OMP No.457/2010 Page 1 of 44 * IN THE HIGH COURT OF DELHI AT NEW DELHI Judgment reserved on: 03.08.2010 % Judgment delivered on: 27.09.2010 + O.M.P. No.457/2010 COLUMBIA HOLDINGS PVT. LTD. ..... Petitioner Through: Dr. A.M. Singhvi & Mr. N.K. Kaul, Sr. Advocates with Mr. Amitabh Chaturvedi and Mr. Nikhil Srivastava, Advocates versus S.R BUILDERS LIMITED & ANR. ..... Respondents Through: Mr. Aseem Mehrotra, Advocate CORAM: HON’BLE MR. JUSTICE VIPIN SANGHI 1. Whether the Reporters of local papers may be allowed to see the judgment? : No 2. To be referred to Reporter or not? : No 3. Whether the judgment should be reported in the Digest? : No J U D G M E N T VIPIN SANGHI, J. 1. The petitioner has filed this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short `the Act‟) to seek the setting aside of the arbitral award dated 29.06.2010 made by Mr. Justice R.C. Lahoti, former Chief Justice of India, acting as the sole Arbitrator in relation to the disputes that arose between the parties. OMP No.457/2010 Page 2 of 44 2. The parties entered into an agreement dated 09.05.2001. Under that agreement, the petitioner-claimant agreed to develop and build multiple-storeyed commercial buildings on land belonging to the respondent at their own cost and upon obtaining all the necessary permissions from various authorities. The respondent was to retain 31.25% share in the whole of the constructed property, which the respondent was to be entitled to sell on its own and/or through the petitioner-claimant. The land in question at the relevant time was jointly held by the respondent along with ten other co-sharers. It was the understanding of the parties that the respondent would pursue its partition suit to have its share partitioned and demarcated. 3. Under clause 7 it was mutually agreed that the petitioner shall pay to the respondent (who was described in the agreement as the Second Party), a sum of ` 1.25 crores as refundable security for due performance of the obligations undertaken by the petitioner under the agreement. ` 62.50 lacs was paid by the petitioner by various demand drafts at the time of signing of the agreement. The petitioner agreed to pay a further sum of ` 62.50 lacs within 30 days of receipt of licence from the competent authority. For delay in making the said payment the petitioner was liable to pay interest @ 24% per annum on the said amount. 4. The petitioners (who were described in the agreement as the Second Party) was obliged to apply for change of land use/licence at OMP No.457/2010 Page 3 of 44 the earliest. It was specifically mentioned in clause 7(c) that “Should they fail to obtain this permission for any reason whatsoever within 8 months from the date of agreement/Partition subject to reasons beyond their control then the amount received by the FIRST PARTY will be refunded to the SECOND PARTY without any interest”. It was further agreed that “No liability however will be passed on to the FIRST PARTY for any expenses incurred. In case any amount/fees deposited with the Government/any other authority is refunded to the FIRST PARTY, the same will be returned to the SECOND PARTY within 30 days of the receipt of the same and in the event of any delay beyond this period the FIRST PARTY will pay an interest @ 24% p.a. on the amounts as received. The agreement will come to an end under these circumstances.” 5. Under clause 8 it was agreed that if the licence to develop the said land into a multi-storeyed commercial complex is not granted by the authorities, or the petitioner was not permitted to commence the construction of the said building on the said land as per sanctioned plans or an order is passed by the appropriate authority under Section 269 UC of the Income Tax Act, 1961, the respondent shall refund to the petitioner the amount of ` 62.50 lacs along with any other amount received under the agreement without interest. 6. Under clause 9 of the agreement, the respondent had undertaken to deliver and hand over the actual physical vacant OMP No.457/2010 Page 4 of 44 possession of the entire land to the petitioner simultaneously with the issuance of the letter of intent or NOC from the Income Tax authorities. 7. Clause 10(a) provided that time for completion of the complex was of the essence of the contract. If the petitioner neglected or failed to carry out and complete the work of construction within the period of 30 months from the date of start of construction or within such extended period as may be mutually agreed, then the respondent was entitled to get his share completed at the risk and cost of the petitioner. The petitioner undertook to start the construction within 15 days of the approval of the sanctioned plans. The respondent undertook to supply and provide all documentary evidence required to be submitted to the Director Town and Country Planning (DTCP), Haryana Urban Development Authority or any other authority concerned with the matter. 8. Clause 26 provided that the possession of the land in question once delivered/handed over to the petitioner, for the purpose of the complex being built, shall not be disturbed and they shall not be dispossessed therefrom till the complex is complete. 9. The income tax clearance certificate dated 21.05.2001 was obtained by the respondent. It was provided to the petitioner on 28.05.2001. On 02.08.2001 the respondent executed a power of attorney in favour of Sh. Shravan Gupta, the nominee of the claimants, OMP No.457/2010 Page 5 of 44 whereby wide ranging powers were conferred upon the petitioners to accomplish the execution of the project. 10. On 28.05.2001 the petitioner filed an application in the name of the respondent with the DTCP for grant of necessary licences under the provisions of Haryana Development and Regulation or Urban Area Act, 1975 and the rules framed threunder. The petitioner deposited licence fee to the tune of ` 51,21,500/-. In September, 2000 land acquisition proceedings were initiated by the State of Haryana having a bearing on the land forming subject matter of the agreement. However, the land in question was released from acquisition. On 12.12.2001 the respondent obtained the khatauni taqseem and the same was supplied to the petitioner. The partition documents of the suit property were received finally on 29.09.2003. They were supplied by the respondent to the claimant for being filed before the DTCP. They were filed on 30.09.2003. The mutation documents pursuant to the partition were prepared on 03.11.2003 and they were filed in the office of the DTCP on 10.11.2003. 11. On 24.06.2004 the respondent sent a letter through its director Sh. Brij Bhushan Singla complaining to the petitioner about the delay and defaults in performance of the agreement. The letter was replied to by the petitioners only after their director Sh. Shravan Gupta returned from his foreign trip on 11.07.2004. The allegations made by the respondent against the petitioner were denied. OMP No.457/2010 Page 6 of 44 12. On 14.07.2004 the respondent revoked the power of attorney by a deed of cancellation registered in the office of Sub-Registrar of Deeds. The agreement was also terminated and the termination letter along with the cancellation deed were delivered to the petitioners on 17.07.2004. 13. The petitioners preferred a petition under Section 9 of the Act registered as OMP No.231/2004 in this Court. In this petition, it was the case of the petitioners that the actual physical possession of the land, forming subject matter of the agreement, was delivered by the respondent to the petitioners on 28.01.2002. It was also claimed that the petitioners had paid a further amount of ` 20 lacs in cash to Mr. Brij Bhushan Singla, the Director of the respondent on 09.01.2004. The Court granted an exparte ad interim order of injunction in the aforesaid OMP, whereby the respondent‟s letter dated 15/16.07.2004, and the cancellation deed dated 14.07.2004 were directed not to be given effect to. The Court also directed maintenance of status quo as to possession. 14. The petitioners alleged that the respondent, however, repeatedly attempted to dispossess the petitioners which led to the lodgment of formal police reports. The petitioners also preferred I.A. No.4733/2004 to seek police protection against dispossession and also filed contempt case No.99/2004 in OMP No.231/2004 alleging willful disobedience of the exparte ad interim order passed by this Court. OMP No.457/2010 Page 7 of 44 15. On 15.12.2005, this Court disposed of OMP No.231/2004 leading to the appointment of Hon‟ble Mr. Justice R.C. Lahoti (retd. Chief Justice of India) as the sole arbitrator. The interim order dated 19.07.2004 passed by this Court in OMP No.231/2004 was directed to continue to remain in operation unless vacated or varied by the learned arbitrator. The pending interim applications and contempt petition were also to be looked into by the learned arbitrator. 16. Before the arbitral tribunal the petitioners preferred their statement of claim thereby challenging the action of the respondent in cancelling the power of attorney and terminating the aforesaid agreement. The petitioners, in effect, sought the specific performance of the agreement between the parties. The petitioners also sought damages and other amounts from the respondent for their aforesaid actions. The claim for damages, I may note, was made only in the alternative and the primary relief sought was the enforcement of the aforesaid agreement through specific performance. 17. In their reply, the respondent seriously contested the claim and the stand of the petitioners that actual physical possession of the land had been delivered to the petitioners on 28.01.2002. The respondent contended that it was in actual physical possession of the land in question. The respondent also seriously disputed the alleged payment of ` 20 lacs claimed to have been made in cash to the respondent by the petitioners on 09.01.2004. It was alleged that the OMP No.457/2010 Page 8 of 44 petitioners had interpolated in the memorandum of confirmation dated 28.01.2002 executed by the respondent in token of acknowledgement of receipt of the payment of ` 62.50 lacs by inserting the words “we do confirm the above statement and confirm delivery of possession of land on 28.01.2002”. It was also pleaded that the signatures of the Director of the respondent Shri Brij Bhushan Singla on the receipt dated 09.01.2004 of Rs. 20 lakhs was not genuine. 18. The stand of the respondent was that upon the partition of the land in question being carried out by Tehsildar/Assistant Collector, Gurgaon on 29.09.2003 the partition orders/documents were immediately made available to the petitioners on 30.09.2003. From 30.09.2003 the 8 months‟ time, as stipulated in clause 7(c) of the agreement commenced and the same expired on 31.05.2004, but the petitioners did not take any action of whatsoever nature by that date to obtain the requisite licence. Consequently, the respondent served a noticed dated 24.06.2004 pointing out the failure on the part of the petitioner in obtaining the licence/LOI as time was of the essence of the agreement. The reply sent by the petitioners on 12.07.2004 was evasive and devoid of explanation for the continuous delay, and did not meet the respondent‟s grievance contained in notice dated 24.06.2004. Consequently, by letter dated 15/16.07.2004 the respondent terminated the agreement and cancelled the power of attorney in favour of the petitioners. OMP No.457/2010 Page 9 of 44 19. The respondent also filed a counter claim to seek recovery of ` 73.20 crores as loss of income caused to the respondent by the inaction of the petitioners. 20. On the basis of the pleadings before the learned tribunal, the tribunal framed the following issues: “1. Whether the termination letter dated 15/16.07.2004 issued by the respondent to the claimants is legal and valid? 2. Whether the respondent could cancel and/or revoke the registered power of Attorney dated 02.08.2001 executed by the respondent in favour of the claimant‟s nominee? 3. Whether the registration of the Cancellation Deed dated 14.07.2004 executed by the Director of the Respondent company is valid and legal? 4. Whether the Respondent could terminate/cancel/revoke the Agreement dated 09.05.2001 in view of the negative covenants i.e Clause 25,26,32 and 37(b) in the agreement dated 09.05.2001? 5. Whether the Claimants are entitled to damages as claimed in the Claim Petition for illegally terminating the agreement dated 09.05.2001 and the Power of Attorney dated 02.08.2001? 6. Whether the Respondent had handed over possession of the land in dispute to the Claimant on 28.1.2002 as alleged in the Memo of Confirmation dated nil? 7. Whether the Receipt dated 09.01.2004 is a genuine document having been signed by Brij Bhushan Singla?” OMP No.457/2010 Page 10 of 44 21. The parties agreed to lead their oral evidence by filing examination-in-chief statements on affidavit, with liberty to the opposite party to conduct cross-examination. On the part of the petitioners/claimants four witnesses were examined, which included Mr. Rajiv Gupta (CW-1), the chartered accountant authorized by the petitioners to depose on their behalf. He was in regular employment of the petitioner No.1 company and was with the petitioner group of companies for about 15 years. On behalf of the respondent Sh. Brij Bhushan Singla appeared as RW-1 apart from three other witnesses. 22. The arbitral tribunal took note of the fact that Sh. Shravan Gupta, who was signatory to the agreement in question on behalf of the petitioner, and who figured almost at every material stage of the events which intervened between the commencement of the deal and leading upto the termination/cancellation followed by initiation of legal proceedings, did not depose before the arbitral tribunal without any justification or explanation. Even Sh. Rajiv Gupta, CW-1, who appeared as the claimants witness many times pleaded ignorance about facts pertaining to the transactions which had taken place by or in the presence of Sh. Shravan Gupta. The arbitral tribunal held that upon marshalling of the evidence on several issues and particularly on issue Nos.6 & 7, it appeared that Sh. Shravan Gupta could only have deposed and lent support to strengthen the case of the claimants. The failure of Sh. Shravan Gupta to appear before the arbitral tribunal as a OMP No.457/2010 Page 11 of 44 witness and depose in favour of the petitioners/claimants was held to be fatal to the case of the claimants. 23. The tribunal also held that since the petitioners/ claimants were claiming the relief of specific performance under the Specific Relief Act, to claim the said discretionary relief, it was essential for the claimants to establish their continuous readiness and willingness to perform their part of the obligations under the contract from the date of agreement till upto the date of claim, and in the absence of such proof the claim would be refused in the exercise of discretionary jurisdiction governing the grant of such relief. 24. The tribunal also noted that the interim order passed by this Court, directing maintenance of status quo as to possession and also, in effect, staying the termination of the agreement and cancellation of the power of attorney were relevant factors in the light of the fact that the petitioners/claimants were not prohibited from pursuing the application for grant of licence before the DTCP. The fact that the petitioners had failed to show that they had pursued the application for obtaining the licence (to demonstrate their continuous readiness and willingness to perform their obligations under the agreement) showed their lack of commitment to fulfill their undertaken obligations. 25. While discussing issue No.1, the arbitral tribunal, in paragraph 41, of the award has concluded that the time was of the essence of the contract in the light of the nature of the transaction and OMP No.457/2010 Page 12 of 44 the terms thereof. The tribunal returned a finding that the accusation of the petitioners that the respondent was responsible for the delay was not correct. On the contrary, it was found that the respondent acted with promptitude in providing all the relevant documents to the petitioners. The tribunal also returned the finding that the petitioners rendered no effective help in expediting the partition proceedings which were pending in Haryana. Another finding returned by the tribunal on the basis of various letters issued from the office of DTCP is that the petitioners were not attending to the hearings held by the DTCP. Despite the delivery of the mutation papers in respect of the land in question to the petitioners/claimants on 10.11.2003, the petitioners failed to obtain the licence or even the LOI from the office of DTCP even till the date of issuance of the notice dated 24.06.2004 or the termination notice dated 15/16.07.2004. The tribunal concluded that the petitioners/claimants were not able to fulfill their part of the agreement within the time granted under the contract and they were in breach of the agreement. Yet another finding returned by the tribunal on the basis of the evidence before it was that the petitioners/claimants could not claim to be continuously ready and willing to perform their part of the agreement upto the date of commencement of the dispute. Even after commencement of the dispute, the petitioners showed no inclination to enforce the agreement, as despite the stay of the cancellation of the power of attorney and termination of the agreement, the petitioners did not OMP No.457/2010 Page 13 of 44 pursue their obligation to seek grant of licence from the concerned authorities. In the light of the findings returned on issue No.1, the tribunal decided issue Nos.2 to 5 in favour of the respondent. 26. Issue Nos.6 & 7, as it appears from the impugned award, were extremely crucial. After a detailed examination of the evidence brought on record by the parties and after a close scrutiny of the documents in relation to which there were serious disputes between the parties in the light of the respondents‟ allegations of interpolation of the documents by the petitioner, the tribunal returned findings of fact to the effect that the respondent had not confirmed delivery of possession of land on 28.01.2002 and that the respondent had, in fact, not delivered possession of land in question to the petitioners at any point of time. The tribunal has also returned a finding of fact that the alleged payment of ` 20 lacs set up by the petitioners was untrue. The arbitral tribunal, therefore, disallowed the claim made by the petitioners/claimants. However, the tribunal awarded in favour of the petitioner, an amount of ` 62.50 lacs with interest calculated @ 12% per annum w.e.f. 16.07.2004 till the date of payment. The other directions made by the tribunal read as follow: “(ii) (a) The Respondent shall, within a period of one month from today opt and decide whether he wants to proceed further with the application for grant of license and if that be so then the Respondent shall serve a notice in writing on the Claimants asking for all the papers relating to the application including the OMP No.457/2010 Page 14 of 44 receipts and photo copies of the DDs deposited by the Claimants with the DTCP and all the papers shall then be handed over by the Claimants to the Respondent and the Respondent shall within 15 days reimburse the Claimants to the extent of Rs.51,21,500/-. (b) If the Respondent does not wish to proceed with the application, then within one month from today the Respondent shall inform the Claimants accordingly, and either within 15 days obtain refund of the amount and pass on the same to the Claimants or else, execute a power of attorney in favour of a nominee of the Claimants authorizing him to receive the refund from the DTCP for an on behalf of the Respondent. The amount so received back by the Attorney need not be passed on to the Respondent and shall be available to appropriated by the Claimants towards the money invested by them in payment of the license fee. (c) In case of default of the Respondent in compliance with any of the directions above said the amount of Rs.51,21,500/- shall carry interest @ 12% p.a. w.e.f. 45 days after the date of this Award. (d) In either case, the undertaking given by Claimants to DTCP in support of application for license shall stand discharged.” 27. The submission of learned senior counsel for the petitioners primarily is that the various findings of fact returned by the arbitral tribunal are not borne out from the record or the evidence led before the tribunal. It is argued that material evidence had been withheld from the arbitral tribunal by the respondent, namely, the OMP No.457/2010 Page 15 of 44 communication sent by the respondent to DTCP dated 20.07.2004 asking DTCP to keep the licence application on hold till further notice. It is argued that after the issuance of the said letter there was no question of the petitioner being in a position to pursue the licence application. It is further submitted that DTCP vide its letter dated 28.12.2005 returned the licence application to respondent No.1. However, this fact was suppressed by the respondent from the arbitral tribunal. Therefore, the findings of the arbitral tribunal that petitioners had not exhibited their readiness and willingness to fulfill their obligations under the agreement, after stay of the cancellation of power of attorney and termination letter, is unjustified. 28. It is also argued that the delay was due to the partition document being handed over by the respondent No.1 to the petitioner only on 10.11.2003 and the suit land being under acquisition, which was denotified only on 16.04.2004. It is argued that the acquisition proceedings were beyond the control of the petitioners and the delay caused thereby could not be attributed to the petitioners. The prescribed time of 8 months started only on 16.04.2004 i.e. when the land was denotified from acquisition. However, the agreement was terminated by the respondent on 15/16.07.2004 i.e. within three months. The respondent did not even wait for the expiry of 8 months period from the date of denotification of land from acquisition. It is argued that the arbitral tribunal has ignored the statutory provisions contained in Section 3 of the Haryana Development and Regulation of OMP No.457/2010 Page 16 of 44 Urban Areas Act, 1975 and Rule 8 of the Haryana Development and Regulation of Urban Areas Rules, 1976, which provides that the applicant is required to show, inter alia, its clear title of land and extent and situation of land. It is argued that the observation, that the petitioner had failed to provide supporting documents in respect of its submission that the disposal of licences application by DTCP was due to non-finalisation of the partition proceedings, is in the teeth of the aforesaid facts and statutory provision. 29. The finding of the arbitral tribunal that Sh. Bhupender Singh of the petitioners made no positive contribution in expediting the partition proceedings is also challenged on the ground that it was the obligation of respondent No.1 to get the land partitioned, as it was respondent No.1 who was the co-owner of the suit land forming part of the larger holding. It is argued that Sh. Bhupender Singh attended the partition proceedings which shows the commitment of the petitioners for performance of the agreement. It is argued that no suggestion was given to Sh. Bhupender Singh (CW-2) that he did not make any contribution in expediting the partition proceedings. It is further argued that the finding that the petitioners were not ready and willing to perform their obligation under the agreement is contrary to the facts that the petitioners had paid ` 62.50 lacs to the respondent No.1 at the time of execution of the agreement; they had filed the licnece application on 28.05.2001; they had paid licence fee of ` 51.21 lacs to DTCP; the partition papers were filed immediately with DTCP on OMP No.457/2010 Page 17 of 44 10.11.2003 itself without any delay; the petitioners paid a sum of ` 20 lacs to respondent No.1 on 09.01.2004; the petitioners vigorously