Supreme Court Orders Chandigarh Administration to Refund ₹47.75 Crores for Delays in Film City Project

In a significant ruling, the Supreme Court has largely upheld an arbitral award in favor of a company contracted to develop a Multimedia-cum-Film City in Chandigarh, holding the local administration responsible for refunding ₹47.75 crores — an amount earlier forfeited by the authorities.

The judgment was delivered by a Bench comprising Justices BV Nagarathna and Satish Chandra Sharma, who found that the Punjab and Haryana High Court had wrongly overturned the arbitral tribunal’s award.

The apex court emphasized that despite the critical nature of time in the execution of the project, the Chandigarh Administration had caused an unreasonable delay of over 16 months in handing over an encumbrance-free project site to the company. "Each day's delay after signing the Development Agreement carried significant commercial implications and directly undermined the project," the Court observed.

Background

The Chandigarh Administration had invited bids in 2006 for the creation of a Multimedia-cum-Film City at Sarangpur. The appellant company emerged as the highest bidder and was issued a letter of acceptance in 2007. Subsequently, the company signed a Development Agreement, after paying ₹47.75 crores (representing 25% of the total bid value of ₹191 crores), while requesting demarcation of the project site as a prerequisite for commencing work.

Despite this, there was considerable correspondence regarding finalizing the demarcation and removing two high-tension (HT) electrical lines running through the land. It took over 16 months for the demarcation to be completed, by which time the company contended that the project costs had escalated and arrangements with other agencies fell through.

Although a High-Level Committee later decided to reschedule the company’s payment obligations, no concrete action followed. As a result, the company declared the contract frustrated and sought a refund. Instead, the Administration terminated the agreement and forfeited the amount deposited.

Arbitration Proceedings

The matter was first addressed by an arbitral tribunal, which ruled in favor of the company. The tribunal ordered the authorities to:

• Refund the forfeited ₹47.75 crores with 12% annual interest from 01.03.2007;

• Pay ₹47.75 lakhs as compensation for damages;

• Reimburse ₹46,20,715 for work already undertaken;

• Pay 12% annual interest from 16.12.2009 on the damages and expenses;

• Cover ₹50 lakhs in litigation costs.

Key findings of the tribunal included the delay in providing a demarcation plan, the inability to hand over clear land free of HT lines, and the illegal termination of the contract.

Lower Court and High Court Decisions

Following the arbitral award, the Chandigarh Administration challenged it under Section 34 of the Arbitration Act before the District Court, which dismissed the challenge. However, in an appeal under Section 37, the High Court sided with the administration, supporting the forfeiture and reasoning that the company had shown reluctance to perform its obligations.

The High Court opined that the company should have anticipated issues like the presence of HT lines before bidding and labeled the problems as "trivial," criticizing the arbitral award for imposing harsh conditions on the administration.

Supreme Court’s Findings

The Supreme Court disagreed with the High Court's approach, reinstating most of the arbitral award with minor modifications. It ruled that the company was not entitled to ₹47.75 lakhs as damages for losses but confirmed their entitlement to a refund of the deposit and reimbursement of expenses.

The Court reduced the awarded interest from 12% per annum to 8% per annum, noting that the original rate was excessive. However, it clarified that if payment was not made by 30.06.2025, interest would again accrue at 12% per annum.

Crucially, the Court noted:

• The administration had agreed that the development period would start only once the final demarcation plan was handed over.

• The demarcation was provided 16.5 months late, severely impacting the project's timeline.

• The HT lines should have been removed by the administration, and its failure to provide clear land constituted a breach of obligations.
  

The Court also acknowledged that due to the long delay, the appellant’s prior agreements with other agencies had likely lapsed, leading to additional costs had the project been pursued.

Rejecting the High Court's view that the issues were "trivial," the Supreme Court stressed that the delay had profound commercial consequences in a project where timely execution was critical.

Thus, while slightly modifying the award, the Supreme Court largely restored the arbitral tribunal’s findings and placed the financial burden squarely on the Chandigarh authorities.

Case Details:

Case Title: M/s Parsvnath Film City Ltd. v. Chandigarh Administration & Others

Civil Appeal No.: 6162 of 2016 (along with a connected matter)

Citation: 2025 LiveLaw (SC) 422

Appearance: Senior Advocate V. Giri appeared for the appellant, while Advocate Krishna Kant Dubey represented the respondents.