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specific performance case, arbitration case , company petition -M/s.Merbanc Financial Services Limited (hereinafter referred to as "the company") is absolute owner of 1853.80 square yards in Plot No.7, Sector 1, HUDA Techno Enclave in Sy. No.64 of Madhapur village, Sherilingampally, Ranga Reddy District. The applicant approached the company for development of the said plot into a multi-storied building complex. They entered into a development agreement-cum-General Power of Attorney on 6.1.1999 (for brevity, "agreement"). Under the said agreement, the applicant was authorized to construct a multi- storied building complex on the said plot. The company has to secure exemption under the provisions of Urban Land (Ceiling and Regulation) Act, 1976. As per Clause 3 of the agreement, the applicant shall invest his capital and construct the building complex as per mutually agreed plan and building specifications ensuring that the design and construction shall be sound and that it should confirm to statistical engineering practices. The applicant has to deposit security amount of Rs.20.00 lakhs. He paid a sum of Rs.5 lakhs towards security deposit at the time of the execution of the agreement. The balance security deposit of Rs.15 lakhs is payable within a fortnight from the intimation of fact of obtaining exemption order from the Urban Land Ceiling Authority by the company. As per Clause (14) of the agreement, the company has to liquidate its liability to Andhra Pradesh Industrial Development Corporation ("APIDC") and obtain original documents of title within five months from the date of the agreement. Some delay occurred in getting clearance from the Urban Land Ceiling Authority by the company. The applicant claims to have spent considerable amount in carrying out the developmental activity pursuant to the said agreement. The company took the stand that the applicant failed to pay balance security deposit amount of Rs.15 lakhs as per Clause 3(d) of the agreement and thereby, it issued letter dated 18.4.2000 terminating the agreement.The Supreme Court after taking into consideration the economic reforms in the country reduced the rate of interest awarded by the arbitrators from 18% to 9%, vide decision of the Supreme Court in=compensation not to be given for any remote or indirect loss or damage sustained by reason of breach of contract. Awarding of damages by Arbitrator on the claim made by contractor that he would have earned more profit if money due to him is paid in time is unsustainable as it is too remote a claim to be allowed.

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THE HON'BLE SRI JUSTICE B.SESHASAYANA REDDY 
C.A.No.480 of 2007 In C.P.No.113 of 2002 

12-07-2010 

A.Sridhar Lakshman 

M/s.Merbanc Financial Services Ltd.
Rep. by Official Liquidator and others

!Counsel for the Applicants: Sri P.Vinayaka Swamy 

Counsel for the Respondents: Sri M.Anil Kumar for Official Liquidator
 Sri S.Sriram Reddy for respondent No.5

:ORDER: 

 This application under Section 34 of the Arbitration and Conciliation Act,
1996 has been taken out by Sri A.Sridhar Lakshman to set aside the award
dated 27.6.2001 passed by the Arbitral Tribunal comprising Justice A.Gopala Rao,
Justice T.N.C.Rangarajan, former Judges of this Court, and G.Manohar, Advocate.

2. Background facts, in a nutshell, leading to reference of the dispute to
the Arbitral Tribunal are:-
 M/s.Merbanc Financial Services Limited (hereinafter referred to as "the
company") is absolute owner of 1853.80 square yards in Plot No.7, Sector 1, HUDA 
Techno Enclave in Sy. No.64 of Madhapur village, Sherilingampally, Ranga Reddy
District. The applicant approached the company for development of the said
plot into a multi-storied building complex. They entered into a development
agreement-cum-General Power of Attorney on 6.1.1999 (for brevity, "agreement").
Under the said agreement, the applicant was authorized to construct a multi-
storied building complex on the said plot. The company has to secure exemption
under the provisions of Urban Land (Ceiling and Regulation) Act, 1976. As per
Clause 3 of the agreement, the applicant shall invest his capital and construct
the building complex as per mutually agreed plan and building specifications
ensuring that the design and construction shall be sound and that it should
confirm to statistical engineering practices. The applicant has to deposit
security amount of Rs.20.00 lakhs. He paid a sum of Rs.5 lakhs towards security
deposit at the time of the execution of the agreement. The balance security
deposit of Rs.15 lakhs is payable within a fortnight from the intimation of fact
of obtaining exemption order from the Urban Land Ceiling Authority by the
company. As per Clause (14) of the agreement, the company has to liquidate its
liability to Andhra Pradesh Industrial Development Corporation ("APIDC") and
obtain original documents of title within five months from the date of the
agreement. Some delay occurred in getting clearance from the Urban Land
Ceiling Authority by the company. The applicant claims to have spent
considerable amount in carrying out the developmental activity pursuant to the
said agreement. The company took the stand that the applicant failed to pay
balance security deposit amount of Rs.15 lakhs as per Clause 3(d) of the
agreement and thereby, it issued letter dated 18.4.2000 terminating the
agreement. 

3. Thereupon, the applicant filed O.S.No.73 of 2000 on the file of the I
Additional District Judge, Ranga Reddy District, seeking specific performance of
the agreement dated 4.1.1999. The applicant also filed I.A.No.1185 of 2000 in
O.S.No.73 of 2000 on the file of the I Additional District Judge, Ranga Reddy
District under Order 39 Rules 1 and 2 C.P.C for grant of temporary injunction.
Whereas the Company filed O.P.No.415 of 2000 on the file of the District
Judge, Ranga Reddy District under Sections 5, 8 and 9(d) and (e) of the
Arbitration and Conciliation Act, 1996 (for brevity, `the Act') seeking
injunction against the applicant, pending reference to and resolution of the
disputes by arbitration, from dealing with the petition schedule property or
encumbering the same or changing the nature thereof, either by construction
or demolition, pending decision of the arbitrators. The Company also filed
I.A.No.1310 of 2000 in O.S.No.73 of 2000 on 27.4.2000 for stay of the suit.
The Court stayed the suit and referred the parties to arbitration. The company
nominated G.Manohar as arbitrator and the applicant nominated Justice
T.N.C.Rangarajan, a former Judge of this Court, as arbitrator. The two
arbitrators requested Justice A.Gopala Rao, a former Judge of this Court, to be
Chairman of the arbitral Tribunal. Thus, arbitral Tribunal came to be
constituted.

4. The company submitted its claim before the arbitral tribunal. The Company
contended before the arbitral tribunal that it terminated the agreement in view
of the defaults of the applicant and thus, the possession of the suit plot by
the applicant is illegal and the applicant is liable to deliver vacant
possession of the plot and to pay Rs.2,72,16,184/- with future interest. The
company further contended before the arbitral tribunal that because of the
applicant failing to comply the deposit of the amount as stipulated in the
agreement, it suffered heavy financial loss. For better understanding of the
grievance of the company, I deem it appropriate to refer paragraph 28 of the
claim statement, which reads as hereunder:-
" 28. The financial loss suffered already and likely to be suffered in
future by the Claimant company is the aggregate of Rs.30,00,000/- claimed
towards compensation for damage to the depositor confidence as set forth in
para 20 hereof, Rs.32,40,000/- (Rupees thirty two lakhs forty thousand only)
under separate head as below, Rs.14,62,500/- (Rupees fourteen lakhs sixty
two thousand five hundred only) under another head as below, Rs.22,50,000/-
(Rupees twenty two lakhs fifty thousand only) as per another head below and
further unquantifiable loss sustained on this account, Rs.1,72,00,000/- (Rupees
one crore seventy two lakhs only) as a direct loss sustained on sale value
expected of property units, and damages as mesne profits for the same from the
date of respondent's possession of the said property to the date of
redelivery, at Rs.37,076/- (Rupees thirty seven thousand seventy six only)
per month computed for convenience from 1-5-2000, nine month's mesne profity
amounting to Rs.3,33,684/-.

 The details of working, and the "break up" of the figures are set out as
below:

a. The repayment of the loan outstanding with APIDC to a tune of Rs.1.10
Crores which has been carrying interest at the rate of 27% is delayed by at
least 12 months (assuming that the arbitration proceedings will be completed
within 3 months) and hence the direct loss is Rs.29,70,000/- (Rupees thirty
two lakhs forty thousand only), being loss directly attributable to the acts
and omissions of the respondent and for which the claimant holds the
respondent liable, with interest thereon from date of claim pending
arbitration and till full payment at such rate of interest as the Hon'ble
Arbitrators deem reasonable regard being had to the circumstances and the
actual loss and damage sustained by the Claimant. 
b. The repayment of outstanding loans from banks amounting to Rs.75 lacs
carrying interest @ 19.5% is also delayed by 12 months thereby causing a
direct loss of Rs.14,62,500/- (Rupees fourteen lakhs sixty two thousand
five hundred only) being loss directly attributable to the acts and omissions
of the respondent and for which the Claimant holds the respondent liable, with
interest thereon from date of claim pending arbitration and till full payment
at such rate of interest as the Hon'ble Arbitrators deem reasonable regard
being had to the circumstances and the actual loss and damage sustained by
the Claimant.
c. Counting on the sale of claimant's share of the developed project after the
completion of the development of the subject property Claimant has undertaken
to RBI to repay all the outstanding deposits amounting to Rs.1.50 Crores
before 31/3/2001. Because of the above acts and omissions of the respondent,
not only is there a delay in payment to depositors costing Claimant in
additional amount of Rs.22,50,000/- (Rupees twenty two laksh fifty thousand
only) at 15% p.a interest, but there is also an imminent danger of
Claimant's not being able to meet the commitment made to RBI with serious
adverse consequences for the Claimant in terms of loss of goodwill and damage
to its reputation, apart from the outcry of depositors on non-payment, penal
action by Reserve Bank of India, and the consequent loss of depositor
confidence in the Claimant company. The complete assessment of the adverse 
fall-out of these aspects can be neither fairly estimated, nor can it be
really quantified. However, it is clear that the same would have far-
reaching adverse effects on the Claimant company in terms of loss and reduced
business, loss of Credibility, and fall in profits. Although the Claimant
cannot reasonably quantify the loss sustained on this account, considering the
seriousness of the impact on the entire business of the Claimant, it seeks
that the Hon'ble Arbitrators award to the claimant the loss of Rs.22,50,000/-
aforesaid as claimed on this head, as compensation for loss directly
attributable to the acts and omissions of the respondent and for which the
Claimant holds the respondent liable, with interest thereon from date of claim
pending arbitration and till full payment at such rate of interest as the
Hon'ble Arbitrators deem reasonable regard being had to the circumstances
and the actual loss and damage sustained by the Claimant.
d. Claimant's property ( the said property) situated at Madhapur is a prime one
located in the heart of the "Hi-tech City" vicinity, and hand Claimant gone
ahead with the construction as soon as it had obtained ULC clearance
(building plan was almost approved and the sanction was withheld for want of
ULC clearance only) the project of the Claimant would have been the second
prime office building in that area after "CYBER TOWERS", and claimant could
have got attractive offers for purchase at rates in excess of Rs.3,000/- per
sq. ft. However, with this represent controversy the construction is not only
delayed but also has got for the said property the reputation of being a
disputed property. Consequently the value of the property would have come
down in sq. ft. sale value terms by at least Rs.1,000/- per sq. ft. which
taking into account the intended developed share of the Claimant in the
construction to be made threat, comes to Rs.1,72,00,000/- (Rupees one crore
seventy two lakhs only) as a direct loss sustained, being loss directly
attributable to the acts and omissions of the respondent and for which the
Claimant holds the respondent liable, with interest thereon from the date of
claim pending arbitration, and till full payment at such rate of interest as
the Hon'ble Arbitrators deem reasonable regard being had to the circumstances
and the actual loss and damage sustained by the Claimant.
e. The respondent is in illegal occupation of the said property and Claimant
claims damages as mesne profits for the same from the date of respondent's
assertion of possession to date of redelivery thereof to Claimant, at the rate
of Rs.20/- per sq yard per month, computed as Rs.37,076/- (Rupees thirty
seven thousand seventy six only) per month for the extent of 1853.8 sq yds,
being Rs.3,33,684/- for the said duration of nine months as set out above, and
pending arbitration till redelivery of possession to the Claimant".

5. The applicant filed written statement and counter claim before the
arbitral tribunal. The applicant, while denying its liability to pay the amount
as claimed by the company, made a counter claim for specific performance of the
agreement for development/power of attorney dated 4.1.1999. The applicant
contended before the arbitral tribunal that the company failed in its obligation
to clear mortgage created in favour of APIDC, and thereby, the company committed
breach of the terms of the agreement. Since the company failed to perform its
part of the obligation as spelt out in Clause (14) of the agreement, it cannot
blame him with violation of any of the terms and conditions of the agreement.

6. Before the arbitral tribunal, the Company marked 28 documents as Exs.C-1 
to C-28 apart from filing third party affidavits. The applicant filed 15
documents, which have been exhibited as Exs.R-1 to R-15. Neither party adduced
oral evidence before the arbitral tribunal. The arbitral tribunal framed the
following issues for consideration:-
A. Whether the agreement dated 4-1-99 between the parties subsists ?
B. Which party has committed the breach of the agreement? 
C. To what relief?

7. The learned arbitral Tribunal after considering the evidence brought on
record and on hearing the counsel appearing for the parties, came to the
conclusion that it is the applicant, who failed to deposit balance of Rs.15
lakhs as earnest money indicating his readiness and willingness to embark on the
project, and thereby, he committed breach of the agreement. With the finding
that the applicant is a defaulting party directed him to handover property
forthwith along with Rs.7,500/- (Rupees seven thousand five hundred only) per
day from the date of the award till the date of handing over possession, by
award dated 27.6.2001. The relevant portion of the award needs to be noted and
it is thus:-
" As far as the Claimant is concerned, the actual loss is only the
opportunity cost which can be fairly estimated as the interest burden or the
portion thereof which could not be abated because of the delay. Admittedly, the
respondent was aware even at the time of entering into the contract that the
object of the claimant in initiating the project was to raise funds for its
business, particularly as it was facing a resource crunch. The delay in the
project has definitely made it difficult for the claimant to achieve that
object. The Respondent was also aware that the property was mortgaged to
APIDC. The normal method of assessing the damage for the delay is to
ascertain the interest burden on the amount outstanding. The claimant has
stated that the interest burden for one year of delay is Rs.66,82,000 made up
of (1) interest paid to APIDC for one year = Rs.29,70,000 (2) interest paid
to banks on outstanding loans= Rs.14,62,000 and (3) interest paid to
depositors= Rs.22,50,000. Material has been placed on record in support of
items (1) and (3) but not for item (2). At the same time, we should remember
that this was not the only resource for repaying the loans by the claimant as
the Claimant was in the regular business of non-banking Finance. We are of
the view that the entire interest burden may not represent the loss due to the
delay. Taking all the circumstances into consideration, we deem it fair to
assess the loss to the claimant on account of the delay at Rs.26,75,000, which
is a little over half of the sum total of items (1) and (3).

 The Claimant also asks for mesne profits for illegal occupation in the
sum of Rs.3,33,684 @ Rs.20 per square yard per month for a period of one year.
The agreement stood terminated on 18-01-2000. We are of the opinion that it
would serve the interests of justice to direct the Respondent to hand over
the property forthwith and if there is any delay in handing over the property,
the respondent shall pay Rs.7,500 per day, because for every day of delay,
there is an opportunity cost of Rs.7,500 which is the portion of the interest
burden of the Claimant which the Claimant is prevented from reducing.

 In the result, we direct the Respondent to hand over the property
forthwith along with Rs.7,500 (Rupees Seven thousand five hundred only) per
day from the date of this award till the date of handing over possession. We
also award compensation of Rs.20 lacs (Rupees Twenty lakhs only) payable by
the Respondent to the Claimant which is arrived at by deducting the sum of
Rs.6,75,000/- (Rupees Six Lakhs Seventy Five thousand only) payable by the
claimant to the Respondent (interest on deposit Rs.75,000 + estimated
expenditure Rs.6,00,000) from the amount of Rs.26,75,000 payable by the
Respondent to the Claimant. This amount of Rs.20 lacs (Rupees Twenty Lakhs 
only) shall carry interest at 18% per annum from the date of award to the date
of payment."

8. The applicant filed O.P.No.907 of 2001 before the District Judge, Ranga
Reddy District under Section 34 of the Arbitration and Conciliation Act, 1996 to
set aside the award. While the said O.P was pending, one B.Kameswari moved 
Company Petition No.113 of 2002 under Section 433(e), 434 i(a) and 439 1(b) of
the Companies Act for winding up of the company (M/s.Merbanic Financial Services 
Limited). The company petition came to be allowed on 6.3.2003 directing winding
up of the company. The Official Liquidator attached to this Court came to be
appointed as the liquidator of the company.

9. The Official Liquidator representing the company (in liquidation) filed
Company Application No.2053 of 2006 by way of Judge's summons seeking transfer 
of O.P.No.907 of 2001 on the file of District Judge, Ranga Reddy District to
the file of this Court. The said application came to be allowed withdrawing
O.P.No.907 of 2001 from the file of District Judge, Ranga Reddy District and the
same is taken on file of this Court as Company Application No.480 of 2007.
APIDC, secured creditor of the company (in liquidation) came to be impleaded as
respondent No.5 as per orders in Company Application No.604 of 2007 dated 
29.3.2007. The Official liquidator has been permitted to represent the company
in liquidation in the Company Application No.480 of 2007 as per orders in
Company Application No.3056 of 2003 dated 29.6.2004. 

10. APIDC-the secured creditor filed Company Application No.1442 of 2003
seeking permission to stand outside the liquidation proceedings and pursue the
remedies available to it under Section 29 of the State Financial Corporation
Act. The applicant also filed Company Application No.1524 of 2006 seeking stay
of sale of the plot pending disposal of O.P.No.907 of 2001. An interim order
came to be passed on the said company application along with other application
on 12.2.2009, which reads as hereunder:-
" For Merbanc Financial Services Limited, the company which went into
liquidation, Andhra Pradesh Industrial Development Corporation, a public sector
undertaking of the Government of Andhra Pradesh is a secured creditor as well as
equity participant. As of now, more than Rs.2.5 crores of debt is due to this
public sector creditor. There are also unsecured creditors who are due nearly
Rs.3 crores. APIDC sought for permission under Section 446 to stand outside
the winding up process and pursue the remedies available. But, however, the
asset of the company which is a landed property situated in prime locality of
Madhapur area in Hyderabad city, if it could be sold in public auction, it is
very likely to fetch a reasonably descent return which might ultimately
help in liquidating the entire liability of the APIDC as well as the
liability of the unsecured creditors and still there might be funds left
available for distribution to the shareholders of the company as well.
 It is therefore appropriate to direct the Official Liquidator to
forthwith take the possession of the asset in question and take necessary
steps for bringing it to sale by public auction in association and allow APIDC
to be associated with it at every stage, and of course subject to the condition
that as soon as the sale consideration amounts are received in the process,
should first and on top priority be transferred in favour of the APIDC. The
Official Liquidator is directed to put the former Directors of the company on
notice to furnish the following:

(1) the Statement of affairs of the company
(2) the total list of secured and unsecured creditors and their liabilities
(3) the list of members/shareholders of the company with their share holding
pattern
(4) valuation, if any, undertaken by the company of the asset

The APIDC in the meeting got the asset valued. Sri Sriram, learned counsel has
already furnished the valuation report to the Official Liquidator. The
Official Liquidator is directed to accept the same as the basic value for
purpose of undertaking the sale of asset without bothering to get the property
valued all over again and on that basis to take necessary steps. Call these
matters on 3.3.2009"

11. Heard learned counsel appearing for the applicant and learned counsel
appearing for the Official Liquidator representing the company (in liquidation)-
1st respondent and Sri S.Sriram Reddy, learned counsel appearing for the 5th
respondent.

12. Learned counsel appearing for the applicant submits that the arbitral
tribunal failed to note that the company committed breach of the terms of the
contract since the company had not secured clearance from the Urban Land Ceiling
authorities within the time stipulated. He would further submit that the
arbitral tribunal failed to take note the correspondence between the parties,
which would suggest that time was not the essence of the contract. Learned
counsel contends that the agreement of sale-cum-general power of attorney is
coupled with interest in which case, cancellation of the agreement unilaterally
is impermissible. Learned counsel took me to the correspondence between the
parties to convince that delays in complying the terms of the contract were
directly attributable to the company. In support of his submission, reliance
has been placed on the following decisions:-
1. Nathulal v. Phoolchand1
2. ONGC Ltd. v. Saw Pipes Ltd.2 
3. Centrotrade Minerals & Metals Inc.v. Hindustan Copper Ltd.3
4. Hind Constn. Contractors v. State of Maharashtra4
5. Swarnam Ramachandran v. Aravacode Chakungal Jayapalan5 
6. Panchanan Dhara v. Monmatha Natha Maity6 
7. Sathyanarayana Bros. (P) Ltd. v. T.N.Water Supply & Drainage Board7 
8. M/s.Sikkim Subba Associates v. State of Sikkim8 
9. Seth Loon Karan v. I.E.John9
10. State Bank of India v. M/s.Ram Das10 
11. Superintending Engineer vs. Kehar Singh11
12. Transmission Corporation of Andrha Pradesh Limited v. Galada Power and 
Telecommunication Limited12 

13. In Seth Loon Karan' case ( 9 supra), the Supreme Court held the power
coupled with interest cannot be revoked unilaterally. For better appreciation,
I may refer paragraph 5 of the cited judgment, which reads as hereunder:-
" There is hardly any doubt that the given by the appellant in favour of the
Bank is a power coupled with interest. That is clear both from the tenor of the
document as well as from its terms. Section 202 of the Contract Act provides
that where the agent has himself an interest in the property which forms the
subject-matter of the agency the agency cannot, in the absence of an express
contract, be terminated to the prejudice of such interest. It is settled law
that where the agency is created for valuable consideration and authority is
given to effectuate a security or to secure interest of the agent, the authority
cannot be revoked. The document itself says that the power given to the Bank is
irrevocable. It must be said in fairness to Shri Chagla that he did not contest
the finding of the High Court that the power in question was irrevocable".

14. In Nathulal v. Phoolchand's case (1 supra), the Supreme Court observed
that the following conditions are necessary for making out the defence of part
performance to an action in ejectment by the owner are:

"
(1) that the transferor has contracted to transfer for consideration any
immovable property by writing signed by him or on his behalf from which the
terms necessary to constitute the transfer can be ascertained with reasonable
certainty;
(2) that the transferee has, in part performance of the contract, taken
possession of the property or any part thereof, or the transferee, being already
in possession continues in possession in part performance of the contract;
(3) that the transferee has done some act in furtherance of the contract; and
(4) that the transferee has performed or is willing to perform his part of the
contract;

If these conditions are fulfilled then notwithstanding that the contract,
though required to be registered, has not been registered or, where there is an
instrument of transfer, that the transfer has not been completed in the manner
prescribed therefore by the law for the time being in force, the transferor or
any person claiming under him is debarred from enforcing against the transferee
any right in respect of the property of which the transferee has taken or
continued in possession, other than a right expressly provided by the terms
of the contract".

15. In Hind Contn. V. State of Maharashtra ( 4 supra), the Supreme Court held
that the question whether or not time was of the essence of the contract would
essentially be a question of the intention of the parities to be gathered from
the terms of the contract. The Supreme Court further held that even where the
parties have expressly provided that time is of the essence of the contract such
a stipulation will have to be read along with other provisions of the contract
and such other provisions may, on construction of the contract, exclude the
inference that the completion of the work by a particular date was intended to
be fundamental; for instance, if the contract were to include clauses providing
for extension of time in certain contingencies or for payment of fine or penalty
for every day or week the work undertaken remains unfinished on the expiry of
the time provided in the contract such clauses would be construed as rendering
ineffective the express provision relating to the time being of the essence of
contract.

16. In Superintending Engineer v. Kehar Singh ( 11 supra), a Division Bench
of this Court held that compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach. After considering
Section 73 of the Indian Contract Act, it has been observed as hereunder:-
" It has been laid down by this Court that the arbitrator is a creature of
the agreement and the position of the arbitrator is not above the position of
the Court. If the Court is bound by the provisions of the substantive law so
also the arbitrator. As such in passing the award the arbitrator cannot
act contrary to the provisions of the substantive law. Section 73 of the
Indian Contract Act provides as follows:

"73. Compensation for loss or damages caused by Breach of contract : When a 
contract has been broken, the party who suffers by such breach is entitled to
receive from the party who has broken the contract compensation for any loss or
damage caused to him thereby, which naturally arose in the usual course of
things from such breach, or which the parties knew, when they made the contract
to be likely to result from the breach of it. Such compensation is not to be
given for any remote and indirect loss or damage sustained by reason of the
breach. "

From a perusal of the above section it is evident that the damages which can be
awarded as a result of breach of contract by one of the parties to the other
party who suffered by the said breach, is entitled to receive any loss or damage
caused to him thereby, which naturally arose in the usual course of things from
such breach or which the parties knew when they made the contract to be likely
to result from the breach of it. It is specifically made clear that such
compensation is not to be given for any remote or indirect loss or damage
sustained by reason of the breach. Illustration (n) appended to the said section
clearly brings out the difference between the loss, which naturally arises out
of the contract and the loss which is too remote and cannot be awarded under
Section 73".

17. In the cited decision, it was further held as follows:-
"IT cannot be disputed that as a result of not receiving of money in time the
contractor suffered loss and for that he will be entitled to damages which can
be measured either by way of interest or otherwise. In the instant case the
basis of the claim is that had the amount been released in time, the contractor
would have been able to undertake five times the value of the work and get 15%
of the profit on the out-turn. It would be pertinent to note here that on the
amounts awarded under general claim No. 3 the arbitrator had awarded interest
from the date of the claim, the relevant portion of the awarded reads "we award
and direct that interest should be paid to the claimant by the respondent on the
total sum awarded above at 12% interest per annum from the date of award to the
date of the decree or payment whichever is earlier. " The amount awarded by the
arbitrator is admittedly not in the nature of interest which has already been
awarded but is in addition to it and is too remote a claim to be allowed under
Section 73 of the Indian Contract Act. Therefore, in our view, the arbitrator
has acted without jurisdiction in awarding the said claim No. 2. We therefore,
set aside that part of the decree relating to claim No. 2 which is made rule of
the court."

18. Learned counsel appearing for the Official Liquidator representing the
company (in liquidation) submits that Clause 3(d) of the agreement is explicit
that failing payment of Rs.15 lakhs by the applicant within fortnight from the
date of handing over of the exemption order from the Urban Land Ceiling
Authority, the agreement stands cancelled unless mutually agreed otherwise.
The said term is self-explanatory and it is an independent clause. Since the
applicant failed to pay security deposit of Rs.15 lakhs within 15 days of
handing over the exemption order from the ULC authority, the 1st respondent
company is justified in terminating the agreement by issuing notice dated
18.4.2000. Learned counsel further submits that the Arbitral tribunal
considered the material brought on record in right perspective and found the
applicant as defaulting party and the finding recorded by the learned tribunal
is based on the terms and conditions of the agreement and in which case, it is
impermissible for this Court to interfere with the award impugned in the
application. Learned counsel laid much emphasis on Clause 3(d), which reads as
hereunder:-
"3(d) The Second Party shall deposit by way of security with the First
Party a sum of Rs.20 lacs (Rupees twenty lacs only). Out of this amount a sum
of Rs.5.00 lacks (Rupees five lacs only) is paid by cheque No.133981 dated
30.12.1998 drawn Andrha Bank, Himayatnagar, Hyderabad at the time of singing 
this agreement. The First Party hereby acknowledges the receipts thereof. The
balance of Rs.15.00 lacs (Rupees fifteen lacs only) shall be paid by the
Second Party within a fortnight from the date of handing over by the First
Party to the Second Party of the exemption order from the ULC authorities
under the Urban Land Ceiling Act or repeal of ULCRA by the Government of
Andhra Pradesh, failing which this agreement stands terminated unless mutually
agreed otherwise.
The Second Party shall be entitled to refund of the said Rs.20 lacs with out
any interest on the completion of the construction of the building and handing
over of First Party's share of built up area after obtaining acknowledgment
in writing from the First Party".

19. In reply, learned counsel appearing for the 5th respondent submits that
Clause (14) of the agreement does not diffuse the rigour of Clause 3(d) of the
development agreement, and therefore, payment of security deposit of Rs.15
lakhs to the company by the applicant within a fortnight from the date of
handing over ULC clearance is an essential condition and since the applicant
failed to comply the said condition, learned arbitral tribunal is justified
in recording a finding that the applicant is a defaulting party. A further
submission has been made that clause 14 of the agreement does not annul clause 
(3) and what all stated in clause (14) is that the First Party (Company) has
to endeavour to substitute the said plot given as collateral security to
APIDC by alternative security /property or reduce its liability with 5th
respondent-APIDC within a period of 5 months from the date of the agreement.
By reading two clauses, learned counsel contends that they are two independent
clauses and they have to be read separately and they are not interdependent.
Clause 3(d) has been extracted supra. Clause 14 reads as hereunder:-
"14. The First Party assures the Second Party that it will endeavour to
substitute the said property given as collateral security to APIDC by
alternate security/property or reduce its liability with APIDC to the extent of
the security already available with them excluding the said property within a
period of 5 months from the date of this agreement".

20. In response to the contentions advanced by the learned counsel appearing
for respondents 1 and 5, learned counsel appearing for the applicant submits
that granting compensation of Rs.26,75,000/- as well as penalty of Rs.7,500/-
per day cannot go together and they are mutually exclusive to each other, and
therefore, the award passed by the arbitrators granting compensation as well as
penalty of Rs.7,500/- per day is liable to set aside.

21. It is well settled that if the award is contrary to the substantial
provisions of law or the provisions of the Act or against the terms of the
contract, it would be patently illegal, which could be interfered under
Section 34. However, such failure of procedure should be patent affecting the
rights of the parties, vide decision of the Supreme Court in Oil and Natural
Gas Corpn. Ltd. v. SAW Pipes Ltd. (AIR 2003 SUPREME COURT 2629). 

22. The role of the arbitrator is to act within the terms of the contract.
The Supreme Court in Bharat Coking Coal Ltd.v. M/s.Annapurna Construction13 has 
observed thus:
" There lies a clear distinction between an error apparent within the
jurisdiction and error in excess of jurisdiction. Thus the role of the
arbitrator is to arbitrate within the terms of the contract. He has no power
apart from what the parties have given him under the contract. If he has
traveled beyond the contract, he would be acting without jurisdiction, whereas
if he has remained inside the parameter of the contract, his award cannot be
questioned on the ground that it contains an error apparent on the face of the
records".

23. A reading of agreement for development-cum-power of attorney suggests
that the applicant shall pay security deposit of Rs.15 lakhs to the company
within fortnight from the date of handing over exemption order from the ULC
authorities under the Urban Land Ceiling Act. Indisputably, the company handed
over clearance certificate to the applicant on 03.01.2000. The applicant was
required to deposit Rs.15 lakhs by 18.01.2000. Admittedly, the applicant
failed to make the required deposit within the stipulated time. Consequent on
the failure of the applicant to comply the condition of deposit of Rs.15 lakhs,
the company terminated the agreement under letter dated 18.4.2000. The
learned Arbitrary Tribunal has considered the clauses of the agreement and
came to the conclusion that the deposit of Rs.15 lakhs is a mandatory one
and since the applicant failed to comply the mandatory requirement, the
company is justified in terminating the contract. Interpretation of the
clauses of the agreement is within the purview of the Arbitral Tribunal. I do
not see any unreasonableness or arbitrariness by the Arbitral Tribunal in
interpreting the terms of the agreement. Therefore, the finding recorded by
the Arbitrary tribunal that the applicant is the defaulting party, which
ultimately lead to termination of the contract, does not warrant
interference.

24. The company claimed Rs.66,82,000/- as compensation under three different 
heads: 
 Interest paid to APIDC : Rs.29,70,000
 Interest paid to Banks : Rs.14,62,000
 Interest paid depositors : Rs.22,50,000

25. The Arbitrary Tribunal disallowed the claim in respect of interest paid
to banks on the ground that the entire interest portion may not represent
the loss due to delay. In my considered view, claims 2 and 3 go together.
The reasoning given for disallowing claim No.2 equally applies to claim No.3.
When the claim No.2 has been disallowed on the ground the amounts receivable
under the development agreement is not the only resource for repaying the
loans to banks, the same analogy is to be applied with regard to claim
relatable to interest paid to depositors. Awarding amount under claim
No.3 is error apparent on the face of the record and therefore the same is
liable to be set aside. The learned Arbitrary tribunal allowed Rs.7500/- per
day for every day's delay in handing over the possession of the property to
the company. It is well settled that compensation is not to be given for
any remote or indirect loss. This issue fell for consideration before a
Division Bench of this Court in Superintending Engineer v.Kehar Singh (11
supra), wherein it has been held that compensation not to be given for any
remote or indirect loss or damage sustained by reason of breach of contract.
Awarding of damages by Arbitrator on the claim made by contractor that he
would have earned more profit if money due to him is paid in time is
unsustainable as it is too remote a claim to be allowed.

26. In view of the settled position of law, directing the applicant
company to pay Rs.7,500/- per day for every day's delay in handing over
possession cannot be sustained and the same is liable to be set aside.

27. Accordingly, the company Application is partly allowed setting aside the
amount awarded towards "interest paid to depositors" and also Rs.7,500/- for
every day's delay in handing over possession. Consequently, the amount
awarded by the arbitrators is reduced from Rs.20 lakhs to Rs.5 lakhs. After
economic reforms in our country, the interest regime has been changed and the
rates have subsequently reduced. The Supreme Court after taking into
consideration the economic reforms in the country reduced the rate of interest
awarded by the arbitrators from 18% to 9%, vide decision of the Supreme Court in
Krishna Bhagya Jala Nigam Ltd. v. G.Harischandra Reddy[(2007)2 SCC 720]. 
Following the said judgment, a Division Bench of this Court in Continental
Construction Company v. Board of Trustees, Visakhapatnam Port Trust [2008(4) 
ALT 209(D.B)] granted interest at the rate of 9% per annum from the date of the
award till the date of payment.
The award amount of Rs.5 lakhs shall carry interest at 9% p.a from the date of
award to the date of payment.?1 AIR 1970 SUPREME COURT 546 
2 (2003) 5 Supreme Court Cases 705 
3 (2006)11 Supreme Court Cases 245 
4 AIR 1979 SUPREME COURT 720 
5 (2004)8 Supreme Court Cases 689 
6 (2006)5 Supreme Court Cases 340 
7 (2004)5 Supreme Court Cases 314 
8 AIR 2001 SUPREME COURT 2062 
9 AIR 1969 SUPREME COURT 73 
10 1998(3) ALT 67(D.B) 
11 1994(1) ALT 293 (D.B) 
12 2007(1) ALT 515 (D.B) 
13 2003 AIR SCW 4146 


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