Delhi District Court
M/S National Project Construction ... vs M/S Overseas Water Proofing ... on 1 August, 2007
IN THE COURT OF SHRI MANOJ JAIN ADDL. DISTRICT JUDGE
DELHI.
Suit No.41/07
M/s National Project Construction Corp. Ltd.
Through its Chairman and Managing Director,
Plot No.67-68, Sector 25,
Faridabad (Haryana) ............Petitioner
Versus
M/s Overseas Water Proofing Corporation and Another
.................Respondents
Date of filing : 12.02.2007
Date on which order has been reserved : 10.07.2007
Date of judgment : 01.08.2007
JUDGMENT
1 It happens to be a petition under Section 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'said Act') and it is to be seen whether award dated 20.10.2006 is required to be set aside or not. 2 For the sake of convenience, I would be referring the petitioner herein as objector and respondent M/s Overseas Water Proofing Corporation as claimant.
3 Claimant was awarded a work-order dated 5.12.1997 for execution of water proofing works at the office quarters of State Bank of 1 India situated at Calcutta. Claimant accordingly made all arrangements of labour and staff at site for execution and completion of work. The work could not be completed within the stipulated period due to non availability of sites and delay in release of payment from the side of objector. Claimant raised 18 bills in all and as per claimant, a sum of Rs.2,38,707/- was unpaid towards the work done and even the security deposit was not refunded. Claimant also sought claim of Rs.2.5 lacs on account of losses suffered and additional expenses incurred due to prolongation of the contract period. Interest was also demanded.
4 Claim was resisted and even a counter-claim was lodged. Ld. Arbitrator, on the basis of the material and evidence adduced by the parties, passed the award on 20.10.2006. A sum of Rs.1,97,997/- was awarded against the claim of Rs.2,38,707/- under claim No.1. Security amount of Rs.72,717/- was also ordered to be refunded under claim No.2 Towards escalation/ damages, a sum of Rs.1,33,444/- was awarded in favour of claimant under claim No.3. Interest was awarded @18 per annum Counter- claim of the objector was, however, disallowed in toto. 5 I have heard Shri Madhu Sharan, ld counsel for the objector and Sh Vivekanand, ld counsel for the claimant and given my thoughtful consideration to the rival contention and carefully perused the arbitral proceedings.
2 6 Ld counsel for the objector has contended that ld arbitrator has acted contrary to the terms of contract. It has been contended that there was a specific prohibition clause and, therefore, claimant was not entitled to any escalation and, therefore, ld arbitrator was not justified in granting escalation/ damages. It has also been argued that ld. Arbitrator has granted relief which was not even claimed and it has also been argued that the claim was barred by law of limitation and even the interest could not have been granted at such a high rate of 18% per annum. Reliance has also been placed upon several authorities which I would refer to at appropriate place. All the aforesaid contentions have been refuted and the reasoning given by ld Arbitrator has been justified. However, before embarking upon the issues in hand, it is imperative to mention that scope of appreciation u/s 34 of said Act is very restricted. Jural intervention in arbitral Awards is not prescribed but proscribed and it has now become even more limited and controlled under the new Act. Scope of judicial review is well settled and it is not permissible for Court to re-appreciate and to meticulously examine factual aspects of the case and to sit as a Court of appeal. 7 In this backdrop, let me now examine the matter under challenge. First, let me see the claim regarding escalation. It has been argued by ld counsel for the objector that as per the clause 6 of the terms and conditions, claimant was not entitled to any price escalation, against materials, labour or POL during the contract period and, therefore, ld Arbitrator could not have granted any escalation or damages. He has also contended that all the judgments which were relied upon by the ld arbitrator 3 were not applicable as in those cases, there was no escalation clause at all. Ld. Counsel for the objector has relied upon following authorities:-
(a) State of Orissa Vs Sudhakar Das (Dead) by LRs.(2000) 3 SCC 27
(b) S.Harcharan Singh Vs Union of India, AIR 1991 SC 945
(c) Associated Engineering Company Vs Govt. of A.P. (1991) 4 SCC 93
(d) Rajasthan State Mines and Minerals Limited Vs Eastern Engineering Enterprises and others (1999) 9 SCC 283
(e) Ramachandra Reddy & Co. vs. State of Andhra Pradesh, AIR 2001 SC1523
8 I have considered all the aforesaid judgments. Admittedly in the case of Sudhakar Das (supra), it has been observed by Hon'ble Supreme Court that in the absence of escalation clause, the arbitrator could not assume any jurisdiction to award any amount towards escalation. However, in that case, it never came up for deliberation as to who was responsible for the delay in execution of the contract. In the case of Associated Engineering Company (supra) it has been observed that award made disrespecting the contract amounts to jurisdictional error and misconduct. In the case of Rajasthan State Mines and Minerals Limited (supra) also, it has been observed that reference to the arbitrator has to be solely based upon the agreement between the parties and arbitrator can not go beyond the terms of agreement. In the case of Ramachandra Reddy (supra) it has been held that Arbitrator being a creature of the agreement, 4 unless agreement either specifically or inferentially provides for a higher rate to be awarded for any additional or excess work done by the contractor, it would not be permissible for the arbitrator to award for the so-called additional work at a higher rate and reference was also made to the judgment of S.Harcharan Singh(Supra) 9 Ld. counsel for the claimant has, on the other hand, placed his reliance upon one recent judgment of Hon'ble Supreme Court cited as K.N. Sathyapalan (Dead) by Lrs versus State of Kerala and another, 2006 (4) Arbitration Law Reporter 275 SC . I have carefully gone through the aforesaid judgment. Situation was more or less the same in that case and claim (g) was to the effect whether the claimant was entitled to compensation towards price escalation or not. In that case, original agreement did not contain a clause for escalation of rates but the supplementary agreement contained a specific provision that the contractor would carry out all further works within the extended period and would not claim any enhanced rate on account of extension of time or towards increase in the case of labour or material. Hon'ble Supreme Court, placing reliance upon one previous judgment given in the case of P.M. Paul Vs Union of India, AIR 1989 SC 1034 held that the escalation was liable to be allowed when the claimant was unable to fulfill its obligation due to inaction or fault of the opposite side. Relevant part of said judgment reads as under:
''33 The question which we are called upon to answer in the instant appeal is whether in the absence of any price escalation clause in the original 5 agreement and a specific prohibition to the contrary in the supplemental agreement, the appellant could have made any claim on account of escalation of costs and whether the arbitrator exceeded his jurisdiction in allowing such claim as had been found by the High Court.
34 Ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfill its obligation under the contract which has a direct bearing on the work to be executed by the other party, the arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations.'' 10 Thus, in that case, though there was a specific prohibitory clause regarding escalation in the supplementary agreement yet the escalation was allowed by Hon'ble Apex Court and it was observed that Hon'ble High Court should not have taken the rigid interpretation of the supplementary agreement. Said judgment, as already noted above, is the most recent and is on all fours as well. Thus, non-existence of escalation clause or specific incorporation of any prohibition per se is not the sole deciding factor. Any such claimant can still successfully press for escalation if he is able to demonstrate that he was not responsible for the delay or that delay was rather attributable to his adversary and in such a situation he can be suitably compensated and objector can not be permitted to take shelter behind contractual term. Any such objector can not be given leverage to reap fruits of its own wrongs.
6 11 In the case of P.M. Paul (supra) also, there was delay on the part of the government in handing over the site and claimant, therefore, had to incur extra cost and he sought reimbursement. It was claimed by the Government that no such claim was contemplated and, therefore, arbitrator was not competent to allow such claim. Hon'ble Supreme Court held that the dispute was referred to the arbitrator was as to who was responsible for the delay and what were the repercussions of the delay in completion of the contract. It was held as under:-
In the instant case, it is asserted that the extension of time was granted and the arbitrator has granted 20% of the escalation cost. Escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract. The arbitrator has held that there was delay, and he has further referred to this aspect in his award. The arbitrator has noted that claim related to the losses caused due to increase in prices of materials and cost of labour and transport during the extended period of contract from 9- 5-1980 for the work under phase I and from 9- 11-89 for the work under phase II. The total amount shown was Rs. 5,47,618.50. After discussing the evidence and the submissions the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20% of the compensation under Claim I, he has accordingly allowed the same. This was a matter which was within the jurisdiction of the arbitrator and, hence, the arbitrator had not misconducted himself in awarding the amount as he has done.
12 It becomes important that delay took place due to conduct of the objector only. Clause 10 CC is normally found in such type of contracts and as per such Clause, any such contractor is allowed compensation and 7 given benefit of escalation in price material and wages of labourers. However, such compensation is normally permitted when the period of completion is more than six months. As per the normal practice, no escalation or compensation in this regard is given when a period of contract is six months or less. It seems logical as well because when the period of contract is so short then normally one can visualize the normal escalation and, therefore, in such type of short-term contracts, contractors are not granted any benefit of escalation. Here, the initial period of completion of contract was less than 6 months and, therefore, there was obvious reason to deny escalation and prohibitory clause was accordingly incorporated. However, there was delay in completion of contract and it is the objector who is to be largely blamed for the delay and in such type of situation, objector cannot be allowed to have the cake and eat it too. If objector is to be blamed for the delay in the execution of the contract then he cannot expect that the claimant would keep on working and would keep on spending the money for indefinite period without any sort of compensation. 13 It has further been argued by learned counsel for objector that though damages towards escalation had been prayed for the period for six months starting from 31.07.99 yet learned Arbitrator had granted escalation w.e.f. 30.04.1998. It has, thus, been argued that relief, which was not even claimed, was granted by learned Arbitrator and, therefore, the award is bad in law. This contention is again found to be misconceived. Admittedly, in the claim petition, the escalation was prayed for the period w.e.f. 31.07.1999 yet fact remains that it is an admitted case of the parties that 8 initial contract was to be completed by 30.04.1998. Work order also clearly reveals the same and it is also not in dispute that such time was mutually extended on two occasions. Even the objector in his counter- claim categorically admitted in Para-2(J) that due to various reasons from both the sides, execution could not be completed by 30.04.1998 and was extended upto 31.01.2000. Thus, objector held itself also liable in this regard. Moreover, objector had prayed for some amendment before learned Arbitrator and such amendment application was considered by learned Arbitrator and was dismissed vide order dated 02.02.2006 and even in such application, aforesaid fact had come into consideration and learned Arbitrator observed that the stipulated date of completion of contract was 30.04.1998 which was accepted to be correct even by the claimant in its rejoinder. The claim is very categoric and specific and the quantification of the claim is not the deciding factor. Claimant was very clear in its mind and sought escalation for the period beyond stipulated date of contract i.e. beyond 30.04.1998 and even the evidence was led accordingly. Objector is not permitted to draw out any advantage from such inadvertent error. Thus, no merit is found in the aforesaid contention either. 14 I have carefully gone through the award and also the arbitral proceedings. I have also seen the evidence led by the parties and it becomes very much apparent that delay was attributable on the part of objector as sites were not handed over to the claimant for the purposes of execution of the work. Sh. Nabendu Ghosh had entered into witness box on behalf of the objector and in his cross-examination before learned 9 Arbitrator, he categorically claimed that he had no personal knowledge of the matter as he was not associated with the project at the relevant time. Thus, his evidence is virtually hearsay. He failed to comment about certain material aspects of the case claiming that he had no brought the record. He also admitted that objector never made any written protest regarding the correctness of the measurements mentioned by the claimant in running bills. This is the most significant part of the matter and if the measurements provided by the claimant were not correct measurements then protest should have been lodged immediately but on the contrary nothing was done in writing. Moreover, even measurement book as maintained by SBI was not shown during the arbitral proceedings. No fault, therefore, can be found with respect to the award. 15 There is nothing on record which may show that the dispute was raised beyond the period of limitation. Date of completion of contract does not decide the limitation. There are other factors which are required to be kept in mind. Though final bill was submitted by the claimant to the objector but objector did not release the payment as it was supposed to release the payment only when it was finally released by SBI. This was made expressly clear in clause 7 of the contract and objector received the payment from SBI lastly on 27.09.2002 as deposed and admitted by solitary witness of objector itself and, therefore, invocation of arbitration is well within the time. I do not find any error in dismissal of counter-claim either. Objector never disclosed his any such intention and did not send any notice in this regard. Moreover, objector was having a separate and 10 main contract with SBI and such contract was worth Rs. 5 crores whereas only a minor job worth Rs. 15 lacs had been awarded to the claimant by the objector. And even if it is assumed that contract got delayed due to act of claimant, it would be unthinkable to hold that only for the relatively very small job of water proofing, the entire manpower remained deployed when objector was to carry job worth Rs. 5 crores for SBI. In any case, objector was supposed to continue with such man power in order to fulfill its obligation as per contract with SBI and can not hold claimant responsible thereof. Moreover, the evidence of its witness does not even otherwise substantiate the averments as he was never personally associated with the project 16 I do not find the interest rate to be exorbitant enough. Award of interest seems just and as per Section 31 of said Act and moreover, it will be appropriate if I extract part 11 of one recent judgment of our own High Court cited as GOVERNMENT OF NCT OF DELHI VS VED PRAKASH MEHTA, 2006(1) R.A. J. 168, DELHI.
''Lastly coming to the claim of interest granted by the Arbitrator there is no substance in the submission made on behalf of the Objector. Prior to the date of enforcement of this Act the question of interest could be debated in view of the judgment of the Supreme Court in the case of Executive Engineer, Irrigation, Galimala and Ors. Vs Abhadutta Jena, AIR 1988 SC 1520. However, in view of the recent judgment of the Supreme Court in the case of T.P. George Vs State of Kerala & Anr., JT 2001(2) SC 438: 2001(1) R.A.J. 204 and the provisions of Section 31 (7) (a), award of interest can hardly be questioned. The grant of interest @18% per annum is 11 justified in the facts and circumstances of the present case. In the face of the provisions of Section 31 (7) (a)& (b) of the Act it was not obligatory upon the Arbitrator to discuss in detail the reasons for awarding 18% per annum. That is the expected rate of interest which a party would be entitled to unless the Arbitrator otherwise directs. Thus even this objection of the objector is without any merit.
17. In view of my aforesaid discussion, objection petition is not liable to succeed. Objection Petition is accordingly dismissed. File be consigned to Record Room.
Announced in the open court Today on 01.08.2007 (MANOJ JAIN) ADDITIONAL DISTRICT JUDGE DELHI 12