Arbitral award principles on risk-and-cost completion, municipal sanction duties, and land title were examined; completion-cost recovery was struck down.

An arbitral award could not be sustained on completion-cost recovery where the interim order permitting completion during arbitration was without jurisdiction under the Arbitration Act, 1940, and the contractual risk-and-cost machinery, including architect certification, was ignored; that part of the award was set aside. The contractor was not shown to bear a contractual obligation to obtain municipal plan sanction, and liability could not be fastened on a frustration or breach theory without proper pleadings and material; that finding was rejected. The award on title to 14.17 acres of land was supported by valid sale deeds and correct principles of transfer law, and was upheld.

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Issues: (i) Whether the arbitrators could sustain the award for completion of balance work at the risk and expense of the contractor despite the absence of jurisdiction to pass the interim order and without applying the contractual machinery governing risk-and-cost completion and architect's certification; (ii) whether the contractor was contractually bound to obtain municipal sanction for the building plans or could be held liable for frustration or breach on that basis; (iii) whether the award on title to 14.17 acres of land was sustainable.

Issue (i): Whether the arbitrators could sustain the award for completion of balance work at the risk and expense of the contractor despite the absence of jurisdiction to pass the interim order and without applying the contractual machinery governing risk-and-cost completion and architect's certification.

Analysis: The interim order permitting completion of work during arbitration was held to be without jurisdiction under the Arbitration Act, 1940, as an arbitrator could not grant such relief in the absence of a contractual conferment of that power. The Court further held that the arbitrators erred in treating clause 130 as inapplicable merely because completion was allowed by an arbitral order. The contractual scheme required examination of the risk-and-cost provisions, including the role of the architect and the conditions governing recovery of completion costs. Ignoring those provisions amounted to legal misconduct and misdirection in law.

Conclusion: The award allowing completion cost recovery against the contractor was unsustainable and was set aside.

Issue (ii): Whether the contractor was contractually bound to obtain municipal sanction for the building plans or could be held liable for frustration or breach on that basis.

Analysis: The Court held that the record did not establish a contractual obligation on the contractor to obtain plan sanction so as to attract penal consequences. The statutory duty under the municipal law to seek sanction lay with the person proposing erection of the building, and the correspondence showed that the employer and its architect were the principal actors in dealing with the municipality. The plea of frustration was also examined and rejected as a basis to sustain the award against the contractor, the Court noting that the findings on self-induced frustration and breach lacked proper pleadings and materials. The Court held that statutory prohibitions and building regulations could not be bypassed on the assumption that later regularisation would cure the illegality.

Conclusion: The findings fastening liability on the contractor on this footing were not sustainable.

Issue (iii): Whether the award on title to 14.17 acres of land was sustainable.

Analysis: The Court held that the sale deeds complied with the requirements of transfer of property law and that title passed independently of the turnkey project. The contention that the transfer was merely by way of security was not accepted as a basis to interfere with the award. On the materials, the arbitral finding that title vested in the employer was not shown to rest on any incorrect principle of law.

Conclusion: The award on title to the land was upheld.

Final Conclusion: The award was interfered with only to the extent it sustained recovery of completion costs at the risk and expense of the contractor, while the finding that title to the land vested in the employer was maintained.

Ratio Decidendi: An arbitral award founded on a jurisdictionally void interim order, or rendered by ignoring mandatory contractual conditions and relevant statutory duties, suffers from legal misconduct and cannot stand; however, a finding on title based on valid sale deeds and correct legal principles will not be disturbed.

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