Sudhir Brothers vs Delhi Development Authority
1995 Latest Caselaw 91 Del

JUDGMENT

R.C. Lahoti, J.

1. This is a petition under Sections 14 and 17 of the Arbitration Act.

2. The petitioner was awarded the work of construction of 396 LIG DUs at Pitampura Pocket-W (Poorvi) including internal service for which an agreement No. 24/EE/CDI/80-81 was executed between the parties. Disputes arose between the parties. In accordance with the order dated 11.2.1991 based in OMP 96/88 the respondent No. 2 was appointed as an arbitrator. The award has been published on 26.12.1992. The save having been filed in the court, the respondent DDA has submitted several objections in writing. The objections have been contested by filing a reply by the petitioner who has supported the award on all counts.

3. There were ten claims made by the petitioner. There were five counter claims and two additional claims made by the DDA. On all the heads the finds the findings of the Arbitrator are in favor of the petitioner.

4. The substance of the objections preferred by the respondent DDA is that the arbitrator has assumed jurisdiction over such matters as were not capable of either bei by the arbitrator and in doing so the arbitrator has acted in excess of his jurisdiction; that the arbitrator has travelled beyond the terms of the agreement, ignoring its terms and condition; and that the award is vitiated by errors apparent on the face of the award. Each of the objections raised by the respondent DDA shall be dealt with item-wise.

5. The Arbitrator has along with his award filed his record consisting of 14 volumes. Parties have not adduced any evidence. The learned counsel for the parties have tried to substantiate their respective pleas by making extensive reference to the proceedings and record or the arbitrator, the correctness, whereof has not been disputed.

6. Four items of dispute can be taken up for consideration together. These are claims No. 1C, 1D and 7 preferred by the petitioner and counter-claim No. 1 preferred by the respondent. I may briefly notice the claims counter-claim (as each of them was preferred), the award made by the arbitrator on these items and the gist of reasonings adopted by him. I exact and reproduce from the award the heads of claims and findings as recorded :

Claim No. 1 (c). Balance payment of Labour 10C Rs. 30,657.54. Stipulated date of completion was 15.1.1982. Since this statutory like was effective from 1.3.1982 as per the circular of the Chief Engineer DDA, the same was payable if the delay in completion was not attributable to the claimant.

Award

In this case, the total amount of labour (10C) on the rate approved by Delhi Administration comes to Rs. 65,214.69 as per Ex. C-143. Since the respondent had already released payment of Rs. 34,557.15, the balance amount of Rs. 30,657.54 is still payable to the claimant. I find that since the delay was attributable to the respondent, the balance amount of Rs. 30,657.54 is liable to be paid. Accordingly I award Rs. 30,657.54 in favor of the claimant.

Claim No. 1(d). The payment under bricks (10C) Rs. 86,601/-.

Award

The claimants state that there was a like in the price of bricks. The respondent agreed that there was a like in the price of bricks and as per their own calculations the amount payable on this account was Rs. 86,601/-. But since according to the respondents, the delay was on the part of the claimants, the claimants were not entitled to any payment on this account. As I have held elsewhere that the delay in the case was entirely attributable to the respondents, I hold the claimants are entitled to Rs. 86,601/- on account of bricks 10-C.

Counter-claim No. 1 : Respondent claim for Rs. 4,44,629/- at 10% amount put into tender under clause 11 of the agreement.

Award

Since the present claim has been duly referred for arbitration, I have acquired jurisdiction to adjudicate upon the same. Time was not maintained of the essence of the contract. Clause 2 becomes in-operative. As the delay has been held to be attributable to the respondents, they allowed to take advantage of their own default. Levy of compensation of Rs. 4,44,629/- is bad in law and its levy by the Superintending Engineer was not justified. Accordingly, I hold that the counter claim No. 1 of the respondents is without merit I, therefore, disallow the counter claim No. 1.

Claim No. 7 : Claimants claim Rs. 2,81,114/- towards loss of profits on the balance gross amount on the work left to be executed at the time of repudiation of contract by the claimants.

Award

I award the loss of profits @ 10% on the amount of balance unexecuted work on agreement items alone which is to the extent of Rs. 22,48,996.94. This works out to Rs. 2,24,889/- which I award in favor of the claimants to be paid by the respondents under claim.

7. It will be seen that as to claims No. 1(c) and 1(d), they were made by reference to clause 10(c) of the contract. The arbitrator has nowhere referred, much less held, that the Superintending Engineer had at any time held any increase to be so payable and recorded his decision thereon within the meaning of clause 10(c).

7.1. As to counter-claim No. 1 the arbitrator has referred to in the award (pages 20-23) the respondents having seriously disputed the jurisdiction of arbitrator to go into the merits of the claim. They had simply sought for the levy of compensation as made by the Superintending Engineer being upheld. A few decisions of the Supreme Court and High Court were also cited before the arbitrator. However, the arbitrator did enter into the merits of the claim and decided against the respondents.

7.2. As to claim No. 7 a perusal of paras 14 to 16 of the award made by the arbitrator shows that here too the respondents had seriously disputed the jurisdiction of the arbitrator to go into this question in as much as on the question of delay the finding recorded by the Superintending Engineer was final. However, the arbitrator did not agree. On page 15, he has held :

"For avoiding their liability the respondents further stated that the Superintending Engineer (vide Ex. X-37) had levied compensation under clause 2 of the contract and as such his decision regarding attributability of delay should be considered as final and not open to question. The respondents had made payment under clause 10(c) considering the delay was on their part as precondition of clause 10(c) and as per the circular of the Chief Engineer DDA. I have gone through clause 2 of the agreement and find that clause 2 gives finality only to the quantum of compensation to be levied and not to the question of attributability of delay. In the facts and circumstances of the case, the documents filed and submissions made by both the parties, I am convinced that in the present case the delay is entirely attributable to the respondents. Since in the present case the claimants were compelled to repudiate the contract for no fault of their and leave the work incomplete they are entitled to claim loss of profit for the balance work."

8. It will be necessary to extract and reproduce the clauses 2, 10C (relevant part thereof) and 25 from the agreement entered into between the parties. These clauses are as under :

"Clause 2 :

The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be of the essence of the contract on the part of the contractor and shall be reckoned from the tenth day day after the date on which the order to commence the work is issued to contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence any the contractor shall pay as compensation an amount equal to one per cent or such smaller amount as the Superintending Engineer DDA (whose decision in writing shall be final) may decide on the amount of the estimated cost of the whole work as shown in the tender, for every day that the work remains uncommenced or unfinished, after the proper dates. And further to ensure good progress during the execution of the work, the contractor shall be bound in all cases in which the time allowed for any work exceeds, one month (save for special jobs) to complete one eight of the whole of the work before one-fourth of the whole time allowed under the contract has elapsed three-eight of the work before one-half of such time has elapsed and three fourth of the work, before three fourth of such time has elapsed, however, for special jobs if a time schedule has been submitted the contractor and the same has been accepted by the Engineer-in-charge, the contractor shall comply with the said time schedule. In the event of the contractor failing to comply with this condition he shall be liable to pay as compensation an amount equal to one per cent or such smaller amount as the Superintending Engineer DDA (whose decision in writing shall be final) may decide, on the said estimated cost of the whole work every day that the due quantity of work remains incomplete provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten per cent on the estimated cost of the work as shown in the tender."

Clause 10C

If during the progress of the works, the price of any material incorporated in the works, (not being a material supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof) and/or wages of labour increase as a direct result of the coming into force of any fresh law, or statutory rule or order (but not due to any changes in sales tax) and such increase exceed ten per cent of the price and/or wages prevailing at the time of receipt of the tender for the work, and contractor thereupon necessarily and properly pays in respect of the material (incorporated in the work) such increased price and/or in respect of labour engaged on the execution of the work such increased wages then the amount of the contract shall accordingly be varied provided always that any increase so payable is not, in the opinion of the Superintending Engineer whose decision shall be final and binding attributable to delay in the execution of the contract within the control of the contractor. Provided, however, no reimbursements shall be made if the increase is not more than 10% of the said prices/wages and if so the reimbursements shall be made only on the excess over 10% and provided further that any such increase shall not be payable if such increase has becomes operative after the contract or extended date of completion of the work in question."

"Clause 25

Except where otherwise provided in the contract all questions and disputes, relating to the meaning of the specifications, designs drawings and instruction herein before mentioned and as to the quality/workmanship or materials used on the work or as to any other questions claim, right matter or thing, whatsoever in any why arising out of or relating to the contract designs, drawing, specifications estimates instruction orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Engineer Member DDA at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a DDA employee that he had to deal with the matters to which the contract relates and that in the course of his duties as DDA employee he had expressed view on all or any of the matters in dispute of difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason such Engineer Member DDA as aforesaid at the time of such transfer, vacation or office or inability to act shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor, it is also a term of his contract that no person other than a person appointed by such Engineer Member DDA as aforesaid should act as arbitrator and, if for any reason that is not possible, the matter is not be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand) and above, the arbitrator will give reason for the award.

Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause. It is a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.

9. As per clause 2, the time appointed for carrying out the work under the agreement was made the essence of the contract on the part of the contractor. The breach thereof was made liable to be compensated at the rate of one per cent per day of the estimated cost, total not exceeding ten per cent.

10. Both the clauses 2 and 10C make the decision of the Superintending Engineer final and binding on the subject matter forming part of these clauses. Clause 25 which is the arbitration clause providing for questions and disputes arising between the parties to be referred to arbitration except, such questions and disputes from being referred to arbitration as to which it is provided otherwise in the agreement. The learned counsel for the respondent has submitted that with the finality attached to the decision of the Superintending Engineer, the questions and disputes covered by clauses 2 and 10C could not have been referred for adjudication by the arbitrator under clause 25 and so the award given by the arbitrator on such disputes is without jurisdiction.

11. The letter dated 15.5.1985 (page 66, Vol 1, Ex. X-37) contains the decision by the Superintending Engineer and its communication to the petitioner. The relevant part thereof is reproduced hereunder :

"Whereas you were served a show cause notice vide this office No. F9(41) CD-I/SE-VII/1026 dated 2.4.1985 as to why action should not be taken against you under clause 2 of the above mentioned agreement due to your failure to complete the work in due time and whereas your reply dated 7th April, 1985 has been considered and not found satisfactory.

Therefore in exercise of powers conferred on me under clause of the said agreement, I, the Superintending Engineer decide and determine that you are liable to pay Rs. 4,44,629/- as and by why of compensation as stipulated in clause 2 of the agreement. The said amount of compensation is hereby levied on your for the period of 16.1.1982 to 27.7.1982 and at the rate of 10% as determined by me on the estimated cost of the work shown in the agreement and you are hereby called upon to pay the same to the DDA within seven days failing which the said amount shall be recovered by the DDA from your security/other dues lying with the DDA."

The letter makes it clear that for delay beyond 16.1.1982 the Superintending Engineer had held the claimant responsible after serving a show cause notice on him, considering his reply and finding it not satisfactory and consequently compensation at the rate of 10% for the period of delay was imposed on the claimant.

12. Learned counsel for the petitioner has placed heavy reliance on the law laid down by the Supreme Court in Vishwanath Sood v. UOI . I propose to read the law laid down therein in little more details for that would clinch the issues in this case.

12.1. Clauses 2 and 25 of the contract in that case have been extracted and reproduced by their Lordships in para 4. Clause 2 contemplated compensation for delay in carrying out the work by the contractor being decided by the Superintending Engineer whose decision in writing shall be final. The compensation by the Superintending Engineer was to be provided on the amount of the estimated cost of the whole work as shown in the tender for every day that the work remained uncommenced or unfinishing and for every day that the due quantity of work remained incomplete. The compensation shall not exceed ten per cent of the estimated cost of the work. Clause 25, the arbitration clause provided for adjudication by arbitration of all questions of disputes 'except where otherwise provided in the contract'. In short, clauses 2 and 25 of the contract in Vishwanath Sood's case were similarly worded as they are in the case at hand.

12.2. Claim preferred before the arbitrator was covered by clause 2 and the arbitrator made an award thereon. Their Lordship have set aside the award.

12.3. The principles of law laid down by their Lordships, as deducible from Vishwanath Sood's case and relevant for the purpose for the case at hand, may be summed up as under :

(i) Clause 2 of the contract makes the time specified for the performance of the contract a matter of essence and emphasises the need on the part of the contractor to scrupulously adhere to the time schedule approved by the Engineer-in-charge;

(ii) The clause envisages an amount of compensation calculated as a percentage of the estimated cost of the whole work on the basis of the number of days for which the work remains uncommenced or unfinished to the prescribed extent on the relevant date. Any moderation that may be done by the Superintending Engineer would depend upon (i) the circumstances, (ii) the nature and period of default, (iii) the decree of negligence or default that can be attributable to the contractor. The Superintending Engineer while determining the rate of compensation chargeable will have to go into all these aspects and determine whether there is any negligence on the part of the contractor or not. The Superintending Engineer may reduce or even waive the compensation;

(iii) Clause 2 contains a complete machinery for determination of the compensation which can be claimed by Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties The Superintending Engineer has to consider the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to any compensation at all under this clause;

(iv) The question regarding the amount of compensation leviable under clause 2 has to be decided only by the Superintending Engineer and no one else.

(v) The opening part of clause 25 clearly excludes the matters like those mentioned under clause 2 in respect of which any dispute is left to be decided by a higher official of the department. The question of awarding the compensation under clause 2 is outside the purview of the arbitrator and the compensation determined under clause 2 either by the Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the Arbitrator.

(vi) The power of the Superintending Engineer under the penalty clause is not an undefined power. The amount of compensation is strictly limited to a maximum of 10% and with a wide margin of discretion to the Superintending Engineer who might not only reduce the percentage to can even reduce it to nil if the circumstances may so warrant. It is this power that is kept outside the scope of the arbitration.

(vii) The assessment of compensation by the Superintending Engineer under clause 2 does not take away right of the Government to claim loss or damage from the contractor not in terms of clause 2 but under the general law or under the Contract Act.

13. A reading of the award itself reveals two fallacies, inter alia, under which the arbitrator was be labouring. Firstly, he was of the opinion that the respondents had themselves released certain payments to the claimants, which would not have been released if the delay was attributable to the claimants. Secondly, clause 2 of the agreement attaches finality only to the quantum of compensation to be levied and not to the question of attributability of delay. On both the points the arbitrator has committed a jurisdictional error.

14. Such of the payments as have been released by the respondents to the claimants and were not made subject matter of dispute by the respondents, would achieve a finality. That does not mean that such of the claims referable to clause 10(c) of the contract which formed subject matter of disputes raised by the claimants before the arbitrator also became available for adjudication by arbitration inspite of the exclusionary clause contained in clause 25 of the Contract.

15. Under clause 10C also the opinion/decision of Superintending Engineer is final on attributability of delay. The Arbitrator cannot adjudicate upon any question of such delay.

16. As would be seen from the judgment of their Lordships in Vishwanath Sood's case (supra), the decision of Superintending Engineer is final even on the question of attributability of delay.

17. So is the view taken by this court in R. S. Rana v. D.D.A. (1993 (2) AIR 165 = Arb. LR 1993 (2) 165). This court has held that the arbitrator has no power apart from what the parties have given him under the contract, if he has travelled outside the bound of the contract he has acted without jurisdiction. (Also see Ishwar Singh & Sons v. D.D.A. (1994 (1) Arb. LR 527).

18. In M/s. Associated Engineer Company v. Government of A.P. , their Lordships have held :

"The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But, if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it."

"He commits misconduct if by his award he decides matters excluded by the agreement ........... A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a mala fide action. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award."

"An umpire or arbitrator cannot widen his jurisdiction by deciding a question not referred to him by the parties or by deciding a question otherwise than in accordance with the contract. He cannot say that he does not care what the contract says. He is bound by it. It must bear his decision. He cannot travel outside its bounds. If he exceeded his jurisdiction by so doing his award would be liable to be set aside."

"If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But if he wanders outside the contract and deals with matters not allotted to him the commits a jurisdictional error. Such error going to his jurisdiction can be established by looking into material outside the award."

19. In Tarapore & Co. v. State of M.P. , their Lordship have held :

"If a challenge is made to the award on the ground that the arbitrator has no jurisdiction, the only way to test the correctness is to look into the agreement itself because the jurisdiction of the arbitrator flows from the reference and a reference can be only with regard to such disputes which are contemplated by the agreement."

20. What would happen if the decision of the Superintending Engineer was made final and the arbitration clause excluded the question forming subject matter of the decision of the Superintending Engineer from being referred to arbitration ? It has been held in M/s. Pravartak Commercial Corporation Ltd. v. The Chief Administrator Dandkarnaya, , that decision on such disputes as were not covered by the Arbitration agreement would be an award made without jurisdiction and hence void. Approving the view taken by the High Court in the judgment under appeal their Lordships have held :

"The learned Judge of the High Court held that clause 14 containing the arbitration agreement had no application to the dispute in question which fell under clause 13A and, therefore, the arbitrator had no jurisdiction in the matter. He held that the reference of the dispute to the arbitrator was invalid and the entire proceedings before the arbitrator including the awards made by him were null and void."

"We are in complete agreement with the reasoning of the learned Judge."

21. The award made by the arbitrator on the four heads of claims/counter-claim above said is therefore vitiated as without jurisdiction and is liable to be set aside.

22. The learned counsel for the petitioner has tried to draw a fine distinction in the matter of interpretation of clauses 2C and 10 by submitting that decision of the Superintending Engineer was made final on the quantum of compensation and not on the question of liability for the delay; if only the Arbitrator would have found and fixed liability for delay on the petitioner then the question of quantum of compensation could not have been gone into by the Arbitrator, the assumption of Superintending Engineer on the point of quantum having been attached with finality. The argument cannot be accepted in view of the law laid down in unmistakable terms by their Lordships of the Supreme Court in Vishwanath Sood's case (supra). Ratio of the case renders the decision of the Superintending Engineer final upon the circumstances, the nature and period of default and the degree of negligence or default.

23. The learned counsel for the claimant submitted still further that inasmuch as the respondent themselves have submitted to the jurisdiction of the Arbitrator in inviting the decision of the Arbitrator on these questions, they cannot be heard now to challenge the jurisdiction of the Arbitrator and validity of the award by turning around having witnessed the decision going against them. This contention too has to be replied in view of the law laid down by the Supreme Court in Parvartak Commercial Corporation's case (supra).

24. Though the learned counsel for the contractor has invited the attention of the court to several documents available on record submitting that they support the finding arrived at by the Arbitrator but the same cannot be looked into in view of the finality having been attached to the decision of the Superintending Engineer.

25. Learned counsel for the respondent has taken pains in carrying this counter through the award made by the arbitrator on a number of other claims/counter claim and then referring to and reading various documents and record of proceedings to submit that the arbitrator had gone wrong at various places. However, it is not necessary to deal with all those contentions. Suffice it to observe that and are erroneous award whether on facts or on law is not liable to be interfered with by the court. (See : M/s. Hindustan Tea Co. , M/s. Sunderson Trading Co. , Firm Madanlal Roshanlal Mahajan , Puri Construction (P) Ltd. and Hind Builders . The court is paying heed only to such challenges to the award made by an arbitrator fall within the compass of Sections 16 and 30 of the Arbitration Act.

26. For the foregoing reasons, the award made by the arbitrator on claims No. 1(c), 1(d), claim No. 7 and counter claim No. 7 is set aside as without jurisdiction and having been rendered adjudged contrary to the terms of the contract and, touching such claims as were excluded from the purview of arbitration. The contractor's claims No. 1(c), 1(d) and 7 are excluded from the award and shall be treated to have been rejected. Counter claim No. 1 preferred by the respondent shall be deemed to have been upheld by the arbitrator. Rest of the award is maintained. The award as modified is made a rule of the court. The awarded amount to either party shall carry interest at the rate of @ 12% p.a. from the date of the decree till realisation. Let a decree be drawn accordingly.