Anil Kumar Ahuja Son Of Shri Amir ... vs Shri K.C. Sethi S/O Late Shri Brij ...
2006 Latest Caselaw 1068 Del

JUDGMENT

Madan B. Lokur, J.

1. The Petitioner (hereinafter referred to as the Builder) has filed objections under Section 34 of the Arbitration and Conciliation Act, 1996 in respect of an Award dated 20th December, 2000.

2. On 14/15th October, 1999, the Builder and the Respondent (hereinafter referred to as the owner) entered into an agreement of building construction. Broadly, the terms of the agreement were that the Builder would demolish the existing structure on the plot of land bearing No. D-16/A, Hauz Khas, New Delhi belonging to the owner and re-construct on it a basement, ground, first and second floor for residential purposes. Presently, I am not concerned with most of the terms of the agreement except clauses 29 and 30, which provide that the Builder will complete the structure and hand over possession of the owner's share within a period of three months and that in case the Builder fails to do so, he will pay to the owner compensation of Rs.30,000/- per month for a maximum period of two months after which the Builder would have no right on the structure and the advance money paid by him to the owner would not be refunded.

3. Clauses 29 and 30 of the agreement read as follows: -

29. The BUILDER undertake to complete the building and hand over possession of the owner's share within a period of ten (10) months from the date of handing over of possession for carrying out the construction by the Builder of the existing building at Plot No. D-16/A, Huaz Khas, New Delhi under any condition or circumstances.

30. The BUILDER in case fails to hand over the possession of the owner's share to the owner within the time specified herein above, a sum of Rs.30,000/- (Rupees Thirty thousand only) per month shall be paid to the owner by the BUILDER for the delayed period as compensation. The delay period is for a maximum of Two months after that the BUILDER will have no right on building and advance money will not be refunded. The delay period shall include the time taken in arbitration proceedings, finalisation of dispute from the court or any other litigation whatsoever.

4. Clause 23 of the agreement provided for an arbitration clause between the parties and this reads as follows: -

23. In the event of any dispute, differences of questions touching or arising out of this Agreement the case shall be referred to the arbitration of Shri Manmohan Sharma, S/o Shri Om Prakash, 26/147, West Patel Nagar, New Delhi- 110 016 subject to the jurisdiction of Delhi Court/s.

5. As one would expect, the structure was not completed by the Builder within the stipulated period of ten plus two months and some other disputes also arose between the parties. Consequently, by a letter dated 3rd October, 2000, the owner invoked the arbitration clause and requested the Arbitrator to take up the disputes between the parties for adjudication.

6. Acting upon the request made by the owner, the Arbitrator issued a notice on 5th October, 2000 to both the parties requiring their appearance before him on 13th October, 2000. The parties were requested to file necessary documents in furtherance of their case.

7. It appears that 13th October, 2000 was declared a holiday by the High Court and, therefore, the Arbitrator, who is a practicing advocate, advanced the date of hearing to 12th October, 2000 but did not pass any order adverse to any of the parties and simply adjourned the proceedings to 19th October, 2000 and put up a notice outside his chamber. He also sent a copy of the proceedings to both the parties by registered post A.D.

8. On 12th October, 2000, the Builder addressed a letter to the Arbitrator informing him that he was in receipt of the notice dated 5th October, 2000 but was not supplied with a copy of the statement of claim filed by the owner. As such, without prejudice to his rights, the Builder was joining the arbitration proceedings but added that without being supplied a copy of the statement of claim the notice issued was null and void.

9. In the meanwhile, it appears that on 11th October, 2000 the owner did send a copy of his statement of claim to the Builder.

10. On 13th October, 2000, the Builder claims to have reached the chamber of the Arbitrator but found that that was locked and he informed the Arbitrator accordingly.

11. On 19th October, 2000 when the proceedings were scheduled for hearing, the Builder did not turn up. However, the Arbitrator decided to give the benefit of doubt to the Builder for his absence and adjourned the proceedings to 24th October, 2000.

12. On 24th October, 2000, again the Builder did not turn up but the Arbitrator noted that the earlier notice fixing the date of hearing for 19th October, 2000, which was sent to the Builder by registered post A.D was returned back with the postal remarks ?refused?. Once again giving the Builder the benefit of doubt, the Arbitrator adjourned the matter to 6th November, 2000.

13. On 6th November, 2000, the Builder again did not appear before the Arbitrator. It was noted by the Arbitrator that the notice sent by him by registered post A.D fixing the date of hearing for 24th October, 2000 had also been received back unserved with the postal remarks ?refused?. Notwithstanding this, the Arbitrator gave another opportunity to the Builder to enter appearance and directed the owner to serve him through publication in the ?Statesman? newspaper.

14. On the same date, that is, 6th November, 2000, the Builder sent a letter to the Arbitrator informing him that he had come to the chamber of the Arbitrator on 24th October, 2000 but found it locked.

15. It may be noted that on these facts, notwithstanding anything else, it is quite clear that the Builder was aware of the proceedings before the Arbitrator and the dates of hearing but did not chose to put in appearance only on the alleged ground that whenever he went to the chamber of the Arbitrator, he found it locked.

16. On the adjourned date, that is, 28th November, 2000, the Builder did not put in appearance despite service through publication and despite having received a notice of appearance with regard to the hearing on 6th November, 2000, as noted by the Arbitrator. Again, the Builder sent a letter dated 28th November, 2000 to the Arbitrator informing him that since no time had been indicated for the arbitration proceedings on 28th November, 2000 he visited the chamber of the Arbitrator in the morning and after waiting for half an hour he came back because the chamber was locked.

17. In these circumstances, the Arbitrator took up the matter for consideration on 4th December, 2000 when he took on record the affidavit by way of evidence of the owner and heard arguments.

18. On 20th December, 2000, the Arbitrator made his Award in which he passed the following order against the Builder: -

(i) To pay to the Claimant a sum of Rs.30,000/- with interest @ 18% per annum w.e.f. 15-08-2000 on account of default of first month and a sum of Rs.30,000/- with interest @ 18% per annum w.e.f. 15-09-2000 on account of default of second month. The respective interest shall be payable till the final realization of the above sums.

(ii) To hand over the possession of the said building at D-16/A, Huaz Khas, New Delhi-110 016 to the Claimant immediately.

(iii) To pay to the Claimant a sum of Rs.30,000/- towards the costs of the arbitration proceedings.

19. Learned Counsel for the Builder raised two objections while challenging the correctness of the Award. The first objection was that no adequate opportunity had been given to his client to participate in the proceedings and to this extent the proceedings and the Award were vitiated. The second contention was that clause 30 of the agreement between the parties was unreasonable and it ought to be struck off or read down so that the owner is given only reasonable compensation, as contemplated by Section 74 of the Indian Contract Act, 1872.

20. The facts of the case, as narrated above, clearly suggest that the first contention of learned Counsel for the Builder deserves rejection. The Builder was fully aware of the arbitration proceedings and had even sent several letters to the Arbitrator showing his awareness of the proceedings and the various dates of hearing. It is too much of a coincidence that on every date of hearing, the Builder visited the chamber of the Arbitrator but found it locked and yet took no other steps to protect his interest in the arbitration proceedings. The record shows that the Arbitrator was extremely indulgent towards the Builder, perhaps over indulgent, and it cannot be said by any stretch of imagination that adequate opportunity was not given to the Builder to protect his interest before the Arbitrator.

21. The second contention of learned Counsel for the Builder also deserves to be rejected. The parties had agreed that the Builder would complete the building and hand over possession to the owner within a period of ten months. Clause 30 of the agreement provided a grace period of two months, though with some penalty. It is only thereafter, that is, after a period of one year that if the Builder did not hand over possession of the building to the owner that he would have no right on the building at all. The purpose of this clause is quite clear ? to ensure that the construction is carried out within a time bound frame of 12 months and quite naturally so because the owner would be out of possession from his property over this period and would perhaps have to stay in some rented accommodation. Therefore, it is not as if the Builder could take as much time as he wanted to carry out the construction. The requirement of clause 30, on its plain reading, indicates the intention behind it and its impact seems to be quite reasonable.

22. Learned Counsel for the Builder submitted that clause 30 operated a little harshly and sought to compare it with Section 74 of the Indian Contract Act, 1872. The submission of learned Counsel was that if there is a breach of contract then the party complaining of the breach is entitled to receive from the party who has broken the contract, reasonable compensation or penalty. A reading of clause 30 of the agreement shows that for the first two months a reasonable compensatory penalty of Rs.30,000/- per month was agreed upon by both the parties and it is only thereafter that a stricter penalty was agreed upon between the parties, namely, of depriving the Builder of any right in the building. As already explained above, the need for such a provision seemingly arose because the owner would be out of possession of the property for as long as one year during which period he would have to make an alternative arrangement for his residence. It is to protect his interest beyond that period of one year that the latter part of clause 30 appears to have been incorporated in the agreement between the parties.

23. Learned Counsel for the Builder referred to Michel Habib, Raji Ayoub and Ors. v. Sheikh Suleiman El Taji El Farouqui AIR 1941 PC 101 to contend that clause 30 was more in the nature of a clause operating in terrorem and that such a provision should not be accepted by this Court. I am not in agreement with this view. First of all because of the apparent circumstances in which clause 30 was incorporated in the agreement between the parties and secondly because this is hardly within my jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996. Learned Counsel sought to bring clause 30 within the purview of Section 34(2)(a)(ii) of the Act but I do not see how he can do so particularly since it does not deal with the arbitration clause, which is clause 23 of the agreement between the parties. Learned Counsel for the Builder also sought to submit that the Award is in conflict with the public policy of India but again I do not see how that has any relevance in so far as clause 30 of the agreement is concerned.

24. Under the circumstances, I do not find any substance in the contention urged by learned Counsel for the Builder and, therefore, dismiss the objections raised.

25. The owner is said to be a senior citizen who has been deprived of the user of his property until now. Under the circumstances, the Builder will pay to him costs of Rs.20,000/-, which will be in addition to the costs awarded by the Arbitrator.