M.D., ARMY WELFARE HOUSING ORGANISATION v. - SUMANGAL SERVICES PVT. LTD.

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.A ·such violation_ either directly or indirectly. · " '· '· ·

Furthennore, risk and cost clause cannot be invoked 01i failure of the party to respond to its self-imposed obligation, Damages: are to be ·paid for willful breach of the tenns or conditions of the contract. Such a breach B must be in relation to an' express agreement entered into by and betwe.en the parties. An alleged breach on th~ part'of a~builder cannot be founded on a mere ipse dixit. The learned arbitrators ' . ht tlieif- award ·, - purported.to have held : ·· · ·· · " c " ... That SSPL had a role in getting the-plans san'ctioned bY. the competent authority is' bo~e out by letter of AWHO to'SSPL dated October 25, 1995 (Ex.· E-45, A WHO; Vol. 3', p. '356) and the reply of SSPL dated December 9, 1~94, (Ex'.E-103, A WHO, 'Vol. 17, p. 154) to the said letter of AWHO. In .the 'said letter.of AWHO dated Octob~r is, 1994, itwas.stated :· · rn . .- .• ..... ' ' '

"7. San~tioni~iofbuilding ;Ian ana revised ~ut l;zy plan Sanction of buildhig pl;n ~n-d revised .la'y out pla~s .has. already been. conside~ably. .• ' del~yed. - - This is effecting the progress of the· work ~iso .. Though DMA is taking action. but th~ follo'w up action as a part of . the turnkey project is to .be taken, by you. Please ensure that the sanction is. qbtained without. further delai" (AWHO Vol. 3, p. 357,para.7) · •'

F SSPL in their reply date.d Decem,:ber 9, 1994 said :

"g). Sanction!ng of bu_ilding plan.,...you havt'. been inforined during several discussions in your .office in New Delhi that there had been structural change in the local authority system affecting the project area. For ·.some considerable period v.a~uum existed in many standard local. govt ·functions. However, the new· Municipality authority has recently been·fonned. We . are following up with the new authoritY in respect of the sanctioning process." (AWHO, Vol.'17, p: 56(g)]

M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LID. [SINHA, 1) 43 7 The letter dated 25. l O·.l994 referred to in the award clearly shows that the architect was asked to take action but allegedly the follow up action was to be taken by Sumangal only on the ground that the project was a turnkey one._ Sumangal's letter dated 9.12.1994 merely stated that there had bee~. structural change in the local authority system affecting the project area and there· had been some vacuum in many standard local government functions and that they had been following up with the new authority in respect_ of the _sanctioning process. Presumably in the aforementioned backdrop,. the learned arbitrators observed :

"We are, therefore, unable to hold that the entire responsibility for obtaining sanction for the plans from the competent authority had C · . been tr~nsferred from SSPL to A WHO after June 12, 1991 and the_reaft~r A WHO and DMA were responsible for obtaining the said saqction."

Thus, merely some role.had been attributed to Sumangal in the matter of getting the plan sanctioned- and not a breach of contract leading to incurring its liability under clause 130 of the agreement.

EFFECT OF SUCH AGREEMENT, '. '• - - ASSUMING THERE WAS ONE

There cannot be an agreement that somebody would be bound to obtain a· statutory order from the statutory authorities, as thereover, he would have no control. ' '

In the Law Lexicon, the maxim 'Ex turpi causa non oritur actio' is defined as: F "On a bad (illegal) consideration on action can arise."

As regard the question:as to whether such a contract in its entirety or to some extent would be illegal or not which would give rise to further question as regard its enforceability, we may notice the following passage G from Immami Appa Rao and Others v. Gollapa/li Ramalingamurthi and Ors., [1962] 3; SCR 739 :

"Reported decisions· bearing on this question show that cqnsideration of this problem often gives rise to what may be H

438 SUPREME COURT REPORTS [2003]SUPP:4 S.C.R. A described as a battle of legal maxims. The appellants emphasised that the doctrine which is pre-eminently applicable to the present case is ex dolo malo non orituractio or ex turpi cause non oritur actio. In other words, they contended ·that the right of action cannot arise out of fraud or out of transgression of law; and B according to them it is necessary in such a case that possession should rest where it lies in pari delicto potior est conditio possidenties; where each party is.equally in fraud:the law favours him who is actually in pl>ssession, or where both parties are equally guilty the estate will lie where it falls. On·the otherhand, respondent I argues that the proper maxim to ilpply is nemo c 0

allegans suam turpitudinum (1Udiendum est, whc>ever has first to plead turpitudinum should fail; that .party fails who first has to allege fraud in which he participated. In other words, the principle invoked by resj>ondent I· is that a man cannot plead his own fraud. In deciding the question as to which maxim should govern the present case it is necessary to recall what Lord Wright, M R. observed about these maxims in Berg v. Sadler Qnd Moore, [1937] 2 K. B. 158, 162. Refe"ing to the maxim ex turpi causa non oritur actio Lord Wright observed that "this maxim, though veiled in the dignity oflearned language, is a statement ofa principle ofgreat importance; but like most maxims it is much too vague and much too general to admit ofapplication without a careful consideration ofthe circumstances and ofthe various· definite rules which have been laid down by the authorities".

In Kuju Collieries Ltd v. Jharlchand Mines Ltd and Others. AiR F (1974) SC 1892 : [1974] 2 sec 533 this Court·held that in relation to a contract whkh is hit by Section 23 of the Contract Act Section 65 and Section 70 of the Contract Act shall not apply. Only in a case where a contract has become void due to subsequent happenings, the advantage gained by a person should be restored. G The building plans would be sanctioned provided the same are in accordance with the statutory building rules. If admittedly the plans as also the constructions were not in terms .of rules, question of g~ing them sanctioned by a statutory authority ,would not arise. Such a contract, it is reiterated, would be illegal. Principle of estoppel will ha\'e not application

MD., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. [SINHA, J.) 439 in relation thereto as that part of the agreement itself would not be enforceable. In the event, however, the builder was merely required to take follow-up action in the matter with the authorities, the contract may be valid but in that event it must not only be pleaded and proved that there existed an agreement in that behalf, but also to how and to what extent the builder failed to perform its part of the contract. The findings of the learned arbitrators are without any materials and without applying the correct legal principles and, thus, the same cannot be sustained.

Admittedly, the deviations which were minor ones were regularized only on 23rd April, 1997. The contract, however, stood terminated on 17th October, 1995. C Even in the ordinary course, Sumangal could not have carried out any construction activities in anticipation that such deviations might be regularized. Whether such deviations would be regularized in respect of Phase I or whether building plans for Phase II and Phase III would be D sanctioned and if so within what time could only be a matter of speculation but the same would be irrelevant for determining the liabilities of the parties which was required to be guided by commercial considerations.

The liability to pay damages must arise out of contract and not otherwise. The award does not specifically say so. E FRUSTRATION OF CONTRACT:

Section 56 of the Indian Contract Act reads thus: F "Agreement to do impossible act:- An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful:- . A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could G not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful :- Where one person has promised to H

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A do something which he knew, or, with re:asonabie diligence; might have known, and which, the. promisee did not know, to be. impossible or unlawful, such promisor must make compensation ·.to such promisee · for any loss which such promisee sustains . through the non-performance of.the promise;'.' 1 .). ,-(':. , [, ~ j ~t J #' "t • 4 ', ,;• f •! I •

Imposs!bility to fulfill ~he ~ontractual obligation may arise in ~ifferent fact situations. ..111;'

Statutory injunction by a statutory authority may. be one of such causes.· A· building bye-la~ ~ust be s~mpu'io~sly ·followed. Violation of • ~ • .I. ~ • ,:

C Sectio1.1 204 of the West Bengal Muni<;ipal Act, 1993 attracts penal provisions contained in Section 440. It is, therefore, mandatory in nature. The correspondences between A WHO and the Municipality clearly show that ev_en ?ifrastructural works were. not. perm!tted to . be carried out. Sumangal, therefore, cannot be said to;have .colllmitted any illegality in complying.with the stop work notice. To,"'.hat extent it committed breach of the terms of the contract, assuming th_atit could haye_ carried out some job as pointed out by A WHO would depei:id upon the commercial viability as a large number of workmen were to ~e engaged although it cannot carry out the major construction work, which was a relevant factor for determining the quantum of damages. Sumangal might have been partially liable but it cannot be faulted when it refused to .carry out any constructional work in violation of the stop work notice which would attract the penal provisions of Section 440 of the West Bengal Municipal Act, 1993.

The learned arbitrators were also bound to take into consideration this aspect of the matter. They failed to do so and misdirected themselves in law.

In an interesting article titled "The Principle of Impossibility in Contract" by H.W.R. Wade published in Law Quarterly Review Volume G 56 page 519, it is stated:

"Two points emerge from the argument so far: (I) There can exist no duty to do an impossible act. (II) A promise is; normally and ··· primarily, a promise of performance simply, and not of damages in the alternative. The effect of supervening impossibility on an existing duty can now be determined; and in view of conclusion

M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. [ SINHA, 1.] 441 (I) the answer is a simple one. It must be that the impossibility causes the duty to cease to exist. For a duty either exists or it does not-that is to say, every duty continues until it is discharged, and discharge is the only process known to the law by which a duty once legally undertaken can be put off the shoulders of the obligee. Its effect is a complete removal of the obligation, and discharge by impossibility of performance is no less perfect than discharge by the performance of the original promise. In the words of Professor Corbin already cited, 'society no longer commands performance'-nothing more can be demanded of the promisor." c In Emden and Gill's Buildings Contracts and Practice, Seventh Edition, page 162-163, it is stated that liability to pay damages for non.: performance of an impossibility only arises where the contract is absolute and unrestricted by any condition expressed or implied. It is further stated that a difficulty may not in all circumstances amount to impossibility. But D even in that event the terms and conditions relating to performance of the contract may stand eclipsed.

The transaction was a commercial one. Sumangal could not plead frustration of contract if it itself had abandoned it. (See Hauman v. Nortje, E [1914] A.D. 293, at p. 297 and Hoenig v. Jssacs [1952] 2 All E.R. 176, at p. 178H).

It is well-settled that a builder renouncing his obligations could not claim substantial performance. F In Hudson's Building and Engineering Contracts at page 484, the law is stated as:

"A further overriding principle to be deduced from the cases, it is submitted, is that a party consciously in breach, a fortiori a party G repudiating an obligation or abandoning work, should not be enabled to abuse the doctrine by maintaining that position while at the same time suing for remuneration under the contract. Thus in South Africa, there is long-standing authority that substantial performance is not available where work is abandoned, or the H

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A method of performance is inconsistent with an hones~ intention to .carry out the work in accordance with the contract. Sumpter v. Hedges and Ibmac y, Marshall were clear cases of abandonment."

Such a case of abandonment was not made out. What was made out was a case of self-inducement frustration. We repeatedly asked Mr. Tiwari B to show before us any P.leading as regard self~induced frustration on the part of Sumangal. He failed to do so. No material far less any pleading has also been placed before us to show that there had been collusion by and between Sumangal and municipal authorities in getting the work stopped. There exists a presumption as regard the official transactions C having been done in regular course of business. the onus of proving that plea of frustration was self-induced one is on the party who alleges that· this is the case. (See Joseph Constantine Steamship Line Ltd v. Imperial Smelting Corpora_tion Ltd, [1942] A.C. 154.

In Treitel's Law ofContract, Seventh Edition at page 701, it is stated: . D "The onus of proving that frustration is self-induced is on the party who alleges that this is the case. In Joseph Constantine SS Line v. Imperial Smelting Corp. Ltd, (1942) AC 154 a ship was disabled by an explosion from performing her obligatio_ns _under E a charter party. The owners were sued for damages and pleaded that the explosion frustrated the charterparty. The charters argued that the owners must prove that the explosion was not due to their fault, but the House of Lords rejected this argument and upheld the defence of frustration although the cause of the explosion was never explained. The rule is open to the objection that the charterer is much less likely than the owner to be able to show how the explosion occurred. This reasoning does, indeed, prevail in one group of cases: a person to whom goods have been bailed, and who seeks to rely on their destruction as a ground of frustration of the contract of bailment, must show that the destruction was not due to any breach of his duty as a bailee. But, this special situation excepted, the rule as to burden of proof laid down in the Joseph Constantine case can be defended on the ground that generally catastrophic events which prevent performance do occur without the fault of either party. To impose the burden of disproving fault on the party relying on frustration

M.0., ARMY WELFARE HOUSING ORGANISATION i·. SUMANGAL SERVICES P. LTD. [SINHA, l] 443 is therefore less likely than the converse rule to lead to the right result in the majority of cases."

It is interes•ing to note that at page 700 of the said treatise, the learned author states:

"The further question arises whether a contract can be frustrated by an event brought about by the negligent act of one of the parties. Lord Simon has put the case of a prima donna who lost her voice through carelessly catching cold. He seemed to incline to the view that she could plead frustration so long as the incapacity "was not deliberately induced in order to get out of the engagement." This particular result can perhaps be justified by the difficulty of foreseeing the effect of conduct on one's health. But it is submitted that generally negligence should exclude frustration: for example, the plea should have failed in Taylor v. Caldwell if the fire had been due to the negligence of the detendants. In such D a case it would be unjust to make the other party bear the loss. A negligent omission should likewise exclude frustration."

In Cheshire, Fifoot & Funnston's Law of Contract (14th Edition) at page 643, the law is stated, thus: ~ E "This rule, that a party cannot claim to be discharged by a frustrating event for which he is himself responsible, does not require him to prove affirmatively that the event occurred without his fault. The onus of proving that the frustration was self~induced rests upon the party raising this allegation. For instance : F On the day before a chartered ship was due to load her cargo an explosion of such violence occurred in her auxiliary boiler that the performance of the charterparty became impossible. The cause of the explosion could G not be definitely ascertained, but only one of three possible reasons would have imputP.d negligence to the ship'lwners.

It was held by the House of Lords that, since the charterers were unable to prove that the explosion was caused by the fault of the H

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A owners, the defence of frustration succeeded and the contract was discharged. It should perhaps be noted that in many.cases·a·self- induced frustrating event will be a breach of contract but this will not necessarily be so. In Maritime National Fish Ltd. v. Ocean Trawlers Ltd, (1935) AC 524, the applicants were not contractually· bound to licence the chartered trawler but could not excuse failure B to pay hire by relying on the absence of a licence:" - '

Even no case of negligence on the part of Sumangal made out. .,. The burden of proof in relation to all these pleas, thus,· was on C A WHO. It _failed to discharge the same.

QUANTUM OF DAMAGES :

It is not necessary for us to go into the questi<:m of qul!.ntum of damages in details but we may observe that_ the learned _arbitrators proceeded on a wrong premise even in rel~tioh t~ereto. It took into consideration the subsequent events. Purported subsequent c?nduct on the part of Sumangal became the bed-rock of the findings against it by the learned arbitrators. The disputes and differences between the parties were required to be determined as on 10.10.1995. Conduct of the parties subsequent thereto was wholly irrelevant. Thus, there exists an error . apparent on the face of the award.

Liability to pay damages would indisputably arise only in the event a breach of contract has taken place. Clause 130 of the general conditions of the contract could be invoked only in the event of breach on the part of Sumangal and if AWHO could in law take recourse to_ CJause 129 of the Contract.

For the purpose of invoking clause 129(d) of the general conditions of contract, it was incumbent upon the learned arbitrators to arrive at a G specific finding that a breach of the terms of condition has been committed by Sumangal. · Such breach must be in relation to a term of the contract between the parties.

If a breach has occurred in respect of an agreement, to which H, Sumangal is not a party, clause 129 could not have been invoked.

M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LTD. [SINHA, J.) 445 The law relating to damages in this behalf is stated in McGregor on A Damages, 16th edition at paras 1142 and 1143 in the following terms :

"The normal measure of damages is the cost ·to the owner of completing the building in a reasonable manner less the contract price, and possibly, in addition, the value of the use of the premi~es lost by reason of the delay. This measure of cost of completion less contract price is laid down by the Court of Appeal in Mertens v. Home Freeholds Co., (1921) 2 K.B. 526, CA., which inust be regarded perforce as the leading case since it proves to be the only one dealing with this issue. The defendant contracted to build a house for the plaintiff and was to begin work immediately after possession of the site was given to him. The defendant worked well for a month, but then deliberately failed to proceed with due dispatch in the knowledge that a government embargo on building without licence was to be imposed. Had he worked according to contract, the roof could have been on to the house before· the embargo descended. Two or three years later the plaintiff completed the work himself, when building was again permitted but when co~ts had risen. It was held that the proper measure of damages was the cost to the plaintiff of completion in a reasonable manner at the earliest moment that he was allowed to proceed with building, less the amount he would have had to pay the defendant had the defendant completed the house as far as the roofing-in at the time agreed by the terms of the contract. The Court of Appeal reversed the Divisional Court which had taken for its basic. figure not the cost-of completion but the market value that the completed building would have had at the contractual time due for completion. Of this Lord Stemdale M.R. said :.

"They (the Divisional Court) have treated the contract as if it were one for the sale of goods and have held that the measure of damages is the difference between the market price of the day of what the plaintiff ought to have had and what he got. In my humble opinion that is an entirely wrong way of looking at the contract. There is no contract to deliver goods, and there is no market price for a roofed house." H

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A Mertens v. Home Freeholds Co., (1921] 2 K.B. 526, C.A., is also. authority for taking the cost of completion .as aUhe time when it became once again legal to build, although between·breach~and the. removal of the government embargo on building -two .or·three years afterwards costs had risen substantially. And· conversely, B ·as Younger L.J. pointed out, "ifthe cost of building had-deer.eased in that time the damages would have been correspondingly diminished". This rule .is however subject to the general principles of mitigation so that, in· the words of Lord Stemdale,

"the building owner must set to work to buiid his bouse c at a reasonable time and in a. reasonable manner, and is not entitkrl to delay for several years and then, if prices have gone up, ,charge the defaulting builderwith the increased. price."

D We may, however, notice that in Clark and Anotherv. Woor, (1965} l W.L.R. 650 and East Ham Borough Corporation v. Bernard Sunley & Sons Ltd, (1966) AC 406, law almost to the sbnilar .effect has been laid down.

E In Hudson's Building and.Engineering Contracts at page 1034-35, it is stated:

"Builders. constructed a school with serious defects in fixing the stone facing. The contract was in the 1956 ·RIBA standard form. Some years after the final certificate, a sto~e fell :and the owners discovered the defects. The arbitrator found that the defects could have been, but in fact were not, discovered or noticed by the architect during the course of his normal supervision of the work. At the date of the breach (which the. parties agreed should for purposes of convenience be treated as the date of completing the work), the cost of repair would have been considerably less, due to rising prices, than it was when the owners finally discovered the defects. Held, by Melford ·Stevenson J., distinguishing Phil/ipsv. Ward, (f956) I W.L.R.471 thats~cetheownershad · been guilty of no unreasonable delay once they discovered the defects, they were entitled to the greater cost of the repairs at the

M.D., ARMY WELFARE HOUSING ORGANISATION v. SUMANGAL SERVICES P. LID. [SINHA, J.) 44 7 time they carried them out. Held, by the House of Lords, A affirming the judge, that the parties must have contemplated that the architect might fail to notice defective work. The cost of repair at the date of discovering the breach was "on the cards" or a "loss liable to result" from the breach within the test formulated by Asquith L.J. in the Victoria Laundry case. Per Lord Upjohn: B "where the cost of reinstatement is the proper measure of damages it necessarily follows as a matter of common sense that in the ordinary case the cost must be asse:;sed at the time when the defect is discovered and put ri~ht and it is not suggested here that the building owner unreasonably delayed the work of repair after C discovery of the defect...! am at a loss to understand why the negligent builder should be able to limit his liability by reason of the fact that at some earlier stage the architect failed to notice some defective work. .. " East Ham Borough Council v. Bernard Sunley Ltd., (1966) A.C. 406." D Reference may also be made to illustrations given in Hudson's Building and Engineering Contracts at pages 1038-39.

- In Emden and Gill's Buildings Contracts and Practice, Seventh Edition, at page 267, the law is stated thus : E "The measure of damages for failure by the contractor to complete a building or engineering contract will include first, the difference (if any) between the price of th,e work as agreed upon in the contract and the cost the employer is actually put to in its completion (i), and cost of completion means cost of the completion of the contract work itself.

Illustration

A builder agreed in May, 1916, to build a house for plaintiff for a lump sum, complete within a specified time. After starting the work the builder intentionally delayed progress for the purpose of ensuring that the Ministry of Munitions should refuse a licence for construction of the house under Defence of the Realm regulations, and that he would thereby (as he thought) H

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A be released from the contract. The licence was refused, and the work had to be entirely suspended till 1919, when plaintiff completed the building.-Held: The builder could not take advantage of a prevention brought about by his own act, and the proper measure of damages was what· it cost the plaintiff to complete B the house as soon as the statutory restriction ceased, less any amount which have been due and payable to the builder if he had proceeded with due diligence up to the date when the licence was refused. ·,

c In a leading case, the. House of Lords has held that the proper measure of damages is the cost of re-instatement, such cost must be assessed at the time when the defects are discovered and are put right."

D Sumangal, thus, could. have been found liable for drawings if inter alia it was guilty of one or the other misconducts as referred to hereinbefore.

TITLE IN RESPECT OF 14.17 ACRES OF LAND:

E Claim No. I related to title of 14.17 acres ofland. Sumangal entered into an agreement on a tum-key basis. The contention of Sumangal is that , the lands were transferred in the name of AWHO by way of security. This ~ay or may not be so .. But, herein we are only concerned with the question as to whether the award can be set aside or not. · The learned arbitrator took ' . F into consideration the respective contentions of the parties and came to the conclusion that title has, by reason of· the deeds of sale, passed on to A WHO. While arriving at the said finding, the arbitrator has not applied wrong principle of law. Sumangal procured land on behalf of AWHO. It for ~ specific purpose and with a view to avoid double payment of stamp duty entered into an arrangement whereby the owners of the agricultural G. land· executed sale deeds in favour of AWHO. Subject of course to furnishing bank guarantee Sumangal received consideration. Sumangal stated that by gett!ng the land transferred in the their name by way of security at a nominal price, as part of the tum key project,· AWHO has gained enormously to the tune of about 11.40 crores which they are not -. H entitled to retain lawfully. They, thus, have unjustly enriched themselves.

M.D., ARMY WEI.FARE HOUSING ORGANISATION.-. SUMANGAL SERVICES P. LTD. [SINHA,!.] 449

It does not appear that such a case has· been made out before the learned arbitrators. The plea of unjust enrichment, therefore, cannot be allowed to be raised at this juncture. Such consideration was passed on to the owners of the land. Requirements of Section 54 of the Transfer of Property Act in respect of sale transaction were fully complied with. Title to the said land, thus, apparently vested in AWHO and has become absolute its owners. No exception, thus, to that part of the award can be taken.

CONCLUSION:

However, we would like to clarify that the observations made hereinbefore were meant for the purpose of demonstrating that the learned arbitrators failed to apply the correct principles of law but not for the purpose of determining finally the !is between the parties. In other words, the questions have been posed and answered for the limited purpose as to whether the award of the learned arbitrators suffer from any legal infirmity within the meaning of Sections 30 and 33 of the Arbitration Act and no more.

We, therefore, for the aforementioned reasons, while upholding Claim No. l of the award are of the opinion that the award of the arbitrations in relation to Claim No. 2 must be set aside. Consequently, no interest thereupon shall be payable. E The I.A. No. 11 of2002 is allowed to the aforementioned extent. No costs.

v.s.s. Appeal disposed of. F