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Supreme Court of India
Larsen And Toubro Ltd vs Puri Construction Pvt. Ltd on 21 April, 2025
Author: Abhay S. Oka
Bench: Pankaj Mithal, Abhay S Oka
2025 INSC 523
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 2575-2578 OF 2016
Larsen and Toubro Limited … Appellant
versus
Puri Construction Pvt. Ltd. … Respondents
and Others
with
CIVIL APPEAL NOS. 2580-2581 OF 2016
and
CIVIL APPEAL NO. 2579 OF 2016
JUDGMENT
ABHAY S. OKA, J.
FACTUAL ASPECTS
1. These appeals arise out of the judgment and order dated
30th April, 2015, passed by the Division Bench of Delhi High
Court on the appeals preferred under Section 37 of the
Arbitration and Conciliation Act, 1996 (for short, ‘the
Arbitration Act’). The appeals before the Division Bench were
preferred against the judgment dated 26th November, 2008 of
Signature Not Verified
the learned Single Judge in a petition under Section 34 of the
Digitally signed by
ANITA MALHOTRA
Date: 2025.04.21
18:34:47 IST
Reason:
Arbitration Act by which the award of the Arbitral Tribunal
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 1 of 72
was set aside. The Division Bench, by the impugned
judgment, has disagreed with some of the findings recorded
by the learned Single Judge. To that extent, the appeals
preferred by Puri Construction Private Limited and Mohinder
Puri have been allowed. The appeal by Larsen and Toubro
Limited was dismissed. However, the Division Bench
observed that the parties are left to pursue the appropriate
course of actions under law.
2. In these appeals, we are concerned with a company,
Puri Construction Limited and its sister concerns (collectively
referred to as ‘PCL’). We are also concerned with another
company, Larsen and Toubro Limited (hereafter referred to as
‘L&T’). PCL was in possession of lands in the Gurgaon
District, Haryana, as the owner thereof. PCL had obtained
licenses from the Director Town and Country Planning,
Haryana (for short, ‘the DTCP’) to develop the lands for
residential group housing schemes. Earlier, PCL had entered
into a joint venture with ITC Classic Real Estate Finance
Limited (for short, ‘ITCREF’) under the name Florentine
Estates of India Limited for the development of the lands.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 2 of 72
Ultimately, ITCREF exited from the business. An Exit
Agreement dated 30th July, 1997 was made, which, inter alia,
stipulated that PCL would transfer to ITCREF the built-up
space of 1,95,000 sq. ft. in the project. Thereafter, L&T was
introduced to complete the project.
3. L&T and PCL entered into an agreement for land
development (for short ‘the Development Agreement’) on 19 th
January, 1998, but the date mentioned therein was 10 th
March, 1998. Subsequently, since L&T was of the opinion that
there was a recessionary trend in the real estate market due
to which the project was required to be down-sized, a
supplementary agreement was entered into between L&T and
PCL on 30th December, 1999 (for short ‘the Supplementary
Agreement’). Based on the Supplementary Agreement, a
Tripartite Agreement dated 10th January, 2000 (for short, ‘the
Tripartite Agreement’) was entered into between PCL, L&T
and Lord Krishna Bank (for short ‘the Bank’).
4. Broadly, in the Development Agreement, it was provided
as under:
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 3 of 72
(a) L&T will develop the entire property mentioned in
Schedule ‘A’ of the Agreement, including the part
allocated to PCL, at its own cost;
(b) In phase-I of development, L&T will develop a
portion of Schedule ‘A’ property as described in
Schedule ‘B’. An area of 18.025 acres will be
developed by L&T within 60 months in phase-I. In
phase-II of the development, L&T was to develop
the remaining portion as mutually acceptable to
the parties in view of the prevailing market
conditions;
(c) The ratio of division in the developed property
between PCL and L&T was agreed to be 25% and
75% respectively;
(d) ITCREF was to get an area of 2,20,416 sq. ft. from
the property allocated to PCL;
(e) PCL agreed to pay all External Development
Charges (for short, ‘EDC’) up to the date of the
development agreement. The liability to pay EDC
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 4 of 72
was to be of L&T after receiving No ObjectionCertificate (for short ‘NOC’);
(f) L&T was to complete the construction of Phase-I in
60 months, which was subject to extension in view
of prevailing market conditions; and
(g) L&T will not be deemed to be in default if
performance of its obligations under the
development agreement is delayed, inter alia, due
to the prevailing market conditions.
5. The Supplementary Agreement incorporated the
following clauses:
(a) The terms of the Development Agreement will
continue to bind the parties unless otherwise
agreed in the in the Supplementary Agreement,
which shall come into effect after happening of the
following events:
i. L&T taking over or replacing bank guarantees
furnished by PCL to DTCP;
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 5 of 72
ii. The bank paying EDC amounting to Rs. 6crores to DTCP;
iii. Reimbursement of expenses incurred by PCL
by L&T; and
iv. Compliance with the terms and conditions of
the Tripartite Agreement made by L&T by
paying Rs.5.14 crores to the Lord Krishna
Bank (“the Bank”).
(b) L&T will furnish bank guarantees to DTCP after
approval of the term loan by the bank to PCL;
(c) L&T will pay the EDC of Rs. 6 crores paid by PCL
through the bank and the remaining EDC Charges
within 18 months;
(d) L&T agreed to commence construction work for
3.84 lac sq.ft. of the development, subject to
achieving a confirmed booking/selling target of
75% in phase-I area; and
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 6 of 72
(e) The Agreement would not be construed as a waiver
of any right that has accrued for the extension or
termination under the Development Agreement.
6. In the Tripartite Agreement, it was provided as under:
(a) The Bank will pay a sum of Rs. 6 crores towards
EDC to DTCP on behalf of PCL, which will
constitute a term loan to PCL. The loan will be
secured by 15 acres of land already mortgaged by
PCL to the Bank;
(b) The Bank will issue a bank guarantee of Rs. 4.66
crores to DTCP on behalf of L&T; and
(c) L&T will pay the Bank a sum of Rs. 5.19 crores on
behalf of PCL to discharge the loan availed for
payment of EDC on or before 19th January, 2000.
7. We may note here that there was an arbitration to which
ITCREF and PCL were parties. A consent award was passed
on 13th May, 2000, in favour of ITCREF requiring PCL to allot
1,06,200 sq. ft. to ITCREF.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 7 of 72
8. PCL by letter dated 18th December, 2000, terminated the
Development Agreement with L&T inter alia, on the grounds
of:
(a) Failure to allocate area to ITCREF;
(b) Non-sanctioning of funds towards the
development; and
(c) Non-payment of EDC; and
(d) Other breaches in relation of non-commencement
of work.
9. Delhi High Court referred the dispute between PCL and
L&T to a Sole Arbitrator. Broadly, the following were the
prayers made by PCL before the Arbitral Tribunal:
(a) Direct L&T to satisfy the loan availed from the
Bank and to obtain the release of the title-deeds in
respect of 15 acres of land placed by PCL with the
Bank as security;
(b) Direct L&T to return the title-deeds of the rest of
the lands to PCL;
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 8 of 72
(c) Direct L&T to return the sanctioned development
plans and other documents, including licences,
permits, permissions etc;
(d) Issue a permanent injunction against L&T
restraining it from interfering with any of PCL’s
rights to develop the property; and
(e) For grant of compensation and damages to the
tune of Rs. 300 crores and Rs. 100 crores
respectively.
10. L&T filed a counter-claim before the Arbitral Tribunal,
making the following prayers:
(a) Declare that PCL has no authority to rescind the
contract;
(b) Grant compensation and damages to L&T to the
tune of Rs. 280 crores due to the wrongful
rescission of the agreement by PCL. Rs. 280 crores
were claimed as the reimbursement amount of
profit which L&T would have received by
developing 75% of the area; and
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 9 of 72
(c) Grant reimbursement to L&T of Rs. 8,31,53,968/-
as the amount spent by it towards fulfilling the
obligations under the Development Agreement.
11. The Arbitral Award was made on 28th December, 2002.
The Arbitral Tribunal held that:
(a) L&T jeopardised PCL’s obligations towards
ITCREF;
(b) L&T resiled from and went back upon its original
contractual obligations and tried to effect sales
without sanction under the revised development
plan and without making any provision for the
responsibility towards ITCREF;
(c) L&T had consciously decided to abandon the
Development Agreement and omitted to pay EDC
and also defaulted in the fulfilment of its obligation
to the statutory authorities, ITCREF, as well as the
Bank;
(d) The object of the Supplementary Agreement was
unlawful as it sought to defeat the beneficial
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 10 of 72
interest of ITCREF, which was a signing party tothe Development Agreement; and
(e) The Supplementary Agreement was tainted by
economic coercion, and the signatures of PCL were
obtained by fraud.
12. The operative award is as follows:
“ I. An Award in favour of the Claimants directing the
Respondent to pay Rs. 35 Crores to the Claimants on
account of damages suffered by the Claimants within
four weeks from the date of the award;
II. An Award in favour of the Claimants, directing
the Respondent to settle the claim of Lord Krishna
Bank within 4 weeks of the Award by repayment of
loan of Rs. 6 Crores with such interest that may be
due and payable to Lord Krishna Bank and further
directing the Respondent to secure the release of title
deeds from the said bank and to reimburse the
claimant’s interest charges paid by Puri Construction
Ltd. to Lord Krishna Bank in interregnum; within a
period of four weeks from the date of this award. In
default thereof, the Respondent will pay to the
Claimants a sum of Rs. 75 Crores for loss of saleable
area in respect of 15 acres of land placed in mortgage
with the said bank within a period of four weeks from
the date of this Award.;
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 11 of 72
III. An Award in favour of the claimants directing the
Respondent to return licences permits and
permissions obtained by the Claimants from the
statutory authorities in respect of the lands covered
by the Development Agreement dated 10.3.1998
within 4 weeks of this Award to the Managing
Director of Puri Construction Ltd. and obtain a
certificate of discharge to that effect granted by the
said Puri Construction Ltd. or in lieu thereof the
Respondent will pay to the Claimants a sum of Rs. 5
Crores by way of damages within a period of four
weeks from the date of this Award;
IV. An Award in favour of the Claimants directing
that the Respondent or anybody claiming under the
Respondent is permanently injuncted by restraining
them from interfering in any way or manner with the
rights of the claimants to develop the property
covered under the said Agreement dated 10.3.1998;V. An Award in favour of the Claimants, directing
the Respondent to indemnify the Claimants in terms
of Clauses 4(b) and 25 of the Development Agreement
dated 10.3.1998 for any action or decree or settlement
to be enforced by ITCREF against the Claimants or in
lieu thereof shall pay to the Claimants a sum of Rs.
50 Crores on such date as such action or decree or
settlement to be enforced by ITCREF against the
Claimants becomes crystallized;
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 12 of 72
VI. An Award in favour of the Claimants, directing
the Respondent to pay cost of the Arbitration
proceedings quantified at Rs. 30 lakhs within a period
of four weeks from the date of the Award;
VII. An Award in favour of the Claimants, directing
the Respondent to pay interest to the Claimants @
12% p.a. on the sums awarded hereinabove
commencing on four weeks from the date of this
Award till actual payment made by the Respondent.”
13. The learned Single Judge in a petition under Section 34
of the Arbitration Act had set aside the Arbitral Award. The
Division Bench by the impugned judgment upheld the
dismissal of L&T’s counter-claim. The Division Bench upheld
the findings of the Arbitral Tribunal that the Supplementary
Agreement was a non-starter as it was vitiated by economic
duress. The Division Bench also upheld the Arbitral
Tribunal’s finding that the Development Agreement was not
novated by the Supplementary Agreement. Division Bench
also upheld the Tribunal’s finding that conditions to be
fulfilled by L&T, subject to which the Supplementary
Agreement was to come into force, were not fulfilled. However,
the Tribunal’s quantification of damages for breach of
contract, amounting to a sum of Rs. 35 crores, and
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 13 of 72
compensation in lieu of securing title deeds with respect to 15
acres of land, amounting to Rs. 75 crores, as well as
compensation for default in returning licences and permits,
amounting to Rs. 5 crores, was set aside. The permanent
injunction granted in favour of PCL, restraining L&T from
interfering with PCL’s development of the Schedule ‘A’
property under the Development Agreement, was upheld.
Even the relief granted of indemnification in favour of PCL for
ITCREF’s claim was set aside without prejudice to the
indemnification for ITCREF’s claim relating to the transfer of
2,20,416 sq. ft of land to the extent envisaged under the
Development Agreement. The Division Bench upheld the
Arbitral Tribunal’s order to the extent that it awarded the cost
of arbitration to PCL. The title deeds deposited with the
Registrar of the High Court were ordered to be released to
PCL. In the light of the above directions and conclusions, the
parties were allowed to pursue their appropriate course of
action. The Division Bench allowed three appeals preferred by
PCL in part and dismissed the appeal preferred by L&T. Both
PCL and L&T, aggrieved by the Division Bench’s decision,
preferred the present Civil Appeals.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 14 of 72
SUBMISSIONS
14. Very detailed submissions have been made on behalf of
both parties. We are reproducing the gist of the submissions
made by the counsel appearing for the parties.
15. Learned senior counsel appearing on behalf of L&T has
made detailed submissions after inviting our attention to the
findings recorded by the Arbitral Tribunal and by the courts
under Sections 34 and 37 of the Arbitration Act. The learned
senior counsel submitted that though Division Bench of the
High Court has referred to the decision of this court in the
case of Project Director, National Highways No. 45 E and
220, National Highways Authority of India v. M. Hakeem
and Another1, which holds that the court dealing with a
petition under Section 34 cannot modify the award, the
Division Bench purported to modify the award. He submitted
that it is not permissible for the court to uphold a part of the
award and remand the remaining part back to the Tribunal.
He submitted that the decision of the Division Bench is akin
to setting aside the decree for upholding judgment. He
submitted that the reasoning in the award and its operative
1 (2021) 9 SCC 1
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 15 of 72
part are intrinsically linked and the same cannot be severed.
Moreover, this is not a case where there are distinct and
severable claims. He submitted that the effect of the
impugned judgment of the Division Bench is that PCL would
get a chance to improve upon the pleadings by initiating fresh
arbitration before the Tribunal. But, L&T’s doors would be
closed for a fresh adjudication in view of the findings rendered
in the award.
16. According to the learned senior counsel, the Division
Bench has set aside the award directing payment of Rs. 35
crores as damages to PCL. He pointed out that the award
contains a direction to L&T to settle the claim of the Bank by
repayment of the loan of Rs. 6 crores and to secure release of
the title deeds from the Bank; in default, L&T was directed to
pay PCL a sum of Rs. 75 crores. The first part of the relief for
payment of Rs. 6 crores has been upheld by the Division
Bench, but the portion of the award in respect of Rs. 75
crores has been set aside. The award contains a direction
against L&T to return licences, permits and permissions
obtained by PCL from statutory authorities in respect of the
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 16 of 72
lands. On failure to return the documents, L&T was directed
to pay Rs. 5 crores to PCL. However, the Division Bench has
upheld the award directing return of the documents, but has
rejected the award to the extent of payment of Rs. 5 crores.
Moreover, an award-granting injunction against L&T from
interfering in any manner with the rights of PCL to develop
the property has been upheld. The award directed L&T to
indemnify PCL for any action, decree, or settlement to be
enforced by ITCREF or, in lieu thereof, to pay to PCL Rs. 50
crores. The Division Bench has set aside this part of the
award in its entirety. There was an order of costs of
arbitration to the tune of Rs. 30 lakhs in favour of PCL, which
has been confirmed. He submitted that, in fact, no licences,
permits, or permissions obtained from statutory authorities
were in possession of L&T. Moreover, the award in favour of
the Bank is perverse as L&T has sought specific performance
of the contract; there was no need to grant an injunction.
17. Now, coming to the interplay between the Development
Agreement, Supplementary Agreement and the Tripartite
Agreement, he submitted that the rights and obligations of
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 17 of 72
the parties under the said agreements have been decided by
the Arbitral Tribunal without recording reasons. He
submitted that even PCL admitted that the conditions
contained in Sub-clauses (a) to (d) of Clause I of the
Supplementary Agreement were conditions precedent.
However, the Tribunal misread the plain terms of the
Supplementary Agreement contrary to the pleadings and
without assigning any reason, has held that conditions
precedent in Clauses (I), (II) and (III) of the Supplementary
Agreement have not been fulfilled and therefore, the
Supplementary Agreement was a non-starter. He relied upon
the decision of this Court in the case of Dyna Technologies
Private Limited v. Crompton Greaves Limited2.
18. The learned senior counsel further submitted that in
Section 34 proceedings, reasons cannot be supplanted to the
reasons recorded in the award. He invited our attention to
sub-clauses (a) to (d) of Clause I of the Supplementary
Agreement. His submission is that the terms of the
Supplementary Agreement were totally disregarded by the
Tribunal and relied on the original terms of the Development
2 (2019) 20 SCC 1
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 18 of 72
Agreement. He submitted that the award is vitiated due to
lack of reasons. He submitted that the award made was
contrary to the pleadings. The learned senior counsel invited
our attention to the findings of the learned Single Judge in a
petition under Section 34. He submitted that the Division
Bench supplanted its own reasons to uphold the award.
Further, the Division Bench tried to rewrite the contract by
including other clauses as conditions precedent. His
submission is that the Tribunal mixed up various unrelated
issues with issue no. 2 which pertains to economic coercion.
He submitted that the entire focus was on the alleged breach
committed by L&T of the Development Agreement and
abandonment of the site. Unreasoned finding has been given
that the Supplementary Agreement and the Tripartite
Agreement were entered under compulsion. The Tribunal
failed to note that in the Statement of Claim as well as in the
rejoinder filed by PCL, there was assertion regarding the
binding nature of the Supplementary Agreement. One Mr.
Mohinder Puri on behalf of PCL filed an affidavit which was
not only beyond the pleadings, but also contrary to the same
as he, for the first time, alleges exercise of coercion to enter
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 19 of 72
into Supplementary Agreement. Learned counsel relied upon
several documents to show that there was no coercion and
submitted that the Tribunal ignored the documents. He
would, therefore, submit that the award was vitiated in view of
Section 28(1)(a) of the Arbitration Act. He relied upon a
decision of this Court in the case of Associate Builders v.
Delhi Development Authority3. Learned counsel submitted
that the view taken by the Tribunal is not even a plausible
view.
19. Learned senior counsel submitted that a finding was
recorded by the learned Single Judge in the Section 34
petition that the Arbitral Tribunal could not have ignored all
the correspondence and evidence showing why the
Supplementary Agreement was signed. The learned Single
Judge held that the award was self-contradictory and the
findings were mutually destructive inasmuch as while holding
that the Supplementary Agreement was entered into by
compulsion, the Tribunal, thereafter, purported to enforce the
Tripartite Agreement. Learned senior counsel pointed out that
the Division Bench rejected the objection of L&T that the plea
3 (2015) 3 SCC 49
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 20 of 72
of coercion was not taken by holding that the Statement of
Claim is not specific on the point of coercion, but the plea
taken in paragraph 136(5)(a) of the Statement of Claim can be
deemed sufficient. In fact, what is quoted was part of PCL’s
letter dated 18th December, 2000, in response to L&T’s letter
dated 10th July, 2000. It was urged that the above allegation
has nothing to do with economic coercion to compel PCL to
enter into Supplementary Agreement. It is submitted that
Division Bench has supplied reasons to justify the award
which reasons were not there in the award itself. In fact, the
Division Bench went to the extent of converting the plea of
coercion into undue influence even when there was no
pleading to that effect.
20. The Arbitral Tribunal has rendered a contradictory
finding that the Supplementary Agreement was not operative,
but, L&T cannot be relieved of its obligations under the
Tripartite Agreement and thus, is bound to pay the Bank.
Learned counsel reiterated that the Tripartite Agreement
flows from the Supplementary Agreement. He pointed out that
the Arbitral Tribunal held that L&T was bound by the
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 21 of 72
Tripartite Agreement and at the same time observed that the
Supplementary Agreement and the Tripartite Agreement were
signed by PCL under compulsion and in dire need of funding
of EDC payment. He submitted that the learned Single Judge
has rightly held that when the Supplementary Agreement was
a non-starter, as per the Tribunal, no relief could have been
granted under the Tripartite Agreement. Unfortunately, this
argument has not been dealt with by the Division Bench.
21. He invited our attention to Clause 26 of the
Development Agreement which provided that L&T was entitled
to extension of time for completing the construction in case of
adverse market conditions. As per Clause 34, L&T could not
be treated in default of performance of its obligation if it is
delayed or prevented due to adverse market conditions. He
submitted that there were enough documents on record to
show that land prices were falling and prevailing market
conditions did not encourage development of land. He
submitted that though there was a specific pleading to that
effect, the Arbitral Tribunal did not record any finding in the
award with regard to the market conditions and in fact,
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 22 of 72
Clauses 26 and 34 of the Development Agreement have been
completely ignored. However, the learned Single Judge noticed
that there was material on record with respect to the fall in
real estate market and held that Arbitrator could not have
ignored all those correspondences and evidence showing why
the Supplementary Agreement was signed. The Division
Bench recorded the submission that the Tribunal has ignored
Clauses 26 and 34 of the Development Agreement, but, has
not dealt with the submission and tried to supply its own
reasons which were not found in the award. Thus, the
Division Bench acted beyond the scope of Section 37 of the
Arbitration Act.
22. The Arbitral Tribunal committed an error by directing
L&T to make payment to the Bank on the ground that L&T
cannot be relieved of its obligation to the Bank under the
Tripartite Agreement. It is submitted that the Bank was not a
party to the proceedings and therefore, the claim by the Bank
was not before the Arbitral Tribunal. In fact, in the affidavit in
lieu of evidence filed by PCL, it was contended that the Bank
is a third party and any action by the Bank can be tried only
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 23 of 72
by the Debt Recovery Tribunal. Therefore, the submission is
that the award in favour of the Bank is vitiated under Section
28(1)(a)(iv). He submitted that the said argument of L&T was
accepted by the learned Single Judge on the ground that the
Bank was not a party before the Tribunal and the Tripartite
Agreement did not have an arbitration clause. On this aspect,
he pointed out the finding of the Division Bench that the
principal amount of Rs. 6 crores with interest was an amount
payable by L&T to the bank under the Development
Agreement. He submitted that, in fact, the said obligation can
be read only in the Tripartite Agreement.
23. Learned senior counsel submitted that L&T has suffered
a loss of Rs. 5.44 crores towards EDC. Though, the Tribunal
had noted that the EDC payment would normally be
reimbursed, but it failed to offset the same. Learned counsel
pointed out that the sum of Rs. 8.10 crores was deposited
under an interim order dated 24 th January, 2003 passed by
the learned Single Judge in Section 34 petition subject to the
outcome of the proceedings. An application for restitution was
filed by L&T in Section 34 proceedings. By order dated 8 th
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 24 of 72
January, 2011, it was directed to be listed along with the
appeal before the Division Bench. However, the Division
Bench has not dealt with the same. A prayer was made that
L&T may be permitted to file an appropriate application for
restitution before the High Court.
24. The submission of the learned senior counsel is that the
order of the learned Single Judge in the Section 34 petition
deserves to be upheld.
25. The learned senior counsel appearing for PCL pointed
out that basically two issues arise for consideration. The first
is whether there was a breach committed by L&T as held by
the Arbitral Tribunal, and the second question is whether, if
the finding of breach committed by L&T is upheld, the finding
of the Arbitral Tribunal regarding damages can be revived.
26. The learned senior counsel submitted that the scope of
interference in a petition under Section 34 of the Arbitration
Act is now well settled. He relied upon a decision of this Court
in the case of S.V. Samudram v. State of Karnataka and
Another4. If the Arbitral Tribunal’s view is a plausible view, it
4 (2024) 3 SCC 623
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 25 of 72
ought not be interfered with. To arrive at a decision as to
whether a plausible view has been taken, the court would
consider whether the Arbitrator has considered the material
forming part of the record and arrived at a plausible view in
an overall sense and not expect the Arbitrator to deal with the
matter and render a judgment with the detailed reasoning as
is normally found in decisions of the civil courts.
27. Learned senior counsel submitted that to examine the
award in supervisory jurisdiction under Section 34 of the
Arbitration Act, the court must be cautious and should defer
to the view taken by the Arbitral Tribunal even if the
reasoning provided in the award is implied. If the reasons
recorded by the Arbitral Tribunal are intelligible, the award
cannot be set aside just because there were gaps in the
reasoning of conclusions reached by the Arbitral Tribunal.
The submission is that the award of the Arbitral Tribunal in
the present case is intelligible and contains adequate reasons.
He pointed out several findings recorded by the Arbitral
Tribunal with reasons.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 26 of 72
28. He submitted that L&T’s submission that Clause 26
read with Clause 34 of the Development Agreement permitted
it to seek extension of time is wholly misplaced considering
the fact that L&T abandoned the project because a decision
was taken by L&T to do so. Only in case L&T had paid EDC
and there was no risk of losing the licences, L&T could have
invoked Clauses 26 and 34 of the Development Agreement for
delayed completion of construction. Admittedly, no request
was made by L&T for the grant of extension of time for
completing the construction with the undertaking of making
payment of EDC in terms of Clauses 19 and 25 of the
Development Agreement, which were never modified. Learned
senior counsel submitted that L&T was holding title deeds in
relation to 25 acres of land and did not return the title deeds.
The title deeds in respect of the remaining 15 acres of land
were with the Bank for securing the loan availed for payment
of EDC. The payment of EDC was the liability of L&T as per
the Development Agreement. He also pointed out that L&T did
not lead any of the evidence. The stand of L&T in
considerations of the overall findings of the learned Tribunal
on breach of contract, abandonment etc. is completely out of
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 27 of 72
place and without any basis. In fact, no issues were framed
on the basis of Clauses 26 and 34 of the Development
Agreement.
29. The conditions precedent in the Supplementary
Agreement may be read with their true intent and purport.
Condition precedent no.1 also contains the binding nature of
the Development Agreement, except as agreed otherwise.
Under the Supplementary Agreement, payment of EDC, as
per Clause 19 read with Clause 27 of the Development
Agreement, was continued. The developer was liable to pay
EDC over a period of 18 months in terms of the licence.
Condition precedent no. 1(a) expressly requisited the
‘replacing or taking over’ of the bank guarantee furnished by
PCL. He pointed out the letter dated 15 th March, 2000,
addressed by PCL to the Bank, where the request was made
to continue with the bank guarantee of PCL. However, at the
same time, the request was made to the bank to forthwith
release the margin money of PCL. Learned counsel submitted
that L&T has made a false statement on oath that the bank
guarantee of PCL, with margin money and interest, was
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 28 of 72
released. Altogether, a new case was made out by L&T before
this court, as it was not pleaded before the Tribunal that the
margin money had been refunded and bank guarantees had
been released. In fact, PCL by letter dated 12 th April, 2000
reminded L&T that fresh bank guarantees were to be served
as PCL’s guarantee was not released. According to the specific
pleading of PCL in the Statement of Claims, a condition
precedent for the coming into effect of the said agreement was
replacing and taking over the bank guarantee. In the
Statement of defence-cum-counterclaim of L&T, it was claimed
that L&T had executed a counter bank guarantee. It was
submitted that attributing insufficient reasons in relation to
non-satisfaction of the condition precedent of the
Supplementary Agreement is incorrect. On 07 th October,
1999, L&T had taken a clear stand that the report submitted
by the consultant was not favourable to pursue the project
and hence, they shall not pay EDC. Reliance was placed by
learned counsel on the Statement of Claims of L&T. He invited
our attention to the fact that on 26 th October, 1999, PCL was
again constrained to put L&T on notice that there were
serious defaults of the terms of licences and the Development
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 29 of 72
Agreement. It was submitted that L&T was in possession of
title deeds of area of 25 acres from 15 th and 16th October,
1998. A submission was made that there were sufficient facts
pleaded in the pleadings to show coercion. He submitted that
non-payment of EDC as per Clause 19(b) of the Development
Agreement led to issuance of notice for cancellation of licences
of PCL. In the letter dated 07th October, 1999, L&T had taken
a clear stand that they will not pay EDC. Initially, on 8 th
December, 1998, L&T’s stand was that it was their
responsibility to pay EDC from 01 st July, 1998. Thereafter, a
stand was taken on 02nd April, 1999 that they will pay EDC
only after launch of the project. L&T did not pay Rs. 5 crores
refundable advance to PCL. L&T instructed PCL not to collect
any cheque and on 08th April, 1999, L&T internally instructed
to demobilize resources from the site. The title deeds were in
possession of L&T and the same was pleaded in the
Statement of Claims. Learned counsel submitted that these
all facts constituted coercion. He also pointed out that with
the consent of the parties, the issue was framed on the plea of
coercion being an issue no. 2, and in fact, L&T accepted that
there could be no grievance with the procedure followed by
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 30 of 72
the Arbitral Tribunal in framing issues. In fact, in the final
submission before the Arbitral Tribunal, L&T admitted that
the plea of economic duress was pleaded by PCL by pointing
out that the Supplementary Agreement was signed out of
economic duress and coercion.
30. He submitted that on the question whether the
condition precedent for the Supplementary Agreement was
satisfied, L&T did not lead evidence and evidence of PCL
remained uncontroverted.
31. As regards the contention that the relief granted in the
award was beyond the jurisdiction, learned counsel submitted
that the arbitration clause in the Development Agreement
even covered disputes in connection with the agreement. In
fact, the Supplementary Agreement refers to the fact that
parties to the Development Agreement have agreed to enter
into a tripartite agreement with the Bank. In turn, the
tripartite agreement records that L&T and PCL had entered
into Development Agreement on 10th March 1998. The notice
invoking the arbitration clause refers to the three agreements,
and even in the petition filed under Section 11 of the
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 31 of 72
Arbitration Act, the disputes were set out in relation to the
three agreements. By consent of the parties, vide order dated
14th February, 2001, the disputes in relation to all three
agreements, including the determination of the liability of
ITCREF and the Bank, were referred to the Arbitral Tribunal.
Before the Arbitral Tribunal, L&T took the stand that it was
its liability to ensure payment to the Bank. Also, L&T took a
stand through its counsel that the obligation was cast upon
L&T with respect to the liability of ITCREF. Moreover, L&T did
not take recourse to Section 16 of the Arbitration Act for
challenging the jurisdiction of the Arbitral Tribunal.
32. Learned senior counsel pointed out the issues framed by
the Tribunal concerning damages and compensation. He
submitted that perusal of L&T’s Statement of Defence shows
that the parties were ad idem on the question of valuation at
which sales could be made as L&T had itself based the claim
for damages on such valuation. As regards valuation, the
Tribunal considered the evidence of Shri Mohinder Puri
adduced on behalf of PCL. Therefore, the Tribunal relied upon
agreed valuation based on L&T’s demands in its counter-claim
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 32 of 72
as a reasonable estimate of the loss suffered by PCL. L&T had
pleaded that they were entitled to 75% of the total constructed
area while PCL was entitled to 25%. In fact, the Arbitral
Tribunal used L&T’s computation of loss of profit made by
L&T at Rs. 280 crores as the basis to arrive at PCL’s loss of
profit as Rs. 93 crores. In fact, the estimate of loss caused to
PCL was taken at Rs. 93 crores, which is on the lower side.
After considering the fact that ITCREF had initiated action to
forfeit licenses, the Tribunal reduced the amount awarded as
damages to Rs. 35 crores. Therefore, the findings recorded by
the Tribunal on this behalf are reasonable. Learned counsel
submitted that the Division Bench ought not to have set aside
the Tribunal’s findings on damages awarded to PCL. This was
not a case of no evidence before the Tribunal. The basis of
damages was L&T’s own valuation of the built-up space.
Evidence of Shri Mahendra Puri had gone unchallenged. As
the damages granted to PCL were based on evidence on
record, the said finding should not have been interfered with
in a petition under Section 34 or in an appeal under Section
37 of the Arbitration Act. He submitted that in view of the
decision of this Court in the case of Associate Builders v.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 33 of 72
Delhi Development Authority3, incorrect quantification of
damages by the Arbitral Tribunal will not be covered by either
“patent illegality” or “violation of public policy”. Even as
regards the indemnity in favour of ITCREF, the concerned
issue was issue no. 10 before the Tribunal on which detailed
statements were made and findings were recorded by the
Arbitral Tribunal based on the appreciation of the evidence on
record. The finding of the Division Bench that L&T’s
obligation to indemnify was only in terms of the built-up
space is wholly incorrect. Learned senior counsel pointed out
that on one hand, there was non-payment of EDC by L&T, on
the other hand, there were repeated notices sent by DTCP for
cancellation of licences. Moreover, ITCREF had filed a civil
suit in the District Court seeking recovery of rupees 73 crores
plus interest against PCL and also against L&T. In addition to
all this, L&T was holding title deeds of 25 acres of licensed
land of PCL and 15 acres of PCL’s licensed land with the Bank
for which the Bank had invoked securitization laws and also
filed proceedings before the Debt Recovery Tribunal. During
the Arbitral proceedings, L&T always resisted returning the
title deeds in respect of 25 acres of land. Therefore, the
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 34 of 72
argument that the land remained with PCL has no relevance
at all.
33. Lastly, it was submitted that the dispute between the
parties was of the year 2000. The award was made on 28th
December, 2002, after a very detailed hearing before the
Tribunal. Thereafter, the dispute remained sub-judice
continuously before the courts. Therefore, considering the
findings of the Tribunal, as upheld by the Division Bench,
this court will consider exercising extraordinary powers to do
complete justice. Therefore, appeals preferred by L&T may be
dismissed, and PCL may be compensated for the huge legal
expenditure incurred during the last 21 years. It was
submitted that the appeal preferred by PCL be allowed while
upholding the damages and compensation awarded by the
Arbitral Tribunal in terms of the award.
ISSUES FRAMED BY THE ARBITRAL TRIBUNAL
34. The Arbitral Tribunal framed 14 issues which read thus:
Issue No. 1: Whether the Development Agreement dated
10.03.1998 entered into between the Respondent and the
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 35 of 72
Claimants is binding on the parties or the same standnovated by the Supplementary Agreement dated 30.12.1999?
Issue No. 2: Whether the Supplementary Agreement
dated 30.12.1999 and the Tripartite Agreement dated
10.01.2000 were tainted by coercion and economic duress on
the claimants? If not, whether the claimants and the
Respondent performed respective obligations according to
tenor and terms of the Supplementary Agreement dated
30.12.1999 and the Tripartite Agreement dated 10.01.2000?
Issue No. 3: Whether the Claimants committed breaches
of the fundamental terms of the Development Agreement
dated 10.03.1998 to enable the Respondent to resile from the
agreement of development?
Issue No. 4: Whether the respondent’s Board of directors
in pursuance of reports of Boston Consulting Group (for short
‘BCG’). Richard Ellis and Jones Lang La Salle decide to down-
size/exit the business of real estate development and not to
pay EDC or commence development work?
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 36 of 72
Issue No. 5: Whether there had been non provisions of
security of the development site and unprovoked unilateral
abandonment of the site by L&T. If so whether such actions
had resulted in encroachments causing monetary loss to the
Claimants and in the event of such monetary loss caused to
the Claimants what is the extent of such loss?
Issue No. 6: Whether the Claimants entitled to terminate
the development agreement for the reasons stated in the letter
of termination dated 16.12.2000 or even otherwise?
Issue No. 7: Was the Respondent under any obligation to
commence construction in phase I for development of 3.84
Lac sq. ft. before the Claimants had confirmed
booking/selling targets as per the Supplementary Agreement
dated 30.12.1999?
Issue No. 8: Whether termination of the contract by the
Claimants amounts to wrongful repudiation and entitles
Respondent to rescind the contract and claim damages under
Section 73 and 75 of the Indian Contracts Act?
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 37 of 72
Issue No. 9: Whether the Respondent is entitled to be
relieved of its obligations under the Tripartite Agreement
dated 10.01.2000 and be put in the same position as if such
agreement had not been entered into?
Issue No. 10: Is the Respondent liable to compensate the
Claimants under the agreement of indemnity and if so what
effect?
Issue No. 11: Is the Respondent liable to be compensated
by Claimants by a sum of Rs.8,31,53,968/- including a sum
of Rs.5.19 Crores paid by the LKB as claimed by the
respondent?
Issue No. 12: Is the Respondent entitled to be
compensated by the Claimants a sum of Rs.280 Crores as net
profit being difference in the cost of construction estimated at
Rs.800/- per sq. ft. with the total cost being Rs. 320 Crores as
claimed by the respondent?
Issue No. 13: Are the Claimants entitled to compensation
from the Respondent and damages of a total values of Rs. 300
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 38 of 72
crores and are the Claimants entitled to a further sum of Rs.
100 crores as punitive damages?
Issue No. 14: Whether Mr. Mohinder Puri has the
authority to institute the instant claim petition and to carry
out acts necessary to prosecute the instant claim petition on
behalf of Claimants other than Puri Construction Limited? If
not whether the claim petition for other Claimants is
maintainable?
ARBITRAL TRIBUNAL’S AWARD
35. The Arbitral Tribunal recorded detailed findings. The
findings recorded by the Arbitral Tribunal can be summarised
as under:
Issue No. 1: The conditions precedent in Clauses (I), (II),
and (III) of the Supplementary Agreement were not fulfilled.
Therefore, the Supplementary Agreement was a non-starter,
hence, only the Development Agreement was binding on the
parties which was not novated by the Supplementary
Agreement.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 39 of 72
Issue No. 2: The Supplementary Agreement and theTripartite Agreement were tainted by coercion. These
agreements were executed as PCL was in dire need of money
for making EDC payments. It was the obligation of L&T to
provide funds for payment of EDC and the Tripartite
Agreement was signed since L&T failed to provide the
requisite funds.
Issue No. 3: PCL substantially discharged its obligation
under the Development Agreement. However, by unilaterally
abandoning the project, L&T committed fundamental breach
in its obligation under the Development Agreement.
Issue No. 4: The site inspection conducted by the Arbitral
Tribunal revealed that L&T had not commenced the
development work. L&T did not lead any oral evidence and
failed to produce the relevant documents that were called
upon to be produced by the Tribunal. Thus, L&T took a
conscious decision to abandon the development, not to pay
EDC or fulfil its obligations towards statutory authorities,
ITCREF and the Bank. Therefore, monetary loss was caused
to PCL.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 40 of 72
Issue No. 5: L&T did not fulfil its obligations under thedevelopment agreement. L&T failed to fund the project. It also
failed to provide sufficient security arrangements at the site,
resulting in encroachment of some sites.
Issue No. 6: PCL was entitled to terminate the
Development Agreement in view of the breaches committed by
L&T as recorded in issue No. 5.
Issue No. 7: Before PCL had confirmed bookings/selling
targets as per the Supplementary Agreement, L&T was not
under an obligation to commence construction in phase 1.
The reason was that the Supplementary Agreement was not
operative and binding, and no responsibility contrary to the
Development Agreement could be fastened on L&T.
Issue No. 8: The termination of the contract by PCL does
not amount to wrongful repudiation, and it does not entitle
L&T to rescind the contract and claim damages under
Sections 73 and 75 of the Contract Act.
Issue No. 9: As the Tripartite Agreement was negated due
to L&T’s default, and since it imposes liability on L&T, it
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 41 of 72
cannot be relieved of its obligation under the TripartiteAgreement.
Issue No. 10: L&T had complete knowledge of PCL’s
obligation to ITCREF. Under Clause 25 of the Development
Agreement, L&T was responsible for indemnifying PCL against
any loss, liability, cost, or claim that may arise against PCL
due to L&T’s failure to discharge its obligations. The
obligations under Clause 25 shall subsist even after the
termination of the Development Agreement.
Issue No. 11: As L&T had abandoned the project, it cannot
take advantage of its own wrong. Therefore, L&T is not
entitled to compensation from PCL.
Issue No. 12: The claim of Rs. 240 crores made by L&T
was negatived on the ground that L&T itself had abandoned
the project and therefore, it cannot take advantage of its own
wrong.
Issue No. 13: PCL was entitled to compensation from L&T
amounting to Rs. 93 crores in relation to its 25 percent share.
It was based on L&T’s calculation of profit for its 75 percent
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 42 of 72
share. The Tribunal observed that PCL was entitled todamages of Rs. 35 crores in lieu of L&T’s failure to pay EDC in
a timely manner. However, it was held that PCL was not
entitled to any punitive damages.
Issue No. 14: The authority of Mr. Mohinder Puri to
institute a claim on behalf of PCL was acquiesced by L&T, as
it did not object to the affidavit filed by Mr. Puri. Moreover, Mr.
Puri supplied copies of the board resolutions of the respective
companies granting him power of attorney.
36. We have already reproduced the operative part of the
Award in paragraph 12 above.
FINDINGS RECORDED BY LEARNED SINGLE JUDGE IN
SECTION 34 PETITION
37. Now, coming to the findings recorded in a petition under
Section 34, the findings can be summarised as under:
Issue No. 1: The conditions precedent for the
Supplementary Agreement were satisfied substantially.
Clause (I) was the only condition required to be fulfilled, and
Clauses (II) and (III) were not required to be fulfilled by L&T. It
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 43 of 72
was held that the Arbitral Tribunal gave inconsistent findingsby holding that the Supplementary Agreement was a non-
starter and void. However, the Tripartite Agreement was not
found to be void, though it was entered into as a result of the
Supplementary Agreement.
Issue No. 2: Both the Supplementary Agreement and the
Tripartite Agreement were not tainted by coercion as parties
to it recognized that the market prices had gone down and it
was not advisable to launch the project. In fact, Clause 26 of
the Development Agreement stipulated that construction was
contingent upon prevailing market conditions, and parties
were permitted to rescind the contract in the event of adverse
market conditions.
Issue No. 3: It seems that no submissions were
canvassed in the petition under Section 34.
Issue No. 4: The Tribunal’s conclusion could not be
based solely on the reports of BCG; instead, the inference was
to be drawn by the Tribunal based on the actions.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 44 of 72
Issue No. 5: The learned Single Judge did not record afinding on this issue.
Issue No. 6: PCL was not entitled to terminate the
Development Agreement. Although PCL made a commitment
to ITCREF to provide an area of 153,500 sq. ft., it allocated
only 88,320 sq. ft. itself.
Issue Nos. 7 and 8: It appears that no submissions were
made before the learned Single Judge on these issues.
Issue No. 9: The Tribunal exceeded its jurisdiction by
directing L&T to fulfil its obligations towards the Bank. It was
held that the Bank was not a party to the proceedings and the
Tripartite Agreement did not contain any arbitration clause.
Issue Nos. 10, 11 and 12: There were no specific findings
recorded by the learned Single Judge.
Issue No. 13: PCL was not entitled to any compensation from
L&T as it had already paid the price of the land to ITCREF.
Moreover, PCL committed an area to ITCREF, which was more
than its share. PCL’s losses would arise only when ITCREF
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 45 of 72
files a suit for recovering damages for non-fulfilment of thecommitment and failing to hand over the land in due time.
FINDINGS RECORDED BY DIVISION BENCH IN SECTION
37 APPEALS
38. Now, we must consider the findings recorded by the
Division Bench in appeals under Section 37 of the Arbitration
Act.
Issue No. 1: The Division Bench relied upon the conditions
included in Clause II of the Supplementary Agreement. The
Division Bench observed that PCL had spent 17.28 crores
towards EDC out of which payment of Rs. 6 crores was made
by PCL by mortgaging 15 acres of its land. Under Clause II,
L&T was required to make good a plurality of bank guarantees
and assume responsibility for payment of EDC. However,
there was complete failure on the part of L&T to do so.
Issue No. 2: The Division Bench found that the finding of the
Tribunal that the Supplementary Agreement and the
Tripartite Agreement were tainted by coercion was correct. It
was observed that the Arbitral Tribunal rightly found that
economic duress has vitiated the Development Agreement.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 46 of 72
Issue No. 3: The Division Bench observed that L&T has not
urged any ground with respect to rejection of its counter-claim
before the learned Single Judge.
Issue No. 4: The Division Bench agreed with the finding of
the Tribunal that L&T decided to abandon the project on the
basis of the BCG Report. The Division Bench held that the
award was well supported by evidence. Inspection conducted
by the Arbitral Tribunal showed that L&T had not even
commenced the development work. Though, PCL handed over
the title deeds to L&T on 16 th October, 1998, no progress was
made in construction by L&T. Moreover, L&T delayed the
project and was planning it till 18 th December, 1999. L&T was
fully aware about PCL’s obligation to ITCREF which was
expressly set out in the Development Agreement.
Issue No. 6: There may not be separate findings recorded by
the Division Bench, but the Division Bench, as stated earlier,
agreed that the Tribunal accepted the breaches committed by
L&T.
Issue No. 7: There is no specific finding recorded by the
Division Bench.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 47 of 72
Issue No. 8 and 9: The Division Bench held that L&T did not
urge any ground with respect to the rejection of its counter-
claim before the learned Single Judge.
Issue No. 10: The Division Bench held that the Tribunal’s
direction to L&T to pay Rs. 50 crores to PCL on crystallization
of ITCREF’s claim deserves to be set aside. The loss suffered
by ITCREF would not be reasonably foreseeable for PCL to be
indemnified against. It was held that L&T’s failure to transfer
the built-up area would have to be accounted for under the
heading damages for the breach of the Development
Agreement by L&T.
Issue Nos. 11 and 12: The Division Bench held that L&T did
not raise any ground with respect to the rejection of its
counter-claim before the learned Single Judge.
Issue No. 13: The Division Bench held that actual loss was
not established by PCL. It was observed that after the
rejection of L&T’s counterclaim, it would be an illegality to rely
on L&T’s calculation of profit. However, the Tribunal’s finding
regarding L&T’s failure to pay EDC timely was affirmed.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 48 of 72
Issue No. 14: It is evident that the Tribunal’s findings were
not seriously challenged.
39. We now turn to the conclusions recorded in paragraph
119 of the impugned judgment. In substance, the Division
Bench agreed with the findings recorded by the Arbitral
Tribunal that the Supplementary Agreement was a non-
starter, it was vitiated by economic duress, and that the
Development Agreement was not novated by the
Supplementary Agreement. The Division Bench also approved
the finding of the Arbitral Tribunal that L&T committed a
fundamental breach of the Development Agreement. The
Division Bench also upheld the dismissal of L&T’s
counterclaim. Furthermore, the Division Bench concluded
that the permanent injunction granted in favour of PCL was
also justified. However, the quantification of damages and
compensation, as well as indemnification for ITCREF’s claim,
was found to be contrary to the record. The net effect was that
the operative part of the award fixing the monetary liability of
L&T was set aside while leaving open the remedy of PCL for
the quantification of the monetary claim. In view of the
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 49 of 72
confirmation of findings on merits, the award regarding costs
was confirmed. But, in view of the legal position that the
award cannot be varied or modified, the Division Bench did
not restore any part of the arbitral award and held in
paragraph no. 120 that the parties are left to pursue the
appropriate course of action.
CONSIDERATION
40. Firstly, we will deal with the issue of the power of the
Court under Section 34 of partly setting aside the award. This
issue was dealt with by this Court in the case of Project
Director, National Highways No. 45 E and 220, National
Highways Authority of India v. M. Hakeem and Another 1.
This Court, in the said decision, considered its earlier
decision in the case of McDermott International Inc. v Burn
Standard Co. Ltd. & Ors. 5 Ultimately, in paragraph 42, this
Court held thus:
“42. It can therefore be said that this question
has now been settled finally by at least 3
decisions [McDermott International Inc. v. Burn
Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari
Mullick v. Ghanshyam Das Damani, (2018) 115 (2006) 11 SCC 181
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 50 of 72
SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin
Haryana Bijli Vitran Nigam Ltd. v. Navigant
Technologies (P) Ltd., (2021) 7 SCC 657] of this
Court. Even otherwise, to state that the judicial
trend appears to favour an interpretation that
would read into Section 34 a power to modify,
revise or vary the award would be to ignore the
previous law contained in the 1940 Act; as also
to ignore the fact that the 1996 Act was enacted
based on the Uncitral Model Law on
International Commercial Arbitration, 1985
which, as has been pointed out in Redfern and
Hunter on International Arbitration, makes it clear
that, given the limited judicial interference on
extremely limited grounds not dealing with the
merits of an award, the “limited remedy” under
Section 34 is coterminous with the “limited
right”, namely, either to set aside an award or
remand the matter under the circumstances
mentioned in Section 34 of the Arbitration Act,
1996.”
41. We are conscious of the fact that a larger bench is seized
with the issue of the power of the Court to modify the award
under Section 34. However, we are respectfully bound by the
decision in the case of Project Director, National Highways
No. 45 E and 220, National Highway Authority of India v.
M. Hakeem and Another1. As we have noted, after recording
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 51 of 72
its conclusions in paragraph 119, the Division bench, in the
last paragraph of the impugned Judgment, has not modified
the award.
42. We have perused the three agreements subject matter of
controversy. The Development Agreement is a contract
between PCL and L&T. Clause 4 of the Development
Agreement refers to the obligations of PCL under the
agreement entered into by it on 30 th July, 1997 with ITCREF.
It refers to the fact that PCL had agreed to hand over 1,95,000
sq. ft. of built-up area in the Schedule ‘A’ property, after its
development, comprising high-rise and low-rise buildings,
inclusive of a car park, to ITCREF. It also refers to the fact
that the extent of the built-up area to be allocated to ITCREF
was 2,20,416 sq. ft., which formed part of the allocation made
under the Development Agreement to PCL. The Development
Agreement also provides that PCL had agreed that 15 acres of
land mortgaged to the Bank would be in the remaining
portion of Schedule ‘A’ property and that PCL would get the
mortgage discharged on this 15 acres of land comprised in
Schedule ‘A’ property before commencement of development
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 52 of 72
work in the remaining portion of Schedule ‘A’ property. The
Agreement also provides for the deposit of original documents
in relation to Schedule ‘A’ property (except to the extent of 15
acres of land mortgaged with the Bank). Paragraph 19 records
L&T’s obligation to pay the EDC after receiving the NOC from
the appropriate authority. The Agreement provides that L&T
shall complete the construction of the building on the
Schedule ‘B’ property within 60 months or such mutually
extended period from the date of obtaining sanction for the
building plan, or tax clearance under Section 37-I of the
Income Tax Act, and making the said property available for
development, whichever is later. It has also stipulated that
construction shall be carried out in phases. After completion
of phase of 3,00,000 sq. ft. on Schedule ‘B’ property, L&T, in
consultation with PCL, by mutual consent, shall have the
option and liberty to renew and revise the
specifications/amenities and built-up area of the balance
development and extend the period of completion by a further
period of 12 months, depending upon the prevalent market
conditions.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 53 of 72
43. Now, we refer to the Supplementary Agreement. In the
recital of the Supplementary Agreement, it is mentioned that
L&T has made only partial compliance with the requirement
under the Development Agreement to pay EDC to DTCP.
Moreover, L&T has failed to furnish a bank guarantee for the
balance payment of EDC. In fact, it records that L&T had
taken a stand that in view of the adverse market conditions,
the project had become unviable and sought further time
from PCL to allow the prevailing real estate market conditions
to improve. Clauses I, II and III of the Supplementary
Agreement read thus:
I. “That the terms of the Development
Agreement will continue to bind the
parties hereto, unless otherwise agreed to
in these presents, which shall come into
effect on happening of the following
events :
(a) DEVELOPER replacing or taking over the
Bank Guarantees furnished by the
OWNERS through their Banker to DTCP,
Haryana;
(b) Payment of EDC amounting to Rs. 6
Crore by Lord Krishna Bank to DTCPCivil Appeal Nos. 2575-2578 of 2016, etc. Page 54 of 72
Haryana, in terms of the Tripartite
Agreement between the parties hereto
with Lord Krishna Bank;
(c) Reimbursement of expenses incurred by
the OWNER as detailed in Annexure I, on
production of proof of payment thereof;
(d) Compliance of the terms and conditions
of the tripartite agreement between the
parties hereto with Lord Krishna Bank,
inter-alia the DEVELOPER paying Rs.
5.19 Crore to Lord Krishna Bank, on
behalf of OWNERS towards discharge of
the loan availed by the OWNERS for
payment of EDC. The said sum of Rs.
5.19 Crore shall be a secured interest free
loan by the DEVELOPER to the OWNERS.
II. The Bank Guarantees would be furnished by
the DEVELOPER to the DTCP after final
approval of term loan by Lord Krishna Bank
to the OWNER and escrow account
arrangement finalisation, either through the
Bankers of the OWNERS or any other Bank
acceptable to DTCP. The said bank
guarantees shall remain valid and in force
upto the date of receipt of completion
Certificate of the I phase of the project.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 55 of 72
III. The parties hereto agree that the Clause 19
of the Development Agreement shall stand
modified as under:
(a) The EDC Charges of Rs. 1013.14 Lacs
paid so far by the OWNERS shall be
reimbursable only after receipt of the
same from the prospective purchasers of
the apartments in the Project.
(b) The Developer agrees to pay the balance
EDC as under:
i. Rs. 6 Crore through M/s. Lord Krishna
Bank as provided in Clause I(b) supra;ii. Pay the remaining EDC charges over a
period of 18 months in terms of
licenses.
(c) The EDC paid by the parties shall be
reimbursable to each of the parties from
out of the sale proceeds, as agreed in the
Agreement for Development.”
(emphasis added)
44. We may note here that, as stated in Clause (I) of the
Supplementary Agreement, the terms of the Supplementary
Agreement were to come into effect upon the occurrence of the
events mentioned therein, which included the condition that
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 56 of 72
L&T would replace or take over the bank guaranteesfurnished by PCL through their banker to DTCP. Other
condition was of compliance of the terms and conditions of
the Tripartite Agreement which provided for L&T paying sum
of Rs. 5.19 crores to the Bank on behalf of PCL. The Arbitral
Tribunal found that Clauses (I) and (II) were not fully complied
with by L&T. The Tribunal also found that Clause (III) was not
complied with by L&T due to non-payment of EDC charges as
provided therein. On a plain reading of these three clauses,
the learned Single Judge’s finding that Clauses (II) and (III)
were not required to be fulfilled is based on a complete
misreading of Clauses (II) and (III). The Division Bench rightly
agreed with the Tribunal that conditions included in the said
clauses were required to be complied with, but were not
complied with. The Division Bench noted that even the
Supplementary Agreement revealed that the DTCP had issued
a show-cause notice for non-payment of EDC, threatening
cancellation of licenses. Clause (I) of the Supplementary
Agreement makes it very clear that the Supplementary
Agreement shall come into effect only upon the occurrence of
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 57 of 72
the four events specified therein. That is how theSupplementary Agreement remained a non-starter.
45. We now turn to the Tripartite Agreement, which in turn
refers to the Supplementary Agreement. It is recorded that
PCL and L&T had approached the Bank to avail a term loan of
Rs. 6 crores for payment of EDC charges. Under the said
agreement, the Bank agreed to pay Rs. 6 crores EDC to DTCP
on behalf of PCL. It was agreed that the 15 acres of land
already mortgaged by PCL with the Bank will continue to
serve as a guarantee for the said term loan of Rs. 6 crores.
The Tripartite Agreement provides that the Bank shall
forthwith release, in favour of the PCL, the counter-
guarantees outstanding for the bank guarantees given by the
Bank for a sum of Rs. 466.175 lakhs in favour of DTCP,
Haryana. It was provided in the Tripartite Agreement that
L&T will open an Escrow account with the Bank in New Delhi,
wherein all sale proceeds of the proposed flats will be
deposited. Out of the funds in the escrow account, the Bank
will first appropriate the interest part for the respective period
and out of the balance portion, appropriate 50 per cent
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 58 of 72
towards repayment of the term loan and release the remaining
50 per cent balance to L&T, subject to review on a later date.
It was provided that PCL and L&T have undertaken to launch
the sale of apartments in the Schedule ‘A’ property, covering
an area of 3.84 lakhs sq. ft., by 15th February, 2000. L&T
had also undertaken to complete the said development within
30 months of the commencement of construction. Even all
sale proceeds were to be collected by L&T and deposited with
the Bank in an escrow account. The Tripartite Agreement
provided that L&T shall pay to the Bank a sum of Rs. 5.19
crores on behalf of PCL towards discharge of the loan availed
by PCL for payment of EDC on or before 19 th January, 2000.
Lastly, it was provided that upon full set-off and/or repayment
of the term loan of Rs. 6 crores, including interest thereon,
PCL shall be relieved of its obligation under this Agreement.
46. Looking to the clauses in the Supplementary
Agreement, the finding recorded by the Tribunal that, as the
conditions precedent in the relevant clauses were not
complied with by L&T, the Supplementary Agreement was a
non-starter is undoubtedly a possible finding which could not
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 59 of 72
have been interfered with under Section 34 of the Arbitration
Act. Moreover, it is a finding of fact.
47. Coming to the issue no. 2, it is apparent from the
recitals in the Supplementary Agreement as well as Tripartite
Agreement that as L&T did not discharge its obligation under
the Development Agreement to pay EDC, the Bank was
required to be brought into the picture so that it could
advance a sum of Rs. 6 crores by way of loan for making
payment of the said amount to DTCP. We must mention here
that Clause 19 of the Development Agreement provided that
L&T shall reimburse PCL the EDC amount already paid up to
the date of the Development Agreement by mutually agreed
instalments. The amounts paid by PCL towards EDC up to
the date of execution of the Development Agreement were also
mentioned, as L&T did not pay the amount already paid by
PCL towards EDC. By Clause (III) of the Supplementary
Agreement, Clause 19 was modified. The main reason for the
execution of the Supplementary Agreement and the Tripartite
Agreement was the default on the part of L&T. The Tribunal
looked into various terms and conditions of the Development
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 60 of 72
Agreement and the obligation of L&T to carry out its activities
in a time-bound manner. The Tribunal considered the
pleadings of PCL and the failure of L&T to deny material
paragraphs. The tribunal also referred to a letter dated 7 th
October, 1999, addressed by L&T that its consultant had
reported that it would not be favourable to pursue the project
and therefore requirement of payment of EDC by L&T does not
arise. In fact, L&T relied upon the report of BCG. However, in
respect of order dated 08th November, 2001, L&T did not
produce the relevant documents. The Tribunal has noted that
L&T was aware about PCL’s financial conditions and its
obligations towards ITCREF. The Tribunal also referred to the
fact that on 02nd November, 1999, DTCP issued a show cause
notice proposing cancellation of licenses due to non-payment
of EDC. These facts and the default by L&T left no choice to
PCL but to execute the Supplementary Agreement as well as
the Tripartite Agreement.
48. The Division Bench referred to Section 16(3) of the
Contract Act which provides that where a person who is in a
position to dominate the will of another, enters into a contract
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 61 of 72
with him, and the transaction appears, on the face of it or on
the evidence adduced, to be unconscionable, the burden of
proving that there was no undue influence is on the person in
a position to dominate the will of the other. Illustrations (c)
and (d) of Section 16(3) of the Contract Act were also relied
upon, which deal with cases of economic duress and undue
influence. After examining the evidence, the Division Bench
held that there was no patent illegality in the findings
recorded by the Arbitral Tribunal that the Supplementary
Agreement and the Tripartite Agreement were tainted by
coercion. On consideration of the facts discussed before, such
a view by the Arbitral Tribunal cannot be said to be contrary
to justice and morality. We agree with the view taken by the
Division Bench.
49. Dealing with issue no. 3, the Division Bench referred to
Clause 26 of the Development Agreement and Clause 5 of the
Supplementary Agreement. The Tribunal found that L&T
committed a breach of Clause 19 of the Development
Agreement by not making payment of a single instalment of
EDC. Moreover, interest free deposit of Rs. 5 crores in terms of
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 62 of 72
Clause 12 of the Development Agreement was not paid by L&T
to PCL. The Tribunal found that there was no Development
work carried out and not a single floor of any residential
building was constructed for which development plans were
sanctioned. Therefore, the finding recorded by the Tribunal
that L&T committed fundamental breaches of the agreement
cannot be interfered within the limited jurisdiction under
Section 34 of the Arbitration Act.
50. As regards issue no. 4 and 5, the Division Bench has
considered material on record. The Division Bench recorded
that approval of the competent authority under the Income
Tax Act, 1961 was given on 30th June, 1998 and the building
plans were sanctioned on 30th September, 1998. The title
deeds were handed over by PCL to L&T on 16 th October, 1998.
There are letters on record addressed by PCL complaining to
L&T about failure to make any progress on the site. No EDC
payments were made by L&T. Even planning of the project
was not completed by L&T till December, 1999. That is how
the inspection of the Arbitral Tribunal revealed that L&T did
not commence the development work. From the recital of
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 63 of 72
clauses in the Development Agreement, it is apparent that
L&T was aware of the obligations of PCL towards ITCREF.
Considering the material on record, the Arbitral Tribunal
recorded that there was a conscious decision on the part of
L&T to abandon the development and not to fulfil its
obligations under the contract. Therefore, the Division Bench
accepted the correctness of the finding recorded by the
Tribunal that there was an abandonment of the project on the
part of L&T. The Division Bench rightly declined to find fault
with the findings recorded by the Tribunal on this aspect
based on evidence. Obviously, such conduct on the part of
L&T caused loss to PCL, which ultimately resulted in the
termination of the Development Agreement. The issues based
on the rejection of the counter-claim of L&T have been rightly
addressed by the Division Bench on the ground that there
were no submissions made on the rejection of the counter-
claim before the learned Single Judge in a petition under
Section 34 of the Arbitration Act.
51. The Division Bench dealt with the Tribunal’s direction
to L&T to pay Rs. 50 crores to PCL on crystallization of
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 64 of 72
ITCREF’s claims. The Division Bench held that the type and
kind of losses incurred by ITCREF would not be reasonably
foreseeable for PCL to be indemnified against. Therefore, the
Division Bench rightly observed that while granting a sum of
Rs. 50 crores to PCL, the Tribunal had gone overbroad. The
said finding of the Division Bench cannot be faulted with.
52. As regards the damages of the sum of Rs. 35 crores to
be paid by L&T to PCL on account of breach of the
Development Agreement, the basis taken by the Tribunal was
the figures given by L&T in its counter-claim. Mr. Mohinder
Puri estimated the loss of PCL at Rs. 117 crores. However,
PCL did not prove the said loss, and the Tribunal did not rely
upon any evidence to arrive at a fair assessment of the loss
actually incurred by PCL. The Division Bench held that
instead of basing the findings on the figures set out by L&T in
its counter-claim, the correct approach would have been to
determine the prevailing market rate for sale of built-up area
at the time of the breach and thereupon determine the
proceeds that PCL would have received from the sale of its 25
per cent share under the Development Agreement. Therefore,
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 65 of 72
the award of Rs. 35 crores as damages was fundamentally
contrary to Section 73 of the Contract Act. Such an approach
was completely contrary to substantive law in the form of
Section 73. This finding cannot be disturbed.
53. As regards the direction to pay the amount of Rs. 6
crores with interest, we need not record any finding as the
amount has been paid by L&T. The award in the alternative of
Rs. 75 crores, without proof of the value of land, cannot be
sustained at all. There was no evidence on record to indicate
that the value of the 15-acre area would be Rs. 5 crores per
acre. Similarly, there was no basis for granting Rs. 5 crores to
PCL due to L&T’s failure to return the licenses and other
statutory permits. In these circumstances, we find the view
taken by the Division Bench to be correct.
54. As the termination of the Development Agreement is
upheld, obviously, L&T cannot deal with the property in any
manner and PCL can always deal with the same.
55. In para 119, the Division Bench held thus:
“119. In the circumstances, the Court
concludes as follows:
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 66 of 72
a. The finding of the Tribunal that the
Development Agreement was not novated by
the Supplementary Agreement is upheld;
similarly the Tribunal’s findings that the
conditions which were to be fulfilled by L&T
subject to which the said Supplementary
Agreement was to come into force (but were
not fulfilled) are upheld;
b. The finding of the Tribunal that the
Supplementary Agreement was a non-starter
as it was vitiated by economic duress is
upheld. The impugned judgment’s ruling to
the contrary is set aside.
c. The finding of the Tribunal that L&T
committed fundamental breach of the
Development Agreement is upheld. The
impugned judgment’s ruling to the contrary is
set aside.
d. The Tribunal’s dismissal of L&T’s
counterclaim is upheld.
e. The Tribunal’s quantification of damages for
breach of contract (35 crores), compensation in
lieu of securing title deeds with respect to 15
acres of land (75 crores) and compensation for
default in returning licences and other permits
is set aside (5 crores). The permanent
injunction granted in favour of PCL restraining
L&T from interfering with PCL’s development
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 67 of 72
of Schedule A property of the Development
Agreement is upheld. The relief granting
indemnification in favour of PCL for ITCREF’s
claims is set aside. It is clarified that this is
without prejudice to the indemnification for
ITCREF’s claims relating to the transfer of
2,20,416 sq. ft. of land to the extent envisaged
under the Development Agreement, The
Tribunal’s order to the extent that it awards
costs of arbitration to PCL is upheld.
f. Title deeds deposited with the Registrar of
this Court pursuant to the directions in FAO
319/2001 are directed to be released to PCL.”
56. The powers of the Appellate Court under Section 37 of
the Arbitration Act are not broader than those of the Court
under Section 34 of the Arbitration Act. Therefore, what
cannot be done in the exercise of the powers under Section 34
cannot be done in an Appeal under Section 37. An Arbitral
Award cannot be modified. Thus, even after recording the
conclusions in paragraph no. 119, the Division Bench has not
modified the Award by partly setting aside the Judgment
under Section 34. In paragraph 121 of the Judgment, the
Division Bench held thus:
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 68 of 72
“121. In light of the above conclusions, parties
are left to pursue the appropriate course of
action under law. This Court notices that since
the dispute has been in subsistence for a
considerable period of time, an attempt may be
made at settling the claims through mediation.
FAO (OS) 21/2009, 22/2009 and 23/2009 are
partly allowed to the above extent; FAO (OS)
194/2009 is dismissed, for the same reason.”On a conjoint reading of Paragraph 119 and 121, we find that
the remedy of PCL has been kept open to pursue appropriate
course of action under law as there cannot be a remand to the
Arbitral Tribunal for quantification of monetary claim. As the
finding of the Arbitral Tribunal regarding breaches committed
by L&T was affirmed, the Division Bench has rightly
segregated that part of the Award by which, cost of arbitration
was ordered to be paid to PCL by L&T. This part has been
severed from rest of the Award. Therefore, this part of the
Award must be complied with by L&T, if not already done. As
documents of title were deposited with the Registrar, the
direction to hand over the same to PCL cannot be faulted
with. We cannot find any fault with the operative part in
paragraph 120.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 69 of 72
57. Before we part with Judgment, we must reproduce what
is observed by Division Bench in paragraph no. 120 with
approval:
“120. Before concluding, the court would like to
highlight – more as a post script, the prolix and
near interminable arguments which were
addressed by senior counsel on either side, who
were insistent that the arbitral records, such as
pleadings and documents, had to be examined,
and read out in court. The court unsuccessfully
entreatied them to limit oral arguments; equally
unsuccessful were attempts at ensuring that
written briefs were kept within limits. The
citation of numerous authorities on similar
propositions, and reference to factual material,
reduced an arbitration appeal (against the
decision in Section 34) to the Division Bench into
an appeal on facts, which Section 37 was clearly
not intended to be. One hopes that there is some
clarity within the legal system about the kind of
time limit to arguments in such cases, to ensure
timely disposal of appeals.”
58. We agree with the views expressed by the Division
Bench which we have quoted above. In several appeals arising
out of Sections 34 and 37 proceedings, we have noticed that
there is a tendency on the part of the senior members of the
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 70 of 72
Bar to argue as if these proceedings were regular appeals
under Section 96 of the Code of Civil Procedure, 1908 (for
short ‘CPC’). In this case, while making submissions, the
learned counsel appearing for both the parties have gone into
the minutest factual details. As the Members of the Bar are
aware of the limited jurisdiction of the Courts in proceedings
under Sections 34 and 37 of the Arbitration Act, they must
show restraint. Similarly, we observe a tendency on the part of
the Members of the Bar to rely upon a large number of
decisions, whether relevant or irrelevant, while arguing
Section 34 petitions and Section 37 appeals as well as
appeals arising therefrom. Multiple decisions are cited on the
same proposition of law. This makes hearing time-consuming.
As there are long oral arguments, the Courts permit written
submissions to be filed. That is how very long written
submissions come on record. The Courts have to devote page
after page for dealing with many submissions which ought not
be made considering the limited jurisdiction under Section 34
of the Arbitration Act. This results in very lengthy judgments.
The high monetary stakes involved in the proceedings should
not result in unnecessarily long oral submissions or bulky
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 71 of 72
written submissions. All this results in the criticism about
the arbitrations in India. Therefore, there is a need to impose
time limit on oral submissions in such cases. We cannot
forget that this Court and the High Courts have the appellate
jurisdiction in civil and criminal cases. These Courts should
be in a position to also devote sufficient time to the cases of
the common man. What we have expressed is a matter of
serious concern and introspection for everyone.
59. In view of what we have held earlier, there is no merit in
the appeals and the same are dismissed.
…………………………….J.
(Abhay S Oka)
…………………………….J.
(Pankaj Mithal)
New Delhi;
April 21, 2025.
Civil Appeal Nos. 2575-2578 of 2016, etc. Page 72 of 72
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