Today Homes & Infrastructure Pvt. ... vs Jitender Singh And Anr.
2014 Latest Caselaw 6683 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                 Judgment reserved on: 25.09.2014
                                  Judgment delivered on: 11.12.2014

+                        OMP 13/2012

      TODAY HOMES & INFRASTRUCTURE
      PVT. LTD.                   ..... PETITIONER

                         Versus


      JITENDER SINGH AND ANR.                      ..... RESPONDENTS

Advocates who appeared in this case:

For the Petitioner : Mr. Sudhir Nandrajog, Sr. Advocate with Ms. Pooja Mehra Saigal, Mr. Jitender Ratta and Ms. Jasmine Kottai, Advocates For the Respondents: Mr. Siddhartha Tanwar, Advocate

CORAM:

HON'BLE MR. JUSTICE RAJIV SHAKDHER

RAJIV SHAKDHER,J

1. This is a petition preferred under Section 34 of the Arbitration and Conciliation Act, 1996 (in short the Act) whereby, a challenge has been laid to the award dated 26.08.2011 passed by the learned arbitrator.

2. The facts obtaining in the matter fall in a narrow compass. 2.1 The petitioner, which will hereafter be referred to as, Today Homes, entered into a concession agreement with an entity by the name of Ludhiana Improvement Trust (hereinafter referred to in short as LIT). LIT is, undisputedly is an instrumentality of the State Government of Punjab. 2.2 LIT, is an entity which has been constituted under the Punjab Town Improvement Act, 1922 for the planned development of the city of Ludhiana.

LIT, it appears, invited bids for construction of a City Centre in Ludhiana (hereinafter referred to as the City Centre project). Upon evaluation of the bids, Today Homes was declared successful. Consequently, a concession agreement was executed between Today Homes and LIT. Pursuant to the concession agreement, nearly 25.59 acres was handed over to Today Homes. 2.3 Evidently, a tripartite agreement was also executed between Today Homes, LIT and a bank, by the name of HDFC. In terms of the tripartite agreement, the sale proceeds received on booking of saleable areas were required to be deposited in a escrow account, titled as : "Today Homes Infrastructure Pvt. Ltd. - City Centre."

2.4 In order to enable Today Homes to discharge its obligations under the concession agreement, a power of attorney dated 29.08.2005, was executed by LIT, in its favour.

2.5 Consequently, Today Homes, which was charged with the responsibility of developing, constructing, marketing and selling the units / flats on the land which was subject matter of the concession agreement, was sold/ leased to various persons / entities. One such person was the respondent. Today Homes thus, entered into an agreement to sell dated 09.03.2006 (hereinafter referred to as agreement to sell) with the respondent, both in its own capacity as well as the attorney of LIT.

2.6 It appears that disputes erupted between Today Homes and LIT, which led to the cancellation of the power of attorney dated 29.08.2005. This cancellation was effected on 05.10.2006. I must note here that the factum of cancellation was never conveyed to the respondent.

2.7 It appears that the cancellation of power of attorney issued in favour of Today Homes by LIT, took place on account of disputes between them. Today Homes, it appears, at some stage, sought appointment of an arbitrator in terms

of the clause obtaining between the parties. A petition for this purpose was filed in Punjab and Haryana High Court. Based on the petition, an arbitrator was appointed.

2.8 LIT, being aggrieved, carried the matter in appeal to the Supreme Court, which set aside the order of the Punjab and Haryana High Court vide its judgment dated 14.10.2008 and remitted the matter for fresh consideration. The Supreme Court in its judgement dated 14.10.2008 accepted the plea of LIT that the Punjab and Haryana High Court, had failed to consider the fact, that the, agreement between itself and Today Homes, which contained the arbitration clause, was itself void, having been entered into in suspicious circumstances, and therefore, by logical corollary the arbitration agreement could not survive, independently, of the main agreement. 2.9 On a reconsideration of the matter, the Punjab and Haryana High Court came to the conclusion that the concession agreement dated 24.05.2005, was neither legal nor valid and hence, disputes which had arisen between Today Homes and LIT, could not be referred to an arbitrator for adjudication.

3. This time around, appeals were filed by Today Homes alongwith another entity by the name of Mapletree Properties Pvt. Ltd. It may be relevant to note that the latter entity is not relevant for the purposes of the present matter, which is in consideration before me.

4. Suffice it to say, that the Supreme Court, accepted the contention of the appellants before it and set aside the order of the single Judge of the Punjab and Haryana High Court, with a direction that the matter be considered denovo.

4.1 The gravamen of judgment of the Supreme Court, which is dated 10.05.2013, was that the learned single Judge had exceeded his jurisdiction, in examining the legal validity of the main agreement. The observations in this

behalf are contained in paragraphs 13 to 16 at pages 73-74 of the judgment referred to in paragraph 2 above.

4.2 At the point in time when, the award was passed in the instant case, the aforesaid judgment of the Supreme Court, was not delivered. The learned arbitrator at that stage was in know of only the judgment of the single judge of the Punjab and Haryana High Court dated 08.10.2009.

4.3 Based on an application filed in this court, numbered as Arb. P. 273/2009, with the consent of parties, vide order dated 26.04.2010, an arbitrator was appointed in the matter.

4.4 During the course of the arbitration proceedings, an application was moved by Today Homes for impleadment of LIT, as a party to the said proceedings. This application was dismissed by the learned arbitrator by a detailed order dated 21.04.2011. The proceeding sheet of this date shows that parties had carried out admission and denial of documents by employing the methodology of affidavits.

4.5 Upon pleadings being completed on 10.05.2011, and admission /denial of documents having taken place, a single issue was framed which reads as follows :-

"Whether the claims of the claimant are tenable against the respondent? If so, to what extent?"

4.6 On the very same date, parties agreed that it was not necessary to lead oral evidence or, to file affidavit(s) of evidence since, the matter, could be decided based on pleadings and documents filed by the parties. Consequently, the matter was fixed for arguments on 12.07.2011.

4.7 On that date, counsels appearing for Today Homes had sought adjournment on the ground that he wished to prefer a review petition before the learned arbitrator. The learned arbitrator considered the request and

rejected the same with reasons, which are contained in the proceeding sheet of that date.

4.8 Upon conclusion of arguments, the case was reserved for rendering an award, which was, as indicated above, pronounced on 26.08.2011.

5. The petition, in this court was filed on 24.11.2011. Notice in the petition was issued, on 06.01.2012. Upon pleadings being completed, matter was taken up for hearing.

SUBMISSIONS OF COUNSELS

6. Arguments on behalf of the Today Homes were advanced by Mr. Sudhir Nandrajog, learned senior counsel assisted by Ms. Pooja Mehra Saigal, while on behalf of the respondents, submissions were made by Mr. Siddhartha Tanwar.

7. Mr. Nandrajog, assailed the award on several grounds, which can be paraphrased as follows :-

(i). upon cancellation of the power of attorney dated 29.08.2005 by LIT, the agreement to sell executed between Today Homes and the respondents, could not be performed. The event of cancellation was a supervening event, which rendered the performance of obligations by Today Homes, as envisaged under the agreement to sell, impossible. In view of this, the said agreement stood "frustrated" and, accordingly parties were discharged from fulfilling their respective obligations.

(i)(a) In support of this submission, provisions of clause 10 of the agreement were sought to be relied upon. Reference was also made to the provisions of Section 56 of the Contract Act. Reliance was also placed on the judgment of the Supreme Court in the case of Satyabrata Ghose Vs. Mugneeram Bangur and Co. and Anr., (1954) SCR 310.

(ii). The principal claim lodged by the respondent and so awarded by the

learned arbitrator, was for payment of rent. This claim was lodged in the context of provisions of clause 57 of the agreement to sell. This clause had to be read in conjunction with clause 10 of the very same agreement. A conjoint reading of the two would show that the obligation undertaken by Today Homes, to handover possession of a flat for 'fit outs', within 22 months of the execution of the agreement to sell, was premised on the eventuality of the construction being completed. Today Homes, in terms of clause 10, was entitled to seek extension of time for delivery of possession of a flat to the respondent, inter alia, under various circumstances including for reasons, which were beyond its control. The learned arbitrator had failed to appreciate this aspect of the matter.

(iii). Today Homes, was an agent of a disclosed principal, and therefore, the liability, if any, was that of LIT. The award, was also flawed, as LIT, which was, the principal of Today Homes, was not arrayed as a party to the present proceedings.

(iv). The learned arbitrator, failed to appreciate that the performance of the contract was premised on the continued authority vested in Today Homes to execute the project in issue. Once, the power of attorney was cancelled, the agreement to sell itself was rendered void, and therefore, no direction of the kind which was issued by the learned arbitrator directing performance of obligations, could have been issued in law.

(v). The settled principle of law, is that, transfer of interest in a property can be effected only upon the property coming into existence. While, a party can execute a contract, and agree to transfer rights in a property, which is yet to come in existence, transfer can take place only when, the property actually comes into existence. Transfer, can therefore be, effected with respect to a property in praesenti only. Since the project came to a standstill due to

"political exigencies", resulting from change of government, the flat in issue did not come into existence, and therefore, leasehold rights could not have been created or transferred in such a property, and thus, by logical corollary, such rights could not have been enforced by the respondents.

8. On the other hand, Mr. Tanwar, on behalf of the respondents relied upon the findings returned in the award. In support of the award rendered in favour of the respondents, Mr. Tanwar made the following submissions :-

(i) At no point in time, Today Homes informed the respondents that its power of attorney dated 29.08.2005, had been cancelled, on 05.10.2006.

(i)(a) It was submitted by the learned counsel that in three communications, which were issued in 2008, Today Homes assured the respondents, that the, project, would be completed, speedily. At no stage, did Today Homes take the plea that the performance of the concession agreement stood frustrated. In this behalf, reliance was placed on letters dated 07.04.2008, 18.04.2008 and 09.09.2008.

(ii) A perusal of the agreement to sell itself demonstrates that, it has been executed by Today Homes, for self and, as an attorney, for LIT.

(ii)(a) The argument of the counsel for Today Homes that, it was only an agent of LIT thus, ought to be rejected.

(iii) In clause 57 of the agreement to sell, consciously, parties had chosen to cast an obligation on Today Homes by using the term, 'company' as against 'intending sellers'. The obligation to pay compensation got triggered after expiry of 22 months from the date of execution of the agreement to sell. The obligation was for payment of rent to the respondents with effect from 31.12.2007.

(iv) The rent, was a form of compensation, to protect respondent and, such similarly placed intending purchasers from consequences which would flow,

upon breach of obligations undertaken by Today Homes on their failure to deliver possession of the flat(s) in issue.

(v) Every agent, who undertakes personal responsibility for payment of dues can be sued in his own name under the contract unless the other contracting party elects to give exclusive credit to the principal. Reliance in this behalf was placed on the following judgments: Babu Lal and Ors. Vs. Jagat Narain and Ors., AIR 1952 Vindhya Pradesh 51; and International Railway Company Vs. Niagara Parks Commission, (28) AIR 1941 Privy Council 114.

(vi) The execution of the concession agreement, the power of attorney, and thereupon, the cancellation of the power of attorney were actions to which, the respondents were not privy. The parties herein are guided by the provisions of the agreement to sell.

(vii) The reliance on the provisions of Section 56 of the Contract Act by counsel for Today Homes is misconceived for the reason, that it would only come into play when, it is proved that neither party was responsible for the frustration of the contract. The issue, with respect to cancellation of the power of attorney by LIT, is sub judice, and therefore, it is still to be seen whether or not, Today Homes was responsible for cancellation of the power of attorney.

(viii) The reliance on the provisions of clause 10 of the agreement to sell to resist the claim for non payment of rent/ assured return was also misconceived since, the said clause dealt only with the issue of possession and reasonable extension of time for delivery of possession of the flat in issue, on the occurrence of certain eventualities. On the other hand, clause 57 of the agreement to sell, which was the relevant clause, dealt with payment of rent for non-delivery.

(ix) The fact situation was covered in the respondents' favour by the

provisions contained in Section 230 and 233 of the Contract Act. REASONS

9. I have heard the learned counsels for the parties and perused the record.

10. The record has thrown up certain facts, which are not in dispute. These facts being :

10.1 Qua the concession agreement dated 24.05.2005, disputes have erupted between Today Homes and LIT, which I am told, are presently being adjudicated upon by an arbitral tribunal.

10.2 The power of attorney dated 29.08.2005, which was issued, in favour of Today Homes by LIT, was cancelled on 05.10.2006.

10.3 Pursuant to the agreement to sell being executed between Today Homes and the respondents, the respondents have paid the entire sale consideration, in respect of the flat in issue, amounting to Rs.31,94,936/-. The said agreement, as a matter of fact, adverts to a specific flat, which was to be allotted to the respondents. The number so allotted was: unit no.GF-22 (A). The agreement, also identified the location of the flat as one, which was to be on being located in the corner, on ground floor, and was to measure 1250 sq. ft. (super area). 10.4 That the factum of cancellation of the power of attorney by LIT, on 05.10.2006, was never communicated to the respondent. This is evident from the findings recorded by the learned arbitrator, which includes extracts from letter dated 07.04.2008 and 18.04.2008. As a matter of fact, letter dated 09.09.2008 on which reliance was placed by Mr. Nandrajog, also does not advert to the fact that the power of attorney of Today Homes stood cancelled. By the first two letters, an assurance was given that the project would be completed speedily.

10.5 The last letter, which is letter dated 09.09.2008 in reply to respondents legal notice dated 05.09.2008, mainly alludes to the fact that the delay in

completion of the project occurred due to reasons beyond the control of Today Homes. As a matter of fact, the respondents' request for appointment of arbitrator was resisted on the ground that there was no dispute obtaining between the parties herein, and that, the respondents should await the adjudication of Today Homes dispute with LIT.

11. In these circumstances, what has to be considered, is the impugned award patently illegal, as is sought to be contended on behalf of Today Homes. 11.1 The learned arbitrator has allowed out of the eight claims lodged, only four claims, which are claim nos. I, II, VII and VIII. Under claim no.I, rent for 32 months, with effect from 31.12.2007, at the rate of Rs.143570/- has been awarded with interest at the rate of 10% p.a. from 09.01.2008 till realization. Since, interest was awarded under claim no.I, claim no.II stood scaled down to grant of interest at the rate of 10% p.a., as claimed interest of 24% p.a., was thought to be excessive by the learned arbitrator. Claim No.VII, whereby pendent lite interest was sought, was also restricted to 10% p.a. as indicated by the learned arbitrator, while awarding sums under claim no.I. Claim no.VIII, was allowed to the extent of Rs.1,13,645/-, towards fee and administrative charges levied by the Delhi High Court Arbitration and Conciliation Centre. The costs were awarded with interest at the rate of 10% p.a. from the date of award till its realization.

11.2 The respondent was, however, directed to bear stamp duty in the sum of Rs.4,715/-.

12. The grant of the relief therefore, principally is, with regard to payment of compensation. Payment of interest, cost and fee are consequential reliefs. 12.1 The objection to the learned arbitrator allowing claim no.I, is primarily pivoted on the following submission, which is, that clause 57 of the agreement to sell had to be read in conjunction with clause 10 of the same agreement.

The clause 10 relieved Today Homes from its obligations under the agreement to sell if its failure to perform obligations contained therein, including its obligation to deliver possession of the flat in issue, was propelled by circumstances beyond its control. The cancellation of the power of attorney dated 29.08.2005 on 05.10.2006 was a circumstance which, according to Today Homes, relieved it of its obligation to deliver possession of the flat in issue. This argument was based on the supposition that such an eventuality could be construed as a force majeure event in terms of the provisions of Section 56 of the Contract Act.

12.2 The facts, which obtained in this case and as found by the learned arbitrator would show that clearly the agreement to sell was executed by Today Homes both 'for self' as also as the 'attorney' of LIT. Under clause 57, the obligation to pay rent, (which in my view would be a measure for an assured return on the investment made by the respondents) was undertaken by the 'company' (i.e., Today Homes) upon its failure to deliver possession of the flat in issue for fit outs within a period of 22 months of the execution of the agreement to sell. The said clause did not provide for any limitation or circumstances in which this obligation cast on Today Homes would stand waived.

12.3 Clause 10, which speaks of extension of time for delivery of possession based on events referred to therein, is premised on the fact that the event in issue even under the omnibus clause for reasons beyond the control of the intending seller would fall in the category of a force majeure event. Cancellation of power of attorney by LIT would not constitute a force majeure event. In other words, a force majeure event is an event, whereby an agreement envisages an impossible act, which in itself, would render such an agreement void or where a party is obliged to undertake an act which after the

contract is made, became impossible or by reason of some event could not be prevented. It is in these circumstances that a party can claim discharge of its obligations under the contract on the ground that the contract has become void. Broadly, the principles of force majeure as they operate in India are contained in Section 56 of the Contract Act.

12.4 Both eventualities spoken of hereinabove are contained in first and second part of Section 56. It cannot be anyone's case that the agreement to sell cast an obligation on Today Homes to do an act, which was inherently impossible.

12.5 Therefore, the circumstances obtaining in the case, that is, the event of cancellation of power of attorney issued in favour of Today Homes by LIT has to be examined in conjunction with the second part of Section 56. There is no denying that the cancellation of the power of attorney took place after the execution of the agreement to sell. But that by itself would not help unless it can also be shown that it rendered the performance impossible or, was an event which, Today Homes could not prevent.

12.6 As noted by me above, the agreement to sell was executed by Today Homes in two capacities. First, in its own capacity, and secondly, as a power of attorney holder of LIT. Therefore, the cancellation of the power of attorney did not prevent it from fulfilling the obligations it had undertaken qua the respondents. One of those obligations was to pay an assured return on their investment in the form of rent, if it failed to deliver possession within 22 months of the execution of the agreement to sell. The reasons for failure to deliver possession could be myriad but none of these limitations were factored in clause 57 of the agreement to sell.

12.7 The next question which arises for consideration is, was cancellation of power of attorney, an event which, Today Homes could have not prevented.

This issue, in a sense, does not arise for consideration if, the obligation undertaken under clause 57 of the agreement to sell is, a stand alone obligation cast squarely on Today Homes and, a construed as one, which is not tied-in with continued and subsisting relationship between Today Homes and LIT. Assuming it does arise, cancellation of the power of attorney even, according to Today Homes, has arisen on account of disputes which erupted between it and LIT.

12.8 Whether or not cancellation of the power of attorney was legal, is a matter which is under adjudication by another arbitral tribunal. Suffice it to say that it is not an event which, will fall into a category which, Today Homes would want it to, which is an event that it could not prevent. The jury, so to say, on the aspect of who was responsible for bringing about a termination of power of attorney is still out. But that Today Homes cannot fulfil obligations, which have been undertaken by it, one of them payment of compensation for non-delivery of the flat in issue. The doctrine of force majeure cannot be employed to destroy the vitals of a contract. It is not a doctrine which the court will allow a recalcitrant party to take recourse to so as to efface the rigour of an obligation undertaken under the contract, which may be otherwise "burdensome" or "onerous" or is even "unforeseen". (See Alopi Prasad and Sons Vs. Union of India, (1960 ) 2 SCR 793; Naihati Jute Mills Ltd. Vs. Khyaliram Jagannath, (1968) 1 SCR 821; Continental Construction Company Ltd. Vs. State of Madhya Pradesh, (1988) 3 SCC 82; and judgment dated 27.10.2014 passed in OMP 1279/2014 titled Oriental Pathways (Nagpur) Pvt. Ltd. Vs. National Highways Authority of India. 12.9 To put the matter in perspective, as to what the courts have considered as circumstances which, make the performance onerous on account of unforeseen events as against those which would result in the performance

under the contract being frustrated - regard may be had to the fact that in Alopi Prasad, enhancement of rate was sought on the ground that performance at reduced rates as provided in the contract was not possible due to continuation of world-war-II Hostilities. Despite which, the plea of frustration under Section 56 of the Contract Act was rejected by the Supreme Court. 13 Similarly, in Nahati Jute Mills Ltd., both pleas, that the performance under the contract stood frustrated and, as a result of which, the contract was void ab initio, were rejected, though the plea was taken by the appellant on the ground that it was unable to obtain the license required for importing the goods on account of change of Government policy.

13.1 In Continental Construction Company Ltd., a somewhat similar plea was raised on the ground that price of material and labour had increased substantially. The Supreme Court, in this case as well, rejected the plea and while doing so, observed that there was "no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous."

13.2 Based on somewhat similar facts, the same view was taken by me in a judgment dated 27.10.2014 passed in OMP 1279/2014, titled: Oriental Pathways (Nagpur) Pvt. Ltd. Vs. National Highways Authority of India. 14 The reliefs granted by the learned arbitrator do not direct delivery of possession of the flat in issue. The learned arbitrator has not, by granting the reliefs which he has, created, as was sought to be contended on behalf of Today Homes, a relationship of a lessor and a lessee. There is no transfer of interest in property. All that the learned arbitrator has done is, to trigger the mechanism, which is provided in the agreement to sell itself, for payment of an assured return in the eventuality of Today Homes failing to deliver possession

of the flat in issue for whatever reasons. The assured return, as I read it, has not been granted by the learned arbitrator, in perpetuity, as was sought to be contended before me. In the instant case, the relief was claimed by the respondent for a period of 32 months, which the learned arbitrator chose to grant having regard to the facts and circumstances obtaining in the case. Therefore, the argument that allowing claim no.I would tantamount to grant of relief of specific performance, in my view, is a submission which is misconceived, in the facts of the present case.

15. Furthermore, the argument advanced that the petitioner was disclosed agent of its principal, i.e., LIT or, that, the learned arbitrator committed an error in not impleading LIT, as a party to the arbitral proceeding, is also misconceived. The reason being, that once the learned arbitrator concluded, and in my view correctly, that Today Homes had undertaken under the agreement to sell in its own capacity as well, these submissions had little substance.

16. For the reasons given above, the petition is dismissed with costs of Rs.20,000/- The costs will be paid to the respondents within two weeks from today.

RAJIV SHAKDHER, J DECEMBER 11, 2014 yg