Delhi High Court
Delhi Development Authority vs M/S Eros Resorts And Hotels Ltd on 22 March, 2021
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 22.03.2021
+ O.M.P. (COMM) 455/2019 & IA 14958/2019
DELHI DEVELOPMENT AUTHORITY ..... Petitioner
versus
M/S EROS RESORTS AND HOTELS LTD ..... Respondent
AND
+ O.M.P. (COMM) 456/2019 & IA 14965/2019
DELHI DEVELOPMENT AUTHORITY ..... Petitioner
versus
M/S EROS RESORTS AND HOTELS LTD ..... Respondent
Advocates who appeared in this case:
For the Petitioner: Mr Rajiv Bansal, Senior Advocate with Mr
Vaibhav Agnihotri, Mr Milind Jain and Ms
Jasmeet Kaur.
For the Respondent: Mr Harish Malhotra, Senior Advocate with
Mr Rajender Agarwal, Mr Anoop Kumar.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The Delhi Development Authority (hereafter the 'DDA') has
filed the present petition under Section 34 of the Arbitration and
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By:DUSHYANT
RAWAL
Conciliation Act, 1996 (hereinafter the 'A&C Act') impugning a
common Arbitral Award dated 02.06.2019 (hereafter 'the impugned
award') delivered by the Arbitral Tribunal comprising of a Sole
Arbitrator, in respect of disputes arising in connection with contracts
for sale of two plots of land respectively.
2. The impugned award has been rendered in the context of
disputes that have arisen between the parties in relation to Plot nos.
13A and 13B situated at Mayur Vihar District Centre, New Delhi,
which were auctioned for the purpose of constructing a hotel.
Allotment cum Demand letters dated 30.06.2006 with respect to the
aforesaid plots had been issued pursuant to an Auction Notice dated
05.06.2006.
3. By the impugned common award, the Arbitral Tribunal has
partly accepted the claims preferred by the respondent (hereafter
'Eros'). The Arbitral Tribunal directed the petitioner to release the
Performance Bank Guarantees of ₹5.90 crores and has awarded a sum
of ₹12 lacs each against Eros's claim for bank charges for keeping the
said Bank Guarantees alive. The Tribunal further allowed simple
interest at the rate of 12% per annum on the awarded amount from the
date of the award till its realisation.
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RAWAL
4. DDA assails the impugned award to the extent as noted
hereafter, as being patently illegal and contrary to the fundamental
policy of Indian Law.
5. Briefly stated, the relevant facts that are necessary to address
the controversy are as under:-
6. DDA issued a public notice for "Auction of prime plots on
freehold basis for construction of Hotels in Delhi" on 05.06.2006. As
per Clause 2.1 of the Auction Notice, the same clarified that "it will
be presumed that the bidder has visited the site and satisfied
himself/herself with the prevalent site conditions in all respects
including status and infrastructural facilities available etc. before
participating in the Auction and offering the bid."
7. Thereafter, on 05.06.2006, the respondent (hereinafter 'Eros')
participated in the said auction and gave its bid of ₹118 crore for each
of the hotel plots (Plot nos. 13A and 13B) located at Mayur Vihar
District Centre, New Delhi. Further, as per the terms of Clause 2.6 of
the Auction Notice, Eros deposited 25% of the bid amounts as Earnest
Money Deposit (EMD), equivalent to ₹29.60 crores for each plot.
8. DDA vide letters dated 30.06.2006 informed Eros that its bid of
₹118 crore for each of the aforementioned plots was accepted by the
Vice Chairman, DDA. Accordingly, as per Clause 2(vii) of the
Auction Notice read with Clause 3.4(i) of the General Terms &
Conditions of the Auction, Allotment-cum-Demand letters (in respect
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RAWAL
of Plots bearing nos. 13A and 13B) were issued to Eros directing them
to remit the balance 75% amount, that is, ₹88,40,00,050 for each of
the aforementioned plots within a period of 90 days from the date of
issue of the said letters. Eros vide letters dated 26.09.2007 informed
DDA that it had deposited the said amount in respect of Plot nos. 13A
and 13B.
9. Thereafter, on 09.11.2006, No Objection Certificates were
issued by DDA to Eros. The Deputy Director (CL) of DDA, vide
letters dated 09.11.2006, requested the Deputy Director (Bldg.) of
DDA to entertain and examine the building plans submitted by Eros
in respect of Plot bearing nos. 13A and 13B and release the same on
production of No Objection Certificates issued by its office for
obtaining the physical possession and execution of lease deeds for the
said plots.
10. On 17.11.2006, in accordance with Clause 3.14 of the General
Terms & Conditions of the Auction, Punjab National Bank
(PNB) furnished Performance Bank Guarantees at the instance of
Eros. The said Guarantees secured DDA against the obligation of Eros
to complete the hotel and make it functional within a period of 42
months from the date of delivery of possession of the sites, failing
which PNB undertook to pay DDA a penalty amount.
11. Thereafter, on 04.12.2006, Eros submitted building plans to
DDA for approval, which DDA claims were received by the C&I unit
of DDA on 14.12.2006.
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RAWAL
12. On 05.12.2006, DDA handed over possession of the Plots
bearing nos. 13A and 13B to Eros and as per Clause 3.14 of the
General Terms & Conditions of the Auction, Eros was required to
complete and make the hotel functional by 05.06.2013, that is, within
42 months of the delivery of possession of the plots.
13. On 12.12.2006, Conveyance Deeds in respect of Plot nos. 13A
and 13B, Mayur Vihar District were executed in favour of Eros.
14. DDA vide letters dated 22.12.2006 informed Eros that pursuant
to its request letters dated 14.12.2006, permission for excavation work
in respect of Plot nos. 13A and 13B had been granted to Eros at its
own risk and cost subject to the condition that no
structure/construction including erecting pillars, flooring etc. would
be raised till the building plans are sanctioned by the concerned
agency. In addition, DDA also stipulated that stone blasting will not
be permitted and all safety measures as provided in I.S. Code No.
3764: 1992 and National Building Code and other statutory provisions
would be observed.
15. On 08.01.2007, DDA informed Eros that its submission lacked
essential documents in respect of the plots in question (Plot nos. 13A
and 13B). Eros submitted the said documents on 24.01.2007.
16. Thereafter, Eros vide letters dated 20.03.2007 submitted five
sets of drawings of its Hotel Project at Mayur Vihar in respect of Plot
nos.13A and 13B to the Deputy Director (Buildings), DDA with a
request that the drawings be forwarded to the Delhi Urban Art
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RAWAL
Commission (DUAC) and the Fire Department for grant of No
Objection Certificates for the sanction of the project. Eros requested
for early action, since the project was to be completed within the fixed
period of time. DUAC and the Delhi Fire Services (DFS) granted
approval to the drawings by letters dated 18.05.2007 and 04.06.2007
respectively with certain observations.
17. On 06.08.2007, DDA communicated to Eros to submit certain
documents mentioned in its office note, as on scrutiny, it was found
that they were not attached with the plans. On 27.08.2007, Eros
submitted the documents sought by DDA in respect of both the plots.
18. On 12.09.2007, Mr. Amit Sood, Director, Eros submitted
undertakings in respect of Plot nos. 13A and 13B and represented that
due to certain problems, he was unable to submit the correct drawings,
however, he undertook that he was accepting the corrections made by
DDA in the drawings and, he would be bound by it. He further
undertook not to deviate from the sanction plans as
corrected/approved by DDA.
19. On 11.09.2007, DDA approved the plans with certain
changes/corrections, however, Eros vide a letter dated 20.09.2007
addressed to the Vice Chairman, DDA sought changes in the plans, as
the changes made by DDA were unacceptable to them. Thereafter,
Eros vide another letter dated 09.10.2007 requested DDA for an early
decision on the issues referred to in their letter dated 20.09.2007.
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By:DUSHYANT
RAWAL
20. The 1st Technical Committee Meeting of DDA for the year 2008
was held on 16.01.2008. The Minutes of Meeting dated 31.01.2008
reflect that DDA had approved the changes sought by Eros.
21. Thereafter, as per the request of DDA, Eros submitted the
revised building plans in accordance with the changes approved by the
Technical Committee on 19.03.2008 for Plot no. 13A and on
27.03.2008 for Plot no. 13B.
22. DDA vide letters dated 05.05.2008 communicated to Eros that
it had forwarded the set of building plans to DUAC and Chief Fire
Officer (CFO) for approval. DDA also communicated to Eros the
grant of provisional permission "for taking up construction of the hotel
building up to plinth level pending the statutory licenses of the
building plans by the DUAC, CFO and MOEF" subject to certain
conditions.
23. On 14.05.2008, The Secretary, DUAC communicated to
Consulting Engineering Service (India) Pvt Ltd (Consultants for Eros)
the requirement to ensure submission of the documents/materials to
DUAC, as per the DUAC guidelines.
24. On 14.05.2008 (in respect of Plot no. 13B) and 15.05.2008 (in
respect of Plot no. 13A), the Deputy Chief Fire Officer communicated
to the Joint Director (Building), DDA certain
shortcomings/observations in the plans of the hotel and by the
aforesaid letters, the Deputy Chief Fire Officer required DDA to
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RAWAL
advise Eros to rectify the shortcomings/observations and re-submit the
plans along with a model of the proposed building to DFS.
25. Thereafter, on 12.06.2008, DDA requested Eros to submit the
compliance of observations, as conveyed by DUAC, on 14.05.2008
(with respect to both the plots) and as conveyed by CFO, DFS on
14.05.2008 (in respect of Plot no. 13B) and 15.05.2008 (in respect of
Plot no. 13A).
26. The Secretary, DUAC vide letters dated 07.07.2008 to
Consulting Engineering Service (India) Pvt Ltd communicated certain
observations with the decision that "the scheme proposal is to be
recommended after compliance with the observation of the
commission." Thereafter, Eros vide letters dated 11.07.2008 to the
Secretary, DUAC submitted the remaining documents for
consideration before DUAC.
27. On 14.08.2008, DUAC, once again, vide letters addressed to
Consulting Engineering Service (India) Pvt Ltd communicated certain
observations with the decision that "Not approved. Consistent set of
drawings to be submitted to the Commission after compliance of the
observations."
28. Thereafter, on 16.09.2008, DUAC communicated its approval
of the plan to Joint Director (C&I) Building, DDA in respect of Plot
no. 13A and approval was granted on 19.09.2008 in respect of Plot no
13B.
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By:DUSHYANT
RAWAL
29. DDA vide a letter dated 22.09.2008 (in respect of Plot no. 13A)
and letter dated 24.09.2008 (in respect of Plot no. 13B) requested Eros
to submit correct building plans incorporating suggestions of
DUAC/Chief Fire Officer within 15 days.
30. Thereafter, Eros vide letters dated 22.09.2008 (in respect of Plot
no. 13A) and 24.09.2008 (in respect of Plot no. 13B) submitted the
corrected revised building plans incorporating corrections/
suggestions made by CFO and DUAC, which were signed by the
Architect and Owner. The aforesaid letter also requested DDA to
expedite the sanction of revised building plans.
31. DDA vide letters dated 15.12.2008, communicated to Eros the
sanction to "erect/re-erect/add to/alteration in the building to carry
out the development specified in the said application" in respect of
Plot nos. 13A and 13B has been approved with certain conditions
stipulated in the said letters.
32. On 04.09.2009, DDA issued notices to Eros that in the event of
delay in completing and making the hotel functional within the
prescribed period, the Performance Security, to the extent of 5% of
the bid amount, shall be encashed as per the schedule mentioned
therein and the said period would expire on 05.06.2010. DDA further
requested Eros to submit a copy of the completion certificate and
proof of making the hotel functional prior to 05.06.2010.
33. Eros vide letters dated 14.10.2009 explained the details that
caused the delay for completion of the said project and requested DDA
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RAWAL
to withdraw its letters dated 04.09.2009 and return the Performance
Security. Thereafter, DDA vide a letter dated 23.12.2009
communicated to Eros that in case of failure to complete the hotel
within the stipulated period, its Performance Security in respect of
hotel Plots nos. 13A and 13B at District Centre, Mayur Vihar, will be
forfeited as per the terms and conditions of disposal.
34. DDA vide letters dated 03.08.2010, once again, requested Eros
to submit a copy of the completion certificate and proof of making the
hotel functional prior to the date of completion, that is, before
05.06.2010 and get the Bank Guarantees renewed/revalidated up to
31.03.2011, as the same was expiring on 17.11.2010, failing which
action for forfeiture of the Bank Guarantees would be taken prior to
the expiry of the same.
35. On 27.08.2010, DDA once again requested Eros to
renew/revalidate the Bank Guarantees up to 31.03.2011 and submit
the same by 15.09.2010.
36. DDA vide letters dated 20.10.2010 informed Eros that since the
period of 42 months for construction of the hotel and making it
functional had expired on 05.06.2010, the Performance Security
would be forfeited in accordance with the terms and conditions of the
allotment without any further notice.
37. Thereafter, Eros filed a petition (OMP No. 637/2010 and OMP
No. 638/2010) under Section 9 of the A&C Act before this Court and
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RAWAL
this Court by an order dated 27.10.2010, restrained DDA from
encashing the Performance Security furnished by PNB.
38. Since disputes had arisen between the parties, Eros filed a
petition (AA no. 326 of 2011 and AA no. 327 of 2011) under Section
11(6) of the A&C Act before this Court for the appointment of an
Arbitrator and accordingly this Court by orders dated 08.11.2011 and
30.11.2011, appointed Justice (Retd.) Anil Dev Singh, former Chief
Justice of Rajasthan High Court, as the Sole Arbitrator.
39. The claims made by Eros in the Statement of Claims for Plot
nos. 13A and 13B are identical. They are summarised as under:-
Claim No. 1 Release the performance bank
guarantee for ₹5.90 crores
Claim No. 2 ₹15,16,464.00 towards
expenses incurred for
renewing the bank guarantee.
Claim No. 3 Interest at the rate of 24% per
annum on the amount spent on
renewing the bank guarantee
and on the amount kept as
margin money with the bank
far keeping the bank guarantee
alive
Claim No. 4 Cost of ₹37 lakhs on account of
arbitration.
40. DDA also made counter-claims. The counter claims made by
DDA are summarised as under:-
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By:DUSHYANT
RAWAL
Counter Claim No. 1 Amount of the said performance
bank guarantee, that is, ₹5.90
crores for the various acts,
omissions, breaches and
defaults of the claimant
particularly its failure to
perform its obligations under the
contract.
Counter Claim No. 2 Interest on the said amount of
performance bank guarantee of
₹5.90 crores at the rate of 18%
per annum.
Counter Claim No. 3 Pendente lite and future interest
at the rate of 18% on the counter
claim amounts.
Counter Claim No. 4 Cost of various litigations which
are quantified at ₹2,00,000/- as
well as the actual cost of the
present arbitral proceedings
including specifically the fee of
the arbitrator.
41. The Arbitral Tribunal allowed Claim No. 1, partly allowed
Claim No. 2 and rejected Claim No. 3 and 4 raised by Eros. The
Tribunal rejected all the counter claims raised by DDA. The Tribunal
directed the release of the Performance Bank Guarantees of ₹5.90
crores in favour of Eros. The Tribunal further allowed a sum of ₹12
lacs against Claim no 2 and allowed interest at the rate of 12% per
annum on the amount awarded in its favour from the date of the award
till its realisation.
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By:DUSHYANT
RAWAL
42. Aggrieved by the impugned award, DDA has filed the present
petition.
Submissions
43. Mr Bansal, learned Senior Counsel appearing for DDA assailed
the impugned award on, essentially, three fronts. First, he submits that
the impugned award is inherently contradictory as far as the issue of
delay is concerned. He submits that while at some places, the Arbitral
Tribunal has held that the parties were jointly responsible for the delay
in processing of the plans, yet in some paragraphs, the Arbitral
Tribunal had concluded that DDA was 'largely' and 'substantially'
responsible for the delay in completion of the Hotel Project. He
submits that since the Arbitral Tribunal had concluded that Eros was
also responsible for the delay, it was incumbent upon the Arbitral
Tribunal to apportion damages between the parties. He submitted that
even if the entire amount, as claimed by DDA was not awarded, it
would be entitled to damages proportionate to the delay for which it
was not responsible. He referred to the decision of this Court in Union
of India v. Sanghu Chakra Hotels: (2008) 152 DLT 651.
44. Second, he submitted that the Arbitral Tribunal has returned
findings which are either contrary to the record or without any
evidence to support them. He referred to the conclusion of the Arbitral
Tribunal regarding the progress of the construction prior to sanction
of the plans. Whilst Eros had accepted that it had continued with the
construction, he submitted that the Arbitral Tribunal had ignored the
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RAWAL
same. Next, he submitted that the Arbitral Tribunal had proceeded on
the basis that Eros had completed the Hotel Project even though it was
admitted that the commercial complex had not been completed. He
pointed out that Eros was permitted limited use by a letter dated
21.09.2010 and the same could not be considered as completion of the
project. Next, he submitted that the Arbitral Tribunal had not
considered that the plans were processed on the basis of a specific
undertaking that Eros would accept any correction made by the
Deputy Director (Buildings) and therefore, it was precluded to
challenge the same. He further contended that the award for an amount
of ₹12 lakhs is without any evidence whatsoever.
45. Third, Mr Bansal submitted that the contract between the
parties stipulated that the Hotel Project would be completed within a
period of forty-two months. The same included the time for obtaining
sanctions from independent agencies, however, the Arbitral Tribunal
had excluded the same from the time available with Eros for
completing the Hotel Project. He further submitted that in terms of the
award, the Hotel Project would be completed once the hotel was made
operational and the limited use of the same would not amount to
completion of the Hotel Project. He submitted that the award was,
thus, contrary to the terms of the agreement.
46. Fourth, he submitted that the Arbitral Tribunal had decided
issues beyond the scope of reference. He contended that the contract
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RAWAL
for development of commercial land would fall within the scope of
the expression of a contract relating to public utility and therefore,
DDA was not required to prove damages. He relied upon the decision
of the Supreme Court in Kailash Nath Associates v Delhi
Development Authority: (2015) 4 SCC 136 in support of his
contention.
Reasons and Conclusion
47. The disputes between the parties, essentially, relate to the right
of DDA to encash the security for delay in completion of the Hotel
Project. According to DDA, it is entitled to recover damages as
contemplated under Clause 3.14 of the General Terms & Conditions
of the Auction. The said Clause is set out below:-
"3.14 Performance Security
The construction of the hotel will have to be completed
and made functional within a period of 42 months from
the date of possession of site/land. The intending
auction purchaser shall be required to deposit the
performance security to the tune of 5% of the bid
amount before the time of execution of the conveyance
deed which shall be in the nature of a bank guarantee
in an approved form valid for 4 years. The institution
furnishing such security shall be subject to the
approval of the same by the Authority. The penalty for
delay in completion of the hotel beyond 42 months
shall be levied as under:-
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By:DUSHYANT
RAWAL
Sl. Delay Period beyond 42 months Penalty Amount
No.
1. Above 1 day and upto 30 days 1% of the bid
amount
2. Above 31 days and upto 90 days 2% of the bid
amount
3. Above 91 days and upto 180 days 4% of the bid
amount
4. Above 11 days and upto 360 days 5% of the bid
amount
Bank guarantee amount, to the extent there is delay in
completion of hotel will be encashed as per the schedule
mentioned above. The date of completion will be treated
as the date on which necessary completion certificate is
obtained by the intending auction purchaser."
48. In terms of the aforesaid Clause, Eros had also submitted Bank
Guarantees equivalent to 5% of the bid amounts.
49. Whilst DDA claims that it is entitled to encash the Bank
Guarantees as the delay in completion of the project was in excess of
365 days, Eros disputes the said contention and claims that DDA was
not entitled to encash the Bank Guarantees as the delay in completion
of the project is attributable to DDA.
50. In the aforesaid context, the Arbitral Tribunal had examined the
documents and the material available on record and rejected DDA's
claim for penalty under Clause 3.14 of the General Terms &
Conditions of the Auction, as the Arbitral Tribunal had found that
DDA was substantially responsible in delay in completion of the Hotel
Project.
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By:DUSHYANT
RAWAL
51. The Tribunal noted that the Vice-Chairman of DDA had held a
meeting with the auction purchasers to emphasise that the hotels were
required to be constructed expeditiously. He had extended assurances
that the Buildings Department of DDA would sanction the building
plans expeditiously and the auction purchasers could simultaneously
apply to other agencies like Fire Service, Environment Department,
Airport Authority of India etc. He had also assured the auction
purchasers that DDA would try to expedite the matters with the
Environmental Authority. Insofar as Eros is concerned, it had
expressed an apprehension that the plots purchased by it had no
approach road. In this regard, Eros was assured that development in
the said area would be expedited and the Chief Engineer (EZ) would
be asked to take action in this regard.
52. The Arbitral Tribunal noted that whilst DDA had held out
assurances that full cooperation would be extended by DDA, it had
failed and neglected to act with due despatch. The Arbitral Tribunal
examined the delay in completion of the Hotel Project in three phases.
53. The Tribunal noted that the first phase began with the
submission of plans. Admittedly, Eros had submitted the plans with
DDA on 04.12.2006. However, the Tribunal found that the same were
scrutinized more than a month later. A file noting dated 08.01.2007
indicated that there were certain objections such as an undertaking for
providing the water harvesting system was not enclosed; the letter of
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RAWAL
physical possession not enclosed; the control drawing was not signed
by a Senior Architect; the building plan did not show the water
harvesting proposal and; the form of application was not enclosed.
The said observations were communicated to Eros and it complied
with addressing the same by submitting the documents on 24.01.2007.
54. The Tribunal noted that even at that stage, DDA had not
completed scrutiny of the plans and further observations in this regard
were noted on 19.02.2007. The Tribunal found that since the Hotel
Project was a time bound project, it was incumbent upon DDA to
scrutinize the plans expeditiously. However, even as on 19.02.2007,
DDA had not completely scrutinized the same. The Tribunal found
that it took almost three months to complete scrutinization of the
plans. According to the Tribunal, the same ought to have been
completed within a reasonable period of two weeks and therefore, the
Tribunal held that the delay beyond a period of two weeks was
attributable to DDA.
55. The period covered under the second phase commences from
the stage when DDA had communicated its observations regarding the
plans. The Tribunal found that discussions were held between Eros
and DDA on 13.03.2007. Eros had addressed the concerns raised by
DDA and offered explanations with regard to the observations made
regarding the plans. Eros had further requested that the plans be
forwarded to the DFS and DUAC. The building plans were, thereafter,
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RAWAL
forwarded to DUAC. The Tribunal had found that the letter
forwarding the plans to DUAC indicated that even at that stage, DDA
had not completed scrutiny of the plans as the letter mentioned that
DDA had only scrutinized the plans from the point of view of land
use, ground coverage, FAR, site coverage, heights and set back. In
view of the above, the Arbitral Tribunal concluded that the plans were
only partially examined.
56. Whilst the Tribunal accepted that DDA could sanction the plans
only after the approval was accorded by DUAC and the Fire
Department, it held that the same did not preclude DDA from
scrutinizing the plans to ensure that it complied with the necessary
requirements. The Tribunal also referred to Paragraph 6.7.4 of the
Building Bye-Laws, which required DDA to complete scrutiny of the
plans within the prescribed period of sixty days. However, DDA had
taken an inordinately long time to do so.
57. The Arbitral Tribunal considered the delay in third phase,
which commenced from the stage when DUAC and DFS granted
permissions to the plans submitted by Eros.
58. DUAC had accorded approval to the building at a meeting held
on 04.05.2007 and DFS had approved the plans on 04.06.2007, subject
to its recommendations for fire prevention and safety measures.
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RAWAL
59. The Arbitral Tribunal found that thereafter, there were delays
occasioned by the DDA making changes in the plans, which it
subsequently withdrew. One of the major changes made by DDA was
changing the main entry to the hotel. By a letter dated 05.07.2007,
DDA required Eros to fix the main entry to the hotel from an internal
road and not from the main road. The Arbitral Tribunal noted that even
though DDA had scrutinized the plans earlier on 08.01.2007 and
19.02.2007, it had not made any such suggestions. The Tribunal noted
that by the time the same was communicated to Eros, seven months
had elapsed after it had submitted its plans.
60. The Arbitral Tribunal noted that in the month of September,
2007, DDA, once again, made further changes to the plans and
referred them as corrections. It was Eros's case that it was compelled
to accept the said changes failing which the plans would not be
released. It accordingly gave undertakings with respect to Plot nos.
13A and 13B to the aforesaid effect. The Arbitral Tribunal examined
the office note dated 11.09.2007, which indicated that the
undertakings had been given as per directions. In view of the above,
the Arbitral Tribunal accepted the contention that Eros had been
compelled to give the undertakings to secure sanction to the plans
submitted by it. Thereafter, Eros requested DDA for removing the
changes made by it while sanctioning the plans. The Arbitral Tribunal
noted that DDA took considerable time to process Eros's request. Eros
in its letter dated 27.11.2007 addressed to the Lieutenant Governor
had protested that DDA made several arbitrary changes in the plans
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RAWAL
after the same were approved by DUAC and DFS. It also referred to
various representations sent to the Vice-Chairman, DDA. In the said
letter, it also gave instances of various other hotels where the required
heights in various areas and large porches had been sanctioned.
61. On 10.03.2008, Eros sent another letter to Vice-Chairman,
DDA protesting that it was still awaiting the decision on various issues
relating to atrium, commercial use of basement, clear heights of public
areas (lobby), restaurant, banquet hall, engineering plant room etc.
porches and the entrance to the hotel. The Arbitral Tribunal took note
of the said letter and observed that Eros was unable to go ahead with
the construction due to the aforementioned pending issues.
62. The Arbitral Tribunal found that after pursuing with the
Technical Committee, Eros was successful in securing the
corrections/changes made by DDA in the building plans. The decision
of the Technical Committee was intimated to Eros on 10.03.2008. The
Tribunal noted that by this time, almost fifteen months had passed and
only twenty-seven months out of the forty-two months were left to
complete the hotel and make it operational.
63. In view of the above, the Tribunal concluded that the changes
made in the plans by DDA had led to considerable wastage of time
and the fact that the Technical Committee had accepted Eros's
representation indicated that the said changes were not necessary.
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RAWAL
Accordingly, the Tribunal concluded that DDA was 'overwhelmingly
responsible for the time lag between claimant's request for seeking
changes in the plans and the acceptance of its request by the Technical
Committee'.
64. It was DDA's contention that the time consumed in sanctioning
the plans, had no adverse effect in construction of the hotel according
to DDA. The said contention was not accepted by the Arbitral
Tribunal. The Arbitral Tribunal noted that DDA had not specified any
date on which the construction was started. It reasoned that it
obviously could not have started before the grant of permission to take
up construction of the hotel building up to the plinth level and by that
time, seventeen months had already gone by from the date of handing
over of possession of the plots in question.
65. It is DDA's case that the said finding is contrary to the record,
as Eros had in its reply averred as under: -
"Competent Authority approved the case on
11.12.2008 and building plans were released on
15.12.2008 during this period the construction of
building was going on and the construction of the
building was completed up to second floor at the
time of revised sanction".
66. The Arbitral Tribunal found that the said averment could not be
read to mean that the construction was going on continuously without
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RAWAL
any impediment. The assertion that the building was raised till the
second floor by the end of the year 2008, does not mean that Eros
could carry out the construction in full swing, oblivious of the fact that
the building plans as submitted, remained to be approved.
67. Mr Bansal, had earnestly contended that the said conclusion is
contrary to the record. However, this Court is unable to accept the said
contention. The Arbitral Tribunal had evaluated the evidence and
pleadings and had rendered its decision in the context of material on
record.
68. The Arbitral Tribunal had meticulously examined the material
placed by the parties and concluded that DDA was substantially
responsible for the delay and therefore, was not justified in invoking
the Bank Guarantees. The Arbitral Tribunal's conclusion is set out
below-:
"Summation of cause of delay
107. The main cause of delay was the so-called
corrections made in the building plans by the
Respondent while granting sanction to the plans by
its letter dated September 14, 2007. As already
pointed out these corrections were made after the
approval of plans by the DUAC and DFS. At the
cost of repetition, it may be pointed out that the
changes sought by the Claimant were with regard
to tinkering by the building department of the DDA
in the plans, such as entrance of the hotel changed
to rear of the plot, reduction of height of public
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areas like the entrance, lobby, restaurant, banquet
hall, gym and plant room and the main porch of the
entrance of hotel, which were ultimately accepted
by the Technical Committee constituted by the
DDA. However, by the time the Technical
Committee of the Respondent acceded to the
request of the Claimant to make the changes in the
so-called corrected plans, several months had
already been spent in the exercise. In the
circumstances, therefore, the Claimant cannot be
accused of having breached Clause 31.4 of the
contract for not being able to secure the
Completion Certificate from the DDA before
expiry of the stipulated period of 42 months from
the date the possession of the plots was handed
over to it. After the Technical Committee allowed
the aforesaid demand of the Claimant relating to
the changes in the building plans, the Respondent
directed the Claimant to submit revised plans,
which was complied by it. After the submission of
the revised plans, both the Respondent and the
Claimant were equally responsible for the time
consumed until the final sanction of the plans. But
this does not change the fact that by the time the
changes sought by the Claimant were approved by
the Technical Committee, almost a period of 15
months had gone by. In other words, only 27
months out of 42 months were left to complete the
hotel and to make it operational. Besides, even if
the Respondent is right that construction of the
hotel was going on, as observed earlier,
construction above the plinth level was not
possible before May 5, 2008. Obviously, the
Claimant cannot be held responsible for not being
able to secure the completion certificate by June 5,
2010 within 42 months of receiving possession of
the plots. Furthermore, time taken in completing
the process of sanction to the revised plans will not
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change the lethal effect of the aforesaid delay
which had already taken place because of the acts
of the Respondent. In view of the aforesaid finding,
the Respondent was not justified in involving the
bank guarantees furnished by the bank at the
instance of the Claimant."
69. This Court finds no ground to interfere with the aforesaid
decision. It is well settled that the scope of interference under Section
34 of the A&C Act is limited. This Court does not act as the first
appellate Court and cannot re-evaluate the evidence and supplant its
opinion over that of the Arbitral Tribunal. The said principle has been
clearly explained in the following oft-quoted passage from the
decision of the Supreme Court in Associate Builders v. Delhi
Development Authority: (2015) 3 SCC 49, in the following words:
"It must clearly be understood that when a court is
applying the "public policy" test to an arbitration
award, it does not act as a court of appeal and
consequently errors of fact cannot be corrected. A
possible view by the arbitrator on facts has
necessarily to pass muster as the arbitrator is the
ultimate master of the quantity and quality of
evidence to be relied upon when he delivers his
arbitral award. Thus an award based on little
evidence or on evidence which does not measure up
in quality to a trained legal mind would not be held
to be invalid on this score. Once it is found that the
arbitrators approach is not arbitrary or capricious,
then he is the last word on facts."
70. Mr Bansal, contended that since the Arbitral Tribunal has not
held DDA responsible for the entire delay, the damages are required
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to be apportioned. The said contention is unpersuasive. The issue
before the Arbitral Tribunal was whether DDA was justified in
invoking the Bank Guarantees and enforcing penalty for the delay in
completion in terms of Clause 3.14 of the General Terms &
Conditions of the Auction. Since it was found that DDA was
substantially responsible, plainly, it could not impose any penalty for
the same.
71. It was contended on behalf of DDA that the impost
contemplated under Clause 3.14 of the General Terms & Conditions
of the Auction was in the nature of liquidated damages and not
penalty. Mr Bansal further contended that since the Hotel Project was
regarding development of commercial land and the same amounted to
developing a public utility, it was not necessary for DDA to establish
that it had suffered any losses. He also submitted that the Arbitral
Tribunal had proceeded on an erroneous basis that there were no
pleadings to the effect that the said amount was a genuine pre-estimate
of losses.
72. The Arbitral Tribunal did not accept the aforesaid contention. It
noted that Clause 3.14 of the General Terms & Conditions of the
Auction referred to the impost as a penalty for the delay in completion
of the hotel, and not as damages.
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73. Having noted the above, the Arbitral Tribunal also accepted the
contention that the said nomenclature would not be determinative of
nature of the levy. The Arbitral Tribunal, thereafter, proceeded to
examine the nature of levy in a factual context and found that the
penalty provided was not to provide for any loss or damage that DDA
would sustain if the hotel was not completed within the stipulated
period, but it was to instil fear of punishment in the mind of the
tenderer that if he fails to complete the Hotel Project, he would be
slapped with a penalty for delay.
74. The conclusion of the Arbitral Tribunal is based on cogent
reasons. It had noticed that Eros had paid the entire consideration for
the project land and therefore, the view expressed by the Arbitral
Tribunal that the impost mentioned in Clause 3.14 of the General
Terms & Conditions of the Auction is a penalty and not liquidated
damages, is a plausible view. Concededly, there is no term in the
Auction Notice, which stipulates that the said levy is a genuine
estimate of damages. It was also noted that the Bank Guarantees
furnished by PNB also mentioned the said impost as a penalty and not
a genuine pre-estimate of damages. Indisputably, the question of DDA
suffering any damages in these facts is remote.
75. As observed earlier, the scope of interference under Section 34
of A&C Act is highly restricted and the view held by the Arbitral
Tribunal can by no stretch be held to be perverse, patently illegal on
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the face of the record or one that falls foul of the fundamental policy
of Indian Law.
76. The next question to be examined is whether the award of a sum
of ₹12,00,000/- each for extending the Bank Guarantees is patently
illegal. Eros had claimed a sum of ₹15,16,464/- towards extending
the Bank Guarantees in each of the two contracts. The Arbitral
Tribunal has allowed the claim of Eros to the extent of ₹12,00,000/-.
However, the Arbitral Tribunal is silent as to the reasons that had
persuaded the Arbitral Tribunal to quantify the claim of ₹12,00,000/-
. The relevant extract of the impugned award allowing the aforesaid
claim is set out below:
"Claim no.2
Under this claim, the Claimant claims expenses
incurred for renewing the bank guarantee from time to
time. Keeping in view the facts and circumstances of
the case, the claim is allowed to the extent of Rs. 12
lakhs. Accordingly, an award in a sum of Rs. 12 lakhs
is passed in favour of the Claimant and against the
Respondent. The Claimant is also entitled to simple
interest @ 12% pa on the amount awarded in its favour
from the date of the award till its realisation."
77. It is apparent from the above that the Arbitral Tribunal has not
indicated any reason whatsoever for allowing the claim quantifying
the sum of ₹12,00,000/-. Since the Arbitral Tribunal had concluded
that DDA was not entitled to invoke the Bank Guarantees and directed
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RAWAL
DDA to forthwith release the same, it may follow that the Arbitral
Tribunal had also considered awarding Eros the expenses for keeping
the Bank Guarantees alive. However, there is no reason whatsoever
as to how the award for a sum of ₹12,00,000/- was determined by the
Arbitral Tribunal.
78. In terms of Sub-section (3) of Section 31 of the A&C Act, the
arbitration award is required to be reasoned unless, the parties agree
otherwise. The relevant extract of Section 31 of the A&C Act reads as
under:
"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."
79. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.,
(2019) 20 SCC 1, the Supreme Court had observed that "The mandate
under Section 31(3) of the Arbitration Act is to have reasoning which
is intelligible and adequate and, which can in appropriate cases be
even implied by the courts from a fair reading of the award and
documents referred to thereunder, if the need be."
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RAWAL
80. This Court finds that the impugned award to the extent that it
allows the claims of Eros for expenses against the Bank Guarantees to
the extent of ₹12,00,000/- is unreasoned and there is no material to
substantiate the said amount. Therefore, the impugned award to the
extent that it awards the said amount, falls foul of Section 31(3) of the
A&C Act and thus, cannot be sustained.
81. In view of the above, this Court sets aside the impugned award
to the limited extent that it awards ₹12,00,000/- against Claim No.2 in
each of the two cases.
82. The petitions are disposed of in the aforesaid terms. The
pending applications are also disposed of.
VIBHU BAKHRU, J
MARCH 22, 2021
MK/pkv
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By:DUSHYANT
RAWAL
