Delhi High Court
Pt. Munshi Ram And Associates (P) Ltd. vs Delhi Development Authority on 4 January, 2006
Equivalent citations: 2006(1)ARBLR137(DELHI), 128(2006)DLT619
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul
JUDGMENT Sanjay Kishan Kaul, J.
IA No. 1919/1996 (Under Section 30 and 33 of the Arbitration Act, 1940)
1. The petitioner contractor was awarded the work of construction of 590 dwelling units under the SFS Scheme of DDA in Sector C Pocket V, Vasant Kunj, New Delhi in pursuance to Agreement No. 7/EE/SWD-6/87-88. Some disputes arose between the parties in respect of execution of the work under the agreement and in terms of clause 25 of the General Conditions of Contract, the Engineer Member of the DDA vide letter dated 13.4.1993 appointed Mr. C. Rama Rao as the Sole Arbitrator to adjudicate upon the disputes between the parties. The Sole Arbitrator entered upon reference and made and published the award dated 30.9.1995. The respondent DDA aggrieved by the same has filed these objections.
2. Learned counsel for the respondent initially sought to argue the various grounds in the objections but could not seriously dispute the proposition that it is not within the jurisdiction of this court under Section 30 and 33 of the Arbitration Act, 1940 (hereinafter referred to as 'the said Act') to sit as a court of appeal to appraise the facts and evidence on record. It has been repeatedly held by the apex court and by this court that unless the conclusion arrived at by the Arbitrator is perverse, the same ought not to be interfered with. The mere possibility of this court arriving at a different conclusion from that arrived at by the Arbitrator cannot be a ground of interference if the view taken by the Arbitrator is plausible. In this behalf, reference may be made to the judgment of the apex court in Sudarsan Trading Company v. Government of Kerala, and of the Division Bench of this court in DDA v. Bhagat Construction Co. (P) Ltd. and Anr., 2004 (3) Arb LR 481.
3. In view of the aforesaid position, learned counsel for the respondent has confined the submissions in respect of claim No. 1, claim No. 7 and the rate of interest.
Claim No. 14. This claim relates to extra work stated to have been done during the extended period of contract. The claim arises on account of the petitioner's contention that though the work was originally scheduled to be completed within 12 months, the same was prolonged to 30.5 months' time for reasons not attributable to the petitioner. The blame was put on the respondent that the respondent failed to clear the site; there was delay in supply of material; drawings and designs were provided late. There was delay in execution of work by other agencies and decisions were not taken in time; payments were delayed and there was general hindrance of the work. In this behalf, the petitioner relied on various communications. This position was disputed by the respondent who in turn blamed the petitioner. The relevant aspect, however, is that the respondent has stated that clause 10(CC) of the contract provides for increase in cost of material and that alone can be the formula of grant of the amount.
5. The Arbitrator found that though the agreement provided for clause 10(CC), it does not compensate to the same extent as the increase had taken place and thus awarded a higher amount than provided under clause 10(CC). An amount of Rs. 7,36,597/- was awarded against the claim of the petitioner for Rs. 30 lakhs. Clause 10(CC) provides for the methodology to calculate for increase in labour and material rates including for the validly extended period of contract.
6. Learned counsel for the respondent submitted that it was not open to the Arbitrator to apply any formula other than as prescribed under clause 10(CC) in view of the parties having agreed to the same. In this behalf, learned counsel relied upon the Division Bench judgment of this court in Delhi Development Authority v. K.C. Goyal and Co., 2001 II AD (Delhi) 116. The Division Bench held, relying upon the judgment of the Supreme Court in Associated Engineering Company v. Govt. of AP, 1991 (2) Arb LR 180, that once a particular formula is provided in the contract, it is not open to the Arbitrator to award the claim by some other methodology and the same would amount to legal misconduct. The parties were held bound by the methodology of clause 10(CC) which the Arbitrator ought to have followed.
7. Learned counsel also relied upon the judgment of the Division Bench of this court in Delhi Development Authority v. U. Kashyap, 1998 VII AD (Delhi) 300 which is to the same effect and has in fact been referred to in the aforesaid judgment of the Division Bench in K.C. Goyal and Co. case (supra).
8. Learned counsel for the petitioner, on the other hand, relied upon the Division Bench judgment of this court in Delhi Development Authority v. Hindustan Construction Corporation Engineers and Contractors, 2002 (1) Arb. LR 98 to contend that clause 10(CC) would be applicable during the validly extended period of the contract. In the said case, it was held that clause 10(CC) would not automatically apply and the necessary ground for application must be laid before the Arbitrator. This is so since the clause is not applicable without there being a valid extension as per clause 5. No such plea was raised before the Arbitrator and the contractor had pleaded to the contrary. The DDA had chosen not to appear before the Arbitrator. Thus, it was held that the principles of Section 70 of the Contract Act would apply for a period after the expiry of the period of the contract or the period for which the contract is validly extended under the provisions of clause 5.
9. In view of the aforesaid legal position, learned counsel for the petitioner contended that the petitioner had put the respondent to notice that it was willing to continue the work beyond the stipulated date in case the Department agreed to pay 40% extra over and above the quoted rates. Learned counsel referred to the letter dated 22.6.1989 (C-64) of the petitioner to this effect addressed to the respondent. It was thus submitted that the extension of time was unilaterally and without the consent of the petitioner and the same was granted ex-post facto. It is not, however, disputed that the petitioner remained at site and executed the work but that is sought to be explained away by contending that if the petitioner had failed to carry on the work, action would have been taken under the terms and conditions of the contract against the petitioner for refusing to execute the work. The petitioner claims not to have given up the right based on the delay in the execution of the work.
10. Learned counsel for the petitioner also referred to ground U of the objections where it has been pleaded that the extension of time was granted under clause 5 of the agreement at the desire of the contractor. In reply to the said ground U, it has been stated that the extension of time was granted by the respondent without levy of penalty and this was so done as the respondent accepted that the delay was caused due to their omission and commission. The reply goes on to state that the legal position is well settled that the extension of time is not a substitute for loss and damages and it has been specifically denied that the work continued with the mutual consent of the parties. The counsel sought to contend that clause 10(CC) does not take into consideration the increase in prices of building material and takes into consideration increase in price of consumables. This is the reason why CPWD had issued Office Memorandum dated 6.2.2003 in which recommendations have been made to take into consideration the price index for construction material rather than any other price index. A further submission advanced is that in U. Kashyap's case (supra), the demand of contractor for enhanced rates was denied whereas there is no such denial in the present case.
11. Learned counsel for the petitioner has relied upon the judgment of the Division Bench of this court in Delhi Development Authority v. S.S. Jetley, 2001 (1) Arb. LR 289. The claim for damages under Section 73 and 74 of the Contract Act was upheld on account of prolongation of contract. It may, however, be noticed that the Division Bench came to the conclusion that the relevant claim dealt with the issue of idle labour, staff, machinery etc. on account of prolongation of the contract which was different from the claim under clause 10(CC). The claim under Clause 10(CC) was separately sought and had been awarded in terms of the formula of clause 10(CC).
12. A reference was also made to the judgment of the Division Bench of this court in M.L. Mahajan v. Delhi Development Authority and Anr., 2002 (3) Arb. LR 376. It may, however, be noticed that the said judgment dealt with the contract where clause 10(CC) was not incorporated in the standard form of contract and clause 10(C) used to exist at that time.
13. Learned counsel for the respondent in the end emphasised that though an award is not liable to be interfered with easily, once the award is contrary to the terms of the contract or is plainly barred, the court would not hesitate to set aside the claim. In this behalf, the observations made in Ch. Ramalinga Reddy v. Superintending Engineer and Anr., 1999 (Suppl.) Arb. LR 440 which in turn relied upon the judgment of the apex court in Jajodia (Overseas) (P) Ltd. v. Industrial Development Corporation of Orissa Ltd., 1993 (1) Arb. LR 334, were referred to.
14. In my considered view, the law is quite well settled on the issue of the mode and manner of calculation of such escalation or increase in cost. The position was little different earlier under Clause 10(C) where no proper provision was made and that is why clause 10(CC) was incorporated to take care of the position where the contract was not completed within the stipulated time and there was an extension granted. The escalations during the extended period of contract have to be calculated in terms of clause 10(CC). There is also no doubt about the proposition that the extension should be in terms of clause 5 of the General Conditions of Contract.
15. In the present case, learned counsel for the petitioner does not even dispute the position in law but relies on the fact that the extension granted was one-sided or that the petitioner had to put the respondent to notice as per C-64 that it wanted an increased rate. Increased rates have been given but the stand is that it should be as per clause 10(CC). The petitioner continued to execute the contract and it has been stated that the petitioner had even received payment under clause 10(CC) for the entire period up to the date of completion.
16. The judgment in Hindustan Construction Corporation Engineers and Contractors case (supra) arose in the peculiar facts where the DDA had failed to even appear before the Arbitrator and thus failed to lay down the ground for application of clause 10(CC). Thus, nothing had been pleaded to show that the contract was validly extended and it was in those circumstances that the award was upheld. This is not so in the present case. The contract has been extended and performed and payment made in terms of clause 10(CC). Thus, the principles laid down in K.C. Goyal and Co. case (supra) and U. Kashyap's case (supra) would squarely apply to the facts of the present case. This aspect has also been analysed in the judgment before this court in CS (OS) No. 2822/1994 in Bedi Construction Co. v. DDA and Anr. decided on 10.11.2005 where it has been held that once the formula of clause 10(CC) forms part of the contract and which is agreed upon, no other methodology should be adopted for the said purpose.
17. I am thus of the considered view that there is a legal misconduct of the Arbitrator in going beyond the purview of the terms and conditions of the contract whereby clause 10(CC) was specifically provided for and the respondent was entitled to the claim only in terms of clause 10(CC). The award for this claim is thus set aside.
18. It may be clarified that in case any amount is due as per calculation under clause 10(CC), the same would be payable but any amount over and above the same cannot be awarded to the petitioner.
Claim No. 7:
19. This claim deals with the outstanding amount of the final bill. The petitioner claims that the work was completed on 4.8.1990 and despite all requests, no action was taken and the final bill Ex.C-83 is stated to be prepared. On the other hand, the respondents have stated that they have prepared the final bill which worked out to minus figure of Rs. 7,815/-. The basis of the final bill prepared by the petitioner is disputed.
20. The principal contention of the learned counsel for the respondent is that no reasons have been given for holding that the amounts are payable under the various descriptions. It is thus submitted that though there may not be detailed reasoning, at least there should be some disclosure about the mind of the Arbitrator. A specific plea has been raised that in Item No. 7 under this claim, cutting and straightening of reinforcement steel bars has been permitted contrary to the judgment of this court in Wee Aar Constructive Builders v. Delhi Development Authority and Anr.,, 2001 IV AD (Delhi) 65 and Narain Dass R. Israni v. Delhi Development Authority, 2005 VIII AD (Delhi) 556. In this respect, a plea has also been raised by the respondent that the said amount was not payable under the terms of the agreement.
21. Learned counsel for the petitioner, on the other hand, submitted that there was no dispute about the figures and the only issue was whether they were payable or not based on the fact whether the work was or was not actually done. In this behalf, grounds ZF onwards have been referred to, to substantiate the plea based on the stand of the respondent. The various categories of amounts awarded relate to the extra and substituted items and thus the controversy is whether such work was or was not done. The respondent had taken the stand that the work was not done and that is the nature of the objections in the grounds.
22. A perusal of the aforesaid grounds shows that the respondent has objected to the same on the ground that the relevant work was not done at site. As an example of the same is ornamental grills where in the Grounds it has been stated that such grills were not provided. The respondent has stated that these claims are after-thoughts.
23. A perusal of the eight items awarded would show that the same relate to extra and substituted items. There is no doubt that no detailed reasoning has been given. However, it must be kept in mind that award of an Arbitrator is not like a judgment and it is not to be decided on the said parameters. I find force in the submission of the learned counsel for the petitioner that the real dispute was whether the particular work was or was not done. Measurements have also been taken as recorded in the award. The stand of the respondent was that these works have not been done. However, the Arbitrator found that the work had actually been done at site and thus the dispute was not about the rates.
24. The Arbitrator found that ornamental grills had been provided, but there was concealed stop cocks of Kingston make, grooves in plaster had been done, Wax polishing and marble chip floor and skirting was also completed. The claim for providing centering and shuttering for balconies at fourth floor level was found sustainable on the ground that the said work had been done. Same is the position in respect of the claim for finishing walls of rough surface with water proof cement paint, cutting and straightening of reinforcement steel bars and cement slurry for sponge plaster. The quantities, rate and amount had been mentioned for each of the claims.
25. However, different position would arise in respect of Item No. 7 dealing with cutting and straightening of reinforcement steel bars. It has been held in Narain Dass R. Israni case (supra) that the definition of reinforcement for RCC work is illustrative and not exhaustive. Thus, the mere fact that cutting and straightening was not mentioned while defining reinforcement for RCC work to include bending, binding and placing in position, would be of no assistance to the petitioner. However, it was also observed that in case the contractor puts the DDA to notice during the currency of the contract and DDA does not raise any objection, then amounts can be recovered on this account.
26. In the present case, it has not been disclosed that any such notice was given to DDA.
27. Thus, in my considered view, this award for item No. 7 cannot be sustained and is liable to be set aside.
28. The last issue raised is about the rate of interest. The Arbitrator has awarded interest at the rate of 15% per annum till date of payment or date of decree, whichever is earlier.
29. In my considered view, the prevalent rate of interest at the relevant period of time should be taken as 12% per annum and this has been the approach of this court in numerous other cases where the counsels have in fact been even conceding to the same. The interest should be on the actual awarded amount for each specific claim and should not be compounded.
30. I am thus of the considered view that the award in respect of interest needs to be modified and the petitioner is entitled to interest at the rate of 12% per annum on the awarded claims for idle staff, idle TNP and shuttering, final bill and refund of bank guarantee for the pre-suit and pendente lite period.
31. The application is accordingly disposed of.
CS (OS) No. 2531/199532. The objections having been disposed of, the award of the sole Arbitrator Shri C. Rama Rao dated 30.9.1995 is made rule of the court with the modifications whereby the award in respect of the claim for escalation, being claim No. 1 is set aside and part of the amount towards the final bill dealing with cutting and straightening of reinforcement steel bars is also set aside and the interest is awarded on the awarded amounts at simple rate of interest of 12% per annum for past and pendente lite period. The petitioner shall also be entitled to future interest at the rate of 9% simple interest from the date of decree till date of realisation. However, if the respondent pays the decretal amount within 60 days from today, the respondent would be exempted from payment of future interest. Parties are left to bear their own costs. Decree sheet be drawn up accordingly.