Delhi High Court
Delhi Development Authority vs U. Kashyap on 13 October, 1998
Equivalent citations: 1998VIIAD(DELHI)300, 1998(1)ARBLR88(DELHI), 1999(48)DRJ666
Author: K.S. Gupta
Bench: Y.K. Sabharwal, K.S. Gupta
JUDGMENT
K.S. Gupta, J.
1. This appeal by Delhi Development Authority is directed against the judgment dated April 29, 1994 of the learned Single Judge dismissing the objections filed by it to claim no.11 and making the award the rule of the court also in respect of that claim.
2. Indisputably, work, "C/o 256 LIG DU's (New Pattern) at Dilshad Garden, Pocket-G, Zone E-16, Delhi" was awarded by the appellant to U. Kashyap, respondent, and agreement No. 390/EE/HD/15/DDA/84-85 also containing arbitration clause was executed between the parties. On dispute having arisen, R.J. Bakhru, Chief Engineer, C.P.W.D. (Retd.) was appointed as the sole arbitrator by Engineer Member of the appellant-Authority vide letter No. EM. 2/133/88/Arbn./7457-61 dated April 25, 1990 to adjudicate upon the claims of the respondent. Respondent filed the claim statement containing 16 claims. Appellant filed counter statement of facts repudiating those claims. Arbitrator made and published the award on January 30, 1991.
3. Respondent thereafter filed application under Sections 14 & 17 of the Arbitration Act, 1940 seeking direction to the arbitrator to file the award in court and to make the same the rule of the court. In response to the notice of the filing of the award, appellant filed objections being I.A. No. 505/91 only against three claims, namely, claim Nos. 1,11 & 14. By the judgment under appeal objections in respect of claim Nos.1 & 11 were dismissed while claim no. 14 was remitted back to the arbitrator for decision afresh and the award was made the rule of the court except on claim No. 14.
4. It is not in dispute that under the said contract agreement the date of start of work was stipulated as August 20, 1984 while that of competition as August 19, 1985 but the work was actually completed on April 11 1987. Extension of time upto April 11, 1987 was granted to the respondent without levy of any compensation by the appellant.
5. Under aforesaid claim No.11 the respondent had claimed Rs. 15,90,000/- towards increase in the prices of materials etc. for the work done after the stipulated date of completion. The arbitrator held that clause 10(CC) of the agreement in question was based on various parameters and did not truly reflect the increase in market prices of the building materials and labour. Delay in execution of work was attributable to the appellant. In the last para the arbitrator concluded thus:-
11. "The net value of work done after stipulated date of completion i.e. 19.8.85 (after deducting the cost of stipulated materials e.g. cement, steel etc. supplied by the DDA at fixed prices) is Rs. 52,86,520/-. On the basis of the cost indices for building works in Delhi as circulated and adopted by the CPWD from time to time (Exh. C/17), there has been effective increase of 18.3% over cost of construction during the stipulated period of completion. Accordingly the increase in cost on Rs. 52,86,520/- (net value of work done after stipulated date of completion) works out to Rs.
9,67,433/-. After adjusting an amount already paid to the claimants under clause 10 (CC) for period beyond stipulated date of completion, the claimants are entitled to a compensation of Rs. 4,82,010/-. I award Rs. 4,82,010/- under this claim in favour of claimants."
6. Submission made by Ms. Anusuya Salwan appearing for the appellant was that towards escalation in the prices of materials and labour beyond August 19, 1985 the respondent is entitled to the amount calculated as per formula set out in clause 10(CC) of the agreement and not on the basis of the cost indices for building works in Delhi as circulated and adopted by the CPWD as has been done by the arbitrator. In support of the submission strong reliance was placed by her on a decision of the Supreme Court in Associated Engineering Company Vs. Govt. of Andhra Pradesh & Another, 1991 (2) Arb. LR. 180. On the contrary, contention advanced by Shri Rajiv Nayar for the respondent was that as breach of the contract agreement was committed by the appellant by not adhering to the time schedule give therein, the respondent is entitled by way of compensation to the increase in the prices of materials and labour beyond the stipulated date of completion in addition to what is provided in clause 10(CC) of the agreement. Reliance was placed on the decisions in M/s. Metro Electric Co., New Delhi Vs. Delhi Development Authority, AIR 1980 Delhi 266, Rawla Construction Co. Vs. Union of India, 1982 Rajdhani Law Reporter 20, Hyderabad Municipal Corporation Vs. M. Krishnaswami Mudaliar & Another, , P.M. Puri Vs. Union of India, 1989 (2) Arb. LR 215, M/s. Uttam Singh Duggal & Co. Vs. Union of India, 1988 (2) Arb. LR 225, Villayati Ram Mittal Vs. Union of India, 1986(1) Arb. LR 328, Himachal Pradesh Nagar Vikas Pradhikaran Vs. Aggarwal & Co. 1997 (1) Arb. LR 275, Suresh Chander Vs. Delhi Development Authority, 1997 (1) Arb. LR 536, and also an unreported decision in Suit Nos. 843/91 & 2613/91 - M/s. Express Engineering & Construction Co. Vs. Delhi Development Authority, rendered by this court on 4th October 1994.
7. Omitting the immaterial portion, clause 10(CC) of the aforesaid agreement which is relevant provides as under:-
"If the prices of materials and store (not being actually supplied through services rendered at fixed rates by the department in accordance with clauses 10 & 34 hereof) and/or wages of labour required for execution of the work increase the contractor shall be compensated for such increase as per provisions detailed below and the amount of the contract was accordingly be varied subject to the condition that such compensation for escalation in prices shall be available only for the work done during the stipulated period of contract including such period on which the contract is validly extended under provisions of clause 5 of the contract without any action under clause 2 and also subject to the condition that no such compensation shall be payable for the work for which the stipulated period of completion is six months or less. Such compensation for escalation in the prices of materials and labour, when due, shall be worked out based on the following provisions:-
1. The base date for working out such escalation shall be the last date on which tenders were stipulated to be received.
2. The cost of work on which escalation will be payable shall be reckoned as 85% of the cost of work as per the bills, running or final, and from this amount the value of materials supplied under clause 10 of this contract or services rendered at fixed charges as per clause 34 of the contract and proposed to be recovered in the particular bill, shall be deducted before the amount of compensation for escalation is worked out. In the case of materials brought to site for which any secured advance is included in the bill the full value of such materials as assessed by the Engineer Incharge ( and not the reduced amount for which secured advance has been paid ) shall be included in the cost of work done for operation of this clause. Similarly, when such materials are incorporated in the work and the secured advance is deducted from the bill, the full assessed value of the materials originally considered for operation of this clause should be deducted from the cost of the work shown in the bill, running or final. Further the cost of work shall not include any work for which payment is made under clause 12 or 12 (a) at prevailing market rates.
3. Components of materials, labour, P.O.L. etc. shall be predetermined for every work and incorporated in the conditions of contract attached to the tender papers and the decision of the Engineer Incharge in working out such percentage shall be binding on the contractor.
4. The comparison for escalation for aforesaid, shall be worked out as per the formula given below:-
(i) VM = W x X/100 (MI - MIo)/MIo VM = Variation in material cost i.e. increase or decrease in the amount in rupees to be paid or recovered.
W = Cost of work done worked out as indicated in sub-
para 2 above.
X = Component of materials expressed as percentage of the total value of work.
MI & MI = All India wholesale index for all commodities for the period under reckoning as published by the Economic Advisor to Government of India, Ministry of Industry & Commerce for the period under consideration and that valid at the time of receipt of the tenders, respectively.
(ii) VL = W x Y/100 (LI - LIo)/LIo VL = Variation in labour cost i.e. increase or decrease in the amount in rupees to be paid or recovered.
W = Value of work done, worked out as indicated in sub-
para 2 above
Y = Component of labour expressed as percentage of
total value of work
LI & LIO = Consumer price index for industrial
labour (All India) declared by Labour
Bureau, Govt. of India, as applicable
for the period under consideration
and that valid at the time of the
receipt of tenders, respectively.
(iii) VF = W x Z/100 (FI - FIo)/FIo
VF = Variation in cost of fuel, oil lubricants,
increase or decrease in rupees to be paid
or received.
W = Value of work done, worked out as indicated in
sub-para 2 above.
Z = Component of P.O.L. expressed as a percentage
of total value of work as indicated under
the special conditions of contract.
FI & FIO = Average index number of wholesale price
for groups (fuel, power, light &
lubricants) as published weekly by the
Economic Advisor to Government of
India, Ministry of Industry, for a
period under reckoning, that valid at
the time of receipt of tenders, respectively.
5. The following principles shall be followed while working out the indices mentioned in sub para 4 above:-
(a) The index relevant for any month will be arithmetical average of the indices relevant to the three calendar months preceding the month in question.
(b) The base index will be one relating to the month in which the tender was stipulated to be received.
(c) The compensation for escalation shall be worked out at quarterly intervals and shall be with respect to the cost of work done during the previous three months. The first such payment will be made at the end of three months after the month (excluding) in which the tender was accepted and thereafter at three months interval
6. .....
7.The provision of the preceding clause 10(C) shall not be applicable for contracts where provisions of this clause 10(CC) are applicable. However, in contracts where provisions in clause 10(CC) are not applicable then provisions in clause 10 (C) will become applicable..."
8. Decisions referred to above other than in Himachal Pradesh Nagar Vikas Pradhikaran's case relied on behalf of the respondent, were rendered either with reference to clause 10(C) or the cases where escalation in the prices of materials and labour used beyond the stipulated date of competition of work was not provided in the agreement(s). Clause 10(C) as interpreted in M/s. Metro Electric Company's case (supra) presumed that the contract was completed during the agreed period and was applicable only during the progress of the work within that period and made provision only for the statutory escalations of more than 10% of the tendered price. In the decision in Himachal Pradesh Nagar Vikas Pradhikaran's case (supra) it was held that the contractor is not entitled to any extra payment for the items for which escalation price is entirely borne by the department. Since clause 10(CC) extracted above of the agreement provides for the escalation in the prices of materials and labour during the extended period of work as per the formula set out therein none of the aforesaid decisions have any applicability to the facts of the present case.
9. In Associated Engineering Company's case (supra) relied on behalf of the appellant, the Arbitrator had allowed under claim no. II to the contractor compensation as per the formula given in para 17 of the judgment. The grievance of the respondent was that the amount of the escalation of wages was calculated by the Arbitrator otherwise than as provided by the formula at item No. 35 of the contract entered into between the parties. While dealing with that aspect of the matter in para 20, 21, 22 & 23 of the report which are relevant it was observed by the Apex Court:-
"20. The contention of the Government is that the two formula are totally different from each other as a result of which the arbitrator awarded very much more than what is warranted under the agreed formula. Mr. Madhav Reddy submits that it is true that the Contractor was bound to pay minimum wages according to the relevant statutory provisions. In fact the contract contains a provision making it necessary for the Contractor to conform to all laws, regulations, bye-laws, ordinances, regulations, etc. But the fact that the Contractor necessarily had to pay enhanced rates of wages did not entitle it to claim any amount from the Government in excess of what had been strictly provided under the contract. A specific formula had been prescribed under Item 35, as seen above, and the function of the umpire was to make an award in accordance with that formula. He had no jurisdiction to alter the formula, which he has done, as seen from the award.
21. It is not disputed on behalf of the Contractor that the formula followed by the arbitrator, as seen from the award under Claim No. II, is different from the formula prescribed under the contract. But Mr. K.R. Chowdhury, one of the counsels appearing for the Contractor, points out that the contract provided for payment of all wages according to the current rates and, therefore, the arbitrator was well within his jurisdiction to make an award by adopting a formula in keeping with the enhanced rates of wages, and the High Court, he contends, rightly decreed the amounts under that claim in terms of the award.
22. We shall deal with Claim Nos. IV and VII (4) separately. But as regards Claim Nos. III, VI and IX, we are of the view that the High Court was right in stating that the arbitrator acted outside the contract in awarding those claims. For the very same reason we are of the view that the High Court was wrong in coming to the conclusion, which it did, regarding claim no. II. We say so because there is no justification whatsoever for the arbitrator to act outside the contract.
23. These four claims are not payable under the contract. The contract does not postulate - in fact it prohibits - payment of any escalation under Claim No.III for napa-slabs or Claim No. VI for extra lead of water or Claim No. IX for flattening of canal slopes or Claim No. II for escalation in labour charges otherwise than in terms of the formula prescribed by the contract. This conclusion is reached not by construction of the contract but by merely looking at the contract. The umpire travelled totally outside the permissible territory and thus exceeded his jurisdiction in making the award under those claims. This is an error going to the root of his jurisdiction: See Jivarajbhai Ujamshi Sheth & others Vs. Chintamanrao Balaji & Others. We are in complete agreement with Mr. Madhav Reddy's submissions on the point."
10. Applying the ratio in Associated Engineering Company's case the Arbitrator obviously had exceeded his jurisdiction in making the award under claim No. 11 by adopting a formula different from that set out in clause 10 (CC) of the agreement. It will not be out of place to state that in response to the respondent's letter No. nil dated July 20, 1985 the Executive Engineer, Housing Division No. XIV, DDA, sent a letter dated August 1, 1985 to the respondent wherein it was pointed out that for any increase in the prices of material and labour respondent shall be compensated as per provision of clause 10(CC) for the work done not only during the stipulated period of the contract but also for such period for which the contract is validly extended and, therefore, question of charging revised rates after August 19, 1985 did not arise. It was asserted that nothing extra is payable beyond clause 10(CC). For the work done beyond August 19, 1985 respondent admittedly stand compensated under said clause 10(CC) by the appellant. Thus, agreeing with the submission advanced by Ms. Anusuya Salwan we are of the opinion that the award under aforesaid claim no.11 deserves to be set aside.
11. For the foregoing discussion, the appeal is accepted and the judgment under appeal in so far as it relates to the making of claim No. 11 of the award the rule of the court, is set aside. No order as to costs.