1) The Petitioner has filed this Petition under section 34 of Arbitration and Conciliation Act, 1996 (Arbitration Act) challenging the award of the learned sole arbitrator dated 24 June 2023. By the impugned award, the Arbitral Tribunal has declared the Termination Notice dated 9 June 2018 terminating the Development Agreement (DA) and Power of Attorney (POA), both dated 26 September 2007, and of the Consent Terms dated 16 May 2017 as valid, legal and binding. The Tribunal has further declared that the contract of redevelopment is terminated with effect from 9 June 2018. The Arbitral Tribunal has restrained the Petitioner from interfering with possession of Respondent-Society over the land and building in question. Petitioner is directed to the handover all original documents relating to redevelopment of the Society. The Arbitral Tribunal has also awarded claim in the sum of Rs.7,08,53,695.03/- in favour of the Respondent-Society. The Arbitral Tribunal has awarded costs of Rs.9,65,250/- in favour of the Respondent-Society. The counterclaims of the Petitioner are rejected.

FACTS

2) Respondent is a Cooperative Housing Society registered under the provisions of the Maharashtra Cooperative Societies Act, 1960. The Society was formed by owners and occupiers of 60 flats in Buildings B-3, B-4 and B-5 at Survey No.7, CTS No.27 at Siddharth Nagar, Goregaon (West), Mumbai, which was a part of MHADA layout. The Respondent-Society had 60 original members, who owned and occupied flats in the building of the Society. The Respondent-Society decided to go for redevelopment of its building. By resolution adopted on 18 June 2005, the Special General Body Meeting of the Society appointed Petitioner as the developer to carry out redevelopment of its building. A Redevelopment Agreement was executed between the Petitioner-Developer and Respondent-Society on 26 September 2007. A separate Power of Attorney was also executed in favour of the Petitioner on the same day. The Municipal Corporation issued the Intimation of Disapproval (IOD) on 16 August 2007. In October/November 2007, the members of the society vacated their respective flats and handed over the possession thereof to the Petitioner. On 5 January 2008, the Petitioner issued Bank Guarantee of Rs. 5 crores in favour of the Respondent-Society. Commencement Certificate for construction of a building having two wings - Wing-A and Wing-B was issued by the Municipal Corporation on 17 June 2008, which was revalidated from time to time. On 4 August 2011, a stop work notice was issued to the Petitioner alleging that it carried out construction beyond the permissions. According to the Respondent-Society, the construction activities accordingly came to a halt on 4 August 2011. In the meantime, MHADA issued no objection certificate for utilization of FSI 2.5 subject to various conditions. Petitioner purchased additional tit-bit land from the MHADA Authorities by paying consideration amount of Rs.8,18,03,435/- and by virtue of the same, the original plot area got increased from the original 2543 sq. mtrs to 3747.81 sq. mtrs. The Petitioner got the plans amended from MCGM for availing concessional/fungible FSI. According to the Petitioners, correspondence took place for execution of supplementary agreement for sharing the additional FSI between the Petitioner and Respondent-Society. By the year 2013, Petitioner had completed construction of RCC structure of ‘A’ Wing building upto 7 floors and RCC work of ‘B’ Wing building of 21 floors.

3) On 14 March 2014, MCGM issued offer letter approving proposal for utilization of pro-rata FSI of 3.5 on payment of premium of Rs.10,54,17,300/-. It appears that the said amount was not paid by the Petitioner. On 12 September 2014, Petitioner issued a letter to the Respondent-Society seeking its consent for amalgamation of adjoining project of Kapil Vastu Society with Respondent-Society’s land. The Respondent-Society requested the Petitioner to complete the project as per 2.4 FSI and accommodate all 60 members by granting them possession by letter dated 28th January 2015. Thereafter, correspondence took place between the Petitioner and Respondent wherein the Respondent-Society complained about stoppage of entire work. The Petitioner cited the reason of pending issues for sanction of additional FSI. Apprehending that the Respondent-Society would encash the bank guarantee, Petitioner filed Suit (L.) No.921/2015 in this Court, which was withdrawn on 7 January 2016. Respondent-Society thereafter invoked and encashed the bank guarantee of Rs.5 crores and appropriated Rs.2.5 crores towards arrears of tent and balance 2.5 crores towards share of profits and utilization of additional 1.00 FSI. The Respondent revoked the Power of Attorney on 16 August 2016.

4) In the above backdrop, Respondent-Society filed Arbitration Petition (L) No. 160 of 2017 under Section 9 of the Arbitration Act seeking various interim measures. On 7 July 2017, parties arrived at an amicable settlement and filed Consent Terms under which the liability of the Petitioner was fixed at Rs.7.62 crores and it was agreed that out of the encashed amount of bank guarantee, Rs.2.5 crores would be adjusted towards arrears of rent and balance Rs.2.5 crores towards Society’s share of profits in the additional FSI. Petitioner gave commitment to clear the balance amount towards transit rent and issued postdated cheques. Petitioner agreed to complete A-Wing building with part Occupancy Certificate by 30 June 2018 plus grace period of 4 months. It also agreed to complete B-Wing building on or before 31 December 2017 with grace period of three months. According to the Respondent Society, Petitioner committed breaches of Consent Terms and all the postdated cheques issued towards payment of rent, etc were dishonored. The Society filed Contempt Petition (L) No.24 of 2018 before this Court wherein a direction was issued by this Court on 6 March 2018 for payment of sum of Rs.5,42,16,436/- in four monthly installments. According to the Respondent-Society, except paying sum of Rs.1,72,72,145/-, the Petitioner did not make the payment as directed by this Court in the Contempt Petition. On 3 June 2018, the Society resolved to terminate the Development Agreement, Consent Terms and Power of Attorney. The decision of termination was communicated to the Petitioner by notice dated 9 June 2018. The Respondent-Society filed Petition under Section 9 of the Arbitration Act seeking injunctive reliefs against the Petitioner post termination. By consent of the parties, the disputes were referred to arbitration by appointing a sole arbitrator by converting Section 9 petition into Section 17 application.

5) After the Arbitral Tribunal comprising of the sole Arbitrator was constituted, the Respondent-Society pressed its application for interim measures. The Arbitrator passed order dated 17 September 2018 under Section 17 of the Arbitration Act granting various injunctive reliefs in favour of Respondent-Society permitting the Society to engage new developer and directed Petitioner to handover possession of the entire project to the Society. Petitioner challenged the order of interim measures of the learned Arbitrator by filing Appeal before this court, which was dismissed by order dated 14 December 2018. The Hon’ble Apex Court also dismissed the SLP preferred by the Petitioner-Developer and this is how order of the Arbitrator making interim measures attained finality. The flat purchasers attempted to intervene in the arbitration but the learned Arbitrator rejected the intervention application by order dated 27 February 2019.

6) One of the flat purchasers filed a suit seeking specific performance of agreement for sale executed in her favour in which City Civil Court passed order of temporary injunction restraining the society from alienating or creating third party interests in the flat allotted to her by the Petitioner-developer. In Appeal from Order filed by the Society, the order of temporary injunction was set aside by this Court on 14 October 2019. The Special Leave Petition preferred by the developer was dismissed by the Apex Court on 20 January 2020 and the order passed in the Appeal from Order attained finality. The arbitral proceedings were conducted before the learned sole Arbitrator. At the conclusion of the proceedings, the Arbitral Tribunal has made Award dated 24 June 2023, upholding the termination of Petitioner-developer and restrained it from interfering with possession of the Society of land and building. Petitioner is directed to handover all original documents relating to redevelopment to the Society. The Arbitral Tribunal has also awarded monetary claim in the sum of Rs. 5,13,20,822.32/- in favour of the Respondent-society comprising amount of Rs.55,58,211/- towards costs incurred, Rs.3,72,24,290/- towards amount agreed to be paid under the Consent Terms alongwith interest of Rs.85,38,321.52/-. The Arbitral Tribunal has also awarded costs of Rs.9,65,250/- in favour of the Respondent-society. All the counterclaims of the Petitioner have been rejected.

7) The Award has been corrected by the Arbitral Tribunal by order dated 26 June 2023 by correcting the figure of interest from Rs.85,38,321.52/- to Rs. 2,80,71,194.03/-. This is how the final claim amount has been enhanced to Rs.7,08,53,695.03/-.

8) Aggrieved by the Award dated 24 June 2023, as corrected on 26 June 2023, the Petitioner-developer has filed the present Petition under Section 34 of the Arbitration Act.

SUBMISSIONS

9) Mr. Narula, the learned counsel appearing for the Petitioner submits that the Award of the Tribunal is grossly perverse as being rendered contrary to the contractual terms, violates public policy doctrine and is patently illegal. He first attacks various findings recorded in the award relating to validity of the termination notice. He submits that the findings of the Arbitral Tribunal in para-103 of the award that the FSI was pegged at 2.4 is contrary to the Development Agreement dated 26 September 2007, clause-2 whereof permitted utilization of all available FSI and additional TDR by dividing the benefits between the parties. That specific admissions were made by the witness of Respondent-Society in answer to Question Nos.94 and 95 in this regard. That finding recorded in para-121 of the Award about amendment of plans without intimation of Society is contrary to clauses-9(a) and 9(g) of the Development Agreement, which did not require any prior intimation for amendment of the plans. That Consent Terms dated 16 May 2017 only condoned the previous alleged breaches and therefore, supplemental terms were arrived at between the parties. That under clause 39 of the Consent Terms, Respondent was required to issue NOC to MHADA for grant of further FSI, but it failed to communicate the withdrawal of revocation of POA to MHADA. That clause 40 of the Consent Terms required the Society to withdraw the termination notice and grant unconditional NOC for additional FSI and clause 41 required the Respondent-Society to grant NOC for obtaining finance. That such NOCs were not issued by the society thereby breaching the conditions of the Consent Terms. That the agreement between the parties is reciprocal in nature and since Respondent-Society failed to adhere to its contractual obligations, provisions of Section 67 of the Indian Contract Act, 1872 (Contract Act) became applicable, thereby relieving the Petitioner of the consequences of any breaches on its part. He relies on judgment of the Apex Court in Nathulal vs. Phoolchand((1969) 3 SCC 120).

10) Mr. Narula further submits that the findings of the Arbitral Tribunal in para-166 of the award about the arrangement for grant of NOC for additional FSI not being inflexible is contrary to the express conditions of the Consent Terms. That further finding of the arbitrator in para-169 of the award that Respondent-Society factually granted NOC is contrary to the record since NOC dated 28 July 2017 was delivered to the Petitioner only on 26 September 2017, by which date the due date to perform had already passed by. That the observations of the arbitrator in para-170 of the arbitral award about non-payment of premium is perverse and recorded in ignorance of payment of Rs.3,32,31,778/- which remained credited to the Petitioner’s account. That in view of failure to issue NOC by the Society, Termination Notice was illegal and contrary to the agreed terms. That the Arbitral Tribunal ought to have dismissed Society’s claim.

11) Mr. Narula further submits that the Arbitral Tribunal has construed the contract in such a way that no fair-minded person would ever do so. He relies on judgment of the Apex Court in Associate Builders Versus. Delhi Development Authority((2015) 3 SCC 49).

12) Mr. Narula then proceeds to attack the award by contending that non-return of amounts spent by the Petitioner in the project which are benefits enjoyed by the society is contrary to the fundamental policy of Indian law. He submits that the award permits the Society to unjustly enrich itself by retaining the amounts towards rent, cost of construction, cost of purchased FSI, etc . That the Arbitral Tribunal has grossly erred in not treating the various amounts spent by the Petitioner as ‘benefits’ received by the Society. That Petitioner paid sum of Rs.8,18,03,435/- for acquiring additional tit-bit plot area and sum of Rs.20,61,140/- for FSI for R.G. area. That Petitioner also incurred huge amount of cost for construction of the two buildings. That additionally Respondent-Society appropriated amount of Rs.2.5 crores towards their share in the additional FSI. That all these amounts spent by the Petitioner which are ultimately enjoyed by the Respondent-society are erroneously not treated as benefits by the Society. He submits that Arbitral Tribunal’s refusal for restoration of benefits to the Petitioner upon termination of contract and non-award of damages in view of Clause-22 of the DA is contrary to Sections 64 and 73 of the Contract Act. He relies on judgment of the Madras High Court in Mundakath Mathu vs. Chalora Illath Vishnu Nambudripad and others(AIR 1932 Mad 303) in support of his contention that upon avoidance of the contract, a party avoiding it is under statutory obligation to restore the benefits. He submits that a party cannot reject the contract yet retain the advances derived therefrom. Mr. Narula further submits that Clause 22 of the DA is in the teeth of provisions of Section 23 of the Contract Act as it seeks to prohibit a party from approaching the Court for recovery of damages which is against the public policy of India. That this issue was specifically raised before the Arbitrator. He also relies on judgments of the Apex Court in Asian Techs Limited vs. Union of India and Ors.((2009) 10 SCC 354), Board of Trustees for the Port of Calcutta vs. Engineers-De-Space-Age((1996) 1 SCC 516) and of Delhi High Court in MBL Infrastructures Ltd. vs. Delhi Metro Rail Corporation(2023 SCC OnLine 8044). In support of his contention that any contractual terms which denies compensation is void and unenforceable, Mr. Narula relies on judgments of this Court in Mumbai Metropolitan Region Development Authority vs. Mumbai Metro One Private Limited(Commercial Arbitration Petition No.427 of 2024 decided on 24 February 2026) and Regus South Mumbai Business Centre vs. Marie Gold Realtors Private Limited(Commercial Arbitration Petition No.439 of 2024 decided on 25 November 2026).

13) That the Arbitral Tribunal has erroneously refused to treat the rent paid by the Petitioner as not a benefit received by the Society members. That the Arbitral Tribunal has erroneously relied on mere interim order passed by this Court in Borivali Anamika Niwas CHSL vs. Aditya Developers and Ors.(2020 SCC OnLine Bom 10632) wherein some observations are made for considering entitlement of parties to interim measures under Section 9 of the Arbitration Act. That the judgment in Borivali Anamika Niwas CHSL cannot be read to mean an abstract principle that construction costs incurred by a developer can never amount to benefit received by the society or its members. He submits that various judgments on the other hand clearly lay down a law for return of benefits under Section 64 of the Contract Act upon rescission of the contract. He relies on judgments in Chacko and Ors. vs. Sreeja and Anr.(1990 SCC OnLine Ker 327), Mohammad Mumtaz Ali Khan and Anr. vs. Altaf-ul-Rahman Sheikh and Anr.(1922 SCC OnLine Oudh JC 87) and Muralidhar Chatterji vs. International Film Company Ltd.(1942 SCC OnLine PC 35) That costs of construction and payments made by the Petitioner for purchase of FSI and additional FSI are benefits received by the Society, which must be returned upon termination of the contract. That it is clearly against public policy to permit a party terminating the contract to retain the benefits arising out of it.

14) Mr. Narula further submits that even if compensation is denied to the Petitioner under Section 73 of the Contract Act, the benefits received by the Respondent-Society must be returned under Section 64 of the Act. That there is no contractual prohibition between the parties for restoration of the benefits received by the Society. That in the present case, the Respondent-Society has unjustly enriched itself by retaining the entire construction put up by the Petitioner and also by utilising the FSI purchased by the Petitioner. That the learned Arbitrator has not considered the case of the Petitioner for restoration under Section 64 of the Contract Act and has conflated the same with the concept of compensation under Section 73 of the Act. That the Petitioner has made investment of over Rs.300 crores in the project and since the society has enjoyed the benefits of such investment, the same must be returned to the Petitioner upon rescission of the contract.

15) Mr. Narula relies on the provisions of Section 27 of the Specific Relief Act, 1963 in support of his contention that several third party rights have been created during subsistence of the contract and that the learned arbitrator ought to have invalidated illegal rescission of the contract by the Society by taking into consideration the factum of third-party rights.

16) Lastly, Mr. Narula would submit that voluminous documentary evidence was produced by the Petitioner in support of the claim for damages and benefits to the Responding-Society. That no cross-examination was conducted on behalf of the Respondent-Society in respect of the evidence so led. However, the learned Arbitrator has erroneously not awarded loss of profits because of insufficiency of evidence, which finding is contrary to the judgment of this Court in Harish Loyalka and Another vs. Dilip Nevatia and Others(2014 SCC OnLine 1640). On above broad submissions, Mr. Narula would seek invalidation of the impugned award.

17) The Petition is opposed by Mr. Khandeparkar, the learned counsel appearing for the Respondent-Society. He submits that the Petitioner has failed to make out even a single valid ground of challenge as enumerated in Section 34 of the Arbitration Act for invalidating the impugned award. He submits that the Arbitral Tribunal has conducted an in-depth analysis of contractual provisions, correspondence between the parties and evidence before it and has thereafter arrived at a finding that the termination of the DA is legal and valid. He submits that despite execution of the DA on 26 September 2017, all that the Petitioner did by 9 June 2018 by which time DA was terminated, was to merely construct a bare shell rehab component building. That the construction at site had come to an absolute halt since 2011 and Petitioner-developer had defaulted in payment of rent to the members. That in such circumstances, termination of the DA executed with the developer not causing any construction at the site is rightly upheld by the Arbitral Tribunal. That there was no construction at the site after the Municipal Corporation issued stop work notice on 4 August 2011. He submits that the Petitioner was forced to enter into Consent Terms after this Court noticed prima facie forgery and fabrication in the Commencement Certificate on 7 December 2016. However, none of the obligations under the Consent Terms are fulfilled by the Petitioner. That all the post-dated cheques issued by him towards payment of rent/ compensation were dishonoured. That even order passed in Contempt Petition for payment of sum of Rs.5.42 crores was not honoured by the Petitioner. That Respondent-Society, waited for more than a year for Petitioner to act in terms of the Consent Terms, finally was left with no other alternative but once again terminate the DA and POA on 9 June 2018. Mr. Khandeparkar places on record submissions filed before the Arbitral Tribunal and invites my attention to various breaches of the DA as well as of the Consent Terms highlighted therein.

18) Mr Khandeparkar further submits that the Arbitral Tribunal has taken note of material breaches committed by the Petitioner, both of the DA as well as of the Consent Terms. That findings of facts recorded by the Arbitral Tribunal in respect of such breaches do not warrant interference in exercise of jurisdiction under Section 34 of the Arbitration Act.

19) Mr. Khandeparkar then justifies the Arbitral Tribunal not awarding any damages and not returning the expenditure incurred by the Petitioner developer by inviting my attention to clauses-9(h), 22, 42 and 47 and 53 of the D.A. wherein the developer specifically agreed not to claim damages or compensation in the event of breach of contract. The Arbitral Tribunal is justified in not awarding the same by giving effect to the contractual terms agreed between the parties. He relies on judgment of the Apex Court in Steel Authority of India Ltd. versus. J.C. Budharaja, Government and Mining Contractor((1999) 8 SCC 122) in support of his contention that it is not open to the arbitrator to ignore the agreed terms of contract which are binding on the contracting parties. He relies on Section 28 of the Arbitration Act in support of his contention that the Arbitral Tribunal was bound to render the award strictly in terms of the contractual stipulations agreed between the parties. He submits that in Borivali Anamika Niwas CHSL (supra), this Court has specifically held that mere investment of money into the project by the developer does not create any equity and the expenditure in the project is not a handout to the society members. He also relies on judgment of this Court in Rajawadi Arunodaya CHS Ltd. vs. Value Projects Pvt. Ltd.(2021 SCC OnLine Bom 9572) in support of his contention that mere creation of third-party rights by the developer does not make any difference as the developer takes the risk of satisfying those third-party purchasers who are strangers to principal agreements with no obligation on the Society. He submits that the society ultimately is the owner of the property. Mr. Khandeparkar further submits that if a law is declared even while making an interim order by this Court, the law declared therein cannot be ignored only on the ground that what court decided was a mere prayer for interim injunction. He relies on judgment of this Court in IREP Credit Capital Pvt. Ltd. vs. Tapaswi Mercantile Pvt. Ltd. and Anr.(2019 SCC OnLine Bom 5719) That therefore, the Tribunal has rightly relied upon judgment of this Court in Borivali Anamika Niwas CHSL.

20) Mr. Khandeparkar further submits that the development agreements are special types of contracts, which cannot be interpreted like regular commercial contracts. That consideration under Section 2(d) of the Contract Act can also be negative consideration. That DA is a negotiated document under which parties have agreed on a condition that the developer will not make a claim for expenses/investments made in case of breach/termination, which forms negative consideration for execution of the contract. That various clauses of the DA were never challenged before the learned Arbitrator nor a declaration was sought that the same are void or contrary to law. That therefore, arbitrator being a creature of contract, cannot decide the claims against the terms of the contract.

21) Mr. Khandeparkar further submits that amounts allegedly paid by the Petitioner to MHADA/MCGM are claimed as a part of compensation in the counterclaim and not as restoration of benefits under Section 64 of the Contract Act. That therefore, Petitioner cannot now turn around and claim that the said amounts must be restored to it as a part of benefit under Section 64 of the Act. He further submits that the learned Arbitrator has therefore rightly treated the counterclaims raised by the Petitioner as claim for compensation within the meaning of Section 73 of the Contract Act. That the view taken by the learned Arbitrator in treating the counterclaims as compensation is plausible view not warranting any interference in exercise of powers under Section 34 of the Arbitration Act. Without prejudice, he submits that restitution would otherwise form compensatory damages, as held by the Madras High Court in E-merge Tech Global Services P Ltd. vs. M.R. Vindhyasagar and Anr.(2021 SCC OnLine Mad 17022).

22) Mr. Khandparkar relies on judgment of Division Bench of this Court in Vilayati Ram Mittal (P) Ltd. vs. Reserve Bank of India(2017 SCC OnLine Bom 8479) in support of the contention that clauses in the contract providing for non-payment of compensation are enforceable in law. He also relies on judgment of the Apex Court in Associated Engineering Co. vs. Government of Andhra Pradesh and Anr.((1991) 4 SCC 93) He relies on judgment of the Apex Court in Union of India and Ors. vs. Larsen & Tubro Limited(2026 SCC OnLine SC 327) in support of his contention that the Apex Court has enforced covenant in the contract for non-payment of interest. Mr. Khandepakar further submits that the any dispute about Petitioner’s entitlement to compensation contrary to various contractual clauses, would fall outside the jurisdiction of the arbitrator. That the entitlement of Petitioner to compensation and restoration of benefits is determined by the Tribunal as per the contractual terms and that therefore even if the arbitrator commits any mistake in interpreting the terms of the contract, it would be an error within its jurisdiction not warranting interference by Section 34 Court. He relies on judgment of this Court in Goa Shipyard Limited vs. Shoft Shipyard Pvt. Ltd.(Arbitration Appeal No. 38 of 2024 decided on 26 April 2024.) in support of his contention that mere erroneous application of law by the arbitrator cannot be a ground for interference in the award.

23) Mr. Khandeparkar further submits that the rights of the developer during the term of DA are subservient and imperfect rights which get perfected only upon full compliance with the terms of DA and upon handing over of flats to the members. That the right of the developer has not been perfected in the facts and circumstances of the present case. He relies on judgment of this Court in Vaidehi Akash Housing Pvt. Ltd. vs. New D.N. Nagar Co-op. Housing Society Union Ltd. and Others(2014 SCC OnLine Bom 5068) in support of his contention that right of the Petitioner-Developer to sell flats and to earn profits does not get perfected until fulfilment of all obligations under the DA. That the developer has entered into the DA with full knowledge of non-entitlement for any compensation in the event of termination of contract on account of his breaches and therefore it cannot now be permitted to wriggle out of such contractual obligations.

24) Mr. Khandeparkar further submits that what is ultimately taken by the arbitrator in the facts of the present case is a plausible view which cannot be interfered with by Section 34 Court. In support, he relies upon judgment of the Apex Court in Consolidated Construction Consortium Ltd. vs. Software Technology Parks of India((2025) 7 SCC 757). He submits that even if any error is traced in construction of contractual terms by the Arbitral Tribunal, the same would at the highest be an error within the jurisdiction. He relies on judgment of the Apex Court in Ramesh Kumar Jain vs. Bharat Aluminium Company Limited ( BALCO)(2025 SCC Online SC 2857) in support of his contention that even an award which is based on little or no evidence cannot be invalidated on that score and that even decisions taken by the arbitrator on equity which are just and fair cannot be overridden by Courts under Sections 34 and 37 of the Arbitration Act. He submits that in addition to clause 22 of the DA, the decision of the arbitrator not to return alleged expenses incurred by the Petitioner or alleged benefits received by the society is also justified on account of other contractual clauses in the agreement. He relies on judgment of the Apex Court in OPG Power Generation Pvt Ltd. Vs. Enexio Power Cooling Solutions India Pvt. Ltd. and Anr.((2025) 2 SCC 417) in support of his contention that it is open for Section 34 Court to justify the underlying reasons in the arbitral award by taking into consideration the entire material produced before the Arbitral Tribunal. Mr. Khandeparkar further submits that the award of the Arbitral Tribunal results in a situation where the society has ultimately completed construction of the building and its members are put back in possession of their respective homes. That the Arbitral Tribunal has awarded mainly the claim for arrears of rent which are expressly agreed in the consent terms. That the issue of rent not representing benefit to the society Members is settled by judgment of this Court while rejecting Petitioner’s appeal against Section 17 order. He therefore submits that no case is made out by the Petitioner-developer for interference in the impugned award. He would pray for dismissal of the petition.

REASONS AND ANALYSIS

25) The present case is an example of a tragic saga where the hopes of members of the Respondent-society to secure bigger, better and more comfortable homes through redevelopment process resulted in a long ordeal where they were dishoused back in the year 2007 and were kept waiting for newly built homes for next 11 long years. The transit rent was stopped by the Petitioner-developer. The society terminated the DA and encashed the Bank Guarantee for recovery of arrears of transit rent. The parties however entered into consent terms and one more opportunity was given to the Petitioner-developer to complete the project. However, Petitioner was again unable to complete construction of the building and the Society once again terminated the DA and completed the balance construction of the building on its own. The Arbitral Tribunal has upheld the termination and has directed the Petitioner-developer to pay to the Society the amounts agreed to be paid under the Consent Terms towards arrears of rent, etc along with interest. The counterclaims of the Petitioner-developer were towards return of amounts spent in the project and damages/compensation for loss of profit which have been rejected by the Tribunal. The Petitioner-developer is aggrieved by the impugned award and has filed the present Petition under Section 34 of the Arbitration Act.

26) The net result of the arbitral award is that the Petitioner is out of the project, it has lost all investments made in the project and the society is relieved of the liability towards third parties to whom the Petitioner had sold the flats. Petitioner is also made liable to pay the arrears of transit rent, etc to the society members.

VALIDITY OF TERMINATION OF DA

27) The principal issue before the Arbitral Tribunal was about validity of the termination notice dated 9 June 2018 by which the DA is terminated. Since the DA is terminated alleging breaches by the Petitioner-Developer, the Society was required to prove before the Tribunal commission of breaches of the contractual clauses of the DA and of the Consent Terms by the Petitioner. The Arbitral Tribunal has ruled in favour of the Respondent-Society by holding Petitioner responsible for breaches of DA and of Consent Terms and has held the termination notice to be valid.

28) It would be necessary to consider the broad contractual arrangement between the parties under the DA. The first recital to the DA indicates that MHADA had constructed the old buildings of the Society consisting of 60 flats and had allotted the same to various allottees who collectively formed the Respondent Society. Under clause 2 of the DA, parties agreed that total FSI to be exploited was 2.4 and in the event the Developer was allowed to load any further TDR on the plot, the benefits accrued to it from additional/surplus construction shall be divided between the Developer and the Society in equal ratio. Under clause 9(e), Developer agreed to consult the Society in regard to the construction work carried out by it by providing copies of all letters and correspondence as well as plans/approvals without any specific request made by the Society. Under clause 9(f), the Developer provided unconditional undertaking to abide by provisions of Mumbai Municipal Corporation Act, 1888, Development Control Regulations, 1991, Maharashtra Housing and Area Development Act, 1976 which govern the use of FSI/TDR and indemnify the Society in respect of any violation thereof. Under clause 9(g), the Developer agreed that any modification/changes in the annexure attached to DA were to be mutually discussed with the Society and such changes made in the new annexure would replace the redundant annexure without modifying the other clauses of DA. Under clause 9(h), parties agreed that the Society shall have right to exploit all the rights and liberties of the Petitioner arbitrarily in case of any default on the part of the Developer. Under clause 9(k), the Society was absolved of any liability towards third party purchasers of flats.

29) Under clause 10(3) of the DA, the Developer was liable to pay compensation or license fee/rent towards alternate accommodation to all 60 members till they were put in possession of new flats after obtaining full occupation certificate. Under clause 22, the Society was at liberty to terminate the DA in the event of Developer failing to complete the project even after three months extension and to appoint a new developer to complete the reconstruction. Most importantly, it was agreed between the parties that Developer will have no right to claim any damages or compensation from the Society and Developer would forgo its right to sell the commercial premises which are part of saleable portion of the flats. Under clause 27, an indemnity was given by the Developer to the Society. Under clause 42, the Developer agreed to bear and pay all costs of construction including all costs, charges and expenses for obtaining various approvals, permissions, etc. Under clause 47, the Developer agreed not to ask for any amount or contribution from the Society or its members towards expenses for putting of the construction. Under clause 53 (iii), it was agreed that the DA was not to be construed as partnership or joint venture or agreement of partnership and that the same was be on ‘principal to principal’ basis.

30) The Respondent-Society alleged various breaches of the DA by the Petitioner. The broad allegations of breaches are as under:

                   a. Breach of clause (2) by using 3.5 FSI contrary to agreed cap of FSI 2.4,

                   b. Breach of clause (3) by exceeding the maximum cap of 860 sq.ft. carpet area by constructing flats in A Wing of 866 sq. ft. and B Wing of 1006 sq.ft.

                   c. Breach of clause 9(f) by committing violation of planning norms leading to issuance of stop work notice by MCGM on 4 August 2011 and by executing work beyond CC,

                   d. Breach of clause 9(g) by changing the plans without the consent of the Society,

                   e. Breach of clause 10(1)(a) by committing default in payment of rent from 2014 onwards,

                   f. Breach of clause 10(1)(b) by not increasing the rental compensation by 10% despite passage of period of 25 months from the date of issuance of CC,

                   g. Breach of clause 22 by not completing construction within 25 months of issuance of CC dated 17 August 2002,

                   h. Breach of Annexure-I by not providing amenities listed therein.

31) As observed above, though disputes arose between the parties in the year 2017 and the society encashed the bank guarantee, the parties entered into Consent Terms before this Court on 16 May 2017 in Petition filed under Section 9 of the Arbitration Act. The broad agreement executed in the Consent Terms included fixing the total liability of Petitioner in respect of arrears of rent of Rs.7,62,20,000/-which was agreed to be paid by the Petitioner under two mechanisms. Petitioner agreed to pay sum of Rs.5,12,20,000/- in various instalments upto 30 November 2017. The balance amount of Rs.2,50,00,000/- was agreed to be adjusted from the amount of Rs.5,00,00,000/- encashed by the Respondent-Society towards bank guarantee. The rest of amount of Rs.2,50,00,000/- from Bank Guarantee was to be adjusted against Society’s share in respect of use of additional FSI by the Petitioner-Developer. Petitioner agreed to complete A and B Wings buildings within the extended timeline of 30 June 2018 (plus four months grace period) and 31 December 2017 (with three months grace period) respectively.

32) According to the Respondent-Society, Petitioner has committed following material breaches of the Consent Terms:

                   a. Payments agreed towards transit rent due on 30 August 2017, 30 September 2017, 30 October 2017 and 30 November 2017 are not paid,

                   b. Seven post dated cheques issued by Petitioner for Rs.24,00,000/-each for rent of seven months from 1 May 2017 to 31 December 2018 were dishonoured,

                   c. Brokerage of Rs.40,000/- per member as agreed under clause 4 of Consent Terms was not paid. Breach of clause 5 of Consent Terms which provided for payment of penalties for not paying the same,

                   d. Breach of clause 15 for construction of permanent wall as well as wall between Respondent-Society and Kapil Vastu Society, which was not constructed,

                   e. Breach of clause 17 for providing flats to the 32 members of A-Wing having a carpet area of minimum 1006/1010 sq.ft.

                   f. Breach of Clauses 24 (a) and (b) relating to timelines for completion of Wing A and Wing B.

                   g. Breach of Clause 33 relating to opening of escrow account.

33) The Arbitral Tribunal has done a detailed analysis of breaches committed by the Petitioner in respect of the Development Agreement. In paragraphs 102 to 111 of the Award, the Arbitral Tribunal has held that the Petitioner committed breach of contractual covenant of utilization of FSI 2.4 by carrying out construction in excess of the FSI cap. Mr. Narula has argued that there is perversity in this finding of Arbitral Tribunal since clause (2) of the DA envisaged use of FSI in excess of 2.4 and that the finding of the Arbitral Tribunal is contrary to the contractual stipulation. He has also relied upon admissions given by Respondent’s witness in answer to question Nos.94 and 95 in support of his contention that finding is contrary to the evidence on record. In my view, however, clause (2) of the DA provided for sharing of benefit arising out of loading of any further TDR on the flat in equal proportions between Petitioner and Respondent. The Arbitral Tribunal has construed clauses (2), (3), 9(h) read with Schedule-I of the DA and has thereafter recorded a finding that the FSI was restricted to 2.4. As a matter of fact, breach of clause (2) can also be inferred from the fact that Petitioner subsequently agreed to shell out 50% amount of encashed bank guarantee towards share of Respondent-Society in the additional FSI. The amount was agreed to be shared only after the society encashed the bank guarantee and was not paid to the society contemporaneously when Petitioner carried out construction in excess of FSI 2.4. So far as the admissions by Respondent’s witness are concerned, the Arbitral Tribunal has recorded a plausible finding that witness’ understanding of the clause did not make any difference and that her answers were required to be understood in the context of answers to other questions. I therefore do not find any perversity in the findings recorded by the Arbitral Tribunal qua the issue of FSI cap of 2.4. The Tribunal has constructed the contractual clauses of the DA and the said exercise is within its exclusive domain. The construction of contractual clauses by the Tribunal for recording findings about violation of FSI cap cannot be termed as so irrational that no fair-minded person would ever record the same. Reliance by Mr. Narula on judgment of the Apex Court in Associate Builders (supra) in this regard is therefore inapposite.

34) The Arbitral Tribunal thereafter considered the events that occurred during subsistence of the DA, amendments effected by the Petitioner to the status of project from composite to non-composite as well as amendments in the Plans. The Tribunal has held that the Plans were amended without prior intimation to the Respondent-Society nor consent of the Society was obtained before applying for the same. Mr. Narula has sought to rely on clauses 9(a) and 9(g) of the Development Agreement in support of his contention that prior intimation to the Society was not required to be given. However, the Arbitral Tribunal has held that clauses 9(a) and 9(g) of the DA required consultation with the Respondent-Society and its approval to the changes effected in the construction plans. The Arbitral Tribunal has accordingly held Petitioner liable for amendment of plans during subsistence of DA without consultation and approval of the Respondent-Society and I again do not find any element of perversity in the said findings recorded by the Arbitral Tribunal.

35) The Arbitral Tribunal thereafter considered various other breaches on the part of the Petitioner-Developer in paragraphs 134 to 150 of the Award. No attempt is made to indicate an element of perversity in respect of other breaches in paragraphs 134 to 150 of the impugned Award.

36) The factual findings recorded by the Arbitral Tribunal in respect of breaches committed by the Petitioner-Developer of various contractual obligations under the Development Agreement cannot be termed as perverse. It is not necessary to delve deeper into the findings of the Tribunal about breaches of DA by the Petitioner as commission of those breaches is an admitted position. This is clear from the plea is raised by the Petitioner before me that execution of Consent Terms dated 16 May 2017 condoned the previous breaches and such plea contains implicit admission of commission of various breaches of the DA by the Petitioner.

37) The Arbitral Tribunal thereafter considered allegations relating to breaches of the Consent Terms committed by the Petitioner-Developer in paragraphs 155 to 172 of the Arbitral Award. Mr. Narula has contended that there were reciprocal agreements in the Consent Terms and that the Respondent Society committed breach of its reciprocal obligations under the Consent Terms. It is contended that under clause 40 of the Consent Terms, the Society was supposed to withdraw the termination notice and grant unconditional NOC for additional FSI. It is contended that under clause 41 of the Consent Terms Respondent-Society was supposed to grant NOC for obtaining finance. Petitioner contends that since both the obligations under clauses 40 and 41 of the Consent Terms are not fulfilled by the Respondent-Society, provisions of Section 67 of the Contract Act are attracted in the present case and the Petitioner would get excused of any neglect or refusal in respect of non-performance of contract. Reliance is placed in this regard on judgment of the Apex Court in Nathulal vs. Phoolchand (supra).

38) However, perusal of various findings recorded by the Arbitral Tribunal in the impugned Award would indicate that delay in issuance of NOCs by the Society as per clauses 40 and 41 of Consent Terms are raised more as pretext to escape the consequences of breaches of Consent Terms and that non-issuance/delay in issuance of NOC did not come in the way of Petitioner performing its contractual obligations under the Consent Terms. The Tribunal has taken note of the fact that while opposing Contempt Petition filed by the Society for breach of Consent Terms to pay various amounts, no grievance was raised by Petitioner about failure on the part of Respondent to issue NOC for additional pro-rata FSI. There is also no dispute to the factual position that NOC was actually issued by the Society in accordance with the Consent Terms. There is also nothing perverse in finding recorded in paragraph 166 of the Award that parties themselves understood the stipulation for grant of NOC for additional FSI which was not inflexible and that the NOC could be granted as and when needed. In any case, the alleged delay in issuance of NOC for additional FSI did not come in the way of Petitioner performing its contractual obligations.

39) Petitioner’s reliance on provisions of Section 67 of the Contract Act does not cut any ice. Section 67 of the Contract Act provides thus:

                   67. Effect of neglect of promisee to afford promisor reasonable facilities for performance.—

                   If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.

40) Section 67 of the Contract Act excuses the promisor only in respect of non-performance caused by the neglect or refusal by the promisee to afford reasonable facilities for performance of the promise. The Petitioner has not been able to demonstrate as to how delay in issuance of the NOC came in his way of making various payments towards arrears of transit rent to the members of the Society. Therefore, reliance by the Petitioner on judgment of the Apex Court in Nathulal vs. Phoolchand (supra) does not assist the case of the Petitioner. There is nothing in the Consent Terms to infer that obligations were to be performed in a certain sequence and that therefore delay in issuance of NOC had impact on performance of contractual obligations by the Petitioner-Developer.

41) The Arbitral Tribunal has held that MHADA’s offer letter for additional FSI dated 16 April 2018 was issued as per the Society’s NOC and that Petitioner was required to pay the requisite amount of premium to MHADA and/or to the Municipal Corporation. The Petitioner did not produce before the Arbitral Tribunal any documentary evidence about making of premium payment to MHADA and or to the Municipal Corporation. Thus, despite grant of NOC by Society for release of additional FSI, it is Petitioner-Developer who failed to avail the same by paying requisite premium to MHADA/MCGM. Therefore, even if it is assumed arguendo that there was any delay in issuing of NOC by the Society, ultimately it is an admitted position that on 16 April 2018 MHADA did issue the offer letter for additional FSI and the Petitioner did not avail the same by making payment of premium.

42) Petitioner has sought to question finding of fact recorded by Arbitral Tribunal in paragraph 170 of the Award about failure to pay premium by contending that an amount of Rs.3,32,31,778/- was already paid by Petitioner to MHADA, which was lying to the credit of Petitioner’s account and that a request was made by the Petitioner to the Respondent-Society to transfer the said credit.

43) MHADA’s Offer Letter dated 16 April 2018 required Petitioner to pay premium of Rs.7,52,93,898/- in four instalments. The Offer Letter also required payment of offsite infrastructure charges to MCGM.

44) I have gone through letter dated 31 May 2018 addressed by the Petitioner to the Society. The said letter talks of making of Application dated 16 April 2018 by Petitioner to MHADA for transferring the unutilized balance FSI in favour of Goregaon Pearls CHS Ltd which was earlier issued in favour of Siddharth Nagar Kapil Vastu CHS Ltd. for total additional BUA of 2410.75 sq.m. Thus, letter dated 31 May 2018 was not for transfer of the amount of Rs.3,32,31,778/- allegedly lying credited to Petitioner’s account against offer letter issued by MHADA for additional FSI subject to payment of premium. In any case, how amount allegedly paid by Petitioner for amalgamation of another plot, for its own benefits, can be treated as discharge of liability to pay the demanded premium by MHADA for completion of construction of building of Respondent Society is incomprehensible. The plea in this regard sought to be raised by the Petitioner is thus totally baseless.

45) It is also admitted position that Petitioner-Developer did not comply with construction timelines as set out in clause 24 of the Consent Terms. In view of the above, I do not find any element of gross perversity in the findings recorded by the Arbitral Tribunal in paragraph 174 of the Award that Petitioner-Developer committed consistent breaches not only of clauses of Consent Terms but also of undertakings given to this Court.

46) In my view therefore, commission of breaches by the Petitioner of the DA and of the Consent Terms is rightly held to be proved by the Arbitral Tribunal. Termination of the DA, POA and of the arrangements under the Consent Terms by the Society is rightly upheld by the Tribunal. Petitioner has failed to make out any valid ground under Section 34 of the Arbitration Act for setting aside the said finding.

AWARD OF MONITORY CLAIM IN FAVOUR OF THE SOCIETY

47) As a direct consequence of holding the termination of the DA, POA and Consent Terms to be valid, the Arbitral Tribunal has awarded monitory claim in the sum of Rs. 7,08,53,695.03/ in Society’s favour. The amount comprises of Rs. 55,58,211/- towards legal costs, Architect’s fees and miscellaneous costs incurred by the Society, which have been duly proved by the Society before the Tribunal. Society’s claim for Rs.3,72,24,290/- was towards the admitted liability of the Petitioner under the consent terms, which sum was agreed to be paid towards arrears of transit rent. The Petitioner had also agreed under the consent terms to pay interest @15% per annum under the consent terms and accordingly the Tribunal has awarded interest of Rs. 2,80,71,194.03 towards interest. Thus, award of monitory claim in the sum of Rs. 7,08,53,695.03 cannot be faulted. Society’s claim for compensation for mental harassment is rejected by the Arbitral Tribunal. No submissions are canvassed before me about any error in award of the said amount. Petitioner’s main plea before me is that the termination of the DA, POA and the consent terms is invalid and once the said contention is rejected, award of monitory claim in favour of the Society will have to be necessarily upheld.

ENFORCEABILITY OF CONTRACTUAL CLAUSE DENYING COMPENSATION /DAMAGES

48) Petitioner raised a counterclaim for losses and damages against the Society. The damages were sought both by way of reimbursement of expenses incurred as well as claim for loss of profits. Under Clause 22 of the DA, parties agreed specifically that the developer will have no right to claim damages or compensation from the society. Under clause 22 of the DA, it was agreed thus :

                   22. The Developers agree to complete the total re-construction work within a period of 22 months from the date of receipt of Commencement Certificate. In the event of the Developers failing to complete the re-construction work within the stipulated period of 22 months, then the Developers will have to pay a penalty of Rs.1,00,000/- per month of delay to the Said Society. In addition to this the Developers shall pay to each of the Members/allottees Rs. 22000/- (Rupees Twenty-Two Thousand Only) per month as compensation towards permanent alternate accommodation, until the Member is put in possession of the Permanent Alternate Accommodation in the said New Building. However if the developers extended period permitted with penalty after the stipulated 22 months for completion of the reconstruction work will be only for 3 months. After expiry of these 3 months if the Developer has yet failed to complete the entire building R.C.C. work and the external and internal plastering work of the Building's (that is completed with entire brick work), then upon such event the said Society shall be at liberty to terminate this agreement and take over all rights in the said project and appoint a new Developer of its choice to complete the reconstruction work. In such a case, the Developers will have no right to claim any damages/compensation from the said Society. The Developers shall also forego it's right to sell the flats/ commercial premises which are part of the saleable portion of the flats after proving the existing members 60 flats in the new building.

                   (emphasis added)

49) Thus, clause 22 of the DA envisaged non-entitlement of the developer to claim any damages or compensation upon society terminating the agreement and taking over rights of the project and appointing a new developer to complete reconstruction in the event of the developer not completing the project within 3 months’ extension. The developer has also agreed to forego his right to sell the units falling in sale component in the event of termination of the DA. Thus, clause 22 seeks to deny damages or compensation to the developer in the event developer committing breach of the DA. In the present case, the Arbitral Tribunal has upheld termination of DA by the Society by holding that Petitioner-developer has committed breaches, both of DA as well as of the Consent Terms. Therefore, the Petitioner-developer is held not entitled to damages or compensation by the Arbitral Tribunal as per clause 22 of the DA.

50) Petitioner has sought to question enforceability of clause 22 of the DA submitting that the contractual stipulation which bars the remedy of the party of seeking damages is unenforceable.

51) The issue for consideration is whether the Arbitral Tribunal could have awarded damages or compensation in favour of the Petitioner contrary to clause 22 of the DA. Arbitrator is a creature of contract and cannot travel beyond the contractual terms. Under Section 28 of the Arbitration Act, the Tribunal needs to have regard to the contractual terms while making an award. For holding that it is bound by the contractual terms and cannot travel beyond the same, the Arbitral Tribunal has relied on judgment of this Court in Board of Control of Cricket India vs. Deccan Chronicle Holdings Ltd.(2021 SCC OnLine Bom 834). The judgment of the Apex Court in Steel Authority of India Ltd. versus. J.C. Budharaja (supra) also lays down the same proposition.

52) In the present case, the Petitioner-developer has specifically agreed not to claim damages or compensation as well as to forego its right to sell units in sale component upon termination of contract due to breaches committed by it. Therefore the tribunal could not have awarded claim for damages/compensation in ignorance of clause 22. However it is Petitioner’s case that clause 22 is unenforceable as it puts unreasonable restrictions. Mr. Narula has relied on judgment of the Apex Court in Asian Techs Limited (supra) in support of his contention that any clause in the contract which seeks to deny damages to party is contrary to the provisions of Sections 64 and 73 of the Contract Act. In case before the Apex Court, the delay in execution of the contract was solely accountable to the respondents therein. Though the appellant therein was not willing to execute work beyond the contract period, the respondent therein gave assurance to the appellant to continue the work with a promise that rates would be decided across the table once the appellant went ahead with the work. It is in the light of these peculiar circumstances that the Apex Court held that Clause 11(C) of the contract did not come in the way of the arbitrator awarding amount for work done beyond the contract period. Reliance by Mr. Narula on judgment of the Apex Court in Board of Trustees for the Port of Calcutta is also inapposite. The issue before the Apex Court was about arbitrator’s power to award interest pendente lite in the light of clause in the contract prohibiting the Commissioner from granting interest on the amount of delayed payment to the contractor. The Apex Court held that the clause, upon strict construction, prohibited only the Department from granting interest but did not prohibit Arbitrator from granting interest.

53) Mr. Narula has also strenuously relied on judgment of the Delhi High Court in MBL Infrastructures in support of his contention that clauses in the contract which restrict right of the parties in claiming damages is a restrictive clause defeating the provisions of Sections 55 and 73 of the Contract Act. The case before the Delhi High Court involved performance of a contract for construction of Metro Station. Clause-8.3 of the General Conditions of Contract (GCC) provided the remedy of only extension of time in the event of delay. The Arbitral Tribunal had held that Clause 8.3 of the GCC did not provide for compensation to the Contractor by way of damages. The Delhi High Court disagreed with the arbitrator’s finding and held that there was delay on the part of the Respondent therein to complete the project and the termination of the contract was wrongful. The Delhi High Court further held that the Respondent therein did not grant extension of time as per Clause 8.3 of the GCC before proceeding to terminate the contract. It is in the light of these peculiar facts that the Delhi High Court held in para-46 of the judgment that a clause in the contract not providing for remedy of damages is against public interest as it hindered the smooth operation of commercial transaction.

54) Reliance is also placed on behalf of the judgment of this Court in Regus South Mumbai Business Centre (supra) in which the issue was about correctness of award of damages by the arbitrator in the light of contractual clause in the Agreement providing for either termination or conversion of arrangement of running of business centre into a leave and license agreement. In the case before this Court there was no specific clause in the contract for non-payment of compensation or damages. Award of damages was sought to be criticised by the Petitioner therein contending that the clause provided for only two consequences of termination of Agreement and vacation of premises or conversion of agreement into leave and license and that directing the third consequence in the form of damages by the Arbitrator was like rewriting the terms of contract. This Court disagreed with the said contention and upheld award of damages. However in the present case, there is direct contractual clause No. 22 disentitling the Petitioner of damages or compensation in the event of termination of contract by the society.

55) Petitioner has also relied on judgment of this Court in Mumbai Metropolitan Region Development Authority Vs. Mumbai Metro One Pvt Ltd. (supra) in which again this Court noticed that though the contract provided for extension of concession period in the event of delay by MMRDA to provide the Right of Way, there was no specific prohibition in the contract for awarding damages.

56) Thus, all the judgments sought to be relied upon by the Petitioner can be distinguished on account of a specific clause in the DA disentitling the Petitioner from raising a claim for compensation or damages. On the other hand, judgments of the Apex Court in Associated Engineering Co. (supra) and Union of India vs. L&T (supra) hold contractual clauses for denial of compensation or interest to be enforceable. The judgment of Division Bench of this Court in Vilayati Ram Mittal (supra) also holds contractual clause for denial of compensation to be enforceable and goes a step further by holding that the arbitrator is bound by such clause and cannot travel beyond the same.

57) In my view, a clause in the redevelopment agreement for denial of damages or compensation to the developer can be enforced in law because of the peculiarity of the contract. In a redevelopment agreement, the developer undertakes the responsibility of rehousing the society members by demolishing the old building and by constructing a new one. In return, the developer secures right to sell the additional constructed units to recoup the expenditure and to earn profits. He has the responsibility of praying transit rent to the society members in the interregnum. Developer in an agreement for redevelopment does not secure ownership in the land and the Society continues to remain the owner. He has the primary responsibility of providing new houses to the members. His right to earn profits in the project crystallizes only after he fulfills the obligations of paying transit rent and putting back the society members in possession of reconstructed flats. If the developer fails to perform the primary obligations, his right to earn profits by selling the flats remains imperfect. Therefore once the developer commits breach of obligation to provide constructed flats/units to the society members and once the DA is terminated on that count, the right of the developer to earn profits from the project continues to remain imperfect. In absence of right to make profits in the project, the developer cannot seek damages/compensation from the society. This is a reason why if the developer agrees not to claim compensation or damages in the event of termination of contract by the Society due to his defaults, such contractual clause would be enforceable in law.

58) Also in the present case, the Petitioner has admittedly failed to deliver possession of new flats to the members and has failed to pay the transit rent. Commission of breaches by the Petitioner both of the DA and of the consent terms is established. The termination of the DA is on account of defaults committed by the Petitioner. Therefore, even going by the provisions of Section 73 of the Contract Act, Petitioner is otherwise not entitled to claim any compensation or damages due to termination of the DA. In my view therefore the Arbitrator has rightly denied the counterclaim of the Petitioner for damages. Denial of claim for compensation and damages is justified both on account of provisions of Section 28 of the Arbitration Act under which the Arbitrator is bound to give effect to clause 22 of the DA as well as in accordance with provisions of Section 73 of the Contract Act, since termination of the DA is attributable solely to the acts of the Petitioner.

RESTORATION OF BENEFITS RECEIVED UNDER THE TERMINATED CONTRACT

59) In addition to the claim for compensation/damages, Petitioner also sought return of the amounts spent by it in the project. As against the claim for compensation/damages under Section 73 of the Contract Act, the claim for restoration of benefits is traceable to provisions of Section 64. Under Section 64 of the Contract Act, the party rescinding a voidable contract is bound to restore the benefits, which he has received from another party to such contract. Section 64 of the Contract Act provides thus:

                   64. Consequences of rescission of voidable contract.—

                   When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he have received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.

60) Though Section 64 of the Contract Act uses the word ‘voidable contract’, the law is well settled that provisions of Section 64 apply even when a valid contract is rescinded. Section 64 of the Contract Act also applies to contracts that are initially valid but are rendered voidable at the option of the injured party due to a breach and is subsequently rescinded. Mr. Narula has relied on judgment of Privy Council in Muralidhar Chatterji (supra) in which the Privy Council has discussed the effect of provisions of Sections 64 and 65 of the Contract Act. The Privy Council has held that Section 64 applies even to cases where a valid contract is rendered voidable by wrongful act of a party thereto and which has been rescinded by the opposite party. Thus, Section 64 of the Contract Act applies even to a situation where a contract is valid, but is rendered voidable on account of breaches committed by a party to contract and the injured party terminates the same. Thus even if the contract is terminated on account of breaches committed by a party, such party is still entitled to claim restoration of benefits received by the injured party under Section 64 of the Contract Act. Since termination is due to breaches committed by a party and though such party may be liable to pay compensation to the injured party under Section 73 of the Contract Act, he can nonetheless seek restoration of benefits received by the injured party under part performance of the contract.

61) Section 64 of the Contract Act provides for restoration of ‘such benefit’ which a party rescinding the contract has received from another party to the contract. The issue for consideration therefore is whether various expenses incurred by the Petitioner-developer in the project can be treated as ‘benefits’ received by the Respondent-Society which it must return under the provisions of Section 64 of the Contract Act. According to the Petitioner, the benefits received by the Society within the meaning of Section 64 of the Contract Act are as under :

                   (i) rent paid to members of the society

                   (ii) construction costs incurred by the Petitioner.

                   (iii) amounts spent by the Petitioner for procurement of FSI.

                   (iv) amount of Rs.2,50,00,000/-adjusted by the Society out of amount encashed under the bank guarantee towards benefit of extra FSI.

62) In its counterclaim, the Petitioner-developer claimed from the Society three amounts of Rs. 30,68,54,552/- (Exh.2), Rs. 118,39,97,856/- (Exh.3) and Rs. 29,09,70,826/-(Exh.4). The amount of Rs.30,68,54,552/- were branded ‘restoration of benefits’ in para-20 of the counterclaim, which reads thus :

                   20) The Respondent submits that Claimant Society and its members have received various monetary benefits which are enumerated at Exhibit-2 herein under the subject Development Agreement and Consent Terms. The Claimant Society is bound to return the various amounts to the tune of Rs.30,68,54,552/-as mentioned in Exhibit-2 hereto under the relevant provisions of the Contract Act governing restoration of Benefit given by one party to another party under a Contract.

63) The breakup of the amount of Rs. 30,68,54,552/- in Exhibit-2 to the counterclaim was set out by the Petitioner as under: