2003 (10) TMI 381 - SC - Indian Laws

Arbitration Awards challenged - Held that - The observations made hereinbefore were meant for the purpose of demonstrating that the learned arbitrators failed to apply the correct principles of law but not for the purpose of determining finally the lis between the parties. Thus the questions have been posed and answered for the limited purpose as to whether the award of the learned arbitrators suffer from any legal infirmity within the meaning of sections 30 and 33 of the Arbitration Act and no more. Therefore, for the aforementioned reasons, while upholding Claim No. 1 of the award are of the opinion that the award of the arbitrations in relation to Claim No. 2 must be set aside.

Issues Involved:
1. Interim Order by Arbitrator
2. Compliance with General Conditions of Contract
3. Responsibility for Obtaining Plan Sanctions
4. Frustration of Contract
5. Quantum of Damages
6. Title of 14.17 Acres of Land

Detailed Analysis:

1. Interim Order by Arbitrator:
The arbitrator passed an interim order allowing AWHO to complete the unfinished work at Sumangal's risk. This order was challenged on the grounds that the arbitrator lacked jurisdiction to pass such an order. The court held that the arbitrator, being a creature of the agreement, could not assume powers beyond the contract terms. The interim order was not passed with the consent of the parties, and an arbitrator cannot confer jurisdiction upon himself by consent. The court concluded that the interim order was coram non judice (without jurisdiction) and thus a nullity.

2. Compliance with General Conditions of Contract:
The arbitrators failed to consider the applicability of clauses 129(e) and 130 of the general conditions of the contract, which were crucial for determining the cost of completion of unfinished work. The court held that the refusal to consider these clauses amounted to legal misconduct. The arbitrators' decision to ignore the necessity of certification by the architect, as required by clause 130, was erroneous. The award was thus deemed a nullity due to the arbitrators' failure to apply the correct contractual provisions.

3. Responsibility for Obtaining Plan Sanctions:
The court found that there was no specific contractual obligation on Sumangal to obtain building plan sanctions. The responsibility for obtaining sanctions was attributed to the architect, M/s. Dulal Mukherjee & Associates, who was under AWHO's control. The arbitrators' finding that Sumangal had a role in obtaining the sanctions was not supported by the contract terms and was deemed perverse.

4. Frustration of Contract:
The court held that the statutory injunction by the municipal authorities, which prohibited further construction, constituted a frustration of the contract under Section 56 of the Indian Contract Act. Sumangal could not be held liable for non-performance due to this statutory prohibition. The arbitrators' finding that the frustration was self-induced by Sumangal was not supported by any pleadings or evidence, making it legally unsustainable.

5. Quantum of Damages:
The court observed that the arbitrators incorrectly considered subsequent events and conduct of the parties after the termination of the contract on 10-10-1995. The liability to pay damages should arise from a breach of contract terms, and the arbitrators failed to establish such a breach by Sumangal. The award on damages was thus found to be based on erroneous premises and was set aside.

6. Title of 14.17 Acres of Land:
The court upheld the arbitrators' finding that AWHO had become the absolute owner of the 14.17 acres of land through valid sale deeds. The claim that the land was transferred by way of security was not substantiated. The court found no legal infirmity in this part of the award, affirming AWHO's title to the land.

Conclusion:
The court set aside the award related to Claim No. 2 and the associated interest, while upholding Claim No. 1 regarding the title of the 14.17 acres of land. The arbitrators' failure to apply correct legal principles and contractual provisions amounted to legal misconduct, rendering parts of the award invalid.

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