* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) No. 1000A/2001
8th February, 2010
M/S BHARAT INDUSTRIAL WORKS ...Petitioner
Through: Mr. J.P.Sengh, Sr. Advocate and
Mr. Maish K.Jha, Advocate
VERSUS
NATIONAL THERMAL POWER CORPORATIOIN ....Respondent.
Through: Mr. S.K.Taneja, Sr. Advocate with Mr.
Tanuj Bhusan and Mr. Asgar Ali,
Advocates
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
2. To be referred to the Reporter or not?
3. Whether the judgment should be reported in the Digest?
% JUDGMENT (ORAL)
VALMIKI J.MEHTA, J
I.A No. 11177/01 in CS(OS) No. 1000A/2001
1. These objections have been filed under Section 30 and 33 of the
Arbitration Act, 1940 challenging the Award dated 16.4.2001 passed by the
Arbitral Tribunal. Mr. Taneja, learned senior counsel for the objector has very
fairly pressed only his objections to Claim A, B, L, Counter-Claim 2 and the
rate of interest awarded at 15% per annum.
CSOS-1000-2001 Page 1
2. Claim-A was the claim of the petitioner/non-objector for escalation on
account of higher wages paid to labour on account of statutory notifications.
The Arbitrator allowed these amounts on an interpretation of Clause-5 of
Special Conditions of Contract (SCC) read with Clause 53-A of the General
Conditions of Contract (GCC) that actual increase need not be proved and the
fixed increase of 25% can be granted to the petitioner/contractor, once
notification, showing increase has been filed. Mr. Taneja, by referring to
Clause 53-A contended that unless actual proof is filed to show payment to
labour at enhanced rate, there does not arise issue of reimbursement because the
Clauses in question are Clauses of reimbursement if there is an actual higher
payment to the labour. He contended that there cannot not be unjust enrichment
in that, even if no actual increase to labour is paid yet the contractor will be
entitled to the benefit of Clause 53 A read with Clause 5 of the SCC.
The relevant portion of Clause 53(A) of the Contract reads as under:-
"REIMBURSEMENT/REFUND ON VARIATION IN PRICE
(TO BE INCORPORATED IN THOSE CONTRACTS ONLY IN
WHICH TRANSPORT IS A SIGNIFICANT FACTOR)."
........
(b) LABOUR: For the purpose of this Contract the minimum wages of unskilled labour and of skilled and semi-skilled labour on the date of submission of the tender shall be taken as shown in Schedule D. If on account of any legislation, notification, labour award, the minimum wages of unskilled labour and of skilled and semi-skilled labour are increased at any time or times after the date of submission of the tender and the contractor has to pay increased wages then the Corporation shall reimburse to the Contractor the increase in the cost of labour not exceeding the increase permitted under the legislation, notification, labour award or duly approved binding agreement as aforesaid, subject as hereinafter provided." Clause 5 of the SCC reads as given below:
"Reimbursement/Refund on variation in Prices:
CSOS-1000-2001 Page 2 For the purpose of calculation of reimbursement/refund on variation in prices, if there by any (plus or minus) the basis of calculation shall be as under:
S.no Component Percentage Basis Basic/Price
Index
1 2 3 4 5
a Labour 25% Minimum wages As on 30 days
component of all payable to prior to the date
categories unskilled worker of opening of
as per Payment of tender
Minimum Wages
Act applicable to
the project site in
Bilaspur Distt.
(M.P)
b. Materials
c. Light Diesel oil
d. Fixed components
3. In my opinion, the contention of Mr. Taneja is sound and must succeed. I do not think that it is at all a valid and reasonable legal interpretation of Clause 5 of the SCC that although, no actual increase is proved to be paid to the labour even then, by virtue of Clause 5 of the SCC, a fixed enhancement of 25% can be granted simply by filing notification showing that statutory wages of labour have increased. A harmonious construction of the clauses, and that the principle of harmonious construction has to be applied is admitted by the arbitrators also, shows that language of Clause 53A of requiring actual proof, payment cannot be dispensed with. And this interpretation is logical because for example, if the statutory notification increase the wage only by 5%, then, in my opinion, it cannot be contended that automatically still instead of the 5% statutory increase, CSOS-1000-2001 Page 3 an increase of 25% can be granted merely because that figure is specified in column 3 of the SCC. If there is any doubt of whatsoever, then one can refer to the last para of Clause 5 of the SCC, which makes it more than abundantly clear that the price variation of the different components of Clause 5 including the component -A pertaining to labour, "shall be subjected to ceilings" as stipulated under Clause 53A. This expression cannot have any meaning if the ceiling was an automatic fixed ceiling and not variable upon an actual increase. Once, therefore, there is a variable element and not a fixed percentage, which the Arbitrators have wrongly held, Clause 53A will necessarily come into play requiring that actual increase paid to the labour should only be granted. In my opinion, this interpretation is in fact equitable and just because, as stated by me above, this is a clause of reimbursement because of actual higher labour charges paid and not a profit element of the contractor.
4. An Award which is perverse and based on an interpretation which no reasonable man can accept cannot stand the test on Section 30 and 33 of the Arbitration Act, 1940. A perverse interpretation, as a result of which there takes place an unjust enrichment, whereas the spirit of the Clause is of reimbursement, in my opinion, cannot and should not be countenanced by courts. In such a case clearly the Arbitrators misconducted themselves and the proceedings by giving an unreasonable interpretation of the applicable clauses.
I accept therefore this objection and set aside the Award under Claim-A.
CSOS-1000-2001 Page 4
5. I may at this stage simultaneously deal with Counter-Claim No.2, because Mr. Taneja states that this Counter-Claim is co-related with the increased cost of labour. This Counter-Claim was dismissed by the Arbitrator. I do not find anything illegal or unreasonable about dismissing of the Counter-Claim of the objector because no proof at all was filed by the objector of actual deployment of lesser labour so as to reduce the payment claimed by the non-objector towards the number of labour employed. I may of course hasten to add that the number of labour employed is different than the higher rate to be given for labour on account of statutory increased, and which was not the issue with respect to Counter-Claim No.1.
Accordingly, objections to the dismissal of the Counter-Claim are dismissed and the dismissal of the said Counter-claim by the Arbitrators is sustained.
6. Claim No.B pertained to increased cost of tonnage beyond the deviation limit for steel which was used in the works. The contract in question envisaged usage of 6200 MT of steel in fabrication. Permissible deviation brings this figure to 7440 MT. Work actually done is 8908 MT of steel. The Arbitrator therefore for this difference has awarded rate as fixed by the contract plus a sum of Rs.400 per MT. While dismissing this claim, the Arbitrator has considered the respective evidences of both the parties and has preferred the evidence as relied upon by the non-objector in preference to the other evidence as relied upon by the objector. The Arbitrators have relied on the evidence which CSOS-1000-2001 Page 5 pertains to a contract of the objector itself with the present petitioner in another case and has discarded evidence of a contract of the objector with a third person. Once two views are possible, it is not possible for this court to interfere with the findings arrived at by the Arbitrator. I may note that the enhanced work done was of a period after about 1 ½ -2 years of the original stipulated date of completion, and therefore, to some extent, a reasonable increase would be permissible to the contractor for additional tonnage for the work done. Accordingly, I do not find any merit in the objections with regard to setting aside of this Claim B. Objection to this claim is therefore dismissed.
7. Claim No. L pertained to the claim for overrun charges i.e. the alleged losses in the extended period during which work was done. The Arbitrator has allowed this claim. In my opinion, the Arbitrator has clearly acted illegally and in a perverse manner while allowing this claim. No finding has at all been given, as to who is guilty of delay in performing the contract and yet a cost overrun has been granted to the petitioner. The only finding with respect to delay is as under:-
"The Claimant was to complete 6200 MT in 25 months, therefore, for 8908 MT he can be allowed 36 months. Since the actual period was 52 months, the Claimant needs to be compensated by overrun charges for 16 months and not 27 months as claimed."
Not only that, before a person seeks enhanced cost, it is necessary that a notice under Section 55 of the Contract Act, 1872 is sent to the guilty party putting him to notice that on account of the delay caused, enhanced CSOS-1000-2001 Page 6 charges/escalation/enhanced cost would become payable. The counsel for the non-objector has not been able to point out any notice given under Section 55 of the Contract Act putting the objector to notice that enhanced cost would be claimed on account of the alleged delays. Not only this, in my opinion, the present claim is more in the nature of alleged unnecessary expenditure which the contractor claims to have incurred. By unnecessary expenditure what I mean is that while performing the work, certain expenditure is required and for which the contractor is compensated for when he receives the price for the work performed then the same is necessary expenditure and that expenditure which could have been avoided and has been incurred only on account of delays caused can be said to be unnecessary expenditure. Thus so far as cost overrun can be allowed under this head, only if what is the claimed is the additional cost which the contractor has to incur because of delays on the part of the guilty party. A reference to the claim as discussed, shows that there is absolutely no basis and proof and discussion that how additional cost has at all been incurred by the non-objector. Once there is no proof and no pleading in fact as to how was the work done, for which payment is otherwise made, additional cost has already been incurred, I do not think additional cost which is in the realm of Section 55 of the Contract Act can at all be allowed. The objection therefore to this claim is accepted and Award under this head being perverse is set aside.
8. That leaves me with the issue with regard to the rate of interest. The Supreme Court in the recent chain of judgments reported as Rajendra CSOS-1000-2001 Page 7 Construction Co. Vs. Maharashtra Housing & Area Development Authority & ors.2005 (6) 678, McDermott International Inc. Vs. Burn Standard Co. Ltd.& ors 2006 (11) SCC 181, Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd. (2006) 7 SCC 700 and Krishna Bhagya Jala Nigam Ltd. Vs. G.Harischandra, 2007 (2) SCC 720 and State of Rajasthan vs. Ferro Concrete Construction Pvt. Ltd (2009) 3 Arb. LR 140(SC) has held that courts must reduce the higher rate of interest granted by the Award. The Supreme Court in the aforesaid judgments has mandated the courts to take notice of the changed economic scenario and the consistent fall in the rates of interest. This court has been therefore consistently awarding interest at 9% per annum. In fact, the Supreme Court in the recent judgment reported U.P.Coop. Federation Vs. Three Circles, 2009 10 SCC 374granted interest only at 7 ½ % per annum, however, I find in the facts and circumstances of the case interest ought to be awarded at 9% per annum. I am not changing the period for which interest has been granted under the Award.
9. With the aforesaid observations, the objection petition is partly allowed and the Award will stand modified in that Claim No. A and Claim L shall stand dismissed and consequently the Award amount will be reduced by the figures awarded under such claims. The Award will also further be amended to alter the rate of interest granted at 9% per annum simple.
CSOS-1000-2001 Page 8
10. With the aforesaid modifications, the Award is made rule of the Court. The objection petition and the suit stand disposed of. Decree be accordingly drawn up.
VALMIKI J.MEHTA, J
February 08, 2010
ib
CSOS-1000-2001 Page 9