Cyril Amarchand MangaldasExperts Corner

It is no secret that the infrastructure market has grown exponentially in India[1] and as EOTs, delays and cost overruns occur, so do disputes. We examine in this piece some recent, interesting judgments in construction of arbitration law and comment on some emerging trends.

 

Pre-arbitral Section 9 – Mumbai International Airport Ltd. v. Airports Authority of India[2]

 

The Mumbai International Airport Limited (MIAL) and Airports Authority of India (AAI) executed an operation, management and development agreement (OMDA) on 4-4-2016. Under the OMDA, the AAI leased certain areas MIAL including the Chhatrapati Shivaji Maharaj International Airport (CSI) to operate, maintain, develop, upgrade the CSI, etc. and to keep it in good operating condition. Further, under the OMDA, MIAL was required to pay an annual fee payable in twelve equal monthly instalments to AAI. Pursuant to Covid-19 and consequent restrictions, MIAL invoked the force majeure clause under the OMDA and informed AAI that it was suspending its obligation towards the payment of monthly fee, and that it had instructed the State Bank of India as the Escrow Bank, not to transfer any amount towards monthly payment of annual fee or any other payment to AAI, commencing April 2020.

 

Accordingly, in light of closure and stoppage of several flights, MIAL requested AAI to write to the Escrow Bank, directing it not to transfer any amount towards monthly payment or any other payment to AAI, and to transfer the funds lying in the account in which the annual fee is deposited every month, so that the said funds could be utilised by MIAL to meet its immediate requirements. AAI agreed to make this concession but for a limited period only on account of force majeure as under the OMDA, the party affected by such event was entitled to suspend its performance. However, MIAL argued that AAI ought not to accept this arrangement just for a limited period but should continue it for the entire time period during which the force majeure event continued which AAI refused to do and argued instead that despite the force majeure event, MIAL was capable of performance under OMDA. Aggrieved by this position of AAI, MIAL approached the Court under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking an order to inter alia restrain AAI and Escrow Bank from appropriating any receivables towards AAI’s annual fees. The Court decided in favour of MIAL rejecting the contentions of AAI stating that the OMDA provides for suspension of performance in case of a force majeure event. The Court also permitted MIAL to utilise the deposited receivables for expenses in connection with its obligations under the OMDA.

 

Importantly, the Court also provided specific timelines within which the parties had to appoint the arbitrators. The Court noted that the “Under(sic) Section 9, court is concerned more with the necessity to preserve the status quo, so as to facilitate the arbitral process, to be initiated by the parties.” For this reason, the Court added that it was also “open to Section 9 court to, while passing pre-arbitral interim measures of protection under Section 9, condition such grant by requiring the parties benefiting therefrom, to institute arbitral proceedings within a specified timeframe”.

 

This, of course, we note is a measure also inbuilt within the language of the provision after the 2015 amendments to the Act where if the arbitration is not commenced within 90 days of interim relief under Section 9, the same stands vacated. This decision preserved the subject-matter of the dispute whilst letting business go on as usual in the interim, permitting MIAL to utilise amounts in the account in the meanwhile. This case is a good example of an order in aid of the actual project while disputes sort themselves out.

 

Post award Section 9 and order therein appealable? – SEPCO Electric Power Construction Corpn. v. Power Mech Projects Ltd.[3]

 

SEPCO Electric Power Construction Corporation (SEPCO), a Chinese entity was awarded various coal-based power projects in India. In one of its projects, subsequent to the execution of works, a dispute arose between SEPCO and one of its sub-contractors, Power Mech Projects Limited (Power Mech). The dispute was referred to arbitration and an award was made in favour of Power Mech and Power Mech filed an application under Section 9 of the Arbitration Act seeking the Court’s direction to secure the award amount. The Court in its order dated 12-2-2019 directed SEPCO to furnish a bank guarantee within six weeks and “further, the bank guarantee in the sum of Rs 30 crores will be that of a scheduled bank located in India”. Thereafter, a bank guarantee of Industrial and Commercial Bank of China Limited (ICBC) for a sum of INR 30 crores was produced by SEPCO. Power Mech filed an interim application seeking a bank guarantee of a “Scheduled Indian Bank” rather than ICBC as per the order of the Court and thereafter, SEPCO filed another interim application seeking acceptance of the ICBC bank guarantee, which was refused. Against this refusal order, SEPCO filed an appeal under Section 37 of the Arbitration Act.

 

While deciding on the maintainability of the appeal, the Court held that the order of the Court which was appealed, was an order granting interim relief under Section 9 of the Arbitration Act, directing SEPCO to furnish a bank guarantee (BG)  issued by a Scheduled Indian Bank. It was clarified that though SEPCO is not aggrieved from the direction of furnishing a bank guarantee, but it is aggrieved from the direction, that the bank guarantee be of a Scheduled Indian Bank only. The Court concluding on the maintainability of the appeal held that the said direction “would be covered within the meaning of an order granting ‘any’ measure under Section 9, within the meaning of Section 37(1)(b) of the Arbitration Act and within the meaning of ‘judgment or order’ of a Commercial Division of a High Court within the meaning of Section 13(1-A) of the Commercial Courts Act”. The Court therefore held that although the order is not final, it is nevertheless an order under Section 9. This is yet another decision which expanded the scope of what is treated as a Section 9 order and thereby the nature of a Section 9 direction order that would be appealable.

 

Would this be a beneficial reading of the provision? Some would argue that this leads to added proceedings and appeals from orders passed within a Section 9 petition that do not completely dispose it off.

 

Section 9 as final relief? National Highways Authority of India v. Bhubaneswar Expressway (P) Ltd.[4]

 

Bhubaneswar Expressway Private Limited (BEPL) had filed a Section 9 application against National Highways Authority of India (NHAI) and the Court through order dated 25-112019 directed NHAI to, subject to BEPL furnishing an unconditional and irrevocable bank guarantee in favour of NHAI and further subject to final award of the Arbitral Tribunal, deposit in an escrow account, a sum of Rs 337,73,19,434.10, found due from NHAI to BEPL towards termination payment under the concession agreement between NHAI and BEPL. This order was appealed before the Delhi High Court in this case. The question before the Court was whether Section 9 of the Arbitration Act empowers the Court to grant to an applicant, a relief, in the nature of a final relief, even if a case for urgent need thereof is made out and merely by expressing the same to have been granted on a prima facie view subject to other conditions.

 

BEPL argued that the Court can grant such relief under Section 9(1)(ii)(e) which provides that a court can grant “such other interim measure of protection as may appear to the Court to be just and convenient”. The Court rejected this argument and set aside the order dated 25-11-2019 stating that the power under Section 9(1)(ii)(e) is “not only circumscribed by the language of clause (ii) of Section 9 using the expression ‘interim measure’ but reiterates the said expression in clause (e) and further uses the word ‘protection’, again indicating that it is de hors final adjudication and at best on a prima facie view of the matter”. The Court therefore held that a court could not assume the power of adjudication which the parties had vested in the Tribunal, in the garb of the said clause (e).

 

This decision leaves a number of questions. Typically, Section 9 jurisdiction is used to secure the amount in the dispute so as to prevent a paper award. This is quite the ordinary nature of security relief, subject of course to the standard conditions of prima facie case, balance of convenience, irreparable injury and dissipation of assets to defeat the award being made out. The Court had even safeguarded the deposited amount by way of the direction of the unconditional and irrevocable bank guarantee thereby safeguarding the interest of the depositor as well. In other words, what other order of security would not be in the nature of a final relief as per the Court’s formulation? This case therefore raises a number of questions and how the dispute ultimately pans out remains to be seen.

 

Section 34 on overheads and loss of profits issues – Delhi Metro Rail Corpn. Ltd. v. N.S. Publicity (I) (P) Ltd.[5]

 

Delhi Metro Rail Corporation Limited (DMRC) and N.S. Publicity (I) Private Limited (NSP) executed a licence agreement on 20-5-2013 for outdoor advertising rights on the civil structures of underground section between different metro stations. Some disputes arose between the parties that were referred to arbitration. The Tribunal allowed a few claims of NSP which was the claimant in the arbitration and also allowed a few counterclaims filed by DMRC. Both NSP and DMRC challenged the award.

 

One of the claims of NSP was for loss of profits that NSP would have earned, had it not been denied access to the sites. Accordingly, NSP had claimed gross profit margin of 21.5%. However, the Tribunal did not accept the same and held that profit margin would be computed on the basis of NSP’s balance sheet for the year 2008-2009 on the turnover of INR 11,18,05,375. The Tribunal also denied NSP’s claim for overheads and held that the loss on account of overheads as claimed by NSP, were absorbed in its claim of loss of profits.

 

While discussing these issues, the Delhi High Court observed that the gross profit of 21.5% suggested by NSP was not seriously contested but nonetheless the Tribunal had concluded that NSP had failed to establish the same. After observing the same, the Court set aside the award stating that the Tribunal could “proceed to reject the claim or allow it to the extent that it considered reasonable. But it could not direct that it be calculated on the basis of accounts for the year 2008-2009, which were neither produced nor relied upon by parties”.

 

Further, on the overlap between the loss of profits and overheads claim, the Court noted that NSP’s claim for net profit is based on what it would have earned, had DMRC performed its obligations. It was further noted that on the other hand, “NSP’s claim for loss of overheads was in the nature of reimbursement of costs that it had incurred on overheads, which were allocated towards the contract in question. NSP’s claim that the said costs would have been met by the revenue earned from the sale of advertisement sites, had DMRC provided the same.” Thus, the Court concluded that “the claim of overheads was over and above the claim for loss of profits and the decision of the Arbitral Tribunal that such overheads had been absorbed in profits is patently erroneous” and set aside the award in this regard.

 

Questions of loss of profit and overheads routinely arise in construction arbitrations. This being a common question, the decision is a helpful guide for arbitrators to closely examine the nature of claims and most importantly, their characterisation before determining issues regarding overlap.

 

Time limit to file a Section 34 application – DDA v. Varindera Construction Ltd.[6]

 

The Delhi Development Authority (DDA) filed a petition under Section 34 against Varindera Construction Limited (VCL) to set aside an award dated 2-11-2019. The setting aside petition was filed on 28-1-2020. It was refiled on 27-2-2020, and then again on 29-2-2020 and finally on 2-3-2020. On 2-3-2020, the petition was accompanied by an application seeking condonation of delay in refiling. Later, another application was filed seeking condonation of delay in filing of the petition.

 

Under Section 34(3) of the Arbitration Act, the time limit to file a set aside petition is three months from the date on which the party making that application had received the arbitral award and an additional period of thirty days if sufficient cause was shown. VCL argued that there was an abuse of process by DDA as the time period of filing the petition was ending, DDA filed the petition on 28-1-2020 with various defects and changed it altogether when it was refiled on 27-2-2020 (which is after the three months’ period). Further, it was argued that the two applications for condonation of delay are entirely different and are not genuine. This was based on the argument that while one cited voluminous record, time taken to remove the defects and the associate of the counsel concerned leaving his office, the other cited health reasons of the counsel.

 

The Delhi High Court rejected the arguments of VCL and held that even if it were to assume that the original filing was non est, the filing on 27-2-2020/29-2-2020 was complete in all respects and within the time period of three months and thirty days. Further, it was noted that the filing was accompanied with an application to condone the delay, as per the procedure. On the question of whether there was indeed a sufficient cause or not, the Court held that the health reason of the counsel was a “good reason” to condone the delay. Interestingly, in response to the argument of VCL that the counsel was appearing before other Benches during that time and was not sick, the Court noted that “the Court cannot see any dilatory tactics, want of bona fides, and deliberate negligence on the part of the petitioner”.

 

The Bar is rife with reasons for adjournment and sometimes these reasons make it to condonation applications leading to contentious arguments. This case is one such example. The Court adopted a common sense approach so that merits did not remain unconsidered on grounds of delay.

 

Section 34 pertaining to compensation awarded in absence of losses – Telecommunication Consultants India Ltd. v. MBL Infrastructure Ltd.[7]

 

Haryana State Roads and Bridges Development Corporation Ltd. (HSRDC) issued a letter of acceptance dated 21-8-2008 to Telecommunication Consultants India Limited (TCIL) in response to a bid submitted by TCIL for construction of certain houses. Further, TCIL approached MBL Infrastructure Limited (MBL) to execute the said project as a sub-contractor and on 18-8-2008, MBL agreed to the terms and conditions. MBL furnished a performance security in the form of a bank guarantee and an invoice payment bank guarantee in favour of TCIL. Subsequent to completion of works by MBL, TCIL instead of releasing the bank guarantees encashed the same. Against this, MBL filed a Section 9 petition and secured a stay order preventing TCIL from encashing the demand draft provided by the bank to TCIL for encashment of the bank guarantees.

 

The disputes between the parties were referred to the Tribunal and MBL had premised the said claim on the basis that it had been granted non-fund based limits[8] [bank guarantee/letter of credits (LCs), etc.] to the extent of INR 465 crores and as a result of invocation of the bank guarantees by TCIL, the bank had increased the commission charges resulting in an additional cost. MBL also claimed that there was an additional cash outflow of ₹23.5 crores on account of the banks demanding cash margin for the non-fund based limits of bank guarantees/LCs of INR 465 crores granted to MBL. After considering all the facts, the Tribunal found that there was no material on record to show that MBL had availed of the bank guarantee limits to the extent of INR 465 crores and in fact, MBL had utilised the limits only to the extent of INR 90 crores. Despite these findings on facts, the Tribunal still went ahead and awarded a fair compensation of INR 10,00,000.

 

In this regard, the Delhi High Court held the said award is unsustainable. This is because after the Tribunal had examined MBL’s contention and had found that MBL had not substantiated its claims for the losses allegedly incurred by it, it could not proceed to award any amount as fair compensation for the wrongful invocation of the bank guarantees. The Court therefore held that there is no evidence on record to establish the measure of damages and set aside the award to the extent of this claim of INR 10,00,000.

 

This is an interesting case where the Court has gone into the merits of the award rendered by the Tribunal and found that upon the Tribunal finding that losses were not incurred, it could not then go on to order any compensation. Ordinarily, in a Section 34 jurisdiction, the Court does not interfere with merits of the dispute but chose to make an exception in this case.

 

Unreasoned award scope of challenge – Hindustan Petroleum Corpn. Ltd. v. Banu Constructions.[9]

Hindustan Petroleum Corporation Limited (HPCL) filed a petition under Section 37 against Banu Constructions and the sole arbitrator (which was later removed as a respondent) to set aside an order dated 3-8-2020 which dismissed a Section 34 petition against an award. HPCL moved a Section 37 application on the basis that the award was unreasoned. After a perusal of the award, the Madras High Court observed that the award summarised the pleadings and directly allowed/disallowed the claim without assigning any reason. Further, that there was “nothing in the award to suggest how the quantum of the claim was arrived at except that the quantum awarded matched the amount claimed”. Therefore, the Court allowed Section 37 application and the award was set aside. The Court held that “while it is not necessary for an arbitral award to justify every penny awarded to the claimant, the broad premise on which the quantum is founded has to be discernible from award itself for the award to be meaningful or even intelligible in legal terms”.

 

The observation of the Court in relation to amounts awarded is extremely relevant for a construction dispute – as it may not be possible for the arbitrator to account for every penny in such disputes, but the arbitrator(s) must outline the reasons for the amount awarded. After having been through the rigours of evidence and several hearings, parties need to know why their claims were allowed or rejected. While it is true that the Court cannot go behind reasons of the award, such reasons ought to exist (unless the parties agree otherwise).

 

It is interesting how arbitration and attendant court proceedings have come to the aid of construction disputes at various stages. Courts have risen to every challenge in recent times, to adopt a common sense, often commercially-driven approach with an underlying “business as usual” approach. In a country like India where several projects are often stalled due to a myriad variety of reasons, it is often left to the judiciary to find novel solutions so that roads and dams get built, contractors get paid and the public at large, does not suffer. This last is at the heart of many of its decisions.


† Partner at Cyril Amarchand Mangaldas.

†† Associate at Cyril Amarchand Mangaldas.

[1]Shashank Agarwal, “Indian Infrastructure Endures to Move on a Growing Trail”, Financial Express, 23-6-2021, available at <HERE>.

[2] (2021) 278 DLT 75.

[3] FAO(OS) (COMM) No. 136 of 2019, judgment dated 27-11-2020 (Del).

[4] 2021 SCC OnLine Del 2421.

[5] 2021 SCC OnLine Del 2639.

[6] 2021 SCC OnLine Del 2845.

[7] 2021 SCC OnLine Del 3187.

[8] The non-fund based facilities provided by the bank mean that there is no physical outflow of funds but the bank provides an assurance in favour of a third party to pay upon the occurrence of a given event.

[9] 2021 SCC OnLine Mad 724.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): Coram of C. Viswanath (Presiding Member) and Justice Ram Surat Ram Maurya (Member) observed that,

NOIDA being a public authority should have adopted uniform policy for extending period of construction between the same category of persons.

Instant petition was filed against the order of the State Consumer Redressal Forum. Earlier, the District Forum held that NOIDA was a public authority, as such could not adopt a different policy for extending period of construction between the same category of persons.

In view of the above findings, the complaint was allowed, and the revisionist was directed to refund Rs 27,010 along with interest @ 15% per annum. The revisionist filed First Appeal and the same was heard by State Consumer Disputes Redressal Commission who by its judgment partly modified the decision of District Forum and reduced the interest to @1% per annum from 15% per annum.

Hence the present revision petition was filed.

Analysis and Decision

Commission observed that the decisions of the Foras below that different policy had been adopted by the revisionist for extension of the period of construction between the same category of persons does not suffer from any illegality.

Further, Coram added that being a public authority, NOIDA was bound to adopt a uniform policy for all.

State Commission had already reduced the interest even below the rate of interest provided by the bank. Hence, the revisionist could not point out any illegality in the orders of Foras below.

In view of the above discussion, the revision was dismissed. [New Okhla Industrial Development Authority v. M.C. Pandey, Revision Petition No. 300 of 2021, decided on 9-08-2021]


Advocates before the Commission:

For the Petitioner: Ms Manisha Agrawal Narain

Case BriefsTribunals/Commissions/Regulatory Bodies

Maharashtra Real Estate Regulatory Authority, Mumbai: Coram of Dr Vijay Satbir Singh (Member I), while laying out certain significant observations with respect to the provisions of RERA decided the complaint revolving around delayed possession of flat.

Background

By preferring the present complaint, complainants sought directions from the MahaRERA to the respondent to pay the interest for the delayed possession under Section 18 of the Real Estate (Regulation & Development) Act, 2016 (RERA) in respect of booking their respective flats in the respondent’s project.

Respondent failed to hand over the possession of the flat on time. Complainants sought payment of interest for the delayed possession and further stated that even after the respondent sold more than 50% of the units, it failed to form the association of allottees/ society of allottees till date. The respondent has also failed to execute the deed of conveyance with the complainants along with the other allottees of the project.

Further, it was alleged that the respondent was yet to hand over and allot the parking spaces to respective allottees and was demanding permission from the allottees to utilize the additional FSI and construct the additional floors.

Complainants further stated that they have signed the possession letter and have received the possession of their respective flats in the month of December 2019, though respondent was not ready to allot the parking as well as to form the society of the allottees.

Analysis, Law and Decision

Since the respondent did not hand over the possession of the flats to the complainants and violated the provisions of Section 18 of the RERA and the Rules made thereunder.

Bench did not accept the reasons cited by the respondent for the delay in possession of the flat and apparently the respondent promoter wanted to apply convenient clauses in the agreement to take undue benefits after commencement of the RERA.

Formation of Society and Execution of Conveyance Deed

As per Section 11(4)(e) of the RERA, promoter is liable to enable the formation of society within 3 months of the majority of allottees having booked their flats.

In the present matter, more than 51% of the allottees booked their flats and the full occupancy certificate had been obtained for the said project, hence it was statutory duty of respondent promoter to form a society of the allottees and the respondent had no authority to lay down any condition for the same as it was not permissible under RERA.

Construction of Additional 4th Floor

MahaRERA opined that the present project was registered with MahaRERA after commencement of the RERA and hence provisions of RERA would apply for this project.

Hence, as per Section 14 of the RERA, any change or modification in the sanctioned plan required mandatory consent of the allottees and therefore, if respondent wanted to modify plans including the construction of 4th floor, then it had to be obtained through requisite consent of allottees.

Adding to the above, MahaRERA held that the respondent was liable to pay interest for the period of delay in accordance with the terms and conditions of the agreement.

Selling of the Car Parking

 stated that there is an explicit provision under RERA that promoter can sell only covered car parking by charging a certain amount. Open Parking had to be handed over to society, it could not be sold in the open market.

Therefore, complainant allottees and respondent promoter were bound by the said provision.

Following Order was passed:

  • Respondent directed to pay interest to the complainants till the date of occupancy certificate.
  • Respondent promoter was entitled to claim the benefit of “moratorium period”.
  • Since the complainants want to continue in the project, they are entitled to seek interest for the delayed possession under section 18 of the RERA.
  • Respondent/Promoter directed to form a society as per the provision of Section 11(4)(e) of RERA
  • With regard to construction of additional floor, without the consent of the 2/3rd allottees, the same could not be constructed.
  • It was also directed that respondent was entitled to sell only covered car parking and no cash money be demanded from the allottees.

[Deepesh Singh v. Neelkanth Constructions, Complaint No. CC006000000089761, decided on 30-07-2020]


Advocates before the Authority:

Adv. Nilesh Garde appeared for all the complainants. Adv.Khushiram Jadhvani a/w. Adv. Manali Saraf appeared for the respondent.

Case BriefsSupreme Court

Supreme Court: The 3-Judge Bench of SA Bobde, CJ and AS Bopanna and V. Ramasubramanian, JJ allowed the instant application seeking permission for removal of 29 small trees for the construction of the new academic block.

Indian Institute of Mass Communication (IIMC), New JNU Campus had filed an application seeking permission of the Court to construct a new building for the Academic Block, Hostel Block and Guest House on the total area of 12933 sq. meters out of total area extant of 16.2 acres since such construction required removal of 29 small trees. The requirement of the applicant was examined by the Central Empowering Committee (“CEC”). CEC having adverted to the entire details had recommended that construction might be permitted if the applicant agrees to comply with the following conditions:

  • IIMC should deposit 5% of the sanctioned project cost with the Ridge Management Board Fund and which under the close supervision and direction of the Board should be used by the Forest Department, Delhi Government for conservation and protection of Delhi Ridge;
  • The proposed construction should not in any manner disturb the storm water drain passing through the 16.2 acres of land in the possession of IIMC during the construction phase as well as the post-construction phase;
  • The proposed buildings should optimally utilize the roof top for harnessing solar energy;
  • The building plan should make provision to ensure harvesting and utilisation of the rain water within the developed area;
  • Only minimum number of trees which are absolutely unavoidable, for the construction of the building, would be felled;
  • IIMC should demarcate the 16.2 acres of land allotted to it by JNU and submit a map of the proposed construction area;
  • A minimum of 40% of the 16.2 acres of the morphological ridge area should be maintained as green zone and the IIMC would undertake planting of native tree species replacing the subabul plants which were seen growing profusely in the open area during the site visit; and
  • The open area identified for providing parking slots should be maintained as a green area and accordingly, the layout plans should be modified.

Bench observed that in lieu of the 29 tender trees to be cut, the applicant institute had planted 300 trees of different species and the 29 trees which were to be cut belonged to shisham, kikar and papri species. The trees planted were of above species as also other species.

In the light of the above, the Court allowed the applicant to make construction in terms of the conditions stated by the CEC. [T.N. Godavarman Thirumulpad v. Union of India, 2021 SCC OnLine SC 23, decided on 13-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Suvendu Kumar Pati (Judicial Member) allowed an appeal filed against the rejection of refund claim on Service Tax paid for the construction of residential complex before 30-06-2012 on the ground that appellant had failed to establish that it comprised of less than 12 residential units so as to be covered under exemption clause.

Appellant had sought for refund of Rs 45,13,475 for the period between October, 2011 and March, 2012 for the service category of “construction of complex service – residential complex” classifiable under Section 65 (91a) of the Finance Act, 1994 but was issued with deficiency memo and show-cause notice on several grounds that were ultimately adjudicated by the Assistant Commissioner of Service Tax resulting in rejection of its refund claim. It was confirmed in the appeal before the Commissioner (Appeals). Thus, the instant appeal was filed.

The counsel for the appellant, Mr Mahesh Raichandani submitted that sufficient documents had been placed on record before the Commissioner (Appeals), which had been acknowledged in his order which would establish that the residential complex consisted of 9 residential units only. He further submitted that the BMC approval plan concerning description of parking area wherein it has been clearly mentioned that total number of units were 9.

The Tribunal framed three main issues first being non-establishment of number of units by the appellant that was cited as the main ground in the Order-in-Appeal in which they opined that meeting the requirement of law, which was the paramount consideration for establishment of tax liability, need not necessarily be made a ground in the show-cause notice since everyone is presumed to know the law/rules governing the affair of the State. In the second issue which mentioned that Commissioner (Appeals) had not dealt with the issue of unjust enrichment, the Tribunal stated that it had been adequately dealt by Commissioner (Appeals) who after going through the case record, had noted that customers were not charged Service Tax for Bandra unit. In order to decide the establishment of construction of less than 12 units by the appellant in the disputed complex, the Tribunal reproduced a relevant portion of the order passed by the Commissioner (Appeals),

            “The appellants have produced voluminous documents in this regard viz. agreement copy of customer, title certificate, Commencement certificate, Occupation certificate, copy of letter towards submission under protest and paid challan copy, Service Tax returns, Architect certificate and BMC approved plan. However, from all these documents, there is no way of knowing whether the complex consists of only 9 residential units. The approved plan shows that there are 13 floors with two refuge floors. It has not specified the number of flats in each floor or whether there is any other wing in the same complex. In absence of such information, it is not feasible to arrive at a conclusive finding that the complex indeed had less than 12 residential units and that the appellants have rightly claimed refund.”

The Tribunal while allowing the appeal held that because of availability of 13 floors, Commissioner (Appeals) had failed to reach a conclusion that the complex had less than 12 residential units to admit refund as the said was not taxable, however going by the Architect certificate, floor plan referred to and the full occupation certificate issued by the Executive Engineer (building proposal) of the Municipal Corporation clearly indicates that the complex comprised of 9 residential units, taking each duplex to be counted as one unit and the appellant was entitled to refund. [Man Infraprojects Ltd. v. Commr. of CGST, 2020 SCC OnLine CESTAT 372, decided on 09-12-2020]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar, Dinesh Maheshwari and Sanjiv Khanna, JJ has rebuked Centre for moving ahead with the construction work in the Central Vista project while the dispute is still pending before the Court but has allowed it to go ahead with the stone-laying program for the new Parliament building scheduled to be held on December 10, 2020.

Solicitor General Tushar Mehta assured the Court that there will be no construction activity of any nature on the concerned site nor demolition of any structure will be done, including the further trans-location of trees will be kept in abeyance, until the pronouncement of judgment in all the cases.

Taking the statement on record, the Court directed,

“… the authorities would be free to continue with procedural processes without altering the status of the site(s) in question in any manner, including to continue with the scheduled programme of foundation stone-laying on 10th December, 2020.” 

[Rajiv Suri v. Union of India, 2020 SCC OnLine SC 996, order dated 07.12.2020]

Case BriefsHigh Courts

Uttaranchal High Court: A Division Judge Bench of K.M. Joseph and Sharad Kumar Sharma, JJ., had allowed a revision which was filed aggrieved by the order of the Trade Tax Tribunal.

The assessment was done under the U.P. Trade Tax Act, 1948 and the respondent was assessed to tax in respect of sale of imported cement, imported sheet tiles & steel and self-manufactured tiles. The Assessing Officer had also assessed respondent in regard to the sale of steel scrap, sale of discarded items and tender forms. In Appeal, the Appellate Authority had dismissed the Appeal. Thereafter, the respondent preferred Second Appeal No. 117 of 1999 before the Trade Tax Tribunal, which partly allowed the appeal filed by the respondent and had sustained the tax assessed in respect of steel scrap, old discarded items and tender forms. The assessment order in so far it relates to the tax levied in respect of the imported cement, sale of imported sheet tiles & steel and self-manufactured tiles was interfered with. Thus the instant revision was filed.

The issue to be dealt was whether the Commercial Tax Tribunal has erred in law in holding that supply of cement, steel and bricks etc. to the contractors by the Government Department, for which cost is deducted from the bills of the contractors, does not amount to sale? And was it not liable to tax?

The Court relied on the Supreme Court judgment in N.M. Goel & Co. v. Sales Tax Officer, (1989) 1 SCC 335, wherein the Court noted that the appellant was a building contractor and registered dealer under the Madhya Pradesh General Sales Tax Act. The C.P.W.D. invited tenders for construction of foodgrain godown. In the tender submitted by the appellant the prices of the material to be used for construction cost of iron, steel and cement were included. The P.W.D. agreed to supply from its stores iron, steel and cement for the construction work and to deduct the price of material so supplied and consumed from the construction from the final bill of the appellant. It was found that all materials supplied to the contractors under the clause remain absolute property of the Government and could not be removed on any account from the site of the work and was at all times open to inspection by the Engineer-in-charge. The clause in fact inter alia provided that the contractor was bound to procure and to supply the material from stores as from time to time required for use of work for the purpose of contract only, and value of the full quantity of the materials and stores so supplied was specified at a rate and got set off or deducted from any sum due or that became due thereafter to the contractor.

The Court keeping in view these observations held that Tribunal was in error in taking the view that no tax to be paid on the sale of imported cement, sheet piles & steel and sale of self-manufactured tiles. The Court also noticed that definition of sale under the U.P. Trade Tax Act under Section 2-h includes transfer of property in goods involved in the execution of a works contract. The Court allowed the revision restoring the order of the Assessing Officer.[Commr., Commercial Tax v. Executive Engineer,  2018 SCC OnLine Utt 193, decided on 21-02-2018]


Suchita Shukla, Editorial Assistant has put this story together

Business NewsHot Off The PressNews

Centre for Mediation and Conciliation

CMC WEBINAR

REBUILDING SPACES 

Expert Discussion on Way Forward for Construction, Real Estate & Infrastructure

Moderator

  • Sumit Banerjee, Chief Mentor — CMC

Mr Sumit Banerjee is Chairman of the Board of Directors, of ASAPP Global Infomedia Pvt Ltd. Earlier, he held the position of MD and CEO, ACC Limited, India’s then largest cement company.

He has been recognized for his work through many awards and laurels, like The Corporate Citizen of the Year by CNBC TV18, etc.

Panelsits:

  • Sarosh Zaiwalla, Founder, Zaiwalla & Co. Solicitors

Mr Sarosh Zaiwalla has been involved in over 1200 International Energy. Maritime and Construction Arbitrations with clients including President of India. People’s Republic of China and Iranian Government.

He was a member of the International Court of Arbitration of the ICC, Paris (1990-2002) and was awarded with Annual National Law Day, 2002 by the Indian Prime Minister.

  • Vikas Lakhani, CoFounder, InstaOffice

Mr. Vikas Lakhani is one of the founders of InstaOffice, one of the leading brands of serviced offices and coworking spaces in the country. Previously, he has worked as Vice-President in the investment banking division of Copal Partners (a Moody’s Group Company) and earlier at Credit Suisse, London.

Vikas is the recipient of the french governments prestigious Egide Eiffel Scholarship, HEC scholarship and All India National Scholarship of CBSE.

 

  • Sanjay Mathur, Chief Special Initiative Officer, UltraTech Cement Ltd.

Mr. Sanjay Mathur is a seasoned professional with over 39 years of experience. He is currently a Consultant and Chief special Initiative Officer with UtraTech Cement Limited which is a part of Aditya Birla Group.

He has previously served as CEO of Star Cement, and headed the International operations of UtlraTech in the Middle East. He is a recipient of various National Awards & a widely travelled professional.

 

 

  • Sanjeev Gupta, Vice President & Project Director, Larsen & Toubro Limited

Mr. Sanjeev Gupta is  Civil Engineering Graduate from NIT: Trichy, and holds a 36 years of experience in various construction projects, most notably the Airports Terminal 3 at IGI, New Delhi and expansion of Bengaluru Airport.

He is currently the Project Director for a $1.1 billion Freight Corridor Corporation that is being funded by JICA (Japan International Cooperation Agency).


Details:

Topic: Rebuilding Spaces – Expert Discussions on Way Forward for Construction, Real Estate & Infrastructure

Date: Saturday, 25th April 2020

Time: 5 to 6 pm IST.

Register for the webinar here: REGISTRATION LINK

Hot Off The PressNews

Centre for Mediation and Conciliation

CMC WEBINAR

REBUILDING SPACES

Expert Discussion on Way Forward for Construction, Real Estate & Infrastructure.

Panelists:

  • Sumit Banerjee, Chief Mentor — CMC

Mr Sumit Banerjee is Chairman of the Board of Directors, of ASAPP Global Infomedia Pvt Ltd. Earlier, he held the position of MD and CEO, ACC Limited, India’s then largest cement company.

He has been recognized for his work through many awards and laurels, like The Corporate Citizen of the Year by CNBC TV18, etc.

  • Sarosh Zaiwalla, Founder, Zaiwalla & Co. Solicitors

Mr Sarosh Zaiwalla has been involved in over 1200 International Energy. Maritime and Construction Arbitrations with clients including President of India. People’s Republic of China and Iranian Government.

He was a member of the International Court of Arbitration of the ICC, Paris (1990-2002) and was awarded with Annual National Law Day, 2002 by the Indian Prime Minister.

  • Vikas Lakhani, CoFounder, InstaOffice

Mr. Vikas Lakhani is one of the founders of InstaOffice, one of the leading brands of serviced offices and coworking spaces in the country.

Previously, he has worked as Vice-President in the investment banking division of Copal Partners (a Moody’s Group Company) and earlier at Credit Suisse, London.

Vikas is the recipient of the french governments prestigious Egide Eiffel Scholarship, HEC scholarship and All India National Scholarship of CBSE.

Details:

Topic: Rebuilding Spaces – Expert Discussions on Way Forward for Construction, Real Estate & Infrastructure.
Date: Saturday, 25th April 2020
Time: 5 to 6 pm IST.

Register for the webinar here: REGISTRATION LINK

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): Justice V.K. Jain (Presiding Member), while disposing of a complaint, directed the builder to provide compensation in the form of simple interest at 7 percent per annum from the expected date for delivery of possession till the date on which the possession was actually offered to the allottees. 

In the present matter, DLF Universal Limited, was the developer of a residential project. The residential apartments constructed by it were allotted to buyers who executed a Buyers’ Agreement. Developer was to complete construction within 36 months. Complainants submitted that Buyers’ Agreements were unilaterally prepared by the developer and since the earnest money paid by them could be forfeited if they refused to execute the agreement they were forced to sign it. On delay, the developer intimated the allottees to either accept delay of 16 months or to exit taking refund with simple interest at 9 percent per annum. They also disputed the increase in super area, and claimed refund of parking and club charges facility and service tax, and also demanded timely payment rebate and early payment rebate to all the apartment owners.

The counsel for respondent submitted that at time of booking itself, allottees were informed that schedule for delivering possession was tentative. It was submitted that early payment rebate had been given to all the allottees who made early payment, whereas timely payment rebate was adjusted for all allottees who were not in default at the time possession According to the developer the delay happened primarily on account of the abnormal time taken in approval of the building plans and the order issued by the Government of Delhi, stopping construction for a considerable time.

NCDRC held that the developer had not sought payment for increase in the super area beyond 15 percent, the allottees were required to pay for such an increase. Developer could not be allowed to charge separately from the allottees for the club area and the basements used for car parking. No force majeure circumstance had been sought on account of the delay in sanction of the building plans, in the force majeure chart submitted by the developer. 

Regarding the quantum of compensation, reliance was placed on  Pioneer Urban Land and Infrastructure Ltd v. Govindan Raghavan, (2019) 5 SCC 725, and ordered the developer to pay compensation in the form of simple interest at 7 percent per annum from the expected date for delivery of possession till the date on which the possession was actually offered to them.

The Commission disposed off the petition,a sking  the developer to pay Rs 50,000 as litigation cost. [Capital Greens Flat Buyers Association v. DLF Universal Ltd., Consumer Case No. 351 of 2015, decided on 03-01-2020]

Case BriefsHigh Courts

Uttaranchal High Court: The Bench of Ramesh Ranganathan, CJ. and N.S. Dhanik, J. allowed an appeal against the interlocutory order passed by learned Single Judge, for construction of the Advocates’ Chamber without giving appropriate time extension to the appellant. 

The appellant filed an appeal seeking relief and pleading extension of time against the impugned order directing them to file a final affidavit and to take immediate decision on the project. They contended that sanction of Detailed Project Report (for short DPR) is linked to releasing of funds. It is only if a budgetary sanction is accorded for construction of the Advocates’ chambers, would the question of approval of the DPR arise; and as funds can only be sanctioned by the State Legislature, and not Executive, a mandamus to the Executive is wholly unjustified.

The respondents in the aforementioned writ are practicing Advocates of the respective High Court; they had previously requested the Court for issuing the writ of mandamus and directing the appellant to complete the construction and to constitute a competent committee for allotment of new chambers and to review the existing chambers. The further allegation was that because of the negligence on the part of State, they are forced to work in harsh conditions. 

The learned Single Judge observed negligence and inaction on the part of State and the concerned agencies despite a constant reminder from the Registrar General of High Court, who identified and allotted the land area for construction. After the declaration of Chief Minister sanctioning funds for the particular project, State remained inactive and failed to deliver the project in time. 

The Court inquired about the laws which obligate State to finalize DPR only after adequate funds are sanctioned. Hence, the Court observed that there were no such laws and it was only the customary practice which required the State to approve DPR only when funds are released. The Court held, “It is not in dispute that a DPR is a pre-requisite for the commencement of construction, and it is only if the detailed project report is approved by the State Government, would the question of commencement of construction arise thereafter.” 

The Bench, however, observed that funds are undoubtedly required, but in absence of any such law which makes obligatory on the part of State to approve DPR after sanction of funds, upheld and modified the order of learned Single Judge and directed State to finalize DPR within three months. [State of Uttarakhand v. Pradeep Kumar Chauhan, Special Appeal No. 268 of 2019, Order dated 02-05-2019]

Case BriefsHigh Courts

Punjab and Haryana High Court: A Single Judge Bench comprising of Anil Kshetarpal, J. disposed of a revision petition by allowing construction of a portion of the subject building.

Plaintiffs had filed a suit for possession of a land claiming themselves to be the owner of the said property. They claimed that the further reconstruction was done during the pendency of the suit.

The defendant-petitioner claimed that the entire disputed area was under construction and only the areas that were marked by them were to be completed which only comprised of a house which was incomplete on account of the stay order. Additionally, it was alleged by them that the plaintiff was using it for their residential purposes. Referring to the reconstruction at the time of the suit, they contended that the construction was already complete by then.

The High Court held that no useful purpose would be served if the defendant-petitioner was not allowed to finish construction of their house. Accordingly, the revision petition was allowed.[Jagdish v. Manjeet, 2017 SCC OnLine P&H 5048, Order dated 06-12-2017]

Case BriefsSupreme Court

Supreme Court: The Bench comprising of Madan B. Lokur and Deepak Gupta, JJ. disposed of substantive applications in Kant Enclave Matters directing the illegal construction in Aravali Hills to be demolished. The Court further directed the State and R. Kant and Co. to compensate the citizens duped by them into investing large amounts in the illegal colonising activity.

Factual background of the matter is that R. Kant and Co. was granted exemption by the State of Haryana in 1984 for setting up a film studio and allied complex in Faridabad district. The land in exemption to which the exemption was granted, falls in the Aravali Hills range. According to the terms and conditions of exemption, the company was to complete the construction within 5 years which did not happen. There was nothing on record to show that an extension was granted for group housing (activity subsequently undertaken by the company). Subsequently, the State took decision to close all construction activity in certain areas, which included the subject land, due to serious environmental concerns vide a notification dated 18-8-1992 issued under Punjab Land Preservation Act, 1900. However, the Town and Country Planning Department of the State, on the basis of the exemption granted in 1984, encouraged the company to carry on its colonising activity. It is notable that many a number of citizens had invested large sums of money in the properties sold by the company in the subject land — Kant Enclave. Also, some of them even started/completed construction in the same. The present proceedings were in connection to a writ petition filed by M.C. Mehta being WP No. 4677 of 1985.

The Supreme Court, after considering whole factual matrix, held that the colonising activity in the subject land was illegal. The Notification having been issued, the company should have refrained from all further activity in the subject land. The Court noted that there were two categories of persons who were taken for a ride by R. Kant and Co. In respect of the first category — persons who only made investments — it was ordered that the company will repay the entire amount of investment with an interest at 18% pa from the date of investment so made. In respect of second category — persons who also made construction — it was ordered that the construction done before 18-8-1992 (date of the Notification) will remain, while those done after that date would be demolished. The company was directed to pay such persons, the entire amount of investment with interest at 18% pa. The Court, following Godrej and Boyce Mfg. Co. Ltd. v. State of Maharashtra, (2014) 3 SCC 430, held that well-meaning citizens were led up the garden path by the State allowing such illegal construction. Therefore, State, along with the company, was directed to pay Rs 50 lakhs as compensation to those whose construction is to be demolished. Furthermore, referring to Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 SCC 212 and Vellore Citizens Welfare Forum v.  Union of India, (1996) 5 SCC 647, the Court held that polluter pays principle is a wholesome and universally accepted principle. It was observed that the damage caused to Aravali Hills due to such illegal activity was irreversible. Consequently, R. Kant and Co. was further directed to pay Rs 5 crores (10% of the total amount spent on developing Kant Enclave) for rehabilitation of the damaged areas. [M.C. Mehta v. Union of India (Kant Enclave Matters), 2018 SCC OnLine SC 1426, decided on 11-09-2018]

Case BriefsHigh Courts

Jammu & Kashmir High Court: The Court recently addressed a writ petition for quashment of a previous order that had been passed by the Joint Commissioner of the Municipal Corporation owing to which the premises of the petitioners had been cordoned off by way of the powers vested under Section 8(1) of the J&K Control of Building Operations Act, 1988.

The facts stated briefly are that the petitioners had raised construction of a building in accordance with the municipal corporation’s plan at a certain area in Jammu. The petitioners had got permission of a part of the premise to be used for commercial purposes. But subsequently, the demolition of the premises was ordered by a competent authority after a notice under Section 7(1) of the J&K Control of Building Operations Act was issued to the petitioners for the misuse of the premise for commercial purposes. Despite the petitioners having filed their reply to the notice, the Joint Commissioner after considering it, directed for the premise to be sealed under Section 8 of the J&K Control of Building Operations Act.

The counsel for the petitioner argued that resorting to Section 8 was in itself an action that was per se without jurisdiction as this provision can only be invoked when a work is in progress or has been completed and that it cannot be invoked against the user of the building. The petitioner’s counsel also contended that Section 8 shall be invoked only to prevent a dispute on the nature and extent of construction. The Counsel for the respondents submitted that the proceedings had been invoked under Section 7 of the Act and hence consequently, Section 8 could also be invoked.

The Court held that a reading of the provisions make it clear that Section 8 of the Act can only be resorted to if the construction is in progress and not when it’s a case of illegal use of the building by its owner. The Court also noted that the validity of the order passed in the proceeding under Section 7 of the Act was still pending wherein the Tribunal had passed an interim order demanding for status quo to be maintained and hence, the respondents invoking Section 8 per se was in itself a contravention and without jurisdiction. Thus, the Court quashed the petition. [S. Lt. Col. (retd) G.C. Raina v. Municipal Corporation, Jammu, 2017 SCC OnLine J&K 697 , order dated 16.11.2017]

Case BriefsHigh CourtsTaxation

Delhi High Court:  A Division Bench of the Delhi High Court comprising of S.Muralidhar and Vibhu Bakhru, JJ. ruled on whether ‘service tax’ could be charged on a contract regarding ‘construction of a complex’. The petitioners had entered into an agreement with a builder to buy flats being developed in Noida, Uttar Pradesh. The dispute arose when the builder recovered ‘service tax’ from the petitioners in addition to the ‘cost of construction of the complex’.

The issue in contention was apropos the impugned ‘Explanation’ to Section 65(105)(zzz-h) of the Finance Act, 1994. The provision created a legal fiction and expanded the scope of the taxable service by including the ‘construction of the complex’ as a service rendered by the builder to the future buyer.

The petitioners contended that entries related to taxation are present only in Lists 1 and 2 of the Seventh Schedule to the Constitution and, therefore, are mutually exclusive. The Centre is permitted to charge tax on the service component and the States are empowered to charge tax on the transfer of property. As a consequence, in the absence of a service recipient/future buyer, the service rendered by the builder while he is the owner, in the construction of the complex would amount to service to self and cannot be taxed. The petitioners relied on Commissioner Central Excise and Customs, Kerala v. Larsen and Toubro, (2016) 1 SCC 170 to contend that in case ‘construction of a complex’ is a composite contract, the Centre is only authorized to levy tax on the service component of the contract. That being the case, neither the Act, nor the Rules provide for any machinery for ascertaining the service component of a composite contract of the ‘construction of a complex’.

The respondents contended that that development of a project results in substantial value addition on bare land and services such as consulting services, engineering services, management services and architectural services are rendered. And further that only 25% of the base selling price is charged by the builder from the ultimate buyers as service tax.  Therefore, the aforementioned services are subsumed in the composite contract of ‘constructing a complex’ and should be levied with sales tax because a fixed defined amount is levied uniformly on every buyer.

The Court disagreed with the petitioners on the limited point that service tax cannot be charged in a transaction between a developer and a prospective buyer. The Court found that the logic for levying service tax on the prospective buyer of the flat was sound because the activity of construction would be deemed to be a taxable service if the prospective buyer had paid the builder for it in part or full before construction was completed. However, the Court agreed to there being an absence of a statutory mechanism to ascertain the value of the service component in the levy. Thus the challenge to that extent was successful and the impugned ‘Explanation’ to Section 65(105)(zzz-h) was set aside, which brought composite contracts for purchase of units in a building complex within the scope of a taxable service. [Suresh Kumar Bansal v. Union of India, 2016 SCC OnLine Del 3657, decided on June 3, 2016]

Case BriefsSupreme CourtTaxation

Supreme Court: Deciding on the issue that whether the State Government may deny the tax exemption which was promised earlier, the bench comprising of Dr. A.K Sikri and R. F. Nariman, JJ., was of the view that the non-exercise of the power to give exemption in certain taxes is in itself an arbitrary act. The Court also, while considering the principle of promissory estoppel, observed that promissory estoppel can be the basis of an independent cause of action in which detriment does not need to be proved and it is enough that a party has acted upon the representation made.

A Government Order dated 11.07.1986 was issued by the State of Kerala, stating that tourism be declared “industry” and exemption from Building Tax levied by the Revenue Department was one of the concessions granted. The power to make exemption was granted by adding Section 3A to the Kerala Buildings Act, 1975, however the same was omitted in 1993.  In the present case, the appellants relying on a government order, constructed a hotel building in the year 1991 while reasonably assuming the rightful entitled tax exemption and the government had the statutory power to grant exemption from building tax. A discretionary power was to be exercised on facts under Section 3A of the Kerala Buildings Tax Act, 1975 as the said provision was in force at that time. The non issuance of such of a notification was an arbitrary act of government which must be remedied by applying the doctrine of promissory estoppel. The Court further held that no valid public interest exist which justifies the government’s resilience from its promise. The appellants are therefore entitled to exemption till the date of existence of such exemption provision in the statute and not thereafter. (Manuelsons Hotel v. State of Kerala, 2016 SCC OnLine SC 487, decided on 11.05.2016).