http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

CASE NO.: Appeal (civil)  1531 of 1999

PETITIONER: Union of India

RESPONDENT: M/s Banwari Lal & Sons (P) Ltd.

DATE OF JUDGMENT: 12/04/2004

BENCH: CJI V.N. KHARE & S.H. KAPADIA.

JUDGMENT: J U D G M E N T

KAPADIA, J.

       M/s Banwari Lal & Sons (P) Ltd. \026 respondent herein is  the owner of the property situated at 6, Ansari Road, Darya  Ganj, New Delhi bearing municipal nos.4407-4412  admeasuring total area of 50328 square feets on which there are  two bhawans named as Gopal Krishna Bhawan and Radha  Krishna Bhawan along with garages, pump-house, godowns,  store-room etc.  The covered area is 20426.80 square feets  whereas the balance area is an open area admeasuring 29901.20  square feets.  (See: Legend at page 52 of the paper-book).  Four  flats on the first floor in Gopal Krishna Bhawan were  requisitioned by Delhi Administration 27.9.1950 under  Requisition and Acquisition of Immoveable Property Act, 1952  (hereinafter referred to as "the said Act").  On 13.3.1959, the  remaining property was requisitioned under the said Act.   Before the said Act lapsed on 10.3.1987, a notification under  section 4 of the Land Acquisition Act was issued on 6.3.1987  for acquisition of the entire property.  On 10.3.1987, declaration  under sections 6 and 17 of the Land Acquisition Act was  published.  Aggrieved, the respondent herein filed CWP  No.2385 of 1988, which was allowed by the High Court by  judgment dated 4.2.1991 and Shri T.V.R. Tatachari, former  Chief Justice of Delhi High Court was appointed as sole  arbitrator to determine the damages w.e.f. 10.3.1987, payable  by Delhi Administration to the respondent in respect of the  property.  The SLP taken out against the said judgment by the  appellant was dismissed by this Court vide order dated  21.3.1991.  Appellant was, however, allowed time to vacate the  property by 31.3.1993.  On 18.11.1991, the arbitrator made and  published the award directing the appellant to pay damages at  the rate of Rs.5,81,770/- per month w.e.f. 10.3.1987, to which  objections under sections 30 and 33 of the Arbitration Act,  1940 were filed by the appellant.  The said objections were  dismissed by the learned single Judge on 12.7.1995.  Being  aggrieved, the appellant appealed to the division bench of the  High Court.  By the impugned judgment dated 22.1.1999, the  High Court dismissed the appeal. Against that judgment, the  appellant has filed this appeal by way of special leave.

       Under the award, damages have been fixed @ Rs.15/- per  sq. ft. per month in respect of the covered area admeasuring  28518 sq. ft. whereas damages have been assessed @ Rs.10/-  per sq. ft. per month for larger open spaces shown in the sketch  earmarked as ’X-1, X-3 and X-4’.  For smaller open spaces,  earmarked as ’X-2, X-5’, damages have been assessed at the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

rate of Rs.7/- per sq. ft. per month.  The property has been  considered as commercial for assessing the damages at the  above rates.

       Dr. Rajeev Dhavan, learned senior counsel and Shri  Goburdhan appearing on behalf of the appellant submitted that  the assessed damages at Rs.10/- per sq. ft. per month for larger  open spaces was highly usurious and illegal.  He submitted that  the arbitrator had erred in assessing damages of Rs.1.54 lakhs  per month for open land separately vis-‘-vis the built up area  particularly when the open land was part of the main building.   In this connection, he urged that when damages were assessed  for built up portion at Rs.15/- per sq. ft. per month, there was no  question of the arbitrator once again assessing damages for  open spaces at Rs.10/- per sq. ft. per month.  He pointed out  that 22 flats were in a dilapidated condition which has not been  taken into account.  It was next contended that in the present  case the respondent had accepted the rent for the said property  in its entirety of Rs.40793/- per month till February, 1988  without any objection, which fact ought to have been  considered by the arbitrator while assessing damages.  

        As can be seen from the facts enumerated above, the said  Act lapsed on 10.3.1987, however, a notification was issued  under section 4 of the Land Acquisition Act on 6.3.1987 for  acquisition of the entire property which was challenged by the  respondent in the High Court successfully.  The SLP preferred  by the appellant was dismissed on 21.3.1991, however, time  was given to the appellant to vacate the property by 31.3.1993.   On the basis of these facts, it was urged on behalf of the  appellant that the arbitrator had erred in assessing damages on  the assumption that the possession of the appellant after  10.3.1987 was illegal and in the nature of trespass.  In this  connection, it was contended that use and occupation of the  property was not illegal but permissive particularly when this  Court permitted the appellant to continue in possession till  31.3.1993 and, therefore, the respondent was not entitled to  claim mesne profits but it was only entitled to rent.  In this  connection, it was further contended that prior to 10.3.1987 the  property was under acquisition and, therefore, it fell outside the  provisions of Delhi Rent Control Act.  However, when the  requisition period expired on 10.3.1987, the said property came  under Delhi Rent Control Act w.e.f. 10.3.1987.  This property  was taken out from the purview of the Rent Act w.e.f.  1.12.1988 vide Delhi Rent Control (Amendment) Act, 1988  and, therefore, the damages for the period 10.3.1987 to  30.11.1988 could be assessed only on the basis of rent and not  on income/profit method.  It was further pointed out that the  arbitrator has awarded damages for built-up area @ Rs.15/- per  sq. ft. per month (carpet area) by comparing the said property  with the property at 2/10, Ansari Road, Darya Ganj, New Delhi.   However, the respondent did not prove its claim.  No valuation  report was relied upon in support of its claim; no valuer was  examined and no assessment proceedings under municipal law  was relied upon in support of the claim of the respondent.   Accordingly, it was submitted that the High Court had erred in  dismissing the objections to the said award.

       Mr. Ashish Bhagat, learned counsel appearing on behalf  of the respondent submitted that before lapse of the said Act on  10.3.1987, notification under section 4 of the Land Acquisition

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

Act for acquisition of the entire property was issued on  6.3.1987, which acquisition was subsequently struck down by  the High Court on 4.2.1991.  The SLP taken out against the said  judgment by the appellant was dismissed by this Court on  21.3.1991.  According to the learned counsel, in view of the  above facts, possession of the property by the appellant after  10.3.1987 was wrongful and illegal and in the nature of trespass  and, therefore, the arbitrator was right in assessing the damages  for wrongful use and occupation of the respondent’s property  after 10.3.1987.  It was urged that this Court had struck down  the acquisition proceedings and consequently it was not open to  the appellant to contend that they were in permissive use and  occupation of the property.  Since the appellant was trespasser  in use and occupation of the property, they were liable to pay  damages.  It was urged that order dated 21.3.1991 passed by  this Court in the SLP gave time to the appellant of two years to  vacate the property but that would not make the possession of  the appellant lawful or permissive.  Consequently, the arbitrator  was right in assessing the damages on the basis the appellant  was liable to pay damages/mesne profits to the owners for  wrongful use or occupation of the property.   

As regards the question of quantum of damages awarded  by the arbitrator, it was submitted that since occupation and  possession of the said property by the appellant was illegal and  in the nature of trespass, damages were assessed on the basis of  income/profit which the respondent would have received or  realized from the said property if its possession had been  surrendered to them by 10.3.1987, when the said Act lapsed.   According to the learned counsel, the said property was capable  of being let out for commercial purposes, as held by the  arbitrator and for calculating income or profit  receivable/realizable it was necessary to ascertain the rate per  square feet and also the area of the property on which damages  were to be calculated.  In support of the rates, respondent had  examined three witnesses and on the basis of their evidence, the  arbitrator has assessed the damages.  Learned counsel submitted  that the quantum of damages is assessed on the basis of  marketability of the property on the date when possession ought  to have been handed over to the respondent and in cases where  the property is in occupation of a trespasser, damages cannot be  based on rental basis.  It was also urged that for computing  damages for illegal occupation, after 10.3.1987, rent payable by  the appellant during the period of requisition cannot be taken  into account and, therefore, the arbitrator was right in  quantifying the damages on the basis of the market value of the  property on 10.3.1987.  In this connection, it was submitted that  in fact the appellant had agreed before the arbitrator to the rate  of Rs.15/- per square feet for covered area and for open area,  the appellant had left the rate for calculation purposes to the  arbitrator and, therefore, these questions need not be reopened  or re-agitated before this Court in this appeal by way of special  leave under Article 136 of the Constitution.  In this connection,  reliance has been placed on several judgments of this Court.

       Two issues arise for determination in this civil appeal,  namely, \027 whether the use and occupation of the property by  the appellant after 10.3.1987 was wrongful and illegal and in  the nature of trespass; and \027 whether the arbitrator had failed  to take into account relevant factors in assessing damages  awarded in favour of the respondent.          At the outset, we may point out that there are different  methods of valuation, namely, income/profit method, cost of  construction method, rent method and contractors’ method.  In

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

the present case, the arbitrator has applied the income/profit  method.  The above two issues are interconnected, as the  arbitrator has assessed damages on the assumption that after  10.3.1987, the occupation and possession of the property was  wrongful and illegal and in the nature of trespass.  Accordingly,  he has assessed damages on the footing that the respondent was  entitled to mesne profits.  This assumption was wrong as the  appellant was given time by this Court to remain in possession  up to 31.3.1993.  In Law of Damages & Compensation by  Kameshwara Rao (5th Edn., Vol. I Page 528], the learned  author states that right to mesne profits presupposes a wrong  whereas a right to rent proceeds on the basis that there is a  contract.  But there is an intermediate class of cases in which  the possession though not wrongful in the beginning assumes a  wrongful character when it is unauthorisedly retained and in  such cases, the owner is not entitled to claim mesne profits but  only the fair rent.   In the present case, in view of the  permission granted by this Court enabling the appellant to use  and occupy the property up to 31.3.1993, it cannot be said that  the possession of the appellant was illegal and wrongful and in  the nature of trespass. In the circumstances, damages were  claimable not on the basis of mesne profits but on the basis of  fair rent.  Even assuming for the sake of arguments that the  arbitrator was right in applying income/profit method, the  arbitrator has erred in not taking into account the expenses  which the appellant was required to bear for maintenance of the  property (including payment of taxes).  The said property was  under requisition up to 10.3.1987. The fair rent of the property  was Rs.40793/- which was accepted by the respondent up to  28.2.1988, which fact has not been considered by the arbitrator.   In the municipal records, the value of the building which is in  dilapidated condition was shown at Rs.27700/- which was 10%  of the original cost, which fact has also not been taken into  account by the arbitrator.  Similarly, there was no reason for the  arbitrator to assess damages for open larger spaces @ Rs.10/-  per sq. ft. per month when these open spaces form part of the  main building for which damages were assessed @ Rs.15/- per  sq. ft. per month.  The respondent did not submit the valuation  report in support of its claim for damages.  No valuer was  examined on behalf of the respondent-claimant.  In the present  case, buildings were old and their age has not been taken into  account by the arbitrator particularly when the said property is  sought to be compared with the property situated at 2/10,  Ansari Road, Darya Ganj, New Delhi.  No sale instances have  been put in evidence.  The evidence of three witnesses who  were examined on behalf of the respondent was not cogent and  reliable for the purposes of assessing the damages.  These three  witnesses were laymen and they were not experts on valuation.   The arbitrator has not taken into account the discounting  factors, such as, the age of the building, dilapidated condition of  the buildings, dilapidated condition of the flats, expenses to  upgrade the buildings etc.  There is no evidence to support the  rate of Rs.15/- per sq. ft. per month for built up area.  There is  no reason as to why the carpet area and not the built up area has  been taken into account.  The point which we would like to  emphasize is that large number of relevant factors have not  been taken into account by the arbitrator while awarding the  damages to the extent of Rs.6.5 crores (approximately).

       Before us, it was vehemently urged on behalf of the  appellant that reasonableness of the reasons given by an  arbitrator in making his award cannot be challenged in a special  leave petition.  In the present case there was no violation of  rules of natural justice.  It was urged that it may be possible that  on the same evidence, the Court might have arrived at a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

different conclusion than the one arrived at by the arbitrator, but  that by itself is no ground for setting aside an the award of the  arbitrator.  In support of the above argument, reliance was  placed on the judgment of this Court in the case of Municipal  Corporation of Delhi v. M/s Jagan Nath Ashok Kumar & Anr.  reported in [AIR 1987 SC 2316].  We do not find any merit in  this argument.  In that matter on facts this Court found that the  reasons given by the arbitrator were cogent and they were based  on material on record.  Hence, the said judgment has no  application to the facts of the present case.

As stated above, the respondent has not relied upon  valuation report in support of his claim for damages.  It has not  examined an expert valuer in support of its claim.  The  arbitrator has given his award based on evidence of laypersons.   The sales/lease instances do not appear to be comparable.  In  such matters, arbitrators are required to apply correct principles  of valuation.  As stated above, in this case the age of the  property, the dilapidated condition of the property, the rent paid  for the property prior to 10.3.1987 have not been taken into  account.  Even the principles of valuation based on  income/profit method have not been correctly appreciated. The  municipal assessment has also not been taken into account.   Without the relevant factors being taken into account, it was not  open to the arbitrator to award a sum of Rs.6.5 crores  (approximately) as damages.  In the case of K.P. Poulose v.  State of Kerala & Anr. reported in [AIR 1975 SC 1259] it has  been held by this Court that an award can be set aside when an  arbitrator has mis-conducted the proceedings. Misconduct  refers to legal misconduct which arises if the arbitrator on the  face of the award arrives at a decision ignoring material  documents.  In the case of Trustees of The Port of Madras v.  Engineering Constructions Corporation Limited reported in  [AIR 1995 SC 2423] it has been held by this Court that in the  case of a reasoned award, the Court can interfere if the award is  based upon a proposition of law which is unsound in law and  which erroneous proposition of law vitiates the decision of the  arbitrator.  The error of law must appear from the award itself.   In the present case, the arbitrator was required to assess  damages by applying correct principles of valuation.  As  discussed above, on facts of this case, damages were required to  be assessed for use and occupation of the premises after  10.3.1987 by the appellant under the orders of the Court.  The  rent method for assessing damages has not at all been  considered by the arbitrator while assessing damages.  Even  while applying the income/profit method, the expenses, the cost  of investment etc. have not been taken into account.  Therefore,  the impugned award stood vitiated.  

For the aforestated reasons, this civil appeal stands  allowed and the impugned judgment and order of the High  Court is quashed and set aside. Consequently, we set aside the  award dated 18.11.1991 passed by the arbitrator and remit the  matter to him for disposal in accordance with law.  If the said  arbitrator is not available, the High Court shall appoint another  arbitrator who shall decide the matter within three months from  the date of appointment.  In the facts and circumstances of the  case, there shall be no order as to costs.