Central Government Employees Welfare ... vs M/S Labh Construction & Industries Ltd. on 23 April, 2019

[Cites 11, Cited by 0]

Delhi High Court

Central Government Employees Welfare ... vs M/S Labh Construction & Industries Ltd. on 23 April, 2019

Equivalent citations: AIRONLINE 2019 DEL 2019, (2019) 3 ARBILR 271

1. The present petition challenges the award dated 14th November, 2012 passed by the Ld. Sole Arbitrator. The Respondent - M/s LABH Construction & Industries Ltd. (hereinafter ‗Contractor') was the claimant before the Ld. Arbitrator and the Petitioner - Central Government Employees Welfare Housing Organisation (hereinafter ‗CGEWHO') is the employer of the Contractor. The Contractor had made various claims before the Ld. Arbitrator and CGEWHO had made various counter claims.

O.M.P. 278/2013 Page 1 of 38

2. The background of the present dispute is that a turnkey contract was entered into on 11th July, 2001 between CGEWHO and the Contractor for construction of a housing project at Bopal, Ahmedabad. Relevant dates in respect of the award of the contract are set out hereinbelow:

        (a)       Name of work            Turnkey        Housing
                                          Project at Ahmedabad
        (b)       Acceptance of bid from 27.10.1998
                  LCIL and issue of LOI
                  by CGEWHO
        (c)       Acceptance of LOI by 03.11.1998
                  LCIL
        (d)       Issue of MOU and LOI 31.08.2000
                  after finalization of
                  specs and dwelling
                  units           between
                  CGEWHO and CAG
        (e)       Date of signing of CA   11.07.2001
        (f)       Date of completion of May 2007
                  Project

3. The date of completion of the contract, as envisaged in the contract dated 11th July, 2001 was two years from the date of execution of the contract. However, it is not disputed that the actual completion was much later i.e., in May, 2007. The Contractor raised various claims before the Ld. Arbitrator and CGEWHO raised various counter claims. The Ld. Arbitrator had allowed some of the counterclaims of CGEWHO which were challenged by the contractor in a petition under Section 34, being OMP 354/2015 which was dismissed as being time barred on 21 st October, 2016. The challenge to the said judgment was also dismissed by the Supreme Court vide order dated 21st January, 2018. Thus, in respect of the rejected O.M.P. 278/2013 Page 2 of 38 counter claims, the award has attained finality.

4. The findings of the Ld. Arbitrator, on the various claims made by the Contractor are as under:

A. Claim No. 1 - Escalation from period of LOI (27.10.1998) to the date of Contract Agreement (11.07.2001): The Ld. Arbitrator, on the basis of the minutes of the meeting held on 17 th September, 2001, held that since the CGEWHO failed to consider the claim for escalation, they were in violation of the representation made and accordingly, allowed the claim of the Contractor for a sum of Rs.22,78,564/-.

B. Claim No.2 - Loss for a period of 32 months from the date of LOI to CA for blocking of land: Finding the claim to be untenable on the ground that that no proof of the loss was preferred, the Ld. Arbitrator passed a NIL award in respect of this claim. C. Claim No:3 - Additional payment for increase in the cost of power supply and electrification: Pursuant to the argument that both parties were responsible for the wrong bidding and wrong acceptance, both parties were held equally accountable for the same, and an amount of Rs.21,42,000/- was awarded to the Contractor. D. Claim No.4 - Loss to LCIL (Claimant) even after application of escalation formula: This claim was rejected as the CGEWHO clearly proved that the there was no revision of the escalation formula given in the contract.

E. Claim No.5 - Loss due to reduction in dwelling units: Since liability of reduction in scope of work for not constructing 45 O.M.P. 278/2013 Page 3 of 38 dwelling units rests with the Contractor, the Ld. Arbitrator rejected the claim.

F. Claim No. 6 - Non payment of escalation of Bill No.4 and extension thereof: A sum of Rs.8,18,431/- was awarded to the Contractor, being the difference between the amount payable, without restricting WPI, and actual amount paid, which was calculated after restricting WPI.

G. Claim No. 7 - Extra items executed after earth quake: The Ld. Arbitrator concluded that the Contractor was fully paid for the referred extra items of works and held that no amount was due to it under this claim. Accordingly, Nil award was passed. H. Claim No. 8 - Payment for extra items: The Ld. Arbitrator held that all adjustments qua additional work having been done and payments having been made, no additional amount was payable under this claim.

I. Claim No. 9 - Loss of interest on earnest money: The Ld. Arbitrator held that the Contractor had no bonafide claim over the interest demanded by it over the earnest money deposit, and accordingly, the claim was rejected.

J. Claim No. 10 - Loss on account of overheads: Since no justification was given by the Contractor for its claimed loss and that CGEWHO had no requirement for exclusively keeping the machines and equipment installed for this project, the claim was rejected and NIL award was passed.

O.M.P. 278/2013 Page 4 of 38

K. Claim No. 11 - Payments due to architects etc.: This claim was rejected on the ground that there was no contractual obligation on CGEWHO to make the payments.

L. Claim No. 12 - Idle charges for cement concrete block plant:

Holding the claim to superfluous and untenable, the Ld. Arbitrator rejected the claim of the Contractor.

M. Claim No. 13 Loss due to deployment of manpower for block making machine: The Ld. Arbitrator held that this claim was linked with Claim No.11 and the arguments also being similar, the claim was rejected.

N. Claim No. 14 - Loss due to rejection of cement blocks: Holding both parties responsible for waste of material and labour, Ld. Arbitrator awarded the Contractor 50% of the claimed amount i.e., Rs.2,60,000/-.

O. Claim No. 15 - Cost of Arbitration: Ld. Arbitrator rejected this claim as both parties were held to be responsible for the arbitration case.

5. The findings of the Ld. Arbitrator, on the various counter-claims made by the CGEWHO are as under:

A. Claim No.1 - Loss of principal amount spent by CGEWHO: Ld. Arbitrator, awarded a sum of Rs.1,01,53,823/- in full to CGEWHO. B. Claim No.2 - Loss of Interest on capital by CGEWHO: The factor of interest on this count not being mentioned in the contract, the Ld. Arbitrator rejected the claim of the CGEWHO.

O.M.P. 278/2013 Page 5 of 38

C. Claim No.3 - Levy of penalty in form of liquidated damages: Ld. Arbitrator rejected this claim as CGEWHO was held to not be entitled to any relief on this claim on the ground that factum of loss having not been proved by CGEWHO.

D. Claim No.4 - Loss due to failure of LCIL to get drawing approved from IIT Mumbai: Ld. Arbitrator held that there was no contractual obligation on the Contractor to pay any amount to the consultant nominated by CGEWHO, and accordingly, rejected the claim.

E. Claim No.5 - Recovery of extra cement consumed beyond tolerance limit - Rs.9.58 lac: Ld. Arbitrator held that the Contractor was not solely liable for the manufacture of extra blocks which were rejected by CGEWHO, on various technical ground. Thus, it was not justifiable to apply the penalty rate for issue on cement manufacture of these blocks, and accordingly, this claim of CGEWHO was rejected.

F. Claim No.6 - Losses due to purchasing of cement and steel at higher price due to prolongation of contract -R.28.50 lacs: Based on the finding that both parties were to an extent responsible for the delay in the execution of the project, this claim was rejected by the Ld. Arbitrator.

G. Claim No.7 - Deficient planning to make the complex habitable - Rs.10 lac: This claim was withdrawn by CGEWHO and was not pressed.

H. Claim No.8 - Expenses incurred to complete blocks B1 and B3:

Ld. Arbitrator held that since the Contractor was not put to proper O.M.P. 278/2013 Page 6 of 38 notice of with respect to claimed loss and additional expenditure for completing the unfinished work, by CGEWHO, nor was the decision to revise the design communicated, this claim was rejected. I. Claim No.9 - Unintended benefit for change of sewage treatment plant: On various grounds urged by the Contractor in respect of not being put to notice of the decisions taken, failure to justify calculation of the amount due and lump sum cost, the claim of CGEWHO was rejected.

J. Claim No.10 - Reimbursement of expenses on consultants for a longer period due to delay in completion - 50 lac: Since making arrangements for consultants was not mandatory as per the contract, no notice was given to the Contractor, liability for delay being contributory, this claim of CGEWHO was rejected by the Ld. Arbitrator.

K. Claim No.11 - Extra expenditure on employment of project team: The Ld. Arbitrator held that the arguments and assertions for this claim being the same as Claim No.10, this claim is not validated and is liable to be rejected.

L. Claim No.12 - Loss due to expenditure on legal advisor: The Ld. Arbitrator held that the expenditure incurred being on a case of the Contractor with their debtor GTB, the claim of CGEWHO was fully justified and awarded an amount of Rs.74,696/-. M. Claim No.13 - Claim for rental of CGEWHO land occupied due to delay in shifting of plant by LCIL: Ld. Arbitrator held that there was no provision in the contract that allowed CGEWHO to claim rent for the said land, the claim on view of same was rejected. However, O.M.P. 278/2013 Page 7 of 38 the Ld. Arbitrator allowed CGEWHO to claim interest on the cost of the land as it made payment but did not get possession of the same. Accordingly, compound interest @10% p.a. on the sum of Rs.9.63 lac, amounting to Rs.2,03,300/- was awarded. N. Claim No.14 - Reimbursement of monetary loss to the prospective owners of DUs: The claim being based on hypothetical calculations of rent payable and the delay not being solely responsible for the delay, the claim of CGEWHO was rejected.

O. Claim No.15 - Loss due to expenditure of legal advisor: Since the Contractor failed to inform CGEWHO about the existing road and also did not intimate them about the dispute in time, a sum of Rs.65,000/- was awarded to CGEWHO.

P. Claim No.16 - Loss due to non-provision of access road: Since method of calculating loss was not as per the contractual stipulations, this claim was rejected.

Q. Claim No.17 - Anticipatory loss: Ld. Arbitrator held that CGEWHO would have no liability as principal employer for the project for any liability of the Contractor arising out of any claims of agencies who had worked for the Contractor.

R. Claim No.18 - Extra compensation for not completing 45 DUs: Since this claim was not substantiated this claim with any detailed analysis of loss to the third parties, this claim of CGEWHO was rejected.

S. Claim No.19 - Loss of prestige of CGEWHO: Ld. Arbitrator held that both parties had failed to conduct themselves professionally in O.M.P. 278/2013 Page 8 of 38 framing, planning and management of the contract and the project as a whole. Thus, the claim of Re.1 as token amount was rejected. T. Claim No.20. - Loss of interest on awarded amount: Ld. Arbitrator rejected this claim on the ground that wherever applicable the interest has already been granted against each claim and no additional award need be made for the same.

U. Claim No.21 - Cost of Arbitration: Since both parties are responsible for arbitration, the Ld. Arbitrator rejected the claim, and remitted the parties to bear their costs themselves.

6. The award in favour of CGEWHO in the counter claims came to be challenged by the Contractor in OMP 354/2015, which was dismissed as being time barred on 21st October, 2016. Thereafter, the matter was appealed to the Supreme Court, which vide order dated 21st January, 2018, dismissed it.

Submissions by the Petitioner

7. The objections in respect of the following claims have been pressed and argued by Mr. D. Moitra Ld. Counsel for the Petitioner:

 Claim No.1 - Contractor's claim for escalation from period of LOI (27.10.1998) to the date of Contract Agreement (11th July, 2001).  Claim No.3 - Contractor's claim for additional payment for increase in cost of power supply and electrification.  Claim No.14 - Loss due to rejection of cement blocks.

8. In addition, Mr. Moitra also challenges the non-grant of liquidated damages in favour of CGEWHO, as claimed in counter claim no.3. The non-grant of interest per counterclaim No.20 i.e. pre-award and pendente lite O.M.P. 278/2013 Page 9 of 38 interest is also challenged.

9. The basic submission of Mr. Moitra in respect of Claim No.1, wherein the Contractor had claimed escalation for the period between the Letter of Intent to the date of contract i.e. from 27th October, 1998 to 11th July 2001, is that the contract had a stipulation that escalation would only be payable from the date of the contract and the date of contract would be treated as the base date for grant of any escalation. He relies on clause 9 of the contract (at page 60), and submits that grant of escalation of a sum of Rs.22,78,564/- in favour of the Contractor is in the teeth of this clause and thus, the same is not sustainable. Mr. Moitra relies upon the following judgments in support:

 State of Orissa v. Sudhakar Das, (2000) 3 SCC 27.  Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises and Anr. (1999) 9 SCC 283

10. He further submits that insofar as liquidated damages are concerned, the Ld. Arbitrator erred in not granting liquidated damages in favour of CGEWHO as the contract had a specific stipulation that if there is slow progress of work, the organization would be entitled to recover liquidated damages as per clause 26.1.2 and 28.2.0. He further submits that the law permits a genuine pre-estimate of the liquidated damages to be allowed in favour of the employer, so long as the Contractor is in breach and has delayed the performance. Ld. counsel for CGEWHO further submits that the Contractor's conduct in this case lacks bonafides. In fact, it is submitted that the Contractor had undergone severe financial distress, and CGEWHO had extended enormous help to the Contractor, at its request, by making payment to various third parties including labour and suppliers. Reliance is placed on letter dated 11th March, 2004 (page 298), wherein the Contractor has O.M.P. 278/2013 Page 10 of 38 specifically requested the CGEWHO to make payment to the material suppliers directly, as per its advice. He submits that this clearly established that the Contractor did not execute the project in time and as per the stipulation in the contract, levy of liquidated damages was completely justified. He relies upon the following judgments in support of his case:

 Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. 2003 (2) Raj 1 (SC);

 Construction and Design Services v. DDA (2015) 14 SCC 263;

11. Mr. Moitra further submits that in a turnkey contract, the Contractor is not entitled to be paid anything more than what is stipulated in the contract itself. He vehemently relies upon the definition of `turnkey contracts' as contained in various well-known commentaries and authorities. He submits that the entire purpose of a turnkey contract would be defeated if amounts, over and above the amount specified in the contract, are awarded in favour of the Contractor. On the issue of turnkey projects, reliance is placed on:

 Delhi Jal Board v. M/s Kaveri Infrastructure Pvt. Ltd. & Anr. 2014 (2) R.A.J. 286 (Del) (hereinafter, ‗Kaveri Infrastructure');

 P.C. Markanda on Building and Engineering Contracts, 5 th Edn., Volume 1, Lexis Nexis.

12. He further submits that the Ld. Arbitrator has also erred in not granting pre-reference and pendente lite interest. He relies upon the judgment in Indian Hume Pipe Company Limited v. State of Rajasthan, (2009) 10 SCC 187 to argue that once the Contractor has been held in breach, interest ought to be allowed by the Ld. Arbitrator. He further submits that, as no reasons have been recorded for refusal of interest, that finding is not sustainable.

O.M.P. 278/2013 Page 11 of 38

Submissions on behalf of the Respondent.

13. On the other hand, Mr. Aniruddha Deshmukh, Advocate for the Contractor submits that the escalation in such a case is payable even if there is a negative stipulation in the contract. He vehemently relies upon the judgment of the Supreme Court in K. N. Sathyapalan v. State of Kerala & Anr., (2007) 13 SCC 43 (hereinafter, ‗K.N. Satyapalan'). It is his submission that the said judgment is authority to the proposition that irrespective of whether the contract has a negative stipulation or does not provide for escalation to be granted, the Ld. Arbitrator's jurisdiction exists for grant of escalation depending on the facts of each case. He also relies upon National Highways Authority of India v. Elsamex-TWS-SNC-JV, 2015 (1) RAJ 565 (Del), a judgment of the Division Bench of this Court, which followed K. N. Sathyapalan (supra) and held that escalation can be granted despite a negative stipulation in the contract.

14. Insofar as liquidated damages are concerned, Ld. counsel for the Contractor submits that the law on this aspect is well settled in the judgment of the Supreme Court in Kailash Nath Associates v. DDA (2015) 4 SCC 136, which was reiterated by the Supreme Court in Mahanagar Telephone Nigam Ltd. v. Tata Communications Ltd. [Civil Appeal No.1766/2019 decision dated 27th February, 2019] (hereinafter, ‗MTNL'), that liquidated damages can only be granted if actual loss or damage is shown, even though the quantum may not be shown. Ld. counsel for the Contractor has taken the Court to the specific claim in the claim petition at page 354 to submit that there is no justification, whatsoever, in the said claim petition for claiming liquidated damages. It is a completely arbitrary amount, which has O.M.P. 278/2013 Page 12 of 38 been mentioned in the claim petition and such an arbitrary amount, in the absence of any proof of actual loss or damage having been suffered, is not awardable in favour of the CGEWHO.

15. It is further submitted by ld. counsel for the Contractor that as held in Indian Oil Corporation v. M/s. LLOYDS Steel Industries Ltd. 144 (2007) DLT 659, the stipulated sum in the contract is to be a genuine pre-estimate of losses, and if not it would be considered as a penalty, and would not be liable to be granted in favour of the CGEWHO.

16. The main contention in respect of the grant of escalation to the Contractor is that there was a long-time gap between the issuance of letter of intent and execution of MOU and final contract, which was a factor to which the Contractor did not contribute in any manner. The delay being close to almost three years, escalation would be liable to be awarded. He also relies upon the minutes of meeting dated 17th September, 2001 which is extracted in the award at page 8. According to Ld. Counsel, it was agreed in the said meeting that escalation would be considered by the Governing Council and office of CAG, at an appropriate time after approximately 2/3rd of the work is completed. The Ld. Arbitrator having arrived at the conclusion that 2/3rd work is completed by the Contractor and the said conditions as contained in the minutes are satisfied, has partially allowed the claim of the Contractor. Thus, this finding would not liable to be challenged under a Section 34 petition.

17. He further relies upon the rejection of the counter claim of the employer wherein, repeatedly, the Ld. Arbitrator has held that no loss has been suffered by CGEWHO to support the stand that since no loss has been suffered, even liquidated damages are not liable to be awarded. The scope O.M.P. 278/2013 Page 13 of 38 of challenge under Section 34 of the Act being restricted, the escalation which is granted is not liable to be set aside and the liquidated damages ought not to be granted.

18. Mr. Moitra, in rejoinder, on the other hand, submits that the minutes of meeting are mis-interpreted by the Contractor and the said minutes merely agree to consider the claim of escalation and did not agree to grant the sum.

Analysis and Findings

19. The notice inviting tender in the present case was called in July, 1998. The Contractor submitted its bid. The letter of intent was issued on 27 th October, 1998. The letter of intent provided all the responsibilities of the Contractor and specified the rates for construction of Type-A, Type-B and Type-C dwelling units and stilts. Payments were to be made in five stages. It was described as a `turnkey project'. The clause relating to escalation in the Letter of Intent reads as under:

"ESCALATION Labour and Material Escalation shall be payable to you as per the Clause No.29.0.0 of the General Conditions of Contract. Cost of Cement and Tor Steel will be absorbed by the organisation. The date of signing of the Contract Agreement will be the base date for application of escalation clause.‖

20. The Letter of Intent was accepted by the Contractor on 3rd November, 1998. Thereafter, a Memorandum of Understanding (hereinafter, ‗MOU') was entered into between the parties on 31st August, 2000. It was agreed that some portion of the dwelling units were to be built for the employees of the Comptroller and Auditor General of India (CAG) apart from the O.M.P. 278/2013 Page 14 of 38 employees of the CGEWHO. The total value of the contract as per this MOU was to be approximately Rs.20.59 corers. Finally, a detailed agreement was entered into on 11th July, 2001. The contract was to be a turnkey contract for the full complex with the total value of Rs.137,08,37,330/-. The exact dwelling units, that were to be constructed for the CAG and CGEWHO who were the beneficiaries, were stipulated. The contract provided a definition of turnkey project, which reads as under:

"1.a Definition of Turnkey contract It has been agreed and accepted that under a Turnkey Contract, a fully functional complex shall have to be constructed for the Organisation in two parts (CAG Complex and CGEWHO Complex) by the Company on the land provided by the Company upto and including handing over of the complete functional complex to the Organisation, performing defect rectifications during the Defect Liability Period and obtaining completion certificates from local authorities etc. A Memorandum of Understanding has also been signed by the Organisation with the Company as on 31 Aug 2000, which is also a part of this Contract Agreement and is annexed at Annexure-―I‖

1.b The rates quoted by the Company in its price bid for Alternate-II are as per the Annexure-J. However, as per the requirements of the Organisation and the discussions held with the firm, it has been decided to execute the project in the form of two separate functional complexes and as per the revised specifications, and hence it has therefore been agreed and accepted that the rate for execution of project as per the scope of work mentioned in the succeeding clauses including provisioning of land, complete planning, designing and approval of project plans, development of land and all external services and inclusive of all taxes/levies etc. shall be calculated as per Schedule ‗A' below, on per sq. ft. of super built up O.M.P. 278/2013 Page 15 of 38 area (S.B.A.) of dwelling units and stilt area (if provided)‖

21. The escalation clause in the contract also reads as under:

"5. ESCALATION.

Cement and Steel will be provided by the Organisation at a fixed rate as shown in Schedule - ―B‖. Any increase in labour charges and cost of materials by an Act of Legislation will be reimbursed in accordance with para 29.0.0 of General conditions of contract. For the purpose of payment of escalation, cost of construction hereafter defined in para 7 (b) and 7 (c) only shall be reckoned.

6. For the purpose of calculation of escalation, the date of signing of this contract agreement between the Organisation and the Company will be the base date applicable for escalation.‖

22. The final contract had an arbitration clause. The time for completion was specified as two years from the date of execution. However, there was a delay in execution of the project. Finally, the construction was completed in May, 2007. The Contractor raised various claims, which were adjudicated by the Ld. Arbitrator. As recorded above, the present order deals with only those claims in respect of which a challenge has been raised and argued. None of the other challenges raised in the Petition have been pressed.

Claim No.1 - Escalation from the period of LOI i.e. from 27th October, 1998 to the date of contract agreement dated 11th July, 2001.

23. The basis of this claim is that the Contractor had submitted its bid in 1998, however, a complete agreement was not executed till July, 2001, which is a three-year delay. It was claimed by the Contractor that the O.M.P. 278/2013 Page 16 of 38 execution of the detailed contract with such delay was not contemplated in the Letter of Intent and hence the Contractor is entitled to escalation. The Contractor's stand is that right from the beginning it insisted on escalation being given to it and it had addressed various letters to CGEWHO. Finally, a meeting was held on 17th September, 2001 where the CEO and other officials of CGEWHO, as also Chairman and other officials of the Contractor. In the minutes of the said meeting, it was recorded as under:

"Escalation Since the project had been delayed inordinately the issue of escalation payable was put forth by M/s Labh. It was then brought out that since the MOU with CAG was signed on 03.08.2000 escalation in cost beyond this date may be payable to LCIL due to the fact that the delay was not attributable to them. M/s Labh then stated that escalation should be payable from the date of LOI to them. However, it was stated by the CEO that the matter regarding the escalation shall be taken up with our Governing Council and also with the office of CAG at appropriate time after approximately 2/3rd of works were completed.

If and only if the case was approved by Governing Council and CAG, the same shall be paid. The case for escalation of CGEWHO portion of work shall also be taken up for approval by Governing Council at the same time.‖

24. On the basis of the above minutes, it is submitted by Ld. counsel for the Contractor that the Contractor is entitled to escalation. While there is no doubt that the letter of intent was issued on 3rd November, 1998, the detailed contract itself came to be signed only on 11th July, 2001. However, the stipulation in the final contract as also the initial letter of intent is clear that the date of contract would be taken as the base date for the purpose of escalation. This is clear from clause 9 of the letter of intent and clauses 5 & O.M.P. 278/2013 Page 17 of 38 6 of the final contract. Thus, escalation as per the contract would be from the date of contract and not prior to that. The relevant portion of the minutes of meeting dated 17th September, 2001 definitely show that the Contractor raised this issue right at inception. However, the said minutes do not constitute novation of the written contract, as even if the minutes are read as they are, they can only constitute an assurance by the CGEWHO to take up the matter regarding escalation with the Governing Council, and the CAG - that too only after approximately 2/3rd of the work is completed. The said minutes do not replace or novate the contractual clause. It was, at best, an assurance to consider giving of escalation. If the Contractor's argument is taken to be correct, then a specific clause or some documents would have been executed between the parties, either amending the existing escalation clause, or replacing the same with a completely new clause. Such a thing did not happen. The assurance by the CGEWHO in a meeting cannot constitute novation of a written contract.

25. Thus, the clause as contained in the contract would have to be taken as it is for the purpose of considering whether escalation could have been granted by the Ld. Arbitrator. The Ld. Arbitrator has arrived at the following findings in respect of this claim:

"FINDINGS AND AWARD 6.1.5. My findings on this claim viz. escalation from the date of LOI by the claimant are as under:

a) At the time of signing of fairly detailed LOI on 27.10.1998 the CGEWHO, didn't have buyers for this project, efforts for which were subsequently taken up by the organization through various press advertisements. It appears that there was a willful delay from both the parties for going ahead with signing of the contract, unless suitable buyers were O.M.P. 278/2013 Page 18 of 38 finalized. The negotiations carried out by CGEWHO with CAG in the meantime point towards this scenario. The requirements with CAG were finalized accordingly by CGEWHO (Respondent) on 03.08.2000 through an MOU fixing specifications and number of dwelling units. Accordingly another MOU was signed between CGEWHO (Respondent) and LCIL (Claimant) on 31.08.2000 wherein the Claimant accepted the revised specifications and number of DU and offered a revised price from that given in the LOI. It construes from this that the Claimant and Respondent had accepted the revised specification and DU with rates as per this MOU which is a revision as given in the LOI. I, therefore, consider the date of signing the MOU i.e. 31.08.2000 as a final agreement between the two parties to go ahead with the project.

b) The argument of the respondent that there was a delay in signing of the CA as the Claimant didn't transfer the land, is found to be partially valid as the final decision as to whom the land is to be transferred appears to have been taken after the CAG was finalized as a Client. Accordingly, bulk of land (5 acres) has been transferred in the name of CAG and 1.41 acres transferred to the Respondent (CGEWHO) on 18.10.2000 - as per page 3 of the CA.

c) I find that the Claimant had raised the issue of escalation from the date of LOI in a meeting from the date of LOI in a meeting held with the respondent on 17.09.2001, wherein the respondent amenable for consideration of revised date for escalation from MOU, provided it is approved by the CGEWHO Board of Governors. However, this was not put up before Board of Governors as the performance of contractor was not up to the mark and therefore, could not be paid, as brought out by the Respondent.

O.M.P. 278/2013 Page 19 of 38

I find this position in abeyance to the alleged oral commitment made during the meeting held by two parties on 17.09.2001.

d) In view of above, I find this claim of LCIL as partially proved and allow escalation/cost adjustments from the date of MOU namely 31.08.2000. The amount awarded on this account works out to be Rs.22,78,564. This amount shall be paid by CGEWHO (Respondent) to M/s LCIL (Claimant).‖

26. The Ld. Arbitrator, in effect, holds that the date of signing of the MoU is the final agreement and that there was a wilful delay by both parties in signing the contract. The Ld. Arbitrator has also held that there was delay in signing the final contract as CAG was finalised as being one of the buyers much later. The Ld. Arbitrator has bound down the organisation CGEWHO to the oral commitment made by the CEO in the meeting dated 17 th September, 2001 and held that escalation is liable to be granted. The approach of the Ld. Arbitrator is clearly contrary to law. The Letter of intent itself, clearly, stipulated that a contract agreement would be entered into, which would contain the scope of work, general conditions of contract, specifications etc. The letter was intent was to only act as an interim document. The contract was to be the final document. In fact, it is seen that the value of the contract is considerably lesser than what is mentioned in the MOU. It is not even the Contractor's case that MOU is to be considered as the final agreement. The final agreement is clearly the document dated 11th July, 2001. Thus, the finding of the Ld. Arbitrator, that the MOU is the final agreement, is untenable and deserves to be set aside.

27. The Ld. Arbitrator has held that there was delay by both the parties in signing the contract. In any event, on the date of signing of the final O.M.P. 278/2013 Page 20 of 38 contract, the Contractor was conscious of the escalation clause. The Contractor signed the contract and thereafter attempted to get the escalation clause modified as is clear from minutes of meeting dated 17 th September, 2001. However, the escalation clause was not amended or modified, but only an assurance was given to consider escalation after approximately 2/3rd of the work was completed. Such an assurance cannot be held to be binding on an organisation, especially when the said assurance was neither put up to the governing body of the organisation, nor was any amendment signed in this regard.

28. Ld. counsel for the Contractor vehemently argued that an Arbitrator is empowered to grant escalation even in case of a negative stipulation in the contract. The submission is based on the judgment of K. N. Sathyapalan (supra), wherein the Supreme Court held as under:

―31. The question which we are called upon to answer in the instant appeal is whether in the absence of any price escalation clause in the Original Agreement and a specific prohibition to the contrary in the Supplemental Agreement, the appellant could have made any claim on account of escalation of costs and whether the Arbitrator exceeded his jurisdiction in allowing such claims as had been found by the High Court.

32. Ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfil its obligations under the contract which has a direct bearing on the work to be executed by the other party, the Arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations. That is the distinguishing feature of cases of this nature and Alopi O.M.P. 278/2013 Page 21 of 38 Parshad's case and also Patel Engg. case. As was pointed out by Mr. Dave, the said principle was recognized by this Court in P.M. Paul, where a reference was made to a retired Judge of this Court to fix responsibility for the delay in construction of the building and the repercussions of such delay. Based on the findings of the learned Judge, this Court gave its approval to the excess amount awarded by the arbitrator on account of increase in price of materials and costs of labour and transport during the extended period of the contract, even in the absence of any escalation clause. The said principle was reiterated by this Court in T. P. George case (supra).‖

29. Ld. counsel for the CGEWHO has, however, relied upon the judgment in Sudhakar Das (supra), wherein the Supreme Court after framing of issues held as under:

―1. This appeal by special leave arises out of arbitration proceedings. The High Court of Orissa dismissed an appeal filed by the appellant against the order of Subordinate Judge, Bhubaneshwar making an award made by the arbitrator a rule of the court. The three main issues with which we are concerned in this appeal are :

"1. Whether the arbitrator could have granted an award for escalation in favour of the contractor?

2. Whether the arbitrator could have awarded pendente lite interest in favour of the contractor?

3. Whether the arbitrator could have granted interest for the pre- reference period?"

2. It is not disputed that the arbitration agreement contained no escalation clause. In the absence of any escalation clause, an arbitrator cannot assume any jurisdiction to award any amount towards escalation. That part of the award which grants escalation charges is clearly not sustainable and suffers from a patent error. The decree, insofar as the award of O.M.P. 278/2013 Page 22 of 38 escalation charges is concerned, cannot, therefore, be sustained.‖

30. A Division Bench of this Court in NHAI v. TATA (supra) following the judgment in K.N. Sathyapalan (supra) held that escalation could be granted, even in the absence of an escalation clause. While the power of the Ld. Arbitrator to give escalation in a construction contract cannot be doubted, the question here is as to whether such an escalation can be granted contrary to the contractual stipulation. In the present case, the letter of intent and the final contract, clearly, provided that for the purpose of escalation the base date shall be the date of the final contract. This is a very specific stipulation in the contract, and the Ld. Arbitrator ought to follow the same. The Ld. Arbitrator in the present case has not gone into the question as to whether what was the base date, but has presumed that there was an oral commitment to give escalation prior to the date of the final contract. The minutes of the meeting dated 17th September, 2001 do not make any binding commitment. An assurance given to consider escalation at a later stage cannot be held to be a binding commitment to pay the escalation, contrary to the contractual stipulation.

31. In K.N. Sathyapalan (supra), the main contract did not have any provision for escalation, however, an observation in paragraph 17 seems to suggest that a supplemental agreement may have provided a negative stipulation, as is evident from a reading of paragraph 17. The submissions of counsels recorded in the said judgment primarily relate to grant of escalation in the absence of escalation clause. The Supreme Court has held that in the face of a negative stipulation, if one of the parties has failed to fulfil its obligations, then the Ld. Arbitrator can compensate the other party. In the O.M.P. 278/2013 Page 23 of 38 present case, CGEWHO not only was able to fulfil its obligations in execution of the contract, it has, in fact, cooperated with the Contractor beyond its obligations in the contract itself. Upon a request from the Contractor in letter dated 11th March, 2004 it has assisted the Contractor in making payments to material suppliers and labourers. Extract of the said letter dated 11th March, 2004 is relevant and is extracted hereinbelow:

"The Chief Executive Officer, Central Government Employees Welfare Housing Organisation ―A‖ Wing, 6th Floor Janpath Bhavan Janpath New Delhi-110001 Subject :- CGEWHO, Turnkey Housing Project at Ahmedabad.

Sir, With reference to the above subject, we wish to inform you that presently we are facing acute financial crisis at site. So we would request you to kindly pay our material suppliers directly as per our advice from time to time.

We do not have any objection in the above matter. Thanking you, Yours faithfully, Authorised Signatory"

32. A perusal of the above letter shows that the Contractor was in a dire financial position and had made special requests to CGEWHO to make payments on its behalf. The same was acceded to by CGEWHO, which walked the extra mile, to help the contractor and to ensure that the project is not completely derailed. Thus, this is not a case covered by the ratio in K.N. Sathyapalan (supra), where CGEWHO was unable to fulfil its obligations.

33. Moreover, the entire purpose of the turnkey contract is to bind the O.M.P. 278/2013 Page 24 of 38 parties to the initial terms. As held in Kaveri Infrastructure (supra), since the contract is a turnkey project, the payment of amounts not contemplated in the contract is not tenable. For all the above reasons, the grant of escalation is liable to be set aside.

Claim No.3 - Additional payment of increase in the cost of power supply and electrification

34. The claim on this count was to the tune of Rs. 115 lakhs. The Contractor's case was that extra amounts, than what were contemplated in the contract initially, were incurred as expenditure. A total expenditure of Rs.115 lakhs was incurred in view of the payments made to the Gujarat Electricity Board for providing transformers and giving feeders to the complex. An amount of Rs.71,84,460/- was paid on this account by the Contractor. The Ld. Arbitrator, after considering the initial estimates that had been worked out at the time of execution of the contract, held as under:

"6.3.4. Consequent to pursuing all arguments and counter arguments and documents provided by both the parties, my findings are as under

a) On my query whether detailed estimates were prepared by the claimant or respondent for electrification work during tender stage or DPR stage, it was pointed out in the negative by the Respondent.

However, the Claimant produced an approximate cost amounting to Rs. 57,89,168, wherein Rs.15 Lac is kept for payment to the GEB. They pointed out that this amount had actually risen to Rs.71,84,460.

b) The Respondent brought out that they are not aware of this estimate and it cannot be linked to the cost given in the CA. Though the cost given in the CA is notional, the actual cost has increased abnormally high. The notional cost given in the CA caters for normal increase/decrease in actual cost and not O.M.P. 278/2013 Page 25 of 38 substantial increase/decrease. I, therefore, find both the parties responsible for not assessing the actual cost of external electrification work based on the prevailing site conditions. An extremely rough/tentative figure has been given in the CA which had no relevance to the site requirements. Though the Claimant has now given that he envisaged Rs.25 Lac out of contract amount of Rs.58 Lac for payment to GEB, I find it only an afterthought and no initial estimate from GEB has been obtained by the Claimant before bidding for this project. I, therefore, regard this as a tentative figure and provide at least 50% of the CA amount i.e. Rs.29 Lac as a cost towards payment to the GEB which could be the bases for total cost of Rs.58 Lac for external electrification work.

c) Pursuant to the argument that both parties are equally responsible for wrong bidding and wrong acceptance without applying any Engineering tools for preparation of estimates, the additional amount paid to the GEB shall be equally shared by both the parties. An amount of Rs.21,42,000 i.e. 50% of the extra payment to GEB is payable to the Claimant (LCIL) by the Respondent (CGEWHO).‖

35. The CGEWHO has relied upon the clause 4(g)(ii) and 4(aa), which read as under:

"(ii) External electrification should cater for total electric power requirement of all dwelling units, area/street lighting, ancillaries buildings like shopping complex, community centre, etc. and other facilities like lift, water supply, system, sewerage disposal system etc. of the Complex. The total power requirement will be worked out as per specifications and in consultation with the Organisation. The electric power shall be arranged by the Company through the State Electricity Board and the scope shall include:-

(aa) All charges to be paid to the State Electricity Board for bringing in HT power lines upto the plot, O.M.P. 278/2013 Page 26 of 38 work of external HT overhead or underground lines by the SEB upto the receiving sub-station within the plot, construction of receiving sub stations, installation of required equipments in the receiving sub station. HT power lines from the receiving sub-station to other distribution step down sub-stations within the plot. LT power lines from sub stations to meter boards of each dwelling unit/building.‖

36. The Ld. Arbitrator has concluded that both the parties committed a mistake at the time of bidding and acceptance. In view thereof, the extra payments ought to be shared equally by both the parties. This being a factual analysis of the Ld. Arbitrator this Court is of the opinion that the same cannot be interfered with.

Claim 14 - Losses due to rejection of cement blocks

37. The Ld. Arbitrator has conducted a detailed analysis in respect of this claim. The findings of the Ld. Arbitrator are as under:

"6.14. CLAIM N0.14 - LOSS DUE TO REJECTION OF CEMENT BLOCKS 6.14.1. The Claimant (LCIL) has brought out that at the time of finalization of the contract, the cement blocks to be used need to conform to M-20 grade strength. The blocks were to be manufactured by the existing plant with the client. Subsequently, the job mix for manufacture of cement blocks was decided by IIT Mumbai for M-20 grade concrete. The manufacturer could not achieve this strength and as many as 1,30,000 blocks were rejected by the Respondent. The Claimant has claimed a loss of Rs.4 per block on this account as they said that it was not their fault because it was not possible to achieve a strength of M-20 grade for cement blocks with grade-43 cement being supplied to them by the Respondent. They have claimed that the Respondent was asked a number of times and also their O.M.P. 278/2013 Page 27 of 38 consultants to change the cement to grade-53 but was rejected. The consultant had pointed out faults in the Claimant's quality control. Subsequently, the Respondent changed the consultant to CBRI, Roorkee, thereafter, the strength of cement blocks was reduced to M-15 grade with grade 43 cement. Consequently, there was no rejection thereafter. The Claimant has therefore, claimed a loss of Rs.5.20 Lac on account of this as he had to sell the rejected blocks in the market at a loss of Rs.4 per block.

6.14.2. The Respondent (CGEWHO), pleaded that the manufacture of cement blocks of M-20 grade was entirely the responsibility of the Claimant. The Respondent was only responsible for the supply of cement of grade-43 as laid down in the contract. The Respondent pointed out that the Claimant was informed a number of times by their consultant (IIT Mumbai) for poor quality control at site as well as poor quality of sand and grit brought by him for manufacture of cement blocks. In some communications of LCIL they have themselves accepted the poor quality of sand and grit. The Respondent argued that they had rejected the blocks as per conditions of the contract and are not responsible for any loss of the Claimant on this ground. The Claimant has also not brought to their notice regarding this aspect during the concurrency of the project.

6.14.3. On request from the Claimant, 3 witnesses were called to know the factual position on the ground. The witnesses deposed on 19.02.2010 during 19th hearing at Ahmedabad, they were

1. Sri. V. A. Shah - who worked as project engineer and manager on behalf of CGEWHO from November 2000 to March 2006.

2. Sri. Amit Bhai Pandya - Worked with LCIL from Oct.2002 to Jan.2006.

3. Sri. K. C. Ghai - working with CGEWHO Oct.2002 O.M.P. 278/2013 Page 28 of 38 The witnesses were duly cross examined by both the parties with regards to their questions and to know the factual positions on the ground. Their statements were duly recorded.

FINDINGS AND AWARD 6.14.4. From the statements, counter statements of both the parties and also after examining the 3 witnesses, I find that the Claimant originally started the manufacture of blocks with M-20 grade mix as designed by IIT - Mumbai. The consultant had in various communications to the Claimant brought out that they have not been able to achieve the desired strength of the blocks due to poor quality control and inferior quality of sand and grit. Subsequently, the Claimant opined that M-20 strength of block cannot be achieved with grade-43 cement introduced by the Respondent, and grade-52 cement would be required. However, a lot of 20,000 blocks was also manufactured using grade-52 cement but these also failed to achieve the desired strength. I, there conclude that quality control and quality of grit and sand being one of the cause of not achieving the M-20 grade strength in field as per the designed job mix of IIT- Mumbai. However, when the new consultant (CBRI- Roorkee) changed the mix to M-15 grade, no blocks were rejected. It appears that the insistence of IIT Mumbai for achieving M-20 grade strength without regard to prevailing ground conditions could be the other cause of rejection of so many blocks. 6.14.5. The Claimant has claimed a loss of Rs.4 per rejected block but they have not given any cost analysis of the same. In view of above, I conclude that though the respondent were within their contractual rights to reject the low quality blocks, they had allowed too heavy a rejection without considering the change in job mix to M-15 which was practical in prevailing site O.M.P. 278/2013 Page 29 of 38 conditions and was subsequently done on advice of their new consultant (CBRI-Roorkee). I, therefore consider both the parties responsible for waste of materials and labor for manufacture of such huge number of rejected cement blocks and awards 50% of the claim put forwards by the Claimant i.e. Rs.2,60,000 in favor of the Claimant.‖

38. A perusal of the above shows that there was a mismatch between the specifications suggested by IIT, Mumbai and the question as to whether Cement of M-20 grade mix or M-50 grade mix was to be used. The confusion having been created due to the advice given by IIT, Mumbai and thereafter by CBRI, Roorkee the conclusion was that both the parties were responsible for waste of material and labour for manufacturing of large number of rejected cement blocks. Accordingly, 50% of the claim was awarded to the Contractor. The factual position, that M-20 grade strength was initially insisted upon by IIT, Mumbai, which was thereafter changed to M-50 grade by CBRI, Roorkee being not disputed, the award of this amount cannot be faulted with.

Counter Claim No.3 by CGEWHO - Levy of penalty in the form of liquidated damages.

39. In support of this claim, the CGEWHO relies upon clause 26.1.2 of the notice inviting tender, which reads as under:

"26.1.2 However, if the work is progressing distinctly slow without any justification, the Organisation at its sole discretion may allow the work to progress. The RA Payments will be made only to the extent of the cash flow necessary for the physical completion of work and may defer the recovery for compensation for delay under clause 28.2.0. The Organisation reserves the O.M.P. 278/2013 Page 30 of 38 right to enforce the penalty clause to be levied in these cases at any stage of construction including final bill stage."

40. According to CGEWHO, even if the Contractor is allowed to continue with the work, it has a right to claim compensation/liquidated damages. This is a claim for sum of Rs.1.171 crores. According to CGEWHO, clause 28.2.7 provides a genuine pre-estimate of the compensation that can be awarded to it in case of delays. The amount claimed is the maximum permitted i.e. 10% of the cost at stages 4 & 5. Clause 28.2.7 is relevant and extracted hereinbelow:

"28.2.7 Further, the Company shall pay as compensation for delay an amount equal to half (1/2) percent of the cost of stages IV & V of the work including extra items, and escalations if any for every week that the work remains unfinished after the stipulated or extended date of completion subject to maximum of 10% of cost of stage IV & V of the work. This will include the compensation for interim delays being claimed by Organisation in accordance with clause 28.2.4 above. The Organisation may without prejudice to any other method of recovery, deduct the amount of such compensation from any money in its hands due or which may become due to the Company. The payment or deduction of such compensation shall not, however, relieve the Company from its obligation to complete the works or from any other of its obligations and liabilities under the contract."

41. Ld. counsel for CGEWHO has vehemently relied upon the judgment in Construction and Design Services (supra) and ONGC v. Saw Pipes (supra). It is his submission that the admitted position is that the Contractor delayed the project beyond reasonable period and though the work was O.M.P. 278/2013 Page 31 of 38 allowed to be completed by the Contractor that did not take away the right of CGEWHO to claim compensation for delay. A perusal of the claim petition shows that the claim simply reads as under:

"Claim No.3 : Levy of penalty in the form of liquidated damages as stipulated in the contract due to delay in completion of the project by the company Rs.1,06,41,846/-.

Liquidated damages as per the conditions of the contract payable by the company work out to Rs.1,06,41,846/-.‖

42. The Ld. Arbitrator has clearly recorded that considering the various extensions given, time was not of the essence of the contract. The Ld. Arbitrator also rejected the contention that the claim was barred by limitation. The findings of the Ld. Arbitrator on this claim are as under:

"7.3.4. After examining the statements, counter statements, arguments and documents placed on record, my findings and award to this claim of CGEWHO are as under:

a) The claim of the Respondent (LCIL) that the CGEWHO claim is time barred is not borne out due to the fact that the Claimant has given sufficient notices to them as per their letters dated 14.12.2004 and 8.4.2005, which are within the 3 year period of the original date of completion as per contract i.e. 10.07.2003.

b) I, accept the argument of the Respondent that time does not remain the essence of this contract as the Claimant (CGEWHO) did not specifically extend the date of completion and allowed the work to continue even amending the contract conditions by paying directly to the Respondent's supplier/labor.

c) The contention of the Claimant (CGEWHO) that LD O.M.P. 278/2013 Page 32 of 38 clause 24.2.7 is to be mechanically applied for imposing on the Respondent is not valid due to:

i) The Claimant himself had modified the working clauses of the contract and allowed the work to continue indefinitely in the interest of completion of the project.

ii) The court rulings sighted by the Claimant and Respondent clearly laid down that while applying LD clause given in the contract, the Claimant has to justify the "FACTUM" of loss while the quantum of loss is not required to be proved. The Claimant has not been able to place on record any document showing the factum of loss to them in order to apply clause 28.2.7 of the contract for mechanically calculating liquidity damages to be applied on the Respondent.

d) In view of the above, I conclude that the Claimant is not entitled to any relief in account of admitting liquidity damages to be admissible to them and their claim is accordingly rejected.‖

43. The Ld. Arbitrator has correctly concluded that the factum of loss has to be established even in the case of compensation/liquidated damages, which may be claimed. This is in line with the legal position as per the judgments in Kailash Nath (supra) and MTNL (supra). The Supreme Court in MTNL (supra) has recently held as under:

"11. Indeed, the aforesaid position in law is made clearer by Section 73 of the Contract Act. Section 73 reads as follows:

―73. Compensation for loss or damage caused by breach of contract.-- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally O.M.P. 278/2013 Page 33 of 38 arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract.--When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

Explanation.-- In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.‖

12. This Section makes it clear that damages arising out of a breach of contract is treated separately from damages resulting from obligations resembling those created by contract. When a contract has been broken, damages are recoverable under paragraph 1 of Section

73. When, however, a claim for damages arises from obligations resembling those created by contract, this would be covered by paragraph 3 of Section 73.

13. Indeed, the present case is really covered by Section 74 of the Contract Act, which occurs in Chapter VI, which is headed, ―of the consequences of breach of contract‖. Section 74 states:

―74. Compensation for breach of contract where penalty stipulated for.-- When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract O.M.P. 278/2013 Page 34 of 38 contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation.-- A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception.--When any person enters into any bail- bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of any condition of any such instrument, to pay the whole sum mentioned therein.

Explanation.--A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.‖

14. In Kailash Nath Associates v. DDA, (2015) 4 SCC 136, after considering the case law on Section 74, this Court held:

―43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:

43.1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be O.M.P. 278/2013 Page 35 of 38 awarded not exceeding the amount so stated.

Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation.

43.2. Reasonable compensation will be fixed on well-known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.

43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section.

43.4. The section applies whether a person is a plaintiff or a defendant in a suit.

43.5. The sum spoken of may already be paid or be payable in future.

43.6. The expression ―whether or not actual damage or loss is proved to have been caused thereby‖ means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-

estimate of damage or loss, can be awarded.‖

44. The ratio of the above judgment is clear and categorical. Proof of actual damage or loss cannot be dispensed with even if the liquidated amount is considered to be a genuine pre-estimate. Moreover, the amount mentioned in the contract is the upper limit and it does not mean that in every case, the party is entitled to the said amount. The judgment in Construction and Design Services (supra) was an unusual case involving an environmental project, wherein the Supreme Court was of the opinion O.M.P. 278/2013 Page 36 of 38 that the project being a public utility project, the loss in the form of environmental degradation would have occurred. Moreover, various claims of the CGEWHO, which were rejected including, counter claim nos.8, 14, and 18 clearly show that the Ld. Arbitrator repeatedly came to the conclusion that no loss was established on behalf of CGEWHO. Ld. counsel for CGEWHO has fairly stated that the amount claimed was 10% of stage 4 & 5 as contemplated in clause 28.2.7. Further, the delay in this case is not purely attributable to the Contractor. There has been sufficient time gap between the issuance of the Letter of intent, then the MoU and lastly the final contract. The CGEWHO took some time to find a beneficiary which was finally CAG. Further, extensions were also granted by the CGEWHO. The Ld. Arbitrator further finds that no evidence was adduced to prove factum of loss. There being no evidence of any loss having actually occurred to CGEWHO, the claim was rightly rejected by the Ld. Arbitrator.

45. On the aspect of interest, in counter claim no.20, the Ld. Arbitrator has held as under:

"7.20 CLAIM NO.20 - LOSS INTEREST ON AWARDED AMOUNT 7.20.1. CGEWHO pleaded to award interest on the amount awarded to them consequent to their claims. This argument of CGEWHO is not accepted as wherever the interest on the awarded amount is applicable has already been given against each claim and no additional or separate interest is awarded.‖

46. Under Section 31 of the Act, the Ld. Arbitrator has a discretion to award interest i.e. pre-reference, pendente lite, and post award. CGEWHO has been awarded various sums in its favour including an amount of Rs.1,01,53,823/- in respect of principal amounts spent by CGEWHO. The O.M.P. 278/2013 Page 37 of 38 award of interest relates to amounts paid by CGEWHO to the labour and suppliers at the behest of the Contractor. It cannot, therefore, be said that the CGEWHO is not entitled to pre-reference and pendente lite interest. Considering that initially claims were raised by the Contractor and not by CGEWHO, it is held that the CGEWHO is entitled to pendente lite interest on the sums awarded in its favour, as also future interest from the date of award at 8% simple interest per annum. The challenge by the Contractor to this award insofar as the awarded counter claims are concerned, has already failed and attained finality. The amount so calculated in terms of the present judgement be paid to CGEWHO within three months by the Contractor. If the payment is not made within three months, interest at the rate of 10% would be liable to be paid on the awarded amount.

47. To summarise, the award of escalation to the contractor under claim 1 is set aside. The remaining challenges by CGEWHO fail. Interest is however awarded under counter claim 20, as per para 46 above.

48. The OMP is disposed of in the above terms.

PRATHIBA M. SINGH, J.

JUDGE APRIL 23, 2019/dk O.M.P. 278/2013 Page 38 of 38

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