Delhi District Court
M/S Dusters Total Solution Services Pvt ... vs All India Institute Of Medical ... on 25 January, 2024
IN THE COURT OF MS SAVITA RAO, DISTRICT JUDGE
COMMERCIAL COURT-01, SOUTH,
SAKET COURTS, DELHI
CNR No. DLST01-004447-2023
OMP (Comm) No. : 30/2023
In the matter of :-
Dusters Total Solutions Services Pvt. Ltd.
Plot no. 11, Third Floor, DDA Community Center
Okhla Industrial Area Phase - I
New Delhi - 110020
............Petitioner
Vs.
All India Institute of Medical Sciences
Ansari Nagar, New Delhi - 110068
..............Respondent
Date of institution of the petitions : 10.05.2023
Date of final arguments : 15.01.2024 & 20.01.2024
Date of Order : 25.01.2024
ORDER
1. This is petition u/s 34 of Arbitration and Conciliation Act, filed by the petitioner seeking partial setting aside of impugned award dated 24.04.2023 passed by Ld. Arbitrator.
2. Petitioner, as stated, is a renowned service provider which is inter alia engaged in the business of providing facility management services of skilled, semi skilled and unskilled manpower to various organizations on all India basis. Petitioner provides a wide range of services from sanitation services to payroll management and from technical services to services like OMP (Comm) No. : 30/2023 1/24 gardening and housekeeping. Respondent is one of the leading medical and health care institutions in the country.
3. Respondent had issued a Tender Enquiry Document (XX- 15/SO (DO) Sanitation Services/2019-20/St.) for the purpose of award of Parallel Rate Contract zone-wise (Zone-I & Zone-II) for outsourcing of sanitation services and glass facade cleaning on two year contract basis on 17.07.2020. Petitioner successfully bid for the said project on 24.07.2020 and was awarded the said work for Zone-II, vide letter of Acceptance dated 23.04.2021. In terms of Letter of Acceptance, petitioner was required to inter alia (i) commence services with effect from 01.05.2021 and (ii) submit Performance Bank Guarantee to the tune of Rs. 3,18,26,136/- i.e. 10% of the contract value of two years for Zone II valid upto 2 years and 4 months. Acting upon the Letter of Acceptance, petitioner furnished the requisite Bank Gurantee dated 15.05.2021 for an amount of Rs. 95,47,841/- issued by Yes Bank Limited which was valid upto 03.09.2023.
4. Thereafter, in furtherance of LOA even though the deployment of employees happened on 01.05.2021, petitioner and respondent formally executed a Parallel Rate Contract for Outsourcing of sanitation services and glass facade cleaning on two-year contract basis in respect of Zone-II on 09.06.2021. Zone -II is divided across the four centres namely, Dr. JPNATC (Jai Prakash Narayan Apex Trauma Centre), Burn & Plastic Surgery, NDDTC Ghaziabad and CRHSP, Ballabgarh, PHC Chhainsa, PHC Dayalpur.
5. During the time of deployment of staff by the petitioner in May 2021, second wave of COVID-19 was at its peak, especially in Delhi. Therefore, petitioner with a view to assist and support OMP (Comm) No. : 30/2023 2/24 the respondent by discharging its obligations under the Contract and in spite of manifold operational challenges, completed the deployment of 419 staff across four locations within an extremetly short period of seven days alongwith all the cleaning material and consumables so that respondent should not face any difficulty in serving COVID-19 patients. Thereafter certain allegations pertaining to non furnishing of certain documents and short payment of the employees, were made by the respondent through various letters which were duly responded by the petitioner.
6. Even though, documents had already been supplied earlier to the respondent, petitioner once again provided all the documents to the respondent again on 17.01.2022 in soft copy under acknowledgment, followed by clearance of payment by the respondent, towards all the invoices raised by petitioner for the relevant months of May, June and July 2021, thereby indicating that either there was no non-compliance on the part of petitioner or non-compliance, if any, was already addressed by the petitioner to the satisfaction of the respondent.
7. On 05.02.2022, respondent again wrote a letter to petitioner stating that the respondent had noticed certain discrepancies viz-a-viz the amount of salary disbursed to the petitioner's employees for the months of May, June and July 2021 and the amount of salary mentioned in their pay slips. The letter further stated that petitioner had failed to provide the transaction details of salaries disbursed to all their employees deployed at JPNATC for the above mentioned period. By way of said letter, petitioner was called upon to submit evidence of wages by the petitioner in all areas other than JPNA Trauma OMP (Comm) No. : 30/2023 3/24 Centre ( i.e. Burns & Plastic Surgery, NDDTC Ghaziabad, CRHSP, Ballabgarh, PHC Chainsa, PHC Dayalpur) within three days.
8. As said, technical violation had inter alia occured due to the system error which was promptly rectified and corrected and the differential amount in the salaries had already been disbursed to the employees under acknowledgment on 03.12.2021. Similarly, it was clarified by the petitioner that there was deduction applicable to all the employees of the petitioner towards Welfare Fund Contribution for an amount of Rs. 20/- only (SEWA) about which all the employees are notified prior to their joining. However, at the specific request of respondent, petitioner duly refunded even the said deduction of Rs. 20/- per month to its employees on 18.01.2022. Petitioner in its reply dated 09.02.2022, besides furnishing detailed clarifications, as above, also submitted the required documents.
9. Thereafter, for four months, there was steady silence on the part of respondent and no clarification with respect to the documents submitted was sought from the petitioner. In fact, after the issuance of petitioner's reply dated 09.02.2022, respondent continued to receive the services under the contract without any demur/complaint and made the monthly payments due to the petitioner under the Contract as late as 24.05.2022 in respect to JPNATC itself. The respondent abruptly issued the impugned letter without meaningfully dealing with the contents of reply letter dated 09.02.2022 or the accompanying documents supplied by the petitioner as to whether and if so, how the documents supplied were inadequate or insufficient.
OMP (Comm) No. : 30/2023 4/2410. Petitioner was shocked to receive the letter dated 26.05.2022 bearing the subject, " Cancellation of Rate Contract of M/s Dusters Total Solutions Services Pvt. Limited w.e.f. 01.06.2022 and Debarment of M/s Dusters Total Solutions Services Pvt. Limited for two years thereof ". Respondent by way of impugned letter also sought to invoke the Performance Security/Bank Guarantee for sum of Rs. 95,47,841/-.
11. Petition under section 9 of Arbitration and Conciliation Act was filed by petitioner before Hon'ble High Court of Delhi seeking stay of termination of services of petitioner, its blacklisting for two years as well as invocation of the Bank Guarantee, wherein Hon'ble High Court vide order dated 31.05.2022, granted an ad interim stay on the impugned letter dated 26.05.2022. Thereafter, as directed by Hon'ble High Court in its order dated 31.05.2022, petitioner also filed petition u/s 11 of Arbitration and Conciliation Act before Hon'ble High Court of Delhi for appointment of Arbitrator in order to resolve the disputes between both the parties, whereby Mr. Aman Ahluwalia was appointed as the Sole Arbitrator for adjudication of the disputes arisen between the parties. Ld. Arbitrator after conclusion of proceedings, passed the impugned award dated 24.04.2023, which is under challenge before the court.
12. It was submitted by Ld. Counsel for respondent that petitioner sought the relief before Ld. Arbitrator pertaining to the termination of the contract, forfeiture of the performance security and blacklisting of petitioner. Ld. Arbitrator passed the award setting aside the order dated 26.05.2022 to the extent that it blacklisted the petitioner/claimant from participating in any tender/procurement process at AIIMS for period of 2 years from OMP (Comm) No. : 30/2023 5/24 the date of order. Ld. Arbitrator further held the order dated 26.5.2022 as valid, in so far as, it terminated the contract under clause 8 (termination for default) and held that the said contract stood validly terminated. Ld. Arbitrator further upheld the forfeiture of the performance security with modification of encashment limited to 50% of the performance security, being an amount of Rs. 47,73,920/-. Petitioner in the instant matter challenged the award qua holding of the termination of the contract as valid and the forfeiture of the performance security to the extent of 50%. It was submitted by Ld. Counsel for respondent that the relief sought by the petitioner amounts to partial modification/interference of the award which is impermissible in the eyes of law. It was submitted that petitioner has accepted the reliefs granted to it by the Ld. Arbitrator and has chosen to challenge it to the extent it has gone against it. Petitioner may not be allowed to approbate and reprobate at the same time.
13. For the abovesaid reliance was placed by Ld. Counsel for respondent upon following authorities:
(i) S.V. Samudram Vs. State of Karnataka and Anothers 2024 SCC Online SC 19, wherein while referring to National Highways Authority of India Vs. M.Hakeen (2021) 9 SCC 1, it was observed that:
" any court under section 34 would have no jurisdiction to modify the arbitral award, which at beast, given the same to be in conflict with the grounds specified under section 34 would be wholly unsustainable in law. The court categorically observed that any attempt to " modify an award"
under section 34 would amount to " crossing the Laxman Rekha".
(ii) Daksin Haryana Bijli Vitran Nigam Limited Vs. Navigant Technologies Private Limited:
OMP (Comm) No. : 30/2023 6/24" 44. In law, where the court sets aside the award passed by the majority members of the Tribunal, the underlying disputes would require to be decided afresh in an appropriate proceeding. Under section 34 of the Arbitration Act, the court may either dismiss the objections filed, and uphold the award, or set aside the award if the grounds contained in sub sections (2) and (2-A) are made out. There is no power to modify an arbitral award. In McDermottInternational Inc. v. Burn Standard Co. Ltd. [McDermottInternational Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181], this Court held as under : (SCC p. 208, para 52) "52. The 1996 Act makes provision for the 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 court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
(iii) Larsen Air Conditioning and Refrigration Company v. Union of India 2023 SCC OnLine SC 982:
15. The limited and extremely circumscribed jurisdiction of the court under Section 34 of the Act, permits the court to interfere with an award, sans the grounds of patent illegality, i.e., that "illegality must go to the root of the matter and cannot be of a trivial nature"; and that the tribunal "must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground" [ref : Associate Builders (supra)].
The other ground would be denial of natural justice. In appeal, Section 37 of the Act grants narrower scope to the appellate court to review the findings in an award, if it has been upheld, or substantially upheld under Section 34. It is important to notice that the old Act contained a provision which enabled the court to modify an award. However, that power has been consciously omitted by Parliament, while enacting the Act of 1996. This means that the Parliamentary intent was to exclude power to modify an award, in any manner, to the court. This position has been reiterated decisively by this court in Project Director, National Highways No. 45E and 220 National Highways Authority of India v. M. Hakeem:
"42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181], [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106], [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on International Commercial OMP (Comm) No. : 30/2023 7/24 Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the "limited remedy" under Section 34 is coterminous with the "limited right", namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996."
14. Ld. Counsel for petitioner submitted that the petitioner does not seek modification in the award and has made limited challenge to the award which is permissible under law. It was submitted that petitioner has prayed for partially setting aside of the Award which is duly permitted and sanctioned under Section 34 of the Arbitration & Conciliation Act, 1996 (the "Act"). As submitted, there can be no dispute with the proposition that the Court under Section 34 does not have power to modify the Award. However, the said Court can very well partially set aside Award as long as the findings can be divided into separate and distinct findings. The Ld. Arbitrator has dealt with each of the findings distinctly and there are three different and separate findings which can be individually set aside or sustained in a severable manner.
15. Ld. Counsel for petitioner placed reliance upon following judgments:
(i) J.G. Engineers v. Union of India &Anr. (2011) 5 SCC, 758:
"25. It is now well settled that if an award deals with and decides several claims separately and distinctly, even if the court finds that the award in regard to some items is bad, the court will segregate the award on items which did not suffer from any infirmity and uphold the award to that extent."
(ii) JC Budhiraja Chairman, v. Orissa Mining Corporation Ltd., SCC 444 (2008) 2:
OMP (Comm) No. : 30/2023 8/24" 34. Does it mean that the entire award should be set aside? The answer is, no. That part of the award which is valid and separable can be upheld."
(iii) Union of India & Anr. Vs. Alcon Builders Engineer Private Limited 2023 SCC OnLine Del 160 " 18. In the course of hearing the parties, a preliminary query was raised as to whether, in exercise of its jurisdiction under section 34 of the A& C Act, this court can partly set aside an arbitral award. Learned Counsel for the parties answered the query in affirmative, to say that in any case, the challenge was only to the arbitrator's decidion on two aspects; and the parties have accepted and acted upon the rest of the award. That being said however, this court finds it necessary to refer to the decision of Supreme court in NHAI Vs. M. Hakeen, in which case, it was held that the court's power under section 34 of the A&C Act does not include the power to "
modify" an award. The question then arises whether partial setting aside of an award would amount to " modification" thereof.
38.........Thus, we proceed to record our answers to the questions framed as follows:
1. The judicial discretion vested in the court in terms of the provisions of section 34 of the Arbitration and Conciliatin act, 1996 takes within its ambit power to set aise an award partly or wholly depending on the facts and circumstances of the given case.......The legislature has vested wide discretion in the court to set aside an award wholly or partly, of course, within the strict limitations stated in the said provisions. The scheme of the Act, the language of the provisions and the legislative intent does not support the view that judicial discretion of the court is intended to be withheld down by these provisions.
2. The proviso to section 34 (2) (a) (iv) has to be read ejusdem generis to the main section, as in cases falling in that category, there would be an absolute duty on the court to invoke the principle of severability where the matter submitted to arbitration can clearly be separated from the matters not referred to arbitration and decision thereupon by the Arbitral Tribunal".
(iv) NHAI vs. Additional Commissioner Nagpur 2023 (2) Mh.L.J. 221 :
" This court is of the opinion that in the present case, each of the issues decided by the Arbitrator were separate and distinct, particularly the issue pertaining to additional amount to be awarded for loss of easementary rights and therefore, it cannot be said that PDJ while passing the impugned order, erred in partly setting aside the Award to that extent".
(v) John Peter Fernandes Vs. Saraswati Ramchandra 2023 SCC Online Bom 676 :
OMP (Comm) No. : 30/2023 9/24" 25. As noted herein above, partial setting aside of the award is justified when the doctrine of severability can be applied. This court is of the opinion that applying the said doctrine, the impunged award deserves to be party set aside, in so far as direction no. II is concerned, while sustaining the remainder of the award".
16. It is correct that petitioner has made challenge to the observations of Ld. Arbitrator pertaining to limited aspect. Petitioner has sought setting aside of the observation of Ld. Arbitrator pertaining to termination of the contract and forfeiture of 50% of the performance security. Thereby, the challenge made to the observations of Ld. Arbitrator is partial, however the same does not amount to modification. As observed in authorities (supra), section 34 of Arbitration and Conciliation Act provides only for setting aside award on very limited grounds, such grounds being contained in sub sections (2) and (3) of section 34 of the Act. The courts do not have power to modify the award , however, the part of the award which is valid and separable can be upheld or there may be scope of judicial interference to set aside the award or to remand the matter on the grounds enumerated in section 34.
17. As petitioner is seeking setting aside of the observation pertaining to termination of the contract and forfeiture of 50% of the performance security, the abovesaid apparently does not amount to seeking modification of the award but is seeking setting aside of the observation of Ld. Arbitrator pertaining to only points B and C of the conclusion. 2. As noted in authorities (supra), the proviso to section 34 (2) (a) (iv) has to be read ejusdem generis to the main section, as in cases falling in that category, there would be an absolute duty on the court to invoke the principle of severability where the matter submitted to OMP (Comm) No. : 30/2023 10/24 arbitration can clearly be separated from the matters not referred to arbitration and decision thereupon by the Arbitral Tribunal. Each of the issues decided by the Arbitrator are separate and distinct, therefore, consideration of submission of petitioner seeking partial setting aside of the award shall be justified when the doctrine of severability can be applied. Having considered as above, the objection petition filed u/s 34 of Arbitration and Conciliation Act qua the challenge to particular observations of Ld. Arbitrator, being severable and distinct, is maintainable.
18. It was submitted by Ld. Counsel for petitioner that respondent has made two fold plea, that (1) the Petitioner had not provided bank statements i.e. evidence of wages paid to the employees and (2) that the Petitioner has made deficient payment to its own employees during the peak COVID period comprising of three months i.e. May, June and July, 2021. However, Ld. Arbitrator has not rendered a finding on the extent of short payment because of no evidence led by the Respondent to prove the same. As submitted, in Para 89 of the award, Ld. Arbitrator has admitted that the Respondent has not led any evidence to prove the total extent of the shortfall. On the contrary, there are bald and inconsistent figures / pleadings by the Respondent in the Statement of Defence which have been stoutly denied by the Petitioner. These are wild and imaginary figures of short payment which have been held to be disproved by the Ld. Arbitrator in para 89 on the basis of lack of evidence by the Respondent. It was further submitted that the deficient payment pertained to three different buckets as highlighted in the Petitioner / Claimant's Written Submission before the Ld. Arbitrator which OMP (Comm) No. : 30/2023 11/24 were duly refunded and re-paid on 14.01.22, 20.09.21 and 03.12.21.
19. Per contra, it was submitted by Ld. Counsel for respondent that respondent placed on record, additional documents in the nature of pay slips, bank statements and other document(s) to show how much less salary has been paid to the sanitation workers. In one case of sanitation worker namely Ms. Durga (Employee Code No. - 0440533) pay slip for the month of May, 2021 reflects that the gross pay was Rs. 18,822.00/-. After deduction of Rs. 3,256.00/-, the net pay made by the Respondent to the Claimant was Rs. 15,566.00/-. However, as per the bank statement submitted by the Claimant to the Respondent on 17.01.2022 vide email, no payment was made to the said sanitation worker. Similarly for the month of June, 2021, the Respondent has paid to the Claimant a sum of Rs. 15,566.00/-. However, the Claimant has paid the sanitation worker Rs. 14,628.00/-. Similarly, for the month of July 2021, the Respondent has paid Rs. 16,853.13/- to the Claimant as Net Pay for the said employee. However, the bank statements reveal that the said employee has received only Rs. 14,052.00/-.
20. As further submitted by Ld. Counsel for respondent, similarly, there were many other employees who had received less salaries than their Net Pay and in these circumstances, there is no patent illegality, going to the root of the matter, warranting the impugned award to be set aside. Not only the reasoning of the Ld. Sole Arbitrator is logical, but all the material and documentary evidence was taken note of, by the Ld. Sole Arbitrator before passing of the impugned award.
OMP (Comm) No. : 30/2023 12/2421. In terms of award, Ld. Arbitrator observed with regard to short payments made by petitioner to its workers with specific reference to names of many such workers. It was specificially noted by Ld. Arbitrator that there had been short payments during the relevant period and the petitioner had been far from forthright in acknowledging this, let alone rectifying it. As noted by Ld. Arbitrator:
" 86. ....Claimant had consistently taken the position that it is AIIMS that is alleging breach, and it is therefore AIIMS that has to prove the breach. The claimant has therefore consciously elected not to file bank statements to show that full payment had been made to each employee. It has, instead, preferred to sit back, content in the belief that the burden to prove short payment would be too heavy and cumbersome for AIIMS to bear or discharge. Claimant has entirely failed to appreciate that once AIIMS has led evidence which ex-facie and prima facie suggests short payments, the onus then shifts on the claimant/petitioner to show that payment has in fact been made to its employees in the manner stated by it".
" 87. .......Overall weighing the evidence in totality, claimant has failed to prove that it has made full payment to the employees. The evidence on record, on an overall consideration, clearly points in the direction that there has been short payment in the initial months of the contract, and that such short-payment is far from trivial, but is of a reasonably significant extent. For example, there are some cases like Ms. Durga where across three months, the deficient payment is very small and some amount also appears to have been paid in December 2021 towards curing this deficiency. If all the instances of short payment had been of this nature of small discrepancies, it may not have warranted termination of the contract. However, I cannot lose sight of the fact that there are other cases such as Mr. Jogendra and Ms. Chinta where no payment at all appears to have been made for certain months despite pay slips being filed with AIIMS and the claimant seeking its payment from AIIMS on that basis. These are therefore major discrepancies and ones that do not appear to have been cured by the differential payments made in December 2021. No explanation is forthcoming from the Claimant in its reply to IA No. 2 ( or in IA no. 3 filed by it) seeking to explain such major discrepancies. No evidence has been put forward by the claimant to suggest that these employees were actually paid for the concerned months".
22. Ld. Counsel for petitioner also submitted that deficiency in payment was due to software migration since there were many cases where excess wages were also paid to the workers, which OMP (Comm) No. : 30/2023 13/24 as submitted, was clear from para 126 of the award wherein Ld. Arbitrator has rendered a finding that in some cases certain employees were indeed paid amount more than what was due to them so there could not have been any fraud by the Claimant. It was further submitted that with respect to whether there was a software issue or not, Ld. Arbitrator has unfortunately not rendered any specific finding on the said issue. However, after formulating the question whether short payment was on account of genuine bona fide error or fraud on the Claimant's part, he has given elaborate reasons while ruling out any fraud on the part of the Claimant thereby indicating that the short payments were indeed on account of genuine bona fide error.
23. On the above aspect, Ld. Arbitrator has observed as follows:
" 88. This fact of short payment must also be seen in conjunction with the claimant's conduct from September 2021 onwards. The Claimant, for several months, refused to produce any Bank Statement. The details provided by the claimant on 11.10.2021 mentioned the correct date of transaction, and even correct transaction reference number, but the amounts were not the amounts that were actually credited to employees. Under the column " net pay", claimant had simply mechanically indicated the amount as per the salary slip, and then added a column with transaction number and date, which gave the impression that this was the amount transferred on that date under that transaction number. In reality, that amount was simply the amount payable as net pay, and in many cases, was at variance from the amount actually transferred. The amount actually transferred was never indicated. This was not the result of any software error as that chart was prepared and sent on 11.10.2021 once AIIMS had raised queries and asked for information. Further, claimant withheld the bank statements for as long as was possible. Not once, but twice, the claimant purported to enclose the relevant bank statement, but there was in fact no enclosure with its letter. When the document from SBI Ansari Nagar was specifically put to the claimant in the first show cause notice, the claimant elected to ignore it altogether. Instead, it attempted, at that stage, to make some payment to employees on 3.12.2021, and pass that off as having fully cleared the short payment in the hope that such additional payment of Rs. 10 lakh would not invite further scrutiny of the issue. That payment of approximately Rs. 10 lakh does not appear to fully discharge the discrepancies, at least in the few cases that are highlighted in IA no. 2. Unfortunately (for the claimant), AIIMS did proble the matter further, and called for a meeting in January OMP (Comm) No. : 30/2023 14/24 2022. It is only when an ultimatum was given in that meeting that claimant finally produced bank statement".
24. The other contention of Ld. Counsel for petitioner was that there are around 40,000 employees working across 3700 client sites for the Petitioner and it was not easy for Petitioner to retrieve and pin point the details of the four hundred (400) employees working at one site. Further, there is no contractual obligation to share Bank Statements.
25. Ld. Counsel for petitioner put much of the emphasis on the submission that under the Contract, the Petitioner is responsible for payment of salaries and wages of sanitation attendants deployed by the Petitioner on the site of the Respondent AIIMS. These attendants always remain on the payrolls of the Petitioner and not the Respondent. Assuming the Petitioner is not paying full wages to its sanitation attendants, there are two options open for the said sanitation attendants. Either they can file a claim against the Petitioner (DTSS) under section 15(2) of Payment of Wages Act, 1936, or in case, petitioner is not making the payment, the attendants can file a claim against AIIMS as well under Section 15(2) of Payment of Wages Act which has a limitation of twelve (12) months, which has expired in July, 2022 since the period pertains to May-July, 2021. It is only upon making payment can the AIIMS recover the amount so paid from the Petitioner and not otherwise or before.
26. As further submitted, in terms of Clause 6.20 which mirrors the statutory mandate under Section 21(4) of the CLRAA, unless "AIIMS was called upon to make payment to or in respect of the Petitioner's employees", no loss can be said to be caused to AIIMS. In the present case, there is no pleading OMP (Comm) No. : 30/2023 15/24 regarding any loss suffered by the Respondent as a result of the Petitioner's breaches even assuming there were breaches and naturally, therefore there is no evidence regarding any loss suffered by the Respondent as a result of the Petitioner's alleged breaches.
27. It was further submitted by Ld. Counsel for petitioner that in the Award, neither there is any finding on the losses suffered by the Respondent as a result of the Petitioner's breaches nor there is any counter claim by the Respondent. There was no attempt by the Respondent to establish that they had suffered any loss or damage on account of the alleged breach committed by the Respondent. Even otherwise, in accordance with Section 15(2) of the Payment of Wages Act, 1936, the possibility of any claim in future against AIIMS is negligible. So, there is no real possibility of AIIMS suffering any loss whatsoever. In spite of all the above, Ld. Arbitrator has permitted encashment of performance bank guarantee which is contrary to Section 73/74 of the Indian Contract Act, 1872 which is impermissible. The said encashment is nothing but a windfall and is contrary to the settled legal position propounded by the Hon'ble Supreme Court and the various High Courts of India including the Hon'ble Delhi High Court.
28. Ld. Counsel for petitioner reiterated that if none of the workers have filed any proceedings so far, the limitation period to claim the same has already expired and even if presuming though not admitting the short payment to any of the workers, no liability can be fastened upon the respondent now. Thereby respondent should not be permitted the unjust enrichment with encashment of 50% of the performance security amount.
OMP (Comm) No. : 30/2023 16/2429. For the abovesaid, reliance was placed by Ld. Counsel for petitioner upon following authorities:
(i) Union of India v. Rampur Distillery & Chemical Co. (1973) 1 SCC 649 "4. It is important that the breach of contract caused no loss to the appellants. The stipulated quantity of sum was subsequently supplied to the appellants by the respondents themselves at the same rate. The appellants, in fact, made no attempt to establish that they had suffered any loss or damage on account of the breach committed by the respondents."
(ii) Vishal Engineers & Builders v. Indian Oil Corporation 2011 SCC ONLINE 5124 (See Para 13, 20 (Citing IOC v. Lloyds Steel) "13. The question which, thus, arises is whether in view of such a stipulated amount damages are liable to be paid ipso facto without any further proof qua the issue of sufferance of damages or quantification thereof or something more is required to be done."
........
20. ...........
41. In a case when the party complaining of breach of the contract has not suffered legal injury in the sense of sustaining loss or damage, there is nothing to compensate him for; there is nothing to recompense, satisfy, or make amends. Therefore, he will not be entitled to compensation See State of Kerala v. United Shippers and Dredgers Ltd. MANU/KE/0064/1982 :
AIR1982Ker281. Even in Fateh Chand (supra) the Apex Court observed in no uncertain terms that when the section says that an aggrieved party is entitled to compensation whether actual damage is proved to have been caused by the breach or not, it merely dispenses with the proof of 'actual loss or damage'. It does not justify the award of compensation whether a legal injury has resulted in consequence of the breach, because compensation is awarded to make good the loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach. If liquidated damages are awarded to the petitioner even when the petitioner has not suffered any loss, it would amount to 'unjust enrichment', which cannot be countenanced and has to be eschewed.OMP (Comm) No. : 30/2023 17/24
42. It is too preposterous on the part of the petitioner to submit that it should get the liquidated damages stipulated in the contract even when no loss is suffered."
.................
23. In our view these observations have to be read in the context of the pronouncement of the Constitution Bench pronouncement in Fateh Chand case (supra). If it is so, all that it implies is that where it is impossible to assess the compensation arising from breach and that factor is coupled with the parties having agreed to a pre-determined compensation amount not by way of penalty or unreasonable compensation then that amount can be awarded as a genuine pre-estimate of the loss suffered by a party. It cannot be read to mean that even if no loss whatsoever is caused to party it can still recover amounts merely by reason of the opposite party being in breach.
26. We have, thus, no hesitation in concluding that if there was absence of any loss whatsoever, an aggrieved party cannot claim that it is still entitled to liquidated damages without, at least, proving a semblance of loss."
(iii) Kailash Nath Associates v. DDA, (2015) 4 SCC 136 :
"44.......The most basic principle on the award of damages-- namely, that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall."
(iv) Unibros vs. All India Radio 2023 SCC, OnLine SC 1366, " 20.....A claim for damages, whether general or special, cannot as a matter of course result in an award without proof of the claimant having suffered injury. The arbitral award in question, in our opinion, is patently illegal in that it is based on no evidence and is, thus, outrightly perverse; therefore, again it is in conflict with the " public policy of India" as contemplated by section 34 (2) (b) of the Act".
30. Ld. Counsel for respondent submitted that numerous complaints had been received from the workers, based upon which, the requisite documents were asked from the petitioner. Petitioner was unable to provide requisite documenatry evidence in respect of irregularities in payment released for the months of May to July 2021. The outstanding payment was against deficient salary as calculated by JPNATC and the same was shown to petitioner in November 2021. Even after this, petitioner made OMP (Comm) No. : 30/2023 18/24 good on payment amounting to only Rs. 10 lacs. Many verbal opportunities alongwith written notices had been served upon the petitioner as well as personal hearings for rectifying the bills but every time petitioner escalated the time required for redressal of these issues and assured that the discrepancies will be rectified as soon as possible. Petitioner also tried to evdade providing evidence of transactions made, constraining JPNATC to write directly to the banks and details of transactions made for employees, which indicated that payment being made to employees was not in accordance with the pay slips generated. Petitioner was provided sufficient time to make good on deficient payments and provide the documentary evidence but only proof of some of the payments were submitted and the petitioner failed to make good on the entire payments. Petitioner failed to discharge the onus and to satisfy with regard to clearance of its liability towards the payment to workers. It was submitted that so far respondent has not paid to any of the workers but has undertaken that in the eventuality of any liability, it would be the respondent who would be making the payment.
31. This court is not amused with the submission of Ld. Counsel for petitioner that there is no contractual obligation to share Bank Statements. The contention of petitioner that respondent could have calculated the shortfall if it really wished to, as it had both the pay slips and the Bank Statements and still failed to do so does not stand to logic. Though much of the emphasis has been put with regard to finding of Ld. Arbitrator on the quantum of short payment solely based on the pleading of the respondent, however, it was the petitioner with whom the best evidence was available, which it OMP (Comm) No. : 30/2023 19/24 failed to furnish to the respondent or even before Ld. Arbitrator. Ld. Arbitrator, in these circumstances, proceeded to record :
" 89. .......The conclusion as to short payment is not extrapolated from four employees. Rather, those cases reveal a pattern - a pattern in which claimant revealed the transaction details (date and reference number) on 11.10.2021, but never revealed the amount actually transferred. It prepared the enclosures to that letter in a way which suggested that the amount being transferred was the " net pay". This was not the case, at least not in several cases. The actual amount that was transferred would be known only from the bank statements. Those bank statements were withheld for four months despite repeated requests to furnish them. When AIIMS received independent verification as to short payment from State Bank of India, Claimant acknowledged short payemnt and disbursed sum of Rs. 10 lacs approximately to the employees in the hope that this would bring a quietus to the matter. That amount disbursed has little connection with the actual shortfall, and does not appear to fully discharge it. Although respondent has not led evidence to prove the total extent of the shortfall, it has averred that the shortfall was Rs. 32 lacs approximately for the period May to October 2021. Since no evidence has been led on the extent of short payment, I am not in a position to render a finding on that. However, it does appear to be a sufficiently serious breach of the claimant's payment obligations so as to warrant termination.
90. It is undeniable that one of the key obligations of the claimant, under clause 7.1.2, is that the staff employed by them must be paid their salary. The Claimant has failed to perform that contractual obligation satisfactorily. I may further add that the fact that there is a statutory provision or a contractual provision (in Clause 6.20) whereby AIIMS can seek indemnification from the Claimant if it is called upon to discharge any liability to the employees, has no bearing on the termination clause in the contract. The termination clause is expressly without prejudice to any other contractual rights and remedies, and where there is a failure to pay employees their salary due, it cannot be the position that AIIMS is relegated only to indemnification under clause 6.20. I therefore find that there were justifiable grounds for termination, and the contract has been validly terminated by AIIMS ".
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136. ......It is necessary to bear in mind that the contract has been almost fully performed, and only some days remain left before the contract terms period itself expires. No doubt, the performance security is not just for any performance, but in terms of the recitals in the guarantee, ' security for compliance with its obligations in accordance with the contract'. Thus, the contract period may be nearing an end, but the fact remains that the claimant does not not appear to have discharged its obligations in accordance with the contract. .........The allegations of short payment do not extend beyond the first six months of the contract (at the most) , i.e. 25% of the contract period. The outstanding short payment for JPNATC has been quantified as approximately Rs. 22 lakh, which is a little less than 25% of the maximum OMP (Comm) No. : 30/2023 20/24 amount of performance security. This amount relates only to JPNATC employees, which are roughly half of the total employees deployed under the Contract. Taking into account the overall facts, and particularly the fact that claimant did not provide bank statements for the remaining three centres in response to letter dated 5.2.2022, and that there exists the possibility of short payment at those centres also, I find that the respondent may be allowed to encash the performance security to the extent of 50% i.e. Rs. 47,73,920/-. It is hoped, as was the recommendation of JPNATC recorded in the impugned order, that the proceeds from such encashment would be utilized towards payment of the entire dues of the employees".
32. With respect to forfeiture of bank guarantee, it was observed by Ld. Arbitrator :
" 131. Tuning finally to the forfeiture of the performance bank guarantee to the extent of Rs. 95,47,841/-. The said Bank Guarantee has been issued by Yes Bank on 15.05.2021 and is valid till 3.9.2023. The terms of the guarantee suggest that the bank is liable upto a total of Rs. 95,47,841/-, and that the bank undertakes to pay on demand once AIIMS declares the claimant to be in default, any sum or sums within the limits of Rs. 95,47,841/-. Thus, the terms of the guarantee make the issuing bank liable to pay the guaranteed amount or any part thereof, upon a written claim or demand declaring the claimant to be in default .
132. Reference may also be made to the contractual provisions on performance security. Clause 2 of the General Conditions of contract requires the PBG (for 3% of contract value) within a week of intimation of acceptance. Clause 2 further states that where there is any failure/default of supplier within or without any quantifiable loss to the government, the performance security is liable to be forfeited equivalent to the amount of the supply orders. Clause 8.3 of the contract, which is under the heading "
Termination for Default" states that " The Performance security in such cases will be forfeited equivalent to the amount of Rate Contract". Learned counsel for the respondent has submitted that if the termination is to be upheld then the contract provides that the entire peformance security is to be forfeited, which is what was proposed to be done under the impugned order.
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134. The question that arises in connection with the forfeiture is whether AIIMS ought to be entitled to the entire amount or only some part thereof. In other words, should the encashment of performance security be limited having regard to the fact that : (i) there is no allegation of deficient services other than the short payment to employees; (ii) the short payment has also been computed only from May to October 2021, and principally relates to the period May to July 2021; (iii) The contract has now almost been entirely performed; (iv) The amount of deficiency, as per AIIMS itself, is stated to be approximately Rs. 22 lacs.
135. I must therefore consider whether these factors above ought to serve to curtain the application of Clause 2 and Clause 8.3 in the present OMP (Comm) No. : 30/2023 21/24 context, and limit the encashment of performance security to the likely loss. In a case where the contract is now almost fully discharged by performance, where the defeiciencies related only to the past, and where AIIMS itself has quantified the loss (or the short paid amount), I am of the view that the encashment of performance security cannot be entirely unconnected to that stated loss".
33. Respondent had quantified the amount of short fall in sum of Rs. 22 lacs as noted by Ld. Arbitrator. Evidence to controvert the said allegation of respondent was available only with the petitioner which allegation, petitioner failed to controvert. Ld. Arbitrator seemingly did not disbelieve the assertion of petitioner with regard to error in software due to which the error in payment was caused. However, thereafter, it was the responsibility of the petitioner to ensure that the said error had been rectified and all the due payments to the workers had been paid. Contention of Counsel for petitioner that the respondent cannot be allowed, unjust enrichment since no damage has been caused to the respondent, is not appreciable. In not making the payments due to the workers of the plaintiff which was not only the contractual obligation but also the social and moral obligation of the petitioner, it was the petitioner who derived the undue monetary benefit. Even if, petitioner claims to have cleared all the payments, it was again for the petitioner to substantiate the said assertion by proving it on record, in which, petitioner miserably failed. In this manner, it is rather the petitioner who has availed unjust enrichment for its own wrong which was either not rectified/corrected or not proved on record. In either of the eventuality, for the failure of the petitioner to prove the same on record, Ld. Arbitrator could not have been in position to render finding on this aspect. Because of the own fault of the petitioner, which led to inability of the Ld. Arbitrator OMP (Comm) No. : 30/2023 22/24 to render the finding, petitioner also cannot be permitted to have advantage of its wrong by pleading that it was the case of 'no evidence'.
34. It was submitted by Ld. Counsel for petitioner that it was the peak Covid period when the petitioner had deployed the work force with the respondent at the cost of the own well being of those workers. While contractual obligations are important, employers/contractors also have social and moral responsibility to ensure the well being of its employees/workers. Prioritizing fair compensation and providing necessary support reflects a commitment to the health and dignity of essential workers. While petitioner claims credit for deployment of sanitation workers during challenging times of Covid-19 period, yet admittedly deprived them of their dues because of the alleged technical error in software and failed to establish the rectification and the due payments to these very workers.
35. Ld. Arbitrator permitted respondent to encash the performance security to the extent of 50% on the basis of quantification of the short payment by respondent and also on the aspect that claimant/petitioner did not provide bank statements/evidence/supporting documents. Ld. Arbitrator noted that petitioner did not provide details for the remaining three centres in response to letter dated 5.2.2022 and that there existed the possibility of short payment at those centres also. Petitioner sent check list pertaining to other three centres but without any attachments to the same despite mention in the check list. Ld. Arbitrator referred to General Conditions of contract whereby, where there is any failure/default of supplier with or without any quantifiable loss to the government, the performance security is OMP (Comm) No. : 30/2023 23/24 liable to be forfeited equivalent to the amount of the supply orders. Performance security thereby could be forfeited for breach of contractual obligations. Ld. Arbitrator reduced the amount of forfeiture of perfomance security to 50% . In isolation, the observation of Ld. Arbitrator could be considered assumptive, however in the totality of facts and circumstances of the case, the petitioner despite repeatedly being informed to furnish the documentary/supporting evidence with regard to payment to its workers, failed to do so. Ld. Arbitrator thereby, was right to draw the adverse inference for the own failure of the petitioner in providing the supporting documents/evidence whereby it was the petitioner who had hidden the best evidence to prove its point. Perusal of the award and the documents reveal that Ld. Arbitrator has very meticulously considered and dealt with all the grounds/submissions and the voluminous record brought by parties on record. The award is well reasoned and does not suffer from any patent illegality, perversity or against the public policy, calling for any interference from this court in objections u/s 34 of Arbitration and Conciliation Act.
36. Having discussed as above, instant petition filed by the petitioner stands dismissed. File be consigned to record room after completion of necessary formalities.
SAVITA Digitally signed by
SAVITA RAO
RAO Date: 2024.01.25
14:56:46 +0530
Announced in the open (SAVITA RAO)
court on this 25th day DISTRICT JUDGE
of January 2024 (COMMERCIAL COURT)-01
(SOUTH) SAKET COURTS,DELHI
OMP (Comm) No. : 30/2023 24/24