Telangana High Court Upholds Arbitral Award Ordering The Building’s Demolition Due To Its Unsafe State

Telangana High Court Upholds Arbitral Award Ordering The Building’s Demolition Due To Its Unsafe State

Directs the respondents to vacate the property and hand it over to the appellant within two months

The Telangana High Court has upheld an arbitral award passed by a sole arbitrator wherein the latter directed the demolition of the building that was incapable of human habitation.

The bench comprising Chief Justice Alok Aradhe and Justice N. Tukaramji held that the tribunal had rightly directed the pulling down of the structure since it wasn’t constructed as per the agreement. The construction was stopped halfway, as it was unsafe, and the life of the constructed building would not be more than two decades. Moreover, on such conditions, no fresh construction licence would be issued to it.

The case involved a 15 May 1996 development agreement between the appellant and respondents (a proprietary firm and its proprietor). The agreement was for developing a plot in Hyderabad. The built-up area was to be shared in the ratio of 32 percent to the appellant and 68 percent to the builders.

However, disputes arose among the partners, leading to a new agreement in 1997, unilaterally canceled by the appellant in 1999. When further disputes emerged, it resulted in defective construction.

Meanwhile, respondent No.2 moved into one of the flats in the partially constructed building.

In 2001, the appellant complained to the municipal corporation seeking the demolition of the structure as it was unfit for habitation.

While considering an arbitration clause, the respondents approached the court for an arbitrator's appointment. In 2002, the arbitrator ordered the appellant to deliver the possession of the vacant site after demolishing the building.

Aggrieved by the order, in 2016, the respondents challenged the award claiming that the arbitrator exceeded his jurisdiction by ordering the demolition, not supported by pleadings. The arbitrator found a breach of the 1997 agreement, stating that the building was not constructed as per the terms and was unsafe. The appellant could not be compelled to register the share without completing the complex.

Thus, while stating that the arbitrator went beyond the contract terms, the trial court set aside the award. Thereafter, the appellant appealed under Section 37 of the Act.

The appellant challenged the judgment on the grounds:

• The XXIV additional chief judge's order was illegal and contrary to Section 34 of the Act.

• The judge failed to recognize the admitted breach by the respondents despite the ongoing construction of the project.

• The judge's oversight in not addressing the arbitrator's findings on safety, stability, and the lack of a completion certificate.

• The ld. Court failed to appreciate that the relief was granted in terms of the Specific Reliefs Act, 1963.

The respondent made the counter-arguments:

• The arbitrator went beyond the pleadings of the appellant and granted a relief that was not sought; therefore, it exceeded its jurisdiction.

• The scope of Section 37 is limited and does not permit the court to reappreciate evidence; therefore, no ground of interference is made out.

While analyzing the facts, the court criticized the trial court for deeming the arbitrator's award beyond the arbitral proceedings' scope without considering the detailed reasons.

The bench highlighted the trial court's failure to acknowledge that the respondents owned the property as per the development agreement despite the non-fulfillment of their obligations. The arbitrator's finding of the respondents breached clauses 7, 8, 9, and 21 of the development agreement.

The judges acknowledged the undisputed element that the building was incomplete and unfit for habitation. Therefore, the tribunal had rightly held that the semi-finished building needed to be demolished, so that a safe structure could be constructed in its place.

Highlighting the limited scope of the court’s interference and the finality of the arbitral awards, Chief Justice Aradhe and Justice Tukaramji observed that the trial court's order would prejudice the appellants' rights, considering the long possession of the property by the respondents. They stated that the arbitrator's decision was reasonable and within the scope of the arbitration proceedings.

Therefore, the bench set aside the impugned order and upheld the arbitral award. It directed the respondents to vacate the property and hand it over to the appellant within two months.