2016 (6) TMI 1466 - SC - Indian Laws

Supreme Court rules development agreement frustrated, directs refund with interest. Land use authority issue pending.

Delhi Development Authority Versus Kenneth Builders and Developers Ltd. and Ors.

The Supreme Court affirmed that the development agreement between the DDA and Kenneth Builders was frustrated, as unforeseen circumstances rendered the ... Frustration of contract - whether the project land is a part of the Ridge or not and whether the contract between the DDA and Kenneth Builders has been frustrated due to supervening factors or not? HELD THAT:- What has been overlooked by learned Counsel is that the fresh view of the MoEF is that the project land needs to be considered as Ridge. Consequently, no construction activity is permissible on the project land. That apart, Kenneth Builders did apply to the DPCC for 'consent to establish' for starting construction activity on the project land. For considering the request, the DPCC required a ridge demarcation report which was not given by the DDA to Kenneth Builders or to the DPCC. Therefore, the DPCC was not inclined to give its consent in the absence of the ridge demarcation report. Even after judgment was delivered by the High Court, Kenneth Builders applied to the DPCC for 'consent to establish' but to no effect in the absence of a ridge demarcation report and forest clearance. It does appear from the record that the exact boundaries of the Ridge had not been identified by anybody and this is apparent from a letter dated 13th June, 2008 sent by the Secretary (Environment) of the GNCTD to the DDA wherein it was pointed out that there is some discrepancy between the areas notified by the Ministry of Urban Development of the Government of India in the notifications dated 8th January, 2002 and 23rd February, 2006 and the boundaries of the Ridge. It was further pointed out that the process of identification had been initiated by the Department of Forests of the GNCTD but it appears that the demarcation was not completed by the time the writ petition was filed by Kenneth Builders. The interpretation of Section 56 of the Contract Act came up for consideration in Satyabrata Ghose v. Mugneeram Bangur and Co. [1953 (11) TMI 19 - SUPREME COURT]. It was held by this Court that the word 'impossible' used in Section 56 of the Contract Act has not been used in the sense of physical or literal impossibility. It ought to be interpreted as impracticable and useless from the point of view of the object and purpose that the parties had in view when they entered into the contract. This impracticability or uselessness could arise due to some intervening or supervening circumstance which the parties had not contemplated. In so far as the present case is concerned, the DDA certainly did not contemplate a prohibition on construction activity on the project land which would fall within the Ridge or had morphological similarity to the Ridge. It is this circumstance that frustrated the performance of the contract in the sense of making it impracticable of performance. Certain circumstances had intervened, making it impracticable for Kenneth Builders to commence the construction activity on the project land. Since arriving at some clarity on the issue had taken a couple of years and that clarity was eventually and unambiguously provided by the report of the CEC, it could certainly be said that the contract between the DDA and Kenneth Builders was impossible of performance within the meaning of that word in Section 56 of the Contract Act. Therefore, the contention of the DDA that the contract between the DDA and Kenneth Builders was not frustrated, is rejected. The DDA should now refund the deposit made by Kenneth Builders with interest at 6% per annum calculated from 11th September, 2006 till realization. The question raised in the connected appeal filed by the GNCTD and the Department of Forests of the GNCTD is left open for consideration in an appropriate case. Appeal dismissed. Issues Involved:1. Whether the development agreement between the DDA and Kenneth Builders was frustrated under Section 56 of the Indian Contract Act, 1872.2. Whether the DDA is the final authority to determine land use, particularly concerning the Ridge in Delhi.3. Whether Kenneth Builders is entitled to a refund of the amount deposited with the DDA along with interest.Detailed Analysis:Issue 1: Frustration of Contract under Section 56 of the Indian Contract Act, 1872The principal question was whether the development agreement between the DDA and Kenneth Builders was frustrated due to unforeseen circumstances, making the contract impossible to perform. The Supreme Court affirmed that the contract was indeed frustrated. The court noted that Kenneth Builders faced objections from the Department of Forests, GNCTD, which halted construction activities on the ground that the project land falls within the Ridge. This led to a series of correspondences and a stalemate between the DDA, GNCTD, and Kenneth Builders. The court observed that the MoEF had initially granted environmental clearance but later opined that the project land needs to be considered as Ridge. Consequently, Kenneth Builders could not obtain the necessary 'consent to establish' from the DPCC. The court concluded that the intervening circumstances were not contemplated by either party, rendering the contract impracticable and thus frustrated under Section 56 of the Indian Contract Act.Issue 2: Authority to Determine Land UseThe High Court had held that once the Master Plan for Delhi earmarks land for a particular use, no other authority can challenge it. The DDA had earmarked the project land for residential use, which could not be questioned by the GNCTD, the Department of Forests, or the DPCC. However, the Supreme Court noted that the exact boundaries of the Ridge were not demarcated, and the project land's status was unclear, leading to the impasse. The court referred the matter to the Central Empowered Committee (CEC), which concluded that the project land, though outside the notified Ridge area, had morphological features conforming to the Ridge. Therefore, any development required clearance from the Ridge Management Board and permission from the Supreme Court. The court did not delve into whether the DDA is the final authority in determining land use, leaving the question open for future consideration.Issue 3: Refund of Amount Deposited by Kenneth BuildersThe High Court ruled that Kenneth Builders was entitled to a refund of the entire amount deposited with the DDA, along with interest at 6% per annum, if the DPCC did not grant 'consent to establish.' The Supreme Court upheld this decision, stating that the contract was frustrated due to unforeseen circumstances, making it impossible for Kenneth Builders to perform their part of the agreement. The court rejected the DDA's argument that Kenneth Builders should have pursued legal remedies to obtain the necessary clearances. The court emphasized that the DDA's obligation was to ensure that the initial path for construction was clear, which it failed to do. Consequently, the court directed the DDA to refund the deposit made by Kenneth Builders with interest calculated from 11th September 2006 until realization.Conclusion:The Supreme Court dismissed the appeal filed by the DDA and directed it to refund the deposit made by Kenneth Builders with interest at 6% per annum from 11th September 2006 until realization. The question of whether the DDA is the final authority in determining land use was left open for future consideration. There was no order as to costs.