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Techno Construction & Anr v. Kunj Vihar Co-Operative Group Housing Society Ltd .

Delhi High Court

Mar 16, 2005

Judgment

Subsequent
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Structured Summary of the Opinion (S.K. Agarwal, J.)

Factual and Procedural Background

This is a petition under Section 9 of the Arbitration and Conciliation Act, 1996 by M/s Techno Construction (through a partner) seeking an ad-interim injunction restraining M/s Kunj Vihar Co-operative Group Housing Society Ltd. ("the respondents") from terminating the construction agreement dated 13.11.2001 and from awarding the contract for completion of unfinished work to any third party until conclusion of arbitral proceedings.

Relevant factual matrix (as set out in the opinion):

Respondents floated a tender for construction of residential flats at Plot No.19, Sector-12, Dwarka; petitioners' tender was accepted and an agreement was executed on 13.11.2001. Possession was given and work began; about 50% of the work was completed within one year.
Petitioners raised 13 running bills that were paid; by August 2004 bills amounting to Rs. 80,00,000/- were alleged to remain outstanding. A 14th running bill of Rs. 29,52,972/- was later deposited with the Court by the respondents.
Petitioners allege the society's Secretary planned to award remaining work to a third party (Swati Housing Construction) without calling fresh tenders and that offers were made to settle outstanding dues if petitioners relinquished the remainder of the contract. On 15.9.2004 the society purportedly asked the petitioners to remove material, equipment and labour and hand over site possession within ten days.
Petitioners invoked clause 40 of the Agreement (arbitration clause) and issued a Section 11 notice for appointment of an arbitrator. They sought interim relief under Section 9 to prevent frustration of arbitration by re-awarding the work.
Respondents challenged the authenticity of photocopies filed by petitioners, alleging the petitioners' documents were forged, and produced original agreement documents. Both sides filed contempt petitions alleging fabrication of documents by the other side.
The Court found prima facie material indicating possible forgery and directed registration of a police complaint; the Court also appointed an arbitrator and issued directions concerning deposit of funds, removal of materials, execution of remaining works, and interim possession and ultimately vacated the interim injunction.

Legal Issues Presented

Whether an interim injunction under Section 9 of the Arbitration and Conciliation Act, 1996 should be granted restraining the respondents from terminating the construction agreement and from awarding the remaining work to a third party pending arbitration.
Whether a contract for construction of a building can be specifically enforced in the present case — i.e., whether specific performance (or negative enforcement by injunction) is available when money compensation may be an adequate remedy, having regard to Section 14 of the Specific Relief Act, 1963 and the proviso to clause (c) of sub-section (3) of Section 14.
Whether the parties' conflicting documentary evidence (claims of forged documents) requires criminal investigation and referral to police, which could affect interim relief and the arbitral process.
Whether the petitioners have established the elements necessary for interim relief under Section 9 (prima facie case, balance of convenience and irreparable loss).

Arguments of the Parties

Petitioners' Arguments

The photocopies of the contract documents filed by petitioners are genuine; the originals (which petitioners say are with respondents) have not been produced by the petitioners.
The respondents have forged and fabricated the original agreement (as contended by petitioners); therefore the respondents are not entitled to relief in equity and cannot be permitted to re-award the work to a third party.
Petitioners relied on a number of Supreme Court decisions and other authorities (listed in the record) in support of their equitable entitlement and related submissions.
Interim injunction was necessary to prevent respondents from frustrating the arbitration by awarding the remaining work to a third party and to protect petitioners' investment, plant, materials and workforce on site.

Respondents' Arguments

The photocopies filed by petitioners are forged and fabricated; respondents filed original agreement and articles of agreement to controvert petitioners' documents.
Even without prejudice to their case on forgery, respondents contended that the construction contract cannot be specifically enforced and placed reliance on the Court's earlier decision in Master Builders v. United States of America (1991 DLT 719) to support the proposition that specific enforcement may not be appropriate.
Respondents, without prejudice to their position on forgery, also offered to deposit the amount claimed by the petitioners (and ultimately did deposit a portion with the Registrar General), indicating willingness to secure petitioners' monetary claims.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Vineet Manchanda v. Nishi Housing Cooperative Society (1987 Vol 2 ALR 10)	Cited by petitioners (listed among authorities relied upon to support equitable relief despite alleged forgery).	The Court recorded that petitioners relied on this authority; the opinion does not expressly base its primary decision on this precedent and instead framed its decision on statutory principles (Specific Relief Act) and facts.
Master Builders and Anr. v. United States of America (1991 DLT 719)	Cited both by petitioners (earlier references) and by respondents; respondents specifically relied upon it to support submission that the contract for construction cannot be specifically enforced and injunction may not be appropriate.	The Court noted the respondents' reliance on this decision. The Court's conclusion—that specific enforcement was not made out and money compensation would be adequate—was consistent with the respondents' submission invoking this authority, though the Court grounded its ruling primarily on statutory considerations (Section 14 Specific Relief Act) and the facts before it.
B.S.M Construction Pvt. Ltd. v. Rajasthan State Building Construction Ltd. (1991 Vol 1 ALR 417)	Cited by petitioners (included in the list of authorities relied upon by petitioners).	The Court recorded that petitioners relied on this authority; the opinion does not indicate direct reliance on this case in the Court's analytic path, which turned on Section 14 of the Specific Relief Act and the evidence.
S.P. Chengalvaraya Naidu v. Jagannath (AIR 1994 SC 853) paras 7 & 8	Cited by petitioners (part of the authorities relied upon).	The Court noted citation but did not explicitly state that its ruling depended on this precedent; instead, the Court applied statutory tests for specific enforcement under the Specific Relief Act.
Gugarat Bottling Co. Ltd. v. Coca Cola Company (AIR 1995 SC 2372) paras 45 & 50	Cited by petitioners (listed among their authorities).	The Court acknowledged the citation; there is no explicit passage applying this precedent as the decisive basis for the Court's final directions.
Satrangi Lal v. State of Haryana (1995 Crl.L.J 969) paras 1, 2, 11 & 14	Cited by petitioners (included in their list of authorities, likely on points relating to forgery/penal consequences).	The Court found prima facie material suggesting forgery and directed police involvement; while Satrangi Lal was cited by petitioners, the opinion does not record direct reliance on this precedent for the decision to refer the matter to police beyond the Court's own assessment of the prima facie evidence.
Shanti Devi & Ors. v. State of Rajasthan (1994 Vol VI SCC 9) paras 5 & 13	Cited by petitioners (listed among authorities concerning forgery/penal consequences).	The Court ordered lodging of a police complaint after concluding prima facie forgery may have occurred; the opinion records the citation but does not explicitly state it relied on this precedent as the principal legal foundation for directing police investigation.

Court's Reasoning and Analysis

The Court's reasoning proceeds in several interrelated strands that reflect both factual evaluation and legal principle:

On the documentary dispute the Court found that prima facie either the documents filed by petitioners were forged or the originals produced by respondents were forged. The materials before the Court, read together, indicated a prima facie case of forgery and misuse of documents. The parties and their counsel agreed that forging documents is a serious offence whose truth requires police investigation. The Court therefore considered it expedient and necessary in the interest of justice to direct registration of a police report (paras 4–6).
Regarding arbitrability and appointment of arbitrator: clause 40 of the Agreement provided for resolution of disputes by arbitration. Petitioners had issued a Section 11 notice for appointment of an arbitrator. The respondents, notwithstanding their challenge to the authenticity of petitioners' documents, had no objection to appointment of an independent arbitrator to adjudicate claims and counter-claims. Accordingly the Court appointed an independent sole arbitrator and directed the parties to appear before him (para 6 and directions).
On the core interim relief application under Section 9 of the Arbitration Act, the Court stated the settled legal test: relief under Section 9 is available only when a prima facie case, balance of convenience and irreparable loss are shown. The pivotal legal question addressed was whether an order for specific enforcement (or negative injunction preventing respondents from awarding the remaining work to others) could be made in a construction contract (para 9).
The Court relied on statutory law — Section 14(1)(a) of the Specific Relief Act, 1963 and the proviso to clause (c) of sub-section (3) of Section 14 — which together set out the limited circumstances in which a contract for construction may be specifically enforced. The proviso requires (i) sufficiently precise description in the contract; (ii) that the plaintiff has a substantial interest making damages inadequate; and (iii) that the defendant obtained possession of the land in pursuance of the contract (para 9). The Court emphasized that if money compensation is adequate, specific performance cannot be granted, and by parity a negative injunction cannot be issued to achieve what specific performance would do.
Applying the statutory test to the facts: the Court considered the commercial facts — petitioners were a partnership firm, respondents a cooperative society; petitioners had completed about half the work and had earlier bills paid; respondents had deposited a portion (the 14th running bill) with the Registrar General and offered to deposit the balance of amounts, subject to terms. There were intra-party disputes and allegations of forgery; arbitration and criminal investigation would take time. The Court concluded that petitioners' interest could be adequately safeguarded by money compensation and therefore specific enforcement was not made out. Consequently they could not be permitted to hold site possession and shut out any third party from completing the work (para 10).
Given the competing equities and practicalities (members of the society would suffer if construction were stalled; the society had limited resources and would ultimately hand over flats to its members), the Court fashioned interim directions to protect petitioners' monetary interest while allowing the society to proceed with completion in an orderly manner during arbitration. These directions included depositing the disputed amount in Court, fixed deposit of the sum, orderly removal of materials by petitioners (or at their cost if they fail), liberty for respondents to engage other contractors after measurements, restraint on handing over flats without Court/Arbitrator leave, police complaint registration, and appointment of a sole arbitrator (paras 10–16).
Finally, having provided protective measures for petitioners' monetary claims and ensured a process (arbitration and criminal investigation) to resolve disputed facts, the Court vacated the interim injunction sought by petitioners and disposed of the petition and the related application (para 11).

Holding and Implications

Holding (core ruling): The interim injunction sought by the petitioners is vacated and the petition (and IA.394/2005) stand disposed of.

Direct Consequences and Directions (as ordered by the Court)

Respondents were directed to deposit the balance of Rs. 80,00,000/- (after adjusting Rs.29,52,972/- already deposited) within two weeks with the Registrar General; the entire amount to be placed in a fixed deposit pending arbitration adjudication (para 10(i)).
Petitioners were directed to remove all material lying at the site within two weeks; if they failed, the society may remove such material at petitioners' risk and cost but only after depositing the amount directed under (i) (para 10(ii)).
Respondents were permitted to have the remaining work executed by any other contractor after measurements of work done are taken by a local commissioner; either party may approach the Court or the Arbitrator for such measurement (para 10(iii)).
The society was restrained from handing over possession of the flats to any member without leave of the Court or the Arbitrator (para 10(iv)).
The Registrar General was directed to lodge a complaint with the DCP (Crime Branch), Delhi for registration of a case and investigation/prosecution of accused person(s) for the apparent forgery (para 10(v)).
Justice Anil Dev Singh (Retd.) was appointed as sole arbitrator to adjudicate claims and counter-claims; parties to appear before him on 21.3.2005; arbitrator to fix his own fee and costs to be borne equally (para 10(vi)).

Broader Implications

The Court's decision is fact-specific and based principally on statutory provisions (Section 14 of the Specific Relief Act, 1963) and the application of established interim relief principles under Section 9 of the Arbitration Act. The opinion does not purport to lay down any new general precedent; it resolves the competing equities in this matter by protecting petitioners' monetary claims while allowing the society to proceed with completion subject to safeguards. In short, the direct effects are procedural and protective measures between the parties (deposit of disputed funds, appointment of arbitrator, police referral, directions regarding materials and execution of remaining work), and no new legal principle beyond the application of existing statutory law was established.

Disposition: Interim injunction vacated; petition and IA.394/2005 disposed of.

Show all summary ...

S.K Agarwal, J.:— By this petition under section 9 of the Arbitration and Conciliation Act, 1996 (for short, “the act”), M/s Techno Construction, through one of its partners, has prayed for ad-interim injunction restraining M/s Kunj Vihar Co-operative Group Housing Society Ltd. (hereinafter, “respondents”) from terminating the construction agreement dated 13.11.2001 and restraining them from awarding the contract for completion of the unfinished work, under the said agreement to any third party till the conclusion of arbitral proceedings between the parties.

2. The facts in brief necessary for the disposal of this petition are as follows. The respondents floated tender for construction of high-rise, residential flats at Plot No. 19, Sector -12, Dwarka, New Delhi (hereinafter, “the site”). Petitioners' tender was accepted and on 13.11.2001 an agreement was executed, in respect of the construction work (hereinafter, “the Agreement”); possession of the site was given to them and they commenced the construction and completed about 50% of the work in one year. Petitioners in the course of construction raised 13 (thirteen) running bills, which were duly paid. It is pleaded that petitioners continued to work and in the month of August, 2004, bills amounting to Rs. 80,00,000/- remained outstanding. Petitioners approached Secretary of the respondents'-society for getting the dues cleared, who assured that the payment would be made in due course. However, nothing was done and petitioners were forced to lodge a report against Secretary to the President of the society and impressed upon him to clear the bills, expeditiously. On or about 10.9.2004 petitioners ca me to know that the secretary was planning to award the work under the agreement to some third party (Swati Housing Construction, NIC, New Delhi), without following the procedure of inviting the tender. It was also learnt that he had some vested interest in awarding the work to the third party; and even feelers were sent to them through the Treasurer of the society saying that if the petitioners agree to relinquish remaining part of the contract, then the society can expeditiously settle the unpaid bills. It is also pleaded that on 19.9.2004, petitioners received letter dated 15.9.2004 from society where they were asked to remove material, equipments and labour from the site and hand over the possession of the site to the society, within ten days. Petitioners tried to resolve the differences but in vain. It is pleaded that petitioners made huge investment in the project and that the stand taken by the society is unreasonable and illegal and that the material worth cores of rupees is lying at the site, and it was physically impossible to remove all the material and equipment within the time given. It was further pleaded that there were about 250 labourers and 30 other staff working at the site and it was not possible to absorb them.

3. It is further pleaded that clause 40 of the Agreement provides for resolution of the disputes through arbitrator. Petitioners have issued notice to the respondent under Section 11 of the Act for appointment of an Arbitrator and petitioners apprehended that respondents may not frustrate arbitral process by awarding the contract to any third party and thus prayed for an interim injunction pending adjudication of their respective rights. In support of this petition, petitioners filed photocopies of the tender documents Annexure P2 (at pages 17 to 84). The respondents filed reply inter alia pleading that the documents filed by the petitioners are forged and fabricated. The clause 40 of the contract provides for termination of the contract upon dissolution of firm which is missing in the documents filed by petitioners. The respondents in support of reply filed original agreement (pages 116 to 178) and the articles of agreement (pages 180-182).

4. The parties have also filed contempt petition against each other under Article 215 of the Constitution of India, read with sections 2(c), 15 and 17 of the Contempt of Court Act, for initiation of contempt proceedings, inter alia on the plea that the documents filed by the other side are forged and fabricated with an intent to mislead the Court. I have heard learned counsel for the parties and have been taken through the record.

5. Learned counsel for petitioners argued that the photocopies of the contract document filed by the petitioners (pages 17 to 84) are genuine and that the original tender documents filed by the respondent (society) (pages 116-178 & 180-181) are forged and fabricated. Mr. Valmiki Mehta, learned senior counsel for the respondent argued to the contrary. It may be noted here that petitioners have based their case only on photocopies of the documents stating that the originals are with respondents and only photocopies are available them. However, the respondents have filed Original documents. The parties have also examined a few witnesses in support of their respective contentions. Learned counsel for the parties after some arguments agreed that forging of documents and using them as genuine is a serious offence; that the truth can be determined only after thorough investigations by the police, and that matter be referred to the police for registration of the case, for investigation and prosecution of accused person(s), in accordance with law.

6. One thing appears to be certain; either the documents filed by the petitioners are forged or the documents filed by the respondents are forged. The material produced by the parties, prima facie reveals commission of the offence of forging the documents and using them as genuine. I find it expedient and in the interest of justice that report be lodged with Police. Accordingly, appropriate directions are being issued to the Registrar General, of this Court in concluding para of the order.

7. Mr. Lekhi, learned senior counsel next argued that petitioners are ready and willing to get the dispute settled through an arbitrator in terms of Clause 40 of the Agreement. Learned counsel for the respondent on the other hand argued that without prejudice to their contention that the tender documents (Annexure-2) filed by petitioners are not genuine, they have no objection to the appointment of any independent arbitrator for adjudication of the claims and counter claims of the parties. In view of the same arbitrator is being appointed as per the directions in the last para.

8. Learned counsel for petitioners next argued that the respondent society be restrained from awarding the contract for completion of the remaining work to any third party under the Agreement for construction of the residential flats at the site, pending adjudication of the rights of the parties by the arbitrator. Learned counsel argued that the contract agreement has been forged by the respondent with the intention to gain undue advantage, therefore, they are not entitled to any relief in equity. Reliance is placed on the Supreme Court decisions in (i) Vineet Manchanda v. Nishi Housing Cooperative Society 1987 Vol 2 ALR 10, (ii) Master Builders and An. v. United States of America 1991 DLT 719, (iii) B.S.M Construction Pvt. Ltd. v. Rajasthan State Building Construction Ltd. 1991 Vol 1 ALR 417, (iv) S.P Chengalvaraya Naidu v. Jagannath AIR. 1994 SC 853 paras 7 & 8, (v) Gugarat Bottling Co. Ltd. v. Coca Cola Company AIR 1995 SC 2372 paras 45 & 50, (vi) Satrangi Lal v. State of Haryana 1995 Crl.L.J 969 paras 1, 2, 11 & 14 and (vii) Shanti Devi & Ors. v. State of Rajasthan 1994 Vol VI SCC 9 paras 5 & 13. Learned counsel for the respondent argued to the contrary, submitting that the photocopies of the contract document filed by the petitioners are forged; that the originals have not been produced; that the contract for construction cannot be specifically enforced; and that the respondent society without prejudice to their case is even ready to deposit the amount claimed by the petitioners, although no bill has been raised. In support of this submission reliance is placed on the decision of this Court in Master Builders… v. United States Of America…. 1991 DLT 719.

9. Law with regard to grant of interim injunction while exercising jurisdiction under section 9 of the Arbitration and Conciliation Act, 1996 is well settled. The protection under this section can be granted only when prima facie case, balance of convenience and irreparable loss and injury is made out. The first question requiring consideration is, whether the contract for construction of building can be ordered to be specifically enforced? Section 14 (1) (a) of the Specific Relief Act, 1963 provides that a contract for non-performance, of which compensation in money is adequate relief, cannot be specifically enforced. In a suit for enforcement of contract for construction of a building, the party seeking specific performance of the contract has to satisfy three conditions, contained in proviso to clause (c) of sub-section (3) of Section 14. These are (i) the building or other work is described in the contract in sufficiently precise terms to enable the court to determine the exact nature of the building or work. (ii) the plaintiff has a substantial interest in the performance of the contract and the interest is of such a nature that compensation in money for non-performance of the contact is not an adequate relief; and (iii) the defendant has, in pursuance of the contract, obtained possession of the whole or any part of the land on which the building is to be constructed or other work is to be executed. In short, before a construction contract can be ordered to be enforced, it has to be held that compensation in money is not the adequate relief. It cannot be disputed that where a contract which cannot be enforced by a decree for specific performance, the same cannot be negatively enforced by issue of an injunction.

10. Now coming back to the facts: it may be recalled that Petitioner-M/s. Techno Construction is a partnership firm; respondent is a Cooperative Group Housing Society. The Society awarded contract to the petitioner for construction of flats for its members at the site. Petitioners started construction and raised 13 running bills which were duly paid. In terms of order dated 29.9.2004 respondent-society has deposited the amount of 14th running bill, Rs. 29,52,972/-, with the Registrar General of this Court. The petitioners claimed that in the month of August, 2004, bills payable by the respondent amounted to Rs. 80,00,000/- which remained outstanding, despite reminders. The respondents without prejudice to their case have further agreed to deposit the balance amount, on such terms and conditions, as the Court may deem fit. There is a dispute among the partners. There appears to be some dispute even among the executive members of the society. There are allegations and counter allegations about forgery of documents. Police case is being ordered to be registered. The Arbitrator is being appointed to adjudicate upon the respective claims, which is bound to take time. If during this period the construction is stopped, members of the society would unnecessarily suffer. In the facts of this case in my considered view petitioners' interest can be safeguarded by compensation in money; and the case for specific enforcement of the contract is not made out. They cannot be permitted to hold possession of the site and demand not to allow any third party to complete the remaining construction. The remedy of petitioners would be by way of damages which would be adjudicated after considering claims and counter-claims, in the arbitration proceedings. However, considering the society would be eventually handing over the flats to its members and limited resources available with the Society, some directions are called for to safeguard petitioners' interest. For the foregoing reasons, it is ordered as under:

(i) The respondents are directed to deposit balance of Rs. 80.0 lacs (Rupees eighty lacs only) after adjusting the amount of Rs. 29,52,972/-, towards the 14th running bill, within two weeks, in the Office of the Registrar General of this Court. The entire amount (including the amount earlier deposited by the respondents) shall be kept in fixed deposit, pending adjudication of rights of the parties by the arbital Tribunal.

(ii) The petitioners are directed to take steps to remove all material lying at site within two weeks. If the same is not done for any reason whatsoever, the Society would be at liberty to remove the same at the risk and cost of petitioners, only after depositing the amount as per direction No. (i)

(iii) The respondents shall be free to have the remaining work executed from any other contractor, after taking measurements of the work already done, through the local commissioner, for this purpose, respondents or the petitioners may approach this Court or the learned Arbitrator.

(iv) The society (respondents) are directed not to hand over the possession of the flats to any of its members without leave of this Court or the Arbitrator as the case may be.

(v) Registrar General of this Court is directed to lodge a complaint to the DCP (Crime Branch), Delhi for registration of the case, investigating and prosecution of accused person (s), in accordance with directions contained in paras 5 and 6 above.

(vi) Justice Anil Dev Singh, Chief Justice (Retd.) C-14/2, DLF Phase I, Gurgaon Ph.95124 2561119, mobile No. 9810060203 is hereby appointed as sole arbitrator for adjudicating claims and counter claims of the parties, as expeditiously as possible. Learned arbitrator shall fix his own fee. The fee and expenses shall be borne equally by both the parties. Parties are directed to appear before learned Arbitrator on 21.3.2005 at 2:30 pm.

11. With the above directions, the interim injunction is vacated. The petition and IA.394/2005 stand disposed of.