Delhi District Court
Delhi Development Authority vs M/S Brijesh Kumar & Associates on 28 September, 2021
In the Court of Shri Sanjiv Jain, District Judge,
(Commercial Court-03), Patiala House Courts New Delhi
OMP (Comm) No. 143/2019
Delhi Development Authority,
Eastern Division-9, Shakarpur,
Delhi-110092 ....... Petitioner
versus
M/s Brijesh Kumar & Associates,
94, Ram Vihar, Delhi-110092. ....... Respondents
Date of institution : 02.08.2019 Date of reserving judgment : 03.09.2021 Date of decision : 28.09.2021 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called the 'Act') challenges the award dated 28.03.2019 passed by the Arbitrator Sh. S. P. Banwait, whereby, respondent was awarded a sum of Rs. 53,63,435/-. It was ordered that if the petitioner fails to make the payment within three months, the respondent will be entitled to simple interest @ 11% per annum from the date of award till the date of payment.
OMP Comm No. 143/2019 Page No. 1 of 29Brief facts:
2. The facts leading to this petition are that on 21.04.2014, the respondent was awarded a work of repairing of damaged bituminous / concrete surface of external, internal roads and parking with pavements including repairing and raising of footpaths for the upgradation of District Centre at Laxmi Nagar (LNDC) Delhi for a value of Rs. 3,70,35,522/-. It entered into an agreement no. 01/EEC/ED9/DDA/2014-15 with the petitioner. The work was to be completed in a period of six months starting from 01.05.2014. The respondent could not complete the work within the stipulated time and completed the work on 29.09.2015. At the time of payment of 8th and final bill, it gave an undertaking that it would not claim anything extra for delay. After accepting the full & final payment, it retracted from the undertaking and invoked the arbitration clause. Sh. S. P. Banwait was appointed as the Sole Arbitrator by the High Court vide order dated 09.05.2018. The respondent filed its statement of claims, which were contested by the petitioner in its reply to which the respondent filed its rejoinder. The parties did not lead any evidence but the petitioner filed the written submissions.
The Arbitrator then passed the award. In para 5.1 of the award, he held that from the careful study of extension of time case, it is clear that the work prolonged on account of (1) non availability of site (2) approval of mixed design (3) non OMP Comm No. 143/2019 Page No. 2 of 29 availability of parking site (4) decision pending regarding laying of DLC and issue of drainage (5) decision regarding formation level (6) due to traffic diversion (7) due to non availability of site for footpath (8) slow progress of work from Chitra Vihar to PSK and (9) execution of extra work beyond the contract. It was also certified by the Assistant Engineer and the Executive Engineer that the extension of time upto the date of completion i.e. upto 29.09.2015 is justified. They had recommended for the extension of time without levy of compensation stating that the department did not suffer any financial loss due to delay. The competent authority on their recommendations granted the extension of time upto 29.09.2015 without levy of compensation but before granting the extension of time, it had taken an undertaking from the respondent that it would not claim anything extra due to delay. The Arbitrator held that obtaining of such undertaking is uncalled for particularly when the hindrances caused are justified. There is no provision in clause of the agreement to obtain such undertaking. The extension of time is to be sanctioned strictly on merit. He viewed that no prudent contractor would give such undertaking at its own free will particularly when the hindrances are justified. He held that the action of the petitioner to obtain such undertaking was uncalled for and held the undertaking as void.
OMP Comm No. 143/2019 Page No. 3 of 293. In all, the respondent submitted five claims for adjudication.
(i) In respect of claim no. 1 i.e. claim towards reduction in the rate of extra item no. 2/3 pertaining to 25mm thick bituminous mastic course, he held that the extra item was executed after proper approval of the Chief Engineer, which was accorded on 17.04.2014. The rate was also sanctioned by the Chief Engineer, which was conveyed to the Executive Engineer vide letter dated 25.06.2014. The rate sanctioned was Rs. 933.39 per sqm. The payment of this extra item was released in the 1st running bill itself. It continued upto 7th running bill. There was no rate other than paid upto 7 th running account bill but the petitioner reduced the rate of the item in the 8th running account / final bill after the authority sanctioned the rate at Rs. 701.88 per sqm. The Arbitrator held that the rate was reduced unilaterally by the petitioner without giving any notice for its reduction, which is illegal. He observed that the same authority sanctioned the two different rates for the same item without assigning any reason. He also examined the analysis of rate filed by the petitioner and found that the rate sanctioned by the competent authority was based on the market rate and in accordance with clause 12.2 of the agreement. He also considered the contention of the petitioner that the rate quoted by the respondent as 29.24% below the contract would apply OMP Comm No. 143/2019 Page No. 4 of 29 for the purposes of clause 12 and that the payments upto the 7 th running bill were the interim payments by way of advances only and would not bind the petitioner and the rate determined in the 8th and final bill would be binding on the parties and held that clause 12.2 is crystal clear, which provides that the rates of extra items are to be analyzed on market rates and the percentage quoted by the respondent is not to be applied. He held that the reduction of rate in the final bill is not in accordance with clause 12.2. He however agreed that clause 7 of the contract specifies that all the payments made in the running bills are considered as the advance payments but he held that since the rate was finally determined by the competent authority even before the payment of the 1st running bill, which was based on the market rates, the action of the petitioner to reduce the rate in the final bill was illegal & unjustified. He, therefore awarded Rs. 3,35780/- to the respondent against extra item no. 2/3.
Similar findings were given by the Arbitrator in respect of item 6/11 He held that this extra item was executed after the principal approval of the competent authority. The respondent had based the analysis on the market rate as per clause 12.2 of the agreement at Rs. 932.12 per sqm but the Chief Engineer sanctioned the rate @ Rs. 701.88, which was conveyed on 29.07.2015. The rate was submitted by the respondent vide its letter dated 04.03.2015, which should have been sanctioned OMP Comm No. 143/2019 Page No. 5 of 29 within one month i.e. upto 03.04.2015. He examined the rate analysis and observed that the rate was correctly analyzed by the respondent in accordance with clause 12.2 of the agreement, which comes out to 991.92 per sqm and the petitioner wrongly deducted 29.24% rebate from the market rate and sanctioned the rate @ Rs. 701.88. He held that the action of the petitioner to deduct 29.24% from the market rate is contrary to clause 12.2 of the agreement. He held that rate of 991.92 per sqm is payable to the respondent. He thus awarded Rs. 28,31,017/- against extra item no. 6/1.
In respect of claim no. 1, he in total awarded Rs. 31,66,797/-.
4. In respect of claim no. 2 i.e. payment due under clause 10 (c) for Rs. 3,57,781/-, he referred clause 10 (c) of the agreement and held that it is clear from the clause that minimum wages, if increased during the contract period shall be payable, but such increase shall not be payable, if the increase becomes operative after the stipulated date of completion of the work. He considered the contention of the petitioner that the respondent did not intimate it about the increase in the minimum wages nor produced the books of accounts to establish that it had paid the minimum wages to the workers and held that this plea of the petitioner is not correct, since, the respondent had intimated of the same to the petitioner OMP Comm No. 143/2019 Page No. 6 of 29 as evident from the Annexure C-14 & C-17. He held that since the minimum wages had increased w.e.f. 01.04.2015 and the stipulated date of completion was 30.10.2014, the respondent is not entitled to increase w.e.f. 01.04.2015. He therefore, awarded Rs. 117,035/- under clause 10 (c) of the agreement.
5. In respect of claim 3b i.e. payment against the items deviated beyond the deviation limit, he referred clause 10.2 of the agreement and held that as per the clause the respondent is required to submit the analysis of rate in case it claims higher rate than the agreement rate. He referred the letters of the respondent dated 13.08.2014, 19.08.2014, 09.12.2014 & 30.03.2015 regarding its intention to charge higher rates of the items, which exceeded beyond the deviation limit and the analysis of rate of the items submitted by the respondent vide letter dated 28.10.2014 and held that in this case, the petitioner neither sanctioned the rates nor made any query till the completion of work. The respondent had filed the vouchers to establish increase in the rates of the materials in its rejoinder, which the petitioner did not respond. He held that the since the petitioner did not sanction the rate submitted by the respondent vide its letter dated 28.10.2014, which should have been sanctioned within one month i.e. upto 27.11.2014 and paid only the agreement rate, its action was not justified. Further, the petitioner did not dispute the calculation of claim submitted by OMP Comm No. 143/2019 Page No. 7 of 29 the respondent. He thus awarded Rs. 693,949/- against claim no. 3.
6. In respect of claim no. 4 i.e. escalation in the cost of materials and labour for prolongation of contract i.e. Rs. 32,26,035/-, the Arbitrator on considering the documents of the respondent held that the respondent had raised the claim only qua the deviated items of brick work and not in respect of remaining items. Since, this claim has already been decided against claim no. 3 and claim no. 4 was not raised during the progress of work and was raised only after the completion of work, the respondent is not entitled to this claim.
7. In respect of claim no. 5 i.e. loss and damages on account of prolongation of contract for Rs. 42,26,045/-, the Arbitrator considered the contention of the respondent that the extension of time was granted by the petitioner without levy of compensation upto the actual date of completion and held that the documents filed by the parties reveal that the contract was prolonged solely because of the hindrances for which, the respondent was not responsible. He referred clause 5 and clause 2 of the agreement and held that it is implied that the time as stipulated in the agreement was not intended to be the essence of contract in the real sense of the terms. He also referred Section 55 of the Indian Contract Act, 1872 and held that OMP Comm No. 143/2019 Page No. 8 of 29 second para of Section 55 is applicable in this case and the respondent is entitled to compensation from the petitioner for the loss occasioned to it on the failure of the petitioner to discharge its obligation, due to which the work got delayed. He also held that under Section 55, there is no requirement of giving any notice by the aggrieved party for compensation, if the time is not the essence of the contract as in the present case. He also referred Section 73 of the Act and held that in a competitive bidding, a contractor calculates overhead expenses on the contract price only for the stipulated period assuming that the work would be completed in the stipulated time. He held that in a construction project, all the establishment staffs, tools, plant and machinery deployed by the contractor would be required to be engaged all through the working days. Even if, there is no hindrance in the course of execution, partial idleness of these resources cannot be ruled out. The contractor thus cannot claim damages for idleness of its resources during the stipulated period unless such idleness is caused due to delays on the part of the department or it involves considerable financial loss. In this case, the claim is for the over stay of resources beyond the stipulated period and thus, the respondent is entitled to reasonable compensation for the loss of overheads due to prolongation of contract. He considered the calculations and the vouchers of salaries submitted by the respondent and found that there is no evidence to show that the resources deployed by the OMP Comm No. 143/2019 Page No. 9 of 29 respondent were optimally utilized. He stated that Section 55 & 73 of the Contract Act do not lay down the mode and manner, how the damages / compensation have to be computed. He opined that reasonable compensation can be assessed on the basis of schedule F of the agreement, where combined percentage on the cost of material and labour to cover the overheads and profits has been specified as 15%. He referred CPWD, OM No. DGW/MAN/150 dated 14.12.2007 and OM NO. DGW/MAN/169 dated 31.12.2008, where breakup of 15% has given i.e. 7.5% for the overheads and 7.5% for profits. He held that this work did not involve the use of crane, which as per OM No. 169 is one of the components of overheads. He considered the nature and location of the work and allowed 5% for overheads. He calculated the amount by making a tabulation in para 11.18, which is reproduced as under:
(a) Contract amount Rs. 3,70,35,552/-
(b) Prime tender cost excluding overheads
and profit will be 37035552 = Rs. 3,22,04828/-
1.15
(c) Overhead cost of stipulated period of Rs. 16,10,241/-
months @ 5%
(d) Average overheads per month Rs. 2,68,374/-
(e) Loss of overheads on account of Rs. 17,17,594/-
prolongation of 6.4 months
8. He then discounted the amount referring OM No. 169 dated 31.12.2008 and held that a prudent contractor would try to mitigate the losses in the event of prolongation of contract. In this case also, the respondent might have taken the steps to OMP Comm No. 143/2019 Page No. 10 of 29 mitigate the damages. He held that it would be just & fair to allow 50% of the amount as calculated in para 11.18 as reasonable compensation on account of loss of overheads and awarded Rs. 8,58,797/-.
9. In respect of claim no. 6 i.e. interest for pre-reference period, pendente lite and future @ 15% on claim no. 1 to 5, he considered the judgment referred by the respondent in the case of Hyder Consulting (UK) Ltd Vs. Governor of State of Orissa CA NO. 3148/2012 and held that there is no bar in the agreement to award interest on the awarded amount. The act also allows the same. He held that respondent is entitled to reasonable interest on the sum awarded against the various claims. He declined the interest for the pre-reference period but allowed simple interest @ 9% per annum on the sum awarded against claim no. 1, 2, 3 & 5 i.e. Rs. 48,36,573/- for a period of 10.6 months (from the date of appointment of Arbitrator i.e. from 09.05.2018 upto the date of award i.e. 28.03.2019) amounting to Rs. 3,84,507/-.
10. In respect of claim no. 7 i.e. cost of arbitration for Rs.
4,50,000/-, he held that both the parties would bear the cost of arbitration on their own. In this case, the respondent had paid Rs. 1,42,350/- on behalf of the petitioner under Section 38 (2) of the Act, so he awarded Rs. 1,42,350/- to the respondent.
OMP Comm No. 143/2019 Page No. 11 of 29He held that if the amount is not paid within three months from the date of award, the respondent would be entitled to simple interest @ 11 % per annum from the date of award till the date of payment.
11. The petitioner did not challenge the award in respect of claim nos. 1, 2 & 3, but with regard to claim no. 5 i.e. loss & damages on account of prolongation of contract amounting to Rs. 8,58,797/-. It stated that the respondent was required to prove the losses / damages on account of prolongation of contract by producing the evidence, which it failed and the Arbitrator based his calculation on the guidelines given in the circulars issued by CPWD from time to time. The Arbitrator failed to consider that in claim no. 5, respondent had claimed expenses on account of permanent establishment per month for a period of 6.4 months @ Rs. 1,49,500/- per month. He even observing that the details on actual expenses have not been proved by the respondent, allowed the amount, which is bad in law and in conflict with the public policy of India and is patently illegal.
12. The petitioner also moved an application under Section 34 (3) of the Act for condonation of delay. It is stated that the copy of the award was received by the petitioner on 01.04.2019. Immediately thereafter, it sought opinion from its panel lawyer, OMP Comm No. 143/2019 Page No. 12 of 29 who submitted his opinion on 17.04.2019 to challenge the award. This opinion was placed before the Chief Legal Advisor and thereafter, before ASB, a high-powered committee for its final decision, which decided to challenge the award only with regard to claim no. 5 and consequential interest thereto. It received the file on 24.07.2019. It, thereafter, advised its panel laywer to file the objections. The lawyer was out of station from 25.07.2019 to 26.07.2019. He immediately after return prepared the objections. It is stated that the delay in filing the objections is genuine as the petitioner had considered the award in entirety. It is stated that there is a delay of 29 days in filing the petition, which may be condoned.
13. On getting notice of the petition, the respondent filed its reply stating that as evident from para 11.11 of the award, the respondent had filed the copy of vouchers of salaries paid to its staffs in its rejoinder (C18 to C20), which the petitioner never challenged. The Arbitrator only allowed Rs. 8,58,797/- against the original claim of Rs. 42,26,045/-. He based his calculations taking Hudson formula which was also referred in the case of Mcdermott International Inc Vs. Burn Standard Co. Ltd, 2006 (11) SCC 181 and Associate Builder Vs. DDA, AIR 2015 SC620. It is stated that the Arbitrator clearly held in para 5.3 to 5.5 of the award that to obtain an undertaking from the respondent before granting extension of time is uncalled for OMP Comm No. 143/2019 Page No. 13 of 29 particularly when the hindrances caused are justified. There is no provision in clause 5 of the agreement to obtain such undertaking. Extension of time is to be sanctioned strictly on merit. No prudent contractor will give such undertaking at its own free will particularly when the hindrances are justified. The case of M/s Pandit Munsiram & Associates Vs. DDA, 2013 (2) RAJ 155 was referred, where the Division Bench of Delhi High Court held that undertaking cannot be held valid if party taking the undertaking is guilty of breach resulting in delay of work. Ld. Counsel referred the case of Ssanyog Engineering & Construction Co. Ltd Vs. NHAI, 2019 (15) SCC 131 and Madhya Pradesh Power Generation Co. Ltd VS. Ansaldo Energies SPA 2018 (16) SCC 661 to contend that the Court under Section 34 (2) of the Act does not act as a court of appeal while applying the test of public policy. A possible view of the Arbitrator on facts has necessarily to pass muster as the Arbitrator is the sole judge of the quality and quantity of the evidence. Sufficiency of evidence cannot be a ground for interference of the Court. Award can be set aside only if it shocks the conscience of the Court or illegality goes to the root of the matter. Even if, there are two possible interpretation of the terms of the contract, the Arbitrator's interpretation has to be accepted and the Court cannot substitute its opinion over the Arbitrator's view.
OMP Comm No. 143/2019 Page No. 14 of 2914. In response to the application for condonation of delay, it is stated that there is no sufficient cause to allow the application. The case of UOI Vs. Navbharat Nirman Co. 2003 (3) ArbLR 309 Delhi is referred to contend that no special privileges can be given to the Government.
15. I have heard the arguments advanced by Ld. Counsel Sh.
Gunjan Kumar for the petitioner and Ld. Counsel Sh. Sanjoy Bhaumik, for the respondent and perused the record.
16. First, I will dwelve upon the issue as to the maintainability of the petition on the point of limitation.
17. Section 34 (3) of the Act provides a limitation period of three months for filing objections against an arbitral award. Proviso to Section 34 (3) of the Act provides an extended period of 30 days for filing the application and the court has the discretion to condone the delay, provided sufficient cause is shown by the party which prevented it from approaching the court in the limitation period of three months. In the case of DDA v/s Durga Construction, (2013) SCC Online Del 4451, it was held that although the courts have the jurisdiction to condone the delay, the approach in exercising such jurisdiction cannot be liberal and the conduct of the applicant will have to be tested on the anvil of whether the applicant acted with due OMP Comm No. 143/2019 Page No. 15 of 29 diligence and dispatch. The applicant would have to show that the delay was on account of reasons beyond the control of applicant and could not be avoided despite all possible efforts by the applicant.
18. The proviso to Section 34 (3) of the Act is similar to that of Section 5 of the Limitation Act. It also relates to extension of period of limitation. In the instant case, the petitioner in the application for condonation of delay of 29 days in filing has pleaded that it had received the award on 01.04.2019. Immediately, thereafter, it sought the legal opinion, which it received on 17.04.2019. It placed this opinion before the Chief Legal Advisor and then ASB, the high power committee of the petitioner, which finally decided to challenge the award with regard to claim no. 5 and consequential interest thereto only. It then advised its counsel to file the objections. It is stated that the petitioner is a body controlled by the Govt. of India having various departments, thus, time was taken for internal compliances which added to the delay.
19. Admittedly, this petition has been filed beyond the period of 90 days but within the extended period of 30 days as provided under Section 34 (3) of the Act. There is no denial of the fact that the petitioner is a body controlled by the Govt. of India having different departments and internal compliances are OMP Comm No. 143/2019 Page No. 16 of 29 made which are time consuming. It had sought legal opinion from the panel lawyer and sought approval from the Chief Legal Advisor and ASB, a high powered committee for filing the objections.
20. I am in agreement with contention of the counsel for the respondent that the Govt. entities are not entitled to any special treatment or latitude for internal compliances but there is no denial of this fact that in Govt. entities, file passes through many hands and internal compliances are required to be made. In this case, the petitioner had initiated the process very promptly as it had taken the legal opinion of the panel Advocate by providing the record and after taking the opinion, it had placed the opinion before the Chief Legal Advisor and ASB, high powered committee for its final decision. The counsel for the petitioner was also out of station for some period. It added to the delay. That being the position, sufficient cause has been explained by the petitioner for filing the objections beyond the period of 90 days as contemplated under the act. The act of the petitioner seems to be bonafide and it cannot be said that there was intentional delay on the part of the petitioner to file this petition.
21. For the aforesaid reasons, I am of the view that it is a fit case where the application moved by the petitioner for condonation OMP Comm No. 143/2019 Page No. 17 of 29 of delay of 29 days be allowed. I order accordingly and condone the delay.
22. Now coming to the objections filed by the petitioner against the impugned award.
23. Section 34 of the Arbitration and Conciliation Act reads as under:
"34.Application for setting aside arbitral award- (1)Re- course to a court against an arbitral award may be made only by an application for setting aside such award in ac- cordance with sub-section (2) and sub- section (3). (2)An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indica- tion thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contem-
plated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to ar- bitration can be separated from those not so submitted, only that part of the arbitral award which contains deci- sions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a OMP Comm No. 143/2019 Page No. 18 of 29 provision of this Part from which the parties cannot dero- gate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of set- tlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation- I For the avoidance of any doubt, it is clari- fied that an award is in conflict with the public policy of India only if the making of the award was induced or af- fected by fraud or corruption or was in violation of Sec- tion 75 or Section 81."
ii) It is in contravention with the fundamental policy of In- dian law;
iii) It is in conflict with the most basic notions of morality or justice.
Explanation-II- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental pol- icy of Indian law shall not entail a review on the merits of the dispute.
[2 (A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is viti- ated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
24. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would come to a different conclu- sion on the same facts. The court cannot reappraise the evi- dence and it is not open to the court to sit in appeal over the OMP Comm No. 143/2019 Page No. 19 of 29 conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those men- tioned in the Arbitration Act. Where the arbitrator assigns co- gent grounds and sufficient reasons and no error of law or mis- conduct is cited, the award will not call for interference by the court in exercise of the power vested in it.
25. In the case of Associate Builders v/s Delhi Development Authority, (2015) 3 SCC 49, it was held that interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when con- science of the Court is shocked or when illegality is not trivial but goes to the root of the matter. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
26. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC On- Line SC 677, the Supreme Court has held that under Section 34 of the Act, a decision which is perverse while no longer being a ground for challenge under public policy of India would cer- tainly amount to a patent illegality appearing on the face of the OMP Comm No. 143/2019 Page No. 20 of 29 award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse.
27. In the backdrop of the above, let me now examine the ob-
jections against the impugned award agitated by the petitioner, vis-a-vis the reply of the respondent, in support of the award.
28. A perusal of record reveals that the respondent was awarded the work of repairing of damaged bituminous / con- crete surface of external and internal roads and parking includ- ing repairing and raising of footpaths for the upgradation of District Centre at Laxmi Nagar, New Delhi for a value of Rs. 3,70,35,522/-. The respondent entered into an agreement with the petitioner. The work was to be completed in a period of six months from the date of its start, which was 01.05.2014. The work could not be completed within that period and it was com- pleted on 29.09.2015. The Arbitrator after careful study of ex- tension of time case observed that the work prolonged on ac- count of delays as under:
(1) non availability of site,
(2) approval of mixed design,
OMP Comm No. 143/2019 Page No. 21 of 29
(3) non availability of parking site,
(4) decision pending regarding laying of DLC and issue of drainage, (5) decision regarding formation level, (6) due to traffic diversion, (7) due to non availability of site for footpath, (8) slow progress of work from Chitra Vihar to PSK, and (9) execution of extra work beyond the contract.
29. The Assistant Engineer and the Executive Engineer had also certified that the extension of time upto the date of completion i.e. 29.09.2015 is justified. They had recommended for the extension of time without levy of compensation certifying that the department / respondent did not suffer any financial loss due to delay. The competent authority on their recommendations granted the extension of time upto 29.09.2015 without levy of compensation. Although, before granting extension of time, it had taken an undertaking from the respondent that it would not claim anything extra due to delay but the Arbitrator was right in holding that obtaining of such an undertaking was uncalled for particularly when the hindrances caused, are justified. He referred clause 5 of the agreement and held that there is no provision in the clause to obtain such an undertaking. The extension of time was to be granted strictly on merit. No prudent contractor would give such an undertaking at his own free will particularly when the hindrances were justified. He rightly held that the action of the petitioner to obtain such undertaking was uncalled for and the said OMP Comm No. 143/2019 Page No. 22 of 29 undertaking is void.
30. In respect of claim no. 5, the Arbitrator after perusing the documents clearly held that the contract was prolonged solely because of various hindrances for which the respondent was not responsible. He referred clause 2 & clause 5 of the agreement and rightly held that the time as stipulated in the agreement to be the essence of contract in real and effective sense was not intended. He in clear terms held that the time was not the essence of the contract in the present case.
31. Section 55 of the Indian Contract Act provides that if it is not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified period but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.
32. Since in the instant case, time was not the essence of the contract and the petitioner had accepted the performance of the contractor at the extended time, the Arbitrator has rightly held that the respondent was entitled to compensation from the petitioner for the loss occasioned to it by such failure by the petitioner to discharge its obligation due to which, the work got OMP Comm No. 143/2019 Page No. 23 of 29 delayed. Section 55 clearly provides that no notice is required to be given by the aggrieved party for the compensation. Section 73 of the Indian Contract Act 1872 provides that the party, who suffers the breach is entitled to receive from the party, who has broken the contract, compensation for any loss or damage caused to it.
33. I find force in the observations of the Arbitrator that in a competitive bidding, the contractor calculates the overhead expenses only for the stipulated period assuming that the work will be completed in the stipulated period. In a construction project, it is not necessary that all the establishment, staff, tools and plant and machinery remain engaged / in operation all through the working hours / days. Partial idleness of resources is possible but if this idleness prolongs due to delays / defaults on the part of the department, it would lead considerable financial loss to the contractor, which need to be compensated.
34. In the instant case, the work prolonged for 11 months.
The respondent calculated the compensation @ Rs. 1,49,500/- per month for a period of 6.4 months amounting to Rs. 9,56,800/-. In support of its claim, it had filed the copy of the vouchers of the salaries paid to its staffs. It was observed by the Arbitrator that the petitioner never gave any response either on OMP Comm No. 143/2019 Page No. 24 of 29 the calculation of the amount nor on the vouchers filed by the respondent. He assessed the reasonable compensation for the loss of overheads on the basis of schedule F forming part of the agreement, where, the combined percentage on the cost of materials and labour to cover up the overheads and profits was specified as 15%. He held that since, the contract is based on the CPWD rate of Contracts and Specifications, the department follows the CPWD circulars & guidelines, which remain in public domain. He referred OMs dated 14.12.2007 and 31.12.2018 where, overheads and profits have been taken as 7.5% each. He observed that OM No. 159 dated 31.12.2008 elaborates the overheads, which include tool and plant and heavy machinery. He took the overhead expenses @ 7.5% for calculating the reasonable compensation and held that in the work, the heavy machinery was not used. He then took the overhead factor @ 5% and calculated the amount taking the prolongation period as 6.4 months, which came to Rs. 17,17,594/- as shown in para 11.18 of the award. He further reduced to 50% observing that there are certain minor and misc. components which involve fixed cost i.e. expenses thereon which are not time related and the contractor must also mitigate the losses in the event of prolongation of contract.
I am not in agreement with the contention of the petitioner that the respondent did not prove the losses and the Arbitrator allowed the compensation on assumptions & OMP Comm No. 143/2019 Page No. 25 of 29 presumptions. In the instant case, he had considered the vouchers submitted by the respondent with the rejoinder, question of their genuineness was never raised by the petitioner during the arbitral proceedings and applied the formula referring schedule F of the agreement and the circulars issued by CPWD from time to time. He adopted the 'Hudson formula' as was adopted in the case of Mcdermott International Inc Vs. Burn Standard Co. Ltd (supra) and Associate Builder Vs. DDA (supra). In the case of Associates Builder (supra), it was held that when a test of public policy is applied to an arbitral award, court does not act as a court of appeal. Interference is permitted only when finding of arbitrator is arbitrary, capricious or perverse or when conscience of court is shocked, or when illegality is not trivial but goes to the root of the matter. Not when merely another view is possible. Arbitrator being ultimate master of quality and quantity of evidence while drawing the arbitral award, the award based on little evidence or on evidence, which does not measure up in quality to a trained legal mind cannot be held invalid.
In that case, Single Judge of the High Court dismissed the objections against claims as to establishment expenses by applying 'Hudson formula' and damages for prolongation of contract. The Division Bench in appeal set aside the order and negatived the award on the ground that Arbitrator mechanically applied 'Hudson formula' and held that value of work OMP Comm No. 143/2019 Page No. 26 of 29 completed should have been taken into account for calculating the establishment expenses and not the entire contract value. The Supreme Court held that different formula can be applied in different circumstances and the damages should be computed by taking recourse to one or other formula, having regard to facts & circumstance of a particular case which will fall within the domain of arbitrator. Arbitrator in his wisdom having applied 'Hudson formula', wherein, establishment expenses were ascertained by taking into account the contract value and not the work completed. It was held that the Division Bench exceeded its jurisdiction in interfering with said calculation by ignoring the vital work completion certificate granted by the respondent itself and unnecessarily relied on facts, which were neither pleaded nor proved. It was held that the Arbitrator committed no error in awarding the damages claimed. In that case, the case of Mcdermott International Inc Vs. Burn Standard Co. Ltd (supra) was also referred, where, the Hudson formula was discussed in detail in para 104, 105 and 106.
35. Looking into the observations made by the Arbitrator which are supported with the reasons and in view of the observations made in the cases referred above, no interference of this Court is called for in respect of the award of Rs. 8,58,797/- against claim no. 5, which on the face of it appears to be just & reasonable.
OMP Comm No. 143/2019 Page No. 27 of 2936. Now to sum up, in the instant case, the arbitrator has examined all the relevant aspects of the agreement, the correspondences made by the parties, the terms of the contract and the conduct of the parties. The Arbitrator has remained inside the parameters of the contract while construing the provisions of the contract.
37. Having examined the various contentions of the petitioner on the touchstone of the parameters of interference as explicitly laid down by the Supreme Court in several judgments referred to above, I am of the view that the impugned Award does not suffer from any infirmity or error apparent on the face of record. It is not for this Court to sit in appraisal of the evidence led before the learned Arbitrator and this Court will not open itself to the task of being a judge on the evidence placed before the Arbitrator which was subject matter of dispute. In the present case, the Arbitrator has deliberated on the issues under reference which were within his competence and as per the agreement entered into between the parties. The Arbitrator has duly explained the reasons for arriving at his decisions. There is nothing to indicate that award is in conflict with the basic notions of justice and the fair play and fundamental policy of Indian law or in contravention of the terms of the agreement or it lacks reasoning as pleaded in the OMP Comm No. 143/2019 Page No. 28 of 29 petition.
38. For the aforesaid reasons the petition is dismissed with no order as to costs. File be consigned to record room.
Announced in open court today i.e. 28th of September 2021 (Sanjiv Jain) District Judge (Commercial) - 03 Patiala House Courts, New Delhi OMP Comm No. 143/2019 Page No. 29 of 29