Delhi High Court
Banyan Tree Holdings Limited ..... ... vs Delhi Development Authority/ Objector on 1 August, 2008
Author: S.Ravindra Bhat
Bench: S. Ravindra Bhat
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) 1320A/1991
Reserved on 17th July, 2008
Pronounced on 1st August 2008
M/S SATISH KUMAR AGARWAL ..... Plaintiff
Through : Nemo
versus
Delhi Development Authority/ Objector ..... Defendant
Through Ms. Anasuya Salwan, Advocate.
01.08.2008
CORAM:
Mr. Justice S. Ravindra Bhat
1. Whether reporters of local papers may be
allowed to see the judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported
in the Digest? Yes
Mr. Justice S. Ravindra Bhat:
1. The objector DDA challenged the validity of an award, published by an agreed sole arbitrator,
dated 1.4.1991. The objections have been preferred under Section 30 and 33 of the Arbitration Act,
1940 (hereafter the Act).
2. The Objector Delhi Development Authority (hereafter referred to as DDA) awarded a contract
to the claimant/petitioner, for construction of 102 three bed room, 68 two bed room, 48 servant quarter,
30 car garages and 78 scooter garages and related works for Self Finance Scheme, Hauz Khas, New
Delhi, in an agreement of 8-12-1980. The claimant/petitioner had bid successfully, for the contract. The
detailed facts are not necessary for decision in this case. In terms of the contract inter se disputes
between the parties had to be referred to arbitration. The date of completion of the works under the
agreement was extended. The claimant raised several disputes with regard to payment for work done
and alleged wrongful withholding of amounts payable to it and sought reference to arbitration. The
DDA referred the disputes for arbitration to Shri. A. Sankaran, retired Additional Director General of
CPWD, on 4-1-1990.
3. The arbitrator after considering the materials on record and the rival pleadings allowed certain
claims and published the impugned award on 1-4-1991. Several grounds were pleaded in the
application under Sections 30 and 33 of the Act, under IA No. 8086/91, yet the award was attacked as
being contrary to law and unsustainable on essentially two main grounds.
4. It is urged by DDA, and contended on its behalf by Ms. Anasuya Salwan, that the award is
unsustainable so far as it allowed claim No. 1. The plaintiff had claimed Rs. 82,615/- on account of
what was termed as wrongful deductions from the final bill, towards sub-standard or defective works.
DDA had relied on notices, being Ex. R-6 and a report, being Ex-R-3 to say that defects and
deficiencies had been notified at the time, and the plaintiff had not rectified them or protested that such
defects did not exist. The arbitrator reasoned that the DDA's contentions were unjustified, since the
letters relied upon by it were general and vague, and further that notice which was necessary and which
had to be served on the contractor, i.e the plaintiff, had not been in fact served.
5. Reliance is placed on the notices issued by DDA upon the plaintiff-contractor at the relevant
time, through documents Ex R-1 to Ex R-6 and other communications, which indicate that the DDA
served notice, in terms of Clause 14, 17 and 29 of the contract, warning the plaintiff contractor about
the defects, and indicating its resolve to go in for risk purchase. These are matters of record. It is
argued, therefore, that the arbitrator's findings about DDA's liability on this head of claim is contrary
to evidence, and therefore, has to be set aside.
6. The letters written by DDA, Ex- R-1 to R-6 show that in 1983, repeated demands were made
upon the plaintiff to focus on the defects listed out specifically, and rectify them. The plaintiff was
asked to remove these deficiencies. They constituted prima facie, material in support of the DDA's
justification for deduction of the amount demanded, under Claim No. 1, from the final bill. The DDA
obviously could not have the final word in the matter. Yet, when it did place these materials on record,
the Claimant (plaintiff) should have dispelled any doubt which would have arisen from them, by
placing evidence relied on by it. There was nothing on record - nor does the plaintiff advert to any
reply, letter or document, contradicting the DDA's position. The arbitrator, at least does not allude to
any such material. The position then, was that in the arbitration proceedings, the DDA had produced its
notices, and letters, issued at the relevant time, detailing a list of defective works, without contradiction
by the plaintiff. In the circumstances, the arbitrator could not, without any explanation from the
plaintiff, have dismissed the effect of these notices, as he did, in the award. This clearly reveals non
application of mind, which has vitiated the findings, resulting in legal misconduct as understood in law,
concerning the award for Claim No. 1. The DDA's objections have to therefore, succeed, on this score.
7. The second objection of DDA relates to award on Claim No. 7. This claim is premised on work
done beyond the agreed deviation limits provided in the contract. The contracted deviation was to the
extent of + 25% of the work. If the work ultimately undertaken by the plaintiff extended this deviation
limit, Clause 12-A entitled him to claim a higher rate. Clause 12-A of the Agreement obliged the
plaintiff to claim the deviation and submit proper analysis within seven days from the date of receipt of
the order. On submission of those rates and the analysis in its support the Engineer-in-charge could
revise them having regard to the prevailing market rates. Clause 12-A is reproduced below :
"In the case of contract or substituted items which individually exceed the quantity stipulated in
the contract by more than the deviation limit, except the items relating to foundation work
which the contractor is required to do under Clause 12 above, the Contractor shall, within 7
days from the receipt of order, claim revision of the rates supported by proper analysis in
respect of such items for quantities in excess of the deviation limit, notwithstanding the fact that
the rates for such items exist in the tender for the main work or can be derived in accordance
with the provisions of Sub-clause (ii) of Clause 12 and the Engineer-in-charge may revise their
rates, having regard to the prevailing market rates and the Contractor shall be paid in
accordance with the rates fixed. The Engineer-in-Charge shall, however be at liberty to cancel
his order to carry out such increased quantities of work by giving notice in writing to the
contract and arrange to carry it out, in such a manner as he may consider advisable, but under
no circumstances the contractors shall suspend the work on the plea of non-settlement of rates
of items failing under this clause."
The plaintiff claimed, during arbitration, that the deviation limit had been exceeded, and provided an
analysis in the statement of claim. The DDA disputed this, and contended that the plaintiff was not
entitled to any amount, since the analysis was produced for the first time, and that the procedure had
not been followed. According to DDA, this claim was inadmissible. The Arbitrator, however, accepted
the analysis, though not in full. As against the plaintiff's claim for Rs. 5 lakhs, a sum of Rs. 2,53,751/-.
8. The DDA contends that the arbitrator misconducted himself in granting any amount for this
claim, as he blindly and uncritically accepted the rate analysis as the basis for grant of amounts. It is
urged that the parties were bound by terms of the contract. This meant that the methodology, and
procedure stipulated in Clause 12-A had to be strictly adhered to by the DDA as well as the plaintiff
contractor. The plaintiff never made a claim about the excess deviation, at the relevant time, proximate
to the performance of the contract; in any event it did not concededly follow the agreed procedure. The
award of any amount, towards this claim, it is urged, is an illegality.
9. The issue here is no longer open to speculation. It has been ruled uplon by two Division Bench
judgments of this court, i.e Delhi Development Authority -vs- Jagannath Ashok Kumar 2000 (Supp)
Arb LR 281 and P. C. Sharma And Anr. V. Delhi Development Authority 2006 (1) Arb LR 403. In
Jagannath Ashok Kumar the Division Bench described the need for a procedure of the kind outlined in
Clause 12-A, as encompassing these elements:
"(i) The Contractor is to claim revision of rates within seven days from the receipt of the order.
(ii) The said revision is to be supported by proper analysis in respect of such items for
quantities in excess of deviation limit.
(iii) On receipt of such claim supported by analysis, Engineer-in-charge would consider the
same and may revise the rates.
(iv) In revising the rates Engineer-in-charge shall have regard to prevailing market rates.
(v) The Contractor thereafter shall be paid in accordance with the rates fixed."
The court underlined the need for strict adherence with the condition and held that:
"...we are agreeing with the contention of learned counsel for the appellant that the Arbitrator
exceeded his jurisdiction in entertaining Claim No. 2 and awarding the amount. Interestingly
the Arbitrator was aware of the provisions of Clause 12-A of the contract. He was also aware
of the legal position that this claim had to be dealt with in accordance with Clause 12-A of the
contract and therefore rejected additional Claim No. 2. However, he ignored this very aspect
while entertaining Claim No. 2. In fact the procedure contained in Clause 12-A is mandatory.
Rates of the items which exceeded deviation limit, are mentioned in the contract itself. When
deviation limit is exceeded Contractor becomes entitled to revised rates for the quantities
beyond the deviation limits. However, for this purpose it is necessary for him to prefer the
claim. In case he does not prefer the claim and keeps getting the payment of the additional
work done by him on agreement rates in the running bills, the department has a right to infer
that Contractor has agreed to perform the quantities of work beyond the deviation limits also
on the same rates. This would further become apparent from the facts of this case inasmuch as
not only respondent did not submit any claim supported by analysis of rates, he kept on getting
the payment as per rates of the agreement during the currency of the contract against running bills.."
10. In this case too, the plaintiff relied on the rate analysis furnished in the arbitration proceedings; he had not furnished it in accordance with Clause 12-A. The arbitrator, in awarding amounts, facially exceeded his authority, as it was contrary to the express provisions of the agreement between parties. The DDA's objection has to be sustained, as far as Claim No. 7 is concerned.
11. The DDA objects to award of pre-suit and post award interest at 18%. It is urged that at the relevant time, the prevailing rate of interest was not so high, and the court should set aside this direction. After the Supreme Court ruling in Executive Engineer, Dhenkanal Minor Irrigation Division vs. N. C. Budharaj, (1999) 9 SCC 514, there is no doubt about the power of an arbitrator to award interest for the pre-reference period, till the award. However, recent rulings have recognized that award of high rates of interest, may not always be sustained, since at the relevant period during the 1990's the rate of interest was considerable lower than 18%. In the circumstances, the DDA's objection about the rate of interest is substantial. The rate of interest is accordingly, modified to 12% per annum.
12. It has been held that the scope of jurisdiction and power of courts, supervising awards under the Act is narrow and has to be exercised with circumspection. While exercising this power, courts should not reappreciate the materials on the record for the purpose of recording a finding whether in the facts and circumstances of a particular case the award in question could have been made. Where an award is reasoned, the court should keep the same considerations in mind, and always if never, lose sight of the fact that the ambit of challenge admissible under the scheme of the Arbitration Act is very limited. The arbitrator is the final arbiter of the dispute between the parties. The award is not open to challenge on the ground that the arbitrator has reached a wrong conclusion or has failed to appreciate facts.
13. In this case, barring the findings adverted to and discussed in the preceding part of this judgment, DDA did not point out to any other flaw or infirmity in the award. Even otherwise, objections to the other parts of the award were not urged. The court is of the view also, that those objections, relating to factual findings, do not constitute errors of law or fall within the ambit of permissible intervention by courts.
14. The DDA's objections have to, in the light of the above discussion, partly succeed; the findings on Claim No. 1 and Claim No. 7 in the award are hereby set aside. The award of 18% pre-reference interest till date of award is modified; instead the plaintiff shall be entitled to 10% p.a. The rest of the award is upheld, and made rule of court, subject to the above findings. The suit and pending applications are allowed in these terms. In the circumstances, there shall be no order as to costs.
DATED: 01.08.2008 S. RAVINDRA BHAT, J