TaxTMI 
TaxTMI 
2025 (4) TMI 1387
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.... under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, 'the Arbitration Act'). The appeals before the Division Bench were preferred against the judgment dated 26th November, 2008 of the learned Single Judge in a petition under Section 34 of the Arbitration Act by which the award of the Arbitral Tribunal was set aside. The Division Bench, by the impugned judgment, has disagreed with some of the findings recorded by the learned Single Judge. To that extent, the appeals preferred by Puri Construction Private Limited and Mohinder Puri have been allowed. The appeal by Larsen and Toubro Limited was dismissed. However, the Division Bench observed that the parties are left to pursue the appropriate course of actions under law. 2. In these appeals, we are concerned with a company, Puri Construction Limited and its sister concerns (collectively referred to as 'PCL'). We are also concerned with another company, Larsen and Toubro Limited (hereafter referred to as 'L&T'). PCL was in possession of lands in the Gurgaon District, Haryana, as the owner thereof. PCL had obtained licenses from the Director Town and Country Planning, Haryana (for short, 'the DTCP') to develop the....
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....ons under the development agreement is delayed, inter alia, due to the prevailing market conditions. 5. The Supplementary Agreement incorporated the following clauses: (a) The terms of the Development Agreement will continue to bind the parties unless otherwise agreed in the in the Supplementary Agreement, which shall come into effect after happening of the following events: i. L&T taking over or replacing bank guarantees furnished by PCL to DTCP; ii. The bank paying EDC amounting to Rs. 6 crores to DTCP; iii. Reimbursement of expenses incurred by PCL by L&T; and iv. Compliance with the terms and conditions of the Tripartite Agreement made by L&T by paying Rs.5.14 crores to the Lord Krishna Bank ("the Bank"). (b) L&T will furnish bank guarantees to DTCP after approval of the term loan by the bank to PCL; (c) L&T will pay the EDC of Rs. 6 crores paid by PCL through the bank and the remaining EDC Charges within 18 months; (d) L&T agreed to commence construction work for 3.84 lac sq.ft. of the development, subject to achieving a confirmed booking/selling target of 75% in phase-I area; and (e) The Agreement would not be construed as a waiver of any right that has accr....
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....ling the obligations under the Development Agreement. 11. The Arbitral Award was made on 28th December, 2002. The Arbitral Tribunal held that: (a) L&T jeopardised PCL's obligations towards ITCREF; (b) L&T resiled from and went back upon its original contractual obligations and tried to effect sales without sanction under the revised development plan and without making any provision for the responsibility towards ITCREF; (c) L&T had consciously decided to abandon the Development Agreement and omitted to pay EDC and also defaulted in the fulfilment of its obligation to the statutory authorities, ITCREF, as well as the Bank; (d) The object of the Supplementary Agreement was unlawful as it sought to defeat the beneficial interest of ITCREF, which was a signing party to the Development Agreement; and (e) The Supplementary Agreement was tainted by economic coercion, and the signatures of PCL were obtained by fraud. 12. The operative award is as follows: " I. An Award in favour of the Claimants directing the Respondent to pay Rs. 35 Crores to the Claimants on account of damages suffered by the Claimants within four weeks from the date of the award; II. An Award in favour ....
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.... commencing on four weeks from the date of this Award till actual payment made by the Respondent." 13. The learned Single Judge in a petition under Section 34 of the Arbitration Act had set aside the Arbitral Award. The Division Bench by the impugned judgment upheld the dismissal of L&T's counter-claim. The Division Bench upheld the findings of the Arbitral Tribunal that the Supplementary Agreement was a non-starter as it was vitiated by economic duress. The Division Bench also upheld the Arbitral Tribunal's finding that the Development Agreement was not novated by the Supplementary Agreement. Division Bench also upheld the Tribunal's finding that conditions to be fulfilled by L&T, subject to which the Supplementary Agreement was to come into force, were not fulfilled. However, the Tribunal's quantification of damages for breach of contract, amounting to a sum of Rs. 35 crores, and compensation in lieu of securing title deeds with respect to 15 acres of land, amounting to Rs. 75 crores, as well as compensation for default in returning licences and permits, amounting to Rs. 5 crores, was set aside. The permanent injunction granted in favour of PCL, restraining L&T from interfe....
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....s would be closed for a fresh adjudication in view of the findings rendered in the award. 16. According to the learned senior counsel, the Division Bench has set aside the award directing payment of Rs. 35 crores as damages to PCL. He pointed out that the award contains a direction to L&T to settle the claim of the Bank by repayment of the loan of Rs. 6 crores and to secure release of the title deeds from the Bank; in default, L&T was directed to pay PCL a sum of Rs. 75 crores. The first part of the relief for payment of Rs. 6 crores has been upheld by the Division Bench, but the portion of the award in respect of Rs. 75 crores has been set aside. The award contains a direction against L&T to return licences, permits and permissions obtained by PCL from statutory authorities in respect of the lands. On failure to return the documents, L&T was directed to pay Rs. 5 crores to PCL. However, the Division Bench has upheld the award directing return of the documents, but has rejected the award to the extent of payment of Rs. 5 crores. Moreover, an award-granting injunction against L&T from interfering in any manner with the rights of PCL to develop the property has been upheld. The awar....
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....unal mixed up various unrelated issues with issue no. 2 which pertains to economic coercion. He submitted that the entire focus was on the alleged breach committed by L&T of the Development Agreement and abandonment of the site. Unreasoned finding has been given that the Supplementary Agreement and the Tripartite Agreement were entered under compulsion. The Tribunal failed to note that in the Statement of Claim as well as in the rejoinder filed by PCL, there was assertion regarding the binding nature of the Supplementary Agreement. One Mr. Mohinder Puri on behalf of PCL filed an affidavit which was not only beyond the pleadings, but also contrary to the same as he, for the first time, alleges exercise of coercion to enter into Supplementary Agreement. Learned counsel relied upon several documents to show that there was no coercion and submitted that the Tribunal ignored the documents. He would, therefore, submit that the award was vitiated in view of Section 28(1)(a) of the Arbitration Act. He relied upon a decision of this Court in the case of Associate Builders v. Delhi Development Authority (2015) 3 SCC 49. Learned counsel submitted that the view taken by the Tribunal is not eve....
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....for completing the construction in case of adverse market conditions. As per Clause 34, L&T could not be treated in default of performance of its obligation if it is delayed or prevented due to adverse market conditions. He submitted that there were enough documents on record to show that land prices were falling and prevailing market conditions did not encourage development of land. He submitted that though there was a specific pleading to that effect, the Arbitral Tribunal did not record any finding in the award with regard to the market conditions and in fact, Clauses 26 and 34 of the Development Agreement have been completely ignored. However, the learned Single Judge noticed that there was material on record with respect to the fall in real estate market and held that Arbitrator could not have ignored all those correspondences and evidence showing why the Supplementary Agreement was signed. The Division Bench recorded the submission that the Tribunal has ignored Clauses 26 and 34 of the Development Agreement, but, has not dealt with the submission and tried to supply its own reasons which were not found in the award. Thus, the Division Bench acted beyond the scope of Section 3....
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....ing of the Arbitral Tribunal regarding damages can be revived. 26. The learned senior counsel submitted that the scope of interference in a petition under Section 34 of the Arbitration Act is now well settled. He relied upon a decision of this Court in the case of S.V. Samudram v. State of Karnataka and Another (2024) 3 SCC 623. If the Arbitral Tribunal's view is a plausible view, it ought not be interfered with. To arrive at a decision as to whether a plausible view has been taken, the court would consider whether the Arbitrator has considered the material forming part of the record and arrived at a plausible view in an overall sense and not expect the Arbitrator to deal with the matter and render a judgment with the detailed reasoning as is normally found in decisions of the civil courts. 27. Learned senior counsel submitted that to examine the award in supervisory jurisdiction under Section 34 of the Arbitration Act, the court must be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied. If the reasons recorded by the Arbitral Tribunal are intelligible, the award cannot be set aside just because there were ....
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.... to the bank to forthwith release the margin money of PCL. Learned counsel submitted that L&T has made a false statement on oath that the bank guarantee of PCL, with margin money and interest, was released. Altogether, a new case was made out by L&T before this court, as it was not pleaded before the Tribunal that the margin money had been refunded and bank guarantees had been released. In fact, PCL by letter dated 12th April, 2000 reminded L&T that fresh bank guarantees were to be served as PCL's guarantee was not released. According to the specific pleading of PCL in the Statement of Claims, a condition precedent for the coming into effect of the said agreement was replacing and taking over the bank guarantee. In the Statement of defence-cum-counterclaim of L&T, it was claimed that L&T had executed a counter bank guarantee. It was submitted that attributing insufficient reasons in relation to non-satisfaction of the condition precedent of the Supplementary Agreement is incorrect. On 07th October, 1999, L&T had taken a clear stand that the report submitted by the consultant was not favourable to pursue the project and hence, they shall not pay EDC. Reliance was placed by learn....
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....L&T and PCL had entered into Development Agreement on 10th March 1998. The notice invoking the arbitration clause refers to the three agreements, and even in the petition filed under Section 11 of the Arbitration Act, the disputes were set out in relation to the three agreements. By consent of the parties, vide order dated 14th February, 2001, the disputes in relation to all three agreements, including the determination of the liability of ITCREF and the Bank, were referred to the Arbitral Tribunal. Before the Arbitral Tribunal, L&T took the stand that it was its liability to ensure payment to the Bank. Also, L&T took a stand through its counsel that the obligation was cast upon L&T with respect to the liability of ITCREF. Moreover, L&T did not take recourse to Section 16 of the Arbitration Act for challenging the jurisdiction of the Arbitral Tribunal. 32. Learned senior counsel pointed out the issues framed by the Tribunal concerning damages and compensation. He submitted that perusal of L&T's Statement of Defence shows that the parties were ad idem on the question of valuation at which sales could be made as L&T had itself based the claim for damages on such valuation. As regard....
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....eds of 25 acres of licensed land of PCL and 15 acres of PCL's licensed land with the Bank for which the Bank had invoked securitization laws and also filed proceedings before the Debt Recovery Tribunal. During the Arbitral proceedings, L&T always resisted returning the title deeds in respect of 25 acres of land. Therefore, the argument that the land remained with PCL has no relevance at all. 33. Lastly, it was submitted that the dispute between the parties was of the year 2000. The award was made on 28th December, 2002, after a very detailed hearing before the Tribunal. Thereafter, the dispute remained sub-judice continuously before the courts. Therefore, considering the findings of the Tribunal, as upheld by the Division Bench, this court will consider exercising extraordinary powers to do complete justice. Therefore, appeals preferred by L&T may be dismissed, and PCL may be compensated for the huge legal expenditure incurred during the last 21 years. It was submitted that the appeal preferred by PCL be allowed while upholding the damages and compensation awarded by the Arbitral Tribunal in terms of the award. ISSUES FRAMED BY THE ARBITRAL TRIBUNAL 34. The Arbitral Tribunal fr....
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.... what effect? Issue No. 11: Is the Respondent liable to be compensated by Claimants by a sum of Rs.8,31,53,968/- including a sum of Rs.5.19 Crores paid by the LKB as claimed by the respondent? Issue No. 12: Is the Respondent entitled to be compensated by the Claimants a sum of Rs.280 Crores as net profit being difference in the cost of construction estimated at Rs.800/- per sq. ft. with the total cost being Rs. 320 Crores as claimed by the respondent? Issue No. 13: Are the Claimants entitled to compensation from the Respondent and damages of a total values of Rs. 300 crores and are the Claimants entitled to a further sum of Rs. 100 crores as punitive damages? Issue No. 14: Whether Mr. Mohinder Puri has the authority to institute the instant claim petition and to carry out acts necessary to prosecute the instant claim petition on behalf of Claimants other than Puri Construction Limited? If not whether the claim petition for other Claimants is maintainable? ARBITRAL TRIBUNAL'S AWARD 35. The Arbitral Tribunal recorded detailed findings. The findings recorded by the Arbitral Tribunal can be summarised as under: Issue No. 1: The conditions precedent in Clauses (I), (II), and (II....
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....of PCL's obligation to ITCREF. Under Clause 25 of the Development Agreement, L&T was responsible for indemnifying PCL against any loss, liability, cost, or claim that may arise against PCL due to L&T's failure to discharge its obligations. The obligations under Clause 25 shall subsist even after the termination of the Development Agreement. Issue No. 11: As L&T had abandoned the project, it cannot take advantage of its own wrong. Therefore, L&T is not entitled to compensation from PCL. Issue No. 12: The claim of Rs. 240 crores made by L&T was negatived on the ground that L&T itself had abandoned the project and therefore, it cannot take advantage of its own wrong. Issue No. 13: PCL was entitled to compensation from L&T amounting to Rs. 93 crores in relation to its 25 percent share. It was based on L&T's calculation of profit for its 75 percent share. The Tribunal observed that PCL was entitled to damages of Rs. 35 crores in lieu of L&T's failure to pay EDC in a timely manner. However, it was held that PCL was not entitled to any punitive damages. Issue No. 14: The authority of Mr. Mohinder Puri to institute a claim on behalf of PCL was acquiesced by L&T, as it did not objec....
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....tion from L&T as it had already paid the price of the land to ITCREF. Moreover, PCL committed an area to ITCREF, which was more than its share. PCL's losses would arise only when ITCREF files a suit for recovering damages for non-fulfilment of the commitment and failing to hand over the land in due time. FINDINGS RECORDED BY DIVISION BENCH IN SECTION 37 APPEALS 38. Now, we must consider the findings recorded by the Division Bench in appeals under Section 37 of the Arbitration Act. Issue No. 1: The Division Bench relied upon the conditions included in Clause II of the Supplementary Agreement. The Division Bench observed that PCL had spent 17.28 crores towards EDC out of which payment of Rs. 6 crores was made by PCL by mortgaging 15 acres of its land. Under Clause II, L&T was required to make good a plurality of bank guarantees and assume responsibility for payment of EDC. However, there was complete failure on the part of L&T to do so. Issue No. 2: The Division Bench found that the finding of the Tribunal that the Supplementary Agreement and the Tripartite Agreement were tainted by coercion was correct. It was observed that the Arbitral Tribunal rightly found that economic dure....
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....ed by the Arbitral Tribunal that the Supplementary Agreement was a nonstarter, it was vitiated by economic duress, and that the Development Agreement was not novated by the Supplementary Agreement. The Division Bench also approved the finding of the Arbitral Tribunal that L&T committed a fundamental breach of the Development Agreement. The Division Bench also upheld the dismissal of L&T's counterclaim. Furthermore, the Division Bench concluded that the permanent injunction granted in favour of PCL was also justified. However, the quantification of damages and compensation, as well as indemnification for ITCREF's claim, was found to be contrary to the record. The net effect was that the operative part of the award fixing the monetary liability of L&T was set aside while leaving open the remedy of PCL for the quantification of the monetary claim. In view of the confirmation of findings on merits, the award regarding costs was confirmed. But, in view of the legal position that the award cannot be varied or modified, the Division Bench did not restore any part of the arbitral award and held in paragraph no. 120 that the parties are left to pursue the appropriate course of action. ....
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....nt entered into by it on 30th July, 1997 with ITCREF. It refers to the fact that PCL had agreed to hand over 1,95,000 sq. ft. of built-up area in the Schedule 'A' property, after its development, comprising high-rise and low-rise buildings, inclusive of a car park, to ITCREF. It also refers to the fact that the extent of the built-up area to be allocated to ITCREF was 2,20,416 sq. ft., which formed part of the allocation made under the Development Agreement to PCL. The Development Agreement also provides that PCL had agreed that 15 acres of land mortgaged to the Bank would be in the remaining portion of Schedule 'A' property and that PCL would get the mortgage discharged on this 15 acres of land comprised in Schedule 'A' property before commencement of development work in the remaining portion of Schedule 'A' property. The Agreement also provides for the deposit of original documents in relation to Schedule 'A' property (except to the extent of 15 acres of land mortgaged with the Bank). Paragraph 19 records L&T's obligation to pay the EDC after receiving the NOC from the appropriate authority. The Agreement provides that L&T shall complete the construction of the building on th....
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....CP after final approval of term loan by Lord Krishna Bank to the OWNER and escrow account arrangement finalisation, either through the Bankers of the OWNERS or any other Bank acceptable to DTCP. The said bank guarantees shall remain valid and in force upto the date of receipt of completion Certificate of the I phase of the project. III. The parties hereto agree that the Clause 19 of the Development Agreement shall stand modified as under: (a) The EDC Charges of Rs. 1013.14 Lacs paid so far by the OWNERS shall be reimbursable only after receipt of the same from the prospective purchasers of the apartments in the Project. (b) The Developer agrees to pay the balance EDC as under: i. Rs. 6 Crore through M/s. Lord Krishna Bank as provided in Clause I(b) supra; ii. Pay the remaining EDC charges over a period of 18 months in terms of licenses. (c) The EDC paid by the parties shall be reimbursable to each of the parties from out of the sale proceeds, as agreed in the Agreement for Development." ( emphasis added ) 44. We may note here that, as stated in Clause (I) of the Supplementary Agreement, the terms of the Supplementary Agreement were to come into effect upon th....
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....r cent towards repayment of the term loan and release the remaining 50 per cent balance to L&T, subject to review on a later date. It was provided that PCL and L&T have undertaken to launch the sale of apartments in the Schedule 'A' property, covering an area of 3.84 lakhs sq. ft., by 15th February, 2000. L&T had also undertaken to complete the said development within 30 months of the commencement of construction. Even all sale proceeds were to be collected by L&T and deposited with the Bank in an escrow account. The Tripartite Agreement provided that L&T shall pay to the Bank a sum of Rs. 5.19 crores on behalf of PCL towards discharge of the loan availed by PCL for payment of EDC on or before 19th January, 2000. Lastly, it was provided that upon full set-off and/or repayment of the term loan of Rs. 6 crores, including interest thereon, PCL shall be relieved of its obligation under this Agreement. 46. Looking to the clauses in the Supplementary Agreement, the finding recorded by the Tribunal that, as the conditions precedent in the relevant clauses were not complied with by L&T, the Supplementary Agreement was a non-starter is undoubtedly a possible finding which could not have be....
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....burden of proving that there was no undue influence is on the person in a position to dominate the will of the other. Illustrations (c) and (d) of Section 16(3) of the Contract Act were also relied upon, which deal with cases of economic duress and undue influence. After examining the evidence, the Division Bench held that there was no patent illegality in the findings recorded by the Arbitral Tribunal that the Supplementary Agreement and the Tripartite Agreement were tainted by coercion. On consideration of the facts discussed before, such a view by the Arbitral Tribunal cannot be said to be contrary to justice and morality. We agree with the view taken by the Division Bench. 49. Dealing with issue no. 3, the Division Bench referred to Clause 26 of the Development Agreement and Clause 5 of the Supplementary Agreement. The Tribunal found that L&T committed a breach of Clause 19 of the Development Agreement by not making payment of a single instalment of EDC. Moreover, interest free deposit of Rs. 5 crores in terms of Clause 12 of the Development Agreement was not paid by L&T to PCL. The Tribunal found that there was no Development work carried out and not a single floor of any res....
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....had gone overbroad. The said finding of the Division Bench cannot be faulted with. 52. As regards the damages of the sum of Rs. 35 crores to be paid by L&T to PCL on account of breach of the Development Agreement, the basis taken by the Tribunal was the figures given by L&T in its counter-claim. Mr. Mohinder Puri estimated the loss of PCL at Rs. 117 crores. However, PCL did not prove the said loss, and the Tribunal did not rely upon any evidence to arrive at a fair assessment of the loss actually incurred by PCL. The Division Bench held that instead of basing the findings on the figures set out by L&T in its counter-claim, the correct approach would have been to determine the prevailing market rate for sale of built-up area at the time of the breach and thereupon determine the proceeds that PCL would have received from the sale of its 25 per cent share under the Development Agreement. Therefore, the award of Rs. 35 crores as damages was fundamentally contrary to Section 73 of the Contract Act. Such an approach was completely contrary to substantive law in the form of Section 73. This finding cannot be disturbed. 53. As regards the direction to pay the amount of Rs. 6 crores with ....
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....tle deeds deposited with the Registrar of this Court pursuant to the directions in FAO 319/2001 are directed to be released to PCL." 56. The powers of the Appellate Court under Section 37 of the Arbitration Act are not broader than those of the Court under Section 34 of the Arbitration Act. Therefore, what cannot be done in the exercise of the powers under Section 34 cannot be done in an Appeal under Section 37. An Arbitral Award cannot be modified. Thus, even after recording the conclusions in paragraph no. 119, the Division Bench has not modified the Award by partly setting aside the Judgment under Section 34. In paragraph 121 of the Judgment, the Division Bench held thus: "121. In light of the above conclusions, parties are left to pursue the appropriate course of action under law. This Court notices that since the dispute has been in subsistence for a considerable period of time, an attempt may be made at settling the claims through mediation. FAO (OS) 21/2009, 22/2009 and 23/2009 are partly allowed to the above extent; FAO (OS) 194/2009 is dismissed, for the same reason." On a conjoint reading of Paragraph 119 and 121, we find that the remedy of PCL has been kept open to....