Summary
Cross-appeals by L&T and Puri Construction against the Delhi High Court Division Bench's Section 37 judgment were dismissed. The Supreme Court upheld the arbitral findings that the Supplementary Agreement was a non-starter for non-fulfilment of its conditions precedent and was tainted by economic coercion, that the Development Agreement was not novated and that L&T committed fundamental breach by abandoning the project; it also upheld the setting aside of the monetary awards (Rs. 35 crore, Rs. 75 crore, Rs. 5 crore and the Rs. 50 crore indemnity) as unsupported by evidence or contrary to Section 73 of the Contract Act. Bound by M. Hakeem, an award cannot be modified under Section 34 or 37; the costs direction was rightly severed and PCL left to pursue its remedy. The Court deprecated prolix arguments in Section 34/37 proceedings and called for time limits on oral submissions.
Issues
- Whether the Division Bench, in appeals under Section 37 of the Arbitration and Conciliation Act, 1996, could uphold part of the arbitral award while setting aside the monetary directions, and whether this amounted to an impermissible modification of the award.
- Whether the arbitral findings that the conditions precedent in the Supplementary Agreement were not fulfilled (so that it was a non-starter and did not novate the Development Agreement), that the Supplementary and Tripartite Agreements were tainted by economic coercion, and that L&T committed fundamental breach by abandoning the project, were open to interference under Sections 34 and 37.
- Whether the awards of Rs. 35 crore as damages, Rs. 75 crore in default of discharging the bank loan and securing release of title deeds, Rs. 5 crore for non-return of licences and permits, and the Rs. 50 crore indemnity for ITCREF's claims could be sustained.
- Whether the manner in which Section 34 petitions and Section 37 appeals are argued, with lengthy oral and written submissions and multiple citations, warrants restraint and time limits.
Provisions considered
- Section 34, Arbitration and Conciliation Act, 1996The remedy under Section 34 is limited to setting aside an award or remanding it; a court cannot modify, revise or vary the award (M. Hakeem, following McDermott, Kinnari Mullick and Dakshin Haryana Bijli Vitran Nigam). Though a larger Bench is seized of the question of the power to modify, the Court held itself bound by M. Hakeem. Findings of fact on a plausible view of the contract, such as that the Supplementary Agreement's conditions precedent were unfulfilled, cannot be interfered with under Section 34. (¶¶ 40, 41, 46, 49, 56)
- Section 37, Arbitration and Conciliation Act, 1996The appellate court's powers under Section 37 are not broader than those under Section 34; what cannot be done under Section 34 cannot be done in a Section 37 appeal. The Division Bench, after recording its conclusions, rightly did not modify the award but severed the costs direction, directed release of title deeds and left PCL to pursue its remedy, since there can be no remand to the tribunal for quantification. The Court also agreed that Section 37 appeals are not appeals on facts. (¶¶ 1, 39, 56, 57, 58)
- Section 73, Indian Contract Act, 1872Compensation for breach must be assessed on the loss actually sustained. The tribunal awarded Rs. 35 crore on the basis of figures in L&T's rejected counter-claim rather than evidence of PCL's actual loss; the correct approach was to determine the prevailing market rate of built-up area at the time of breach and PCL's proceeds from its 25% share. The award was held fundamentally contrary to Section 73 and its setting aside was affirmed. (¶ 52)
- Section 16(3) (with illustrations (c) and (d)), Indian Contract Act, 1872Where a person in a position to dominate the will of another enters into a transaction that appears unconscionable, the burden of proving absence of undue influence lies on him. The Division Bench relied on this in affirming the tribunal's finding that the Supplementary and Tripartite Agreements, executed when PCL was in dire need of funds for EDC because of L&T's default, were tainted by coercion; the Supreme Court agreed that this view was not contrary to justice or morality. (¶¶ 47, 48)
- Section 75 (with Section 73), Indian Contract Act, 1872L&T's counter-claim for damages for alleged wrongful repudiation under Sections 73 and 75 was rejected by the tribunal on the ground that L&T, having abandoned the project, could not take advantage of its own wrong; the Division Bench noted that L&T urged no ground against rejection of the counter-claim before the Single Judge, and the Court found this rightly addressed. (¶¶ 34, 35, 38, 50)
Held
- Clause (I) of the Supplementary Agreement made it clear that the agreement would come into effect only on the occurrence of the four specified events, including L&T replacing or taking over PCL's bank guarantees and paying Rs. 5.19 crore to the bank under the Tripartite Agreement. The Single Judge's finding that Clauses (II) and (III) did not have to be fulfilled was a complete misreading. The tribunal's finding that the conditions precedent were unfulfilled, so that the Supplementary Agreement was a non-starter and the Development Agreement was not novated, was a possible finding and a finding of fact that could not be interfered with under Section 34. (¶¶ 43, 44, 46)
- The recitals of the Supplementary and Tripartite Agreements show that the bank had to be brought in only because L&T failed to pay EDC as required by Clause 19 of the Development Agreement, while DTCP threatened cancellation of licences. L&T's default left PCL no choice but to execute those agreements. The tribunal's finding, affirmed by the Division Bench with reference to Section 16(3) of the Contract Act, that the agreements were tainted by coercion is not contrary to justice and morality and was upheld. (¶¶ 47, 48)
- L&T paid not a single instalment of EDC, did not pay the Rs. 5 crore interest-free deposit under Clause 12, carried out no development and constructed not a single floor though title deeds were handed over in October 1998 and plans sanctioned; the tribunal's inspection confirmed this. The findings that L&T consciously abandoned the project and committed fundamental breach, causing loss to PCL and justifying termination, were based on evidence and could not be disturbed in the limited jurisdiction under Section 34. Since L&T urged no ground against rejection of its counter-claim before the Single Judge, the Division Bench rightly declined to go into it. (¶¶ 49, 50)
- The monetary directions could not stand: the Rs. 35 crore damages were based on L&T's counter-claim figures without proof of PCL's actual loss, contrary to Section 73 of the Contract Act; the alternative Rs. 75 crore for loss of saleable area of the 15 mortgaged acres had no evidence of land value; the Rs. 5 crore for non-return of licences had no basis; and the Rs. 50 crore indemnity for ITCREF's claims was overbroad as such losses were not reasonably foreseeable, without prejudice to indemnification for the 2,20,416 sq. ft. envisaged in the Development Agreement. The direction to pay Rs. 6 crore with interest to the bank required no finding as L&T had paid it. (¶¶ 51, 52, 53)
- An arbitral award cannot be modified under Section 34, and the Section 37 court's powers are no wider. The Division Bench therefore rightly did not restore any part of the award after setting aside the Section 34 judgment in part, but severed the costs award (which L&T must comply with), directed release of the title deeds deposited with the Registrar to PCL and left PCL to pursue its remedy under law for quantification of its monetary claim. As the termination of the Development Agreement was upheld, L&T cannot deal with the property and PCL may. (¶¶ 40, 41, 54, 56)
- Members of the Bar tend to argue Section 34 petitions and Section 37 appeals as if they were regular first appeals under Section 96 CPC, going into minute factual details and citing numerous decisions on the same proposition, producing long hearings, bulky written submissions and lengthy judgments. Given the limited jurisdiction, counsel must show restraint, and there is a need to impose time limits on oral submissions so that courts can devote time to the cases of the common man. (¶¶ 57, 58)
Result
All appeals (by L&T and by Puri Construction) dismissed; the Division Bench's judgment dated 30.04.2015 upheld, including the setting aside of the monetary directions in the award, the severed direction for costs of arbitration payable by L&T, the release of title deeds to PCL and the liberty to the parties to pursue their appropriate remedies under law.