Introduction

We enter into contracts so many times in a day that ‘contract’ has become an indispensable
part of our life. When you purchase milk or newspaper in the morning or go to movie in the
evening, you are entering into a contract. Indian Contract Act really codifies the way we
enter into a contract, execute a contract, and implement provisions of a contract and effects
of breach of a contract. Basically, a person is free to contract on any terms he chooses. The
Contract Act consists of limiting factors subject to which contract may be entered into,
executed and breach enforced. It only provides a framework of rules and regulations which
govern formation and performance of contract. The rights and duties of parties and terms of
agreement are decided by the contracting parties themselves. The court of law acts to
enforce agreement, in case of non-performance.

As per Contract Act, an agreement enforceable by law is a contract [section 2(h)]. Every
promise and every set of promises, forming the consideration for each other, is an
agreement [section 2(e)]. A person makes a proposal (offer). When it is accepted by other, it
becomes a promise. However, promise cannot be one sided. Only a mutual promise forming
consideration for each other is ‘agreement’.

Meaning of ‘Proposal’ - When one person signifies to another his willingness to do or to

abstain from doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal [section 2(a)]. Thus, a ‘proposal’ can be to do a
positive act or abstinence from act (i.e. negative act).

Meaning of ‘Promise’ - When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise
[section 2(b)].  Thus, when a proposal (offer) is accepted, it becomes a ‘promise’. As is clear
from the definition, only person to whom proposal is made can signify his assent. Other
person cannot accept a proposal.

Consideration for promise – The definition of ‘agreement’ itself states that the mutual
promises should form consideration of each other. Thus, ‘consideration’ is essential for an
agreement. A promise without consideration is not ‘agreement’ and hence naturally, it is
not a ‘contract’.
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Definition of ‘consideration’ - When, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or abstains from doing, or promises
to do or to abstain from doing, something, such act or abstinence or promise is called a
consideration for the promise [section 2(d)].

Following are essential requirements of a valid contract.

 Offer and its acceptance

 Free consent of both parties

Adarsh Co-Operative Housing Society

  Mutual and lawful consideration for agreement
 It should be enforceable by law. Hence, intention should be to create legal
relationship. Agreements of social or domestic nature are not contracts
 Parties should be competent to contract
 Object should be lawful
 Certainty and possibility of performance
 Contract should not have been declared as void under Contract Act or any other law

Consequences of Breach of Contract - Compensation is payable for breach of contract.

Penalty is also payable if provided in contract. Breach of contract may be actual or
anticipatory.

Proof of damages- Section 73 makes it obligatory for the plaintiff to prove that he has
suffered damages and the extent to which he has suffered before a court can award him
damages for breach of contract, and if he does not give the best evidence, every
presumption should be made against him, but this does not relieve the Court altogether of
the duty of assessing the damages, as best it can, on evidence and materials actually before
it. . In the case of breach of contract, it is obligatory on the part of the aggrieved party to
prove that it had sustained legal injury. If proof of actual loss is not given, damages cannot
be awarded. The opposite party is not entitled to forfeit security amount and retention
amount.

The compensation is allotted or given only when actual loss or injury is suffered by the
Claimant. No compensation is given for remote or indirect loss or damage sustained. The
fundamental principle of law of damages is that the person injured by breach of contract
shall have fair and just compensation commensurate with loss sustained in consequence of
the defendant’s breach of contract which gives rise to the action. This amount is to be
established with reasonable certainty. The measure of compensation depends upon the
circumstances of the case. The complained loss or claimed damage must be fairly attributed
to the breach as a natural result or consequence of the same. The loss must be real loss or
actual damage and not merely a probable or a possible one. When it is not possible to
calculate accurately or in a reasonable manner, the actual amount of loss incurred or when
the plaintiff has not been able to prove the actual loss suffered, he will be, all the same,
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entitled to recover nominal damages for breach of contract. Where nominal damages only
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are to be awarded, the extent of the same should be estimated with reference to the facts
and circumstances involved. The general principle to be borne in mind is that the injured
party may be put in same position as that he would have been if he had not sustained the
wrong. In the case of State of Bihar vs. P.K.Jain, AIR 1981 Pat 280, a suit was filed by a
contractor against the Government on account of breach of the contract, but he failed to
adduce evidence in support of the losses suffered by him. It was held that he was not
entitled to award of damages.

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Claim for damages when not permissible- The concept of compensation is linked up with
the loss of damages that result from breach of contract and where no loss of damage is
ensured, there would be no question of awarding compensation.

Loss of damages must be actual and not by way of punishment. If no actual purchase had
been made by plaintiff on the failure of the company to supply the balance quantity of the
ordered material, there is no question of any loss being suffered by the opposite party.

In a works contract, a contractor applied for extension of time to enable him to complete
the contracted work. This was allowed by the employer. Two more extensions of time
followed. A supplementary agreement was entered into between the parties within the
time frame mentioned therein. Thereafter, he claimed damages for prolongation of
contract. Held, the contractor having voluntarily agreed to complete work under the
supplementary agreement cannot seek damages.

Suit for damages- The remedy for suit of damages for a breach of contract need not be one
of the terms of contract but becomes available under the law in a acse of breach of contract
without any express stipulation. The whole basis of a suit for damages is that at the date of
the suit there is no pecuniary liability on the defendant and the plaintiff has come to court in
order to establish a pecuniary liability. The only right which the aggrieved by the breach of
the contract has is the right to sue for damages. No pecuniary liability thus arises till the
court has determined that the party complaining of the breach is entitled to damages.

Sec. 73 Compensation of loss or damage caused by breach of contract- When a contract

has been broken, the party who suffers by such breach is entitled to receive, form the party
who has broken the contract, compensation for any loss or damage caused to him thereby,
which naturally arose in the usual course of things from such breach, or which the parties
knew, when they made the contract, to be likely to result from the breach of it.

Sec. 74 Compensation of breach of contract where penalty stipulated for- When a contract
has been broken, if a sum is named in the contract as the amount be paid in case of such
breach, or if the contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual damage or loss or proved to
have been caused thereby, to receive from the party who has broken the contract
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reasonable compensation not exceeding the amount so named or, as the case may be, the
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penalty stipulated for.

Adarsh Co-Operative Housing Society

Adarsh Co-Operative Housing Society, Mumbai
The Adarsh Housing Society is a cooperative society in the city of Mumbai in India. Adarsh
Housing Society, originally meant to be a six-storey structure to house Kargil war heroes and
widows, got converted into a 31-storey tower through alleged collusion of bureaucrats,
politicians and top defense officers. The Adarsh society, formed in 1994, had 71 members
that included retired top Army officials and Maharashtra bureaucrats who became a part of
the society with a fee of Rs 50,000 each.

The scam started with R.C. Thakur, a low-level defense estate officer posted in the Colaba
division, who discovered the existence of the plot and probably realised its financial
possibilities. How he came into contact with influential Congress legislator and one-time
Shiv Sena leader Kanhaiyalal Gidwani is a mystery worthy of John Grisham, but the
association promised to be profitable to both. Thakur became the chief promoter of the
Adarsh Society and Gidwani one of the promoters. In 1999, they requested the Narayan
Rane-led Maharashtra government for a no-objection certificate (NOC) to build apartments
for war widows and defense personnel associated with Kargil on a 3,758 sq m football field-
sized plot in Block IV of the Colaba division. It soon became clear they were not acting alone
but were part of a larger conspiracy to violate the laws of the land for profit.

On August 19, 1999, just 24 days after the Kargil war ended, S.V. Joshi, principal secretary,
Maharashtra, wrote to the environment ministry saying, "The members of the (Adarsh
Housing) Society are the officers from defense services who have dedicated their lives in the
service of the motherland and deserve all special consideration, and several members of the
society are even today fighting at Kargil and surrounding areas. It is requested that
considering the above mentioned facts, the NOC for development of land under reference
may be considered as a special case."

When Rane's government fell and Deshmukh became chief minister, the Adarsh Society
renewed its application: "We need your kind help to accommodate and reward our heroes
of Kargil who bravely fought to protect our motherland. We have many officers in the
society who participated in Operation Vijay." Deshmukh endorsed it and put it up for
approval.
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On February 7, 2000, the Adarsh Housing Society promoters informed Deshmukh that local
military authorities had no objections to the society "if a certain amount of accommodation
is also provided for army welfare that is, for girls' hostel, who will be female children of
army officers serving in far-flung and field areas." In reality the society had no such plans; it
was obviously a ploy to further their cause in the name of officers posted at India's borders.
In June 2000, after a meeting with then revenue minister Ashok Chavan, the promoters
amended the society's ownership conditions to admit civilians, thus opening up a real estate
gold mine.

Adarsh Co-Operative Housing Society

To begin construction, the promoters had to solve the contentious issue of the land's
ownership. The plot sandwiched between the BEST bus depot and the military station was in
the military's possession for several years. In 1996, a Gurkha Rifles battalion built a Khukri
ecological park on it. As the request for an NOC passed from the state administration to the
army and back, Thakur's colleague and Defense Estates officer (Mumbai Circle) Guruswamy
noted on file that, "It is verified from our records that land in question forms part of Block IV
of the Colaba division (Back Bay Reclamation Scheme-IV), which belongs to the Maharashtra
Government and falls outside the defense boundary."

The alarm bells had rung six years ago. In March 2004, Veena Maitra, then director general
of Defense Estates, wrote to the Army Headquarters saying that the military must not
surrender the land to the housing society. Perhaps because senior army officers and
admirals owned flats in the society, the army overruled objections raised by the navy and
the Defense Estates. "Every year, we have to hand out an NOC to the society because of
orders from above," says an officer in the army unit stationed in Colaba. The composition of
Adarsh Housing Society membership reveals vested interests at play. It initially had 40
members, mostly from the military. Now there are 103, of which only 34 are soldiers, and
only three have fought in Kargil.

The society claims it has necessary clearances but questions are being raised as to how a
residential building with permission for 31 storey’s come up near Navy Nagar, essentially a
cantonment and why the Army chose to maintain a stoic silence. Did the presence of top
army officials and bureaucrats in this society ensure that all NOCs came without a hitch,
what is the exact status of the land and more importantly has the revenue department and
Army got together and colluded to give away prime property to a private society at throw
away prices. These are the questions that still remain unanswered.

The Bombay High Court asked CBI and Maharashtra Police to coordinate the probe into
Adarsh Housing Society scam. A division bench of justices A M Khanwilkar and A P Bhangale
also asked the State to provide all infrastructures, and extend necessary cooperation to CBI.

Social activist Simpreet Singh filed a Public Interest Litigation (PIL), saying that since both CBI
and State police were involved in the probe, it may create issues of jurisdiction “which might
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hamper the probe.” The PIL demands that entire probe be handed to CBI, because the
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State’s Anti-Corruption Bureau “could come under pressure” since political big-wigs are
involved in the scam. But Additional Solicitor General Darius Khambata, representing CBI,
told the court that the agency had already started the probe following a reference from the
defense ministry and “it is not limited to ownership of the land.” The land, on which the
controversial buildings stands, allegedly belonged to the army, and the society initially
promised to provide flats to widows of Kargil martyrs.

Situated in upscale south Mumbai, it allegedly violated restrictions on construction in

coastal area. CBI also handed its “preliminary investigation register” to court. The court said

Adarsh Co-Operative Housing Society

that the agency must be given some time to probe further, and asked both the state and
agency to “formulate a mechanism” for conducting probe.

The Central Bureau of Investigation, looking into the upscale Adarsh co-operative housing
society scam here, sent a reminder to the society’s management asking it to furnish
documents pertaining to the high-rise and its members at the earliest.

“A team of CBI officials visited the premises of the building and gave a letter at the society
office, seeking various documents pertaining to the high-rise,” said a CBI official on
condition of anonymity.

“Details such as when the society was formed, how many members are there, who the
members and mode of payment are made by them to purchase the flats, documents related
to various permissions granted by different government agencies to the high-rise, etc were
among the various things we want to know,” the official added.

The high-rise is built on 6,450 sq metres within the Colaba naval area and was cleared on
the condition of housing war veterans but now has 104 members, including senior Army
commanders, a former Environment Minister, legislators and state bureaucrats.

The Indian Navy told CBI that it had not issued ’No Objection Certificate’ for the
construction of the building. The CBI has also written to the Union and the State Ministry of
Environment and Forests, seeking details about the clearance given to construction of the
building.

The departments have been asked to provide details like if they have issued a clearance for
the construction of building and if the area falls under Coastal Regulation Zone II, they
added.

The 103-apartment society in upscale Colaba had also allotted flats to retired Army Chiefs
General Deepak Kapoor and General N C Vij, apart from retired Navy Chief Admiral
Madhavendra Singh, former Union minister Suresh Prabhu and relatives of former
Maharashtra chief minister Ashok Chavan.

Government auditor CAG said it will shortly take a view on probing the Adarsh housing
6

scam, which led to the ouster of Maharashtra Chief Minister Ashok Chavan.
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"We will take a view on that (probing the Adarsh housing scam) in due course," Comptroller
and Auditor General (CAG) Vinod Rai told reporters when asked if the CAG was looking at
the scam. Contrary to some media reports, he clarified that at present CAG "was not
auditing the Adarsh Housing Society scam".

The Mumbai housing scam came as an embarrassment to the Congress party, which
accepted the resignation of state Chief Minister Ashok Chavan. He will be replaced by
Prithviraj Chavan, currently Minister of State in the Prime Minister's Office.

Adarsh Co-Operative Housing Society

The controversy fundamentally hinges around whether the plot of land belonged to the
army or to the state government.

Defense Minister A K Antony had ordered CBI probe to fix responsibility of the Armed Forces
and Defense Estates officers in the Housing society scam.

Also, Environment Minister Jairam Ramesh said he expected some action to be taken by his
department against the upscale Adarsh Housing Society in the "next two to three days" for
alleged violation of environmental norms.

Soon after the scam came to light, the Defense Ministry had asked the Army, Navy and the
Defense Estates to submit a report on the issue.

The preliminary findings of the ministry's probe brought out "criminal conspiracy" at the
local level in Army and Defense Estates to alienate the land, which was in Army's possession
till 1999-2000, in favour of the Housing Society.

Also, over 40 officers from the armed forces and Defense Estates, too, had got flats allotted
in the society.

An RTI application has revealed that the same complex houses a driver and his employer.
Likewise, people earning less than Rs 9,000 a month have been able to afford flats worth
more than Rs 60 lakh.

But there seems to be a sinister reason at work. According to state government rules, an
aspirant who wasn't employed by the government was eligible for membership of the
society only if his/ her monthly income was less than Rs 12,500.

Since the Maharashtra government provided the plot to the society at 15 per cent of the
market value, the state government stipulated that only those from the economically
weaker section of society or government employees could become members.

The rule was framed to ensure that only those who needed a house or could not afford one
form the society and buy government land cheap.

Activist Sanjay Gurav got details of the society's promoters from the Mumbai housing
7

registrar through an RTI application.

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According to the document, more than 70 per cent of the flat owners seemed to have
presented false affidavits about their income.

And reportedly about 30 per cent of the members are actually proxies or benamis for
politicians and bureaucrats. While the upper income limit did not apply to people's
representatives such as MLCs and MPs, they too seem to have under- reported their
incomes. For instance, Congress MLC and prominent businessman Kanhaiyalal Gidwani - one

Adarsh Co-Operative Housing Society

of the main movers of the project - showed his monthly income to be Rs 30,000. Similarly,
Shiv Sena MP Suresh Prabhu declared his monthly income to be Rs 20,000.

"A flat in Adarsh Housing Society costs around Rs 65 lakh. No bank in the country will give
you a loan to buy a Rs 65 lakh flat if you earn Rs 10,000- 12,000.

But most of the 103 members claim that to be their monthly income," Gurav said.

Gurav mentioned Sudhakar Madke, a driver in SMS Infrastructure Private Limited, a firm
owned by the Sanchetis. Madke, who earns Rs 8,600 per month managed to pay Rs 60 lakh
for a flat. Interestingly, his employer and BJP national executive member Ajay Sancheti also
owns a flat in the same building.

An investigator who has seen the list of 77 promoters said at least 28 seemed to be proxy
owners.

"Their addresses could throw some light on who the real owners are. For example, more
than seven members are from Pune - an NCP stronghold. Similarly, one promoter is from
Ambejogai - a prominent BJP leader hails from there," the officer said.

Former IPS officer and advocate Y. P. Singh suggested a way of identifying proxy owners. "All
these people are rich and powerful and they want bigger flats.

So they buy two flats next to each other and then break the wall in between them. For
instance, former principal secretary Subhash Lalla got one flat in his mother's maiden name
- Sushila Shaligram - and one for his daughter Sumeela Sethi next door," he said.

Hearing has been adjourned till December 20, 2010.

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Adarsh Co-Operative Housing Society

 Conclusion
What was the contract made, for the allocation of flats in Adarsh Housing Society?

 The flats in Adarsh Society were originally meant for the families of servicemen, ex-
servicemen, and the widows and orphans of the Kargil War martyrs. It seems that
many politicians and bureaucrats have suddenly been turned into living Kargil martyrs,
and their female relatives have been declared as Kargil war widows, in the Greatest
Miracle of India produced and directed by the top leaders of Maharashtra.

What made the contract voidable?

 Adarsh being in the Coastal Regulation Zone (CRZ) area has to abide by the
development control rules of 1967. Its maximum height could have been not more
than 30 m. But the then Municipal Commissioner Jairaj Phatak permitted a 104-m
tower. So, the excess height may have to be torn down.
 The other violation is the construction of 12 floors using the floor space index (FSI)
which determines how high a building can go that actually belonged to the BEST for a
bus depot at Backbay. But the BEST allegedly transferred the FSI allotted for its plot
reserved for the depot to Adarsh.
 The CRZ norms do not allow for the transfer of FSI from one party to another because
that would be tantamount to issuing a Transfer of Development Rights (TDR)
certificate and TDRs are not permitted in the island city.
 The building has been declared illegal, as it has been constructed in violation of the
environmental laws and FSI regulations.
 So the entire transfer of FSI from BEST plot to Adarsh Society is illegal, which makes
the top 12 floors of the building liable to be demolished.
 The third irregularity, Singh said, is the process of allotment itself. When the allotment
was sought, the prime consideration was that this land was meant for ex- and serving
defense personnel, particularly those involved in Kargil.
 People who fall out of the categories that merit occupation of the building were
handed the flats, namely politicians and bureaucrats, while the deserving ones were
9

given the short shrift. Once the entire allotment is cancelled no body shall have a right
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in the Adarsh building.

What it may mean for the owners?

 Lawyer Y P Singh said that under the provisions of Cooperative Societies Act, 1960, all
members of the society lose or gain on a similar footing. So, if members on top floors
lose their flats in demolition, they will have to be given flats on the lower floors. Or,
the entire building may have to be reconstructed in smaller flats to accommodate all
the people who originally owned the flats.

Adarsh Co-Operative Housing Society

Who will punish these people?

 Who will punish these people? This question needs to be answered by the
Government and legal bodies of this country. What happened to the politicians
involved in the many scams before this, and are still not behind the bars? These
people know very well that they will not be punished.

Who are the Guilty Ones?

 Subhash Lalla: As Principal Secretary to then CM, instead of guiding the CM to take
the right decision, he appeared to be pushing for the additional FSI from the BEST
plot through the CM's office. There were also references by BEST General Manager S
S Kshatriya on this matter in a letter addressed to Lalla (see copy of the letter) that
clearly proves that he was officially handling the Adarsh files. Attempts made to
contact him did not yield any result.
 SS Kshatriya: As then General Manager of BEST, it was his duty under the BMC Act,
to protect the interest of BEST land. If there had to be any relinquishment of interest
of the BEST land, it required the approval of the BMC. But instead he tendered a
shady No Objection Certificate (NOC) on his own in 2005, favoring Adarsh Society.
"The govt asked for comment, so the factual position was communicated and in no
way was that an NOC or change in reservation, which was subsequently done at the
government level," said S S Kshatriya, who was then the GM of BEST.
 Idzes Kundan: Former Mumbai Collector (Flat in her name)
In 2009, Kundan wrote to the Revenue Minister recommending her own name in the
flat allotment process of Adarsh Society, after they had sent a letter to the minister
seeking approval for the inclusion of three fresh names into the Society. Incidentally,
she also recommended the name of present Additional Chief Secretary (Home),
Chandra Iyengar, subject to MMRDA's clearance of the building's FSI. Despite calls
and messages, Kundan did not respond.
 SV Joshi: Principal Secretary, State Urban Development Department
Joshi wrote a letter on August 19, 1999 to the Environment Ministry claiming that
members of Adarsh Society were defense officers who deserved special
consideration as they had dedicated their life to the service of the motherland. The
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letter also pointed out that some Adarsh members were still fighting in Kargil and
surrounding areas. Therefore, Joshi requested for an NOC from the Environment
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Ministry as a special case.

 PV Deshmukh: Former Deputy Secretary, Urban Development (Flat in his name)
In a letter to the BMC Chief Engineer, Deshmukh claimed that Adarsh had received a
NOC from the Union Ministry of Environment and Forests (MoEF). But the MoEF
clarified last week that no such NOC had been issued. Deshmukh could not be
contacted. 

Adarsh Co-Operative Housing Society

  Chandra Iyengar, State Additional Chief Secretary (Home):
She had applied for a flat in Adarsh but did not find her name in the final list. Her
name was recommended twice by District Collector Idzes Kundan. Iyengar said, "I
don't have any idea about Adarsh and I have nothing to say on that."
 Arti Kant, former chief vigilance officer, Mumbai Port Trust (MbPT)
 RK Das, joint director, Environment and MSRDC
 Dyanesh Kirtikar, retired IAS officer

What should we do with the Adarsh building?

 Demolish it
There are reports that suggest that Environment Minister Jairam Ramesh wants the
building to be demolished as it violates the Coastal Regulation Zone (CRZ) laws. But
demolition would mean that the taxpayer's money would be wasted, for the second
time. The first was when the building was constructed on a government plot and the
society members were given the plot at a throwaway price.
 Give it to slum dwellers
Medha Patkar and group want the building to be given to slum dwellers residing in
the nearby area. The Co-ordinator of National Alliance of People's Movement,
Simpreet Singh, who spearheaded the movement against the Adarsh building and
got the damning documents via RTI, says, "It should be allotted to the people staying
in the slum nearby. The building can be restructured internally and small houses can
be carved out to accommodate many slum dwellers," said Singh. The building is 31
storeys and has 103 flats, most of them huge apartments. The activists, though, say
some of the flats should be allotted to the Kargil war widows if they come forward to
claim it.
 Auction it to the Builders
With the news of the building to be demolished, the builders lobby has jumped into
action. They opine that the Adarsh building shouldn't be demolished; instead, the
government should auction it. The honorary secretary of the Builder Association of
India, Anand Gupta, feels that the building is in prime location and should be kept on
auction. "The government will earn not less than Rs 400 crore if it sells the flats at
the rate of Rs 40,000 per sq ft," said Gupta. Asked who will buy the flats, and pat
11

comes the reply, "Builders. They are ready to buy it at the market rate. The money
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should go to the state treasury." If the World Trade Centre in Cuffe Parade can stand
next to the sea, tall as it is, then why can't Adarsh, builders say.


Adarsh Co-Operative Housing Society

 Bibliography
 Kapoor, N.D. “Elements of Mercantile Law”, New Delhi, Sultan Chand & Sons.

Webliography
 http://jurisonline.in/2010/04/damages-under-indian-contract-act/
 http://www.mid-day.com/news/2010/nov/121110-Adarsh-Society-illegal-
demolition-CRZ.htm
 http://indiatoday.intoday.in/site/Story/119052/adarsh-scam-betrayal-of-the-
martyrs.html?page=1
 http://www.deccanchronicle.com/national/adarsh-scam-some-society-papers-
missing-police-complaint-filed-076
 http://www.thehindu.com/news/states/other-states/article866993.ece
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