Justice B.V. Nagarathna, Justice Satish Chandra Sharma, Supreme Court
Each Day’s Delay In Executing Project Had Commercial Consequences & Struck At Heart Of Development Agreement: Supreme Court Allows Appeal In Arbitration Case
|The Supreme Court allowed a Civil Appeal of a company against the Punjab and Haryana High Court's Judgment which partially allowed the Appeal of the Chandigarh Administration.
The Supreme Court has allowed a Civil Appeal of a company namely M/s. Parsvnath Film City Ltd. against the Judgment of the Punjab and Haryana High Court which partially allowed Appeal of the Chandigarh Administration under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act).
The Court said that each day’s delay in executing the project had commercial consequences and struct at the heart of the Development Agreement.
The two-Judge Bench of Justice B.V. Nagarathna and Justice Satish Chandra Sharma observed, “… the issues involved between the parties cannot be termed trivial. As noted earlier, time was of the essence in this project. Therefore, each day’s delay in executing the project after signing of the Development Agreement had commercial consequences and struck at the heart of the Development Agreement. As the delay here extended to more than 16 months, the impugned judgment could not have termed the issues between the parties as trivial and that the parties were ad idem in solving them.”
The Bench held that the impugned Judgment proceeded on a wrong basis and wrongly set aside the Arbitral Award.
Senior Advocates V. Giri and Jayant Muthraj appeared for the Appellant while Advocate Krishna Kant Dubey appeared for the Respondents.
Brief Facts
The case was related to the Respondents deciding to establish a Multimedia-cum-Film City at Chandigarh. To that end, it published an advertisement inviting “Expression of Interest for Multimedia-cum-Film City” as an integrated project in Chandigarh on a leasehold land admeasuring thirty acres. Out of the 14 companies which submitted the expression of interest, six were selected, including the Appellant. Consequently, it was shortlisted amongst the 4 companies. By a letter, the Appellant stated that it would sign the Development Agreement but requested for demarcation of the project site as without the same it could not proceed with the work. Subsequently, both parties entered into the agreement. It was unanimously decided that the Administrative Department would work out a proposal with regard to rescheduling of payments by the Appellant.
As no further action was taken by the Respondent despite the decisions made in the High-Level Committee meeting, the Appellant declared the agreement to have been frustrated and required the earnest money deposited to be returned to them with interest. However, the Respondent terminated the agreement and being aggrieved, the Appellant invoked the arbitration clause. As the Respondent refused to appoint an Arbitrator, the Appellant approached the High Court. The Respondent filed an Application before the Additional District Judge for setting aside the award of the Tribunal. The Appellant had approached the Apex Court against the High Court’s Judgment which partly allowed the Respondents’ Appeal and set aside the arbitral award. It sustained the Respondents’ action in forfeiting 25% of the bid amount i.e., Rs. 47.75 crores. Being aggrieved, the Appellant approached the Apex Court.
Reasoning
The Supreme Court in the above context of the case, noted, “… the project envisaged by the respondents was commercial in nature. The appellant was engaged after a process of competitive bidding. As there was a definite time period provided for in the Development Agreement to complete the project, the appellant would have had to engage the services of different professional agencies beforehand. All such sub contracts would have been frustrated due to the delay attributable to the respondents.”
The Court added that due to the delay, the Appellant would have to engage fresh services of these agencies, the cost of which would only escalate with time.
“… we find it unreasonable to agree with the observations of the impugned judgment that the appellant should have raised this issue before submitting the bid or ought to not have participated in the bidding process”, it further said.
The Court held that the High Court was not justified in setting aside the Arbitral Award and consequently, the Order passed on the Application filed under Section 34 of the A&C Act.
“Consequently, we find that the appellant herein is entitled to the sum of Rs.47.75 crores, being the initial deposit and Rs.46,20,715/- being the actual expenses incurred. However, the rate of interest awarded at 12% per annum, we find, is on the higher side. In the circumstances, we modify the rate of interest to 8% per annum, while retaining the other directions”, it concluded.
Accordingly, the Apex Court allowed the Appeal, set aside the impugned Order, modified the arbitral award, and directed the Respondents to deposit or pay the amount before June 30, 2025.
Cause Title- M/s. Parsvnath Film City Ltd. v. Chandigarh Administration & Others (Neutral Citation: 2025 INSC 464)
Appearance:
Appellant: Senior Advocates V Giri, Jayant Muthraj, AOR Rajesh P., Advocates Manoranjan Sharma, Deeptanshu Jain, and Rahul Narang.
Respondents: AOR Shreekant Neelappa Terdal, Advocates Krishna Kant Dubey, Bhuvan Kapoor, and Varun Chugh.