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CASE NO.:

Appeal (civil) 1725 of 1997

PETITIONER:

M.D., Army Welfare Housing Organisation

RESPONDENT:

Sumangal Services Pvt. Ltd.

DATE OF JUDGMENT: 08/10/2003

BENCH:

CJI., BRIJESH KUMAR & S.B. SINHA.

JUDGMENT:

J U D G M E N T

S.B. SINHA, J :

Questions of some importance arise for consideration in this

application filed by the respondent-herein under Sections 30 and 33 of

the Arbitration Act, 1940 questioning an award dated 29.4.2002 passed by

three learned arbitrators appointed by this Court.

BACKGROUND FACTS:

Army Welfare Housing Organization (for short 'AWHO') and Sumangal

Services Pvt. Ltd. (for short 'Sumangal') entered into an agreement for

development of land and construction of a composite housing project on a

turn-key basis on approximately 17.9 acres of land situate on the VIP

Road, in the town of Kolkata. For the said purpose a draft agreement

initially drawn up was given finality by Articles of Agreement dated

28.8.1993. Certain terms and conditions, however, had been altered

therein with mutual consent.

The project was envisaged to be completed in three phases.

Considerable progress was made in the matter of construction of work in

Phase I. The plots where the said work was being carried out fell under

the local administration of Gopalpur Arjunpur Gram Panchayat. The

building plan for Phase I was sanctioned by the said Gram Panchayat in

September, 1991 in terms whereof 11 blocks of houses could be

constructed. The said area, however, became a municipality in terms of

the West Bengal Municipal Act, 1932 known as Rajarhat Gopalpur

Municipality. West Bengal Municipality Act, 1932, however, was repealed

and replaced by West Bengal Municipal Act, 1993.

It is not in dispute that pursuant to or in furtherance of the

said agreement Sumangal entered into negotiations with the owners of the

agricultural lands for sale thereof wherefor sale deeds in respect of

2.32 acres of land were executed by the owners in favour of AWHO.

Sumangal received the amount for consideration from AWHO paid to the

owners upon furnishing a Bank guarantee as also subject to the condition

that it will get the said land converted into Bastu.

Lands measuring about 13 acres had already been converted into

Bastu. On or about 8.12.1994, an application was made by AWHO for

modifications or revisions in the Master Plan wherefor a revised Master

Plan was submitted for approval of the Municipality stating:

"Tel: 3010820 Army Welfare Housing Organisation

South Hutments, Kashmir House,

Rajaji Marg, New Delhi-110011

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B/03020/CAL-II/AWHO 8 Dec 94

The Chairman,

Rajarhat Gopalpur Municipality

Raghnunathpur,

Calcutta-700059

SUBMISSION AND FINAL APPROVAL OF

PLAN FROM MUNCIPAL AUTHORITY

Dear Sir,

1. This is to bring to your kind notice that our

organization has undertaken the construction of

"Own your own House" housing project for the

benefit of our Defence Personnel at no Profit no

Loss basis. We have engaged M/s Dulal Mukherjee

& Associates as consulting Architect for the

project.

2. As per demand/requirements for the housing for

Army personnel, our Architect made a Master Plan

of the project and also plans for 04 types of

Dwelling Units (05 Storyed) which were approved

by the Gram Panchayat vide Sanction No.181/91

dated 18 Sep. 91.

3. In this connection we would like to mention that

due to site constraints and also to meet the

demand for housing among Army personnel, minor

Modifications/Revisions have been made to the

Master Plan and also to the Individual Dwelling

Units which were sanctioned earlier.

4. We are submitting herewith the revised Master

Plan and also individual Plan for Dwelling Units

(Additions and Alterations) for your approval.

We therefore make an appeal to your goodself to

kindly give special consideration to our plan

and approve the same at the earliest.

Yours faithfully,

(Raghu Nandan)

Brig (Retd)

DT & DY MD

For Managing Director"

Such permission was granted only on 9.3.1995.

According to Sumangal, despite the fact that no building plan was

filed or sanctioned for Phase II and Phase III but as per instruction of

AWHO it proceeded with the construction of Phase II. Such an

application was filed for the first time on 19.5.1995. It stands

admitted that the proposed height of the towers was more than the

permissible one.

The municipal authorities vide its letter dated 23.5.1995 directed

stoppage of work in six/seven blocks where allegedly unauthorized

construction was being carried out stating:

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"We came to learn that some 8 blocks of 5

storied buildings were approved by erstwhile

panchayet before the origination of the above

municipality. After the birth on 13.01.94 as

per norms of W.B.M. Act '93 and Calcutta

Gazette, new plans if any, or construction job

if any, has to be approved of by this Municipal

Authority.

We learnt some additional 6/7 blocks are being

constructed at your VIP project for which no

plan was submitted to the Engineering Division

of this office for approval. This is a gross

violation of W.B.M. Act '93 and '79 T & C

Development Planning Act.

It is further learnt that the 7/8 blocks

constructed by you on the basis of the plan

sanctioned by erstwhile panchayet has also been

severely deviated from actuality - which is also

punishable under the law.

We strongly believe that an esteemed

organization like you, will not indulge in such

illegal activities and refrain from all such

unapproved/unauthorized works."

Sumangal thereafter sought advice of AWHO by a letter dated 24th

May, 1995 pointing out therein that if any construction activity is

carried out despite objections of Local Authority, persons involved

would be liable for punishment both under criminal as well as civil law.

It reiterated the said stand by a letter dated 25th May, 1995 drawing

AWHO's attention to the provisions of Sections 204, 214 and 440 of the

West Bengal Municipal Act, 1993 and requesting it for its response also

to its earlier letter dated 24th May, 1995. Sumangal did not receive any

reply thereto and hence by its letter dated 27th May, 1995 stated:

"If clear out instructions are not received from you

by 29th May, we shall be compelled to demobilize.

Please advise urgently. We shall be constrained to

consider your silence as your agreement to our

demobilization."

The engineers of municipality visited the project site a number of

times but the sanctioned plan had allegedly not been produced. In the

aforementioned situation, the Chairman of the Municipality issued a

letter to the Project Manager, AWHO on 21.7.1995 stating:

"Dear Sir,

Our engineers have visited your project site

number of times and discussed with your

engineers about the drawing, design and other

infrastructurals projects placed before them.

The undersigned also took the opportunity to

meet with you and talk to your M/s Dulal

Mukherjee & Associates where we have inter

changed our views and the norms of Municipal

Rules & Regulations.

Our engineer has been asking you for the

erstwhile panchayet recommended plan by which

you have constructed already 8-9 blocks. All

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the time he has come back without result.

You would appreciate that without a plan already

approved by erstwhile panchayet, we can not

check/judge the present position or the

viability of your project. Hence the question

of your infrastructural development like

construction of Road, Drains etc. does not arise

at all at the moment.

We would request you fervently to submit the

panchayet recommended plan on the basis of which

we will proceed further.

Thanking you"

(Emphasis supplied)

In the meantime the architect and the project engineer of AWHO met

the Chairman of the Municipality and it was allegedly agreed that the

work need not be stopped in the buildings for which the plans have

already been approved. Sumangal, therefore, was advised not to stop the

work for which plans have already been approved. (See letter of AWHO to

Sumangal dated 27.5.1995).

AWHO by their letters dated 25th July, 1995 and 11th August, 1995

advised Sumangal to reorganize and recommence its work by employing

sufficient strength of labour and bringing the required material to site

by 11th September, 1995 to ensure that the progress of the work is

substantially increased. It was threatened that if suitable action is

not taken in this behalf by Sumangal AWHO may be compelled to take

action under clause 129(e) of the Contract.

It appears that Sumangal replied thereto by its letter dated 14th

August, 1995. In its response to the said letter dated 14th August,

1995, AWHO drew the attention of Sumangal to the fact that there are

certain types of work which would not come within the purview of the

stop work notice by the Municipality and as such the same could have

been carried out. It was stated:

"...You are again advised to reorganise your

work by employing sufficient labour and bringing

in the required material to ensure that the

progress of the work is substantially increased

by 15 Sep 95 failing which AWHO may be compelled

to take action under clause 129 (e) on page 176

of Contract Agreement. This is without

prejudice to any other right or remedy which

shall have accrued or shall accrue to the

Organisation."

Some correspondences thereafter passed between the parties and by

its letter dated 10th October, 1995 AWHO ultimately cancelled the

contract with effect from 17th October, 1995.

A civil suit was filed by Sumangal before the 1st Assistant

District Judge at Barasat being suit No. 867 of 1995 praying for a

declaration that the contract was void. Certain consequential reliefs

were also prayed therein in relation to the said termination of

contract.

An application purported to be under Section 20 of the Arbitration

Act, 1940 was filed by the AWHO before the Delhi High Court which was

marked as Suit No. 2442 of 1995 for appointment of an arbitrator in

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terms of the arbitration agreement contained in Clause 136 of the

general terms and conditions of the contract.

In the said civil suit Sumangal prayed for an order of injunction

which was refused whereagainst an appeal was preferred in the High Court

of Calcutta and by reason of an interim order dated 28.3.1996 the

parties were directed to maintain status quo. A SLP was filed by AWHO

against the said order.

This Court in the said S.L.P., however, without going into the

correctness or otherwise of the interim order dated 28.3.1996 of the

High Court passed the following order:

"Leave granted.

This appeal calls in question the order of

the High Court of Calcutta dated 28.3.1996.

In view of the developments which have

taken place in this Court, it is not necessary

to refer to the detailed facts of the case.

Admittedly, disputes and differences have arisen

between the parties and those are pending

adjudication in the Court of the First

Assistant District Judge, Barasat (Title Suit

No.867 of 1995) and in the High Court of Delhi

(Suit No.2442 of 1995). It is agreed to by

learned counsel for the parties that those

disputes and differences be referred for

adjudication to an arbitrator. With consent of

the parties, we refer the disputes arising out

of the two suits noticed above to Shri H.R.

Khanna, Former Judge of this Court, who shall

enter upon the reference and make his Award

within the statutory period. The learned

Arbitrator shall fix his own fee and the manner

of its payment. The parties shall be at liberty

to file their claims/counter-claim before the

Arbitrator.

With the reference of the disputes and

differences between the parties to the learned

Arbitrator, the two suits pending at Barasat and

in the Delhi High Court shall stand withdrawn

from the respective courts where those are

pending. Copy of this order shall be sent to

the concerned courts for due compliance.

The learned Arbitrator shall file the

Award in this Court. It is directed that no

other court shall interdict the arbitration

proceedings.

The appeal is disposed of accordingly. No

costs."

Even before filing the statements of claims and counter-claims;

the parties jointly requested the learned arbitrator to pass an interim

award as regard the ownership of the lands as to whether AWHO by reason

of the purported deeds of sale became the absolute owner of the property

comprising 14.17 acres of land wherefor the following issues were raised

by Sumangal:

"a) Whether or not AWHO/Party No.2 is the

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absolute owner of the suit property

comprising of 14.17 acres of land vide

registered Sale Deeds, mutation and

conversion certificates issued by the

competent authority, in favour of the

petitioner including the properties built

thereon and that the land so acquired

absolutely and for ever by the Party

No.2/AWHO and the property built thereon

is not a returnable security, which

property pursuant to the cancellation of

contract is neither refundable nor can be

same be reconveyed to Party No.1 and/or

land sellers?

b) Whether Party No.2 and/or Party No.1

and/or the land sellers have a first

and paramount charge on the said land

sold/transferred to the Party No.2

absolutely and forever, particulars

whereof are given the Annexures1

(Colly), annexed hereto, and that

whether after sale of the said plots of

land by the land sellers, to the Party

No.2 vide registered sale deed based

upon an understanding as spelled out in

the developer's agreement and power of

attorney and affidavits etc. executed

by and between the land seller and

Party No.1, which as is alleged by

Party No.1 have since become void and

inoperative, and therefore, is the

Party No.1 entitled for the payment of

a sum of Rs.38 lakhs 47 thousand as

pleaded in paragrtaph 56 of its Title

Suit No.867 of 1995?

c) Whether the Party No.1 has a first and

paramount charge on the construction,

buildings and all other materials that

are lying at and within the land

transferred/sold by the land sellers

through Party No.1 to the Party No.2

for it's claim on the basis of item

rate contract as alleged claimed for

the alleged loss and damages suffered

by the Party No.1 as stated in it's

Title Suit No.876 of 1995?

d) Whether in alternative a decree for

specific performance of the agreement

referred to in paragraph 69 of the

aforesaid title suit above and

reconveyance of the lands mentioned in

Schedule G to the Suit in favour of the

Party No.1 or the land seller can be

decreed either in favour of the Party

No.1 and/the land sellers who had sold

absolutely and for ever their plots of

land vide registered sale deeds which

were subsequently mutated and its land

use changed from agricultural to

residential by the competent authority

under the West Bengal Land Reform Act

in favour of the Party No.2, but are

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now claiming that the Deed of Sale was

in reality a document or security?

e) Whether or not the keys of the godown

at contract site which the Party No.1

is illegally holding in it's custody be

given back to Party No.2 to utilize the

stores contained therein before

commencing the work.

f) Any other relief in the circumstances of

the case may also be passed/awarded."

The learned arbitrator, however, was not inclined to accede to the

said request. Thereafter, an application was filed by AWHO before the

learned Arbitrator to the effect that it may be allowed to commence and

complete uninterrupted construction work as well as development of the

housing project at the risk of Sumangal. Sumangal filed a reply to the

said application.

An order was passed on the said application of AWHO by the learned

arbitrator on 1.11.1997 subject to the following conditions:

(a) The question as to whether such an order can be passed at the

risk of Sumangal can be raised only at the time of final award.

(b) The development work may be confined to 14.17 acres of land which

was the subject matter of sale and which it was stated had been

demarcated at the site.

(c) All those works could be subject to the ultimate decision of the

case.

(d) AWHO shall not give final possession of any of those flats or part

of the land to any one including the person described as

allottees.

(e) The said order was without prejudice to any of the contentions

which may be raised by the parties.

(f) Constructions and development work would be of the same kind and

specifications as were provided in the contract at competitive

rates through an established contractor after inviting tenders

therefor.

It was further stated therein :

"It is agreed by both the parties that the

contract produce for the construction of 16

towers and such 16 towers already exist on the

site. If any new tower is constructed by party

No. 2 or its contractor, party No. 1 would not

be liable for it."

A review application was filed before the Arbitrator by Sumangal

wherein several questions including the power of arbitrator to pass an

interim order of injunction were raised but the same was rejected

stating:

"It has been vehemently argued that the

Arbitrator has no power to make the kind of

interlocutory order made on November 1, 1997. In

this respect learned counsel for party no.1 has

also emphasized that effected the once the

prayer for interim award has not been granted,

the order dated November 1, 1997 which was in

the nature of an interim award was unwarranted.

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I find myself unable to accede to this

contention. So far as that order is concerned,

it was made expressly clear that the said order

would be without prejudice to any of the

contentions which might be raised by the

parties. It was also added that all the works

which party no.2 is being allowed to do would be

subject to the ultimate decision of the case,

the order thus makes it clear that there was no

finality attached to that order and that it

would be subjected to the ultimate decision of

the case. As such the order cannot be deemed to

be an interim award.

Coming to the other contention that the

Arbitrator has no power to make an interlocutory

order dated November 1, 1997. I find that the

work of measurements has been smoothly carried

out and the results of measurements have been

accepted by both the parties. As the

proceedings of arbitration would take

considerable time before the final award is

given, to expedite the execution of the

remaining unfinished work, party no.2 was

allowed to commence and complete the unfinished

work which was the subject matter of the

contract between the parties. In my opinion the

order made on November 1, 1997 was in the

interest of justice and not to let the remaining

work reaming unfinished till the time of the

final award. As the order was made ex debito

justitiae it call for no review or modification.

In any case, it has been made clear that this

order would be subject to the final decision of

the case and without prejudice to any of the

rights of the parties.

Another point made in the application of party

no.1 is that it was working as stated in the

order of November 1, 1997 that 16

blocks/buildings existed at site have gone

through the order dated November 1, 1997, and no

where it is stated therein that 16

blocks/buildings exist at the site.

I, therefore, find no ground to review/modify

the order dated November 1, 1997. The

application accordingly stands disposed of".

The learned Arbitrator, therefore, did not determine the question

as to whether he had jurisdiction to pass an interim order or not.

No Award was not passed by the Arbitrator for a long time although

several extensions had been granted. On or about 26.2.2000 an

application for revocation of the authority of the arbitrator was filed

by Sumangal and by an order dated 11.5.2000 this Court constituted a

board of three arbitrators instead and place of the sole arbitrator.

The award was filed before this Court on 29.4.2002 by the learned

arbitrators whereagainst Sumangal filed an application on or about 8th

July, 2002 under Sections 30 and 33 of the Act.

AWARD:

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Before the arbitrators both the parties filed their respective

claims. Claim No. 1 of AWHO related to the title, ownership and

possession of 14.17 acres of land. Claim No. 2 of AWHO related to cost

of completion of balance work at the risk and expense of Sumangal. Both

the claims were allowed by the learned arbitrators.

Claim No. 3 related to compensation for delay in performance of

the contract by Sumangal, whereas claim No. 4 related to damages for

non-completion of work resulting in loss of rentals to allottees of

AWHO. Claim No. 5 related to reimbursement of payments made by AWHO

towards the premium on Sumangal's all risk insurance policy. Claim No.

6 related to damages for delay in transfer of land. All these claims

were disallowed.

The claim on interest contained in claim No. 7 and claim of costs

of arbitration in claim No. 8 were also allowed.

The claim of Sumangal relating to title of 14.17 acres of land and

claim for an amount of Rs. 11,40,85,000/-, being an alternative claim

was disallowed.

The learned arbitrators in making the award formulated as many as

29 issues which have been answered in the following terms:

"Issue No.1

Since we have found that SSPL had failed

to discharge their obligation in terms of the

Agreement dated August 27, 1993, the issue is

decided against SSPL and in favour of AWHO.

Issue No.2

Since we have found that AWHO were

entitled to terminate the said contract and to

get the balance work executed at the expense and

risk of SSPL, the issue is decided in favour of

AWHO and against SSPL.

Issue No.3

Since we have found that AWHO are the full

owner and in possession of 14.17 acres of land

in dispute and the property built thereon, the

issue is decided in favour of AWHO and against

SSPL.

Issues Nos.4 & 5

Since we are of the view that the sale

deeds executed in favour of AWHO cannot be

regarded as documents by way of security for the

advance taken by SSPL from AWHO and that no

charge was created on the lands in dispute, the

issues are decided in favour of AWHO and against

SSPL.

Issue No.6

Since we have held that the claims made by

AWHO fall within the ambit of the scope of

reference as laid down in the order of the

Hon'ble Supreme Court, the issue is decided in

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favour of AWHO and against SSPL.

Issues Nos.7 & 8

No submission was made on behalf of SSPL

with regard to these issues. The issues are

decided against SSPL and in favour of AWHO.

Issues Nos.9 & 10

Since we have found that as per the

agreement between AWHO and DMA, the Architect

was to provide drawings and specifications of

the proposed flats and external services and it

was the duty of SSPL to take follow up action in

the matter of obtaining sanction from the

statutory bodies and it was not the

responsibility of the Architect to obtain

sanction from the statutory bodies including the

Municipality, the issues are decided against

SSPL and in favour of AWHO.

Issues Nos. 11 & 12

Since we have found that the Agreement

dated August 27, 1993 and the preceding Letter

of Intent dated January 4, 1991 and the Draft

Agreement dated December 26, 1991 cannot be said

to have become impossible of performance and

cannot be regarded to have become void on the

ground of frustration, the issues are decided

against SSPL and in favour of AWHO.

Issue No.13

It has been found that the construction in

respect of the units in Phase I was started

after obtaining the sanction for the plans from

the Gram Panchayat and though there were some

deviations and alterations from the sanctioned

plan but the same could be regularized. As

regards the units which were to be constructed

in Phase II it has been found that the said

construction was made without obtaining the

sanction for the plans from the competent

authority but the plans had been submitted for

approval during the course of construction and

the said plans were subsequently approved on

April 23, 1997 and the plans for the whole

project were also revalidated. This issue is

decided accordingly.

Issue No.14

We have found that the deviations and the

alterations in respect of construction in Phase

I were not very material in nature and could be

regularized and were in fact regularized when

the revised plans were sanctioned and

revalidated by the Municipality. This issue is

decided accordingly.

Issue No.15

We have found that payments for the RARs

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for the construction work upto August 1992 were

not made since SSPL failed to abide by their

commitment to transfer the balance land by

February 15, 1992 and subsequently on the

transfer of the balance land in august 1993 and

after execution of the Agreement dated August

27, 1993, the payments for the said work were

made. This issue is decided accordingly.

Issue No.16

We have found that SSPL never raised any

objection regarding construction in respect of

works in Phase II on the ground that there were

no sanctioned plans for the same and SSPL

obtained benefit in the matter of release of

payments on the basis of the order placed for

such construction. This issue is decided

against SSPL and in favour of AWHO.

Issue No.17

It has been found that the Municipality

stopped construction work in Phase II but

subsequently the plans for Phase II were

approved by the Municipality on April 23, 1997.

The issue is decided accordingly.

Issue No.18

We have found that AWHO issued the working

drawings for the project to SSPL and the delay

in issuing some of the drawings was not very

material. The issue is decided accordingly.

Issue No.19

No submissions were made by SSPL in

support of this issue. The issue is accordingly

decided against SSPL and in favour of AWHO.

Issues Nos.20 & 22

The alterations in the lay out of the

built up area of Phase I buildings were made by

AWHO in the full knowledge of SSPL and the said

alterations were not material because they were

subsequently revalidated by the Municipality in

sanctioning the revised plans. The issues are

accordingly decided against SSPL and in favour

of AWHO.

Issue No.21

There was no change in the height of the

buildings in respect of Phase I inasmuch as the

height of the blocks in Phase I were not above

the heights as per the sanctioned plans. The

heights of the blocks constructed in Phase II

for which plans had not been approved were in

excess of the height limitations prescribed in

the buildings regulations. No Objection

Certificate has been granted by the Airport

Authorities of India Ltd. and it was open to the

State Government to relax the height limitation.

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The issue is accordingly decided against SSPL

and in favour of AWHO.

Issue No.23

We have found that the title to the lands

transferred in favour of AWHO under the various

sale deeds passed in favour of AWHO independent

of the turnkey project and failure of the

turnkey project did not have any bearing on the

transfer of title. The issue is accordingly

decided in favour of AWHO and against SSPL.

Issue No.24

No submissions were made by SSPL with

regard to this issue and the issue is decided

against SSPL.

Issue No.25

We have found that AWHO are entitled to

compensation under claim no.2 towards cost of

completion of the balance work at the risk and

expense of SSPL since SSPL failed to perform

their part of the obligation under the contract.

The issue is decided in favour of AWHO and

against SSPL.

Issue No.26

We have found that the title, ownership

and possession of 14.17 acres of land which was

transferred in favour of AWHO under the various

sale deeds vests exclusively with AWHO and Claim

No.1 made by AWHO has, therefore, been allowed.

The issue is decided in favour of AWHO

accordingly.

Issue No.27

We have found that SSPL are not entitled

to reversion of land. The issue is accordingly

decided against SSPL.

Issue No.28

We have found that SSPL are not entitled

to recover any amount from AWHO. The issue is,

therefore, decided against SSPL.

Issue No.29

Since we have found Issue No.28 against

SSPL and found that SSPL are not entitled to

recover any amount from AWHO, therefore, the

question of their entitlement to recover

interest from AWHO does not arise. The said

issue is decided against SSPL."

In terms of the aforementioned findings, the learned arbitrators

awarded:

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"We make the Award in the following terms:

1. The claim of SSPL that land admeasuring

14.17 acres and structures thereon

comprising of the 14 Blocks/buildings or

any other construction that maybe done by

AWHO during the pendency of the

arbitration proceedings, vests and is

owned fully, exclusively and absolutely by

SSPL is disallowed.

2. The alternative claim of SSPL for an

amount of Rs.11,40,85,000.00 is

disallowed.

3. Claim No.1 of AWHO in respect of title,

ownership and possession of land

admeasuring 14.17 acres of land located at

Mauza Tighonia and Koikhali, VIP Road, 24

Parganas (North), Calcutta transferred in

their favour by various Vendors/Land

Owners is allowed.

4. Claim No.2 of AWHO for cost of completion

of balance work at the risk and expenses

of SSPL is allowed to the extent of

Rs.6,97,00,000.00.

5. Claim No.3 of AWHO is disallowed.

6. Claim No.4 of AWHO is disallowed.

7. Claim No.5 of AWHO is disallowed.

8. Claim No.6 of AWHO is disallowed.

9. Claim No.7 of AWHO is allowed to the

extent that interest would be payable @ 12

per cent per annum on the amount of

Rs.6,97,00,000.00 awarded under Claim

No.2. Interest shall be payable from the

date of the award till payment is made.

10. Claim No.8 of AWHO regarding costs is

allowed to the extent that SSPL will

reimburse AWHO towards half share of the

arbitrators' fee, administrative expenses

and the other incidental expenses for the

conduct of the arbitral proceedings. Each

party shall bear the costs and expenses

incurred by it for prosecuting the

arbitral proceedings."

SUBMISSIONS:

Mr. K.N. Bhat, the learned senior counsel appearing on behalf of

Sumangal would raise the following contentions:

(i) A bare perusal of the award would show that the learned

arbitrators ignored the terms of the agreement.

(ii) In terms of Clause 130 of the general conditions of

contract, AWHO could maintain a claim as regard excess

amount required for completion of the unfinished work only

if the work was completed before a claim was raised or an

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estimate of the cost of completion is certified by the named

architect. Despite the fact that none of the aforementioned

conditions were fulfilled, the award was made allegedly on

the ground that Clause 130 will have no application while

the completion was permitted by an order passed in a

judicial/ arbitral proceedings. Mr. Bhat would contend that

the arbitrators being creature of the agreement were

required to act within the fourcorners thereof and cannot by

reason of an interim order override the basis of the

agreement.

(iii) Clause 130 of the general conditions of contract would come

into play only when the contract is validly terminated in

terms of clause 129. The termination of contract by AwHO

was on the ground that Sumangal did not resume work in

relation whereto the learned Arbitrators failed to consider

that the question of resumption of work by it did not arise

as the Municipality had banned further construction

activities. Furthermore, the Arbitrators proceeded also on

a wrong premise that Sumangal failed to obtain sanction of

Building Plans from the Municipal Authorities.

(iv) As the plans were not sanctioned at the relevant time by

statutory authorities; Section 56 of the Contract Act was

attracted having regard to the fact that it was commercially

incapable of being performed upon passing of the ban order.

(v) An award ignoring material and relevant documents would be

rendered illegal and bad in law. As in the case the

arbitrators ignored the letter dated 8th December, 1994 of

AWHO for regularization of deviations and thus thereby they

must be deemed to have admitted that deviations were done by

them deliberately to suit their own convenience, and as such

the Arbitrators must be held to have misconducted themselves

and the proceeding.

(vi) Furthermore, being a reasoned award, wrong application of

law would vitiate the award.

(vii) The award of the arbitrators is vitiated in law as an

agreement purported to have been entered into by and between

AWHO and the architect was enforced against Sumangal

although it was not a party thereto.

(viii) The finding of the arbitrator that the frustration was a

self-induced one is not based on any pleadings or materials

on record. In any event collusion between Sumangal and the

municipal authorities was neither pleaded nor proved.

(ix) In any view of the matter the learned arbitrator committed a

legal misconduct insofar as they applied a wrong principle

of law as regard determination of quantum of damages.

In support of the aforementioned contentions, reliance has been

placed by Mr. Bhat on Steel Authority of India Ltd. Vs. J.C. Budharaja,

Government and Mining Contractor [(1999) 8 SCC 122], Shyama Charan

Agarwala & Sons Vs. Union of India [(2002) 6 SCC 201], McGregor on

Damages, 16th edition, pages 1142 and 1143 and Mertens Vs. Home Freeholds

Co. Ltd. and Others [1921] All E.R. Rep. 372.

Mr. Arvind Kumar Tiwari, the learned counsel appearing on behalf

of the appellant, on the other hand, would submit that as the learned

arbitrator passed an interim order with the consent of the parties,

Sumangal at a later stage cannot be permitted to take a different stand.

In view of the interim order passed by one of the learned arbitrators, a

notice inviting tender was issued whereafter contract was awarded to a

third party and, thus, the bid made pursuant thereto could validly be

made the basis of determination of quantum of damages. The plea of

frustration of contract raised by Sumangal has rightly been rejected by

the learned arbitrators as the same was a self-induced one having regard

to the fact that it itself got the ban orders issued by the municipal

authorities. In any event Sumangal in terms of the contract being liable

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for obtaining sanction of the building plans, must be held to have

failed to perform its part of contract and consequentially has rightly

been held liable for damages.

FINDINGS:

INTERIM ORDER PASSED BY ONE OF THE ARBITRATORS:

A bare perusal of the order of the learned Arbitrator dated 1st

November, 1997 would clearly show that interim award was prayed for by

the parties which would have granted substantial reliefs sought for by

them in relation to the title in respect of 14.17 acres of land. It is

admitted that the parties cooperated with each other in the matter of

measurement of completed and incompleted works in terms of the

Arbitrator's order dated 12th May, 1997 passed in the arbitration

proceedings, the compliance whereof was recorded in minute of order

dated 19th August, 1997.

The learned arbitrator admittedly was not inclined to pass an

interim award on the requests of the parties; whereafter only on or

about 23rd October, 1997 an application was filed by AWHO stating:

"That the development of the housing project is

carried out by Party No.2 for it's allottees on

no profit no loss basis which is self financed

by the allottees of Party No.2. Due to breach

of contract committed by the Party No.1,

allottees of Party No.2 have been denied shelter

as well as their life time investments and are

suffering for the want of shelters for

themselves and their families. Substantial time

has already been lost due to non-performance of

Party No.1 and any delay in commencement of the

construction activity will cause immense

financial misery and loss of further time (which

cannot be given back by any one) to the

allottees. In order to obviate the sufferings

of hundreds of allottees who have invested their

hard earned money. Party No.2 therefore prays

to the Hon'ble Arbitrator to grant Party No.2

following relief:"

The prayer therein is as under:

"In the premise, it is most respectfully prayed

that in order to enable Party No.2 to commence

early and unjustified completion of unfinished

work as well as development of the housing

project at the risk of the Party No.1 permission

and liberty may be granted to Party

No.2/applicant to forthwith take such steps to

commence and complete the unfinished works

including all such development work on 14.17

acres of land owned by Party No.2 at VIP Road,

Calcutta as may be fit and appropriate for the

normal functioning of the housing project and

peaceful and safe habitation of the allottees of

the Party No.2/applicant.

Party No.1, it's Directors, Officers, employees,

agents and/or attorneys be also directed to hand

over the keys of the stores, offices, and

material lying at contract site which keys the

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Party No.1 is illegally holding in it's custody.

The materials lying at site have already been

paid for by Party No.2.

Party No.1, it's directors, employees, agents

and/or attorneys be directed not to interfere in

any manner in the development and construction

of the unfinished housing project by Party No.2

through such agencies as Party No.2 may deem fit

and proper."

Sumangal filed a detailed reply thereto.

Sumangal further stated that the AWHO was not the owner of the

property and the real object for such an application was to dispossess

Sumangal.

It was further pointed out that such undertaking of the contract

job by a third party would frustrate the present arbitration agreement

as a result whereof further disputes may arise. It was contended:

"10. The adjudication of this application

without a full-fledged examination of the issues

which have been raised by the parties in these

proceedings would render the entire arbitration

proceedings infructuous. It is further stated

that after such directions as prayed for are

given, the Party No.1 will be deprived of the

fruits of any relief which it might obtain on

final resolution of the disputes involved in

this arbitration proceedings.

11. The allegations contained in the petition

are denied (except those which are admitted in

records of proceedings). The purported

cancellation or termination is wrongful. The

question of completing the balance

work/construction at the risk and cost of Party

No.1 does not arise. The basis of the

development of the housing project between Party

No.2 and its allottees are not known and are

neither admitted. It is denied that Party No.1

has committed any breach. The allegation

relating to shelter and/or lifetime investments

or suffering are not admitted and in any event,

cannot override legal rights. It is denied that

time has been lost due to alleged non-

performance of Party No.1. Since the Party No.1

is willing to return all moneys which are due to

the Party No.2, the question of suffering

financial misery of loss cannot arise and the

Party No.2 cannot put the blame on the Party

No.1 in these facts and circumstances.

12. The construction work commenced on 14 blocks

only out of a total ordered 16 blocks over an

area of 6.36 acres approximately. The said

total area of 6.36 acres and the construction

thereon belongs to the Party No.1 and the Party

No.1 is entitled to deal with the same. The

area of 7.81 acres over which no construction

have been made also belongs to the Party No.1

and the Party No.1 is entitled to deal with the

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same."

It is, therefore, not correct to contend that the said order was

passed on consent of the parties. For all intent and purport, Sumangal

could not have consented to grant of such a prayer which would virtually

put a final seal over the disputes. We have hereto- before quoted the

purported order dated 1st September, 1997 which ex facie demonstrate that

the arbitrator assumed jurisdiction to pass the said interim order at

the behest of AWHO. Furthermore, as noticed hereinbefore, Sumangal

filed a review application which was also dismissed in the manner

noticed hereinbefore. The said interim order was, thus, not passed with

consent of parties. If the learned arbitrator has no jurisdiction to

pass an interim order, even by consent no such jurisdiction could be

conferred. (See The United Commercial Bank Ltd. vs. Their Workmen, AIR

1951 SC 230 and Hakam Singh vs. M/s Gammon (India) Ltd., AIR 1971 SC

740).

In Hiscox Vs. Outhwaite [1991] 2 Lloyd's Law Reports 1, it is

stated:

"No act of the parties can create in the courts

a jurisdiction which Parliament has said shall

vest, not in the courts, but exclusively in some

other body. Nor again can a party submit to, so

as to make effective, a jurisdiction which does

not exist: which is perhaps another way of

saying the same thing. The argument we are here

rejecting seems to be based on a confusion

between two distinct kinds of jurisdiction: The

Supreme Court may, by statute, lack jurisdiction

to deal with a particular matter - in this case

matters including superannuation claims under

s.8 - but it has jurisdiction to decide whether

or not it has jurisdiction to deal with such

matters. By entering an unconditional

appearance, a litigant submits to the second of

these jurisdictions (which exists), but not to

the first (which does not)."

An arbitrator in a situation of this nature had no jurisdiction to

pass the interim order under the Arbitration Act, 1940 in absence of any

specific agreement in relation thereto. The learned arbitrator by an

interim order could not have placed the parties to a situation which

would travel beyond the subject of disputes and differences referred to

the arbitration. As no claim and counter-claim had been filed before the

arbitrator, the arbitrator was not even aware of the nature of claims of

the parties. He neither found any prima facie case nor balance of

convenience for passing the said interim order. Furthermore, an

arbitrator is bound by the terms of reference.

An arbitral tribunal is not a court of law. Its orders are not

judicial orders. Its functions are not judicial functions. It cannot

exercise its power ex debito justitiae. The jurisdiction of the

arbitrator being confined to the fourcorners of the agreement, he can

only pass such an order which may be subject matter of reference.

In Morgan Stanley Mutual Fund Vs. Kartick Das [(1994) 4 SCC 225]

the jurisdiction of the Consumer Disputes Redressal Forum to pass an

order of injunction came up for consideration. This court having regard

to the fact situation obtaining therein formulated the following

questions:

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"(1) Whether the prospective investor

could be a 'consumer' within the meaning of

Consumer Protection Act, 1986 ?

(2) Whether the appellant company 'trades'

in shares ?

(3) Does the Consumer Disputes Redressal

Forum have jurisdiction in matters of this kind?

(4) What are the guiding principles in

relating to the grant of an ad interim

injunction in such areas of the functioning of

the capital market and public issues of the

corporate sectors and whether certain 'venue

restriction clauses' would require to be evolved

judicially as has been done in cases such as

State of W. B. v. Swapan Kumar Guha and

Sanchaita Investments ((1982) 1 SCC 561 : 1982

SCC (Cri) 283) ?

(5) What is the scope of Section 14 of the

Act?"

This Court held that a prospective investor like the respondent

therein is not a consumer. The question of the appellant-company

trading in shares does not arise and in that view of the matter the

Consumer Disputes Redressal Forum has no jurisdiction whatsoever to pass

an order of interim injunction.

Having regard to Section 14 of the Consumer Protection Act, it was

held:

"44. A careful reading of the above discloses

that there is no power under the Act to grant

any interim relief of (sic or) even an ad

interim relief. Only a final relief could be

granted. If the jurisdiction of the Forum to

grant relief is confined to the four clauses

mentioned under Section 14, it passes our

comprehension as to how an interim injunction

could ever be granted disregarding even the

balance of convenience."

In absence of an agreement to the contrary, in terms of the

provisions of Arbitration Act, 1940 an arbitrator can pass only an

interim award or a final award. Such awards are enforceable in law.

The award of an arbitrator whether interim or final are capable of being

made a rule of court, decree prepared and drawn up in terms thereof and

put to execution.

It is well-settled that for the purpose of obtaining an interim

order a party to the arbitration proceeding during pendency of an

arbitral proceeding can only approach a court of law in terms of Section

41(b) of the Arbitration Act,1940 and not otherwise. The said provision

reads thus:

"41. Procedure and powers of Court.- Subject to

the provisions of this Act of rules made

thereunder :

xxx xxx xxx

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(b) the Court shall have, for the purpose of,

and in relation to arbitration proceedings, the

same power of making orders in respect of any of

the matters set out in the Second Schedule as it

has for the purpose of, and in relation to any

proceedings before the Court :

Provided that nothing in Cl.(b) shall be taken

to prejudice any power which may be vested in an

arbitrator or umpire for making orders with

respect to any of such matters."

In the instant case the proviso has no application as the

Arbitrator was not vested with such power.

Jurisdiction of courts in terms of Section 41 of the Act is

enumerated in the Second schedule, rules 1 and 4 whereof are as under:

"1. The preservation, interim custody or sale of

any goods which are the subject-matter of the

reference.

4. Interim injunctions or the appointment of a

receiver."

Even the Court's jurisdiction under Section 41(b) of the Act is

limited as it is confined to "for the purpose of and in relation to

arbitration proceedings".

Courts, thus, have also no power to grant injunction ex debito

justitiae.

See Union of India vs. Raman Iron Foundry [(1974) 2 SCC 231] and

M/s H.M. Kamaluddin Ansari and Co. vs. Union of India and Others [(1983)

4 SCC 417].

We may observe that even provision for stay in a suit under

section 10 C.P.C. is not applicable in relation to an arbitration

proceeding.

In Indrajit Sinha vs. B.L. Rathi (AIR 1984 Cal 281), it is stated:

"When Section 32, Arbitration Act, completely

prohibits a Civil Court from deciding the

existence and validity of the arbitration

agreement and Section 41, Arbitration Act lays

down that the Civil Procedure Code will apply

subject to the provisions and rules of the

Arbitration Act, 1940, then Section 10, C.P.C.,

cannot apply on the facts and circumstances of

this case and the question of its applicability

cannot arise.

So far as Court's inherent jurisdiction under

Section 151, C.P.C. is concerned, I do not think

that on the facts and circumstances of this case

inherent jurisdiction can be exercised to stay

the pending application in view of the fact that

the City Civil Court is incompetent to decide

the issues pending before me in the application

under Sec. 33 of the Act."

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In Debendra Nath Singha and others vs. Dwijendra Nath Singha and

others reported in AIR 1970 Cal 255, the law is stated in the following

terms :

"On a proper construction of Section 41 of the

Arbitration Act and of Section 41(b) in

particular, I am of the opinion, that the Court

has the power and jurisdiction to appoint a

receiver or to make any order of interim

injunction or to make orders in respect of other

matters set out in the Second Schedule in

appropriate cases for the purpose of, and in

relation to arbitration proceedings; but this

power and jurisdiction of the Court cannot be

exercised, if the exercise of any such power

would prejudice any power which might be vested

in an Arbitrator or Umpire for making orders

with respect to any of such matters. I am

further of the opinion that in view of the

provisions contained in Section 41 of the

Arbitration Act, the power and jurisdiction of

the Court to appoint a receiver or to make any

order of interim injunction or any order in

respect of the other matters set out in the

Second Schedule are now governed, controlled and

regulated by the said section, and apart from

the power and jurisdiction conferred by the said

section, the Court has no power and jurisdiction

independently of the provisions contained in the

said Section 41 to appoint a receiver, to make

any order of interim injunction or any order in

respect of the other matters set out in the

Second Schedule."

It is useful to notice that such a power has been expressly

conferred on the arbitrator in terms of Section 17 of the Arbitration

and Conciliation Act, 1996 which is as under:

"17. Interim measures ordered by arbitral

tribunal.-(1) Unless otherwise agreed by the

parties, the arbitral tribunal may, at the

request of a party, order a party to take any

interim measure of protection as the arbitral

tribunal may consider necessary in respect of

the subject-matter of the dispute.

(2) The arbitral tribunal may require a

party to provide appropriate security in

connection with a measure ordered under sub-

section (1)."

A bare perusal of the aforementioned provisions would clearly show

that even under Section 17 of the 1996 Act the power of the arbitrator

is a limited one. It cannot issue any direction which would go beyond

the reference or the arbitration agreement. Furthermore, an award of

the arbitrator under the 1996 Act is not required to be made a rule of

court; the same is enforceable on its own force. Even under Section 17

of 1996 Act, an interim order must relate to the protection of subject

matter of dispute and the order may be addressed only to a party to the

arbitration. It cannot be addressed to other parties. Even under

Section 17 of the 1996 Act, no power is conferred upon the Arbitral

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Tribunal to enforce its order nor does it provide for judicial

enforcement thereof. The said interim order of the learned Arbitrator,

therefore, being coram non judice was wholly without jurisdiction and,

thus, a nullity. (See Kiran Singh and Others Vs. Chaman Paswan and

Others [AIR 1954 SC 340 (6)], Srimathi Kaushalya Devi & Others Vs. Shri

K.L. Bansal [(1969) 1 SCC 59], Union of India Vs. Tarachand Gupta and

Bros. [(1971) 1 SCC 486 at 496], Sushil Kumar Mehta Vs. Gobind Ram Bohra

(Dead) through His Lrs. [(1990) 1 SCC 193] and Smt. Kanak & Anr. Vs.

U.P. Avas Evam Vikas Parishad & Ors. [2003 (7) SCALE 157]).

WHETHER THE AWARD IS VITIATED AS GENERAL CONDITIONS OF CONTRACT HAD NOT

BEEN COMPLIED WITH?

Before the learned arbitrators a question was raised as regard

applicability of Clauses 129(e) and 130 of the general conditions of

contract which read as follows:

"DETERMINATION

129. The Organization may, without prejudice to

any other right or remedy which shall have

accrued or shall accrue thereafter to the

Organization, cancel the contract in part or

whole in any of the following cases :

If Contractor :-

(a) xxx xxx

(b) xxx xxx

(c) xxx xxx

(d) xxx xxx

(e) In the opinion of the Organisation/Architect

at any time whether before or after the date or

extended date for completion makes defaults in

proceeding with the work with due diligence and

continues in that state after reasonable notice

from the Architect and or Organisation or

(f) xxx xxx

(g) xxx xxx"

"130. Whenever the Organisation exercises his

authority to cancel the contract under clause

129, he may complete the works by any means at

the contractor's risk and expense provided

always that in event of cost of completion after

alternative arrangements have been finalized by

the Organisation to get the works completed or

estimated cost of completion (as certified by

the Architect) and approved by Organisation

being less than the contract cost, the advantage

shall accrue to the Organisation. If the cost

of completion after the alternative arrangements

have been fianlised by the Organisation to get

the work completed or estimated cost of

completion (as certified by the Architect) and

approved by the Organisation exceeds the money

due to the contractor under this contract, the

contractor shall either pay the excess amount

assessed by the Architect or the same shall be

recovered from the contractor by other means."

The learned arbitrators refused to enter into the questions as to

whether the AWHO had made out a case for canceling the contract and

invoking the risk and expense clause stating :

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"We do not consider it necessary to go into the

question whether clause 130 requires certificate

by the Architect in case completion of the work

is done at the risk and expense as urged by SSPL

or only where the alternative arrangements for

completion of the work have not been fianlised

and estimated cost of completion is to be

considered, as submitted by AWHO. In our

opinion, clause 130 deals with a situation where

AWHO completes or decides to complete the work

on their own and has no application where the

completion of the work is being permitted

under an order passed in a judicial/arbitral

proceeding. The certification by the Architect

is intended as a check against an arbitrary

claim towards cost of completion. Such a check

is not required when the completion of the work

is done in pursuance of an order in a

judicial/arbitral proceeding because the

court/Arbitral Tribunal would examine any such

grievance of the other party. Since in the

present matter AWHO were allowed to complete the

work under the order of the Sole Arbitrator

dated November 1, 1997 which contained

appropriate directions regarding the manner in

which the contract shall be given, the

certification of the Architect contemplated by

clause 130 was not required."

The approach to the question by the learned arbitrators was wholly

erroneous.

An award made pursuant to an order which has been passed without

jurisdiction necessarily must be held to be a nullity. Refusal on the

part of the learned arbitrator to consider the effect of clause 130 of

the agreement would amount to a legal misconduct. Having regard to the

facts and circumstances of the case, as would be discussed in details

hereinafter, it was incumbent on the part of the Arbitrators to apply

"due diligence" clause contained in clause 129(e), more cautiously.

They were further required to consider as to whether "due diligence"

clause be applied where the alleged violation of contract was only in

relation to a small part thereof. The learned arbitrators were, in law,

bound to consider the relevant provisions of the contract and in

particular those which deal with the rights and liabilities of the

parties.

This aspect of the matter has not been taken into consideration by

the learned arbitrators while making the award. Thus, they failed to

take into consideration a relevant fact.

In Steel Authority of India Ltd. (supra), this Court categorically

stated the law thus:

"It was not open to the arbitrator to ignore the

said conditions which are binding on the

contracting parties. By ignoring the same, he

has acted beyond the jurisdiction conferred upon

him. It is settled law that the arbitrator

derives the authority from the contract and if

he acts in manifest disregard of the contract,

the award given by him would be an arbitrary

one. This deliberate departure from the contract

amounts not only to manifest disregard of the

authority or misconduct on his part, but it may

tantamount to mala fide action."

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It was stated"

"Further, the Arbitration Act does not give any

power to the arbitrator to act arbitrarily or

capriciously. His existence depends upon the

agreement and his function is to act within the

limits of the said agreement. In Continental

Construction Co. Ltd. v. State of M.P. (1988) 3

SCC 82) this Court considered the clauses of the

contract which stipulated that the contractor

had to complete the work in spite of rise in the

prices of materials and also rise in labour

charges at the rates stipulated in the contract.

It is to be reiterated that to find out

whether the arbitrator has travelled

beyond his jurisdiction and acted beyond

the terms of the agreement between the

parties, the agreement is required to be

looked into. It is true that

interpretation of a particular condition

in the agreement would be within the

jurisdiction of the arbitrator. However,

in cases where there is no question of

interpretation of any term of the

contract, but of solely reading the same

as it is and still the arbitrator ignores

it and awards the amount despite the

prohibition in the agreement, the award

would be arbitrary, capricious and without

jurisdiction. Whether the arbitrator has

acted beyond the terms of the contract or

has travelled beyond his jurisdiction

would depend upon facts, which however

would be jurisdictional facts, and are

required to be gone into by the court. The

arbitrator may have jurisdiction to

entertain claim and yet he may not have

jurisdiction to pass award for particular

items in view of the prohibition contained

in the contract and, in such cases, it

would be a jurisdictional error. For this

limited purpose reference to the terms of

the contract is a must.

(Emphasis Supplied)

In Shyama Charan Agarwala (supra) this Court referred to the said

decision.

A Bench of this Court recently in Bharat Coking Coal Ltd. Vs. M/s.

Annapurna Construction [2003 (7) SCALE 20] upon referring to a large

number of decisions stated:

"The question is as to whether the claim of the

contractor is d'hors the terms or not was a

matter which fell for consideration before the

arbitrator. He was bound to consider the same.

The jurisdiction of the arbitrator in such a

matter must be held to be confined to the four-

corners of the contract. He could not have

ignored an important clause in the agreement;

although it may be open to the arbitrator to

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arrive at a finding on the materials on records

that the claimant's claim for additional work

was otherwise justified."

As regard the duty of the arbitrator to take into consideration

the relevant provisions contained in the agreement, it was observed:

"So far as these items are concerned, in

our opinion, the learned sole arbitrator should

have taken into consideration the relevant

provisions contained in the agreement as also

the correspondences passed between the parties.

The question as to whether the work could not be

completed within the period of four months or

the extension was sought for on one condition or

the other was justifiable or not, which are

relevant facts and were required to be taken

into consideration by the arbitrator.

It is now well settled that the Arbitrator

cannot act arbitrarily, irrationally,

capriciously or independent of the contract."

This Court further opined:

"There lies a clear distinction between an

error within the jurisdiction and error in

excess of jurisdiction. Thus, the role of the

arbitrator is to arbitrate within the terms of

the contract. He has no power apart from what

the parties have given him under the contract.

If he has travelled beyond the contract, he

would be acting without jurisdiction, whereas if

he has remained inside the parameter of the

contract, his award cannot be questioned on the

ground that it contains an error apparent on the

face of the records."

Referring to paragraph 577 of Halsbury's Laws of England, 4th

edition, Commercial Arbitration by Mustill and Boyd at page 598, Alopi

Parshad & Sons Ltd. Vs. Union of India [(1960) 2 SCR 793], Heyman Vs.

Darwin [1942 (1) All ER 327], Associated Engineering Vs. Govt. of A.P.

[(1991) 4 SCC 93], State of Orissa Vs. Dandasi Sahu [(1988) 4 SCC 12],

K.P. Poulose Vs. State of Kerala [(1975) 2 SCC 236], K.V. George Vs. The

Secretary to Government, Water and Power Dept, Tri-vendrum [(1989) 4 SCC

595], Satish Kumar v. Surinder Kumar [AIR 1970 SC 833], Union of India

vs. Jain Associates and Another [(1994) 4 SCC 665], Sikkim Subba

Associates Vs. State of Sikkim [(2001) 5 SCC 629], Maharashtra State

Electricity Board Vs. Sterilite Industries (India) and Another [(2001) 8

SCC 482], W.B. State Warehousing Corporation and Another Vs. Sushil

Kumar Kayan and Others [(2002) 5 SCC 679], Bharat Coking Coal Ltd. Vs.

L.K. Ahuja & Co. [(2001) 4 SCC 86] and Ispat Engineering & Foundry

Works, B.S. City, Bokaro vs. Steel Authority of India Ltd., B.S. City,

Bokaro [(2001) 6 SCC 347] this Court observed:

"However, as noticed hereinbefore, this

case stands on a different footing, namely, that

the arbitrator while passing the award in

relation to some items failed and/or neglected

to take into consideration the relevant clauses

of the contract, nor did he take into

consideration the relevant materials for the

purpose of arriving at a correct (sic finding

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of) fact. Such an order would amount to

misdirection in law."

Before the learned arbitrators a question arose as to whether

certification of architect as regard estimated cost of completion was a

condition precedent for determination of the quantum of damages.

Construction of clauses 129 and 130 having regard to the fact situation

obtaining herein was mandatorily required to be considered by the

learned arbitrators. They could not have been simply ignored the same

on the premise that an interim order has been passed by the arbitrator.

An arbitrator cannot be equated with a court of law. Whereas court has

an inherent power; an arbitrator does not have. It is a tribunal of

limited jurisdiction. Its jurisdiction is circumscribed by the terms

and reference. An arbitrator can act only within the fourcorners of the

agreement and not beyond thereto.

Yet again this Court in Union of India Vs. M/s. V. Pundarikakshudu

and Sons and Anr. [2003 (7) SCALE 323] dealt in details about an award

which was found to be inconsistent, observing:

"The question as to whether one party or the

other was responsible for delay in causing

completion of the contract job, thus, squarely

fell for consideration before the arbitrator.

The arbitrator could not have arrived at a

finding that both committed breaches of the

terms of contract which was ex facie

unsustainable being wholly inconsistent. Clause

54 of the contract could be invoked only when

the first respondent committed breach of the

terms of the contract. An action in terms

thereof could be taken recourse to in its

entirety or not at all. If one part of the award

is inconsistent with the other and furthermore

if in determining the disputes between the

parties the arbitrator failed to take into

consideration the relevant facts or based his

decision on irrelevant factors not germane

therefor; the arbitrator must be held to have

committed a legal misconduct."

This Court made a distinction between an award passed within

jurisdiction and an award without jurisdiction stating:

"In this case the District Judge as also the

High Court of Madras clearly held that the award

cannot be sustained having regard to the

inherent inconsistency contained therein. The

arbitrator, as has been correctly held by the

District Judge and the High Court, committed a

legal misconduct in arriving at an inconsistent

finding as regard breach of the contract on the

part of one party or the other. Once the

arbitrator had granted damages to the first

respondent which could be granted only on a

finding that the appellant had committed breach

of the terms of contract and, thus, was

responsible therefor, any finding contrary

thereto and inconsistent therewith while

awarding any sum in favour of the appellant

would be wholly unsustainable being self

contradictory."

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This Court cannot sit in appeal over the award of the Arbitrator

but can certainly interfere when the award suffers from non-application

of mind or when relevant fact is ignored or irrelevant fact not germane

for deciding the dispute is taken into consideration.

Where an order has been passed without jurisdiction, the

principles of estoppel, waiver and acquiescence will have no

application. There is no estoppel against statute.

The award, therefore, suffers from legal misconduct on the part of

the arbitrators.

ROLE OF AN ARCHITECT:

An architect plays an important role in execution of a building

contract.

In Hudson's Building and Engineering Contracts at page 243, it is

stated:

"An architect is a person who professes skill in

the art of designing buildings to meet his

client's need, in the organization of the

contractual arrangements for their construction,

and in the supervision of work and contractual

administration until final completion. So a

major part of an architect's activities will be

concerned with the preparation of contracts, the

obtaining and recommending for acceptance of

estimates from builders, the selection of

specialist contractors, the inspection of work

carried out, the solution of difficulties

encountered during the course of erecting the

building, condemning and dealing with defective

work, the issue of certificates under the terms

of the contract and advising or ruling on

disputes between the owner and the contractor.

Thus it will be seen that although it is the

primary and vital function of the architect to

create new ideas of amenity and design and to

set down those ideas on a drawing-board, his

duties extend far into other fields of technical

knowledge and business management. On the other

hand, while he will remain primarily responsible

to the owner for all matters of design, modern

techniques of construction and specialized

building products and processes in fact demand

expertise and skill for which he will inevitably

not always be personally qualified. The

employment of outside consultants or the less

satisfactory (from the legal point of view if

the employer's interest is to be properly

protected) device of delegating important design

functions to specialist and sub-contractors and

suppliers, are therefore a frequent and

inevitable accompaniment of many major building

projects but, as will be seen, the architect is

the "captain of the ship" and will be the person

to whom the owner will normally look if a design

failure occurs, though in some, but not all,

cases he will adequately discharge his own

overall responsibility if he exercises due

professional care in referring matters outside

his own expertise to a consultant or specialist

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supplier or contractor, particularly if these

latter are engaged on behalf of the owner and

not by the architect himself."

An Architect has, thus, various roles to play including

independently ruling on disputes between the owner and the contractor.

In R. Vs. Architects' Registration Tribunal, ex. P. Jaggar [1945]

2 All ER 131, it is stated:

"An architect is one who possesses, with due

regard to aesthetic as well as practical

consideration, adequate skill and knowledge to

enable him (i) to originate, (ii) to design and

plan, (iii) to arrange for and supervise the

erection of such buildings or other works

calling for skill in design and planning as he

might in the course of his business reasonably

be asked to carry out or in respect of which he

offers his services as a specialist."

An architect has a great role to play in making an estimate. He

is expected to neither under-estimate nor can over-estimate value of the

works. He is bound by his conduct to the owner. He can be sued for his

negligence. For his misconduct, fees payable to him may be forfeited.

He may incur other liabilities not only under the contract but also

under statute.

Clause 130 of the contract casts a burden upon an architect to

estimate the damages when a risk and cost clause is invoked against the

contractor. It is possible to hold that the invocation of arbitration

clause would be subject to exercise of the jurisdiction by the architect

as a demand has to be made upon the contractor depending on such

estimate made by the architect.

In a given case having regard to the reasonableness of the

estimated amount a contractor may pay the same or challenge the same

either by an arbitrator or by a court of law. A dispute may fall for

adjudication by an arbitrator or by a court of law only in the event a

contractor refuses to accept such estimate.

In G.T. Gajria's Law Relating to Building and Engineering

Contracts in India, Fourth Edition at page 563, it is stated:

"In a contract, where there is certificate

clause which is a condition precedent to payment

and an arbitration clause of some third person

other than the architect, the builder cannot

recover without the certificate, and neither the

arbitrator nor the court (apart always from some

misconduct of the architect), has jurisdiction

to consider any matters. In respect of which

the certificate of the architect by the terms of

the contract is made a condition precedent."

An architect sometimes is appointed as an arbitrator and no

payment can be made except on his certificate and sometimes his position

is that of a person whose certificate is held to be a condition

precedent for invoking the arbitration clause [See Bristol Corporation

v. John Aird & Co. (1911-13) All E.R. Rep. 1076, Hickman and Co. v.

Roberts (1911-13) All E.R. Rep. 1485 and South India Rly. Co. Ltd. v.

S.M. Bhashyam Naidu, AIR 1935 Mad. 356].

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These decisions were considered by a Division Bench of the Madhya

Pradesh High Court in Heavy Electricals (India) Ltd. Bhopal vs. Pannalal

Devchand Malviya [AIR 1973 MP 7].

In this view of the matter, we are of the opinion that the

arbitrator could not have ignored the role of the architect in terms of

clause 130 of the agreement only on the ground that AWHO had been

permitted to raise construction, pursuant to or in furtherance of an

interim order. Non-consideration of the said clause in proper

perspective by the Arbitrator would amount to a legal misconduct on

their part.

WHOSE DUTY IT WAS TO GET THE PLAN SANCTIONED:

M/s. Dulal Mukherjee & Associates had been the architect of

Sumangal. By reason of the agreement, however, he became an architect

of the employer. It was in the aforementioned situation, the following

was agreed between the parties and the same was recorded in the contract

agreement as under:

"26. Company informed that they have negotiated

with M/s Dulal Mukherjee & Associates, 28-B,

Shakespeare Sarani, Calcutta as Architects for

providing all Architectural Services for this

turn key project. As per the understanding of

the Company with the Architect, the Company has

to pay to the Architect at the firm rate of

Rs.6/- per sq. ft. of built-up area excluding

stilt area for the turn key project. The stilt

area is not to be taken into account while

calculating the amount of fee payable to the

Architect. Architect fee for all internal

services, development of land, all external

services and stilt area is deemed to be included

in the rates of Rs.6.00 per sq. ft. for built up

area.

27. It is hereby mutually agreed and accepted

that the services of the Architect M/s Dulal

Mukherjee & Associates, with immediate effect

shall be controlled by the Organisation and the

payments due to the Architects will be made by

the Organisation direct. For making this

payment an amount calculated at Rs.6.00 per sq.

ft. of built up area as per para 16(d) above

shall not be released by the Organisation to the

Company. The payments due to the Architect for

his architectural services shall be released by

the Organisation in terms of separate agreement

entered by the Organisation with M/s Dulal

Mukherjee & Associates, the Architects. For the

Architectural Services rendered by the Architect

upto the signing of this agreement, the Company

is fully responsible for any omissions and

commissions. For all architectural services

after the signing of this agreement, the

Organisation will take the responsibility. The

Company has paid a sum of Rs.5.00 lacs as adhoc

advance to the Architect. This amount shall be

reimbursed by the Organisation to the Company

and shall be adjusted against the total amount

payable to the Architects by the Organisation."

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Architectural services have not been defined in the agreement.

However, in a letter dated 12.6.1991 issued by AWHO to M/s. Dulal

Mukherjee & Associates it was mentioned that obtaining and getting

preparation of municipal drawings and obtaining sanctions was the

architect's responsibility, stating:

"1. Please refer to your letter of 04 Jun 91

following the detailed discussions on the

project held on 03 & 04 Jun 91 at this HQ.

2. As per understanding arrived at between AWHO

and M/s. Sumangal Services Pvt. Ltd. your

employment and payment will be controlled by

AWHO. Please note that the rate of Rs.6/- per

sqft. as agreed between you and M/s. Sumangal

Services Pvt. Ltd. remain operative for

Architectural services including supervision.

3. For the release of payment the amount of Rs.

5 lacs that is already been paid by M/s.

Sumangal Services Pvt. Ltd. to you as on date

will also be taken into account. Recoveries @

Rs. 6/- per sq. ft. will be considered as

overall payment and will be recovered from M/s.

Sumangal Services Pvt. Ltd. during execution of

project and paid to you on time to time through

your bills.

4. It is also understood that prior to issue of

this letter following works towards the project

has already been undertaken by you.

a) Preparation of conceptual plan.

b) Interaction with local sanctioning

authorities.

c) Preparation of Municipal drawings and

obtaining sanction.

5. Based on the discussions between AWHO, M/s.

Sumangal Services Pvt. Ltd. and you held in

Delhi on 03 & 04 Jun 91 it is decided that till

Project Manager and staff has been posted, you

will monitor the progress on behalf of AWHO.

You will also forward a weekly report on the

same.

6. The contract documents between you and AWHO

is under drafting and would come in effect when

ready.

7. Please acknowledge."

Despite the fact, by reason of the contract agreement the services

of the architect were placed solely at the disposal of AWHO, it

purported to have entered into another agreement wherein Sumangal was

not a party on or about 24th February, 1992 wherein the responsibility of

the architect was defined as under:

"12. Architects Responsibilities. Except to the

extent otherwise stipulated in this agreement,

the responsibility and services of the Architect

shall include the responsibilities and

obligations of Architects as laid down by the

Indian Institute of Architects (except net

liability and net schedule of payments) and will

particularly include the following obligations

of the Architect :-

(e) Preparation of drawings for

submission to civil agencies excluding obtaining

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sanctions which will be done by

builder/contractor but should guide the

builder/contractor but should guide the builder/

contractor in obtaining the same."

Legally the said agreement was not binding on Sumangal as it was

not a party thereto.

Para 17 of the agreement provides for stages for release of

payments which reads thus:

"Stage Rate per sq.

ft.of plinth

area

(aa)

Sanction of plans by Zila

Parishad/Gram Panchayat

Rs.3.00

(ab)

On registration of converted

land

Rs.33.00

(ac)

De-watering land and clearance

of hyaclnth

Rs.2.00

(ad)

Survey and soil test

Rs.1.00

(ae)

Filling of earth to raise the

level to VIP Road

Rs.12.00

(af)

Alongwith the progress of

building construction

Rs.15.00

Total

Rs.66.00"

It does not appear to be the case of the AWHO that there is a

contractual obligation on the part of Sumangal to get the plan

sanctioned. In any event, such a contractual obligation for the purpose

of attracting the penal clauses must appear from the contract itself and

not from any other document.

The learned arbitrators in their award did not point out any

specific clause in terms whereof it was for Sumangal to get the plan

sanctioned. It merely relying or on the basis of a letter of Sumangal

made it partially liable therefor.

No document exists to show that Sumangal had any legal liability

to get the Municipal plan sanctioned.

Section 204 of the West Bengal Municipal Act, 1993 prohibits

erection of any building excepting with the previous sanction of the

Board of Councillors. In terms of Section 205 it is for the person who

intends to erect or re-erect a building to submit an application with a

building plan in such form.

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The provisions of the West Bengal Municipal Act, 1993 go to show

that it was for AWHO to submit an application for sanction of the

building plan together with requisite documents therefor. Ordinarily,

the duty to pursue sanction of a plan is of the owner or its authorised

representative. Such a job, it is common experience, is done by a

qualified architect or the persons having regard to their duties to

prepare a building plan in terms of the building laws so as to enable

them to make clarifications as and when called upon by the statutory

authorities or in a given case make modifications or alterations

thereof. The building plans prepared by the architects only would be

subject-matter of sanction by the municipal authorities. Furthermore,

from the letter dated 8.12.1994 also it is evident that AWHO prayed for

alterations of the Master Plan and in the said letter it has clearly

been stated that M/s Dulal Mukherjee & Associates had been appointed by

them as consulting architect for the project. From a perusal of the

letter dated 21.7.1995 issued by the Rajarhat Gopalpur Municipality to

Shri Manohar Singh, Project Manager, AWHO, it would appear that the

author thereof had discussed the matter with Shri Manohar Singh as also

with M/s Dulal Mukherjee & Associates and only with them, views were

exchanged as regard the norms of Municipal Rules and Regulations. From

the letter dated 27.5.1995 issued by AWHO to Sumangal, it appears that

Shri Manohar Singh, its Project Manager along with representatives of

M/s Dulal Mukherjee & Associates had a detailed meeting with Chairman,

Rajarhat Gopalpur Municipality wherein it was agreed that the work need

not be stepped for which its plans had already been approved. The

alleged responsibility of Sumangal to get the plan sanctioned has been

raised only in July-August, 1995, i.e. after the dispute between the

parties started.

The municipality made AWHO responsible for coordination and

construction activities. The stop work notice was served upon AWHO.

AWHO in its letter, as noticed hereinbefore, categorically stated that

its representative with the authorised representative of the architect

saw the Chairman in 1995. AWHO and not Sumangal made other

correspondences with the Municipality. If Sumangal was assisting them

in getting the plan passed, it, in law, did not incur any liability

therefor. The findings of the learned arbitrators, therefore, do not

borne out from the records and are perverse.

It will amount to giving of premium to illegality if it be held

that a party can ignore statutory injunction on the specious plea that

the same is minor in nature and maybe validated by the statutory

authorities in future. Neither any party can undertake any construction

activity on the pains of facing criminal charge nor any court of

law/Arbitral Tribunal encourage such violation either directly or

indirectly.

Furthermore, risk and cost clause cannot be invoked on failure of

the party to respond to its self-imposed obligation. Damages are to be

paid for willful breach of the terms or conditions of the contract.

Such a breach must be in relation to an express agreement entered into

by and between the parties. An alleged breach on the part of a builder

cannot be founded on a mere ipse dixit. The learned arbitrators in

their award purported to have held :

"...That SSPL had a role in getting the plans

sanctioned by the competent authority is borne

out by letter of AWHO to SSPL dated October 25.

1995 (Ex.E-45, AWHO, Vol.3, p.356) and the reply

of SSPL dated December 9, 1994 (Ex.E-103, AWHO,

Vol.17, p.54) to the said letter of AWHO . In

the said letter of AWHO dated October 25, 1994,

it was stated :

"7. Sanctioning of building plan and

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revised lay out plan. Sanction of

building plan and revised lay out plans

has already been considerably delayed.

This is effecting the progress of the work

also. Though DMA is taking action but the

follow up action as a part of the turnkey

project is to be taken by you. Please

ensure that the sanction is obtained

without further delay." (AWHO Vol.3,

p.357, para 7)

SSPL in their reply dated December 9, 1994 said

:

"g) Sanctioning of building plan - You

have been informed during several

discussions in your office in New Delhi

that there had been structural change in

the local authority system affecting the

project area. For some considerable

period vacuum existed in many standard

local govt. functions. However, the new

Municipality authority has recently been

formed. We are following up with the new

authority in respect of the sanctioning

process." [AWHO, Vol.17, p.56(g)]

The letter dated 25.10.1994 referred to in the award clearly shows

that the architect was asked to take action but allegedly the follow up

action was to be taken by Sumangal only on the ground that the project

was a turnkey one. Sumangal's letter dated 9.12.1994 merely stated that

there had been structural change in the local authority system affecting

the project area and there had been some vacuum in many standard local

government functions and that they had been following up with the new

authority in respect of the sanctioning process. Presumably in the

aforementioned backdrop, the learned arbitrators observed :

"We are, therefore, unable to hold that the

entire responsibility for obtaining sanction for

the plans from the competent authority had been

transferred from SSPL to AWHO after June 12,

1991 and thereafter AWHO and DMA were

responsible for obtaining the said sanction."

Thus, merely some role had been attributed to Sumangal in the

matter of getting the plan sanctioned and not a breach of contract

leading to incurring its liability under clause 130 of the agreement.

EFFECT OF SUCH AGREEMENT, ASSUMING THERE WAS ONE

There cannot be an agreement that somebody would be bound to

obtain a statutory order from the statutory authorities, as thereover,

he would have no control.

In the Law Lexicon, the maxim 'Ex turpi causa non oritur actio' is

defined as:

"On a bad (illegal) consideration on action can

arise."

As regard the question as to whether such a contract in its

entirety or to some extent would be illegal or not which would give rise

to further question as regard its enforceability, we may notice the

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following passage from Immami Appa Rao and Others Vs. Gollapalli

Ramalingamurthi and Ors. [(1962) 3 SCR 739]:

"Reported decisions bearing on this question

show that consideration of this problem often

gives rise to what may be described as a battle

of legal maxims. The appellants emphasised that

the doctrine which is pre-eminently applicable

to the present case is ex dolo malo non oritur

actio or ex turpi cause non oritur actio. In

other words, they contended that the right of

action cannot arise out of fraud or out of

transgression of law; and according to them it

is necessary in such a case that possession

should rest where it lies in pari delicto potior

est conditio possidenties; where each party is

equally in fraud the law favours him who is

actually in possession, or where both parties

are equally guilty the estate will lie where it

falls. On the other hand, respondent 1 argues

that the proper maxim to apply is nemo allegans

suam turpitudinum audiendum est, whoever has

first to plead turpitudinum should fail; that

party fails who first has to allege fraud in

which he participated. In other words, the

principle invoked by respondent 1 is that a man

cannot plead his own fraud. In deciding the

question as to which maxim should govern the

present case it is necessary to recall what Lord

Wright, M. R. observed about these maxims in

Berg v. Sadler and Moore ([1937] 2 K. B. 158,

162). Referring to the maxim ex turpi causa non

oritur actio Lord Wright observed that "this

maxim, though veiled in the dignity of learned

language, is a statement of a principle of great

importance; but like most maxims it is much too

vague and much too general to admit of

application without a careful consideration of

the circumstances and of the various definite

rules which have been laid down by the

authorities".

In Kuju Collieries Ltd. Vs. Jharkhand Mines Ltd. and Others [AIR

1974 SC 1892: (1974) 2 SCC 533] this Court held that in relation to a

contract which is hit by Section 23 of the Contract Act Section 65 and

Section 70 of the Contract Act shall not apply. Only in a case where a

contract has become void due to subsequent happenings, the advantage

gained by a person should be restored.

The building plans would be sanctioned provided the same are in

accordance with the statutory building rules. If admittedly the plans

as also the constructions were not in terms of rules, question of

getting them sanctioned by a statutory authority would not arise. Such

a contract, it is reiterated, would be illegal. Principle of estoppel

will have not application in relation thereto as that part of the

agreement itself would not be enforceable. In the event, however, the

builder was merely required to take follow-up action in the matter with

the authorities, the contract may be valid but in that event it must not

only be pleaded and proved that there existed an agreement in that

behalf, but also to how and to what extent the builder failed to perform

its part of the contract. The findings of the learned arbitrators are

without any materials and without applying the correct legal principles

and, thus, the same cannot be sustained.

Admittedly, the deviations which were minor ones were regularized

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only on 23rd April, 1997. The contract, however, stood terminated on 17th

October, 1995.

Even in the ordinary course, Sumangal could not have carried out

any construction activities in anticipation that such deviations might

be regularized. Whether such deviations would be regularized in respect

of Phase I or whether building plans for Phase II and Phase III would be

sanctioned and if so within what time could only be a matter of

speculation but the same would be irrelevant for determining the

liabilities of the parties which was required to be guided by commercial

considerations.

The liability to pay damages must arise out of contract and not

otherwise. The award does not specifically say so.

FRUSTRATION OF CONTRACT:

Section 56 of the Indian Contract Act reads thus:

"Agreement to do impossible act:- An agreement

to do an act impossible in itself is void.

Contract to do act afterwards becoming

impossible or unlawful:-A contract to do an act

which, after the contract is made, becomes

impossible, or, by reason of some event which

the promisor could not prevent, unlawful,

becomes void when the act becomes impossible or

unlawful.

Compensation for loss through non-performance of

act known to be impossible or unlawful:-Where

one person has promised to do something which he

knew, or, with reasonable diligence, might have

known, and which the promise did not know, to be

impossible or unlawful, such promisor must make

compensation to such promisee for any loss which

such promisee sustains through the non-

performance of the promise."

Impossibility to fulfill the contractual obligation may arise in

different fact situations.

Statutory injunction by a statutory authority may be one of such

causes. A building bye-law must be scrupulously followed. Violation of

Section 204 of the West Bengal Municipal Act, 1993 attracts penal

provisions contained in Section 440. It is, therefore, mandatory in

nature. The correspondences between AWHO and the Municipality clearly

show that even infrastructural works were not permitted to be carried

out. Sumangal, therefore, cannot be said to have committed any

illegality in complying with the stop work notice. To what extent it

committed breach of the terms of the contract, assuming that it could

have carried out some job as pointed out by AWHO would depend upon the

commercial viability as a large number of workmen were to be engaged

although it cannot carry out the major construction work, which was a

relevant factor for determining the quantum of damages. Sumangal might

have been partially liable but it cannot be faulted when it refused to

carry out any constructional work in violation of the stop work notice

which would attract the penal provisions of Section 440 of the West

Bengal Municipal Act, 1993.

The learned arbitrators were also bound to take into consideration

this aspect of the matter. They failed to do so and misdirected

themselves in law.

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In an interesting article titled "The Principle of Impossibility

in Contract" by H.W.R. Wade published in Law Quarterly Review Volume 56

page 519, it is stated:

"Two points emerge from the argument so far: (I)

There can exist no duty to do an impossible act.

(II) A promise is, normally and primarily, a

promise of performance simply, and not of

damages in the alternative. The effect of

supervening impossibility on an existing duty

can now be determined, and in view of conclusion

(I) the answer is a simple one. It must be that

the impossibility causes the duty to cease to

exist. For a duty either exists or it does not

- that is to say, every duty continues until it

is discharged, and discharge is the only process

known to the law by which a duty once legally

undertaken can be put off the shoulders of the

obligee. Its effect is a complete removal of

the obligation, and discharge by impossibility

of performance is no less perfect than discharge

by the performance of the original promise. In

the words of Professor Corbin already cited,

'society no longer commands performance' -

nothing more can be demanded of the promisor."

In Emden and Gill's Buildings Contracts and Practice, Seventh

Edition, page 162-163, it is stated that liability to pay damages for

non-performance of an impossibility only arises where the contract is

absolute and unrestricted by any condition expressed or implied. It is

further stated that a difficulty may not in all circumstances amount to

impossibility. But even in that event the terms and conditions relating

to performance of the contract may stand eclipsed.

The transaction was a commercial one. Sumangal could not plead

frustration of contract if it itself had abandoned it. (See Hauman Vs.

Nortje [1914] A.D. 293, at p. 297 and Hoenig Vs. Issacs [1952] 2 All

E.R. 176, at p. 178H).

It is well-settled that a builder renouncing his obligations could

not claim substantial performance.

In Hudson's Building and Engineering Contracts at page 484, the

law is stated as:

"A further overriding principle to be deduced

from the cases, it is submitted, is that a party

consciously in breach, a fortiori a party

repudiating an obligation or abandoning work,

should not be enabled to abuse the doctrine by

maintaining that position while at the same time

suing for remuneration under the contract. Thus

in South Africa, there is long-standing

authority that substantial performance is not

available where work is abandoned, or the method

of performance is inconsistent with an honest

intention to carry out the work in accordance

with the contract. Sumpter v. Hedges and Ibmac

v. Marshall were clear cases of abandonment."

Such a case of abandonment was not made out. What was made out

was a case of self-inducement frustration. We repeatedly asked Mr.

Tiwari to show before us any pleading as regard self-induced frustration

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on the part of Sumangal. He failed to do so. No material far less any

pleading has also been placed before us to show that there had been

collusion by and between Sumangal and municipal authorities in getting

the work stopped. There exists a presumption as regard the official

transactions having been done in regular course of business. The onus

of proving that plea of frustration was self-induced one is on the party

who alleges that this is the case. (See Joseph Constantine Steamship

Line Ltd. Vs. Imperial Smelting Corporation Ltd. [1942] A.C. 154])

In Treitel's Law of Contract, Seventh Edition at page 701, it is

stated:

"The onus of proving that frustration is self-

induced is on the party who alleges that this is

the case. In Joseph Constantine SS Line v.

Imperial Smelting Corp. Ltd. [(1942) AC 154] a

ship was disabled by an explosion from

performing her obligations under a charter

party. The owners were sued for damages and

pleaded that the explosion frustrated the

charterparty. The charters argued that the

owners must prove that the explosion was not due

to their fault, but the House of Lords rejected

this argument and upheld the defence of

frustration although the cause of the explosion

was never explained. The rule is open to the

objection that the charterer is much less likely

than the owner to be able to show how the

explosion occurred. This reasoning does,

indeed, prevail in one group of cases: a person

to whom goods have been bailed, and who seeks to

rely on their destruction as a ground of

frustration of the contract of bailment, must

show that the destruction was not due to any

breach of his duty as a bailee. But, this

special situation excepted, the rule as to

burden of proof laid down in the Joseph

Constantine case can be defended on the ground

that generally catastrophic events which prevent

performance do occur without the fault of either

party. To impose the burden of disproving fault

on the party relying on frustration is therefore

less likely than the converse rule to lead to

the right result in the majority of cases."

It is interesting to note that at page 700 of the said treatise,

the learned author states:

"The further question arises whether a contract

can be frustrated by an event brought about by

the negligent act of one of the parties. Lord

Simon has put the case of a prima donna who lost

her voice through carelessly catching cold. He

seemed to incline to the view that she could

plead frustration so long as the incapacity "was

not deliberately induced in order to get out of

the engagement." This particular result can

perhaps be justified by the difficulty of

foreseeing the effect of conduct on one's

health. But it is submitted that generally

negligence should exclude frustration: for

example, the plea should have failed in Taylor

vs. Caldwell if the fire had been due to the

negligence of the defendants. In such a case it

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would be unjust to make the other party bear the

loss. A negligent omission should likewise

exclude frustration."

In Cheshire, Fifoot & Furmston's Law of Contract (14th Edition) at

page 643, the law is stated, thus:

"This rule, that a party cannot claim to be

discharged by a frustrating event for which he

is himself responsible, does not require him to

prove affirmatively that the event occurred

without his fault. The onus of proving that the

frustration was self-induced rests upon the

party raising this allegation. For instance :

On the day before a chartered ship was due

to load her cargo an explosion of such

violence occurred in her auxiliary boiler

that the performance of the charterparty

became impossible. The cause of the

explosion could not be definitely

ascertained, but only one of three

possible reasons would have imputed

negligence to the shipowners.

It was held by the House of Lords that, since

the charterers were unable to prove that the

explosion was caused by the fault of the owners,

the defence of frustration succeeded and the

contract was discharged. It should perhaps be

noted that in many cases a self-induced

frustrating event will be a breach of contract

but this will not necessarily be so. In

Maritime National Fish Ltd. v. Ocean Trawlers

Ltd [(1935) AC 524], the applicants were not

contractually bound to licence the chartered

trawler but could not excuse failure to pay hire

by relying on the absence of a licence."

Even no case of negligence on the part of Sumangal made out.

The burden of proof in relation to all these pleas, thus, was on

AWHO. It failed to discharge the same.

QUANTUM OF DAMAGES :

It is not necessary for us to go into the question of quantum of

damages in details but we may observe that the learned arbitrators

proceeded on a wrong premise even in relation thereto. It took into

consideration the subsequent events. Purported subsequent conduct on

the part of Sumangal became the bed-rock of the findings against it by

the learned arbitrators. The disputes and differences between the

parties were required to be determined as on 10.10.1995. Conduct of the

parties subsequent thereto was wholly irrelevant. Thus, there exists an

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error apparent on the face of the award.

Liability to pay damages would indisputably arise only in the

event a breach of contract has taken place. Clause 130 of the general

conditions of the contract could be invoked only in the event of breach

on the part of Sumangal and if AWHO could in law take recourse to Clause

129 of the Contract.

For the purpose of invoking clause 129(d) of the general

conditions of contract, it was incumbent upon the learned arbitrators to

arrive at a specific finding that a breach of the terms of condition has

been committed by Sumangal. Such breach must be in relation to a term

of the contract between the parties.

If a breach has occurred in respect of an agreement, to which

Sumangal is not a party, clause 129 could not have been invoked.

The law relating to damages in this behalf is stated in McGregor

on Damages, 16th edition at paras 1142 and 1143 in the following terms :

"The normal measure of damages is the cost to

the owner of completing the building in a

reasonable manner less the contract price, and

possibly, in addition, the value of the use of

the premises lost by reason of the delay. This

measure of cost of completion less contract

price is laid down by the Court of Appeal in

Mertens v. Home Freeholds Co., (1921) 2 K.B.

526, CA., which must be regarded perforce as the

leading case since it proves to be the only one

dealing with this issue. The defendant

contracted to build a house for the plaintiff

and was to begin work immediately after

possession of the site was given to him. The

defendant worked well for a month, but then

deliberately failed to proceed with due dispatch

in the knowledge that a government embargo on

building without licence was to be imposed. Had

he worked according to contract, the roof could

have been on to the house before the embargo

descended. Two or three years later the

plaintiff completed the work himself, when

building was again permitted but when costs had

risen. It was held that the proper measure of

damages was the cost to the plaintiff of

completion in a reasonable manner at the

earliest moment that he was allowed to proceed

with building, less the amount he would have had

to pay the defendant had the defendant completed

the house as far as the roofing-in at the time

agreed by the terms of the contract. The Court

of Appeal reversed the Divisional Court which

had taken for its basic figure not the cost of

completion but the market value that the

completed building would have had at the

contractual time due for completion. Of this

Lord Sterndale M.R. said :

"They (the Divisional Court) have treated

the contract as if it were one for the

sale of goods and have held that the

measure of damages is the difference

between the market price of the day of

what the plaintiff ought to have had and

what he got. In my humble opinion that is

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an entirely wrong way of looking at the

contract. There is no contract to deliver

goods, and there is no market price for a

roofed house."

Mertens v. Home Freeholds Co.[(1921)2 K.B.

526, C.A.], is also authority for taking the

cost of completion as at the time when it became

once again legal to build, although between

breach and the removal of the government embargo

on building two or three years afterwards costs

had risen substantially. And conversely, as

Younger L.J. pointed out, "if the cost of

building had decreased in that time the damages

would have been correspondingly diminished".

This rule is however subject to the general

principles of mitigation so that, in the words

of Lord Sterndale,

"the building owner must set to work to

build his house at a reasonable time and

in a reasonable manner, and is not

entitled to delay for several years and

then, if prices have gone up, charge the

defaulting builder with the increased

price."

We may, however, notice that in Clark and Another Vs. Woor [1965]

1 W.L.R. 650 and East Ham Borough Corporation Vs. Bernard Sunley & Sons

Ltd. [1966 AC 406], law almost to the similar effect has been laid down.

In Hudson's Building and Engineering Contracts at page 1034-35, it

is stated:

"Builders constructed a school with serious

defects in fixing the stone facing. The

contract was in the 1956 RIBA standard form.

Some years after the final certificate, a stone

fell and the owners discovered the defects. The

arbitrator found that the defects could have

been, but in fact were not, discovered or

noticed by the architect during the course of

his normal supervision of the work. At the date

of the breach (which the parties agreed should

for purposes of convenience be treated as the

date of completing the work), the cost of repair

would have been considerably less, due to rising

prices, than it was when the owners finally

discovered the defects. Held, by Melford

Stevenson J., distinguishing Phillips v. Ward

[(1956) 1 W.L.R. 471] that since the owners had

been guilty of no unreasonable delay once they

discovered the defects, they were entitled to

the greater cost of the repairs at the time they

carried them out. Held, by the House of Lords,

affirming the judge, that the parties must have

contemplated that the architect might fail to

notice defective work. The cost of repair at

the date of discovering the breach was "on the

cards" or a "loss liable to result" from the

breach within the test formulated by Asquith

L.J. in the Victoria Laundry case. Per Lord

Upjohn: "where the cost of reinstatement is the

proper measure of damages it necessarily follows

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as a matter of common sense that in the ordinary

case the cost must be assessed at the time when

the defect is discovered and put right and it is

not suggested here that the building owner

unreasonably delayed the work of repair after

discovery of the defect...I am at a loss to

understand why the negligent builder should be

able to limit his liability by reason of the

fact that at some earlier stage the architect

failed to notice some defective work..." East

Ham Borough Council v. Bernard Sunley Ltd.

[(1966)A.C.406]."

Reference may also be made to illustrations given in Hudson's

Building and Engineering Contracts at pages 1038-39.

In Emden and Gill's Buildings Contracts and Practice, Seventh

Edition, at page 267, the law is stated thus :

"The measure of damages for failure by the

contractor to complete a building or engineering

contract will include first, the difference (if

any)between the price of the work as agreed upon

in the contract and the cost the employer is

actually put to in its completion (i), and cost

of completion means cost of the completion of

the contract work itself.

Illustration

A builder agreed in May, 1916, to

build a house for plaintiff for a lump

sum, complete within a specified time.

After starting the work the builder

intentionally delayed progress for the

purpose of ensuring that the Ministry of

Munitions should refuse a licence for

construction of the house under Defence of

the Realm regulations, and that he would

thereby (as he thought) be released from

the contract. The licence was refused,

and the work had to be entirely suspended

till 1919, when plaintiff completed the

building. - Held: The builder could not

take advantage of a prevention brought

about by his own act, and the proper

measure of damages was what it cost the

plaintiff to complete the house as soon as

the statutory restriction ceased, less any

amount which have been due and payable to

the builder if he had proceeded with due

diligence up to the date when the licence

was refused.

In a leading case, the House of Lords has

held that the proper measure of damages is the

cost of re-instatement, such cost must be

assessed at the time when the defects are

discovered and are put right."

Sumangal, thus, could have been found liable for drawings if inter

alia it was guilty of one or the other misconducts as referred to

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hereinbefore.

TITLE IN RESPECT OF 14.17 ACRES OF LAND:

Claim No. 1 related to title of 14.17 acres of land. Sumangal

entered into an agreement on a turn-key basis. The contention of

Sumangal is that the lands were transferred in the name of AWHO by way

of security. This may or may not be so. But, herein we are only

concerned with the question as to whether the award can be set aside or

not. The learned arbitrator took into consideration the respective

contentions of the parties and came to the conclusion that title has, by

reason of the deeds of sale, passed on to AWHO. While arriving at the

said finding, the arbitrator has not applied wrong principle of law.

Sumangal procured land on behalf of AWHO. It for a specific purpose and

with a view to avoid double payment of stamp duty entered into an

arrangement whereby the owners of the agricultural land executed sale

deeds in favour of AWHO. Subject of course to furnishing bank guarantee

Sumangal received consideration. Sumangal stated that by getting the

land transferred in the their name by way of security at a nominal

price, as part of the turn key project, AWHO has gained enormously to

the tune of about 11.40 crores which they are not entitled to retain

lawfully. They, thus, have unjustly enriched themselves. It does not

appear that such a case has been made out before the learned

arbitrators. The plea of unjust enrichment, therefore, cannot be

allowed to be raised at this juncture. Such consideration was passed on

to the owners of the land. Requirements of Section 54 of the Transfer

of Property Act in respect of sale transaction were fully complied with.

Title to the said land, thus, apparently vested in AWHO and has become

absolute its owners. No exception, thus, to that part of the award can

be taken.

CONCLUSION:

However, we would like to clarify that the observations made

hereinbefore were meant for the purpose of demonstrating that the

learned arbitrators failed to apply the correct principles of law but

not for the purpose of determining finally the lis between the parties.

In other words, the questions have been posed and answered for the

limited purpose as to whether the award of the learned arbitrators

suffer from any legal infirmity within the meaning of Sections 30 and 33

of the Arbitration Act and no more.

We, therefore, for the aforementioned reasons, while upholding

Claim No. 1 of the award are of the opinion that the award of the

arbitrations in relation to Claim No. 2 must be set aside.

Consequently, no interest thereupon shall be payable.

The I.A. No. 11 of 2002 is allowed to the aforementioned extent.

No costs.