Calcutta High Court
Bengal Shelter Housing Development ... vs The Kolkata Municipal Corporation on 13 August, 2024
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
OCD-2
ORDER SHEET
AP-COM/608/2024
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
(Commercial Division)
BENGAL SHELTER HOUSING DEVELOPMENT LIMITED
VS
THE KOLKATA MUNICIPAL CORPORATION
BEFORE:
The Hon'ble JUSTICE SABYASACHI BHATTACHARYYA
Date : 13th August, 2024.
Appearance:
Mr. Joy Saha, Sr. Adv.
Mr. Reetobrata Mitra, Adv.
Ms. Jayati Chowdhury, Adv.
Ms. Rashhmi Singhee, Adv.
Ms. Sucheta Mitra, Adv.
Ms. Priya Malakar, Adv.
...for the petitioner
Mr. Jaydip Kar, Sr. Adv.
Mr. Biswajit Mukherjee, Adv.
Mr. Altamash Alim, Adv.
...for KMC
The Court: The petitioner Bengal Shelter Housing Development
Limited was incorporated on January 28, 2004 as a Joint Sector Company
between one Shelter Projects Limited and the West Bengal Housing Board
(WBHB). In the said joint venture, the WBHB has 49.5 per cent share,
Shelter Projects has 49.5 per cent share and the rest 1 per cent is public.
Pursuant to a tender floated by the respondent Kolkata Municipal
Corporation (KMC), the petitioner entered into a development agreement for
the purpose of developing the College Street Market premises for the
purpose of constructing a Book Mall where primarily book shops would be
rehabilitated. There would be other shops in the said premises as well. The
agreement for development was entered into between the parties on
February 24, 2006 and a supplementary agreement on June 12, 2006. The
development work was to be completed within 54 months which ended
roughly on December 26, 2010.
Thereafter the petitioner was permitted to continue the work and on
January 17, 2022, a termination letter was issued by the KMC to the
petitioner. On the self-same date, a letter of possession was also issued and
the KMC took possession of the market.
The petitioner, being aggrieved by the same, seeks to refer the matter
to arbitration pursuant to an arbitration clause in the agreement between
the parties.
The scope of the dispute in the arbitration would primarily be a
challenge to the termination and possession as well as allied reliefs.
The present application under Section 9 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act") has been
filed in aid of the said intended arbitration, seeking injunction restraining
the respondent from transferring, alienating and/or dealing with the
subject-property in favour of third parties, injunction restraining the
respondent and its men and agents from entering into any agreement with
any other third party or developer or contractor for completion of the said
Mall as well as other consequential reliefs.
Learned senior counsel for the petitioner argues that the respondent
allowed the petitioner to work much beyond the contractual 54 months and
issued the notice of termination only on January 17, 2022, that is, after
about 12 years from the expiry of the stipulated time. Thus, time was never
intended to be the essence of the contract.
Learned senior counsel cites the judgment of Welspun Specialty
Solutions Limited Vs. Oil and natural Gas Corporation Limited, reported at
(2022) 2 SCC 382 for the proposition that whether time is of the essence in a
contract has to be culled out from a reading of the entire contract as well as
the surrounding circumstances. Merely having an explicit clause may not be
sufficient to make time the essence of the contract. In the said case, the
Supreme Court observed that as the contract was spread over a long tenure,
the intention of the parties to provide for extensions surely reinforced the
fact that timely performance was necessary. The fact that such extensions
were granted, it was held, indicated the efforts of the respondent therein to
uphold the integrity of the contract instead of repudiating the same.
Learned senior counsel appearing for the petitioner next argues that
as per Section 55 of the Contract Act, 1872, when a party to a contract
promises to do a certain thing but fails to do it before the specified time, the
contract becomes voidable at the option of the promisee if the intention of
the parties was that time should be of the essence of the contract. If it was
not the intention of the parties that time should be essence, the contract
does not become voidable for failure to do such thing at or before the
specified time, but the promisee is entitled to compensation from the
promisor. In case of a contract being voidable on account of the promisor‟s
failure to perform the promise at the time agreed, if the promisee accepts
performance, it cannot claim compensation for any loss occasioned by the
non-performance of the promise at the time agreed, unless at the time of
such acceptance, he gives notice to the promisor of his intention to do so.
In the present case, having not given any such notice despite
permitting the petitioner to exceed the initial 54 months by about 12 years,
it is argued that the respondent is not entitled either to compensation or to
termination.
Learned senior counsel appearing for the petitioner next contends that
there was no delay in performance due to the fault of the petitioner at any
point of time. Learned senior counsel relies on the averments made in the
application under Section 9 of the 1996 Act to argue that the work got
stalled at various stages due to rehabilitation of occupants, shifting of cable,
drainage, overhead lines, water supply/connection, shifting of a Mazar and
staff quarters.
It is argued that the petitioner has in fact handed over the entire
share of the respondent and has already delivered possession to 864 shops.
As per the agreement, the respondent was entitled only to 30 per cent share
in the developed property whereas the petitioner is entitled to 70 per cent.
Even out of the said 30 per cent, a substantial chunk was sold by the
respondent to the petitioner.
To support such contention, learned senior counsel appearing for the
petitioner places reliance on photocopies of two cheques of Rupees Five
Crore each, paid by the petitioner and its hundred per cent subsidiary, one
Barnaparichay Book Mall Private Limited ("Barnaparichay" for short). Thus,
it is argued that having allowed the petitioner to work so far and after the
petitioner having completed more than 90 per cent of the work and having
handed over the respondent‟s share, the termination was palpably mala fide
and illegal.
Learned senior counsel next argues that the second ground of
termination, apart from delay, was the alleged assignment to a third party.
It is argued that there was no assignment at any point of time.
Barnaparichay was incorporated on or about May 7, 2007 as a wholly
owned subsidiary of the petitioner-Company. The shareholding of the
petitioner-Company in Barnaparichay is 100 per cent. It is submitted that
the latter was formed merely as a Special Performance Vehicle (SPV) to carry
out the project of construction of the Book Mall. Hence, Barnaparichay is
not a third party as such. There was no assignment at any point of time.
The SPV was to complete the work for the petitioner-Company.
Secondly, the formation of Barnaparichay and entrustment of the
work to it was well within the knowledge of KMC, as a Director of WBHB has
been a nominee member in the Board of Directors of the petitioner-
company. The petitioner/Joint Sector Company is a conglomeration of the
WBHB and Shelter Projects Limited. Thus, every decision of the petitioner
was well within the knowledge of the WBHB, which is but another
instrumentality of the State as is the KMC/respondent. Hence, it is argued
that the KMC cannot feign ignorance of the formation of the SPV and the
entrustment of the work to it at the relevant point of time.
Learned senior counsel cites a Division Bench judgment of this Court
in the matter of Bajrang Prasad jalan and another Vs. Raigarh Jute and
Textile Mills Ltd. and others, reported at 1999 SCC OnLine Cal 534 as well as
an order of the Supreme Court in the matter of Shankar Sundaram Vs.
Amalgamations Ltd. & Ors. in support of the proposition that in petitions
under Sections 397/398 of the Companies Act, 1956, the corporate veil can
very well be lifted, upon which the holding and subsidiary companies should
be regarded as one and the same for the purpose of grant of relief.
Learned senior counsel for the petitioner argues that Rs. 237 Crore
has already been invested by the petitioner through Barnaparichay and the
project is on the verge of completion. Thus, the issuance of the termination
notice, simultaneously with possession notice, on the self-same date all on a
sudden was unwarranted and arbitrary; as such, de hors the law.
It is submitted that a Corporate Insolvency Resolution Process (CIRP)
was started in respect of Barnaparichay. The termination of the present
contract was challenged in connection therewith before the National
Company Law Tribunal (NCLT), which set aside the termination. Against
the same, the National Company Law Appellate Tribunal (NCLAT) was
moved, which set aside the order of the NCLT, holding that there was
assignment by the petitioner to Barnaparichay. The matter went up to the
Supreme Court which refused to interfere, however, with the observation
that the issue of termination was left open to be challenged before a civil
forum. Thus, the observations in the said proceeding are not germane in
the present context as the issues were kept open by the NCLAT and the
Supreme Court.
Lastly, it is argued that the availability of the relief of damages is not
an absolute bar to injunction.
Learned senior counsel appearing for the respondent commences with
the argument that the present application under Section 9 is not
maintainable, since the remedy of the petitioner lies at best in damages and
not in injunction. It is highlighted by learned senior counsel that the
petitioner seeks to stall a public infrastructure project, which would
adversely affect the public at large. It is argued that the petitioner has
taken different stances regarding completion of the work at different points
of time. In a prior application under Section 9, which was subsequently
withdrawn with leave to file afresh, the petitioner had contended that only
70 per cent of the work had been done, whereas now they argue that more
than 90 per cent has been completed. It is contended that the property is
spread over 13 bighas in a prime location of the city of Kolkata. It is further
submitted that all the vendors have not been rehabilitated in the developed
property and at least 5-10 per cent of them are still to be handed over
possession by the petitioner.
It is argued that Section 55 of the Contract Act does not prevent the
petitioner from terminating the contract if the petitioner commits inordinate
delay in completion of the project. It is argued that although the petitioner
was granted 10 years to complete the project even after the expiry of the
initially stipulated period, the petitioner having failed to substantially
complete the work even within such extended time, the termination notice
and consequential possession notice were justified.
It is argued that the respondent had issued a prior notice in the year
2020 under Clause 9(g) of the agreement, granting opportunity to the
petitioner to rectify the defects, which is annexed to the petition. Even
thereafter, the pre-termination show-cause notice was issued on November
12, 2021. Only after exhausting such prior procedure, a termination notice
and a notice of possession was issued on January 17, 2022. Thus, the
respondent fully complied with the provisions of the agreement before
issuing the termination notice. Despite getting opportunity for over a year
after the Clause 9 (g) notice, the petitioner failed to complete the work.
Clause 13 of the agreement, the respondent argues, precludes any
third party assignment, which was violated by the petitioner by assigning
the work to Barnaparichay. It is argued that Barnaparichay being a
different company and a separate juristic entity, the argument as to the said
company being an alter ego of the petitioner is not acceptable.
The NCLAT finally decided the issue of assignment having taken place
and only the question of termination was left open for being decided
separately. Thus, learned senior counsel for the respondent contends that
the issue of assignment cannot now be reopened in arbitration or otherwise.
It is argued that no notice of assignment was given at any point of
time by the petitioner to the respondent. It is submitted that the argument
regarding there being common Directors between WBHB and the petitioner
is specious, since the KMC is an entirely independent authority having no
connection with WBHB and in the absence of specific intimation of the
assignment to the respondent-KMC, the petitioner was liable to termination
in terms of Clause 13 of the agreement.
Apart from justifying the termination notice on the grounds of non-
performance and assignment, learned senior counsel for the respondent
hands over certain photographs to argue that the present state of the
property is undeveloped, seeking to destroy the argument of the petitioner
that the work has been substantially concluded.
It is reiterated that the petitioner was granted sufficient time over the
years but failed to avail of the opportunity to rectify its non-performance
despite a notice being given under Clause 9(g) of the agreement as long back
as in the year 2020. Thus, the injunction sought is intended to prevent a
public infrastructure project, which ought not to be permitted by the court.
Learned senior counsel appearing for the respondent next submits
that even the Supreme Court order from the decision of the NCLAT was
passed on March 4, 2024, whereas the present petition has been filed only
on May 16, 2024. Till date, no notice under Section 21 of the 1996 Act has
been issued by the petitioner. The above conduct, it is argued, makes it
explicit that the petitioner has not approached the court with clean hands,
having no intention to refer the matter to arbitration but merely to stall the
project by hook or by crook.
Learned senior counsel argues that Section 9 contemplates a 90 days‟
period for issuance of a notice under Section 21 of the 1996 Act in exigent
situations. In the present case, the facts and circumstances do not justify
the petitioner not having invoked the arbitration clause over such a long
period of time.
Thus, the respondent seeks dismissal of the application.
Upon hearing learned counsel for the parties on the question of grant
of ad interim orders, the Court comes to the following conclusions:
The first question which arises is whether a prima facie case has been
established by the petitioner with regard to the termination notice being
invalid or illegal. The notice is assailed inter alia on the strength of Section
55 of the Contract Act.
The petitioner has an arguable case on Section 55. The three courses
of action open in a case where the promisor fails to perform a promise
within the stipulated time as per Section 55 are:
i) For the promisee to terminate the contract, it being voidable due
to non-performance within the stipulated time where time is the
essence of the contract.
ii) If time is not the essence of the Contract, the contract does not
become voidable but the promisee is entitled to compensation
from the promisor for any loss occasioned by such failure.
iii) Even in case of the contract being voidable, if the promisee
accepts performance beyond the agreed time, it cannot claim
compensation for loss occasioned by the non-performance of the
promise within the agreed time unless at the time of acceptance,
the promisee gives a notice of the promisor of its intention to do
so.
In the present case, the promisee, that is the respondent, did not give
any notice to the promisor\petitioner as to its intention to claim
compensation, when permitting the petitioner to prolong the work well
beyond the stipulated time. By their mutual conduct, the parties have given
a go-bye to the 54 months‟ outer limit for completion of the project.
Instead of terminating the contract after the expiry of the 54 months
or claiming compensation at any time, the respondent has corresponded
with the petitioner all along, which goes on to show that the petitioner was
granted the liberty to extend the time for completion of the work. Before the
year 2020, there is nothing on record or argued by the parties which could
indicate the respondent‟s intention to terminate the contract or claim
compensation. By its very conduct, the respondent has acquiesced to the
extension of the time and thus it is, to say the least, arguable as to whether
the respondent is entitled to any compensation or to treat the contract as
voidable and terminate the contract.
The question is arguable since the respondent also has raised a
relevant question as the whether even if Section 55 of the Contract Act is
attracted, whether the respondent is required to wait indefinitely for a public
project to be completed. At this juncture, thus, at least an arguable case to
be referred to arbitration has been made out between the parties which itself
furnishes a prima facie triable case for the petitioner in the application
under Section 9.
Regarding delay, the petitioner has made elaborate pleadings and
annexed several documents to its application under Section 9 to prima facie
satisfy the court that the work was stalled not due to any fault of the
petitioner but due to unforeseen circumstances and that the delay is not
attributable solely to the petitioner. Rehabilitation of occupants, shifting of
cable, drainage, overhead lines and water supply, shifting of a Mazar and
staff quarters were some of the issue which cropped up on the way. Such
hindrances would be sufficient justification, at least prima facie, for the
delay in completion of the work.
The respondent, by permitting the work to be continued for 12 years
after the expiry of the original time-limit, has virtually acquiesced to such a
position. The numerous correspondences between the parties and by the
petitioner to different authorities also substantiate such claim.
Moreover, the petitioner has already handed over 864 shops in terms
of the agreements after development. Even as per the admission of the
respondent, since it argues that 5-10 per cent of the shops are yet to be
handed over, at least 90 per cent of the handing over is completed, which
goes on to show that a substantial part of the project has been done by the
petitioner.
Another valid argument of the petitioner is that it is entitled to 70 per
cent of the shares of the developed property and a further share out of the
30 per cent of the respondent has been transferred to the petitioner and
Barnaparichay subsequently. Thus, at this juncture, the petitioner would be
entitled to invoke Sections 202 and 204 of the Contract Act, since the
petitioner, as agent of the respondent for completion of the project, itself has
an interest in the property and the authority given under the development
agreement has been substantially exercised by the petitioner. The huge
investment of Rs. 237 Crore by the petitioner through Barnaparichay in the
project is also an important consideration to assess whether the termination
at this juncture is bona fide.
As regards the alleged assignment in favour of a third party, it is
arguable as to whether entrustment of the work by the petitioner-holding
company to a hundred per cent subsidiary in the capacity of SPV can
tantamount to an „assignment‟. Entrustment of work to a wholly owned
subsidiary is qualitatively different from an assignment to a third party.
Hence, the argument of the respondent that the termination was justified on
the ground of assignment for violation of Clause 13 of the agreement is
steeped in doubt, to say the least.
Hence, considerable doubt is cast on both the grounds of termination,
be it failure to perform the work or alleged assignment.
The argument of the respondent as to stalling of a public
infrastructure project is not applicable in terms. Although the project is
public in nature, the same cannot be strictly construed as an
„infrastructure‟ project, in respect of which the amended Specific Relief Act
has cast a bar to courts in granting injunction. The construction of a Book
Mall to rehabilitate local shopkeepers and book stalls is not exactly an
"infrastructure" project, although it has ramifications in the public domain.
That apart, the injunction now pressed for by the petitioner is to the
limited extent that the respondent should not transfer the property or create
a third party interest, which would not stall the development project in any
manner. In any event, a prima facie case has been made out by the
petitioner of having completed the work substantially.
It is also quiet arguable as to whether the respondent‟s portion, which
is now less than 30 per cent, has already been handed over by the
petitioner. Without an ascertainment as to the exact portion and extent of
the project which has been concluded, the respondent cannot be permitted
to frustrate the prospective arbitration by creating third party interest in the
entire property.
In the event the respondent is permitted to do so, the ultimate
reference to arbitration would be frustrated and nothing would remain for
the Arbitrator to adjudicate upon.
The delay on the part of the petitioner in preferring the present
application as argued by the respondent is also not tenable, since the matter
was sub judice up to the Supreme Court which passed its order only on
March 4, 2014. The very next month, an application under Section 9 of the
1996 Act was preferred by the petitioner but due to technical error the same
was withdrawn and re-filed in the present form on May 16, 2024. Also, there
is no legal bar in taking out a Section 9 proceeding prior to reference to
arbitration or invocation of the arbitration clause under Section 21 of the
1996 Act. Section 9 makes it amply clear that a reference may be made
within 90 days from an order passed therein.
As regards the conclusiveness of the NCLAT findings in respect of
assignment, the respondent‟s arguments cannot be accepted as well.
Despite having held that there was an assignment, even the NCLAT made it
clear that it did not have competence to decide on the issue of termination,
which view was explicitly upheld by the Supreme Court by leaving it open
for termination to be challenged before a competent civil forum/court. By
keeping the issue of termination open to challenge, the Supreme Court also,
by necessary implication, left it open for the grounds of termination
(including assignment) to be challenged before the appropriate forum. Since
the Arbitrator is the appropriate forum in the present case in view of the
existence of an arbitration clause, there cannot be any doubt that the issue
of assignment as well as alleged delay are amenable to the decision of the
Arbitral Tribunal.
Since Section 9 of the 1996 Act derives its colour in aid of and from
the subject-matter of the proposed arbitration, this Court has ample power
under Section 9 of the 1996 Act to grant the relief now prayed for by the
petitioner. In fact, the balance of convenience and inconvenience is squarely
in favour of grant of ad interim relief, since the petitioner not only claims a
right to complete the work but also argues that it has more than 70 per cent
right in the subject property. If third party rights are created at this
juncture on the entire property, of which possession has already been taken
by the respondent-KMC, the arbitral proceedings would be rendered
infructuous ab initio.
The urgency is also implicit, since the termination notice was coupled
with a possession notice and the respondent wasted no time in taking
possession of the property simultaneously with termination of contract at a
mature stage of development project. Hence, there is sufficient and justified
apprehension that if the rights of the petitioner are not protected from third
parties, the arbitral reference might be rendered irretrievably infructuous.
Although the arguments of the petitioner on the basis of the cited
judgments on assignment cannot be taken into contention, since in those
cases the Supreme Court and the Division Bench of this Court were looking
at a situation where the corporate veil was lifted on allegations of oppression
and mismanagement, which is distinct and different form the present case,
in principle, it is at least arguable as to whether a holding company and its
wholly owned subsidiary, entrusted as an SPV to complete the project, can
be distinguished for the purpose of completion of a project, so much so that
it can be said that there was an assignment violating the provisions of the
agreement.
Also, the ratio laid down in Welspun Specialty Solutions Limited (supra)
cannot be overlooked, where it has been held that whether time is the
essence of the contract can only be culled out from a composite reading of
the entire contract as well as surrounding circumstances (obviously
including the conduct of the parties) which in the present case, militates
against time being the essence of the contract.
Thus, the petitioner in entitled to ad interim injunction as prayed for
in prayers (a) and (c) of the present application. Accordingly, the respondent
and its men and agents are restrained by an order of ad interim injunction
from transferring, alienating, encumbering and/or parting with possession
of the subject-property situated at the College Street Market at premises No.
226, Bidhan Sarani, Kolkata - 700 007, as well as at 83, College Street,
Kolkata - 700 007 and 75, Madan Mohan Burman Street, Kolkata 700 007,
under Ward No. 39 under the Jorasanko Police Station, under the
jurisdiction of Borough No. IV of the Kolkata Municipal Corporation and/or
from entering into any agreement for development of the said property with
any third party/developer/contractor for completion of the said Mall till
disposal of the present application under Section 9 of the Arbitration and
Conciliation Act, 1996.
The respondent shall file its affidavit-in-opposition within 3 weeks
from date. Reply, if any, shall be filed within a week thereafter. The
application shall be listed for hearing on September 17, 2024.
(SABYASACHI BHATTACHARYYA, J.)
