- The respondents, who are real brothers, are the owners of a
land measuring approximately 1.116 acres located at St.
Mary’s Road, Chennai. They intended to commercially
develop the property and therefore entered into a Joint
Development Agreement (JDA) dated 17.12.2004 with
Lancor Gesco Properties Ltd. (later amalgamated into
Lancor Holdings Ltd.), the appellant–developer. - Under the terms of the JDA, the developer undertook to
construct a multi-storeyed commercial building at its own
cost. In exchange, both parties were to share the developed
property in the ratio of 50% constructed area each, along
with a corresponding 50% undivided share in the land. - The developer paid refundable, interest-free security
deposits totaling ₹6.82 crore to the landowners, which
were required to be returned to the developer 15 days after
the “Handover Date”, i.e., the date on which construction
was completed and the building was certified fit for
occupation as per the agreement. - A Supplemental Agreement dated 29.03.2006 confirmed
the appointment of M/s Natraj & Venkat as the Project
Architect and finalized the floor-wise allocation of the
constructed area between the landowners and the
developer. The building was named “Menon Eternity”. - The developer claimed that the construction was
completed by 2008 and relied on certificates of
completion/occupation issued by the CMDA, Chennai
Corporation, and other authorities to assert that the
building was fit for use. Accordingly, it sought return of
the security deposits and offered to hand over the
landowners’ share. - The respondents, however, disputed the completion,
alleging that several major structural and finishing works
remained incomplete, including issues with staircases,
basements, and canopy structures, and therefore contended
that the “Handover Date” had not arisen. - During this period of dispute, the developer executed five
registered sale deeds on 19.12.2008 in its own favour,
transferring to itself portions of the property falling in its
share, by using a photocopy of an irrevocable Power of
Attorney that was meant to be released only upon the
Handover Date and whose original was still deposited with
an escrow agent, HDFC. - That alleging unauthorized execution of sale deeds and
breach of contractual obligations, the respondents initiated
litigation and arbitration proceedings. The developer also
invoked the arbitration clause and a sole arbitrator (Retd.
Justice K.P. Sivasubramaniam) was eventually appointed. - The arbitration hearings concluded on 28.07.2012, but the
award was delivered nearly 3 years and 8 months later on
16.03.2016 without any explanation for the delay. The
arbitrator held the sale deeds illegal, yet failed to resolve
the core dispute regarding compensation, restitution, or the
final settlement of rights, effectively leaving parties to
pursue fresh litigation or fresh arbitration.
ISSUES RAISED IN THE CASE:- - Whether the construction of the building was completed as
per the terms of the Joint Development Agreement? - Whether the conditions for the “Handover Date” were
fulfilled so as to require the landowners to refund the
security deposits? - Whether the Architect’s Completion Certificate dated
10.10.2008 is valid and binding? - Whether the developer was justified in executing the five
sale deeds in its own favour using the escrowed Power of
Attorney? - Whether the said sale deeds are legal and enforceable or
liable to be cancelled? - Whether either party is entitled to monetary claims or
compensation as raised in their respective claims and
counter-claims? - Whether the arbitral award is vitiated due to the
unexplained delay in its pronouncement and failure to
finally resolve the disputes?
CONTENTIONS RAISED BY THE APPELLANTS:- - The appellant contends that the construction of the
building was duly completed in 2008 in accordance with
the JDA and Supplemental Agreements, and that all
necessary statutory clearances and completion certificates
were obtained from competent authorities. - It is submitted that once the building was certified fit for
occupation, the Handover Date stood completed, thereby
requiring the respondents to refund the security deposits
within the stipulated time. - The respondents withheld the balance security deposits
without justification, despite having already returned a part
of the deposit earlier, which indicates acknowledgment of
completion. - The appellant argues that the sale deeds executed were
within its contractual rights, since the developer was
entitled to its 50% share of constructed area and land under
the JDA. - The arbitrator erroneously rejected the Completion
Certificate and failed to appreciate evidence of completion,
leading to perverse and unreasoned conclusions. - The arbitrator declared the sale deeds invalid but did not
determine the consequential reliefs, leaving core disputes
unresolved. - The award was delivered 3 years and 8 months after
conclusion of hearings, without explanation, causing
serious prejudice and affecting the fairness of adjudication.
CONTENTIONS RAISED BY THE RESPONDENTS:- - The respondents contend that various major works,
structural corrections, and finishing obligations were left
incomplete, and therefore, the building was not fit for
occupation as required under Clause 6. - Since the mandatory conditions for completion were not
fulfilled, the Handover Date never commenced, and
consequently, no obligation arose to refund the security
deposits. - The respondents argue that the Project Architect’s
Certificate was issued prematurely, without actual
completion, and is therefore not binding or reliable. - The developer wrongfully used a photocopy of the
escrowed Power of Attorney, which could not have been
acted upon prior to completion. The sale deeds are
therefore illegal, void and unenforceable. - The respondents assert that they suffered monetary loss
due to delay in completion, including loss of prospective
rent, delay in commercial use, and reputational harm,
entitling them to compensation. - The arbitrator correctly held the sale deeds void and
recognized that the construction was incomplete; hence, no
interference with the award is warranted. - The respondents submit that delay alone is not a ground to
set aside an award unless bias or prejudice is shown, which
is not proved by the appellant.
REASONING GIVEN BY THE HON’BLE SUPREME
COURT:- - The arbitrator took almost 4 years to pronounce the award
after the hearings had concluded. The Supreme Court held
that such a long delay, without any explanation, creates
doubt about the fairness and accuracy of the decision. It
affects how well the arbitrator could recall the evidence
and arguments, and therefore causes prejudice to the
parties. - The arbitrator declared the five sale deeds executed by the
developer as invalid, but did not decide what happens next
for example, who should compensate whom, what amount
is payable, and how the parties’ rights should be finally
adjusted. So, instead of closing the matter, the award left
both parties in the same conflict, forcing them to go to
court again. - The Supreme Court said that an award must finally resolve
the dispute, not create new confusion. - The arbitrator himself admitted that the situation was
“complex” and then simply refused to give a clear
conclusion. The Supreme Court held that an arbitrator
cannot avoid deciding the main controversy. This failure
made the award incomplete and legally unsound. - The Court held that because the award did not determine
the parties’ rights and liabilities, did not settle the dispute
completely, and came after an unjustified delay, it was
perverse, unworkable, and contrary to public policy. Under
Section 34 of the Arbitration and Conciliation Act, such an
award must be set aside. - The Hon’ble Supreme Court set aside the arbitral award.
To avoid restarting everything from the beginning, the
Court appointed a new arbitrator and directed that the case
should continue using the evidence already recorded, so
that no further delay is caused.
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