M/S. Parsvnath Film City Ltd vs Chandigarh Administration

M/s. PARSVNATH FILM CITY LTD. ...APPELLANT

VERSUS

CHANDIGARH ADMINISTRATION & OTHERS ...RESPONDENTS

WITH

CIVIL APPEAL NO.10490 OF 2017

THE SECRETARY, INFORMATION TECHNOLOLGY, CHANDIGARH ADMINISTRATION ...APPELLANT

VERSUS

M/s. PARSVNATH FILM CITY LTD. & OTHERS ...RESPONDENTS

JUDGMENT

NAGARATHNA J.

Two appeals, namely, Civil Appeal No.6162 of 2016 and Signature Not Verified

Civil Appeal No.10490 of 2017, are disposed of by this common Digitally signed by NEETU SACHDEVA Date: 2025.04.08 16:19:55 IST Reason:

judgment.

Page 1 of 33 Civil Appeal No.6162 Of 2016

2. The appellant in Civil Appeal No.6162 of 2016, M/s

Parsvnath Film City Limited (hereinafter “appellant”) has

approached this Court against the impugned judgment of the

High Court of Punjab and Haryana at Chandigarh in FAO

No.5816 of 2015 (O&M) partially allowing the appeal filed by

the respondents (i) Chandigarh Administration and (ii) the

Secretary, Information Technology, Chandigarh Administration

under Section 37 of the Arbitration and Conciliation Act, 1996

(for short, “the Act”). The High Court, vide the impugned

judgment, set aside the award of the Arbitral Tribunal dated

10.03.2012 and the order of the Additional District Judge,

Chandigarh in Arbitration Case No.530 of 2013 dated

08.04.2015, thereby sustaining the respondent’s action in

forfeiting 25% of the bid amount, i.e. Rs.47.75 crores.

3. The respondents have filed Civil Appeal No.10490 of 2017

against the same impugned judgment on the ground that it did

not allow the other claims raised by them, such as i) interest on

delayed payment of Annual Ground Rent; ii) forfeiture of Rs.

Five crores paid by the appellant towards the bid security; iii)

recovery of performance security shortfall of Rs.Five crores

Page 2 of 33 along with interest; and iv) recovery of other miscellaneous

expenses.

4. Respondent Nos.3-5 in both these appeals are the

members of the Arbitral Tribunal who have been added as only

proforma respondents.

5. The facts of the case relate to the respondents deciding to

establish a Multimedia-cum-Film City at Chandigarh. To that

end, it published an advertisement dated 29.03.2006 inviting

“Expression of Interest for Multimedia-cum-Film City” as an

integrated project in Sarangpur, Chandigarh on a leasehold

land admeasuring thirty acres. The project involved setting up

of state-of-the-art facilities for i) a multimedia-cum-film centre;

ii) a multimedia park; iii) a multimedia information-cum-

entertainment centre; and iv) a multimedia college. The

expression of interest complete in all respects was to be

submitted on or before 28.04.2006. Out of the fourteen

companies which submitted the expression of interest, six were

selected, including the appellant herein. Consequent upon

technical presentations and submission of technical bids, four

companies were shortlisted, including the appellant herein. A

copy of the Request for Proposal and the Draft Development

Page 3 of 33 Agreement was sent to the appellant by the respondent on

24.11.2006.

6. On receipt of the same, a pre-bid meeting was held on

08.12.2006 and various clarifications were sought on the

proposal, which were furnished by the respondents vide letter

dated 15.12.2006. Thereafter, the shortlisted companies,

including the appellant, submitted their respective bids, and

since the offer of the appellant was the highest, the respondents

issued letter of acceptance in favour of the appellant on

18.01.2007. In that letter, the appellant was asked to take

steps for execution of the Development Agreement within a

period of twenty days from the letter and to also arrange the

upfront amount.

7. By letter dated 21.02.2007, appellant stated that they

would sign the Development Agreement, but requested i) for

demarcation of the project site, as without the same, they could

not proceed with the work; and ii) preparation of the layout

plan to be annexed with the Development Agreement.

Thereafter, on 01.03.2007, appellant furnished 25% of the bid

amount, i.e. Rs.47.75 crore, by way of Demand Draft.

8. On 02.03.2007, the appellant expressed its readiness to

Page 4 of 33 sign the Development Agreement. However, as the final

demarcation was yet not settled, it requested that:

i) The date of start of the development period be

the date on which the final demarcation plan is

issued to them; and

ii) The payment of next instalment due which was

75% of the bid price to be paid by the appellant

within 90 days of signing of the agreement

should be read as 90 days from the date the final

demarcated plan was issued to them.

9. By a reply letter of the same date, the respondent had

agreed to both the requests, and thereafter both the parties

entered into the Development Agreement on the same date.

10. The provisions in the Development Agreement relevant to

the case at hand are:

“Article 1: DEFINITIONS AND INTERPRETATIONS.

1.1. Definitions

xxx

x(ix) Payment Schedule

Means the schedule as set out in Schedule IV hereto for payment of consideration by Developer to CA for right to participate in the development and operation of the Project.

Page 5 of 33

l) Performance Security

Means the security to be provided by the Developer for performance guarantee to CA in the form of a Bank Guarantee of a Bank as per Article 10.12 hereof.

xxx

Article 2: CONDITIONS PRECEDENT

2.1 CA may, in its sole option, terminate this Agreement and/or the Lease Agreement if the following conditions ("Conditions Precedent") are not (in the reasonable opinion of CA) achieved/fulfilled by the Developer before the expiry of six(6) Months after the Agreement Date or such extended date as may be permitted by CA:

2.1.1 If the Developer fails, refuses or is unable to provide the Bank Guarantee as contemplated in Article 10.12.1 hereof; or xxx

2.1.3 The Developer obtaining Approvals including environmental clearance from Ministry Of Environment and Forests.

2.2 If the Conditions Precedent are not fulfilled, the CA may agree to extend the time period required to fulfil the Conditions Precedent. In the event that the Condition Precedent in respect of the Approvals are not fulfilled, then the CA may (in its sole discretion) provide the Developer the time required to enable the Developer to obtain the Approvals, provided however that the Scheduled Project Completion Date shall automatically stand extended commensurately.

2.3 If any of the Conditions Precedent have not been fulfilled or waived in writing by the CA, then the CA may, at its sole option, without prejudice to its rights hereunder and under Applicable Laws, terminate this Agreement whereupon the amount paid towards Bid Price and Bid Security/ Performance Security (as the case may be) by the Developer to CA shall forthwith stand forfeited.

Page 6 of 33 xxx 2.5 The Leasehold Right of the Developer shall be deemed to have begun only on fulfilling the Conditions Precedent. Till then the Developer shall be deemed to be acting as a trustee and custodian of the Leasehold Land for and on behalf of the CA.

Article 3: GRANT OF RIGHTS TO THE DEVELOPER

3.1 Grant of Leasehold Right

3.1.1 Subject to the terms hereof, the CA. shall, before the expiry of 90 days after the date of execution hereof, grant to the Developer Leasehold Right upon and in relation to 30 acre of the Leasehold Land more particularly described in the Schedule II hereto, for a period of 99 (ninety nine) years from the date of signing the Leasehold Agreement as per the terms and conditions more particularly set out in Schedule VII hereto.

3.1.2 The right to access and use the Leasehold Land for a period of 99 (ninety nine) years shall be made available to the Developer by the CA free from all Encumbrances and occupations. ("Leasehold Right").

3.3 Development Period

3.3.1 The "Development Period" shall be a total period of 36 (thirty six) Months (including 30 [thirty] Months of construction period) starting from the Agreement Date. The Development Period includes (a) the period of 6 (six) Months starting from Agreement Date within which the Developer shall obtain all requisite Approvals including environmental clearance/s for the Project and (b) construction period of 30 (thirty) Months starting after the said 6 (six) Months period set out at

(a) above within which the Project is to be completed by the Developer.

If delay is due to obtaining of environmental clearance then CA may in its sole discretion, upon satisfactory reasons for such delay being provided by the Developer allow extension by such further period as may be

Page 7 of 33 deemed necessary by CA to accommodate the Developer's time-line to procure the said environmental clearance. In case of such extension, the construction period of 30 (thirty) months for development of the Project shall commence from the date of obtaining of environmental clearances.

3.3.2 Provided further that in the event of any delay attributable to the CA in handing over occupation of the Leasehold Land to the Developer, after payment of entire Bid Price, the said period of 36 (thirty six) Months shall be exclusive of the period of any such delay attributable to the CA. For the avoidance of doubts, the Developer shall be obliged to procure from CA a letter recording the date on which such hand over of Leasehold Land would have been effectuated by CA.

xxx

ARTICLE 4: CONSIDERATION

4.1 As and by way of consideration for the CA granting the Development Right, the Developer shall pay to CA the following:

4.2 Annual Ground Rent

4.2.1 Annual Ground Rent (AGR) shall be the amount payable by the Developer to CA at the rate specified in Schedule IV annually in advance from the date of signing the Agreement till end of the Agreement Period.

The Developer shall be required to pay the AGR yearly in advance (from the date of signing the agreement).

xxx

4.3 Bid Price

4.3.1 Bid Price means the total amount payable by the Developer to CA i.e. Rs. 191,00,00,000/- [Rupees One hundred and ninety one crores only], being the consideration payable by the Developer for receiving the right to develop the Leasehold Land consistently with the terms hereof CA acknowledges receipt of amount of Rs. 47,75,00,000/- [Rupees Forty seven crore seventy

Page 8 of 33 five lac only]… being a part of the Bid Price required to be paid upfront by the Developer. The Developer shall pay the balance and outstanding Bid Price to CA in accordance with the timelines specified in Schedule IV. Under no circumstances, except provided in this Agreement, the Bid Price accepted shall be altered and this is the essence of this Agreement.

xxx

5.2 Obligations of the CA

In addition to any of its other obligations under this Agreement, during the Development Period, the CA shall;

i) grant to the Developer, the requisite permission(s) to develop the land required for the development of the Project. The Leasehold Land shall be made available to the Developer by Chandigarh Administration free from all Encumbrances and occupations.

ii) assist the Developer in obtaining Approvals required by the Developer in accordance with this Agreement; and

iii) make arrangement for provision of electricity supply, sewerage and drainages to be brought to the periphery of the Leasehold Land.

xxx

5.4 Additional Conditions of Agreement

5.4.1 Leasehold Land Conditions

The Developer shall be deemed to have carefully studied the work and site conditions specifications, schedules and drawings and various other data and shall be deemed to have visited the site of the work and to have fully informed himself regarding the local conditions. Developer shall be deemed to have carried out his own surveys and investigations and assessment of site conditions.

Page 9 of 33 xxx

10.11.5 Delay in completion of the Project

In case of delay in achieving the completion of the construction of the Project within 36 (thirty six) Months from the Agreement Date and subject to satisfaction of CA for the reasons of such delay, the Developer may be allowed extension of 6 (six) Months to complete the development of the Project. If development of the Project is not completed within such extended period, then it shall be treated as Developer’s Event of Default.

10.12 Performance Security

10.12.1 In order to ensure that the Project is developed within the stipulated period of 36 (thirty six) Months from the Agreement Date and the development of the Project is as per the provision of this Agreement and to facilitate compliance with the other applicable provisions of this Agreement, the Developer shall furnish to the CA, Bank Guarantee from any Bank through its branch at Chandigarh for an amount of Rs. 10 Cr. (Rupees Ten Crore only) within one Month from the date of execution of this Agreement.

10.12.2 Failure of the Developer to provide the Performance Security in accordance with this Agreement shall entitle the CA to forfeit the Bid Security amount paid and to terminate this Agreement in accordance with the provisions of Article 14.1.1 without being liable in any manner whatsoever to the Developer.

xxx

10.12.6 The Developer undertakes that the Performance Security shall be payable immediately on demand and without the assertion of any defences on part of the Developer.

xxx

ARTICLE 12: EVENT/S OF DEFAULT AND TERMINATION

Page 10 of 33 12.1 The Developer Event of Default

12.1.1 A "Developer Event of Default" shall be deemed to have occurred if any of the following events has occurred, unless the same has so occurred as a consequence of a Force Majeure Event:

xxx

ii) The Developer fails, neglects, refuses, or is unable to pay the consideration in accordance with the Payment Schedule indicated in Schedule IV.

xxx

iv) The Developer repeatedly and persistently remains in breach of any of its obligations under this Agreement; or

xxx

vi) The Developer fails to comply with any of the terms and conditions of the Lease Agreement.

ARTICLE 14: COMPENSATION

14.1 Compensation

14.1.1 Termination due to Developer Event of Default

If the Termination is due to a Developer Event of Default, no compensation shall be payable by the CA to the Developer. Bid Price along with Annual Ground Rent paid by the Developer shall be forfeited. The Security Deposit provided by the Developer shall be encashed by CA.

xxx

ARTICLE 20: DISPUTE RESOLUTION

xxx

20.3 Arbitrators

In the event of a Dispute arising out of or in connection with this Agreement not being resolved in accordance

Page 11 of 33 with the provisions of Article 20.2 above. either Party shall be entitled to, by notice in writing ("Arbitration Notice") to the other Party, refer such Dispute for final resolution by binding arbitration in accordance with the Arbitration & Conciliation Act, 1996.

In case the dispute is referred to arbitration under the Arbitration and Conciliation Act, 1996 the arbitration shall be by a panel of three Arbitrators, one to be appointed by each Party and the third to be appointed by the two arbitrators appointed by the Parties. A Party requiring arbitration shall appoint an Arbitrator in writing, inform the other Party about such appointment and call upon the other Party to appoint its Arbitrator. If the other Party fails to appoint its Arbitrator, the Party appointing Arbitrator shall take steps in accordance with Arbitration and Conciliation Act, 1996, and subsequent amendments thereto.

xxx

20.7 Enforcement Award

Any decision or award resulting from arbitration shall be final and binding upon the Parties. The Parties hereto hereby waive, to the extent permitted by law, any rights to appeal or to review of such award by any court or tribunal. The Parties hereto agree that the arbitral award may be enforced against the Parties to the arbitration proceeding or their assets wherever they may be found and that a judgement upon the arbitral award may be entered in any court having jurisdiction thereof.”

11. There were further communications between the appellant

and the respondent over the next few months concerning the

demarcation plan. Further, the appellant also requested, vide

letter dated 14.02.2008, the respondent to remove two HT lines

of 11KV each passing through the alignment where the project

Page 12 of 33 was to be set up. It was only on 17.07.2008, i.e. after 16.5

months, that the demarcation plan was provided to the

appellant. Due to considerable delay, appellant claimed vide

letter dated 08.10.2008 to the respondent that their

arrangements with various other associates for implementing

the project was frustrated; that the project cost escalated; and

that the market scenario had changed. Further, they claimed

that i) the two HT lines were yet to be removed; ii) necessary

infrastructure for the project was yet to be provided; and iii) the

Zoning Plans were yet to be released by the respondent.

12. Thereafter, a High Level Committee was constituted by the

respondent on 11.11.2008 where all the above issues

mentioned by the appellant were discussed. It was

unanimously decided that the Administrative Department

would work out a proposal with regard to rescheduling of

payments by the appellant.

13. As no further action was taken by the respondent despite

the decisions made in the High-Level Committee meeting, the

appellant declared the development agreement to have been

frustrated and required the earnest money deposited to be

returned to them with interest, vide letter dated 10.12.2008.

Page 13 of 33 However, as there was no response from the respondent, it

again sent a letter dated 01.12.2009 pointing out the works

that were yet to be undertaken by the respondent, and invoked

Clauses 20.1 and 20.2 of the Development Agreement to

request the respondent to settle the issues amicably.

14. However, the respondent terminated the Development

Agreement on 16.12.2009 on grounds that i) non-obtaining of

environmental clearance; ii) failure of the appellant to file bank

guarantee of Rs.Ten crores towards the performance security;

and iii) non-adherence to payment schedule. It also forfeited the

amount of Rs.47.75 crores which was earlier paid by the

appellant.

15. Aggrieved, the appellant invoked the arbitration clause in

Clause 20.3 of the Development Agreement. As the respondent

refused to appoint an arbitrator, the appellant approached the

High Court, and vide order dated 17.05.2010, the Arbitral

Tribunal was constituted.

16. The appellant raised the following claims:

i) an amount of Rs.47.75 Crores paid by the

claimants to the respondents towards 25% of bid

Page 14 of 33 price;

ii) interest @ 9% above the prevailing Prime Lending

Rate (“PLR”) of State Bank of India on the

amount of Rs.47.75 Crores from 01.03.2007 till

the date of refund;

iii) compensation for all losses and damages suffered

by the claimants due to breaches of contract.

Commissions and omissions of the respondents

along with interest thereon @ 9% above the

prevailing PLR of State Bank of India;

iv) an amount of Rs.3,00,00,000 incurred by the

claimants for works carried out/commissioned

for the Project;

v) Claim for compensation for loss of profit/loss of

opportunity;

vi) Claim for pre-suit, pendent-lite and future

interest @ 9% above the prevailing PLR of State

Bank of India on the above sums/disputes from

the date the same were incurred till the date of

payment thereof;

vii) Claim for litigation costs (as per actual)

Page 15 of 33

17. The following counter-claims were raised by the

respondents:

i) Declaration that the termination of the Development

Agreement was valid;

ii) Forfeiture of the amount paid towards the bid price

by the appellant to the respondents was valid;

iii) Claim for amount to be deposited by the appellant

towards Annual Ground Rent as per the Development

Agreement;

iv) Forfeiture of Rs.5,00,00,000/- paid towards bid

security by the appellant to the respondents along

with interest @ SBI PLR + 9% from 1.4.2007 till

15.9.2010;

v) Recovery of performance security of Rs.5,00,00,000/-

from the appellant to the respondents due to non-

performance along with interest @ SBI PLR + 9%

from 01.04.2007 till date of payment;

vi) Interest on investment of Rs.4,50,00,000/- by the

respondents in purchase of land for Film City project

remaining unproductive till date due to non-

performance of the claimants;

Page 16 of 33

vii) Recovery of Rs.63,13,106/- spent as miscellaneous

expenses for the said project along with interest @

SBI PLR + 9% p.a.;

viii) Claim on account of costs of arbitration;

ix) Claim for pre-suit, pendent-lite and future interest @

SBI PLR + 9% on the amount found payable;

18. Based on oral and documentary evidences and the

arguments addressed by the learned counsel on both sides, the

Arbitral Tribunal held as follows:

i) That on the date of signing of the Development

Agreement, the final demarcation plan was not

ready, and that without it, the appellant could

not have finalised the layout plan for the project;

ii) That there was a delay of sixteen and half

months in the issuance of demarcation plan by

the respondents, and that the appellant cannot

be held responsible for this delay;

iii) Respondents were not in a position to handover

encumbrance-free land to the appellant, as

required by the Agreement, as even the

respondents had acknowledged that development

Page 17 of 33 could not commence without the removal of HT

lines;

iv) That till the finalisation of the demarcation plan,

the appellant had no means to know whether or

not the HT lines would be part of the project site;

v) That a perusal of the minutes of the meeting

dated 11.11.2008 would categorically reveal that

it was the respondents’ own admitted case that

they defaulted in providing encumbrance-free

land to the appellant;

vi) That the provision concerning bank guarantee

had to be read in context and that it presupposes

the fulfilment of all obligations by the

respondents within the period prescribed in the

agreement. Since the respondents had not done

so, the development period could not be said to

have started;

vii) That the claimants were not responsible for the

delay in obtaining environmental clearance since

the respondents had not provided the requisite

details;

viii) That without serving a notice under Article 12.2 Page 18 of 33 of the Development Agreement, the respondents

had no justification or contractual right to

terminate the contract;

ix) Thus, the termination of the Development

Agreement was illegal and de hors the provisions

of the contract. Therefore, all consequential effect

had to be borne by the respondents.

19. The Arbitral Tribunal awarded to the appellant:

i) Rs.47.75 crores as refund of the amount paid by

it towards 25% of the bid price;

ii) 12% p.a. interest on the above sum of Rs.47.75

crores with effect from 01.03.2007;

iii) Rs.47,75,000 as compensation for all losses and

damage suffered by the appellant;

iv) Rs.46,20,715 for works carried out/

commissioned for the project; and

v) 12% p.a. interest with effect from 16.12.2009 till

date of payment on awards (iii) and (iv);

vi) Rs.50,00,000 towards litigation costs;

20. The Arbitral Tribunal also dismissed the counter-claims of

the respondents as they were predicated on the same issues as

Page 19 of 33 noted above.

21. Aggrieved, the respondent filed an application under

Section 34 of the Act before the Additional District Judge,

Chandigarh in Arbitration Case No.530 of 2013 for setting aside

the award passed by the Arbitral Tribunal. However, the Court,

vide order dated 08.04.2015 dismissed the application holding

that it found no reason to interfere under section 34 of the Act.

It held that, based on records, the non-complying of the

requirements/conditions precedent and the non-adherence to

the payment schedule by the appellant was due to non-fulfilling

of obligations on the part of the respondents. It also considered

the reasoning of the Arbitral Tribunal and observed that the

aspect of non-depositing of bank guarantee towards

performance security was never raised by the respondents by

way of seeking the same from the appellant, which also showed

that such a demand was not raised as the respondents were

aware of the delay being due to their lapse. Further, it noted

that as the schedule of the payment was agreed to be revised, it

cannot be said that the condition regarding depositing of 75%

of bid price was defaulted by the appellant.

22. Aggrieved by the aforesaid order, the respondent filed an

Page 20 of 33 appeal under Section 37 of the Act in FAO No.5816 of 2015

(O&M) before the High Court of Punjab and Haryana. By the

impugned judgment dated 17.03.2016, the High Court partially

allowed the application, holding that the appellant had shown

unwillingness to carry on with the work and that the said

frustration of the contract would not fall within the provisions

of section 56 of the Indian Contract Act, 1872, but would rather

fall under Section 39 of the said Act, which deals with the effect

of refusal of party to perform promise wholly. It observed that

both the parties in the meeting dated 11.11.2008 had put their

hands together to solve the issue by working out a proposal

with regard to the rescheduling of the payments by the

appellant, but within a month of that meeting, the appellant

frustrated the agreement. That the respondents cannot be

faulted in not issuing thirty days’ advance notice before

termination of the contract as it was the appellant who had

shown unwillingness to carry on with the work. The Court

further observed that the award of the Arbitral Tribunal

granting compensation of Rs.46,20,715 was wrong as the

appellant had not even “used the spade or dug a pit” and that

such an award puts onerous obligation upon the respondents.

It noted that the appellant gave the bid after inspecting the site Page 21 of 33 and was aware of the HT lines and therefore must have raised

the issue before submitting the bid or ought to not have

participated in the bidding. It held that the award of the

Arbitral Tribunal was against public policy and that the

Objecting Court ought not to have dismissed the application

under Section 34 of the Act. It further observed that the

appellant appeared to have not shown any interest in carrying

out the work after submission of the bid, as the prices of the

property had fallen, otherwise, till 11.11.2008, both the parties

were at ad idem in solving the trivial issues. Therefore, it

upheld the act of the respondent in forfeiting the earnest

money. However, it made no mention of the other claims of the

respondent.

23. Being aggrieved by the above judgment dated 17.03.2016

passed by the High Court of Punjab and Haryana in FAO No.

5816/2015 (O&M) in an appeal filed under Section 37 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to

as ‘the Act’ for the sake of brevity) by which the order passed by

the District Court in an application filed under Section 34 of

the Act was set aside and consequently, Award dated

10.03.2012 passed by the Arbitral Tribunal was also set aside,

Page 22 of 33 the claimant in the Arbitral proceeding is before this Court.

24. We have heard Shri V. Giri, learned senior counsel for the

appellant(s) and Shri Krishna Kant Dubey, learned counsel for

the respondent(s) and perused the material on record.

25. It is noted that the Arbitral Tribunal by its Award dated

10.03.2012 has firstly directed that the initial amount

deposited by the appellant herein being Rs.47.75 crores, which

was 25% of the total bid amount for Rs.191 crores, to be

refunded with interest at the rate of 12% per annum w.e.f.

01.03.2007 till realisation. Secondly, a sum of Rs.47,75,000/-

has been awarded as compensation for actual loss. Thirdly, a

sum of Rs.46,20,715/- has been awarded towards actual

expenses incurred by the appellant herein with interest at the

rate of 12% per annum from 16.12.2009, that is, the date of

termination till the date of realisation.

26. The said Award was affirmed by the District Court in an

application filed by the respondent herein under Section 34 of

the Act. It is the aforesaid Award which has now been set aside

in the appeal filed by the respondent herein under Section 37 of

the Act and hence this appeal has been filed.

Page 23 of 33

27. It is also necessary to observe that the counter claim of

the respondent was rejected by the Arbitral Tribunal as well as

by the District Court and the High Court.

Reasons of High Court:

28. The reasoning of the impugned judgment to set aside the

Arbitral Award dated 10.03.2012 and the order of the

Additional District Judge, Chandigarh dated 08.04.2015 was on

the basis that:

i. the appellant refused to perform their promise wholly

by showing unwillingness to carry on with the work

and that such unwillingness cannot fall within the

four corners of section 56 of the Indian Contract Act,

1872;

ii. the appellant frustrated the agreement within just a

month of the meeting dated 11.11.2018 wherein both

the parties resolved to working out a proposal with

regard to the rescheduling of the payments;

iii. the appellant must have raised the issue of HT lines

before submitting the bid or ought to not have

participated in the bidding process;

iv. the issues were trivial and both the parties were ad-

Page 24 of 33 idem in solving them;

Consequently, the impugned judgment held the award to

be against public policy and that the award puts onerous

obligation upon the respondents.

29. We hold that the impugned judgment proceeded on a

wrong basis and has wrongly set aside the arbitral award. We

say so for the following reasons:

29.1 Firstly, the Development Agreement was executed between

the parties on 02.03.2007. The entire project was based on a

‘Right to Participate Model’, where the entire cost of

development of the Project with all related infrastructure and

utilities was to be done under ‘Develop-Build-Finance-

Maintain-Operate’ methodology. Article 3.3 of the Agreement

provided for the development period which was “a total period

of 36 (thirty six) months (including 30 [thirty] months of

construction period) starting from the Agreement date”.

Further, this development period also included the period of six

months within which the appellant had to obtain all requisite

approvals for the project. As regards delay in obtaining

environmental clearance, the Article allowed for extension due

Page 25 of 33 to delay on the part of the appellant only on satisfactory

reasons and subject to the discretion of the respondents. Article

3.3.2 governed a scenario where delay in handing over

occupation of leasehold land to the appellant was attributable

to the respondents but such a scenario would come into effect

only after payment of the entire bid price. However, it obligated

the appellant to procure a letter from the respondents recording

the date on which such handing over of the leasehold land

would be effected by the respondents. Further, Article 10.11.5

provided that if the project was not constructed within 36

months from the agreement date, the appellant would be

allowed an extension of six months subject to the satisfaction of

the respondents as regards the reasons for such delay.

29.1.1 A reading of the above provisions would indicate that

time was of some essence to this project, unless, if the delay

was attributable to the appellant, then such delay was to be

acceptable to the respondents based on sufficient reason. If the

delay was attributable to the respondents, then such delay was

to be excluded from the period of 36 months, but the appellant

was obligated to procure a letter from the respondents

indicating the date on which the handing over of the leasehold

Page 26 of 33 land would be effected.

29.1.2 In the present case, as noted by the Arbitral Tribunal

and the District Court, the appellant had been requesting the

respondents for the demarcation of the project site since

21.02.2007. On the date of signing of the Development

Agreement, i.e. on 02.03.2007 when the period of 36 months

was to begin, the respondents even agreed to the appellant’s

request that the date of start of the development period be the

date when the final demarcation plan was issued to them.

However, the demarcation plan was issued only on 17.07.2008,

i.e. after an unreasonable delay of 16.5 months. In other words,

the demarcation plan was issued just before half the period of

36 months was complete. The appellant could not have

anticipated that there would be a delay of such duration in the

mere issuance of a demarcation plan.

29.2 Secondly, the respondents were obligated under Article 5.2

of the Development Agreement to grant the appellant the

leasehold land free from all encumbrances and occupations. On

a perusal of the minutes of the meeting dated 11.11.2008 held

between the appellant and the respondents, it could be

observed that the respondents acknowledged that the two HT

Page 27 of 33 lines had to be removed so as to provide encumbrance free land

to the appellant. It is relevant to note here that there was no

timeline provided for the same. Further, the minutes also

provided that the Senior Town Planner had to release the

revised zoning plan since the earlier zoning plan was not in

accordance with the terms of the Agreement. However, for this

action, the timeline provided was till 17.11.2008. Due to the

delay in granting even the zoning plan, the appellant had

requested for certain reliefs, including an interest amount of

Rs.14 crore on the amount of Rs.47.75 crore from 01.03.2007

till 17.07.2008, i.e. the date of delivery of demarcation plan.

This was agreed to by the respondents as well. Further, it was

unanimously agreed that the Administrative Department would

work out a proposal with regard to the re-scheduling of

payments by the appellant. However, there was no definitive

date provided therein. Despite such decisions being taken in

the above meeting dated 11.11.2008, there was no further

action even till 10.12.2008. Such non-action led the appellant

to declare the agreement to have been frustrated.

29.2.1 If the above facts are read keeping in mind Article

3.3.2 of the Development Agreement, it would be clear that

Page 28 of 33 there was a clear and unreasonable delay attributable to the

respondents in handing over encumbrance free land to the

appellant. Despite raising this issue several times, the

respondents could not provide a definite date on which they

would be able to deliver such encumbrance free land. Clearly,

about 22 months had passed since the development agreement

was signed between the parties, and the development period

would have completed in another 14 months, had the

respondents completed their obligations on time. In such a

scenario, the appellant cannot be held to have shown

unwillingness to carry on with the work, as held in the

impugned judgment.

29.3 Thirdly, the project envisaged by the respondents was

commercial in nature. The appellant was engaged after a

process of competitive bidding. As there was a definite time

period provided for in the Development Agreement to complete

the project, the appellant would have had to engage the services

of different professional agencies beforehand. All such sub-

contracts would have been frustrated due to the delay

attributable to the respondents. Further, due to the delay, the

appellant would have to engage fresh services of these agencies,

Page 29 of 33 the cost of which would only escalate with time. In these

circumstances, the observations in the impugned judgment to

the effect that both the parties, in the meeting dated

11.11.2008, resolved to working out a proposal with regard to

the rescheduling of the payments and that the appellant

frustrated this revised agreement within just a month of that

meeting does not appear to be reasonable to us. The meeting

dated 11.11.2008 was held not only regarding rescheduling of

the payment. Rather, the conclusions arrived at in the meeting

dated 11.11.2008 has to be viewed in the context of the terms

of the Development Agreement and the commercial nature of

the project. It was only when no progress took place despite a

month having passed since the meeting that the appellant

declared the development agreement to have been frustrated.

29.4 Fourthly, we find it unreasonable to agree with the

observations of the impugned judgment that the appellant

should have raised this issue before submitting the bid or

ought to not have participated in the bidding process. Though,

according to the Request for Proposal, the bidders shall be

deemed to have conducted a due diligence exercise with respect

to all aspects of the project, admittedly, the respondents noted

Page 30 of 33 in the meeting dated 11.11.2008 that the two HT lines had to

be removed so as to provide encumbrance free land to the

appellant. It was resolved in that meeting that the matter would

be taken up with the PSEB at the highest level.

29.5 Fifthly, the issues involved between the parties cannot be

termed trivial. As noted earlier, time was of the essence in this

project. Therefore, each day’s delay in executing the project

after signing of the Development Agreement had commercial

consequences and struck at the heart of the Development

Agreement. As the delay here extended to more than 16

months, the impugned judgment could not have termed the

issues between the parties as trivial and that the parties were

ad idem in solving them.

30. In the circumstances, we find that the High Court was not

justified in setting aside the Arbitral Award dated 10.03.2012

and consequently, the order passed on the application filed

under Section 34 of the Act. The reasons assigned for doing so

in our view are not in accordance with law. Consequently, we

find that the appellant herein is entitled to the sum of Rs.47.75

crores, being the initial deposit and Rs.46,20,715/- being the

actual expenses incurred. However, the rate of interest awarded

Page 31 of 33 at 12% per annum, we find, is on the higher side. In the

circumstances, we modify the rate of interest to 8% per annum,

while retaining the other directions. Having regard to payment

of interest, we find that having regard to the fact that payment

of interest has been ordered both with regard to initial deposit

as well as on the actual expenses, the award of compensation

for loss of Rs.47,75,000/- was not in order. In the

circumstances, we modify that portion of the Arbitral Tribunal’s

award and hold that the appellant is not entitled to

Rs.47,75,000/- as compensation for loss. The Arbitral

Tribunal’s Award dated 10.03.2021 is modified in the aforesaid

terms and as a result, the order passed under Section 34 of the

Act also stands modified mutatis mutandis. Consequently, the

impugned order passed under Section 37 of the Act is set-aside.

31. As the Arbitral Award was passed as early as on

10.03.2012, we direct the respondent(s) to deposit/pay the

amount on or before 30.06.2025 without driving the appellant

herein for execution of the said Award. If the amount is not

paid to the appellant on or before 30.06.2025, the interest shall

be at the rate of 12% per annum instead of the reduced rate of

8% per annum.

Page 32 of 33

32. The appeal is allowed and disposed of in the aforesaid

terms. No costs.

Civil Appeal No.10490/2017:

We find no merit in this appeal. The same stands

dismissed. No costs.

. . . . . . . . . . . . . . . . . . . . . . J.

(B.V. NAGARATHNA)

. . . . . . . . . . . . . . . . . . . . . J.

(SATISH CHANDRA SHARMA) NEW DELHI;

MARCH 20, 2025.

Page 33 of 33