Telangana High Court Upholds An Arbitral Award Directing Pulling Down Of A Building Incapable Of Human Habitation

The bench of Chief Justice Alok Aradhe and Justice N. Tukaramji held that the tribunal rightly directed the pulling down of the subject property when the building was not constructed as per the agreement and the construction was stopped in the middle and structures raised are not sound and safe and the life of the constructed building would not be more than two decades. Moreover, no fresh construction licence would be issued on such condition.

Facts

The case involves a development agreement made on May 15, 1996, between the appellant and respondents (a proprietary firm and its proprietor). The agreement was for developing a plot in Hyderabad, and the built-up area was to be shared in the ratio of 32% to the appellant and 68% to the builders.

Disputes arose among the partners, leading to a new development agreement in 1997, unilaterally canceled by the appellant in 1999. Further disputes emerged, resulting in defective construction on the land. Respondent No. 2 moved into one of the flats in the partially constructed building.

The appellant complained to the Municipal Corporation in 2001, seeking demolition of the structures as unfit for habitation. Due to an arbitration clause, respondents approached the High Court for an arbitrator's appointment. The arbitrator, in 2012, ordered the appellant to deliver possession of the vacant site after demolishing the building.

Respondents challenged this award in 2016, claiming the arbitrator exceeded jurisdiction by ordering demolition, not supported by pleadings. The arbitrator had found a breach of the 1997 agreement, stating the building was not constructed per terms, was unsafe, and the appellant couldn't be compelled to register the share without completing the complex.

The trial court set aside the award, stating the arbitrator went beyond the contract terms. Aggrieved thereby, the appellant preferred an appeal under Section 37 of the Act.

Contention of the Parties

The appellant challenged the judgment on the following grounds:

• That the XXIV Additional Chief Judge's order was illegal, contrary to Section 34 of the Act.
• Emphasized the judge's failure to recognize the admitted breach by the respondents despite the ongoing incompleteness of the project.
• Highlighted the judge's oversight in not addressing the arbitrator's findings on safety, stability, and the lack of a completion certificate.
• That the ld. Court failed to appreciate that the relief was granted in terms of Specific Reliefs Act, 1963.

The respondent made the following counter-arguments:

• The arbitrator went beyond the pleadings of the appellant and granted a relief that was not sought; therefore, it exceeded its jurisdiction.
• That scope of Section 37 is limited and does not permit the Court to reappreciate evidence, therefore, no ground of interference is made out.

Analysis by the Court

The Court criticized the trial court for deeming the arbitrator's award beyond the arbitral proceedings' scope without considering the detailed reasons provided.

The Court highlighted the trial court's failure to acknowledge that the respondents were in possession of the property as per the development agreement despite non-fulfilment of their obligations.

The Court emphasized the arbitrator's specific finding of the respondents breaching clauses 7, 8, 9, and 21 of the development agreement.

The Court acknowledged the undisputed fact that the building was incomplete and unfit for habitation. It observed that the tribunal rightly held that semi-finished building needed demolition for the construction of a safe structure.

Next, the Court highlighted the limited scope of court interference and the finality of arbitral awards.

The Court found that the trial court's order would prejudice the appellants' rights, considering the long possession of the property by the respondents. It concluded that the arbitrator's decision was reasonable and within the scope of the arbitration proceedings.

Accordingly, the Court set aside the impugned order and upheld the arbitral award. It directed the respondents to vacate the property and hand it over to the appellant within two months from the order's receipt.

Case Title: V.B. Ramsagar v. Srijay Constructions, Commercial Court Appeal No. 08 of 2017

Date:24.11.2023

Counsel for the Appellant: Mr. Hari Haran, Senior Advocate

Counsel for the Respondent: Mr. M.Rama Krishna for M/s.Bhaskari Advocates

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