$~1 * IN THE HIGH COURT OF DELHI AT NEW DELHI % Date of Decision: November 13, 2014 + FAO(OS) 312/2014 RAJESH BATRA Appellant Represented by: Mr.Tanmaya Mehta, Advocate versus RANBIR SINGH AHLAWAT Respondent Represented by: Ms.Saahila Lamba, Advocate with Ms.Karuna Chhatwal, Advocate CORAM: HON'BLE MR. JUSTICE PRADEEP NANDRAJOG HON'BLE MS. JUSTICE MUKTA GUPTA PRADEEP NANDRAJOG, J. (Oral)
1. The appellant Rajesh Batra is a builder carrying on business under the name and style 'M/s. Shree Constructions'. The respondent Ranbir Singh is the owner of a part of plot bearing Municipal No.B-39, Panchsheel Enclave, New Delhi. The plot measures 400 square yards, but only 200 square yards belongs to Ranbir Singh Ahlawat and the other portion belongs to his nephew Sudhanshu Ahlawat. Original title to the plot was a lease-hold tenure in favour of Late Sh.Ram Swaroop Ahlawat, the father of the respondent. The lease-hold right was transferred by DDA in favour of the respondent and his nephew in terms of a decree passed by this Court. When DDA announced a policy for conversion of lease-hold tenures to free-hold tenures, the respondent and his nephew sought conversion of the lease-hold tenure into free-hold tenure and the DDA allowed the same, resulting in a conveyance deed executed by DDA in the joint names of the respondent and his nephew Sudhanshu Ahlawat.
2. By consent the respondent and his nephew started using the plot and the super structure thereon to the mutual exclusion of each other, and since the area of the plot is large they managed to divide the user vertically. But as regards the municipal laws the plot continued to be a single entity plot, meaning thereby the extent of construction permissible would be by treating the plot as a single entity; of course the co-owners could by mutual consent divide the same for purposes of beneficial enjoyment.
3. Respondent and appellant entered into a collaboration agreement on March 24, 2008 which was substituted by another agreement dated March 30, 2008, the latter incorporating all the terms of the former and in addition introducing some more terms. The collaboration agreement envisaged that in the front half portion of plot No.B-39, Panchsheel Enclave, the existing construction shall be demolished and a new building consisting of a basement, ground, first, second and third floor would be constructed by the appellant who, upon completion of the building would be the owner of the entire third floor and the terrace above. The rest was to be owned by the respondent. In addition the appellant was to pay the respondent `8,00,000/- (Rupees Eight Lakhs), out of which `4,00,000/- (Rupees Four Lakhs) were paid when the agreement in question was entered into and `4,00,000/- (Rupees Four Lakhs) had to be paid when the plans were sanctioned.
4. Municipal sanction could not be obtained because the plot, being a single entity plot, required the consent of the respondent's nephew for plan to be sanctioned and further the proposed plans had to take into account the existing constructions on the plot which were with the respondent's nephew.
And here arose a problem. The nephew had a built up area in excess of his 50% share. But as regards the municipal authorities, the plot being a single entity plot, the proposed reconstruction plan would relate to only such FAR which could be utilized after deducting the existing FAR.
5. The net result was that the municipal authorities did not sanction the building plan and the building could not be constructed within the agreed period as per the collaboration agreement. In fact it could not be constructed at all.
6. The collaboration agreement had two clauses concerning the default. The first was the appellant to pay `50,000/- (Rupees Fifty Thousand) per month to the respondent if the construction was not completed within the agreed period of 11 months. The second was that if the property could not be constructed even after 18 months were over, the appellant would be liable to pay respondent `50,00,000/- (Rupees Fifty Lakhs).
7. When the collaboration agreement was entered into `4,00,000/- (Rupees Four Lakhs) were paid by the appellants to the respondent.
8. Dispute naturally arose because building plans were not sanctioned. The respondent invoked the arbitration clause in the agreement. Justice S.S.Chaddha (Retd.) was appointed as an arbitrator. Respondent's claim was for `50,00,000/- (Rupees Fifty Lakhs) and `50,000/- (Rupees Fifty Thousand) per month beyond 11 months period reckoned from the date of agreement till it was terminated. And we ignore other non-maintainable claims on account of harassment etc. The appellant refuted the claim and by way of counter claim sought specific performance. The respondent also claimed damages for loss of goodwill and reputation. Since the respondent had commenced construction of the building after demolishing the old construction without municipal sanction and the same was demolished by the municipal authorities, being an unauthorized construction, damages on said account were also claimed.
9. Vide award dated January 24, 2014, the learned Arbitrator rejected all counter claims as also the claims save and except `50,000/- (Rupees Fifty Thousand) per month and quantified the amount payable in sum of `11,00,000/- (Rupees Eleven Lakhs). The computation was for a period of 22 months reckoned from after 11 months of the agreement till the agreement was terminated on February 03, 2010. Since `4,00,000/- (Rupees Four Lakhs) had already been received by the respondent, amount payable as per the award is `7,00,000/- (Rupees Seven Lakhs). Cost in sum of `50,000/- (Rupees Fifty Thousand) have been awarded to the respondent. Making the amount payable in sum of `7,50,000/- (Rupees Seven Lakhs and Fifty Thousand).
10. In taking the view aforesaid, learned Arbitrator has held that the clause requiring `50,00,000/- (Rupees Fifty Lakhs) to be paid as damages was in the nature of a penalty and thus claim under the clause could not be sustained, requiring damages to be proved, and since none were proved the claim was rejected. `50,000/- (Rupees Fifty Thousand) per month payable after 11 months under the contract was construed as a reasonable pre- estimate of the damages which the respondent would suffer on account of the owner's portion of the building not being constructed and hence the respondent not being in a position to beneficially enjoy the rights therein. The counter claim was rejected holding that the appellant is in default of his obligation under the contract.
11. The obligation of which the appellant was held to be in breach is the term in the contract that the building plans would be got sanctioned by the respondent.
12. Concededly no building plan was got sanctioned.
13. Case of the respondent was that under the law the owner of a plot had to apply to the municipal authorities and the building plan is sanctioned in the name of the owner. The case of the respondent was that his obligation was only to sign the necessary documents and that the preparation of the documents, their submission and follow up action till the plans were sanctioned was the responsibility of the appellant.
14. The learned arbitrator has returned a finding in favour of the respondent.
15. The view taken by the learned arbitrator is correct for the reason whilst it may be true that the owner had to sign the necessary documents to be submitted to the municipal authorities for the building plans to be sanctioned, but under an agreement a third party (in the instant case the appellant) could take over the liability to ensure that the necessary documents were got prepared and submitted the municipal authorities. A very essential part of an application seeking sanction of a building plan is an architect preparing the building plans.
16. The view taken by the learned arbitrator relates to interpreting the terms of the contract and it is settled law that if a term of a contract requires interpretation, unless the interpretation proceeds on a wrong principle of law or is manifestly absurd, an award interpreting the term of a contract would not be interfered by the Court.
17. In that view of the matter the impugned decision passed by the learned Single Judge dated May 09, 2014 is correct in said regard.
18. The only further contention which we need to deal with is whether `50,000/- (Rupees Fifty Thousand) per month payable under the agreement, held by the learned Arbitrator to be a clause reflecting the parties reasonable pre-estimate of the damages required to be paid in case of default was enforceable on its own terms or whether proof of damages was required.
19. With reference to the decision of the Supreme Court in the decision reported as 1969 (2) SCC 554 Maula Bux Vs. UOI where in para 6 it was observed : -
"It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree, and the court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression whether or not actual damage of loss is proved to have been caused thereby is intended to cover different classes of contracts which come before the courts. In case of breach of some contracts it may be impossible for the court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre- estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him."
learned counsel for the appellant argued that the last sentence of the paragraph shows that even where the damages for breach referred to by the parties in their agreement was a reasonable pre-estimate, the same could not be awarded on its own strength if the loss could be determined and the compensation had then to be on proof of the loss suffered.
20. It is trite that to ascertain the ratio of a decision, a stray sentence here and there has not to be picked up. With reference to the facts of the case the ratio has to be identified.
21. As we read paragraph 6 it proceeds to draw a distinction between damages which are a reasonable pre-estimate and damages which are by way of penalty. The latter would require the quantum of loss to be proved. The former would not require the quantum of loss to be proved and it would be sufficient that breach is proved.
22. Let us illustrate with reference to the facts of the instant case. If the builder would have constructed the building within 11 months, the owner would obviously be, without proof of any further fact, entitle to let it out and receive fair rent. The entitlement to a fair rent would not require any fact to be proved. What would be that fair rent could be a matter of a reasonable pre-estimate which the parties could mention in the contract or leave it for evidence to be led. Thus, loss as a jural concept has to be distinctly understood vis-a-vis the quantum of the loss.
23. Even on this aspect of the matter, the view taken by the learned Single Judge that the award suffers from no infirmity has to be upheld.
24. The appeal is dismissed but without any orders as to costs.
(PRADEEP NANDRAJOG) JUDGE (MUKTA GUPTA) JUDGE NOVEMBER 13, 2014/mamta