Calcutta High Court
Kolkata Metropolitan Development ... vs South City Projects (Kolkata) & Anr on 12 February, 2025
Author: Harish Tandon
Bench: Harish Tandon
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
ORIGINAL SIDE
Present:-
The Hon'ble Justice Harish Tandon
And
The Hon'ble Justice Madhuresh Prasad
APO/205/2023
WITH
AP/351/2020
IA No. GA/1/2023
KOLKATA METROPOLITAN DEVELOPMENT AUTHORITY
VS.
SOUTH CITY PROJECTS (KOLKATA) & ANR.
For the Appellant : Mr. Kishore Dutta, Ld. AG
Mr. Avishek Guha,
Mr. Sirsanya Bandopadhyay,
Ms. Akansha Chopra.
For the State Respondents : Mr. Abhrajit Mitra, Sr. Adv.
Mr. Satadeep Bhattacharyya,
Mr. Saptarshi Dutta,
Mrs. Srinjita Ghosh,
Mr. P.K. Pal,
Mr. Samiruddha Sen,
Mrs. Sriparna Mitra,
Mr. Debdut Hore.
Judgment on : February 12, 2025
Madhuresh Prasad,J.:
1. The present appeal has been preferred under Section 37 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the
Act'). The appellant seeks setting aside the decree passed by the Hon'ble
Single Judge under Section 34 of the Act upholding the arbitral award
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
dated 22.06.2020 in favour of the claimants/respondents herein. The
appellant has been held liable to pay to the respondents the following
sums:-
(i) (a) The principal sum as mentioned Rs.11,41,40,000.00
in paragraph 54 of the Statement of
Claim
(b) Interest on the said sum at the Rs.21,25,85,750.00
rate of 15% per annum from 17th
December 2007 till the date of the
Award
(a) Damage by way of expenses Rs.62,33,172.00
(ii) incurred by the Claimants towards
preliminary and other expenses as
claimed in prayer (b) of the
Statement of Claim
(b) Interest on the said sum as Rs.22,43,943.00
stated in paragraph 67(i)
Damage under prayer (c) of the Rs. 100.00
(iii) Statement of Claim
Interest on the Awarded sums at
(iv) the rate of 12% per annum from the
date of the Award till payment
Costs of the proceedings Rs.45,00,000.00
(v)
2. The brief factual background of the dispute in the present
proceedings is that the present appellant namely the Kolkata
Metropolitan Development Authority ('KMDA' for short), invited bid for
the development of residential-cum-office complexes at two separate
locations. The two sites were located near the Ruby General Hospital
and Nilachal Co-operative Society Housing Complex along R.B.
Connector to Eastern Metropolitan Bypass. The two sites were
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
comprising of lands measuring a total of 132.20 kottahs and 1.487
acres respectively.
3. The present two respondents had submitted their bid as a
consortium and were declared the selected bidder. A Memorandum of
Understanding (MoU) was entered into by the consortium with the
appellant on 17.12.2007.
4. As per MOU the appellant (KMDA) and the bidder (consortium)
were to form a Joint Venture Company (JVCO). Both KMDA as well as
consortium was required to contribute equally to the paid-up share
capital of JVCO.
5. The consortium was required to pay 10% of the financial bid
amount to the KMDA, on behalf of the proposed JVCO at the time of
execution of the MOU as part payment of the premium for granting
lease to the JVCO for developing the two sites.
6. The consortium was required to contribute its share in the paid-up
capital of JVCO in cash. However, KMDA's contribution was to be
adjusted against it's receivable land premium, which was to be paid by
JVCO by an amount advanced to the JVCO as a loan by the
consortium.
7. Within 30 days of incorporation of the JVCO, the appellant KMDA
was required to execute a development agreement in favour of JVCO
granting it the right to develop the two sites and agreeing to grant a
long-term lease upon completion of the development.
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
8. Within 30 days from execution of the development agreement the
appellant was required to deliver possession of the sites to the JVCO.
9. Before taking of possession by the JVCO, the consortium was
required to advance an unsecured loan to the JVCO equivalent to 50%
of its financial bid less -
a. The amount of 10% paid to the KMDA upon execution of the
MOU, on behalf of the JVCO, and
b. The amount earlier paid by the consortium to the JVCO, which
was treated as KMDA's contribution towards share capital of
the JVCO.
10. The MOU also provides other conditions for later stages of the
project. The dispute, however, has arisen at the stage when the KMDA
was required to execute the development agreement. We, therefore, do
not consider it necessary to take note of the clauses governing the
subsequent stages.
11. At the stage of handing over possession of the project sites and
execution of lease deed the present appellants were allegedly
procrastinating, and no development agreement was executed by and
between the parties in terms of Clause 6 of the MOU. Physical and
vacant possession of the two sites was also not handed over to the
claimants (consortium).
12. At this juncture a supplemental MOU was entered into by and
between the parties on 16.11.2011. The reason why the supplemental
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
MOU was entered into is that there were some incumbrance on the
lands comprising of the two sites where the development work was to be
undertaken as per the original MOU. After discussions and negotiations
the project thus got restricted to 83.52 Kottahs of land instead of the
earlier agreed area of land measuring 132.20 Kottahs at Ruby Complex
and 1.487 acres at E.M. Bypass.
13. The new MOU also required the consortium to submit a financial
analysis or Private Development Agreement as per the KMDA's letter
dated 28/31st July, 2012.
14. The dispute before the learned Arbitrator was that while the
present appellant alleges lapse on the part of the consortium (claimant)
in this regard, the claimant/ consortium alleged before the arbitrator
that it was the duty and obligation of the present appellant in terms of
the original MOU to execute a development agreement within 30 days
from the date of incorporation (11.07.2009) of the JVCO, which they
failed to execute despite the fact that draft and revised draft of the
development agreement was forwarded by the claimants.
15. As per the claimant an order of status quo passed by the learned
District Judge at Alipore in pending Miscellaneous Appeal No. 396 of
2008, since the time when the tender was floated, was operating in
respect of one of the plots of land comprising of the two sites. The
appellant had suppressed this fact and misrepresented that the plots
were in their possession and free from all incumbrance.
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
16. After execution of the fresh MOU the total area of land forming
subject matter of the scope of work was reduced to 1.37 acres
(approximately 83 Kottahs) from 3.65 acres. The appellant, however,
refused to proportionately adjust the consideration amount. The
claimants asserted that the price was to be reduced in proportion to the
reduction of the total area of land in the original MOU but the appellant
paid no heed to such request. It is also alleged that since the appellant
were not the assessee in respect of the 83 Kottahs of land for which the
second MOU had been entered into it was virtually impossible to obtain
a sanction for any building on the said land from the Municipal
Corporation.
17. The sum and substance of the claim set forth by the consortium
was that it was impossible to execute the development. The MOU and
supplemental MOU were thus invalid. The claimants thus alleged that
by resorting to misrepresentation and fraud they were induced to part
with a sum of Rs. 11,41,40,000, to form a JVCO, and to maintain it at
substantial cost and expenses, quantified at 62.663 lakhs. The
claimants thus asked for refund of the above two amounts, interest
thereupon at 15 per cent per annum, as also Rs. 61 Crores as damages.
In the alternative they claimed that an enquiry to be conducted into the
damage suffered by the claimant and for an award to be passed in
terms of the amount quantified in such enquiry.
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
18. The present appellant who was the respondent before the arbitral
tribunal submitted their counter statement of facts, a supplementary
counter statement and amended statement of claim. The stand of the
appellant before the arbitral tribunal was that the claimant before
participating in the bid had visited the two sites in respect of which the
tender had been floated. The appellant was in actual physical
possession of the entirety of the land except a few pockets here and
there, having encumbrance thereon. The extent of encumbrance was
not such as to come in the way of development. It was also contended
that the work could very well have proceeded. As per the appellants, the
interim orders passed in the suit/s in respect of various pockets of land
of the two sites had either been vacated or the suits decided in favour of
the appellants. Therefore, there was no impediment in commencing the
construction and development work with respect the lands, excepting
few pockets. The original MOU dated 17.12.2007 did not contemplate
creation of any right or obligation in favour of the claimant/s in respect
of the immovable property.
19. It was also the appellants specific stand before the arbitrator that
since the second MOU was executed on 16.11.2011, the claimants were
estopped from alleging any breach of the terms of the earlier MOU. By
executing the second MOU on 16.11.2011 the claimant had waived the
alleged breach of the earlier MOU. The supplemental MOU was executed
by the claimants knowing well that the scope of work now was in
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
respect of reduced land measuring 83.52 Kottahs without any
proportionate adjustment of the consideration amount. The present
appellant, thus denied and disputed the claim of the consortium before
the learned Arbitrator.
20. On behalf of the appellant, it is also submitted by Mr. Kishore
Dutta, learned Senior Advocate that it is the consortium that had
proposed that the project be developed on the reduced land measuring
83.52 Kottah. Such proposal was communicated by its letter dated 2nd
February, 2012. The present appellant only communicated its
agreement to such proposal by its letter dated 28/31st July, 2012. This
communication contained a clear and explicit condition that no money
will be refunded owing to delimiting of the project from 220.40 Kottahs
to 83.53 Kottahs. In such a circumstance, the claimant was estopped
from claiming any proportionate adjustment in the cost of the works on
the ground that the scope of work had substantially decreased as per
the supplemental MOU, when compared with the original MOU. The
claimant had proposed that the project be developed on the lesser area
of land on the same terms, which resulted in execution of a
supplemental MOU between the parties. Thus, they could not have
terminated the MOU, as sought to be done by their letter dated 20th
April, 2016. In addition thereto the present appellant has submitted
before the arbitrator that the parties were ad idem that project area for
development stood reduced. The claimant was thus obliged in terms of
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
KMDA's letter dated July 28/31 of 2012 to initiate necessary steps for
execution of a development agreement confining the scope of
development to around 83 Kottahs under Plot 1- 26 and thereafter to
prepare a financial viability exercise for the project on the reduced area,
in terms of the MoU. This was required to be submitted for review by
the present appellants. Since such commitments have not been fulfilled
by the claimants, no obligation was cast on the present appellants to
make over possession of the land.
21. After incorporation of the JVCO on 9th May, 2008, a separate entity
came into existence. The JVCO itself was capable of suing and being
sued, and was a necessary party to the arbitration. It was the newly
created JVCO which had the right to carry on the development work as
per the MOU. Therefore, even if alleged failure on the part of the present
appellant is accepted, then it does not give rise to any corresponding
right in favour of the consortium (claimants) to invoke the arbitration
clause. Invocation of the arbitration clause could have been done by the
JVCO and not by the claimants. This issue was raised by the claimant
before the learned Single Judge who has considered the same in para
31 of the order and proceeded to hold that locus of the consortium for
invoking the arbitration clause was to be questioned, before the
arbitrator by filing an application under Section 16 of the Arbitration
and Conciliation Act. Since the issue was neither raised by the
claimant, nor considered by the arbitrator during the course of arbitral
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
proceedings, the learned Single Judge held that it would be grossly
inappropriate and unfair to the consortium, if now the appellant is
permitted to raise the issue before this Court at this stage.
22. Another ground urged on behalf of the appellant is that the
consortium could not have resorted to termination of the MOU as the
MOU does not provide any such termination clause. In case of default
clause 20.1 to 20.10 of the MOU provides that the non-defaulting share
holder may purchase the shares of the defaulting share holder in the
JVCO in the manner prescribed therein, whereupon the agreement
would stand terminated. Termination simpliciter by one of the parties to
MOU is not contemplated. This issue has also not been considered by
the learned Single Judge by assigning a reason that the same was not
raised before the arbitrator.
The award is also assailed by the appellant on the ground that in
such circumstance the award was violative of Section 28(3) of the
Arbitration and Conciliation Act. The question of a termination of the
contract, not being contemplated under Clause XX of the MoU, the
termination of the agreement is unsustainable. There being no
termination in the eyes of law the claimants could not have moved the
arbitrator for resolution of the dispute.
23. Another submission of the appellant is that the amount of the
award against the present appellant was actually an amount of loan
granted to JVCO by the consortium (claimants) and could have been
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
recovered only from the JVCO. The arbitrator even found that this
amount is shown as a loan in the books of account of JVCO. Such being
the facts there was no scope for the claimant to proceed against or sue
KMDA.
24. In support of these submissions the learned Senior Counsel has
relied upon several authorities. Relying upon decision of the Apex Court
in the case of Cox and Kings Ltd. Vs. SAP India Private Limited and
Another reported in (2024) 4 SCC 1 he submits that the JVCO was a
non-signatory to the agreement between the parties and, therefore, the
relief of the arbitration could not be resorted since there was no
existence of an arbitration agreement between the JVCO and the
consortium. Insofar as the appellant is concerned the remedy in case of
alleged default by the appellant was limited to the extent of purchase of
shares held by the appellant. He, therefore, submits that the arbitration
proceedings itself was not maintainable and the nature of relief granted
by the arbitrator is also unsustainable insofar as it is opposed to the
terms of the contract between the appellant and the consortium. In this
regard, he has also placed reliance on decision of the Apex Court in the
case of Chief General Manager (IPC), Madhya Pradesh Power
Trading Company Limited and Another vs. Narmada Equipments
Private Limited reported in (2021) 14 SCC 548, Kanwar Singh Saini
vs High Court of Delhi reported in (2012) 4 SCC 307 and J.G.
Engineers Private Limited vs. Union of India and Another reported
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
in (2011) 5 SCC 758 to submit that there was thus an inherent lack of
jurisdiction in the arbitrator to proceed with the arbitration, because
there was no scope of arbitration between the appellant and the
consortium, over the various claims made by the applicant, in view of
the remedy being limited in terms of the agreement binding inter partes.
Moreso, in absence of the JVCO, to whom the payments had been made
by the applicant. There being an inherent lack of jurisdiction the
decision of the arbitrator is a nullity. He, thus, submits that the
invalidity of the award thus could be set up and declared at any stage.
Such defect of jurisdiction was open to be raised before the Hon'ble
Single Judge even if not being raised by the arbitrator. Thus, there was
no justification for the Hon'ble Single Judge to reject the plea on the
ground that it was being raised for the first time before the Hon'ble
Single Judge in the proceedings arising out of Section 34 of the Act.
This defect in the arbitral award based on an inherent lack of
jurisdiction, and by deciding claims and awarding relief in respect
thereof with respect to claims which are not available under the
agreement amounts to a patent illegality. The Hon'ble Single Judge,
therefore, has fallen in error by not setting aside the award on these
grounds.
25. Further it is submitted that in view of the limited relief available to
the non-defaulting party under the agreement, which did not
contemplate grant of any interest whatsoever on its investments; and
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
limited the relief to a right to purchase the shares of the defaulting
party, the arbitrator could not have awarded interest as has been done
in the present case. Before the arbitrator the claimants have also not
produced any proof of expenditure of Rs. 62.33 lakh towards jungle
cutting and removal of bushes. The findings of the arbitrator thus in
this regard is unsustainable. In this regard, he has placed reliance on
decision of the Apex Court in the case of Union of India vs. Manraj
Enterprises reported in (2022) 2 SCC 331. The award, thus being
against the specific terms of the contract the same is patently illegal
and opposed to the public policy of India as per decision of the Apex
Court in the case of Hindustan Zinc Ltd. Vs. Friends Coal
Carbonisation reported in (2006) 4 SCC 445. In support of this
contention reliance is also placed on decisions of the Apex Court in the
case of Associate Builders vs. DDA (2015) 3 SCC 49 as well as
subsequent decision of the Apex Court in the case of State of
Chhattisgarh and Another vs. SAL Udyog Private Limited reported
in (2022) 2 SCC 275 and a more recent decision of the Apex Court of
Batliboi Environmental Engineers Ltd. Vs. Hindustan Petroleum
Corporation Limited and Another reported in (2024) 2 SCC 375.
26. We now proceed to consider the stand of the present appellant
before the arbitrator, the Court considering the matter under Section 34
of the Act; as well as the present proceedings.
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
27. Insofar as the argument based on Clause XX of the agreement that
the MoU could not be terminated for invoking the arbitration clause,
and that at best a non-defaulting shareholder of the JVCO could require
the defaulting shareholder to sell to the non-defaulting shareholder the
shares held by the defaulting shareholder for the time being in the
capital of the JVCO to the non-defaulting shareholder, we proceeded to
examine Article XX of the MoU. We find that the submissions advanced
by the learned Counsel for the appellant are based on a constrictive
reading of Article XX, which contains the "terms of default and
termination" which are enumerated therein. We are, therefore, of the
opinion that for ascertaining the scope and intent of Article XX all these
clauses are required to be looked into for ascertaining the scope and
intent of the same based on a plain reading of these provisions. Without
entering into any interpretation of Article XX we find from a plain
reading of Clause 20.2 that the remedy of requiring the defaulting
shareholder to sell to the non-defaulting shareholder the shares held by
the defaulting shareholder is one of the remedies available under Article
XX. Even this remedy is embedded with a clause which reads as
follows:-
"...without prejudice to any other rights and remedies..."
The scope and intent of MoU is thus clear and explicit from a plain
reading of Clause 20.2. As per Article XX the remedy of requiring the
defaulting shareholder to sell its shares to the non-defaulting
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
shareholder is not absolute and is without prejudice to other rights. We
also find that Article XX does not contain a clause ousting remedies
legally available otherwise to the parties. This aspect of the matter has
been considered by the arbitrator and decided against the appellant.
The arbitrator has held that by failing to provide clear title to the
properties as required under the MoU and by failing to give
unencumbered possession of the property the appellant had committed
a breach of the fundamental terms of the contract which went to the
root of the contact. The arbitrator has thus held that the contract was
terminated by the letter of termination dated 20.04.2016 issued by the
claimant. Thus, the finding of the arbitrator that the claimants "...were
not precluded from pursuing their remedy or claiming damage...."
does not require any interference.
28. Insofar as the submission that the original MoU dated 17.12.2007
did not contemplate creation of any right or obligation in respect of
immovable property in favour of the claimants we find that the
arbitrator has taken note of the role of the KMDA in the JVCO as per
Article 6 of the MoU. The arbitrator has thus taken note of clause 6.7,
therein to note that the KMDA was required "to make out a clear and
marketable title of the two sites free from all incumbrances." The
submission to the contrary advanced on behalf of the appellant,
therefore, does not require any further consideration since such a
submission is de hors clause 6.7 of the MoU. Thus, the submission that
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
there was no obligation on the KMDA to create any right or obligation in
favour of the claimants in respect of the immovable property was rightly
rejected.
29. The submission of the learned Counsel for the appellant that there
was no impediment in commencing the construction and development
work, except in few pockets is also considered by the arbitrator with
reference to the evidence and material available on record. Upon
consideration of the correspondence between the parties in between
December 2007 to July 2011, as well as affidavit - evidence of C.W.1
the arbitrator has found that various civil suits were pending at various
stages in Alipore Court. In some cases, orders of injunction had been
passed restraining the KMDA from interfering with possession of the
persons in occupation. The claimants were also requesting the KMDA to
get the orders vacated as the various encroachments and
encumbrances were coming in the ways of demarcation and
construction of a boundary wall on the lands in question. In fact, the
Senior Law Officer of the KMDA (appellant) as per one communication
dated 29.06.2009, stated that three title suits were pending. The details
of the property have also been specified. This letter has been found to
contain details of the temporary injunction order passed in some of the
suits. In the said letter, the Senior Law Officer has recorded that the
appellants were facing problems because of the injunction order passed
and requested the KMDA's lawyer to submit a report in this regard.
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
Orders passed by the Courts have also been considered by the
arbitrator, as also other correspondence/(s) based on which the
arbitrator has found existence of a fact that the KMDA through it's
officials were requesting for police assistance to overcome the issue of
encroachment and resistance by the local people. Thus, such finding of
the arbitrator based on material, cannot be interfered with within the
limited scope of these proceedings; or the proceedings under Section 34
of the Arbitration Act.
30. Regarding another submission on behalf of the appellant that the
claimants had come to terms with the fact that the MoU/ agreement
could not be discharged with respect to the entire area of lands,
contemplated therein, since the claimants had executed a second MoU
on 16.11.2011 restricting the scope of work now to 83.52 Kottahs of
land without any proportionate adjustment of the consideration
amount; and thus they could not allege any breach of terms of the
earlier MoU, we find the conclusions of the arbitrator as well as the
Court exercising jurisdiction under Section 34 of the Act does not
require any interference. The arbitrator has considered that on
16.11.2011 the claimants and respondents had voluntarily indicated
therein the intention of the parties to stand by the original MoU. The
supplementary MoU, was found to be entered into since such a
situation had arisen where the parties were ad idem on the issue that
the scope of work under the original MoU was incapable of being taken
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
up, till the various issues including encumbrances in respect of a large
part of the lands was resolved. On the basis of correspondence available
on record, the arbitrator has recorded a finding, contemplating
implementation of the terms of the original MoU and execution of works
thereunder, after execution of the works under the supplemental MoU
on 16.11.2011. Taking note of significant developments thereafter based
on the correspondence between the parties, the arbitrator has found
that the claimants informed the appellant that for the time being the
project can be developed on 83.52 Kottahs of land, provided the
encroachments thereon are removed. It was considered imperative by
the claimant that the lands be assessed separately, and municipal
premises number be assigned by the KMC to the said lands, failing
which it would not be possible for the claimant to submit, much less get
approval of any building plan with the KMC. Annexure-W has been
considered in this regard. It is in response to such communication, that
the appellants allowed the claimants to limit the scope accordingly. The
claimants were asked to initiate necessary steps for execution of
development agreement incorporating these developments but "for the
time being", which shall be extended to other portions of land as and
when such land is/are available without any encumbrances.
31. The appellants were not willing to refund any money in view of the
scope of work being reduced and therefore they called upon the
claimants to submit a financial analysis and a draft development
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
agreement for consideration of KMDA as per Annexure-X which was
tendered in evidence through C.W.1.
32. The evidence of C.W.1 has also been considered by the arbitrator
from which factual findings have been recorded regarding C.W.1
conceding that there was some encroachments on these lands. A factual
finding had been recorded based on his evidence that without
encroachments being removed the development of even the reduced
lands measuring 83.52 Kottahs of land was not possible. On a
consideration of this material before the arbitrator, the arbitrator has
recorded a finding that there was no novation of the contract. The
original MoU remained effective, but was restricted for the time being to
83.52 Kottahs.
33. Such findings based on the correspondence noted above is again a
finding, which requires no interference in the limited scope and
jurisdiction of the Court. The submission of the learned Counsel for the
appellant that the claimant had waived the alleged breach of earlier
MoU, in our opinion, has rightly been rejected by the arbitrator.
34. Another submission on behalf of the appellant, requiring
consideration is that since a separate entity "JVCO" came into
existence, having the right to carry on the development work, there was
no scope for the claimant being one of the parties to the JVCO to make
any claim from the KMDA by invoking the arbitration clause. We find
that this submission was not raised by the claimant before the
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
arbitrator. The Court exercising jurisdiction under Section 34 of the Act,
in this regard has rightly concluded that the issue of non-
maintainability of the arbitration proceedings was required to be raised
before the arbitrator by filing an application under Section 16 of the
Arbitration and Conciliation Act. Since no such issue was raised in the
arbitral proceeding, the claimant had no opportunity to meet such issue
in the arbitral tribunal. Thus, it would be grossly unfair to the claimant
to take up this issue at the belated stage.
35. The arbitrator has found on interpretation of the terms of the MoU
that the KMDA was under an obligation to make out the clear and
marketable title of the two sites in question. It also held that the KMDA
was under an obligation to make over vacant possession of the two sites
to the claimant. It has further gone on to consider the evidence on
record that the KMDA could not make out a clear and marketable title
of the two sites free from all incumbrances. Considering the letters
dated 2nd February, 2012 and 28/ 31 July, 2012 the arbitrator held
that the MoU/original agreement dated 17th December, 2007 was not
superseded or modified and remained fully effective. These findings of
the arbitrator based on appreciation of evidence and interpretation of
the terms of the MoU as also the scope and effect of the contract are
decisions which lie within the exclusive domain of the arbitrator. These
findings are based on evidence and correspondence available on record,
after considering Clause 7.9 of the MoU, and cannot be re-looked by the
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
Court exercising jurisdiction under Section 34 of the Act, or by this
Court. In this regard reliance placed by the learned Senior Counsel for
the respondents on the decision of the Apex Court in the case of UHL
Power Company Limited vs. State of Himachal Pradesh reported in
(2022) 4 SCC 116 merits consideration. We advert to paragraph 19 of
the report which reads:
"22. In the instant case, we are of the view that the
interpretation of the relevant clauses of the
implementation agreement, as arrived at by the learned
sole arbitrator, are both, possible and plausible. Merely
because another view could have been taken, can hardly
be a ground for the learned Single Judge to have
interfered with the arbitral award. In the given facts and
circumstances of the case, the appellate court has rightly
held that the learned Single Judge exceeded his
jurisdiction in interfering with the award by questioning
the interpretation given to the relevant clauses of the
implementation agreement, as the reasons given are
backed by logic."
36. Insofar as the issue regarding lack of jurisdiction of the arbitrator
to award interest we consider with approval the submissions advanced
on behalf of the respondents that since the arbitrator held that there
was a total failure of consideration, the direction for refund of the
payments made by the aggrieved party on the principles of restitution
embodied in Sections 65, 70 and 72 of the contract, would require no
interference. The arbitrator has recorded a specific finding to the effect
that the claimant has been able to prove the rate of interest claimed
(15% per annum) on the basis of SBI's benchmark prime lending rate
and the stipulations of MoU itself. As per Clause 7.14 of the MoU the
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
claimant were required to treat the amount of 50% of the total financial
bid submitted by them and paid to the KMDA as a loan advanced by
them to the JVCO carrying interest at 15% per annum. The arbitrator
has thus found that since the respondent appellants could have claimed
interest at 15% per annum in terms of the MoU on any unpaid financial
bid amount the claimant would also been entitled to charge some
interest at the same rate on amounts payable by the respondents to
them or either of them. The evidence (C.W.2) led by the claimants
regarding SBI's benchmark prime lending rate of interest in between
April, 2007 to October, 2016 was rightly taken into consideration by the
arbitrator. It is manifest from the award and a fact not in dispute that
there was no cross-examination by the respondents on any of such
evidence.
37. The principles based on the provisions contained in the Indian
Contract Act (Sections 65, 70 and 72), are axiomatic in this regard. A
person enjoying an advantage under a contract and rendered void by
breach of terms of the contract by such a person would undoubtedly
give rise to a claim for restitution as well as compensation in favour of
the person (claimant) from whom the benefit/ advantage was received.
We find that the payments made were not gratuitous and were under
the terms of the contract mandating such payment being made by the
claimant under the contractual obligation. We, therefore, approve of the
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
reliance placed by the learned Senior Counsel on the above noted three
provisions of the Contract Act.
38. Insofaras the authorities relied upon by the appellants as regards
the non-maintainability of the arbitration proceedings, we venture to
consider the decisions. The first decision in this regard, Cox and Kings
Ltd. (supra) we find that the same would have no application to the
present facts and circumstance to sustain the submissions on behalf of
the appellants. At the very outset we would observe that in this case the
Apex Court was considering whether Court exercising jurisdiction under
Section 8 could consider whether the expression in Section 8 "claiming
through or under" could be interpreted to include the "group of
company's doctrine" as expounded by Chloro Controls India Private
Limited vs. Severn Trent Water Purification Inc and Others
reported in (2013) 1 SCC 181. In the present case there is no such
issue of referral under Section 8 of the Act. In the present case in fact
issue regarding inherent lack of jurisdiction has been raised for the first
time before the Hon'ble Single Judge exercising jurisdiction under
Section 34 of the Act. The issue of inherent lack of jurisdiction or
maintainability of the arbitration proceedings, is required to be raised
before the arbitrator under Section 16 of the Act, which admittedly was
not done by the respondents. In this circumstance, we would take into
consideration the provisions contained in Section 7(4)(c) of the Act. As
per this provision an arbitration agreement as per the Act "is in
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
writing if it is contained in an exchange of statements of claim
and defense in which the existence of the agreement is alleged by
one party and not denied by the other."
39. The existence of the arbitration agreement was not denied or
disputed by the respondents before the arbitrator. They have also
chosen not to raise the issue of jurisdiction or question the jurisdiction
of the arbitrator by filing any objection as contemplated under Section
16 of the Act. We, therefore, approve of the decision of the Hon'ble
Single Judge exercising jurisdiction under Section 34 of the Act to
conclude that in such circumstance the issue could not be raised before
him for the first time. Since the issue of alleged inherent lack of
jurisdiction was never raised before the arbitrator the other decisions
relied upon by the learned Senior Counsel for the appellant, such as
Chief General Manager (IPC), Madhya Pradesh Power Trading
Company Limited (supra) is also found to be inapplicable to the facts
and circumstances of the present case. In the said decision an order
passed under Section 11(6) of the Act, appointing an arbitrator was in
issue. In view of Section 86 (1) (f) of the Electricity Act, 2003 it was
found that the State Electricity Commission was vested with exclusive
jurisdiction to adjudicate upon disputes between licensees and
generating companies. Under the circumstances the appointment of the
arbitrator under Section 11(6) of the Act by the High Court, even if with
consent was found to be unsustainable. There is no such special law
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
being relied upon by the learned Counsel for the appellant to oust the
jurisdiction of the arbitrator as suffering with the vice of inherent lack of
jurisdiction.
40. The submission of the learned Counsel that the arbitrator had no
jurisdiction, is based on the objections that the JVCO was not made a
party, there was no liability of the appellant and that the remedy under
the MoU was limited to purchase of shares of the defaulting party by the
non-defaulting party. As considered above this issue has already been
decided against the present appellants. Therefore, reliance placed on
the decisions in the case of Chief General Manager (IPC), Madhya
Pradesh Power Trading Company Limited (supra) or the decision in
the case of Kanwar Singh Saini (supra) also on the same issue being
inapplicable to the facts and circumstances of the present case, does
not help the case of the appellant insofar as the submission regarding
lack of jurisdiction of the arbitrator in the present case.
41. This takes us to the next issue raised by the appellant regarding
there being no basis before the arbitrator nor any scope under the
terms of the MoU to award any interest to the applicants, we find that
the decisions of the Apex Court in this regard in the case of Manraj
Enterprises (supra) is inapplicable to the present facts and
circumstances. In the case of Manraj Enterprises (supra) the
agreement between the parties contained a specific bar under Clause
16.2 thereof on entitlement of interest on the amounts payable under
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
the contract. It is nobody's case that there is any such bar in the MoU
entered into between the parties in the present case. We, therefore, find
that by awarding interest, the arbitrator has not awarded any relief
contrary to the specific terms of the contract so as to invite the vice of
patent illegality or a criticism on the ground that the award is opposed
to public policy of India. Viewed thus, find that the reliance placed by
the learned Counsel for the appellant in the case of Hindustan Zinc
Ltd. (supra), Associate Builders (supra), Batliboi Environmental
Engineers Limited (supra) and SAL Udyog Private Limited (supra)
would not be applicable to the facts and circumstances of the present
case where it cannot be said by any stretch of imagination that the
award would attract the patent illegality ground, for setting aside of the
same.
42. The submission of the learned Counsel for the appellant that the
amounts were paid by the appellant to the JVCO in the form of a loan,
we find no force in such submission. The payments were made in terms
of the MoU which clearly contemplated the payments being made on
behalf of the present appellants. The payments were thus substantially
made to meet the liability of the KMDA in respect of the JVCO which
came into existence as a result of the joining of the KMDA with the
claimant. In our opinion, having regard to the facts and circumstances
under which the payments have been made in accordance with the
terms of the MoU the Court is required to see the substance and not the
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
form of the payments made by the claimant to the JVCO. In substance
the payments were made to meet the liability of the JVCO and,
therefore, it would be incorrect to conclude that it was not a payment
made to the KMDA, but made exclusively to the JVCO. Since we are not
inclined to uphold such submission, the objections founded thereon
that the claimant had the only option of proceeding against the JVCO,
and not the KMDA is unsustainable.
43. Having recorded the above conclusions sustaining the arbitral
award and the order of the Court exercising jurisdiction under Section
34, we hasten to add that the party autonomy in an arbitration
proceeding is subject to very limited interference under Section 34 of
the Act or under Section 37 of the Act. Referring to the various
judgments dealing with the scope and principles governing intervention
of Courts when an award is challenged, recently the Apex Court in the
case of Batliboi Environmental Engineers Limited vs. Hindustan
Petroleum Corporation limited and another reported in (2024) 2
SCC 375 has after referring to Section 34 of the Act, held that such a
recourse is available to a party seeking setting aside of an award but
within the limited scope as per sub-Sections (2) and (3) of Section 34 of
the Act.
44. Tracing the development of law in this regard, the Apex Court has
held as follows:
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
"40. Nevertheless, the decision in Saw Pipes case [ONGC
Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] holds that mere
error of fact or law in reaching the conclusion on the
disputed question will not give jurisdiction to the court to
interfere. However, this will depend on three aspects:
(a) whether the reference was made in general terms for
deciding the contractual dispute, in which case the
award can be set aside if the award is based upon
erroneous legal position;
(b) this proposition will also hold good in case of a
reasoned award, which on the face of it is erroneous on
the legal proposition of law and/or its application; and
(c) where a specific question of law is submitted to an
arbitrator, erroneous decision on the point of law does
not make the award bad, unless the court is satisfied
that arbitrator had proceeded illegally.
In Saw Pipes case [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5
SCC 705] , the Court set aside the award on the ground
that the award had not taken into consideration the
terms of the contract before arriving at the conclusion as
to whether the party claiming the damages is entitled to
the same. Reference was made to the provisions of
Sections 73 and 74 of the Contract Act, which relate to
liquidated damages, general damages and penalty
stipulations. This view had held the field for a long time
and was applied in subsequent judgments of this Court in
Hindustan Zinc Ltd. v. Friends Coal Carbonisation
[Hindustan Zinc Ltd. v. Friends Coal Carbonisation,
(2006) 4 SCC 445] , Centrotrade Minerals & Metals Inc. v.
Hindustan Copper Ltd. [Centrotrade Minerals & Metals
Inc. v. Hindustan Copper Ltd., (2006) 11 SCC 245] , DDA v.
R.S. Sharma & Co. [DDA v. R.S. Sharma & Co., (2008) 13
SCC 80] , J.G. Engineers (P) Ltd. v. Union of India [J.G.
Engineers (P) Ltd. v. Union of India, (2011) 5 SCC 758 :
(2011) 3 SCC (Civ) 128] , and Union of India v. L.S.N.
Murthy [Union of India v. L.S.N. Murthy, (2012) 1 SCC 718
: (2012) 1 SCC (Civ) 368] .
41. In 2006, this Court in McDermott International Inc.
[McDermott International Inc. v. Burn Standard Co. Ltd.,
(2006) 11 SCC 181] despite following the ratio of Saw
Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] ,
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
made succinct observations regarding the restrictive role
of courts in the post-award interference. In addition to
the three grounds introduced in Renusagar Power Co.
Ltd. v. General Electric Co. [Renusagar Power Co. Ltd. v.
General Electric Co., 1994 Supp (1) SCC 644] , as noticed
above, an additional ground of "patent illegality" was
introduced in Saw Pipes Limited, for exercise of the
court's jurisdiction in setting aside an arbitral award.
This Court, in McDermott International Inc. [McDermott
International Inc. v. Burn Standard Co. Ltd., (2006) 11
SCC 181] , held that patent illegality, must be such which
goes to the root of the matter. The public policy violation
should be so unfair and unreasonable as to shock the
conscience of the court. Arbitrator where s/he acts
contrary to or beyond the express law of contract or
grants relief, such awards fall within the purview of
Section 34 of the A&C Act. Further, what would
constitute public policy is a matter dependent upon the
nature of transaction and the statute. Pleadings of the
party and material brought before the Court would be
relevant to enable the Court to judge what is in public
good or public interest, or what would otherwise be
injurious to public good and interest at a relevant point.
So, this must be distinguished from public policy of a
particular government.
42. A similar view was expressed in Rashtriya Ispat
Nigam Ltd. v. Dewan Chand Ram Saran [Rashtriya Ispat
Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC
306] with the clarification that where a term of the
contract is capable of two interpretations and the view
taken by the arbitrator is a plausible one, it cannot be
said that the arbitrator travelled outside the jurisdiction
or the view taken the arbitrator is against the terms of
the contract. The Court cannot interfere with the award
and substitute its view with the award and interpretation
accepted by the arbitrator, the reason being the Court
does not sit in appeal over the findings and decision of
the arbitrator, while deciding an application under
Section 34 of the A&C Act. The arbitrator is legitimately
entitled to take a view after considering the material
before him/her and interpret the agreement. The
judgment should be accepted as final and binding.
43. Subsequently, in ONGC Ltd. v. Western Geco
International Ltd. [ONGC Ltd. v. Western Geco
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ)
12] (for short Western Geco), a three-Judge Bench of this
Court observed that the Court, in Saw Pipes [ONGC Ltd. v.
Saw Pipes Ltd., (2003) 5 SCC 705] , did not examine what
would constitute "fundamental policy of Indian law". The
expression "fundamental policy of Indian law" in the
opinion of this Court includes all fundamental principles
providing as basis for administration of justice and
enforcement of law in this country. There were three
distinct and fundamental juristic principles which form a
part and parcel of "fundamental policy of Indian law".
The first and the foremost principle is that in every
determination by a court or an authority that affects
rights of a citizen or leads to civil consequences, the
court or authority must adopt a judicial approach.
Fidelity to judicial approach entails that the court or
authority should not act in an arbitrary, capricious or
whimsical manner. The court or authority should act in a
bona fide manner and deal with the subject in a fair,
reasonable and objective manner. Decision should not be
actuated by extraneous considerations. Secondly, the
principles of natural justice should be followed. This
would include the requirement that the Arbitral Tribunal
must apply its mind to the attending facts and
circumstances while taking the view one way or the
other. Non-application of mind is a defect that is fatal to
any adjudication. Application of mind is best done by
recording reasons in support of the decision. As noticed
above, Section 31(3)(a) of the A&C Act [ "31. Form and
contents of arbitral award.--(1)-(2) * * *(3)
The arbitral award shall state the reasons upon which it
is based, unless--(a) the parties have agreed that no
reasons are to be given, or(b) the award is an arbitral
award on agreed terms under Section 30"] states that the
arbitral award shall state the reasons on which it is
based, unless the parties have agreed that no reasons are
to be given. Sub-clauses (i) and (iii) to Section 34(2) also
refer to different facets of natural justice. In a given case
sub-clause to Section 34(2) and sub-clause (ii) to clause (b)
to Section 34(2) may equally apply. Lastly, is the need to
ensure that the decision is not perverse or irrational that
no reasonable person would have arrived at the same or
be sustained in a court of law. Perversity or irrationality
of a decision is tested on the touchstone of Wednesbury
principle of reasonableness [ As expounded in Associated
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
Provincial Picture Houses Ltd. v. Wednesbury Corpn.,
(1948) 1 KB 223 (CA).] . At the same time, it was
cautioned that this Court was not attempting an
exhaustive enumeration of what would constitute
"fundamental policy of Indian law", as a straightjacket
definition is not possible. 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 on the face of it, is untenable resulting in
injustice, the adjudication made by an Arbitral Tribunal
that enjoys considerable latitude and play at the joints in
making awards, may be challenged and set aside.
44. The decision of this Court in Associate Builders
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204] elaborately examined the question of public
policy in the context of Section 34 of the A&C Act,
specifically under the head "fundamental policy of
Indian law". It was firstly held that the principle of
judicial approach demands a decision to be fair,
reasonable and objective. On the obverse side, anything
arbitrary and whimsical would not satisfy the said
requirement.
45. Referring to the third principle in Western Geco
[ONGC Ltd. v. Western Geco International Ltd., (2014) 9
SCC 263 : (2014) 5 SCC (Civ) 12] , it was explained that
the decision would be irrational and perverse if (a) it is
based on no evidence; (b) if the Arbitral Tribunal takes
into account something irrelevant to the decision which
it arrives at; or (c) ignores vital evidence in arriving at its
decision. The standards prescribed in State of Haryana v.
Gopi Nath & Sons [State of Haryana v. Gopi Nath & Sons,
1992 Supp (2) SCC 312] (for short Gopi Nath & Sons) and
Kuldeep Singh v. Delhi Police [Kuldeep Singh v. Delhi
Police, (1999) 2 SCC 10 : 1999 SCC (L&S) 429] should be
applied and relied upon, as good working tests of
perversity. In Gopi Nath & Sons [State of Haryana v. Gopi
Nath & Sons, 1992 Supp (2) SCC 312] it has been held
that apart from the cases where a finding of fact is
arrived at by ignoring or excluding relevant materials or
taking into consideration irrelevant material, the finding
is perverse and infirm in law when it outrageously defies
logic as to suffer from vice of irrationality. Kuldeep
Singh [Kuldeep Singh v. Delhi Police, (1999) 2 SCC 10 :
1999 SCC (L&S) 429] clarifies that a finding is perverse
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
when it is based on no evidence or evidence which is
thoroughly unreliable and no reasonable person would
act upon it. If there is some evidence which can be acted
and can be relied upon, however compendious it may be,
the conclusion should not be treated as perverse. This
Court in Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] emphasised that
the public policy test to an arbitral award does not give
jurisdiction to the court to act as a court of appeal and
consequently errors of fact cannot be corrected. Arbitral
Tribunal is the ultimate master of quality and quantity
of evidence. An award based on little evidence or no
evidence, which does not measure up in quality to a
trained legal mind would not be held to be invalid on this
score. Every arbitrator need not necessarily be a person
trained in law as a Judge. At times, decisions are taken
acting on equity and such decisions can be just and fair
should not be overturned under Section 34 of the A&C Act
on the ground that the arbitrator's approach was
arbitrary or capricious. Referring to the third ground of
public policy, justice or morality, it is observed that these
are two different concepts. An award is against justice
when it shocks the conscience of the court, as in an
example where the claimant has restricted his claim but
the Arbitral Tribunal has awarded a higher amount
without any reasonable ground of justification. Morality
would necessarily cover agreements that are illegal and
also those which cannot be enforced given the prevailing
mores of the day. Here again interference would be only
if something shocks the court's conscience. Further,
"patent illegality" refers to three sub-heads : (a)
contravention of substantive law of India, which must be
restricted and limited such that the illegality must go to
the root of the matter and should not be of a trivial
nature. Reference in this regard was made to clause (a) to
Section 28(1) of the A&C Act, which states that the
dispute submitted to arbitration under Part I shall be in
accordance with the substantive law for the time being in
force. The second sub-head would be when the arbitrator
gives no reasons in the award in contravention with
Section 31(3) of the A&C Act. The third sub-head deals
with contravention of Section 28(3) of the A&C Act which
states that the Arbitral Tribunal shall decide all cases in
accordance with the terms of the contract and shall take
into account the usage of the trade applicable to the
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
transaction. This last sub-head should be understood
with a caveat that the arbitrator has the right to
construe and interpret the terms of the contract in a
reasonable manner. Such interpretation should not be a
ground to set aside the award, as the construction of the
terms of the contract is finally for the arbitrator to
decide. The award can be only set aside under this sub-
head if the arbitrator construes the award in a way that
no fair-minded or reasonable person would do.
46. As observed previously, we need not examine the
amendment made to the A&C Act vide Act 3 of 2016 with
retrospective effect from 23-10-2015 and the judgments
that deal with the amended Section 34 of the A&C Act.
Pertinently, the amendment to Section 34 of the A&C Act
was effected, pursuant to the observations of the
Supplementary Report to Report No. 246 on Amendments
to Arbitration and Conciliation Act, 1996 by the Law
Commission of India, titled "Public Policy --
Developments post-Report No. 246" published in February
2015. This Supplementary Report observed that the
power to review an arbitral award on merits under
Section 34 of the A&C Act, as elucidated in Western Geco
[ONGC Ltd. v. Western Geco International Ltd., (2014) 9
SCC 263 : (2014) 5 SCC (Civ) 12] , subsequently followed in
Associate Builders [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204] , is contrary to the object
of the A&C Act and international practice on
minimisation of judicial intervention. A reference can
also be conveniently made to MMTC Ltd. v. Vedanta Ltd.
[MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2
SCC (Civ) 293] (for short MMTC) and Ssangyong Engg. &
Construction Co. Ltd. v. NHAI [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020)
2 SCC (Civ) 213] (for short Ssangyong Engg), which
examine the scope of intervention of courts under Section
34 of the A&C Act as amended by Act 3 of 2016. MMTC
[MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2
SCC (Civ) 293] and Ssangyong Engg [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020)
2 SCC (Civ) 213] , and other judgments which deal with
the amended Section 34 of the A&C Act that are not
applicable in the present case.
47. We have extensively analysed the award, its patent
flaws and illegalities which emanate from it, like the
Calcutta High Court A.P.O. 205 of 2023 dt. 12.02.2025
manifest lack of reasoning in arriving at the conclusions
and the calculation of amounts awarded, which, in fact,
amount to double or part-double payments, besides being
contradictory, etc. In view of our aforesaid reasoning, the
award has been rightly held [Hindustan Petroleum Corpn.
Ltd. v. Batliboi Environmental Engineers Ltd., 2007 SCC
OnLine Bom 1016] to be unsustainable and set aside by
the Division Bench of the High Court exercising power
and jurisdiction under Section 37 read with Section 34 of
the A&C Act."
The legal position being settled as apparent from decision of the
Apex Court Batliboi Environmental Engineers Limited (supra), we
find no scope and reason to interfere with the impugned award.
45. The appeal is dismissed.
46. Urgent Photostat certified copy of this judgment, if applied for, be
supplied to the parties, expeditiously after complying with all
necessary legal formalities.
(Madhuresh Prasad, J.)
I agree.
(Harish Tandon, J.)
.AD
