Calcutta High Court
M/S South City Projects (Kolkata) ... vs Kolkata Metropolitan ... on 20 July, 2023
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
BEFORE:-
THE HON'BLE JUSTICE RAJASEKHAR MANTHA
AP 383 of 2020
M/s SOUTH CITY PROJECTS (KOLKATA) LIMITED AND ANR.
VERSUS
KOLKATA METROPOLITAN DEVELOPMENT AUTHORITY
WITH
AP 351 of 2020
KOLKATA METROPOLITAN DEVELOPMENT AUTHORITY
VERSUS
SOUTH CITY PROJECTS (KOLKATA) LTD. AND ANR.
For the KMDA : Mr. Kishore Dutta, Sr. Adv.
Mr. Avishek Guha, Adv.
Mr. Sirsanya Bandopadhyay, Adv.
Mr. Rahul Kr. Singh, Adv.
Ms. Debarati Das, Adv.
Ms. Akansha Chopra, Adv.
For the South City Projects (Kolkata) : Mr. Abrajit Mitra, Sr. Adv.
Mr. Saptarshi Datta, Adv.
Mr. Satadeep Bhattacharyya, Adv.
Ms. Srinjita Ghosh, Adv.
Mr. Pourush Kanti Pal, Adv.
Hearing Concluded on : 13.07.2023
Judgment On : 20.07.2023
Rajasekhar Mantha, J.:-
FACTS OF THE CASE
1. The subject matter of challenge in the instant proceeding under
Section 34 of the Arbitration and Conciliation Act of 1996 is an award
dated 22nd June 2020 passed by Shri Jayanta Kumar Mitra, Sole
2
Arbitrator, appointed by this Court on 3rd May 2017 in AP 302 of
2017.
2. The petitioner nos. 1 and 2 [M/s South City Projects (Kolkata) Limited
and M/s Merlin Projects Limited, respectively] (claimants) are, inter
alia, engaged in the development of properties. The Kolkata
Metropolitan Development Authority (KMDA) had invited bids for the
development of residential-cum-office complexes at two separate sites,
measuring about 132.20 cottahs at Mouzas, Laskarhat and
Nonadanga (hereinafter referred to as 'Ruby Complex') and 1.487
acres at Kasba (hereinafter referred to as 'Nilachal Complex'). The
petitioners submitted a bid jointly which was accepted by the KMDA.
3. A memorandum of understanding was entered into on 17th December
2007 by the claimants, with the respondent KMDA. Upon execution of
the MOU, a sum of Rs.10 crores was paid by the petitioners to the
KMDA. In further compliance of the terms of the MOU, a Joint
Venture Company, called "Kolkata Metropolitan South City
Development Limited", was formed.
4. A development agreement was to have been executed thereupon. The
claimants were thereafter to construct and develop the aforesaid two
building complexes. Leases for 99 years with a right to renew them
for one more year, were to be executed by the KMDA in favour of the
Joint Venture Company.
5. No development agreement was, however, executed by and between
the parties in terms of Clause 6 of the MOU, since vacant physical
possession of the two sites was not handed over to the claimants.
3
Hence the project remained stalled. Negotiations and discussions
ensued between the parties.
6. A supplemental MOU came to be executed between the parties on 16th
November 2011. The claimants from 2007 up to 2012 and from
November 2011 to March 2016 continued to demand compliances of
the terms of the MOU and the supplemental MOU by the KMDA.
7. By a letter dated 20th April, 2016, the claimant no. 1 terminated the
MOU dated 17th December 2007 and the supplemental MOU dated
16th November 2011.
8. There was admittedly an arbitration clause in the MOU dated 17th
December 2017. The arbitration clause was invoked by the claimants.
9. Pursuant to order dated 3rd May 2017 passed by consent of the
parties, in AP 302 of 2017, a Co-ordinate Bench appointed the
Arbitrator who entered upon the reference.
10. The claimants filed a statements of claim, praying as follows:-
a) Award for a sum of Rs. 43,70,76,495 as pleaded in
paragraph 51 thereof;
b) Award for a sum of Rs. 1,76,76,527 as pleaded in
paragraph 55 thereof;
c) Award for damages for a sum of Rs. 61 crores as pleaded
in paragraph 58 hereof and in the alternative, an enquiry
into damages as suffered by the claimants and an award
for such sums which may be found due and payable
upon such enquiry being made;
d) Interim interest and interest upon Award at the rate of
15% per annum;
e) Receiver;
f) Injunction;
4
g) Attachment;
h) Costs;
i) Such further or other relief or reliefs.
11. The KMDA filed a counter-statement and counter-claim.
12. The learned Arbitrator framed the following issues:-
C. ISSUES:
It is pertinent to mention herein that the learned Arbitral
Tribunal in course of the arbitral sitting held on 19th
June, 2019 had settled the following issues:
a) Whether the MOU dated 17th December 2007 was
executed in violation of orders of injunction passed in
respect of any lands forming the subject matter of the
agreement?
b) By reason of exchange of the letters dated 2nd February
2012 and 28th/31st July 2012, whether the MOU dated
17th December 2007 became confined to 83 cottahs of
land?
c) Whether the parties have discharged their respective
obligations under the MOU dated 17th December 2007
after 31st July 2012 in respect of 83 cottahs of land?
d) Have the parties discharged their respective obligations
in respect of the balance quantity of land in terms of the
MOU dated 17th December 2007?
e) Whether the Respondent under the MOU dated 17th
December 2007 was required to discharge the obligations
as claimed by the Claimants in paragraph 44 of the
Statement of Claim? If so, did the Respondent discharge
such obligations?
f) To what reliefs are the parties entitled against each
other?
5
13. The claimants examined two witnesses in support of its claim, CW 1
Mr. Promodh Chowdhury and CW 2 was Sushil Mahato. The KMDA
called two witnesses RW1 Sanjay Mukhopadhyay, Joint Secretary and
RW 2 Sarabjit Dey. The witnesses who deposed were cross-examined.
A huge number of documents were filed by both sides. Learned
Arbitrator held over a large number of sittings. Detailed arguments
were advanced by the parties and the Arbitrator awarded as follows:-
14. After having discussed oral and documentary evidence in detail,
analyzing the arguments advanced by the parties, and having
considered several decisions in law, in over 49 paragraphs, the
learned Arbitrator answered the issues framed as follows:-
(i) Whether the MOU dated 17 December 2007 was executed in
violation of orders of injunction passed in respect of any lands
forming the subject matter of the agreement?
In view of discussions contained in paragraphs 28 to 33 above, this
Issue is answered in the negative
(ii) By reason of exchange of the letters dated 24 February 2012 and
28/31 July 2012, whether the MOU dated 17 December 2007
became confined to 83 cottahs of land?
As discussed in paragraphs 32 to 41 above, by reason of exchange of
the said letters, the scope of the Project for the time being was
restricted to 83.52 cottahs of land, but in respect of the land
comprised in Site-I and Site-II, the provisions of the MOU remained
fully effective, and the parties were obliged to comply with the same.
In fact, the letter dated 28th/31 July 2012 written by the
Respondent (Exhibit-X) itself records that "for the time being", the
scope of the Project was limited to 83.52 cottahs under Plot No.1-26
and "shall be extended to other parcels of land as and when such
land is/are made available without encumbrances "
Hence, I answer this Issue in the negative, and hold that parties to
the MOU continued to be bound by the provisions of the MOU for
the rest of the land comprised in Sites I and II iii)
(iii) Whether the parties have discharged their respective obligation
under the MOU dated 17th December 2007 after 31st July 2012 in
respect of 83 cottaha of land?
6
I have discussed in paragraphs 42 to 60 hereinabove that the
Respondent was unable to remove all the existing encroachments
from the said 83.52 cottahs of land so much so that the Respondent
was not in a position to hand over possession of the subject plot to
enable the Joint Venture Project to take off. I, therefore, hold that it
is the Respondent who has failed to discharge its obligations under
the MOU to make available the said 83 52 cottahs of land to the JV
Company to undertake the Project.
(iv) Have the parties discharged their respective obligations in
respect of the balance quantity of land in terms of the MOU dated
17th December 2007?
Issue Nos. (iii) and (iv) to some extent overlaps with each other. As
held in paragraphs 56 to 60 above, implementation of the Project
was dependent upon the Respondent having sufficient title to and
possession of the land. The Respondent has failed to prove either.
On the basis of the evidence on record, 1 have come to the
conclusion that failure of KMDA to comply with and carry out its
aforesaid fundamental obligations has prevented the JV Company to
undertake and implement the development of the Project in terms of
the MOU. 1 answer the above Issue accordingly against the
Respondent
(v) Whether the Respondent under the MOU dated 17 December
2007 was required to discharge the obligations as claimed by the
Claimants in paragraph 44 of the Statement of Claim? If so, did the
Respondent discharge such obligation?
I have held in paragraph 56 above that the implementation of the
Project under the MOU was predicated upon fundamental
assumptions that Respondent was in possession of the lands
comprised in Sites I and II, and had title thereto. In fact, clause 4 in
the Bid Document records an assertion that the Respondent was in
possession of Sites I and II. Similarly, recital (c) of the MOU contains
a representation that the Respondent is seized and possessed of and
otherwise well and sufficiently entitled to the said plots Recital (D)(g)
and clause 6.2 of the MOU record and assurance by the Respondent
to make over to the JV Company vacant possession of the said two
Sites within 30 days of signing of the Development Agreement. By
and under Clause 6.7 of the MOU, the Respondent has undertaken
an obligation to make out a clear and marketable title to the said
two Sites free from all encumbrances. Clause 15.1(v) of the MOU
records a representation and a warranty by the Respondent that the
Claimants were entitled to the two Sites, and that there were no
pending litigations or disputes and/or any third party claims in
relation to the said two Sites.
I have discussed and shown in earlier paragraphs that the
Respondent/KMDA has failed to satisfy the Tribunal that it had
complied with any of its aforementioned representation, assurance,
assertion, understanding, warranty or promise regarding its title..
possession or absence of litigation or disputes or third party claims
in respect of the land comprised in the two Sites. As seen earlier,
even in respect of 83.52 cottahs of land, though shown to have
become free from litigation, the Respondent could not get the said,
entire land freed from encroachments so as to make the same
available for development
7
Thus, upon assessment of the entire evidence, 1 have come to the
conclusion in respect of the allegations in paragraph 44 of the
Statement of Claim that the Respondent had not been able to prove
that it had lawful title to the said plots comprised in Site-I and Site-
11, that there were several suits and proceedings in respect of the
said plots, that possession of the said plots was not available with
the Respondent at the material time, since substantial portions
thereof were encroached upon by various entities and persons.
I answer the above Issue accordingly.
.
.
.
.
69. I give hereinbelow in several subparagraphs the reason why I am of
the view that the Claimants have failed to justify their claim for
damage on account of loss of profit:-
(a) The first question that should fall for my consideration is
whether the Arbitral Tribunal as the adjudicating authority
should be justified in relying upon the evidence adduced by the
Claimants, through CW2, when such evidence was totally
outside the pleadings in the Statement of Claim. As noted above,
apart from a bald statement in paragraph 61 of the Statement of
Claim that Rs.61 crore would have been the profit the Claimants
could have reasonably earned if the MOU had been
implemented, nothing else had been stated. On 9th July 2018,
the Claimants filed an amended Statement of Claim, but
nothing more was stated in support of its claim of Rs.61 crore
as damage. On 8th March 2018, the Claimants filed affidavit of
evidence of CW2 before the Arbitral Tribunal annexing
voluminous documents purporting to support their claim for
damages on account of the loss of profit with an application for
condonation of delay. On the same day, i.e. on 9th March 2018,
the Respondent filed an application before the Arbitral Tribunal
that the documents disclosed by the Claimants in the affidavit
of evidence of CW2 be expunged. These facts have been recorded
in the Minutes of the 9th meeting of the Tribunal held on 9th
March 2018. After filing of affidavits by the parties, I finally
heard the two applications, and by an order dated 25th March
2018, though I condoned the delay by the Claimants in
disclosing the documents through the evidence of CW2 upon
payment of costs of Rs.50,000/- to the Respondent, I had
expressly held in my order that the Claimants had taken a
blatantly casual approach in their belated disclosure of
documents, and had not furnished any justifiable and
acceptable explanation for not filing the documents earlier. This
finding of mine would have been sufficient and good ground for
dismissal of the Claimants' application. However, since I did not
want to completely shut out the Claimants from leading
evidence on the issue of damage solely on the ground of delay in
disclosure of documents, I allowed their prayer. However, now
time has come for me to consider acceptability of such evidence.
It was stated by Lord Dunedin in Siddik Md. -Vs- Saran
reported in AIR [1930] P.C. 57, "no amount of evidence can be
looked into upon a plea which was not put forward", which was
reiterated by the Supreme Court in Trojan & Co -Vs- Nagappa
Chettiar: AIR [1953] SC 235 at 240, when it held that "It is well
settled that the decision of a case cannot be based on grounds
outside the pleadings of the parties and it is the case pleaded
that has to be found. Without an amendment of the plaint, the
Court was not entitled to grant the relief not asked for and no
prayer was ever made to amend the plaint so as to incorporate
in it an alternative case."
It is to be noted that in the instant Reference, the case pleaded
by the Claimants in the Statement of Claim was not proved, and
what the Claimants sought to prove through the affidavit
evidence of CW2 was not pleaded at all. It is noteworthy that as
per the evidence of CW2, the Claimants had done the
calculation in December 2017 (Q.103- 106), and their finance
and accounts department had done it even earlier (Q.107). If
that be so, there could have been no justification for not
pleading their claim for damage on account of loss of profit fully
in the amended Statement of Claim. I am of the view that
without such amendment, the Tribunal will not be justified in
granting any relief on the basis of the evidence of CW2 which
was not pleaded. In an adversarial litigation like the one before
the Tribunal, the Respondent is entitled to know exactly what
case he has to meet by way of a clear plea as to the damage the
Claimants are alleged to have suffered, and he must be afforded
an opportunity to investigate the details of the claim, so that he
may call evidence about it if he can, and attack the Claimants'
estimate of damages as well as the basis on which it is
grounded. These are the observations of Justice Vivian Bose in
the decision of Jamshed Musalman -Vs- KH. Kalar reported in
AIR [1938] Nagpur 530 at 531.
(b) The second question which arises in this case regarding the
claim for damage arising from the alleged loss of profit is
whether the Claimants have been able to prove the amount of
loss flowing from the breach, even if the Tribunal takes into
consideration the evidence adduced by CW2 on prayer (c) of the
Statement of Claim. In other words, have the Claimants proved
the amount of their loss through the evidence led by them?
i) "A plaintiff claiming damages must prove his case. To
justify an award of substantial damages he must satisfy
the Court both as to the fact of damage and as to its
amount. If he satisfies the Court on neither, his action will
fail, or at the most he will be awarded nominal damages,
where a right has been infringed." This is what McGregor
on the Laws of Damages (13th Edition) Para 252 at page
181 says. I am fully aware of the proposition that the fact
that damages are difficult to assess because of its nature
should not disentitle the Claimants to compensation for
the loss resulting from the breach committed by the
Respondent, and the Court should fix damages as best as
it can on the available evidence. As will be seen from the
discussions hereinbelow on the evidence adduced by the
Claimants through their second witness (CW2), the nature
and the quantity of the evidence is such that the fact of
damage by way of loss of profit and its amount cannot be
said to have been proved so as to entitle the Claimants to
claim anything more than a nominal damage.
ii) Secondly, as emanating from the evidence ofCW2, in
paragraph 86 of his affidavit (Pp.46-47), he himself states
on oath that the profits which the Claimants would have
earned, had the MOU been implemented, would be
reasonably assessed at Rs.61 crore. Soon thereafter, the
witness had gone on to justify the Claimants' claim for
damage by way of loss of profits at Rs.221.68 crore, much
in excess of Rs.61 crore (CW2: Paras 88-100). Thus, the
Claimants themselves were not certain as to the damages
they have purported to have suffered by way of loss of
profit. Furthermore, even the claim of Rs.221.5 crore by
way of compensation is shown to be dependent upon
various assumptions and ambitious guess- works. When
we look to the evidence of CW2, who by way of his
affidavit-evidence has brought in all these records and
third party documents, I find that a lot of such evidence is
based upon various assumptions and ambitious plans,
which are dependent upon hypothesis and conjectures.
I have considered the evidence of CW2, in particular, his
answers given in cross-examination. In answer to
Question Nos.69 to 72, CW2 stated as follows:-
69. Did the Claimant decide on the numbers of floors
which were to be built at the sites? / No plans were
prepared. So, no decision about number of floors.
70. In the residential complex, would there be one flat or
twoflats per floor?/ Same answer as above.
71. Would your answer be the same for the commercial
complex on the other site?/ Same as above.
72. Would there be swimming pools, landscaping,
banquet halls? /No plans were prepared."
In answer to a question put by the Arbitrator, as to who
would decide with regard to the plan of the building, CW2
answered that the same was to be decided "on the basis of
advices of Marketing Department by the Board of the
Claimants." (Q.73). When asked as to whether he had any
personal knowledge of the encumbrances at site, CW2
answered that he had no knowledge of the encumbrances
at site. It is to be recollected that in his evidence, CW2 has
stated that there would be 3,05,000 square feet of saleable
area in Site-I. When asked in Question 89 as to the
document on which such calculation was based, CW2
stated that in paragraph 95 at page 81 of his affidavit of
evidence, it has been mentioned that 3,05,000 square feet
was in respect of only one Site. In Question 90, when he
was asked where was the calculation for coming to the
conclusion that there would be 3,05,000 square feet of
saleable area in Site-1, CW2 answered that it was "based
on available FAR as per KMC By-rules, on the quantum of
land at Site-1." The evidence of CW2 is that his assertion
that 3,05,000 square feet of saleable area at Site-I was
based upon paragraph 88 of his affidavit-evidence where
he has mentioned that FAR at Site-I was 2.75, and that
was the basis of his calculation. However, when asked as
to whether he could produce any supporting document to
show that Site-I would give a saleable area of 3,05,000
square feet, CW2 said that he would have to check up
before he could answer, and he further said that his
answer would be same in respect of Site-II. When the case
of Claimants throughout has been that because of the
encroachments by outsiders on the said Sites, it was not
possible to demarcate the lands even by a boundary wall,
it is not understood how the Claimants, without being able
to identify the periphery of Site-1, could have drawn the
inference that a saleable area of 3,05,000 square feet
would be available at Site-1. In this regard, it will be
worthwhile to quote his evidence [his answers to Q.94-99]
on this aspect:-
94. 3,05,000 square feet saleable area at Site 1 would
involve structures of how many floors? It will depend on
the final planning of the project.
95. Would 3,05,000 square feet of area be spread over one
floor ? / No.
96. Have you calculated the number of floors?/ Not, so far.
97. Without calculating the number of floors, can you
compute floor area ratio? Yes.
97. Without calculating the number of floors, can you
compute any floor ratio?/ Yes.
98. Without calculating the number of floors, can you come to
a conclusion that a particular plot of land will give you a
particular saleable area? / Yes and I would like to
demonstrate it in the following manner:
Suppose there is a plot land of 10 cottahs, which is
equivalent to 7,200 square feet. Now, if the allowable
FAR as per building By-rules is 2.75, the land area of
7,200 square feet is to be multiplied by 2.75 that gives
the answer as to what is the potential of development on
such 10 cottahs plot of land.
99. I suggest to you that your previous answers as well as s
your example do not give a clear picture and are
incorrect. What do you say to that? / I do not agree.
[Witness adds] I am doing real estate for last three
generations and have personally spent 30 years in the
real estate business. Therefore, the FAR calculations are
done mathematically first and thereafter final plans are
prepared."
When asked in Question 100, where those mathematical
calculations were, the witness's answer was "this was
done on a rough calculation sheet for this affidavit."
However, when asked about such "rough calculation
sheet", the witness said that it was not there and that "it
must be in my working pad, which I shall produce on the
next sitting CW2 in further cross-examination said that he
himself did the calculation sometime in the month of
December 2017. However, he could not produce the
calculation sheet. When asked who else did the
calculation, the answer was "our finance and accounts
department has done that before." However, he could not
produce any document to show how and when the finance
or accounts department made such calculations. When
asked about the cost of construction on the said Sites, in
answer to Q.114, CW2 said that he had calculated with
the help of his construction team. When asked about the
calculations, he said that the calculation is given in
Annexure-ZZZ starting from page 486 of his affidavit.
iii) The witness said that he himself made the calculation "on
a rough calculation sheet", which "must be in my working
pad" [CW2: Q.100-102] When asked about FAR
calculations and his conclusion that an area of 3,05,000
square feet would be available for the construction to be
made [CW2: Q.90-91], what prevented the Claimants from
disclosing such particulars and making such statements
in their pleadings. The original Statement of Claim was
filed on 13th July 2017 and the amended Statement of
Claim was filed on 9th January 2018, Surprisingly, there
is no mention of any such calculation in their claim for
damage in either of the aforesaid pleadings. In spite of the
fact that CW2 stated that the calculation sheets were
prepared by himself with the help of his construction team
as early as in December 2017 [CW2: Q.103-107), the claim
for damage was not amended nor any particulars were
furnished.
iv) In Annexure-ZZZ to the Affidavit of Evidence of CW2, rates
have been mentioned in the fourth column, and when
asked as to whether the Claimants have produced any
document which would justify the rates that have been
mentioned in the fourth column, the witness answered
that most of these were taken from PWD Schedule of Rates
applicable at the relevant point of time, and some items
which are not mentioned in the PWD Schedule of Rates
were considered on the basis of costs spent on similar type
of projects done by the Claimants at the relevant point of
time (Q.119). However, no evidence has been produced as
to which similar types of projects were taken into
consideration for the preparation of the cost sheets, and
what costs were incurred in which "similar types of
projects" and when. In Q.120, CW2 was asked as to
whether PWD Schedule has been produced by the
Claimants, to which the witness answered that it was not
annexed but the same could be produced and he further
added that PWD Schedule is available in public domain
and one could lay one's hands on it at any time. However,
he added that the rates which are not in the PWD
Schedule of Rates were based upon the other projects of
the Claimants (Q.121). The documents in support of the
above statement of CW2, however, have admittedly not
been produced in evidence (Q.122]. The second and the
third columns in Annexure-ZZZ mention "Unit" and
"Quantity". The Tribunal is provided with no material but
guesswork how the figures mentioned therein were arrived
at. It is to be noted that CW2 has heavily relied upon the
calculations mentioned in Annexure-ZZZ, and he stated
that detailed calculations were there. However, in
Questions 124-126, when asked whether the calculations
which are the basis of Annexure-ZZZ have been produced,
the witness answered that the detailed working and note
sheets have not been produced.
v) It is to be noted that it has not been the case of the
Claimants that the particulars contained in Annexure-ZZZ
were not available or within the knowledge of the
Claimants or could not be produced earlier. In such
situation, the probative value of such evidence diminishes
to a large extent, and the authenticity thereof becomes a
suspect.
vi) In answer to various questions, CW2 tried to compare the
project which the Claimants would develop with Urbana,
which was located behind the Ruby Hospital. However,
admittedly, Urbana Project is situated on a much larger
space (CW2: Q.135-136), and consequently houses a
number of multistoried buildings and bungalows, which
facilities would not be available to projects on Site I or II.
In Q.141, when the witness was asked whether there was
anything on record produced by the Claimants that would
show that many of the facilities which are provided in
Urbana would also be provided at the complex to be
erected at the subject plot, the witness answered that final
plans were not made and as such nothing was on record,
but considering the size of the plot and the location, it was
possible to develop a premium project. However, the
question still remains unanswered that when admittedly
final plans for the Project were not made and the area on
which the proposed Project was to come up was not
identified and remained uncertain, how the Claimants
were purporting to claim damage on the basis of an
imaginary premium project sought to be developed on the
said plots of land. In Q.143, when asked about the area of
lawns and gardens, which the Claimants have taken into
account, while making the cost calculation, CW2 frankly
admitted that final plannings were not done and therefore
"as a thumb rule, cost of development has been
considered for the same." In answer to Q.148, the witness
answered as follows:-
"148. Without a plan how did the Claimants ascertain the
number of piles which would be required? / Certain
assumptions were made as is evident in page 496 of
my affidavit of evidence, Vol. II. We have considered
the total built up area which is proposed to be divided
in 10 floors, which gives area of each floor. In other
words, the size of floor plate is available and based on
the size, the number of piles and the other details
about the piles can be arrived at."
Significantly, in answer to Q.148, the witness has stated
that it was proposed to be divided in 10 floors, and in
support thereof, he referred to page 496 of his affidavit-
evidence, whereas in answer to Q.96, the witness had
stated that he had not calculated the number of floors so
far.
vii) Another aspect which I took note of is that the claim for
loss of profit made by the Claimants is contingent on so
many uncertain factors, including acts and omissions of
third parties, like the Kolkata Municipal Corporation,
persons allegedly in wrongful possession of various
portions of the subject land, the result of pending
litigations in the Civil Courts in respect of Site I and/or
Site Il etc. as indicated hereinabove. It must be
appreciated that the Claimants' claim for loss of profit is
their claim for loss of a chance to earn profit through the
implementation of the Project, and the same was fraught
with numerous contingencies. To quote Justice Ashworth
in Hall -Vs- Meyrick reported in [1957] 2 Q.B. 455 at 471:
"The more the contingencies, the lower the value of the
chance or opportunity of which the plaintiff was deprived."
viii) In the above state of evidence, I have come to the
conclusion that there was no sufficient material to prove
with any degree of certainty as to the loss or damage the
Claimants claimed to have suffered. When the witness
(CW2) himself admits that no plans were prepared in
respect of residential or commercial complex and no
decision was taken with regard to the number of floors,
that no decision was taken as to the number of flats per
floor, one is left to ponder how Annexure-ZZZ and the
evidence of CW2 could be sustained as the basis of a hefty
claim for damage. The claim of the Claimants for loss of
profit is founded upon an unplanned project based wholly
on hypothesis, the foundation of which is on guesswork
and thumb rule. When the Project for which the MOU was
executed did not at all proceed, so much so that even the
area on which the Project was to come up had admittedly
not been identified and demarcated, the Arbitral Tribunal,
as an adjudicatory body, would not be justified in
proceeding on the basis of evidence, the foundation of
which was wholly based upon so-called plans, which
admittedly were not prepared even when CW1 was called
to give evidence.
ix) In the above circumstances, though I have held that there
had been infraction of a legal right of the Claimants by
reason of acts and/or default of the Respondent, I am
unable to award anything more than nominal damage @
Rs 100/- in favour of the Claimants against their claim for
damage on account of loss of profit.
(c) The third aspect arising from the claim of the Claimants for
damage on account of the loss of profit is the entitlement of the
Claimants to claim recovery for both the loss of expectation
interest and the reliance interest. The former relates to the gains
which the Claimants expected to receive from the completion of
the promised performance of the obligations by the Respondent,
which were prevented by the breach committed by it; and the
reliance interest relates to expenses or loss the Claimants have
incurred/suffered in reliance of the promised performance. As
the law is stated in Pollock and Mulla on the Law of Contract,
14th Edition: Vol.II, page 1164 that in protecting expectation
interest, the law redresses the innocent party's defeated
financial expectation and compensates him for his loss of
bargain. In the instant case, prayer (c) in the Statement of Claim
can be said to be an attempt of the Claimants for recovery of
such expectation loss. Pollock and Mulla's above Treatise at
page 1164 says that "the reliance interest of a party to a
contract lies in avoiding wasted outlay under a broken contract,
and while protecting this interest the law aims at compensating
the parties for the expenses incurred and losses suffered in
reliance on the contract, and which have been rendered futile by
the breach; this is a negative interest. The plaintiff is to be put
into the position in which he would have been if the contract
had never been made." In the instant Arbitration Reference,
prayers (a) and (b) are the relief through which the Claimants
are seeking to recover the reliance loss, being the infructuous
expenses incurred by the Claimants in reliance on the MOU.
After explaining the respective scope and ambit of expectation
interest and reliance interest, the said Treatise goes on to say as
follows (at page 1165):-
"No Recovery for both the Expectation Loss and the Reliance Loss.
Although the rules as to damages seek to protect both the
expectation and the reliance loss, viz, loss of profit, and reliance
loss, viz, expenses incurred in reliance of the promise, that would
involve double counting. He has to choose between the two
measures."
The above passages from Pollock and Mulla on the Treatise on
Contract have been cited with approval and relied on by the
Supreme Court in Kanchan Udyog -Vs- United Spirits Ltd.
reported in [2017] 8 SCC 237 at 254 (Para 30) cited before me
on behalf of the Respondent.
The above principle when applied to the facts of the instant
case, leads me to the conclusion that the breach of contract by
the Respondent causing infraction of legal rights of the
Claimants, which I have held earlier in this Award, does not
entitle the Claimants to damage by way of loss of profit (Chitty
on Contracts, 25th Edition, Vol. I: Para 1674). In such event
also, the Claimants become entitled only to a nominal damage,
which I have assessed at Rs. 100/- only in Paragraph 66
Subparagraph (b)(ix) above.
70. Now, regarding costs of and in relation to the instant arbitration
proceedings. Section 31A of the Arbitration and Conciliation Act,
1996 makes provisions for the Regime for Costs, and has invested
the Arbitral Tribunal with the discretion to determine, inter alia,
whether costs are payable by one party to another and the amount
of such costs, notwithstanding anything contained in the Code of
Civil Procedure.
(a) I have held in this Award that the entire venture of
implementation of the Project of development of Site-I and Site-II
in accordance with the provisions of the MOU dated 17th
December 2007 failed due to breach by the Respondent of the
fundamental terms of the Contract, which as a matter of course
should entitle the Claimants to damages, including the loss of
profit. However, I have also held that the Claimants are entitled
only to a nominal damage for reasons which 1 discussed in
details elsewhere in this Award.
(b) I am of the view that having held that it has been clearly
established that it is the Respondent who has committed
infraction of legal rights of the Claimants as enshrined in the
said MOU, the proceedings initiated by the Claimants in the
instant Arbitration is in order to pursue a genuine and bona fide
claim to establish their legal rights under the MOU, irrespective
of whether any substantial relief by way of recovery of profit
could be obtained by them or not. Though I have allowed only a
nominal damage towards loss of profit in favour of the
Claimants, however, to quote the language of Maule J. in
Beaumont- Vs- Greathead: (1846) 2 C.B. 494 at 498, nominal
damages are "a mere peg on which to hang costs." See Chitty on
Contracts 25th Edition: Vol. I Para 1674 Page 918.
(c) I, therefore, award costs of the Arbitration proceedings in
favour of the Claimants. There had been 75 sittings in the
Arbitration proceedings. The Claimants' share of costs of the
Arbitrator and his secretariat is reasonably assessed at Rs.
45,00,000/-, which the respondent is directed to pay and bear
for reasons stated in the last preceding paragraphs.
(d) Though the general rule is that the unsuccessful party
should be directed to pay the costs of the successful party
should be directed to pay the costs of the successful party, in
the instant case, though the Claimants have been successful
only partially in the sense that they have been able to establish
that due to wrongful breach on the part of the Respondent, their
right under the MOU has been infringed, forever, the Claimants
were unsuccessful in proving the damage allegedly suffered by
them by way of loss of profit. I am, therefore, directing the
Claimants and the Respondent to pay and bear their own
respective costs of the proceedings.
71. I, therefore, make my Award in the instant proceedings as
follows: There will be an Award in favour of the Claimants against
the Respondent as follows:-
(i) (a) The principal sum as
mentioned in paragraph 54 of
the Statement of Claim: Rs. 11,41,40,000.00
(b) Interest on the said sum at the
rate of 15% per annum from
17th December 2007 till the
date of the Award: Rs. 21,25,85,750.00
(ii) (a) Damage by way of expenses
incurred by the Claimants
towards preliminary and other
expenses as claimed in prayer
(b) of the Statement of Claim: Rs. 62, 33, 172.00
(b) Interest on the said sum as
stated in paragraph 67(i): Rs. 22,43,943.00
(iii) Damage under prayer (c) of
the Statement of Claim: Rs. 100
(iv) Interest on the Awarded sums
at the rate of 12% per annum
from the date of the Award till
payment
(v) Costs of the proceedings: Rs. 45,00,000.00
The object and purpose of setting out the award in some detail is to
apply and address the tests laid down by the Hon'ble Supreme Court
while dealing with an application under Section 34 of the Act of 1996.
ARGUMENTS ON BEHALF OF THE M/s. SOUTH CITY PROJECTS
15. In support of the award, Mr. Abhrajit Mitra, Learned Senior Counsel,
relied upon the case of Associate Builders v. Delhi Development
Authority reported in (2015) 3 SCC 49 at paragraphs 43 and 45
thereof that the learned Arbitrator is the final authority with regard to
the interpretation of a contract. Reliance is also placed in the decision
of Mcdermott International Inc. V. Burn Standard Co. Ltd. and
Ors. reported in (2006) 11 SCC 181 at para 112.
16. On the principle that the evaluation of facts is within the exclusive
domain of the learned Arbitrator, reliance is placed on the decision of
UHL Power Company Limited v. State of Himachal Pradesh
reported in (2022) 4 SCC 116 at para 15.
17. Similarly, on the question of the interpretation of documents and
analysis of the evidence on record being within the exclusive power of
the Arbitrator, reliance is placed on the case of Associates Builder
(supra) and UHL Power Co. Ltd. (supra).
18. On the principle of failure to consider the application of Sections 65,
70, and 72 of the Contract Act, reliance is placed on Westdeutsche
Landesbank Girozentrale v. Council of London Borough of
Islington reported in (1996) 2 AER 961.
19. On the argument that the rejection of the claim for damages of the
petitioner by the Arbitrator is erroneous. Reference is placed in the
case of MSK Projects India (JV) Limited v. State of Rajasthan and
Anr. reported in (2011) 10 SCC 573.
ARGUMENTS OF THE KMDA
20. Per contra, Mr. Kishore Datta, Learned Senior Counsel, appearing for
the KMDA, has advanced the following arguments:-
a) The joint venture company formed pursuant to MOU dated 17th
December 2007 called Kolkata Metropolitan South City Development
Limited could have alone maintained any claim and not M/s. South
City Ltd. or M/s. Merlin Projects Ltd.
b) The termination of the contract by claimant nos. 1 and 2 is illegal and
unilateral for being without consent.
c) The only remedy that the claimant was to breach the shareholder of
KMDA in the joint venture company. There was a breach on the part
of the respondent.
d) There was no prior notice by the claimants on the KMDA to cure the
breach, hence the termination is illegal.
e) The termination of the MOU was not in terms of Clause 20.1 of the
MOU.
21. It was further argued that, in the absence of any valid notice of
termination of the MOU by the claimants, no claim ought to have been
entertained by the Arbitrator. Reliance is placed to the decision of
Kailash Nath Associates v. Delhi Development Authority and Anr.
reported in (2015) 4 SCC 136 at para 20 and 21 and the case of Hind
Construction Contractors v. State of Maharashtra reported in
(1979) 2 SCC 70 at para 10 and Bombay Housing Board v. Kharbase
Naik & Co. reported in (1975) 1 SCC 828 at para 21 and 22. No case
of fundamental breach or reputation has been pleaded to justify the
termination of the contract. After the formation of the joint venture
company, the constitution of the consortium namely claimant nos. 1
and 2 had no independent legal existence. Only the joint venture
company could have maintained any claim against the KMDA. The
joint venture company has not raised any such claim.
22. The finding of the learned Arbitrator, that the obligation to develop the
project did not stand reduced to 83.52 cottahs and there was no
novation of the MOU in terms of the agreement dated 5th July 2012, is
erroneous. It was the obligation to claim to execute the draft
development agreement. The Arbitrator erred in ignoring the same with
evidence to that effect.
23. KMDA would have removed encroachments from the 83.52 cottahs of
land within 30 days of execution of the development agreement between
the joint venture company and the KMDA. The Arbitrator erred in law
in holding that the KMDA was not in a position to hand over the vacant
possession of land to the joint venture company from the claimants.
The claimants themselves requested KMDA to complete the entitlement
to the land. They were ready for the same and only transfer from the
State to KMDA was pending. The KMDA did not have title to the land.
24. On 4th February 2011, the Government of West Bengal settled 83.52
cottahs of land in favour of the KMDA. There was no time limit
stipulated under the MOU for the performance of obligations in respect
of handing over 83.52 cottahs of land.
25. The claimants did not provide the draft development agreement to the
respondent and hence could not insist on the performance of any
obligations by KMDA. Reliance is made to the decision of Narendra
Lal Khan v. Manmotha Ranjan Pal reported in AIR 1919 Cal 1000
and Jiwa Ram v. Man Singh reported in AIR 1934 Lah 84(1).
26. The claims to the consortium are barred by the terms of the MOU
which the Arbitrator failed to appreciate.
27. The only relief that the claimants could have been entitled to is the
specific performance of Articles 20.01, 20.02, 20.08, 20.09, 20.10, and
20.12 of the MOU. Since the only other remedy that could have been
awarded to the claimants is 50% shareholder of the joint venture
company by the KMDA, the learned Arbitrator travelled outside the
scope of the contract between the parties.
28. In violation of section 34(2)(b)(ii) read with section 28(3) of the
Arbitration and Conciliation Act, reliance is placed on the decision of
J.G. Engineers (P) Ltd. v. Union of India reported in (2011) 5 SCC
758 para 10 and 28 and Steel Authority of India Limited v. Vizag
Seaport Private Limited reported in 2022 SCC Online Cal 2299 para
20, 21, 26, 39 and 40.
29. A sum of Rs. 10.914 crores and 50 lacs were a loan advanced to the
JVC and could have only been recovered from the JVC. The KMDA is
not liable to pay the same. The claim for Rs. 62.33 lacs towards
expenditure incurred by the claimants for removing the jungle and
cutting bushes has not been proved. The award dated 22nd June 2020
modified by order dated 14th August 2020 ought to be declared against
the public policy of India and public interest and is therefore liable to be
set aside.
THE COURT'S ANALYSIS AND FINDINGS
30. The principal thrust of the argument of the KMDA is that the Learned
Arbitrator failed to appreciate that the claimant did not have the right to
terminate the MOU much less invoke the arbitration clause. It is argued
that the only remedy that the claimant had was to seek transfer of the
shares of KMDA in the Joint Venture Company, in their favour. It is
stressed by Mr. Dutta that it is only the Joint Venture Company namely
"Kolkata Metropolitan South City Development Ltd." that could have
maintained any sustainable claim against the KMDA.
31. This Court finds that this argument was not even raised before the
Arbitrator. There was no evidence led in this regard. Even assuming that
this is a question of law based on some evidence already on record, the
matter ought to have been first raised in the proceedings before the
Coordinate Court under Section 11 of the Arbitration and Conciliation
Act. No such plea has been raised or even shown as raised in the course
of the Arbitration, before this Court.
32. The KMDA could have also filed an application under Section 16 of the
Arbitration and Conciliation Act before the Arbitrator, questioning the
locus and authority of the claimants to invoke the arbitration clause,
which has not been done.
33. Even in the written statement of defense filed before the Arbitrator, no
such question was raised. No suggestion appears to have been made to
the witnesses of the claimant by the KMDA as regards its authority to
invoke the arbitration clause. Learned Counsel for the KMDA admits and
states that it is only in notes of argument filed before the Ld. Arbitrator
at the fag end of the proceeding, that the issue was raised for the first
time. The Arbitrator has therefore rightly declined to address the same.
The issue has been argued by KMDA before the Court. It would be
grossly inappropriate and unfair to permit the KMDA to raise the issue
before this Court at this stage.
34. The finding that the KMDA failed to make over the entire land free
from occupation, encroachment, and encumbrance is clear and evident
on record. The Arbitrator clearly found that the termination of the MOU
and the claims made against the KMDA are justified and sustainable in
the facts of the case. To accept the arguments of the KMDA, the Ld.
Arbitrator would have been required to alter the terms and conditions of
the MOU between the parties.
35. The principal sum awarded was Rs.11,41,40,000/-, being the actual
advance paid by the claimants to the KMDA before and after the MOU
was drafted. The interest on the said sum from the year 2011 till the
date of the award @ 15% per annum is the commercial rate applied to
any lawful business investment. Such amount was found payable in
view of the clear and abject failure on the part of the KMDA to give
possession of the entire lands mentioned in the MOU. The KMDA was
found without title to parts of the land.
36. The other findings of fact of the learned Arbitrator, incorrectness of
which has been argued at length by Mr. Kishore Dutta, cannot be gone
into or entertained by this Court in view of the dicta of the Supreme
Court in the case of UHL Power (supra), particularly Paragraph 15
thereof.
"15. This Court also accepts as correct, the view expressed by the appellate
court that the learned Single Judge committed a gross error in
reappreciating the findings returned by the Arbitral Tribunal and taking an
entirely different view in respect of the interpretation of the relevant clauses
of the implementation agreement governing the parties inasmuch as it was
not open to the said court to do so in proceedings under Section 34 of the
Arbitration Act, by virtually acting as a court of appeal."
37. The interpretation of the contract and/or the MOU in the facts of the
case are also within the exclusive domain of the Arbitrator as decided
by the Hon'ble Supreme Court in paragraphs 43 and 45 of the case of
Associate Builders (supra).
"43. In McDermott International Inc. v. Burn Standard Co. Ltd. [McDermott
International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , this Court
held as under: (SCC pp. 225-26, paras 112-13)
"112. It is trite that the terms of the contract can be express or implied.
The conduct of the parties would also be a relevant factor in the matter of
construction of a contract. The construction of the contract agreement is
within the jurisdiction of the arbitrators having regard to the wide nature,
scope and ambit of the arbitration agreement and they cannot be said to
have misdirected themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to be taken into
consideration for the purpose of construction of a contract. Interpretation
of a contract is a matter for the arbitrator to determine, even if it gives rise
to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil
and Natural Gas Commission [(2003) 8 SCC 593 : 2003 Supp (4) SCR 561]
and D.D. Sharma v. Union of India [(2004) 5 SCC 325] .]
113. Once, thus, it is held that the arbitrator had the jurisdiction, no
further question shall be raised and the court will not exercise its
jurisdiction unless it is found that there exists any bar on the face of the
award."
45. In RashtriyaIspat Nigam Ltd. v. Dewan Chand Ram Saran [(2012) 5 SCC
306] , the Court held: (SCC pp. 320-21, paras 43-45)
"43. In any case, assuming that Clause 9.3 was capable of two
interpretations, the view taken by the arbitrator was clearly a possible if
not a plausible one. It is not possible to say that the arbitrator had
travelled outside his jurisdiction, or that the view taken by him was
against the terms of contract. That being the position, the High Court had
no reason to interfere with the award and substitute its view in place of
the interpretation accepted by the arbitrator.
44. The legal position in this behalf has been summarised in para 18 of
the judgment of this Court in SAIL v. Gupta Brother Steel Tubes
Ltd. [(2009) 10 SCC 63 : (2009) 4 SCC (Civ) 16] and which has been
referred to above. Similar view has been taken later in Sumitomo Heavy
Industries Ltd. v. ONGC Ltd. [(2010) 11 SCC 296 : (2010) 4 SCC (Civ) 459]
to which one of us (Gokhale, J.) was a party. The observations in para 43
thereof are instructive in this behalf.
45. This para 43 reads as follows: (Sumitomo case [(2010) 11 SCC 296 :
(2010) 4 SCC (Civ) 459] , SCC p. 313)
'43. ... The umpire has considered the fact situation and placed a
construction on the clauses of the agreement which according to him
was the correct one. One may at the highest say that one would have
preferred another construction of Clause 17.3 but that cannot make
the award in any way perverse. Nor can one substitute one's own view
in such a situation, in place of the one taken by the umpire, which
would amount to sitting in appeal. As held by this Court in Kwality
Mfg. Corpn. v. Central Warehousing Corpn. [(2009) 5 SCC 142 : (2009) 2
SCC (Civ) 406] the Court while considering challenge to arbitral award
does not sit in appeal over the findings and decision of the arbitrator,
which is what the High Court has practically done in this matter. The
umpire is legitimately entitled to take the view which he holds to be the
correct one after considering the material before him and after
interpreting the provisions of the agreement. If he does so, the decision
of the umpire has to be accepted as final and binding.'"
38. It is now well settled that the only grounds for interfering with an
arbitral award, post the amendment to Section 34 of the 1996 Act, are
if the award in question is against the fundamental policy of Indian
Law, the interest of India, or against the principle of justice or
morality. The Hon'ble Supreme Court had occasion to address the
issue of the scope of interference with an arbitral award in the case of
Ssangyong Engineering & Construction Co. Ltd. Vs. NHAI reported
in (2019) 15 SCC 131. It was held as follows:-
"19. There is no doubt that in the present case, fundamental changes have
been made in the law. The expansion of "public policy of India"
in ONGC v. Saw Pipes Ltd. [ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705] ["Saw
Pipes"] and ONGC v. Western Geco International Ltd. [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ["Western Geco"]
has been done away with, and a new ground of "patent illegality", with
inbuilt exceptions, has been introduced. Given this, we declare that Section
34, as amended, will apply only to Section 34 applications that have been
made to the Court on or after 23-10-2015, irrespective of the fact that the
arbitration proceedings may have commenced prior to that date.
22. However, this Court, in Saw Pipes [ONGC v. Saw Pipes Ltd., (2003) 5
SCC 705] , added yet another ground, namely, that of "patent illegality" to
the three grounds mentioned in Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] in order to set aside an
award under Section 34 of the 1996 Act. This ground was added in the
following terms : (Saw Pipes case [ONGC v. Saw Pipes Ltd., (2003) 5 SCC
705] , SCC p. 728, para 31)
"31. ... [Patent] Illegality must go to the root of the matter and if the
illegality is of trivial nature it cannot be held that award is against the
public policy. Award could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court. Such award
is opposed to public policy and is required to be adjudged void."
23. Given this interpretation of the law, insofar as Section 34 was
concerned,this Court, in DDA v. R.S. Sharma and Co. [DDA v. R.S. Sharma
and Co., (2008) 13 SCC 80] , summarised the law as it stood at that point of
time, as follows : (SCC pp. 91-92, para 21)
"21. From the above decisions, the following principles emerge:
a. An award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and Conciliation Act, 1996;
or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under Section 34(2)
of the Act.
b. The award could be set aside if it is contrary to:
c. fundamental policy of Indian law; or
d. the interest of India; or
e. justice or morality.
f. The award could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court.
g. It is open to the court to consider whether the award is against
the specific terms of contract and if so, interfere with it on the
ground that it is patently illegal and opposed to the public policy
of India."
24. Yet another expansion of the phrase "public policy of India" contained in
Section 34 of the 1996 Act was by another judgment of this Court in Western
Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5
SCC (Civ) 12] , which was explained in Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] as follows : (SCC
pp. 73-77, paras 28-34)
"28. In a recent judgment, ONGC v. Western Geco International
Ltd. [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 :
(2014) 5 SCC (Civ) 12] , this Court added three other distinct and
fundamental juristic principles which must be understood as a part
and parcel of the fundamental policy of Indian law. The Court held :
(SCC pp. 278-80, paras 35 & 38-40)
'35. What then would constitute the "fundamental policy of Indian law"
is the question. The decision in ONGC [ONGC v. Saw Pipes Ltd., (2003)
5 SCC 705] does not elaborate that aspect. Even so, the expression
must, in our opinion, include all such fundamental principles as
providing a basis for administration of justice and enforcement of law
in this country. Without meaning to exhaustively enumerate the
purport of the expression "fundamental policy of Indian law", we may
refer to three distinct and fundamental juristic principles that must
necessarily be understood as a part and parcel of the fundamental
policy of Indian law. The first and foremost is the principle that in every
determination, whether by a court or other authority that affects the
rights of a citizen or leads to any civil consequences, the court or
authority concerned is bound to adopt what is in legal parlance called a
"judicial approach" in the matter. The duty to adopt a judicial approach
arises from the very nature of the power exercised by the court or the
authority does not have to be separately or additionally enjoined upon
the fora concerned. What must be remembered is that the importance
of a judicial approach in judicial and quasi-judicial determination lies
in the fact that so long as the court, tribunal or the authority exercising
powers that affect the rights or obligations of the parties before them
shows fidelity to judicial approach, they cannot act in an arbitrary,
capricious or whimsical manner. Judicial approach ensures that the
authority acts bona fide and deals with the subject in a fair, reasonable
and objective manner and that its decision is not actuated by any
extraneous consideration. Judicial approach in that sense acts as a
check against flaws and faults that can render the decision of a court,
tribunal or authority vulnerable to challenge.***
38. Equally important and indeed fundamental to the policy of Indian
law is the principle that a court and so also a quasi-judicial authority
must, while determining the rights and obligations of parties before it,
do so in accordance with the principles of natural justice. Besides the
celebrated audi alteram partem rule, one of the facets of the principles
of natural justice is that the court/authority deciding the matter must
apply its mind to the attendant facts and circumstances while taking a
view one way or the other. Non-application of mind is a defect that is
fatal to any adjudication. Application of mind is best demonstrated by
disclosure of the mind and disclosure of mind is best done by recording
reasons in support of the decision which the court or authority is
taking. The requirement that an adjudicatory authority must apply its
mind is, in that view, so deeply embedded in our jurisprudence that it
can be described as a fundamental policy of Indian law.
39. No less important is the principle now recognised as a salutary
juristic fundamental in administrative law that a decision which is
perverse or so irrational that no reasonable person would have arrived
at, the same will not be sustained in a court of law. Perversity or
irrationality of decisions is tested on the touchstone
of Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury
Corpn., (1948) 1 KB 223 (CA)] principle of reasonableness. Decisions
that fall short of the standards of reasonableness are open to challenge
in a court of law often in writ jurisdiction of the superior courts but no
less in statutory processes wherever the same are available.
40. It is neither necessary nor proper for us to attempt an exhaustive
enumeration of what would constitute the fundamental policy of Indian
law nor is it possible to place the expression in the straitjacket of a
definition. What is important in the context of the case at hand is that
if on facts proved before them the arbitrators fail to draw an inference
which ought to have been drawn or if they have drawn an inference
which is on the face of it, untenable resulting in miscarriage of justice,
the adjudication even when made by an Arbitral Tribunal that enjoys
considerable latitude and play at the joints in making awards will be
open to challenge and may be cast away or modified depending upon
whether the offending part is or is not severable from the rest.'
29. It is clear that the juristic principle of a "judicial approach"
demands that a decision be fair, reasonable and objective. On the
obverse side, anything arbitrary and whimsical would obviously not be
a determination which would either be fair, reasonable or objective.
30. The audi alteram partem principle which undoubtedly is a
fundamental juristic principle in Indian law is also contained in
Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation Act.
These sections read as follows:
...
...
...
32. A good working test of perversity is contained in two judgments.
In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath &
Sons [Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath
& Sons, 1992 Supp (2) SCC 312] , it was held : (SCC p. 317, para 7)
'7. ... It is, no doubt, true that if a finding of fact is arrived at by
ignoring or excluding relevant material or by taking into consideration
irrelevant material or if the finding so outrageously defies logic as to
suffer from the vice of irrationality incurring the blame of being
perverse, then, the finding is rendered infirm in law.'
In Kuldeep Singh v. Commr. of Police [Kuldeep Singh v. Commr. of
Police, (1999) 2 SCC 10 : 1999 SCC (L&S) 429] , it was held : (SCC p.
14, para 10)
'10. A broad distinction has, therefore, to be maintained between the
decisions which are perverse and those which are not. If a decision is
arrived at on no evidence or evidence which is thoroughly unreliable
and no reasonable person would act upon it, the order would be
perverse. But if there is some evidence on record which is acceptable
and which could be relied upon, howsoever compendious it may be, the
conclusions would not be treated as perverse and the findings would
not be interfered with.'
42. Given the fact that the amended Act will now apply, and that the "patent
illegality" ground for setting aside arbitral awards in international
commercial arbitrations will not apply, it is necessary to advert to the
grounds contained in Sections 34(2)(a)(iii) and (iv) as applicable to the facts of
the present case."
39. In the aforesaid decision, the earlier judgments of the Hon'ble
Supreme Court in the case of Renusagar Power Co. Ltd. Vs. General
Electric Co. reported in 1994 Supp. (1) SCC 644, the case of
Associate Builders Vs. DDA reported in (2015) 3 SCC 49 and the
other decisions in the case of ONGC Ltd. Vs. Saw Pipes Ltd. reported
in (2003) 5 SCC 705 and ONGC Ltd. Vs. Western GECO
International Ltd. reported in (2014) 9 SCC 263 have been carefully
considered.
40. From the above decisions the following principles may be culled out.
An award may be interfered with only if:-
a) It is perverse i.e. the conclusions are not based on the
evidence on record and/or based on extraneous
considerations and/or material.
b) No reasonable man can arrive at the conclusion arrived at by
the Arbitral Tribunal.
c) The findings of the Tribunal are such that would shock the
conscience of a reasonable person.
d) The award is patently illegal or irrational.
e) The award is against the basic and/or fundamental and/or
public policy of India or Indian Law.
f) Any of the parties have been denied a reasonable opportunity
to put forth their case or an equal opportunity is not given to
the parties and there is denial of the principles of natural
justice and the procedure followed is dehors a judicial
approach.
g) If the award is against the specific term of the contract and
against the substantive law if India.
The above are not exhaustive since there is no straight jacket
formula to prescribe when ipso facto an award may be interfered
with. There is also a power of remand by a Court to the Arbitrator,
in very limited cases, to enable the Tribunal reconsider and fill in
any matters not dealt with, that were in fact required to be dealt
with.
41. Applying the above principles this Court is of the view that the
findings of the Arbitrator, that the claimants are not entitled to
damages from the respondents; the breach of the MOU on the part of
the KMDA, recorded before the Arbitrator, are sustainable and
supported in law and the facts of the case.
42. The refusal of the Arbitrator to accept the arguments of the KMDA
that the scope of the project stood reduced to 83.52 cottahs of land
and the novation of the terms of the MOU by the agreement dated 5th
July 2012, cannot be deemed as patently illegal or so incredible as to
fall within the expression "against the fundamental policy or public
policy" of India. None of the findings of the Arbitrator are perverse, or
such as to shock the conscience of this Court.
43. This Court even otherwise finds that the Arbitral Tribunal entertaining
the petitioners' monetary claims against the respondents in the facts
and circumstances of the case is appropriately justified and cannot be
deemed as incredible or being in contravention of fundamental policy
of Indian Law or against the basic notions of morality or justice. There
is no patent illegality in the award. Sufficient reasons are available on
record to support each finding and conclusion arrived at by the
Arbitrator. Each of the conclusions and findings arrived at by the
learned Arbitrator is based on material evidence on record.
44. The decisions cited by the KMDA referred to in the proceeding
paragraph would have no matter of application in view of the decision
of the Supreme Court in the Ssangyong (supra) case as set out
hereinabove.
45. It is also explicit and clear from the award itself that the same is
based on detailed and sound reasoning and the conclusions flow out
of such reasoning.
46. This Court also finds that the claim for damages made by the
claimant has been rightly rejected by the Ld. Arbitrator. The Arbitrator
awarded only Rs.100/- as damages since the advance made by the
claimants to the KMDA was directed to be refunded with interest @
15% per annum. The award of expenses and costs is equally justified
in law and the facts of the case.
47. The claim of the claimants for damages before this Court and
challenge to the award to that extent must, therefore, also stand
rejected, for the same reasons and by applying the same principles of
law and tests, set out in the decision referred to hereinabove while
dealing with the arguments of the KMDA.
48. In view of the foregoing discussion, AP 383 of 2020 and AP 351 of
2020 shall stand dismissed. The award dated 22nd June 2020 is
upheld as valid and binding on the parties.
49. There shall, however, be no order as to costs.
50. Urgent Photostat Certified server copy of this judgment, if applied for,
be supplied to the parties on urgent basis.
(Rajasekhar Mantha, J.)
