Delhi District Court
New Delhi Municipal Council vs M/S Krishan Murari Sharma And Sons on 30 July, 2025
IN THE COURT OF MR. SATYABRATA PANDA, DJ-04,
PATIALA HOUSE COURTS, NEW DELHI
Arbtn No. 7630/17
CNR. No. DLND01-014975-2017
DLND010149752017
IN THE MATTER OF:
NEW DELHI MUNICIPAL COUNCIL
THROUGH THE EXECUTIVE ENGINEER (BM-III)
PALIKA PARKING, CONNAUGHT PLACE,
NEW DELHI-110001
...Petitioner
Vs.
M/s KRISHAN MURARI SHARMA & SONS
THROUGH ITS PARTNER SH. RAJ KUMAR SHARMA,
A-2/144 JANAKPURI, NEW DELHI-110058
...Respondent
Date of Institution: 17.11.2017
Date of Arguments: 10.07.2025
Date of Judgment: 30.07.2025
JUDGMENT
1. The petitioner has filed the present petition u/s. 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'A&C Act') for setting aside the arbitral award dated 21.08.2017 passed by the Ld. Sole Arbitrator, Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 1 of 76 Mr. S.K. Sarvaria, District & Sessions Judge (Retd.), Delhi.
2. The brief facts of the case are that the petitioner had issued a tender for the work of "Improvement to Palika Niwas Housing Complex, Lodhi Colony" which was awarded to the respondent/contractor on 14.10.2009. The work was to commence on 20.11.2009 and was to be completed within 15 months i.e. by 19.02.2011. However, there was delay in completion, and the work was actually completed on 09.11.2011, and the final payment was made on 29.08.2013. Due to the prolongation of the contract period, disputes arose between the parties. The respondent/contractor raised its claims and the matter was referred to arbitration in terms of the arbitration agreement between the parties. Vide order dated 22.08.2016 in Arb. Petition No. 398/2015, the Ld. Sole Arbitrator was appointed by the Hon'ble High Court of Delhi, and the arbitration proceedings were conducted under the aegis of the Delhi International Arbitration Centre. The respondent/claimant filed various claims before the Ld. Arbitrator, and, vide the impugned arbitral award dated 21.08.2017, some claims were allowed, some were partly allowed, and some were rejected.
3. The details of the claims raised in the arbitration proceedings and the eventual amounts awarded by way of the impugned award are as under:
S.No. Claim No. & Amount Amount
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 2 of 76
Description Claimed Awarded
1. Claim No.1 Rs.20,00,000/- Rs.3,29,479/-
A sum of Rs.20,00,000/-
on account of balance
payment for the work
executed under the
contract including
additional work, extra
work and extra
involvements etc. But
not paid/short paid in
quantities/rates and also
made
reduction/deduction/dele
tion in the alleged final
bill for the
quantities/rates already
paid.
Claim 1.1 Rs.9,450/-
Illegal recoveries
Claim 1.2 Rs.29,570/-
For not conducting
quality tests
Claim 1.3 Rejected
Hacking of stone
Claim 1.4 Rs.2,90,459
Unjustified reduction in
prices
Claim 1.5 Rejected
Kota stone
Claim 1.6 Rejected
Extra work of mortar
Claim no.1.7
Mortar Work Rejected
2. Claim No.2 Rs.35,10,252/- Rs.35,10,252/-
A sum of Rs.36,00,000/-
towards payments due
under Clause 10-c of the
agreement but not paid.
3. Claim No.3 Rs.80,000/- Rs.80,000/-
A sum of Rs.80,000/- on
account of illegally, un-
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 3 of 76
contractually and
arbitrary reduced the
quoted rates.
4. Claim no.4 Rs.20,000/- Rejected
A sum of Rs.20,000/-
towards balance
payment of testing
charges.
5. Claim No.5. Rs.14,14,430/- Rs.14,14,430/-
A sum of Rs.15,00,000/-
on account of
damages/compensation/l
osses on account of staff
establishment, overhead,
centring/shuttering and
T&P machineries due to
breach of Contract
committed by the
department.
6. Claim No.6 Rs.20,00,000/- Rs.7,91,000/-
A sum of Rs.20,00,000/-
towards escalation in
construction cost due to
market inflcation for the
work executed beyond
the stipulated period of
contract on account of
breach of contract
committed by the
department.
7. Claim No.7 Declaratory Rejected
The liability of the Award
service tax under the
aforesaid contract, if
any, demanded (later on)
by authority concern
should be reimbursed as
per the provision of
contract.
8. Claim No.8 Rs.2,12,894/- Rs.2,12,894/-
Compensation by the interest @
way of interest @ 18% 18%
p.a on account of
delayed payment of the
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 4 of 76
final bill/security
deposit/withheld
amounts from the due
date(s) till the date of
realisation.
9. Claim No.9 Interest @ Rs.24,24,306/-
Claim to interest @ 18% 18% p.a
p.a for the amounts due
for pre-reference
pendentilite and future.
4. Being aggrieved by the impugned arbitral award, the petitioner has filed the present objection petition.
PETITIONER'S SUBMISSIONS
5. During the course of submissions, Ld. counsel for the petitioner has confined his arguments only on the challenge to the arbitral award in respect of award of the following claims only:
i. firstly, in respect of the Claim No.2 which was awarded towards payments under clause 10(C) of the contract due to increase in the statutory minimum wages;
ii. secondly, in respect of the Claim no.5 which was awarded towards damages and compensation for the delay;
iii. thirdly, in respect of the Claim no.6 which was awarded towards price escalation during the extended period;
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 5 of 76 iv. fourthly, in respect of the award of interest.
6. It is submitted that the approach of the Ld. Arbitrator in awarding these claims was not only unjust, arbitrary and capricious, but was also in conflict with the public policy.
7. Ld. counsel for the petitioner has made his submissions as well as has filed the written arguments summarising the oral submissions made. The submissions of the ld. Counsel for the petitioner in respect of the award of Claim No.2 under Clause 10C of the contract, as summarised in the written arguments, are extracted hereunder:
"4. Unjust and unreasonable treatment of the object and purpose of prescribing Clause 10C, to ensure (actual) payment of the increased statutory wages to the labourers:
a) The Claimant-Respondent had raised the claim under the aforesaid head as Claim no.2 in its Claim Petition, there-under claiming an amount of Rs.35,10,252 (~ Rs.36 Lacs), which has been accepted and awarded by the Ld. Arbitrator in its entirety.
b) In this regard, it is submitted the said provision is a labour-welfare provision and is not meant for the unjust enrichment of the contractor(s).
Therefore, in all fairness, to be eligible to be reimbursed such increased labour-wage, the Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 6 of 76 contractor mustn't merely establish that there was an increase in such statutory-wages at the relevant time, but should also establish that the benefit of such increased wage was actually passed on to the labourer(s).
c) The relevant statutory documents which record the (actual) payment of such increased wages to the labourers, i.e. the labour register, muster-roll and certificate to that effect issued by the Labour Department of the Government of NCT of Delhi etc. were called for by the Executive Engineer of the Petitioner in terms of his communication dated 05.09.2014 [Annexure P-8 @ Pg.222 of the paper- book] addressed to the Respondent-Contractor; however, it failed to produce the said documents. Instead, the Respondent has relied on the various Fortnightly Labour Reports (or 'FLRs') [Annexure P-7 @ Pg.208-221] to substantiate its said claim.
d) A perusal of the said FLRs would show that (these are general pre-printed stationary/ forms) which merely record the number of labourers deployed in a given period to facilitate the release of Running-Account (or 'R/A') payments on an ad-hoc basis to ensure availability of adequate funds with the contractor to complete the project, subject to final reconciliation; and, also to have an indication of the pace of work and the balance work remaining. It neither has the break-up of the categories of labour Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 7 of 76 deployed, nor does it carry the name, details etc. of the purported beneficiaries. Thus, the presence or absence of the local A.E./ J.E. would have no consequence vis-à-vis the proof of payment of enhanced wages to the labourers.
e) However, notwithstanding the vehement opposition in this regard, the Ld. Arbitrator has arbitrarily returned the finding qua the said FLRs
-instead of the requisite labour register, muster-roll and certificate by the Labour Department- being sufficient to establish payment of such increased wages to the labourers. [To refer to the said discussion/finding rendered in the impugned award, see Pg. 135-138 of the paper-book].
f) The Ld. Arbitrator failed to appreciate that the Fortnightly Labour Register is signed by the concerned A.E/J.E. merely in acknowledgement of the number of labours deployed at the site fortnightly for keeping pace of the work and is not certification of the payment made by the Contractor to such labour, which is made on daily basis. The A.E./J.E. neither supervise nor certify the actual/any enhanced payment made by the contractor to the labour. There is no deemed fiction in respect of the payment of such increased wages to the labourers since such payments may not actually be made for various reasons, such as labour contract between the Respondent-contractor and the labour-contractor Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 8 of 76 being a fixed-wage contract; for the reasons of the labour being under the monthly-employment contract; or due to their not being literate enough to know their rights, that too within days or months of its issuance of such enhancement order, in which case the benefit of enhancement of such minimum wages does not actually get passed-on to the labourers. It is for this reason that the employment- registers/muster rolls and certificate of payment of increased wages being issued by the Labour Department, GNCTD, are the requisite documents to put any dispute to rest. The Respondent, admittedly, neither has in its possession, nor has it produced the afore-said documents.
g) The requisite documents, admittedly, neither being available with the Respondent, nor being filed by it, the Respondent could not have arbitrarily held to be eligible for the award by the Ld. Arbitrator."
8. The submissions of the ld. Counsel for the petitioner in respect of the award of damages and compensation under Claim No. 5 and the award of escalation under Claim No.6, as summarised in the written arguments, are extracted hereunder:
"5. Arbitrary and unjust award of damages/ compensation/escalation in cost to the Respondent, contrary to the legal precedents:
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 9 of 76
a) The Claimant-Respondent had raised the claim under the aforesaid head as Claim nos.5 and 6 in its Claim Petition, there-under claiming an amount of Rs.34,14,430 (Rs.35 Lacs), i.e. Rs.14,14,430 and Rs.20,00,000, respectively; which has been partially accepted by the Ld. Arbitrator, against which anamount of Rs.22,05,430 (being Rs.14,14,430 and Rs.7,91,000, respectively), stands awarded under the impugned contract.
b) In this regard, it is submitted that the Ld. Arbitrator failed to appreciate that the contract was escalation-proof as such it did not provide for any damages on account of staff & establishment or on account of escalation in cost.
c) Moreover, it is a matter of record that being unable to complete the contracted work within the stipulated time-period, the claimant sought extension of time (EOT) under clause 5 of the agreement [Annexure P-9 @ Pg.223] as it had failed to complete the contracted work by the due date. In support of his request, the claimant also filed an undertaking dated 26.09.2013 [Annexure P-10 @ Pg.225] to the effect that, if the EOT is granted without any penalty or levy, it shall not claim any compensation or damages whatsoever on account of such extension of time, cost escalation etc. Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 10 of 76
d) Consequently, in view of such request & undertaking, the competent authority of the respondent granted extension of time to the claimant for completion of the contracted work without levy of penalty, otherwise payable under clause 2 of the agreement.
e) As such, the said undertaking executed by the claimant acts as an estoppel against it and the claimant stands precluded from raising any claim in this regard, like escalation, establishment charges during extended period etc. Moreover, in terms of the Doctrine of Election, the Respondent-Claimant having taken the corresponding advantage by avoid penalty/ levy under Clause 5, it cannot insist on sustaining its corresponding claim. In the circumstances, the claimant's right(s), if any, stands waived & acquiesced in terms of such an undertaking. Thus, no cause of action arises in favour of the claimant to stake the present claim. As such, the claim petition was liable to be rejected.
In this regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Cauvery Coffee Traders vs. Hornor Resources, reported in (2011) 10 SCC 420 [Para 33 to 35].
f) The Ld. Arbitrator has brushed aside the argument of the Ld. Counsel for the Petitioner by relying on the purported economic duress/ coercion Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 11 of 76 under which the undertaking may have been furnished [Relevant portion of award @ Pg.141- 149], thereby completely ignoring the aforesaid Doctrine of Election, which is an exception. to such claim of economic duress/ coercion, even while it is a matter of record that the Respondent had voluntarily ELECTED to the take corresponding advantage, to the detriment of the Petitioner. Having done so, the claimant cannot now deny the corresponding advantage to the Petitioner.
g) Even otherwise, no books of account or bills regarding the claimant/contractor having paid such enhanced amount for purchase of the material has been placed on record, yet the Ld. Arbitrator has accepted the contention of the claimant-contractor on its face value. Moreover, the Ld. Arbitrator has considered the amount of work done by the claimant during the extended period at Rs. 1 Crore and accordingly granted Rs.7.91 Lacs @ 7.91% increase in material cost. However, as per record the claimant had actually undertaken work for Rs.52,54,122 only during the extended period. [Refer: Annexure P-11 @ Pg.227]
h) The brushing aside of the well-settled doctrine of election and the adoption of the aforesaid imaginative figure of Rs.1 Crore, both, without any rational or basis renders the impugned award to be Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 12 of 76 an arbitrary and capricious exercise of power by the Ld. Arbitrator."
9. The Ld. Counsel for the petitioner has also filed additional written submissions, in which it is contended that the Claim no. 2 towards increased wages and the Claim No.5 towards damages/compensation/losses overlapped with the Claim no. 6 towards escalation in construction cost due to alleged market inflation for the work carried out beyond the stipulated period of agreement.
10. It is further submitted that even otherwise Claim no. 5 towards damages/compensation/losses was liable to be rejected in the absence of material to prove the said claim or to indicate that the contractor would have earned profit on the value/work. It is submitted that no material had been placed on record to show that if the contract had not been delayed, the respondent/claimant would have been gainfully employed in any other profitable contract. In this regard, reliance is placed on the decision dated 20.11.2014 of the Hon'ble High Court of Delhi in FAO (Comm.) No. 169/2023 entitled as MCD v. Sh. Satya Pal Gupta.
11. The submissions of the ld. Counsel for the petitioner in respect of the award of interest, as summarised in the written arguments, are extracted hereunder:
"6. Arbitrary and unjust award of interest @18%, contrary to the statutory provision:
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 13 of 76
a) The Claimant-Respondent had raised the claim under the aforesaid head as Claim nos.8 and 9 in its Claim Petition, claiming award of interest @18% for the period of delay in payment, as well as pre-reference, pendentlite and future interests, which has been accepted and awarded by the Ld. Arbitrator in its entirety.
b) In this regard, it is submitted that in his impugned award, the Ld. Arbitrator has awarded rate of interest as high as 18% for the delay, as well as for pre-reference, pendentilite and future interests, which is excessive, especially considering the provision prescribed under section 31(7)(b) of the Act, as well as the fact that the Petitioner herein is not a commercial entity involved in commercial transactions for-profit, but, a statutory municipal body funded by the public exchequer.
c) It is further submitted that Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (as amended), prescribes interest ... two per cent higher than the current rate of interest prevalent.... to be awarded (even in commercial contracts), which is not the case at-hand.
d) Therefore, the award of interest @18% vide the impugned award being without any rational or basis is arbitrary and highly unjust."
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 14 of 76
12. Ld. counsel for the petitioner has further submitted that the award of interest was against the provisions of the contract. It is submitted that despite there being Clause no. 29 of the Agreement specifically stipulating that no interest will be payable upon earnest money and security deposit or amounts payable to the respondent/claimant, the Ld. Arbitrator erred in allowing the claim towards interest. It is submitted that the Ld. Arbitrator failed to appreciate that when the agreement between the parties barring interest on amounts from cause of action to the date of award, the Tribunal was bound by it and could not have awarded interest. In this regard, reliance is place on the decision of the Hon'ble Supreme Court in UOI Vs. Bright Power Projects (India) Private Ltd. (2015) 9 SCC 695.
RESPONDENT'S SUBMISSIONS
13. On the other hand, Ld. Counsel for the respondent has supported the impugned award and has submitted that the Ld. Arbitrator has passed a reasoned award after carefully considering the evidence and material on record, and that the impugned award does not call for any interference. It is submitted that it is well settled that the scope of jurisdiction u/s. 34 of the A&C Act is rather limited, and that in the jurisdiction u/s. 34 of the A&C Act, the Court is not sitting in appeal. It is submitted that even if the decision of the arbitrator was only a possible view, then the award could not be interfered with. It is submitted that the arbitrator was the sole judge of the quality as well as the quantity of evidence as well as was the master of the Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 15 of 76 facts, the evidence and the law. It is submitted that the objections raised in the present petition do not fall under the ground of patent illegality u/s. 34 of the Act. On this basis, it is submitted that the petitioner is liable to be dismissed.
14. Ld. counsel for the respondent has also filed the written arguments.
15. I have considered the submissions of the ld. Counsels for the parties and I have perused the record.
DISCUSSION & FINDINGS RE: AWARD OF CLAIM NO.2 TOWARDS PAYMENTS UNDER CLAUSE 10-C OF THE CONTRACT
16. First, coming to the award by the Ld. Arbitrator of the Claim No.2 towards payments under Clause 10-C of the contract towards escalation in the wages.
17. It would be appropriate to extract the relevant portion of the award awarding the Claim No.2, as under:
"Issues No. 3In claim No.2 the claimant has claimed the difference between statutory increase in minimum wages of workers after submission of Tender.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 16 of 76 The contention on behalf of the claimant is that this claim emerges from Clause. 10C of the agreement executed between the parties. It is argued that the Tender was submitted on 13/8/2009 and the work was to be completed on 19/2/2011but was completed on 9/11/2011 for which the delay was condoned by respondent. Reliance is placed upon fortnightly report authenticated by the concerned Engineer of respondent and it is pointed out that the payment of wages were made more than minimum rates prescribed by the Government, but the claim here is at the rate of the prescribed minimum wages. Therefore, it is argued that the claimant is entitled to the amount of Rs. 36,00,000/- claimed here.
The claim No. 2 raised in statement of claim is disputed by the respondent on the ground that the claimant had not placed on record any documentary proof of the payment of the enhanced wages of labour. It is stated that as per Clause. 10C, the claimant was required to prove all registers, muster rolls, documents and certificate issued by the Labor Department. Therefore, this claim according to respondent is not maintainable. The argument on behalf of respondent is that fortnightly reports relied upon by claimant to show that increased minimum wages were paid to the workers with the signature of the engineer of respondent but these fortnightly reports cannot be taken to establish authenticity of payment of minimum wages to the workers. The Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 17 of 76 claimant has failed to prove documentary evidence. Therefore, labour charges were paid by respondent in the final bill, at the minimum wages rates prevailing at the time the contract was executed between the parties. Reliance is placed upon M/S. Hindustan Construction Corporation versus Delhi Development Authority and Others FAO/(OS) No. 215/2002, decided on 17/4/2009 by Hon'ble Division Bench of Delhi High Court.
I have carefully gone through the respective contentions from both sides, pleadings and documents placed on record and the authority cited on behalf of respondent. In Hindustan Construction Corporation's case (supra) relied on behalf of respondent, the Clause 10C of the agreement was in issue and it was held that it was essential for the contractor not only to establish that there was a statutory increase as a result of coming into force of any fresh law or statutory rules or orders which exceeds 10% of the wages prevailing at the time of receipt of tenders for the work, but also to establish that the contractor "thereupon, necessarily and properly pays in respect of labour engaged in the execution of the work such increased wages". It was also observed that documentary proof of payment of increased wages is also essential to sustain the claim under Clause. 10C. Therefore, the decision of Ho'ble Single Bench was confirmed by Ho'ble Division Bench of Ho'ble Delhi High Court.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 18 of 76 In the present case the Order No.F.12. (140)/02/MW/Lab/5573, dated 3/3/2010, raising within contract period the minimum wages under Scheduled Employment under the Minimum Wages Act, 1948 with effect from 1/2/2000 is placed on page 77 of the undisputed documents of the claimant. Even otherwise, in the present case the minimum wages claimed to have been increased by the claimant are not disputed by respondent, in pleadings, evidence or arguments.
What is disputed by respondent is that the claimant has failed to prove by documentary evidence that minimum wages were actually paid by claimant to the workers/labourers. Here, the claimant has proved the fortnightly labour reports (FLR) for relevant period submitted to the respondent as Exhibit C-3 to Exhibit, C-33. The documents Exhibit C-34, Exhibit C-35 and Exhibit C-37 are the request letters of the claimant to the respondent for payment of escalation amount under Clause 10C of the agreement. It is also stressed on behalf of claimant that the payments indicated in Exhibit C-3 to Exhibit, C-33 were made under the supervision of the respondent's engineers as per Clause 19, of the agreement. The documents Exhibit C-3 to Exhibit, C-33 are the fortnightly reports of the claimant submitted to the respondent which will not only show the number of skilled and unskilled workers employed by the complainant during the Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 19 of 76 relevant period, but also the wages paid to them. These fortnightly reports are not only signed b. complainant/contractor, but also by junior engineer assistant engineer of the respondent. The authentication by Junior Engineer and Assistant Engineer, who were present at the spot during construction work, of these fortnightly reports, in my view, gives great authenticity and genuineness to these fortnightly reports Exhibit C-3 to Exhibit, C-33. So, even if the wages register or record from Labor Department are not produced, these fortnightly reports, in my view, sufficiently prove the wages paid by claimant to the workers during the relevant period. In Hindustan Construction Corporation's case (supra) there was no documentary evidence produced by the contractor to show the wages paid to the workers which is not so here. So Hindustan Construction Corporation's case (supra) does not help the claimant.
In view of the above discussion, I hold that the claimant is entitled to the difference in the wages of workers at the time of acceptance of tender and the minimum wages increased by the Government Of National Capital Territory during contract period. Although the claimant has claimed the sum amounting to Rs.36,00,000/- as per Clause. 10C of the agreement executed between the parties but the document Exhibit C-37, dated 10/7/2014 of the claimant along with the details of the breakup of Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 20 of 76 this amount given at page 72 of the admitted documents of the claimant show that the claimant has demanded a sum of Rs. 35,10,252/- from the respondent on this count. Therefore Issue No. 2 is decided in favour of claimant to the effect that the claimant is entitled to the sum of Rs. 35,10,252/- from the respondent."
(Emphasis supplied by me)
18. As seen from the award, there was no dispute between the parties that the minimum wages had increased during the currency of the contract and the quantum thereof was also not in dispute. There was also no dispute that the differential between the increased amount of minimum wages and the amount of minimum wages at the time of the tender was payable to the respondent/contractor by the petitioner under Clause 10-C of the agreement. The only dispute between the parties was with respect to whether the claimant had proved through the documentary evidence that the increased minimum wages were actually paid by the respondent/claimant to the workers and the labourers.
19. The Ld. Arbitrator has in the award referred to the relevant documentary evidence led by the claimant being the fortnightly labour reports Exhibit C-3 to Ex. C-33 for the relevant period to hold that the claimant had proved that the claimant had made payment of the wages to the workers. The argument made on behalf of the petitioner that these fortnightly labour reports could not have been Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 21 of 76 relied upon to award the claim for escalation under Clause 10-C is wholly outside the scope of jurisdiction u/s. 34 of the A&C Act, since this argument would essentially entail re-appreciating the evidence. It is well settled that the Court cannot in exercising jurisdiction u/s. 34 of the A&C Act re-appreciate the evidence. The Ld. Arbitrator has relied upon the fortnightly labour reports to conclude that the claimant had been able to prove the payment of the wages. The appreciation of the evidence was within the jurisdiction of the ld. Arbitrator and there is also nothing perverse in this finding of the ld. Arbitrator. Hence, the award of the claim towards escalation of wages under Clause 10-C does not call for any interference.
20. In this regard, it would also be appropriate to refer to the decision of the Hon'ble High Court of Delhi in MCD v. Satya Pal Gupta (supra), which has been cited by the petitioner itself albeit with regard to the challenge to the award of claim of damages. In MCD v. Satya Pal Gupta (supra) also, there had been award of claim of escalation based on increase in minimum wages based on a similar Clause 10-C of the GCC. In the said case also, there was no dispute that the minimum wages had increased and there was also no dispute to the computation. In these circumstances, the Hon'ble High Court upheld the decision of the Ld. Commercial Court dismissing the challenge u/s. 34 of the A&C Act on the ground that the contractor had failed to produce any material to establish that the enhanced wages had in fact been paid. The Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 22 of 76 relevant portion of decision in MCD v. Satya Pal Gupta (supra), in this regard, is extracted hereunder:
"22. The next question to be examined is the consequence of the said delay. The Contractor had claimed a sum of ₹10,21,016/- on account of escalation resulting from the statutory wage revisions. The Contractor had referred to certain notifications issued by the Government of NCT of Delhi to establish that there was revision in the minimum wages in scheduled employment under the Minimum Wages Act, 1948. The Arbitral Tribunal had taken the said documents on record. The Contractor had claimed that he was compelled to pay the higher wages for execution of the work, which was inordinately delayed for reasons attributable to the MCD. He had also furnished a statement of computation (Ex.CW1/78) quantifying the said amount. The learned counsel for the MCD did not dispute that the computation as provided by the Contractor was in accordance with the formula specified in Clause 10C of the GCC as applicable to the Agreement. He however contended that the Contractor had not produced any material to establish that he had in fact paid the enhanced wages to the extent of the aforesaid amount. He submitted that the Arbitral Tribunal had awarded the said claim without the necessary evidence.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 23 of 76
23. We are unable to concur with the said contention. Concededly, the Contractor had placed on record the material to establish that there was an increase in the minimum wage rate in terms of the various notifications issued under the Minimum Wages Act, 1948.
24. The impugned award records that the Contractor had produced the details of the gross amount, labour component and the percentage increase, which were worked out and shown as part of the extra expenses incurred against each of the running bills. The Arbitral Tribunal also noted that there was nothing on record to contradict the said conclusion. The MCD has not filed the documents that were placed before the Arbitral Tribunal. It has also not filed the copy of the relevant clauses of the GCC. However, the learned counsel appearing for the MCD did not dispute that Clause 10C of the GCC, as applicable to the Contract in question required the escalation to be computed on the assumption that 25% of the value of the work would constitute the labour component. It is also not disputed that calculating of escalation under Clause 10C of the GCC was required to be computed on the basis of the prescribed formula, on normative basis. It was also not disputed by the MCD that the said formula has been correctly applied. However, it was contended on behalf of the MCD that the Contractor has not produced books of Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 24 of 76 accounts to prove that the increase in wages was paid.
25. It is material to note that the learned counsel for the MCD did not dispute the correctness of observations of the Arbitral Tribunal that the MCD had not controverted the calculation of the computation of escalation under Clause 10C of the GCC as filed by the Contractor. In view of the above, since it is not disputed that the escalation was required to be worked out on the labour component of the work done and that the computation produced by the Contractor before the Arbitral Tribunal was not disputed, we are unable to accept that the impugned award in regard to the award of escalation is required to be interfered with. The learned Commercial Court had rightly noted the limited scope of examination under Section 34 of the A&C Act. In the given circumstances, we are unable to accept that the view of the Arbitral Tribunal can be faulted on the ground that the same is perverse or is an improbable one. In view of the above, the MCD's challenge to the award of escalation under Section 10C of the GCC is rejected."
(Emphasis supplied by me)
21. In the present case, the only dispute was whether the respondent/contractor had actually paid the increased minimum wages to the workers. In this regard, the Ld. Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 25 of 76 Arbitrator has come to the finding that the respondent/contractor had been able to prove the payment to the workers through the documentary evidence, i.e. the fortnightly labour reports. A perusal of these fortnightly reports shows that the same record the number of workmen and the total payments made to them for the relevant period. These fortnightly reports are also countersigned by the engineers/representatives of the petitioner. Thus, there is no perversity in the award of the Claim No.2 towards the escalation in the wages. The question of proof and the appreciation of evidence was within the domain of the Ld. Arbitrator and if he has found the fortnightly reports to be sufficient evidence to prove that the payments were indeed made to the workers by the claimant, then that is the end of the matter and there is no scope for interference in exercise of jurisdiction u/s. 34 of the A&C Act.
22. In view of the above discussion, the challenge to the award of the Claim No.2 towards escalation of wages under Clause 10-C is rejected.
RE: AWARD OF CLAIM NO.5 TOWARDS DAMAGES/COMPENSATION FOR PROLONGATION OF CONTRACT PERIOD.
23. Now, coming to the award by the Ld. Arbitrator of the Claim No.5 towards damages/compensation/losses on account of prolongation of the contract period.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 26 of 76
24. It would be appropriate to extract the relevant portion of the award awarding the Claim No.5, as under:
"Issues No. 6 In Claim No. 5 the
damages/compensation/losses on account of
Respondent, leading to prolongation of the contract period forcing the claimant to keep maintenance staff, establishment, overheads, T and P machineries with minimum required for performance of. The undertaking dated 26/9/2013 given by the claimant was given under economic and commercial duress due to dominant position enjoyed by the respondent, which was later withdrawn by the claimant, by letter dated 2/1/2015 and also said undertakirg according to claimant is not valid in the eyes of law as per judicial decisions. The claimant has also relied upon the following Hudson Formula:
O.H. & Profit 100 X Contract Sum/Contract Period X Period of delay = 7.5 /14,14,430/-100 X Rs.3,14,31,790/- X 9 month = Rs. 15 month It is argued on behalf of claimant that the construction work, which was to be completed within 15 months could only be completed in 24 months on account of delay arising due to respondent's fault. Although the delay was condoned Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 27 of 76 by the respondent an undertaking under duress was given by the claimant but the claimant is entitled to expenses incurred by claimant for this nine-month duration as per Hudson Formula given above. Reliance is placed upon Macdormott international Inc. Vs Burn Standard Co. Ltd. 2006(2) Arb.Law 498 S.C. ONGC Vs. Saw Pipe Ltd. 2003 IV AD (SC) 254 and K.N.Sathyapalan (dead) by Lrs. Vs. State of Kerala and Anr. 2006(4) Arb.LR 275 (SC).
It is also argued that the undertaking, dated 26/9/2013 was given under economic duress by the claimant and this undertaking was withdrawn later, by letter dated 2/1/2015 Exhibit C 40 by the claimant.
Regarding Claim Nos.5, the case of the respondent is that being unable to complete the construction work within the stipulated time period, the claimant sought extension of time under Clause 5 of the agreement. The claimant also filed an undertaking, dated 26/9/2013 to the effect that it shall not claim any compensation or damages whatsoever on account of such extension of time. The said undertakings executed by the claimant acts as an estoppel against it and claimant stands precluded from raising any claim in this regard, like escalation, establishment charges during extended period, et cetera. Reliance is placed upon Cauvery Coffee Traders, Mangalore Vs Hornor Resources (International) Company Limited (2011) 10- SCC Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 28 of 76
420. It is also argued that this and the other claims were not raised by the claimant when the contract was alive, so these cannot be raised or adjudicated at such belated stage. Therefore, it is argued that the Claim No. 5 is not maintainable. Reliance is placed upon MTNL VS.S.P.S.Rana OMP No. 654/2007 decided by Ho'ble High Court Of Delhi on 15th, May, 2009.
I first take up the two technical issues raised on behalf of respondent, i.e., (1). The claimant did not raise the claim within the currency of the contract and (2) the claimant has given undertakings that he would not claim any amount from the respondent. On the question of not raising this claim and other claims by the claimant during currency of the contract much reliance is placed upon MTNL's case (supra) wherein dispute was between lessee and lessor. The lessee wanted to hand over possession of the leased property to the lessor, who avoided it on one pretext or the other. So Ho'ble Delhi High Court held that the scope of the claim/dispute cannot be enlarged to an extent that the disputes which were never there during the currency of the contract, suddenly are raked up as disputes. These observations of Ho'ble Delhi High Court, in my view, are applicable to be facts of that particular case In the present case, it is not a dispute between lessor and lessee regarding any possession of premises or payment of rent. Here, the dispute is between the Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 29 of 76 claimant contractor and statutory body, NDMC. Therefore, MTNL's case (supra), in my view, is distinguishable on facts and does not help the respondent.
No statutory provision of law is shown in support of this argument on behalf of respondent. The disputes between a contractor and the person/Authority getting the construction work done through hira, in my view can be raised validly before appropriate Forum within the statutory limitation period from the date of accrual of cause of action, in accordance with law. The raising of serious disputes during contract period before the court of law or the arbitrator during the currency of contract would not be in the interest of either of the parties for the simple reason that it may lead to stopping of the construction work in the midway, thereby hampering in midway the completion of the project. In a commercial contract like this, the business acumen and practical experience of parties should also play the appropriate role. From the point of view of claimant raising of serious dispute during currency of the contract may lead to not clearing of, or with holding of final and interim bills by respondent besides stopping of the construction work midway. From the point of view of the respondent raising of the present disputes would have hampered the project, leading to stoppage of construction in midway. Therefore, it was not in the interest of Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 30 of 76 parties for raising the present claims during the currency of contract executed between the parties. Hence, the claimant, in my view, cannot be nonsuited on the ground that it has not raised this or the other claims made in the statement of claim during currency of the contract period.
The second technical question is regarding undertaking/ affidavit given by the claimant on 26/9/2013 to the effect that it shall not claim any compensation or damages whatsoever on account of such extension of time. In Cauvery Coffee Traders (supra) relied on behalf of the respondent a large quantity of ore had been supplied to the respondents in China against part payment. The dispute regarding quality was raised by respondents and balance payment at reduced price was offered, which was accepted by the petitioner in that case. On these facts, it was held by Honourable Supreme Court:
"In view of the above, law on the issue stands crystallised to the effect that, in case, final settlement has been reached amicably between the parties even by making certain adjustments and without any misrepresentation or fraud or coercion, then, acceptance of money as full and final settlement/issuance of receipt or vouchers etc. would conclude the controversy and it is not open to either of the parties to lay any claim/demand against the other party."
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 31 of 76 The above observations in Cauvery Coffee Traders (supra) show that if the final settlement has been the amicably between the parties. It should be acted upon, provided the settlement is without any misrepresentation or fraud or coercion. Therefore, the element of misrepresentation, undue influence, economic duress, fraud or coercion should be ruled out before the settlement/undertaking/affidavit of no claim of further dues of the claimant is taken as full and final settlement debarring it from raising any claim against the respondent. Here, certain facts and circumstances of vital importance which need close scrutiny.
In the present case, it is not disputed that the contract period was for 15 months, and stipulated date of commencement of contract was 20/11/2009 and stipulated date of completion of contract was 19/2/2011, but actual date of completion of contract was 9/11/2011. Part payments were made during the currency of contract by respondent to the claimant and final bill, admittedly, was prepared on 29/8/2013. The affidavit of claimant Exhibit, RW 1/1 undertaking not to claim any dues for extension of time of contract is attested on 29/9/2013, i.e., after the completion of contract and after preparation of the final bill. Had this affidavit been given by the claimant before expiry of stipulated date of completion of contract, Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 32 of 76 i.e. 19/2/2011 of soon after that, but before actual date of completion of contract on 9/11/2011, it would have been of significant value to arrive at the conclusion that there was settlement between the parties that no further dues would be claimed by the claimant. But since this affidavit is given not only after expiry of initial contract period of 15 months, but also extended period of nine months the inevitable conclusion is that claimant was subjected to economic duress or was misrepresented facts to give this affidavit Exhibit, RW 1/1 after preparation of the final bill. Therefore, in my view, the respondent has failed to establish that the fair amicable settlement has been arrived at between the parties, by virtue of the affidavit/undertaking Exhibit, RW 1/1 given by the claimant undertaking not to claim any dues for the extended period of contract. Cauvery Coffee Traders case (supra), in my view, does not help the respondent. Therefore, the said affidavit/undertaking Exhibit, RW 1/1, in my view, does not help the respondent on this issue or the other issues.
Now the question arises whether the claimant is entitled to any compensation or damages from the respondent on account of staff establishment, overhead, centering/shuttering and T & P machineries due to breach of contract allegedly committed by respondent and if so, to what amount? The claimant has specifically alleged in the Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 33 of 76 pleadings in the statement of claim that there were various hindrances in the work caused solely by the respondent, which led to prolongation of the contract, and the claimant was forced to maintain staff establishment, overheads, T & P machineries et cetera. In the reply to the Claim No. 5 in statement of claim the respondent has not specifically denied the delay and hindrances on its part. The performance report dated 9/5/2014, with regard to contract Exhibit C- 36 issued by Executive Engineer Mr. VK Nimesh shows overall performance of the contractor as very good with regard to renovation/upgradation of the housing complex in question. Regarding quality of work material used was indicated as very good and structural work, finish and speed of execution as satisfactory. This performance reports Exhibit C-36 supports the plea of the claimant that it was due to the latches and delay on the part of respondent, which led to prolongation of the contract period for which extension was granted by the respondent without levy of compensation In K.N.Sathyapalan's case (supra) relied on behalf of claimant the question which Ho'ble Supreme Court was called upon to answer in the appeal before it was 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 Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 34 of 76 escalation of costs and whether the Arbitrator exceeded his jurisdiction in allowing such claims as had been found by the High Court. It was held that. 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. Therefore, the claimant is entitled to any compensation or damages from the respondent on account of staff establishment, overhead, centering/shuttering and T & P machineries due to breach of contract committed by respondent leading to prolongation of contract period.
The next logical question is what amount of damages/compensation could be awarded to the claimant against the respondent in the given facts and circumstances of the case. The claimant wants calculation of damages on the basis of Hudson formula, referred before. In Macdormott's case (supra) relied upon by learned counsel for the claimant. The Hon'ble Supreme Court examined the question of method of computation of damages and explained Hudson Formula, Emden Formula and Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 35 of 76 Eichleay Formula and has made the following observations.
"A court of law or an arbitrator may insist on some proof of actual damages, and may not allow the parties to take recourse to one formula or the other. In a given case, the court of law or an arbitrator may even prefer one formula as against another. But, only because the learned arbitrator in the facts and circumstances of the case has allowed MIl to prove its claim relying on or on the basis of Emden Formula, the same by itself, in our opinion, would not lead to the conclusion that it was in breach of Sections 55 or Section 73 of the Contract Act.
Therefore, the court or arbitrator may take recourse to either of the formula for calculation of damages. The claimant has insisted for computation of damages by taking recourse to Hudson Formula which, according to Apex Court in Macdormott's case (supra) adopts the head office overhead percentage from the contract as effective for completing the costs and has received judicial support in many cases. I do not find anything on the record of this case, which may justify non- application of Hudson Formula for calculation of damages. The claimant has made the following calculations on the basis of this Formula:
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 36 of 76 O.H. & Profit /100 X Contract Sum Contract Period X Period of delay = 7.5 14,14,430/-100 X Rs.3.14,31,790/- X 9 month = Rs 15 month Neither Hudson Formula, nor the above apparently correct calculations made in the statement of claim are disputed by the respondent.
Only technical objection regarding settlements/undertaking/affidavit of claimant about not claiming anything for extended period of contract and also technical objection of not raising the dispute during currency of the contract period are made on behalf of respondent, which were not found in the light of the above discussion. Therefore, the claimant in my view is entitled to the sum of Rs.
14,14,430/-from respondent towards maintainance staff, establishment, overheads, Tard P machineries with minimum required for performance of contract during extended period of nine months. The issue is accordingly decided in favour of the claimant against the respondent."
(Emphasis supplied by me)
25. A perusal of the award shows that the Ld. Arbitrator has examined the material on record and has come to the following two findings- i) firstly, that the undertaking which was given by the claimant to not claim compensation for the extension of time was based on economic duress and was not an amicable settlement Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 37 of 76 between the parties, and, ii) secondly, that the prolongation of the contract period was due to delay on the part of the petitioner herein. Both these findings are essentially findings of fact, which are based on the examination of the material on record by the Ld. Arbitrator. The appreciation of the evidence and material on record was within the domain of the Ld. Arbitrator and the Ld. Arbitrator was fully competent to arrive at the findings of fact based on the material on record. Furthermore, these findings were certainly plausible in nature, even if a different view could also have been taken. There is no perversity in these findings. Hence, these findings of fact are beyond the scope of any interference u/s. 34 of the A&C Act.
26. However, even if the aforesaid findings are not liable to any interference, the consequent approach of the Ld. Arbitrator in straight away awarding damages and compensation to the respondent merely based on the Hudson's Formula is highly problematic. The Hudson's Formula is a tool to calculate the damages on account of overheads and profit loss in case of delayed projects. However, it is well settled that the same cannot operate in vaccum, and the contractor is also bound to prove through evidence and material that the contractor had actually suffered loss on account of overheads and loss of profits due to the delay in the project. A perusal of the award in the present case, however, shows that the Ld. Arbitrator has simply taken the statement of claim in respect of the Claim No.5 at its face value and has awarded this claim Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 38 of 76 simply by applying the Hudson's formula without any discussion regarding any evidence or material on record showing that the respondent/contractor had actually suffered any loss on account of overheads or loss of profits.
27. In this regard, it would be appropriate to refer to the decision of the Hon'ble Bombay High Court in Essar Procurement Services Ltd. v. Paramount Constructions, 2016 SCC OnLine Bom 9697, in which it was held as under:
"100. A perusal of the arbitral award indicates that the arbitral tribunal recorded the fact that the respondent had not produced the books of account for perusal of the arbitral tribunal and also did not lead any oral evidence in support of any of the claims made before the arbitral tribunal. The arbitral tribunal also did not consider and deal with the submissions of the petitioner that the claim for overhead and loss of profit was not proved or that the same was based on no evidence. The arbitral tribunal also did not consider and deal with the objection that the claim for overhead and loss of profit was overlapping.
101. The question that arises for consideration of this court is whether the respondent who had made claim for overhead on the basis that the respondent had considered 10% towards Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 39 of 76 overhead for the work in question at the time of finalization of the contract and had incurred such amount during the contractual period ought to have proved the said claim by leading evidence including oral evidence or could have simplicitor rely upon the Hudson formula and whether in absence of any evidence of the actual expenditure incurred by the respondent, the arbitral tribunal could have allowed the claim for overhead by considering the claim on rough and ready basis by applying Hudson formula by dispensing with the proof of the overhead expenditure or not.
102. Learned counsel for both the parties have heavily placed reliance on the judgment of Supreme Court in case of McDermott International INC. (supra). A perusal of the judgment of the Supreme Court in case of McDermott International INC. (supra) indicates that in that matter, the contractor had examined a witnesses to prove the claim for compensation who had calculated the increased overhead and loss of profit on the basis of the formula laid down in a manual published by the Mechanical Contractors Association of America entitled "Change Orders, Overtime, Productivity"
commonly known as the Emden Formula. The said witness had brought out the additional project management cost at US$ 1,109,500. The Supreme Court adverted to an earlier judgment in case Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 40 of 76 of M.N. Gangappa v. Atmakur Nagabhushanam Shetty, (1973) 3 SCC 406 in which it was held that the method used for computation of damages will depend upon the facts and circumstances of each case. Supreme Court also noticed different formulas such as Hudson Formula, Emden Formula and Eichleay Formula in the said judgment.
103. It is held that the different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator. Supreme Court noticed that the witness examined by the contractor had applied the Emden Formula while calculating the amount of damages having regard to the books of account and other documents maintained by the contractor. The learned arbitrator did not insist that sufferance of actual damages must be proved by bringing on record books of account and other relevant documents. In these circumstances, Supreme Court held that if the learned arbitrator applied the Emden Formula in assessing the amount of damages, he could not be said to have committed an error warranting interference by this Court. The learned arbitrator had also referred to other formulae but Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 41 of 76 opined that the Emden Formula was widely accepted one.
104. Supreme Court also observed that in the Hudson Formula, the head office overhead percentage is taken from the contract. It is observed that although the Hudson formula has received judicial support in many cases, it has been criticized principally because it adopts the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no relation to the actual head office costs of the contractor. Admittedly, in this case though the respondent made a claim on the premise that the respondent had considered 10% overhead while finalization of bid and had incurred overhead expenditure at that rate, the respondent did not produce any books of account or any other evidence in support of such claim. The judgment of Supreme Court in case of McDermott International INC. (supra) is thus clearly distinguishable in the facts of this case and would not assist the case of the respondent.
105. Division Bench of this court in case of Edifice Developers and Project Engineers Ltd. (supra) after adverting to the judgment of Supreme Court in case of McDermott International INC. (supra) and in case of A.T. Brij Paul Singh and Bros. v. State of Gujarat, AIR 1984 SC 1703 which Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 42 of 76 judgments were relied upon by the arbitral tribunal has held that the appellant in that case had produced no evidence in support of the claim for loss of overhead and profit and award of claim was on the misconceived basis that Hudson Formula must be applied despite there being no evidence. The Division Bench also held that no material was produced before the arbitral tribunal on the nature of the practice in the trade and claim for loss of profits was based on pure conjecture and in the absence of any evidence and was thus rightly set aside by the learned Single Judge. The Division Bench upheld the conclusion drawn by the learned Single Judge that the award of arbitrator proceeded on the manifestly misconceived notion that a contractor is entitled to claim overhead losses even in the absence of evidence on the basis of Hudson's Formula.
106. In my view the impugned award rendered by the arbitral tribunal allowing the claim for overhead merely on the basis of the Hudson Formula and not based on any evidence is contrary to the principles of law laid down by this court in case of Edifice Developers and Project Engineers Ltd. (supra) and shows patent illegality and is in conflict with public policy.
107. Supreme Court in case of Kailash Nath Associates (supra) has laid down the principles to be followed by the court or by the arbitrator while Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 43 of 76 considering the claim for compensation under sections 73 and 74 of the Contract Act, 1872. It is held that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is held that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall.
108. This court in case of Ajay Singh (Sunny Deol) (supra) has after adverting to the judgment of Supreme Court in case of Kailash Nath Associates (supra), judgment of this court in case of Maharashtra State Electricity Board v. Sterlite Industries (India) Ltd., 2000 (3) Bom.C.R. 347, judgment of Division Bench of this court in case of Edifice Developers and Project Engineers Ltd. (supra) has held that if a party has not suffered any losses, even if the respondent has committed breaches, such party cannot be awarded any compensation under section 73 of the Contract Act. When loss in terms of money is prayed, the party claiming compensation has to prove such loss or damages suffered by him. It is held that unless and until the damages or loss was actually suffered, damages cannot be awarded, otherwise section 73 of the Contract Act would become nugatory and the party would be penalised though the other party suffered no loss. In my view the party who has not suffered any loss or damages cannot be awarded any Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 44 of 76 compensation or damages, otherwise it would amount to unjust enrichment in favour of such party.
109. In my view, the principles laid down by the Supreme Court in case of McDermott International INC. (supra), in case of Kailash Nath Associates (supra) and judgment of this court in case of Ajay Singh (Sunny Deol) (supra) squarely applies to the facts of this case. The impugned award rendered by the arbitral tribunal is contrary to and in violation of the principles of law laid down by the Supreme Court and this court and thus deserves to be set aside on that ground alone.
110. Insofar as judgment of this court in case of Associate Builders (supra) relied upon by Mr. Cooper, learned senior counsel for the respondent is concerned, a perusal of the said judgment clearly indicates that in the said matter also the contractor had produced evidence before the arbitrator and had setout the establishment expenses in great detail before the learned arbitrator and it was only on that evidence, the learned arbitrator ultimately had awarded those claims. In my view the judgment of Supreme Court in case of Associate Builders (supra) thus does not assist the case of the respondent and is clearly distinguishable in the facts of this case.
111. Insofar as submission of the learned senior counsel for the respondent that the respondent Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 45 of 76 had though not led oral evidence to prove the claim for damages, had led documentary evidence and thus award of claim for loss of profit could not be challenged on the ground that the award was based on no evidence is concerned, a perusal of the arbitral award indicates that the arbitral tribunal has not allowed the claim for overhead and loss of profit by relying upon any documentary evidence placed on record by the respondent. In my view the respondent thus cannot be allowed to rely upon any such alleged documentary evidence with a view to supplement the reasons recorded by the arbitral tribunal in the impugned award at this stage in this petition under section 34 of the Arbitration Act.
112. In my view, the arbitral award itself shall indicate the evidence referred to, relied upon by the arbitral tribunal while allowing or rejecting the claims made by the parties. This court cannot probe into the mind of the arbitral tribunal and come to the conclusion by considering the evidence produced by the parties which were though on record before the arbitral tribunal but were not referred to and considered by the arbitral tribunal by drawing an inference that such evidence must have been considered by the arbitral tribunal while allowing or rejecting the claim while deciding petition under section 34 of the Arbitration Act. This view is supported by the judgment of this court in Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 46 of 76 case of Bombay Intelligence Security (India) Ltd. v. Oil & Natural Gas Corporation Limited delivered on 21st August, 2015 in Arbitration Petition No. 822 of 2012 which is adverted by this court in case of Oil and Natural Gas Corporation Ltd. v. Essar Oil Limited (supra) relied upon by the learned senior counsel for the respondent.
113. The principles laid down by the Supreme Court and this court in the judgments referred to aforesaid while dealing with the claim for loss of overhead would also apply to the claim for loss of profit. A perusal of the impugned award indicates that the claim for loss of profit is also allowed by the arbitral tribunal simplicitor based on the Hudson Formula and not based on any evidence and thus the same also deserves to be set aside."
(Emphasis supplied by me)
28. Similarly, the Hon'ble High Court of Delhi has held in Indo Nabin Projects Ltd. v. Powergrid Corporation of India Ltd., 2018 SCC OnLine Del 8405, as under:
"10. Admittedly, the petitioner had not furnished any evidence or material to establish that it had incurred additional expenditure on account of overheads during the extended period. The petitioner had also not produced any material to establish the Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 47 of 76 quantum of profit that it expected to earn during the said period. The Arbitral Tribunal had not accepted the aforesaid claim on account of charges and loss of profits solely on the ground that the petitioner had not produced any material and evidence to establish the same. The contention that such damages could be awarded on the basis of standard formulae was also not accepted by the Arbitral Tribunal. The relevant extract of the impugned award is set out below:--
"(8). It is our view that in order to make any claim under Section 55 read with Section 73 towards the overhead expenses during the extended period, the claimants should have led some evidence by oral or documentary to prove that certain expenses were actually required and made in order to keep the site establishment running throughout the extended period. It is other matter for the arbitrators to either adopt Hudson or any other formula as may be considered appropriate by them.
(9). The claimants further state that they had actually submitted the audited Balance Sheets for eight years to support their claim for overheads. It is to be noted that the above was sought by the Arbitration Tribunal to understand the computation and adoption of Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 48 of 76 rate of 10% for the overheads and 5% for computing the loss and was submitted by way of proof of their incurring the overhead expenses. Even otherwise the evidence required to prove overhead costs would have to be related to the project under question and not the overall company particulars.
(10). Hence we are of the opinion that the claimants are not entitled to any compensation for loss on account of additional overheads incurred in keeping their establishment up and running during the extended period and hence the claim for Rs. 1,50,13,698 towards site and head office overheads is rejected."
11. Similarly, the petitioner's claim for loss of profits was also rejected on the ground that the petitioner had been unable to produce any material to establish the same. In arriving at its conclusion, the Arbitral Tribunal noticed the decision of the Bombay High Court in Essar Procurement Services Ltd. v. Paramount Constructions, wherein the Bombay High Court had after referring to various decisions, observed that a claim based on Hudson formulae and not based on any evidence deserves to be set aside. The Arbitral Tribunal also referred to the decision of the Bombay High Court in Edifice Developers and Project Engineers Ltd. v. Essar Projects (India) Ltd.: Appeal No. 11 of Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 49 of 76 2012, decided on 03.01.2013 and the decision of this Court in Ahluwalia Contracts (India) Ltd. v. The Union of India, Ministry of Health & Family Welfare: O.M.P. (COMM) 283/2016, decided on 08.05.2017, wherein courts had rejected the challenge to an arbitral award whereby the claim of loss of profits based on standard formulae had been rejected by the arbitral tribunal.
12. Standard formulae adopted for computing loss of profits or overheads are essentially tools used for computing the extent of overheads in profits. Undoubtedly, in a given set of facts, the said formula may be effectively used for computing the amounts of overheads/profits. However, that cannot lead to the conclusion that in all cases, the Arbitral Tribunal would be bound to accept computation of overheads/loss of profits based on standard formulae and the claimant is absolved from producing any other material to establish its claims of loss on account of overheads/loss of profits. Whether it is apposite to use the standard formulae in a given case is also required to be established by the contractor. This would necessarily require the claimant to produce some material to justify norms as adopted in the standard formula relied upon by him. A claimant is also required to establish as a matter of fact that it had incurred expenditure on overheads attributable to the works executed during the extended period."
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 50 of 76 (Emphasis supplied by me)
29. The Hon'ble High Court of Delhi has held in MCD v.
Satya Pal Gupta, 2024 SCC OnLine Del 8131, as under:
"26. The next question to be considered is in regard to the Arbitral Tribunal's decision to award loss of profit on account of prolongation of the Contract. The Contractor had claimed a sum of Rs. 47,14,167.30 on account of damages for prolongation of the Contract. The Contractor had claimed that the execution of the work had been prolonged due to the reasons attributable to the MCD and therefore he was entitled to claim compensation for the same. The claim of Rs. 47,14,167.30 as articulated by the Contractor in his Statement of Claims is set out below:
"36. That so far as claim No. 5 is concerned, the claimant claims prolongation of contract for the period of date of completion to actual date of completion. The work was awarded by the respondent on 10-06-05. The claimant is bound to complete the work within 18 months as per agreement which comes to an end on 18-12-06 and the work was actually completed on 20-12-11. The claimant is entitled for damages of the amount which he was forced to lose/spend due to prolongation of contract which is 60 months. The total Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 51 of 76 contractual amount of total work Rs. 1,41,42,502/- (+) 18 months i.e. contractual period (=) Rs. 7,85,694.56/-. The claimant earned profit 10% on Rs. 7,85,694.56/- per month which comes to Rs. 78,569.46/- (x) the prolong period of 60 months comes to Rs. 47,14,167/-. Hence the claimant is entitled for this amount."
27. A plain reading of the claims indicates that the Contractor had based its computation on the assumption that his profit margin was 10% of the value of the Contract. He, accordingly, worked out the quantum of profit that he would have earned per month by dividing the value of the work over the term of the Contract. He then multiplied the hypothetical figure of monthly profit with the period of delay in completion of the Contract. According to the Contractor, the delay was for a period of sixty months. Therefore, he claimed that he was entitled to the quantum of monthly profit as worked out above multiplied by the period of sixty months. It is at once clear that the computation of quantum of damages as calculated is flawed. First of all, there is no evidence or material to indicate that the Contractor would have earned 10% profit on the value of the work. Secondly, there is no material to indicate that if the Contract had not been prolonged, the Contractor would have been gainfully employed in another profitable contract. In Bharat Coking Coal Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 52 of 76 Ltd. v. L.K. Ahuja, (2004) 5 SCC 109, the Supreme Court had held as under:
"23. Claim 8 has been rejected by the arbitrator. Now we proceed to consider Claim 9 for loss arising out of turnover due to prolongation of work. The claim made under this head is in a sum of Rs. 10 lakhs. The arbitrator rightly held that on account of escalation in wage and prices of materials compensation was obtained and, therefore, there is not much justification in asking for compensation for loss of profits on account of prolongation of works. However, he came to the conclusion that a sum of Rs. 6,00,000 would be appropriate compensation in a matter of this nature being 15% of the total profit over the amount that has been agreed to be paid. While a sum of Rs. 12,00,000 would be the appropriate entitlement, he held that a sum of Rs. 6,00,000 would be appropriate. He also awarded interest on the amounts payable at 15% per annum.
24. Here when claim for escalation of wage bills and price for materials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 53 of 76 us to accept the proposition that in addition 15% of the total profit should be computed under the heading "Loss or Profit". It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilised the same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co.
Ltd. v. Cunard White Star Ltd. [[1940] 1 K.B. 740 : [1940] 2 All ER 97 (CA)] by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs. 6,00,000 awarded to the claimant."
28. It is apparent from the above that the Arbitral Tribunal has awarded claim for loss of profit for the period the Contract was prolonged without any evidence or material to support the claim. Thus, the impugned award is vitiated by patent illegality. In view of the above, the impugned Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 54 of 76 award to the extent that the Arbitral Tribunal has awarded the Contractor's Claim No. 5 is set aside."
(Emphasis supplied by me)
30. A perusal of the award of the Claim No.5 shows that the Ld. Arbitrator has merely taken the statement of claim of the respondent/claimant at its face value and has accepted the version of the respondent that the "Overheads & Profits" was 7.5% of the contract sum, and has on this basis simply applied the Hudson's formula and calculated the overheads and profits for the extended period and awarded the same to the respondent/claimant. A perusal of the award shows that in awarding the Claim No.5 based on the Hudson's formula, there is absolutely no discussion or reference to any material or evidence on record to show that the respondent/contractor had actually incurred expenditure towards overheads in respect of the concerned project. There is also no reference to any material or evidence from the contractor's side to show that the contractor would actually have earned profit during the extended period of the contract. In the absence of any material on record to show that the contractor had actually incurred loss on account of overheads and loss of profits during the extended period, it was not permissible for the Ld. Arbitrator to award the Claim No.5 for damages merely by relying upon the Hudson's formula in respect of overheads and profits.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 55 of 76
31. Accordingly, the award of the Claim No.5 towards damages and compensation for prolongation of the contract is hereby set aside.
RE: AWARD OF CLAIM NO.6 TOWARDS ESCALATION IN CONSTRUCTION COST DURING PROLONGED PERIOD OF CONTRACT
32. Now, coming to the award by the Ld. Arbitrator of the Claim No.6 towards escalation in construction cost on account of prolongation of the contract period.
33. It would be appropriate to extract the relevant portion of the award awarding the Claim No.6, as under:
"Issues No. 7The claimant has claimed a sum of Rs 20.00.000/- towards escalation in construction cost due to market inflation for the works executed beyond the stipulated period of contract on account of breach of contract committed by the respondent.
The contention on behalf of claimant is that it is well settled legal position that for a breach of contract, the aggrieved party is to be placed in the same position. The compensation for such losses can only be in the shape of money which the claimant had incurred during the various lapses on the part of respondent and the same should not be remote in nature and covered by Section-55 and Section-73 of the Indian Contract Act. It is argued that on page No. Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 56 of 76 28 to 30 of the statement of claim the details of calculation of compensation/damages is made by taking base on the building cost indices for Delhi with reference to the plinth area rates during 1/4/2009 to 1/10/2011 as per the six monthly indices of market inflation as declared by the Government of India through CPWD from time to time. On the basis of these indices the average percentage increase is calculated during every six months and then averaged out, which indicates average percentage increase as 20.05% during the relevant period from 20/11/2009 the stipulated date of start of contract and actual date of completion of work on 9/11/2011. For gross value of the work amounting to Rs. 1, 00, 00, 000/- approximately. The escalation at the average rate of 20.05% comes to approximately Rs. 20,00, 000/- so this amount of damages on account of escalation in prizes during the extended period of construction on the basis of market inflation as declared by CPWD should be granted to the claimant against the respondent. Reliance is placed upon P.M. Paul v. Union of India, 1989(2) ArbiLR 215: 1989 AIR (SC) 1034: 1989(1) JT 299:
1989 (Sup1) SCC 368: 1989(1) SCR 115: 1989(1) Scale 221: 1989(1) CurCC 433 (SC) and Deo Kumar Saraf v. Union of India :1989(2) ArbiLR 88: 1988(2) CalLJ 325: 1989(1) CurCC 641 (Calcutta).
The argument on behalf of respondent is the same as in Claim No. 5 dealt with in Issue Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 57 of 76 No.6 above, and it is argued by respondent that being unable to complete the construction work within the stipulated time period. the claimant sought extension of time under Clause 5 of the agreement. The claimant also filed an undertaking, dated 26/9/2013 to the effect that it shall not claim any compensation or damages whatsoever on account of such extension of time. The said undertaking executed by the claimant acts as an estoppel against it and claimant stands precluded from raising any claim in this regard, like escalation, establishment charges during extended period, et cetera. Reliance is placed upon Cauvery Coffee Traders, Mangalore Vs Hornor Resources (International) Company Limited (2011) 10- SCC
420. It is also argued that this and the other claims were not raised by the claimant when the contract was alive, so these cannot be raised or adjudicated at such belated stage. Therefore, it is argued that the Claim No. 5 is not maintainable. Reliance is placed upon MTNL VS.S.P.S.Rana OMP No. 654/2007 decided by Hon'ble High Court Of Delhi on 15th, May, 2009.
The two technical objections of the respondent along with authorities cited have been discussed in detail, while deciding Issue No. 6 and on account of the same reasoning both objections are discarded here also.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 58 of 76 The question now arises whether the claimant is entitled to damages/compensation on account of inflation as declared by the indices emerging from CPWD on behalf of Government of India, if so, what should be amount of damages to which the claimant is entitled from respondent for the extended period of contract. As already discussed, while deciding Issue No. 5 a good performance certificate is given by respondent to its executive engineer to the claimant with regard to the contract work done efficiently and good quality building material used by claimant and the extended period of nine months or delay completion of the work was found to be on account of the respondent so claimant is entitled to the compensation/ damages towards escalation in construction cost due to market inflation for the works executed beyond the stipulated period of contract on account of breach of contract committed by the respondent, leading to prolongation of the contract. More so when CPWD after every six months, is announcing cost index, taking into account inflation during the intervening period. In P.M. Paul's case (supra) relied on behalf of claimant, the Hon'ble Supreme Court has made the following observations:
"In the instant case, it is asserted that the extension of time was granted and the arbitrator has granted 20% of the escalation cost. Escalation is a normal incident arising out of gap of time in this Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 59 of 76 inflationary age in performing any contract. The arbitrator has held that there was delay, and he has further referred to this aspect in his award. The arbitrator has noted that claim related to the losses caused due to increase in prices of materials and cost of labour and transport during the extended period of contract from 9-5-1980 for the work under phase I and from 9-11-89 for the work under phase II. The total amount shown was Rs. 5,47,618.50. After discussing the evidence and the submissions the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20% of the compensation under Claim I, he has accordingly allowed the same. This was a matter which was within the jurisdiction of the arbitrator and, hence, the arbitrator had not misconducted himself in awarding the amount as he has done."
In Deo Kumar Saraf's case (supra), Honourable Delhi High Court has held:
"The ratio of the two decisions reported in AIR 1963 Calcutta 163 and AIR 1984 Supreme Court 1703 is that once the Court has held that there is a breach of works contract the contractor would be entitled to damages by way of loss of profit and the measure of damages if proved, the damage would be awarded on that basis. But if the damage is not satisfactorily proved, still the contractor would be Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 60 of 76 accorded the benefit of ever reasonable presumption as to loss of damages. The Court's jurisdiction to award damages cannot be confined to the evidence on records only. The Court is entitled to allow damages on any other reasonable basis, even on the basis of mere guess work. In the present case, the petitioner had claimed 11% profit. The arbitrator, if he has not satisfied as to the rate claimed, certainly had the jurisdiction to reduce the rate on the basis of pure guess work or on the basis of average rate of profit allowed to the contractor by the respondent in respect of works contracts. As the arbitrator was satisfied regarding the wrongful termination of the contract by the respondent, it was his duty to find out the average rate of profit allowed by the respondent in respect of works contracts to accord all reasonable benefit to the petitioner for loss of profit for compensating the contractor for glaring breach of contract committed by the respondent in the present case. In view of the law as laid down by the aforesaid two cases the finding of the arbitrator that in spite or termination of contract being wrongful, the damage could not be awarded due to unsatisfactory evidence on record, is a clear error of law apparent on the face of the record, as the arbitrator was bound to compensate the loss of profit even on the basis of his pure guess work. The arbitrator also legally misconducted himself and the proceeding by his failure to exercise his jurisdiction Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 61 of 76 to award damages on the facts of this case resulting in miscarriage of justice. "
P.M. Paul's case (supra) still holds the field and is followed across the length and breadth of the country. Both P.M. Paul's case (supra) and Deo Kumar Saraf's case (supra) support the fact that the claimant is entitled to claim damages/compensation on account of inflation as claimed in this issue.
Now the question of quantum of damages is to be decided. It is argued on behalf of claimant that on page No. 28 to 30 of the statement of claim the details of calculation of compensation/damages is made by taking base on the building cost indices for Delhi with reference to the plinth area rates from 1/4/2009 to 1/10/2011 as per the six monthly indices of market inflation as declared by the Government of India through CPWD from time to time. And on the basis of these indices the average percentage increase is calculated during every six months and then averaged out, which indicates average percentage increase as 20.05% during the relevant period from 20/11/2009 the stipulated date of start of contract and actual date of completion of work on 9/11/2011. For gross value of the works out amounting to Rs. 1, 00, 00, 000/- approximately, the escalation at the average rate of 20.0 5% comes to approximately Rs. 20, 00, 000/-so this amount is claimed damages on account of escalation in prizes. during the extended period of Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 62 of 76 construction on the basis of market inflation indices as declared by CPWD should be granted to the claimant against the respondent but I only partially agree with this argument raised on behalf of the claimant. The reason is not far to seek owing to the fact that the claim of claimant here is only for the extended about nine months period of contract and not for initial contract period also.
Admittedly, stipulated date of start of contract period was 20/11/2009. The stipulated date of completion of contract was 19/2/2011. The contract actually completed on 9/11/2011. Had the contract been completed on or before 19/2/2011 there was no question of payment of escalation of construction cost due to market inflation for the extended period of contract. Therefore, the crucial date from which escalation costs due to market inflation should be reckoned and increase in construction cost should be taken in to account is 19/2/2011 and the relevant period for giving benefit of inflation to the claimant is from 19/2/2011 to 9/11/2011. The Building Cost Index at Delhi with reference to Plinth area rates 1/10/2007 (as based
100) had been approved for six months by Director General CPWD as 139 on 1/10/2010 as indicated in C-52. (It remained so on 19/2/2011 also), 149 as on 1/4/2011 as indicated in Exhibit C-rate of increase of cost index from 19/2/2011 to 1/4/2011 comes to 7.19%) and 151 as on 1/10/2011 as indicated in Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 63 of 76 Exhibit C-54. ((rate of increase of cost index from 1/4/2011 to 1/10/2011 comes to 8.63%). The average rate of increase of cost index during the extended period of contract from 19/2/2011 to 12 9/11/2011 is 7.91% (7.19% +8.63% divided by 2). The claim of the claimant that in the extended contract period gross value of work of approximately Rs. 100,00,000/- is not disputed in the pleadings and evidence by the respondent so is required to be taken as true being undisputed fact. The average increase in the cost indices during the extended period of contract being 7.91% the claimant is entitled to the sum of Rs.7,91, 000/- from the respondent. The Issued No. 6 is accordingly partially decided in favour of the claimant and against the respondent."
34. The Ld. Arbitrator has awarded the claim for escalation for the prolonged period based on the average increase in the Building Cost Index at Delhi with reference to Plinth area rates as published by the CPWD during the extended period. Although, ordinarily, an award towards escalation could not be faulted with since escalation of prices would be an incident of prolongation of the contract, however, in the present case, there is one crucial factor which has been overlooked by the Ld. Arbitrator which would render the award unsustainable.
35. As already mentioned, the Ld. Arbitrator had already awarded the Claim No.2 being claim towards increase in the statutory wages to the claimant/respondent. This award Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 64 of 76 of the Claim No.2 covered the escalation in the wages during the entire period from the date of increase in wages till the actual completion of the works, and, importantly, also included the extended period of contract. This much is clear from the letter dated 10.07.2014 from the respondent to the petitioner (Ex.C-37) in which the respondent was seeking amount of Rs. 35,10,262/- towards escalation in the wages. The statement of escalation of wages annexed to this letter dated 10.07.2014 shows that the petitioner had claimed the escalation through six bills, the first bill being dated 31.03.2010 till the sixth bill dated 09.11.2011. As per the contract, the stipulated date of completion was 19.02.2011, whereas the works were actually completed on 09.11.2011. The fourth, fifth and sixth bills mentioned in the statement of escalation of wages annexed to the letter dated 10.07.2014 (Ex.C-37) are during the extended period, showing that the respondent/contractor had already claimed the escalation in wages during the extended period through its bills and the letter dated 10.07.2014. The claim for escalation of wages was raised in the Claim No.2, and, ultimately, the respondent/contractor was also awarded the Claim No.2 in the award for the sum of Rs. 35,10,252/-. As already discussed in the foregoing paragraphs of the present order, the award of the Claim No.2 has not been interfered with in the present proceedings and the same has been upheld.
36. The Building Cost Indices of the CPWD which were relied upon by the Ld. Arbitrator in granting the Claim No. 6 Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 65 of 76 towards escalation would include both the crucial components in construction, i.e. the material component as well as the labour wage component. Hence, in awarding the Claim No.6 towards escalation by referring to the Building Cost Indices, the respondent was awarded the claim towards escalation in wages in duplicate since the respondent had already received the Claim No.2 in respect of wage escalation. Such duplicate award in respect of the escalation of wages is clearly perverse and amounts to a patent illegality on the face of the award. The award of the Claim No.6 towards cost escalation by the Ld. Arbitrator does not bifurcate between the escalation towards the material component and escalation towards the labour wage component, and, rather, the same is a composite award. Thus, there is no scope of severance of the award for cost escalation to bifurcate the material component and the labour wage component. Thus, unfortunately for the respondent/contractor, the award of the Claim No.6 towards cost escalation would have to be set aside in toto.
37. Accordingly, the award of the Claim No.6 towards escalation is hereby set aside.
RE: AWARD OF INTEREST
38. By way of the impugned award, the respondent/contractor has been awarded the Claim No.8 of sum of Rs. 2,12,894/- towards interest @ 18% p.a. for the period of delay in payment of the final bill. The respondent/contractor has also been awarded the Claim No.9 towards interest @ 18% Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 66 of 76 p.a. on the total sum of the award for the three periods of pre-reference, pendente lite and post award.
39. In awarding the claim for interest, the Ld. Arbitrator has brushed aside the contention of the petitioner herein that interest was not payable on account of Clause 29 of the contract on the ground that Clause 29 was not applicable to the present case.
40. The relevant portion of the award in this regard is extracted hereunder:
"Reliance of respondent. on Clause 29 of the agreement is misplaced for the simple reason that this Clause 29, pertains to the sum due from contractor to respondent, while the final bill was due from respondent to the claimant/contractor. It is only when any sum is due from contractor to the respondent that amount can be withheld by the respondent by taking recourse to Clause 29. Therefore, Clause 29 of the agreement does not help the respondent on this Issue, No. 8."
41. A perusal of the aforesaid reasoning in the award shows that the Ld. Arbitrator has opined that Clause 29 of the contract would apply only in case of sums due to from the contractor to the petitioner herein, and not to the sums due to the contractor from the petitioner herein.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 67 of 76
42. It would be appropriate to extract the Clause 29, as under:
"CLAUSE 29 Withholding and lien in respect of sums due from contractor.
(1) Whenever any claim or claims for payment of a sum of money arises out of or under the contract or against the contractor, the Engineer-
in-charge or the NDMC shall be entitled to withhold and also have a lien to retain such sum or sums in whole or in part from the security, if any deposited by the contractor and for the purpose aforesaid, the Engineer-in-charge or the N.D.M C, shall be entitled to withhold the security deposit, if any, furnished as the case may be and also have a lien over the same pending finalization or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the contractor, the Engineer-in-charge or the NDM C shall be entitled to withhold and have a lien to retain to the extent of such claimed amount or amounts referred to above, from any sum or sums found payable or which may at any time thereafter become payable to the contractor under the same contract or any other contract with the Engineer- in-charge or the N.D.M.C. or any contracting Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 68 of 76 person through the Engineer-in-charge pending finalization or adjudication of any such claim.
It is an agreed term of the contract that the sum of money or moneys so withheld or retained under the lien referred to above by the Engineer- in-charge or N.D.M.C will be kept withheld or retained as such by the Engineer-in-charge or N.D.M.C till the claim arising out of or under the contract is determined by the arbitrator (if the contract is governed by the arbitration clause) or by the competent court, as the case may be and that the contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred, to above and duly notified as such to the contractor. For the purpose of this clause. where the contractor is a partnership form or a limited company, the Engineer-in-charge of the N.D.M.C shall be entitled to withhold and also have a lien to retain towards such claimed amount or amounts in whole or in part from any sum found payable to any partner/limited company as the case may be, whether in his individual capacity or otherwise.
(2) The N.D.M.C shall have the right to cause an audit and technical examination of the works and final bill of the contractor, including all supporting vouchers, abstract etc., to be made Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 69 of 76 after payment of the final bill and if as a result of such audit and technical examination any sum is found to have been overpaid in respect of any work done by the contractor under the contract or any work claimed to have been done by him under the contract and found not to have been executed, the contractor shall be liable to refund the amount of overpayment and it shall be lawful for the N.D.M.C to recover the same from him in the manner prescribed in sub-clause (1) of this clause or in any other manner legally permissible, and if it is found that the contractor was paid less than what was due to him under the contract in respect of any work executed by him under it the amount of such under payment shall be duly paid by the N.D.MC to the contractor, without any interest thereon whatsoever.
Provided that the NDMC shall not be entitled to recover any sum overpaid, nor the contractor shall be entitled to payment of any sum paid short where such payment has been agreed upon between the Chief Engineer or Engineer-in- Charge on the one hand and the contractor on the other under any term of the contract permitting payment for work after assessment by the Chief Engineer or the Engineer-in-Charge."
43. Although the interpretation of any provision of the contract is well within the domain of the arbitrator, and, ordinarily, Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 70 of 76 the Court in exercise of jurisdiction u/s. 24 of the A&C Act would not interfere with the interpretation given by the arbitrator to the contract, however, it is equally well settled that interference is permitted when the construction of the contract is so irrational that no reasonable person could have arrived at the same.
44. I have carefully perused Clause 29 of the contract, and I find that the construction which the Ld. Arbitrator has put to Clause 29 to the effect that the this Clause pertains only to the sums due from the contractor to the petitioner herein and not to sums due to the contractor from the petitioner herein is so irrational that no reasonable person could have arrived at the same.
45. Be that as it may, even if the construction of the Ld. Arbitrator of Clause 29 of the contract is not accepted, still, even upon a reasonable construction of Clause 29, it is clear that even otherwise, Clause 29 would not apply. Hence, in any case, the contention of the petitioner challenging the award of interest based on the Clause 29 would fail.
46. Clause 29(1) of the contract deals with the withholding and retention of money due to the petitioner herein from the respondent/contractor and has no relevance to the question of interest.
47. In so far as Clause 29(2) is concerned, the second part of Clause 29(2) provides that "... if it is found that the Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 71 of 76 contractor was paid less than what was due to him under the contract in respect of any work executed by him undre it the amount of such undre payment shall be duly paid by the NDMC to the contractor without any interest thereon whatsover". The petitioner herein has emphasised on this part of Clause 29(2) to challenge the award of interest to the respondent. Although, at first blush, this argument of the petitioner to deny interest to the respondent/contractor appears attractive, however, on closer scrutiny, this argument fails.
48. The tender document in the present case is a tender in standard form which originates from the petitioner only, and as such, the exclusionary clause in the form of Clause 29(2) barring the payment of interest to the contractor would be interpreted strictly and contra proferentum against the petitioner. Applying this principle, and reading Clause 29(2)as a whole, it would only be reasonable to construe Clause 29(2) as a provision which would apply only in cases where the petitioner i.e. NDMC had caused an audit and technical examination of the works and the final bill, and "if as a result of such audit and technical examination", it is found that the contractor was paid less than what was due to him under the contract. Thus, Clause 29(2) could bar the payment of interest to the contractor only when there petitioner had caused an audit and technical examination of the works and final bill, and as a result it is found that the contractor was paid less than what was due to him. Clause 29(2) would have no Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 72 of 76 application when the amounts are awarded to the respondent/contractor upon adjudication in the arbitration proceedings.
49. It is not the case of the petitioner that the petitioner had conducted any audit and technical examination of the works due to the result of which it was found that amounts were due to the contractor. Rather, the petitioner had denied the claims of the respondent/contractor. It is only by way of the adjudication by way of the arbitral award that the respondent has been found entitled to the amounts as awarded. Clause 29(2) would have no application in such case.
50. Thus, the argument of the petitioner that Clause 29(2) of the contract prohibited grant of interest stands rejected. There being no provision in the contract prohibiting grant of interest for the pre-reference, pendente lite or post award period, it was well within the domain of the Ld. Arbitrator to grant the interest u/s. 31(7) of the A&C Act.
51. This now leaves only the question of the rate of interest.
By way of the impugned award, the respondent/contractor has been granted interest @ 18% p.a. in respect of the Claim Nos. 8 and 9.
52. With respect to the grant of interest by the arbitrator, the Hon'ble Supreme Court has held in Vedanta Ltd. v. Shenzhen Shandong Nuclear Power Construction Co. Ltd., (2019) 11 SCC 465, as under:
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 73 of 76 "9. The discretion of the arbitrator to award interest must be exercised reasonably. An Arbitral Tribunal while making an award for interest must take into consideration a host of factors, such as: (i) the "loss of use" of the principal sum; (ii) the types of sums to which the interest must apply; (iii) the time period over which interest should be awarded;
(iv) the internationally prevailing rates of interest;
(v) whether simple or compound rate of interest is to be applied; (vi) whether the rate of interest awarded is commercially prudent from an economic standpoint; (vii) the rates of inflation; (viii) proportionality of the count awarded as interest to the principal sums awarded.
10. On the one hand, the rate of interest must be compensatory as it is a form of reparation granted to the award-holder; while on the other it must not be punitive, unconscionable or usurious in nature.
11. Courts may reduce the interest rate awarded by an Arbitral Tribunal where such interest rate does not reflect the prevailing economic conditions [Indian Oil Corpn. Ltd. v. Lloyds Steel Industries Ltd., 2007 SCC OnLine Del 1169 : (2007) 4 Arb LR 84 at p. 103] or where it is not found reasonable [Manalal Prabhudayal v. Oriental Insurance Co. Ltd., (2009) 17 SCC 296 : (2011) 2 SCC (Civ) 376] , or promotes the interests of justice [Food Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 74 of 76 Corporation of India v. A.M. Ahmed & Co., (2006) 13 SCC 779 : AIR 2007 SC 829] ."
(Emphasis supplied by me)
53. In the present case, the Ld. Arbitrator has awarded interest under Claim No.8 for delay in payment of the final bill as well as the interest under Claim No.9 on the total sum awarded for the pre-reference, pendente lite as well as the post-award period @ 18% p.a. However, this rate of interest seems excessive and exorbitant, and is not reasonable. There is also no reasoning given in the award as to why such a high rate of interest has been awarded. Thus, the grant of interest @ 18% p.a. is arbitrary and unreasonable. In the facts and circumstances of the case, it would rather be reasonable to the grant the respondent/contractor interest @ 10% p.a. in respect of the Claim No. 8 as well as in respect of the Claim No.9.
54. Accordingly, in so far as the Claims Nos. 8 and 9 are concerned, the interest rate in these claims is reduced from 18% p.a. to 10% p.a. The Claims Nos. 8 and 9 shall be read accordingly.
DECISION
55. In the result, the petition is partly allowed, in the following terms:
55.1. The award in respect of the Claim No.5 for sum of Rs. 14,14,430/- towards damages/compensation for prolongation of the contract is set aside; and Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 75 of 76 55.2. The award in respect of the Claim No. 6 for sum of Rs. 7,91,000/- towards cost escalation during the extended period is also set aside;
55.3. In respect of the Claims No. 8 and 9, the rate of interest is reduced from 18% p.a. to 10% p.a.;
55.4. The rest of the award is severable from the aforesaid claims which have been interfered with, and, resultantly, the rest of the award merits no interference.
56. The petition is disposed of, accordingly.
57. In the facts and circumstances of the case, parties to bear own costs.
58. File be consigned to record room after the due compliances.Digitally signed by SATYABRATA
SATYABRATA PANDA PANDA Date: 2025.07.30 17:19:39 +0530 (SATYABRATA PANDA) District Judge-04 Judge Code- DL01057 PHC/New Delhi/30.07.2025 Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 76 of 76