Calcutta High Court
State Of West Bengal vs Sikaria Divinity Pvt Ltd on 13 December, 2017
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
OD-2
GA No.2813 of 2017
APO No.399 of 2017
in
AP No.543 of 2017
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
ORIGINAL SIDE
STATE OF WEST BENGAL
Versus
SIKARIA DIVINITY PVT LTD
BEFORE:
The Hon'ble JUSTICE SANJIB BANERJEE
The Hon'ble JUSTICE SABYASACHI BHATTACHARYYA
Date : 13th December, 2017.
Appearance:
Mr. Kishore Dutta, Advocate General
Mr. Abhratosh Majumdar, Addl. A.G
Mr. Jishnu Chowdhury, Addl. G.P
Mr. Paritosh Sinha, Adv.
Mr. Arindam Mondal, Adv.
Mr. Surojit Nath Mitra, Sr. Adv.
Mr. Shyamal Sarkar, Sr. Adv.
Mr. Arindam Mukherjee, Adv.
Mr. Swarvanu Saha, Adv.
The Court : The State, as the appellant, questions the propriety of an
order passed on the respondent's petition under Section 9 of the Arbitration and
Conciliation Act, 1996 by which a notice of termination of the contract issued by 2 the State has been annulled and the veritable specific performance of the contract allowed.
To be fair to the respondent, it does not insist on the specific performance of the contract at this stage; though it says that the facts are such that even such a high order would be justified in this case. The respondent says that till the matter is adjudicated before the arbitrator, third party rights should not be allowed to be created over the project that was undertaken by the respondent under the contract.
Sabujdweep is a riverine island in the Hooghly off Chinsurah. The island surfaced in the wake of the havoc that was wreaked by the 1978 floods in South Bengal. The island covers an area of about 75 acre. The State wanted an eco-tourism project to come up on the island and it appears that a notice inviting tender was issued following which the highest bidder, the respondent herein, was awarded the contract of setting up the project on the island. The project envisaged certain cottages to come up along with eating and entertainment facilities. A form of an environment impact assessment was conducted, though the contract provided for appropriate clearances to be obtained by the contractor for the project. An upfront amount of Rs.70 lakh was obtained by the State Government and the respondent was entrusted with setting up the project and running it for a period of 32 years against an unspecified annual fee to be paid to the State. The tenure was renewable for a further period of 32 years.
The implementation of the project was apparently delayed and following letters exchanged between the parties upto March, 2017, the construction work began in right earnest and, by June this year, the structures 3 of several cottages were ready. The State issued a show-cause notice to the contractor on June 8, 2017 making divers allegations, primarily, on the ground that the fragile environment at the island had not been taken care of by the contractor and its labourers during the process of construction. The show-cause notice of June 8, 2017 referred to several provisions from the rather lengthy agreement between the parties which carries the fashionable nomenclature of "Concession Agreement" and called upon the contractor "Concessionaire" to ensure "necessary compliance within 30 days hereof failing which the agreement shall be liable to termination."
A reply was issued by the contractor on June 30, 2017, inter alia, claiming that several of the alleged deficiencies pointed out by the State were not the areas that had to be overseen or taken care of by the contractor. The contractor claimed that the fact that there was no embankment was the fault of the Irrigation Department of the State; that there was no drainage system was the fault of the Public Health Engineering Department of the State; and, denied the allegations as to the destruction of the environment and the ecological balance of the island. The contract was terminated by a notice of July 11, 2017.
The State contends that a contract of the present nature is incapable of specific performance and, at any rate, such a high order could not have been passed under Section 9 of the said Act. The State says that since the contract itself records several grounds under which the same may be terminated, any claim that the contractor may have sounds only in money by way of damages. The State says that the State is desirous of completing the rest of the project and 4 running the same on its own without contracting it out to any private or third party.
According to the contractor, there was a veritable right in the land that was created by the contract and the contractor suggests that a concession agreement implies a form of a grant. The contractor relies on photographs to demonstrate that substantial construction work has already been completed. At least, the structures of four or five cottages can be seen from the photographs presented in Court and there is a watch-tower in place. The contractor maintains that the parties had engaged in communication for fixing a date for the project to be opened and if the contractor was afforded a month or two, the construction of the first phase of the project would have been completed and the eco-tourism park at the island could have been inaugurated.
The contractor says that it has expended large sums on the basis of the contract that envisages that the contractor would run the project and derive income therefrom for a period of 64 years. The contractor insists that in such a situation the damages that the contractor may suffer as a consequence of the wrongful termination of the contract may not be easily assessed. In any event, it is the contractor's case that when specific grounds for termination are provided for in a contract of such nature, it must be inferred that the contract is not terminable other than under such specific grounds.
By the judgment and order impugned dated August 18, 2017, several directions were issued upon the Single Bench observing that the contractor was in "firm possession" of the property and enjoyed a possessory right for a period of 32 years, renewable for another 32 years. It was also observed that there was no 5 grievance indicated by the State prior to the issuance of the show-cause notice of June 8, 2017; which, again, dwelt mainly on the damage to the environment than the breach of any covenant by the contractor. The Court also found that the allegation against the contractor that it had damaged the environment "appears to be without evidence". It was held that the contract "is not determinable by nature" and "an award of damages is not the proper remedy." The notice of termination of July 11, 2017 was set aside and the State was restrained from terminating the contract till September 7, 2017 and for a further period of 45 days thereafter. It was also observed that the contract may "only be terminated for any alleged breach of the petitioner after the date of this order." The contractor was found to be entitled to resume work immediately upon the passing of the order.
Apart from the fact that no affidavit was called for from the State while disposing of the petition under Section 9 of the said Act, it is evident that a rather wide order has been passed even though it may have been prefaced with the expression "prima facie". Ordinarily, in proceedings under Section 9 of the said Act, interim measures are granted by a Court for the preservation of the subject-matter of a contract pending the adjudication in the arbitral reference. In the present case, the entire grievance of the contractor has been dealt with by the order impugned; so much so that the contractor may not find it necessary to go to the arbitral reference. In any event, there would be little left for the arbitrator to grant or award in favour of the petitioner if the order impugned is to be accepted.
6
The State has first referred to a judgment reported at (2007) 7 SCC 125 (Adhunik Steel Limited v. Orissa Manganese and Minerals (P) Ltd.) for the proposition that it may not always be necessary to restrain the completion of the work envisaged under the contract upon the termination thereof being challenged. In that case, a mining contract was sub-contracted to the petitioner before the Supreme Court. The sub-contract was terminated and that was the subject-matter of the challenge. The Supreme Court allowed the contractor to carry on the mining operation by itself despite the termination and the challenge thereto since the contractor had the licence to do so.
The State has also referred to the well-known judgment reported at 1984(4) SCC 59 (A.T. Brij Paul Singh v. State of Gujarat) for the proposition that there exists a suitable measure for quantification of profits.
According to the contractor, the entire action of the State to first issue a show-cause notice and then terminate the contract is arbitrary and based on extraneous considerations. The contractor maintains that no grounds within the four corners of the contract have been cited while the State has alleged breach on the contractor's part. The contractor says that there was no delay in the work being carried out or the project being implemented since it was started in March, 2017 and, given that substantial construction had been completed by June itself, the State's action was uncalled for.
The contractor reminds the Court that unlike a private party, the State has to be a model party in a contract and, while a private party may terminate a contract on irrelevant considerations, the State cannot be arbitrary in its actions. In support of such proposition that even in the contractual field, 7 the State cannot choose to do what a private party may, the contractor has relied on two Delhi judgments rendered by Single Benches: (2003) 1 Arb LR 672 (Pioneer Publicity Corporation v. Delhi Transport Corporation); and (2006) 126 DLT 504 (Atlas Interactive (India) Pvt. Ltd. v. Bharat Sanchar Nigam Limited). In addition, a Supreme Court judgment reported at (2003) 2 SCC 673 (Onkar Lal Bajar v. Union of India) has also been cited for the same purpose.
Apart from the Court coming to a prima facie finding based on cogent reasons that the actions of the State or the State agencies in the three reported cases were arbitrary, the facts in this case do not permit the application of the same principle.
It may also be recorded at this stage that after the present appeal was received, a special team was constituted for the purpose of visiting the island and rendering a report on the ecological situation thereat. A team of experts was constituted by the State for such purpose and a report has been received. Though the report refers to a degree of environmental degradation at the island, there does not appear to be anything of great alarm evidenced from the report.
The State in this case has cited some grounds and has referred to several clauses in the agreement which are alleged to have been breached by the contractor. The Court is not called upon to render any conclusive opinion on such allegations at this stage since the brief of the Court in interlocutory proceedings pertaining to an arbitration reference is to preserve the subject- matter of the contract and ensure that neither party is prejudiced in course of the time spent for the arbitral reference. Since such part of the order impugned that directs specific performance of the contract is not insisted upon by the 8 contractor, the primary consideration here is whether the State should be restrained from continuing with the project or engaging any other contractor in respect thereof pending the conclusion of the arbitral reference. Prima facie, a contract of such nature is terminable and it cannot be said that damages will not be an adequate remedy even if the termination is found to be wrongful. More importantly, and as would be evident from the contract between the parties, the contract did not grant any right in respect of the island or the possession of the contractor thereat. The contractor had been given possession under the contract only for the limited purpose of implementing the project without any right of dealing with its possessory rights. It also does not appear that a case of a right to the relevant land had been made out in the petition filed before the Single Bench and even if such case was urged, prima facie, it is not supported by the contract between the parties.
Before parting with the matter, it may be noticed that there is something remiss about this contract. It is alarming that a private contractor was given the rights to run a resort and commercially exploit the same for a period of 64 years against an upfront payment of a paltry sum of Rs.70 lakh and without even the annual payment being indicated in the contract. It also appears from the petition filed by the contractor that that there may have been extraneous considerations in the contract being terminated or, at any rate, a decision as to the termination may have been taken prior to even the show-cause notice being issued.
However, since a works contract, as the present contract can be described to be, is generally determinable by its very nature and damages may be 9 adequate remedy even for the wrongful termination thereof, no order of injunction was warranted. Further, since the State says that the State would implement the project itself by undertaking the remainder of the construction and the State would run the eco-tourism park by itself without assigning the job to any other contractor, no injunction is required to be issued for third party rights not to be created prior to the conclusion of the reference.
For the reasons aforesaid, the judgment and order impugned dated August 18, 2017 cannot be sustained and the same is set aside. In the event the arbitral tribunal has not been constituted yet, the parties should take immediate steps to ensure that the same is done such that the reference is concluded without any undue delay.
APO No. 399 of 2017 along with GA No.2813 of 2017 are disposed of without any order as to costs.
A prayer for stay of operation of the order is made, which is declined.
(SANJIB BANERJEE, J.) (SABYASACHI BHATTACHARYYA, J.) bp./kc.