Delhi High Court
R.B. Chy. Ruchi Ram Khattar & Sons vs Delhi Development Authority on 7 January, 1997
Equivalent citations: 1997IAD(DELHI)229, 1997(1)ARBLR372(DELHI), 65(1997)DLT240, 1997(40)DRJ607
JUDGMENT Anil Dev Singh, J.
(1) The petitioner and respondent No.1 entered into contract whereby the petitioner undertook the development of land and construction of 172 Janta Flats at Katwaria Sarai Phase-II. Certain disputes arose between the above said parties in respect of the agreement which contained an arbitration clause authorising the Engineer Member of respondent No.1 to appoint an Arbitrator. The Engineer Member of respondent No.1 appointed Mr.J.K. Varshneya, respondent No.2 as the Arbi trator on March 27, 1989. As per the agreement and the memo of reference, the Arbitrator was required to give reasons for the award. The Arbitrator entered upon reference on May 11, 1989 and after giving the parties an opportunity to place on record various documents in support of their respective pleas and upon hearing them made and published the award on July 31, 1991. While the petitioner seeks a decree in terms of the award, the respondent/DDA has challenged the same, except award in respect of Claims No. 3 and 13, basically on the ground that the decision of the Arbitrator suffers from errors apparent on the face of the award. Besides, the other objections are: (i) the Arbitrator has ignored the relevant material placed on record;(ii) The Arbitrator has misconstrued the various provisions of the Agreement and (iii) Arbitrator has not recorded reasons for awarding the claims in favour of the petitioner.
(2) I have gone through the award and I find that in so far as Claims No.1,2,5,6,7,8,9 and 10 are concerned, the awd of the Arbitrator is based on cogent reasons and the learned counsel for respondent No.1 has not been able to show as to how the award suffers from any illegality apparent on the face of the award. The learned counsel has also not been able to point out any instance of misinterpretation or misconstruction of the Agreement vis-a-vis the aforesaid claims. In so far as claims No.3 and 13 are concerned, they had been disallowed by the Arbitrator and none of the parties have objected to the same. The only claims which were subject matter of elaborate arguments and in regard to which substantial controversy was raised were claims No.4, 11 and 12. Learned counsel for the respondent submitted that both claims No.4 and 11 pertain to escalation in prices of material and labour, and the Arbitrator has awarded a sum of Rs.23,101.48 in respect of claim No.4 and a sum of Rs.75,000.00 in respect of claim No.11 without realising that the petitioner was claiming double payment in respect of the same subject matter, namely, escalation in prices of material and labour during the execution of work.
(3) I have considered the submissions of learned counsel for the respondent and I have gone through the pleadings of the parties filed before the Arbitrator. I find from the record that before the Arbitrator re spondent No.1 did not raise the question that the petitioner is claiming double payment in respect of claims No.4 and 11. A look at claim No.4 would show that the petitioner was claiming a sum of Rs.50,000.00 on account of statutory increase in wages of labour and rates of material under clause 10(c) of the Agreement. The details of the claim which are contained in Annexure 4 to the Statement of Claims are as follows:- "CLAIM NO.4 (Rs.50,000.00 ) Cost towards balance payment under clause 10-C on account of statutory increase in labour wages and rate of material. Total work done as per Department Rs.1909388.00 Add for work unmeasured, Rs. 75000.00 Add for pesters channels, Rs. 45130.00 Rs.2029518.00 Less 10th R/A Bill i.e. Date of enhancement of labour wages, Rs. 938156.00 Rs.1091362.00 a) Labour escalation due:-, 2.37% on Rs.1091362.00 Rs. 25865.28 b) Escalation due on Bricks/Tiles:- Total Bricks consumed = 22,20,000 Nos. Consumed upto revision of rates = 9,00,000", 13,20,000 Nos. i) Escalation due from 9.12.75 to 25.6.76 = 5,20,000 @ Rs.14/10, Rs. 7332.00 ii) - do - from 26.6.76 to 20.12.78= 8,00,000 @ Rs.15/71, Rs. 12568.00 iii) - do - = 90,000 @ Rs.15/63, Rs. 1406.70 c) Escalation due on cartage of Bricks/Tiles 4,00,000 Nos.@ Rs.4.05, Rs. 1620.00 Total: Rs. 48791.98 (4) It is thus apparent that the petitioner claimed escalation for increase in wages of labour and escalation in the rates of bricks and tiles only. Apart from the bricks and tiles, the petitioner did not claim any escalation for other materials under Claim No.4. In so far as Claim No.11 is concerned, the petitioner claimed an amount of Rs.75,000.00 for escalation in price of material in regard to the work executed after the stipulated date. The details of Claim No.11 are given in Annexure 11 to the statement of claim of the petitioner. In Annexure 11 the petitioner only claimed escalation in prices of cement, tor steel, mild steel and pipes, and did not demand any payment on account of bricks and labour as claimed in Annexure 4 under Claim No.4. It was due to this reason that the respondent in its reply to the claims of the petitioner did not take up the plea that the petitioner was claiming same relief both under Claim No.4 and Claim No.11. The respondent in reply to Claim No.4 of the petitioner submitted that the claim was wrong and therefore, denied. It further stated that under clause 10(c) of the Agreement the payment in respect of the wages and bricks have already been made to the claimant during execution of the work. It was further averred that the agency (petitioner) was not entitled to any further payment under this clause of the agreement in so far as wages and rates of material are concerned. Besides it was submitted that the claimant was required to prove by documentary evidence the increase in wages and rates of bricks and since the claimant failed to produce the proof in support thereof, the claim was liable to be rejected. In so far as reply to Claim No.11 was concerned, the respondent asserted the claim to be wrong and denied the same in its totality. It was contended that there was no provision in the agreement enabling the respondent to make any payment in respect of escalation for increase in the market price of material except under clause 10(c) which had been given to the claimant. It was further submitted that the work was delayed by the respondent. Besides the claim was said to have been prepared without any documentary evidence and was lacking in credibility. Thus it is absolutely clear that the respondent did not plead before the Arbitrator that the petitioner was demanding double payment under Claims No.4 and 11. The respondent not having taken such a plea before the Arbitrator cannot be allowed to urge the same now to challenge the award. In any event as pointed out earlier, the petitioner under Claims No.4 and 11, did not make a claim in respect of the same items.
(5) It would also be appropriate to point out that in so far as Claim No. 4 is concerned, the Arbitrator awarded the said sum of Rs.23,101.48 in favour of the petitioner on the admission of respondent No.1 vide Ext. R-44. Therefore, the respondent No.1 is precluded from challenging the award of the Arbitrator in respect of Claim No.4. One more thing requires to be pointed out in respect of Claim No.11 which has not been disputed by learned counsel for the parties. Both the sides agreed that the work was actually completed on September 20, 1978 though the stipulated period of completion was April 9, 1976. This means that for an extra period of more than two years the petitioner remained tied up with the work. The Arbitrator was of the opinion that the delay was entirely on the part of the respondent and the claimant had to be compensated for increase in the cost of the labour and the material. The learned Arbitrator also noticed that the respondent granted extensions of time for completion of work without levy of compensation on the petitioner. It was in these circumstances that the Arbitrator awarded a sum of Rs.75,000.00 to the petitioner. The above discussion would clearly show that there is no illegality in the award of the Arbitrator in respect of Claims No.4 & 11. I also fail to see how the Arbitrator has misconstrued any of the clauses of the Agreement in awarding the said sums in favour of the petitioner. The Arbitrator has recorded his reasons for the award in respect of Claims No.4 & 11 which reasons are neither arbitrary nor illogical and on the contrary are quite plausible. Therefore, I have no hesitation in upholding the award in respect of Claims No.4 & 11.
(6) Coming to Claim No.12, I find that the petitioner claimed Rs.1,65,110.00 towards loss and damages due to the delays, defaults and breaches of contract by the DDA. The Arbitrator noted that the petitioner had divided this claim into two parts, namely, a) loss of profit due to reduction in the scope of work and b) loss of profitability due to longer stay on site. In so far as the loss of profit due to reduction in the scope of work is concerned, the Arbitrator rejected the claim but in regard to loss of profitability due to longer stay on site, the Arbitrator awarded a sum of Rs.1,54,081.28 in favour of the petitioner. While awarding this sum the Arbitrator observed as follows:- "Due to various delays and breaches of contract, the claimants had to stay on the site much longer than stipulated in the agreement. Since the extension of time has been granted without levy of compensation, the entire delay was on the part of the respondents. Because of longer stay on the site the claims were prevented from taking work else where and earn profit. On the other hand, the claim of the claimant justified to the extent of Rs.1,54,081.28 and awarded Rs.1,54,081.28 to the claimants."
(7) Basically the Arbitrator has awarded the above said sum in favour of the petitioner on the ground that the petitioner was prevented from taking up work elsewhere and was therefore, unable to earn profit. At the outset what strikes me is that the Arbitrator has not indicated how and why he arrived at the figure of Rs.1,54,081.28. He has not given any reasons for arriving at such a figure. He has merely stated his conclusion that the claim of the petitioner is justified to the extent of Rs.1,54,081.28. There is also no indication in the award as to what was the evidence on record with regard to the question of loss suffered by the petitioner. Some reasons should have been given by the Arbitrator for concluding that the petitioner was entitled to the above said sum. Reasons are necessary links between the evidence and the conclusion, and act as a guarantee against arbitrariness and illogicality. A perusal of Claim No.12 would show that while the petitioner claimed loss of profitability on the ground that it had to remain at site of work for a longer period than anticipated in the contract, which resulted in additional expenditure on every stage, the Arbitrator carved out a new case for the petitioner. This would be evident from a reading of the said claim, which is as follows :- "Is for loss and damages, due to delays and defaults of the respondents. As already submitted there was abnormal delay on the part of the respondents in giving stipulated materials, in giving designs and drawings and in giving unhindered site for the execution of the work. These are fundamental breaches on the part of the respondents. Respondent's delays are indicated in the different exhibits filed. Claimants had to remain at site of work for longer period then originally anticipated in the contract. This resulted in additional expenditure on every stage and loss of profitability due to longer stay at one site. As the delay was on the part of the respondents they are liable to place the claimant financially in the same position they would have been, had there been no delay on the part of the respondents. Details of the claim are given in annexure 12. The claim is fully justified and it is prayed that the amount claimed may kindly be awarded in favour of the claimant."
(8) As is clear from above, the petitioner's claim was not based on the ground that petitioner was unable to earn profits elsewhere since it was tied up with the contract in question. No material was placed before the Arbitrator to show that if the petitioner had not been kept engaged at site in question, it would have secured another contract and would have earned profit. What the Arbitrator has awarded is not on account of the direct loss which the petitioner may have suffered on account of delay and alleged breaches of contract on the part of the respondent No.1 but has awarded the above said sum on account of a possible indirect damage. Under Section 73 of the Evidence Act, a party is liable to be compensated for breach of contract by the other party on account of a direct loss or damages but not on account of remote loss or damage. In Karsandas H. Thacker v. The Saran Engineering Co. Ltd. , it has been held that on a breach of contract by one party, the other party is entitled to receive compensation for any loss caused to him which naturally arose in the usual course of business from such breach or which the party knew when they made the contract to be likely to result from the breach of it. Remote or indirect loss or damage sustained by reason of the breach will not entitle the party to receive any compensation on that score. However, learned counsel for the petitioner submitted that no fault can be found with the award of the Arbitrator as the Arbitrator rightly awarded compensation on account of loss of profitability as the petitioner remained working with the instant contract beyond the stipulated date. In this regard he cited the following decisions:- "1.Mohd. Salamatullah and others v. Government of Andhra Pradesh, . M/s. A.T. Brij Paul Singh and Bros. v. State of Gujarat, . State of Kerala v. K. Bhaskaran, 1984 Arbitration Law Reporter 289."
(9) These decisions do not help the case of the petitioner as in those cases there was no question of the Arbitrator having awarded damages/compensation on the ground that the party suffering from the breach of the contract was prevented from taking work elsewhere thereby losing profits. In the above said decisions the Supreme Court considered the question whether a party to a contract was entitled to compensation for loss of profit on account of reduction in the scope of the work by the party in breach of the agreement. The compensation awarded in such cases flowed naturally from the breach of the contract in curtailing the scope of the work and not because of the loss of profitability on account of being prevented to take up another work. I fail to appreciate as to how the petitioner was prevented to take up another contract while executing the work in question. There is another reason why I am not inclined to uphold the award of the Arbitrator on the above said count. The respondent No.1 did not have an opportunity to contest the position that the petitioner had been deprived of the profits of another work which the petitioner could have executed but for its prolonged engagement beyond the stipulated date with the contract in question as this was not even the case of the petitioner. Learned counsel for the petitioner invited my attention to Cpwd Manual in support of his submission that the petitioner was entitled to compensation for the prolongation of work beyond the stipulated period. There cannot be any quarrel with this proposition. The question is whether the Arbitrator could have awarded compensation on the ground that the petitioner lost profit because it could have executed another contract or work. This, as already pointed out, would fall within the category of indirect damages. For all these reasons the award of the Arbitrator on this count is set aside and the matter is remitted to the Arbitrator for fresh determination in accordance with law.
(10) Accordingly, the award to the extent indicated above is made a rule of the Court and a decree is hereby passed. In so far as award on Claim No. 12 is concerned, the same is set aside and is remitted to the Arbitrator for fresh determination in accordance with law. In the event of the Arbitrator, who made the award, not being available or not being in service, the respondent will appoint a new Arbitrator to adjudicate upon the aforesaid claim within six weeks.