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CASE NO.: Appeal (civil)  1725 of 1997

PETITIONER: M.D., Army Welfare Housing Organisation          

RESPONDENT: Sumangal Services Pvt. Ltd.                              

DATE OF JUDGMENT: 08/10/2003

BENCH: CJI., BRIJESH KUMAR & S.B. SINHA.

JUDGMENT: J U D G M E N T  

S.B. SINHA, J :

       Questions of some 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  turn-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, 1991 in terms whereof 11 blocks of houses could be  constructed.  The said area, however, became a municipality in terms of  the 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 West Bengal Municipality Act, 1932, however, was repealed  and replaced by West Bengal Municipal Act, 1993.

       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 of land were executed by the owners in favour of AWHO.   Sumangal received the amount for consideration from AWHO paid to the  owners upon furnishing a Bank guarantee as 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 8.12.1994, an application was made by AWHO for  modifications or revisions in the Master Plan wherefor a revised Master  Plan was submitted for approval of the Municipality stating:

       "Tel: 3010820        Army Welfare Housing Organisation                                           South Hutments, Kashmir House,                                         Rajaji Marg, New Delhi-110011

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                         B/03020/CAL-II/AWHO              8 Dec 94 The Chairman, Rajarhat Gopalpur Municipality Raghnunathpur, Calcutta-700059

       SUBMISSION AND FINAL APPROVAL OF   PLAN FROM MUNCIPAL AUTHORITY           

Dear Sir,

1.      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 M/s 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.181/91  dated 18 Sep. 91.

3.      In this connection we would like to mention that  due to site constraints and also to meet the  demand for housing among Army personnel, minor  Modifications/Revisions 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 goodself to  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 building plan was  filed or sanctioned for Phase II and Phase III but as per instruction of  AWHO it proceeded with the construction of Phase II.  Such an  application was filed for the first time on 19.5.1995.  It stands  admitted that the 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:

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"We came to learn that some 8 blocks of 5  storied buildings were approved by erstwhile  panchayet 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.

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 of Local 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 Municipal 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 21.7.1995 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 M/s Dulal  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 panchayet recommended plan by which  you have constructed already 8-9 blocks.  All

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the time he has come back without result.

You would appreciate that without a plan already  approved by erstwhile panchayet, we can not  check/judge the present position or the  viability of your project.  Hence the question  of your infrastructural development like  construction of Road, Drains etc. does not arise  at all at the moment.

We would request you fervently to submit the  panchayet recommended plan on the basis of which  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  already 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 11th August, 1995  advised Sumangal to reorganize and recommence its work by employing  sufficient strength of labour and bringing the required material to site  by 11th September, 1995 to ensure that the progress of the work is  substantially increased.  It was threatened that if suitable 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 of the  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 required material to ensure that the  progress of the 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."           

       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 of an arbitrator in

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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 of injunction  which was refused whereagainst an appeal was preferred in the High Court  of Calcutta and by reason of an 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 into 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 of the 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  the parties, we refer the disputes arising out  of the 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 liberty  to file their claims/counter-claim before the  Arbitrator.

       With the reference 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 of this 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

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absolute owner of the suit property  comprising of 14.17 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 land so acquired  absolutely and for ever by the Party  No.2/AWHO and the property built thereon  is not a returnable security, which  property pursuant to the cancellation of  contract is neither refundable nor can be  same be reconveyed to Party No.1 and/or  land sellers?

b)      Whether Party No.2 and/or Party No.1  and/or the land sellers have a first  and paramount charge on the said land  sold/transferred to the Party No.2  absolutely and forever, particulars  whereof are given the Annexures1  (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 spelled out in  the developer’s agreement and power of  attorney and affidavits etc. executed  by and between the land seller and  Party No.1, which as is alleged by  Party No.1 have since become void and  inoperative, and therefore, is the  Party No.1 entitled for the payment of  a sum of Rs.38 lakhs 47 thousand as  pleaded in paragrtaph 56 of its Title  Suit No.867 of 1995?

c)      Whether the Party No.1 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.1 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.1 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 of the lands mentioned in  Schedule G to the Suit in favour of the  Party No.1 or the land seller can be  decreed either in favour of the Party  No.1 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

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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.1  is illegally holding in it’s custody 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 of AWHO 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 subject matter of sale and which it was 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 be 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  site.  If any new tower is constructed by party  No. 2 or its contractor, party No. 1 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 1, 1997. In  this respect learned counsel for party no.1 has  also emphasized that effected the once the  prayer for interim award has not been granted,  the order dated November 1, 1997 which was in  the nature of an interim award was unwarranted.  

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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 1, 1997. I find that the  work of measurements has been smoothly carried  out and the results of measurements have been  accepted by both the parties.  As the  proceedings of arbitration would take  considerable time before the final award is  given, to expedite the execution of the  remaining unfinished work, party no.2 was  allowed to commence and complete the unfinished  work which was the subject matter of the  contract between the parties.  In my opinion the  order made on November 1, 1997 was in the  interest of justice 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.1 is that it was working as stated in the  order of November 1, 1997 that 16  blocks/buildings existed at site have gone  through the order dated November 1, 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 1, 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 of the arbitrator was filed  by Sumangal and by an order 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:

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       Before the arbitrators both the parties filed their respective  claims.  Claim No. 1 of AWHO related to the title, ownership and  possession of 14.17 acres of land.  Claim No. 2 of AWHO related to cost  of completion of balance work at the risk and expense of Sumangal.  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  non-completion 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.

       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.1              

       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 of SSPL, the issue is decided in favour of  AWHO 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 lands 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 of the scope of  reference as laid down in the order of the  Hon’ble Supreme Court, the issue is decided in

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favour of AWHO and against SSPL.

               Issues Nos.7 & 8  

No submission was made on behalf of SSPL  with regard to these issues.  The issues are  decided against SSPL and in favour of AWHO.

               Issues Nos.9 & 10

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 of the Architect to obtain  sanction from the statutory bodies including the  Municipality, the issues are decided against  SSPL and in favour of AWHO.

               Issues Nos. 11 & 12

Since we have found that the Agreement  dated August 27, 1993 and the preceding Letter  of Intent dated January 4, 1991 and the Draft  Agreement dated December 26, 1991 cannot be said  to have become impossible of performance 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 of the 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 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  decided accordingly.

               Issue No.14  

We have found that the deviations and the  alterations in respect of construction 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

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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 of the 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 of this 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  subsequently revalidated by the Municipality in  sanctioning 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 of the  buildings in respect of Phase I inasmuch as the  height of the blocks in Phase I were not above  the heights as per the sanctioned plans.  The  heights of the blocks constructed in Phase II  for which plans had not been approved were in  excess of the 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 the height limitation.  

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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 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 of  completion of the balance work at the risk and  expense of SSPL 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.1 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 of their entitlement to recover  interest from AWHO does not arise.  The said  issue is decided against SSPL."  

       In terms of the aforementioned findings, the learned arbitrators  awarded:

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"We make the Award in the following terms:

1.      The 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.11,40,85,000.00 is  disallowed.

3.      Claim No.1 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 disallowed.

7.      Claim No.5 of AWHO is disallowed.

8.      Claim No.6 of AWHO is disallowed.

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 shall be payable from the  date of the award till payment is made.

10.     Claim No.8 of AWHO regarding costs is  allowed to the extent that SSPL will  reimburse AWHO towards half share of the  arbitrators’ fee, administrative expenses  and the other incidental expenses for the  conduct of the 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  if the work was completed before a claim was raised or an

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estimate of the cost of completion is certified by the named  architect.  Despite the fact that none of the aforementioned  conditions were fulfilled, the award was 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 of the agreement were  required to act within the fourcorners thereof and cannot by  reason of an interim order override the basis of the  agreement. (iii)   Clause 130 of the general conditions of contract would come  into play only when the contract is validly terminated in  terms of clause 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 of resumption of work 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 Municipal 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 of  AWHO for regularization of deviations 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  self-induced 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 of the matter the learned arbitrator committed a  legal 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 Steel Authority of India Ltd. Vs. J.C. Budharaja,  Government and Mining Contractor [(1999) 8 SCC 122], Shyama Charan  Agarwala & Sons Vs. Union of India [(2002) 6 SCC 201], McGregor on  Damages, 16th edition, pages 1142 and 1143 and Mertens Vs. 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  arbitrator passed an interim order with the consent of the parties,  Sumangal at a later stage cannot be permitted to take a different stand.   In view of 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 determination 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 terms of the contract being liable

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for obtaining sanction of the building plans, must be held to have  failed to perform 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 1st  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 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 loss basis which is self financed  by the allottees of Party No.2.  Due to breach  of contract committed by the Party No.1,  allottees of Party No.2 have been denied shelter  as well as their life time investments and are  suffering for the want of shelters 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  construction activity will cause immense  financial misery and loss of further time (which  cannot be given back 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:

"In the premise, it is most respectfully prayed  that in order to enable Party No.2 to commence  early and unjustified completion of unfinished  work as well as development of the housing  project at the risk of the Party No.1 permission  and liberty may be granted to Party  No.2/applicant 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.1, 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

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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.1, 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:

"10.    The adjudication of this application  without a full-fledged examination of the issues  which have been raised by the parties in these  proceedings would render the entire arbitration  proceedings infructuous.  It is further stated  that after such directions as prayed for are  given, the Party No.1 will be deprived of the  fruits of any relief which it might obtain on  final resolution of the disputes involved in  this arbitration proceedings.

11.     The allegations contained in the petition  are denied (except those which are admitted in  records of proceedings). The purported  cancellation or termination is wrongful.  The  question of completing the balance  work/construction at the risk and cost of Party  No.1 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.1  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.1.  Since the Party No.1  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.1 in these facts and circumstances.

12. The construction work commenced on 14 blocks  only out of a total ordered 16 blocks over an  area of 6.36 acres approximately.  The said  total area of 6.36 acres and the construction  thereon belongs to the Party No.1 and the Party  No.1 is entitled to deal with the same.  The  area of 7.81 acres over which no construction  have been made also belongs to the Party No.1  and the Party No.1 is entitled to deal with the

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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, 1997 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 said interim order was, thus, not passed with  consent of parties.  If the 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. vs. Their Workmen, AIR  1951 SC 230 and Hakam Singh vs. M/s Gammon (India) Ltd., AIR 1971 SC  740).     

In Hiscox       Vs. Outhwaite [1991] 2 Lloyd’s Law Reports 1, 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 of  saying the same thing.  The argument we are here  rejecting seems to be based on a confusion  between two distinct kinds of jurisdiction: 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 of  these 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 of any  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 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.

       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 fourcorners of the agreement, he can  only pass such an order which may be subject matter of reference.

       In Morgan Stanley Mutual Fund Vs. Kartick Das [(1994) 4 SCC 225]  the jurisdiction of the 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:

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"(1) 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 and 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 SCC 561 : 1982  SCC (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 of the 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 order 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."

       In absence of an agreement to the contrary, in terms of the  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 of being  made a rule of court, 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 of an  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     

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(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 Second 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 matters."                 

       In the instant case the proviso has no application as the  Arbitrator was not vested with such power.

Jurisdiction of courts in terms of Section 41 of the Act is  enumerated in the Second schedule, rules 1 and 4 whereof are as under:                          "1. The preservation, interim custody or sale of  any goods which are the subject-matter of the  reference.

4. Interim injunctions or the appointment of a  receiver."

Even the Court’s jurisdiction under Section 41(b) of the 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 of India vs. Raman Iron Foundry [(1974) 2 SCC 231] and  M/s H.M. Kamaluddin Ansari and Co. vs. Union of India and Others [(1983)  4 SCC 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 vs. 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 of the  Arbitration Act, 1940, then Section 10, C.P.C.,  cannot apply on the facts and circumstances of  this 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."

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       In Debendra Nath Singha and others vs. Dwijendra Nath Singha and  others reported in AIR 1970 Cal 255, the law is stated in the following  terms :

"On a proper construction of Section 41 of the  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 of any 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 of the  provisions contained in Section 41 of the  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 and jurisdiction conferred by the said  section, the Court has no power and jurisdiction  independently of the provisions contained in the  said Section 41 to appoint a receiver, to make  any order of interim injunction or any order in  respect of the 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 of the 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 arbitral  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 (1)."

A bare perusal of the 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; 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

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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 Vs. Chaman Paswan and  Others [AIR 1954 SC 340 (6)], Srimathi Kaushalya Devi & Others Vs. Shri  K.L. Bansal [(1969) 1 SCC 59], Union of India Vs. Tarachand Gupta and  Bros. [(1971) 1 SCC 486 at 496], Sushil Kumar Mehta Vs. Gobind Ram Bohra  (Dead) through His Lrs. [(1990) 1 SCC 193] and Smt. Kanak & Anr. Vs.  U.P. Avas Evam Vikas Parishad & Ors. [2003 (7) SCALE 157]).

WHETHER THE AWARD IS VITIATED AS GENERAL CONDITIONS OF CONTRACT HAD NOT  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 opinion 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 of cost of completion after  alternative arrangements have been finalized by  the Organisation to 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 by the Architect or the same shall be  recovered from the contractor by other means."   

       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 :

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"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 a judicial/arbitral  proceeding.  The certification by the Architect  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 of the other party.  Since in the  present matter AWHO were allowed to complete the  work under the order of the 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 of the 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 of contract was only in  relation to a small part thereof.  The learned 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.   

       This aspect of the 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 of India 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 of the contract,  the award given by him would be an arbitrary  one. This deliberate departure from the contract  amounts not only to manifest disregard of the  authority or misconduct on his part, but it may  tantamount to mala fide action."

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       It was stated"  

"Further, the Arbitration Act does not give any  power to the arbitrator to act arbitrarily or  capriciously. His existence depends upon the  agreement and his function is to act within the  limits of the said agreement. In Continental  Construction Co. Ltd. v. State of M.P. (1988) 3  SCC 82) this Court considered the clauses of the  contract which stipulated that the contractor  had to complete the work in spite of rise in the  prices of materials and also rise in labour  charges at the rates stipulated in the contract.  

It is to be reiterated that to find out  whether the arbitrator has travelled  beyond his jurisdiction and acted beyond  the terms of the agreement between the  parties, the agreement is required to be  looked into. It is true that  interpretation of a particular condition  in the agreement would be within the  jurisdiction of the arbitrator. However,  in cases where there is no question of  interpretation of any term of the  contract, but of solely reading the same  as it is and still the arbitrator ignores  it and awards the amount despite the  prohibition in the agreement, the award  would be arbitrary, capricious and without  jurisdiction. Whether the arbitrator has  acted beyond the terms of the contract or  has travelled beyond his jurisdiction  would depend upon facts, which however  would be jurisdictional facts, and are  required to be gone into by the court. The  arbitrator may have jurisdiction to  entertain claim and yet he may not have  jurisdiction to pass award for particular  items in view of the prohibition contained  in the contract and, in such cases, it  would be a jurisdictional error. For this  limited purpose reference to the terms of  the contract is a must.  

                                               (Emphasis Supplied)

       In Shyama Charan Agarwala (supra) this Court referred to the said  decision.

       A Bench of this Court recently in Bharat Coking Coal Ltd. Vs. M/s.  Annapurna Construction [2003 (7) SCALE 20] upon referring to a large  number of decisions stated:

"The question is as to whether the claim of the  contractor is d’hors the terms or not was a  matter which fell for consideration before the  arbitrator.  He was bound to consider the same.   The jurisdiction of the arbitrator in such a  matter must be held to be confined to the four- corners of the contract.  He could not have  ignored an important clause in the agreement;  although it may be open to the arbitrator to

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arrive at a finding on the materials on records  that the claimant’s claim for additional work  was otherwise justified."

       As regard the duty of the arbitrator to take into consideration  the relevant provisions contained in the agreement, it was observed:

"So far as these items are concerned, in  our opinion, the learned sole arbitrator should  have taken into consideration the relevant  provisions contained in the agreement as also  the correspondences passed between the parties.   The question as to whether the work could not be  completed within the period of four months or  the extension was sought for on one condition or  the other was justifiable or not, which are  relevant facts and were required to be taken  into consideration by the arbitrator.

       It is now well settled that the Arbitrator  cannot act arbitrarily, irrationally,  capriciously or independent of the contract."

       This Court further opined:

"There lies a clear distinction between an  error within the jurisdiction and error in  excess of jurisdiction. Thus, the role of the  arbitrator is to arbitrate within the terms of  the contract. He has no power apart from what  the parties have given him under the contract.  If he has travelled beyond the contract, he  would be acting without jurisdiction, whereas if  he has remained inside the parameter of the  contract, his award cannot be questioned on the  ground that it contains an error apparent on the  face of the records."

       Referring to paragraph 577 of Halsbury’s Laws of England, 4th  edition, Commercial Arbitration by Mustill and Boyd at page 598, Alopi  Parshad & Sons Ltd. Vs. Union of India [(1960) 2 SCR 793], Heyman Vs.  Darwin [1942 (1) All ER 327], Associated Engineering Vs. Govt. of A.P.  [(1991) 4 SCC 93], State of Orissa Vs. Dandasi Sahu [(1988) 4 SCC 12],  K.P. Poulose Vs. State of Kerala [(1975) 2 SCC 236], K.V. George Vs. The  Secretary to Government, Water and Power Dept, Tri-vendrum [(1989) 4 SCC  595], Satish Kumar v. Surinder Kumar [AIR 1970 SC 833], Union of India  vs. Jain Associates and Another [(1994) 4 SCC 665], Sikkim Subba  Associates Vs. State of Sikkim [(2001) 5 SCC 629], Maharashtra State  Electricity Board Vs. Sterilite Industries (India) and Another [(2001) 8  SCC 482], W.B. State Warehousing Corporation and Another Vs. Sushil  Kumar Kayan and Others [(2002) 5 SCC 679], Bharat Coking Coal Ltd. Vs.  L.K. Ahuja & Co. [(2001) 4 SCC 86] and Ispat Engineering & Foundry  Works, B.S. City, Bokaro vs. Steel Authority of India Ltd., B.S. City,  Bokaro [(2001) 6 SCC 347] this Court observed:

"However, as noticed hereinbefore, this  case stands on a different footing, namely, that  the arbitrator while passing the award in  relation to some items failed and/or neglected  to take into consideration the relevant clauses  of the contract, nor did he take into  consideration the relevant materials for the  purpose  of arriving at a correct (sic finding

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of) fact.  Such an order would amount to  misdirection in law."

       Before the learned arbitrators a question arose as to whether  certification of 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  learned arbitrators.  They could not have been simply ignored the same  on the premise that an interim order has been passed by the arbitrator.   An arbitrator cannot be equated with a court of law.  Whereas 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 fourcorners of the  agreement and not beyond thereto.

       Yet again this Court in Union of India Vs. M/s. V. Pundarikakshudu  and Sons and Anr. [2003 (7) SCALE 323] dealt in details about an award  which was found to be inconsistent, observing:

"The question as to whether one party or the  other was responsible for delay in causing  completion of the contract job, thus, squarely  fell for consideration before the arbitrator.   The arbitrator could not have arrived at a  finding that both committed breaches of the  terms of contract which was ex facie  unsustainable being wholly inconsistent.  Clause  54 of the contract could be invoked only when  the first respondent committed breach of the  terms of the contract.  An action in terms  thereof could be taken recourse to in its  entirety or not at all. If one part of the award  is inconsistent with the other and furthermore  if in determining the disputes between the  parties the arbitrator failed to take into  consideration the relevant facts or based his  decision on irrelevant factors not germane  therefor; the arbitrator must be held to have  committed a legal misconduct."

       This Court made a distinction between an award passed within  jurisdiction and an award without jurisdiction stating:

"In this case the District Judge as also the  High Court of Madras clearly held that the award  cannot be sustained having regard to the  inherent inconsistency contained therein.  The  arbitrator, as has been correctly held by the  District Judge and the High Court, committed a  legal misconduct in arriving at an inconsistent  finding as regard breach of the contract on the  part of one party or the other.  Once the  arbitrator had granted damages to the first  respondent which could be granted only on a  finding that the appellant had committed breach  of the terms of contract and, thus, was  responsible therefor, any finding contrary  thereto and inconsistent therewith while  awarding any sum in favour of the appellant  would be wholly unsustainable being self  contradictory."

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       This Court cannot sit in appeal over the award of the 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.

       Where an order has been passed without jurisdiction, the  principles of estoppel, waiver and acquiescence will have no  application.  There is no estoppel against statute.

       The award, therefore, suffers from legal misconduct on the part of  the arbitrators.  

ROLE OF AN ARCHITECT:

       An architect plays an important role in execution of a building  contract.

       In Hudson’s Building and Engineering Contracts at page 243, it is  stated:

"An architect is a person who professes skill in  the art of designing buildings to meet his  client’s need, in the organization of the  contractual arrangements for their construction,  and in the supervision of work and contractual  administration until final completion.  So a  major part of an architect’s activities will be  concerned with the preparation of contracts, the  obtaining and recommending for acceptance of  estimates from builders, the selection of  specialist contractors, the inspection of work  carried out, the solution of difficulties  encountered during the course of erecting the  building, condemning and dealing with defective  work, the issue of certificates under the terms  of the contract and advising or ruling on  disputes between the owner and the contractor.   Thus it will be seen that although it is the  primary and vital function of the architect to  create new ideas of amenity and design and to  set down those ideas on a drawing-board, his  duties extend far into other fields of technical  knowledge and business management. On the other  hand, while he will remain primarily responsible  to the owner for all matters of design, modern  techniques of construction and specialized  building products and processes in fact demand  expertise and skill for which he will inevitably  not always be personally qualified.  The  employment of outside consultants or the less  satisfactory (from the legal point of view if  the employer’s interest is to be properly  protected) device of delegating important design  functions to specialist and sub-contractors and  suppliers, are therefore a frequent and  inevitable accompaniment of many major building  projects but, as will be seen, the architect is  the "captain of the ship" and will be the person  to whom the owner will normally look if a design  failure occurs, though in some, but not all,  cases he will adequately discharge his own  overall responsibility if he exercises due  professional care in referring matters outside  his own expertise to a consultant or specialist

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supplier or contractor, particularly if these  latter are engaged on behalf of the owner and  not by the architect himself."      

       An Architect has, thus, various roles to play including  independently ruling on disputes between the owner and the contractor.          In R. Vs. Architects’ Registration Tribunal, ex. P. Jaggar [1945]  2 All ER 131, it is stated:

"An architect is one who possesses, with due  regard to aesthetic as well as practical  consideration, adequate skill and knowledge to  enable him (i) to originate, (ii) to design and  plan, (iii) to arrange for and supervise the  erection of such buildings or other works  calling for skill in design and planning as he  might in the course of his business reasonably  be asked to carry out or in respect of which he  offers his services as a specialist."

         An architect has a great role to play in making an estimate.  He  is expected to neither under-estimate nor can over-estimate value of the  works. He is bound by his conduct to the owner.  He can be sued for his  negligence. For his misconduct, fees payable to him may be forfeited.   He may incur other liabilities not only under the contract but also  under statute.   

       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 the architect  as a demand has to be made upon the contractor depending on such  estimate made by the architect.   

       In a given case having regard to the reasonableness of the  estimated amount a contractor may pay the same or challenge the same  either by an arbitrator or by a court of law.  A dispute may fall for  adjudication by an arbitrator or by a court of law only in the event a  contractor refuses to accept such estimate.   

       In G.T. Gajria’s Law Relating to Building and Engineering  Contracts in India, Fourth Edition at page 563, it is stated:

"In a contract, where there is certificate  clause which is a condition precedent to payment  and an arbitration clause of some third person  other than the architect, the builder cannot  recover without the certificate, and neither the  arbitrator nor the court (apart always from some  misconduct of the architect), has jurisdiction  to consider any matters.  In respect of which  the certificate of the architect by the terms of  the contract is made a condition precedent."

                An architect sometimes is appointed as an arbitrator and no  payment can be made except on his certificate and sometimes his position  is that of a person whose certificate is held to be a condition  precedent for invoking the arbitration clause [See Bristol Corporation  v. John Aird & Co. (1911-13) All E.R. Rep. 1076, Hickman and Co. v.  Roberts (1911-13) All E.R. Rep. 1485 and South India Rly. Co. Ltd. v.  S.M. Bhashyam Naidu, AIR 1935 Mad. 356].

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            These decisions were considered by a Division Bench of the Madhya  Pradesh High Court in Heavy Electricals (India) Ltd. Bhopal vs. Pannalal  Devchand Malviya [AIR 1973 MP 7].  

       In this view of the matter, we are of the opinion that the  arbitrator could not have ignored the role of the architect in terms of  clause 130 of the agreement only on the ground that AWHO had been  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  their part.    

WHOSE DUTY IT WAS TO GET THE PLAN SANCTIONED:

       M/s. Dulal Mukherjee & Associates had been the architect of  Sumangal.  By reason of the agreement, however, he became an architect  of the employer.  It was in the aforementioned situation, the following  was agreed between the parties and the same was recorded in the contract  agreement as under:      

"26. Company informed that they have negotiated  with M/s Dulal Mukherjee & Associates, 28-B,  Shakespeare Sarani, Calcutta as Architects for  providing all Architectural Services for this  turn key project.  As per the understanding of  the Company with the Architect, the Company has  to pay to the Architect at the firm rate of  Rs.6/- per sq. ft. of built-up area excluding  stilt area for the turn key project.  The stilt  area is not to be taken into account while  calculating the amount of fee payable to the  Architect.  Architect fee for all internal  services, development of land, all external  services and stilt area is deemed to be included  in the rates of Rs.6.00 per sq. ft. for built up  area.

27. It is hereby mutually agreed and accepted  that the services of the Architect M/s Dulal  Mukherjee & Associates, with immediate effect  shall be controlled by the Organisation and the  payments due to the Architects will be made by  the Organisation direct.  For making this  payment an amount calculated at Rs.6.00 per sq.  ft. of built up area as per para 16(d) above  shall not be released by the Organisation to the  Company.  The payments due to the Architect for  his architectural services shall be released by  the Organisation in terms of separate agreement  entered by the Organisation with M/s Dulal  Mukherjee & Associates, the Architects.  For the   Architectural Services rendered by the Architect  upto the signing of this agreement, the Company  is fully responsible for any omissions and  commissions.  For all architectural services  after the signing of this agreement, the  Organisation will take the responsibility.  The  Company has paid a sum of Rs.5.00 lacs as adhoc  advance to the Architect.  This amount shall be  reimbursed by the Organisation to the Company  and shall be adjusted against the total amount  payable to the Architects by the Organisation."     

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       Architectural services have not been defined in the agreement.   However, in a letter dated 12.6.1991 issued by AWHO to M/s. Dulal  Mukherjee & Associates it was mentioned that obtaining and getting  preparation of municipal drawings and obtaining sanctions was the  architect’s responsibility, stating:

"1. Please refer to your letter of 04 Jun 91  following the detailed discussions on the  project held on 03 & 04 Jun 91 at this HQ. 2. As per understanding arrived at between AWHO  and M/s. Sumangal Services Pvt. Ltd. your  employment and payment will be controlled by  AWHO.  Please note that the rate of Rs.6/- per  sqft. as agreed between you and M/s. Sumangal  Services Pvt. Ltd. remain operative for  Architectural services including supervision. 3. For the release of payment the amount of Rs.  5 lacs that is already been paid by M/s.  Sumangal Services Pvt. Ltd. to you as on date  will also be taken into account.  Recoveries @  Rs. 6/- per sq. ft. will be considered as  overall payment and will be recovered from M/s.  Sumangal Services Pvt. Ltd. during execution of  project and paid to you on time to time through  your bills. 4. It is also understood that prior to issue of  this letter following works towards the project  has already been undertaken by you. a)      Preparation of conceptual plan. b)      Interaction with local sanctioning  authorities. c)      Preparation of Municipal drawings and  obtaining sanction. 5. Based on the discussions between AWHO, M/s.  Sumangal Services Pvt. Ltd. and you held in  Delhi on 03 & 04 Jun 91 it is decided that till  Project Manager and staff has been posted, you  will monitor the progress on behalf of AWHO.   You will also forward a weekly report on the  same. 6. The contract documents between you and AWHO  is under drafting and would come in effect when  ready. 7. Please acknowledge."

       Despite the fact, by reason of the contract agreement the services  of the architect were placed solely at the disposal of AWHO, it  purported to have entered into another agreement wherein Sumangal was  not a party on or about 24th February, 1992 wherein the responsibility of  the architect was defined as under:

"12. Architects Responsibilities. Except to the  extent otherwise stipulated in this agreement,  the responsibility and services of the Architect  shall include the  responsibilities  and  obligations of  Architects as laid down by the  Indian Institute of Architects (except net  liability and net schedule of payments) and will  particularly include the following obligations  of the Architect :-

       (e)     Preparation of drawings for  submission to civil agencies excluding obtaining

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sanctions which will be done by  builder/contractor but should guide the  builder/contractor but should guide the builder/  contractor in obtaining the same."               

       Legally the said agreement was not binding on Sumangal as it was  not a party thereto.

Para 17 of the agreement provides for stages for release of  payments which reads thus:

                        "Stage                           Rate per sq.                                              ft.of plinth                                                                       area      

(aa) Sanction of plans by Zila  Parishad/Gram Panchayat Rs.3.00 (ab) On registration of converted  land Rs.33.00 (ac) De-watering land and clearance  of hyaclnth Rs.2.00 (ad) Survey and soil test Rs.1.00 (ae) Filling of earth to raise the  level to VIP Road Rs.12.00 (af) Alongwith the progress of  building construction  Rs.15.00

        Total Rs.66.00"                            It does not appear to be the case of the AWHO that there is a  contractual obligation on the part of Sumangal to get the plan  sanctioned.  In any event, such a contractual obligation for the purpose  of attracting the penal clauses must appear from the contract itself and  not from any other document.

       The learned arbitrators in their award did not point out any  specific clause in terms whereof it was for Sumangal to get the plan  sanctioned.  It merely relying or on the basis of a letter of Sumangal  made it partially liable therefor.

       No document exists to show that Sumangal had any legal liability  to get the Municipal plan sanctioned.

       Section 204 of the West Bengal Municipal Act, 1993 prohibits  erection of any building excepting with the previous sanction of the  Board of Councillors.  In terms of Section 205 it is for the person who  intends to erect or re-erect a building to submit an application with a  building plan in such form.

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       The provisions of the West Bengal Municipal Act, 1993 go to show  that it was for AWHO to submit an application for sanction of the  building plan together with requisite documents therefor.  Ordinarily,  the duty to pursue sanction of a plan is of the owner or its authorised  representative.  Such a job, it is common experience, is done by a  qualified architect or the persons having regard to their duties to  prepare a building plan in terms of the building laws so as to enable  them to make clarifications as and when called upon by the statutory  authorities or in a given case make modifications or alterations  thereof. The building plans prepared by the architects only would be  subject-matter of sanction by the municipal authorities.  Furthermore,  from the letter dated 8.12.1994 also it is evident that AWHO prayed for  alterations of the Master Plan and in the said letter it has  clearly  been stated that M/s Dulal Mukherjee & Associates had been appointed by  them as consulting architect for the project.  From a perusal of the  letter dated 21.7.1995 issued by the Rajarhat Gopalpur Municipality to  Shri Manohar Singh, Project Manager, AWHO, it would appear that the  author thereof had discussed the matter with Shri Manohar Singh as also  with M/s Dulal Mukherjee & Associates and only with them, views were  exchanged as regard the norms of Municipal Rules and Regulations. From  the letter dated 27.5.1995 issued by AWHO to Sumangal, it appears that  Shri Manohar Singh, its Project Manager along with representatives of  M/s Dulal Mukherjee & Associates had a detailed meeting with Chairman,  Rajarhat Gopalpur Municipality wherein it was agreed that the work need  not be stepped  for which its plans had already been approved.  The  alleged responsibility of Sumangal to get the plan sanctioned has been  raised only in July-August, 1995, i.e. after the dispute between the  parties started.                             The municipality made AWHO responsible for coordination and  construction activities.  The stop work notice was served upon AWHO.   AWHO in its letter, as noticed hereinbefore, categorically stated that  its representative with the authorised representative of the architect  saw the Chairman in 1995.  AWHO and not Sumangal made other  correspondences with the Municipality.  If Sumangal was assisting them  in getting the plan passed, it, in law, did not incur any liability  therefor. The findings of the learned arbitrators, therefore, do not  borne out from the records and are perverse.

       It will amount to giving of premium to illegality if it be held  that a party can ignore statutory injunction on the specious plea that  the same is minor in nature and maybe validated by the statutory  authorities in future.  Neither any party can undertake any construction  activity on the pains of facing criminal charge nor any court of  law/Arbitral Tribunal encourage such violation either directly or  indirectly.

       Furthermore, risk and cost clause cannot be invoked on failure of  the party to respond to its self-imposed obligation.  Damages are to be  paid for willful breach of the terms or conditions of the contract.   Such a breach must be in relation to an express agreement entered into  by and between the parties.  An alleged breach on the part of a builder  cannot be founded on a mere ipse dixit.  The learned arbitrators in  their award purported to have held :    

"...That SSPL had a role in getting the plans  sanctioned by the competent authority is borne  out by letter of AWHO to SSPL dated October 25.  1995 (Ex.E-45, AWHO, Vol.3, p.356) and the reply  of SSPL dated December 9, 1994 (Ex.E-103, AWHO,  Vol.17, p.54) to the said letter of AWHO .  In  the said letter of AWHO dated October 25, 1994,  it was stated :

"7. Sanctioning of building plan and

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revised lay out plan.  Sanction of  building plan and revised lay out plans  has already been considerably delayed.   This is effecting the progress of the work  also.  Though DMA is taking action but the  follow up action as a part of the turnkey  project is to be taken by you.  Please  ensure that the sanction is obtained  without further delay." (AWHO Vol.3,  p.357, para 7)

SSPL in their reply dated December 9, 1994 said  :                          "g) Sanctioning of building plan - You  have been informed during several  discussions in your office in New Delhi  that there had been structural change in  the local authority system affecting the  project area.  For some considerable  period vacuum existed in many standard  local govt. functions.  However, the new  Municipality authority has recently been  formed.  We are following up with the new  authority in respect of the sanctioning  process." [AWHO, Vol.17, p.56(g)]     

       The letter dated 25.10.1994 referred to in the award clearly shows  that the architect was asked to take action but allegedly the follow up  action was to be taken by Sumangal only on the ground that the project  was a turnkey one.  Sumangal’s letter dated 9.12.1994 merely stated that  there had been structural change in the local authority system affecting  the project area and there had been some vacuum in many standard local  government functions and that they had been following up with the new  authority in respect of the sanctioning process.  Presumably in the  aforementioned backdrop, the learned arbitrators observed :

"We are, therefore, unable to hold that the  entire responsibility for obtaining sanction for  the plans from the competent authority had been  transferred from SSPL to AWHO after June 12,  1991 and thereafter AWHO and DMA were  responsible for obtaining the said sanction."       

       Thus, merely some role had been attributed to Sumangal in the  matter of getting the plan sanctioned and not a breach of contract  leading to incurring its liability under clause 130 of the agreement.      EFFECT OF SUCH AGREEMENT, ASSUMING THERE WAS ONE

       There cannot be an agreement that somebody would be bound to  obtain a statutory order from the statutory authorities, as thereover,  he would have no control.

       In the Law Lexicon, the maxim ’Ex turpi causa non oritur actio’ is  defined as:

"On a bad (illegal) consideration on action can  arise."

       As regard the question as to whether such a contract in its  entirety or to some extent would be illegal or not which would give rise  to further question as regard its enforceability, we may notice the

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following passage from Immami Appa Rao and Others Vs. Gollapalli  Ramalingamurthi and Ors. [(1962) 3 SCR 739]:

"Reported decisions bearing on this question  show that consideration of this problem often  gives rise to what may be described as a battle  of legal maxims. The appellants emphasised that  the doctrine which is pre-eminently applicable  to the present case is ex dolo malo non oritur  actio or ex turpi cause non oritur actio. In  other words, they contended that the right of  action cannot arise out of fraud or out of  transgression of law; and according to them it  is necessary in such a case that possession  should rest where it lies in pari delicto potior  est conditio possidenties; where each party is  equally in fraud the law favours him who is  actually in possession, or where both parties  are equally guilty the estate will lie where it  falls. On the other hand, respondent 1 argues  that the proper maxim to apply is nemo allegans  suam turpitudinum audiendum est, whoever 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 respondent 1 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 and Moore ([1937] 2 K. B. 158,  162). Referring to the maxim ex turpi causa non  oritur actio Lord Wright observed that "this  maxim, though veiled in the dignity of learned  language, is a statement of a principle of great  importance; but like most maxims it is much too  vague and much too general to admit of  application without a careful consideration of  the circumstances and of the various definite  rules which have been laid down by the  authorities".                   In Kuju Collieries Ltd. Vs. Jharkhand Mines Ltd. and Others [AIR  1974 SC 1892: (1974) 2 SCC 533] this Court held that in relation to a  contract which 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.  If admittedly the plans  as also the constructions were not in terms of rules, question of  getting them sanctioned by a statutory authority would not arise.  Such  a contract, it is reiterated, would be illegal.  Principle of estoppel  will have not 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.  The findings of the 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

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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 if so within what time could only be a matter of  speculation 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 of some 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 reasonable diligence, might have  known, and which the promise 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."          

Impossibility to fulfill the contractual obligation may arise in  different fact situations.

       Statutory injunction by a statutory authority may be one of such  causes.  A building bye-law must be scrupulously followed.  Violation of  Section 204 of the West Bengal Municipal 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 even infrastructural works were not permitted to be carried  out.  Sumangal, therefore, cannot be said to have  committed any  illegality in complying with the stop work notice.  To what extent it  committed breach of the terms of the contract, assuming that it could  have carried out some job as pointed out by AWHO would depend upon the  commercial viability as a large number of workmen were to be 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.

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       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 promise is, 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  (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 shoulders of the  obligee.  Its effect is a complete removal of  the obligation, and discharge by impossibility  of performance is no less perfect than discharge  by the performance of the original promise.  In  the words of Professor Corbin already cited,  ’society no longer commands performance’ -  nothing more can be demanded of the promisor."

       In Emden and Gill’s Buildings Contracts and Practice, Seventh  Edition, page 162-163, it is stated that liability to pay damages for  non-performance of an impossibility only arises where the contract is  absolute and unrestricted by any condition expressed or implied.  It is  further stated that a difficulty may not in all circumstances amount to  impossibility.  But even in that event the terms and conditions relating  to performance of the contract may stand eclipsed.

       The transaction was a commercial one.  Sumangal could not plead  frustration of contract if it itself had abandoned it.  (See Hauman Vs.  Nortje [1914] A.D. 293, at p. 297 and Hoenig Vs. Issacs [1952] 2 All  E.R. 176, at p. 178H).

       It is well-settled that a builder renouncing his obligations could  not claim substantial performance.

       In Hudson’s Building and Engineering Contracts at page 484, the  law is stated as:

"A further overriding principle to be deduced  from the cases, it is submitted, is that a party  consciously in breach, a fortiori a party  repudiating an obligation or abandoning work,  should not be enabled to abuse the doctrine by  maintaining that position while at the same time  suing for remuneration under the contract.  Thus  in South Africa, there is long-standing  authority that substantial performance is not  available where work is abandoned, or the method  of performance is inconsistent with an honest  intention to carry out the work in accordance  with the contract.  Sumpter v. Hedges and Ibmac  v. Marshall were clear cases of abandonment."      

       Such a case of abandonment was not made out.  What was made out  was a case of self-inducement frustration.  We repeatedly asked Mr.  Tiwari to show before us any pleading as regard self-induced frustration

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on the part of Sumangal.  He failed to do so.  No material far less any  pleading has also been placed before us to show that there had been  collusion by and between Sumangal and 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 of frustration was self-induced one is on the party  who alleges that this is the case. (See Joseph Constantine Steamship  Line Ltd. Vs. Imperial Smelting Corporation Ltd. [1942] A.C. 154])

       In Treitel’s Law of Contract, Seventh Edition at page 701, it is  stated:   "The onus of proving that frustration is self- induced is on the party who alleges that this is  the case.  In Joseph Constantine SS Line v.  Imperial Smelting Corp. Ltd. [(1942) AC 154] a  ship was disabled by an explosion from  performing her obligations under a charter  party.  The owners were sued for damages and  pleaded that the explosion frustrated the  charterparty.  The charters argued that the  owners must prove that the explosion was not due  to their fault, but the House of Lords rejected  this argument and upheld the defence of  frustration although the cause of the explosion  was never explained.  The rule is open to the  objection that the charterer is much less likely  than the owner to be able to show how the  explosion occurred.  This reasoning does,  indeed, prevail in one group of cases: a person  to whom goods have been bailed, and who seeks to  rely on their destruction as a ground of  frustration of the contract of bailment, must  show that the destruction was not due to any  breach of his duty as a bailee.  But, this  special situation excepted, the rule as to  burden of proof laid down in the Joseph  Constantine case can be defended on the ground  that generally catastrophic events which prevent  performance do occur without the fault of either  party.  To impose the burden of disproving fault  on the party relying on frustration is therefore  less likely than the converse rule to lead to  the right result in the majority of cases."       

       It is interesting to note that at page 700 of the said treatise,  the learned author states:

"The further question arises whether a contract  can be frustrated by an event brought about by  the negligent act of one of the parties.  Lord  Simon has put the case of a prima donna who lost  her voice through carelessly catching cold.  He  seemed to incline to the view that she could  plead frustration so long as the incapacity "was  not deliberately induced in order to get out of  the engagement." This particular result can  perhaps be justified by the difficulty of  foreseeing the effect of conduct on one’s  health.  But it is submitted that generally  negligence should exclude frustration: for  example, the plea should have failed in Taylor  vs. Caldwell if the fire had been due to the  negligence of the defendants.  In such a case it

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would be unjust to make the other party bear the  loss.  A negligent omission should likewise  exclude frustration."

       In Cheshire, Fifoot & Furmston’s Law of Contract (14th Edition) at  page 643, the law is stated, thus:

"This rule, that a party cannot claim to be  discharged by a frustrating event for which he  is himself responsible, does not require him to  prove affirmatively that the event occurred  without his fault.  The onus of proving that the  frustration was self-induced rests upon the  party raising this allegation.  For instance :

On the day before a chartered ship was due  to load her cargo an explosion of such  violence occurred in her auxiliary boiler  that the performance of the charterparty  became impossible.  The cause of the  explosion could not be definitely  ascertained, but only one of three  possible reasons would have imputed  negligence to the shipowners.

It was held by the House of Lords that, since  the charterers were unable to prove that the  explosion was caused by the fault of the owners,  the defence of frustration succeeded and the  contract was discharged.  It should perhaps be  noted that in many cases a self-induced  frustrating event will be a breach of contract  but this will not necessarily be so.  In  Maritime National Fish Ltd. v. Ocean Trawlers  Ltd [(1935) AC 524], the applicants were not  contractually bound to licence the chartered  trawler but could not excuse failure to pay hire  by relying on the absence of a licence."    

       Even no case of negligence on the part of Sumangal made out.                  The burden of proof in relation to all these pleas, thus, was on  AWHO.  It failed to discharge the same.

QUANTUM OF DAMAGES :          It is not necessary for us to go into the question of quantum of  damages in details but we may observe that the learned arbitrators  proceeded on a wrong premise even in relation thereto.  It took into  consideration the subsequent events.  Purported subsequent conduct on  the part of Sumangal became the bed-rock of the findings against it by  the learned arbitrators.  The disputes and differences between the  parties were required to be determined as on 10.10.1995.  Conduct of the  parties subsequent thereto was wholly irrelevant.  Thus, there exists an

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error apparent on the face of the award.

       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 Sumangal and if AWHO could in law take recourse to Clause  129 of the Contract.

       For the purpose of invoking clause 129(d) of the general  conditions of contract, it was incumbent upon the learned arbitrators to  arrive at a specific finding that a breach of the terms of condition has  been committed by Sumangal.  Such breach must be in relation to a term  of the contract between the parties.   

       If a breach has occurred in respect of an agreement, to which  Sumangal is not a party, clause 129 could not have been invoked.                      The law relating to damages in this behalf is stated in McGregor  on Damages, 16th edition  at paras 1142 and 1143 in the following terms :

"The normal measure of damages is the cost to  the owner of completing the building in a  reasonable manner less the contract price, and  possibly, in addition, the value of the use of  the premises lost by reason of the delay.  This  measure of cost of completion less contract  price is laid down by the Court of Appeal in  Mertens v. Home Freeholds Co., (1921) 2 K.B.  526, CA., which must be regarded perforce as the  leading case since it proves to be the only one  dealing with this issue.  The defendant  contracted to build a house for the plaintiff  and was to begin work immediately after  possession of the site was given to him.  The  defendant worked well for a month, but then  deliberately failed to proceed with due dispatch  in the knowledge that a government embargo on  building without licence was to be imposed.  Had  he worked according to contract, the roof could  have been on to the house before the embargo  descended.  Two or three years later the  plaintiff completed the work himself, when  building was again permitted but when costs had  risen.  It was held that the proper measure of  damages was the cost to the plaintiff of  completion in a reasonable manner at the  earliest moment that he was allowed to proceed  with building, less the amount he would have had  to pay the defendant had the defendant completed  the house  as far as the roofing-in at the time  agreed by the terms of the contract.  The Court  of Appeal reversed the Divisional Court which  had taken for its basic figure not the cost of  completion but the market value that the  completed building would have had at the  contractual time due for completion.  Of this  Lord Sterndale M.R. said :

"They (the Divisional Court) have treated  the contract as if it were one for the  sale of goods and have held that the  measure of damages is the difference  between the market price of the day of  what the plaintiff ought to have had and  what he got.  In my humble opinion that is

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an entirely wrong way of looking at the  contract.  There is no contract to deliver  goods, and there is no market price for a  roofed house."

       Mertens v. Home Freeholds Co.[(1921)2 K.B.  526, C.A.], is also authority for taking the  cost of completion as at the time when it became  once again legal to build, although between  breach and the removal of the government embargo  on building two or three years afterwards costs  had risen substantially.  And conversely, as  Younger L.J. pointed out, "if the cost of  building had decreased in that time the damages  would have been correspondingly diminished".   This rule is however subject to the general  principles of mitigation so that, in the words  of Lord Sterndale,

"the building owner must set to work to  build his house at a reasonable time and  in a reasonable manner, and is not  entitled to delay for several years and  then, if prices have gone up, charge the  defaulting builder with the increased  price."  

              We may, however, notice that in Clark and Another Vs. Woor [1965]  1 W.L.R. 650 and East Ham Borough Corporation Vs. Bernard Sunley & Sons  Ltd. [1966 AC 406], law almost to the similar effect has been laid down.

       In Hudson’s Building and Engineering Contracts at page 1034-35, it  is stated:

"Builders constructed a school with serious  defects in fixing the stone facing.  The  contract was  in the 1956 RIBA standard form.   Some years after the final certificate, a stone  fell and the owners discovered the defects.  The  arbitrator found that the defects could have  been, but in fact were not, discovered or  noticed by the architect during the course of  his normal supervision of the work.  At the date  of the breach (which the parties agreed should  for purposes of convenience be treated as the  date of completing the work), the cost of repair  would have been considerably less, due to rising  prices, than it was when the owners finally  discovered the defects.  Held, by Melford  Stevenson J., distinguishing Phillips v. Ward  [(1956) 1 W.L.R. 471] that since the owners had  been guilty of no unreasonable delay once they  discovered the defects, they were entitled to  the greater cost of the repairs at the time they  carried them out.  Held, by the House of Lords,  affirming the judge, that the parties must have  contemplated that the architect might fail to  notice defective work.  The cost of repair at  the date of discovering the breach was "on the  cards" or a "loss liable to result" from the  breach within the test formulated by Asquith  L.J. in the Victoria Laundry case.  Per Lord  Upjohn: "where the cost of reinstatement is the  proper measure of damages it necessarily follows

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as a matter of common sense that in the ordinary  case the cost must be assessed at the time when  the defect is discovered and put right and it is  not suggested here that the building owner  unreasonably delayed the work of repair after  discovery of the defect...I am at a loss to  understand why the negligent builder should be  able to limit his liability by reason of the  fact that at some earlier stage the architect  failed to notice some defective work..." East  Ham Borough Council v. Bernard Sunley Ltd.  [(1966)A.C.406]."     

       Reference may also be made to illustrations given in Hudson’s  Building and Engineering Contracts at pages 1038-39.

       In Emden and Gill’s Buildings Contracts and Practice, Seventh  Edition, at page 267, the law is stated thus :

"The measure of damages for failure by the  contractor to complete a building or engineering  contract will include first, the difference (if  any)between the price of the work as agreed upon  in the contract and the cost the employer is  actually put to in its completion (i),  and cost  of completion means cost of the completion of  the contract work itself.

                       Illustration

A builder agreed in May, 1916, to  build a house for plaintiff for a lump  sum, complete within a specified time.   After starting the work the builder  intentionally delayed progress for the  purpose of ensuring that the Ministry of  Munitions should refuse a licence for  construction of the house under Defence of  the Realm regulations, and that he would  thereby (as he thought) be released from  the contract.  The licence was refused,  and the work had to be entirely suspended  till 1919, when plaintiff completed the  building. - Held: The builder could not  take advantage of a prevention brought  about by his own act, and the proper  measure of damages was what it cost the  plaintiff to complete the house as soon as  the statutory restriction ceased, less any  amount which have been due and payable to  the builder if he had proceeded with due  diligence up to the date when the licence  was refused.

In a leading case, the House of Lords has  held that the proper measure of damages is the  cost of re-instatement, such cost must be  assessed at the time when the defects are  discovered and are put right."  

       Sumangal, thus, could have been found liable for drawings if inter  alia it was guilty of one or the other misconducts as referred to

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hereinbefore.

TITLE IN RESPECT OF 14.17 ACRES OF LAND:

       Claim No. 1 related to title of 14.17 acres of land.  Sumangal  entered into an agreement on a turn-key basis.  The contention of  Sumangal is that the lands were transferred in the name of AWHO by way  of security.  This may or may not be so.  But, herein we are only  concerned with the question as to whether the award can be set aside or  not.  The learned arbitrator took into consideration the respective  contentions of the parties and came to the conclusion that title has, by  reason of the deeds of sale, passed on to AWHO.  While arriving at the  said finding, the arbitrator has not applied wrong principle of law.  Sumangal procured land on behalf of AWHO.  It for a specific purpose and  with a view to avoid double payment of stamp duty entered into an  arrangement whereby the owners of the agricultural land executed sale  deeds in favour of AWHO.  Subject of course to furnishing bank guarantee  Sumangal received consideration.  Sumangal stated that by getting the  land transferred in the their name by way of security at a nominal  price, as part of the turn key project, AWHO has gained enormously to  the tune of about 11.40 crores which they are not entitled to retain  lawfully.  They, thus, have unjustly enriched themselves.  It does not  appear that such a case has been made out before the learned  arbitrators.  The plea of unjust enrichment, therefore, cannot be  allowed to be raised at this juncture.  Such consideration was passed on  to the owners of the land.   Requirements of Section 54 of the Transfer  of Property Act in respect of sale transaction were fully complied with.   Title to the said land, thus, apparently vested in AWHO and has become  absolute its owners.  No exception, thus, to that part of the award can  be taken.

CONCLUSION:

       However, we would like to clarify that the observations made  hereinbefore were meant for the purpose of demonstrating that the  learned arbitrators failed to apply the correct principles of law but  not for the purpose of determining finally the lis between the parties.   In other words, the questions have been posed and answered for the  limited purpose as to whether the award of the learned arbitrators  suffer from any legal infirmity within the meaning of Sections 30 and 33  of the Arbitration Act and no more.   

       We, therefore, for the aforementioned reasons, while upholding  Claim No. 1 of the award are of the opinion that the award of the  arbitrations in relation to Claim No. 2 must be set aside.   Consequently, no interest thereupon shall be payable.

       The I.A. No. 11 of 2002 is allowed to the aforementioned extent.     No costs.