‘Shall Endeavour’ Clauses Create Enforceable Obligations In Construction Contracts: Bombay High Court Dismisses Challenge To Award For Revenue Shortfall Under Management Agreement
Isabella Mariam
The High Court of Bombay Single Bench of Justice Sandeep V. Marne has dismissed a petition under Section 34 of the Arbitration and Conciliation Act challenging an arbitral award that directed a business centre operator to pay damages and interest to the property-owning company under a management agreement for office premises in Mumbai. The Court held that a contractual clause by which a party “shall endeavour” to achieve projected revenues can amount to an enforceable obligation, including in the context of construction-related commercial arrangements, and clarified that mere failure to meet revenue projections is not, by itself, a breach. However, it concluded that not taking genuine and adequate steps to pursue the projections in the business plan does constitute breach, thereby upholding the award of shortfall-based damages in favour of the owner.
The petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dated 18 October 2019 passed by a sole arbitrator. The arbitrator held the petitioner in breach of obligations under a Management Agreement for failing to make endeavour to achieve revenue projections in a Business Plan furnished to the respondent, and directed payment of ₹10,10,01,000 as damages with interest at 12% per annum from 31 July 2014 along with costs of ₹60,00,000, while rejecting the petitioner’s claims and the respondent’s other counterclaims.
The parties had entered into a Management Agreement dated 20 December 2010 in respect of the respondent’s property at Ismail Building, Hutatma Chowk, Fort, Mumbai, under which the petitioner was to operate a business centre from the ground and mezzanine floors, sharing 75% of net turnover as premium. The petitioner furnished a bank guarantee of ₹2.25 crore.
The respondent invoked the bank guarantee on 16 January 2014 and terminated the agreement on 21 January 2014. The petitioner’s statement of claim before the arbitrator sought refund of ₹2,25,00,000 with interest, ₹10 crore as compensation for breach of contract, and ₹30,00,000 for loss of investment opportunity. The respondent filed a counterclaim aggregating ₹28,44,68,083 (₹28,87,23,596 with interest), including damages of ₹10,10,01,000 for shortfall of premium, loss of investment, and other monetary heads.
The Court recorded that the arbitrator “held the Petitioner to be in breach of the obligations under the terms of Management Agreement in failing to make endeavour to achieve revenue projections in the Business Plan furnished by it to the Respondent” and “has accordingly directed Petitioner to pay to the Respondent sum of Rs.10,10,01,000/- by way of damages alongwith interest @ of 12% p.a. from 31 July 2014 till payment and/or realisation alongwith cost of Rs.60,00,000/-.”
The Court noted that the arbitrator found the Management Agreement “is not in the nature of a minimum guarantee” and that “the business plan did not constitute either warranty or an actionable misrepresentation which would make the Claimant liable in damages.” The Court referred to the arbitrator’s conclusion that “there, however, remains the issue as to whether the Claimant was in breach of its obligations under the Management Agreement to make best efforts to achieve and exceed the projections contained in the business plan.”
On the “shall endeavour” clauses, the Court noted that the arbitrator, after relying on foreign decisions, held that the clause “was perfectly sensible and he did not find any difficulty in enforcing it” and that he “has merely drawn support from the two foreign judgments, which otherwise follow the legal principles recognised in India.” The Court then cited the Supreme Court’s decision in NBCC India Limited v. Shri Ram Trivedi and reproduced that “even if the expression does not mean an absolute commitment to hand over possession on or before a specified date, this expression has to be read in the context of the entirety of the clause” and that “the burden would lie on the developer to explain the steps taken to comply with the contractual stipulation.”
On burden and onus of proof, the Court set out that “the Respondent discharge the burden of proving that the revenue projections made in the business plan were not met and that the Petitioner was under obligation to make best endeavours and efforts to meet the same” and that “the onus then shifted on the Petitioner to prove that it made the best possible efforts to meet the revenue projections.” It recorded that “as per Section 106 of the Evidence Act, since the manner in which the business center was operated was in the sole knowledge of the Petitioner, the burden to prove making of best efforts fell on the Petitioner.”
The Court noted that the arbitrator “has rightly rejected baseless defence of errors in the appended Business Plan” and that the petitioner “chose not to lead any evidence to prove making of any efforts to achieve revenue projections in the Business Plan.”
On damages, the Court recounted the arbitrator’s reasoning that “the learned Arbitrator had no other choice but to award difference in the amount of projected premium and actual premium as damages to the Respondent.”
In conclusion, the Court recorded that it was “of the view that construction and interpretation of the Management Agreement made by the learned Arbitrator is not just plausible but correct” and that “even if this Court was to sit in appeal over the Arbitral Award… the Award would still have been unexceptionable.”
The Court recorded that The Award, to my mind, appears to be unexceptionable. Consequently, the Petition must fail. The Arbitral Tribunal has already awarded costs of Rs.60,00,000/- in favor of the Respondent and in the facts and circumstances of the present case, though the Petition is found to be baseless, warranting imposition of further costs, I deem it appropriate not to impose any further cost on the Petitioner. The Arbitration Petition is accordingly dismissed without any further order as to costs.
Advocates Representing the Parties:
For the Petitioners: Mr. Zal Andhyarujina, Senior Advocate with Ms. Revati Desai, Mr. Manish Dembla, Mr. Muneeb Rashid Malik, Mr. Yash Pitroda, Mr. Digant Bhatt & Ms. Amrita N. i/b Mr. Mayur Shetty c/o Kochhar & Co.
For the Respondents: Mr. Pradeep Sancheti, Senior Advocate with Mr. Pranav Sampat & Ms. Rakshika Bajpai i/b Khaitan & Co.
Case Title: Regus South Mumbai Business Centre Pvt Ltd v. Marie Gold Realtors Pvt Ltd
Neutral Citation: 2025: BHC-OS:22246
Case Number: Commercial Arbitration Petition No. 439 of 2024
Bench: Justice Sandeep V. Marne
