TaxTMI 
TaxTMI 
2025 (4) TMI 1387
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....f Delhi High Court on the appeals preferred 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, H....
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....onditions; and (g) L&T will not be deemed to be in default if performance of its obligations 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 ach....
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....gful rescission of the agreement by PCL. Rs. 280 crores were claimed as the reimbursement amount of profit which L&T would have received by developing 75% of the area; and (c) Grant reimbursement to L&T of Rs. 8,31,53,968/- as the amount spent by it towards fulfilling 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 th....
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.... VI. An Award in favour of the Claimants, directing the Respondent to pay cost of the Arbitration proceedings quantified at Rs. 30 lakhs within a period of four weeks from the date of the Award; VII. An Award in favour of the Claimants, directing the Respondent to pay interest to the Claimants @ 12% p.a. on the sums awarded hereinabove 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 brea....
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....and its operative part are intrinsically linked and the same cannot be severed. Moreover, this is not a case where there are distinct and severable claims. He submitted that the effect of the impugned judgment of the Division Bench is that PCL would get a chance to improve upon the pleadings by initiating fresh arbitration before the Tribunal. But, L&T's doors 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 ....
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....he pleadings. The learned senior counsel invited our attention to the findings of the learned Single Judge in a petition under Section 34. He submitted that the Division Bench supplanted its own reasons to uphold the award. Further, the Division Bench tried to rewrite the contract by including other clauses as conditions precedent. His submission is that the Tribunal 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 c....
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....e has rightly held that when the Supplementary Agreement was a non-starter, as per the Tribunal, no relief could have been granted under the Tripartite Agreement. Unfortunately, this argument has not been dealt with by the Division Bench. 21. He invited our attention to Clause 26 of the Development Agreement which provided that L&T was entitled to extension of time 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 c....
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.... the learned Single Judge in the Section 34 petition deserves to be upheld. 25. The learned senior counsel appearing for PCL pointed out that basically two issues arise for consideration. The first is whether there was a breach committed by L&T as held by the Arbitral Tribunal, and the second question is whether, if the finding of breach committed by L&T is upheld, the finding 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 s....
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....able to pay EDC over a period of 18 months in terms of the licence. Condition precedent no. 1(a) expressly requisited the 'replacing or taking over' of the bank guarantee furnished by PCL. He pointed out the letter dated 15th March, 2000, addressed by PCL to the Bank, where the request was made to continue with the bank guarantee of PCL. However, at the same time, the request was made 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 execut....
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.... in the award was beyond the jurisdiction, learned counsel submitted that the arbitration clause in the Development Agreement even covered disputes in connection with the agreement. In fact, the Supplementary Agreement refers to the fact that parties to the Development Agreement have agreed to enter into a tripartite agreement with the Bank. In turn, the tripartite agreement records that 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....
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....holly incorrect. Learned senior counsel pointed out that on one hand, there was non-payment of EDC by L&T, on the other hand, there were repeated notices sent by DTCP for cancellation of licences. Moreover, ITCREF had filed a civil suit in the District Court seeking recovery of rupees 73 crores plus interest against PCL and also against L&T. In addition to all this, L&T was holding title deeds 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 co....
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....escind the contract and claim damages under Section 73 and 75 of the Indian Contracts Act? Issue No. 9: Whether the Respondent is entitled to be relieved of its obligations under the Tripartite Agreement dated 10.01.2000 and be put in the same position as if such agreement had not been entered into? Issue No. 10: Is the Respondent liable to compensate the Claimants under the agreement of indemnity and if so 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....
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.... Issue No. 8: The termination of the contract by PCL does not amount to wrongful repudiation, and it does not entitle L&T to rescind the contract and claim damages under Sections 73 and 75 of the Contract Act. Issue No. 9: As the Tripartite Agreement was negated due to L&T's default, and since it imposes liability on L&T, it cannot be relieved of its obligation under the Tripartite Agreement. Issue No. 10: L&T had complete knowledge 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....
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....rs that no submissions were made before the learned Single Judge on these issues. Issue No. 9: The Tribunal exceeded its jurisdiction by directing L&T to fulfil its obligations towards the Bank. It was held that the Bank was not a party to the proceedings and the Tripartite Agreement did not contain any arbitration clause. Issue Nos. 10, 11 and 12: There were no specific findings recorded by the learned Single Judge. Issue No. 13: PCL was not entitled to any compensation 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....
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....actual loss was not established by PCL. It was observed that after the rejection of L&T's counterclaim, it would be an illegality to rely on L&T's calculation of profit. However, the Tribunal's finding regarding L&T's failure to pay EDC timely was affirmed. Issue No. 14: It is evident that the Tribunal's findings were not seriously challenged. 39. We now turn to the conclusions recorded in paragraph 119 of the impugned judgment. In substance, the Division Bench agreed with the findings recorded 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 tha....
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....in the case of Project Director, National Highways No. 45 E and 220, National Highway Authority of India v. M. Hakeem and Another^1. As we have noted, after recording its conclusions in paragraph 119, the Division bench, in the last paragraph of the impugned Judgment, has not modified the award. 42. We have perused the three agreements subject matter of controversy. The Development Agreement is a contract between PCL and L&T. Clause 4 of the Development Agreement refers to the obligations of PCL under the agreement 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....
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....urred by the OWNER as detailed in Annexure I, on production of proof of payment thereof; (d) Compliance of the terms and conditions of the tripartite agreement between the parties hereto with Lord Krishna Bank, inter-alia the DEVELOPER paying Rs. 5.19 Crore to Lord Krishna Bank, on behalf of OWNERS towards discharge of the loan availed by the OWNERS for payment of EDC. The said sum of Rs. 5.19 Crore shall be a secured interest free loan by the DEVELOPER to the OWNERS. II. The Bank Guarantees would be furnished by the DEVELOPER to the DTCP 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 Pro....
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....aid term loan of Rs. 6 crores. The Tripartite Agreement provides that the Bank shall forthwith release, in favour of the PCL, the counter - guarantees outstanding for the bank guarantees given by the Bank for a sum of Rs. 466.175 lakhs in favour of DTCP, Haryana. It was provided in the Tripartite Agreement that L&T will open an Escrow account with the Bank in New Delhi, wherein all sale proceeds of the proposed flats will be deposited. Out of the funds in the escrow account, the Bank will first appropriate the interest part for the respective period and out of the balance portion, appropriate 50 per 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....
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.... towards ITCREF. The Tribunal also referred to the fact that on 02nd November, 1999, DTCP issued a show cause notice proposing cancellation of licenses due to non-payment of EDC. These facts and the default by L&T left no choice to PCL but to execute the Supplementary Agreement as well as the Tripartite Agreement. 48. The Division Bench referred to Section 16(3) of the Contract Act which provides that where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the 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 ....
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....ave been rightly addressed by the Division Bench on the ground that there were no submissions made on the rejection of the counterclaim before the learned Single Judge in a petition under Section 34 of the Arbitration Act. 51. The Division Bench dealt with the Tribunal's direction to L&T to pay Rs. 50 crores to PCL on crystallization of ITCREF's claims. The Division Bench held that the type and kind of losses incurred by ITCREF would not be reasonably foreseeable for PCL to be indemnified against. Therefore, the Division Bench rightly observed that while granting a sum of Rs. 50 crores to PCL, the Tribunal 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 o....
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....nd compensation for default in returning licences and other permits is set aside (5 crores). The permanent injunction granted in favour of PCL restraining L&T from interfering with PCL's development of Schedule A property of the Development Agreement is upheld. The relief granting indemnification in favour of PCL for ITCREF's claims is set aside. It is clarified that this is without prejudice to the indemnification for ITCREF's claims relating to the transfer of 2,20,416 sq. ft. of land to the extent envisaged under the Development Agreement, The Tribunal's order to the extent that it awards costs of arbitration to PCL is upheld. f. Title 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 Divisi....