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Jagjeet Singh Lyallpuri (D) through LRS. Vs M/s. Unitop Apartments & Builders [03/12/19]

Section

Jagjeet Singh Lyallpuri (D) through LRS. Ors. Vs M/s. Unitop Apartments Builders

[Civil appeal No. 692 of 2016]

A.S. Bopanna,J.

1. The appellants are before this Court assailing the order
dated 31.07.2015 passed by the High Court of Punjab and Haryana at Chandigarh in FAO No. 5704 of 2012 (OM).
Through the said order, the High Court has remanded the matter to the sole Arbitrator Mr. Justice Kuldip
Singh, retired Judge, Supreme Court of India for providing opportunity of leading evidence to both the parties
and also grant opportunity to crossexamine the witnesses and thereafter decide each and every claim and
counter claim separately on merits. The said order is passed in an appeal filed by the respondent herein under Section
37 of the Arbitration and Conciliation Act, 1996 (Act 1996 for short). The appellant herein who was the
respondent in the said appeal is therefore before this Court claiming to be aggrieved by the said order.

2. The brief facts leading to the present situation is that the
appellants herein are joint owners of the land measuring 14 Kanals and 3 Marlas (8560 Sq. yards) situate at
village Sunet, Tehsil and District Ludhiana, State of punjab. The respondent company through its representatives
claiming to be wellversed with construction and development of properties approached the appellants for
joint venture in constructing a residentialcumcommercial complex on the subject
land. Accordingly, an agreement dated 14.12.1996 was entered into and among
other terms agreed therein, the respondent had undertaken to complete the
construction of the building consisting of at least six floors within three
years from the date of obtaining the sanctioned plan from the Ludhiana
Municipal Corporation. The project was required to be funded by the respondent
and a sum of Rs. 45,00,000/( Rupees FortyFive Lakhs only) was to be deposited
with the appellant as a guarantee for completion of the project. In that view,
the appellants were expected to retain the same if the building is not
completed within the period of three years. The sale proceeds from the
constructed building was to be shared in the ratio of 48:52 % between the
appellants and the respondent.

3. Pursuant to such agreement the respondent secured the
sanction of the building plan from the Municipa Corporation on 04.07.1997. The period of three years was to be
computed from that point as per the agreement. Hence the construction ought to have been completed by
03.07.2000. According to the appellant, the respondent though commenced the construction during August, 1997, the
activity was undertaken until 31.03.1999 and theproject was abandoned by them thereafter. Since the construction
was not completed by 03.07.2000 and nofurther progress was made despite the appellant having waited
beyond the said period, the appellants got issued a legal notice dated 01.11.2001 and terminated the agreement dated
14.12.1996. The respondent though issued reply dated 28.11.2001 did not proceed further to make
progress in the construction.

4. The appellants further claim that in such circumstance the
appellant and the respondent entered into a compromise and a cancellation agreement dated 26.10.2004 was executed due to which an amount of Rs. 40,00,000/( Rupees Forty Lakhs only) from the amount which was received as security deposit was returned. Notwithstanding the same, since there was change of guard in the
composition of the management, the respondent filed an application under
Section 9 of the Act, 1996 seeking to restrain the appellants from damaging or
demolishing the construction which had been raised by the respondents.
Immediately thereafter a notice dated 23.11.2004 was issued by the respondent
invoking the arbitration clause for referring the matter to arbitration. The
Arbitration Case No. 124 of 2006 under Section 11 of the Act, 1996 filed by the
respondent was allowed on 03.07.2009 and Mr. Justice Kuldip Singh, retired
Judge, Supreme Court of India was appointed as the sole arbitrator to resolve
the dispute between the parties.

5. In that view the parties appeared before the learned
Arbitrator and filed their respective claim, counterclaim and objection thereto. The evidence by way of affidavit and the
documents of respective parties was also filed, where after the learned
Arbitrator on hearing the learned counsel for the parties passed the award
dated 13.01.2010 through which both the claim as well as the counter claim was
dismissed. The respondent herein claiming to be aggrieved by the same filed a
petition under Section 34 of the Act, 1996 in the Court of the Additional
District Judge, Ludhiana which was registered in Arbitration Case No. 3 dated
29.01.2010. The learned Additional District Judge through the order dated
13.09.2012 affirmed the award by dismissing the petition.

It is in that view the respondent herein filed an appeal under Section 37 of the Act, 1996 before
the High Court. The learned Single Judge of the High Court has arrived at the
conclusion that the parties have not been granted appropriate opportunity by
the learned arbitrator to tender evidence by examining witness and to
crossexamine the witnesses, whose affidavits were filed. It is further held by
the High Court that the learned Arbitrator has not considered the aspect
relating to the extent to which the construction was put up and the amount that
was expended by the respondent herein and no determination, in that regard has
been made. The said observation was made after holding, though the time was not
the essence of the contract but yet the long delay wouldnot be justified. It was
held, even in that circumstance the other aspects required consideration. In
that background the matter was remanded to the learned Arbitrator for fresh
consideration.

6. Mr. Shyam Divan, learned senior counsel for the appellant
while assailing such conclusion by the High Court has taken us through the appeal papers and has referred to
the agreement dated 14.12.1996 and the clauses governing the parties. It is contended that when a
dispute is referred to the learned Arbitrator, Section 19 of the Act, 1996 provides that the Arbitrator can determine the
rules of procedure. In that regard it is pointed out that in the hearing held on 28.11.2009 the learned Arbitrator has in
the course of the proceedings finalised the procedure and recorded the same in
the order. It is pointed out that the respondent was represented by a senior
advocate in the arbitration proceedings wherein it has been agreed that the
parties would rely upon the affidavits and documents that were filed and the
procedure of crossexamination could be dispensed. In that background the
learned arbitrator has referred to the materials on record in the background of
the claim put forth and the affidavits filed in support thereof while arriving
at the conclusion. Hence, he contends that the procedural lapse as attempted to
be made out at this stage is not justified.

7. It is further contended by Mr. Shyam Divan that in a
proceedings where the consideration ought to be limited to the extent provided under Section 34 of the Act, 1996 and when
the learned Additional District Judge has in that light examined and confirmed
the award, the consideration ought not to have been expanded by the learned
Single Judge in a proceedings under Section 37 of the Act, 1996 wherein
also the scope is limited. On the factual aspect it is contended that despite the terms agreed in the agreement
dated 14.12.1996, no progress was made in the construction even until the point when the proceedings were
initiated before the learned Arbitrator after it was abandoned in March 1999. In that circumstance when the learned
Arbitrator has taken into consideration these aspects and arrived at the conclusion, the learned single judge
could not have interfered with the award.

The

learned senior counsel in that regard has taken us through the
award to point out that a detailed consideration hasbeen made by the learned Arbitrator on all aspects including the
fact that the cancellation of the agreement was agreed between the parties. On
the contention urged relating to the construction incurring an amount of
Rs.1,22,00,000/( Rupees One Crore TwentyTwo Lakhs only) said to have been made
by the respondent also a consideration has been made. In that circumstance when the
contention was adverted to and a view was taken by the learned Arbitrator based
on a finding of fact, the learned Single Judge was not justified in commenting
that the said aspect had not been adverted to by the learned Arbitrator. It is
therefore contended that the award is liable to be sustained and the order
passed by the learned Single Judge be set aside.

8. Mr. Shibo Shankar Misra, learned counsel for the respondent
in his attempt to sustain the order passed by the learned Single Judge contends that the respondent had raised
twelve claims before the learned Arbitrator and each claim should have been
decided separately. It is his case that the learned Arbitrator has proceeded to
reject the claim only on the conclusion that time is the essence of the
contract. Though the terms as contained in the agreement dated 14.12.1996 is not
disputed, the learned counsel contends that the delay caused resulting in non completion
of the project is solely attributable to the appellant. The appellants had not
parted with the title documents relating to the land in question due to which
the respondent was not in a position to raise the funds from the bank by
creating mortgage. Apart from the security amount the respondent has suffered
loss to the extent of Rs. 1,22,00,000/(Rupees One Crore TwentyTwoLakhs only)
being the cost of construction which was put up. Specific claim was raised
under different heads before the learned Arbitrator. Despite such contentions
and claims being put forth the learned Arbitrator has not considered the same.
In that regard it is contended that clause 11 of the agreement which provides
relating to the expenditure incurred has not been properly appreciated.

The learned counsel contended that the learned Additional District Judge in
the proceedings under Section 34 of the Act, 1996 has also not adverted to these aspects of the matter. However,
the learned Single Judge taking note of these aspects and also keeping in view
the decision in the case ofOil and Natural Gas
Corporation Ltd. vs. SAW Pipes Limited 2003 (5)
SCC 705 has arrived at the conclusion that an award of the present nature
cannot be sustained and has accordingly remanded the matter to the learned Arbitrator
to provide opportunity to the parties and take a fresh decision. It is contended that in such circumstance when
both parties would have an opportunity, theappellant herein cannot make out any
grievance. He therefore contends that the above appeal be dismissed.

9. In the light of the contentions put forth we have perused the
appeal papers and made reference to the material on record. With regard to the agreement dated 14.12.1996
and the clauses contained therein to regulate the parties there is no serious dispute between the parties. The
very fact that a contention has been raised by the respondent seeking to attribute the delay and the noncompletion of
the project to the appellant by contending that the nonfurnishing of the title documents had prevented the
respondent from raising loan would by itself indicate that no progress was made except putting up the initial
construction and the project was not completed within the period of three years or thereafter, though the building
plan was sanctioned on 04.07.1997.

In that light the appellant had issued a notice dated 01.11.2001 and terminated
the agreement, which had resulted in a dispute

10. In that backdrop when the learned Arbitrator and the learned
Additional District Judge have arrived at a concurrent opinion, it is necessary for us to take note as to whether
the learned Single Judge in an appeal filed under Section 37 of the Act, 1996
could have adverted into the merits of the contention beyond the scope
available under Section 34 (2) of the Act, 1996 so as to set aside the award and
remand the matter. In that regard whether the contentions which were put forth
to assail the award by picking holes in the procedure adopted by the learned Arbitrator is to be accepted or not also requires examination,
keeping in view the scope of Section 34 (2) of the Act, 1996 and determine as to whether such ground is made
out.

11. Since the learned Single Judge has presently accepted the
contention raised on behalf of the respondent herein that the procedure followed by the learned Arbitrator is
contrary to law and has prejudiced the respondent herein since the witnesses
were not crossexamined, this aspect of the matter is required to be noticed at
the outset. As rightly pointed out by the learned senior counsel for the appellant,
the rules of procedure to be followed by an Arbitral Tribunal is flexible and can be agreed upon by the parties
as provided under Section 19 of the Act, 1996 which reads as hereunder;

19. Determination of rules of procedure (1) The arbitral tribunal shall not be bound by the Code of Civil Procedure,1908 (5 of 1908) or the
Indian Evidence Act, 1872 (1 of 1872). (2) Subject to this Part, the parties
are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. (3) Failing any agreement referred to in subsection (2), the arbitral tribunal may, subject to this Part, conduct
the proceedings in the manner it considers appropriate. (4) The
power of the arbitral tribunal under subsection (3) includes the power to
determine the admissibility, relevance, materiality and weight of any evidence.

12. Further, keeping in view that the contention put forth
before the High Court by the respondent herein to assail the award was in the manner as noticed above with regard
to the appropriate procedure not being followed and there being denial of opportunity and in that view the respondent
not being able to put forth the case appropriately before the learned
Arbitrator, the effect of the same is required to be examined. When a challenge
is raised on that ground, in our opinion it would at best fall under
Section 34 (2) (a) (iii) which reads as follows; “34. Application for setting aside arbitral award (1) Recourse to a Court
against an arbitral award may be made only by an application for setting aside
such award in accordance with subsection (2) and subsection (3).

(2) An
arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (i)
xxxxxxxxxx (ii) xxxxxxxxx (iii) the party making the application
was not given proper notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or” (emphasis
supplied) Therefore, in order to consider whether the challenge is sustainable
on the ground available in law, at the outset itis necessary to examine whether the procedural lapse if any is
committed by the learned Arbitrator in unilaterally denying the opportunity to the parties so as to make the award
invalid and to set aside the same exercising the power under Section 34 or in an appeal under Section 37 of the
Act, 1996. In this regard as noticed, Section 19 of the Act, 1996 provides that the Arbitral Tribunal is not bound
by the Code of Civil Procedure or the Indian Evidence Act. Further, it provides
that the parties are free to agree on the procedure to be followed by the
Arbitral Tribunal. In this back drop it is noticed that in the case on hand, in
the proceedings dated 28.11.2009 (AnnexureP15) before the learned Arbitrator,
the procedure to be followed has been discussed and recorded, which reads as hereunder;

“The parties and their learned counsel have been heard. Whatever
further pleadings, documents and list of witnesses were to be filed by the
parties in terms of the proceedings dated 10.10.2009, have been done. The evidence
of the claimant as well as of the respondents was to be recorded today. Mr. Ram
Lal, whom the respondents want to crossexamine, is present before the
Arbitrator. The learned counsel for the parties have, however, agreed and consented before me they do not wish to crossexamine any of the witnesses whose affidavits have been filed by the parties concerned. In
view of the consent of the learned counsel of the parties and parties
themselves who are present, I close the evidence. The parties will rely on the
affidavits already filed and the documents and other pleadings already placed
on the record.” That apart by the very proceedings
dated 28.11.2009 the points on which arguments would be addressed were also treated
as the issues for consideration and has been formulated and recorded in the
order sheet.

(emphasis supplied).

13. From a perusal of the proceedings dated 28.11.2009 it would
be clear that both contentions raised by the learned counsel for the respondent herein and which were accepted
by the learned Single Judge to ultimately remand the matter, would not be justified.
Firstly, in the presence of the parties and their learned counsel it has been recorded
that they do not wish to crossexamine any of the witnesses whose affidavits
have been filed by the parties concerned and one of the witness who was present
was discharged without being cross examined and no grievance was made either by the parties or their learned counsel
who were present. It is in that view the evidence was taken as closed on 28.11.2009 and the issues for consideration
was settled for arguments on the same day.

In that circumstance having consented to the said procedure, it
would not be open for the respondent herein to approbate and reprobate so as to raise a different contention
at this point. Having accepted the said procedure the respondent is estopped
from raising such contention before the learned Single Judge that the arbitrator
misconducted himself by not permitting the parties to crossexamine the witness
and also that the learned Arbitrator being more than 70 years of age and suffering
from knee problem has pressurized the respondent to speed up the matter and the
evidence was closed. It is rather intriguing for us to note that such contention
has not only been permitted to be raised, but also accepted by the learned
Single Judge to remand the matter, which is wholly unjustified.

14. We are of such opinion for the reason that the procedure to
be followed in arbitration proceedings was settled by a separate order dated
28.11.2009 during the course of the proceedings before the learned Arbitrator. Thereafter the award was passed only on 13.01.2010. Though the
respondent was represented by their learned counsel and the order dated 28.11.2009 was passed while recording
the proceedings of that day, neither any application had been filed before the learned Arbitrator to recall
the said order and provide opportunity to tender evidence or cross examine, nor was a challenge raised by initiating
any other proceedings, before the award was passed.

It is only subsequent to the award being passed such contention
is being raised as an afterthought, which in such event cannot be accepted. That apart, the agreement
being entered into on 14.12.1996 and the work not having progressed subsequent
to March,1999 was not seriously in dispute and in that circumstance based on the
affidavit, the admitted documents have been taken note by the learned
Arbitrator due to which the non crossexamination in any event has not
prejudiced the respondent herein. One aspect of the matter no doubt was with regard to the claim that was put forth by the appellant
herein that a cancellation agreement dated 26.10.2004 was entered into and the
security deposit of Rs. 40 Lakhs and the advance of Rs. 23 Lakhs has been repaid to Mr. S. Surinder Singh which was disputed by the
respondent.

On that aspect the learned Arbitrator in any event has concluded that the said payment if any cannot be
considered as a payment made to the respondent company but has been received by
Mr. Surinder Singh who had made gain unto himself. In such event since the
respondent has not filed the affidavit of Mr. Surinder Singh disputing the
same, it is an interse matter to claim from Mr. Surinder Singh and therefore,
the noncrossexamination on that aspect also has not resulted in any prejudice.
Be that as it may, as already taken note, the procedure to be followed in the
arbitral proceedings has been agreed to by the parties. Hence the respondent cannot
be heard to complain as and when it suits them.

15. Further, since through the very order dated 28.11.2009 the
issues for consideration on which the arguments would be addressed was settled
and the matter was proceeded on that understanding without raising any objection, the grievance put forth by the respondent and accepted
by the learned Single Judge that the learned Arbitrator has not answered each of the claims separately in the
award, cannot also be accepted. A perusal of the award would indicate that the learned Arbitrator has adverted to
all aspects in a sequential manner and has recorded his conclusion in answer to
the contentions that were put forth.

16. One other aspect which has been recorded by the learned
Single Judge as the reason for which the matter requires reconsideration by the learned Arbitrator is that the
claim put forth by the respondent that the sum of Rs. 1,22,00,000/spent by them has not been considered by the learned
Arbitrator. In that regard the learned Single Judge has held that though the respondent herein would not be
entitled to continue the project due to lapse of time the learned Arbitrator has not considered the right of the parties
relating to the extent of the cost incurred for the existing construction and the manner in which it is to be dealt
with. On this aspect, a perusal of the award passe by the learned Arbitrator would indicate that after having arrived
at the conclusion that the respondent has committed the breach, the learned
Arbitrator has also adverted to the said contention relating to the cost incurred
for the extent of construction made, as claimed and has rejected the same. The
consideration as made is as hereunder;

“I may examine, at this stage the claimants contention that construction
worth about Rs. 1 crore 20 lacs has been done on the project. The claimant has
primarily relied on the balance sheet of the Company for the relevant year in
support of this argument. The balance sheet is AnnexureK at page 118126 Of the statement of Claim. In the schedule forming part of the accounts
for the year ending 31st March,
1999, the balance sheet shows an expenditure of about 1 crore 20 lacs on the project
in process. This includes Rs. 44 lacs as advance given to the respondents (land
owners) as guarantee money.

Expenditure incurred has been shown under various headings such
as advertisement and publicity, salary, entertainment, iron and steel, cement,
GC sheets, stand, bricks, marble, crusher, electrical, GI pipes, gate,
professional charges, telephone expenses, electricity expenses, labour and
construction charges. An amount of Rs. 56,58,530/has been shown under the heading
purchase. It is not indicted so as to what was purchased. All the items
required for the construction of the project have been shown separately but it
is not clear on what purchase/purchase this amount was spent. No explanation is

forthcoming from the claimant in this respect. Mr. Mahajan while
controverting the argument of Mr. Lekhi has stated that Local Commissioners
report AnnexureW makes it clear that the amount which may have been spent on
the construction was much less. Be that as it may there is no expert evidence
on the record to show as to how much money was spent on the construction. The
claimant company did receive some money as advance against flats and offices to
be constructed. It is in the evidence that Rs. 23 lacs was received by the
Company in this respect. The balance sheet as on 31st March, 1999 at page 121
shows that the Company received Rs. 19,79,488/as advance against flats and
offices. In the absence of reliable evidence on the record, it is not possible
to accept the argument of the learned counsel for the claimant.”

17. In that circumstance when the learned Arbitrator has noticed
the contention and recorded a finding of fact it cannot be accepted that the learned Arbitrator has not adverted
to the same so as to require reconsideration. To be fair to the learned Arbitrator, it has in fact been noticed by
the learned Arbitrator relating to the change of Directors and shareholders of
the company in 2007 as against the shareholders who existed as on 30.09.2005 and also that the erstwhile
Directors/shareholders who had personal knowledge have not been examined by filing their affidavits and even though an application dated 12.09.2009 for summoning them as witnesses was filed, the same was not pressed and the evidence was closed on 28.11.2009
with the consent of the parties.

The learned Arbitrator has in fact recorded
that none of them have come forward to render assistance in the proceedings. In
such circumstance when the respondent herein, who were themselves the claimants
before the learned Arbitrator have not conducted the matter in an appropriate
manner by securing affidavit evidence of the erstwhile directors / shareholders,
they cannot at this stage turn around and contend that the learned Arbitrator
has misconducted himself. In any event the challenge to the award does not fall
under any of the clauses of Section 34 of Act, 1996. In such circumstance the
reliance placed by the learned Single Judge on a decision in the case of ONGC
(supra) is highly misplaced. Therefore, the order dated 31.07.2015 passed by
the learned Single Judges is not sustainable and the same is liable to be set
aside.

18. During the course of hearing we had also made an endeavour
to see that the parties amicably settle the matter by enabling the respondent herein to receive some amount
towards the expended portion, also by not ignoring the loss suffered by the appellants due to delay. From
the photographs produced before us we have noticed that except raising some
columns, there is no major construction that is put up. In so far as the
expense as claimed by the respondent, as indicated by the learned Arbitrator
as extracted above, there is no conclusive evidence to that effect. Though such columns are raised, admittedly
construction activity has not taken place beyond March, 1999 and already two decades have elapsed. In view
of the breach and the respondent herein failing in the present lis there would be no absolute right in
their favour since the inevitable loss suffered by the appellants by not being able to enjoy the property for the last
more than two decades also cannot be lost sight.

The appellant herein who is the owner of the property will have to
enter into a fresh contract and the need and manner of development may not be
the same at this point and in such event the appellant herein also would be put
to some loss to undertake the demolition process themselves or there
would be reduction that would be made by the alternate developers who would undertake the project. Further,
the actual quantum in any event cannot be determined and also when a breach has
been committed through the predecessor directors / shareholders of the respondent company and when the present directors / shareholders have entered the scene in the midst of the breach they would have to bear the loss, if any, to that extent.
Therefore, without reference to the actual loss suffered by the parties, while putting an end to the litigation
between the parties, in the peculiar circumstance and in the interest of justice, notwithstanding the fact that we
have held the order of the learned Single as not sustainable, in exercise of our power under Article 142 of the
Constitution of India the appellant is directed to pay the sum of Rs. 45,00,000/(Rupees Forty Five Lakhs only)to the
respondent whereupon they would be entitled to assume possession of the subject land and proceed to enjoy the
same in accordance with law.

19. In the result the appeal is disposed of with the following
order:

(i) The order dated 31.07.2015 passed by the High Court of
Punjab and Haryana in FAO No. 5704 of 2012 (OM) is set aside. Consequently, the award dated 13.01.2010 passed by the learned Arbitrator is restored.

(ii) The appellant is directed to pay the sum of Rs. 45,00,000/(Rupees FortyFive Lakhs only) in full quit ofall claims, to the respondent within three
months.

(iii) Immediately on payment of the said amount the appellant
shall be entitled to resume possession of the subject land in the status as it exists and enjoy the same in
accordance with law.

(iv) Parties to bear their own costs.

…………………….J. (R. BANUMATHI)

…………………….J. (A.S. BOPANNA)

…………………….J. (HRISHIKESH ROY)

New Delhi,

December 03, 2019

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