Case BriefsHigh Courts

Allahabad High Court: Dr Kaushal Jayendra Thaker, J., addressed a matter with regard to stamp duty.

Respondents invited a tender to repair different roads in District Mathura. Petitioner’s tender was accepted.

Stamp Act

Further, the respondent issued a letter of acceptance with a clause that total security along with stamp duty should be deposited within 10 days. Petitioner wrote to the respondents that he is supposed to pay stamp duty as per Article 57(b) Schedule 1 B of the Stamp Act and for a period of 8 months, no work order was passed.

Bench on perusal of the facts and circumstances of the present matter stated that it is covered by the decision of this Court and further waste of time would cause loss to the public and Exchequer.

Despite the previous decisions in Strong Construction v. State of U.P., Civil Misc. WP No. 35096 of 2004 and Kishan Traders v. State of U.P., Writ C No. 52385 of 2015, authorities have demanded from petitioner what is known as stamp duty.

Further, the Court added that though the petition is belated, this Court has not been made aware whether the contract has already been executed or not.

With regard to the stamp duty, Court stated that it has been covered by the Division Bench of this Court in Kishan Traders v. State of U.P., Writ C No. 52385 of 2015, wherein Writ of Mandamus was issued which read as follows:

“We also issue a Writ of Mandamus commanding the respondents not to compel the Petitioners and similarly situate persons, whether they have filed writ petition or not, to pay Stamp Duty on security deposit in question treating as ‘mortgage deed’ and further to charge Stamp Duty on such ‘securities’ as provided under Article 57 (b) Schedule 1 B of the Stamp Act.”

Hence in view of the above, bench held that the petitioner would be liable to pay stamp duty as per Article 57(b) Schedule 1 B of the Stamp Act.

In view of the above, the petition was allowed. [Yogendra Kumar v. State of U.P., 2020 SCC OnLine All 1024, decided on 07-09-2020]

Case BriefsSupreme Court

“Flat purchasers suffer agony and harassment as a result of the default of the developer. Flat purchasers make legitimate assessments in regard to the future course of their lives based on the flat which has been purchased being available for use and occupation. These legitimate expectations are belied when the developer as in the present case is guilty of a delay of years in the fulfilment of a contractual obligation.”

Supreme Court: In the case where 339 flat buyers has complained against delayed handing over of possession, the Bench of Dr. DY Chndrachud and KM Joseph, JJ held that the flat buyers are entitled to compensation for delayed handing over of possession and for the failure of the developer to fulfil the representations made to flat buyers in regard to the provision of amenities.

“A failure of the developer to comply with the contractual obligation to provide the flat to a flat purchaser within a contractually stipulated period amounts to a deficiency. There is a fault, shortcoming or inadequacy in the nature and manner of performance which has been undertaken to be performed in pursuance of the contract in relation to the service.”

Brief Background

The complainants had booked residential flats in a project called Westend Heights at New Town, DLF, BTM Extension at Begu, Bengaluru. However, the obligation to handover possession within a period of thirty-six months was not fulfilled. National Consumer Disputes Redressal Commission (NCDRC) dismissed a consumer complaint filed by 339 flat buyers, accepting the defence of DLF Southern Homes Pvt. Ltd. and Annabel Builders and Developers Pvt. Ltd. that there was no deficiency of service on their part in complying with their contractual obligations and, that despite a delay in handing over the possession of the residential flats, the purchasers were not entitled to compensation in excess of what was stipulated in the Apartment Buyers Agreement (ABA).

On ABA being one-sided

Where a flat purchaser pays the installments that are due in terms of the agreement with a delay, clause 39(a) stipulates that the developer would “at its sole option and discretion” waive a breach by the allottee of failing to make payments in accordance with the schedule, subject to the condition that the allottee would be charged interest at the rate of 15 per cent per month for the first ninety days and thereafter at an additional penal interest of 3 per cent per annum.

On the other hand, where a developer delays in handing over possession the flat buyer is restricted to receiving interest at Rs 5 per square foot per month under clause 14. The agreement stipulates thirty-six months as the date for the handing over of possession.

“Evidently, the terms of the agreement have been drafted by the developer. They do not maintain a level platform as between the developer and purchaser. The stringency of the terms which bind the purchaser are not mirrored by the obligations for meeting times lines by the developer. The agreement does not reflect an even bargain.”

On argument that flat buyers are constrained by the stipulation contained in ABA providing compensation for delay at the rate of Rs 5 per square feet per month

The court must take a robust and common-sense based approach by taking judicial notice of the fact that flat purchasers obtain loans and are required to pay EMIs to financial institutions for servicing their debt. Delays on the part of the developer in handing over possession postpone the date on which purchasers will obtain a home. Besides servicing their loans, purchasers have to finance the expenses of living elsewhere. To postulate that a clause in the agreement confining the right of the purchaser to receive compensation at the rate of Rs 5 per square foot per month (Rs 7,500 per month for a flat of 1500 square feet) precludes any other claim would be a manifestly unreasonable construction of the rights and obligations of the parties.

“Where there is a delay of the nature that has taken place in the present case ranging between periods of two years and four years, the jurisdiction of the consumer forum to award reasonable compensation cannot be foreclosed by a term of the agreement.”

Further, the expression “service‟ in Section 2 (1) (o) means a service of any description which is made available to potential users including the provision of facilities in connection with (among other things) housing construction. Under Section 14(1)(e), the jurisdiction of the consumer forum extends to directing the opposite party inter alia to remove the deficiency in the service in question. Intrinsic to the jurisdiction which has been conferred to direct the removal of a deficiency in service is the provision of compensation as a measure of restitution to a flat buyer for the delay which has been occasioned by the developer beyond the period within which possession was to be handed over to the purchaser.

Hence, to uphold the contention of the developer that the flat buyer is constrained by the terms of the agreed rate irrespective of the nature or extent of delay would result in a miscarriage of justice.

Directions

  • Except for eleven appellants who entered into specific settlements with the developer and three appellants who have sold their right, title and interest under the ABA, the respondents shall, as a measure of compensation, pay an amount calculated at the rate of 6 per cent simple interest per annum to each of the appellants. The amount shall be computed on the total amounts paid towards the purchase of the respective flats with effect from the date of expiry of thirty-six months from the execution of the respective ABAs until the date of the offer of possession after the receipt of the occupation certificate;
  • The above amount shall be in addition to the amounts which have been paid over or credited by the developer at the rate of Rs 5 per square foot per month at the time of the drawing of final accounts; and
  • The amounts due and payable in terms of directions (i) and (ii) above shall be paid over within a period of one month from the date of this judgment failing which they shall carry interest at the rate of 9 per cent per annum until payment.

[Wg. Cdr. Arifur Rahman Kan and Aleya Sultana v. DLF Southern Homes Pvt Ltd, 2020 SCC OnLine SC 667, decided on 24.08.2020]

Case BriefsHigh Courts

Uttaranchal High Court: A Full-Bench of Ramesh Ranganathan CJ, Sudhanshu Dhulia and Alok Kumar Verma JJ, held that contractual state employees are also entitled to child care leave, and that its denial would mean the denial of the rights of a child.

The petitioner is a lady Ayurvedic doctor in Uttarakhand’s State Medical and Health Services, appointed on a contractual basis for one year which had been repeatedly renewed since her appointment in 2009. After her maternity leave, she did not rejoin service and instead claimed Child Care Leave (CCL), citing a 2015 Judgement by a division bench of the Uttaranchal High Court which allowed a contractual employee to get CCL for 730 days. Her application was rejected on the grounds of a 2011 Government Order which excluded contractual employees from availing CCL. A division bench referred the matter in the present case to a Full Bench, which had to decide whether CCL of 730 days could be granted to a contractual employee hired for only one year, and whether the High Court, exercising its jurisdiction under Article 226, could issue mandatory guidelines extending this benefit to contractual employees in the absence of any legislation in this regard.

Chief Standing Counsel for the State, Paresh Tripathi, contended that the petitioner was only entitled to a “fixed monthly honorarium,” and could claim CCL as a matter of right since she is not technically a government servant. He also argued that the petitioner is only relying upon Part IV of the Constitution i.e., the Directive Principles of State Policy, which are not enforceable. He rebutted claims of alleged violations of Articles 14 and 16, averring that regular and contractual employees form two different classes and their separation would fall under ‘reasonable classification’, and Article 21.

While acknowledging the recent worldwide emergence of the otherwise neglected concepts of maternity and child care leave, the Court stated that “the leave is not a recognition of the rights of a woman but it is more a recognition of the rights of a child.”

Bench took due cognizance of various Constitutional and statutory provisions, including Article 15(2) and several Articles under Part IV of the Constitution, which were enforced bearing the needs and rights of children in mind. It rejected the State’s argument that DPSPs are not enforceable, instead upholding their importance by citing Supreme Court judgments where the DPSPs were hailed as “fundamentals in the governance of the country.”

The Court opined that since no distinction is made between a regular and a contractual employee with respect to maternity leave, the same principle should be adopted while considering CCL as well. On the first issue, the Court held that a contractual employee employed for a year was also entitled to CCL, but not for 760 days. Rather, they can be granted paid CCL for 31 days on the same terms as “earned leave” given to other employees under the 2011 Government Order. With regard to the second issue, the Court stated that it has merely read the rights of a contractual employee into the 2011 Order, which have duly been subjected to the restrictions imposed on any regular employee under the said Order. [Tanuja Tolia v. State of Uttarakhand, 2020 SCC OnLine Utt 337, decided on 24-07-2020]

Case BriefsForeign Courts

Supreme Court of Canada: Full Bench comprising Wagner, C.J., Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer, JJ. allowed an appeal against a class action lawsuit claiming disgorgement from the Atlantic Lottery Corporation (ALC), a corporation which approves licenses for Video lottery terminals (VLTs).

The class action was instituted on behalf of any natural person who paid to play VLTs in the area in the six years preceding the lawsuit, which claimed that VLTs are deceptive and dangerous and contravene the Criminal Code’s (1985) prohibition of games similar to “three-card monte”. The plaintiffs claim that ALC breached its duty by not warning players of “the inherent dangers associated with VLTs, including the risk of addiction and suicide ideation.” The claim relies on three causes of action i.e., waiver of tort, breach of contract and unjust enrichment, to seek a gain-based award quantified by the profit ALC earned by licencing VLTs. ALC’s application against the claim before a certification judge failed, as did its appeal in the Court of Appeal, which allowed the plaintiff’s lawsuit to proceed to trial.

The Court, however, held that the plaintiffs’ plea is bound to fail since it does not disclose a reasonable cause of action. The bench opined that while disgorgement is a remedy against actionable misconduct, the plaintiffs seek to use it as an independent cause of action under an entirely new category of wrongful conduct, which is akin to negligence but does not require proof of damage. Denying relief on this ground, the Court asserted that “granting disgorgement for negligence without proof of damage would result in a remedy arising out of legal nothingness.” As for the argument concerning the similarity of VLTs to three-card monte, the Court rejected it since the prohibition was directed at the game’s attribute and not its feature of deception.

The Court opined that gain-based recoveries in cases of breach of contract require the consideration of the legitimate interest which such an award seeks to vindicate. Since the award sought by the plaintiffs is measured by the defendant’s gain, it seeks to serve a compensatory purpose which distinguishes it from disgorgement and that makes a gain-based remedy inappropriate. Moreover, the contract between ALC and the plaintiffs under which the plaintiffs paid to play on the VLTs cannot be said to have been vitiated since a benefit derived by a defendant from a valid contract is not unjustified. The plaintiffs failed in establishing a causal connection between the alleged breach of contract and the gain to be disgorged. However, four judges on the Bench dissented by allowing the appeal in part, striking down disgorgement and unjust enrichment as causes of action, instead suggesting that the lawsuit be focused on a breach of duty of care, the adequacy of ordinary remedies resulting from it and whether exemplary damages ought to be awarded. [Atlantic Lottery Corporation Inc. v. Babstock, 2020 SCC 19, decided on 24-07-2020]

Op EdsOP. ED.

Swiftness of the Coronavirus induced disruptions surely would have prevented any viable pre-preparation on part of those most affected. Resultantly, almost all businesses/industries/manufacturing units are likely to, as many already do, face unprecedented upheavals and alterations in their supply chains/workforce/expansion. It is in this background that industrial and manufacturing units, regardless of functioning via a written agreement or not, must prime themselves vis-à-vis the laws of frustration, contingency and force majeure.

In India, the law pertaining to contingency[1] and frustration[2] must be treated  as rules of positive law that oblige and outline specific rights and obligations thereof. On the other hand, force majeure is a derivation of civil law, particularly French Law, whereby it pertains to any supervening event or happenstance as may obviate and affect the ability of a party to the agreement from performing it. In India, ‘force majeure’ usually finds place in a contract thereby allowing for a certain degree of flexibility and play in contractual relations thereof. Though a lot is dependent on the actual language and construction of the said clause, the courts in India have leaned in favour of placing ‘force majeure’ within the umbrella of contingency.

The courts have in their wisdom expounded upon force majeure as an exclusionary clause being part of a mutual agreement between parties thereof. In such a scenario, operation of such a clause is to be found under, and has been limited to (albeit incorrectly as per me), the chapter dealing with ‘contingency’ rather than ‘frustration’.[3] It is conceded that the presence of a ‘force majeure’ clause clearly postulates that the parties were in the know of an event or several events (being exclusively a function of that particular clause) and agreed upon the same so as to render the agreement non-performable thereof. Contingency in a contract rests on (1) agreement between parties, (2) postulated upon a future uncertain event(s)/condition(s), (3) being collateral to the contract thereof, and (4) happening (or not) of such event/condition.[4] Therefore, having regard to the same, one would be hard-pressed to disagree with the law as laid down in the seminal judgment of Satyabrata Ghose v. Mugneeram Bangur and Co. [5] when it adjudges that:

“In cases, therefore, where the Court gathers as a matter of construction that the contract itself contained impliedly or expressly a term, according to which it would stand discharged on the happening of certain circumstances the dissolution of the contract would take place under the terms of the contract itself and such cases would be outside the purview of Section 56 altogether….In such a scenario it would be a derivative of Section 32.”

Though the Supreme Court has labelled ‘force majeure’ as a function of contingency, it is my submission that in essence such a clause is ex abundati cautela and in that it traverses the thin grey area between contingency and frustration. Furthermore, it has authoritatively been held that the presence of such a clause as specifies conditionalities vide which parties would stand discharged of their contractual obligations dispenses with application of the positive law rule enshrined in Section 56.[6] However, this is where I stand in disagreement with the law as laid down in Satyabrata Ghose (1954) and followed thereafter in Energy Watchdog (2017).

In effect, both the judgments as cited herein above have given primacy to the rule of construction premised on ‘intention of parties’ whereby, regardless of Section 56, a party may agree (albeit devoid of any undue influence and coercion) to honour a contract despite occurrence of circumstances as may fundamentally alter its scape; effectively allowing the contracting parties to override a statutory enactment in going ahead with their commitment despite disappearance/obliteration/fundamental alteration of the very object thereof. Surely such a construction leads to an anomalous situation whereby the statutory scope of ‘subsequent impossibility’ is smothered.

Take for instance Illustration (e) to Section 56 as per the Act, 1872;

“(e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasion A is to ill to act. The contract to act on those occasions becomes void.”

 Evidently, as per this illustration, A’s illness is considered to be serious enough such as to excuse performance on the basis that it fundamentally alters the object of the said contract. Collating the said illustration to the situation prevailing currently whereby say ‘A’ is suffering from COVID-19 induced illness and is mandated by policy to isolate and quarantine for a certain time period. In this background, suppose the contract between ‘A’ and ‘B’ consists of a ‘force majeure’ clause such as to exclude an illness from rendering the contract void. As per the law contained in the above cited judgments, said clause would override Section 56 impossibility and despite the COVID-19 induced SARI, ‘A’ would be held liable to for breach.

The above approach, albeit in accordance with the law as at present, is not in harmony with public policy in such aberrant times. On the other hand it may be worth considering that if ‘A’ can prove that COVID-19 fundamentally prevents him/her from carrying out the object of the contract, then the lower threshold of the ‘force majeure’ clause must fall through in the face of an express statutory obligation and frustration induced discharge ought to follow. In conclusion, having regard to the above noted averment, ‘force majeure’ cannot and must not be treated as solely a function of contingency simply because of the argument resting on intention of parties and ensuing foreseeability (or not) of the event thereof.


*Author is a practising Advocate in Delhi

[1] See Chapter III, Contract Act, 1872

[2] See Chapter IV, Contract Act, 1872

[3] Energy Watchdog  v. CERC , (2017) 14 SCC 80

[4] See Section 30, Act 1872

[5] 1954 SCR 310

[6] Satyabrata Ghose v. Mugneeram Bangur and Co., 1954 SCR 310; followed thereafter in Energy Watchdog v. Central Electricity Regulatory Commission , (2017) 14 SCC 80

Case BriefsHigh Courts

Bombay High Court: G.S.Patel, J., held that an arbitration agreement must be stamped in the state where the arbitration is to take place, even if the only “thing to be done” in the state is the arbitration of the dispute. In this particular case, the contract was executed outside the state and was concerned with work that was to be carried out in Visakhapatnam, however the arbitration clause specified that in case of any dispute, arbitration would take place in Mumbai. The main agreement had been stamped as per relevant laws in Visakhapatnam. When a dispute arose and the parties couldn’t decide upon an arbitrator by themselves, the matter was referred to the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996. Upon doing so, a further dispute arose as to whether the arbitration agreement would be recognised in Maharashtra as it was not stamped there.

The Court took into account the case of Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd., (2019) 9 SCC 209 where the Supreme Court had ruled that an arbitration agreement cannot be acted upon unless it is duly stamped. The Court relied upon the combined reading of Sections 3(b) and 19 of the Maharashtra Stamp Act, 1958 which specify that stamp duty has to be paid for instruments (1) executed out of State and (2) relating to any matter of “thing done or to be done” in the State and (3) is received in the State. In this backdrop, the Court proceeded to deal with whether arbitration would be a “thing to be done” under the abovementioned sections. In this regard, the judge observed that to insist that arbitration clauses alone are exempt from stamp duty under the Act would entail severing it from the rest of the agreement, which is not possible. It was clarified that arbitration is founded in the contract and Garware Wall Ropes Case also specifies that such a contract is one and indivisible at least to the extent of its arbitration agreement. 

The Court further stated that even on a literal appreciation of the provisions of the Maharashtra Stamp Act, 1958 they could not rule in favour of the applicant. The Court finally clarified that if any stamp duty has been paid in the other state then an adjustment will be done but the applicant will not be exempted from paying stamp duty in Maharashtra. [S. Satyanarayana Co. v. West Quay Multiport (P) Ltd., 2019 SCC OnLine Bom 4595, decided on 22-11-2019]

Case BriefsHigh Courts

Bombay High Court: K.R. Shriram, J., dismissed a criminal appeal filed against the order of the trial court whereby the accused was acquitted of the charge under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881.

The appellant had initiated a complaint under Section 138 against the accused alleging dishonour of cheque issued by him in favour of the appellant. It was alleged that the subject cheque was issued by the accused for payment of outstanding liability in relation to purchase of grapes from the appellant. The accused did not deny the purchase of grapes; he, however, contended that the subject cheque was given only as a security cheque and the outstanding payment was already made in three installments. The accused was tried for the offence as aforesaid. At the conclusion of the trial, the accused was found not guilty and was, therefore, acquitted. Aggrieved, the appellant preferred the instant appeal.

 The High Court reiterated the well-settled law that it is settled law that the important ingredient for the offence punishable under Section 138 is that cheque must have been issued for the discharge in whole or in part of any debt or other liability. If the cheque is not issued for the discharge of any debt or other liability, Section 138 can not be invoked.

Perused the facts of the instant case, the Court found that the appellant, in his cross-examination, had admitted that the cheque issued was only for guarantee. Relying on its earlier decisions, the Court noted that if the cheque is issued only as security for performance of a certain contract or an agreement and not towards the discharge of any debt or other liability, offence punishable under Section 138 is not made out.

Following the aforenoted position of law, and noting the admission of the appellant in his cross-examination, the Court concluded that there could be no other conclusion that the cheque was not issued for the discharge of any debt or other liability. The important ingredient for the offence punishable under Section 138, therefore, was missing.

Moreover, it was found that the appellant had been giving different dates on which the cheque was issued, which shows that he was economical with the truth. Reiterating that a person, who’s case is based on falsehood, has no right to approach the Court, the High Court dismissed the instant appeal. [Shantaram Namdeo Sathe v. State of Maharashtra, 2019 SCC OnLine Bom 4354, decided on 15-11-2019]

Case BriefsHigh Courts

Punjab and Haryana High Court: A Division Bench of Krishna Murari, C.J and Arun Palli, J. disposed of the writ petition after the consensus was drawn between the parties to present the case in front of the competent authorities.

A writ in the nature of mandamus was sought for commanding the respondent to restraint from awarding the tender/contract whose bid had been accepted.

Brief facts of the case were that FCI invited E-tenders for Handling and Transport Contractor for a period of 2 Years. The grievance was that the respondent submitted his bid as a small enterprise so as to avail the benefit admissible to Micro & Small Enterprises but it does not fulfill the requisite terms prescribed to be eligible in the said category. Thus, the FCI was restrained from awarding the work order to the respondent and resorted to an ad hoc arrangement of the movement of the food grains.

D.S. Patwalia and Kannan Malik, Counsels for the petitioner submitted that parties shall report to the competent authority and abide by the date and time indicated by the counsel.

J.S. Puri, Counsel for the respondent submitted that as time was the essence of the situation the parties should be directed to approach the Food Corporation of India.

The Court opined that as a consensus had emerged between the parties as only a period of 6 months remains out of initial period of 2 years for which contract to be awarded and it would rather be expedient if the FCI re-initiates the process, confining to the petitioner and respondent, with downward bidding from the lowest bid submitted by respondent. It was further submitted that it shall be open to the FCI to award the contract for a period of 6 months or for a longer period, as it may choose and decide.

The Court thus held that as the parties have drawn the consensus and nothing substantive remains, the petition was disposed of with the said terms to the parties. It was further added that the Court has not opined with the eligibility of the respondent to bid and thus the same was open to being adjudicated in appropriate proceedings if any.[Ambay Transport Co. v. FCI, 2019 SCC OnLine P&H 1267, decided on 17-07-2019]

Case BriefsSupreme Court

Supreme Court: In the case where a Notice Inviting Tender had a clause asking the parties invoking arbitration to furnish a “deposit-at-call” for 10% of the amount claimed, the bench of RF Nariman and Vineet Saran, JJ struck down the said clause on the premise that:

“Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system, and would render the arbitral process ineffective and expensive.”

The Court was hearing the matter where the Punjab State Water Supply & Sewerage Board Bhatinda had issued notice inviting tender for extension and augmentation of water supply, sewerage scheme, pumping station and sewerage treatment plant for various towns mentioned therein on a turnkey basis. Clause 25(viii) of the Notice inviting Tender was challenged before the Court which read

“It shall be an essential term of this contract that in order to avoid frivolous claims the party invoking arbitration shall specify the dispute based on facts and calculations stating the amount claimed under each claim and shall furnish a “deposit-at-call” for ten percent of the amount claimed, on a schedule bank in the name of the Arbitrator by his official designation who shall keep the amount in deposit till the announcement of the award.”

Noticing that a 10% deposit has to be made before any determination that a claim made by the party invoking arbitration is frivolous, the Court said that such a clause would be unfair and unjust and which no reasonable man would agree to.

The Court said that since arbitration is an important alternative dispute resolution process which is to be encouraged because of high pendency of cases in courts and cost of litigation, any requirement as to deposit would certainly amount to a clog on this process. It also said:

“it is easy to visualize that often a deposit of 10% of a huge claim would be even greater than court fees that may be charged for filing a suit in a civil court.”

Striking down the said clause, the Court said that unless it is first found that the litigation that has been embarked upon is frivolous, exemplary costs or punitive damages do not follow.

“Clearly, therefore, a “deposit-at-call” of 10% of the amount claimed, which can amount to large sums of money, is obviously without any direct nexus to the filing of frivolous claims, as it applies to all claims (frivolous or otherwise) made at the very threshold.”

[ICOMM Tele Ltd. v. Punjab State Water Supply & Sewerage Board, 2019 SCC OnLine SC 361, decided on 11.03.2019]

Case BriefsHigh Courts

Uttaranchal High Court: The Bench of Sudhanshu Dhulia, J. stated that if the major part of the work was of civil nature then making the lead contractor from the civil department cannot be detrimental to the other non-civil contractors.

The petitioner who was a contractor and a proprietor of a firm was aggrieved by the tender notice inviting for civil and electrical work by the respondent. He has questioned the composite nature of the tender which according to him must have been separately called for taking into consideration the work which was both of civil and electrical engineering. He further contends that the nature of work has electrical component but experienced electrical contractors have been virtually ousted from the process by treating them as a ‘junior partner’ making it a violation under Articles 14 and 19 (1) (g) of the Constitution of India. The rebuttal placed by the respondents were that they acted in the above-stated manner to save time and money of the department as the major component of the work was civil work and only 20 to 30 per cent was reserved for the electrical plus they haven’t barred the petitioners from participating in the tender rather a joint venture was created so violation under no case could be claimed. 

The Court considering that amount of electrical work which formed a  small part of the entire venture and thus Civil Engineering being in the forefront does no harm and was not arbitrary. Accordingly there was no illegality if a composite contract was called for as that would best serve the interest of the State.  Hence the petition was dismissed.[Naveen Chandra Joshi v. State of Uttarakhand, 2018 SCC OnLine Utt 1062, order dated 11-07-2018]

Case BriefsForeign Courts

Supreme Court of the United States: The appeal lies before the Bench of Kavanaugh, J.

The facts of the case were such that the respondent Archer and White Sales Inc. sued Henry Schein for the violation of Federal and State anti-trust laws, seeking monetary and injunctive relief. The contract between the parties provided for arbitration to resolve any dispute arising between them except for actions seeking injunctive relief. Schein, therefore, requested the District Court to refer the matter to arbitration while Archer argued that this matter was not subject to arbitration owing to injunctive relief. The Fifth Circuit affirmed with Archer’s view. However, the Supreme Court vacated the judgment of the Fifth Circuit and held that parties to such a contract may refer to an arbitrator to decide the ‘gateway questions of arbitrability.’ The Court opined that a court cannot override the contract even if it thinks that the arbitrability claim is ‘wholly groundless.’

The case was remanded for further proceedings.[Henry Schein Inc. v. Archer and White Sales Inc., 2019 SCC OnLine US SC 1, decided on 08-01-2019]

Case BriefsHigh Courts

Bombay High Court: A Single Judge Bench comprising of S.B. Shukre, J. dismissed a petition filed challenging the orders of Collector, Gadchiroli and Additional Commissioner, Nagpur under Section 14(1)(g) of the Maharashtra Village Panchayats Act, 1958.

The petitioner, a candidate for Gram Panchayat elections, was disqualified under the said section by the orders impugned as the husband of the petitioner had entered into a contract with the Gram Panchayat for giving of a shop block belonging to the Gram Panchayat, and the petitioner, being his wife, was indirectly interested in the contract. The petitioner challenged the order on the reasoning that there was no contract executed between her husband and the Gram Panchayat, the execution being only of a rent agreement. According to her, the word contract used in Section 14(1)(g) has a restrictive meaning which has to be understood as referring only to those contracts which had been awarded by the Gram Panchayat for execution of some work of the Gram Panchayat. Secondly, the petitioner being only the wife, could not be said to having an indirect interest in the said contract.

The High Court found favour with the submission of counsel for the respondent that the word contract had nowhere been clarified in the Act by laying down that the word has to be understood only in the context of a particular type of contracts. In such circumstances, contract must be understood by the definition given in Section 2(h) of the Indian Contract Act, 1872, according to which even the rent agreement executed between the Gram Panchayat and the husband would be a contract. As to the second contention, it was held that mere relationship, by itself, would not determine the extent of interest in a contract and something more is required to be proved against of Gram Panchayat. In the instant case, the petitioner admitted that her family is maintained from the income earning from the business carried out from the rented premises. Thus, it was clear that she had an interest, and therefore the said rent agreement was to be treated as a contract in which the petitioner was having an interest. Resultantly, the Court found no fault with the order impugned. The petition was accordingly dismissed. [Gita Vijay Somankar v. Divisional Commr., Nagpur, 2018 SCC OnLine Bom 2943, decided on 03-10-2018]

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of Ravindra Bhat and A.K. Chawla, JJ., dismissed a First Appeal against an order declining grant of interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.

The contract between the parties was the result of bidding in a public tendering process. The consideration of the contract was over Rs. 69 crores, with the period of execution being of 15 months along with an option to apply for extension. The appellant was aggrieved by the termination of contract after several defects and deficiencies during performance were pointed out. The grievance of the appellant was threefold viz. against invocation of performance guarantee, mobilization of advance bank guarantee and alleged unlawful termination of contract.

The Court directed that the issue of wrongful termination was a matter to be decided on merits during the arbitral proceedings and proceeded to decide upon the issues of invocation.

On that issue, the Court held that the performance guarantee mandates the bank to honour without demur any demand by the principal, who is the real beneficiary of any sums, claimed by it as due under the contract. In other words, the bank cannot adjudicate as to whether the claim by the beneficiary was in fact determined by it in accordance with the underlying contract between it and a third party. It was further held, that guarantee is an independent contract and has only a referential connection to the contract between the two parties, who agree upon the execution of performance of a particular contract for which the bank guarantee is issued. In the circumstances, mere invocation of a guarantee does not provide valid grounds for interdicting the invocation of guarantee. [M/s Classic KSM Bashir JV v. Rites Ltd., 2018 SCC OnLine Del 9056, decided on 14-05-2018]

Case BriefsSupreme Court

Supreme Court: Stating that a property developer has to respect the contractual commitment, the 3-Judge Bench of Dipak Misra, Amitava Roy and A.M. Khanwilkar, JJ said that the developer has to live up to the terms of the contract and gain trust so that the people who dream of houses can repose faith in him.

In the case at hand, the 39 respondents had argued that their patience is on the burial pyre and they cannot wait any longer believing in the concept of optimism and expectation, for the appellant had not built the flats as assured, and in fact, compelled them to land up in such a financial crisis that they had never conceived of.

Taking note of the contention of the respondents, the Court said that the appellant by delaying or procrastinating the completion of the flats cannot base its stand on excuses or any subterfuge to advance the stand that the constructions take time. It is “flat” or “money” and nothing else.

The appellant had suggested that it would complete three towers by the end of April, 2017 and would hand over possession to some of the respondents by that time and further the respondents can be allowed to take some amount by direction of this Court that is to say that the respondents can be distributed Rs.5,00,00,000/- towards the principal and be handed over flats by the end of April, 2017 and some shall be given thereafter when the other towers are complete. The rest of the amount, that is, Rs.10,00,00,000/- that have been deposited before the Registry of this Court be allowed to be refunded to the appellant for facilitating the construction.

Considering the fact that the respondents were not interested in the flats and hadmade a demand for refund of money because they have fought the litigation with ceaseless vigour and enormous hope, the Court said that the principal amount deposited by the respondents amounts to Rs.16,55,02,525/-  as Rs.15,00,00,000/- have been invested and some interest has accrued, let the same be given to the respondents on pro rata basis on proper identification by the learned counsel. The Court directed that the appellant company is directed to deposit a further sum of Rs.2,00,00,000/-  within four weeks hence. [Unitech Residential Resorts Ltd. v. Atul Gupta, 2016 SCC OnLine SC 1155 , decided on 19.10.2016]

Case BriefsSupreme Court

Supreme Court: Considering the sad state of affairs of long drawn expensive and cumbersome trials to resolve disputes between two Government owned corporations and the fact that one of the parties in the case at hand had with considerable tenacity opposed the move aimed at a quick and effective resolution of the conflict and resultant quietus to the controversy by a reference of the disputes to arbitration in terms of the Arbitration and Conciliation Act, 1996, the bench of T.S. Thakur, CJ and R. Banumathi, J. referred the matter for adjudication to Justice K.G. Balakrishnan, Former Chief Justice of Supreme Court, who is hereby appointed as Sole Arbitrator to adjudicate upon all claims and counter claims which the parties may choose to file before him.

In the present case, the parties had entered into a contract for construction of a Coal Handling Plant and a Clause in the Contract provided for adjudication of disputes between the parties by way of arbitration. Disputes between the parties were referred for resolution in terms of the “permanent in-house administrative machinery” set up by the Government. Both the parties, upon being dissatisfied with the awards, challenged the award in appeals filed before the Law Secretary, Department of Legal Affairs, Ministry of Law and Justice in terms of the in-house mechanism provided by the Government. The appellant then filed a civil suit before the High Court of Delhi alleging that the Arbitral award passed by the appellate authority was according to the appellant illegal and vitiated by errors apparent on the face of the record, hence, liable to be set aside.

Discussing the question of remanding the case to the Civil Court, the Court noticed that an arbitral award under the Permanent Machinery of Arbitration may give quietus to the controversy if the same is accepted by the parties to the dispute. In cases, however, a party does not accept the award, as is the position in the case at hand, the arbitral award may not put an end to the controversy. Such an award being outside the framework of the law governing arbitration will not be legally enforceable in a court of law. Just because a Government owned company has resorted to the permanent procedure or taken part in the proceedings there can be no estoppel against its seeking redress in accordance with law. Making reference to a sole arbitrator for adjudication of all outstanding disputes between the two corporations, the Court held that the alternative to such arbitration is a long drawn expensive and cumbersome trial of the suit filed by the appellant before a civil court and the difficulties that beset the execution of an award made under a non-statutory administrative mechanism and that both these courses are unattractive with no prospects of an early fruition. [NORTHERN COALFIELD LTD v. HEAVY ENGINEERING CORP. LTD, 2016 SCC OnLine SC 697, decided on 13.07.2016]