Bombay High Court
Ssd Escatics Private Limited vs Goregaon Pearl Coopratice Housing … on 30 March, 2026
2026:BHC-OS:7691
Neeta Sawant CARBP 354 of 2024
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION NO. 354 OF 2024
SSD Escatics Private Limited .....PETITIONER
ORIG. RESPONDENT
: VERSUS :
Goregaon Pearl Cooperative
Housing Society Limited ....RESPONDENT
ORIG. CLAIMANT
Mr. Rajiv Narula a/w. Mr. Abhishek Bhadang and Mr. Tarang Jagtiani
I.b. Jhangiani Narula and Associates, for the Petitioner.
Mr. Mayur Khandeparkar i/b Mr. Tushar Gujjar a/w. Mr. Deepak Singh
and Mr. Lancelot Lewis i/b St. Partners, for the Respondent.
CORAM : SANDEEP V. MARNE, J.
JUDG. RESD. ON: 9 MARCH 2026.
JUDG. PRON. ON : 30 MARCH 2026
JUDGMENT:
1) The Petitioner has filed this Petition under section 34 of
Arbitration and Conciliation Act, 1996 (Arbitration Act) challenging the
award of the learned sole arbitrator dated 24 June 2023. By the impugned
award, the Arbitral Tribunal has declared the Termination Notice dated 9
June 2018 terminating the Development Agreement (DA) and Power of
Attorney (POA), both dated 26 September 2007, and of the Consent
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Terms dated 16 May 2017 as valid, legal and binding. The Tribunal has
further declared that the contract of redevelopment is terminated with
effect from 9 June 2018. The Arbitral Tribunal has restrained the
Petitioner from interfering with possession of Respondent-Society over
the land and building in question. Petitioner is directed to the handover
all original documents relating to redevelopment of the Society. The
Arbitral Tribunal has also awarded claim in the sum of
Rs.7,08,53,695.03/- in favour of the Respondent-Society. The Arbitral
Tribunal has awarded costs of Rs.9,65,250/- in favour of the Respondent-
Society. The counterclaims of the Petitioner are rejected.
FACTS
2) Respondent is a Cooperative Housing Society registered
under the provisions of the Maharashtra Cooperative Societies Act, 1960.
The Society was formed by owners and occupiers of 60 flats in Buildings
B-3, B-4 and B-5 at Survey No.7, CTS No.27 at Siddharth Nagar,
Goregaon (West), Mumbai, which was a part of MHADA layout. The
Respondent-Society had 60 original members, who owned and occupied
flats in the building of the Society. The Respondent-Society decided to
go for redevelopment of its building. By resolution adopted on 18 June
2005, the Special General Body Meeting of the Society appointed
Petitioner as the developer to carry out redevelopment of its building. A
Redevelopment Agreement was executed between the Petitioner-
Developer and Respondent-Society on 26 September 2007. A separate
Power of Attorney was also executed in favour of the Petitioner on the
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same day. The Municipal Corporation issued the Intimation of
Disapproval (IOD) on 16 August 2007. In October/November 2007, the
members of the society vacated their respective flats and handed over
the possession thereof to the Petitioner. On 5 January 2008, the
Petitioner issued Bank Guarantee of Rs. 5 crores in favour of the
Respondent-Society. Commencement Certificate for construction of a
building having two wings – Wing-A and Wing-B was issued by the
Municipal Corporation on 17 June 2008, which was revalidated from time
to time. On 4 August 2011, a stop work notice was issued to the
Petitioner alleging that it carried out construction beyond the
permissions. According to the Respondent-Society, the construction
activities accordingly came to a halt on 4 August 2011. In the meantime,
MHADA issued no objection certificate for utilization of FSI 2.5 subject
to various conditions. Petitioner purchased additional tit-bit land from
the MHADA Authorities by paying consideration amount of
Rs.8,18,03,435/- and by virtue of the same, the original plot area got
increased from the original 2543 sq. mtrs to 3747.81 sq. mtrs. The
Petitioner got the plans amended from MCGM for availing
concessional/fungible FSI. According to the Petitioners, correspondence
took place for execution of supplementary agreement for sharing the
additional FSI between the Petitioner and Respondent-Society. By the
year 2013, Petitioner had completed construction of RCC structure of ‘A’
Wing building upto 7 floors and RCC work of ‘B’ Wing building of 21
floors.
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3) On 14 March 2014, MCGM issued offer letter approving
proposal for utilization of pro-rata FSI of 3.5 on payment of premium of
Rs.10,54,17,300/-. It appears that the said amount was not paid by the
Petitioner. On 12 September 2014, Petitioner issued a letter to the
Respondent-Society seeking its consent for amalgamation of adjoining
project of Kapil Vastu Society with Respondent-Society’s land. The
Respondent-Society requested the Petitioner to complete the project as
per 2.4 FSI and accommodate all 60 members by granting them
possession by letter dated 28th January 2015. Thereafter, correspondence
took place between the Petitioner and Respondent wherein the
Respondent-Society complained about stoppage of entire work. The
Petitioner cited the reason of pending issues for sanction of additional
FSI. Apprehending that the Respondent-Society would encash the bank
guarantee, Petitioner filed Suit (L.) No.921/2015 in this Court, which was
withdrawn on 7 January 2016. Respondent-Society thereafter invoked
and encashed the bank guarantee of Rs.5 crores and appropriated Rs.2.5
crores towards arrears of tent and balance 2.5 crores towards share of
profits and utilization of additional 1.00 FSI. The Respondent revoked
the Power of Attorney on 16 August 2016.
4) In the above backdrop, Respondent-Society filed Arbitration
Petition (L) No. 160 of 2017 under Section 9 of the Arbitration Act
seeking various interim measures. On 7 July 2017, parties arrived at an
amicable settlement and filed Consent Terms under which the liability of
the Petitioner was fixed at Rs.7.62 crores and it was agreed that out of
the encashed amount of bank guarantee, Rs.2.5 crores would be adjusted
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towards arrears of rent and balance Rs.2.5 crores towards Society’s share
of profits in the additional FSI. Petitioner gave commitment to clear the
balance amount towards transit rent and issued postdated cheques.
Petitioner agreed to complete A-Wing building with part Occupancy
Certificate by 30 June 2018 plus grace period of 4 months. It also agreed
to complete B-Wing building on or before 31 December 2017 with grace
period of three months. According to the Respondent Society, Petitioner
committed breaches of Consent Terms and all the postdated cheques
issued towards payment of rent, etc were dishonored. The Society filed
Contempt Petition (L) No.24 of 2018 before this Court wherein a
direction was issued by this Court on 6 March 2018 for payment of sum
of Rs.5,42,16,436/- in four monthly installments. According to the
Respondent-Society, except paying sum of Rs.1,72,72,145/-, the
Petitioner did not make the payment as directed by this Court in the
Contempt Petition. On 3 June 2018, the Society resolved to terminate
the Development Agreement, Consent Terms and Power of Attorney.
The decision of termination was communicated to the Petitioner by
notice dated 9 June 2018. The Respondent-Society filed Petition under
Section 9 of the Arbitration Act seeking injunctive reliefs against the
Petitioner post termination. By consent of the parties, the disputes were
referred to arbitration by appointing a sole arbitrator by converting
Section 9 petition into Section 17 application.
5) After the Arbitral Tribunal comprising of the sole Arbitrator
was constituted, the Respondent-Society pressed its application for
interim measures. The Arbitrator passed order dated 17 September 2018
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under Section 17 of the Arbitration Act granting various injunctive
reliefs in favour of Respondent-Society permitting the Society to engage
new developer and directed Petitioner to handover possession of the
entire project to the Society. Petitioner challenged the order of interim
measures of the learned Arbitrator by filing Appeal before this court,
which was dismissed by order dated 14 December 2018. The Hon’ble
Apex Court also dismissed the SLP preferred by the Petitioner-Developer
and this is how order of the Arbitrator making interim measures attained
finality. The flat purchasers attempted to intervene in the arbitration but
the learned Arbitrator rejected the intervention application by order
dated 27 February 2019.
6) One of the flat purchasers filed a suit seeking specific
performance of agreement for sale executed in her favour in which City
Civil Court passed order of temporary injunction restraining the society
from alienating or creating third party interests in the flat allotted to her
by the Petitioner-developer. In Appeal from Order filed by the Society,
the order of temporary injunction was set aside by this Court on 14
October 2019. The Special Leave Petition preferred by the developer was
dismissed by the Apex Court on 20 January 2020 and the order passed in
the Appeal from Order attained finality. The arbitral proceedings were
conducted before the learned sole Arbitrator. At the conclusion of the
proceedings, the Arbitral Tribunal has made Award dated 24 June 2023,
upholding the termination of Petitioner-developer and restrained it from
interfering with possession of the Society of land and building.
Petitioner is directed to handover all original documents relating to
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redevelopment to the Society. The Arbitral Tribunal has also awarded
monetary claim in the sum of Rs. 5,13,20,822.32/- in favour of the
Respondent-society comprising amount of Rs.55,58,211/- towards costs
incurred, Rs.3,72,24,290/- towards amount agreed to be paid under the
Consent Terms alongwith interest of Rs.85,38,321.52/-. The Arbitral
Tribunal has also awarded costs of Rs.9,65,250/- in favour of the
Respondent-society. All the counterclaims of the Petitioner have been
rejected.
7) The Award has been corrected by the Arbitral Tribunal by
order dated 26 June 2023 by correcting the figure of interest from
Rs.85,38,321.52/- to Rs. 2,80,71,194.03/-. This is how the final claim
amount has been enhanced to Rs.7,08,53,695.03/-.
8) Aggrieved by the Award dated 24 June 2023, as corrected on
26 June 2023, the Petitioner-developer has filed the present Petition
under Section 34 of the Arbitration Act.
SUBMISSIONS
9) Mr. Narula, the learned counsel appearing for the Petitioner
submits that the Award of the Tribunal is grossly perverse as being
rendered contrary to the contractual terms, violates public policy
doctrine and is patently illegal. He first attacks various findings recorded
in the award relating to validity of the termination notice. He submits
that the findings of the Arbitral Tribunal in para-103 of the award that
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the FSI was pegged at 2.4 is contrary to the Development Agreement
dated 26 September 2007, clause-2 whereof permitted utilization of all
available FSI and additional TDR by dividing the benefits between the
parties. That specific admissions were made by the witness of
Respondent-Society in answer to Question Nos.94 and 95 in this regard.
That finding recorded in para-121 of the Award about amendment of
plans without intimation of Society is contrary to clauses-9(a) and 9(g) of
the Development Agreement, which did not require any prior intimation
for amendment of the plans. That Consent Terms dated 16 May 2017
only condoned the previous alleged breaches and therefore,
supplemental terms were arrived at between the parties. That under
clause 39 of the Consent Terms, Respondent was required to issue NOC
to MHADA for grant of further FSI, but it failed to communicate the
withdrawal of revocation of POA to MHADA. That clause 40 of the
Consent Terms required the Society to withdraw the termination notice
and grant unconditional NOC for additional FSI and clause 41 required
the Respondent-Society to grant NOC for obtaining finance. That such
NOCs were not issued by the society thereby breaching the conditions of
the Consent Terms. That the agreement between the parties is reciprocal
in nature and since Respondent-Society failed to adhere to its
contractual obligations, provisions of Section 67 of the Indian Contract
Act, 1872 (Contract Act) became applicable, thereby relieving the
Petitioner of the consequences of any breaches on its part. He relies on
judgment of the Apex Court in Nathulal vs. Phoolchand1.
1
(1969) 3 SCC 120
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10) Mr. Narula further submits that the findings of the Arbitral
Tribunal in para-166 of the award about the arrangement for grant of
NOC for additional FSI not being inflexible is contrary to the express
conditions of the Consent Terms. That further finding of the arbitrator in
para-169 of the award that Respondent-Society factually granted NOC is
contrary to the record since NOC dated 28 July 2017 was delivered to the
Petitioner only on 26 September 2017, by which date the due date to
perform had already passed by. That the observations of the arbitrator in
para-170 of the arbitral award about non-payment of premium is
perverse and recorded in ignorance of payment of Rs.3,32,31,778/- which
remained credited to the Petitioner’s account. That in view of failure to
issue NOC by the Society, Termination Notice was illegal and contrary to
the agreed terms. That the Arbitral Tribunal ought to have dismissed
Society’s claim.
11) Mr. Narula further submits that the Arbitral Tribunal has
construed the contract in such a way that no fair-minded person would
ever do so. He relies on judgment of the Apex Court in Associate
Builders Versus. Delhi Development Authority2.
12) Mr. Narula then proceeds to attack the award by contending
that non-return of amounts spent by the Petitioner in the project which
are benefits enjoyed by the society is contrary to the fundamental policy
of Indian law. He submits that the award permits the Society to unjustly
enrich itself by retaining the amounts towards rent, cost of construction,
cost of purchased FSI, etc . That the Arbitral Tribunal has grossly erred in
2
(2015) 3 SCC 49
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not treating the various amounts spent by the Petitioner as ‘benefits’
received by the Society. That Petitioner paid sum of Rs.8,18,03,435/- for
acquiring additional tit-bit plot area and sum of Rs.20,61,140/- for FSI
for R.G. area. That Petitioner also incurred huge amount of cost for
construction of the two buildings. That additionally Respondent-Society
appropriated amount of Rs.2.5 crores towards their share in the
additional FSI. That all these amounts spent by the Petitioner which are
ultimately enjoyed by the Respondent-society are erroneously not
treated as benefits by the Society. He submits that Arbitral Tribunal’s
refusal for restoration of benefits to the Petitioner upon termination of
contract and non-award of damages in view of Clause-22 of the DA is
contrary to Sections 64 and 73 of the Contract Act. He relies on judgment
of the Madras High Court in Mundakath Mathu vs. Chalora Illath
Vishnu Nambudripad and others3 in support of his contention that upon
avoidance of the contract, a party avoiding it is under statutory
obligation to restore the benefits. He submits that a party cannot reject
the contract yet retain the advances derived therefrom. Mr. Narula
further submits that Clause 22 of the DA is in the teeth of provisions of
Section 23 of the Contract Act as it seeks to prohibit a party from
approaching the Court for recovery of damages which is against the
public policy of India. That this issue was specifically raised before the
Arbitrator. He also relies on judgments of the Apex Court in Asian Techs
Limited vs. Union of India and Ors. 4, Board of Trustees for the Port of
Calcutta vs. Engineers-De-Space-Age5 and of Delhi High Court in MBL
3
AIR 1932 Mad 303
4
(2009) 10 SCC 354
5
(1996) 1 SCC 516
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Infrastructures Ltd. vs. Delhi Metro Rail Corporation 6. In support of his
contention that any contractual terms which denies compensation is
void and unenforceable, Mr. Narula relies on judgments of this Court in
Mumbai Metropolitan Region Development Authority vs. Mumbai
Metro One Private Limited7 and Regus South Mumbai Business Centre
vs. Marie Gold Realtors Private Limited8.
13) That the Arbitral Tribunal has erroneously refused to treat
the rent paid by the Petitioner as not a benefit received by the Society
members. That the Arbitral Tribunal has erroneously relied on mere
interim order passed by this Court in Borivali Anamika Niwas CHSL vs.
Aditya Developers and Ors.9 wherein some observations are made for
considering entitlement of parties to interim measures under Section 9
of the Arbitration Act. That the judgment in Borivali Anamika Niwas
CHSL cannot be read to mean an abstract principle that construction
costs incurred by a developer can never amount to benefit received by
the society or its members. He submits that various judgments on the
other hand clearly lay down a law for return of benefits under Section 64
of the Contract Act upon rescission of the contract. He relies on
judgments in Chacko and Ors. vs. Sreeja and Anr.10, Mohammad
Mumtaz Ali Khan and Anr. vs. Altaf-ul-Rahman Sheikh and Anr.11 and
Muralidhar Chatterji vs. International Film Company Ltd. 12 That costs
6
2023 SCC OnLine 8044
7
Commercial Arbitration Petition No.427 of 2024 decided on 24 February 2026
8
Commercial Arbitration Petition No.439 of 2024 decided on 25 November 2026
9
2020 SCC OnLine Bom 10632
10
1990 SCC OnLine Ker 327
11
1922 SCC OnLine Oudh JC 87
12
1942 SCC OnLine PC 35
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of construction and payments made by the Petitioner for purchase of FSI
and additional FSI are benefits received by the Society, which must be
returned upon termination of the contract. That it is clearly against
public policy to permit a party terminating the contract to retain the
benefits arising out of it.
14) Mr. Narula further submits that even if compensation is
denied to the Petitioner under Section 73 of the Contract Act, the
benefits received by the Respondent-Society must be returned under
Section 64 of the Act. That there is no contractual prohibition between
the parties for restoration of the benefits received by the Society. That in
the present case, the Respondent-Society has unjustly enriched itself by
retaining the entire construction put up by the Petitioner and also by
utilising the FSI purchased by the Petitioner. That the learned Arbitrator
has not considered the case of the Petitioner for restoration under
Section 64 of the Contract Act and has conflated the same with the
concept of compensation under Section 73 of the Act. That the
Petitioner has made investment of over Rs.300 crores in the project and
since the society has enjoyed the benefits of such investment, the same
must be returned to the Petitioner upon rescission of the contract.
15) Mr. Narula relies on the provisions of Section 27 of the
Specific Relief Act, 1963 in support of his contention that several third
party rights have been created during subsistence of the contract and
that the learned arbitrator ought to have invalidated illegal rescission of
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the contract by the Society by taking into consideration the factum of
third-party rights.
16) Lastly, Mr. Narula would submit that voluminous
documentary evidence was produced by the Petitioner in support of the
claim for damages and benefits to the Responding-Society. That no
cross-examination was conducted on behalf of the Respondent-Society
in respect of the evidence so led. However, the learned Arbitrator has
erroneously not awarded loss of profits because of insufficiency of
evidence, which finding is contrary to the judgment of this Court in
Harish Loyalka and Another vs. Dilip Nevatia and Others 13. On above
broad submissions, Mr. Narula would seek invalidation of the impugned
award.
17) The Petition is opposed by Mr. Khandeparkar, the learned
counsel appearing for the Respondent-Society. He submits that the
Petitioner has failed to make out even a single valid ground of challenge
as enumerated in Section 34 of the Arbitration Act for invalidating the
impugned award. He submits that the Arbitral Tribunal has conducted an
in-depth analysis of contractual provisions, correspondence between the
parties and evidence before it and has thereafter arrived at a finding that
the termination of the DA is legal and valid. He submits that despite
execution of the DA on 26 September 2017, all that the Petitioner did by
9 June 2018 by which time DA was terminated, was to merely construct a
bare shell rehab component building. That the construction at site had
come to an absolute halt since 2011 and Petitioner-developer had
13
2014 SCC OnLine 1640
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defaulted in payment of rent to the members. That in such
circumstances, termination of the DA executed with the developer not
causing any construction at the site is rightly upheld by the Arbitral
Tribunal. That there was no construction at the site after the Municipal
Corporation issued stop work notice on 4 August 2011. He submits that
the Petitioner was forced to enter into Consent Terms after this Court
noticed prima facie forgery and fabrication in the Commencement
Certificate on 7 December 2016. However, none of the obligations under
the Consent Terms are fulfilled by the Petitioner. That all the post-dated
cheques issued by him towards payment of rent/ compensation were
dishonoured. That even order passed in Contempt Petition for payment
of sum of Rs.5.42 crores was not honoured by the Petitioner. That
Respondent-Society, waited for more than a year for Petitioner to act in
terms of the Consent Terms, finally was left with no other alternative but
once again terminate the DA and POA on 9 June 2018. Mr. Khandeparkar
places on record submissions filed before the Arbitral Tribunal and
invites my attention to various breaches of the DA as well as of the
Consent Terms highlighted therein.
18) Mr Khandeparkar further submits that the Arbitral Tribunal
has taken note of material breaches committed by the Petitioner, both of
the DA as well as of the Consent Terms. That findings of facts recorded
by the Arbitral Tribunal in respect of such breaches do not warrant
interference in exercise of jurisdiction under Section 34 of the
Arbitration Act.
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19) Mr. Khandeparkar then justifies the Arbitral Tribunal not
awarding any damages and not returning the expenditure incurred by the
Petitioner developer by inviting my attention to clauses-9(h), 22, 42 and
47 and 53 of the D.A. wherein the developer specifically agreed not to
claim damages or compensation in the event of breach of contract. The
Arbitral Tribunal is justified in not awarding the same by giving effect to
the contractual terms agreed between the parties. He relies on judgment
of the Apex Court in Steel Authority of India Ltd. versus. J.C.
Budharaja, Government and Mining Contractor 14 in support of his
contention that it is not open to the arbitrator to ignore the agreed terms
of contract which are binding on the contracting parties. He relies on
Section 28 of the Arbitration Act in support of his contention that the
Arbitral Tribunal was bound to render the award strictly in terms of the
contractual stipulations agreed between the parties. He submits that in
Borivali Anamika Niwas CHSL (supra), this Court has specifically held
that mere investment of money into the project by the developer does
not create any equity and the expenditure in the project is not a handout
to the society members. He also relies on judgment of this Court in
Rajawadi Arunodaya CHS Ltd. vs. Value Projects Pvt. Ltd. 15 in support
of his contention that mere creation of third-party rights by the
developer does not make any difference as the developer takes the risk of
satisfying those third-party purchasers who are strangers to principal
agreements with no obligation on the Society. He submits that the
society ultimately is the owner of the property. Mr. Khandeparkar further
submits that if a law is declared even while making an interim order by
14
(1999) 8 SCC 122
15
2021 SCC OnLine Bom 9572
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this Court, the law declared therein cannot be ignored only on the
ground that what court decided was a mere prayer for interim injunction.
He relies on judgment of this Court in IREP Credit Capital Pvt. Ltd. vs.
Tapaswi Mercantile Pvt. Ltd. and Anr .16 That therefore, the Tribunal
has rightly relied upon judgment of this Court in Borivali Anamika
Niwas CHSL.
20) Mr. Khandeparkar further submits that the development
agreements are special types of contracts, which cannot be interpreted
like regular commercial contracts. That consideration under Section 2(d)
of the Contract Act can also be negative consideration. That DA is a
negotiated document under which parties have agreed on a condition
that the developer will not make a claim for expenses/investments made
in case of breach/termination, which forms negative consideration for
execution of the contract. That various clauses of the DA were never
challenged before the learned Arbitrator nor a declaration was sought
that the same are void or contrary to law. That therefore, arbitrator being
a creature of contract, cannot decide the claims against the terms of the
contract.
21) Mr. Khandeparkar further submits that amounts allegedly
paid by the Petitioner to MHADA/MCGM are claimed as a part of
compensation in the counterclaim and not as restoration of benefits
under Section 64 of the Contract Act. That therefore, Petitioner cannot
now turn around and claim that the said amounts must be restored to it
16
2019 SCC OnLine Bom 5719
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as a part of benefit under Section 64 of the Act. He further submits that
the learned Arbitrator has therefore rightly treated the counterclaims
raised by the Petitioner as claim for compensation within the meaning of
Section 73 of the Contract Act. That the view taken by the learned
Arbitrator in treating the counterclaims as compensation is plausible
view not warranting any interference in exercise of powers under Section
34 of the Arbitration Act. Without prejudice, he submits that restitution
would otherwise form compensatory damages, as held by the Madras
High Court in E-merge Tech Global Services P Ltd. vs. M.R.
Vindhyasagar and Anr.17.
22) Mr. Khandparkar relies on judgment of Division Bench of
this Court in Vilayati Ram Mittal (P) Ltd. vs. Reserve Bank of India 18 in
support of the contention that clauses in the contract providing for non-
payment of compensation are enforceable in law. He also relies on
judgment of the Apex Court in Associated Engineering Co. vs.
Government of Andhra Pradesh and Anr.19 He relies on judgment of the
Apex Court in Union of India and Ors. vs. Larsen & Tubro Limited20 in
support of his contention that the Apex Court has enforced covenant in
the contract for non-payment of interest. Mr. Khandepakar further
submits that the any dispute about Petitioner’s entitlement to
compensation contrary to various contractual clauses, would fall outside
the jurisdiction of the arbitrator. That the entitlement of Petitioner to
compensation and restoration of benefits is determined by the Tribunal
17
2021 SCC OnLine Mad 17022
18
2017 SCC OnLine Bom 8479
19
(1991) 4 SCC 93
20
2026 SCC OnLine SC 327
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as per the contractual terms and that therefore even if the arbitrator
commits any mistake in interpreting the terms of the contract, it would
be an error within its jurisdiction not warranting interference by Section
34 Court. He relies on judgment of this Court in Goa Shipyard Limited
vs. Shoft Shipyard Pvt. Ltd.21 in support of his contention that mere
erroneous application of law by the arbitrator cannot be a ground for
interference in the award.
23) Mr. Khandeparkar further submits that the rights of the
developer during the term of DA are subservient and imperfect rights
which get perfected only upon full compliance with the terms of DA and
upon handing over of flats to the members. That the right of the
developer has not been perfected in the facts and circumstances of the
present case. He relies on judgment of this Court in Vaidehi Akash
Housing Pvt. Ltd. vs. New D.N. Nagar Co-op. Housing Society Union
Ltd. and Others22 in support of his contention that right of the
Petitioner-Developer to sell flats and to earn profits does not get
perfected until fulfilment of all obligations under the DA. That the
developer has entered into the DA with full knowledge of non-
entitlement for any compensation in the event of termination of
contract on account of his breaches and therefore it cannot now be
permitted to wriggle out of such contractual obligations.
24) Mr. Khandeparkar further submits that what is ultimately
taken by the arbitrator in the facts of the present case is a plausible view
21
Arbitration Appeal No. 38 of 2024 decided on 26 April 2024.
22
2014 SCC OnLine Bom 5068
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which cannot be interfered with by Section 34 Court. In support, he
relies upon judgment of the Apex Court in Consolidated Construction
Consortium Ltd. vs. Software Technology Parks of India 23. He submits
that even if any error is traced in construction of contractual terms by
the Arbitral Tribunal, the same would at the highest be an error within
the jurisdiction. He relies on judgment of the Apex Court in Ramesh
Kumar Jain vs. Bharat Aluminium Company Limited ( BALCO) 24 in
support of his contention that even an award which is based on little or
no evidence cannot be invalidated on that score and that even decisions
taken by the arbitrator on equity which are just and fair cannot be
overridden by Courts under Sections 34 and 37 of the Arbitration Act. He
submits that in addition to clause 22 of the DA, the decision of the
arbitrator not to return alleged expenses incurred by the Petitioner or
alleged benefits received by the society is also justified on account of
other contractual clauses in the agreement. He relies on judgment of the
Apex Court in OPG Power Generation Pvt Ltd. Vs. Enexio Power
Cooling Solutions India Pvt. Ltd. and Anr. 25 in support of his contention
that it is open for Section 34 Court to justify the underlying reasons in
the arbitral award by taking into consideration the entire material
produced before the Arbitral Tribunal. Mr. Khandeparkar further
submits that the award of the Arbitral Tribunal results in a situation
where the society has ultimately completed construction of the building
and its members are put back in possession of their respective homes.
That the Arbitral Tribunal has awarded mainly the claim for arrears of
23
(2025) 7 SCC 757
24
2025 SCC Online SC 2857
25
(2025) 2 SCC 417
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rent which are expressly agreed in the consent terms. That the issue of
rent not representing benefit to the society Members is settled by
judgment of this Court while rejecting Petitioner’s appeal against
Section 17 order. He therefore submits that no case is made out by the
Petitioner-developer for interference in the impugned award. He would
pray for dismissal of the petition.
REASONS AND ANALYSIS
25) The present case is an example of a tragic saga where the
hopes of members of the Respondent-society to secure bigger, better and
more comfortable homes through redevelopment process resulted in a
long ordeal where they were dishoused back in the year 2007 and were
kept waiting for newly built homes for next 11 long years. The transit
rent was stopped by the Petitioner-developer. The society terminated
the DA and encashed the Bank Guarantee for recovery of arrears of
transit rent. The parties however entered into consent terms and one
more opportunity was given to the Petitioner-developer to complete the
project. However, Petitioner was again unable to complete construction
of the building and the Society once again terminated the DA and
completed the balance construction of the building on its own. The
Arbitral Tribunal has upheld the termination and has directed the
Petitioner-developer to pay to the Society the amounts agreed to be paid
under the Consent Terms towards arrears of rent, etc along with interest.
The counterclaims of the Petitioner-developer were towards return of
amounts spent in the project and damages/compensation for loss of
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profit which have been rejected by the Tribunal. The Petitioner-
developer is aggrieved by the impugned award and has filed the present
Petition under Section 34 of the Arbitration Act.
26) The net result of the arbitral award is that the Petitioner is
out of the project, it has lost all investments made in the project and the
society is relieved of the liability towards third parties to whom the
Petitioner had sold the flats. Petitioner is also made liable to pay the
arrears of transit rent, etc to the society members.
VALIDITY OF TERMINATION OF DA
27) The principal issue before the Arbitral Tribunal was about
validity of the termination notice dated 9 June 2018 by which the DA is
terminated. Since the DA is terminated alleging breaches by the
Petitioner-Developer, the Society was required to prove before the
Tribunal commission of breaches of the contractual clauses of the DA
and of the Consent Terms by the Petitioner. The Arbitral Tribunal has
ruled in favour of the Respondent-Society by holding Petitioner
responsible for breaches of DA and of Consent Terms and has held the
termination notice to be valid.
28) It would be necessary to consider the broad contractual
arrangement between the parties under the DA. The first recital to the
DA indicates that MHADA had constructed the old buildings of the
Society consisting of 60 flats and had allotted the same to various
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allottees who collectively formed the Respondent Society. Under clause 2
of the DA, parties agreed that total FSI to be exploited was 2.4 and in the
event the Developer was allowed to load any further TDR on the plot, the
benefits accrued to it from additional/surplus construction shall be
divided between the Developer and the Society in equal ratio. Under
clause 9(e), Developer agreed to consult the Society in regard to the
construction work carried out by it by providing copies of all letters and
correspondence as well as plans/approvals without any specific request
made by the Society. Under clause 9(f), the Developer provided
unconditional undertaking to abide by provisions of Mumbai Municipal
Corporation Act, 1888, Development Control Regulations, 1991,
Maharashtra Housing and Area Development Act, 1976 which govern the
use of FSI/TDR and indemnify the Society in respect of any violation
thereof. Under clause 9(g), the Developer agreed that any
modification/changes in the annexure attached to DA were to be
mutually discussed with the Society and such changes made in the new
annexure would replace the redundant annexure without modifying the
other clauses of DA. Under clause 9(h), parties agreed that the Society
shall have right to exploit all the rights and liberties of the Petitioner
arbitrarily in case of any default on the part of the Developer. Under
clause 9(k), the Society was absolved of any liability towards third party
purchasers of flats.
29) Under clause 10(3) of the DA, the Developer was liable to
pay compensation or license fee/rent towards alternate accommodation
to all 60 members till they were put in possession of new flats after
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obtaining full occupation certificate. Under clause 22, the Society was at
liberty to terminate the DA in the event of Developer failing to complete
the project even after three months extension and to appoint a new
developer to complete the reconstruction. Most importantly, it was
agreed between the parties that Developer will have no right to claim any
damages or compensation from the Society and Developer would forgo
its right to sell the commercial premises which are part of saleable
portion of the flats. Under clause 27, an indemnity was given by the
Developer to the Society. Under clause 42, the Developer agreed to bear
and pay all costs of construction including all costs, charges and
expenses for obtaining various approvals, permissions, etc. Under clause
47, the Developer agreed not to ask for any amount or contribution from
the Society or its members towards expenses for putting of the
construction. Under clause 53 (iii), it was agreed that the DA was not to
be construed as partnership or joint venture or agreement of partnership
and that the same was be on ‘principal to principal’ basis.
30) The Respondent-Society alleged various breaches of the DA
by the Petitioner. The broad allegations of breaches are as under:
a. Breach of clause (2) by using 3.5 FSI contrary to agreed cap of FSI
2.4,b. Breach of clause (3) by exceeding the maximum cap of 860 sq.ft.
carpet area by constructing flats in A Wing of 866 sq. ft. and
Wing of 1006 sq.ft.
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c. Breach of clause 9(f) by committing violation of planning norms
leading to issuance of stop work notice by MCGM on 4 August
2011 and by executing work beyond CC,
d. Breach of clause 9(g) by changing the plans without the consent of
the Society,
e. Breach of clause 10(1)(a) by committing default in payment of rent
from 2014 onwards,
f. Breach of clause 10(1)(b) by not increasing the rental
compensation by 10% despite passage of period of 25 months from
the date of issuance of CC,
g. Breach of clause 22 by not completing construction within 25
months of issuance of CC dated 17 August 2002,
h. Breach of Annexure-I by not providing amenities listed therein.
31) As observed above, though disputes arose between the
parties in the year 2017 and the society encashed the bank guarantee, the
parties entered into Consent Terms before this Court on 16 May 2017 in
Petition filed under Section 9 of the Arbitration Act. The broad
agreement executed in the Consent Terms included fixing the total
liability of Petitioner in respect of arrears of rent of Rs.7,62,20,000/-
which was agreed to be paid by the Petitioner under two mechanisms.
Petitioner agreed to pay sum of Rs.5,12,20,000/- in various instalments
upto 30 November 2017. The balance amount of Rs.2,50,00,000/- was
agreed to be adjusted from the amount of Rs.5,00,00,000/- encashed by
the Respondent-Society towards bank guarantee. The rest of amount of
Rs.2,50,00,000/- from Bank Guarantee was to be adjusted against
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Society’s share in respect of use of additional FSI by the Petitioner-
Developer. Petitioner agreed to complete A and B Wings buildings within
the extended timeline of 30 June 2018 (plus four months grace period)
and 31 December 2017 (with three months grace period) respectively.
32) According to the Respondent-Society, Petitioner has
committed following material breaches of the Consent Terms:
a. Payments agreed towards transit rent due on 30 August 2017, 30
September 2017, 30 October 2017 and 30 November 2017 are not
paid,
b. Seven post dated cheques issued by Petitioner for Rs.24,00,000/-
each for rent of seven months from 1 May 2017 to 31 December
2018 were dishonoured,
c. Brokerage of Rs.40,000/- per member as agreed under clause 4 ofConsent Terms was not paid. Breach of clause 5 of Consent Terms
which provided for payment of penalties for not paying the same,
d. Breach of clause 15 for construction of permanent wall as well aswall between Respondent-Society and Kapil Vastu Society, which
was not constructed,
e. Breach of clause 17 for providing flats to the 32 members of A-
Wing having a carpet area of minimum 1006/1010 sq.ft.
f. Breach of Clauses 24 (a) and (b) relating to timelines for
completion of Wing A and Wing B.
g. Breach of Clause 33 relating to opening of escrow account.
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33) The Arbitral Tribunal has done a detailed analysis of
breaches committed by the Petitioner in respect of the Development
Agreement. In paragraphs 102 to 111 of the Award, the Arbitral Tribunal
has held that the Petitioner committed breach of contractual covenant of
utilization of FSI 2.4 by carrying out construction in excess of the FSI
cap. Mr. Narula has argued that there is perversity in this finding of
Arbitral Tribunal since clause (2) of the DA envisaged use of FSI in excess
of 2.4 and that the finding of the Arbitral Tribunal is contrary to the
contractual stipulation. He has also relied upon admissions given by
Respondent’s witness in answer to question Nos.94 and 95 in support of
his contention that finding is contrary to the evidence on record. In my
view, however, clause (2) of the DA provided for sharing of benefit
arising out of loading of any further TDR on the flat in equal proportions
between Petitioner and Respondent. The Arbitral Tribunal has construed
clauses (2), (3), 9(h) read with Schedule-I of the DA and has thereafter
recorded a finding that the FSI was restricted to 2.4. As a matter of fact,
breach of clause (2) can also be inferred from the fact that Petitioner
subsequently agreed to shell out 50% amount of encashed bank
guarantee towards share of Respondent-Society in the additional FSI.
The amount was agreed to be shared only after the society encashed the
bank guarantee and was not paid to the society contemporaneously
when Petitioner carried out construction in excess of FSI 2.4. So far as
the admissions by Respondent’s witness are concerned, the Arbitral
Tribunal has recorded a plausible finding that witness’ understanding of
the clause did not make any difference and that her answers were
required to be understood in the context of answers to other questions. I
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therefore do not find any perversity in the findings recorded by the
Arbitral Tribunal qua the issue of FSI cap of 2.4. The Tribunal has
constructed the contractual clauses of the DA and the said exercise is
within its exclusive domain. The construction of contractual clauses by
the Tribunal for recording findings about violation of FSI cap cannot be
termed as so irrational that no fair-minded person would ever record the
same. Reliance by Mr. Narula on judgment of the Apex Court in
Associate Builders (supra) in this regard is therefore inapposite.
34) The Arbitral Tribunal thereafter considered the events that
occurred during subsistence of the DA, amendments effected by the
Petitioner to the status of project from composite to non-composite as
well as amendments in the Plans. The Tribunal has held that the Plans
were amended without prior intimation to the Respondent-Society nor
consent of the Society was obtained before applying for the same. Mr.
Narula has sought to rely on clauses 9(a) and 9(g) of the Development
Agreement in support of his contention that prior intimation to the
Society was not required to be given. However, the Arbitral Tribunal has
held that clauses 9(a) and 9(g) of the DA required consultation with the
Respondent-Society and its approval to the changes effected in the
construction plans. The Arbitral Tribunal has accordingly held Petitioner
liable for amendment of plans during subsistence of DA without
consultation and approval of the Respondent-Society and I again do not
find any element of perversity in the said findings recorded by the
Arbitral Tribunal.
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35) The Arbitral Tribunal thereafter considered various other
breaches on the part of the Petitioner-Developer in paragraphs 134 to
150 of the Award. No attempt is made to indicate an element of
perversity in respect of other breaches in paragraphs 134 to 150 of the
impugned Award.
36) The factual findings recorded by the Arbitral Tribunal in
respect of breaches committed by the Petitioner-Developer of various
contractual obligations under the Development Agreement cannot be
termed as perverse. It is not necessary to delve deeper into the findings
of the Tribunal about breaches of DA by the Petitioner as commission of
those breaches is an admitted position. This is clear from the plea is
raised by the Petitioner before me that execution of Consent Terms
dated 16 May 2017 condoned the previous breaches and such plea
contains implicit admission of commission of various breaches of the DA
by the Petitioner.
37) The Arbitral Tribunal thereafter considered allegations
relating to breaches of the Consent Terms committed by the Petitioner-
Developer in paragraphs 155 to 172 of the Arbitral Award. Mr. Narula has
contended that there were reciprocal agreements in the Consent Terms
and that the Respondent Society committed breach of its reciprocal
obligations under the Consent Terms. It is contended that under clause
40 of the Consent Terms, the Society was supposed to withdraw the
termination notice and grant unconditional NOC for additional FSI. It is
contended that under clause 41 of the Consent Terms Respondent-
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Society was supposed to grant NOC for obtaining finance. Petitioner
contends that since both the obligations under clauses 40 and 41 of the
Consent Terms are not fulfilled by the Respondent-Society, provisions of
Section 67 of the Contract Act are attracted in the present case and the
Petitioner would get excused of any neglect or refusal in respect of non-
performance of contract. Reliance is placed in this regard on judgment of
the Apex Court in Nathulal vs. Phoolchand (supra).
38) However, perusal of various findings recorded by the
Arbitral Tribunal in the impugned Award would indicate that delay in
issuance of NOCs by the Society as per clauses 40 and 41 of Consent
Terms are raised more as pretext to escape the consequences of breaches
of Consent Terms and that non-issuance/delay in issuance of NOC did
not come in the way of Petitioner performing its contractual obligations
under the Consent Terms. The Tribunal has taken note of the fact that
while opposing Contempt Petition filed by the Society for breach of
Consent Terms to pay various amounts, no grievance was raised by
Petitioner about failure on the part of Respondent to issue NOC for
additional pro-rata FSI. There is also no dispute to the factual position
that NOC was actually issued by the Society in accordance with the
Consent Terms. There is also nothing perverse in finding recorded in
paragraph 166 of the Award that parties themselves understood the
stipulation for grant of NOC for additional FSI which was not inflexible
and that the NOC could be granted as and when needed. In any case, the
alleged delay in issuance of NOC for additional FSI did not come in the
way of Petitioner performing its contractual obligations.
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39) Petitioner’s reliance on provisions of Section 67 of the
Contract Act does not cut any ice. Section 67 of the Contract Act
provides thus:
67. Effect of neglect of promisee to afford promisor reasonable facilities
for performance.–
If any promisee neglects or refuses to afford the promisor reasonable facilities
for the performance of his promise, the promisor is excused by such neglect or
refusal as to any non-performance caused thereby.
40) Section 67 of the Contract Act excuses the promisor only in
respect of non-performance caused by the neglect or refusal by the
promisee to afford reasonable facilities for performance of the promise.
The Petitioner has not been able to demonstrate as to how delay in
issuance of the NOC came in his way of making various payments
towards arrears of transit rent to the members of the Society. Therefore,
reliance by the Petitioner on judgment of the Apex Court in Nathulal vs.
Phoolchand (supra) does not assist the case of the Petitioner. There is
nothing in the Consent Terms to infer that obligations were to be
performed in a certain sequence and that therefore delay in issuance of
NOC had impact on performance of contractual obligations by the
Petitioner-Developer.
41) The Arbitral Tribunal has held that MHADA’s offer letter for
additional FSI dated 16 April 2018 was issued as per the Society’s NOC
and that Petitioner was required to pay the requisite amount of premium
to MHADA and/or to the Municipal Corporation. The Petitioner did not
produce before the Arbitral Tribunal any documentary evidence about
making of premium payment to MHADA and or to the Municipal
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Corporation. Thus, despite grant of NOC by Society for release of
additional FSI, it is Petitioner-Developer who failed to avail the same by
paying requisite premium to MHADA/MCGM. Therefore, even if it is
assumed arguendo that there was any delay in issuing of NOC by the
Society, ultimately it is an admitted position that on 16 April 2018
MHADA did issue the offer letter for additional FSI and the Petitioner did
not avail the same by making payment of premium.
42) Petitioner has sought to question finding of fact recorded by
Arbitral Tribunal in paragraph 170 of the Award about failure to pay
premium by contending that an amount of Rs.3,32,31,778/- was already
paid by Petitioner to MHADA, which was lying to the credit of
Petitioner’s account and that a request was made by the Petitioner to the
Respondent-Society to transfer the said credit.
43) MHADA’s Offer Letter dated 16 April 2018 required
Petitioner to pay premium of Rs.7,52,93,898/- in four instalments. The
Offer Letter also required payment of offsite infrastructure charges to
MCGM.
44) I have gone through letter dated 31 May 2018 addressed by
the Petitioner to the Society. The said letter talks of making of
Application dated 16 April 2018 by Petitioner to MHADA for transferring
the unutilized balance FSI in favour of Goregaon Pearls CHS Ltd which
was earlier issued in favour of Siddharth Nagar Kapil Vastu CHS Ltd. for
total additional BUA of 2410.75 sq.m. Thus, letter dated 31 May 2018 was
not for transfer of the amount of Rs.3,32,31,778/- allegedly lying credited
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to Petitioner’s account against offer letter issued by MHADA for
additional FSI subject to payment of premium. In any case, how amount
allegedly paid by Petitioner for amalgamation of another plot, for its own
benefits, can be treated as discharge of liability to pay the demanded
premium by MHADA for completion of construction of building of
Respondent Society is incomprehensible. The plea in this regard sought
to be raised by the Petitioner is thus totally baseless.
45) It is also admitted position that Petitioner-Developer did
not comply with construction timelines as set out in clause 24 of the
Consent Terms. In view of the above, I do not find any element of gross
perversity in the findings recorded by the Arbitral Tribunal in paragraph
174 of the Award that Petitioner-Developer committed consistent
breaches not only of clauses of Consent Terms but also of undertakings
given to this Court.
46) In my view therefore, commission of breaches by the
Petitioner of the DA and of the Consent Terms is rightly held to be
proved by the Arbitral Tribunal. Termination of the DA, POA and of the
arrangements under the Consent Terms by the Society is rightly upheld
by the Tribunal. Petitioner has failed to make out any valid ground under
Section 34 of the Arbitration Act for setting aside the said finding.
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AWARD OF MONITORY CLAIM IN FAVOUR OF THE SOCIETY
47) As a direct consequence of holding the termination of the
DA, POA and Consent Terms to be valid, the Arbitral Tribunal has
awarded monitory claim in the sum of Rs. 7,08,53,695.03/ in Society’s
favour. The amount comprises of Rs. 55,58,211/- towards legal costs,
Architect’s fees and miscellaneous costs incurred by the Society, which
have been duly proved by the Society before the Tribunal. Society’s claim
for Rs.3,72,24,290/- was towards the admitted liability of the Petitioner
under the consent terms, which sum was agreed to be paid towards
arrears of transit rent. The Petitioner had also agreed under the consent
terms to pay interest @15% per annum under the consent terms and
accordingly the Tribunal has awarded interest of Rs. 2,80,71,194.03
towards interest. Thus, award of monitory claim in the sum of Rs.
7,08,53,695.03 cannot be faulted. Society’s claim for compensation for
mental harassment is rejected by the Arbitral Tribunal. No submissions
are canvassed before me about any error in award of the said amount.
Petitioner’s main plea before me is that the termination of the DA, POA
and the consent terms is invalid and once the said contention is rejected,
award of monitory claim in favour of the Society will have to be
necessarily upheld.
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ENFORCEABILITY OF CONTRACTUAL CLAUSE DENYING COMPENSATION
/DAMAGES
48) Petitioner raised a counterclaim for losses and damages
against the Society. The damages were sought both by way of
reimbursement of expenses incurred as well as claim for loss of profits.
Under Clause 22 of the DA, parties agreed specifically that the developer
will have no right to claim damages or compensation from the society.
Under clause 22 of the DA, it was agreed thus :
22. The Developers agree to complete the total re-construction work within a
period of 22 months from the date of receipt of Commencement Certificate. In
the event of the Developers failing to complete the re-construction work
within the stipulated period of 22 months, then the Developers will have to
pay a penalty of Rs.1,00,000/- per month of delay to the Said Society. In
addition to this the Developers shall pay to each of the Members/allottees Rs.
22000/- (Rupees Twenty-Two Thousand Only) per month as compensation
towards permanent alternate accommodation, until the Member is put in
possession of the Permanent Alternate Accommodation in the said New
Building. However if the developers extended period permitted with penalty
after the stipulated 22 months for completion of the reconstruction work will
be only for 3 months. After expiry of these 3 months if the Developer has
yet failed to complete the entire building R.C.C. work and the external
and internal plastering work of the Building’s (that is completed with
entire brick work), then upon such event the said Society shall be at
liberty to terminate this agreement and take over all rights in the said
project and appoint a new Developer of its choice to complete the
reconstruction work. In such a case, the Developers will have no right to
claim any damages/compensation from the said Society. The Developers
shall also forego it’s right to sell the flats/ commercial premises which are part
of the saleable portion of the flats after proving the existing members 60 flats
in the new building.
(emphasis added)
49) Thus, clause 22 of the DA envisaged non-entitlement of the
developer to claim any damages or compensation upon society
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terminating the agreement and taking over rights of the project and
appointing a new developer to complete reconstruction in the event of
the developer not completing the project within 3 months’ extension.
The developer has also agreed to forego his right to sell the units falling
in sale component in the event of termination of the DA. Thus, clause 22
seeks to deny damages or compensation to the developer in the event
developer committing breach of the DA. In the present case, the Arbitral
Tribunal has upheld termination of DA by the Society by holding that
Petitioner-developer has committed breaches, both of DA as well as of
the Consent Terms. Therefore, the Petitioner-developer is held not
entitled to damages or compensation by the Arbitral Tribunal as per
clause 22 of the DA.
50) Petitioner has sought to question enforceability of clause 22
of the DA submitting that the contractual stipulation which bars the
remedy of the party of seeking damages is unenforceable.
51) The issue for consideration is whether the Arbitral Tribunal
could have awarded damages or compensation in favour of the Petitioner
contrary to clause 22 of the DA. Arbitrator is a creature of contract and
cannot travel beyond the contractual terms. Under Section 28 of the
Arbitration Act, the Tribunal needs to have regard to the contractual
terms while making an award. For holding that it is bound by the
contractual terms and cannot travel beyond the same, the Arbitral
Tribunal has relied on judgment of this Court in Board of Control of
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Cricket India vs. Deccan Chronicle Holdings Ltd. 26. The judgment of the
Apex Court in Steel Authority of India Ltd. versus. J.C. Budharaja
(supra) also lays down the same proposition.
52) In the present case, the Petitioner-developer has
specifically agreed not to claim damages or compensation as well as to
forego its right to sell units in sale component upon termination of
contract due to breaches committed by it. Therefore the tribunal could
not have awarded claim for damages/compensation in ignorance of
clause 22. However it is Petitioner’s case that clause 22 is unenforceable
as it puts unreasonable restrictions. Mr. Narula has relied on judgment of
the Apex Court in Asian Techs Limited (supra) in support of his
contention that any clause in the contract which seeks to deny damages
to party is contrary to the provisions of Sections 64 and 73 of the
Contract Act. In case before the Apex Court, the delay in execution of the
contract was solely accountable to the respondents therein. Though the
appellant therein was not willing to execute work beyond the contract
period, the respondent therein gave assurance to the appellant to
continue the work with a promise that rates would be decided across the
table once the appellant went ahead with the work. It is in the light of
these peculiar circumstances that the Apex Court held that Clause 11(C)
of the contract did not come in the way of the arbitrator awarding
amount for work done beyond the contract period. Reliance by Mr.
Narula on judgment of the Apex Court in Board of Trustees for the Port
of Calcutta is also inapposite. The issue before the Apex Court was
26
2021 SCC OnLine Bom 834
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about arbitrator’s power to award interest pendente lite in the light of
clause in the contract prohibiting the Commissioner from granting
interest on the amount of delayed payment to the contractor. The Apex
Court held that the clause, upon strict construction, prohibited only the
Department from granting interest but did not prohibit Arbitrator from
granting interest.
53) Mr. Narula has also strenuously relied on judgment of the
Delhi High Court in MBL Infrastructures in support of his contention
that clauses in the contract which restrict right of the parties in claiming
damages is a restrictive clause defeating the provisions of Sections 55
and 73 of the Contract Act. The case before the Delhi High Court
involved performance of a contract for construction of Metro Station.
Clause-8.3 of the General Conditions of Contract (GCC) provided the
remedy of only extension of time in the event of delay. The Arbitral
Tribunal had held that Clause 8.3 of the GCC did not provide for
compensation to the Contractor by way of damages. The Delhi High
Court disagreed with the arbitrator’s finding and held that there was
delay on the part of the Respondent therein to complete the project and
the termination of the contract was wrongful. The Delhi High Court
further held that the Respondent therein did not grant extension of time
as per Clause 8.3 of the GCC before proceeding to terminate the contract.
It is in the light of these peculiar facts that the Delhi High Court held in
para-46 of the judgment that a clause in the contract not providing for
remedy of damages is against public interest as it hindered the smooth
operation of commercial transaction.
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54) Reliance is also placed on behalf of the judgment of this
Court in Regus South Mumbai Business Centre (supra) in which the
issue was about correctness of award of damages by the arbitrator in the
light of contractual clause in the Agreement providing for either
termination or conversion of arrangement of running of business centre
into a leave and license agreement. In the case before this Court there
was no specific clause in the contract for non-payment of compensation
or damages. Award of damages was sought to be criticised by the
Petitioner therein contending that the clause provided for only two
consequences of termination of Agreement and vacation of premises or
conversion of agreement into leave and license and that directing the
third consequence in the form of damages by the Arbitrator was like
rewriting the terms of contract. This Court disagreed with the said
contention and upheld award of damages. However in the present case,
there is direct contractual clause No. 22 disentitling the Petitioner of
damages or compensation in the event of termination of contract by the
society.
55) Petitioner has also relied on judgment of this Court in
Mumbai Metropolitan Region Development Authority Vs. Mumbai
Metro One Pvt Ltd. (supra) in which again this Court noticed that
though the contract provided for extension of concession period in the
event of delay by MMRDA to provide the Right of Way, there was no
specific prohibition in the contract for awarding damages.
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56) Thus, all the judgments sought to be relied upon by the
Petitioner can be distinguished on account of a specific clause in the DA
disentitling the Petitioner from raising a claim for compensation or
damages. On the other hand, judgments of the Apex Court in Associated
Engineering Co. (supra) and Union of India vs. L&T (supra) hold
contractual clauses for denial of compensation or interest to be
enforceable. The judgment of Division Bench of this Court in Vilayati
Ram Mittal (supra) also holds contractual clause for denial of
compensation to be enforceable and goes a step further by holding that
the arbitrator is bound by such clause and cannot travel beyond the
same.
57) In my view, a clause in the redevelopment agreement for
denial of damages or compensation to the developer can be enforced in
law because of the peculiarity of the contract. In a redevelopment
agreement, the developer undertakes the responsibility of rehousing the
society members by demolishing the old building and by constructing a
new one. In return, the developer secures right to sell the additional
constructed units to recoup the expenditure and to earn profits. He has
the responsibility of praying transit rent to the society members in the
interregnum. Developer in an agreement for redevelopment does not
secure ownership in the land and the Society continues to remain the
owner. He has the primary responsibility of providing new houses to the
members. His right to earn profits in the project crystallizes only after he
fulfills the obligations of paying transit rent and putting back the society
members in possession of reconstructed flats. If the developer fails to
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perform the primary obligations, his right to earn profits by selling the
flats remains imperfect. Therefore once the developer commits breach of
obligation to provide constructed flats/units to the society members and
once the DA is terminated on that count, the right of the developer to
earn profits from the project continues to remain imperfect. In absence
of right to make profits in the project, the developer cannot seek
damages/compensation from the society. This is a reason why if the
developer agrees not to claim compensation or damages in the event of
termination of contract by the Society due to his defaults, such
contractual clause would be enforceable in law.
58) Also in the present case, the Petitioner has admittedly failed
to deliver possession of new flats to the members and has failed to pay
the transit rent. Commission of breaches by the Petitioner both of the
DA and of the consent terms is established. The termination of the DA is
on account of defaults committed by the Petitioner. Therefore, even
going by the provisions of Section 73 of the Contract Act, Petitioner is
otherwise not entitled to claim any compensation or damages due to
termination of the DA. In my view therefore the Arbitrator has rightly
denied the counterclaim of the Petitioner for damages. Denial of claim
for compensation and damages is justified both on account of provisions
of Section 28 of the Arbitration Act under which the Arbitrator is bound
to give effect to clause 22 of the DA as well as in accordance with
provisions of Section 73 of the Contract Act, since termination of the DA
is attributable solely to the acts of the Petitioner.
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RESTORATION OF BENEFITS RECEIVED UNDER THE TERMINATED CONTRACT
59) In addition to the claim for compensation/damages,
Petitioner also sought return of the amounts spent by it in the project.
As against the claim for compensation/damages under Section 73 of the
Contract Act, the claim for restoration of benefits is traceable to
provisions of Section 64. Under Section 64 of the Contract Act, the party
rescinding a voidable contract is bound to restore the benefits, which he
has received from another party to such contract. Section 64 of the
Contract Act provides thus:
64. Consequences of rescission of voidable contract.–
When a person at whose option a contract is voidable rescinds it, the other
party thereto need not perform any promise therein contained in which he is
promisor. The party rescinding a voidable contract shall, if he have received
any benefit thereunder from another party to such contract, restore such
benefit, so far as may be, to the person from whom it was received.
60) Though Section 64 of the Contract Act uses the word
‘voidable contract’, the law is well settled that provisions of Section 64
apply even when a valid contract is rescinded. Section 64 of the Contract
Act also applies to contracts that are initially valid but are rendered
voidable at the option of the injured party due to a breach and is
subsequently rescinded. Mr. Narula has relied on judgment of Privy
Council in Muralidhar Chatterji (supra) in which the Privy Council has
discussed the effect of provisions of Sections 64 and 65 of the Contract
Act. The Privy Council has held that Section 64 applies even to cases
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where a valid contract is rendered voidable by wrongful act of a party
thereto and which has been rescinded by the opposite party. Thus,
Section 64 of the Contract Act applies even to a situation where a
contract is valid, but is rendered voidable on account of breaches
committed by a party to contract and the injured party terminates the
same. Thus even if the contract is terminated on account of breaches
committed by a party, such party is still entitled to claim restoration of
benefits received by the injured party under Section 64 of the Contract
Act. Since termination is due to breaches committed by a party and
though such party may be liable to pay compensation to the injured
party under Section 73 of the Contract Act, he can nonetheless seek
restoration of benefits received by the injured party under part
performance of the contract.
61) Section 64 of the Contract Act provides for restoration of
‘such benefit’ which a party rescinding the contract has received from
another party to the contract. The issue for consideration therefore is
whether various expenses incurred by the Petitioner-developer in the
project can be treated as ‘benefits’ received by the Respondent-Society
which it must return under the provisions of Section 64 of the Contract
Act. According to the Petitioner, the benefits received by the Society
within the meaning of Section 64 of the Contract Act are as under :
(i) rent paid to members of the society
(ii) construction costs incurred by the Petitioner.
(iii) amounts spent by the Petitioner for procurement of FSI.
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(iv) amount of Rs.2,50,00,000/-adjusted by the Society out of
amount encashed under the bank guarantee towards benefit
of extra FSI.
62) In its counterclaim, the Petitioner-developer claimed from
the Society three amounts of Rs. 30,68,54,552/- (Exh.2), Rs.
118,39,97,856/- (Exh.3) and Rs. 29,09,70,826/-(Exh.4). The amount of
Rs.30,68,54,552/- were branded ‘restoration of benefits’ in para-20 of the
counterclaim, which reads thus :
20) The Respondent submits that Claimant Society and its members have
received various monetary benefits which are enumerated at Exhibit-2 herein
under the subject Development Agreement and Consent Terms. The Claimant
Society is bound to return the various amounts to the tune of Rs.30,68,54,552/-
as mentioned in Exhibit-2 hereto under the relevant provisions of the Contract
Act governing restoration of Benefit given by one party to another party under
a Contract.
63) The breakup of the amount of Rs. 30,68,54,552/- in Exhibit-
2 to the counterclaim was set out by the Petitioner as under:
SR No Particulars of Claim Amount
1. Monetary Benefits Received under the Subject
Development Agreement by the Claimant Society and
Members from the Respondent
(A) Benefit received under Clause 10.1.a,c,d Agreement -of Rs. 20,43,52,985/-
Development Agreement- i.e. Rent, l.e Corpus and
Brokerage(paid from 2006 till execution of Consent Term)
(This Includes the increased rent paid)
TOTAL Rs Rs. 20,43,52,985/-
2. Monetary Benefits received under the Subject Consent
Terms by the Claimant Society and Members from the
Respondent.
Benefit received under Clause 7 of Consent Terms (Amount Rs. 2,50,00,000/-
of bank -guarantee adjusted towards arrears of rent)
Benefit received under Clause 8A of Consent Terms. Rs. 1,00,00,000/-
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Benefit received under Clause 8 of Consent Terms. Rs. 24,00,000/-
Benefit received under Clause 8 of Consent Terms. Rs. 7,00,000/-
Benefit received under Clause 8 of Consent Terms. Rs. 17,00,000/-
Benefit received under Clause 8B of Consent Terms. Rs. 1,00,00,000/-
Benefit received under Clause 8F of Consent Terms. Rs. 16,39,422/-
Benefit received under Clause 44A and C of Consent Terms Rs. 29,30,000/-
and Minutes of order dated 6th March, 2018
Benefit received under Clause 44A and C of Consent Terms Rs. 29,30,000/-
and Minutes of order dated 6th March, 2018
Benefit received-under Clause 8C and. D of Consent Terms Rs. 1,72,72,145/-
and Minutes of order dated 6th March, 2018
Benefit received under Clause 44A and C of Consent Terms Rs. 29,30,000/-
and Minutes of order dated 6th March, 2018
Benefit received under Clause 9 of Consent Terms Rs. 2,50,00,000/-
B. TOTAL Rs. Rs. 9,95,71,567/-
Total Monetary Benefits (A) plus (B) Rs. 30,68,54,552/-
(Rupees Thirty Crores
Sixty Eight Lakhs, Fifty
Four Thousand, Five
Hundred and Fifty Two
Only)
ALONGWITH
Further interest @ 12% per annum from 1st November,
2018, till payment and/or realization on the above amount.
64) The amount of Rs. 118,39,97,856/- was indicated in Exhibit 3
to the counterclaim as the expenses incurred by the Petitioner, whereas
the amount of Rs.29,09,70,826/- was indicated in Exhibit-4 as the loss of
profits on sale of 75 flats. Para-21 of the counterclaim in this regard
reads thus:
21) In addition to the above, the Respondent further submits that the
Respondent has suffered various losses/damages on account of the Purported
Termination of the subject Development Agreement and Consent Terms as
enumerated in Exhibit-3 and 4 hereto on account of expenses incurred for the
development of the subject property till date, loss of profit and loss of
reputation. The Claimant Society is hence bound and liable to pay to the
Respondent the aforesaid Amount of Rs.118,39,97,856.- as damages in lieu of
specific performance in the event the Arbitral Tribunal upholds the
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Neeta Sawant CARBP 354 of 2024Termination of the Subject documents alongwith damages for Loss of
Reputation.
65) So far as the counterclaim for Rs. 29,09,70,826/- towards
loss of profits on sale of 75 flats is concerned the same was clearly in the
nature of compensation within the meaning of Section 73 of the
Contract Act and I have already upheld denial of any compensation to
the Petitioner both on account of clause 22 of the DA as well as on
account of termination being attributable to breaches committed by the
Petitioner. So far as the counterclaim for expenses of Rs. 118,39,97,856/-
is concerned, the breakup of the same was provided by the Petitioner in
Exhibit-3 as under:
SR No Particulars of Claim Amount
Expenses incurred on Construction Till Date Rs. 18,09,57,496/-
Expenses Incurred on Project – Payment to Rs. 14,37,35,485/-
MHADA, MCGM, Stamp Duty
Onsite Exp (Admin and Sales) Rs. 30,40,09,774/
Surrender of tenements Rs. 24,24,40,549/-
Expenses incurred for Litigation Proceedings Rs. 60,00,000/-
Rent and Corpus Rs. 30,68,54,552/-
Total Rs. 118,39,97,856/-
Rupees One Hundred
and Eighteen Crores,
Thirty Nine Lakhs,
Ninety Seven
Thousand, Eight
Hundred and Fifty Six
Only)
ALONGWITH
Further interest @ 12%
per snnum from 1st
November, 2018 till
payment and/or
realization on the above
amount.
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66) By relying on pleadings in Para 20 and 21 of the
counterclaim, Mr. Khandeparkar has contended that only the claim for
Rs. 30,68,54,552/- in Exhibit-2 was for ‘restoration of benefits’, whereas
the Petitioner itself chose to claim the expenditure of Rs. 118,39,97,856/-
incurred in the costs of construction and purchase of FSI as
‘compensation’ in para 21 of the counterclaim. I have already
reproduced paras-20 and 21 of the counterclaim and Exhibits-2 and 3
relating to particulars of claim for Rs.30,68,54,552/- and Rs.
118,39,97,856/-. In para-20 of the counterclaim, the Petitioner claimed
amount of Rs.30,68,54,552/- towards ‘restoration of benefits’. As against
this, two amounts of Rs.118,39,97,856/- indicated in Exhibit-3 and Rs.
29,09,70,826/- indicated in Exhibit-4 to the counterclaim were pleaded
jointly as ‘expenses incurred for development of the subject property till
date, loss of profits and loss of reputation’. In para 21 of the counterclaim,
the amount of Rs. 118,39,97,856/- was also pleaded as ‘damages in lieu of
specific performance’. It is on account of these pleadings that Mr.
Khandeparkar has contended that none of the amounts indicated in Para
21 or in Exhibit-3 can be treated as amounts towards claim for return of
‘benefit’ under Section 64 of the Contract Act. I am unable to agree.
Merely because the Petitioner split the two amounts in Exhibits 2 and 3
and in Para 20 and 21 of the counterclaim, the same would not mean that
the claim for return of expenditure incurred in the project can be treated
as a claim for compensation. Even in Para 21 of the counterclaim, the
Petitioner has described the amount of Rs. 118,39,97,856/- as ‘expenses
incurred’. If any of those expenses allegedly incurred by the Petitioner in
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the project forms part of the ‘benefit’ received by the society, it would be
unfair to treat such claim as the one for compensation, when in law the
claim is actually for return of benefits under Section 64. I would
therefore prefer to go by the contents of the claim rather than giving
importance to the form or nomenclature. Therefore the contention of
Mr. Khandeparkar that none of the amounts under Para 21 and Exhibit-3
to the counterclaim could have been adjudicated as ‘benefits’ deserves
rejection.
67) I now proceed to consider whether the claim of the
Petitioner for restoration of benefits under Section 64 of the Contract
Act could have been awarded. Petitioner’s claim for restoration of
benefits is essentially in three parts as under :
(i) restoration of the amount of transit rent paid to the members
of the society.
(ii) restoration of expenses incurred in construction of the
building.
(iii) restoration of amounts paid to MHADA and MCGM for
purchase of additional FSI and TDR.
68) Before considering the claim of the Petitioner for
restoration of benefits under each head, it is first necessary to decide
whether Petitioner’s claim for restoration of benefits can at all be
considered in the light of the contractual stipulations agreed between
the parties. I have already held that a contractual stipulation in the
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Neeta Sawant CARBP 354 of 2024developer upon termination of contract by the society is enforceable in
law. The Petitioner however contends that its claim for restoration of
benefits under Section 64 of the Contract Act is different and distinct
than the claim for compensation under Section 73. I am inclined to
accept the contention. Under Section 73 of the Contract Act, when a
contract is broken, the insured party is entitled to receive from the party
who has broken the contract, compensation for such loss or damage
caused to him. What is payable under Section 73 of the Act is
‘compensation for such loss or damage caused’. On the other hand, what
is contemplated under Section 64 of the Contract Act is restoration of
‘such benefits’ which are received by the party rescinding the contract
from the opposite party. No doubt, provisions of Sections 73 and 64 may
concurrently apply in relation to termination of the contract. When a
party to contract commits breach thereof, the opposite party can rescind
the contract and claim compensation under Section 73. At the same
time, if a party rescinding the contract has received any benefit under
the contract, such party is liable to restore the benefit under Section 64.
In a given case, therefore the claim for restoration of benefit can be set
off against the claim for compensation under Section 73 of the Act.
69) Mr. Khandeparkar has sought to question the distinction
between claims for ‘compensation’ and for ‘restoration of benefits’ and
contends that both ultimately are the same. He contends that the claim
for restoration of benefits under Section 64 of the Contract Act is in the
nature of restitutionary compensation. I am unable to agree, for the
reasons indicated above. The claim under Section 73 of the Contract Act
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is by an injured party whereas the claim under Section 64 is by the party
who is responsible for termination of the contract. In what form the
return of benefits is granted is immaterial since the concepts under
Sections 64 and 73 of the Act are entirely different. However, Mr.
Khandeparkar has essentially attempted to fit the claim for restoration of
benefits under Section 64 into ‘compensation’ so that the same can be
denied under clause 22 of the DA. The attempt is however misplaced.
Developer suffering losses and claiming compensation due to wrongful
termination is a different concept than claim for return of benefits
received by the society. Claim for compensatory damages may comprise
of several components such as every penny spent in the project, loss of
opportunity to make profits, claim for idling of manpower/machinery,
etc. However, every amount spent by the developer may not necessarily
be the benefit revoiced by the society. To illustrate, the amounts spent
by the developer on his advocates fees, stamp duty, registration charges,
running of sales office, security, etc would not enure to the benefit of the
society. On the other hand if the developer spends amount of anything
which is enjoyable and is enjoyed by the society fully, that thing would
constitute a benefit for the society. Thus, the claim for return of benefits
enjoyed by the society cannot be treated as the claim for compensation.
Mr. Khandeparkar’s reliance on judgment of the Single Judge of Madras
High Court in E-merge Tech Global Services P Ltd. (supra) in support of
contention of claim for restoration of benefits being claim for
compensation is inapposite. The Madaras High Court has held in paras-
24 and 25 of the judgment as under:
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24. The learned counsel for the Plaintiff submitted that the Plaintiff is entitled
to damages under the head of compensatory damages as also under the head of
restitutionary damages by way of an account of profits. To test this contention,
it is necessary to examine the concepts of compensatory and restitutionary
damages.
25. Compensatory damages are awarded to redress the loss suffered by an
aggrieved party. The restitutionary damages are more in the nature of
directing the Defendants to disgorge the benefit accrued in his favour due to
unjust enrichment at the expense of the Plaintiff. Compensatory damages
normally present themselves with difficulties associated in computing a
reliable assessment of the loss caused to the plaintiff. Sometimes, the loss is of
such nature that an accurate assessment may well be out of the question.
70) The Madras High Court in E-merge Tech Global Services P
Ltd. has thus considered the difference between the concepts of
compensatory and restitutionary damages and has held that a party
cannot be entitled to claim both compensatory damages, as well as
restitutionary damages in ordinary circumstances. In case before the
Madras High Court, the defendant therein was employed with the
plaintiff. The defendant tendered his resignation but the plaintiff
continued his services on consultancy basis. The defendant thereafter
requested the plaintiff to relieve him from consultancy assignment, and
this is how parties parted ways. The defendant thereafter floated a new
company in which a client of the plaintiff was a subscriber. It was
plaintiff’s case that defendant was running the business of the company
on identical business model as that of the plaintiff and plaintiff’s main
customer had become part of defendant’s company. Plaintiff filed a Suit
based on non-solicit, non-compete and confidentiality clauses. The High
Court found that the Defendant committed breach of non-solicit, non-
compete and confidentiality clauses and then proceeded to consider
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plaintiff’s claim for damages. Plaintiff had raised a claim for damages to
the tune of Rs.2 crores on the ground of unjust enrichment and had also
sought restitution of disgorgement of gains unlawfully made by the
Defendants. In the context of the above factual situation, the Single
Judge of the Madras High Court held that ordinarily plaintiff cannot
claim both compensatory damages as well as restitutionary damages
unless an exceptional case is made out. While doing so, the Madras High
Court distinguished the concepts of restitutionary damages and
compensatory damages. Thus, before the Madras High Court, there was
no claim for restitution under Section 64 of the Contract Act. The case
did not involve rescission of the contract by one party, nor raising of a
claim by opposite party for restoration of the benefits. The judgment of
Madras High Court rendered in the peculiar facts of that case cannot be
read to mean that in every case a claim for restoration of benefits under
Section 64 of the Contract Act would be a claim for compensation under
Section 73 of the Act.
71) The Madras High Court in Mundakath Mathu (supra), on
which reliance is placed by Mr. Narula, has held, by referring to the
English Judgment in Clough Vs. London and North Western Rail Co.27
and to the commentary in Pollock and Mulla’s Contract Act that the
rule of restitution under Section 64 and 65 of the Contract Act is based
on the rule of equity and good conscience as no man can treat at once
the contract as avoided and retain the monies or other advantages
received by it under the contract. Reliance by Mr. Narula on judgment of
27
(1871) LR 7 Exch 26
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Kerala High Court in Chacko & Ors. (supra) is also apposite in which it is
held that the ‘benefit’ envisaged under Section 64 of the Contract Act
means only the benefit received under the transaction directly
contemplated by it and not any future benefits by any speculative or
non-speculative investment of that benefit.
72) Thus, this Court is unable to treat the Petitioner’s
counterclaim for return of benefits as a claim for compensation which
can be covered by Clause 22 of the DA. Clause 22 of the DA applies only
to the right of the Petitioner to claim damages or compensation when
the DA is terminated on account of commission of breaches by it. Thus,
what can be denied under Clause 22 is only damages or compensation for
breaches under Section 73 of the Contract Act. The same would not
apply to Society’s obligation to return the benefits under Section 64 of
the Act.
73) Mr. Khandeparkar has contended that various clauses of the
DA, when read together, disentitles the Petitioner from raising a claim
for restoration of benefits under Section 64 of the Contract Act. It would
therefore be apposite to reproduce the relevant clauses of the DA relied
upon by him. Under Clause 9(h) of the DA, it was agreed between the
parties that the Society shall have the right to exploit all the rights of the
Petitioner arbitrarily in case of default on its part. Clause 9(h) of the DA
reads thus :
The Developers shall execute the entire redevelopment project as
contemplated herein solely in the name of the society including and not
limited to obtaining permissions for purchasing T.D.R. and/or tit-bit land,
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Neeta Sawant CARBP 354 of 2024payment of premium etc. or any other right to give full effect to this
agreement. The society shall have the right to exploit these rights and
liberties arbitrarily in case default on the part of the Developer.
(emphasis added)
74) Clause 10(8) of the DA provided for termination of the
contract and for forfeiture of amounts spent by the developer in the
event of failure to procure commencement certificate within 3 months of
handing over possession of flats by the society members. Clause 10(8) of
the DA reads thus:
Notwithstanding anything contained herein if, within three months of handing
over vacant possession by the Members of the flats in the Original Building to
the Developers, the Commencement Certificate is not received by the
Developers, then this agreement for re-development shall stand terminated
and whatever amounts spent by the Developers towards obtaining F.S.I., T’D.R
and advance payments towards Corpus Fund will be forfeited by the Said
Society. The Society will then be at liberty to enter into agreement for re-
development with any other Developer of its choice.
75) Clause 22 of the DA has already been reproduced above.
However, in the context of submission of Mr. Khandeparkar that parties
have agreed for denial of even restitutionary benefits under Section 64,
only relevant part of clause 22 of the DA is reproduced once again:
22. … After expiry of these 3 months if the Developer has yet failed to
complete the entire building R.C.C. work and the external and internal
plastering work of the Building’s (that is completed with entire brick
work), then upon such event the said Society shall be at liberty to
terminate this agreement and take over all rights in the said project and
appoint a new Developer of its choice to complete the reconstruction
work. In such a case, the Developers will have no right to claim any
damages/compensation from the said Society. The Developers shall also
forego it’s right to sell the flats/ commercial premises which are part of the
saleable portion of the flats after proving the existing members 60 flats in the
new building.
(emphasis added)
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76) Under Clause 42, the Petitioner has agreed to bear and pay
all costs of construction, as well as of securing approvals, costs of
acquiring additional TDR etc. Clause 42 of the DA reads thus:
42. The Developers shall bear and pay all costs of construction including costs,
charges and expenses of obtaining all permissions, approvals, sanctions, or
otherwise, N.A. orders, I.O.D. and Commencement Certificate and also
payments to the M.C.G.M. by way of deposits, security deposits, scrutiny fees,
development charges, debris deposit, or any other charges,
payments/remuneration to architects, engineers, contractors, labour
contractors, suppliers of building materials, workmen, employees, security
staff and cost of acquiring additional T.D.R. and other expenses relating to the
development of the said plot of land.
77) Under Clause 47, it was specifically agreed between the
parties that under no circumstances, the Petitioner would ask for any
amount for contribution from the society or from its members towards
expenses for putting up the construction. Clause 47 of the DA reads thus:
47. Under no circumstances, the Developers shall ask for any amount or
contribution from the Society or any of its members towards expenses for
putting up such construction.
78) Under clause 53(iii) of the DA, parties agreed that the
Agreement was not to be construed as partnership or joint venture and
that the same was on Principal-to- Principal basis. Clause 53(iii) reads as
under:
iii. This Agreement shall not be construed as a Partnership or Joint Venture or
Agreement of Partnership and the same shall be on Principal-to-Principal
basis.
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79) After going through the above clauses relied upon by Mr.
Khandeparkar, I am unable to read any prohibition for the Petitioner-
Developer from claiming restoration of benefits admissible under Section
64 of the Contract Act. Reliance by the Respondent-Society on Clause
9(h) of the DA does not inure to its benefit. Under Clause 9(h) of the DA,
the Petitioner-developer agreed to execute redevelopment project solely
in the name of the Society and Society was to become owner of all the
purchased TDR and/or tit-bit land etc. In the event of default on the part
of the Petitioner, Respondent-Society became entitled to ‘exploit’ those
rights and liberties arbitrarily. The exact purport of Clause 9(h) is that in
the event of commission of any default by the Petitioner-developer
resulting in termination of the DA, the Society was entitled to ‘exploit’
(meaning consume) the purchased TDR and/or the tit-bit land. This
would essentially mean that termination of agreement would not result
in invalidation of permissions or invalidation of the purchased TDR or
tit-bit land. Tit-bit lands refer to non-buildable lands, often adjoining,
which MHADA sells to the societies for increasing the total layout size.
Thus, under clause 9(h) of the DA, the purchases of the TDR and of tit-
bit lands was to be made by the Petitioner-developer in the name of the
society and in the event of termination of the DA, the society was free to
exploit the same arbitrarily. This would mean that termination of DA
would not automatically result in loosing of title in the purchased TDR
or tit-bit land. Vesting of the purchased TDR and tit-bit land in the
society is a concept distinct from the concept of returning the purchase
price of such TDR or tit-bit land. Clause 9(h) does not walk a step further
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and stipulate that the society shall not be liable to refund the price of
purchased TDR or of tit-bit land.
80) Plans are approved and construction is effected by taking
into consideration the purchased TDR, FSI and tit-bit land. Absent
clause 9(h), the purchased TDR and tit-bit land would have reverted to
the Petitioner-developer upon termination of the DA rendering the
construction illegal. Clause 9(h) would therefore protect the
construction carried out on the basis of permissions and TDR/tit-bit land
purchased by the Petitioner-developer and Society does not have to
scout in the market for securing fresh permissions or to procure the TDR
or tit-bit land once again. Clause 9(h) cannot be read to mean an
exception to Section 64 of the Contract Act. Clause 9(h) does not provide
that if Society terminates the contract, Petitioner-developer shall not be
entitled to claim return of any benefits received by the Society.
81) Clause 22 of the DA has the effect of denial of only
compensation and does not provide for forfeiture of the expenditure
incurred or denial of restoration of benefits received by the society.
Clause 22 of the DA provides that ‘In such a case, the Developers will have
no right to claim any damages/compensation from the said Society’. I have
rejected the submission of Mr. Khandeparkar that restoration of benefits
under Section 64 of the Contract Act is a species of
compensation/damages as contemplated under clause 22 of the DA. Thus
clause 22 of the DA cannot be read to mean as if the parties agreed that
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upon termination of the DA, the society shall be entitled to retain all the
benefits received by it from the Petitioner.
82) So far as reliance by the Society on clause 42 of the DA is
concerned, the same merely poses a responsibility on the Petitioner-
developer to bear all costs of acquiring additional TDR. This would mean
that Petitioner was not to demand any monies from the Society or
members for carrying out any construction or for purchase of the TDR.
During performance of the DA, clause 42 put the responsibility of
incurring all the expenditure inter alia for purchase of TDR, etc. on the
developer. This does mean that after termination of the DA, Petitioner
was prohibited from seeking return of amounts spent by him, which
would fit in the expression ‘benefit’ used in Section 64 of the Contract
Act. Thus clause 42 of the DA has no application in relation to
Petitioner’s demand for restoration of benefits under Section 64 of the
Contract Act.
83) The Respondent-Society has also relied on clause 47 of the
DA which prohibited the Petitioner-developer from demanding any
money or contribution from the society or its members towards expenses
for putting up such construction. In my view, Clause 47 is continuation
of contractual arrangement under Clause 42 under which the Developer
was not supposed to demand any monies or contributions from the
Society or its members and was to bear all the costs by itself. Therefore,
there is nothing in clause 42 or 47 which disentitles the developer from
seeking return of benefits under Section 64 of the Contract Act.
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84) Society’s reliance on Clause 53(iii) of the DA again does not
cut any ice. The said clause only provides for construction of the
agreement as on principal-to-principal basis and not a partnership, joint
venture or agreement of partnership. The clause only dissociates the
Society from the business venture undertaken by the Petitioner-
developer so as to safeguard the Society in respect of any claims made
against the developer by third parties such as flat purchasers, financial
institutions, Municipal Corporation etc. Clause-53 again does not
impose any prohibition on Petitioner’s right to seek restoration of
benefits under Section 64 of the Contract Act.
85) Mr. Khandeparkar has also strenuously relied on clause 8 of
the DA under which, if Commencement Certificate was not to be
procured within 3 months of handing over possession by members, the
DA was to stand terminated and the entire amount spent by the
Petitioner-developer towards obtaining FSI/TDR and advance payments
towards corpus funds was to be forfeited by the Society. However, this
clause applies only for a period of 3 months from the date of vacation of
possession of flats by the Society-members. No doubt, Clause 8 restricts
the right of the developer to seek restoration of benefits under Section
64 of the Contract Act. Such restriction however applies only upto the
stage of securing the Commencement Certificate. Parties thus
consciously restricted prohibition on seeking restoration of benefits
under Section 64 of the Contract Act only till a particular stage. This
means that parties have consciously agreed not to restrict the right of
the Petitioner-developer to seek restoration of benefits under Section 64
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after the stage of procuring Commencement Certificate. In fact, clause 8
of the DA clearly indicates the conscious choice made by the
Respondent-Society to restrict the prohibition on restoration of benefit
under Section 64 only till the stage of securing the commencement
certificate. There is no similar restriction in the DA after crossing the
stage of commencement certificate.
86) In fact, the above quoted clause 8 of the DA clearly destroys
Mr. Khandeparkar’s contention that Clauses-9(h), 22, 27, 42, 47 and
53(iii) impose prohibition on restoration of benefits. If Clauses-9(h), 22,
27, 42, 47 and 53(iii) were sufficient to deny the restoration of benefits,
there was no necessity to incorporate clause 8 in the DA. Therefore, the
very factum of incorporation of clause 8 in the DA would clearly indicate
a conscious choice made by the Society to restrict denial of restoration
benefits only till the stage of procuring Commencement Certificate and
not thereafter.
87) I am therefore of the view that there is no clause in the DA
which imposes any restriction or prohibition on Petitioner-developer
exercising right of restoration of benefits under Section 64 of the
Contract Act.
88) Now I proceed to decide as to which of the claims of the
Petitioner-developer would fit into the ambit of the expression ‘benefit’
appearing in Section 64 of the Contract Act.
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WHETHER RENT PAID TO SOCIETY MEMBERS IS A ‘BENEFIT’
89) Petitioner claimed amounts of Rs. 20,43,52,985/- towards
rent, corpus and brokerage till execution of consent terms, Rs.
2,50,00,000/- towards adjustment for rent made under consent terms as
well as various other amounts payable under the consent terms. However
since several cheques towards those amounts are dishonoured, the claim
towards rent in Exhibit-2 is essentially of Rs. 20,43,52,985/- and Rs.
2,50,00,000/-. However, Petitioner once again claimed amount of Rs.
30,68,54,552/- in Exhibit-3 to counterclaim and the Arbitral Tribunal has
criticised it for double counting of the claims towards rent.
90) The Tribunal has considered and decided the issue as to
whether the rent paid by the Petitioner to the members of the society
could be treated as ‘benefit’ received under the performance of DA. The
Tribunal had, in order dated 17 September 2018, taken a prima facie view
while deciding the issue of interim measures that rent paid to members
of Society could not be treated as a ‘benefit’. That interim order was
upheld by this Court while dismissing the Appeal of the Petitioner.
Tribunal took note of the order of this Court dated 14 December 2018
upholding Section 17 order, in which this Court had held in para 27 as
under :
27. In my view, this submission of Mr. Narula overlooks the fact that the
respondent members had agreed to redevelopment in the hope of better
prospects and payment was made only in inducement for the members of the
society who agreed to redevelop and vacating their homes rather than
continue in the premises during repairs that would have to be undertaken.
Payment of rent cannot be in any manner considered to be a “benefit”. It only
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facilitated the members to be housed in different premises. There is
substantial collateral hardship that is associated shifting from one own home
to rented premises and during the period that is to be taken for the new and
permanent home to be constructed. The respondents are out of their homes for
about 11 years. When they vacated their premises they were expecting to be
back in their new homes within a reasonable period of time. Although shifting
to rented premises may appear to be a formality to facilitate redevelopment, in
fact it is a commitment made in anticipation of performance of the petitioners
promises to rehouse them in permanent accommodation. While resolving to
enter into such agreement, the members of the society, for that matter no
home owner, would expect or tolerate delay of this nature.
91) Though the observations made by this Court in order dated
14 December 2018 were in the context of deciding the interim measures,
the learned Arbitrator took note of ratio of the judgment of this Court in
IREP Credit Capital (supra) in which it is held that the view expressed by
a Court on legal position is binding and the stage at which the same is
expressed is immaterial.
92) However, independent of the observations made by this
Court in order dated 14 December 2018, I am also of the view that the
rent paid by the developer to the members of a cooperative society
during the period they are made to vacate their homes for reconstruction
of the building cannot be treated as a benefit within the meaning of
Section 64 of the Contract Act. The vacation of flats is required to be
undertaken by the members for the purpose of enabling the developer to
demolish the building and to reconstruct the same. For facilitating
demolition and reconstruction, the developer makes a commitment to
the members to provide them transit rent for making temporary
arrangements during the redevelopment process. It is the cost paid by
the developer to the member for denying him opportunity to reside in
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his own house. The ‘benefit’ contemplated under Section 64 of the
Contract Act must be the real benefit that accrues to the injured party
terminating the contract, which, if retained, would constitute unjust
enrichment for him. To illustrate, in a land sale transaction, if the
agreement is terminated on account of delay by the purchaser in
completing the transaction, the seller cannot retain the part
consideration received under the Agreement and also retain ownership
in the land. Retaining both would result in unjust enrichment for the
seller. However, in a redevelopment contract, rent paid to the flat owners
cannot be treated as ‘benefit’ received by them and retaining the same
upon termination of the DA does not result in unjust enrichment for
them. The new developer appointed to complete construction of the
building undertakes the liability for rent from the date of execution of
new DA and the members would not ordinarily receive rent twice for the
same period. Therefore, in a case where the society members are not
paid rent twice for the same period, the rent paid by the outgoing
developer cannot constitute benefit received by them under Section 64 of
the Contract Act. It may be an expenditure incurred by the developer,
but the same would not constitute restitutionary benefit under Section
64 of the Act. If the rent is directed to be refunded to the developer
whose DA is terminated due to defaults committed by him, it would
tantamount to rewarding the developer for the breaches while putting
already troubled society members into further difficulties, which is not
the objective behind Section 64 of the Contract Act. Hence, rent paid by
a developer to members of the society cannot be treated as a ‘benefit’
received within the meaning of Section 64 of the Contract Act.
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Therefore, the Petitioner is not entitled to seek return or restoration of
the transit rent or displacement compensation paid to the members. The
Arbitral Tribunal has rightly rejected the counterclaim of the Petitioner
for return of rent, corpus, brokerage etc.
WHETHER PURCHASED FSI CAN BE TREATED AS ‘BENEFIT’ UNDER SECTION
64 OF CONTRACT ACT
93) Petitioner has contended that it has paid following amounts
to the Respondent-society towards purchased FSI which is utilised and
enjoyed by the Society:
(i) Rs.8,18,03,435/- paid to MHADA for acquiring tit-bit land.
(ii) Rs.20,61,150/- paid to MHADA for acquiring FSI of R.G. area.
(iii) Rs.2,50,00,000/- adjusted by the Society against encashed bank
guarantee towards FSI benefit.
94) According to the Petitioner-Developer, these three amounts
spent towards purchase of FSI must be refunded to it under Section 64 of
the Contract Act.
95) In my view, the counterclaim for return of all the three
amounts of Rs.8,18,03,435/-, Rs.20,61,150/- and Rs.2,50,00,000/- would
clearly be covered by the term ‘benefit’ under Section 64 of the Contract
Act. The Respondent has undoubtedly utilised the FSI purchased by the
developer. The purchase of FSI by the Petitioner was towards
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Neeta Sawant CARBP 354 of 2024purchased by the Petitioner is not only in the name of the Respondent-
Society, but has become a property owned by the Respondent-Society. In
my view therefore, the entire FSI purchased by the Petitioner-developer
for carrying out redevelopment work of society’s building would clearly
be a ‘benefit’ within the meaning of Section 64 of the Contract Act. Since
the Society has decided to rescind the contract and even though
rescission of contract by the Petitioner is found to be valid, the Society
cannot retain the benefit of purchased FSI received under the rescinded
contract and must return the same. Clause 9(h) ensures that the Society
does not have to actually or physically return the FSI and can consume
the same since the same is purchased in the name of the society. The
clause also ensures that the construction already put up is not rendered
illegal on account of termination of the DA. However the concept of
‘non-return of FSI’ is different and distinct from the concept of ‘return of
purchase price of FSI’. While the former would be protected under clause
9(h) of the DA, the latter is liable to be returned under Section 64 of the
Contract Act.
96) In my view therefore, part of the Award which rejects the
counterclaim for return of the amounts of Rs.8,18,03,435/-,
Rs.20,61,150/- and Rs.2,50,00,000/- is in conflict with the fundamental
policy of Indian law. The learned Arbitrator has erroneously conflated
the issue of return of benefits received by the Respondent-Society under
the terminated contract with the claim for compensation for the purpose
of application of Clause 22 of the DA. It has erroneously relied on
judgment of Division Bench of this Court in Vilayti Ram Mittal which
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deals with the issue of compensation under Section 73 of the Contract
Act and not with the issue of restoration of benefits under Section 64.
For the same reason, reliance by Mr. Khandeparkar on judgment of the
Apex Court in Associated Engineering Company is also inapposite as the
said judgment also deals with the concept of validity of a clause in the
contract denying compensation. Even the judgment of the Apex Court in
Union of India vs. L & T relied on by Mr. Khandeparkar dealt with the
issue of enforceability of a term in the contract which prohibited
payment of interest. The judgment in Steel Authority of India vs. J. C.
Budharaja (supra) is also an authority on the proposition of
impermissibility for arbitrator to travel beyond the contractual clauses
for awarding claims expressly prohibited in contractual clauses. However
in the present case there is no prohibition of return of benefits received
by the society in the DA. The prohibition on return of FSI was limited
only upto the stage of procuring the commencement certificate, beyond
which stage, there is no such prohibition. The prohibition in clause 22 is
restricted only to claim for damages/compensation, which does not
extend to return for benefits. Thus, part of the award which treats the
prayer for restoration of costs of FSI purchased by the Petitioner as claim
for damages or compensation and which denies the same is
unsustainable.
97) It is sought to be contended on behalf of the Respondent-
Society that the Petitioner never raised the issue of claim of restoration
not being covered by Clause 22 of the DA. However, perusal of written
submissions before the Arbitral Tribunal would indicate that the
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Petitioner specifically urged before the Arbitral Tribunal that ‘please note
at this juncture that at any event the Respondent has not agreed to not claim
restitution/restoration of benefits received by the Society under the DA in
cl.22 of the DA. Thus, the right to seek restitution under Sections 64 and 65
of the Contract Act cannot be disallowed by the Tribunal in any
circumstances’. Though the issue of non-applicability of clause 22 of the
DA to claim of restitution of benefits was specifically raised by the
Petitioner, it appears that the Arbitral Tribunal has failed to consider
claim for restoration of benefits under Section 64 of the Contract Act on
an independent footing and unnecessarily confused the said claim as a
claim for compensation by applying Clause-22 of the DA.
98) While the Arbitral Tribunal has conflated the claim for
restoration of benefits with the claim for compensation, it has made
certain observations in the Award as to why the cost of construction
incurred by the Petitioner cannot be treated as ‘benefit’. The Tribunal
has refused to treat the same as benefit by relying on the judgment of
this Court in Borivali Anamika Niwas CHSL. The reasons for rejection of
claim for restoration of benefits are to be found only in paras-215 and
216 of the impugned Award, which read thus:
215. Insofar as the restoration of the construction costs incurred by the
Respondent Developer in putting up the building are concerned, the same also
cannot be said to be a “benefit”. I find Mr. Khandeparkar to be justified in his
reliance on Borivali Anamika Niwas CHSL (supra), paragraph 19 whereof reads
as under:-
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Neeta Sawant CARBP 354 of 2024“19. The mere fact that the developer has put money into the project
cannot and does not create equity in and of itself. After all, the
objective of the developer is not to do this for a charitable purpose. It is
to make large financial gains. The expenditure on the project is not,
therefore, a handout to the society members. It is very much in the
nature of an investment. But that investment is clearly coupled with a
contractual obligation that the developer is bound to discharge.
Without discharging this obligation, it can claim no rights in equity or
in law.”
216. In view of the aforesaid, all the contentions of the Respondent Developer
insofar as the restoration of its expenses are concerned, are wholly without any
substance. In any event, at Exhibit 3 of the Counter Claim, the Respondent
Developer has double counted the sum of Rs. 30,68,54,552/- despite the same
having been prayed for in Exhibit 2. Insofar as the other expenses mentioned
in Exhibit 3 are concerned, in view of the legal position discussed above, the
same cannot be granted.
99) Thus, by merely relying on judgment of this Court in
Borivali Anamika Niwas CHSL, the Arbitral Tribunal has proceeded to
reject the claim for restoration of benefit by holding that construction
costs cannot be treated as a benefit. Here, the Arbitral Tribunal has
failed to distinguish the claim for restoration of price paid for purchase
of FSI and claim for restoration of cost of construction. Both are treated
as ‘cost of construction’ by the Arbitral Tribunal. This Court has used the
expression ‘expenditure on the project’ in Borivali Anamika Niwas
CHSL for holding that the same is not a handout to the society members.
However, it must be observed that the observations made by this Court
in Borivali Anamika Niwas CHSL are in the context of entitlement of
Society to seek interim measures against the developer under Section 9
of the Arbitration Act. The observations made in the judgment cannot
be used for holding that a developer can never claim any expenditure
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incurred by him in execution of the project from the society after
termination of the contract. At the stage when the judgment in Borivali
Anamika Niwas CHSL was delivered, the issue of validity of termination
of the DA was yet to be determined since the arbitral proceedings had
not even commenced. This Court was considering the issue whether
mere incurring of expenditure by the outgoing developer in the project
was a reason enough for permitting the society to complete construction
of building through another developer. In Borivali Anamika Niwas
CHSL this Court ultimately made interim measures appointing Court
Receiver in respect of the property and took away possession thereof
from the outgoing developer. In my view therefore, the observations
made by this Court in the judgment in Borivali Anamika Niwas CHSL,
while deciding the issue of interim measures, are of little relevance while
adjudicating the claim of the developer for return of benefits under
Section 64 of the Contract Act.
100) Mr. Khandeparkar has relied on judgment of this Court in
Rajawadi Arunodaya CHS Ltd. which again is a judgment relevant for
deciding grant of interim measures and cannot be relied on in support of
contention that no part of investment made or expenditure incurred by
the developer can ever be a benefit to the society or to its members
under Section 64 of the Contract Act.
101) Whether the expenditure incurred by a developer in the
project can be treated as a benefit within the meaning of Section 64 of
the Contract Act and whether the developer is entitled to claim
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restoration thereof would depend on facts of each case, particularly the
contractual clauses. There cannot be an abstract proposition of law that
no part of the expenditure incurred by the developer can ever be treated
as a ‘benefit’ or that in every case, a society would be entitled to retain
all the benefits it has received from the developer after termination of
the contract. The facts of each case would decide as to which part of
expenditure incurred by the developer would be a benefit to the society
and the contractual arrangement between the parties would decide if
such benefit needs to be returned by the society to the developer or not.
In a given case, parties may agree that a particular benefit received by
the society shall not be returned to the developer.
102) As held above, the purchase price paid by the Petitioner-
developer to MHADA for securing tit-bit land, RG FSI as well as the
amount of Rs. 2.5 crores adjusted by the society towards FSI benefit
would be covered by the expression ‘benefit’ appearing in Section 64 of
the Contract Act. There is no contractual prohibition in the DA for return
of price of FSI purchased by the developer which is utilised by the
Society. In that view of the matter, the Society is liable to return the
price of purchased FSI to the developer.
103) When FSI is transferred to another party, it can give rise to
actual and speculative benefits Actual benefit is the price that the buyer
paid for purchase of FSI. On the other hand, speculative benefit is the
profit potential of that FSI. After securing the FSI, the party to whom the
same is handed over can utilise the same to construct additional area and
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earn profits. The profit potential of such FSI would be speculative
benefit. Under Section 64 of the Contract Act, what is required to be
returned is the actual benefit and not the speculative benefit.
104) The conflict with public policy of India is writ large in the
impugned award so far as rejection of claim for return of purchase price
of FSI is concerned. The effect of the impugned award is that the
Respondent-Society has retained and enjoyed the benefit of FSI
purchased by the Petitioner. It is entitled to encash the same by
completing construction of sale component building and by selling about
75 flats, construction of which can be completed by the society. If the
additional FSI is transferable, the society can alternatively sell and
monetize the same as TDR in the market. However since some part of
construction of A wing (sale component) building is already constructed,
the society can engage another developer/contractor and get the
construction completed by utilizing the additional FSI purchased by the
Petitioner. The society is thus in a position to enrich itself by using the
FSI purchased by the Petitioner. Therefore, if restoration of purchase
price of FSI is not directed, this would be a pure case of unjust
enrichment for the Society. This exactly is the objective behind Section
64 of the Contract Act. Public policy of India requires that the party
terminating the contract shall not enrich itself through such
termination. In the present case, the Respondent-society has already
enjoyed some fruits of redevelopment process since (i) the society has
utilised the construction put up by the Petitioner-developer (and I have
refused to uphold the claim for return of construction cost in latter part of
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the judgment), (ii) society has received the arrears of transit rent with
15% interest, (iii) society has secured return of expenditure with interest,
(iv) the society members are owners of bigger homes envisaged in the
DA. On the top of all these, if the society is also permitted to utilize the
additional FSI purchased by the Petitioner and to monetize the same by
constructing and selling more flats, the same would tantamount to
unjust enrichment. The delay in construction of the building would
entail losses for the developer in the form of loss of opportunity to earn
profits and non-return of most of the investments made by it in the
project. However, this would not mean that the society can unjustly
enrich itself by forfeiting the amount of purchased FSI, especially when
there is no contract to that effect.
105) The Arbitral Tribunal has committed patent illegality in
conflating the claim for return of FSI price with the claim for
compensation. The award conflicts public policy of India as it enables the
society to unjustly enrich itself in total contravention of Section 64 of
the Contract Act. The view taken by the Tribunal does not pass the
muster of ‘plausible view’. Permitting the society to retain purchased FSI
and to encash the same by unjustly enriching itself is something which
no fair-minded person would ever permit. Reliance by Mr. Khandeparkar
on judgment of Ramesh Kumar Jain (supra) would not save this part of
the award. In my view therefore, the part of the Award which seeks to
deny the counterclaim of the Petitioner for return of benefit of purchase
price of FSI is in conflict with public policy, and also patently illegal.
Only this part of the Award is liable to be set aside.
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CLAIM FOR COST OF CONSTRUCTION
106) Petitioner had also claimed amount of Rs.18,09,57,496/-
towards cost of construction from the Respondent-Society. The learned
Arbitrator has denied the claim for return of cost of construction by
referring to the judgment of this Court in Borivali Anamika Niwas
CHSL. As observed above, the observations made by this Court in
Borivali Anamika Niwas CHSL are only in the context of society’s
entitlement to interim measures under Section 9 of the Arbitration Act
and the same cannot be used for concluding that in every case, the
Developer is not entitled to seek any part of expenditure incurred by it in
the project. As observed above, it would all depend on facts of each case
and particularly the nature of contractual arrangement between the
parties. The Arbitrator has also denied the claim for return of cost of
construction on account of absence of credible proof in respect of proof
of costs presented by the developer.
107) Having held that Developer’s entitlement to seek return of
costs of construction from the Society would depend on facts and
circumstances of each case and the nature of contractual arrangement
between the parties, I proceed to examine whether the Petitioner’s
counterclaim for return of costs of construction could have been allowed
in the facts and circumstances of the present case. Before proceeding to
do so, it must be observed that the Arbitral Tribunal has once again
conflated the issue of costs of construction with the concept of
compensation/damages by applying Clause 22 of the D.A. Here again,
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the claim for return of costs of construction incurred by a developer
cannot be a claim for compensation under Section 73 of the Contract
Act. In a given case, costs of construction incurred by a developer can fit
into the term ‘benefit’ used under Section 64 of the Contract Act.
However, it depends on facts of each case.
108) In the present case, the contract of redevelopment awarded
to the Petitioner-Developer has been terminated by the Society. I have
already upheld part of the Award which validates the termination
effected by the Society. Petitioner admittedly did not complete
construction of the building within the period stipulated in the DA or
even within the extended period under the consent terms. During the
period from 26 June 2007 till 9 June 2018 (11 long years), the Petitioner
was able to construct a mere bare shell RCC structure of 21 floors in
wing and 7 floors in A wing, which was incapable of being used for
residence by any of the members. The issue for consideration is whether
expenditure incurred on construction of such bare shell RCC structure
can be treated as a benefit received by the society within the meaning of
Section 64 of the Contract Act? In my view, the answer to the question,
in the facts and circumstances of the present case, will have to be
necessarily in the negative. In a given case, where the construction of the
building is virtually complete but the occupancy certificate is not issued
and at that stage, if the DA is terminated and the society is in a position
to secure the occupancy certificate without any modifications in the
construction already erected, such construction by the developer may
tantamount of benefit for the society. However, in the present case,
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where the structure erected by the Petitioner-developer was not of use
for the members of the society, such structure cannot be treated as
benefit for the society. Thus, the key is to find out whether the
constructed structure can be put to use by the society or by its members.
In the facts of the present case, construction put up by the Petitioner
cannot be treated as benefit for the members of the society. For the
purpose of application of provisions of Section 64 of the Contract Act,
the thing passed on to the opposite party must be complete in all
respects, capable of being enjoyed by the opposite party. Consequently,
the thing delivered to the other party which is incapable of being utilised
in its delivered state, cannot be treated as a benefit received. In the
present case, the Society and its members are required to further build
upon the bare shell structure erected by the Petitioner which was not
capable of being put to any use by the Society members. In the facts and
circumstances of the present case therefore, the construction so erected
by the Petitioner would not form a benefit to the Society within the
meaning of Section 64 of the Contract Act and therefore Petitioner’s
claim for return of cost of construction is rightly rejected by the
Tribunal.
109) Also, the arbitrator has rightly evaluated the evidence on
record for holding that the Petitioner could not produce credible
evidence of exact costs of construction incurred in respect of the project.
The Petitioner is a professional developer undertaking several projects.
It was incumbent for it to prove that a particular expenditure was
incurred for the project in question. Mere presentation of invoices for
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purchase of cement, steel etc cannot be a reason for inferring that the
purchases was utilised for the project in the question. Thus, there is
absence of any credible and reliable evidence for accepting the claim of
the Petitioner that it incurred expenditure of Rs.18,09,57,496/ towards
construction costs. Reliance by Petitioner on judgment of this Court in
Harish Loyalka (supra) is inapposite. When there is no correlation
between invoices and amount spent in particular project, mere absence
of cross-examination is not sufficient to hold that every amount covered
by invoices is spent on present project. Also failure to lead evidence is
just an additional ground for rejection of counterclaim for return of cost
of construction, which is otherwise not covered under Section 64 of the
Contract Act.
110) Considering the facts of the case, the view taken by the
Tribunal rejecting claim for return of cost of construction is a plausible
view. Though the tribunal has essentially based the rejection of claim for
returning the cost of construction by relying on observations made by
this Court in Borivali Anamika Niwas CHSL , the conclusion can
otherwise be justified on the basis of the material on record of the
Tribunal and this Court can accordingly explain the reasons for the
conclusion as per judgment of the Apex Court in OPG Power Generation
(supra). In the facts of the present case therefore, rejection of
counterclaim by the learned arbitrator in respect of return of cost of
construction cannot be treated as patently illegal for this Court to
interfere in exercise of jurisdiction under Section 34 of the Arbitration
Act.
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CONCLUSIONS
111) Considering the overall conspectus of the case, I am of the
view that the Award upholding the Termination Notice dated 9 June
2018 and restraining the Petitioner from interfering with possession of
the concerned land and the building by the Society does not warrant
interference under Section 34 of the Arbitration Act. Similarly the award
directing handing over of original documents, awarding monetary claim
in the sum of Rs.7,08,53,695.03/- in favour of the Respondent-Society
also passes muster under Section 34 of the Act. Rejection of
counterclaims of Petitioner towards compensation (loss of profit), return
of rent, return of cost of construction etc is also found to be in order.
Petitioner has failed to make out a valid ground of challenge to the
Award in respect of the above findings, and this part of the Award can be
sustained.
112) While most of the Award is being upheld, only a small part
thereof relating to rejection of counterclaim for return of cost of
purchased FSI by the Petitioner-developer is found to be unsustainable
for the reasons indicated above. The part of the Award rejecting the
claim for return of purchase price of FSI is not inseparably intertwined
with the other parts of the award. This Court has upheld Petitioner’s
right for restoration of benefits under Section 64 of the Contract Act. But
only amount spent for purchase of TDR / tit-bit land can be treated as
benefit and the amount of rent and cost of construction cannot be
tretaed ass benefit. Therefore part of the award rejecting counterclaim
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for return of price of purchased TDR/FSI/tit-bit land is easily separable
without causing violence to the other part of the impugned award.
Therefore, following the principles of Constitution Bench judgment in
Gayatri Balasamy vs. ISG Novasoft Technologies Limited 28, it is possible
to severe bad part of the Award from the good part. Therefore while
upholding the rest of the Award, only the part thereof which rejects
Petitioner’s counterclaim for return of Rs.8,18,03,435/- spent by it for
purchase of tit-bit land, Rs.20,61,150/- spent by it for purchase of RG FSI
and Rs.2,50,00,000/- adjusted by Society towards FSI benefit is liable to
be set aside.
ORDER
113) I accordingly proceed to pass the following order:
(i) The Award of the learned Arbitrator dated 24 June 2023, except
to the limited extent as indicated in para (ii) below, is upheld.
(ii) The Award is set aside only to the extent it rejects Petitioner’s
counterclaim for return of benefit received by the Respondent-
society in the sum of Rs. 8,18,03,435/- for purchase of tit-bit
land, Rs. 20,61,150/- for purchase of RG FSI and Rs.
2,50,00,000/- adjusted towards FSI benefit from bank guarantee
amount.
28
(2025) 7 SCC 1
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114) With the above directions, the Petition is partly allowed
and disposed of. Considering the facts and circumstances of the present
case, I deem it appropriate not to make any further order as to costs.
[SANDEEP V. MARNE, J.]
Digitally
signed by
NEETA
NEETA SHAILESH
SHAILESH SAWANT
SAWANT Date:
2026.03.30
20:38:01
+0530
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