Full Judgment Text
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
2025 INSC 464
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.6162 OF 2016
M/s. PARSVNATH FILM CITY LTD. ...APPELLANT
VERSUS
CHANDIGARH ADMINISTRATION
& OTHERS ...RESPONDENTS
WITH
CIVIL APPEAL NO.10490 OF 2017
THE SECRETARY,
INFORMATION TECHNOLOLGY,
CHANDIGARH ADMINISTRATION ...APPELLANT
VERSUS
M/s. PARSVNATH FILM CITY LTD.
& OTHERS ...RESPONDENTS
J U D G M E N T
NAGARATHNA J.
Two appeals, namely, Civil Appeal No.6162 of 2016 and
Signature Not Verified
Civil Appeal No.10490 of 2017, are disposed of by this common
Digitally signed by
NEETU SACHDEVA
Date: 2025.04.15
13:43:42 IST
Reason:
judgment.
Page 1 of 33
Civil Appeal No.6162 Of 2016
2. The appellant in Civil Appeal No.6162 of 2016, M/s
Parsvnath Film City Limited (hereinafter “appellant”) has
approached this Court against the impugned judgment of the
High Court of Punjab and Haryana at Chandigarh in FAO
No.5816 of 2015 (O&M) partially allowing the appeal filed by
the respondents (i) Chandigarh Administration and (ii) the
Secretary, Information Technology, Chandigarh Administration
under Section 37 of the Arbitration and Conciliation Act, 1996
(for short, “the Act”). The High Court, the impugned
vide
judgment, set aside the award of the Arbitral Tribunal dated
10.03.2012 and the order of the Additional District Judge,
Chandigarh in Arbitration Case No.530 of 2013 dated
08.04.2015, thereby sustaining the respondent’s action in
forfeiting 25% of the bid amount, i.e. Rs.47.75 crores.
3. The respondents have filed Civil Appeal No.10490 of 2017
against the same impugned judgment on the ground that it did
not allow the other claims raised by them, such as i) interest on
delayed payment of Annual Ground Rent; ii) forfeiture of Rs.
Five crores paid by the appellant towards the bid security; iii)
recovery of performance security shortfall of Rs.Five crores
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along with interest; and iv) recovery of other miscellaneous
expenses.
4. Respondent Nos.3-5 in both these appeals are the
members of the Arbitral Tribunal who have been added as only
proforma respondents.
5. The facts of the case relate to the respondents deciding to
establish a Multimedia-cum-Film City at Chandigarh. To that
end, it published an advertisement dated 29.03.2006 inviting
“Expression of Interest for Multimedia-cum-Film City” as an
integrated project in Sarangpur, Chandigarh on a leasehold
land admeasuring thirty acres. The project involved setting up
of state-of-the-art facilities for i) a multimedia-cum-film centre;
ii) a multimedia park; iii) a multimedia information-cum-
entertainment centre; and iv) a multimedia college. The
expression of interest complete in all respects was to be
submitted on or before 28.04.2006. Out of the fourteen
companies which submitted the expression of interest, six were
selected, including the appellant herein. Consequent upon
technical presentations and submission of technical bids, four
companies were shortlisted, including the appellant herein. A
copy of the Request for Proposal and the Draft Development
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Agreement was sent to the appellant by the respondent on
24.11.2006.
6. On receipt of the same, a pre-bid meeting was held on
08.12.2006 and various clarifications were sought on the
proposal, which were furnished by the respondents vide letter
dated 15.12.2006. Thereafter, the shortlisted companies,
including the appellant, submitted their respective bids, and
since the offer of the appellant was the highest, the respondents
issued letter of acceptance in favour of the appellant on
18.01.2007. In that letter, the appellant was asked to take
steps for execution of the Development Agreement within a
period of twenty days from the letter and to also arrange the
upfront amount.
7. By letter dated 21.02.2007, appellant stated that they
would sign the Development Agreement, but requested i) for
demarcation of the project site, as without the same, they could
not proceed with the work; and ii) preparation of the layout
plan to be annexed with the Development Agreement.
Thereafter, on 01.03.2007, appellant furnished 25% of the bid
amount, i.e. Rs.47.75 crore, by way of Demand Draft.
8. On 02.03.2007, the appellant expressed its readiness to
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sign the Development Agreement. However, as the final
demarcation was yet not settled, it requested that:
i) The date of start of the development period be
the date on which the final demarcation plan is
issued to them; and
ii) The payment of next instalment due which was
75% of the bid price to be paid by the appellant
within 90 days of signing of the agreement
should be read as 90 days from the date the final
demarcated plan was issued to them.
9. By a reply letter of the same date, the respondent had
agreed to both the requests, and thereafter both the parties
entered into the Development Agreement on the same date.
10. The provisions in the Development Agreement relevant to
the case at hand are:
“Article 1: DEFINITIONS AND INTERPRETATIONS.
1.1. Definitions
xxx
x(ix) Payment Schedule
Means the schedule as set out in Schedule IV hereto for
payment of consideration by Developer to CA for right
to participate in the development and operation of the
Project.
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l) Performance Security
Means the security to be provided by the Developer for
performance guarantee to CA in the form of a Bank
Guarantee of a Bank as per Article 10.12 hereof.
xxx
Article 2: CONDITIONS PRECEDENT
2.1 CA may, in its sole option, terminate this
Agreement and/or the Lease Agreement if the following
conditions ("Conditions Precedent") are not (in the
reasonable opinion of CA) achieved/fulfilled by the
Developer before the expiry of six(6) Months after the
Agreement Date or such extended date as may be
permitted by CA:
2.1.1 If the Developer fails, refuses or is unable to
provide the Bank Guarantee as contemplated in Article
10.12.1 hereof; or
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2.1.3 The Developer obtaining Approvals including
environmental clearance from Ministry Of Environment
and Forests.
2.2 If the Conditions Precedent are not fulfilled, the CA
may agree to extend the time period required to fulfil
the Conditions Precedent. In the event that the
Condition Precedent in respect of the Approvals are not
fulfilled, then the CA may (in its sole discretion) provide
the Developer the time required to enable the Developer
to obtain the Approvals, provided however that the
Scheduled Project Completion Date shall automatically
stand extended commensurately.
2.3 If any of the Conditions Precedent have not been
fulfilled or waived in writing by the CA, then the CA
may, at its sole option, without prejudice to its rights
hereunder and under Applicable Laws, terminate this
Agreement whereupon the amount paid towards Bid
Price and Bid Security/ Performance Security (as the
case may be) by the Developer to CA shall forthwith
stand forfeited.
Page 6 of 33
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2.5 The Leasehold Right of the Developer shall be
deemed to have begun only on fulfilling the Conditions
Precedent. Till then the Developer shall be deemed to
be acting as a trustee and custodian of the Leasehold
Land for and on behalf of the CA.
Article 3: GRANT OF RIGHTS TO THE DEVELOPER
3.1 Grant of Leasehold Right
3.1.1 Subject to the terms hereof, the CA. shall, before
the expiry of 90 days after the date of execution hereof,
grant to the Developer Leasehold Right upon and in
relation to 30 acre of the Leasehold Land more
particularly described in the Schedule II hereto, for a
period of 99 (ninety nine) years from the date of signing
the Leasehold Agreement as per the terms and
conditions more particularly set out in Schedule VII
hereto.
3.1.2 The right to access and use the Leasehold Land
for a period of 99 (ninety nine) years shall be made
available to the Developer by the CA free from all
Encumbrances and occupations. ("Leasehold Right").
3.3 Development Period
3.3.1 The "Development Period" shall be a total period
of 36 (thirty six) Months (including 30 [thirty] Months
of construction period) starting from the Agreement
Date. The Development Period includes (a) the period of
6 (six) Months starting from Agreement Date within
which the Developer shall obtain all requisite Approvals
including environmental clearance/s for the Project
and (b) construction period of 30 (thirty) Months
starting after the said 6 (six) Months period set out at
(a) above within which the Project is to be completed by
the Developer.
If delay is due to obtaining of environmental clearance
then CA may in its sole discretion, upon satisfactory
reasons for such delay being provided by the Developer
allow extension by such further period as may be
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deemed necessary by CA to accommodate the
Developer's time-line to procure the said environmental
clearance. In case of such extension, the construction
period of 30 (thirty) months for development of the
Project shall commence from the date of obtaining of
environmental clearances.
3.3.2 Provided further that in the event of any delay
attributable to the CA in handing over occupation of
the Leasehold Land to the Developer, after payment of
entire Bid Price, the said period of 36 (thirty six)
Months shall be exclusive of the period of any such
delay attributable to the CA. For the avoidance of
doubts, the Developer shall be obliged to procure from
CA a letter recording the date on which such hand over
of Leasehold Land would have been effectuated by CA.
xxx
ARTICLE 4: CONSIDERATION
4.1 As and by way of consideration for the CA granting
the Development Right, the Developer shall pay to CA
the following:
4.2 Annual Ground Rent
4.2.1 Annual Ground Rent (AGR) shall be the amount
payable by the Developer to CA at the rate specified in
Schedule IV annually in advance from the date of
signing the Agreement till end of the Agreement Period.
The Developer shall be required to pay the AGR yearly
in advance (from the date of signing the agreement).
xxx
4.3 Bid Price
4.3.1 Bid Price means the total amount payable by the
Developer to CA i.e. Rs. 191,00,00,000/- [Rupees One
hundred and ninety one crores only], being the
consideration payable by the Developer for receiving the
right to develop the Leasehold Land consistently with
the terms hereof CA acknowledges receipt of amount of
Rs. 47,75,00,000/- [Rupees Forty seven crore seventy
Page 8 of 33
five lac only]… being a part of the Bid Price required to
be paid upfront by the Developer. The Developer shall
pay the balance and outstanding Bid Price to CA in
accordance with the timelines specified in Schedule IV.
Under no circumstances, except provided in this
Agreement, the Bid Price accepted shall be altered and
this is the essence of this Agreement.
xxx
5.2 Obligations of the CA
In addition to any of its other obligations under this
Agreement, during the Development Period, the CA
shall;
i) grant to the Developer, the requisite permission(s) to
develop the land required for the development of the
Project. The Leasehold Land shall be made available to
the Developer by Chandigarh Administration free from
all Encumbrances and occupations.
ii) assist the Developer in obtaining Approvals required
by the Developer in accordance with this Agreement;
and
iii) make arrangement for provision of electricity
supply, sewerage and drainages to be brought to the
periphery of the Leasehold Land.
xxx
5.4 Additional Conditions of Agreement
5.4.1 Leasehold Land Conditions
The Developer shall be deemed to have carefully
studied the work and site conditions specifications,
schedules and drawings and various other data and
shall be deemed to have visited the site of the work and
to have fully informed himself regarding the local
conditions. Developer shall be deemed to have carried
out his own surveys and investigations and assessment
of site conditions.
Page 9 of 33
xxx
10.11.5 Delay in completion of the Project
In case of delay in achieving the completion of the
construction of the Project within 36 (thirty six) Months
from the Agreement Date and subject to satisfaction of
CA for the reasons of such delay, the Developer may be
allowed extension of 6 (six) Months to complete the
development of the Project. If development of the
Project is not completed within such extended period,
then it shall be treated as Developer’s Event of Default.
10.12 Performance Security
10.12.1 In order to ensure that the Project is developed
within the stipulated period of 36 (thirty six) Months
from the Agreement Date and the development of the
Project is as per the provision of this Agreement and to
facilitate compliance with the other applicable
provisions of this Agreement, the Developer shall
furnish to the CA, Bank Guarantee from any Bank
through its branch at Chandigarh for an amount of Rs.
10 Cr. (Rupees Ten Crore only) within one Month from
the date of execution of this Agreement.
10.12.2 Failure of the Developer to provide the
Performance Security in accordance with this
Agreement shall entitle the CA to forfeit the Bid
Security amount paid and to terminate this Agreement
in accordance with the provisions of Article 14.1.1
without being liable in any manner whatsoever to the
Developer.
xxx
10.12.6 The Developer undertakes that the
Performance Security shall be payable immediately on
demand and without the assertion of any defences on
part of the Developer.
xxx
ARTICLE 12: EVENT/S OF DEFAULT AND
TERMINATION
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12.1 The Developer Event of Default
12.1.1 A "Developer Event of Default" shall be deemed
to have occurred if any of the following events has
occurred, unless the same has so occurred as a
consequence of a Force Majeure Event:
xxx
ii) The Developer fails, neglects, refuses, or is unable to
pay the consideration in accordance with the Payment
Schedule indicated in Schedule IV.
xxx
iv) The Developer repeatedly and persistently remains
in breach of any of its obligations under this
Agreement; or
xxx
vi) The Developer fails to comply with any of the terms
and conditions of the Lease Agreement.
ARTICLE 14: COMPENSATION
14.1 Compensation
14.1.1 Termination due to Developer Event of Default
If the Termination is due to a Developer Event of
Default, no compensation shall be payable by the CA to
the Developer. Bid Price along with Annual Ground
Rent paid by the Developer shall be forfeited. The
Security Deposit provided by the Developer shall be
encashed by CA.
xxx
ARTICLE 20: DISPUTE RESOLUTION
xxx
20.3 Arbitrators
In the event of a Dispute arising out of or in connection
with this Agreement not being resolved in accordance
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with the provisions of Article 20.2 above. either Party
shall be entitled to, by notice in writing ("Arbitration
Notice") to the other Party, refer such Dispute for final
resolution by binding arbitration in accordance with
the Arbitration & Conciliation Act, 1996.
In case the dispute is referred to arbitration under the
Arbitration and Conciliation Act, 1996 the arbitration
shall be by a panel of three Arbitrators, one to be
appointed by each Party and the third to be appointed
by the two arbitrators appointed by the Parties. A Party
requiring arbitration shall appoint an Arbitrator in
writing, inform the other Party about such appointment
and call upon the other Party to appoint its Arbitrator.
If the other Party fails to appoint its Arbitrator, the
Party appointing Arbitrator shall take steps in
accordance with Arbitration and Conciliation Act, 1996,
and subsequent amendments thereto.
xxx
20.7 Enforcement Award
Any decision or award resulting from arbitration shall
be final and binding upon the Parties. The Parties
hereto hereby waive, to the extent permitted by law,
any rights to appeal or to review of such award by any
court or tribunal. The Parties hereto agree that the
arbitral award may be enforced against the Parties to
the arbitration proceeding or their assets wherever they
may be found and that a judgement upon the arbitral
award may be entered in any court having jurisdiction
thereof.”
11. There were further communications between the appellant
and the respondent over the next few months concerning the
demarcation plan. Further, the appellant also requested, vide
letter dated 14.02.2008, the respondent to remove two HT lines
of 11KV each passing through the alignment where the project
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was to be set up. It was only on 17.07.2008, i.e. after 16.5
months, that the demarcation plan was provided to the
appellant. Due to considerable delay, appellant claimed vide
letter dated 08.10.2008 to the respondent that their
arrangements with various other associates for implementing
the project was frustrated; that the project cost escalated; and
that the market scenario had changed. Further, they claimed
that i) the two HT lines were yet to be removed; ii) necessary
infrastructure for the project was yet to be provided; and iii) the
Zoning Plans were yet to be released by the respondent.
12. Thereafter, a High Level Committee was constituted by the
respondent on 11.11.2008 where all the above issues
mentioned by the appellant were discussed. It was
unanimously decided that the Administrative Department
would work out a proposal with regard to rescheduling of
payments by the appellant.
13. As no further action was taken by the respondent despite
the decisions made in the High-Level Committee meeting, the
appellant declared the development agreement to have been
frustrated and required the earnest money deposited to be
returned to them with interest, vide letter dated 10.12.2008.
Page 13 of 33
However, as there was no response from the respondent, it
again sent a letter dated 01.12.2009 pointing out the works
that were yet to be undertaken by the respondent, and invoked
Clauses 20.1 and 20.2 of the Development Agreement to
request the respondent to settle the issues amicably.
14. However, the respondent terminated the Development
Agreement on 16.12.2009 on grounds that i) non-obtaining of
environmental clearance; ii) failure of the appellant to file bank
guarantee of Rs.Ten crores towards the performance security;
and iii) non-adherence to payment schedule. It also forfeited the
amount of Rs.47.75 crores which was earlier paid by the
appellant.
15. Aggrieved, the appellant invoked the arbitration clause in
Clause 20.3 of the Development Agreement. As the respondent
refused to appoint an arbitrator, the appellant approached the
High Court, and vide order dated 17.05.2010, the Arbitral
Tribunal was constituted.
16. The appellant raised the following claims:
i) an amount of Rs.47.75 Crores paid by the
claimants to the respondents towards 25% of bid
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price;
ii) interest @ 9% above the prevailing Prime Lending
Rate (“PLR”) of State Bank of India on the
amount of Rs.47.75 Crores from 01.03.2007 till
the date of refund;
iii) compensation for all losses and damages suffered
by the claimants due to breaches of contract.
Commissions and omissions of the respondents
along with interest thereon @ 9% above the
prevailing PLR of State Bank of India;
iv) an amount of Rs.3,00,00,000 incurred by the
claimants for works carried out/commissioned
for the Project;
v) Claim for compensation for loss of profit/loss of
opportunity;
vi) Claim for pre-suit, pendent-lite and future
interest @ 9% above the prevailing PLR of State
Bank of India on the above sums/disputes from
the date the same were incurred till the date of
payment thereof;
vii) Claim for litigation costs (as per actual)
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17. The following counter-claims were raised by the
respondents:
i) Declaration that the termination of the Development
Agreement was valid;
ii) Forfeiture of the amount paid towards the bid price
by the appellant to the respondents was valid;
iii) Claim for amount to be deposited by the appellant
towards Annual Ground Rent as per the Development
Agreement;
iv) Forfeiture of Rs.5,00,00,000/- paid towards bid
security by the appellant to the respondents along
with interest @ SBI PLR + 9% from 1.4.2007 till
15.9.2010;
v) Recovery of performance security of Rs.5,00,00,000/-
from the appellant to the respondents due to non-
performance along with interest @ SBI PLR + 9%
from 01.04.2007 till date of payment;
vi) Interest on investment of Rs.4,50,00,000/- by the
respondents in purchase of land for Film City project
remaining unproductive till date due to non-
performance of the claimants;
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vii) Recovery of Rs.63,13,106/- spent as miscellaneous
expenses for the said project along with interest @
SBI PLR + 9% p.a.;
viii) Claim on account of costs of arbitration;
ix) Claim for pre-suit, pendent-lite and future interest @
SBI PLR + 9% on the amount found payable;
18. Based on oral and documentary evidences and the
arguments addressed by the learned counsel on both sides, the
Arbitral Tribunal held as follows:
i) That on the date of signing of the Development
Agreement, the final demarcation plan was not
ready, and that without it, the appellant could
not have finalised the layout plan for the project;
ii) That there was a delay of sixteen and half
months in the issuance of demarcation plan by
the respondents, and that the appellant cannot
be held responsible for this delay;
iii) Respondents were not in a position to handover
encumbrance-free land to the appellant, as
required by the Agreement, as even the
respondents had acknowledged that development
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could not commence without the removal of HT
lines;
iv) That till the finalisation of the demarcation plan,
the appellant had no means to know whether or
not the HT lines would be part of the project site;
v) That a perusal of the minutes of the meeting
dated 11.11.2008 would categorically reveal that
it was the respondents’ own admitted case that
they defaulted in providing encumbrance-free
land to the appellant;
vi) That the provision concerning bank guarantee
had to be read in context and that it presupposes
the fulfilment of all obligations by the
respondents within the period prescribed in the
agreement. Since the respondents had not done
so, the development period could not be said to
have started;
vii) That the claimants were not responsible for the
delay in obtaining environmental clearance since
the respondents had not provided the requisite
details;
viii) That without serving a notice under Article 12.2
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of the Development Agreement, the respondents
had no justification or contractual right to
terminate the contract;
ix) Thus, the termination of the Development
Agreement was illegal and de hors the provisions
of the contract. Therefore, all consequential effect
had to be borne by the respondents.
19. The Arbitral Tribunal awarded to the appellant:
i) Rs.47.75 crores as refund of the amount paid by
it towards 25% of the bid price;
ii) 12% p.a. interest on the above sum of Rs.47.75
crores with effect from 01.03.2007;
iii) Rs.47,75,000 as compensation for all losses and
damage suffered by the appellant;
iv) Rs.46,20,715 for works carried out/
commissioned for the project; and
v) 12% p.a. interest with effect from 16.12.2009 till
date of payment on awards (iii) and (iv);
vi) Rs.50,00,000 towards litigation costs;
20. The Arbitral Tribunal also dismissed the counter-claims of
the respondents as they were predicated on the same issues as
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noted above.
21. Aggrieved, the respondent filed an application under
Section 34 of the Act before the Additional District Judge,
Chandigarh in Arbitration Case No.530 of 2013 for setting aside
the award passed by the Arbitral Tribunal. However, the Court,
vide order dated 08.04.2015 dismissed the application holding
that it found no reason to interfere under section 34 of the Act.
It held that, based on records, the non-complying of the
requirements/conditions precedent and the non-adherence to
the payment schedule by the appellant was due to non-fulfilling
of obligations on the part of the respondents. It also considered
the reasoning of the Arbitral Tribunal and observed that the
aspect of non-depositing of bank guarantee towards
performance security was never raised by the respondents by
way of seeking the same from the appellant, which also showed
that such a demand was not raised as the respondents were
aware of the delay being due to their lapse. Further, it noted
that as the schedule of the payment was agreed to be revised, it
cannot be said that the condition regarding depositing of 75%
of bid price was defaulted by the appellant.
22. Aggrieved by the aforesaid order, the respondent filed an
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appeal under Section 37 of the Act in FAO No.5816 of 2015
(O&M) before the High Court of Punjab and Haryana. By the
impugned judgment dated 17.03.2016, the High Court partially
allowed the application, holding that the appellant had shown
unwillingness to carry on with the work and that the said
frustration of the contract would not fall within the provisions
of section 56 of the Indian Contract Act, 1872, but would rather
fall under Section 39 of the said Act, which deals with the effect
of refusal of party to perform promise wholly. It observed that
both the parties in the meeting dated 11.11.2008 had put their
hands together to solve the issue by working out a proposal
with regard to the rescheduling of the payments by the
appellant, but within a month of that meeting, the appellant
frustrated the agreement. That the respondents cannot be
faulted in not issuing thirty days’ advance notice before
termination of the contract as it was the appellant who had
shown unwillingness to carry on with the work. The Court
further observed that the award of the Arbitral Tribunal
granting compensation of Rs.46,20,715 was wrong as the
appellant had not even “used the spade or dug a pit” and that
such an award puts onerous obligation upon the respondents.
It noted that the appellant gave the bid after inspecting the site
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and was aware of the HT lines and therefore must have raised
the issue before submitting the bid or ought to not have
participated in the bidding. It held that the award of the
Arbitral Tribunal was against public policy and that the
Objecting Court ought not to have dismissed the application
under Section 34 of the Act. It further observed that the
appellant appeared to have not shown any interest in carrying
out the work after submission of the bid, as the prices of the
property had fallen, otherwise, till 11.11.2008, both the parties
were at in solving the trivial issues. Therefore, it
ad idem
upheld the act of the respondent in forfeiting the earnest
money. However, it made no mention of the other claims of the
respondent.
23. Being aggrieved by the above judgment dated 17.03.2016
passed by the High Court of Punjab and Haryana in FAO No.
5816/2015 (O&M) in an appeal filed under Section 37 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to
as ‘the Act’ for the sake of brevity) by which the order passed by
the District Court in an application filed under Section 34 of
the Act was set aside and consequently, Award dated
10.03.2012 passed by the Arbitral Tribunal was also set aside,
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the claimant in the Arbitral proceeding is before this Court.
24. We have heard Shri V. Giri, learned senior counsel for the
appellant(s) and Shri Krishna Kant Dubey, learned counsel for
the respondent(s) and perused the material on record.
25. It is noted that the Arbitral Tribunal by its Award dated
10.03.2012 has firstly directed that the initial amount
deposited by the appellant herein being Rs.47.75 crores, which
was 25% of the total bid amount for Rs.191 crores, to be
refunded with interest at the rate of 12% per annum w.e.f.
01.03.2007 till realisation. Secondly, a sum of Rs.47,75,000/-
has been awarded as compensation for actual loss. Thirdly, a
sum of Rs.46,20,715/- has been awarded towards actual
expenses incurred by the appellant herein with interest at the
rate of 12% per annum from 16.12.2009, that is, the date of
termination till the date of realisation.
26. The said Award was affirmed by the District Court in an
application filed by the respondent herein under Section 34 of
the Act. It is the aforesaid Award which has now been set aside
in the appeal filed by the respondent herein under Section 37 of
the Act and hence this appeal has been filed.
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27. It is also necessary to observe that the counter claim of
the respondent was rejected by the Arbitral Tribunal as well as
by the District Court and the High Court.
Reasons of High Court:
28. The reasoning of the impugned judgment to set aside the
Arbitral Award dated 10.03.2012 and the order of the
Additional District Judge, Chandigarh dated 08.04.2015 was on
the basis that:
i. the appellant refused to perform their promise wholly
by showing unwillingness to carry on with the work
and that such unwillingness cannot fall within the
four corners of section 56 of the Indian Contract Act,
1872;
ii. the appellant frustrated the agreement within just a
month of the meeting dated 11.11.2018 wherein both
the parties resolved to working out a proposal with
regard to the rescheduling of the payments;
iii. the appellant must have raised the issue of HT lines
before submitting the bid or ought to not have
participated in the bidding process;
iv. the issues were trivial and both the parties were ad-
Page 24 of 33
idem in solving them;
Consequently, the impugned judgment held the award to
be against public policy and that the award puts onerous
obligation upon the respondents.
29. We hold that the impugned judgment proceeded on a
wrong basis and has wrongly set aside the arbitral award. We
say so for the following reasons:
29.1 Firstly , the Development Agreement was executed between
the parties on 02.03.2007. The entire project was based on a
‘Right to Participate Model’, where the entire cost of
development of the Project with all related infrastructure and
utilities was to be done under ‘Develop-Build-Finance-
Maintain-Operate’ methodology. Article 3.3 of the Agreement
provided for the development period which was “a total period
of 36 (thirty six) months (including 30 [thirty] months of
construction period) starting from the Agreement date”.
Further, this development period also included the period of six
months within which the appellant had to obtain all requisite
approvals for the project. As regards delay in obtaining
environmental clearance, the Article allowed for extension due
Page 25 of 33
to delay on the part of the appellant only on satisfactory
reasons and subject to the discretion of the respondents. Article
3.3.2 governed a scenario where delay in handing over
occupation of leasehold land to the appellant was attributable
to the respondents but such a scenario would come into effect
only after payment of the entire bid price. However, it obligated
the appellant to procure a letter from the respondents recording
the date on which such handing over of the leasehold land
would be effected by the respondents. Further, Article 10.11.5
provided that if the project was not constructed within 36
months from the agreement date, the appellant would be
allowed an extension of six months subject to the satisfaction of
the respondents as regards the reasons for such delay.
29.1.1 A reading of the above provisions would indicate that
time was of some essence to this project, unless, if the delay
was attributable to the appellant, then such delay was to be
acceptable to the respondents based on sufficient reason. If the
delay was attributable to the respondents, then such delay was
to be excluded from the period of 36 months, but the appellant
was obligated to procure a letter from the respondents
indicating the date on which the handing over of the leasehold
Page 26 of 33
land would be effected.
29.1.2 In the present case, as noted by the Arbitral Tribunal
and the District Court, the appellant had been requesting the
respondents for the demarcation of the project site since
21.02.2007. On the date of signing of the Development
Agreement, i.e. on 02.03.2007 when the period of 36 months
was to begin, the respondents even agreed to the appellant’s
request that the date of start of the development period be the
date when the final demarcation plan was issued to them.
However, the demarcation plan was issued only on 17.07.2008,
i.e. after an unreasonable delay of 16.5 months. In other words,
the demarcation plan was issued just before half the period of
36 months was complete. The appellant could not have
anticipated that there would be a delay of such duration in the
mere issuance of a demarcation plan.
29.2 Secondly , the respondents were obligated under Article 5.2
of the Development Agreement to grant the appellant the
leasehold land free from all encumbrances and occupations. On
a perusal of the minutes of the meeting dated 11.11.2008 held
between the appellant and the respondents, it could be
observed that the respondents acknowledged that the two HT
Page 27 of 33
lines had to be removed so as to provide encumbrance free land
to the appellant. It is relevant to note here that there was no
timeline provided for the same. Further, the minutes also
provided that the Senior Town Planner had to release the
revised zoning plan since the earlier zoning plan was not in
accordance with the terms of the Agreement. However, for this
action, the timeline provided was till 17.11.2008. Due to the
delay in granting even the zoning plan, the appellant had
requested for certain reliefs, including an interest amount of
Rs.14 crore on the amount of Rs.47.75 crore from 01.03.2007
till 17.07.2008, i.e. the date of delivery of demarcation plan.
This was agreed to by the respondents as well. Further, it was
unanimously agreed that the Administrative Department would
work out a proposal with regard to the re-scheduling of
payments by the appellant. However, there was no definitive
date provided therein. Despite such decisions being taken in
the above meeting dated 11.11.2008, there was no further
action even till 10.12.2008. Such non-action led the appellant
to declare the agreement to have been frustrated.
29.2.1 If the above facts are read keeping in mind Article
3.3.2 of the Development Agreement, it would be clear that
Page 28 of 33
there was a clear and unreasonable delay attributable to the
respondents in handing over encumbrance free land to the
appellant. Despite raising this issue several times, the
respondents could not provide a definite date on which they
would be able to deliver such encumbrance free land. Clearly,
about 22 months had passed since the development agreement
was signed between the parties, and the development period
would have completed in another 14 months, had the
respondents completed their obligations on time. In such a
scenario, the appellant cannot be held to have shown
unwillingness to carry on with the work, as held in the
impugned judgment.
29.3 Thirdly , the project envisaged by the respondents was
commercial in nature. The appellant was engaged after a
process of competitive bidding. As there was a definite time
period provided for in the Development Agreement to complete
the project, the appellant would have had to engage the services
of different professional agencies beforehand. All such sub-
contracts would have been frustrated due to the delay
attributable to the respondents. Further, due to the delay, the
appellant would have to engage fresh services of these agencies,
Page 29 of 33
the cost of which would only escalate with time. In these
circumstances, the observations in the impugned judgment to
the effect that both the parties, in the meeting dated
11.11.2008, resolved to working out a proposal with regard to
the rescheduling of the payments and that the appellant
frustrated this revised agreement within just a month of that
meeting does not appear to be reasonable to us. The meeting
dated 11.11.2008 was held not only regarding rescheduling of
the payment. Rather, the conclusions arrived at in the meeting
dated 11.11.2008 has to be viewed in the context of the terms
of the Development Agreement and the commercial nature of
the project. It was only when no progress took place despite a
month having passed since the meeting that the appellant
declared the development agreement to have been frustrated.
29.4 Fourthly , we find it unreasonable to agree with the
observations of the impugned judgment that the appellant
should have raised this issue before submitting the bid or
ought to not have participated in the bidding process. Though,
according to the Request for Proposal, the bidders shall be
deemed to have conducted a due diligence exercise with respect
to all aspects of the project, admittedly, the respondents noted
Page 30 of 33
in the meeting dated 11.11.2008 that the two HT lines had to
be removed so as to provide encumbrance free land to the
appellant. It was resolved in that meeting that the matter would
be taken up with the PSEB at the highest level.
29.5 Fifthly , the issues involved between the parties cannot be
termed trivial. As noted earlier, time was of the essence in this
project. Therefore, each day’s delay in executing the project
after signing of the Development Agreement had commercial
consequences and struck at the heart of the Development
Agreement. As the delay here extended to more than 16
months, the impugned judgment could not have termed the
issues between the parties as trivial and that the parties were
ad idem in solving them.
30. In the circumstances, we find that the High Court was not
justified in setting aside the Arbitral Award dated 10.03.2012
and consequently, the order passed on the application filed
under Section 34 of the Act. The reasons assigned for doing so
in our view are not in accordance with law. Consequently, we
find that the appellant herein is entitled to the sum of Rs.47.75
crores, being the initial deposit and Rs.46,20,715/- being the
actual expenses incurred. However, the rate of interest awarded
Page 31 of 33
at 12% per annum, we find, is on the higher side. In the
circumstances, we modify the rate of interest to 8% per annum,
while retaining the other directions. Having regard to payment
of interest, we find that having regard to the fact that payment
of interest has been ordered both with regard to initial deposit
as well as on the actual expenses, the award of compensation
for loss of Rs.47,75,000/- was not in order. In the
circumstances, we modify that portion of the Arbitral Tribunal’s
award and hold that the appellant is not entitled to
Rs.47,75,000/- as compensation for loss. The Arbitral
Tribunal’s Award dated 10.03.2012 is modified in the aforesaid
terms and as a result, the order passed under Section 34 of the
Act also stands modified mutatis mutandis . Consequently, the
impugned order passed under Section 37 of the Act is set-aside.
31. As the Arbitral Award was passed as early as on
10.03.2012, we direct the respondent(s) to deposit/pay the
amount on or before 30.06.2025 without driving the appellant
herein for execution of the said Award. If the amount is not
paid to the appellant on or before 30.06.2025, the interest shall
be at the rate of 12% per annum instead of the reduced rate of
8% per annum.
Page 32 of 33
32. The appeal is allowed and disposed of in the aforesaid
terms. No costs.
Civil Appeal No.10490/2017:
We find no merit in this appeal. The same stands
dismissed. No costs.
. . . . . . . . . . . . . . . . . . . . . . J.
(B.V. NAGARATHNA)
. . . . . . . . . . . . . . . . . . . . . J.
(SATISH CHANDRA SHARMA)
NEW DELHI;
MARCH 20, 2025.
Page 33 of 33
IN THE SUPREME COURT OF INDIA
2025 INSC 464
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.6162 OF 2016
M/s. PARSVNATH FILM CITY LTD. ...APPELLANT
VERSUS
CHANDIGARH ADMINISTRATION
& OTHERS ...RESPONDENTS
WITH
CIVIL APPEAL NO.10490 OF 2017
THE SECRETARY,
INFORMATION TECHNOLOLGY,
CHANDIGARH ADMINISTRATION ...APPELLANT
VERSUS
M/s. PARSVNATH FILM CITY LTD.
& OTHERS ...RESPONDENTS
J U D G M E N T
NAGARATHNA J.
Two appeals, namely, Civil Appeal No.6162 of 2016 and
Signature Not Verified
Civil Appeal No.10490 of 2017, are disposed of by this common
Digitally signed by
NEETU SACHDEVA
Date: 2025.04.15
13:43:42 IST
Reason:
judgment.
Page 1 of 33
Civil Appeal No.6162 Of 2016
2. The appellant in Civil Appeal No.6162 of 2016, M/s
Parsvnath Film City Limited (hereinafter “appellant”) has
approached this Court against the impugned judgment of the
High Court of Punjab and Haryana at Chandigarh in FAO
No.5816 of 2015 (O&M) partially allowing the appeal filed by
the respondents (i) Chandigarh Administration and (ii) the
Secretary, Information Technology, Chandigarh Administration
under Section 37 of the Arbitration and Conciliation Act, 1996
(for short, “the Act”). The High Court, the impugned
vide
judgment, set aside the award of the Arbitral Tribunal dated
10.03.2012 and the order of the Additional District Judge,
Chandigarh in Arbitration Case No.530 of 2013 dated
08.04.2015, thereby sustaining the respondent’s action in
forfeiting 25% of the bid amount, i.e. Rs.47.75 crores.
3. The respondents have filed Civil Appeal No.10490 of 2017
against the same impugned judgment on the ground that it did
not allow the other claims raised by them, such as i) interest on
delayed payment of Annual Ground Rent; ii) forfeiture of Rs.
Five crores paid by the appellant towards the bid security; iii)
recovery of performance security shortfall of Rs.Five crores
Page 2 of 33
along with interest; and iv) recovery of other miscellaneous
expenses.
4. Respondent Nos.3-5 in both these appeals are the
members of the Arbitral Tribunal who have been added as only
proforma respondents.
5. The facts of the case relate to the respondents deciding to
establish a Multimedia-cum-Film City at Chandigarh. To that
end, it published an advertisement dated 29.03.2006 inviting
“Expression of Interest for Multimedia-cum-Film City” as an
integrated project in Sarangpur, Chandigarh on a leasehold
land admeasuring thirty acres. The project involved setting up
of state-of-the-art facilities for i) a multimedia-cum-film centre;
ii) a multimedia park; iii) a multimedia information-cum-
entertainment centre; and iv) a multimedia college. The
expression of interest complete in all respects was to be
submitted on or before 28.04.2006. Out of the fourteen
companies which submitted the expression of interest, six were
selected, including the appellant herein. Consequent upon
technical presentations and submission of technical bids, four
companies were shortlisted, including the appellant herein. A
copy of the Request for Proposal and the Draft Development
Page 3 of 33
Agreement was sent to the appellant by the respondent on
24.11.2006.
6. On receipt of the same, a pre-bid meeting was held on
08.12.2006 and various clarifications were sought on the
proposal, which were furnished by the respondents vide letter
dated 15.12.2006. Thereafter, the shortlisted companies,
including the appellant, submitted their respective bids, and
since the offer of the appellant was the highest, the respondents
issued letter of acceptance in favour of the appellant on
18.01.2007. In that letter, the appellant was asked to take
steps for execution of the Development Agreement within a
period of twenty days from the letter and to also arrange the
upfront amount.
7. By letter dated 21.02.2007, appellant stated that they
would sign the Development Agreement, but requested i) for
demarcation of the project site, as without the same, they could
not proceed with the work; and ii) preparation of the layout
plan to be annexed with the Development Agreement.
Thereafter, on 01.03.2007, appellant furnished 25% of the bid
amount, i.e. Rs.47.75 crore, by way of Demand Draft.
8. On 02.03.2007, the appellant expressed its readiness to
Page 4 of 33
sign the Development Agreement. However, as the final
demarcation was yet not settled, it requested that:
i) The date of start of the development period be
the date on which the final demarcation plan is
issued to them; and
ii) The payment of next instalment due which was
75% of the bid price to be paid by the appellant
within 90 days of signing of the agreement
should be read as 90 days from the date the final
demarcated plan was issued to them.
9. By a reply letter of the same date, the respondent had
agreed to both the requests, and thereafter both the parties
entered into the Development Agreement on the same date.
10. The provisions in the Development Agreement relevant to
the case at hand are:
“Article 1: DEFINITIONS AND INTERPRETATIONS.
1.1. Definitions
xxx
x(ix) Payment Schedule
Means the schedule as set out in Schedule IV hereto for
payment of consideration by Developer to CA for right
to participate in the development and operation of the
Project.
Page 5 of 33
l) Performance Security
Means the security to be provided by the Developer for
performance guarantee to CA in the form of a Bank
Guarantee of a Bank as per Article 10.12 hereof.
xxx
Article 2: CONDITIONS PRECEDENT
2.1 CA may, in its sole option, terminate this
Agreement and/or the Lease Agreement if the following
conditions ("Conditions Precedent") are not (in the
reasonable opinion of CA) achieved/fulfilled by the
Developer before the expiry of six(6) Months after the
Agreement Date or such extended date as may be
permitted by CA:
2.1.1 If the Developer fails, refuses or is unable to
provide the Bank Guarantee as contemplated in Article
10.12.1 hereof; or
xxx
2.1.3 The Developer obtaining Approvals including
environmental clearance from Ministry Of Environment
and Forests.
2.2 If the Conditions Precedent are not fulfilled, the CA
may agree to extend the time period required to fulfil
the Conditions Precedent. In the event that the
Condition Precedent in respect of the Approvals are not
fulfilled, then the CA may (in its sole discretion) provide
the Developer the time required to enable the Developer
to obtain the Approvals, provided however that the
Scheduled Project Completion Date shall automatically
stand extended commensurately.
2.3 If any of the Conditions Precedent have not been
fulfilled or waived in writing by the CA, then the CA
may, at its sole option, without prejudice to its rights
hereunder and under Applicable Laws, terminate this
Agreement whereupon the amount paid towards Bid
Price and Bid Security/ Performance Security (as the
case may be) by the Developer to CA shall forthwith
stand forfeited.
Page 6 of 33
xxx
2.5 The Leasehold Right of the Developer shall be
deemed to have begun only on fulfilling the Conditions
Precedent. Till then the Developer shall be deemed to
be acting as a trustee and custodian of the Leasehold
Land for and on behalf of the CA.
Article 3: GRANT OF RIGHTS TO THE DEVELOPER
3.1 Grant of Leasehold Right
3.1.1 Subject to the terms hereof, the CA. shall, before
the expiry of 90 days after the date of execution hereof,
grant to the Developer Leasehold Right upon and in
relation to 30 acre of the Leasehold Land more
particularly described in the Schedule II hereto, for a
period of 99 (ninety nine) years from the date of signing
the Leasehold Agreement as per the terms and
conditions more particularly set out in Schedule VII
hereto.
3.1.2 The right to access and use the Leasehold Land
for a period of 99 (ninety nine) years shall be made
available to the Developer by the CA free from all
Encumbrances and occupations. ("Leasehold Right").
3.3 Development Period
3.3.1 The "Development Period" shall be a total period
of 36 (thirty six) Months (including 30 [thirty] Months
of construction period) starting from the Agreement
Date. The Development Period includes (a) the period of
6 (six) Months starting from Agreement Date within
which the Developer shall obtain all requisite Approvals
including environmental clearance/s for the Project
and (b) construction period of 30 (thirty) Months
starting after the said 6 (six) Months period set out at
(a) above within which the Project is to be completed by
the Developer.
If delay is due to obtaining of environmental clearance
then CA may in its sole discretion, upon satisfactory
reasons for such delay being provided by the Developer
allow extension by such further period as may be
Page 7 of 33
deemed necessary by CA to accommodate the
Developer's time-line to procure the said environmental
clearance. In case of such extension, the construction
period of 30 (thirty) months for development of the
Project shall commence from the date of obtaining of
environmental clearances.
3.3.2 Provided further that in the event of any delay
attributable to the CA in handing over occupation of
the Leasehold Land to the Developer, after payment of
entire Bid Price, the said period of 36 (thirty six)
Months shall be exclusive of the period of any such
delay attributable to the CA. For the avoidance of
doubts, the Developer shall be obliged to procure from
CA a letter recording the date on which such hand over
of Leasehold Land would have been effectuated by CA.
xxx
ARTICLE 4: CONSIDERATION
4.1 As and by way of consideration for the CA granting
the Development Right, the Developer shall pay to CA
the following:
4.2 Annual Ground Rent
4.2.1 Annual Ground Rent (AGR) shall be the amount
payable by the Developer to CA at the rate specified in
Schedule IV annually in advance from the date of
signing the Agreement till end of the Agreement Period.
The Developer shall be required to pay the AGR yearly
in advance (from the date of signing the agreement).
xxx
4.3 Bid Price
4.3.1 Bid Price means the total amount payable by the
Developer to CA i.e. Rs. 191,00,00,000/- [Rupees One
hundred and ninety one crores only], being the
consideration payable by the Developer for receiving the
right to develop the Leasehold Land consistently with
the terms hereof CA acknowledges receipt of amount of
Rs. 47,75,00,000/- [Rupees Forty seven crore seventy
Page 8 of 33
five lac only]… being a part of the Bid Price required to
be paid upfront by the Developer. The Developer shall
pay the balance and outstanding Bid Price to CA in
accordance with the timelines specified in Schedule IV.
Under no circumstances, except provided in this
Agreement, the Bid Price accepted shall be altered and
this is the essence of this Agreement.
xxx
5.2 Obligations of the CA
In addition to any of its other obligations under this
Agreement, during the Development Period, the CA
shall;
i) grant to the Developer, the requisite permission(s) to
develop the land required for the development of the
Project. The Leasehold Land shall be made available to
the Developer by Chandigarh Administration free from
all Encumbrances and occupations.
ii) assist the Developer in obtaining Approvals required
by the Developer in accordance with this Agreement;
and
iii) make arrangement for provision of electricity
supply, sewerage and drainages to be brought to the
periphery of the Leasehold Land.
xxx
5.4 Additional Conditions of Agreement
5.4.1 Leasehold Land Conditions
The Developer shall be deemed to have carefully
studied the work and site conditions specifications,
schedules and drawings and various other data and
shall be deemed to have visited the site of the work and
to have fully informed himself regarding the local
conditions. Developer shall be deemed to have carried
out his own surveys and investigations and assessment
of site conditions.
Page 9 of 33
xxx
10.11.5 Delay in completion of the Project
In case of delay in achieving the completion of the
construction of the Project within 36 (thirty six) Months
from the Agreement Date and subject to satisfaction of
CA for the reasons of such delay, the Developer may be
allowed extension of 6 (six) Months to complete the
development of the Project. If development of the
Project is not completed within such extended period,
then it shall be treated as Developer’s Event of Default.
10.12 Performance Security
10.12.1 In order to ensure that the Project is developed
within the stipulated period of 36 (thirty six) Months
from the Agreement Date and the development of the
Project is as per the provision of this Agreement and to
facilitate compliance with the other applicable
provisions of this Agreement, the Developer shall
furnish to the CA, Bank Guarantee from any Bank
through its branch at Chandigarh for an amount of Rs.
10 Cr. (Rupees Ten Crore only) within one Month from
the date of execution of this Agreement.
10.12.2 Failure of the Developer to provide the
Performance Security in accordance with this
Agreement shall entitle the CA to forfeit the Bid
Security amount paid and to terminate this Agreement
in accordance with the provisions of Article 14.1.1
without being liable in any manner whatsoever to the
Developer.
xxx
10.12.6 The Developer undertakes that the
Performance Security shall be payable immediately on
demand and without the assertion of any defences on
part of the Developer.
xxx
ARTICLE 12: EVENT/S OF DEFAULT AND
TERMINATION
Page 10 of 33
12.1 The Developer Event of Default
12.1.1 A "Developer Event of Default" shall be deemed
to have occurred if any of the following events has
occurred, unless the same has so occurred as a
consequence of a Force Majeure Event:
xxx
ii) The Developer fails, neglects, refuses, or is unable to
pay the consideration in accordance with the Payment
Schedule indicated in Schedule IV.
xxx
iv) The Developer repeatedly and persistently remains
in breach of any of its obligations under this
Agreement; or
xxx
vi) The Developer fails to comply with any of the terms
and conditions of the Lease Agreement.
ARTICLE 14: COMPENSATION
14.1 Compensation
14.1.1 Termination due to Developer Event of Default
If the Termination is due to a Developer Event of
Default, no compensation shall be payable by the CA to
the Developer. Bid Price along with Annual Ground
Rent paid by the Developer shall be forfeited. The
Security Deposit provided by the Developer shall be
encashed by CA.
xxx
ARTICLE 20: DISPUTE RESOLUTION
xxx
20.3 Arbitrators
In the event of a Dispute arising out of or in connection
with this Agreement not being resolved in accordance
Page 11 of 33
with the provisions of Article 20.2 above. either Party
shall be entitled to, by notice in writing ("Arbitration
Notice") to the other Party, refer such Dispute for final
resolution by binding arbitration in accordance with
the Arbitration & Conciliation Act, 1996.
In case the dispute is referred to arbitration under the
Arbitration and Conciliation Act, 1996 the arbitration
shall be by a panel of three Arbitrators, one to be
appointed by each Party and the third to be appointed
by the two arbitrators appointed by the Parties. A Party
requiring arbitration shall appoint an Arbitrator in
writing, inform the other Party about such appointment
and call upon the other Party to appoint its Arbitrator.
If the other Party fails to appoint its Arbitrator, the
Party appointing Arbitrator shall take steps in
accordance with Arbitration and Conciliation Act, 1996,
and subsequent amendments thereto.
xxx
20.7 Enforcement Award
Any decision or award resulting from arbitration shall
be final and binding upon the Parties. The Parties
hereto hereby waive, to the extent permitted by law,
any rights to appeal or to review of such award by any
court or tribunal. The Parties hereto agree that the
arbitral award may be enforced against the Parties to
the arbitration proceeding or their assets wherever they
may be found and that a judgement upon the arbitral
award may be entered in any court having jurisdiction
thereof.”
11. There were further communications between the appellant
and the respondent over the next few months concerning the
demarcation plan. Further, the appellant also requested, vide
letter dated 14.02.2008, the respondent to remove two HT lines
of 11KV each passing through the alignment where the project
Page 12 of 33
was to be set up. It was only on 17.07.2008, i.e. after 16.5
months, that the demarcation plan was provided to the
appellant. Due to considerable delay, appellant claimed vide
letter dated 08.10.2008 to the respondent that their
arrangements with various other associates for implementing
the project was frustrated; that the project cost escalated; and
that the market scenario had changed. Further, they claimed
that i) the two HT lines were yet to be removed; ii) necessary
infrastructure for the project was yet to be provided; and iii) the
Zoning Plans were yet to be released by the respondent.
12. Thereafter, a High Level Committee was constituted by the
respondent on 11.11.2008 where all the above issues
mentioned by the appellant were discussed. It was
unanimously decided that the Administrative Department
would work out a proposal with regard to rescheduling of
payments by the appellant.
13. As no further action was taken by the respondent despite
the decisions made in the High-Level Committee meeting, the
appellant declared the development agreement to have been
frustrated and required the earnest money deposited to be
returned to them with interest, vide letter dated 10.12.2008.
Page 13 of 33
However, as there was no response from the respondent, it
again sent a letter dated 01.12.2009 pointing out the works
that were yet to be undertaken by the respondent, and invoked
Clauses 20.1 and 20.2 of the Development Agreement to
request the respondent to settle the issues amicably.
14. However, the respondent terminated the Development
Agreement on 16.12.2009 on grounds that i) non-obtaining of
environmental clearance; ii) failure of the appellant to file bank
guarantee of Rs.Ten crores towards the performance security;
and iii) non-adherence to payment schedule. It also forfeited the
amount of Rs.47.75 crores which was earlier paid by the
appellant.
15. Aggrieved, the appellant invoked the arbitration clause in
Clause 20.3 of the Development Agreement. As the respondent
refused to appoint an arbitrator, the appellant approached the
High Court, and vide order dated 17.05.2010, the Arbitral
Tribunal was constituted.
16. The appellant raised the following claims:
i) an amount of Rs.47.75 Crores paid by the
claimants to the respondents towards 25% of bid
Page 14 of 33
price;
ii) interest @ 9% above the prevailing Prime Lending
Rate (“PLR”) of State Bank of India on the
amount of Rs.47.75 Crores from 01.03.2007 till
the date of refund;
iii) compensation for all losses and damages suffered
by the claimants due to breaches of contract.
Commissions and omissions of the respondents
along with interest thereon @ 9% above the
prevailing PLR of State Bank of India;
iv) an amount of Rs.3,00,00,000 incurred by the
claimants for works carried out/commissioned
for the Project;
v) Claim for compensation for loss of profit/loss of
opportunity;
vi) Claim for pre-suit, pendent-lite and future
interest @ 9% above the prevailing PLR of State
Bank of India on the above sums/disputes from
the date the same were incurred till the date of
payment thereof;
vii) Claim for litigation costs (as per actual)
Page 15 of 33
17. The following counter-claims were raised by the
respondents:
i) Declaration that the termination of the Development
Agreement was valid;
ii) Forfeiture of the amount paid towards the bid price
by the appellant to the respondents was valid;
iii) Claim for amount to be deposited by the appellant
towards Annual Ground Rent as per the Development
Agreement;
iv) Forfeiture of Rs.5,00,00,000/- paid towards bid
security by the appellant to the respondents along
with interest @ SBI PLR + 9% from 1.4.2007 till
15.9.2010;
v) Recovery of performance security of Rs.5,00,00,000/-
from the appellant to the respondents due to non-
performance along with interest @ SBI PLR + 9%
from 01.04.2007 till date of payment;
vi) Interest on investment of Rs.4,50,00,000/- by the
respondents in purchase of land for Film City project
remaining unproductive till date due to non-
performance of the claimants;
Page 16 of 33
vii) Recovery of Rs.63,13,106/- spent as miscellaneous
expenses for the said project along with interest @
SBI PLR + 9% p.a.;
viii) Claim on account of costs of arbitration;
ix) Claim for pre-suit, pendent-lite and future interest @
SBI PLR + 9% on the amount found payable;
18. Based on oral and documentary evidences and the
arguments addressed by the learned counsel on both sides, the
Arbitral Tribunal held as follows:
i) That on the date of signing of the Development
Agreement, the final demarcation plan was not
ready, and that without it, the appellant could
not have finalised the layout plan for the project;
ii) That there was a delay of sixteen and half
months in the issuance of demarcation plan by
the respondents, and that the appellant cannot
be held responsible for this delay;
iii) Respondents were not in a position to handover
encumbrance-free land to the appellant, as
required by the Agreement, as even the
respondents had acknowledged that development
Page 17 of 33
could not commence without the removal of HT
lines;
iv) That till the finalisation of the demarcation plan,
the appellant had no means to know whether or
not the HT lines would be part of the project site;
v) That a perusal of the minutes of the meeting
dated 11.11.2008 would categorically reveal that
it was the respondents’ own admitted case that
they defaulted in providing encumbrance-free
land to the appellant;
vi) That the provision concerning bank guarantee
had to be read in context and that it presupposes
the fulfilment of all obligations by the
respondents within the period prescribed in the
agreement. Since the respondents had not done
so, the development period could not be said to
have started;
vii) That the claimants were not responsible for the
delay in obtaining environmental clearance since
the respondents had not provided the requisite
details;
viii) That without serving a notice under Article 12.2
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of the Development Agreement, the respondents
had no justification or contractual right to
terminate the contract;
ix) Thus, the termination of the Development
Agreement was illegal and de hors the provisions
of the contract. Therefore, all consequential effect
had to be borne by the respondents.
19. The Arbitral Tribunal awarded to the appellant:
i) Rs.47.75 crores as refund of the amount paid by
it towards 25% of the bid price;
ii) 12% p.a. interest on the above sum of Rs.47.75
crores with effect from 01.03.2007;
iii) Rs.47,75,000 as compensation for all losses and
damage suffered by the appellant;
iv) Rs.46,20,715 for works carried out/
commissioned for the project; and
v) 12% p.a. interest with effect from 16.12.2009 till
date of payment on awards (iii) and (iv);
vi) Rs.50,00,000 towards litigation costs;
20. The Arbitral Tribunal also dismissed the counter-claims of
the respondents as they were predicated on the same issues as
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noted above.
21. Aggrieved, the respondent filed an application under
Section 34 of the Act before the Additional District Judge,
Chandigarh in Arbitration Case No.530 of 2013 for setting aside
the award passed by the Arbitral Tribunal. However, the Court,
vide order dated 08.04.2015 dismissed the application holding
that it found no reason to interfere under section 34 of the Act.
It held that, based on records, the non-complying of the
requirements/conditions precedent and the non-adherence to
the payment schedule by the appellant was due to non-fulfilling
of obligations on the part of the respondents. It also considered
the reasoning of the Arbitral Tribunal and observed that the
aspect of non-depositing of bank guarantee towards
performance security was never raised by the respondents by
way of seeking the same from the appellant, which also showed
that such a demand was not raised as the respondents were
aware of the delay being due to their lapse. Further, it noted
that as the schedule of the payment was agreed to be revised, it
cannot be said that the condition regarding depositing of 75%
of bid price was defaulted by the appellant.
22. Aggrieved by the aforesaid order, the respondent filed an
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appeal under Section 37 of the Act in FAO No.5816 of 2015
(O&M) before the High Court of Punjab and Haryana. By the
impugned judgment dated 17.03.2016, the High Court partially
allowed the application, holding that the appellant had shown
unwillingness to carry on with the work and that the said
frustration of the contract would not fall within the provisions
of section 56 of the Indian Contract Act, 1872, but would rather
fall under Section 39 of the said Act, which deals with the effect
of refusal of party to perform promise wholly. It observed that
both the parties in the meeting dated 11.11.2008 had put their
hands together to solve the issue by working out a proposal
with regard to the rescheduling of the payments by the
appellant, but within a month of that meeting, the appellant
frustrated the agreement. That the respondents cannot be
faulted in not issuing thirty days’ advance notice before
termination of the contract as it was the appellant who had
shown unwillingness to carry on with the work. The Court
further observed that the award of the Arbitral Tribunal
granting compensation of Rs.46,20,715 was wrong as the
appellant had not even “used the spade or dug a pit” and that
such an award puts onerous obligation upon the respondents.
It noted that the appellant gave the bid after inspecting the site
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and was aware of the HT lines and therefore must have raised
the issue before submitting the bid or ought to not have
participated in the bidding. It held that the award of the
Arbitral Tribunal was against public policy and that the
Objecting Court ought not to have dismissed the application
under Section 34 of the Act. It further observed that the
appellant appeared to have not shown any interest in carrying
out the work after submission of the bid, as the prices of the
property had fallen, otherwise, till 11.11.2008, both the parties
were at in solving the trivial issues. Therefore, it
ad idem
upheld the act of the respondent in forfeiting the earnest
money. However, it made no mention of the other claims of the
respondent.
23. Being aggrieved by the above judgment dated 17.03.2016
passed by the High Court of Punjab and Haryana in FAO No.
5816/2015 (O&M) in an appeal filed under Section 37 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to
as ‘the Act’ for the sake of brevity) by which the order passed by
the District Court in an application filed under Section 34 of
the Act was set aside and consequently, Award dated
10.03.2012 passed by the Arbitral Tribunal was also set aside,
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the claimant in the Arbitral proceeding is before this Court.
24. We have heard Shri V. Giri, learned senior counsel for the
appellant(s) and Shri Krishna Kant Dubey, learned counsel for
the respondent(s) and perused the material on record.
25. It is noted that the Arbitral Tribunal by its Award dated
10.03.2012 has firstly directed that the initial amount
deposited by the appellant herein being Rs.47.75 crores, which
was 25% of the total bid amount for Rs.191 crores, to be
refunded with interest at the rate of 12% per annum w.e.f.
01.03.2007 till realisation. Secondly, a sum of Rs.47,75,000/-
has been awarded as compensation for actual loss. Thirdly, a
sum of Rs.46,20,715/- has been awarded towards actual
expenses incurred by the appellant herein with interest at the
rate of 12% per annum from 16.12.2009, that is, the date of
termination till the date of realisation.
26. The said Award was affirmed by the District Court in an
application filed by the respondent herein under Section 34 of
the Act. It is the aforesaid Award which has now been set aside
in the appeal filed by the respondent herein under Section 37 of
the Act and hence this appeal has been filed.
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27. It is also necessary to observe that the counter claim of
the respondent was rejected by the Arbitral Tribunal as well as
by the District Court and the High Court.
Reasons of High Court:
28. The reasoning of the impugned judgment to set aside the
Arbitral Award dated 10.03.2012 and the order of the
Additional District Judge, Chandigarh dated 08.04.2015 was on
the basis that:
i. the appellant refused to perform their promise wholly
by showing unwillingness to carry on with the work
and that such unwillingness cannot fall within the
four corners of section 56 of the Indian Contract Act,
1872;
ii. the appellant frustrated the agreement within just a
month of the meeting dated 11.11.2018 wherein both
the parties resolved to working out a proposal with
regard to the rescheduling of the payments;
iii. the appellant must have raised the issue of HT lines
before submitting the bid or ought to not have
participated in the bidding process;
iv. the issues were trivial and both the parties were ad-
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idem in solving them;
Consequently, the impugned judgment held the award to
be against public policy and that the award puts onerous
obligation upon the respondents.
29. We hold that the impugned judgment proceeded on a
wrong basis and has wrongly set aside the arbitral award. We
say so for the following reasons:
29.1 Firstly , the Development Agreement was executed between
the parties on 02.03.2007. The entire project was based on a
‘Right to Participate Model’, where the entire cost of
development of the Project with all related infrastructure and
utilities was to be done under ‘Develop-Build-Finance-
Maintain-Operate’ methodology. Article 3.3 of the Agreement
provided for the development period which was “a total period
of 36 (thirty six) months (including 30 [thirty] months of
construction period) starting from the Agreement date”.
Further, this development period also included the period of six
months within which the appellant had to obtain all requisite
approvals for the project. As regards delay in obtaining
environmental clearance, the Article allowed for extension due
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to delay on the part of the appellant only on satisfactory
reasons and subject to the discretion of the respondents. Article
3.3.2 governed a scenario where delay in handing over
occupation of leasehold land to the appellant was attributable
to the respondents but such a scenario would come into effect
only after payment of the entire bid price. However, it obligated
the appellant to procure a letter from the respondents recording
the date on which such handing over of the leasehold land
would be effected by the respondents. Further, Article 10.11.5
provided that if the project was not constructed within 36
months from the agreement date, the appellant would be
allowed an extension of six months subject to the satisfaction of
the respondents as regards the reasons for such delay.
29.1.1 A reading of the above provisions would indicate that
time was of some essence to this project, unless, if the delay
was attributable to the appellant, then such delay was to be
acceptable to the respondents based on sufficient reason. If the
delay was attributable to the respondents, then such delay was
to be excluded from the period of 36 months, but the appellant
was obligated to procure a letter from the respondents
indicating the date on which the handing over of the leasehold
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land would be effected.
29.1.2 In the present case, as noted by the Arbitral Tribunal
and the District Court, the appellant had been requesting the
respondents for the demarcation of the project site since
21.02.2007. On the date of signing of the Development
Agreement, i.e. on 02.03.2007 when the period of 36 months
was to begin, the respondents even agreed to the appellant’s
request that the date of start of the development period be the
date when the final demarcation plan was issued to them.
However, the demarcation plan was issued only on 17.07.2008,
i.e. after an unreasonable delay of 16.5 months. In other words,
the demarcation plan was issued just before half the period of
36 months was complete. The appellant could not have
anticipated that there would be a delay of such duration in the
mere issuance of a demarcation plan.
29.2 Secondly , the respondents were obligated under Article 5.2
of the Development Agreement to grant the appellant the
leasehold land free from all encumbrances and occupations. On
a perusal of the minutes of the meeting dated 11.11.2008 held
between the appellant and the respondents, it could be
observed that the respondents acknowledged that the two HT
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lines had to be removed so as to provide encumbrance free land
to the appellant. It is relevant to note here that there was no
timeline provided for the same. Further, the minutes also
provided that the Senior Town Planner had to release the
revised zoning plan since the earlier zoning plan was not in
accordance with the terms of the Agreement. However, for this
action, the timeline provided was till 17.11.2008. Due to the
delay in granting even the zoning plan, the appellant had
requested for certain reliefs, including an interest amount of
Rs.14 crore on the amount of Rs.47.75 crore from 01.03.2007
till 17.07.2008, i.e. the date of delivery of demarcation plan.
This was agreed to by the respondents as well. Further, it was
unanimously agreed that the Administrative Department would
work out a proposal with regard to the re-scheduling of
payments by the appellant. However, there was no definitive
date provided therein. Despite such decisions being taken in
the above meeting dated 11.11.2008, there was no further
action even till 10.12.2008. Such non-action led the appellant
to declare the agreement to have been frustrated.
29.2.1 If the above facts are read keeping in mind Article
3.3.2 of the Development Agreement, it would be clear that
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there was a clear and unreasonable delay attributable to the
respondents in handing over encumbrance free land to the
appellant. Despite raising this issue several times, the
respondents could not provide a definite date on which they
would be able to deliver such encumbrance free land. Clearly,
about 22 months had passed since the development agreement
was signed between the parties, and the development period
would have completed in another 14 months, had the
respondents completed their obligations on time. In such a
scenario, the appellant cannot be held to have shown
unwillingness to carry on with the work, as held in the
impugned judgment.
29.3 Thirdly , the project envisaged by the respondents was
commercial in nature. The appellant was engaged after a
process of competitive bidding. As there was a definite time
period provided for in the Development Agreement to complete
the project, the appellant would have had to engage the services
of different professional agencies beforehand. All such sub-
contracts would have been frustrated due to the delay
attributable to the respondents. Further, due to the delay, the
appellant would have to engage fresh services of these agencies,
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the cost of which would only escalate with time. In these
circumstances, the observations in the impugned judgment to
the effect that both the parties, in the meeting dated
11.11.2008, resolved to working out a proposal with regard to
the rescheduling of the payments and that the appellant
frustrated this revised agreement within just a month of that
meeting does not appear to be reasonable to us. The meeting
dated 11.11.2008 was held not only regarding rescheduling of
the payment. Rather, the conclusions arrived at in the meeting
dated 11.11.2008 has to be viewed in the context of the terms
of the Development Agreement and the commercial nature of
the project. It was only when no progress took place despite a
month having passed since the meeting that the appellant
declared the development agreement to have been frustrated.
29.4 Fourthly , we find it unreasonable to agree with the
observations of the impugned judgment that the appellant
should have raised this issue before submitting the bid or
ought to not have participated in the bidding process. Though,
according to the Request for Proposal, the bidders shall be
deemed to have conducted a due diligence exercise with respect
to all aspects of the project, admittedly, the respondents noted
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in the meeting dated 11.11.2008 that the two HT lines had to
be removed so as to provide encumbrance free land to the
appellant. It was resolved in that meeting that the matter would
be taken up with the PSEB at the highest level.
29.5 Fifthly , the issues involved between the parties cannot be
termed trivial. As noted earlier, time was of the essence in this
project. Therefore, each day’s delay in executing the project
after signing of the Development Agreement had commercial
consequences and struck at the heart of the Development
Agreement. As the delay here extended to more than 16
months, the impugned judgment could not have termed the
issues between the parties as trivial and that the parties were
ad idem in solving them.
30. In the circumstances, we find that the High Court was not
justified in setting aside the Arbitral Award dated 10.03.2012
and consequently, the order passed on the application filed
under Section 34 of the Act. The reasons assigned for doing so
in our view are not in accordance with law. Consequently, we
find that the appellant herein is entitled to the sum of Rs.47.75
crores, being the initial deposit and Rs.46,20,715/- being the
actual expenses incurred. However, the rate of interest awarded
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at 12% per annum, we find, is on the higher side. In the
circumstances, we modify the rate of interest to 8% per annum,
while retaining the other directions. Having regard to payment
of interest, we find that having regard to the fact that payment
of interest has been ordered both with regard to initial deposit
as well as on the actual expenses, the award of compensation
for loss of Rs.47,75,000/- was not in order. In the
circumstances, we modify that portion of the Arbitral Tribunal’s
award and hold that the appellant is not entitled to
Rs.47,75,000/- as compensation for loss. The Arbitral
Tribunal’s Award dated 10.03.2012 is modified in the aforesaid
terms and as a result, the order passed under Section 34 of the
Act also stands modified mutatis mutandis . Consequently, the
impugned order passed under Section 37 of the Act is set-aside.
31. As the Arbitral Award was passed as early as on
10.03.2012, we direct the respondent(s) to deposit/pay the
amount on or before 30.06.2025 without driving the appellant
herein for execution of the said Award. If the amount is not
paid to the appellant on or before 30.06.2025, the interest shall
be at the rate of 12% per annum instead of the reduced rate of
8% per annum.
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32. The appeal is allowed and disposed of in the aforesaid
terms. No costs.
Civil Appeal No.10490/2017:
We find no merit in this appeal. The same stands
dismissed. No costs.
. . . . . . . . . . . . . . . . . . . . . . J.
(B.V. NAGARATHNA)
. . . . . . . . . . . . . . . . . . . . . J.
(SATISH CHANDRA SHARMA)
NEW DELHI;
MARCH 20, 2025.
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