Calcutta High Court Upholds Arbitral Award Directing KMDA To Refund Amount Deposited By South City Projects Under MoU

Brief Facts:

The present appeal has been filed under section 37 of the Arbitration Act against an order passed by the court under section 34 of the Arbitraton Act by which the arbitral award in favor of the claimant/respondents was upheld.

Kolkata Metropolitan Development Authority ('KMDA'), the appellant, invited bid for the development of residential-cum-office complexes at two separate locations.

The present two respondents had submitted their bid as a consortium and were declared the selected bidder. A Memorandum of Understanding (MoU) was entered into by the consortium with the appellant on 17.12.2007.

As per MOU the appellant (KMDA) and the bidder (consortium) were to form a Joint Venture Company (JVCO). Both KMDA as well as consortium was required to contribute equally to the paid-up share capital of JVCO.

Within 30 days of incorporation of the JVCO, the appellant KMDA was required to execute a development agreement in favour of JVCO granting it the right to develop the two sites.Within 30 days from execution of the development agreement the appellant was required to deliver possession of the sites to the JVCO.

The dispute, however, has arisen at the stage when the KMDA was required to execute the development agreement.

A supplemental MOU was entered into by and between the parties on 16.11.2011. The reason why the supplemental MOU was entered into is that there were some incumbrance on the lands comprising of the two sites where the development work was to be undertaken as per the original MOU

At the stage of handing over the possession and executing a lease deed, the appellant delayed the process. Additionally, no development was executed as per MOU. The claimants alleged that they were misled through misrepresentation and fraud which led them to invest Rs. 11.41 crore, form a JVCO and incur maintenance costs of Rs. 62.663 lakh.the claimants sought a refunds of the amounts along with 15% interest and Rs. 61 crore in damages.

The appellant argued before the arbitrator that they possessed almost all the lands with only minor encumbrances that did not create obstacles in development. By executing the second MOU, the claimants had waived any breaches of the earlier MOU.

Contentions:

The appellant submitted that the claimant had proposed that the project be developed on the lesser area of land on the same terms, which resulted in execution of a supplemental MOU between the parties. Thus, they could not have terminated the MOU, as sought to be done by their letter dated 20th April, 2016.

It was also argued that after incorporation of the JVCO , it became a separate legal entity therefore even if alleged failure on their part was accepted, it did not give the consortium any right to invoke the arbitration clause which could have only been invoked by the JVCO

It was further submitted that the question of a termination of the contract, not being contemplated under Clause XX of the MoU, the termination of the agreement is unsustainable. There being no termination in the eyes of law the claimants could not have moved the arbitrator for resolution of the dispute.

It was submitted that the arbitrator did not have jurisdiction to proceed as there was no arbitration agreement between the appellant and the consortium for the claims made. The agreement limited the remedy to purchasing the shares of the defaulting party and did not provide for interest on investments therefore awarding interest was unwarranted.

Observations:

The court noted that as per Article XX the remedy of requiring the defaulting shareholder to sell its shares to the non-defaulting shareholder is not absolute and is without prejudice to other rights. Article XX does not contain a clause ousting remedies legally available otherwise to the parties. This aspect of the matter has been considered by the arbitrator and decided against the appellant.

It further added that the submission that there was no obligation on the KMDA to create any right or obligation in favour of the claimants in respect of the immovable property was rightly rejected.

It further noted that a factual finding had been recorded based on his evidence that without encroachments being removed the development of even the reduced lands measuring 83.52 Kottahs of land was not possible.

It further added that on a consideration of this material before the arbitrator, the arbitrator has recorded a finding that there was no novation of the contract. The original MoU remained effective, but was restricted for the time being to 83.52 Kottahs.

The court observed that if a party breaches the contract while taking advantage under the contract, such party would be liable for restitution and compensation in favor of the party from whom the benefits or advantages were obtained. Payments in the facts of the present case were not gratuitous but made as a contractual obligation.

The court also noted that the existence of the arbitration agreement was not denied or disputed by the respondents before the arbitrator. They have also chosen not to raise the issue of jurisdiction or question the jurisdiction of the arbitrator by filing any objection as contemplated under Section 16 of the Act.

It further observed that by awarding interest, the arbitrator has not awarded any relief contrary to the specific terms of the contract so as to invite the vice of patent illegality or a criticism on the ground that the award is opposed to public policy of India.

The court further observed that having regard to the facts and circumstances under which the payments have been made in accordance with the terms of the MoU the Court is required to see the substance and not the form of the payments made by the claimant to the JVCO.

Based on the above, the court noted that in substance the payments were made to meet the liability of the JVCO and, therefore, it would be incorrect to conclude that it was not a payment made to the KMDA, but made exclusively to the JVCO.

The court rejected the submission that the claimant had the only option of proceeding against the JVCO, and not the KMDA.

The court concluded that the Supreme Court in Batliboi Environmental Engineers Ltd. Vs. Hindustan Petroleum Corporation Limited and Another (2024) held that scope of interference under sections 34 and 37 is limited.

Accordingly, the present appeal was dismissed.

Case Title: KOLKATA METROPOLITAN DEVELOPMENT AUTHORITY VS. SOUTH CITY PROJECTS (KOLKATA) & ANR.

Case Number: APO/205/2023 WITH AP/351/2020 IA No. GA/1/2023

Judgment Date: 12/02/2025

For the Appellant : Mr. Kishore Dutta, Ld. AG Mr. Avishek Guha, Mr. Sirsanya Bandopadhyay, Ms. Akansha Chopra.

For the State Respondents : Mr. Abhrajit Mitra, Sr. Adv. Mr. Satadeep Bhattacharyya, Mr. Saptarshi Dutta, Mrs. Srinjita Ghosh, Mr. P.K. Pal, Mr. Samiruddha Sen, Mrs. Sriparna Mitra, Mr. Debdut Hore.