# M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES PVT. LTD

- **Citation:** [2003] Supp. 4 S.C.R. 385
- **Court:** Supreme Court of India
- **Decided:** 2003-10-08
- **Bench:** V.N. Khare, Brijesh Kumar, S.B. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-d-army-welfare-housing-organisation-v-sumangal-services-pvt-ltd-19516
- **Pages:** 65

## Headnote

Arbitration :
Arbitration Act, 1940 :
Section 4l(b) proviso-Interim order-Passing of-Powers of
Arbitrator-Held: Arbitrator does not have power to pass an interim order
in the absence of any specific agreement in relation thereto.
B
c
Section 30-Award-Misconduct by Arbitrator-Setting aside of D
award-Arbitrator refused to consider provisions of contract dealing with
rights and liabilities of parties-Held: Such a conduct amounted to legal
misconduct on the part of the Arbitrator-Hence, award liable to be set
aside.
Section 30-Award-Error apparent on the face of award-Setting E
aside of award-Disputes and differences between the parties were
required to be determined as on a particular date-But the Arbitrator took
into consideration subsequent conduct of the parties-Held : Subsequent
conduct of parties was wholly irrelevant-Hence, there existed an error
apparent on the face of the award-Therefore, award liable to be set aside. F
Section 30-Award-Damages-Held : Liability to pay damages
must arise out of contract and not otherwise-Since the award did not
specifically say so parties not entitled to award of damages.
Arbitration and Conciliation Act, 1996 :
G
Section 17-Power of Arbitrator-Held: Is a limited one-Arbitrator
could not issue any direction which would go beyond the reference or
arbitration agreement-Interim order could only relate to the parties to the
dispute and not to other parties.
H
385
386
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A
Contract Act, 1872 :
Section 73-Damages-Army Welfare Housing Organisation (AWHO)
entered into a contract with a builder for construction of housing projectBuilder had no legal liability to get the building plans sanctioned-
....
B However, builder merely assisted A WHO in getting the plans sanctionedLiability of builder-Held: Builder had incurred no liabilities under law.
Section 56-/mpossibility to fulfil contract-Frustration of contractDamages-Army Welfare Housing Organisation (AWHO) awarded contract
c
for construction of housing project-Municipality ordered stoppage of
work in 617 blocks-Contractor complied with such stop.,-work orderLiability of contractor-Held : Assuming the contractor could carry out
some job and might be partially liable yet he could not be faulted when
he refused to undertake any constructional work in violation of stop-work
order-Moreover, there was no material to prove alleged self-induced
D frustration on the part of the contractor-There was also no collusion
between the Municipal authorities and the contractor in getting the work
stopped-Hence, contractor not liable for any damages.
Constitution of India, 1950 :
E
·Article 136-Plea-New Plea-Award-Appeal against-One of the
parties to arbitration raised a plea before the Supreme Court that the other
party had unjustly enriched. itself-Such a plea not raised before the
arbitrator-Held : A new plea could not be raised for the first time before
F
the Supreme Court-Practice and procedure.
The appellant entered into an agreement with the respondent for
development of land and construction of a composite housing project
on a turnkey basis. Considerable progress was made in the construction
of work in Phase 1. Despite the fact that no building plan was filed or
G sanctioned for Phases II and III, the respondent, on the instruction of
the appellant, proceeded with the construction of Phase II. But the
municipal authorities directed to stop work in 617 blocks. The
respondent, therefore; stopped further construction activity which
resulted in the appellant's termination of its contract with the
H respondent
,
"
M.D., ARMY WELFARE HOUSING ORGANISATION'" SUMANGAL SERVICES P. LTD.
387
The respondent filed a civil suit for injunction which was refused. A
In appeal, the High Court ordered the parties to maintain status quo.
In appeal, this Court referred the disputes between the appellant and
the respondent for adjudication by an Arbitrator.
The appellant and the respondent filed an application before the B
Arbitrator for

## Text

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-
M.D., ARMY WELFARE HOUSING ORGANISATION
A
v.
SUMANGAL SERVICES PVT. LTD.
OCTOBER 8, 2003
[V.N. KHARE, CJ., BRIJESH KUMAR AND S.B. SINHA, JJ.]
Arbitration :
Arbitration Act, 1940 :
Section 4l(b) proviso-Interim order-Passing of-Powers of
Arbitrator-Held: Arbitrator does not have power to pass an interim order
in the absence of any specific agreement in relation thereto.
B
c
Section 30-Award-Misconduct by Arbitrator-Setting aside of D
award-Arbitrator refused to consider provisions of contract dealing with
rights and liabilities of parties-Held: Such a conduct amounted to legal
misconduct on the part of the Arbitrator-Hence, award liable to be set
aside.
Section 30-Award-Error apparent on the face of award-Setting E
aside of award-Disputes and differences between the parties were
required to be determined as on a particular date-But the Arbitrator took
into consideration subsequent conduct of the parties-Held : Subsequent
conduct of parties was wholly irrelevant-Hence, there existed an error
apparent on the face of the award-Therefore, award liable to be set aside. F
Section 30-Award-Damages-Held : Liability to pay damages
must arise out of contract and not otherwise-Since the award did not
specifically say so parties not entitled to award of damages.
Arbitration and Conciliation Act, 1996 :
G
Section 17-Power of Arbitrator-Held: Is a limited one-Arbitrator
could not issue any direction which would go beyond the reference or
arbitration agreement-Interim order could only relate to the parties to the
dispute and not to other parties.
H
385
386
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A
Contract Act, 1872 :
Section 73-Damages-Army Welfare Housing Organisation (AWHO)
entered into a contract with a builder for construction of housing projectBuilder had no legal liability to get the building plans sanctioned-
....
B However, builder merely assisted A WHO in getting the plans sanctionedLiability of builder-Held: Builder had incurred no liabilities under law.
Section 56-/mpossibility to fulfil contract-Frustration of contractDamages-Army Welfare Housing Organisation (AWHO) awarded contract
c
for construction of housing project-Municipality ordered stoppage of
work in 617 blocks-Contractor complied with such stop.,-work orderLiability of contractor-Held : Assuming the contractor could carry out
some job and might be partially liable yet he could not be faulted when
he refused to undertake any constructional work in violation of stop-work
order-Moreover, there was no material to prove alleged self-induced
D frustration on the part of the contractor-There was also no collusion
between the Municipal authorities and the contractor in getting the work
stopped-Hence, contractor not liable for any damages.
Constitution of India, 1950 :
E
·Article 136-Plea-New Plea-Award-Appeal against-One of the
parties to arbitration raised a plea before the Supreme Court that the other
party had unjustly enriched. itself-Such a plea not raised before the
arbitrator-Held : A new plea could not be raised for the first time before
F
the Supreme Court-Practice and procedure.
The appellant entered into an agreement with the respondent for
development of land and construction of a composite housing project
on a turnkey basis. Considerable progress was made in the construction
of work in Phase 1. Despite the fact that no building plan was filed or
G sanctioned for Phases II and III, the respondent, on the instruction of
the appellant, proceeded with the construction of Phase II. But the
municipal authorities directed to stop work in 617 blocks. The
respondent, therefore; stopped further construction activity which
resulted in the appellant's termination of its contract with the
H respondent
,
"
M.D., ARMY WELFARE HOUSING ORGANISATION'" SUMANGAL SERVICES P. LTD.
387
The respondent filed a civil suit for injunction which was refused. A
In appeal, the High Court ordered the parties to maintain status quo.
In appeal, this Court referred the disputes between the appellant and
the respondent for adjudication by an Arbitrator.
The appellant and the respondent filed an application before the B
Arbitrator for passing of an interim award regarding certain matters.
The Arbitrator passed an interim order of injunction and subsequently
an award was filed before this Court. Hence the appeal.
On behalf of the respondent, it was contended that the Arbitrator. C
had no power to pass an interim award under Section 4l(b) of the
Arbitration Act, 1940; that failure of the Arbitrator to consider
provisions of the contract amounted to misconduct by the Arbitrator
under Section 30 of the Act; that as the building plans were not
sanctioned by the statutory authorities the contract was frustrated
under Section 56 of the Contract Act, 1872; and that the finding of the D
• Arbitrator that the frustration was a self-induced one was not based
on any materials.
Disposing of the appeal, the Court
E
HELD: I.I. An Arbitrator had no jurisdiction to pass the interim
order under the Arbitration Act, 1940 in the absence of any specific
agreement in relation thereto. The Arbitrator by an interim order
could not have placed the parties to a situation which would travel
beyond the subject of disputes and differences referred to the arbitration. F
As no claim and counter-claim had been filed before the arbitrator, the
arbitrator was not even aware of the nature of claims of the parties.
He neither found any prima facie case nor balance of convenience for
passing the said interim order. Furthermore, an arbitrator is bound
by the terms of reference. [416-F, G]
1.2. The jurisdiction of the arbitrator being confined to the four
corners of the agreement, he can only pass such an order which may
be the subject-matter of reference. [416-H, 417-A)
G
I.3. In the instant case, the interim award was not passed with H
388
SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.
A the consent of the parties. If the arbitrator has no jurisdiction to pass
an interim order, even by consent no such jurisdiction could be
conferred. (416-A, BJ
United Commercial Bank Ltd. v. Their Workmen, AIR (1951) SC 230
B and Hakam Singh v. Mis. Gammon (India) Ltd., AIR (1971) SC 740,
relied on.
Hiscox v. Outhwaite, (1991) 2 Lloyd's Law Reports 1, referred to.
2.1. It is well-settled that for the purpose of obtaining an interim
C order a party to the arbitration proceeding during pendencyofan arbitral
proceeding can only approach a court oflaw in terms of Section 41(b) of
the Arbitration Act, 1940 and not otherwise. (418-C-D]
2.2. In the instant case, Section 41(b) proviso has no application
D as the arbitrator was not vested with such power. [418-G]
E
Morgan Stanley Mutual Fund v Kartick Das, (1994] 4 SCC 225,
Union of India v. Raman Iron Foundry, (1994] 2 SCC 231 and Mis. H.M·
Kamaluddin Ansar:i v. Union of India, (1983) 4 SCC 417, relied on:
..
Indrajit Sinha v. B.L. Rathi, AIR (1984) Cal. 281 and Debendra Nath
Singha v. Dwijendra Nath Singha, AIR (1970) Cal. 256, approved.
3. Even under Section 17 of the Arbitration and Conciliation Act,
1996 the power of the arbitrator is a limited one. It cannot issue any
F direction which would go beyond the reference or the arbitration
agreement. Furthei:more, an award of the arbitrator under the 1996
Act is not required to be made a rule of court; the same is enforceable
on its own force. Even under Section 17 of the 1996 Act, an interim
·order must relate to the protection of the subject-matter of dispute and
G the order may be addressed only to a party to the arbitration. It cannot
be addressed to other parties. Even under Section 17 of the 1996 Act,
no power is conferred upon the Arbitral Tribunal to enforce its order
nor does it provide for judicial enforcement thereof. The said interim
order of the arbitrator, therefore, being coram non judice was wholly
H without jurisdiction and, thus, a nullity. [420-G, H, 421-A, BJ
M.D., ARMY WELFARE HOUSING ORGANISATION 1·. SUMANGAL SERVICES P. LTD.
389
Kiran Singh v. Chaman Paswan, AIR (1954) SC 340(6), Srimathi A
Kaushalya Devi v. Shri K.L. Bansal, [1969] 1 SCC 59, Union of India
v. Tarachand Gupta, (1971) 1 SCC 486, Sushi/ Kumar Mehta v. Gobind
Ram Bohra, (1990) l SCC 193 and Smt. Kanak v. UP. Avas Evam Vikas
Parishad, (2003) 7 SCALE, relied on.
4.1. An award made pursuant to an order which has been passed
without jurisdiction necessarily must be held to be a nullity. Refusal
B
on the part of the arbitrator to consider the effect of clause 130 of the
agreement would amount to a legal misconduct. In the facts and
circumstances of the case, it was incumbent on the part of the
arbitrators to apply "due diligence" clause contained in clause 129(e) C
of the agreement, more cautiously. They were further required to
consider as to whether "due diligence" clause be applied where the
alleged violation of contract was only in relation to a small part thereof.
The arbitrators were, in law, bound to consider the relevant provisions
of the contract and in particular those which deal with the rights and D
liabilities of the parties. (423-D-E)
4.2. The above aspect of the matter has not been taken into
consideration by the arbitrators while making the award. Thus, they
failed to take into consideration a relevant fact. [423-F] .
E
Steel Authority of India Ltd. v. J.C. Budharaja, Government and
Mining Contractor, (1999) 8 SCC 122, Shyama Charan Agarwala v.
Union of India, (2002] 6 SCC 201, Mertens v. Home Freeholds ,:;o. Ltd.,
(1921) All ER 372, Bharat Coking Coal Ltd. v. Mis. Annapurna
Constructed, (2003) 7 SCALE 20, Alopi Parshad & Sons Ltd. v. Union F
of India, [1960) 2 SCR 793, Heyman v. Darwin, (1942) 1 All ER 327,
Association Engineeringv. Govt. of A.P., [1991) 4 SCC 93, State ofOrissa
v. Dandasi Sahu, (1988) 4 SCC 12, K.P. Poulose v. State of Kera/a, [1975)
2 SCC 236, K. V. George v. The Secretary to Government, Water and
Power Dept., (1989) 4 SCC 595, Satish Kumar v. Surinder Kumar, AIR 0
(1970) SC 833, Union of India v. Jain Associates, [1994) 4 SCC 665,
Sikkim Subba Associates v. State of Sikkim, (2001] 6 SCC 629, Maharashtra
State Electricity Board v. Sterilite Industries (India), [2000) 8 sec 482,
W.B. State Warehousing Corporation v. Sushi! Kumar Kayan, (20021 5
sec 679, Bharat Coking Coal Ltd. v. L.K. Ahuja & Co., [2001) 4 sec H
390
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R
A 86 and /spat Engineering & Foundary Works, B.S. City Bokaro, (2001)
6 sec 347, referred to.
B
Continental Construction Co. Ltd. v. State of MP., (1988) 3 SCC 82,
cited.
Halsbury 's Laws of England, 4th Edn., Mustill and Boyd
"Commercial Arbitration" p. 598, referred to.
5.1. Before the arbitrators a question arose as to whether
certification of an architect as regard estimated cost of completion was
C a condition precedent for determination of the quantum of damages.
Construction of clauses 129 and 130 having regard to the fact situation
obtaining herein was mandatorily required to be considered by the
arbitrators. They could not have simply ignored the same on t~e
premise that an interim order has been passed by the arbitrator. An
D arbitrator cannot be equated with a court of law. Whereas a court has
an inherent power, an arbitrator does not have. It is a tribunal of
limited jurisdiction. Its jurisdiction is circumscribed by the terms and
reference. An arbitrator can act only within the fou~ corners of the
agreement and not beyond thereto. [426-G, H, 427-A)
E
5.2. This Co ti rt cannot sit in appeal over the award of the arbitrator
but can certainly interfere when the award suffers from non-application
of mind or when relevant fact is ignored or irrelevant fact not germane
for deciding the dispute is taken into consideration. [428-A, BJ
F
5.3. Where an order has been passed without jurisdiction, the
principles of estoppel have no application. There is no estoppel against
statute. The award, therefore, suffers from legal misconduct on the
part of the arbitrator. [428-B, C]
Union of India v. Mis.
V. Pundarikashudu and Sons, (2003) ·7
G SCALE 323, referred to.
6.1. Moreover, Clause 130 of the contract casts a burden upon an
architect to estimate· the damages when a risk and cost clause is
invoked against the contractor. It is possible to hold that the invocation
H of arbitration clause would be subject to exercise of the jurisdiction by
.. {,' .:···.-,.r
M.D., ARMY WELFARE HOUSING ORGANISATION 1•. SUMANGAL SERVICES P. LTD.
39 l
the architect as a demand has to be made upon the contractor A
depending on such estimate made by the architect. (430-A-B)
6.2. Thus, the arbitrator could not have ignored the role of the
architect in terms of clause 130 of the agreement only on the ground
that the appellant had permitted to raise construction, pursuant to or B
in furtherance of an interim order. Non-consideration of the said .
clause in proper perspective by the arbitrator would amount to a legal
misconduct on his part. (430-H, 431-A]
Heavy Electricals (India) Ltd v. Pannalal Devchand Masviya, AIR C
(1973) MP 7, South India Rly. Co. Ltd v. S.M Bhashyam Naidu, AIR
(1935) Mad. 356; Bristol Corporation v. John Aird & Co., (1911-13) All
ER 1076, Hieman & Co. v. Roberts, (1911-13) All ER 1485 and R. v.
Architects' Registration Tribunal ex P. Jaggar, (1945) 2 All ER 131,
referred to.
Hudson's Building and Engineering Contracts, p. 243 and G. T.
Gajria 's Law Relating to Building and Engineering Contracts in India, 4th
Edn., p. 563, referred to.
D
7.1. Merly because of the fact that some role had been attributed E
to the respondent in the matter of getting the building plan sanctioned
it would not lead to the respondent incurring any liability under clause
130 of the agreement. [430-D]
7.2. The building plans would have been sanctioned provided the F
same were in accordance with the statutory building rules. If admittedly
the plans as also the constructions were not in terms of rules, the
question of getting them sanctioned by a statutory authority would not
arise. Such a contract, it is reiterated, would be illegal. Principle of
estoppel will have no application in relation thereto as that part of the
agreement itself would not be enforceable. In the event, however, the G
builder was merely required to take follow-up action in the matter with
the authorities, the contract may be valid but in that event it must not
only be pleaded and proved that there existed an agreement in that
behalf, but also to how and to what extent the builder failed to perform
its part of the contract. [438-G, H 439-A, B]
H
392
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A
lmmami Appa Rao v. Gollapallil Ramalilngamurthi, [1962) 3 SCR
B.
739 and Kuju Collieries Ltd. v. Jharkhand Mines Ltd., AIR (1974) SC
1892, referred to.
8. The liability to pay damages must arise out of contract and not
otherwise. The award does not specifically say so. (439-E)
9.1. The respondent cannot be said to have committed any
illegality in complying with the stop-work notice. Assuming the
respondent could have carried out some job it might have been
partially liable; but cannot be faulted when it refused to carry out any
C constructional work in violation of the stop-work notice which would
attract the penal provisions of Section 440 of the West Bengal Municipal
Act, 1993. [440-D, E]
D
E
Hauman v. Nortje, (1914) A.D. 293 and Hoenig v. Issacs, (1952) 2
All ER 176, referred to.
H. WR. Wade : "The Principle of Im1ossibility in Contract", Law
Quarterly Review Vol. 56 p. 519, Emden and Gill: "Buildings Contracts
and Practice" 7th Edn., pp. 162-163 and Hudson's Building and Engineering
Contracts, p. 484, referred to.
9.2. There is no material to show that there had been collusion
by and between the respondent and the municipal authorities in getting
the work stopped. There exists a presumption as regard the official
transactions having been done in regular course of business. The onus
of proving that plea of frustration was a self-induced one is on the party
F who alleges that this is the case. (442-B, CJ
Joseph Constantine Steamship Line Ltd. v. Imperial Smelting
Corporation Ltd., (1942) A.C. 154, referred to.
G
Treitel: "Law of Contract" 7th Edn., p. 701 and Cheshire, Fifoot
& Furmston : "Law of Contract" 14th Edn., p. 643, referred to.
10. The disputes and differences between the parties were required
to be determined as on a particular date. The conduct of the parties
'
subsequent thereto was wholly irrelevant. Thus, there exists an err~r
H apparent on the face of the aW&rd. [444-E)
·
..
M.D., ARMY WELFARE HOUSING ORGANISATION'" SUMANGAL SERVICES P. LTD.
393
11.1. Liability to pay damages would indisputably arise only in A
the event a breach of contract has taken place. Clause 130 of the
general conditions of the contract could be invoked only in the event
of breach on the part of the respondent and if the appellant could in
law take recourse to clause 129 of the contract. [444-FJ
11.2. For the purpose of invoking clause 129(d) of the general
conditions of contract, it was incumbent upon the arbitrators to arrive
at a specific finding that a breach of the terms of condition has been
committed by the respondent. Such a breach must be in relation to a
term of the contract between the parties. [444-GJ
11.3. If a breach has occurred in respect of an agreement, to
which the respondent is not a party, clause 129 could not have been
invoked. [444-H]
B
c
Clark v. Woor, (1965) 1 W.L.R. 650 and East Ham Borough D
Corporation v. Bernard Sunley & Sons Ltd., (1966) AC 406, referred to.
McGregor on Damages,' 16th Edn., paras. 1142 and 1143, Hudson's
Building and Engineering Contracts, pp. 1034-35 and Emden and Gill :
"Buildings Contracts and Practice" 7th Edn., p. 267, referred to.
E
12. The plea that the appellant had unjustly enriched itself was
not raised before the arbitrators. Such a plea connot, therefore, be
raised for the first time before this Court. [448-H, 449-AJ
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1725 of f
1997.
From the Judgment and Order dated 28.3.96 of the Calcutta High
Court in F.M.A.T. No. 691 of 1996.
Arvind Kumar Tewari for the Appellant.
K.N. Bhat, P.R. Agarwal, Pramod Dayal, Piyush Sharma and R.
Anand Padmanabhan for the Respondent.
The Judgment of the Court was delivered by
G
H
394
SUPREME COURT REPORTS [2003) SUPP. 4 S.C.R.
A
S.B. SINHA, J : Questions of some importance arise for consideration
in this application filed by the respondent-herein under Sections 30 and 33
of the Arbitration Act, 1940 questioning an award dated 29.4.2002 passed
by three learned arbitrators appointed by this Court.
B BACKGROUND FACTS:
Army Welfare Housing Organization (for short 'A WHO') and
Sumangal Services Pvt. Ltd. (for short 'Sumangal') entered into an
agreement for development of land and construction of a composite
C housing project on a tum-key basis on approximately 17.9 acres of land
situate on the VIP Road, in the town of Kolkata. For the said purpose a
draft agreement initially drawn up was given finality by Articles of
Agreement dated 28.8.1993. Certain terms and conditions, however, had
been altered therein with mutual consent.
D
The project was envisaged to be completed in three phases.
Considerable progress was made in the matter of construction of work in
Phase I. The plots where the said work was being carried out fell under
the local administration of Gopalpur Arjunpur Gram Panchayat. The
building plan for Phase I was sanctioned by the said Gram Panchayat in
E September, I 991 in terms whereof I I blocks of houses could be constructed.
F
The said area, however, became a municipality in terms of the West Bengal
Municipal Act, 1932 known as Rajarhat Gopalpur Municipality. West
Bengal Municipality Act, 1932, however, was repealed and replaced by
West Bengal Municipal Act, I 993.
It is not in dispute that pursuant to or in furtherance of the said
agreement Sumangal entered into negotiations with the owners of the
agricultural lands for sale thereof wherefor sale deeds in respect of 2.32
acres of land were executed by the owners in favour of A WHO. Sumangal
received the. am0tmt for consideration from A WHO paid to the owners
G upon furnishing a Bank guarante~ also subject to the condition that it
will get the said land converted into Bastu.
Lands measuring about 13 acres had already been converted into
Bastu. On or about 8.12.J 994, an application was made by A WHO for
H modifications or revisions in the Master Plan wherefor a revised Master
..
M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. [SINHA, I.)
395
Plan was submitted for approval of the Municipality stating:
A
"Tel: 30 I 0820
Army Welfare Housing Organisation
South Hutments, Kashmir House,
Rajaji Marg, New Delhi-I 10011
B/03020/CAL-II/A WHO
8 Dec 94
The Chairman,
Rajarhat Gopalpur Municipality
Raghnunathpur,
Calcutta-700059
SUBMISSION AND FINAL APPROVAL OF
PLAN FROM MUNICIPAL AUTHORITY
Dear Sir,
I .
This is to bring to your kind notice that our organization has
undertaken the construction of "Own your own House"
housing project for the benefit of our Defence Personnel at
B
c
D
no Profit no Loss basis.
We have engaged Mis Dulal
Mukherjee & Associates as consulting Architect for the E
project.
2.
As per demand/requirements for the housing for Army
personnel, our Architect made a Master Plan of the project
and also plans for 04 types of Dwelling Units (05 Storyed) F
which were approved by the Gram Panchayat vide Sanction
No.181191 dated 18 Sep. 91.
3.
In this connection we would like to mention that due to site
· constraints and also. to meet t~e de.mand fo~ ~ousing among· G
Army personnel, mmor Mod1ficat1ons/Rev1s1ons have been
made to the Master Plan and also to the Individual Dwelling
Units which were sanctioned earlier.
4.
We are submitting herewith the revised Master Plan and also
individual Plan for Dwelling Units (Additions and Alterations) H
396
A
B
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
for your approval. We therefore make an appeal to your
goodselfto kindly give special consideration to our plan and
approve the same at the earliest.
'
Yours faithfully,
(Raghu Nandan)
Brig (Retd)
DT& DY MD
For Managing Director"
C
Such permission was granted only on 9.3.1995.
According to Sumangal, despite the fact that no builqing plan was
filed or sanctioned for Phase II and Phase Ill but as per instruction of
A WHO it proceeded with the construction of Phase II. Such an application
was filed for the first time on 19 .5 .199 5.
It stands admitted that the
D~ proposed height of the towers was more than the permissible one.
E
F
H
The municipal authorities vide its letter dated 23.5.1995 directed
stoppage of work in six/seven blocks ··where allegedly unauthorized
construction was being carried out stating:
"We came to learn that some 8 blocks of 5 storied buildings were
approved by erstwhile panchayat before the origination of the
above municipality. After the birth on 13.01.94 as per norms of
W.B.M. Act '93 and Calcutta Gazette, new plans if any, or
construction job if any, has to be approved of by this Municipal
Authority.
We learnt some additional 6/7 blocks are being constructed at
your VIP project for which no plan was submitted to the
Engineering Division of this office for approval. This is a gross
violation of W.B.M. Act '93 and '79 T & C Development
Planning Act.
It is further learnt that the 7/8 blocks constructed by you on the
basis of the plan sanctioned by erstwhile panchayet has also been
severely deviated from actuality-which is also punishable under
the law.
M.D., ARMY WELFARE HOUSING ORGANISATION 1·. SUMANGALSERVICES P. LTD. [SINHA, J.]
. 397
We strongly believe that an esteemed organization like you, will A
not indulge in such illegal activities and refrain from all such
unapproved/unauthorized works."
Sumangal thereafter sought advice of A WHO by a letter dated 24th
May, 1995 pointing out therein that if any construction activity is carried B
out despite objections of Local Authority, persons involved would be liable
for punishment both under criminal as well as civil law. It reiterated the
said stand by a letter dated 25th May, 1995 drawing A WHO's attention
to the.provisions of Sections 204, 214 and 440 of the West Bengal
Munic'ipal Act, 1993 and requesting it for its response also to its earlier
letter dated 24th May, 1995. Sumangal did not receive any reply thereto C
and hence by its letter dated 27th May, 1995 stated:
/
"If clear out instructions are not received from you by 29th May,
we shall be compelled to demobilize. Please advise urgently. We
shall be constrained to consider your silence as your agreement D
to our demobilization."
The engineers of municipality visited the project site a number of
times but the sanctioned plan had allegedly not been produced. In the
aforementioned situation, the Chairman of the Municipality issued. a letter
to the Project Manager, A WHO on 2 l. 7.1995 stating :
E
"Dear Sir,
Our engineers have visited your project site number of times and
discussed with your engineers about the drawing, design and other F
infrastructurals projects placed before them. The undersigned also
took the opportunity to meet with you and talk to your Mis Dula!
Mukherjee & Associates where we have inter changed our views
and the norms of Municipal Rules & Regulations.
Our engineer has been asking you for the erstwhile panchayat G
recommended plan by which you have constructed already 8-9
blocks. All the time he has come back without result.
You would appreciate that without a plan already approved by
erstwhile panchayat, we can not check/judge the present position H
398
SUPREME COURT REPORTS {2003) SUPPA S.C.R.
' ', ', A , .
or th~viability of yo~r project. Bene~ ihe q~;~iion of you~
infrastructural development like construction of Road, Drains etc.
does nqt arise, at al/. {Jt the 11J,Oment.
· We would request you fervently to submit the panchayat
~ B . • '. · · ·
recommended plan on the basis of which we will proceed further.
Thanking you"
(Emphasis supplied)
In the meantime the architect and the project engineer ,of A WHO
C met the Chairman of the. Municipality and it was allegedly agreed that the
work need not be stopped in the buildings for which the plans have aiready
been approved. Sumangal, therefore, was advised not to stop the work for
which plans have already been approved. (See letter of A WHO to
Sumangal dated 27.5.1995).
D
A WHO by their letters dated 25th July, 1995 and I Ith August, 1995
advised Sumangal to reorganize and recommence its work by employing
sufficient strength of labour and bringing the required material to site by
I Ith September, 1995 to ensure thatthe progress of the work is substantially
increased. It was threatened thatif suitable action is not taken in this behalf
E by Sumangal A WHO may be compelled to take action under clause 129(e)
of the Contract.
It appears that Sumangal replied thereto by its letter dated 14th
August, 1995. In its response to the said letter dated 14th August, 1995,
F A WHO drew the attention of Sumangal to the fact that there are certain
types of work which would not come within the purview of the stop work
notice by the Municipality and as such the same could have been carried
out. It was stated:
G
H
" ... You are again advised to reorganise your work by employing
sufficient labour and bringing in the req1,1ired material to ensure
that the pro~ess of the work is substantially increased by 15 Sep
95 failing which A WHO may be compelled to take action under
clause 129 (e) on page 176 of Contract Agreement. This is
without prejudice to any other right or remedy which shall have
accrued or shall accrue to the Organisation."
M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. (SINHA, J.) 399
Some correspondences thereafter passed between the parties and by A
its letter dated 10th October, 1995 A WHO ultimately cancelled the contract
with effect from 17th October, 1995.
A civil suit was filed by Sumangal before the 1st Assistant District
Judge at Barasat being suit No. 867 of 1995 praying for a declaration that B
the contract was void. Certain consequential reliefs were also prayed
therein in relation to the said termination of contract. ·
An application purported to be under Section 20 of the Arbitration
Act, 1940 was filed by the A WHO before the Delhi High Court which was
marked as Suit No. 2442 of 1995 for appointment of an arbitrator in terms C
of the arbitration agreement contained in Clause 136 of the general terms
and conditions of the contract.
In the said civil suit Sumangal prayed for an order of injunction which
was refused whereagainst an appeal was preferred in the High Court of D
Calcutta and by reason of an interim order dated 28.3.1996 the parties were
directed to maintain status quo. A SLP was filed by A WHO against the
said order.
This Court in the said S.L.P., however, without going intq the
correctness or otherwise of the interim order dated 28.3 .1996 of the High E
Court passed the following order:
"Leave granted.
This appeal calls in question the order of the High Court of F
Calcutta dated 28.3.1996.
In view of the developments which have taken place in this
Court, it is not necessary to refer to the detailed facts of the case.
Admittedly, disputes and differences have arisen between the
parties and those are pending adjudication in the Court of the First G
Assistant District Judge, Barasat (Title Suit No. 867 of 1995) and
in the High Court of Delhi (Suit No. 2442 of 1995). It is agreed
to by learned counsel for the parties that those disputes and
differences be referred for adjudication to an arbitrator. With
consent of~he parties, we refer the disputes arising out of the two H
A
B
c
D
400
SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
suits noticed above to Shri H.R. Khanna, Former Judge· of this
Court, who shall enter upon the reference and make his Award
within the statutory period. The learned Arbitrator shall fix his
own fee and the manner of its payment. The parties shall be at
I
liberty to file their claims/counter-claim before the Arbitrator.
With the referertce of the disputes and differences between
the parties to the learned Arbitrator, the two suits pending at
Barasat and in the Delhi High Court shall stand withdrawn from .
the respective courts where those are pending. Copy of this order
shall be sent to the concerned courts for due compliance.
The learned Arbitrator shall file the Award in this Court. It
is directed that no other court shall interdict the arbitration
proceedings.
The appeal is disposed of accordingly. No costs."
Even before filing the statements of claims and counter-claims;' the
parties jointly requested the learned arbitrator to pass an interim award as
regard the ownership of the lands as to whether A WHO by reason of the
purported deeds of sale became the absolute . owner of the property
E comprising 14.17 acres of land wherefor the following issues were raised
by Sumangal:
F
G
H
"a) Whether or not A WHO/Party No. 2 is the absolute
owner of the suit property comprising of 14. l 7 acres
of land vide registered Sale Deeds, mutation and
conversion certificates issued by the competent
authority, in favour of the petitioner including the
properties built thereon and that the Ian? so acquired
absolutely and for ever by the Party No.2/A WHO and
the property built thereon is not a retumal;>le security,
which property pursuant to the cancellation of contract
is neither refundable nor ~an be same be reconveyed
to Party No. I and/or land sellers?
b)
Whether Party No.2 and/or Party No. I and/or the land
sellers have a first and paramount charge on the said
M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. [SINHA, J) 40 I
land sold/transferred to the Party No. 2 absolutely and A
forever, particulars whereof are given the Annexures I
(Colly), annexed hereto, and that whether after sale of
the said plots of land by the land sellers, to the. Party
No. 2 vide registered sale deed based upon an
understanding as spelied out in the developer's B
agreement and power of attorney and affidavits etc.
executed by and between the land seller and Party
No.I, which as is alleged by Party No. I have since
become void and inoperative, and therefore, is the
Party No. I entitled for the payment of a sum of Rs. 38 c
lakhs 4 7 thousand as pleaded in paragraph 56 of its
Title Suit No.867 of I 995?
c)
Whether the Party No. I has a first and paramount
charge on the construction, buildings and all other
materials that are lying at and within the land transferred/ D
sold by the land sellers through Party No. I to the Party
No.2 for it's claim on the basis of item rate contract as
alleged claimed for the alleged loss and damages
suffered by the Party No.I as stated in it's Title Suit
No.876 of 1995?
E
d)
Whether in alternative a decree for specific performance
of the agreement referred to in paragraph 69 of the
aforesaid title suit above and reconveyance of the lands
mentioned in Schedule G to the Suit in favour of the
Party No. I or the land seller can be decreed either in F
favour of the Party No. I and/the land sellers who had
sold absolutely and for ever their plots of land vide
registered sale deeds which were subsequently mutated
and its land use changed from agricultural to residential
by the competent authority under the West Bengal G
Land Reform Act in favour of the Party No. 2, but are
now claiming that the Deed· of Sale was in reality a
document or security?
e)
Whether or not the keys of the god own at contract site
which the Party No.I is illegally holding in it's custody H
-i
402
SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.
A
be given back to Party No.2 to utilize the stores
contained therein before commencing the work.
B
f)
Any other relief in the circumstances of the case may
also be passed/awarded."
The learned arbitrator, however, was not inclined to accede to the said
request. Thereafter, an application was filed by A WHO before the learned
Arbitrator to the effect that it may be allowed to commence and complete
uninterrupted construction work as well as development of the housing
project at the risk of Sumangal. Sumangal filed· a reply to the said
C application.
An order was passed on the said application of A WHO by the learned
arbitrator on 1.11.1997 subject to the following conditions:
D
(a) The question as to whether such an order can be passed at the risk
of Sumangal can be raised only at the time of final award.
E
F
(b) The development work may be confined to 14.17 acres of land
which was the subjei;t matter of sale and which it Wa5 stated had been
demarcated at the site.
(c) All those works could be subject to the ultimate decision of the
case.
( d) A WHO shall not give final possession of any of those flats or
part of the land to any one including the person described as allottees.
( e) The said order was without prejudice to any of the contentions
which may be raised by the parties.
(f) Constructions and development work would b~ of the same kind
G and specifications as were provided in the contract at competitive rates
through an established contractor after inviting tenders therefor.
It was further stated therein :
"It is agreed by both the parties that the contract produce for the
H
construction of 16 towers and such 16 towers already exist on the ·
M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERViCES P LTD. [SINHA, J.J
403
site. If any new tower is constructed by party No. 2 or its A
contractor, party No. I would not be liable for it."
A review application was filed before the Arbitrator by Sumangal
wherein several questions including the power of arbitrator to pass
an interim order of injunction were raised but the same was rejected B
stating :
"It has been vehemently argued that the Arbitrator has no power
to make the kind of interlocutory order made on November I,
1997. In this respect learned counsel for party no. I has also
emphasized that effected the once the prayer for interim award has C
not been granted, the order dated November I, 1997 which was
in the nature of an interim award was unwarranted. I find myself
unable to accede to this contention.
So far as that order is
concerned, it was made expressly clear that the said order would
be without prejudice to any of the contentions which might be D
raised by the parties. It was also added that all the works which
party no.2 is being allowed to do would be subject to the ultimate
decision of the case, the order thus makes it clear that there was
no finality attached to that order and that it would be subjected
to the ultimate decision of the case. As such the order cannot be
deemed to be an interim award.
Coming to the other contention that the Arbitrator has no power
to make an interlocutory order dated November l, 1997. I find
that the work of measurements has been smoothly carried out and
E
the results of measurements have been accepted by both the F
parties. As the proceedings of arbitratio.n would take considerable
time before the final award is giveh, to«~xpedite the execution of
the remaining unfinished work, party no.2 was allowed to
commence and complete the unfinished work which was the
subject matter of the contract between the parties. In my opir.ion
the order made on November l, 1997 was in the interest of justice G
and not to let the remaining work reaming unfinished till the time
of the final award. As the order was made ex debito justitiae it
call for no review or modification. In any case, it has been made
clear that this order would be subject to the final decision of the
case and without prejudice to any of the rights of the parties.
H
404
A
B
SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.
Another point made in the application of party no. I is that it was
working as stated in the order ofNovember I, 1997 that 16 blocks/
buildings existed at site have gone through the order dated
November l, 1997, and no where it is stated therein that 16 blocks/
buildings exist at the site.
I, therefore, find no ground to review/modify the order dated
November I, 1997. The application accordingly stands disposed
of'.
C
The learned Arbitrator, therefore, did not determine the question as
to whether he had jurisdiction to pass an interim order or not.
No Award was not passed by the Arbitrator for a long time although
several extensions had been granted. On or about 26.2.2000 an application
for revocation of the authority of the arbitrator was filed by Sumangal and
D by an ord~r dated 11.5.2000 this Court constituted a board of three
arbitrators instead and place of the sole arbitrator ..
The award was filed before this Court on 29.4.2002 by the learned
arbitrators whereagainst Sumangal filed an application on' or about 8th
E July, 2002 under Sections 30 and 33 of the Act.
AWARD:
Before the arbitrators both the parties filed their respective claims.
Claim No. 1 of A WHO related to the title, ownership and po~session of
F 14.17 acres of land. Claim No. 2 of A WHO relat~d to cost of completion
of balance work at the risk and expense of Suman gal. Both the claims were
allowed by the learned· arbitrators.
Claim No. 3 related to compensation for delay in performance of the
G contract by Sumangal, whereas claim No. 4 related to damages for noncompletion of work resulting in loss of rentals to allottees of A WHO.
Claim No. 5 related to reimbursement of ·payments made by A WHO
towards the premium on Sumangal's all risk insurance policy. Claim No.
6 related to damages for delay in transfer of land: All these claims were
H disallowed.
M.D., ARMY WELFARE HOUSING ORGANISATION 1·. SUMANGALSERVICES P. LTD. [SINHA, J.]
405
The claim on interest contained in claim No. 7 and claim of costs of A
arbitration in claim No. 8 were also allowed.
The claim of Sumangal relating to title of 14.17 acres of land. and
claim for an amount of Rs. 11,40,85,000/-, being an alternative claim was
disallowed.
B
The learned arbitrators in making the award formulated as many as
29 issues which have been answered in the following terms:
"Issue No.