Delhi High Court
K.K. Cooperative Group Housing ... vs Goel Associates on 21 February, 2012
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 08.02.2012
% Date of decision : 21.02.2012
+ FAO (OS) 143/2010
K.K. COOPERATIVE GROUP HOUSING SOCIETY LTD.
... ... ... ... ... ... ... ... Appellant
Through : Mr. Yunus Malik,
Advocate.
versus
GOEL ASSOCIATES
... ... ... ... ... ... ... ... Respondent
Through : Mr. D.R. Bhatia,
Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON'BLE MR. JUSTICE RAJIV SHAKDHER
SANJAY KISHAN KAUL, J.
1. The appellant society entered into an Agreement with the
respondent on 07.05.1988 in terms whereof the services of the
respondent were engaged to carry out the work of development
of land allotted to the society and construction of different types
of houses including providing electrical and sanitary installations
and other services. The services as an Architect to be provided
by the respondent were detailed in para 1 of the Agreement
while the fees and reimbursement was provided in para 2 therein.
The drawings were to be prepared by the respondent. The
relevant clauses are extracted hereunder:
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"1. ARCHITECTS‟ SERVICES : The Architects will
render all services including helping in :- the land
allocation at PAPANKALA, New Delhi, arrangement of
loan, sanctioning of quotas of Steel, Cement, G.I. Pipes,
Bricks, etc. and all services from the drawing of the site-
plan, sketches, etc. to the obtaining of completion
certificate, and the appointment of various contractors
and sub-contractors which will be wholly choice of the
Managing Committee of the Society (Employer). The
Architects shall take the Employer‟s instructions and
carry out all work such as survey of land, preparation of
Master Plan, preparation of sketch designs for the houses
and, on approval, preparation and submission of plans for
the sanction of the local authorities, preparation of
architectural, structural drawings with details and
drawings of utility services, and specifications for all
works, preparation of tenders documents in consultation
with the Employer for Civil, Electricals, Sanitary works,
advising on them, checking Bill of Contractors, certifying
payments, carrying out periodical inspections of the
works and attending, on request the Society‟s meeting.
2. FEES & REIMBURSEMENT : The Employer
agree to pay the Architects as remuneration for the
professional services, as detailed in para 1 above to be
rendered by the Architects a fee of 2.75% on the total
cost of the executed works (Excluding the cost of land)."
2. The Agreement dated 07.05.1988 contained an arbitration clause
no. 8 on the second page of the agreement, which reads as under:
"8. ARBITRATION : In the event of any dispute,
difference of question arising out of or touching or
concerning this agreement or execution of the said works,
the same shall be referred to the arbitration of two
persons, one each appointed by the parties, who in turn
may appoint an umpire, if required."
3. There is a significance of the page number on which the
arbitration clause is typed as the appellant has denied the terms
of the agreement including specifically the arbitration clause and
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during the course of hearing, learned counsel for the appellant
pleaded that while page 3 bore the signatures of the Secretary of
the appellant society, the signatures on pages 1 and 2 were not of
the Secretary allegedly being short signatures. The other fact to
be noticed is that though the fee as per clause 2 was fixed, the
payment was to be made in instalments as per clause 6 of the
Agreement at different stages of the project.
4. The case of the respondent is that the appellant society stated
certain deficiencies by a letter dated 11.09.1991, which was
replied to by the respondent vide letter dated 19.09.1991. The
appellant terminated the Agreement dated 07.05.1988 vide letter
dated 30.09.1991. This gave rise to disputes inter se the parties
and the respondent invoked the arbitration clause vide letter
dated 08.08.1994 suggesting the name of Mr. Charan Shah
Singh, Retd. Executive Engineer (Civil) as the nominee
Arbitrator of the respondent and requesting the appellant to
appoint its nominee Arbitrator. No reply is stated to have been
received to this letter and, thus, another letter dated 15.02.1995
was sent by the respondent to the appellant reiterating the
contents of the letter dated 08.08.1994 and stating that if the
appellant does not appoint its nominee, the Arbitrator Mr.
Charan Shah Singh would act as the Sole Arbitrator. Once
again, there was no response and the Arbitrator thereupon
entered upon the reference and issued notice to the parties. A
counsel entered appearance on behalf of the appellant society.
Thereafter, the society stopped appearing and despite
proceedings being adjourned on various occasions and registered
A.D. letters being sent to the society, there was no appearance on
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behalf of the society, which was proceeded ex-parte on
21.04.1996. The Award was made and published on 10.05.1996
awarding a sum of Rs.18,78,117.10 to the respondent to be paid
within a month of receipt of the Award, failing which, interest
would be payable at 18% p.a. simple interest from the date of
Award till the date of decree. The Arbitrator framed two issues
to be decided:
"Issue No. 1 :
Whether the Agreement dated 07.05.1988 is valid
and binding on both the parties?
Issue No. 2 :
Whether the respondent society terminated the
contract awarded as per the Agreement dated
07.05.1988 unilaterally without reasonable cause.
If so, to what amount, is the claimant entitled as
compensation and interest?"
5. Learned Arbitrator noticed while giving a finding on Issue No. 1
that a sum of Rs.20,000/- as the advance fee was remitted to the
respondent by the appellant society is that the Agreement had
been acted upon by both the parties, which was a valid and
binding contract and, thus, answered the issue in favour of the
respondent. On Issue No. 2, the Arbitrator found that the
Agreement dated 07.05.1988 had been unilaterally revoked by
the society without consideration of the reply of the Architect.
Thereafter, he proceeded to grant the amount towards the fee,
which would have been payable to the respondent at 2.75% of
the total cost of construction taking into consideration the area to
be constructed along with the rate of construction.
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6. The Award dated 10.05.1996 was filed in the Court and
registered as CS (OS) No. 2015/1996. The appellant filed an
application being IA No. 11173/1996 under Sections 30 and 33
of the Arbitration Act, 1940 (hereinafter to be referred to as, „the
said Act‟). Learned Single Judge by the impugned Order dated
21.12.2009 has found no merit in the objections, but taking into
consideration the fact that the respondent had actually not
rendered any services, called upon Mr. M.P. Goel, Sole
Proprietor of the respondent to indicate whether he was willing
to accept a lesser compensation in respect of the awarded
amount. Mr. Goel stated that though he was entitled to the entire
fee as stipulated in the Agreement dated 07.05.1988, he would
be satisfied in case the Court was to vary the impugned Award
and award him only 40% of the fee along with 6% p.a. simple
interest. Learned Single Judge accordingly modified the Award
awarding the sum of Rs.7,51,270/- along with simple interest @
6% p.a. from 10.05.1996 till realization of the amount to be paid
within 90 days, failing which, the interest rate would stand
increased from 6% p.a. to 12% p.a. simple interest. The Award
was, thus, made Rule of the Court with the said modification.
This is, thus, the third round of scrutiny of the disputes between
the parties.
No Binding Arbitration Agreement :
7. The first aspect urged by learned counsel for the appellant was
that there was no binding arbitration agreement inter se the
parties. In this behalf, learned counsel invited our attention to
the affidavit by way of evidence filed by Shri K.K. Bhargava on
behalf of the appellant society before the learned Single Judge.
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In para 5 of this affidavit, Shri Bhargava has denied that there
was an arbitration clause in the Agreement dated 07.05.1988. It
was his say that the Agreement did not bear the signatures and
that his signatures on the Agreement had been traced out from
his signatures as contained in the letter dated 07.05.1988
addressed by him as Secretary of the appellant society to the
respondent. Learned counsel for the appellant pleaded by
reference to the cross-examination that the witness was not
specifically cross-examined on this aspect.
8. We may note at this stage that during the course of arguments,
learned counsel for the appellant sought to present a different
picture than what is set out in the affidavit, i.e., the signatures of
Shri K.K. Bhargava are present on the 3rd page of the Agreement
as he used to sign, but pages 1 and 2 containing propounded
signatures were not that of Shri K.K. Bhargava. Learned counsel
suggested that the Court should itself compare the signatures of
Shri K.K. Bhargava on the 1st and 2nd pages of the Agreement
with his admitted signatures. Thus, the plea, in effect, is that
there is a page 3 of the Agreement, but pages 1 and 2 are
different and there was no arbitration clause on page 2.
9. If the aforesaid factual position existed, in our considered view,
nothing prevented the appellant from producing the office copy
of the Agreement which they purport had been executed between
the parties. No such copy of the Agreement was produced, but,
on the other hand, the stand, which was sought to be taken before
the learned Single Judge was that there was no agreement
between the parties. There was no endeavour made to produce
any expert evidence of a hand-writing expert, which could
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substantiate the plea of the appellant.
10. This aspect has been analyzed by the learned Single Judge in
paras 13 and 14 of the impugned Order giving a finding that
there was an Agreement dated 07.05.1988 executed inter se the
parties. This finding is based on the contents of an admitted
letter dated 07.05.1988 addressed by Shri K.K. Bhargava of the
appellant to the respondent. The letter reads as under:
"Date : 7-5-88
M/s. Goel & Associates,
A-72/1, S.F.S. Saket,
New Delhi.
Dear Sir,
With reference to your Quotation, we are pleased
to appoint you as our Architect for the Group Housing
Complex. A cheque consisting No. 050781 Dt. 7-5-1988
on the Delhi State Co-op. Bank Ltd., Darya Ganj, New
Delhi for Rs.20,000/- is enclosed herewith as an advance.
The agreement duly signed is returned herewith.
Yours faithfully,
sd/-
K.K. Bhargava
Hony. Secretary
Encl. : a.a.
(emphasis supplied)
Thus, a completely false plea has been taken by Shri K.K.
Bhargava in his affidavit that there was no agreement between
the parties when the admitted document of the appellant while
sending the advance payment seeks to enclose the Agreement
duly signed and returned.
11. Learned Single Judge has, in fact, himself perused the document
dated 07.05.1988 and came to the conclusion that it cannot be
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said that the signatures of Shri K.K. Bhargava have been traced
on the Agreement from the letter dated 07.05.1988.
12. We, thus, find no merit in this plea.
13. We may note that in the rejoinder, learned counsel for the
appellant sought to rely upon the judgment of the Supreme Court
in Criminal Appeal No. 1356/2004 titled „Union of India & Ors.
v. Ramesh Gandhi‟ decided on 14.11.2011 to contend that fraud
would vitiate all judicial proceedings including judicial acts.
The aspect of fraud has been discussed in detail in this judgment.
We, however, put to learned counsel as to how the said judgment
would apply to the facts of the present case and the reason
propounded before us by the learned counsel was that the
Agreement itself was a forged document and, thus, the
proceedings are vitiate by fraud. This was a fruitless endeavour
of the learned counsel for the appellant at the end of the hearing
since the finding of both the learned Arbitrator and of the learned
Single Judge is of a valid and binding agreement inter se the
parties containing arbitration clause which finding has been
affirmed by us.
Absence of Notice of Arbitration as per law :
14. The second aspect urged by learned counsel for the appellant and
examined before the learned Single Judge arose out of a plea of
absence of any effective service of notice on the appellant at its
registered office at Quarter No. 75, Sector-6, P & T Quarters,
R.K. Puram, New Delhi on which address, communications had
been exchanged between the parties.
15. This plea has been negated by the learned Single Judge, and
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rightly so, in view of the changed address of the appellant, D-20,
Dalhousie Square, Kali Bari Marg, Near Gole Market, New
Delhi, which fact was admitted by Shri K.K. Bhargava in his
cross-examination. Learned Single Judge in para 15 of the
impugned Order has extracted the cross-examination of Shri
K.K. Bhargava admitting to the address being of Dalhousie
Square in April, 1996. Not only that, other communications
addressed contemporaneously by the appellant society in
December, 1995 and April, 1996 also establish this fact. Once
again, the deposition of Shri K.K. Bhargava has been proved to
be false. We may only note that hardly any credence can be
given to the testimony of such a witness, who has been found to
be deposing falsely on two material aspects.
Improper Constitution of Arbitral Tribunal :
16. The third aspect arises from a plea of an improperly constituted
Arbitral Tribunal, i.e., the Tribunal should have been of two
Members and not of a Sole Arbitrator. The appellant submitted
that in case the appellant had failed to nominate the Arbitrator,
then the remedy of the respondent was to approach the Court by
filing an application under Section 20 of the said Act for
appointment of the second Arbitrator and in this behalf relied
upon the judgment of the Supreme Court in Dharma
Prathishthanam Vs. Madhok Construction (P) Ltd., (2005) 9
SCC 686. The ratio of the said judgment has been correctly
appreciated by the learned Single Judge in the impugned Order
as in the facts of the present case, the issue was not of
appointment of an Arbitrator with consent of the parties. Both
the parties had to appoint their nominee Arbitrator and on the
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failure of the appellant to appoint its nominee Arbitrator, the
appellant had been put to notice that the nominee of the
respondent would act as the Sole Arbitrator. Such a course of
action is permissible under Section 9 of the said Act and the
provisions of Sections 8 and 20 of the said Act would have, thus,
no application.
Quantification of Compensation :
17. The last aspect urged before us arises qua the issue of
quantification of the compensation, i.e., the fee held payable to
the appellant. Learned counsel for the appellant contended that
since no work had been done by the respondent, the respondent
was not entitled to any amount. In this behalf, learned Single
Judge has relied upon the judgment of the Division Bench of this
Court in Bhatia Nidhi Ltd. v. Union of India Ltd. & Ors., 26
(1984) DLT (SN) 21 where it was held that the governing
purpose of damages is to put a party, whose rights have been
violated, in the same position so far as money can do so, as if his
rights had been observed. Thus, the respondent had to be put in
a position as if the contract had been satisfactorily performed by
him, the Agreement having been terminated wrongfully.
18. Learned counsel for the respondent pointed out that in the
impugned Order, learned Single Judge has relied upon his earlier
judgment in Goel Associates v. Shama Coop. Group Housing
Society, 2009 (113) DRJ 523. The said judgment, in turn, relied
upon the observations with approval in Thomas v. Hammersmith
Borough Council, (1938) 3 All England Law Reports Annotated
203 wherein it was observed as under:
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"... I think it helpful first to consider what would have
been the agreement between the parties if the
appointment had been simpliciter to act as architect for
the erection of the new town hall, without any provision
as to scale of charges, and if the council had then, before
the work was completed without cause other than their
mere volition, terminated the agreement. In such case, I
entertain no doubt that the architect would have been
entitled to reasonable remuneration for the work which
he had already done, and also to damages for the loss of
remuneration which he had been prevented from earning
until the work was finished : see Planche v. Colburn
(1831), 8 Bing. 14 and Prickett v. Badger (1856), 1
C.B.N.S. 296. Although the contract in this assumed
form would contain the no express term to this effect, I
think that it would be implied that the council, having
employed the plaintiff to build their town hall, agreed
with him that they would not prevent him from doing the
work, and so prevent him from earning his remuneration.
... ... ... ... ... ... ... ... ..."
19. As to what should be the principles governing compensation in
such a case needs to be examined in some more detail and we
consider it appropriate to refer to some of the treaties in this
behalf.
20. In McGregor on Damages, Eighteenth Edition, while dealing
with the breach by an owner, it was observed in para 26-022 as
under:
"II. BREACH BY OWNER
1. PREVENTION RESULTING IN NON-
COMPLETION
On measure of damages where the owner acts so as to bar
completion there is surprisingly, a dearth of authority.1
Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd's Rep. 436 CA, which concerned a ship-
building contract, is a case of this nature but there is no clarity on the measure of damages in the
report of the case before the Court of Appeal. The matter below, at [2001] 1 Lyod's Rep. 537, did not
deal with damages.
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General principles would put the normal measure at the
contract price less the cost to the builder of executing or
completing the work.2 In calculating the builder‟s costs
the indirect as well as the direct costs must be included,
especially overheads. This measure, however, should be
subject to reduction if the defendant can show that the
time made available to the claimant by the breach has
been, or could have been, used by him in executing other
profitable contracts with which he would not otherwise
have been able to contend. This is analogous to the cases
of manufacturing and erecting machinery dealt with
under sale of goods.3"
21. The same treaties in Chapter 29 while dealing with contracts for
professional and other services and breach by a party engaging
the services, it has been observed in para 29-002 as under:
"I. BREACH BY THE PARTY ENGAGING THE
SERVICES
Whereas with contracts of employment the accent is on
damages claims by employees rather than by employers,
with contracts for services it is the other way round. A
cornucopia of claims by those who have engaged the
services of others is met by virtual silence on the part of
those others who have provided them. He whose
services have been improperly dispensed with has a
number of alternative remedies open to him, similar to
those available to the employee4 and also to the agent
acting on behalf of a principal.5 He may sue on the
contract for such remuneration or fees as have been
agreed and, if suit on the contract is not available, he may
sue on a quantum meruit for the value of the services
already rendered.6 With these actions at his command,
If, of course, the builder has completed the building he can sue under the terms of the contract for
the price.
See paras 20-125 and 20-126, above, especially Re Vic Mill [1913] 1 Ch. 465 CA, and Hill v Showell
(1918) 87 L.J.K.B. 1106 HL
See para 28-001, above.
See para 30-002, below.
The early, well-known case of Planche v. Colburn (1831) 8 Bing. 14 which paved the way for quasi-
contractual, now restitutionary, quantum meruit claims in this field is of the nature of a contract for
services: the defendant had commissioned articles from the claimant and had then refused to publish
them. Factually similar is Sadler v. Reynolds [2005] EWHC 309 QB where the claimant had contracted
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an action for damages may not prove necessary. When it
is brought into play the measure of damages is likely to
be the amount that he would have earned from the
services had he not been prevented from continuing to
act; consequential losses are somewhat difficult to
envisage.7 As with the employee, he will be required to
mitigate his damage by seeking alternative remunerative
occupation. However, since he has a freer hand in
performing the services and may not have to devote his
time exclusively to the contract, other services upon
which he embarks will not be truly alternative if he could
have performed both concurrently, and will therefore not
go in mitigation of damage."
22. The aforesaid treaties, thus, seek to carve out a distinction in the
case of dispensation of services of a professional improperly
when damages should be the amount that he would have earned
from the services had he not been prevented from continuing to
act. While discussing the aspect of mitigation of damages, it has,
thus, been observed that since a professional has a freer hand in
performing the services, he may not have to devote his time
exclusively to the contract and, thus, this aspect would not go in
mitigation of damages.
23. In G.T. Gajria‟s Law Relating to Building and Engineering
Contracts in India, Fourth Edition, it has been observed at page
846 as under:
"5. DAMAGES FOR DEFAULT OF THE
EMPLOYER
A contractor works for a profit, and, apart from his
entitlement to the price, especially where there is a
breach of non-payment, the damage to the contractor
with the defendant in breach of contract had agreed with another to write it; he received a modest
amount in damages for the loss of the opportunity to enhance his reputation. Compare the position
where the contract is one of employment, at para 28-025 above.
The loss in Sadler v. Reynolds [2005] EWHC 309 QB (in preceding note) can be seen as a consequential
loss.
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caused by any other breach of contract by the owner will
be assessed in the light of its impact upon his profits.
Hence, if there is a repudiation of the contract by the
employer before any work is carried out, the damages
recoverable are prima facie the amount of profit which
the parties knew, or must be taken to have assumed, the
contractor would have made if he had been permitted to
complete in the ordinary way. ... ... ... ..."
At page 850, while dealing with the nature of contractor‟s right
to damages due to the employer‟s default, it has been observed
as under:
"In the case of prevention, that is to say where the
employer has wrongfully terminated the contract, or has
committed a fundamental breach justifying the builder in
treating the contract as at an end, and the latter
accordingly ceases work, the measure of damages will be
the loss of profit which he would otherwise have earned.
... ... ... ... ... ... ... ... ..."
Thus, the aforesaid treaties also adopt the same principles, i.e.,
on cessation of work, the Architect would get what would have
been his profits, had he performed his job as the Architect.
24. Learned counsel for the respondent has also relied upon the
judgment of the Division Bench of the Andhra Pradesh High
Court in Mir Qudrath Ali Khan (alias) Nawab Qudrath Jah v.
Muzaffar Ali Khan, 1994 (1) ALT 591 (D.B.). The principles
relevant for the present case culled out from the said judgment
are as under:
(a) In a suit for breach of contract, the question of mitigation of
damages does not arise in case of professionals. There can be
no limit in regard to the work that can be accepted by an
Architect and there may be instances where a professional
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may be having ample time at his disposal and still no one may
come forward to engage his services. Thus, whether a
professional is busy or not, the question of mitigation of
damages does not arise. Professionals can attend to work of
more than one during the same day, same week or month.
Hence, if one of the clients commits breach of contract, and
even if some more clients engaged the same Architect later,
the person who committed breach cannot claim that the
remuneration received from the new contracts should be
taken into consideration for reducing damages.
(b) Where a contract is broken, the professional is entitled to
damages equivalent to the amount of fee to which he would
have been entitled if the contract is performed. On the basis
of the project cost and the percentage of fee payable to the
Architect as specified in the Agreement, the damages were
calculated and the plea of a lesser percentage of work to be
taken into account on the basis of work carried out till prior to
termination was rejected as not tenable.
(c) The principle of quantum meruit contained in Section 70 of
The Indian Contract Act, 1872 applies only to cases where
there is no valid agreement between the parties. Section 70 is
not founded upon contract, but on quasi-contract or
restitution. However, if there is a valid contract between the
parties, then the claim of damages on breach of contract
would not be governed by the principles of quantum meruit.
25. The aforesaid legal principles, thus, leave us in no doubt
whatsoever that the appropriate methodology had been followed
by both by the learned Arbitrator and the learned Single Judge
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while coming to the conclusion that the respondent is entitled to
compensation of the fee, which would have been paid had he
performed his functions as an Architect.
26. We may, however, notice an important aspect of the Agreement
dated 07.05.1988, i.e., the nature of the architect services to be
rendered by the respondent as provided in clause 1 of the
Agreement required varied works to be done and some of which
would have required actual out of pocket expenses. No separate
provision for reimbursement of these expenses has been made in
this Agreement. Thus, deduction would have to be made
towards these out of pocket expenses. However, no evidence has
been led in this behalf.
27. We would have gone into this issue in more detail to estimate as
to what would have been a reasonable percentage of the total
amount deductible towards expenses out of the total amount of
the fee payable to the respondent, but for the fact that the
respondent had volunteered before the learned Single Judge to
accept only 40% of the fee payable. Certainly, deduction on
account of out of pocket expenses would never be in the range of
60% of the amount. Thus, the appellant has already got benefit
of the same.
28. The respondent has also voluntarily accepted a cut in the rate of
interest from 18% p.a. to 6% p.a. simple interest in case payment
is made within one month, failing which, interest would be
chargeable at 12% p.a. simple interest.
Conclusion :
29. We, thus, find the appeal without merit and dismiss the same
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leaving the parties to bear their own costs. Since the appellant
has not deposited the amounts in terms of para 24 of the
impugned Order within 90 days from the date of the said Order,
interest rate would stand increased from 6% p.a. to 12% p.a.
simple interest. In view of the pendency of the appeal, we
consider it appropriate to grant further 60 days‟ time to the
appellant to make the payment of Rs.7,51,270/- along with
interest @ 6% p.a. simple interest from 10.05.1996 till
realization, failing which, interest would stand increased from
6% p.a. to 12% p.a. simple interest as per para 24 of the
impugned Order.
SANJAY KISHAN KAUL, J.
FEBRUARY 21, 2012 RAJIV SHAKDHER, J.
madan
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