M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES PVT. LTD

Citation: [2003] SUPP. 4 S.C.R. 385

Court: Supreme Court of India

Bench: V.N. KHARE, BRIJESH KUMAR, S.B. SINHA

Judgment text

M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES PVT. LTD. OCTOBER 8, 2003 [V. N. KHARE, CJ. , BRIJESH KUMAR AND S. B. SINHA, JJ. ] Arbitration : Arbitration Act, 1940 : Section 4l(b) proviso-Interim order-Passing of-Powers of Arbitrator-Held: Arbitrator does not have power to pass an interim order in the absence of any specific agreement in relation thereto. Section 30-Award-Misconduct by Arbitrator-Setting aside of award-Arbitrator refused to consider provisions ofcontract dealing with rights and liabilities ofparties-Held: Such a conduct amounted to legal misconduct on the part ofthe Arbitrator-Hence, award liable to be set aside.

Section 30-Award-Error apparent on the face ofaward-Setting aside of award-Disputes and differences between the parties were required to be determined as on a particular date-But the Arbitrator took into consideration subsequent conduct ofthe parties-Held : Subsequent conduct ofparties was wholly irrelevant-Hence, there existed an error apparent on the face ofthe award-Therefore, award liable to be set aside. Section 30-Award-Damages-Held : Liability to pay damages must arise out of contract and not otherwise-Since the award did not specifically say so parties not entitled to award ofdamages. Arbitration and Conciliation Act, 1996 : Section 17-Power ofArbitrator-Held: Is a limited one-Arbitrator could not issue any direction which would go beyond the reference or arbitration agreement-Interim order could only relate to the parties to the dispute and not to other parties.

Contract Act, 1872 : Section 73-Damages-Army Welfare Housing Organisation (AWHO) entered into a contract with a builderfor construction ofhousingproject- .... Builder had no legal liability to get the building plans sanctioned- However, builder merely assisted AWHO in getting the plans sanctioned- Liability ofbuilder-Held: Builder had incurred no liabilities under law. Section 56-/mpossibility tofulfil contract-Frustration ofcontract- Damages-Army Welfare Housing Organisation (AWHO) awarded contract for construction of housing project-Municipality ordered stoppage of work in 617 blocks-Contractor complied with such stop.

,-work order- Liability ofcontractor-Held : Assuming the contractor could carry out some job and might be partially liable yet he could not be faulted when he refused to undertake any constructional work in violation ofstop-work order-Moreover, there was no material to prove alleged self-induced frustration on the part of the contractor-There was also no collusion between the Municipal authorities and the contractor in getting the work stopped-Hence, contractor not liable for any damages. Constitution ofIndia, 1950 : ·Article 136-Plea-New Plea-Award-Appeal against-One ofthe parties to arbitration raised a plea before the Supreme Court that the other party had unjustly enriched. itself-Such a plea not raised before the arbitrator-Held : A new plea could not be raisedfor the first time before the Supreme Court-Practice and procedure. The appellant entered into an agreement with the respondent for development of land and construction of a composite housing project on a turnkey basis.

Considerable progress was made in the construction of work in Phase 1. Despite the fact that no building plan was filed or sanctioned for Phases II and III, the respondent, on the instruction of the appellant, proceeded with the construction of Phase II. But the municipal authorities directed to stop work in 617 blocks. The respondent, therefore; stopped further construction activity which resulted in the appellant's termination of its contract with the , respondent " M. D. , ARMY WELFARE HOUSING ORGANISATION'" SUMANGAL SERVICES P. LTD. 387 The respondent filed a civil suit for injunction which was refused. In appeal, the High Court ordered the parties to maintain status quo. In appeal, this Court referred the disputes between the appellant and the respondent for adjudication by an Arbitrator. The appellant and the respondent filed an application before the Arbitrator for passing of an interim award regarding certain matters.

The Arbitrator passed an interim order of injunction and subsequently an award was filed before this Court. Hence the appeal. On behalfof the respondent, it was contended that the Arbitrator. had no power to pass an interim award under Section 4l(b) of the Arbitration Act, 1940; that failure of the Arbitrator to consider provisions of the contract amounted to misconduct by the Arbitrator under Section 30 of the Act; that as the building plans were not sanctioned by the statutory authorities the contract was frustrated under Section 56 of the Contract Act, 1872; and that the finding of the • Arbitrator that the frustration was a self-induced one was not based on any materials. Disposing of the appeal, the Court HELD: I. I. An Arbitrator had no jurisdiction to pass the interim order under the Arbitration Act, 1940 in the absence of any specific agreement in relation thereto.

The Arbitrator by an interim order could not have placed the parties to a situation which would travel beyond the subject ofdisputes and differences referred to the arbitration. As no claim and counter-claim had been filed before the arbitrator, the arbitrator was not even aware of the nature of claims of the parties. He neither found any prima facie case nor balance of convenience for passing the said interim order. Furthermore, an arbitrator is bound by the terms of reference. [416-F, G] 1. 2. The jurisdiction of the arbitrator being confined to the four corners of the agreement, he can only pass such an order which may be the subject-matter of reference. [416-H, 417-A) I. 3. In the instant case, the interim award was not passed with the consent of the parties. If the arbitrator has no jurisdiction to pass an interim order, even by consent no such jurisdiction could be conferred. (416-A, BJ United Commercial Bank Ltd. v. Their Workmen, AIR (1951) SC 230 and Hakam Singh v. Mis.

Gammon (India) Ltd. , AIR (1971) SC 740, relied on. Hiscox v. Outhwaite, (1991) 2 Lloyd's Law Reports 1, referred to. 2. 1. It is well-settled that for the purpose of obtaining an interim order a party to the arbitration proceeding during pendencyofan arbitral proceeding can only approach a court oflaw in terms of Section 41(b) of the Arbitration Act, 1940 and not otherwise. (418-C-D] 2. 2. In the instant case, Section 41(b) proviso has no application as the arbitrator was not vested with such power. [418-G] Morgan Stanley Mutual Fund v Kartick Das, (1994] 4 SCC 225, Union ofIndia v. Raman Iron Foundry, (1994] 2 SCC 231 and Mis. H. M· Kamaluddin Ansar:i v. Union ofIndia, (1983) 4 SCC 417, relied on: .. Indrajit Sinha v. B. L. Rathi, AIR (1984) Cal. 281 and Debendra Nath Singha v. Dwijendra Nath Singha, AIR (1970) Cal. 256, approved. 3. Even under Section 17 of the Arbitration and Conciliation Act, 1996 the power of the arbitrator is a limited one.

It cannot issue any direction which would go beyond the reference or the arbitration agreement. Furthei:more, an award of the arbitrator under the 1996 Act is not required to be made a rule of court; the same is enforceable on its own force. Even under Section 17 of the 1996 Act, an interim ·order must relate to the protection of the subject-matter ofdispute and the order may be addressed only to a party to the arbitration. It cannot be addressed to other parties. Even under Section 17 of the 1996 Act, no power is conferred upon the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof. The said interim order of the arbitrator, therefore, being coram non judice was wholly without jurisdiction and, thus, a nullity. [420-G, H, 421-A, BJ M. D. , ARMY WELFARE HOUSING ORGANISATION 1·. SUMANGAL SERVICES P. LTD. 389 Kiran Singh v. Chaman Paswan, AIR (1954) SC 340(6), Srimathi Kaushalya Devi v. Shri K. L. Bansal, [1969] 1 SCC 59, Union of India v.

Tarachand Gupta, (1971) 1 SCC 486, Sushi/ Kumar Mehta v. Gobind Ram Bohra, (1990) l SCC 193 and Smt. Kanak v. UP. Avas Evam Vikas Parishad, (2003) 7 SCALE, relied on. 4. 1. An award made pursuant to an order which has been passed without jurisdiction necessarily must be held to be a nullity. Refusal on the part of the arbitrator to consider the effect of clause 130 of the agreement would amount to a legal misconduct. In the facts and circumstances of the case, it was incumbent on the part of the arbitrators to apply "due diligence" clause contained in clause 129(e) of the agreement, more cautiously. They were further required to consider as to whether "due diligence" clause be applied where the alleged violation ofcontract was only in relation to a small part thereof. The arbitrators were, in law, bound to consider the relevant provisions of the contract and in particular those which deal with the rights and liabilities of the parties. (423-D-E) 4. 2.

The above aspect of the matter has not been taken into consideration by the arbitrators while making the award. Thus, they failed to take into consideration a relevant fact. [423-F] . Steel Authority of India Ltd. v. J. C. Budharaja, Government and Mining Contractor, (1999) 8 SCC 122, Shyama Charan Agarwala v. Union ofIndia, (2002] 6 SCC 201, Mertens v. Home Freeholds ,:;o. Ltd. , (1921) All ER 372, Bharat Coking Coal Ltd. v. Mis. Annapurna Constructed, (2003) 7 SCALE 20, Alopi Parshad & Sons Ltd. v. Union ofIndia, [1960) 2 SCR 793, Heyman v. Darwin, (1942) 1 All ER 327, Association Engineeringv. Govt. ofA. P. , [1991) 4 SCC 93, State ofOrissa v. Dandasi Sahu, (1988) 4 SCC 12, K. P. Poulose v. State ofKera/a, [1975) 2 SCC 236, K. V. George v. The Secretary to Government, Water and Power Dept. , (1989) 4 SCC 595, Satish Kumar v. Surinder Kumar, AIR 0 (1970) SC 833, Union of India v. Jain Associates, [1994) 4 SCC 665, Sikkim Subba Associates v.

State ofSikkim, (2001] 6 SCC 629, Maharashtra State Electricity Board v. Sterilite Industries (India), [2000) 8 sec 482, W. B. State Warehousing Corporation v. Sushi! Kumar Kayan, (20021 5 sec 679, Bharat Coking Coal Ltd. v. L. K. Ahuja & Co. , [2001) 4 sec 86 and /spat Engineering & Foundary Works, B. S. City Bokaro, (2001) 6 sec 347, referred to. Continental Construction Co. Ltd. v. State ofMP. , (1988) 3 SCC 82, cited. Halsbury 's Laws of England, 4th Edn. , Mustill and Boyd "Commercial Arbitration" p. 598, referred to. 5. 1. Before the arbitrators a question arose as to whether certification ofan architect as regard estimated cost of completion was a condition precedent for determination of the quantum of damages. Construction of clauses 129 and 130 having regard to the fact situation obtaining herein was mandatorily required to be considered by the arbitrators. They could not have simply ignored the same on t~e premise that an interim order has been passed by the arbitrator.

An arbitrator cannot be equated with a court of law. Whereas a court has an inherent power, an arbitrator does not have. It is a tribunal of limited jurisdiction. Its jurisdiction is circumscribed by the terms and reference. An arbitrator can act only within the fou~ corners of the agreement and not beyond thereto. [426-G, H, 427-A) 5. 2. This Cotirt cannot sit in appeal over the award ofthe arbitrator but can certainly interfere when the award suffers from non-application of mind or when relevant fact is ignored or irrelevant fact not germane for deciding the dispute is taken into consideration. [428-A, BJ 5. 3. Where an order has been passed without jurisdiction, the principles of estoppel have no application. There is no estoppel against statute. The award, therefore, suffers from legal misconduct on the part of the arbitrator. [428-B, C] .. {,' . :···. -,. r Union of India v. Mis. V. Pundarikashudu and Sons, (2003) ·7 SCALE 323, referred to. 6. 1.

Moreover, Clause 130 of the contract casts a burden upon an architect to estimate· the damages when a risk and cost clause is invoked against the contractor. It is possible to hold that the invocation of arbitration clause would be subject to exercise of the jurisdiction by M. D. , ARMY WELFARE HOUSING ORGANISATION 1•. SUMANGAL SERVICES P. LTD. 39l the architect as a demand has to be made upon the contractor depending on such estimate made by the architect. (430-A-B) 6. 2. Thus, the arbitrator could not have ignored the role of the architect in terms of clause 130 of the agreement only on the ground that the appellant had permitted to raise construction, pursuant to or in furtherance of an interim order. Non-consideration of the said . clause in proper perspective by the arbitrator would amount to a legal misconduct on his part. (430-H, 431-A] Heavy Electricals (India) Ltd v. Pannalal Devchand Masviya, AIR (1973) MP 7, South India Rly. Co. Ltd v. S. M Bhashyam Naidu, AIR (1935) Mad.

356; Bristol Corporation v. John Aird & Co. , (1911-13) All ER 1076, Hieman & Co. v. Roberts, (1911-13) All ER 1485 and R. v. Architects' Registration Tribunal ex P. Jaggar, (1945) 2 All ER 131, referred to. Hudson's Building and Engineering Contracts, p. 243 and G. T. Gajria 's Law Relating to Building andEngineering Contracts in India, 4th Edn. , p. 563, referred to. 7. 1. Merly because of the fact that some role had been attributed to the respondent in the matter of getting the building plan sanctioned it would not lead to the respondent incurring any liability under clause 130 of the agreement. [430-D] 7. 2. The building plans would have been sanctioned provided the same were in accordance with the statutory building rules. Ifadmittedly the plans as also the constructions were not in terms of rules, the question ofgetting them sanctioned by a statutory authority would not arise. Such a contract, it is reiterated, would be illegal.

Principle of estoppel will have no application in relation thereto as that part of the agreement itself would not be enforceable. In the event, however, the builder was merely required to take follow-up action in the matter with the authorities, the contract may be valid but in that event it must not only be pleaded and proved that there existed an agreement in that behalf, but also to how and to what extent the builder failed to perform its part of the contract. [438-G, H 439-A, B] lmmami Appa Rao v. Gollapallil Ramalilngamurthi, [1962) 3 SCR 739 and Kuju Collieries Ltd. v. Jharkhand Mines Ltd. , AIR (1974) SC 1892, referred to. 8. The liability to pay damages must arise out of contract and not otherwise. The award does not specifically say so. (439-E) B. 9. 1. The respondent cannot be said to have committed any illegality in complying with the stop-work notice.

Assuming the respondent could have carried out some job it might have been partially liable; but cannot be faulted when it refused to carry out any constructional work in violation of the stop-work notice which would attract the penal provisions of Section 440 of the West Bengal Municipal Act, 1993. [440-D, E] Hauman v. Nortje, (1914) A. D. 293 and Hoenig v. Issacs, (1952) 2 All ER 176, referred to. H. WR. Wade : "The Principle of Im1ossibility in Contract", Law Quarterly Review Vol. 56 p. 519, Emden and Gill: "Buildings Contracts andPractice" 7th Edn. , pp. 162-163 andHudson's Building andEngineering Contracts, p. 484, referred to. 9. 2. There is no material to show that there had been collusion by and between the respondent and the municipal authorities in getting the work stopped. There exists a presumption as regard the official transactions having been done in regular course of business.

The onus of proving that plea offrustration was a self-induced one is on the party who alleges that this is the case. (442-B, CJ Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd. , (1942) A. C. 154, referred to. Treitel: "Law of Contract" 7th Edn. , p. 701 and Cheshire, Fifoot & Furmston : "Law of Contract" 14th Edn. , p. 643, referred to. 10. The disputes and differences between the parties were required to be determined as on a particular date. The conduct of the parties ' subsequent thereto was wholly irrelevant. Thus, there exists an err~r apparent on the face of the aW&rd. [444-E) · .. M. D. , ARMY WELFARE HOUSING ORGANISATION'" SUMANGAL SERVICES P. LTD. 393 11. 1. Liability to pay damages would indisputably arise only in the event a breach of contract has taken place.

Clause 130 of the general conditions of the contract could be invoked only in the event of breach on the part of the respondent and if the appellant could in law take recourse to clause 129 of the contract. [444-FJ 11. 2. For the purpose of invoking clause 129(d) of the general conditions of contract, it was incumbent upon the arbitrators to arrive at a specific finding that a breach of the terms of condition has been committed by the respondent. Such a breach must be in relation to term of the contract between the parties. [444-GJ 11. 3. If a breach has occurred in respect of an agreement, to which the respondent is not a party, clause 129 could not have been invoked. [444-H] Clark v. Woor, (1965) 1 W. L. R. 650 and East Ham Borough Corporation v. Bernard Sunley & Sons Ltd. , (1966) AC 406, referred to. McGregor on Damages,'16th Edn. , paras. 1142 and 1143, Hudson's Building and Engineering Contracts, pp. 1034-35 and Emden and Gill : "Buildings Contracts and Practice" 7th Edn. , p.

267, referred to. 12. The plea that the appellant had unjustly enriched itself was not raised before the arbitrators. Such a plea connot, therefore, be raised for the first time before this Court. [448-H, 449-AJ CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1725 of 1997. From the Judgment and Order dated 28. 3. 96 of the Calcutta High Court in F. M. A. T. No. 691 of 1996. Arvind Kumar Tewari for the Appellant. K. N. Bhat, P. R. Agarwal, Pramod Dayal, Piyush Sharma and R. Anand Padmanabhan for the Respondent. The Judgment of the Court was delivered by S. B. SINHA, J : Questions ofsome importance arise for consideration in this application filed by the respondent-herein under Sections 30 and 33 of the Arbitration Act, 1940 questioning an award dated 29. 4. 2002 passed by three learned arbitrators appointed by this Court. BACKGROUND FACTS: Army Welfare Housing Organization (for short 'AWHO') and Sumangal Services Pvt. Ltd.

(for short 'Sumangal') entered into an agreement for development of land and construction of a composite housing project on a tum-key basis on approximately 17. 9 acres of land situate on the VIP Road, in the town of Kolkata. For the said purpose a draft agreement initially drawn up was given finality by Articles of Agreement dated 28. 8. 1993. Certain terms and conditions, however, had been altered therein with mutual consent. The project was envisaged to be completed in three phases. Considerable progress was made in the matter of construction of work in Phase I. The plots where the said work was being carried out fell under the local administration of Gopalpur Arjunpur Gram Panchayat. The building plan for Phase I was sanctioned by the said Gram Panchayat in September, I991 in terms whereof I I blocks ofhouses could be constructed. The said area, however, became a municipality in terms ofthe West Bengal .. Municipal Act, 1932 known as Rajarhat Gopalpur Municipality.

West Bengal Municipality Act, 1932, however, was repealed and replaced by West Bengal Municipal Act, I993. It is not in dispute that pursuant to or in furtherance of the said agreement Sumangal entered into negotiations with the owners of the agricultural lands for sale thereof wherefor sale deeds in respect of 2. 32 acres ofland were executed by the owners in favour ofAWHO. Sumangal received the. am0tmt for consideration from AWHO paid to the owners upon furnishing a Bank guarante~ also subject to the condition that it will get the said land converted into Bastu. Lands measuring about 13 acres had already been converted into Bastu. On or about 8. 12. J 994, an application was made by AWHO for modifications or revisions in the Master Plan wherefor a revised Master M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, I.

) 395 Plan was submitted for approval of the Municipality stating: "Tel: 30I0820 Army Welfare Housing Organisation South Hutments, Kashmir House, Rajaji Marg, New Delhi-I 10011 B/03020/CAL-II/AWHO 8 Dec 94 The Chairman, Rajarhat Gopalpur Municipality Raghnunathpur, Calcutta-700059 SUBMISSION AND FINAL APPROVAL OF PLAN FROM MUNICIPAL AUTHORITY Dear Sir, I . This is to bring to your kind notice that our organization has undertaken the construction of "Own your own House" housing project for the benefit of our Defence Personnel at no Profit no Loss basis. We have engaged Mis Dulal Mukherjee & Associates as consulting Architect for the project. 2. As per demand/requirements for the housing for Army personnel, our Architect made a Master Plan of the project and also plans for 04 types of Dwelling Units (05 Storyed) which were approved by the Gram Panchayat vide Sanction No. 181191 dated 18 Sep. 91. 3. In this connection we would like to mention that due to site · constraints and also.

to meet t~e de. mand fo~ ~ousing among· Army personnel, mmor Mod1ficat1ons/Rev1s1ons have been made to the Master Plan and also to the Individual Dwelling Units which were sanctioned earlier. 4. We are submitting herewith the revised Master Plan and also individual Plan for Dwelling Units (Additions and Alterations) for your approval. We therefore make an appeal to your goodselfto kindly give special consideration to our plan and approve the same at the earliest. ' Yours faithfully, (Raghu Nandan) Brig (Retd) DT& DY MD For Managing Director" Such permission was granted only on 9. 3. 1995. According to Sumangal, despite the fact that no builqing plan was filed or sanctioned for Phase II and Phase Ill but as per instruction of WHO it proceeded with the construction ofPhase II. Such an application was filed for the first time on 19. 5. 1995. It stands admitted that the D~ proposed height of the towers was more than the permissible one. The municipal authorities vide its letter dated 23.

5. 1995 directed stoppage of work in six/seven blocks ··where allegedly unauthorized construction was being carried out stating: "We came to learn that some 8 blocks of 5 storied buildings were approved by erstwhile panchayat before the origination of the above municipality. After the birth on 13. 01. 94 as per norms of W. B. M. Act '93 and Calcutta Gazette, new plans if any, or construction job if any, has to be approved of by this Municipal Authority. We learnt some additional 6/7 blocks are being constructed at your VIP project for which no plan was submitted to the Engineering Division of this office for approval. This is a gross violation of W. B. M. Act '93 and '79 T & C Development Planning Act. It is further learnt that the 7/8 blocks constructed by you on the basis of the plan sanctioned by erstwhile panchayet has also been severely deviated from actuality-which is also punishable under the law. M. D. , ARMY WELFARE HOUSING ORGANISATION 1·. SUMANGALSERVICES P. LTD. [SINHA, J.

] . 397 We strongly believe that an esteemed organization like you, will not indulge in such illegal activities and refrain from all such unapproved/unauthorized works. " Sumangal thereafter sought advice of AWHO by a letter dated 24th May, 1995 pointing out therein that if any construction activity is carried out despite objections ofLocal Authority, persons involved would be liable for punishment both under criminal as well as civil law. It reiterated the said stand by a letter dated 25th May, 1995 drawing AWHO's attention to the. provisions of Sections 204, 214 and 440 of the West Bengal Munic'ipal Act, 1993 and requesting it for its response also to its earlier letter dated 24th May, 1995. Sumangal did not receive any reply thereto / and hence by its letter dated 27th May, 1995 stated: "If clear out instructions are not received from you by 29th May, we shall be compelled to demobilize. Please advise urgently.

We shall be constrained to consider your silence as your agreement to our demobilization. " The engineers of municipality visited the project site a number of times but the sanctioned plan had allegedly not been produced. In the aforementioned situation, the Chairman of the Municipality issued. a letter to the Project Manager, AWHO on 2l. 7. 1995 stating : "Dear Sir, Our engineers have visited your project site number of times and discussed with your engineers about the drawing, design and other infrastructurals projects placed before them. The undersigned also took the opportunity to meet with you and talk to your Mis Dula! Mukherjee & Associates where we have inter changed our views and the norms of Municipal Rules & Regulations. Our engineer has been asking you for the erstwhile panchayat recommended plan by which you have constructed already 8-9 blocks. All the time he has come back without result.

You would appreciate that without a plan already approved by erstwhile panchayat, we can not check/judge the present position ' ', ', ,. or th~viability of yo~r project. Bene~ ihe q~;~iion of you~ infrastructural development like construction ofRoad, Drains etc. does nqt arise, at al/. {Jt the 11J,Oment. · We would request you fervently to submit the panchayat ~ B . •'. ··· recommended plan on the basis ofwhich we will proceed further. Thanking you" (Emphasis supplied) In the meantime the architect and the project engineer ,of AWHO met the Chairman of the. Municipality and it was allegedly agreed that the work need not be stopped in the buildings for which the plans have aiready been approved. Sumangal, therefore, was advised not to stop the work for which plans have already been approved. (See letter of AWHO to Sumangal dated 27. 5. 1995).

AWHO by their letters dated 25th July, 1995 and I Ith August, 1995 advised Sumangal to reorganize and recommence its work by employing sufficient strength of labour and bringing the required material to site by I Ith September, 1995 to ensure thatthe progress ofthe work is substantially increased. Itwas threatened thatifsuitable action is not taken in this behalf by Sumangal AWHO may be compelled to take action under clause 129(e) of the Contract. It appears that Sumangal replied thereto by its letter dated 14th August, 1995. In its response to the said letter dated 14th August, 1995, AWHO drew the attention of Sumangal to the fact that there are certain types of work which would not come within the purview ofthe stop work notice by the Municipality and as such the same could have been carried out. It was stated: "...

You are again advised to reorganise your work by employing sufficient labour and bringing in the req1,1ired material to ensure that the pro~ess ofthe work is substantially increased by 15 Sep 95 failing which AWHO may be compelled to take action under clause 129 (e) on page 176 of Contract Agreement. This is without prejudice to any other right or remedy which shall have accrued or shall accrue to the Organisation. " M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. (SINHA,J. ) 399 Some correspondences thereafter passed between the parties and by its letter dated 10th October, 1995 AWHO ultimately cancelled the contract with effect from 17th October, 1995. A civil suit was filed by Sumangal before the 1st Assistant District Judge at Barasat being suit No. 867 of 1995 praying for a declaration that the contract was void. Certain consequential reliefs were also prayed therein in relation to the said termination of contract.

· An application purported to be under Section 20 of the Arbitration Act, 1940 was filed by the AWHO before the Delhi High Court which was marked as Suit No. 2442 of 1995 for appointment ofan arbitrator in terms of the arbitration agreement contained in Clause 136 of the general terms and conditions of the contract. In the said civil suit Sumangal prayed for an order ofinjunction which was refused whereagainst an appeal was preferred in the High Court of Calcutta and by reason ofan interim order dated 28. 3. 1996 the parties were directed to maintain status quo. A SLP was filed by AWHO against the said order. This Court in the said S. L. P. , however, without going intq the correctness or otherwise of the interim order dated 28. 3 . 1996 of the High Court passed the following order: "Leave granted. This appeal calls in question the order of the High Court of Calcutta dated 28. 3. 1996.

In view of the developments which have taken place in this Court, it is not necessary to refer to the detailed facts of the case. Admittedly, disputes and differences have arisen between the parties and those are pending adjudication in the Court ofthe First Assistant District Judge, Barasat (Title Suit No. 867 of 1995) and in the High Court of Delhi (Suit No. 2442 of 1995). It is agreed to by learned counsel for the parties that those disputes and differences be referred for adjudication to an arbitrator. With consent of~he parties, we refer the disputes arising out ofthe two suits noticed above to Shri H. R. Khanna, Former Judge· of this Court, who shall enter upon the reference and make his Award within the statutory period. The learned Arbitrator shall fix his own fee and the manner of its payment. The parties shall be at I liberty to file their claims/counter-claim before the Arbitrator.

With the referertce of the disputes and differences between the parties to the learned Arbitrator, the two suits pending at Barasat and in the Delhi High Court shall stand withdrawn from . the respective courts where those are pending. Copy ofthis order shall be sent to the concerned courts for due compliance. The learned Arbitrator shall file the Award in this Court. It is directed that no other court shall interdict the arbitration proceedings. The appeal is disposed of accordingly. No costs. " Even before filing the statements of claims and counter-claims;' the parties jointly requested the learned arbitrator to pass an interim award as regard the ownership of the lands as to whether AWHO by reason of the purported deeds of sale became the absolute . owner of the property comprising 14. 17 acres of land wherefor the following issues were raised by Sumangal: "a) Whether or not AWHO/Party No. 2 is the absolute owner of the suit property comprising of 14.

l 7 acres of land vide registered Sale Deeds, mutation and conversion certificates issued by the competent authority, in favour of the petitioner including the properties built thereon and that the Ian? so acquired absolutely and for ever by the Party No. 2/AWHO and the property built thereon is not a retumal;>le security, which property pursuant to the cancellation ofcontract is neither refundable nor ~an be same be reconveyed to Party No. I and/or land sellers? b) Whether Party No. 2 and/or Party No. I and/or the land sellers have a first and paramount charge on the said M. D. , ARMYWELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, J) 40I land sold/transferred to the Party No. 2 absolutely and forever, particulars whereof are given the Annexures I (Colly), annexed hereto, and that whether after sale of the said plots of land by the land sellers, to the. Party No.

2 vide registered sale deed based upon an understanding as spelied out in the developer's agreement and power of attorney and affidavits etc. executed by and between the land seller and Party No. I, which as is alleged by Party No. I have since become void and inoperative, and therefore, is the Party No. I entitled for the payment ofa sum ofRs. 38 lakhs 47 thousand as pleaded in paragraph 56 of its Title Suit No. 867 of I995? c) Whether the Party No. I has a first and paramount charge on the construction, buildings and all other materials that are lying at and within the land transferred/ sold by the land sellers through Party No. I to the Party No. 2 for it's claim on the basis of item rate contract as alleged claimed for the alleged loss and damages suffered by the Party No. I as stated in it's Title Suit No. 876 of 1995?

d) Whether in alternative a decree for specific performance of the agreement referred to in paragraph 69 of the aforesaid title suit above and reconveyance ofthe lands mentioned in Schedule G to the Suit in favour of the Party No. I or the land seller can be decreed either in favour of the Party No. I and/the land sellers who had sold absolutely and for ever their plots of land vide registered sale deeds which were subsequently mutated and its land use changed from agricultural to residential by the competent authority under the West Bengal Land Reform Act in favour of the Party No. 2, but are now claiming that the Deed· of Sale was in reality a document or security? e) Whether or not the keys of the godown at contract site which the Party No. I is illegally holding in it's custody -i be given back to Party No. 2 to utilize the stores contained therein before commencing the work. f) Any other relief in the circumstances of the case may also be passed/awarded.

" The learned arbitrator, however, was not inclined to accede to the said request. Thereafter, an application was filed by AWHO before the learned Arbitrator to the effect that it may be allowed to commence and complete uninterrupted construction work as well as development of the housing project at the risk of Sumangal. Sumangal filed· a reply to the said application. An order was passed on the said application ofAWHO by the learned arbitrator on 1. 11. 1997 subject to the following conditions: (a) The question as to whether such an order can be passed at the risk of Sumangal can be raised only at the time of final award. (b) The development work may be confined to 14. 17 acres of land which was the subjei;t matter of sale and which it Wa5 stated had been demarcated at the site. (c) All those works could be subject to the ultimate decision of the case.

(d) AWHO shall not give final possession of any of those flats or part of the land to any one including the person described as allottees. (e) The said order was without prejudice to any of the contentions which may be raised by the parties. (f) Constructions and development work would b~ of the same kind and specifications as were provided in the contract at competitive rates through an established contractor after inviting tenders therefor. It was further stated therein : "It is agreed by both the parties that the contract produce for the construction of 16 towers and such 16 towers already exist on the · M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERViCES P LTD. [SINHA, J. J 403 site. If any new tower is constructed by party No. 2 or its contractor, party No. I would not be liable for it.

" A review application was filed before the Arbitrator by Sumangal wherein several questions including the power of arbitrator to pass an interim order of injunction were raised but the same was rejected stating : "It has been vehemently argued that the Arbitrator has no power to make the kind of interlocutory order made on November I, 1997. In this respect learned counsel for party no. I has also emphasized that effected the once the prayer for interim award has not been granted, the order dated November I, 1997 which was in the nature ofan interim award was unwarranted. I find myself unable to accede to this contention. So far as that order is concerned, it was made expressly clear that the said order would be without prejudice to any of the contentions which might be raised by the parties. It was also added that all the works which party no.

2 is being allowed to do would be subject to the ultimate decision of the case, the order thus makes it clear that there was no finality attached to that order and that it would be subjected to the ultimate decision of the case. As such the order cannot be deemed to be an interim award. Coming to the other contention that the Arbitrator has no power to make an interlocutory order dated November l, 1997. I find that the work ofmeasurements has been smoothly carried out and the results of measurements have been accepted by both the parties. As the proceedings ofarbitratio. n would take considerable time before the final award is giveh, to«~xpedite the execution of the remaining unfinished work, party no. 2 was allowed to commence and complete the unfinished work which was the subject matter ofthe contract between the parties. In my opir.

ion the order made on November l, 1997 was in the interest ofjustice and not to let the remaining work reaming unfinished till the time of the final award. As the order was made ex debito justitiae it call for no review or modification. In any case, it has been made clear that this order would be subject to the final decision of the case and without prejudice to any of the rights of the parties. Another point made in the application of party no. I is that it was working as stated in the order ofNovember I, 1997 that 16 blocks/ buildings existed at site have gone through the order dated November l, 1997, and no where it is stated therein that 16 blocks/ buildings exist at the site. I, therefore, find no ground to review/modify the order dated November I, 1997. The application accordingly stands disposed of'. The learned Arbitrator, therefore, did not determine the question as to whether he had jurisdiction to pass an interim order or not.

No Award was not passed by the Arbitrator for a long time although several extensions had been granted. On or about 26. 2. 2000 an application for revocation of the authority ofthe arbitrator was filed by Sumangal and by an ord~r dated 11. 5. 2000 this Court constituted a board of three arbitrators instead and place of the sole arbitrator.. The award was filed before this Court on 29. 4. 2002 by the learned arbitrators whereagainst Sumangal filed an application on'or about 8th July, 2002 under Sections 30 and 33 of the Act. AWARD: Before the arbitrators both the parties filed their respective claims. Claim No. 1 of AWHO related to the title, ownership and po~session of 14. 17 acres of land. Claim No. 2 of AWHO relat~d to cost of completion ofbalance work at the risk and expense ofSumangal. Both the claims were allowed by the learned· arbitrators. Claim No. 3 related to compensation for delay in performance of the contract by Sumangal, whereas claim No.

4 related to damages for noncompletion of work resulting in loss of rentals to allottees of AWHO. Claim No. 5 related to reimbursement of ·payments made by AWHO towards the premium on Sumangal's all risk insurance policy. Claim No. 6 related to damages for delay in transfer of land: All these claims were disallowed. M. D. , ARMY WELFARE HOUSING ORGANISATION 1·. SUMANGALSERVICES P. LTD. [SINHA, J. ] 405 The claim on interest contained in claim No. 7 and claim of costs of arbitration in claim No. 8 were also allowed. The claim of Sumangal relating to title of 14. 17 acres of land. and claim for an amount of Rs. 11,40,85,000/-, being an alternative claim was disallowed. The learned arbitrators in making the award formulated as many as 29 issues which have been answered in the following terms: "Issue No. I Since we have found that SSPL had failed to discharge their obligation in terms of the Agreement dated August 27, 1993, the issue is decided against SSPL and in favour of AWHO.

Issue No. 2 Since we have found that AWHO were entitled to terminate the said contract and to get the balance work executed at the expense and risk ofSSPL, the issue is decided in favour ofAWHO and against SSPL. Issue No. 3 Since we have found that AWHO are the full owner and in possession of 14. 17 acres of land in dispute and the property built thereon, the issue is decided in favour of AWHO and against SSPL. Issues Nos. 4 & 5 Since we are of the view that the sale deeds executed in favour of AWHO cannot be regarded as documents by way of security for the advance taken by SSPL from AWHO and that no charge was created on the Ifilids in dispute, the issues are decided in favour of AWHO and against SSPL. Issue No. 6 Since we have held that the claims made by AWHO fall within the ambit ofthe scope ofreference as laid down in the order of the Hon'hie Supreme Court, the issue is decided in favour of AWHO and against SSPL. Issues Nos.

7 & 8 No submission was made on behalf ofSSPL with regard to these issues. The issues are decided against SSPL and in favour of AWHO. Issues Nos. 9 & JO Since we have found that as per the agreement between AWHO and DMA, the Architect was to provide drawings and specifications of the proposed flats and external services and it was the duty of SSPL to take follow up action in the matter of obtaining sanction from the statutory bodies and it was not the responsibility ofthe Architect to obtain sanction. from the statutory bodies including the Municipality, the issues are decided against SSPL and in favour of AWHO. Issues Nos. I I & 12 Since we have found that the Agreement dated August 27, 1993 and the preceding Letter ofIntent dated January 4, 1991 and the Draft Agreement dated December 26, 1991 cannot be said to have become impossible of perfonnance and cannot be regarded to have become void on the ground of frustration, the issues are decided against SSPL and in favour of AWHO.

Issue No. 13 It has been found that the construction in respect ofthe units in Phase I was started after obtaining the sanction for the plans from the Gram Panchayat and though there were some deviations and alterations from the . sanctioned plan but the same could be M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, J. ) 407 regularized. As regards the units which were to be constructed in Phase II it has been found that the said construction was made without obtaining the sanction for the plans from the competent authority but the plans had been submitted for approval during the course of construction and the said plans were subsequently approved on April 23, 1997 and the plans for the whole project were also revalidated. This issue is dec! ded accordingly. Issue No.

14 We have found that the deviations and the alterations in respect ofconstruction in Phase I were not very material in nature and could be regularized and were in fact regularized when the revised plans were sanctioned and revalidated by the Municipality. This issue is decided accordingly. Issue No. 15 We have found that payments for the RARs for the construction work upto August 1992 were not made since SSPL failed to abide by their commitment to transfer the balance land by February 15, 1992 and subsequently on the transfer of the balance land in August 1993 and after execution ofthe Agreement ,· dated August 27, 1993, the payments for the said work were made. This issue is decided accordingly. Issue No.

16 We have found that SSPL never raised any objection regarding construction in respect of works in Phase II on the ground that there were no sanctioned plans for the same and SSPL obtained benefit in the matter of release of payments on the basis of the order placed for such construction. This issue is decided against SSPL and in favour of AWHO. Issue No. 17 It has been found that the Municipality stopped construction work in Phase II but subsequently the plans for Phase II were approved by the Municipality on April 23, 1997. The issue is decided accordingly. Issue No. 18 We have found that AWHO issued the working drawings for the project to SSPL and the delay in issuing some of the drawings was not very material. The issue is decided accordingly. Issue No. 19 No submissions were made by SSPL in support ofthis issue. The issue is accordingly decided against SSPL and in favour of AWHO. Issues Nos.

20 & 22 The alterations in the lay out of the built up area of Phase I buildings were made by AWHO in the full knowledge of SSPL and the said alterations were not material because they were subsequ~ntly revalidated by the Municipality in sanctiQning the revised plans. The issues are accordingly decided against SSPL and in favour of AWHO. Issue No. 21 There was no change in the height ofthe buildings in respect of Phase I inasmuch as the height of the blocks in Phase I were not above the heights as pe~ the sanctioned plans. The heights ofthe blocks constructed in Phase II for which plans had not been approved were in excess ofthe height limitations prescribed in the buildings regulations. No Objection Certificate has been granted by the Airport Authorities of India Ltd. and it was open to the State Government to relax ttie height limitation. The issue is accordingly decided against SSPL and in favour of AWHO. Issue . No.

23 We have found that the title to the lands transferred in favour of AWHO under the various sale ·deeds passed in favour of M. D. , ARMY WELFARE HOUSING ORGANISATION"· SUMANGALSERVICES P. LTD. [SINHA, J. ) 409 AWHO independent of the turnkey project and failure of the turnkey project did not have any bearing on the transfer of title. The issue is accordingly decided in favour of AWHO and against SSPL. Issue No. 24 No submissions were made by SSPL with regard to this issue and the issue is decided against SSPL. Issue No. 25 We have found that AWHO are entitled to compensation under claim no. 2 towards cost ofcompletion ofthe balance work at the risk and expense ofSSPL since SSPL failed to perform their part of the obligation under the contract. The issue is decided in favour of AWHO and against SSPL. Issue No. 26 We have found that the title, ownership and possession of 14. 17 acres of land which was transferred in favour of AWHO .

under the various sale deeds vests exclusively with AWHO and Claim No. I made by AWHO has, therefore, been allowed. The issue is decided in favour of AWHO accordingly. Issue No. 27 We have found that SSPL are not entitled to reversion of land. The issue is accordingly decided against SSPL. Issue No. 28 We have found that SSPL are not entitled to recover any amount from AWHO. The issue is, therefore, decided against SSPL. Issue No. 29 Since we have found Issue No. 28 against SSPL and found that SSPL are not entitled to recover any amount from AWHO, therefore, the question oftheir entitlement to recover interest from AWHO does not arise. The said issue is decided against SSPL. " In tenns of the aforementioned findings, the learned arbitrators awarded: "We make the Award in the following terms: I. Th~ claim of SSPL that land admeasuring 14.

17 acres and structures thereon comprising of the 14 Blocks/buildings or any other construction that maybe done by AWHO during the pendency of the arbitration proceedings, vests and is owned fully, exclusively and absolutely by SSPL is disallowed. 2. The alternative claim of SSPL for an amount of Rs. l l,40;85-,000. 00 is disallowed. 3. Claim No. I of AWHO in respect of title, ownership and possession of land admeasuring 14. 17 acres of land located ·at Mauza Tighonia and Koikhali, VIP Road, 24 Parganas (North), Calcutta transferred in their favour by various Vendors/Land Owners is allowed. 4. Claim No. 2 of AWHO for cost of completion of balance work at the risk and expenses of SSPL is allowed to the extent of Rs. 6,97,00,000. 00. 5. Claim No. 3 of AWHO is disallowed. 6. Claim No. 4 of AWHO is di~Uowed, 7. Claim ~o. 5 of AWHO is disallowed.. 8. Claim No. 6 ofAWHO Is ~isaJiowed. 9. Claim No.

7 of AWHO is allowed to the extent that interest would be payable @ 12 per cent per annum on the amount of Rs. 6,97,00,000. 00 awarded under Claim No. 2.. Interest M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA,J. ] 411 shall be payable from the date of the award till payment is made. IO. Claim No. 8 of AWHO regarding costs is allowed to the· extent that SSPL will reimburse AWHO towards half share ofthe arbitrators' fee, administrative expenses and the other incidental expenses for the conduct ofthe arbitral proceedings. Each party shall bear the costs and expenses incurred by it for prosecuting the arbitral proceedings. " SUBMISSIONS: Mr. K. N. Bhat, the learned senior counsel appearing on behalf of Sumangal would raise the following contentions: (i) A bare perusal of the award would show that the learned arbitrators ignored the terms of the agreement.

(ii) In terms of Clause 130 of the general conditions of contract, AWHO could maintain a claim as regard excess amount required for completion of the unfinished work only ifthe work was completed before a claim was raised or an e~timate of the cost of completion is certified by the named architect. Despite the fact that none of the aforementioned conditions were fulfilled, the award wa$ made allegedly on the ground that Clause 130 will have no application while the completion was permitted by an order passed in a judicial/ arbitral proceedings. Mr. Bhat would contend that the arbitrators being creature ofthe agreement were required to act within the fourcomers thereof and cannot by reason of an interim order override t}ie basis of the agreement. (iii) Clause 130 of the general conditions of contract would come iato play only when the contract is validly terminated in terms of cl~use 129.

The termination of contract by AWHO was on the ground that Sumangal did not resume work in relation whereto the learned Arbitrators failed to consider that the question ofresumption ofwork by it did not arise as the Municipality had banned further construction activities. Furthermore, the Arbitrators proceeded also on a wrong premise that Sumangal failed to obtain sanction of Building Plans from the Munidpal Authorities. (iv) As the plans were not sanctioned at the relevant time by statutory authorities; Section 56 of the Contract Act was attracted having regard to the fact that it was commercially incapable of being performed upon passing of the ban order. (v) An award ignoring material and relevant documents would be rendered illegal and. bad in law.

As in the case the arbitrators ignored the letter dated 8th December, 1994 ofAWHO for regularization ofdeviations and thus thereby they must be deemed to have admitted that deviations were done by them deliberately to suit their own convenience, and as such the Arbitrators must be held to have misconducted themselves and the proceeding. , (vi) Furthermore, being a reasoned award, wrong application of law would vitiate the award. (vii) The award of the arbitrators is vitiated in law as an agreement purported to have been entered into by and between AWHO and the architect was enforced against Sumangal although it was not a party thereto. (viii) The finding of the arbitrator that the frustration was a selfinduced one is not based on any pleadings or materials on record. In any event collusion between Sumangal and the municipal authorities was neither pleaded nor proved.

(ix) In any view ofthe matter the learned arbitrator committed a lega1 misconduct insofar as they applied a wrong principle of law as regard determination of quantum of damages. In support of the aforementioned contentions, reliance has been placed by Mr. Bhat on Stef! / Authority ofIndia Ltd. v. J. C. Budharaja, Government and Mining Contractor, [l,999] 8 SCC 122, Shyama Charan Agarwala & Sons v. Union ofIndia, (2002] 6 SCC 201, McGregor on Damages, 16th edition, pages 1142 and 1143 and Mertens v. Home Freeholds Co. Ltd and Others [1921] All E. R. Rep. 372. Mr. Arvind Kumar Tiwari, the learned counsel. appearing on behalf of the appellant, on the other hand, would submit that as the learned M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, J. ] 413 arbitrator passed an interim order with the consent ofthe parties, Sumangal at a later stage cannot be pennitted to take a different stand.

In view bf the interim order passed by one of the learned arbitrators, a notice inviting tender was issued whereafter contract was awarded to a third party and, thus, the bid made pursuant thereto could validly be made the basis of detennination of quantum of damages. The plea of frustration of contract raised by Sumangal has rightly been rejected by the learned arbitrators as the same was a self-induced one having regard to the fact that it itself got the ban orders issued by the municipal authorities. In any event Sumangal in tenns of the contract being liable for obtaining sanction of the building plans, must be held to have failed to perfonn its part of contract and consequentially has rightly been held liable for damages.

FINDINGS: INTERIM ORDER PASSED BY ONE OF THE ARBITRATORS: A bare perusal of the order of the learned Arbitrator dated lst November, 1997 would clearly show that interim award was prayed for by the parties which would have granted substantial reliefs sought for by them in relation to the title in respect of 14. 17 acres of land. It is admitted that the parties cooperated with each other in the matter of measurement of completed and incompleted works in terms of the Arbitrator's order dated 12th May, 1997 passed in the arbitration proceedings, the compliance whereof was recorded in minute of order dated 19th August, 1997. The learned arbitrator admittedly was not inclined to pass an interim award on the requests of the parties; whereafter only on or about 23rd p October, 1997 an application was filed by AWHO stating : "That the development of the housing project is carried out by Party No.

2 for it's allottees on no profit no ioss basis which is self financed by the allottees of Party No. 2. Due to breach·ofcontract committed by the Party No. I, allottees of Party No. 2 have been denied shelter as well as their life time investments and are suffering for the want ofshelters for themselves and their families. Substantial time has already been lost due to non-performance of Party No. 1 and any delay in commencement of the coqstruction activity will cause immense financial misery and loss of further time (which cannot be given bac. k by any one) to the allottees. In order to obviate the sufferings of hundreds of allottees who have invested their hard earned money. PartY No. 2 therefore prays to the Hon'ble Arbitrator to grant Party No. 2 following relief:" The prayer therein is as under: . B "In the premise, it is ·most respectfully prayed that in order to enabie Party No.

2 to commence early and unjustified completion ofunfinished work as well as development ofthe housing project at the risk ofthe Party No. I permission and liberty may be granted · to Party No. 2fapplicant to forthwith take such steps to commence and complete the unfinished works including all such development work on 14. 17 acres of. land owned by Party No. 2 at VIP Road, Calcutta as may be fit and appropriate for the normal functioning of the housing project and peaceful and safe habitation of the allottees of the Party No. 2/applicant. Party No. I, it's Directors, Officers, employees, agents and/or attorneys be also directed to hand over the keys of the stores, offices, and material lying at contract site which keys the Party No. 1 is illegally holding in it's custody. The materials lying at site have already been paid for by Party No:2. Party No.

I, it's directors, employees, agents and/or attorneys be directed not to interfere in any manner in the development and construction of the unfinished housing project by Party No. 2 through such agencies as Party No. 2 may deem fit and proper. " • Sumangal filed a . detailed reply thereto. Sumangal further stated that the AWHO was not the owner of the property and the real object for such an application was to dispossess Sumangal. It was further pointed out that such undertaking of the contract job by a third party would frustrate the present arbitration agreement as a result whereof further disputes may arise. It was contended·: M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, 1. )- 4I5 "IO. The adjudication of this application without a full-fledged examination of the issues which have been raised by the parties in these proceedings would renderthe entire arbitration proceedings infructuous.

It is further stated that after such directions as prayed for are given, the Party No. I will be deprived of the fruits of any relief which it might obtain on final resolution of the disputes involved in this arbitration proceedings. Il. The allegations contained in the petition are denied (except those which are admitted in records ofproceedings). The purported cancellation or termination is wrongful. The question ofcompleting the balance work/construction at the risk and cost of Party No. I does not arise. The basis of the development of the housing project between Party No. 2 and its allottees are not known and are neither admitted. It is denied that Party No. I has committed any breach. The allegation relating to shelter and/or lifetime investments or suffering are not admitted and in any event, cannot override legal rights. It is denied that time has been lost due to alleged non-performance of Party No. I. Since the Party No.

I is willing to return all moneys which are due to the Party No. 2, the question of suffering financial misery of loss cannot arise and the Party No. 2 cannot put the blame on the Party No. I in these facts and circumstances. I2. The construction work commenced on I4 blocks only out of a total ordered I6 blocks over an area of6. 36 acres approximately. The said total area of 6. 36 acres and the construction thereon belongs to the Party No. I and the Party No. I is entitled to deal with the same. The area of 7. 8I acres over which no construction have been made also belongs to the Party No. I and the Party No. 1 is entitled to deal with the same. " It is, therefore, not correct to contend that the said order was passed on consent of the parties. For all intent and purport, Sumangal could not have consented to grant of such a prayer which would virtually put a final seal over the disputes.

We have hereto- before quoted the purported order dated 1st September, I997 which ex facie demonstrate that the arbitrator assumed jurisdiction to pass the said interim order at the behest of AWHO. Furthermore, as noticed hereinbefore, Sumangal filed a review application which was also dismissed in the manner noticed hereinbefore. The saii:i interim order was, thus, not passed with consent of parties. Ifthe learned arbitrator has no jurisdiction to pass an interim order, even by consent no such jurisdiction could be conferred. (See The United Commercial Bank Ltd v. Their Workmen, AIR (1951) SC 230 and Hakam Singh v. Mis Gammon (India) Ltd, AIR (1971) SC 740). In Hiscox v. Outhwaite, [1991] 2 Lloyd's Law Reports l,. it is stated: "No act of the parties can create in the courts a jurisdiction which Parliament has said shall vest, not in the courts, but exclusively in some other body.

Nor again can a party submit to, so as to make effective, a jurisdiction which does not exist: which is perhaps another way ofsaying the same thing. The argument we are here rejecting seems to be based on a confusion between two distinct kinds ofjurisdiction: The Supreme Court may, by statute, lack jurisdiction' to deal with a particular matter-in this case matters . including superannuation claims under s. 8-but it has jurisdiction to decide whether or not it has jurisdiction to deal with such matters. By entering an unconditional appearance, a litigant submits to the second ofthese jurisdictions (which exists), but not to the first (which does not). " An arbitrator in a situation of this nature had no jurisdiction to pass the interim order under the Arbitration Act, 1940 in absence ofany specific agreement in relation thereto.

The learned arbitrator by an interim order could not have placed the parties to a situation which would travel beyond , the subject of disputes and differences referred to the arbitration. As no claim and counter-claim had been filed before the arbitrator, the arbitrator was not even aware ofthe nature ofclaims ofthe parties. He neither found any prima facie case nor balance of convenience for passing the said interim order. Furthermore, an arbitrator is bound by the terms of reference. An arbitral tribunal is not a court of law. Its orders are not judicial orders. Its functions are not judicial functions. It cannot exercise its power ·ex debito justitiae. The jurisdiction of the arbitrator being confined to the M. D. , ARMY WELFARE HOUSING ORGANfSATJON v_ SUMANGALSERVICES P. LTD. [SINHA,]. ) 417 fourcomers of the agreement, he can only pass such an order which may be subject matter of reference. In Morgan Stanley Mutual Fund v.

Kartick Das, [1994] 4 SCC 225 the jurisdiction ofthe Consumer Disputes Redressal Forum to pass an order of injunction came up for consideration. This court having regard to the fact situation obtaining therein formulated the following questions: "(l) Whether the prospective investor could be a 'consumer' within the meaning of Consumer Protection Act, 1986 ? (2) Whether the appellant company 'trades' in shares ? (3) Does the Consumer Disputes Redressal Forum have jurisdiction in matters of this kind? (4) What are the guiding principles in relating to the grant of an ad interim injunction in such areas of the functioning of the capital market and public issues of the corporate sectors arid whether certain 'venue restriction clauses' would require to be evolved judicially as has been done in cases such as State of W. B. v. Swapan Kumar Guha and Sanchaita Investments, [1982] 1 sec 561 : [1982] sec Cri 283? (5) What is the scope of Section 14 of the Act?

" This Court held that a prospective investor like the respondent therein is not a consumer. The question ofthe appellant-company trading in shares does not arise and in that_ view of the matter the Consumer Disputes Redressal Forum has no jurisdiction whatsoever to pass an o~der of interim injunction. Having regard to Section 14 of the Consumer Protection Act, it was held: ''44. A careful reading of the above discloses that there is no power under the Act to grant any interim relief of (sic or) even an ad interim relief. Only a final relief could be granted. If the jurisdiction of the Forum to grant relief is confined to the four clauses mentioned under Section 14, it passes our comprehension as to how an interim injunction could ever be granted disregarding even the balance of convenience. " A- In absence ofan agreement to the contrary, in terms ofthe provisions of Arbitration Act, 1940 an arbitrator can pass only an interim award or a final award.

Such awards are enforceable in law. The award of an arbitrator whether interim or final are capable ofbeing niade a rule ofcourt, decree prepared and drawn up in terms thereof and put to execution. It is well-settled that for the purpose of obtaining an interim order a party to the arbitration proceeding during pendency ofan arbitral proceeding can only approach a court of law in terms of Section 41(b) of the Arbitration Act, 1940 and not otherwise. The said provision reads thus: "41. Procedure and powers of Court. - Subject to the provisions of this Act of rules made thereunder : xxx xxx xxx (b) the Court shall have, for the purpose of, and in relation to arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Secohd Schedule as it has for the purpose of, and in relation to any proceedings before the Court: Provided that nothing in Cl.

(b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with respect to any of such maj:ters. " In the instant case the proviso has no application as the Arbitrator was not vested with such power. Jurisdiction ofcourts in terms of Section 4 I of the Act is enumerated in the Second schedule, rules l and 4 whereof are as under: "I. The preservation, interim custody or sale of any goods which . are the subject-matter of the reference. M. D. , ARMY WELFARE HOUSING ORGANISATION>·. SUMANGAL SERVICES P LTD. [SINHA, 1. ] 419 4. Interim injunctions or the appointment of a receiver. " Even the Court's jurisdiction under Section 4l(b) ofthe Act is limited as it is confined to "for the purpose of and in relation to arbitration proceedings". Courts, thus, have also no power to grant injunction ex debito justitiae. See Union ofIndia v. Raman Iron Foundry, [l974] 2 SCC 231 and Mis HM Kamal_uddinAnsariandCo. v.

UnionofindiaandOthers, [1983] 4 sec 417. We may observe that even provision for stay in a suit under section 10 C. P. C. is not applicable in relation to an arbitration proceeding. In Indrajit Sinha v. B. L. Rathi, AIR (1984) Cal 281, it is stated: "When Section 32, Arbitration Act, completely prohibits a Civil Court from deciding the existence and validity of the arbitration agreement and Section 41, Arbitration Act lays down that the Civil Procedure Code will apply subject to the provisions and rules ofthe Arbitration Act, 1940, then Section IO, C. P. C. , cannot apply on the facts and circumstances ofthis case and the question of its applicability cannot arise. So far as Court's inherent jurisdiction under Section 151, C. P. C.

is concerned, I do not think that on the facts and circumstances of this case inherent jurisdiction can be exercised to stay the pending application in view of the fact that the City Civil Court is incompetent to decide the issues pending before me in the application under Sec. 33 of the Act. " In Debendra Nath Singha and Others v.

Dwijendra Nath Singha and Others, reported in AIR (1970) Cal 255, the law is stated in the following terms: "On a proper construction ofSection 41 ofthe Arbitration Act and of Section 41(b) in particular, I am of the opinion, that the Court has the power and jurisdiction to appoint a receiver or to make any order of interim injunction or to make orders in respect of other matters set out in the Second Schedule in appropriate cases for the purpose of, and in relation to arbitration proceedings; but this power and jurisdiction of the Court cannot be exercised, if the exercise ofany such power would prejudice any power which might be vested _in an Arbitrator or Umpire for making orders with respect to any of such matters.

I am further of the opinion that in view ofthe provisions contained in Section 41 ofthe Arbitration Act, the power and jurisdiction of the Court to appoint a receiver or to make any order of interim injunction or any order in respect of the other matters set out in the Second Schedule are now governed, controlled and regulated by the said section, and apart from the power andjurisdiction conferred by the said section, the Court has no power andjurisdiction independently ofthe provisions contained in the said Section 4 I to appoint a receiver, to make any order ofinterim injunction or any order in respect ofthe other matters set out in the Second Schedule. " It is useful to notice that such a power has been expressly conferred on the arbitrator in terms of Section 17 offoe Arbitration and Conciliation Act, 1996 which is as under: "17. Interim measures ordered by arbitral tribunal.

--(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitra~ tribunal may consider necessary in respect of the subject-matter of the dispute. (2) The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (I). " A bare perusal ofthe aforementioned provisions would clearly show that even under Section 17 of the 1996 Act the power of the arbitrator is a limited one. It cannot issue any -direction which would go beyond the reference or the arbitration agreement. Furthermore, an award of the · arbitrator under the 1996 Act is not required to be made a rule of court; M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, J. ) 421 the same is enforceable on its own force.

Even under Section 17 of 1996 Act, an interim order must relate to the protection of subject matter of dispute and the order may be addressed only to a party to the arbitration. ·It cannot be addressed to other parties. Even under Section 17 of the 1996 Act, no power is conferred upon the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof. The said interim order of the learned Arbitrator, therefore, being coram non judice was wholly without jurisdiction and, thus, a nullity. (See Kiran Singh and Others v. Chaman Paswan and Others, AIR (1954) SC 340 (6), Srimathi Kaushalya Devi & Others v. Shri KL. Bansal, (1969] I SCC 59, Union ofIndia v. Tarachand Gupta and Bros:, (1971] 1 SCC 486 at 496, Sushi! Kumar Mehta v. Gobind Ram Bohra (Dead) through His Lrs. , (1990] I SCC 193 and Smt. Kanak & Anr. v. UP. Avas Evam Vikas Parishad & Ors. , (2003] 7 SCALE 157. WHETHER THE AWARD IS VITIATED AS GENERAL CONDITIONS OF CONTRACT HAD N,OT BEEN COMPLIED WITH?

Before the learned arbitrators a question was raised as regard applicability of Clauses 129(e) and 130 of the general conditions of contract which read as follows: "DETERMINATION 129. The Organization may, without prejudice to any other right or remedy which shall have accrued or shall accrue thereafter to the Organization, cancel the contract in part or whole in any of the following cases : If Contractor :- (a) xxx xxx (b) xxx xxx (c) xxx xxx (d) xxx xxx (e) In the op1mon of the Organisation/Architect at any time whether before or after the date or extended date for completion makes defaults in proceeding with the work with due diligence and continues in that state after reasonable notice from the Architect and or Organisation or · (f) xxx xxx (g) xxx xxx" "130.

Whenever the Organisation exercises his authority to cancel the contract under clause 129, he may complete the works by any means at the contractor's risk and expense provided always that in event ofcost ofcompletion after alternative arrangements have been finalized by the Organisation ~. <> get the works completed or estimated cost of completion (as certified by the Architect) and approved by Organisation being less than the contract cost, the advantage shall accrue to the Organisation. If the cost of completion after the alternative arrangements have been fianlised by the Organisation to get the work completed or estimated cost of completion (as certified by the Architect) and approved by the Organisation exceeds the money due to the contractor under this contract, the contractor shall either pay the excess amount assessed r by the Architect or the same shall be recovered from the contractor ' by other means.

" I The learned arbitrators refused to enter into the questions as to \' whether the AWHO had made out a case for canceling the contract and invoking the risk and expense clause stating : "We do not consider it necessary to go into the question whether clause 130 requires certificate by the Architect in case completion of the work is done at the risk and expense as urged by SSPL or only where the alternative arrangements for completion of the work have not been fianlised and estimated cost of completion is to be considered, as submitted by AWHO. In our opinion, clause 130 deals with a situation where AWHO completes or decides to complete the work on their own and has no application where the completion of the work is being permitted under an order passed in ajudiciaVarbitral proceeding. The certification by the Architect M. D. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. [SINHA, l] 423 is intended as a check against an arbitrary claim towards cost of completion.

Such a check is not required when the completion of the work is done in pursuance of an order in a judicial/arbitral proceeding because the court/Arbitral Tribunal would examine any such grievance ofthe other party. Si~ce in the present matter AWHO were allowed to complete the work under the order ofthe Sole Arbitrator dated November 1, 1997 which contained appropriate directions regarding the manner in which the contract shall be given, the certification of the Architect contemplated by clause 130 was not required. " The approach to the question by the learned arbitrators was wholly erroneous. An award made pursuant to an order which has been passed without jurisdiction necessarily must be held to be a nullity. Refusal on the part of the learned arbitrator to consider the effect of clause 130 of the agreement would amount to a legal misconduct.

Having regard to the facts and circumstances ofthe case, as would be discussed in details hereinafter,' it was incumbent on the part of the Arbitrators to apply "due diligence" clause contained in clause 129(e), more cautiously. They were further required to consider as to whether "due diligence" clause be applied where the alleged violation ofcontract was only in relation to a small part thereof. The learned arbitrators were, in law, bound to consider the relevant provisions ofthe contract and in particular those which deal with the rights and liabilities of the parties. This aspect ofthe matter has not been taken into consideration by the learned arbitrators while making the award. Thus, they failed to take into consideration a relevant fact. In Steel Authority ofIndia Ltd (supra), this Court categorically stated the law thus: "It was not open to the arbitrator to ignore the said conditions which are binding on the contracting parties.

By ignoring the same, he has acted beyond the jurisdiction conferred upon him. It is settled law that the arbitrator derives the authority from the contract and if he acts in manifest disregard ofthe contract, the award given by him would be an arhilrary one. This deliberate departure from the contract amounts not only to manifest disregard ssession, or where both parties are equally guilty the estate will lie where it falls. On·the otherhand, 0 respondent I argues that the proper maxim to ilpply is nemo allegans suam turpitudinum (1Udiendum est, whc>ever has first to plead turpitudinum should fail; that . party fails who first has to allege fraud in which he participated. In other words, the principle invoked by resj>ondent I· is that a man cannot plead his own fraud. In deciding the question as to which maxim should govern the present case it is necessary to recall what Lord Wright, M R. observed about these maxims in Berg v. Sadler QndMoore, [1937] 2 K. B. 158, 162.

Refe"ing to the maxim ex turpicausa non oritur actio Lord Wright observed that "this maxim, though veiled in the dignity oflearned language, is a statement ofa principle ofgreat importance; but like most maxims it is much too vague andmuch too general to admit ofapplication without a carefulconsideration ofthe circumstances and ofthe various· definite rules which have been laid down by the authorities". In Kuju Collieries Ltd v. Jharlchand Mines Ltd and Others. AiR (1974) SC 1892 : [1974] 2 sec 533 this Court·held that in relation to a contract whkh is hit by Section 23 of the Contract Act Section 65 and Section 70 of the Contract Act shall not apply. Only in a case where a contract has become void due to subsequent happenings, the advantage gained by a person should be restored. The building plans would be sanctioned provided the same are in accordance with the statutory building rules. Ifadmittedly the plans as also the constructions were not in terms .

of rules, question of g~ing them sanctioned by a statutory authority ,would not arise. Such a contract, it is reiterated, would be illegal. Principle ofestoppel will ha\'e not application MD. , ARMY WELFARE HOUSING ORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, J. ) 439 in relation thereto as that part of the agreement itself would not be enforceable. In the event, however, the builder was merely required to take follow-up action in the matter with the authorities, the contract may be valid but in that event it must not only be pleaded and proved that there existed an agreement in that behalf, but also to how and to what extent the builder failed to perform its part ofthe contract. The findings ofthe learned arbitrators are without any materials and without applying the correct legal principles and, thus, the same cannot be sustained. Admittedly, the deviations which were minor ones were regularized only on 23rd April, 1997.

The contract, however, stood terminated on 17th October, 1995. Even in the ordinary course, Sumangal could not have carried out any construction activities in anticipation that such deviations might be regularized. Whether such deviations would be regularized in respect of Phase I or whether building plans for Phase II and Phase III would be sanctioned and ifso within what time could only be a matter ofspeculation but the same would be irrelevant for determining the liabilities of the parties which was required to be guided by commercial considerations. The liability to pay damages must arise out of contract and not otherwise. The award does not specifically say so. FRUSTRATION OF CONTRACT: Section 56 of the Indian Contract Act reads thus: "Agreement to do impossible act:- An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful:- .

A contract to do an act which, after the contract is made, becomes impossible, or, by reason ofsome event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. Compensation for loss through non-performance of act known to be impossible or unlawful :- Where one person has promised to do something which he knew, or, with re:asonabie diligence; might have known, and which, the. promisee did not know, to be. impossible or unlawful, such promisor must make compensation ·. to such promisee· for any loss which such promisee sustains . through the non-performance of. the promise;'. ' 1 . ). ,-(':. ,[, ~ j~t J #' "t • 4 ', ,;• f •! I • Imposs! bility to fulfill ~he ~ontractual obligation may arise in ~ifferent fact situations. .. 111;' Statutory injunction by a statutory authority may. be one of such causes. · A·building bye-la~ ~ust be s~mpu'io~sly ·followed. Violation of • ~ •. I. ~ •,: Sectio1.

1 204 of the West Bengal Muni<;ipal Act, 1993 attracts penal provisions contained in Section 440. It is, therefore, mandatory in nature. The correspondences between AWHO and the Municipality clearly show that ev_en ? ifrastructural works were. not. perm! tted to . be carried out. Sumangal, therefore, cannot be said to;have . colllmitted any illegality in complying. with the stop work notice. To,"'. hat extent it committed breach of the terms of the contract, assuming th_atit could haye_ carried out some job as pointed out by AWHO would depei:id upon the commercial viability as a large number ofworkmen were to ~e engaged although it cannot carry out the major construction work, which was a relevant factor for determining the quantum of damages. Sumangal might have been partially liable but it cannot be faulted when it refused to .

carry out any constructional work in violation of the stop work notice which would attract the penal provisions of Section 440 of the West Bengal Municipal Act, 1993. The learned arbitrators were also bound to take into consideration this aspect of the matter. They failed to do so and misdirected themselves in law. In an interesting article titled "The Principle of Impossibility in Contract" by H. W. R. Wade published in Law Quarterly Review Volume 56 page 519, it is stated: "Two points emerge from the argument so far: (I) There can exist no duty to do an impossible act. (II) A promiseis; normally and ··· primarily, a promise of performance simply, and not of damages in the alternative. The effect of supervening impossibility on an existing duty can now be determined; and in view of conclusion • . ,;;.. ---· M. D. , ARMY WELFARE HOUSINGORGANISATION v. SUMANGALSERVICES P. LTD. [SINHA, 1. ] 441 (I) the answer is a simple one.

It must be that the impossibility causes the duty to cease to exist. For a duty either exists or it does not-that is to say, every duty continues until it is discharged, and discharge is the only process known to the law by which a duty once legally undertaken can be put off the s