Delhi High Court
Union Of India vs M/S Rama Construction Company (Now ... on 11 April, 2022
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on:11.04.2022
+ O.M.P.(COMM.) 346/2021
UNION OF INDIA ..... Petitioner
versus
M/S RAMA CONSTRUCTION
COMPANY .... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Ruchir Mishra, Mr Sanjiv Kr
: Saxena, Mr Arukesh Kr Tiwari, Advocates.
For the Respondents : Mr Avinash K. Trivedi, Mr Pushkar
: Kumar, Advocates.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter 'the A&C Act') impugning an arbitral award dated 20.11.2017 (hereinafter 'the impugned award') delivered by the Arbitral Tribunal comprising of a learned Sole Arbitrator.
2. The impugned award was rendered in the context of disputes that have arisen between the parties in connection with a Contract Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 1 of 15 Signing Date:12.04.2022 Agreement bearing no 01/EE/CAG (hereinafter the 'Agreement'). The petitioner is challenging the impugned award to the extent that the Arbitral Tribunal accepted Claim nos. 1.4, 1.5, 1.6 and 4 of the respondent.
3. The controversy in the present case arises in the following context:-
4. On 06.08.2010, the petitioner invited tenders for the works regarding "C/0 ICED for CAG at Kant Kalwar area, Jaipur. (SH: Clo Academic Block, Hostel Block, Sports Block, Support Facility, Services Block &Residential Block, Air Tunnel i/c development work & internal Electrical Installation."(hereinafter the 'Project'), on the terms and condition stipulated therein.
5. Pursuant to the said invitation for tenders, the respondent submitted its bid for an amount of ₹44,35,87,494/-for executing the Project works. The respondent's bid was accepted on 05.05.2011 by the Executive Engineer, CAGPD. In terms of Clause 1 of the General Conditions of Contract (GCC) for CPWD Works, the respondent furnished a Performance Guarantee for an amount equivalent to ₹2,21,79,375/-.
6. Thereafter, in the year 2011-12, the Agreement was executed between the parties. In terms of the Agreement, the stipulated date of commencement of the Project was 22.05.2011 and the stipulated date of completion of the Project was 21.03.2012. Admittedly, the works were completed on 21.11.2013.
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 2 of 15 Signing Date:12.04.20227. It is averred in the petition that on 26.03.2015, the Final Bill for an amount of ₹64,40,10,206/- and ₹2,27,96,223/- for civil and electrical works respectively, was paid, and the payment was unconditionally accepted by the respondent.
8. Thereafter, by a letter dated 20.02.2016, the respondent submitted various points regarding the payments, which were due and payable to it and claimed an amount of ₹16,36,09,815/- with interest at the rate of 18% per annum.
9. Thereafter, by a letter dated 04.04.2016, the petitioner rejected the claims preferred by the respondent as the same were outside the scope of the Agreement.
10. In view of the disputes between the parties, the respondent, by its letter dated 24.05.2016, invoked the agreement to refer the disputes to arbitration.
11. On 10.03.2016, in accordance with Clause 25 of the Agreement, the respondent referred the disputes regarding the payment of claims to the Superintending Engineer, JCC, CPWD, which were rejected by the Engineer on 07.04.2016.
12. Thereafter, on 24.05.2016, the respondent requested the Chief Engineer, NZ-III, CPWD to appoint an Arbitrator in terms of Clause 25 of the Agreement.
13. On 21.06.2016, the Chief Engineer, NZ-III, CPWD appointed Sh. G.C. Kabi as the Sole Arbitrator to adjudicate the disputes between Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 3 of 15 Signing Date:12.04.2022 the parties, however, on 13.01.2017, Sh. G.C. Kabi resigned from the said case. Thereafter, on 22.05.2017, the Chief Engineer, NZ-III, CPWD appointed Sh. Rajesh Banga as the Sole Arbitrator.
14. The tabular statement as set out in the impugned award, indicating the amounts awarded against the claims preferred by the respondent is reproduced below:
Claim no Particulars Claimed Awarded
Amount Amount
Claim no. Deviated agreement ₹13,87,063/- ₹13,87,063/-
1.1 items paid at rates less
than agreement rates.
Claim Carriage of RMC. ₹78,00,805/- ₹12,97,441/-
no.1.2
Claim Less quantity paid for ₹68,05,190/-. Nil
no.1.3 Extra Items EI XXI/1
for filling Excavated
earth, confirming to
shape and size of
mounds and profile of
ground surface and
additional lead of earth
Claim no. Wrong rate decided by ₹10,39,307/- ₹8,24,452/-
1.4 the EE for Extra Item EI
XXIV/10 'Deduct for
using exterior texture
paint Instead of
Premium Acrylic
smooth exterior paid in
agreement item No.
11.6 whereas extra is
payable
Claim no. Wrong rate decided by ₹4,40,504/- ₹2,54,525/-
1.5 the EE for Extra Item EI
XV/3 Aluminium base
Signature Not Verified
Digitally Signed
By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 4 of 15
Signing Date:12.04.2022
frame for ACP (Labour
expenses not paid)
7293.11 Kg @ 60.40
Claim no. Wrong rate decided by ₹33,99,840/- ₹4,24,415/-
1.6 the EE for Extra Item EI
IX/3 chamfering edges
for making V-grooves
in sand stone cladding
Claim no. Wrong rate decided by ₹5, 25,653/- ₹4,83,161/-
1.7 EE for the substituted
Item SI X/I 'Crazy
Gang saw cut red/white
sand stone flooring
Claim no. Wrong rate decided by ₹16, 87,735/- Nil
1.8 EE for the extra Item EI
XXI/3 'Silicon water
repellent transparent
colourless solvent based
coating over stone
surface'
Claim no. Cost of abnormally high ₹31,17,331/- ₹6,14,190/-
1.9 working platforms for
erection of MS tubular
space frames for various
canopies and false
ceiling of auditorium
etc.
Claim no. Expenditure for repairs ₹10,04,000/- ₹7,53,000/-
1.10 of damages to buildings
done by other agencies
as per details in letter
dated 06.06.2013
Claim no. Cost of powder coated ₹9,35,000/- Nil
1.11 aluminium sections
procured for making
louvers at terrace but
were not used because
the EE cancelled the
Signature Not Verified
Digitally Signed
By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 5 of 15
Signing Date:12.04.2022
remaining part of work
and dismantled the
already completed part
of work and disposed as
scrap 500 Kg @ Rs.
170.00
Claim no. Refund of wrongly ₹5,13,169/- ₹5,13,169/-
1.12 withheld additional
security deposit for
extra items for water
supply and sanitary
installation 5% of
₹1,02,63,375/-
Claim no. Additional expenditure ₹58,04,888/- Nil
1.13 incurred for compliance
of GRIHA required for
the part of work
executed in excess of
the tendered amount 3%
of ₹19,34,96,267/-
Claim no. Escalation for cement ₹27,95,987/- ₹21,40,626/-
2.1 used in RMC under
Clause 10CA of
contract
Claim no. Escalation for labour for ₹1,22,160/- ₹25,000/-
2.2 cost of items on which
rates of deviated
quantities paid at rates
less than agreement
rates as per Claim 1.1
Claim no. Amount of ₹2,21,79,375/- Nil
3 Incentive/Bonus as per
Clause 2A of Contract
due but not paid 5% of
₹44,35,87,494/-
Claim no. Loss of profit, Business ₹10,40,51,808/- ₹53,50,000/-
4 turnover, Overheads,
Establishment, Tools,
Signature Not Verified
Digitally Signed
By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 6 of 15
Signing Date:12.04.2022
Plant Machinery,
scaffolding etc due to
extended period of
contractor under
Section 73 of the
Contract Act, 1872
Claim no Pre Suit, Pendente lite Simple
5 and future interest/ interest and
compensation for delay pre award
in payment of running interest at
bills, final bills, the rate of
escalation bills, 10% per
withheld and deducted annum on
amounts, milestones, the amounts
due amounts not paid, awarded on
delay in sanction of DIs, Claims 1,2,4
EIs SIs etc. and from
abovementioned claims 24.05.2016
from the respective due till date of
dates of payment to the award
date of actual payment plus
@ 18% PA. ₹9,50,000/-
Claim no Cost of Arbitration ₹2,00,000/- Nil
6
15. The Arbitral Tribunal rejected all the counter-claims preferred by the petitioner.
16. Aggrieved by the impugned award, the petitioner has filed the present petition.
17. Mr Ruchir Mishra, learned counsel appearing for the petitioner has confined the challenge to the impugned award entered in respect of the following four claims: (i) Claim no. 1.4 - an amount of ₹8,24,452/-
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 7 of 15 Signing Date:12.04.2022awarded against the respondent's claim for a sum of ₹10,39,307/- premised on the assertion that the rate determined in respect of Exterior Texture Paint instead of Premium Acrylic Smooth Exterior Paint, was erroneous; (ii) Claim no. 1.5 - an amount of ₹2,54,525/- awarded against the respondent's claim of ₹ 4,40,504/- on account of expenses for extra item for fixing aluminium base frame; (iii) Claim no. 1.6 - an amount of ₹4,24,415/- awarded against the respondent's claim of ₹33,99,840/- in respect of erroneous rate decided in respect of the work of chamfering edges for making V-grooves in sand-stone cladding; and
(iv) Claim no. 4 - amount of ₹53,50,000/- awarded against the respondent's claim of ₹10,40,51,808/- on account of compensation for overheads incurred for the extended period of work.
18. Claim nos. 1.4, 1.5 and 1.6 relate to an erroneous calculation of rates in respect of certain extra items. The respondent had applied Exterior Texture Paint on the direction of the petitioner instead of Premium Acrylic Smooth Exterior Paint as contemplated under the Agreement. Since, the respondent had substituted the relevant item of work (Item No.11.6), there was no dispute that the respondent was entitled for payment for the same. The petitioner contended that the respondent was paid for the said extra item at the correct rates. The Arbitral Tribunal found that the petitioner had paid for the extra item at a rate of ₹74.84 sq. meters for the quantity executed beyond the deviation limit. This was lower than the agreed item rate of ₹125 per sq. meter. The Arbitral Tribunal noted that in terms of Clause 12.2 of the Agreement, the petitioner was required to determine the rate for any Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 8 of 15 Signing Date:12.04.2022 substituted item. However, in the event, the rate of the substituted item was less than the market rate, due notice for the same was required to be provided to the Contractor. Clause 12.2 of the Agreement reads as under:-
"In the case of substituted items (items that are taken up with partial substitution or in lieu of items of work in the contract), the rate for the agreement item (to be substituted) and substituted item shall also be determined in the manner as mentioned in the following para.
(a) If the market rate for the substituted item so determined is more than the market rate of the agreement item (to be substituted), the rate payable to the contractor for the substituted item shall be the rate for the agreement item (to be substituted) so increased to the extent of the difference between the market rates of substituted item and the agreement item (to be substituted).
(b) If the market rate for the substituted item so determined is less than the market rate of the agreement item (to be substituted), the rate payable to the contractor for the substituted item shall be the rate for the agreement item (to be substituted) so decreased to the extent of the difference between the market rates of substituted item and the agreement item (to be substituted)."
19. The Arbitral Tribunal found that the petitioner had not issued any notice indicating its intention to reduce the item rates for the quantity beyond the deviation limit.
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 9 of 15 Signing Date:12.04.202220. The learned counsel for the petitioner has also been unable to controvert the findings of the Arbitral Tribunal that the item of work as substituted, was paid at a rate lower than that agreed under the Agreement, and no notice of reduction of rates was issued to the respondent. In view of the above, this Court finds no infirmity with the decision of the Arbitral Tribunal.
21. Insofar as Claim no.1.5 is concerned, the same relates to extra work executed for fixing the aluminium louvers. One of the items of work to be executed by the respondent was fixing of aluminium base frame for ACP. It was the respondent's contention that it had fixed the aluminium louvers but was thereafter, instructed to fix that at another place (near the swimming pool) instead of around the AC ducts. The Arbitral Tribunal had noted that the concerned Engineer had entered the following noting in the remarks column: 'As per arch drawing, the louvers were fixed on terrace around AC ducts. These louvers were to be removed and these were refixed around swimming pool'.
22. The said remarks clearly supported the respondent's contention that it was required to re-fix the aluminium frame at another location and therefore, was required to be paid the labour expenses for the same.
23. The decision of the Arbitral Tribunal in accepting the respondent's claim for additional payment for re-fixing the aluminium frame at another location is based on the material on record and this Court finds no ground to interfere with the said decision.
24. Mr Ruchir Mishra had contended that the Arbitral Tribunal had Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 10 of 15 Signing Date:12.04.2022 erred in awarding any amount against Claim no. 1.5 because the respondent was paid for the said work at the agreed rates. The said contention is not merited. The respondent's claim was not for execution of the said item of work; admittedly the respondent had been paid for the said work. The respondent's claim was in respect of the additional expenses incurred for re-fixing the same frame and not for the payment for initial fixing of the frame.
25. The respondent's Claim no. 1.6 was also in respect of rates decided for the extra item of 'chamfering edges for making V-groves in sand stone cladding'. The Arbitral Tribunal had accepted the respondent's contention that the analysis of rates in respect of the said item of work was erroneous. Admittedly, the same was an extra item and the rates for the same were required to be determined by the petitioner. According to the petitioner, the respondent was paid for the said work at the rate of ₹93.90 per sq. meter. However, the respondent claimed that the same was required to be enhanced to ₹318 per sq. meter. The Arbitral Tribunal had examined the analysis of rate and found that it was flawed in certain aspects. First of all, the length of the groove was actually 1.13 times the length as adopted by the respondent in its analysis of rates. In addition, the hire charges for the grinder were assumed at ₹100 per day. The Arbitral Tribunal found that in DSR - 2012 (Delhi Schedule of Rates-2012), the hire charges for a grinder were stipulated at ₹200 per day. The Arbitral Tribunal, accordingly, re- worked the rates at ₹123 per sq. meter and awarded an amount of ₹4,24,415/-. This was calculated at ₹29 per sq. meter, being the Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 11 of 15 Signing Date:12.04.2022 difference between the rates as re-worked by the Arbitral Tribunal, and the rates at which the respondent was paid (₹123 - ₹93.90).
26. The petitioner has been unable to point out any flaw in the said computation. Thus, this Court finds no ground to interfere with the said decision. The Arbitral Tribunal's decision is supported by cogent reasons and the petitioner has been unable to point out any manifest error that would warrant any interference with the impugned award in these proceedings.
27. The principal controversy in this petition relates to the award of compensation for additional overheads incurred during the extended period of the Agreement. The respondent had claimed a sum of ₹10,40,51,808/-, on account of loss of profits, business turnover, overheads, establishment, tools, plant and machinery, scaffolding, etc. due to the prolongation of work. The respondent had claimed that since the work had been delayed, it was liable to be compensated for the opportunity cost on account of its profit making apparatus being blocked in the Agreement in question. The said claim comprised of mainly two components: (a) Loss of Profits; and, (b) Loss on account of Overheads during the extended period.
28. Insofar as the claim for loss of profits is concerned, the Arbitral Tribunal rejected the same on the ground that the respondent had not adduced any document or evidence to show that it had to forego any other work on account of the respondent being held up in executing the Agreement in question. The Arbitral Tribunal found that there was no Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 12 of 15 Signing Date:12.04.2022 evidence to support the claim that the respondent could have earned profits in another contract.
29. However, insofar as the loss on account of overheads is concerned, the Arbitral Tribunal found that the respondent was entitled to the same. The Arbitral Tribunal found that the Agreement had been delayed for a period of twenty months and out of the said period, the petitioner was directly responsible for a delay of eleven months. Such delay was directly on account of breach on the part of the petitioner. The Arbitral Tribunal thereafter, proceeded to compute the loss on account of overheads. The Arbitral Tribunal noted that Schedule-F of the Agreement indicated that 15% of the overall cost was attributable to overheads and profits. CPWD Works Manual also adopted the overhead expenditure as 7.5% of the cost of works. However, the Arbitral Tribunal was of the view that given the nature of work and the economy of scale, the loss on account of overheads could be considered at 6% of the value of works.
30. It is material to note that Mr Mishra, did not assail the computation of the compensation loss on account of overheads. He assailed the decision of the Arbitral Tribunal in this regard on two fronts. First, he submitted that no notice of damages had been issued as required under Section 55 of the Indian Contract Act, 1872. Second, he submitted that the impugned award was inconsistent with the Arbitral Tribunal's finding that the respondent had not substantiated its claim by any evidence, which was the reason for rejecting the claim for loss of profits.
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 13 of 15 Signing Date:12.04.202231. None of the aforesaid grounds are merited. The Agreement had been extended and therefore, prima facie, time was not of essence of the Agreement. It is not the petitioner's case that the Agreement was voidable for the reason that the stipulated period for completing the work had expired. Thus, a notice as contemplated under Section 55 of the Indian Contract Act, 1872, was not necessary. Further, the respondent had duly informed the petitioner of its claim. The parties had also attempted to resolve the disputes. The claims that remained unresolved were referred by the concerned Authority to the Arbitral Tribunal. Therefore, there is no merit in the contention that the petitioner did not have any notice of the claims made by the respondent. The respondent's claim for loss of profits was rejected as the respondent had failed to establish that it had any other offer for executing any other works. The Arbitral Tribunal was of the view that without such evidence, the respondent's claim for loss of profits was unsubstantiated. It is important to note that the respondent's claim for loss of profits was in the nature of opportunity cost, that is, the profit that it could have earned had it not been held up in executing the Agreement in question. To establish the same, it was necessary for the respondent to produce some material to show that it could deploy its profit earning apparatus in executing some other work and earn profits. And, therefore, it was required to be compensated for the lost opportunity. However, the respondent was not required to adduce any such evidence for establishing its claim for loss of overheads. There was no dispute that execution of the works had been delayed for a period of twenty months. The respondent had continued to remain at site and had completed the Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 14 of 15 Signing Date:12.04.2022 works. Thus, undeniably it had incurred overheads during the extended period of twenty months. The Arbitral Tribunal had analysed the delay in some detail and had found that the petitioner was responsible for a delay of eleven months. Thus, clearly, the respondent was required to be compensated for expenses incurred on account of overheads during this period. No further evidence was required to be adduced to establish that the respondent was entitled to be compensated for such expenses on overheads.
32. The only question that remained was regarding assessment of the said damages. However, as stated above, the petitioner has not seriously questioned the quantification of the said loss. Mr Mishra's contention was primarily regarding the respondent's entitlement to claim such compensation. Mr Mishra, had relied on the Arbitral Tribunal's reasoning to reject the respondent's claim for loss of profits. This contention is unmerited. As stated above, the respondent had established that it was entitled to compensation on account of expenses incurred on overheads and the petitioner's contention that the respondent had not done so, is unmerited.
33. This Court finds no ground to interfere with the impugned award.
34. The petition is unmerited and is, accordingly, dismissed.
VIBHU BAKHRU, J APRIL 11, 2022/pkv/v Click here to check corrigendum, if any Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P.(COMM.) 346/2021 Page 15 of 15 Signing Date:12.04.2022