Delhi High Court
S. Bedi Construction Company vs Delhi Development Authority on 31 October, 2001
JUDGMENT V.S. Aggarwal, J.
1. The Delhi Development Authority (hereinafter described as the objector) has preferred the objections under Section 30 and 33 of the Arbitration Act, 1940 against the award of 15th November, 1996 made by Shri A. Sankaran, the sole arbitrator. The award as such has been filed and the objections were preferred in pursuance to the notice issued by the court. In reply to the objections which have been filed against each of the claim allowed by the petitioner the applicant (S. Bedi Construction Company) has reiterated the pleas and supported the award.
2. In face of the aforesaid the short question that comes up for consideration is as to whether the award is liable to be set aside keeping in view the nature of the objections that have been filed.
3. It had been alleged that under Clause 25 of the agreement the arbitrator was to give reasons for the award but herein the arbitrator has only recorded the conclusions and therefore the award is liable to be set aside.
4. In fact perusal of the award reveals that the said contention raised on behalf of the objector is totally misconceived. The award as such shows that all the pleas with respect to each of the claim have been considered by the arbitrator and reasons have been recorded in this regard. Keeping in view the said fact it must therefore follow that it is not an unreasoned award but reasons have been recorded and the necessary corollary that follows is that the objections in this regard must fail.
5. During the course of submissions the learned counsel for the objector confined her arguments to claim No. 28, 29, 30 and 31. With respect to other claims that have been allowed by the arbitrator it was conceded that they are basically findings of fact arrived at by the arbitrator and therefore the same in the facts of the case cannot be challenged.
6. With respect to claim No. 28, 29 and 30 the basic argument was that the arbitrator had misconducted himself in terms that he has travelled beyond the contract between the parties and awarded interest which could not have been so awarded. Before proceeding further two decisions of the Supreme Court can well be noted. In the case of Steel Authority of India Ltd. v. J C Budharaja, Government and Mining Contractor 1999(3) Arb. LR 335 (SC), a similar question had come up for consideration and in the contract in the cited case Clause 39 stipulated that no failure or omission to carry out the provisions of the contract shall give rise to any claim by the contract or operation or the contractor, the Supreme Court held that the arbitrator could not travel beyond the terms of the contract and the precise finding in this regard recorded by the Supreme court reads:-
"It is to be reiterated that to find out whether the Arbitrator has travelled beyond his jurisdiction and acted beyond the terms of the agreement between the parties, agreement is required to be looked into. It is true that interpretation of a particular condition in the agreement would be within the jurisdiction of the Arbitrator. However, in cases where there is no question of interpretation of any term of the contract, but so solely reading the same as it is and still the Arbitrator ignores it and awards the amount despite the prohibition in the agreement, the without jurisdiction. Whether the Arbitrator had acted beyond the terms of the contract or has travelled beyond his jurisdiction would depend upon facts and are required to be gone into by the Court. Arbitrator may have jurisdiction to entertain claim and yet he may not have jurisdiction to pass award for particular items in view of the prohibition contained in the contract and it would be a jurisdictional error....."
7. Similar is the subsequent decision of the Supreme Court in the case of Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises and Anr. 1999 (3) Arb. LR 350 (SC). In that case also a claim was laid for compensation/reimbursement on account of breach of contract and escalation of cost of work. Clauses 17 and 18 of the agreement prohibits the compensation in this regard. The Supreme Court held that the arbitrator could not travel beyond the contract entered between the parties and held:
"It is settled law that the Arbitrator is the creature of the contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error which could be corrected by the court for that limited purpose agreement is required to be considered. For deciding whether the Arbitrator has exceeded his jurisdiction reference to the terms of the contract is a must. It is true that arbitration Clause 74 is very widely worded, therefore, the dispute was required to be referred to the Arbitrator. Hence, the award passed by the Arbitrator cannot be said to be without jurisdiction but, at the same time, it is apparent that he has exceeded his jurisdiction by ignoring the specific stipulations in the agreement which prohibits entertaining of the claims made by the Arbitrator....."
In other words, if the arbitrator travels beyond the terms of the contract of the contract it would be taken to be a legal misconduct for purposes of the Arbitration Act, 1940.
8. Reverting back to the facts of the case with respect to claim No. 28 it had been alleged that arbitrator awarded a sum of Rs. 7,60,300/- in favor of the applicant on account of additional expenditure incurred on staff, conveyance, T&P and idle labour for prolongation of the work. It has been pleaded that as per terms and conditions of the agreement entered into between the parties there is no provision for awarding of anything extra on account of staff, conveyance, idle labour during the prolongation of the contract. It has been urged that only remedy available to the contract was to get the extension of time under Clause 5 of the agreement. In the present case time for the work was extended by the objector without levy of compensation and in any case the applicant's were duly compensated for the extended period as per Clause 10 CC of the agreement for increase in the price of the labour and material. An argument has further been raised that rather additional conditions No. 1 of the agreement specifically prohibits the awarding of extra damages to the contract on account of non-availability of a part of the site and unavoidable delay in supply of the material. Thus it was argued that the arbitrator had no jurisdiction to award damages in favor of the applicant nor the applicant could enforce Section 73 of the Contract Act in the facts of the case. It was further argued that in any case applicants failed to submit any documentary evidence to show actual loss or damages.
9. The relevant portion of Clauses 10 C and 10 CC reads:-
"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) any such increase exceeds ten per cent of the price and/or wages prevailing at the time of acceptance of the tender for the work, and the contractor thereupon necessarily and properly pays in respect of that material (incorporated in the works) such increased price and/or in respect of labour engaged no the execution of the work such/increased wages, then the amount of the contract shall accordingly be varied, provided always that any increase so payable is not, in the opinion of the Chief Engineer (whose decision shall be final and binding) attributable to delay in the execution of the contract within the control of the contractor."
xxxxx CLAUSE 10CC. If the prices of materials and store (not being actually supplied through services rendered at fixed rates by the department in accordance with Clause 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 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."
xxxxx
10. It is clear from the reading of the aforesaid that Clause 10C of the agreement between the parties only provides that if during the progress of the work the price of any material incorporated in the works not being the material supplied by the Engineer in Chief or wages of labour increases as a direct result of coming into force of any fresh laws, statutory rule and such increase exceeds ten per cent of the price and the contractor properly pays in this regard the amount of contact shall accordingly be varied. Clause 10CC merely provides that if prices of the material or store and or wages of labour required for execution of the work increases the contractor shall be compensated for such increase as per the provision that has been detailed.
11. With respect to claim No. 28 the claimant had claimed Rs. 10,36,000/- on account of additional expenditure incurred on staff, conveyance, T&P and idle labour etc. This had arisen because of prolongation of the contract. The arbitrator had recorded that additional work has been executed which was 18% more. The injury has been caused to the applicant in this regard and there is scope for withdrawing/re-depoument part of T&P like electric motors pump etc. The findings of the arbitrator in this regard are:-
".....Likewise additional work has been executed to nearly 1 per cent more, which would also need these infrastructure items for additional period beyond contract stipulated period of 15 months by about 3 months more and this would be bona fide and necessary period of planned rate of utilisation of these resources. Likewise there is scope for withdrawing/redeployment part of other T&P like electric motor and pump (4 nos.) and diesel engine (2 nos.) after June, 1987.
Further it is also on record that Group IV in this area was also being executed at this point of time by this claimant, and there was scope for claimant to effect lateral shift of staff and T&P, to optimise their use and minimise the idle period. Besides, T&P (machinery) usage charges are to be evaluated on effective use days basis ranging between 210 to 240 days per year.
Courts have consistently upheld the injured party's right to get suitable compensation for idle establishment."
12. These findings clearly show that it is not something awarded as price of material and store or increase in the wages of the labour. It is basically the compensation that has been awarded. In this regard with respect to the failure on the part of the objector to get the work completed and the applicant had to maintain the machines and the staff beyond the stipulated period. In such a case Clause 10C and 10CC will have little role to play. This finding so recorded gets support from the decision of this court in the case of Kalyan Chand Goyal v. Delhi Development Authority 1999 (3) Arb. LR 79 when somewhat a similar argument was raised, it was held that when award is for overhead charges on account of prolonged establishment charges towards salary, salary of staff, watch and ward staff etc. it could be allowed. It was held:
".....As it is found on the evidence on record that the delay in completion of the work was due to the failure on the part of the respondent, the petitioner is required to be compensated for the loss suffered by him for maintaining staff beyond the stipulated date of completion. Position might have been different if the claim was for escalation of prices of materials and wages but no claim has been allowed on the count. No stipulation is there is agreements debarring the contractor from making such a claim. The award of the Arbitrator is based on reasons and no error apparent could be pointed out by the counsel for the respondent and therefore this award also stands upheld."
13. Identical indeed is the position herein and therefore it cannot be held that these findings of the arbitrator travels beyond the contract between the parties. The objections in this regard therefore cannot succeed.
14. So far as claim No. 29 is concerned, the objector/DDA asserts that a sum of Rs. 41,200/- has been awarded on account of expenses incurred on watch and ward after expiry of maintenance period. The only remedy available was to get the extension of the time under Clause 5.
15. Perusal of the award shows that the applicant had claimed Rs. 2,00,000/- on account of extra expenditure incurred on watch and ward staff after expiry of maintenance period. The learned arbitrator in this regard held that costly fittings were not fitted into the flat till the same was allotted and allottee took possession. When the claimant was pressed to fix these costly fittings and make good damaged/broken fixtures and the final bill was not finalised the process was practically over. The arbitrator awarded Rs. 41,200/- only in this regard.
16. In the fact of the case Clause 10CC of the agreement has no role to play. It pertains to the execution of the work. If after the work is completed the watch and ward staff has to be retained in that event it is an expenditure over and above the stipulated contract because it has been found that bulk of the flats had been allotted in March 1990. Some of the flats were to be looked after even uptill 14th March, 1991. Since there is no prohibition in this regard as a result of the agreement between the parties there is no scope for interference because the findings are based on fact.
17. Great stress was laid with respect to claim No. 30 wherein the applicant had claimed Rs. 40,50,000/- on account of losses/damages due to abnormal increase in the market price of materials, labour due to prolongation of the contract after the stipulated date. The arbitrator went into different aspects and held:
".....and for Clause 10(CC) payments, and taking into account the secured advance payments received, and after adjusting for total Clause 10(CC) award under claim 3 of Rs. 24,37,946/- (against Rs. 22,16,966 made by resp. in final bill), and after accounting for extended period payment of Clause 10(CC), was also doing in this very area, in the same period, a work of like magnitude (Group IV) and as such his "earnings loss" would have been mitigated accordingly, I hold this claim partly justified, and I hereby award Rs. 5,82,300/- only in favor of the claimant."
18. So far as this particular claim is concerned indeed it is strictly covered by Clause 10CC of the agreement already reproduced above. It stipulates increase in labour or in case there is abnormal increase in the market price. Once it is so and the contract had been arrived at between the parties, keeping in view the ratio of the decision of the Supreme Court in Steel Authority of India and Rajasthan State Mines and Minerals (supra) the said claim indeed could not have been so allowed.
19. The last, dispute in this regard was with respect to the award of interest. The learned arbitrator had awarded interest @ 16% p.a. on the said payments. Learned counsel for DDA highlighted the fact that the compensation/interest on account of unjustified blockade of dues it cannot be justified. The applicant had not raised any claim during the execution of the work and therefore the interest could not be so awarded.
20. It is alleged that the award in this regard is totally without jurisdiction. But the said argument has little force because if the amount has been withheld without valid reasons the arbitrator indeed has right to award the interest because the applicant was deprived of money to which he was legimitately entitled. It can be described either as an interest or damages but interest in this regard has been so calculated and awarded at Rs. 4,25,721/-. There is no scope for interference and same necessarily should be allowed deleting the interest on claim No. 30 which has been disallowed above.
21. No other argument was raised.
22. For these reasons the award is made a rule of the court and decree in terms of the award is passed except for item No. 30 regarding which the claim is disallowed.