the respective cases set
up by the parties before the Arbitral Tribunal. It was the petitioner‟s
case that in its statement of claims, the petitioner had averred that
respondent could not complete the construction within the specified
period and had requested the petitioner to bear with him.
Consequently, the parties had entered into a supplementary
agreement dated 23.02.1999 whereby an extension of twenty one
months was granted to the respondent to perform the contract. In
terms of the said agreement, the share of the petitioner in the
constructed buildings was increased to 37.5% instead of 35% as
agreed under the earlier agreement. The petitioner claimed that in
terms of the said agreement, the petitioner was also entitled to
resume the plot and recover damages for the past defaults if the
respondent failed to complete the works within the stipulated period.
The petitioner claimed that despite further extensions, the respondent
failed to complete the construction and breached the terms of the
contract resulting in loss to the petitioner. The petitioner quantified
the said loss at ₹10 crores. The petitioner also claimed interest at the
rate of 24% per annum. Out of the aforesaid amount of ₹10 crores,
₹7,30,00,000/- was claimed as damages on account of avoidable
inconvenience, hardship computed on the basis of average rent for
the completed flats. In addition, the petitioner also claimed a sum of
₹2,70,00,000/- on account of loss of business and goodwill.
19. The respondent filed its Statement of Defence raising two
preliminary objections; one with regard to locus of the petitioner to
O.M.P. (COMM) 432/2016 Page 7 of 19
file the claims and the other regarding the authority of the authorized
signatory to represent the firm. With respect to the merits of the
claims made by the petitioner, the respondent claimed that it had
constructed twenty six flats admeasuring approximately 52100 sq.
feet in six different blocks. The respondent contended that as per the
contract, the petitioner was entitled to eight flats and the same had
been offered to the petitioner; however, the petitioner did not accept
the same without any justification. Next, it was submitted that
petitioner had defaulted in arranging additional 850 sq. yards of land
in Khasra No. 672/1 located adjacent to the site and the same
constituted a breach of the obligations undertaken by the petitioner.
The respondent sought to justify the delay in performance of the
contract on account of the orders passed by the MCD restraining any
further construction on the property.
20. The respondent also preferred counter claim and, inter alia ,
prayed as under:-
“(i) Direct respondent Nos.1 & 2 i.e. M/s Universal
Land & Finance Co. (Collaborator) and M/s Indian
Airlines Co-operative Group Housing Society Ltd,
(Owner) to take over possession of 37.5% built up
area duly constructed by claimant in accordance
with specifications given in Agreement of
Development and to execute Transfer Deed of
ownership rights in land underneath of share
equivalent to 62.5% of built up area, in
consideration of claimants spending money and
development and construction of built up area
falling to the share of owners/ collaborators, in
favour of claimant, individual or association of
O.M.P. (COMM) 432/2016 Page 8 of 19
persons, Society or body corporate a stated in
Agreements of Development executed between the
parties.
(ii) Directing respondents jointly or individually to
obtain NOC/certificate from concerned authorities
certifying that any further buildings are permissible
to be constructed/raised on plot measuring 3200 Sq.
Yds. failing in Khasra No.136 of abadi of Village
Deoli, Mehrauli, New Delhi apart from built up
structure already situate and made by claimant,
thereby enabling settlement of all issues/disputes
between the parties under such agreements.”
21. In view of the disputes, the Arbitral Tribunal framed the
following issues :-
“Issue No. 1:- Which party i.e. the Claimant or the
Respondent has defaulted to carry out its obligations
under the contract dated 24.04.1987 and supplementary
agreements dated 23.02.1999 & 04.11.2000?
Issue No.2:- Whether the agreement dated 06.05.2002
was acted upon by the parties?
Issue No.3:- What relief can be granted to the Claimant
or the Respondent?”
22. It is apparent from the above that the first and foremost
question to be determined by the Arbitral Tribunal was as to which
party was in breach of the contract between the parties. In this
regard, the Arbitral Tribunal held that the respondent had presented a
reasonable explanation for not executing the works from November,
1988 – when further construction was restrained by MCD – till
23.10.1990, being the date on which Appellate Tribunal of MCD had
O.M.P. (COMM) 432/2016 Page 9 of 19
allowed the appeal and de-sealed the premises in question. However,
the Arbitral Tribunal found that there was no impediment in
construction of the building after 23.10.1990. The Arbitral Tribunal
also observed that the further construction could not be completed
thereafter as the respondent fell short of finances and had to seek a
loan of ₹75 lakhs from LIC. Out of the aforesaid sum only ₹49 lakhs
was released to the respondent. The Arbitral Tribunal also observed
that due to mismanagement or some inexplicable reason the said
loan amount was not utilized properly. The Arbitral Tribunal also
came to a finding that no construction was carried out after
31.12.1992 and the respondent‟s approach towards the entire
agreement was “very casual if not cavalier” .
23. In view of the above findings, the first issue was decided in
favour of the petitioner and against the respondent and the Arbitral
Tribunal held the respondent to be guilty of breach of the contract.
24. With regard to the damages, the Arbitral Tribunal found that
the petitioner had been unable to establish any financial loss due to
non-completion of the construction and the testimony of the
respondent indicated that the market price of the subject site as well
as semi finished structures had shown a gradual increase. In view of
the above, the petitioner‟s claim for damages was rejected.
25. Insofar as the counter claim is concerned, the Arbitral
Tribunal, inter alia , observed as under:-
“The Tribunal thus feels that since the Respondent
O.M.P. (COMM) 432/2016 Page 10 of 19
himself is guilty of breaching the agreement by failing
to raise the construction in the given time (even on
extension of reasonably long time) and is out of
possession of the subject site he is not entitled for the
prayed relief on either of the two counts .”
Accordingly, the counter claims were rejected.
26. Although the Arbitral Tribunal rejected the counter claims,
nonetheless, it proceeded to award a sum of ₹5 crores to the
respondent. The only reasons indicated by the Arbitral Tribunal in
support of its decision to award the said sum are contained in para 43
of the impugned award which reads as under:-
“ 43. In so far as the Counter Claim is concerned
since the Respondent is out of possession so neither of
the claimed relief can be granted to him. However, the
lesser relief of adequate monetary compensation
requires to be given to him; firstly towards the
reimbursement of the settlement with LIC Housing
Finance Corporation where he paid Rs.1,99,54,927/-
(One Crore Ninety Nine Lakhs Fifty Four Thousand
Nine Hundred & Twenty Seven only) and secondly
towards the expenses incurred in raising the semi
finished structures besides being dispossessed of the
subject site in some dubious manner. We accordingly
award him a lump sum amount of Rs.5 crore (Five
Crores) to be paid by the Claimant M/s. Universal Land
& Finance Company; this amount includes the earlier
figure of Rs.1,99,54,927/- (One Crore Ninety Nine
Lakhs Fifty Four Thousand Nine Hundred & Twenty
Seven only) and shall be paid within 2 months from the
receipt of a copy of the award by the Claimant failing
which he shall also be liable to pay interest @ 12% per
annum from the date of the award till the clearance of
the dues. ”
O.M.P. (COMM) 432/2016 Page 11 of 19
27. The Arbitral Tribunal also awarded future interest at the rate
of 12% per annum on the failure of the petitioner to pay the same
within two months of the date of the award.
28. This Court finds it difficult to understand the basis on which
the Arbitral Tribunal has entered an award in favour of the
respondent after having concluded that the respondent was in breach
of the contract between the parties. The finding of the Arbitral
Tribunal in this regard is unambiguous as is apparent from the
following extract of the impugned order:-
“28. All the aforesaid circumstances show that right from
the beginning the Respondent's approach towards the entire
agreement was very casual if not cavalier; to put in simple
words there is no just explaination as to why there was no
st
further construction after 31 December 1992.
xxxx xxxx xxxx xxxx
32. To be precise, examined from any angle the Tribunal
cannot avoid the conclusion that it was the Respondent who
was guilty of breach of the Contract .
The issue is decided accordingly against the Respondent.”
29. Concededly, the relief claimed by the respondent in the
counter claims was in the nature of specific performance of the
contract between the parties. Clearly, this could not be awarded since
the Arbitral Tribunal had found the respondent to be in breach of the
contract.
30. As is apparent from the paragraph no 43 of the impugned
award (as set out hereinbefore) the Arbitral Tribunal has awarded a
O.M.P. (COMM) 432/2016 Page 12 of 19
sum of ₹5 crores on two grounds. First, as reimbursement of the
amount of ₹1,99,54,927/- paid by the respondent to settle the claim
of LIC against the loan advanced by the said company to the
respondent; and second, towards expenses incurred in raising semi-
finished structures besides being dispossessed of the subject site. The
impugned award indicates no reason whatsoever as to why
respondent would be entitled to reimbursement of the amount of
₹1,99,54,927/- paid by the respondent to LIC. In terms of the
contract between the parties, the expenses for raising construction on
the site was the responsibility of the respondent and the respondent
was granted loan of ₹ 75 lakhs by LIC Housing Finance Limited out
of which only ₹49 lakhs had been disbursed. There is no reason
indicated as to why the Arbitral Tribunal felt that this liability ought
to be discharged by the petitioner particularly, when it was also of
the view that the respondent had not utilized the said amount
property.
31. It is also relevant to refer to paragraph 25 of the impugned
award where the Arbitral Tribunal has observed as under:-
“ 25. It appears that either due to mismanagement or
some other un-explicable reasons the Respondent did
not utilize the loan amount properly and that was how
that the LIC Housing Finance Corporation filed
recovery suit no. 864 of 1994 against him and the
Claimant (as he was also a party to the loan process) in
Delhi High Court. A restraint order passed against both
of them from creating any charge on the subject
property but the fact remains that the construction of
the flats was not completed even after availing of the
O.M.P. (COMM) 432/2016 Page 13 of 19
loan for more than two years i.e. the stipulated time. It
is besides the point that arranging of financial
resources was the sole responsibility of the Respondent
with which the Claimant had nothing to do.”
32. In view of the above observations, this Court finds it difficult
to reconcile the award of reimbursement of ₹1,99,54,927/- with the
observations and the finding recorded by the Arbitral Tribunal.
33. The Arbitral Tribunal had awarded a consolidated sum of ₹5
crores in favour of the respondent. Thus, the balance amount of
₹3,00,45,073/- (i.e. ₹5,00,00,000/- less ₹1,99,54,927/-) has been
awarded on account of expenses incurred by the respondent in
raising semi finished structures. First of all, the impugned award
discloses no basis on which this amount has been computed. The
statement of defence and the counter claims filed by the respondent
also do not refer to any such sum incurred in raising the building in
question.
34. More importantly, the respondent had made no claim for
expenses incurred in raising the building and there is nothing on
record to establish the same. The petitioner also had no opportunity
to contest any such claim. Thus the impugned award is
fundamentally flawed. It is trite law that a party must have full
opportunity to meet the case set up against it. This is one of the
fundamental principles of natural justice. In this view, the impugned
order falls foul of Section 34(2)(iii) as well as Section 32(2)(b)(ii) of
O.M.P. (COMM) 432/2016 Page 14 of 19
the Act inasmuch as the petitioner was not been the appropriate
opportunity to present its case. Clearly, the impugned award falls
foul of the fundamental policy of Indian Law.
35. There is also much merit in the contention advanced on behalf
of the petitioner that the impugned award is contrary under Section
21(5) of the Specific Relief Act, 1963. In Shamsu Suhara Beevi v.
G. Alex And Another ( supra ) the Supreme Court had observed that
sub section (4) and (5) of Section 21 of the Specific Relief Act had
resolved the diversion of opinion in the High Courts in respect of the
jurisdiction of the Court to award compensation in lieu of or in
addition to the relief of specific performance. The Law Commission
th
in its 9 Law Commission Report dated 19.07.1958 had referred to
the diversion of opinions with regard to award of compensation in a
suit for specific performance. The Lahore High Court had taken a
view in The Arya Pradeshak Pritinidhi Sabha v. Lahori Mal : AIR
1924 Lahore 713 that Court has the power to award damages in
substitution of or in addition to specific performance even though the
plaintiff has not specifically claimed the same. The Madras High
Court had taken a contrary view in Somasundaram Chettiar v.
Chidambaram Chettiar : AIR 1951 Mad 282 and held that the Court
could not award damages in absence of a specific claim for damages.
This was resolved by introducing subsection (5) in section 21 of the
Act, which reads as under:
“(5) No compensation shall be awarded under this
section unless the plaintiff has claimed such
O.M.P. (COMM) 432/2016 Page 15 of 19
compensation in his plaint.
Provided that where the plaintiff has not claimed any
such compensation in the plaint, the court shall, at any
stage of the proceeding, allow him to amend the plaint
on such terms as may be just, for including a claim for
such compensation.”
36. In view of the express language of Section 21 (5) of the
Specific Relief Act, 1963 no compensation could be awarded unless
the same had been claimed in the plaint. Mr Singla, the learned
counsel for the Respondent had contended that the said principle did
not apply for in respect of award of reimbursement of expenses and
therefore the impugned order cannot be faulted. The said contention
is unmerited for several reasons. First of all, this Court is unable to
accept that any distinction between compensation and
reimbursement could be made in the given facts and in the context of
Section 21(5) of the Specific Relief Act. It is not the respondent‟s
case that the Agreement envisaged any reimbursement of
expenditure incurred in construction of the buildings; admittedly, the
Agreement was one of collaboration and the respondent was required
to incur the necessary expenditure to construct the building. In this
background, the award of any amount on account of expenditure
allegedly incurred would plainly be in the nature of compensation.
37. It is also relevant to understand the rationale for introducing
section 21(5) of the Specific Relief Act, 1963. In The Arya
Pradeshak Pritinidhi Sabha v. Lahori Mal ( supra ), the court had
awarded damages on the principle that Code of Civil Procedure
O.M.P. (COMM) 432/2016 Page 16 of 19
conferred ample discretion upon the court in the matter of granting
appropriate relief. In Somasundaram Chettiar v. Chidambaram
Chettiar ( supra ) , the Madras High Court did not concur with the
aforesaid view , inter alia , for the reason, which the court articulated
in the following words :
“When such an allegation is made by the
plaintiff, the defendant would have a fair
opportunity of convincing the court that there are no
facts and circumstances which would render it just
to award damages in addition to specific
performance. Then again, the defendant ought to be
put on notice that a particular amount is being
claimed by the plaintiff for damages on this ground
and it must be open to the defendant to adduce
evidence that the damages claimed are excessive or
that the plaintiff has not sustained any damages.”
38. Thus, the rationale of not allowing a claim for damages
without a specific pleadings in this regard rests on the principle that
the plaintiff must establish the same and defendant must have an
opportunity to counter it. The divergence of opinion was resolved by
enacting sub section (5) of section 21 of the Specific Relief Act,
which proscribes award of damages in lieu of or in addition to a
relief of specific performance but at the same time permits the
plaintiff to amend the plaint to seek such relief at any stage.
39. As noticed above, the principal reason why the courts had held
that damages, which were not prayed for, could not be granted rests
on fundamental principle that the defendant ought to have a fair
opportunity to counter such claim. This principle does not admit any
O.M.P. (COMM) 432/2016 Page 17 of 19
exception on the ground that the claim made is in the nature of
reimbursement and not compensation.
40. The decision in the case of MSK Projects India (JV) Limited
v. State of Rajasthan and Another : (2011) 10 SCC 573 – which was
relied upon by Mr Singla in support of his contention – is also of
little assistance to the respondent. In that case, the Court observed
that “In Common parlance, “reimbursement” means and implies
restoration of an equivalent for something paid or expended.
Similarly, “compensation” means anything given to make the
equivalent.” However, this observation was not made in the context
of Section 21 (5) of the Act. More importantly, this decision is not an
authority for the proposition that reimbursement can be awarded to a
plaintiff without the plaintiff making any claim for the same.
41. Secondly, even if it is accepted – which this Court does not –
that the nature of a claim for reimbursement is different than a claim
of compensation, no such claim could have been awarded as no such
claim was preferred. Plainly, for the respondent to succeed in a claim
for reimbursement of expenditure it was necessary for the respondent
to specifically plead and establish the same. In the absence of any
pleadings for reimbursement of expenses, the petitioner had no
opportunity to contest the same. This runs contrary to fundamental
policy of Indian law which recognizes the principles of natural
justice as its integral constituent.
42. Lastly, the petitioner would have to establish its claim by
O.M.P. (COMM) 432/2016 Page 18 of 19
placing sufficient material on record. Plainly, the respondent had not
produced any material to establish that it had incurred expenditure of
the amount that has been awarded to it.
43. In view of the above, the impugned award cannot be sustained
as it is plainly in conflict with the public policy of India. The
impugned award is, accordingly, set aside.
44. All pending applications are also disposed of. Parties are left
to bear their own costs.
VIBHU BAKHRU, J
MAY 02, 2018
pkv
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