Delhi High Court
M/S Reblic Construction Co. vs Dda on 13 July, 2009
Author: Shiv Narayan Dhingra
Bench: Shiv Narayan Dhingra
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Reserve: April 28, 2009
Date of Order: July 13, 2009
+CS(OS) 154/1994
% 13.07.2009
M/s Republic Construction Co. ...Petitioner
Through: Mr. Raman Kapur, Advocate
+
Versus
DDA ...Respondent
Through: Mr. Bhupesh Narula, Advocate
AND
+CS(OS) 158A/1995
%
M/s Republic Construction Co. ...Petitioner
Through: Mr. Raman Kapur, Advocate
Versus
DDA ...Respondent
Through: Mr. Bhupesh Narula, Advocate
JUSTICE SHIV NARAYAN DHINGRA
1. Whether reporters of local papers may be allowed to see the judgment?
2. To be referred to the reporter or not?
3. Whether judgment should be reported in Digest?
JUDGMENT
1. The petitioner (M/s Republic Construction Company) has filed objections against the award dated 1st November 1993 passed by the learned Arbitrator adjudicating the disputes that arose between the parties in respect contract for construction of 228 three bed rooms, 152 two bed rooms, 132 servant quarters, 82 car garage and 166 scooter garages for SFS at Hauz Khas, Mehrauli Road, New Delhi and other construction work. The objections have been stated claim-wise so are being dealt as such.
CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 1 Of 13
2. Claim No.1 was made by the claimant for Rs.8 lac on account of balance payment and Claim No.3 was made by the claimant for Rs.15 lac on account of under payment/ wrongful recoveries. Learned Arbitrator dealt with claim No.1 and 3 together. He found that the final bill raised by the claimant was for the work done to the tune of Rs.1,68,45,920/- excluding deduction items. The amount already paid was Rs.1,66,45,130/-. The due payment thus came to Rs.2,00,790/-. From this amount the respondent (DDA) deducted reduction items, work done at risk and cost of contractor and recoveries for materials. While claimant contended that the bill had not been prepared correctly, the respondent per contra contended that the bill was correct. The Learned Arbitrator considered the different deductions item-wise. The first claim of deduction was for overhead tank. The claimant had demanded a rate of Rs.764.56 per overhead tank. Respondent had sanctioned a sum of Rs.345.28 per overhead tank. The Learned Arbitrator found that the agreement provided for construction of brick masonery tank at the terrace level. Instead of brick masonery tank, an RCC tank was built by contractor at the terrace. He observed that since the tanks had not been constructed as per specifications applicable to schedule rate, therefore, rate was to be analyzed and he assessed the reasonable rate for RCC tank at terrace including fittings at Rs.500/- per tank. He therefore observed that since the final payment was made at a rate of Rs.345.28 per tank, the claimant be paid a further sum of Rs.45,488/-. After allowing this amount, he again held that the claimant was entitled to Rs.59.78 per tank as fitting charge for 294 tanks. Obviously, the two observations made by the learned arbitrator are self- contradictory. The rate assessed by him at Rs.500/- was inclusive of fittings, as stated by him, he could not have awarded additional amount of Rs.17,575 CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 2 Of 13 for fittings. He then further awarded Rs.15 per tank for construction of the tanks on the terrace. It is surprising that on one hand, he awarded Rs.500/- per tank for construction of tank on the terrace and on the other hand he awarded additional amount of Rs.15 each tank on the ground that the RCC tanks were not hoisted but were constructed on the terrace. Thus, again there was no ground for awarding this additional amount once he had awarded Rs.500 per tank for construction of RCC tank on the terrace.
3. It is also not understood how the learned arbitrator rewarded the contractor for not complying with the contract. If the contract provided for construction of brick masonery tank on the roof, how could the contractor have provided for RCC tank on the roof without there being any written directions from the employer? It is settled law that the arbitrator is the prisoner of the contract. He has to give his award in accordance with the terms of the contract. A party who violates the contract cannot be rewarded because it violated the contract. It was for the employer to choose as to which kind of water tank he would like to have, whether an RCC or a brick masonry tank or a plastic tank. It was not for the contractor to amend the contract and in place of brick masonery tank to provide RCC tank and then claim additional amount on the ground that he had done better work. I consider that no amount could have been allowed by the learned Arbitrator on the ground that the contractor constructed RCC tank, a better quality tank, instead of brick masonry tank, on the roof. The contractor could not have deviated from the contract and constructed a different quality of tank and claimed money against the same. Awarding of amounts of Rs.45,488/-, Rs.17,575/- and Rs.4,410/-, by the arbitrator, therefore is even otherwise not tenable.
CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 3 Of 13
4. Similarly, the learned Arbitrator observed that the rates for brick work for substituting item numbers 2 and 3 and flush door in substituting item No. 8 was not correctly assessed by DDA (petitioner herein) and he was assessing the correct rates. It is not understood as to wherefrom the learned arbitrator got this power. The contract between the parties specified the rates as applicable. The rates cannot be changed or varied by the learned Arbitrator himself. If there are any unjustifiable or unacceptable rates in the contract, the contractor at the time of signing the contract was at liberty to raise the issue about the rates being not proper and could have sought amendment in the contract itself. The rates, as agreed between the parties, cannot be changed by the Arbitrator and the arbitrator cannot substitute his own rates in place of rates as provided in the contract. Awarding an amount of Rs.12, 4428.28, therefore is not tenable.
5. The learned arbitrator observed that extension of time was granted by DDA without levying any compensation, thus, the claimant was entitled for enhanced payment under Clause 10 (c) and held that the claimant was entitled for a sum of Rs.1,38,762/-. He did not even bother to have a look at Clause 10(c): Clause 10 (c) of the contract reads as under:-
"Clause 10C.
If during the progress of the works, the price of any material incorporated in the works, (not being a material supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof) and/or wages of labour increases as a direct result of the coming into force of any fresh law, or statutory rule or order (but not due to any changes in sales tax) and such increase exceed ten percent of the price and/or wages prevailing at the time of CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 4 Of 13 receipt of the tender for the work, and contractor thereupon necessarily and properly pays in respect of the material (incorporated in the work) such increased price and/or in respect of labour engaged on the execution of the work such increased wags, then the amount of the contact shall accordingly be varied provided always that any increase so payable is not, in the opinion of the Superintending Engineer (whose decision shall be final and binding) attributable to delay in the execution of the contract within the control of the contactor. Provided, however, no reimbursements shall be made if the increase is not more than 10% of the said prices/ wages and if so the reimbursements shall be made only on the excess over 10% of the said prices/ wags and if so the reimbursements shall be made only on the excess over 10% and provided further that any such increase shall not be payable if such increased has become operative after the contact or extended date of completion of the work in question.
If during the progress of the works, the price of any material incorporated in the works [not being a material supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof] and/or wages of labour is decreased as a direct result of the coming into force of any fresh law or statutory rule or order [but not due to any changes in sales tax] and such decrease exceeds ten percent of the prices and/or wages prevailing at the time of receipt of the tender for the works. Delhi Development Authority shall in respect of materials incorporated in the work [not being materials supplied from the Engineer-in-in charge's stores in accordance with Clause 10 hereof] and/or labour engaged on the execution of the work after the date of coming into force of such law statutory rule or order be entitled to deduct from the dues of the contractor such amount as shall be equivalent of difference between the prices of materials and/or wags as CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 5 Of 13 they prevailed at the time of receipt of tender for the work minus ten percent thereof and the prices of materials and /or wages of labour on the coming into force of such law, statutory rule or order.
The contractor shall for the purpose of this
condition keep such books of account and other
documents as are necessary to show the amount of any
increase claimed or reduction available and shall allow inspection of the same by a duly authorized representative of Delhi Development Authority and further shall, at the request of the Engineer-in-Charge furnish, verified in such a manner as the Engineer -in- charge may require any document to kept and such other information as Engineer-in-charge may require.
The contractor shall, within a reasonable time of his becoming aware of any alteration in the prices of any such materials and/or wages of labour, give notice thereof to the Engineer-in-Charge, stating that the same is given in pursuant to this condition together with all information relating thereto which he may be in a position to supply."
6. A perusal of clause 10(c) makes it abundantly clear that claim under clause 10(c) lies only if during the progress of work, price of any material (not being a material supplied from the Engineer-in-charge store) or wages of labour increases because of coming into force of any fresh law, statutory rule or order and such increase exceeds 10% of the price /wages prevailing at the time of the receipt of tender. The contractor can claim reimbursement of the increase in price and labour only if it is more than 10% and only to the tune of excess of 10%. Such reimbursement of the increased prices/labour is to be made only if it is approved by the Superintending Engineering. A similar provision is there in Clause 10(c) in respect of reduction in price and reduction in wages. Clause 10(c) also provides that in order to claim any CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 6 Of 13 increase beyond 10% under Clause 10 (c), the contractor will have to keep books of accounts showing payment of increased wages to labour and increased price for goods. Thus, an enhancement under Clause 10(c) can be allowed only if the conditions, as set out in Clause 10(c), are satisfied. The learned arbitrator was not at liberty to award any arbitrary amount under Clause 10(c). Only that amount could be awarded under Clause 10(c) as permitted under it and for which books of accounts had been maintained by the contractor and it is shown that there was statutory increase either in the labour rates or in the rate of materials. No presumption could be drawn by the learned Arbitrator that because of the contract overrunning, there was necessarily going to be a price rise and necessarily going to be a wage rise. Any such award where a departure from the contractual clauses is made, is liable to be set aside on this ground. A departure from the contract amounts to manifest disregard of the authority by the arbitrator. The arbitrator, being the prisoner of the contract, is bound to remain within the four corners of the contract. Thus, this amount has been wrongly awarded by the arbitrator.
7. The agreement provides following clause for deviation:
"12 (vi). Except in case of items relating to foundations provisions contained in sub clause (i) to (v) above shall not apply to contract or substituted items as individually exceed the percentage set out in the tender documents (referred to herein below as deviation limit) subject to the following restrictions :
(a) The deviation limit referred to above is the net effect (algebraic sum) of all additions and deduction ordered.
(b) In no case shall the additions/deductions (arithmetical sum) exceed twice the deviation limit.
(c) The deviation ordered on items of any individual CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 7 Of 13
trade included in the contract shall not exceed plus/minus 50% of the value of that trade in the contract as a whole or half the deviation limit; whichever is less.
(d) The value of additions of items of any individual trade not already included in the contract shall not exceed 10% of the deviation limit.
It also provides that the excess limit and over rates are to be determined in accordance with clause 12.
8. It is thus obvious that the deviation of item of any individual trade could be up to 50% of the value of that trade and value of additions of items of any individual trade, not already included in the contract, could be up to 10% of the deviation limit. A perusal of award shows that the learned Arbitrator considered the deviation limit in all cases as 25% and ignored the terms of clause 12 permitting deviation in individual trade up to 50%. The learned arbitrator labored under the impression that deviation could only be upto 25% under all circumstances and allowed extra cost in respect of all such items where the deviation was beyond 25%. He calculated this deviation as 25% in case of steel bars, shuttering etc, forgetting that the deviation could be up to 50% for individual items and overall deviation was to be 25%. Thus even for individual trades he calculated additional amounts in case of deviation being above 25% and awarded a sum of Rs.3,10,469/- on account of extra rates for deviation. Awarding of this amount was clearly contrary to the express conditions of the contract where it has been provided that deviation could be up to 50% of the value of trade and deviation could go up to twice the deviation limit of 25%. Thus, awarding of this amount by the learned arbitrator is contrary to the contract. The deviation in trade here means fixing of shuttering, bar binding, wire binding etc. The learned arbitrator has CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 8 Of 13 granted additional amounts in case of bar bending of steel bars because the quantity was more than 25%. He also awarded additional amount in case of shuttering etc. on the ground that the quantities exceeded the deviation limit of 25% although the deviation limit in case of individual trade was up to 50% and not 25%.
9. The learned Arbitrator awarded a sum of Rs.3,33,217/- against claim No.4 on the ground of infructuous expenditure and damages sustained by the contractor due to breaches. The breach, as alleged, was that the date of start of work was 21st August 1980 and date of completion, as per the agreement, was 20th November 1981. The actual date of completion was 31st March 1983. The claimant had claimed that the houses were in fact completed in September 1982 but the respondent was forced to maintain them up to March 1983 and the work was delayed due to various breaches committed by respondent (DDA) and the claimant had to maintain one qualified engineer, one mistry, four supervisors, 8 mates, 4 chowkidars etc and had paid them salaries. The claimant claimed Rs.10 lac on account of this infructuous expenditure. The learned Arbitrator observed that there was delay in supply of structural drawings of 2nd floor slab and 3rd floor slab and thus the delay was on account of delay in supplying of drawings and the work got delayed from 10th January 1981 from 3rd March 1981 and thus the delay on the above two reasons amounts to fundamental breach of contract and thus the claimant was entitled to claim market rate for work done beyond agreement period. It was not the claim of the claimant that he was entitled for the market rates. The claimant had in fact claimed infructuous expenditure on the ground that he had spent money in paying salaries to the staff which he had to deploy and that there was increase in the price of material and labour to CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 9 Of 13 the tune of 25% above the agreed rates. The learned Arbitrator observed that since there was delay in completion of work, the rates as applicable to the work would accordingly change and he considered the change in percentage of rates to be 6.78% above the agreed rates. He thus calculated the value of the work done after the due date of completion and allowed a sum of Rs.3,33,217/- to the claimant enhancing the value of 6.78%.
10. It is now settled law that where there is a provision in the contract for extension of time at the discretion of the engineer and there is provision for enhancement of the contract and corresponding extension of time, the time is not the essence of the contract. In McDermott International Inc. v. Burn Steel Co. Ltd & Ors, (2006) 11 SCC 181, it was observed by Supreme Court that in construction contracts, generally time is not the essence of the contract unless special features exist therefor. Even where parties expressly provided that time was essence of the contract, such a stipulation will have to be read with other provisions of the contract and such other provisions may, on construction of contract, exclude the inference that completion of contract by particulate date was intended to be fundamental.
11. It will also be worthwhile to see what the contract provided in respect of compensation in case of delay. Clause 10 of the contract provides that the material, as agreed under the contract shall be supplied to the contractor from time to time and the material shall remain the property of DDA. The DDA shall also be entitled to inspect the material from time to time and shall be entitled to have returned of the material being used. The clause further provided that the contractor in any case shall not be entitled for compensation or the damages on account of any delay in supply of material CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 10 Of 13 or resources. It also provides that the contractor shall be bound to execute the entire work in respect of which material has been supplied. Clause 1 of the Specifications and Conditions provided that the work shall be executed as per the programmes approved by the engineer in charge and if any part of the site was not available for any reason or there was some unavoidable delay in supply of material supplied by the department or the programme of construction was modified, the contractor shall have no claim for extras or compensation on this count.
12. It is obvious from the contract that the petitioner was not entitled for any compensation whatsoever or to claim any infructuous expenditure on account of delay in execution of the work, as the time given in the contract for completion of work could be extended. The extended time had to become as the due date for completion of contract. If the contractor had agreed to execute the contract within the extended time, the contractor cannot later on claim compensation. The contractor was at liberty to abandon the work after expiry of time initially fixed and say that he was not prepared to work after the initial time was over. Once the contractor had accepted to work within the extended time as given to him, the extended time becomes the time of the contract and he cannot claim compensation or damages after he has agreed to work as per the contract and kept the contract alive. It is also seen that disputes as these are not raised during the currency of contract and are raised during the arbitral proceedings only. The dispute between the contractor and the employer is one which arises during the working of the contract. If the contractor was not agreeable to continue the contract after expiry of the period of contract at the rates given in contract, he was at liberty to raise this dispute with the employer and write to the employer that CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 11 Of 13 he was not prepared to work on the project at the agreed terms and conditions and he would work only if the new rates are fixed. Since the contractor had not raised any such disputes at that time, such a dispute could not have been raised by the contractor after the contract was over. In my opinion, such disputes should not be entertained by the arbitrator that do not arise during the continuation of the contract. Such imaginary disputes for claiming higher rates or compensation for the extended period of the contract not raised or brought to the notice of the employer at the time when extension was granted or extension is sought, cannot be considered as the real dispute between the parties. Such disputes do not come within the purview of the contract but they fall outside the contract and are beyond the jurisdiction of the arbitrator. I, therefore, consider that the claim as awarded by learned arbitrator in respect of infructuous expenditure was contrary to contract and bad in law.
13. The objections raised by the petitioner against disallowing counter claims are that the learned arbitrator rejected some of the counter claims without giving reasons. The counter claims were in respect of deductions made by the petitioner on account of certain items and the learned Arbitrator had dealt with each item though no reasons have been given by the learned arbitrator for disallowing /reducing certain counter claims.
14. This Court is not able to interfere in the part of award dealing with counter claims since nothing has been brought to the notice of this Court that any of the counter claims was contrary to the contract. The respondent /contractor has not filed any objections against counter claims partly/ fully allowed.
CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 12 Of 13
15. In view of my above discussion, the award of the learned Arbitrator is modified. The award in respect of the claims in favour of the petitioner is set aside and the counter claim awarded in favour of respondent are allowed. The part of the award passed in favour of respondent is made rule of court. Decree sheet be prepared accordingly.
July 13, 2009 SHIV NARAYAN DHINGRA J. rd
CS(OS) 154/1994 & 158A/1995 M/s Republic Construction Co. v. DDA Page 13 Of 13