2016 Supreme(SC) 466

SUPREME COURT OF INDIA
Madan B. Lokur, N.V. Ramana, JJ.
Delhi Development Authority – Appellant
Versus
Kenneth Builders & Developers Ltd. & Ors. – Respondents
Civil Appeal No. 5370 of 2016 (Arising out of S.L.P. (Civil) No. 35374 of 2010) With Civil Appeal No. 5371 of 2016 (Arising out of S.L.P. (Civil) No. 13146 of 2011)
Decided on : 29-06-2016

IMPORTANT POINTS
“Impossible” in section 56 of the Indian Contract Act, 1872 means impracticable and useless in the context of the object and purpose of the contract. It may arise due to some contemplated or non-contemplated intervening or supervening circumstances. If impractibility arises due to non-contemplated intervening or supervening circumstances, the contract will be frustrated.
“As is where is basis” in a development agreement relates only to physical issues pertaining to the project land and ancillary or peripheral legal issues pertaining to the actual construction activity, such as compliance with the building bye-laws, environmental clearances etc. Obtaining environmental clearances does not include commencement of construction activity prohibited by law except after obtaining permission of the Ridge Management Board and Supreme Court.

Headnote:(a) Administration of justice – Judicial propriety – Objection not raised before High Court or in te pleadings in the appeal – Cannot be raised during final hearing of the appeal. (Para 27)

       (b) Environmental law – DPCC requiring ridge demarcation report to issue “consent to establish” – DDA not providing the report – Kenneth Builders taking all necessary steps to commence the construction activity – Failed due to impasse created by the governmental agencies – Section 56, Indian Contract Act, 1872 attracted. (Para 32)

       (c) Indian Contract Act, 1872 – Section 56 – “Impossible” – Means impracticable and useless in the context of the object and purpose of the contract – Impossibility arising due to some contemplated intervening or supervening circumstance – Contract will not be frustrated – Instantly, prohibition on construction activity on the project land falling within the Ridge or having morphological similarity to the Ridge not contemplated by DDA – Making performance of the contract impracticable – Held, contract frustrated. (Para 33, 34, 39)

       (1954) SCR 310 – Relied upon

       MANU/DE/1815/2010 CA; (2013) 8 SCC 198 – Referred

       (d) Environmental law – Area falling within the Ridge – No construction activity permissible on the Ridge – Government of India notifying project land as “Residential” – Shown as such in MPD-2001 and MPD-2021 – But exact boundaries of Ridge not demarcated – In absence of such demarcation position of law will not change by the said notification or Master Plan – Held this circumstance frustrated the contract Section 56, Indian Contract Act, 1872. (Para 35)

       (e) Interpretation of contract – “As is where is basis” – Relates only to physical issues pertaining to the project land and ancillary or peripheral legal issues pertaining to the actual construction activity, such as compliance with the building bye-laws, environmental clearances etc – Obtaining environmental clearances not extending to commencement of construction activity prohibited by law except after obtaining permission of the Ridge Management Board and Supreme Court – Reliance by DDA on clauses 6 and 11 of the Development Agreement misplaced (Para 37, 38)

       (2012) 8 SCC 197 – Relied upon

       Facts of the case:

       The project land was notified on 1st August, 1990 for “Recreation” (District Park) in the Master Plan for Delhi -2001 (MPD-2001). Two notifications were issued by the Ministry of Urban Development of the Government of India on 8th January, 2002 and 23rd February, 2006 converting the project land from “Recreation” (District Park) to “Residential”.

       On 20th March, 2006 the DDA issued an advertisement for involving the private sector in Delhi’s development and for the development of the project land for the construction of 750 residential flats and 3500 resettlement houses.

       Kenneth Builders was the highest bidder in the auction held on 26th April, 2006 and its bid was accepted. On 15th June, 2006 a demand-cum-allotment letter was issued to it requiring payment of balance 75% of the bid amount. It is not in dispute that Kenneth Builders deposited the entire bid amount of Rs. 450.01 crores with the DDA on 11th September, 2006.

       Pursuant to the deposit of the entire bid amount by Kenneth Builders, a no objection certificate was issued by the DDA on November, 2006 for submission of building plans for the project to the Planning Department of the DDA. Thereafter possession of 11.70 hectares of the project land was handed over to Kenneth Builders but an area of approximately 2.60 hectares covered by the JJ cluster was left out and possession thereof was not given.

       A Development Agreement was signed between the DDA and Kenneth Builders whereby it was agreed, inter alia, that Kenneth Builders would construct 3500 houses for the resettlement of slum dwellers and 750 free sale flats which Kenneth Builders would be entitled to dispose of. Kenneth Builders would also develop roads and peripheral services for the entire project.

       It was the responsibility of Kenneth Builders to obtain various approvals and clearances from the appropriate authorities including environmental agencies of the State and the Central Government.

       However objection of the Department of Forests compelled Kenneth Builders to stop all building activity on the project land.

       The DDA insisted that the project land was “Residential” and that the project could be undertaken thereon. The GNCTD was equally clear that the project land falls within the Ridge and no construction activity could be carried out without the consent of the Ridge Management Board and the permission of Supreme Court. The Ministry of Environment and Forest, Government of India (MoEF) kept aloof from the controversy and gave environmental clearance for the project subject to the condition that a “consent to establish” shall be obtained by Kenneth Builders from the DPCC under the Water (Prevention and Control of Pollution) Act, 1974 (for short the Water Act) and the Air (Prevention and Control of Pollution) Act, 1981 (for short the Air Act) and a copy submitted to the said Ministry before the start of any construction work at the site.

       Kenneth Builders applied to the DPCC for “consent to establish”. The DPCC required Kenneth Builders to submit a “ridge demarcation report” at the earliest.

       The DDA did not give any such report to Kenneth Builders on the ground that the issue had already been clarified to the GNCTD in a letter dated 17th October, 2008.

       The High Court held that in the event the DPCC does not give its “consent to establish” and the project cannot be carried out then Kenneth Builders would be entitled to a return of the entire amount (with interest at the rate of 6% till realization) paid by it to the DDA since the project would stand frustrated and would be incapable of performance.

       Finding of the Court:

       Contract is frustrated.

       Result: Appeal filed by DDA dismissed. Question raised in the connected appeal filed by the GNCTD and the Department of Forests of the GNCTD is left open.