Delhi Development Authority v. M/S Eros Resorts and Hotels Ltd

16. Thereafter, Eros vide letters dated 20.03.2007 submitted five sets of drawings of its Hotel Project at Mayur Vihar in respect of Plot nos.13A and 13B to the Deputy Director (Buildings), DDA with a request that the drawings be forwarded to the Delhi Urban Art Commission (DUAC) and the Fire Department for grant of No Objection Certificates for the sanction of the project. Eros requested for early action, since the project was to be completed within the fixed period of time. DUAC and the Delhi Fire Services (DFS) granted approval to the drawings by letters dated 18.05.2007 and 04.06.2007 respectively with certain observations.

17. On 06.08.2007, DDA communicated to Eros to submit certain documents mentioned in its office note, as on scrutiny, it was found that they were not attached with the plans. On 27.08.2007, Eros submitted the documents sought by DDA in respect of both the plots.

18. On 12.09.2007, Mr. Amit Sood, Director, Eros submitted undertakings in respect of Plot nos. 13A and 13B and represented that due to certain problems, he was unable to submit the correct drawings, however, he undertook that he was accepting the corrections made by DDA in the drawings and, he would be bound by it. He further undertook not to deviate from the sanction plans as corrected/approved by DDA.

19. On 11.09.2007, DDA approved the plans with certain changes/corrections, however, Eros vide a letter dated 20.09.2007 addressed to the Vice Chairman, DDA sought changes in the plans, as the changes made by DDA were unacceptable to them. Thereafter, Eros vide another letter dated 09.10.2007 requested DDA for an early decision on the issues referred to in their letter dated 20.09.2007.

20. The 1st Technical Committee Meeting of DDA for the year 2008 was held on 16.01.2008. The Minutes of Meeting dated 31.01.2008 reflect that DDA had approved the changes sought by Eros.

21. Thereafter, as per the request of DDA, Eros submitted the revised building plans in accordance with the changes approved by the Technical Committee on 19.03.2008 for Plot no. 13A and on 27.03.2008 for Plot no. 13B.

22. DDA vide letters dated 05.05.2008 communicated to Eros that it had forwarded the set of building plans to DUAC and Chief Fire Officer (CFO) for approval. DDA also communicated to Eros the grant of provisional permission “for taking up construction of the hotel building up to plinth level pending the statutory licenses of the building plans by the DUAC, CFO and MOEF” subject to certain conditions.

23. On 14.05.2008, The Secretary, DUAC communicated to Consulting Engineering Service (India) Pvt Ltd (Consultants for Eros) the requirement to ensure submission of the documents/materials to DUAC, as per the DUAC guidelines.

24. On 14.05.2008 (in respect of Plot no. 13B) and 15.05.2008 (in respect of Plot no. 13A), the Deputy Chief Fire Officer communicated to the Joint Director (Building), DDA certain shortcomings/observations in the plans of the hotel and by the aforesaid letters, the Deputy Chief Fire Officer required DDA to advise Eros to rectify the shortcomings/observations and re-submit the plans along with a model of the proposed building to DFS.

25. Thereafter, on 12.06.2008, DDA requested Eros to submit the compliance of observations, as conveyed by DUAC, on 14.05.2008 (with respect to both the plots) and as conveyed by CFO, DFS on 14.05.2008 (in respect of Plot no. 13B) and 15.05.2008 (in respect of Plot no. 13A).

26. The Secretary, DUAC vide letters dated 07.07.2008 to Consulting Engineering Service (India) Pvt Ltd communicated certain observations with the decision that “the scheme proposal is to be recommended after compliance with the observation of the commission.” Thereafter, Eros vide letters dated 11.07.2008 to the Secretary, DUAC submitted the remaining documents for consideration before DUAC.

27. On 14.08.2008, DUAC, once again, vide letters addressed to Consulting Engineering Service (India) Pvt Ltd communicated certain observations with the decision that “Not approved. Consistent set of drawings to be submitted to the Commission after compliance of the observations.”

28. Thereafter, on 16.09.2008, DUAC communicated its approval of the plan to Joint Director (C&I) Building, DDA in respect of Plot no. 13A and approval was granted on 19.09.2008 in respect of Plot no 13B.

29. DDA vide a letter dated 22.09.2008 (in respect of Plot no. 13A) and letter dated 24.09.2008 (in respect of Plot no. 13B) requested Eros to submit correct building plans incorporating suggestions of DUAC/Chief Fire Officer within 15 days.

30. Thereafter, Eros vide letters dated 22.09.2008 (in respect of Plot no. 13A) and 24.09.2008 (in respect of Plot no. 13B) submitted the corrected revised building plans incorporating corrections/ suggestions made by CFO and DUAC, which were signed by the Architect and Owner. The aforesaid letter also requested DDA to expedite the sanction of revised building plans.

31. DDA vide letters dated 15.12.2008, communicated to Eros the sanction to “erect/re-erect/add to/alteration in the building to carry out the development specified in the said application” in respect of Plot nos. 13A and 13B has been approved with certain conditions stipulated in the said letters.

32. On 04.09.2009, DDA issued notices to Eros that in the event of delay in completing and making the hotel functional within the prescribed period, the Performance Security, to the extent of 5% of the bid amount, shall be encashed as per the schedule mentioned therein and the said period would expire on 05.06.2010. DDA further requested Eros to submit a copy of the completion certificate and proof of making the hotel functional prior to 05.06.2010.

33. Eros vide letters dated 14.10.2009 explained the details that caused the delay for completion of the said project and requested DDA to withdraw its letters dated 04.09.2009 and return the Performance Security. Thereafter, DDA vide a letter dated 23.12.2009 communicated to Eros that in case of failure to complete the hotel within the stipulated period, its Performance Security in respect of hotel Plots nos. 13A and 13B at District Centre, Mayur Vihar, will be forfeited as per the terms and conditions of disposal.

34. DDA vide letters dated 03.08.2010, once again, requested Eros to submit a copy of the completion certificate and proof of making the hotel functional prior to the date of completion, that is, before 05.06.2010 and get the Bank Guarantees renewed/revalidated up to 31.03.2011, as the same was expiring on 17.11.2010, failing which action for forfeiture of the Bank Guarantees would be taken prior to the expiry of the same.

35. On 27.08.2010, DDA once again requested Eros to renew/revalidate the Bank Guarantees up to 31.03.2011 and submit the same by 15.09.2010.

36. DDA vide letters dated 20.10.2010 informed Eros that since the period of 42 months for construction of the hotel and making it functional had expired on 05.06.2010, the Performance Security would be forfeited in accordance with the terms and conditions of the allotment without any further notice.

37. Thereafter, Eros filed a petition (OMP No. 637/2010 and OMP No. 638/2010) under Section 9 of the A&C Act before this Court and this Court by an order dated 27.10.2010, restrained DDA from encashing the Performance Security furnished by PNB.

38. Since disputes had arisen between the parties, Eros filed a petition (AA no. 326 of 2011 and AA no. 327 of 2011) under Section 11(6) of the A&C Act before this Court for the appointment of an Arbitrator and accordingly this Court by orders dated 08.11.2011 and 30.11.2011, appointed Justice (Retd.) Anil Dev Singh, former Chief Justice of Rajasthan High Court, as the Sole Arbitrator.

39. The claims made by Eros in the Statement of Claims for Plot nos. 13A and 13B are identical. They are summarised as under:- Claim No. 1 Release the performance bank guarantee for ₹5.90 crores Claim No. 2 ₹15,16,464.00 towards expenses incurred for renewing the bank guarantee. Claim No. 3 Interest at the rate of 24% per annum on the amount spent on renewing the bank guarantee and on the amount kept as margin money with the bank far keeping the bank guarantee alive Claim No. 4 Cost of ₹37 lakhs on account of arbitration.

40. DDA also made counter-claims. The counter claims made by DDA are summarised as under:- Counter Claim No. 1 Amount of the said performance bank guarantee, that is, ₹5.90 crores for the various acts, omissions, breaches and defaults of the claimant particularly its failure to perform its obligations under the contract. Counter Claim No. 2 Interest on the said amount of performance bank guarantee of ₹5.90 crores at the rate of 18% per annum. Counter Claim No. 3 Pendente lite and future interest at the rate of 18% on the counter claim amounts. Counter Claim No. 4 Cost of various litigations which are quantified at ₹2,00,000/- as well as the actual cost of the present arbitral proceedings including specifically the fee of the arbitrator.

41. The Arbitral Tribunal allowed Claim No. 1, partly allowed Claim No. 2 and rejected Claim No. 3 and 4 raised by Eros. The Tribunal rejected all the counter claims raised by DDA. The Tribunal directed the release of the Performance Bank Guarantees of ₹5.90 crores in favour of Eros. The Tribunal further allowed a sum of ₹12 lacs against Claim no 2 and allowed interest at the rate of 12% per annum on the amount awarded in its favour from the date of the award till its realisation.

42. Aggrieved by the impugned award, DDA has filed the present petition. Submissions

43. Mr Bansal, learned Senior Counsel appearing for DDA assailed the impugned award on, essentially, three fronts. First, he submits that the impugned award is inherently contradictory as far as the issue of delay is concerned. He submits that while at some places, the Arbitral Tribunal has held that the parties were jointly responsible for the delay in processing of the plans, yet in some paragraphs, the Arbitral Tribunal had concluded that DDA was ‘largely’ and ‘substantially’ responsible for the delay in completion of the Hotel Project. He submits that since the Arbitral Tribunal had concluded that Eros was also responsible for the delay, it was incumbent upon the Arbitral Tribunal to apportion damages between the parties. He submitted that even if the entire amount, as claimed by DDA was not awarded, it would be entitled to damages proportionate to the delay for which it was not responsible. He referred to the decision of this Court in Union of India v. Sanghu Chakra Hotels: (2008) 152 DLT 651.

44. Second, he submitted that the Arbitral Tribunal has returned findings which are either contrary to the record or without any evidence to support them. He referred to the conclusion of the Arbitral Tribunal regarding the progress of the construction prior to sanction of the plans. Whilst Eros had accepted that it had continued with the construction, he submitted that the Arbitral Tribunal had ignored the same. Next, he submitted that the Arbitral Tribunal had proceeded on the basis that Eros had completed the Hotel Project even though it was admitted that the commercial complex had not been completed. He pointed out that Eros was permitted limited use by a letter dated 21.09.2010 and the same could not be considered as completion of the project. Next, he submitted that the Arbitral Tribunal had not considered that the plans were processed on the basis of a specific undertaking that Eros would accept any correction made by the Deputy Director (Buildings) and therefore, it was precluded to challenge the same. He further contended that the award for an amount of ₹12 lakhs is without any evidence whatsoever.

45. Third, Mr Bansal submitted that the contract between the parties stipulated that the Hotel Project would be completed within a period of forty-two months. The same included the time for obtaining sanctions from independent agencies, however, the Arbitral Tribunal had excluded the same from the time available with Eros for completing the Hotel Project. He further submitted that in terms of the award, the Hotel Project would be completed once the hotel was made operational and the limited use of the same would not amount to completion of the Hotel Project. He submitted that the award was, thus, contrary to the terms of the agreement.

46. Fourth, he submitted that the Arbitral Tribunal had decided issues beyond the scope of reference. He contended that the contract for development of commercial land would fall within the scope of the expression of a contract relating to public utility and therefore, DDA was not required to prove damages. He relied upon the decision of the Supreme Court in Kailash Nath Associates v Delhi Development Authority: (2015) 4 SCC 136 in support of his contention. Reasons and Conclusion

47. The disputes between the parties, essentially, relate to the right of DDA to encash the security for delay in completion of the Hotel Project. According to DDA, it is entitled to recover damages as contemplated under Clause 3.14 of the General Terms & Conditions of the Auction. The said Clause is set out below:- “3.14 Performance Security The construction of the hotel will have to be completed and made functional within a period of 42 months from the date of possession of site/land. The intending auction purchaser shall be required to deposit the performance security to the tune of 5% of the bid amount before the time of execution of the conveyance deed which shall be in the nature of a bank guarantee in an approved form valid for 4 years. The institution furnishing such security shall be subject to the approval of the same by the Authority. The penalty for delay in completion of the hotel beyond 42 months shall be levied as under:-

┌────────────────────────────────────────────────────────────────────────┐
│        Sl.        Delay Period beyond 42 months     Penalty Amount     │
│        No.                                                             │
├────────────────────────────────────────────────────────────────────────┤
│              1.   Above 1 day and upto 30 days      1% of    the bid   │
│                                                     amount             │
│              2.   Above 31 days and upto 90 days    2% of    the bid   │
│                                                     amount             │
│              3.   Above 91 days and upto 180 days   4% of    the bid   │
│                                                     amount             │
│              4.   Above 11 days and upto 360 days   5% of    the bid   │
│                                                     amount             │
│        Bank guarantee amount, to the extent there is delay in          │
│       completion of hotel will be encashed as per the schedule         │
│       mentioned above. The date of completion will be treated          │
│       as the date on which necessary completion certificate is         │
│       obtained by the intending auction purchaser.”                    │
└────────────────────────────────────────────────────────────────────────┘

69. This Court finds no ground to interfere with the aforesaid decision. It is well settled that the scope of interference under Section 34 of the A&C Act is limited. This Court does not act as the first appellate Court and cannot re-evaluate the evidence and supplant its opinion over that of the Arbitral Tribunal. The said principle has been clearly explained in the following oft-quoted passage from the decision of the Supreme Court in Associate Builders v. Delhi Development Authority: (2015) 3 SCC 49, in the following words: “It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.”

70. Mr Bansal, contended that since the Arbitral Tribunal has not held DDA responsible for the entire delay, the damages are required to be apportioned. The said contention is unpersuasive. The issue before the Arbitral Tribunal was whether DDA was justified in invoking the Bank Guarantees and enforcing penalty for the delay in completion in terms of Clause 3.14 of the General Terms & Conditions of the Auction. Since it was found that DDA was substantially responsible, plainly, it could not impose any penalty for the same.

71. It was contended on behalf of DDA that the impost contemplated under Clause 3.14 of the General Terms & Conditions of the Auction was in the nature of liquidated damages and not penalty. Mr Bansal further contended that since the Hotel Project was regarding development of commercial land and the same amounted to developing a public utility, it was not necessary for DDA to establish that it had suffered any losses. He also submitted that the Arbitral Tribunal had proceeded on an erroneous basis that there were no pleadings to the effect that the said amount was a genuine pre-estimate of losses.

72. The Arbitral Tribunal did not accept the aforesaid contention. It noted that Clause 3.14 of the General Terms & Conditions of the Auction referred to the impost as a penalty for the delay in completion of the hotel, and not as damages.

73. Having noted the above, the Arbitral Tribunal also accepted the contention that the said nomenclature would not be determinative of nature of the levy. The Arbitral Tribunal, thereafter, proceeded to examine the nature of levy in a factual context and found that the penalty provided was not to provide for any loss or damage that DDA would sustain if the hotel was not completed within the stipulated period, but it was to instil fear of punishment in the mind of the tenderer that if he fails to complete the Hotel Project, he would be slapped with a penalty for delay.

74. The conclusion of the Arbitral Tribunal is based on cogent reasons. It had noticed that Eros had paid the entire consideration for the project land and therefore, the view expressed by the Arbitral Tribunal that the impost mentioned in Clause 3.14 of the General Terms & Conditions of the Auction is a penalty and not liquidated damages, is a plausible view. Concededly, there is no term in the Auction Notice, which stipulates that the said levy is a genuine estimate of damages. It was also noted that the Bank Guarantees furnished by PNB also mentioned the said impost as a penalty and not a genuine pre-estimate of damages. Indisputably, the question of DDA suffering any damages in these facts is remote.

75. As observed earlier, the scope of interference under Section 34 of A&C Act is highly restricted and the view held by the Arbitral Tribunal can by no stretch be held to be perverse, patently illegal on the face of the record or one that falls foul of the fundamental policy of Indian Law.

76. The next question to be examined is whether the award of a sum of ₹12,00,000/- each for extending the Bank Guarantees is patently illegal. Eros had claimed a sum of ₹15,16,464/- towards extending the Bank Guarantees in each of the two contracts. The Arbitral Tribunal has allowed the claim of Eros to the extent of ₹12,00,000/-. However, the Arbitral Tribunal is silent as to the reasons that had persuaded the Arbitral Tribunal to quantify the claim of ₹12,00,000/-. The relevant extract of the impugned award allowing the aforesaid claim is set out below: “Claim no.2 Under this claim, the Claimant claims expenses incurred for renewing the bank guarantee from time to time. Keeping in view the facts and circumstances of the case, the claim is allowed to the extent of Rs. 12 lakhs. Accordingly, an award in a sum of Rs. 12 lakhs is passed in favour of the Claimant and against the Respondent. The Claimant is also entitled to simple interest @ 12% pa on the amount awarded in its favour from the date of the award till its realisation.”

77. It is apparent from the above that the Arbitral Tribunal has not indicated any reason whatsoever for allowing the claim quantifying the sum of ₹12,00,000/-. Since the Arbitral Tribunal had concluded that DDA was not entitled to invoke the Bank Guarantees and directed DDA to forthwith release the same, it may follow that the Arbitral Tribunal had also considered awarding Eros the expenses for keeping the Bank Guarantees alive. However, there is no reason whatsoever as to how the award for a sum of ₹12,00,000/- was determined by the Arbitral Tribunal.

78. In terms of Sub-section (3) of Section 31 of the A&C Act, the arbitration award is required to be reasoned unless, the parties agree otherwise. The relevant extract of Section 31 of the A&C Act reads as under:

79. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1, the Supreme Court had observed that “The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be.”

80. This Court finds that the impugned award to the extent that it allows the claims of Eros for expenses against the Bank Guarantees to the extent of ₹12,00,000/- is unreasoned and there is no material to substantiate the said amount. Therefore, the impugned award to the extent that it awards the said amount, falls foul of Section 31(3) of the A&C Act and thus, cannot be sustained.

81. In view of the above, this Court sets aside the impugned award to the limited extent that it awards ₹12,00,000/- against Claim No.2 in each of the two cases.

82. The petitions are disposed of in the aforesaid terms. The pending applications are also disposed of.

VIBHU BAKHRU, J MARCH 22, 2021 MK/pkv