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Master Builders v. United States Of America .
Structured Summary of the Opinion (M.C. Jain, J.)
Factual and Procedural Background
The United States of America (USA), through its diplomatic mission in New Delhi, contracted Master Builders (MB), a partnership firm, to construct senior officers' residences on two leasehold plots: No. 14 and No. 16, Amrita Shergill Marg. Separate contracts (entered 5 October 1979, effective 15 October 1979) were made for each plot, although the projects were treated together in practice. MB completed and handed over plot No. 14 in January 1983; MB alleges plot No. 16 was substantially complete by March 31, 1983 but continued to hold possession.
USA contended the works (both plots) were shoddy and incomplete and terminated the contracts by notice dated 4 May 1983, also alleging gross delay and overpayments to MB. Under the contract clause invoking the Contract Disputes Act, 1978 (U.S. law), a Contracting Officer adjudicated and held MB owed USA a sum; MB appealed but later withdrew that appeal.
Litigation followed: MB filed Suit No. 932 of 1986 seeking recovery (and an interlocutory application to restrain USA from entering the property); USA filed counter-interlocutory applications and later filed Suit No. 2345 of 1990. In the suit before the learned Single Judge USA applied under Order 39 Rules 1 & 2 read with Section 151 CPC for an ad interim injunction restraining MB from resisting USA's entry into plot No. 16 and for MB to remove itself during the suit's pendency. The learned Judge granted the application, appointed joint Local Commissioners with specified duties and directions (including dates, fees and reporting), and imposed an undertaking and other conditions. MB appealed the order dated 7 February 1991; the present opinion is the appellate court's judgment dismissing that appeal.
Legal Issues Presented
- Whether, after termination of a building contract by the owner, a building contractor has any right to remain in possession of the site or to obstruct the owner's entry into the property.
- Whether a court, at an interim stage, can grant an injunction (ad interim relief) that effectively requires handing over possession or restraining the defendant from obstructing the plaintiff's entry into the property, i.e., whether such interim relief is appropriate where it may appear to decide the suit on possession in advance of trial.
Arguments of the Parties
Appellant (Master Builders) — Principal Arguments
- The learned Single Judge failed to consider whether termination of the agreement by USA was wrongful; if termination was wrongful the plaintiff was not entitled to equitable relief (injunction) forbidding MB's possession.
- MB had completed the building and therefore had the right to remain in the property; the licence to enter could not be revoked or terminated so as to deprive MB of that right.
- MB had large outstanding dues (over Rs. 1.18 crores claimed in separate proceedings) and therefore had a right, including a claimed lien, to retain possession of the property built on plot No. 16 as security for payment.
- Granting the temporary injunction effectively decreed the relief sought in the suit (entry into the plot), improperly deciding possession at an interlocutory stage.
- Relied upon Hounslow v. Twickenham Garden Development Ltd. (where an owner was refused an injunction to restrain a contractor from entering), Hudson's Building Contracts, and Mayfield Holdings v. Moana Reef.
Respondent (USA) — Principal Contentions as Stated in the Opinion
- USA asserted it retained ownership and possession (leasehold) of plot No. 16; MB's presence on the site was only under a licence to enter to perform construction and possession was not transferred to MB.
- Following termination of the contract, MB had no right to remain in possession or to obstruct USA from entering the property.
- USA emphasized that, as owner (licensor), it could revoke the licence and seek possession; if MB's termination claim was wrongful the appropriate remedy was damages rather than continued possession.
- USA sought injunctive relief restraining MB from obstructing entry and enforcement of possession, which the learned Single Judge granted subject to conditions and undertakings.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hudson's Building Contracts (Supplement to Art 712 of 10th Edition) | The opinion identifies Hudson's Building Contracts as expressing a view relied upon by the plaintiffs; the specific doctrinal excerpt is not reproduced in the provided text. | The learned Single Judge followed the view expressed in Hudson's Building Contracts; the appellate court expressly agreed with the Single Judge's reasoning and followed that view. |
| Mayfield Holdings v. Moana Reef (1973) 1 NZLR 309 | The opinion records Mayfield Holdings as relied upon by the plaintiffs; the text does not set out the particular rule drawn from it. | The learned Single Judge followed the reasoning in Mayfield Holdings; the appellate court agreed with that approach and upheld the order. |
| Hounslow v. Twickenham Garden Development Ltd. (1970) 3 All ER 326 (Ch.D.) | The opinion notes that Hounslow was cited by the appellant as a case where the owner was refused an injunction to restrain the contractor from entering the site. | The case was considered by the learned Judge among other authorities; the Single Judge nonetheless followed Hudson's and Mayfield instead. The appellate court agreed with the learned Judge's conclusion. |
| Porter v. Hannah Builders (1969) Victorian Reports 673 | The provided opinion lists this case among those considered; no specific rule or principle from the case is described in the text. | The case was considered by the learned Judge; the provided opinion does not specify how it was applied. |
| Graham H Roberts Ltd. v. Maurbeto Investments Ltd. (1974) New South Wales Law Reports 93 | The opinion lists this case among those considered; no specific principle from the case is stated in the provided text. | The case was included in the learned Judge's survey of authorities; the appellate opinion does not detail specific application. |
| Dewan Chand Sabharwal v. Union of India, AIR 1951 Punjab 426 | The opinion includes this citation among authorities considered; the provided text does not state the specific rule cited. | The learned Judge considered the case; the appellate opinion does not describe any particular application of it. |
| Dorab Cawasji Wardeen v. Coomi Sorab Wadeen, JT 1990 (1) SC 199 | The opinion lists this Supreme Court citation among cases considered; no explicit rule from the case is summarized in the provided opinion. | The case was referred to in the learned Judge's treatment of authorities; the appellate court's summary does not specify its applied effect. |
| Southern Roadways Ltd. v. S.M. Krishnan, JT 1989 (4) SC 89 | The opinion lists this Supreme Court citation among cases considered; the provided text does not explain the principle taken from it. | It was one of the cases adverted to by the learned Judge; the appellate opinion does not record a specific application. |
| Kailash Nath Associates v. Ram Nath, 1990 (2) Delhi Lawyer 304 | Listed among cases the learned Judge considered; the provided text does not state the associated rule. | Included in the authority list by the learned Judge; the appellate opinion does not describe how it was applied. |
| Mrs. Vijay Srivastava v. Ms. Mirahul Enterprises & Others, AIR 1988 Delhi 140 | Listed among the authorities considered by the Single Judge; no specific principle drawn from it is set out in the provided opinion. | Considered by the learned Judge in his analysis; the appellate opinion does not record a particular application. |
| Chandu Lal v. M.C.D. (Full Bench), AIR 1978 Delhi 174 | Listed among the authorities considered; the provided text does not specify the rule used from this decision. | One of the cases adverted to by the learned Judge; the appellate opinion does not explain a targeted application. |
Court's Reasoning and Analysis
The appellate court summarized and accepted the learned Single Judge's analytical approach. The Single Judge focused on two related legal considerations: (a) the substantive right of a building contractor to remain in possession of property after the owner terminates the contract, and (b) whether an interim injunction of the sort sought (ordering removal of the contractor and restraining obstruction of the owner's entry) was appropriate at an interlocutory stage when it may effectively decide possession issues that properly belong to the trial.
The learned Judge examined the governing principles and relevant authorities (including foreign and domestic decisions and treatises). He addressed whether a contractor who claims unpaid dues may, by way of equitable relief or lien, retain possession of the owner's property after contract termination. The learned Judge concluded — for reasons set out at length in his 40-page judgment and which the appellate court describes as adequate — that once the owner has terminated the agreement and revoked licences to be on the site, the contractor cannot lawfully remain in possession against the owner.
The learned Judge also considered the equities and protective measures for the contractor: the plaintiff (owner) was required to file an undertaking and the court imposed conditions (appointment of Local Commissioners to inspect and record the state of construction, fees, dates for execution, and reporting). The learned Judge followed the views expressed in Hudson's Building Contracts and Mayfield Holdings, both of which were relied upon by the plaintiffs; the appellate court expressly agreed with the reasons given by the Single Judge for following those authorities.
The appellate court additionally addressed the appellant's practical concern that trial might be prolonged and the appellant may be deprived of substantive relief for long; it observed that if the parties wished to press for trial on documents or otherwise expedite trial, they could approach the trial judge. However, on the merits of this appeal against the interim order, the appellate court found no good ground to interfere with the Single Judge's exercise of discretion.
Holding and Implications
Holding: The appeal is dismissed. The appellate court affirmed and upheld the order of the learned Single Judge granting the plaintiff's application for ad interim relief restraining the defendants from resisting or obstructing the plaintiff's entry into plot No. 16 and directing the defendants to remove themselves from the property during the pendency of the suit, subject to the conditions and directions previously imposed by the learned Judge.
Implications:
- Direct effect on the parties: The interim injunction and related directions made by the learned Single Judge remain in force as affirmed by the appellate court — the defendants were required to vacate and not obstruct the plaintiff's entry during the suit's pendency, conditional on the plaintiff's undertaking and compliance with the directions (including inspection and report by Local Commissioners).
- Remedies for alleged wrongful termination: The appellate court (agreeing with the Single Judge) held that even if the contract termination were later found wrongful, the remedy against wrongful termination is an action for damages; wrongful termination does not, in itself, entitle the contractor to remain in possession against the owner once licences are revoked.
- Interim relief and final determination: The appellate court found no improper pretrial determination in the order as made; it considered that the learned Single Judge had appropriately weighed equities and imposed safeguards (undertaking, Local Commissioners, fees) when granting the interim relief.
- Precedential effect: The opinion affirms the application of prior authorities relied upon by the Single Judge (specifically Hudson's Building Contracts and Mayfield Holdings) but does not purport to establish a new legal principle beyond affirming the correctness of the Single Judge's application of existing authorities in the circumstances of this case. The opinion does not state that it creates new precedent.
Disposition: Appeal dismissed summarily.
M.C Jain, J.— This appeal is preferred against the order dated 7th February 1991 passed on the application filed under Order 39 Rules 1 and 2 read with Section 151 of the Code of Civil Procedure for restraining the defendant by means of an ad interim injunction from resisting and obstructing the entry of the plaintiff in property No. 16. Amrita Shergill Marg, New Delhi and also restraining the defendant from entering upon the same. The learned Judge granted the plaintiff's application and the defendants were directed to remove themselves from the property in question during the pendency of the suit and were further restrained from resisting or obstructing entry of the plaintiff of any of the officers or others all on behalf thereto. The learned Judge also gave some directions as to how the order passed on the application is to come into effect. The directions given by the learned Judge are as under;—
(1) This order will become effective from February 18, 1991, 12.00 noon;
(2) Plaintiff will file the requisite undertaking on or before February, 16, 1991;
(3) Ms. Freyan Desai, Advocate, C/o Dua & Associates, 204-206 Tolstoy House, Tolstoy Marg, New Delhi, and Mr. R.S Sodhi, Architect, C-48, Panchsheel Enclave, New Delhi, are appointed joint Local Commissioners to respectively supervise and record the stage of construction of the property in question. The representation of the parties shall be allowed to be present at the site at the time of execution of the commission. The Local Commissioners shall also record any observation or objection as may be requested by either of the parties. They shall take video film of the property both of its exterior and interior and may also take photographs, if they so choose. No obstruction will be caused to the Local Commissioners in the discharge of their duties by any one and they shall have free access to any portion of the property. Either of the parties may submit plans of the property to the Local Commissioners in order to expedite their work. As to whether they should visit the site jointly or individually at different times shall be left to the discretion of the Local Commissioners. They shall complete their work on or before February 17, 1991.
(4) Ms. Freyan Desai, Advocate, shall further supervise the exit of the defendants into the property in question on February 18, 1991 at 12.00 noon, and entry of the plaintiffs at the Same time. She will report compliance to the court thereafter.
(5) The plaintiff shall be free to carry out any further construction/improvement in the property after the order becomes, operative.
Each of the Local Commissioners shall be paid Rs. 10,000.00 as her/his fee in the first instance, which I have fixed tentatively, at the rate of Rs. 2000.00 per day. The fee shall be exclusive of all the expenses which the Local Commissioners might have to incur. The fee and the expenses shall be borne by the plaintiff and will be subject to further orders of the Court.
The Local Commissioners shall submit their report immediately after execution of the commission.”
2. The necessary facts stated by the learned Judge are as follows:—
(i) “The plaintiff is the Federal Government of the United States of America having its diplomatic mission in New Delhi. There are two defendants. First defendant is stated to be a partnership firm engaged in the business of engineering and building contracts. Second defendant is the managing partner of the first defendant. At this stage itself, it may be noted that the first defendant earlier filed a suit. Suit No. 932 of 1986, against the Government of the United States of America and their contracting officer for recovery of over Rs. 1.18 crores for the work done on property bearing No, 16, Amrita Shergill Marg, and also No. 14, Amrita Shergill Marg. The two suits have been consolidated by an order dated November 26, 1990. Since there are two cross suits, it will be appropriate to use the names of the parties instead of describing them as plaintiff and defendant, that is, the United States of America (“USA” for short) and Master Builders (“MB for short).
(ii) USA is the owner of leasehold rights in plot Nos. 14. and 16, Amrita Shergill Marg, New Delhi (henceforth to be described as Plot No. 14 or, even no. 14 and Plot No. 16, or, even No. 16). It was to construct senior officers residences on these plots and for that purpose invited tenders. The tenders of MB was accepted, and two separate contracts for the construction of residences at No. 14 and No. 16 were entered into. The two projects and the two contracts, though separate, were, in fact, treated as one by the conduct of the parties, and it is the admitted case that there was common correspondents covering construction on both these plots. The suit filed by USA concerns construction on plot No. 16. Cost of each project was Rs. 40,31,654.00, but MB has contended that due to changes made by the USA the contract price was increased to Rs. 76,25,699.05 for plot No. 14 and Rs. 76,81,406.84 for plot No. 16.
(iii) The two contracts were entered into on October 5, 1979. On October 15, 1979. USA wrote to MB authorising to undertake construction of the work as per contracts, the date October 15, 1979 being the effective date. The work on plot No. 14 was to be completed on 7.12.1980 and on plot No. 16 on 15.2.1981 Thereafter, demolition of the existing buildings on the plots took place, excavation done and foundations laid and construction started. On January 12, 1983, possession of building constructed on plot No. 14 was handed over by MB to USA after obtaining the occupancy certificate from the New Delhi Municipal Committee (“NDMC” for short). MB has claimed that construction on plot No. 16 was complete on January 12, 1983, but it still holds on with the possession of that buildings.
(iv) USA has complained that construction on both plots Nos. 14 and 16 was shoddy and incomplete and it, therefore, per force, terminated the contracts by its notice dated May 4, 1983, which was also on account of gross delay on the part of the MB in not completing the works. It has said that it has made overpayments to MB and extensive rectification of the work had to be done at No. 14. Further, with respect to plot No. 16, USA has stated that in spite of the fact that the work done was shoddy and incomplete more payments than due had been made to MB, but MB was refusing to remove itself from the property. USA said that under clause 37 of the contract between the parties, procedure for adjudication/settlement of disputes in relation to the contact in question was to be decided under the Contract Disputes Act, 1978, a law of the USA. It said that on February 7, 1984, MB preferred its claim before the Contracting Officer under the aforesaid Act, and USA also filed counter-claims. The Contracting Officer held that a sum of Rs. 39,60,960.63 was due from MB to USA. Against this decision, MB filed an appeal before the Board of Contract Appeals, the Appellate Authority, but after hearings had been held even in New Delhi, MB by its letter dated June 21, 1985, withdrew the appeal. According to USA the order of the Contracting Officer, therefore, became final.
(v) On April 14, 1986, however, MB filed the suit (Suit No. 932 of 1986) against the USA for recovery of money under the two contracts. Along with the suit, MB filed an interlocutory application (LA. No. 2926 of 1986) seeking restraint on the USA from entering upon the property. Then, in that suit USA also filed interlocutory application (LA. No. 6166 Of 1989) that injunction be granted restraining the MB from obstructing USA and its officers from entering upon the property No. 16. However, MB with drew its application and the same was dismissed as withdrawn. Then, the USA filed the present suit (Suit No. 2345 of 1990) and its application was subsequently also dismissed as withdrawn.
(vi) USA claims to be the owner of the property No. 16 about which it says there is no dispute. It says that MB was allowed to enter upon the plot for purpose of demolition of the existing structure thereon and for construction of a new building under the contract, and that there was no transfer of possession in favour of MB and that possession always continued with the USA, the lawful owner. The only licence granted to MB was to enter upon the property for the purpose of carrying out construction and it had no right to remain there, now that the contract had been terminated and its continuance to remain there was not legal. USA says that the only question that arises for consideration is if a building contractor after termination of the contract by the owner has any right to obstruct the owner from entering into the property or claim to hold possession of the site. Then, as noted above, USA has also claimed damages from MB at the rate of Rs. 1,30,000.00 per month. MB has disputed the contentions raised by USA and lays blame squarely at the doors of the USA. It has given various factors (Clauses A to M in para 10 of the written statement) which caused delay in execution of the work. It has said that tha contract was carried out entirely to the satisfaction of Mr. E.C Lineberry, Project Supervisor, and foreign buildings attache, American Embassy, who was having permanent office at the site of the projects and who along with his engineer and architect used to inspect the work, done by MB, every day, and whatever shortcomings were pointed out by the Project Officers these were attended to by MB. MB says that project at No. 14 was complete on October 30, 1982, and possession was delivered to USA on January 12, 1983. With regard to plot No. 16 MB, says that project was substantially completed in all respects by March 31, 1983, except for a few minor items or touching up in the painting and polishing works and that the same could not be completed due to the gross, illegal, mala fide and wrongful detention of MB's retainage amounts as well as non-payment of running bills amounting to over Rs. 23 lakhs. MB has given the break up of these arrears as under:
1. Refund of reduced retainage for No. 14…Rs. 12,56,709.00
2. Refund of retainage for No. 16, and work done… Rs. 8,04,702.00.
3. Bill for purchage order…Rs. 2,37,000.00 Total…Rs. 22,98,411.00
Apart from this, MB has claimed further charges. It therefore, says that it has a right to retain possession of the property built on plot No. 16 as security and the guarantee for the payment of outstanding dues to it from USA. MB has claimed lien on the property and says it has such a legal right to retain possession which is against the whole world. Lien is claimed on the property built on plot No. 16 for the price of construction made on both the plots Nos. 14 and 16. Total amount MB claims is over Rs. 1.18 crores with interest. MB says, the contracts had been wrongfully terminated by the USA after the work was complete, and further that before the lien could be terminated it had to be paid its dues.”
3. Counsel for the appellant has submitted that the learned Judge did not take into consideration as to whether there was a wrongful termination of the agreement by the plaintiff and as such the plaintiff is not entitled to any equitable relief in the form of injunction. The defendant applicant had completed the building and at that stage it was wrongful on the part of the plaintiff to terminate the agreement. The appellants had the right to remain in the property, and that licence could not be revoked or terminated by the plaintiff. The defendant has a large sum outstanding against the plaintiff, in respect of which a suit has already been filed by the defendant in the sum Rupees more than one crore. It is also urged on behalf of the defendants appellants that by allowing the application for grant of temporary injunction, the suit itself stood decreed. Entering into the plot in question was the relief sought by the plaintiff in the suit and that relief plaintiff has been granted on the application for grant of temporary injunction. It is also urged on behalf of the appellant that the learned Judge did not properly consider the law laid down in Hounslow v. Twickenham Garden Development Ltd., (1970)-3 All ER 326 (Ch.D) where the owner was refused injunction to restrain the contractor from entering the site: and Hudson's Building Contracts, and Mayfield Holdings v. Moana Reef, (1973)-1 New Zealand Law Reports 309, were relied upon.’
4. It may be stated that the main question for consideration before the learned Judge was as to what is the right of the building contractor to remain in the property after termination of the contract by the owner of the property. According to the plaintiff, the contractor has no right, title or interest in the property. The contractor could not hold the property or continue to remain in possession of the property against the alleged claims under the contract. The learned Judge considered the principles of law which should govern such a case and also the question as to whether the Court at an interim stage can grant such an injunction as prayed for during the pendency of the suit which virtually amount to decreeing the suit so far as handing over possession or restraining the defendant from obstructing the entry of the plaintiff in the property is concerned. The learned Judge considered the law on these aspects in sufficient details in his lengthy judgment of 40 pages. He adverted to the relevant case law on the subject. The cases dealt with by him are; Hounslow v. Twickenham Garden Development Ltd., (1970)-3 All ER 326 (Ch.D), Porter v. Hannah Builders, (1969) Victorian Reports 673, Mayfield Holdings v. Moana Reef, (1973)-1 New Zealand Law Reports 309, Graham H Reoberts Ltd. v. Maurbeto Investments Ltd., (1974)-New South Wales Law Reports 93, Dewan Chand Sabharwal v. Union of India, AIR 1951 Punjab 426, 29, Dorab Cawasji Wardeen v. Coomi Sorab Wadeen, JT 1990 (1) SC 199. Southern Roadways Ltd. v. S.M Krishnan, JT 1989 (4) SC 89, Kailash Nath Associates v. Ram Nath, 1990 (2) Delhi Lawyer 304, Mrs. Vijay Srivastava…Plaintiff v. Ms. Mirahul Enterprises & Other…Defendants, AIR 1988 Delhi 140 and Chandu Lal v. M.C.D (Full Bench), AIR 1978 : Delhi 174; and 87, (1971) Law Quarterly Review page 309 and Hudson's Building Contracts, Supplement to Art 712 of 10th Edition.
5. He gave the reasons as to why he is following the view expressedin Hudson's Building Contracts and Mayfield Holdings v. Moana Reef case which have been relied upon by the plaintiffs. We agree with the reasons given by the learned Single Judge.
6. It may be stated that the defendants rights have been amply protected and the equities have been considered by the learned Judge. Counsel for the plaintiff had agreed to file an undertaking as directed by the Court. The Contractor cannot be allowed to hold on the property till his claim is decided in the suit more particularly when the agreement has been terminated and the licences have been revoked. After such an action on the part of the plaintiff, in our opinion, the Contractor has no right to remain in the property. Even if it is found that the termination of the agreement was wrongful, still so far as contractor’ rights as such are concerned to remain in the property, there can be none. If there is wrongful termination of the contract, the appropriate remedy is an action for damages for breach of contract.
7. To us, it appears that the main grievance of the appellant is that his suit will be a prolonged affair and that it will not be possible to get relief in the suit for a very long time. In this regard the learned counsel for the appellant submitted that the defendant/applicant would submit all his documents and the plaintiff may also submit his documents and the parties may pray to the Court that on the basis of the documents, suit may be decided. In this connection the parties, if so advised, may move the trial judge. But so far as the present appeal is concerned, we agree with the view of the learned Single Judge. We affirm and uphold the order of the learned Judge as we do not find any good ground for interference.
8. In the result we find no force in this appeal. It is hereby dismissed summarily.
Appeal dismissed.
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