Delhi District Court
Delhi Development Authority vs Pramod Kumar Goel on 19 March, 2025
IN THE COURT OF Sh. NIKHIL CHOPRA, DISTRICT
JUDGE (COMMERCIAL COURT)-06, CENTRAL DISTRICT,
TIS HAZARI COURT, DELHI
OMP (Comm) 102/2019
CNR No. DLCT01- 014357-2019
DELHI DEVELOPMENT AUTHORITY,
Having its Office at:
Vikas Sadan, INA,
New Delhi-110055. ...... Applicant
Versus
PRAMOD KUMAR GOEL,
R/o. 11860, Gali No. 8,
Sant Nagar, Karol Bagh,
Delhi-110055.
.....Respondent
Date of Institution : 22.10.2019
Final arguments : 19.03.2025
Date of decision : 19.03.2025
ORDER
1. Order disposes of petition under Section 34 of the Arbitration and Conciliation Act, challenging the Award dated 16.07.2019 passed by the Ld. Sole Arbitrator appointed under the aegis of Delhi International Arbitration Center.
2. Disputes had arisen in relation with the payment of dues claimed by the respondent, pertaining to the work OMP (COMM) 102/2019 D.D.A. vs. Page 1 of 49 Pramod Kumar Goel under the tender- 14/EE/ED-3/DDA/A 2010-11. Briefly stated, the case of the petitioner- Delhi Development Authority is that the respondent was awarded the aforesaid contract for "Development of 60 ha land at Bakkarwala (Lok Nayak Puram) SH: C/o Ramps of both side of Culvert on 30 m R/w connectivity road from Nangloi- Najafgarh Road near Shani Mandir" On account of an error in the uploading of the NIT, the petitioner clarified the same informing the respondent about the error. The respondent is stated to have submitted its offer as per the actual estimated cost of Rs.32,27,315/- as against the amount mentioned in NIT. The LOI was issued on 04.04.2011, which was accepted by the respondent as well as subsequently acted upon by means of the respondent's furnishing a performance bank guarantee vide letter dated 20.04.2011. It is the case of the petitioner that the percentage decided between the parties for the purposes of Clause 12 was 1.83%, and not 13% as has been claimed by the respondent.
3. The petitioner has further averred in its petition that the execution of the work got delayed due to farmers' protests, which was beyond the control of the petitioner. It is averred that as per the terms of the contract, no extra items were promised to be paid at market rates to the respondent and the claimant could not have raised such an issue before the Ld. Arbitrator. The tender, according to OMP (COMM) 102/2019 D.D.A. vs. Page 2 of 49 Pramod Kumar Goel the petitioner, was on the basis of the tentative quantities and the petitioner had the power to make alterations/ omissions/additions and subtractions in respect of the original drawings and instructions. It is the petitioner's case that the respondent had clearly accepted the percentage of 1.83% of the estimated costs for the purposes of clause no. 12 of NIT and that the claims presented by the respondent were incorrect and not maintainable.
4. As far as the award dated 16.07.2019 is concerned, the same has been challenged on the ground that it is in conflict with the public policy of India ; the award suffers from patent illegalities going to the root of the matter ; award is based on erroneous application of law ; the issues have been decided wrongfully causing loss to the public funds; award is bad as the Ld. Arbitrator has failed to appreciate with the NIT is only an invitation of offer and that the LOI was issued with new terms and quantities of work which is the basis of the final contract, clearly providing for percentage of 1.83% for the purposes of Clause 12.
5. The award is further challenged on the ground that the Ld. Arbitral Tribunal has committed a patent illegality in holding the petitioner as entirely responsible for delay in execution of the work and ignored that the hindrances OMP (COMM) 102/2019 D.D.A. vs. Page 3 of 49 Pramod Kumar Goel by the adjoining land owners could not have been attributed to the petitioner. It is further impressed that the petitioner was not in a position to prevent or control the protest and thus the delay could not have been attributed to the petitioner. The Ld. Arbitral Tribunal has failed to appreciate that it is not a case of undue influence and that the respondent had acted voluntarily on the extension of times, rendering his undertaking as binding.
6. Award is further challenged on the ground that Ld. Arbitral Tribunal's holding the respondent as liable to pay @ 13% over the scheduled rates for extra items, is a patent illegality. Besides, the award is challenged on the ground that there is no iota of evidence in respect of the claim for loss of profit, and the grant of loss due to idle labour and machinery is also erroneous finding.
7. Alongwith the petition, an application under Section 5 of the Limitation Act has been filed. As far as the delay in filing is concerned, the petitioner has averred in its application that the petitioner could only be filed with around 2-3 days delay for the reasons that the petitioner is a government entity and had to take necessary approval before filing of the petition and due to the said formalities, delay of around 2-3 days occurred in filing the petition.
8. As per record, it transpires that the copy of the OMP (COMM) 102/2019 D.D.A. vs. Page 4 of 49 Pramod Kumar Goel Arbitral Award was received by the petitioner on 22.07.2019, however, the present petition was filed on 22.10.2019. As such there is a delay of around 02 days over 90 days. In view of the above and in the interest of justice, the said application is disposed of as allowed.
9. Respondent has objected to filing of the petition and filed his reply. Respondent has objected to the filing of the petitioner interalia on the grounds that the award is a speaking and well reasoned one, based on evidence and even if there is any error of judgment, the same is not of the kind which could be challenged under Section 34, having regard to the limits of jurisdiction under Section
34. The petition is also objected to on the ground that it is barred by limitation.
10. It is averred that the petitioner has not made out any case which could fall under Section 34 and is merely based on vague and evasive allegations. It is averred that the scope of jurisdiction under Section 34 is quite limited and the petitioner has not brought out any ground coverable under Section 34 while challenging the award. The petition is further objected to on the ground that even if the Ld. Arbitrator is assumed to have committed error of fact or law in reaching the conclusion, the same cannot be interfered into by this Court under section 34 of Arbitration & Conciliation Act, 1996.
OMP (COMM) 102/2019 D.D.A. vs. Page 5 of 49Pramod Kumar Goel
11. I have heard the Ld. Counsel for the parties and have gone through the record.
12. Main contentions of the Ld. Counsel for the petitioner are:-
(i) The petitioner has been wrongfully held to be liable for entire delay, clearly ignoring the fact that it was primarily on account of the farmers' agitation that the site could not be available even though the respondent had the possession of the site.
(ii) Ld. Arbitrator did not consider the contention of the petitioner that the grant of extension of time cannot be assumed to be an admission of delay on the part of the petitioner as it was not within the power and authority of the petitioner to remove all the hindrances from the site.
(iii) Ld. Arbitrator has ignored the evidence placed by petitioner himself and overlooked that in the application for extension of time, there is a clear mention of farmer's protest as a reason for delay. Besides, the same is also borne out from the cross examination of PW-1.
(iv) Ld. Arbitrator has erred in inferring duress, overlooking that an upward revision in estimated costs, that too, prior to formation of contract and execution of the agreement did not prejudice the respondent in any manner, which is evident from the fact that the respondent did not cancel the bid and on the contrary, stated vide letter dated 17.03.2011 Ex.C-2 that he would continue to proceed. The only concern cited was that it was against tendering norms. No duress can be inferred from such concern.OMP (COMM) 102/2019 D.D.A. vs. Page 6 of 49
Pramod Kumar Goel
(v) Respondent has failed to prove that the correction in the estimated value did harm or inflict any injury to respondent in any manner.
(vi) Respondent did not give any evidence of duress, and had vaguely alleged compulsion which is nowhere explained. Once he opted to proceed with the tender process, submitted security/PBG pursuant to LOI, he cannot be heard to say that he did it under duress.
(vii) Ld. Arbitrator ignored that even by the time of submitting security/PBG in the form of FDR, he could have withdrawn the bid on the alleged technical error if at all his case is of duress on such account.
(viii) Respondent's conduct in submitting FDR on 20.04.2011 and subsequently undertaking the work, shows that he found it not only financially viable, but also waived off his objection as to technical error in uploading. Even otherwise, his conduct estops him from claiming any duress and he cannot be heard to say that for securing the return of application of money of around Rs.58,000/- he proceeded to submit an FDR of Rs.1.6 lakh and also undertook work to the tune of R.32 lakhs, as per their estimated cost of tender.
(ix) Ld. Arbitrator has committed a patent illegality in allowing derivation at the rate of 13% instead of agreed percentage of 1.83%.
The respondent had never challenged the percentage agreed by him as per agreement Ex.R1, all throughout the Work and only subsequently raised the dispute. He had not submitted any evidence of any 'duress' or 'compulsion' for agreeing to the specific term of LOI dated 04.04.2011, which stood accepted by him in terms of subsequent agreement dated 27.04.2011- Ex.R1.
(x) The Award, insofar as it relates to grant of OMP (COMM) 102/2019 D.D.A. vs. Page 7 of 49 Pramod Kumar Goel derivation at 13% is against the specific and fundamental terms of contract, and the respondent cannot justify the same on the ground of immunity to Arbitrator's interpretation of agreement. Besides, the said finding is not sustainable as no reason have been provided by the learned Arbitral Tribunal to not treat the percentage of 1.83% derivation as a binding term of contract.
(xi) It is settled law that Arbitrator cannot travel beyond the term of contract or create another contract between the parties.
(xii) The Award is liable to be set aside inasmuch as, the grant of damage to the tune of Rs.2,46,000/- is not only without evidence, but also based purely on assumptions.
(xiii) The respondent did not prove any actual loss of opportunity/profitability, or deployment of labour or machinery in the first place. Besides, the respondent had only placed some loose cash receipts Ex.C-26 (colly), which have gone unsubstantiated as no other evidence or witness had been produced.
(xiv) The finding of loss of profit/ profitability, as well as on account of expense of idle labourer/machinery is assumptive and thus not sustainable. The Award, thus, is without any evidence in this respect and is contrary to public policy of India, and suffers from perversity.
13. Main contentions of the Ld. Counsel for the respondent are:-
(i) The Award is well reasoned and not open to interference as all the findings are based on evidence and are as per law.
(ii) The Award cannot be treated as a decree under appeal, and can only be challenged on OMP (COMM) 102/2019 D.D.A. vs. Page 8 of 49 Pramod Kumar Goel restricted grounds specified under Section 34 of Arbitration & Conciliation Act, 1996.
(iii) Respondent had placed all necessary evidence in respect of the issues in arbitration, and once the learned Arbitrator has formulated his opinion based on evidence, his finding cannot be interfered with causally.
(iv) There is no patent illegality and petitioner has failed to demonstrate as to how the finding are either perverse, or there is any patent illegality in the Award. The petitioner has further failed to demonstrate as to how the Award is against the public policy of India.
(v) It is settled law that the Arbitrator is the best judge of quantity and quality of evidence and his findings based on evidence can neither be challenged on the ground that the evidence was neither sufficient or another view is possible.
(vi) Ld. Arbitrator has correctly held petitioner as liable for delay, as the inspection report clearly how that the hindrance existed and the petitioner side was aware of the hindrances.
Besides, the respondent had been always ready to perform his work under the contract and accordingly used it men and machinery at site, which fact has been recorded by the learned Arbitrator.
(vii) The petitioner compelled the respondent too apply for extension of time and on its own, extended the time without any levy of damage. There is no proof on record of Arbitrator to the effect that the delay was attributable to respondent.
(viii) As regard duress, Ld. Arbitrator has correctly arrived at the conclusion of duress, having regard to the fact and circumstances, and his view cannot be challenged on the ground that another view may be possible.
(ix) Ld. Arbitrator has correctly held the OMP (COMM) 102/2019 D.D.A. vs. Page 9 of 49 Pramod Kumar Goel petitioner as liable for delay and the percentage of derivation has also been arrived at on the basis of plausible reasoning. Ld. Arbitrator has considered the circumstances and has rightly opined as to prejudice caused to the Respondent, on account of duress and thus, the rate of derivation has been rightly arrived at in the Award.
(x) The interpretation of contractual terms by the Ld. Arbitrator is not amenable to challenge under Section 34 of the Arbitration & Conciliation Act, 1996.
(xi) Even if any error of fact and law is assumed to be existing, this Court would not have jurisdiction to interfere unless there is any patent illegality. On the contrary, the petitioner has not been able to demonstrate any such illegality in the award.
14. Time now to deal with contentions. Main questions that are foregrounded for consideration are:-
(i) Whether there is any error/illegality in the Award so far as it relates to findings in respect of delay, rate of derivation and grant of damage on account of loss of profit/profitability and on account of its labour and machinery; and
(ii) Whether such error/illegality is of the kind that may call for interference of the Court under Section 34 of the Arbitration and Conciliation Act.
15. At this juncture, a reference of case laws mentioned in Reply, and relied by the respondent appears to be useful.
16. In Chittaranjan Maity Vs. Union of India , in Civil Appeal No. 15545-15546 of 2017 decided on 03.10.2017, Hon'ble Supreme Court has observed as under:-
OMP (COMM) 102/2019 D.D.A. vs. Page 10 of 49Pramod Kumar Goel "52. The 1996, Act makes provision for these supervisory role of courts, for the review of the arbitral award only to ensure fairness Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired.
So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the courts jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.
17. In D.D. Sharma vs Union of India dated 27.04.2004, the Hon'ble Supreme Court of India observed as under:-
"It is not open to the court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.
18. In Coimbatore District Podu Thozillar Sangam Vs Balasubramanyan foundry AIR1987 SC 2045 the Hon'ble Supreme Court observed as under:-
"The award was the decision of a domestic tribunal chosen by the parties, and the civil courts which were entrusted with the power to facilitate arbitration and to effectuate the awards. could not exercise appellate powers over the decision. Wrong or right the decision was binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement.
19. In Steel Authority of India Versus Gupta Brothers Steel OMP (COMM) 102/2019 D.D.A. vs. Page 11 of 49 Pramod Kumar Goel Tubes 2009 (12) Scale 393, the Hon'ble Supreme Court of India observed as under:-
"An error relatable to Interpretation of the contract by an arbitrator is an error within his jurisdiction and the error is no amenable to corrections by the courts as such error is not an error on the face of the award'"
20. In Prem Chand Sharma & Co. Vs. DDA & Anr. Dated 08.11.2005, the Hon'ble High Court of Delhi observed as under:-
"The common phraseology error apparent on the face of the record' does not itself, however, mean and imply closer scrutiny of the merits of documents and material on record: The Court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties."
21. In Union of India versus Arctic India FAO (OS) 115/2006 29.07.2010 dated 29.07.2010, the Hon'ble High Court of Delhi observed as under:-
"In the nascent stages of arbitration, when it was still to be ubiquitously accepted as an alternative forum for dispute resolution.
With this metamorphosis, the superintendence of the court has expectedly and exponentially waned. Why let initially awards were susceptible to being set aside if all questions raised were not discussed in the award, with the passage of time the fiction that all points had been duly considered and rejected came to be adopted to insulate award from jural censure. Similarly, whitest it was earlier accepted that award should contain reasons in clear terms, it was subsequently opined that if the trend/chain of thought work discernible , the award was impregnable to attack. Most significantly, OMP (COMM) 102/2019 D.D.A. vs. Page 12 of 49 Pramod Kumar Goel their Lordships have gone to the extent of enunciating that judicial interference is not called for even in those instances where the arbitrator may have committed an error of fact."
22. In Union of India Vs. Bharat Builders 2002 (2) RAJ 576 (Del), the Hon'ble High Court of Delhi observed as under:-
"Even if an erroneous view has been taken by the arbitrator in respect of the findings of fact of interpretation of terms and causes of the agreement, the court should be reluctant to interfere unless perversity or of mind or error is writ large on the face of the non- application award"
23. In Associated Engineering Co.Vs.Govt. of Andhra Pradesh, AIR, 1992 SC 232, the Hon'ble Supreme Court of India observed as under:-
"Even if the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction and the same requires no interference"
24. In Eastern and North East Frontier Railway Cooperation Bank Ltd. Vs. B. Guha Co. AIR 1986 Cal 146, the Hon'ble High Court of Calcutta observed as under:-
"Court cannot reassess the evidence even if the Arbitrator committed the error"
25. The respondent is also found to have relied upon the following judgments in support of its contentions as to limits of jurisdiction under Section 34 of the Arbitration & Conciliation Act, 1996, the finality of findings and the extent of immunity which the Arbitral OMP (COMM) 102/2019 D.D.A. vs. Page 13 of 49 Pramod Kumar Goel Award enjoys under the law:-
i. Vardaan Builders & Anr. Vs. Veer Krishna Sahay on 04.06.2007 by Hon'ble Jharkhan High Court. ii. National Fertilizers vs. Puran Chand Nangia on 17.10.2000 by Hon'ble Supreme Court.
iii B.V. Radha Krishna Vs. Sponge Iron India Ltd. (1997) SCC 693 iv. MCD Vs. M/s. Jagan Nath Ashok Kumar AIR 1987 SC 2316 v. Goa, Daman and Diu Housing Board vs. Ramakant V.P. Darvotkar (1991) 4 SCC 293.
vi. Puri Construction Pvt. Ltd. Vs. UOI AIR 1989 SC vii. M/s. Hindustan Tea Co. Vs. M/s. K. Shashikant & Co.
& Anr. AIR 1987 SC 81 viii. S. Harcharan Singh Vs. UOI AIR 1991 SC 945 ix. U.P. State Electricity Board Vs. Searsole Chemicals Ltd. (2001) 3 SCC 397 x. Union of India vs. Raila Ram AIR 1963 SC 1685. xi. Delhi Jal Board vs. A.P. Constructions on 06.02.2014 xii. Union of India vs. R.S. Makkar on 10.02.2014 xiii. J.G. Engineers (P) Ltd. Vs. National Building Constitution on 11.12.2008 xiv. Naraindas R. Israni vs. Union of India AIR 1993 (1) Delhi 233 xv. Budhi Singh Vs. State of H.P. on 16.08.1989 by Hon'ble Himachal Pradesh High Court.
xvi. Olympus Superstructures Pvt. Ltd. Vs. Meena Vijay Khetan & Ors. (1999) 3 SCR490.
26. The aspect of delay is taken up first. As regard the delay, the Ld. Arbitrator has observed as under:-
"62. The contractual date for commencement of work was 01.05.2011 and the contractual date for the completion of work was 30.06.2011. The site was handed over to the Claimant on 01.05.2011.OMP (COMM) 102/2019 D.D.A. vs. Page 14 of 49
Pramod Kumar Goel After 10 days the work had to be stopped due the agitation by the adjoining land owners as there was dispute about the ownership of the land. There is no evidence to suggest that the Claimant had lost possession of the site. The evidence only shows that that there was hindrance and the work had to be stopped Clearly it was the responsibility of the Respondent to provide the site to the Claimant with a clear title. The Claimant could not have done anything to resolve the dispute with the adjoining land owners. The dispute` had to be resolved by the Respondent. Since the work would not be started even till the contractual date of completion, the Respondent suo-moto granted provisional extension up to 30.08.2011 vide letter dated 24.06.2011. The Respondent cannot be allowed to say that the delay was on account of the Claimant as it had failed to provide a clear site to the Claimant. The Claimant had no means to know if there was any defect in the title of the land. This hindrance caused a delay of 87 days which is attributable to the Respondent. My findings in this respect are confirmed by the inspection note Ex C-8 and the Minutes of inspection Ex. C-9 where the officials of the Respondent have been directed to take action for the removal of the hindrance and the hindrance has not been attributed to the Claimant.
...
68. I find that the Respondent granted firm extension up to 02.09.2011 without levy of compensation. This is a clear admission that the delay was not on the part of the Claimant and is attributable to the Respondent.
69. I, Therefore, hold that the Respondent was responsible for the delay in the execution of the work."
27. Ld. Counsel for the petitioner has contended that the delay was primarily due to farmer's protest, which protest is also admitted by Respondent. Attention of the Court is also drawn to certain portion of cross OMP (COMM) 102/2019 D.D.A. vs. Page 15 of 49 Pramod Kumar Goel examination of PW-1 as well as application for extension of time citing one of the reasons to be the farmer's protest. On the contrary, Respondent side has highlighted Ex.C8- Inspection Report dated 18.06.2011 giving details of the hindrances at the site.
28. While it is the contention of learned counsel for the petitioner that the delay has occasioned due to farmers' protest, beyond the control of petitioner and that the finding of delay entirely attributable to respondent is unsubstantial, the respondent, on the other hand, has vehemently contended that the hindrances were within the knowledge of petitioner and the petitioner ought to have ensured their removal before handing over of the site, and since the petitioner has failed to ensure the removal of hindrances within time, the petitioner has been rightly held responsible for delay and consequential findings.
29. True that the farmer's protest is cited as one of the reasons for delay and the respondent has also admitted the existence of farmer's protest as a reason for delay in his cross examination, fact remains that there were multiple hindrances as per inspection report Ex.C8, and none of them were attributable to respondent. Although the extension of time by petitioner without levy of damage cannot by itself bring the entire responsibility upon petitioner, Ld. Tribunal seem to have considered that none OMP (COMM) 102/2019 D.D.A. vs. Page 16 of 49 Pramod Kumar Goel of the reasons for delay were attributable to the respondent contractor.
30. Learned counsel for petitioner has further assailed the said finding on the ground that the Ld. Tribunal has referred to threats/duress that never existed. However, with the observations recorded in para nos.62, 68 and 69 of the Award (as reproduced hereinabove), the Court cannot subscribe to the contentions of the learned counsel for the petitioner. Even if the observations as to threat/duress or compulsion, as have been recorded by Ld. Tribunal are to be disbelieved, there is ample evidence as to hindrances and resultant delay.
31. Though farmer's protest may be an exception, the petitioner is at a loss of explanation as to all other hindrance which find mention in the Inspection Report Ex.C8. The view adopted by the Ld. Arbitrator cannot be said to be erroneous, simply because the view is couched in strong language. There, thus, appears to be no error, much less of the kind warranting any interference. Ld. Tribunal has duly considered the record/evidence before the Tribunal and adopted a plausible view, as far as delay is concerned.
32. Coming now to the aspect of rate of derivation. In this respect, the Ld. Arbitral Tribunal is found to have OMP (COMM) 102/2019 D.D.A. vs. Page 17 of 49 Pramod Kumar Goel based its finding on the aspect of duress/threat of forfeiture of earnest money. While it is contended by the petitioner side that neither there was any actual duress, nor was there any evidence of duress before Arbitral Tribunal and as such, the same could not have been made a ground for change of rate of derivation or grant of any relief on such basis, the respondent side has contended that the petitioner has used its dominant position in the contract for making the respondent sign the contract. Besides, the said finding of the Ld. Arbitral Tribunal is also challenged on the ground that the Ld. Arbitral Tribunal did not have any power to alter the terms of binding contract, or to create another contract between the parties.
33. Before proceeding further, a reference to findings of Ld. Tribunal appear to be desirable:-
"Issue No. 4- Whether the Claimant is entitled to any payment on account of wrong derivation of rates for extra items ? If so to what amount ?
101. Clause 12 of the Agreement provides that if the rates for additional, altered or substituted work are specified in the contract for the work, the contractor is bound to carry out the additional, altered or substituted work at the same rates as are specified in the contract for the work. If the rates for additional, altered or substituted work are not specifically provided in the contract for the work, the rates will be derived from the rates for a similar class work as are specified in the contract for the work. If the rate for the altered, additional or substituted work includes any work for which no rate is specified in the contract for the work and cannot derived from the similar class of work in the contract then such work shall be carried out at the rates entered in the current CPWD. Schedule of rates for Delhi 2007 with up to date correction slip or receipt of tender correction slips No. Minus/plus OMP (COMM) 102/2019 D.D.A. vs. Page 18 of 49 Pramod Kumar Goel percentage which the total tendered amount bears to the estimated cost of the entire work put to tender or CPWD Schedule of Rates Part-1 (Int.) 2007 and Part-II (ext.) 2007 Electrical Works. Thus in the instant case the Claimant is entitled to payment for extra items as per sub clause iii of Clause 12.
102. It is the case of the Claimant that the percentage above the DSR 2007 should have been taken as 13% whereas the Respondent has made the payment to him at 1.83% above DSR 2007. The estimated cost of work as mentioned in the NIT uploaded on the website of the Respondent was 29,08,429/-. The Claimant submitted a bid for 32,86,536. Thus the percentage for the purposes of Clause 12 works out to 13%. After the bid had been submitted by the Claimant he was called by the Respondent on-17.03.2011 and was informed that there was an error in uploading the quantities on the website and the department desired to change the quantities in the schedule of quantities. The Claimant objected to this and wrote a letter EA perusal of the Letter Of Acceptance EX. C-3 dated 04.04.2011would show that the offer of the Claimant was accepted by this letter and the Respondent asked the Claimant to deposit the performance guarantee. This letter did not state that the percentage for the purposes of Clause 12 would be reduced. It only mentioned that the estimated cost as per the original NIT was ₹29,08,425/- and the estimated cost as per quantity published on DDA website was $ 32,27,315/-. It was only after the Claimant had deposited the performance guarantee that he was informed by the letter EX. C-5 dated 21.05.2011 that the percentage for the purposes of Clause 12 will be 1.83% above. The act of the Respondent was apparently malafide. Evidence shows that the original NIT as published on the DDA website was for lesser quantities. The estimated cost increased because the quantities were increased subsequently. The DDA could have got extra quantities executed at the same rates without increasing the estimated cost of the tender. The Respondent having restricted the Claimant to the bid which was for lesser quantities cannot be allowed to take benefit of its own wrong.X. C-2 on the same day. Inspite of the letter of the Claimant the Respondent issued the LOI dated 04.04.2011 EX. C-3 calling upon the Claimant to deposit the performance guarantee of ₹1,64,327/-. This was deposited by the Claimant on 20.04.2011. The OMP (COMM) 102/2019 D.D.A. vs. Page 19 of 49 Pramod Kumar Goel Respondent issued a letter dated 21.04.2011 EX.C-5 calling upon the Claimant to sign the agreement and threatening that in case the agreement was not signed the Claimant would lose the earnest money. It was under this threat that the Claimant signed the contract.
103. The learned counsel for the Respondent has argued that the Claimant was made aware of the error in the NIT on 17.03.2011 itself. The letter dated 04.04.2011 had also pointed out this error. The letter dated 21.04.2011 clearly stated that the percentage for the purposes of Clause 12 would be 1.83%. The contract also provided the same percentage 1.83%. The Claimant is now estopped from claiming that the percentage for the purposes of Clause 12 should be 13%.
.........
106. I am unable to accept the arguments of the learned counsel for the Respondent. The Respondent must act fairly. Once the Claimant had submitted his bid the Respondent cannot be allowed to change the estimated value to the disadvantage of the Claimant especially when it affected the percentage under Clause 12. At the time of submitting the bid the Claimant must have considered all aspects. He must have been aware of Clause 12 of the Agreement and must have kept in consideration the rates that he would be paid for extra items. Changing the estimated cost and thereby reducing the percentage under Clause 12 would defeat the very purpose of tendering system. The argument that the Claimant should have withdrawn even at the cost of losing the earnest money and the performance guarantee amounts to financial duress. The Respondent cannot take benefit of being in a position of advantage.
107. A perusal of the Letter Of Acceptance EX. C-3 dated 04.04.2011 would show that the offer of the Claimant was accepted by this letter and the Respondent asked the Claimant to deposit the performance guarantee. This letter did not state that the percentage for the purposes of Clause 12 would be reduced. It only mentioned that the estimated cost as per the original NIT was ₹29,08,425/- and the estimated cost as per quantity published on DDA website was ₹32,27,315/-. It was only after the Claimant had deposited the performance OMP (COMM) 102/2019 D.D.A. vs. Page 20 of 49 Pramod Kumar Goel guarantee that he was informed by the letter EX. C-5 dated 21.05.2011 that the percentage for the purposes of Clause 12 will be 1.83% above. The act of the Respondent was apparently malafide. Evidence shows that the original NIT as published on the DDA website was for lesser quantities. The estimated cost increased because the quantities were increased subsequently. The DDA could have got extra quantities executed at the same rates without increasing the estimated cost of the tender. The Respondent having restricted the Claimant to the bid which was for lesser quantities cannot be allowed to take benefit of its own wrong.
34. The foundational facts upon which the plea/claim of duress has been constituted, as set out in the claim statement, are also reproduced as under for sake of quick reference:-
"6. That the then Superintending Engineer called the Claimant in his chamber on 17.03.2011 and informed him that there were some anomalies in the tender form on the part of the department and desired his consent to change the name of the work as well as the quantities of the various items in the schedule.
7. That the claimant strongly refuted and did not consent to the illegal demands of the Superintending Engineer. The claimant also brought it to black and white on the same day vide his letter dated 17.03.2011 (Annexure C-2) clearly mentioning that the requirement of the Department is contrary to law and therefore if it is accepted by the claimant, it would defeat the basic purpose of tendering system and also may lead to an invitation to litigation under Article 226 of the Constitution of India for which the claimant was never intended to be a party.
8. That the Superintending Engineer was the tender accepting authority but he had no option with him, therefore, he advised the claimant to remain prepared to face the consequences and accepted the bid of the claimant with a mindset to teach a lesson to the claimant during execution of work. .....
10. That after receipt of the performance guarantee by the Respondent, the Respondent issued an award letter no.F54(17)EE/ED-3/A/DDA/2010- OMP (COMM) 102/2019 D.D.A. vs. Page 21 of 49 Pramod Kumar Goel 11/489dated 21.04.2011 (Annexure C-5).
11. That despite turning down the demand of the Superintending Engineer by the Claimant in writing, the Claimant was bewildered to note that the Respondent being in driving seat suo-moto changed the name of the work as well as the percentage for the purposes of clause 12 shall as 1.83% above instead of 13.00% quoted by the claimant exceeding their jurisdiction as per their own whims and fancies by taking benefit of their superior bargaining position and defeated the very basic purpose of tender system.
12. That the Claimant was a working contractor in the Respondent's Department and therefore lot of payments of the Claimant were lying pending with the Respondent in various other works and therefore the Claimant was left with no option other than to close his eyes to the illegal acts of the Respondent in the interest of his bread and butter. ...
15. That the claimant already had deposited the earnest money and performance guarantee with the Respondent and the claimant had all reasons to believe that in case of refusal of the Claimant to enter into the contract, his hard earned money would have been forfeited by the Respondent to hide their own lapses. Due to this reason, the Claimant was having no way out other than to enter into contract with the Respondent for the said work and accordingly the agreement no.01/EE/ED-3/DDA/A/2011-12 was executed between the parties on 27.04.2011 through Executive Engineer/ED-3 on behalf of the Respondent on one part and the claimant on the other part. The respondent is the custodian of the said agreement which may please be read as part and parcel of this statement of claims."
35. Attention of the Court has been drawn to Ex.C2- Letter dated 17.03.2011, written by Respondent citing his concern as to the change in estimated costs after the submission of the bid. The plea of duress, thus, find its root in the change of estimated costs of contract, pursuant OMP (COMM) 102/2019 D.D.A. vs. Page 22 of 49 Pramod Kumar Goel of submission of bid. As can be gathered from the said letter, the respondent objected to change of estimated costs, claiming it to be against the norms of tendering procedure. Besides, the respondent has also cited his concern as to the fact that the change in estimated costs may affect the contractor as his bid is to be competitive, taking into consideration the various factor like costs and quantities.
36. The relevant portion of the letter is reproduced as under:-
"Kindly refer the held in the chamber of SE/CC- 10 for the aforesaid work as well as the subsequent negotiation held in your chamber on 17th March 2011 which were conducted in a most cordial atmosphere. We have been informed that there are certain anomalies in the quantity of the items uploaded on the website by M/s ITI Ltd which are different from the notice inviting tender. The department has desired to change the quantity of items uploaded on the schedule of quantities at the website due to the deviation from the notice inviting tender which is not acceptable to us. The plea cannot be accepted as if it is accepted; it will defeat the basic purpose of tendering system and also may lead to an invitation to litigation under Article 226 of the Constitution of India. We hereby submit that we are a law-abiding citizen and therefore we are not inclined to deviate from the quantities supplied to us in the schedule of quantities for offering our rates. We hereby submit that we are ready to execute the work strictly as per our quoted rates and quantities mentioned in the schedule of quantities. Kindly appreciate that the rates always the quantities in all business deals. We have quoted our rates keeping in mind the same as package by adjusting our rates in such a way that our overall bid is not only workable but also competitive. We are sorry to state that our business interest shall be defeated in case the quantities of the items are changed at this stage due to the aforesaid anomaly. We are therefore not inclined to consent to change in quantities."OMP (COMM) 102/2019 D.D.A. vs. Page 23 of 49
Pramod Kumar Goel
37. The respondent's case as to duress/compulsion is primarily built upon the plea that the Respondent had deposited earnest money alongwith the bid and subsequent change of estimated costs prejudiced him. Besides, the other aspect of duress contended before the Court is that once the FDR was submitted on 20.04.2011, it was only subsequently that the petitioner disclosed the rate of derivation i.e. 1.83%. Thirdly, his undertakings are also stated to have been submitted under duress as there are other contracts and payments to be made by petitioner, and thus, the Respondent was compelled to agree, lest that his payments under other contracts are affected.
38. At this juncture, a reference to case law relating to proof of duress in the context of commercial contracts appears to be desirable. In Goyal MG Gases Ltd. Vs. Double Dot Finance Ltd. [2009 (2) ARBLR 655 (Delhi)], the Hon'ble High Court of Delhi examined the aspect of duress, claimed by Appellant before the Hon'ble High Court, after having received the entire amount in full and final settlement. Though the observations have been made in context of a full and final settlement, the Court has emphasized that mere financial pressure is not enough. The Court observed as under:-
"3. The learned Single Judge by the impugned judgment has held that there was no coercion or duress exercised against the appellant when the receipt dt 1.2.99 was signed receiving the amount of Rs. 1,15,00,000/-. The learned Single Judge in the impugned judgment has held as under:OMP (COMM) 102/2019 D.D.A. vs. Page 24 of 49
Pramod Kumar Goel Coming to the question as to what is "coercion or "duress" in commercial contracts, we may refer to the Privy Council case "Pao On and Ors. v. Lau Yiu and Anr."
reported in 1979 (3) of England Reporter Page-65. Economic duress in commercial context was dealt with by their Lordships and it was held that in contractual relations, a mere financial pressure is not enough. It was also held that the question as to whether at the time the person making a contract allegedly under coercion had or not any alternative course open to him which could be an adequate legal remedy and whether after entering into the contract, he took steps or not to avoid it are matters which are relevant for determining as to whether he acted voluntarily or not. It was also held that the compulsion has to be of a nature which deprives a party of his freedom of exercising free will leaving no alternative course open to him. Therefore, the 'coercion' or 'duress' required for vitiating 'free consent' has to be of the category under which the person under 'duress' is left with no other option but to give consent and is unable to take an independent decision, which is in his interest. Bargaining and thereafter accepting an offer by give and take to solve one's financial difficulties cannot be treated as 'coercion' or 'duress' for the reason that in trade and commerce every day such situations arise and decisions are taken by parties some of which they might not have taken but for their immediate financial requirements and economic emergencies.
The legal position that emerges, therefore, is that the Arbitrator has jurisdiction to adjudicate a dispute in regard to the existence of 'full and final settlement'. In case the plea of 'full and final settlement' between the parties is accepted by the Arbitrator, no Award can be passed in favour of a claimant but in case this plea is rejected, the Arbitrator OMP (COMM) 102/2019 D.D.A. vs. Page 25 of 49 Pramod Kumar Goel would be well within his rights to pass an Award in respect of the claims filed before him. The Arbitrator can go into the question as to whether the 'accord and satisfaction' recorded between the parties was voluntary or not inasmuch as 'free consent' remains the foundation of all agreements including the agreement in regard to the settlement of disputes between the parties. However, the plea of coercion, undue influence or duress raised by a party to challenge the 'accord and satisfaction' cannot be accepted lightly merely upon word of mouth. The facts and circumstances, material on record and conduct of the parties at the time of signing the settlement agreement and soon thereafter have to be looked into. It need not be stated that the burden to establish this plea remains on the party which raises it.
If such pleas are sustained, the sanctity and purpose of 'amicable settlement' between the parties would stand totally eroded. Amicable resolution of disputes and negotiated settlements is 'public policy of India'. Section 89 of the Code of Civil Procedure, Arbitration and Conciliation Act, 1996 as well as Legal Services Authorities Act, 1995 call upon the Courts to encourage settlement of legal disputes through negotiations between the parties. If amicable settlements are discarded and rejected on flimsy pleas, the parties would be wary of entering into negotiated settlements and making payments thereunder as a shrewed party after entering into a negotiated settlement, may pocket the amount received under it and thereafter challenge the settlement and re-agitate the dispute causing immeasurable loss and harassment to the party making payment thereunder. This tendency has to be checked and such litigants discouraged by the Courts. It would be in consonance with public policy of India. The Arbitrator, therefore, had acted against public policy of India by accepting the plea as raised by the respondent No. 1 and thereafter, passing an Award. The view OMP (COMM) 102/2019 D.D.A. vs. Page 26 of 49 Pramod Kumar Goel taken by the Arbitrator was absolutely capricious, unfair and unreasonable and as such, the impugned Award dated 29.11.2002 passed by him is liable to be set aside.
12. A reading of the Award of the Arbitrator also shows that the relevant points which were determinative of the issues as stated in para 4 above with regard to the receipt of Rs. 1,15,00,000/- by the appellant in full and final settlement have been unnecessarily given a go bye and only a lip service has been paid to the same by referring to the same without discussing as to how the same are not important or clinching. We are conscious of the position in law relied upon by the appellant by citing Hindustan Tea Co. v. K. Sashikant & Co. and Anr.
MANU/SC/0002/1986 : AIR1987SC81 to the effect that no interference with the award is warranted on the ground that the Arbitrator arrived at a wrong conclusion or failed to appreciate the facts. Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar and Anr.MANU/SC/0013/1987 : [1988]1SCR180 was also cited to urge that the reasonableness of the reasons for the award cannot be challenged. However, in the present case the Arbitrator has failed to follow the law laid down in Nathani Steels Ltd. v. Associated Constructions to the effect that once there is a full and final settlement such a dispute does not remain an arbitrable dispute by merely observing that the cases cited are distinguishable without stating any reasons therefor. Thus this Court is sustaining the judgment of the single judge as we are satisfied that the dispute was finally settled and could not have been arbitrated upon. However in the facts of the present case we are also of the view that the findings of the Arbitrator are grossly unconscionable and do not even deal with the legal position espoused by the respondent before the Arbitrator. The award is thus vitiated as no reasonable person could have arrived at the conclusion of coercion arrived at by the Arbitrator and the OMP (COMM) 102/2019 D.D.A. vs. Page 27 of 49 Pramod Kumar Goel learned Single Judge was justified in allowing the objections preferred by the respondent.
39. In NTPC Ltd. Vs. SPML Infra Ltd. [AIR 2023 SC 1974] , the Hon'ble Supreme Court of Delhi dealt with the plea of duress in the context of settlement agreement between the parties, conduct of parties and subsequent request for reference of claims to Arbitration. The Hon'ble Supreme Court of India held that simple narration of bare facts would not suffice. The Hon'ble Supreme Court of India observed as under:-
44. A simple narration of the bare facts, as indicated above, leads us to conclude that the allegations of coercion and economic duress are not bona fide, and that there were no pending claims between the parties for submission to arbitration. The Respondent's claim fits in the description of an attempt to initiate "ex facie meritless, frivolous and dishonest litigation". We will endeavor to give reasons for our conclusion.
45. The whole dispute revolves around the solitary act of the Appellant, NTPC, in not returning the Bank Guarantees despite the successful completion of work. This continued even after SPML issued the No-
Demand Certificate and NTPC released the final payment. These undisputed facts led to the institution of the Writ Petition before the Delhi High Court. There were no allegations of coercion or economic duress compelling SPML to withdraw any pending claims under the subject contract as a condition for the return of the Bank Guarantees. On the contrary, the only allegation by SPML was with respect to NTPC's "illegal" action of interlinking the release of the Bank Guarantees with some other contracts. This was precisely the argument before the High Court, and, in fact, this submission is recorded by the High Court while issuing notice and injuncting NTPC. This fact OMP (COMM) 102/2019 D.D.A. vs. Page 28 of 49 Pramod Kumar Goel clearly indicates that the plea of coercion and economic duress leading to the Settlement Agreement is an afterthought.
46. We will now examine whether the allegations of coercion and economic duress in the execution of the Settlement Agreement are bona fide or not. This inquiry has a direct bearing on the arbitrability of the dispute. It was during the subsistence of the Writ Petition and the High Court's interim order, when SPML had complete protection of the Court, that the parties entered into the Settlement Agreement. This agreement was comprehensive. It inter alia provided for (i) the release of Bank Guarantees by NTPC, (ii) the withdrawal of SPML's Writ Petition, (iii) restraining NTPC from filing contempt proceedings against SPML for letting the Bank Guarantees expire, and finally, (iv) restraining SPML from initiating any proceedings under the subject contract, including arbitration. The Settlement Agreement also recorded that there were no subsisting issues pending between the parties.
47 . The plea of coercion and economic duress must be seen in the context of the execution of the Settlement Agreement not being disputed, and its implementation leading to the release of the Bank Guarantees on 30.06.2020 also not being disputed. Almost three weeks after the release of the Bank Guarantees, a letter of repudiation was issued by SPML on 22.07.2020. This letter was issued about two months after the Settlement Agreement was executed and in fact during the subsistence of the Writ Petition. After reaping the benefits of the Settlement Agreement, the Writ Petition was withdrawn on 21.09.2020. It is thereafter that the present application Under Section 11(6) of the Act was filed. The sequence of events leads us to conclude that the letter of repudiation was issued only OMP (COMM) 102/2019 D.D.A. vs. Page 29 of 49 Pramod Kumar Goel to wriggle out of the terms of the Settlement Agreement.
40. In Union of India (UOI) and Ors Vs. Master Construction Co. [2011 (2) ARBLR 105 (SC)], Hon'ble Supreme Court of India dealt with a question as to appointment of an Arbitrator on the basis that no claim certificates had been obtained under financial duress and coercion. The request for appointment was resisted by the petitioner on the ground of discharge of contract. The Court observed that mere allegation as to financial duress would not suffice observing:-
28. The above certificates leave no manner of doubt that upon receipt of the payment, there has been full and final settlement of the contractor's claim under the contract. That the payment of final bill was made to the contractor on June 19, 2000 is not in dispute.
After receipt of the payment on June 19, 2000, no grievance was raised or lodged by the contractor immediately. The concerned authority, thereafter, released the bank guarantee in the sum of Rs. 21,00,000/- on July 12, 2000. It was then that on that day itself, the contractor lodged further claims.
29. The present, in our opinion, appears to be a case falling in the category of exception noted in the case of Boghara Polyfab Private Limited (Para 25, page 284). As to financial duress or coercion, nothing of this kind is established prima facie. Mere allegation that no-claim certificates have been obtained under financial duress and coercion, without there being anything more to suggest that, does not lead to an arbitrable dispute.
30. The conduct of the contractor clearly OMP (COMM) 102/2019 D.D.A. vs. Page 30 of 49 Pramod Kumar Goel shows that `no claim certificates' were given by it voluntarily; the contractor accepted the amount voluntarily and the contract was discharged voluntarily.
41. Ld. Counsel for the petitioner has invited attention of the court towards the letter dated 17 March 2011 -Ex.C-2 contending that the respondent, in no unclear terms, signified his willingness to go ahead with the work and all that he had raised, is the concern about the anomaly. The respondent had not only thereafter submitted the FDR pursuant to the LOI dated 4 April 2011
- Ex.C-3, but also executed Ex.R-1. According to the petitioners side, ground of economic duress has been raised by the respondent is totally bereft be of any substance in as much as had it been a case of actual duress, he had all the liberty to withdraw his bid, then and there, as there was no binding contract at the said stage.
42. Ld. Counsel for the petitioner has further contended that it is a settled principle of law that arbitrator cannot create a new contract for the parties and as such could not have proceeded to fix the percentage as 13% instead of 1.83%, which stood clearly recorded in the agreement. He contends that the respondent had never raised any objection to this fact during the currency of the contract. It is thus, contended that the Ld. Tribunal ignored the said binding condition of the contract and proceeded to grant a higher rate of percentage merely on the basis of inference OMP (COMM) 102/2019 D.D.A. vs. Page 31 of 49 Pramod Kumar Goel of economic duress, which is a patent illegality.
43. Learned Counsel for the respondent, on the other hand, contended that the Ld. Tribunal finding is rightfully based on the facts which are clear from the circumstances proved on record, and there is no illegality in Ld. Arbitrators coming to a conclusion about the economic duress. He contains that since the estimated cost was changed after the bid, the Ld. Tribunal has rightfully returned his finding that the same is neither admitted nor could have been legally done. He has further contended that even if the said conclusion is assumed as erroneous, the same would still not be amenable to interference under section 34 of the Arbitration and Conciliation Act.
44. The broader take away from the decisions in Goyal MG Gases Ltd. Vs. Double Dot Finance, NTPC Ltd. Vs. SPML Infra Ltd. and Union of India (UOI) and Ors Vs. Master Construction Co. are:-
(i) bare plea of duress or the compulsion would not suffice and there has to be specific averments and proof of such duress/compulsion;
(ii) financial pressure cannot be always claimed as duress; and
(iii) conduct of party needs to be seen to find out whether the act is under duress or not.
45. As far as the correction of estimated costs and OMP (COMM) 102/2019 D.D.A. vs. Page 32 of 49 Pramod Kumar Goel change in quantities are concerned neither Ex.C-2 fails to reflect any real duress, nor is the subsequent conduct of the respondent suggestive of any compulsion or financial duress. Exhibit C-2 cannot be read as evidence of duress as it was at the stage when the contract was not formulated. The respondent highlighted its concern which seems to be more of an irregularity in the process rather than any compulsion or duress. The respondent' stake at that stage was to the extent of earnest money alone. It also transpires that between the issuance of Ex-C2 i.e., 17.03.2011 and issuance of LOI dated 04.04.2011-Ex.C-3, the Respondent has never raised any issue of compulsion/duress. On the contrary, he submitted an FDR on 20.04.2011 in line with LOI-EX-C-3, on the basis of the correct estimated cost. With submission of this FDR, the respondent seemed to have clearly waived off his objection as he acted upon the LOI and accepted its conditions including the corrected estimated costs, without any hesitation. Even otherwise, the respondent has not complained of any threat or injury at this juncture or even lead any evidence of compulsion in so doing.
46. It is the contention of Ld. Counsel for the respondent that it was only subsequent to submission of the FDR towards performance guarantee that the petitioner had disclosed the percentage of 1.83% in respect of Clause 12 and the same was not fair and also OMP (COMM) 102/2019 D.D.A. vs. Page 33 of 49 Pramod Kumar Goel prejudiced the respondent substantially.
47. The Court, however, cannot subscribe to the said contention for the reasons:-
(i) The respondent did not raise any objection as to the percentage being fixed at 1.83% till the completion of work and filing of claim for arbitration.
(ii) The respondent had accepted the conditions as to the percentage being 1.83% for purpose of Clause 12, which is unmistakeably and clearly mentioned in the contract-
Ex.R-1submitted by him on 27.04.2011.
(iii) The respondent did not opt out of contract under Clause 3A of the contract, which provides for a safe exit to a contractor in case of non progress of work. For quick reference, the clause is reproduced:-
"3A. In case, the work cannot be started due to reason not within the control of the contractor within 1/8th of the stipulated time for completion of work, either party may close the contract in such eventuality, the Earnest Money Deposit and the Performance Guarantee of the contractor shall be refunded, but no payment on account of interest, loss of profit or damage etc, shall be payable at all."
(iv) Conduct of respondent in proceeding with submission of FDR towards performance guarantee and subsequent submission of contract- Ex.R-1 duly signed by him clearly shows that the respondent did find it financially viable and accordingly decided to proceed with the same.
(v) The contention of respondent, that any disagreement on the part of Respondent might affect the other payments under different contracts with the petitioner is also devoid of any force in as much as there is no iota of evidence that to the effect that any other payments were due to the respondent or that the petitioner was withholding the same OMP (COMM) 102/2019 D.D.A. vs. Page 34 of 49 Pramod Kumar Goel for pressuring the Respondent.
48. There is another dimension to challenge against the claim regarding rate of derivation. The petitioner side has stressed upon its contention that the rate of derivation was expressly agreed to by and between the parties and is conspicuously mentioned in LOI as well the agreement. It being a binding term of the contract could not have been ignored by the Ld. Tribunal.
49. The contention of respondent side is that the Court cannot examine the aspect of interpretation of the terms of contract and that even an erroneous finding of fact not going to the root of the matter, cannot be interfered into the Court.
50. Reference to some precedents, at this juncture, would be useful.
In Satyanarayan Construction Co. V. Union of India (2011) 5SCC101 Hon'ble Supreme Court observed as under:-
13. Thus, as per the contract, the contractor was to be paid for cutting the earth and sectioning to profile etc. @ Rs. 110 per cubic meter. There may be some merit in the contention of Mr. Tandale that contractor was required to spend huge amount on the rock blasting work but, in our view, once the rate had been fixed in the contract for a particular Work the contractor was not entitled to claim additional amount merely because he had to spend more for carrying OMP (COMM) 102/2019 D.D.A. vs. Page 35 of 49 Pramod Kumar Goel out such work. undertaken by the Arbitrator in determining the rate for the work at serial No. 3 of Schedule 'A' was beyond his competence and authority. It was not open to Arbitrator to rewrite the terms of the contract and award the contractor a higher rate for the work for which rate was already fixed in the contract. The Arbitrator having exceeded his authority and power the High Court cannot be said to have committed any error in upsetting the Award passed by the Arbitrator with regard to claim No. 4.
51. In Indian Oil Corporation Ltd. V Shree Ganesh Petroleum, Rajgurunagar 2022 INSC 130, Hon'ble Supreme Court has considered in Arbitral Tribunal failing to act in terms of the contract or ignoring specific terms of the Contract as a patent illegality. The Court observed:-
"44. An Arbitral Tribunal being a creature of contract, is bound to act in terms of the contract under which it is constituted. An award can be said to be patently illegal where the Arbitral Tribunal has failed to act in terms of the contract or has ignored the specific terms of a contract.
45. However, a distinction has to be drawn between failure to act in terms of a contract and an erroneous interpretation of the terms of a contract. An Arbitral Tribunal is entitled to interpret the terms and conditions of a contract, while adjudicating a dispute. An error in interpretation of a contract in a case where there is valid and lawful Submission of arbitral disputes to an Arbitral Tribunal is an error within jurisdiction.
46. The Court does not sit in appeal over the award made by an Arbitral Tribunal. The Court does not ordinarily interfere with interpretation made by the Arbitral Tribunal of a contractual provision, unless such OMP (COMM) 102/2019 D.D.A. vs. Page 36 of 49 Pramod Kumar Goel interpretation is patently unreasonable or perverse. Where a contractual provision is ambiguous or is capable of being interpreted in more Court cannot interfere with the arbitral award, only because the Court is of the opinion that another possible interpretation would have been a better. \
47. In Associate Builders (supra), this Court held that an award ignoring the terms of a contract would not be in public interest. In the instant case, the award in respect of the lease rent and the lease term is in patent disregard of the terms and conditions of the lease agreement and thus against public policy. Furthermore, in Associate Builders (supra) the jurisdiction of the Arbitral Tribunal to adjudicate a dispute itself was not in issue. The Court was dealing with the circumstances in which a Court could look into the merits of an award.
48. In this case, as observed above, the impugned award insofar as it pertains to lease rent and lease period is patently beyond the scope of the competence of the Arbitrator appointed in terms of the dealership agreement by the Director (Marketing) of the Appellant.
49. The lease agreement which was in force for a period of 29 years with effect from 15th April, 2005 specifically provided for monthly lease rent of Rs. 1750 per month for the said plot of land on which the retail outlet had been set up. It is well settled that an Arbitral Tribunal, or for that matter, the Court cannot alter the terms and conditions of a valid contract executed between the parties with their eyes open."
52. In National Hydroelectric Power vs. General Electric Company FAO(OS) 554/2010 decided on 29.04.2013, Hon'ble High Court of Delhi observed:-
59. This formula was arrived at by the OMP (COMM) 102/2019 D.D.A. vs. Page 37 of 49 Pramod Kumar Goel parties of their own free will and accord.
Having done so, it did not lie in the mouth of the respondent/claimants to contend that the said formula did not grant them adequate price variation as, upon the application of the formula incorporated in the contract, they did not get price variation on the element of advance payment, or the final payment. This aspect could have been raised by the respondents/contractors, at the time of negotiation of the contract with the appellant. Having consciously agreed to the terms as set out in the contract, which included the formula to be applied for price variation, the respondents could not have chosen the route of arbitration to seek to amend the contractual terms to undo - what they thought, was unfair to them.
74. Merely because it may have appeared to the Arbitral Tribunal- equitable and fair to grant escalation/price variation by adopting a different formula or, different indices, than what is agreed to between the parties expressly in the contract, is no ground for the Arbitral Tribunal to depart from the express agreement between the parties. Once the parties have laid down the formula by which escalation/price variation shall be computed, only that formula can be applied, and it is not open to the Arbitral Tribunal to either vary the formula or apply indices different from those prescribed in the formula contained in the contract.
Unfortunately, the learned Single Jude has not examined the objections raised by the appellant in depth. No doubt, the scope of interference with an Arbitral Tribunal is limited. But it does not mean that the Court will not examine in depth the objections raised by the objector falling within that limited scope.
53. Thus, it is clear that an award would not be immune from judicial review or interference in case the basic OMP (COMM) 102/2019 D.D.A. vs. Page 38 of 49 Pramod Kumar Goel terms or conditions of the very contact are found to have been transgressed. The restraint to look into the interpretation of a Provision by the Ld. Tribunal is also not an absolute concept and is subject to just exception. In a recent decision, in Union Of India & Anr. vs M/S Jindal Rail Infrastructure Limited [O.M.P. (COMM) 227/2019], Hon'ble High Court of Delhi has observed as under:-
"65. As stated above, the said award is based on interpretation of Clause 2.4 of the Agreement (renumbered as Clause 2.8 of the Agreement), as according to the Arbitral Tribunal, the said clause did not entitle the Railways to place an order for additional quantities at the price quoted by tenderer, if there was a substantial increase in the market value or the cost of manufacturing of wagons. This was not a case set up by JRIL in its Statement of Claims.
68. A commercial contract between the parties cannot be avoided on the ground that one of the parties subsequently finds it commercially unviable to perform the same. The Arbitral Tribunal has, essentially, re-worked the bargain between the parties and re- written the contract. This is, clearly, impermissible.
70. There is no dispute that the interpretation of a contract falls within the jurisdiction of an arbitral tribunal and an arbitral award based on a plausible interpretation of a contract cannot be interfered with under the provisions of Section 34 of the A&C Act.
75. In cases where it is found that the terms of the contract do not clearly express the intentions of the parties, it is open to seek recourse to various tools of interpretation. This would include interpreting a contract in a manner that would make commercial sense as it is assumed that men of commerce would have intended it so. However, it is not open to re-OMP (COMM) 102/2019 D.D.A. vs. Page 39 of 49
Pramod Kumar Goel work a bargain that was struck between the parties on the ground that it is commercially difficult for one party to perform the same.
76. The decision of the Arbitral Tribunal to award the difference between the price quoted by the tenderers and the price quoted by JRIL, is unsustainable. It amounts to re-writing the contract between the parties. The impugned award is in conflict with the fundamental policy of Indian law and is vitiated by patent illegality."
54. Summing it up, as far as the aspect of rate of derivation is concerned, the Courts finds that award is based on an erroneous finding of duress and operates against the agreed terms of the contact.
55. Coming now to the last limb of challenge i.e. in respect of damages on account of loss/ profit/ profitability idle labour and machinery. Ld. Arbitral Tribunal had made the following observations in respect of the said claim.
Issue No. 9 : Whether the Claimant is entitled to any payment on account of loss of profit and damages/losses of idol labour etc. due to diminution and productivity during the contract period? If so, to what amount ?
137. The Claimant has also given the details of resources which remained idle, which total up to Rs. 1,03,200/- per month. In addition there were other miscellaneous expenses during the stipulated period which inter-alia include office rent, power bill, salaries of office staff, stationary, postage, telephone bills; interest on borrowed capital, travel expenses, car expenses etc. In addition there was cost of small tools and plants which are also included under this head. The OMP (COMM) 102/2019 D.D.A. vs. Page 40 of 49 Pramod Kumar Goel Claimant estimates this at Rs. 20,000/- per month. Therefore the total expenditure per month towards overheads works out to Rs 1,23,200/- per month and for two months the Claimant has claimed Rs. 2,46,400/- under this head.
139. The site was handed over to the Claimant on 21.04.2011. The stipulated date for commencement of work was 01.05.2011. Work had to be completed by 30.06.2011. It has already been held that the delay was on account of hindrances attributable to the Respondent. The work was actually completed on 02.09.2011. The Respondent granted extension of time without levy of any penalty. Thus it is clear that that work was completed in twice the time which was originally contemplated. The Claimant is entitled to be compensated for loss of profitability and expenses on account of establishment for the period of two months. It may be noted that the contract was completed in twice the time which was originally contemplated. It has also to be noted that the hindrance by the neighbouring landowners started on 10.05.2011. Apparently, the Claimant must have made all arrangements by that date and started the work. Stoppage of work after the schedule date of start clearly means that all resources, labour etc. must have been available at site and must have been idle for the entire period the work could not be carried out. The Claimant could not have removed anything from the site as he had no means to know when the hindrances would be cleared. RW-1 has admitted that while calculating rates for contractor, profit is taken as 7.5% and overheads are also taken as 7.5%.
140. Keeping in view the fact that the contract period was extended to twice the contemplated period, I find that the Claimant is entitled to 7.5% of the contract value towards loss due to idle labour, OMP (COMM) 102/2019 D.D.A. vs. Page 41 of 49 Pramod Kumar Goel machinery etc. I, award a sum of Rs.
2,46,000/- in favour of the Claimant. The Claimant also suffered loss of profitability during the period of two months which is assessed at Rs.1,00,000/-.
56. The aforesaid findings of the Ld. Tribunal are challenged on the ground that there is no iota of evidence of damages and the amount has been awarded on the basis of mere inferences. Attention of the Court has been invited towards the only evidence available on record in this respect i.e. Ex.C-26 (Colly.) i.e. the document relating to expenses towards man and machinery. It is the contention of Ld. Counsel for the petitioner that the said documents are copies of loose vouchers and neither the witnesses in this respect have been examined nor any account books have been produced and the said evidence cannot be taken into consideration. It is another contention of the petitioner side that if at all the hindrances were not removed the respondent was not justified in placing its man and machinery and to claim damages on this account. Besides it is contended that the loss of profit could not be calculated on the basis of assumption of profits @ 7.5% as has been done in the present case as it was for respondent to prove by way of reliable evidence that on account of such deployment of man and machinery he had incurred a loss in other contracts.
OMP (COMM) 102/2019 D.D.A. vs. Page 42 of 49Pramod Kumar Goel
57. The contentions of Ld. Counsel for the petitioners seem to be carrying considerable weight.
58. Hon'ble Supreme Court in Batliboi Environmental Engineers Limited vs. Hindustan Petroleum Corporation Limited & Ors. in Civil Appeal No. 1968 of 2012 decided on 21.09.2023 has observed as under:-
"22 . The formula suggested by Hudson in his 10th edition of the book Building and Engineering Contracts for the computation of damages takes the head office and profit percentage as a proportion of the contract value. The formula assumes that the profit judged by the builder/contractor is in fact capable of being earned by her/him elsewhere had the builder/contractor been free to leave the contract at the proper time. The formula is couched on three assumptions. First, that the contractor is not habitually or otherwise underestimating the cost when pricing; secondly the profit element was realistic at that time; and lastly, there was no fluctuation in the market conditions and the work of the same general level of profitability would be available to her/him at the end of the contract period. Satisfaction of these assumptions should be ascertained when we apply Hudson's formula for computing the damages. Material should be furnished by the claimant to justify and assure that the assumptions for applying Hudson's formula are met.
23. Ordinarily, when the completion of a contract is delayed and the contractor claims that s/he has suffered a loss arising from depletion of her/his income from the job and hence turnover of her/his business, and also for the overheads in the form of workforce expenses which could have been deployed in other contracts, the claims to OMP (COMM) 102/2019 D.D.A. vs. Page 43 of 49 Pramod Kumar Goel bear any persuasion before the arbitrator or a court of law, the builder/contractor has to prove that there was other work available that he would have secured if not for the delay, by producing invitations to tender which was declined due to insufficient capacity to undertake other work. The same may also be proven from the books of accounts to demonstrate a drop in turnover and establish that this result is from the particular delay rather than from extraneous causes. If loss of turnover resulting from delay is not established, it is merely a delay in receipt of money, and as such, the builder/ contractor is only entitled to interest on the capital employed and not the profit, which should be paid. The High Court of Justice Queen's Bench Division in the case of Property and Land Contractors Ltd. v. Alfred McAlpine Homes North Ltd. (1995) 76 BLR 59 succinctly points the in-
exactitude of Hudson's formulae, by observing:
Furthermore the Emden formula, in common with the Hudson formula (see Hudson on Building Contracts, (11th edn, 1995) paras 8-182 et seq) and with its American counterpart the Eichleay formula, is dependent on various assumptions which are not always present and which, if not present, will not justify the use of a formula. For example the Hudson formula makes it clear that an element of constraint is required (see Hudson para 8.185) ie in relation to profit, that there was profit capable of being earned elsewhere and there was no change in the market thereafter affecting profitability of the work. It must also be established that the contractor was unable to deploy resources elsewhere and had no possibility of recovering cost of the overheads from other sources, e.g. from an increased volume of the work.
Thus such formulae are likely only to be of value if the event causing delay is (or has the characteristics of) a breach of OMP (COMM) 102/2019 D.D.A. vs. Page 44 of 49 Pramod Kumar Goel contract.
59. Hon'ble Supreme Court in M/s. Unibros vs. All India Radio in Civil Appeal No., arising out of SLP (Civil) NO. 8791/2020 decided on 19.10.2023 has observed as under:-
"13. Having read the Second Award, we have no hesitation to hold that it fares no better than the First Award, for, it is equally in conflict with the public policy of India. We have noticed from the order dated 20th May, 2002 of the learned Single Judge that while remitting Claim No.12 for re- consideration, the Arbitrator was warned not to be influenced by the factors that weighed in his mind while making the First Award. The Arbitrator was also required to proceed only on the basis of the evidence on record. Yet, regrettably, what we find is that the Arbitrator went on to ignore the judicial decision of the High Court with impunity. He once again emphasized on delay caused by the respondent in completion of the works entrusted to the appellant by not providing complete site and drawings within the stipulated contract period and that non-handing over of site certainly constituted fundamental breach of contract vitiating the entire contract. He then referred to Hudson's espousal of fundamental breach of contract which, according to him, was the standard text in all engineering and building contracts. It is, therefore, apparent that the factors which weighed in the Arbitrator's mind in the first round and the second round are one and the same. To avoid any charge of being branded as a mirror image of the First Award insofar as Claim No.12 is concerned, the Second Award appears to have been expressed in language and form different from the earlier one without, however, there being any change in substance.OMP (COMM) 102/2019 D.D.A. vs. Page 45 of 49
Pramod Kumar Goel
14. It is elementary, though it has to be restated, that a judicial decision of a superior court, which is binding on an inferior court, has to be accepted with grace by the inferior court notwithstanding that the decision of the superior court may not be palatable to the inferior court. This principle, exproprio vigore, would be applicable to an arbitrator and a multi-member arbitral tribunal as well, particularly when it is faced with a judicial decision (either under section 34 or section 37 of the Act) ordering a limited remand. In the wake of authority of judicial determination made by the Courts of law, any award of an arbitrator or a tribunal that seeks to overreach a binding judicial decision, in our opinion, does conflict with the fundamental public policy and cannot, therefore, sustain.
15. Considering the aforesaid reasons, even though little else remains to be decided, we would like to briefly address the appellant's claim of loss of profit. In Bharat Cooking Coal (supra), this Court reaffirmed the principle that a claim for such loss of profit will only be considered when supported by adequate evidence. It was observed:
"24. ... It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilised the same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same." (emphasis ours)
16. To support a claim for loss of profit OMP (COMM) 102/2019 D.D.A. vs. Page 46 of 49 Pramod Kumar Goel arising from a delayed contract or missed opportunities from other available contracts that the appellant could have earned elsewhere by taking up any, it becomes imperative for the claimant to substantiate the presence of a viable opportunity through compelling evidence. This evidence should convincingly demonstrate that had the contract been executed promptly, the contractor could have secured supplementary profits utilizing its existing resources elsewhere.
17. One might ask, what would be the nature and quality of such evidence? In our opinion, it will be contingent upon the facts and circumstances of each case. However, it may generally include independent contemporaneous evidence such as other potential projects that the contractor had in the pipeline that could have been undertaken if not for the delays, the total number of tendering opportunities that the contractor received and declined owing to the prolongation of the contract, financial statements, or any clauses in the contract related to delays, extensions of time, and compensation for loss of profit. While this list is not exhaustive and may include any other piece of evidence that the court may find relevant, what is cut and dried is that in adjudging a claim towards loss of profits, the court may not make a guess in the dark; the credibility of the evidence, therefore, is the evidence of the credibility of such claim.
18. Hudson's formula, while attained acceptability and is well understood in trade, does not, however, apply in a vacuum. Hudson's formula, as well as other methods used to calculate claims for loss of off-site overheads and profit, do not directly measure the contractor's exact costs. Instead, they provide an estimate of the losses the contractor may have suffered. While these formulae are helpful when OMP (COMM) 102/2019 D.D.A. vs. Page 47 of 49 Pramod Kumar Goel needed, they alone cannot prove the contractor's loss of profit. They are useful in assessing losses, but only if the contractor has shown with evidence the loss of profits and opportunities it suffered owing to the prolongation.
19. The law, as it should stand thus, is that for claims related to loss of profit, profitability or opportunities to succeed, one would be required to establish the following conditions: first, there was a delay in the completion of the contract; second, such delay is not attributable to the claimant; third, the claimant's status as an established contractor, handling substantial projects;
and fourth, credible evidence to substantiate the claim of loss of profitability. On perusal of the records, we are satisfied that the fourth condition, namely, the evidence to substantiate the claim of loss of profitability remains unfulfilled in the present case. time, and compensation for loss of profit. While this list is not exhaustive and may include any other piece of evidence that the court may find relevant, what is cut and dried is that in adjudging a claim towards loss of profits, the court may not make a guess in the dark; the credibility of the evidence, therefore, is the evidence of the credibility of such claim.
60. Considering the observations made by the Hon'ble Supreme Court of India in the aforesaid judgments, it was for the respondent to have proved actual loss and loss of profit/ profitability accordingly could not have been worked on the basis of mere estimation. This appears to be a patent illegality, has also been observed by the Hon'ble courts.
OMP (COMM) 102/2019 D.D.A. vs. Page 48 of 49Pramod Kumar Goel
61. Time now to conclude. Insofar as the questions involved in the present petition are concerned, the Court finds that there is no error or illegality in respect of the findings as to delay, however, insofar as the rate of derivation is concerned, the Ld. Tribunal is found to have ignored the condition duly accepted and binding upon the parties. Insofar as the grant of damage on account of loss of profit/profitability is concerned, the Award suffers from a patent illegality inasmuch as, the same does not conform to the principles of law governing the damages on such counts, as have been observed by the Hon'ble Supreme Court of India in Batliboi Environmental Engineers Limited vs. Hindustan Petroleum Corporation (supra) and M/s. Unibros vs. All India Radio (supra).
62. In view of the above, and having regard to the fact that this Court does not have any power to amend or alter the Award, the Award is to be set aside. Resultantly, the impugned Award dated 16.07.2019 passed by the Ld. Sole Arbitrator is hereby set aside.
63. File be consigned to record room after due Digitally compliance. signed by NIKHIL Dictated and Announced today NIKHIL CHOPRA CHOPRA Date:
i.e. on 19th day of March, 2025 2025.03.20 19:24:16 in the open Court +0530 (NIKHIL CHOPRA) District Judge (Commercial Court-06) Central, Tis Hazari Court, Delhi 19.03.2025 OMP (COMM) 102/2019 D.D.A. vs. Page 49 of 49 Pramod Kumar Goel