Army Welfare Housing Organisation Vs. Sumangal Services Pvt. Ltd  Insc
509 (8 October 2003)
Brijesh Kumar & S.B. Sinha.S.B. Sinha, J :
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.
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.
project was envisaged to be completed in three phases.
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1932, however, was repealed and replaced by West Bengal Municipal Act, 1993.
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.
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.
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
3010820 Army Welfare Housing Organisation South Hutments, Kashmir House, Rajaji
Marg, New Delhi-110011 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,
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.
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.
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.
are submitting herewith the revised Master Plan and also individual Plan for
Dwelling Units (Additions and Alterations) for your approval.
therefore make an appeal to your goodself to kindly give special consideration
to our plan and approve the same at the earliest.
faithfully, (Raghu Nandan) Brig (Retd) DT & DY MD For Managing
Director" Such permission was granted only on 9.3.1995.
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.
municipal authorities vide its letter dated 23.5.1995 directed stoppage of work
in six/seven blocks where allegedly unauthorized construction was being carried
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
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.
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.
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
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:
clear out instructions are not received from you by 29th May, we shall be
compelled to demobilize.
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:
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.
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.
engineer has been asking you for the erstwhile panchayet recommended plan by
which you have constructed already 8-9 blocks. All the time he has come back
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.
would request you fervently to submit the panchayet recommended plan on the
basis of which we will proceed further.
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
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.
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:
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.
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.
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 terms of the arbitration agreement
contained in Clause 136 of the general terms and conditions of the contract.
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.
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
appeal calls in question the order of the High Court of Calcutta dated
view of the developments which have taken place in this Court, it is not
necessary to refer to the detailed facts of the case.
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.
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.
learned Arbitrator shall file the Award in this Court. It is directed that no
other court shall interdict the arbitration proceedings.
appeal is disposed of accordingly. No costs." Even before filing the
statements of claims and counter-claims;
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:
Whether or not AWHO/Party No.2 is the 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?
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?
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?
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 now claiming that
the Deed of Sale was in reality a document or security?
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.
other relief in the circumstances of the case may also be passed/awarded."
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.
order was passed on the said application of AWHO by the learned arbitrator on
1.11.1997 subject to the following conditions:
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.
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.
All those works could be subject to the ultimate decision of the case.
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.
The said order was without prejudice to any of the contentions which may be
raised by the parties.
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.
further stated therein :
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:
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.
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
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
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.
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.
therefore, find no ground to review/modify the order dated November 1, 1997. The application accordingly stands
learned Arbitrator, therefore, did not determine the question as to whether he
had jurisdiction to pass an interim order or not.
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.
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
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
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.
claim on interest contained in claim No. 7 and claim of costs of arbitration in
claim No. 8 were also allowed.
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.
learned arbitrators in making the award formulated as many as 29 issues which
have been answered in the following terms:
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.
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.
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.
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.
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 favour of AWHO and against SSPL.
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.
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
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.
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.
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.
No.15 We have found that payments for the RARs 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
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.
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.
issue is decided accordingly.
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.
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.
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.
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.
issue is accordingly decided against SSPL and in favour of AWHO.
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
No.24 No submissions were made by SSPL with regard to this issue and the issue
is decided against SSPL.
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.
issue is decided in favour of AWHO and against SSPL.
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.
issue is decided in favour of AWHO accordingly.
No.27 We have found that SSPL are not entitled to reversion of land. The issue
is accordingly decided against SSPL.
No.28 We have found that SSPL are not entitled to recover any amount from AWHO.
The issue is, therefore, decided against SSPL.
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:
make the Award in the following terms:
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.
alternative claim of SSPL for an amount of Rs.11,40,85,000.00 is disallowed.
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.
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.
Claim No.3 of AWHO is disallowed.
Claim No.4 of AWHO is disallowed.
Claim No.5 of AWHO is disallowed.
Claim No.6 of AWHO is disallowed.
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.
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:
K.N. Bhat, the learned senior counsel appearing on behalf of Sumangal would
raise the following contentions:
bare perusal of the award would show that the learned arbitrators ignored the
terms of the agreement.
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
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.
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.
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.
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
Furthermore, being a reasoned award, wrong application of law would vitiate the
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.
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.
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.
support of the aforementioned contentions, reliance has been Government and
Mining Contractor [(1999) 8 SCC 122], Shyama Charan Co. Ltd. and Others 
All E.R. Rep. 372.
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.
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 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.
ORDER PASSED BY ONE OF THE ARBITRATORS:
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.
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:
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
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.
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 Party No.1 is illegally holding in it's custody.
materials lying at site have already been paid for by Party No.2.
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.
further stated that the AWHO was not the owner of the property and the real
object for such an application was to dispossess Sumangal.
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:
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.
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.
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 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
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.
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
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:
Whether the prospective investor could be a 'consumer' within the meaning of
Consumer Protection Act, 1986 ?
Whether the appellant company 'trades' in shares ?
Does the Consumer Disputes Redressal Forum have jurisdiction in matters of this
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) ?
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.
regard to Section 14 of the Consumer Protection Act, it was held:
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.
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
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:
Procedure and powers of Court.- Subject to the provisions of this Act of rules
made thereunder :
xxx (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 :
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.
of courts in terms of Section 41 of the Act is enumerated in the Second
schedule, rules 1 and 4 whereof are as under:
The preservation, interim custody or sale of any goods which are the
subject-matter of the reference.
Interim injunctions or the appointment of a receiver."
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
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].
observe that even provision for stay in a suit under section 10 C.P.C. is not
applicable in relation to an arbitration proceeding.
Sinha vs. B.L. Rathi (AIR 1984 Cal 281), it is stated:
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.
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." 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 :
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:
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.
arbitral tribunal may require a party to provide appropriate security in
connection with a measure ordered under sub- section (1)."
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
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, U.P. Avas Evam Vikas Parishad
& Ors. [2003 (7) SCALE 157]).
THE AWARD IS VITIATED AS GENERAL CONDITIONS OF CONTRACT HAD NOT
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
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 :
:- (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 :
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.
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.
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.
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.
Steel Authority of India Ltd. (supra), this Court categorically stated the law
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." 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
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.
Supplied) In Shyama Charan Agarwala (supra) this Court referred to the said
Construction [2003 (7) SCALE 20] upon referring to a large number of decisions
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.
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;
it may be open to the arbitrator to 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
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.
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.
now well settled that the Arbitrator cannot act arbitrarily, irrationally,
capriciously or independent of the contract." This Court further opined:
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.
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
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 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
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 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.
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.
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.and
Sons and Anr. [2003 (7) SCALE 323] dealt in details about an award which was
found to be inconsistent, observing:
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.
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:
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."
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.
an order has been passed without jurisdiction, the principles of estoppel,
waiver and acquiescence will have no application. There is no estoppel against
award, therefore, suffers from legal misconduct on the part of the arbitrators.
OF AN ARCHITECT:
architect plays an important role in execution of a building contract.
In Hudson's Building and Engineering
Contracts at page 243, it is stated:
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
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 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.
ER 131, it is stated:
architect is one who possesses, with due regard to aesthetic as well as
practical consideration, adequate skill and knowledge to enable him
design and plan,
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."
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.
incur other liabilities not only under the contract but also under statute.
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.
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.
G.T. Gajria's Law Relating to Building and Engineering Contracts in India, Fourth Edition at page 563, it is
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].
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].
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
DUTY IT WAS TO GET THE PLAN SANCTIONED:
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:
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.
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.
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." Architectural
services have not been defined in the agreement.
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:
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.
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.
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.
is also understood that prior to issue of this letter following works towards
the project has already been undertaken by you.
Preparation of conceptual plan.
Interaction with local sanctioning authorities.
Preparation of Municipal drawings and obtaining sanction.
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.
will also forward a weekly report on the same.
contract documents between you and AWHO is under drafting and would come in
effect when ready.
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:
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 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:
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.
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.
document exists to show that Sumangal had any legal liability to get the
Municipal plan sanctioned.
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.
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.
municipality made AWHO responsible for coordination and construction
activities. The stop work notice was served upon 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.
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.
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.
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
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.
(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 :
Sanctioning of building plan and revised lay out plan. Sanction of building
plan and revised lay out plans has already been considerably delayed.
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 :
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 :
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.
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.
Law Lexicon, the maxim 'Ex turpi causa non oritur actio' is defined as:
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 Ramalingamurthi and Ors. [(1962) 3 SCR 739]:
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
( 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".
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
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.
the deviations which were minor ones were regularized only on 23rd April, 1997. The contract, however, stood
terminated on 17th
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
liability to pay damages must arise out of contract and not otherwise. The
award does not specifically say so.
56 of the Indian Contract Act reads thus:
to do impossible act:- An agreement to do an act impossible in itself is void.
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.
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.
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.
learned arbitrators were also bound to take into consideration this aspect of the
matter. They failed to do so and misdirected themselves in law.
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:
points emerge from the argument so far: (I) There can exist no duty to do an
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.
transaction was a commercial one. Sumangal could not plead E.R. 176, at p.
well-settled that a builder renouncing his obligations could not claim
In Hudson's Building and Engineering
Contracts at page 484, the law is stated as:
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 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 In Treitel's Law of Contract, Seventh Edition at page 701, it is
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:
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 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:
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
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.
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
burden of proof in relation to all these pleas, thus, was on AWHO. It failed to
discharge the same.
OF DAMAGES :
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
error apparent on the face of the award.
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.
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.
breach has occurred in respect of an agreement, to which Sumangal is not a
party, clause 129 could not have been invoked.
law relating to damages in this behalf is stated in McGregor on Damages, 16th
edition at paras 1142 and 1143 in the following terms :
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.
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 :
(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 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.
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
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." 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:
constructed a school with serious defects in fixing the stone facing. The
contract was in the 1956 RIBA standard form.
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 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 :
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.
A builder agreed in May, 1916, to build a house for plaintiff for a lump sum, complete
within a specified time.
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
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 hereinbefore.
IN RESPECT OF 14.17 ACRES OF LAND:
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.
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.
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.
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.
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
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.
no interest thereupon shall be payable.
I.A. No. 11 of 2002 is allowed to the aforementioned extent.