Delhi High Court
M/S Jagat Ram Trehan vs Delhi Development Authority on 19 November, 2009
Author: Valimiki J. Mehta
Bench: Valmiki J.Mehta
* IN THE HIGH COURT OF DELHI AT NEW DELH
+ CS(OS) No.1725A/1994
19th November, 2009.
M/s JAGAT RAM TREHAN ...Petitioner
Through: Mr. Harish Malhotra, Sr. Advocate and
Mr. Rajender Agarwal, Advocate
VERSUS
DELHI DEVELOPMENT AUTHORITY ....Respondent.
Through: Mr. Ajay Verma, Advocate
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
2. To be referred to the Reporter or not?
3. Whether the judgment should be reported in the Digest?
% JUDGMENT (ORAL)
VALIMIKI J. MEHTA, J.
I.A.No.84/1994 in CS(OS) No.1725A/1994
1. These are objections under Sections 30 and 33 of the Arbitration Act, 1940 against the Award dated 1.8.1994 of the sole arbitrator.
CS(OS) 1725A/1994 Page 1
2. The first objection raised by the objector was that the claims as made by the claimant/contractor were not live claims in terms of clause 25 of the contract as per which clause the claims have to be raised within 90 days from receiving the intimation by the contractor from the Engineer in-charge of preparation of the final bill. I may note that the Engineer in charge has himself signed the bill on 15.2.1992 and the claims have been invoked on 15.5.1992. Therefore, this clause cannot assist the objector because the claims have been made within the 90 days period.
3. Mr. Verma on behalf of the DDA has basically confined his objections to claim nos. 1, 2, 3, 6, 9, 14, 18, 19, 20 and 24. It is to these claims that objections have been vehemently pressed though for the purpose of record, Mr. Verma also sought to press other claims as well.
4. Claim No.1 is the claim on account of amounts which have been wrongly withheld by the objector for work done under the contract. I note that the Arbitrator has given a specific finding of fact that the water supply fittings had been handed over to the respondent and therefore there was no justification for withholding the amount of Rs.5000/- on this account. So far as the deduction of RS.10,000/- is concerned, the respondent has withheld the amount on account of rectifications with regard to which the Arbitrator has found that the defective work had been rectified. These are findings of facts and hearing objections under Sections 30 and 33, I do not find any perversity nor any perversity was pointed out to me to oppose CS(OS) 1725A/1994 Page 2 these findings with regard to claim No.1.
5. Claim No.2 was on account of wrongful recovery made by the DDA for materials issued by objector but not accounted for. The issue is not that the recovery should be made because material has not been consumed but the issue is whether double the amount can be recovered by the DDA inasmuch as DDA has already made necessary recoveries for the amount of materials not accounted for. Putting it differently, DDA is claiming 100% additional amount. This amount being penal in nature, the Arbitrator has given a finding of fact that no loss has been proved by DDA for it to claim this additional penal amount. This finding is therefore, perfectly justified and in accordance with law and no challenge can be raised with respect to this claim as allowed by the Arbitrator.
6. Claim No.3 pertained to claim for escalation amounts under Clause 10CC. The contention of the contractor, was that with respect to certain works, DDA paid part rates and not the entire rates. The issue was whether escalation is to be granted as per the part rates or the complete rates as mentioned under the contract. Surely, part rate payments are only on account payments and actual escalation has to be on the contractual rate. This was so held by the Arbitrator and I do not find any fault with the reasoning of the Arbitrator. The challenge with respect to this claim accordingly fails.
7. Claim No.6 was for fixing of SCI collars. The counsel for the respondent has CS(OS) 1725A/1994 Page 3 taken me through clause 3.13 of the contract which requires that the contractor must fix SCI collars for fixing SCI pipes. In this case, the issue is not for providing collars for SCI pipes but it is for the claim of providing collars for traps and flow traps which have been called as SCI collars. This claim is not for the SCI collars fixed for joining SCI pipes. Admittedly, the clause 3.13 does not deal with this eventuality and which deals with fixing of collars in the SCI pipes only. Accordingly, the findings with respect to this claim arrived at by the Arbitrator are also justified.
8. Claim No.9 pertained to claim of the contractor for providing 1.80m long GI flush pipe. In my opinion the claim so awarded by the Arbitrator is not justified because the counsel for the objector has taken me through clause 3.12 of the contract which requires that the height of the flush cistern was to be at 1950mm, and that being the position, it was the duty of the contractor for providing the necessary flush pipe to reach that particular height. There was no question therefore of claiming payment for providing 1.80 mm pipe instead of 1.25 mm pipes. This objection is therefore, sustained and this part of the Award pertaining to claim no.9 is set aside as the Arbitrator misconducted himself and the proceedings by ignoring applicable contractual provision.
9. The next claim is claim No.14 which pertained to providing of wooden fillets. The counsel for the respondent has taken me through clause 5.7 which reads as CS(OS) 1725A/1994 Page 4 under:-
5.7. Providing and fixing glass pans 7.5 kg of sheet weighting per sqm. in glaze wooden fillets 21.00sqms.Sqm. Rs.63.74(Rs. Sixty three 1339/-
& P. seventy four only).
A reading of this clause shows that the work specified was both for providing and fixing. Once the work is for both providing and fixing and which makes mention of wooden fillets, I am of the view that the Arbitrator was not justified in interpreting this clause against the contractual/literal interpretation. No doubt, the Arbitrator may be a technical man but that does not entitle him to read into the contract something which is not there or read the contract against the contractual/literal interpretation. The contractual/literal interpretation shows that the windows were to be provided with wooden fillets by the contractor. Therefore, this claim which has been allowed for providing wooden fillets in my opinion is not justified and is accordingly set aside because providing of wooden fillets was within the scope of original work and therefore cannot be claimed as an extra item. The arbitrator misconducted himself and the proceedings in this regard.
10. Claim No.18 is the claim made by the contractor for rebate wrongly claimed by DDA. The contractor claims that the final bill in this regard was not paid within six months of completion of the work and only if the bill is paid within the said period was objector entitled to the rebate and therefore, the said claim was made as the payment was made by the contractor after 6 months.
CS(OS) 1725A/1994 Page 5 Mr. Verma has taken me through the letter Ex. R-11 dated 11.2.1992 in which the contractor has even after the completion of the six months period specifically agreed that DDA shall be entitled to make deduction from the bills for rebate. The contention of the contractor was that this letter was taken under coercion/duress, however, I note that there is not even a single letter on record by which this letter was withdrawn by the contractor showing that this letter was obtained under coercion/duress. The plea of coercion/duress was taken for the first time only during arbitration proceedings and therefore, the Arbitrator ought not to have given any weightage to the same. Therefore, this claim has been wrongly granted by the Arbitrator and accordingly the finding being perverse the objection with regard to this claim is sustained and this part of the Award is set aside by dismissing claim no.18.
11. Claim No.19 pertained to claim of interest for delayed payments i.e pre- reference interest. There are two parts of this claim. One whether or not there is a delay for which interest should be granted and if there is delay, what should be the rate of interest.
Factually, it is quite clear that there is in fact delay in the payment of the final bill. Once there is a delay in the payment of the final bill and a person is deprived of the use of his money, such a person is entitled to monies as compensation whether called as interest or otherwise. This is held by the Supreme Court in the CS(OS) 1725A/1994 Page 6 judgment reported as South Eastern Coal Fields Ltd VS. State of MP (2003) 8 SCC 648 that interest can also be granted in equity in circumstances which are not covered either by the contract or by custom. Mr. Verma has sought to place reliance on Ex.R-10 dated 23.4.1991 to contend that there is no delay because by this letter Ex.R-10, the objector had notified defects which were required to be rectified and before which no payment could be made of the final bill and therefore he urged that there was no delay. I do not agree. This letter is indeed too general for any effective reliance to be placed on the same. No specific defects have been pointed out. No reliance can be therefore placed on such a letter. Accordingly, I find that the grant of interest for delayed payment is justified. However, the rate which is being granted by the arbitrator is not a rate of interest with which this court agrees. The Arbitrator has granted interest at the rate of 18% per annum. I find that this rate of interest is a very high rate of interest. The Supreme Court in the case of State of Rajasthan and Ferro Concrete Construction Pvt. Ltd. 2009 (3) Arb. L.R. 140 has held that even for the pre-reference interest, the rate of interest should be reasonable. Since, this is a claim for pre-reference interest following the aforesaid Supreme Court judgment in the case of Ferro Concrete (supra), I reduce the rate of interest from 18% to 9% per annum.
12 Claim No.20 was the claim with respect to providing of chowkidars for watch and ward even after the work was completed. I note that the Arbitrator has arrived CS(OS) 1725A/1994 Page 7 at a finding of fact where he has held that it is not disputed by the respondent that the claimant undertook the watch and ward duty to maintain the flats till they were delivered to the allottees. In view of this finding the claim in this regard for watch and ward is justified and cannot be interfered with by me while hearing objections under Sections 30 and 33 of the Act.
13. Claim No. 21 as allowed by the Arbitrator is the claim for extra expenditure for the balance work. The counsel for the respondent has rightly brought to my attention the recent judgment of a Division Bench of this court reported as DDA Vs. Navbharat Construction159 (2009)DLT520 where the Division Bench has held that for the same period for which escalation under clause 10CC is granted then for the same heads of the claims for the same period further escalation claims ought not to be granted. This was also the view taken by an earlier Division Bench of this court reported as DDA Vs. U.Kashyap 1999 (1) Arb. LR 88 (Del). This objection therefore is well merited and must succeed. This claim as allowed by the Arbitrator is therefore set aside because it amounts to duplication of the claims which is impermissible in law.
14. Claim No. 24 is the claim on account of damage/losses because of infructuous expenditure. I may note that while dealing with claim no. 21, the Arbitrator has given a categorical finding that it is only the objector who is guilty of breach of contract by delaying the performance of the contract. This is a finding of CS(OS) 1725A/1994 Page 8 fact which I cannot interfere with because no perversity in such finding has been shown. Once there is delay in performance due to breach of contract by the objector, the necessary consequential effect, which is in the form of losses which are caused to non objector have to be allowed.
The arbitrator has by detailed reasoning and findings, has instead of awarding the claim of Rs.38 lacs, has only granted Rs.12,06440/-. The detailed findings of facts is reproduced as below:-
"I have perused the said details. So far as the claim for loss of overhead expenses is concerned, the same has been calculated adopting the formula laid down in books by Hudson and Gajaria and even Patil which was relied upon by the respondent. The reasonability of the formula given by HUDSON cannot be doubted but the same is to be used with caution as the overhead expenses vary considerably from contractor to contractor. The claimant has claimed 5% as overhead charges which according to me is on higher side. In housing projects, which are of repetitive nature the overheads are much less than claimed. CPWD takes into consideration 10% profits and overheads in their estimates. It would be reasonable to assume that out of this 2-1/2% goes towards overheads and balance 7-1/2% goes towards profits. 5% claimed by contractor is on higher side and cannot be accepted. As such, according to me the claimant is entitled to overhead expenses by keeping the percentage factor not more than 2-1/2%. Respondents objection regarding the losses being remote do not hold as the claimed losses are arising directly out of contract. Similarly it is apparent that in the inflationary economy, incurring losses with the time overruns is an inherent phenomenon. Overheads are in the nature of fixed charges and if the time period overshoots the stipulated contract period such charges have to be necessarily incurred by the contractor for no fault of his thus reducing his profit margins. Since the calculations have been made on the basis of well accepted Hudson formula, therefore for that purpose books of account are not required and the contention of the respondent that in the absence of the books of account, no overhead expenses can be granted is not acceptable. The losses on overhead charges taken at 2.5% work out to Rs.20,63,424/-. However, keeping the mitigation of losses in view, I award only 50% of the above amount to the claimant i.e. Rs.10,31,712/-. So far as the loss under the head idle tools and plants is concerned, no doubt when the work is delayed, a contractor suffers loss on account of idleness of tools and plant also. One concrete mixer and one pump are essentially required for doing the work. One vibrator is also required most CS(OS) 1725A/1994 Page 9 of the time. I am not convinced about the idleness of welding set and shuttering plates. The losses due to idleness of the machinery is thus considered for above essential items for a period of 800 days. (Half the period of delay of 1601 days) keeping mitigation in view. A sum of Rs.1,74,728/- is awarded to claimants on this account. So far as the loss on account of loss of profit earning capacity is concerned, the said loss is remote and indirect which is barred by Section 73 of the Contract Act. Accordingly I reject the aforesaid claim on account of loss of profit.
In view of the aforesaid discussion, I consider the claimant to be entitled to receive Rs.12,06,440/- under this claim as against Rs.83,00,000/- claimed. Accordingly, I award Rs.12,06,440/- in favour of the claimant under this claim."
Accordingly, I do not find any merit with respect to this objection and which must accordingly fail.
15 That takes me to the final issue with regard to the rate of interest which has been granted by the Award vide claim no. 25 wherein interest has been granted at the rate of 18% per annum. The Supreme Court in the recent chain of judgments reported as Rajendra Construction Co. Vs. Maharashtra Housing & Area Development Authority & ors.2005 (6) 678, McDermott International Inc. Vs. Burn Standard Co. Ltd.& ors 2006 (11) SCC 181, Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd. (2006) 7 SCC 700 and Krishna Bhagya Jala Nigam Ltd. Vs. G.Harischandra, 2007 (2) SCC 720 and State of Rajasthan Vs. Ferro Concrete Construction Pvt. Ltd (2009) 3 Arb. LR 140 (SC) has held that on account of the consistent fall in the rates of interest, the courts must take notice of the same and must accordingly reduce the higher rate of interest which is granted in the Award. The Supreme Court has further said that this is more so necessary if CS(OS) 1725A/1994 Page 10 there has been a long period of the arbitration proceedings and the date when the matter comes up in the court. I note that the Award is of the year 1994 and today we are in 2009. Accordingly, in accordance with the mandate of the aforesaid Supreme Court judgments, I reduce the interest as granted by the Award from 18% to 9% per annum simple. Therefore, wherever, the Award grants interest at the rate of 18% per annum, the same shall be read as 9% per annum simple.
16. I note that Mr. Verma tried his level best to argue with some sort of conviction, the other claims in this regard, however, it was found that the reasoning and the findings of facts which have been given by the Arbitrator were not such which could not be challenged under Sections 30 and 33 of the Act. Accordingly, in view of the fact that this court cannot go into the reasonableness of the reasons of the Arbitrator nor can the court interfere with the findings of the facts which are not shown as perverse, I do not find with respect to other claims much discussion is required and the objections to such claims therefore fails.
17. Accordingly, with the above said modification of rejection of claim nos. 9,14,18 and 21 and reduction of rate of interest to 9% per annum simple, the Award is therefore made rule of the court. Interest is further granted from the date of the present judgment till the date of payment at 11% per annum. However, in case, the payment is made within 90 days from today then rate of interest will continue to CS(OS) 1725A/1994 Page 11 remain at 9% per annum simple. With these observations the suit and the objections are disposed of.
November 19, 2009 VALMIKI J.MEHTA, J Ne/ib CS(OS) 1725A/1994 Page 12