Delhi High Court
M/S Bharat Builders vs Delhi Development Authority on 16 December, 2009
Author: Valmiki J. Mehta
Bench: Valmiki J.Mehta
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) No.1168/1994
16th December, 2009
M/S BHARAT BUILDERS ...Petitioner
Through: Mr. Sandeep Sharma, Mr. Vikas
Sharma and Ms. Mugdha Pandey,
Advocates.
VERSUS
DELHI DEVELOPMENT AUTHORITY ....Respondent.
Through: Mr. Ajay Verma, Advocate
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
2. To be referred to the Reporter or not?
3. Whether the judgment should be reported in the Digest?
% JUDGMENT (ORAL)
VALMIKI J. MEHTA, J.
I.A.No.2336/1995 in CS(OS) No.1168/1994
1. This application contains the objections on behalf of the respondent/applicant/DDA under Sections 30 and 33 of the Arbitration Act, 1940 against the Award dated 9.5.1994 of the sole Arbitrator. The Award has been CS(OS) No.1168/1994 Page 1 passed with respect to the disputes which arose between the parties under the contract awarded to the petitioner by the objector for the construction of Local Shopping Centre at Block-J, Vikas Puri, New Delhi.
2. The counsel for the objector has only pressed the findings on the preliminary objections as recorded by the Award and sub-claims Nos. 4,15,17 of Claim No.1, Claim Nos.6 and 9 with relation to interest and counter-claim No.7.
3. Though at the outset, the counsel for the objector also sought to press objections with respect to certain other minor claims and which were indeed of insignificant amounts of Rs.6869/-, Rs.3461/-, Rs.1050/- etc, however, since the same could not be effectively argued in view of the findings contained in the Award, the said objections were not pressed.
4. I would now take each objection as raised by the objector and deal with the same.
5. The first objection which was pressed was that the Arbitrator has misconducted himself and the proceedings by giving a finding on preliminary objection No.1 that the claims made by the contractor are not barred by Clause 25 as per which the claims have to be made within 90 days of receiving the intimation of preparation of the Final Bill. The factual position is that the measurements were recorded in February 1991 and thereafter final bill in this case was paid in October, 1992, the Arbitration was already invoked on 30th March, 1991, and the reference is CS(OS) No.1168/1994 Page 2 dated 3rd May, 1991. Accordingly, there is no scope for the applicability of Clause 25 as admittedly, in this case, the disputes have been raised much before the period specified under Clause 25 viz on 30.3.1991 i.e even before the final bill has been prepared after March, 1992 after the measurements were taken in February, 1991. Accordingly, there is no substance in this objection which is rejected.
6. The next objection which was with respect to preliminary objection No.2, in which it is recorded that measurements have been accepted by the contractor/petitioner, however, according to the counsel for the objector while dealing with sub claim no.4 of claim No.1, the Arbitrator has taken the measurements as not final. I would deal with this aspect when I deal with the objections to the sub-claim No.4 of Claim No.1.
7. The final preliminary objection which was decided by the Arbitrator against the objector, was with regard to the issue of rescission. What the counsel for the objector has contended is that in view of the decision of the Supreme Court in the case of Vishwanath Sood Vs. UOI 1989 (1) SCC 657 since, there is a levy of penalty on the contractor and which decision of the Superintending Engineer is final, therefore, it is not permissible for the Arbitrator to enter into this dispute with regard to whether the contractor or the objector is guilty of delay for the same period. This contention is not correct because as rightly argued by the counsel for the non-objector that this contention of the counsel for the objector is negated by a CS(OS) No.1168/1994 Page 3 Division Bench judgment of this court in the case reported as DDA Vs. Bhagat Construction Co. Pvt. Ltd. 2004 (3) Arb. LR 548 and in para 13 of which judgment, a Division Bench of this court has considered the judgment of Supreme Court in Vishwanath Sood's case (supra) and has laid down that what is final is only the levy of penalty and it is not that the Arbitrator is prevented from going into the aspect of who is responsible for delay in performance of the contract and its consequences. Accordingly, in view of the aforesaid Division Bench Judgment, in the case of Bhagat Construction Company (supra), I reject the objection of the objector. I may only add that if the contractor had gone to the Civil Court on this aspect of wrong imposition of damages he was surely entitled to challenge the imposition of liquidated damaged i.e. decision of the imposition of levy of liquidated damages is not final and which challenge would include challenge before the Civil Court of wrongly holding the contractor liable for delay on the basis of which damages have been awarded. What I am stressing is that what is final is only the levy of liquidated damages and that the issue of delay is not barred for decision on the ground of res judicata or issue estoppel, even in arbitration proceedings.
8. Before I take up each claim and the arguments with respect thereto, I must deal with one basic issue which permeates the findings of the Arbitrator and which is that the objector has been held guilty of wrongly rescinding the contract.
The detailed discussion on this aspect is found in as many as nine pages i.e CS(OS) No.1168/1994 Page 4 from internal page 4 to 13 of the Award, and in these pages the Arbitrator after discussing the various contentions and the issues has come to a finding that both the objector and the present petitioner were guilty of breaches by delaying the performance of the contract. On the one hand, the objector has been held guilty of delay in supplying of the drawings, delay in issue of the cement, delay in making the payments and so on, the petitioner has also been held responsible for certain delays in performance of the contract. The Arbitrator has held that both the parties are responsible for delay in the performance of the contract, though it is also clear that major defaults were attributable to the objector. After giving such a finding the Arbitrator then has held that time of performance was not the essence of the contract and was in fact repeatedly extended. In view of the aforesaid findings that the time of performance was not the essence of the contract, a final conclusion is given by the Arbitrator at internal pages 12 and 13 of the Award and which runs as under:-
"Thirdly time for performance if not of essence or no longer of the essence because of election, rescission is only permitted after giving a notice requiring performance of the notice. In this case vide C-115 respondent asked claimants to complete work by 15/12/90 by a notice dated 28/11/90. Whereas as per press notice No.17 PWD6 No.22/92-93 for Rs. 68436/- work recoverable from M/s Bharat Builders 5 months is time allowed. This means time of 17 days allowed to claimant was totally unreasonable."
The aforesaid findings cannot be faulted with because this finding is based on the judgment of the Supreme Court reported as Hind Construction Contractors Vs. State of Maharashtra, AIR 1979 SC 720 and in which judgment the Supreme Court CS(OS) No.1168/1994 Page 5 has laid down that where time of performance is not the essence of the contract, it is necessary that before the same is made of the essence, a party must give a notice of a reasonable time so as to make the time essence of the contract. In the present case, time of performance was from the inception not of the essence of contract because there was a clause of liquidated damages and which as per the judgment in Hind Construction Contractors case (supra) makes time of performance not to be of the essence even though it is specified to be of the essence of contract. There is a finding of fact that no reasonable notice has been given for making time the essence of the contract, and which is required in terms of the aforesaid judgment in Hind Construction's case. This being a finding of fact, and not shown to me to be perverse in any manner, as Arbitrator has held that notice though given was in fact not a notice of a reasonable period and hence amounts to not giving the legally required notice. For arriving at the conclusion of unreasonable period of the notice, the Arbitrator notes that the date of the notice is 28.11.1990 and by which the work was directed to be completed by 15.12.1990 i.e within a period of 17 days. This period of 17 days, the Arbitrator has then compared with the time which was given to the substitute contractor for completing the balance work in as many as 5 months. In fact, this work of five months was also completed in 7 months by the substitute contractor. Thus, the finding of the Arbitrator is wholly justified because once there is a notice which requires fixing of the time as the essence of the contract such CS(OS) No.1168/1994 Page 6 notice must necessarily fix a reasonable period of time. This is also in terms of Section 46 of the Contract Act, 1872 which specifies that where no time is fixed for performance, then performance must be within a reasonable period of time. Therefore, in view of the above factual and legal position, I do not find any fault whatsoever in this finding of the Arbitrator that the period fixed is not a reasonable period. Even if, two views were possible from this situation, I do not think that the view adopted by the Arbitrator can be said to be the view of an unreasonable man which no person could have arrived at. Therefore, while hearing objections under Sections 30 and 33, I would not venture to set aside the findings and the conclusions of the Arbitrator merely because there is another possible view. In any case, I have already held that the Arbitrator is justified in holding that the period fixed making time the essence of the contract, was not a reasonable period. In view of the above, there is no merit in the objection that the Arbitrator has wrongly held that the contract was not properly rescinded by the objector.
9. Sub Claim No.4 of Claim No.1 pertains to the claim of the contractor for short payment. The Arbitrator has awarded a total of Rs.27,641/- for the short payment under this head. There were three sub heads of this claim, two of which pertain to RCC work in the foundation. Mr. Verma contends that once the Arbitrator has held at internal page 4 of the Award that the final measurements were accepted by the claimant without any protest on 8.2.1992, then there cannot be a CS(OS) No.1168/1994 Page 7 different conclusion adopted by the Arbitrator that fresh measurements can be adverted to by the claimant for making claims for short payment due to incorrect measurements. Mr. Verma is both right and wrong. He is right that measurements were taken as final and he is wrong because the Arbitrator records that the respondent/objector itself has made fresh measurements for the RCC work after the final measurements were accepted. If, therefore a fresh measurement is made after preparation of the final bill, then, surely there can come into effect additional measurements for seeking payments on such basis. Once again, I feel that, even if two views are possible, it cannot be said that the decision of the arbitrator is so perverse that it can be held that he has misconducted himself or the proceedings. These additional measurements were with respect to RCC work and therefore so far as the two sub heads under this subject claim no. 4 is concerned, namely serial no.1 and 2 for RCC works are justified. However, so far as the brick work foundation is concerned, there cannot be retraction with respect to the measurements already recorded in the measurement books which have become final. Accordingly, awarding of this claim is partially modified in that out of the amount of Rs.27,641/- and amount of Rs.14,992.28 shall stand reduced.
10. The next dispute pertains to sub claim No.15 of Claim no.1. This claim pertains to the cost of work done. The respondent admits that the amounts due for the balance work is of Rs.1,54,528/-, however, what has been argued by Mr. Verma CS(OS) No.1168/1994 Page 8 is that this amount in fact has been paid in the final bill and therefore there is no question of the Arbitrator awarding this claim again which will amount to double payment. Mr. Sharma on the other hand refutes this contention and states that this amount has not been paid in the final bill. I therefore, need not to say anything except the fact that since this amount of Rs.1,54,528/- is payable to the petitioner, if the same has been paid under the final bill, the same shall stand deleted from the awarded amount but if not paid shall be liable to be paid.
11. Sub claim no.16 pertains to the refund of the security deposit. I have already held that the rescission of contract by the objector was not justified and the Arbitrator is correct in holding that the rescission was illegal. The challenge to this sub-claim therefore automatically falls because once the rescission is not justified, the petitioner was entitled to refund of the security deposit.
12. The next claim in dispute is sub claim no.17 whereby the Arbitrator has awarded escalation under Clause 10CC for the extended period of the contract. I may note that the claim which was made by the petitioner was for a sum of Rs.8 lacs and this was thereafter reduced to Rs.6,42,466/-. In view of my finding with respect to preliminary objection no.2 on the aspect of non applicability of the judgment of the Supreme Court in Vishwanath Sood case (supra), while deciding this sub-claim-17 it was open to the Arbitrator to proceed on the basis of the findings of breaches of the objector due to delays so that escalation can be granted CS(OS) No.1168/1994 Page 9 for delayed period. The escalation in this case is claimed after 1.10.1988. The contractor has already got escalation for the period before May, 1987. In terms of judgment of the Division Bench of this Court in Bhagat Construction Co.(supra), the Arbitrator was well justified in arriving at a finding and which he has done by holding that the objector was guilty of delay on account of various aspects such as delay in issuance drawings, delay in issuance of cement or delay in making the payments and so on. Mr. Verma has sought to contend that once it is held that both the parties are responsible for delay, then, such a claim could not have been awarded under Clause 10CC. I am afraid I cannot agree because under Clause 10CC once it is held that the respondent is liable to compensate for the increase in prices towards material and labour in the extended period when there is a default or delay in performance by the objector, I do not think that the Arbitrator is wholly unjustified in awarding this claim. Of course, there is an issue of calculation when both the parties are responsible for delay as to what should be the amount which the Arbitrator could have awarded. The arbitrator in this case is a technical person namely Sh. A.C Panchdhari who is a retired Director General (Works) of CPWD and he is therefore possessed of necessary knowledge to arrive at a finding. It has been repeatedly held by this court that some leeway is permissible when the Arbitrator is a technical man who is well versed in knowledge of execution of the construction works. I cannot probe into the mental process of the Arbitrator as to CS(OS) No.1168/1994 Page 10 how this figure has been arrived at. It is settled law that once there are certain materials available before the Arbitrator, the Arbitrator is competent to make an honest guess work on the basis of such material available before him. This is so held by the Supreme Court in the Case of Mohd. Salamatullah vs. State of A.P., AIR 1977 SC 1481 and M/s A.T Brij Paul Singh Vs. State of Gujrat, AIR1984 SC 1703.Therefore, even if on the first blush, the argument of Mr. Verma may appear to be attractive however, while hearing objections to the Award, I do not find such gross perversity for this court to hold that the Arbitrator has misconducted himself and the proceedings. Objections to this claim are therefore not sustainable and hence dismissed.
13. The next claim which was argued was Counter-claim no.7 whereby the Arbitrator has dismissed the Counterclaim of the Objector on account certain deficiency in the work of the contractor. The Arbitrator has in arriving at the conclusion of dismissal of the Counterclaim by specifically referring to Contractual Clause 14 which requires that notice has to be issued to the contractor giving the details of various defects in the work and only thereafter can the objector make deduction/claim for any defects in the work. The Arbitrator has arrived at a finding of fact that no notice for deficiency/defective work was ever issued to the petitioner/contractor. Mr. Verma has also not shown to me any notice which has been issued specifically pointing out any specific deficiency in the work which is CS(OS) No.1168/1994 Page 11 done by the contractor. Accordingly, this finding of fact is not in any manner perverse for this court to hold that the Arbitrator has misconducted himself or the proceedings. Objection to this claim is therefore is rejected.
14. The counter claim No.9 was on account of the claim of the objector because it had to complete the work allegedly at the risk and cost of the contractor. This claim for Rs.7,01,191/- has been rejected by the Arbitrator because he has held that the rescission of contract was not justified. I have already dilated on this aspect while considering the preliminary objection no.3 and the issue of rescission with respect to other claims. No fault can therefore be raised against dismissal of this Counter claim no.9.
15. The last issue which therefore remains is the rate of interest which ought to be awarded and the rate of interest which the Arbitrator has awarded @ 12% . The Supreme Court in the recent catena of judgments reported as Rajendra Construction Co. Vs. Maharashtra Housing & Area Development Authority & ors.2005 (6) 678, McDermott International Inc. Vs. Burn Standard Co. Ltd.& ors 2006 (11) SCC 181, Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd. (2006) 7 SCC 700 and Krishna Bhagya Jala Nigam Ltd. Vs. G.Harischandra, 2007 (2) SCC 720, has held that the courts should in view of the consistent fall in the rates of interest take into account the changed ground realities and reduce the higher rates of interest granted under the Award. The Supreme Court has further CS(OS) No.1168/1994 Page 12 mandated that this becomes all the more necessary when a considerable period of time elapses from the date of the Award till the disposal of the objections by the court. I may note that the Award in this case is of the year 1994 and in which year the objections were also filed. Today were are at the end of 2009. The Supreme Court, in fact, in the case of State of Rajasthan Vs. Ferro Concrete Construction Pvt. Ltd (2009) 3 Arb. LR 140 (SC) has also reduced the rate of interest for the pre- reference period. Accordingly, wherever the Award has granted interest @ 12 % per annum for pre-reference period or pendente lite period or thereafter till making of the Award rule of the court, I reduce the rates of interest uniformally to 9% per annum simple. In case, the payment is made under the present judgment within a period of 90 days from today then rate of interest shall be continue to remain 9% simple from the date of this judgment, however, in case the payment is not made within the aforesaid period of 90 days, then interest from the date of this judgment shall run at 11% per annum. I may lastly clarify that in case the payment of Rs.1,54,528/- under sub claim no.15 of claim no.1 is, already received by the petitioner, the petitioner will not be entitled to the same again in terms of the present judgment, but, in case, however, this amount is not received by the petitioner in the final bill, the petitioner will be entitled to such amount.
16. With the aforesaid observations, the Award dated 9.5.1994 is made a rule of the court except with regard to the variation of the limited extent of sub head (4) of CS(OS) No.1168/1994 Page 13 claim no.1 and the reduced rate of interest. Parties are left to bear their own costs.
December 16, 2009 VALMIKI J.MEHTA, J Ne/ib CS(OS) No.1168/1994 Page 14