Gannon Dunkerley & Co. Ltd. vs Bhadohi Woollens Ltd.
1997 Latest Caselaw 133 Del

JUDGMENT

K. Ramamoorthy, J.

1. The plaintiff has filed the suit for the recovery of Rs. 4,35,333.66 against the defendant. The case of the plaintiff is that pursuant to the

invitation to tender issued by the defendant, the plaintiff submitted the tender and the same was accepted by the defendant on 12.4.77 which is marked as Exhibit D-15.

2. The work was for "construction of Woollen Mill Plant Building, staff quarters etc." The work was completed by the plaintiff in May, 1977. The Architects and Engineers certified the completion on 22.10.80. Under Clause 4 of the Special Conditions of the Contract "any rise in price of labour or material on account of any legislation of the Government, State or Local Authorities will be borne by the defendant".

3. On 8.10.80, the plaintiff sent supplementary bill to the defendant with a copy to M/s. Mehta Gandhi & Associates, Architects & Engineers for certification. The minimum wages of unskilled labour at the time of inviting tenders was Rs. 4.38 p. per day. This was revised by the Government on 29.1.78 and the minimum wages were fixed at Rs. 6/- per day, the increase was 37%.

4. On 22.10.80, M/s. Mehta Gandhi and Associates gave a certificate to the defendant with a copy to the plaintiff certifying the payment of Rs. 2,25,977.50 p. On the same date another certificate was issued for a sum of Rs. 49,740/-towards the escalation in the price of the building materials. The defendant did not pay the amount as per the Clause 37 of the contract, the decision of the Architects and Engineers could be subject of arbitration. The defendant did not raise any dispute nor the defendant give any notice to the Architects & Engineers for referring the matter for adjudication. The payment was to be made within 15 days from the receipt of the certificate from the Architects. The plaintiff is entitled to 6% interest on the delayed payment of interim bills. On 27.8.81, the plaintiff wrote to the defendant claiming the following amount:

(i)

Labour escalation payment as per Architect's Certificate No. PP/463/1990 dated 22nd Oct., 1980.

Rs. 2,25,977.50

(ii)

Material escalation payment as per Architect's Certificate No. PP/463/1988 dated 22.10.90

Rs. 47,740.00

(iii)

Interest charges upto 30.6.81 on delayed payments as per Misc. Bill No. 380 dated 1.7.81

Rs. 1,09,987.01

Rs. 3,85,704.51

5. The defendant even earlier to this by letter dated 27.1.81 informed the plaintiff that the outstanding payments would be cleared as soon as the funds are available. The plaintiff claims Rs. 4,35,333.66 under the following heads :

(i)

Labour escalation payment as per Architect's Certificate No. PP/463/1990 dated 22nd Oct., 1980.

Rs. 2,25,977.50

(ii)

Material escalation payment as per Architect's Certificate No. PP/463/1988 dated 22.10.80

Rs. 49,740.00

(iii)

Interest charges upto 30.6.81 on

dated 1.7.81. and from 1.7.81 to 30.6.82 @ 18% p.a.

Rs. 1,59,616.16

Rs. 4,35,333.66

6. The plaintiff had calculated interest @ 6% per annum on the delayed payment on the interim bills and 18% per annum as per the final bill amount.

7. On 19.9.83, the defendant filed the written statement repudiating the claim of the plaintiff. It is admitted that the building was completed in May, 1979. The plaintiff submitted the final bill on 30.6.79 which was certified for payment by the Architect on 24.9.79. After the completion of the buildings, differences arose between the defendant and the Architects and the Architects in order to cause financial loss to the defendant had given false certificate. It is admitted that the defendant did not raise any dispute. According to the defendant, the dispute does not fall under Clause 37 of the contract. The plaintiff having received the full and final payment is now estopped from claiming any interest. The bills certified by the Architects in respect of the price escalation of material and hike in price of labour are concocted and are an after-thought.

8. The plaintiff filed the replication stating that the plaintiff did not receive any payment in full and final settlement of his claim. The statutory change took place on 20.1.78. By a letter dated 10.9.80 the fact of increase in building materials and labour charges was intimated to the defendant, the defendant did not raise any objection. The defendant did not raise any objection to the certificate issued by the Architects.

9. On 11.7.84, the following issues were framed :

 (1)     Whether the plaintiff is a Public Limited Company duly incorporated and is registered under the Companies Act? OPP   
 

 (2)    Whether Shri A.K. Banerjee is competent to institute the suit and to sign and verify the plaint? OPP  
 

 (3)    Whether the plaintiff is entitled to claim the escalation charges in respect of labour and material as alleged in the plaint ? OPP  
 

 (4)    Whether the plaintiff is entitled to recover interest from the defendant? If so, at what rate, for what period and to what extent? OPP  
 

 (5)    Whether the plaintiff was competent to raise the bill for escalation in labour and material charges, after submitting the final bill dated 30.6.79? OPP  
 

 (6)    Relief.  

 

 10. On 10.12.84 the following issues were framed : 
  

(1)    Whether the Arbitrator was within their authority in issuing certificates dated 22nd October, 1980   for Rs. 49,740/-   and for Rs. 2,25,970.50 ? 
 

 (2)    Issue No. 2 as already framed on 11.7.84. 
 

 (3)    Whether the defendants are bound by the certificate issued by the Architect in respect of escalation charges relating to the labour and material ?  
 

11. The defendant filed IA No. 7070/88 for amendment of the written statement. By an order dated 12.7.89 this application was allowed. The defendant filed the amended written statement on 13.8.91.

12. On 23.7.90 after amendment was allowed the following additional issue was framed :

1-A. Whether the suit of the plaintiff is barred in view of Clause 37 of the Contract as mentioned in para No. 5 of of the preliminary objections ? OPD

13. The plaintiff examined PW1 Mr. A.K. Banerjee, Regional Manager of the plaintiff-Company. PW 2 Mr. P.S. Parikh, Architect of M/s. Mehta Gandhi Associates. Defendant examined Mr. R.U. Mauray, Deputy Accounts Officer in the defendant Company. Mr. Kirti Uppal, learned Counsel for the plaintiff submitted that under the Contract the certificate issued by the Architect is final and it would be honoured by the defendant and if the defendant was dissatisfied with the certificate issued by the Architect, it was open to the defendant to get the matter referred to the arbitration by following the procedure prescribed and agreed under Clause 37 of the Contract. So far as the plaintiff is concerned, the defendant cannot challenge the certificate without resorting to the arbitration and, therefore, no further question would arise for consideration in this case.

14. Mr. Dilraj Kumar learned Counsel appearing for the defendant relying upon the Clause 37 submitted that the reference to the arbitration is a condition precedent for institution of any action and the plaintiff should have commenced arbitration proceedings for referring the disputes for adjudication and without doing it the plaintiff cannot straightaway file a suit for the recovery of the amount claimed.

15. The learned Counsel for the defendant further relied upon the decision of the Kerala High Court in The Vanguard Fire and General Insurance Company Limited, Madras-I v. N.R. Sreenivasa Iyer, Trivandrum, and a decision of the Calcutta High Court in The New Great Insurance Company of India Ltd. v. United Equipments and Stores (Pvt.) Ltd., . Clause 37 of the contract reads as follows :

Settlement of Dispute by Arbitration--All disputes and differences of any kind whatever arising out of or in connection with the Contract or the carrying out of the works (whether during the progress of the works or after their completion, and whether before or after the termination, abandonment or breach of the Contract) shall be referred to and settled by

the Architects & Engineers who shall state their decision in writing. Such decision may be in the form of a final certificate or otherwise the decision of the Architects & Engineers respect to any of the excepted matters shall be final and without appeal as stated in Clause No. 35 but if either the Employer or the Contractor be dissatisfied with the decision of the Architects & Engineers or any matter, question of the dispute of any kind (except any of the excepted matters) or as to the withholding by the Architects & Engineers or any certificate to the Contractor may claim to be entitled, then and in any such case either party (the Employer or the Contractor) may within twenty eight days after receiving notice to such decision give a written notice to the other party through the Architects & Engineers requiring that such matters in dispute be arbitrated upon. Such written notice shall specify the matter which are in dispute and such dispute or difference of which such written notice has been given and no other shall be and is hereby referred to the arbitration and final decision of a single Arbitrator being a member of the Indian Institute of Engineers to be agreed upon and appointed by both the parties or in case of disagreement as to the appointment of a single Arbitrator, to the arbitration of two Arbitrators being both members of the Indian Institute of Engineers one to be appointed by each party which Arbitrators shall before taking upon themselves the burden of reference appoint an Umpire.

Clause 35 reads as under:

Matters to be finally determined by the Architects & Engineers--The decision, opinion, direction, certificate or valuation with respect to all or any of the matter under Clauses 2,4,8,14,20 (A, b, c, d, f, and h) 28,32 and 33 hereof (which matters are herein referred to as expected matter) shall be final and conclusive and binding on the parties hereto and shall be without appeal. Any other decision, opinion, direction, certificate or valuation of the Architects & Engineers or any refusal of the Architects & Engineers to give any of the same shall be subject to the right or arbitration and review in the same way in all respects (including the provision as to opening the reference as if it were a decision of the Architects & Engineers under Clause No. 37.

16. The fact that the Architect gave a certificate for payment is not disputed by the defendant. The point taken in the original written statement was that this is not a dispute falling within the ambit of the arbitration clause and the plaintiff must prove his claim. In the amended written statement the plea is that it falls under the Arbitration clause and that the plaintiff must have sought for adjudication.

17. It is well settled that the parties are bound by the terms of the contract between them. The parties can try to show that they are not obliged under the provisions of the contract in accordance with law and unless and until the parties are able to do this the terms of the contract would govern the rights of parties. The Court also is bound to act in accordance with the terms of the agreement between the parties.

18. Now the defendant himself has come forward with the case that the dispute falls within the arbitration clause, the position has to be examined.

19. A reading of the clause makes it clear that before or after the completion in any dispute arises the decision by way of certificate or otherwise shall be given by the Architect. The certificate issued by the Architect was sent to the defendant and the receipt of which is not denied. Within 28 days from the certificate if the defendant is dissatisfied with the certificate it should have raised the dispute. That was not done by the defendant and the same is admitted in the written statement.

20. The reliance by the learned Counsel for the defendant on the two Decisions referred to is wholly mis-conceived. In the case of The Vanguard Fire and General Insurance Company Limited, Madras-1 v. N.R: Sreenivasa Iyre, Trivandrum, , a car which was insured met with an accident.

Under the clause in the insurance policy, the Insurance Company was to repair, reinstate or replace the car or the part thereof and its accessories or pay in cash the amount of the loss or damaged not exceeding the actual value of the parts damages or lost plus a reasonable cost of fitting. It was sent to the workshop as chosen by the Insurance Company. While the car was with the custody of the repairer the car was burned down. The plaintiff claimed a sum of Rs. 7,000/-being a reasonable value of the car at the time of accident. On demand the defendant did not pay. Therefore, the suit was instituted. The defense was that the plaintiff did not confirm the Condition No. 7 in the contract between the parties. Condition No. 7 reads as follows :

All differences arising out of this policy shall be referred to the decision of an Arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single Arbitrator to the decision of two Arbitrators one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties or in case the Arbitrators do not agree of an Umpire appointed in writing by the Arbitrators before entering upon the reference. The Umpire shall sit with the Arbitrators and preside at their meetings and the making of an Award shall be a condition precedent to any right of action against the Company. If the Company shall disclaim liability to the insured for any claim shall not within twelve calendar I months from the date of such disclaimer have been referred to Arbitrator I under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recover able hereunder.

21. The question that was raised before the Court was whether the suit was maintainable when the defendant had not applied for stay of the proceedings under Section 34 of the Arbitration Act, 1940. The Kerala High Court in The

Vanguard Fire and General Insurance Company Limited, Madras-I v. N.R. Sreenivasa Iyre, Trivandrum, , held that the defense put forth by the defendants, Insurance Company that the suit was not competent was acceptable in view of the fact that there was no order under Section 36 of the Arbitration Act 1940. In the instant case before me it is the defendant who had to take the steps for arbitration under the Act and defendant in this case cannot rely upon this judgment of the Kerala High Court in support of its contention,

22. In the decision of The New Great Insurance Company of India Ltd, v. United Equipments and Stores (Pvt.), , the facts are more or less similar to that of the decision by the Kerala High Court and the learned Single Judge of the Calcutta High Court took a view that if making of award is a condition precedent to right of action the suit would not lie and if such a suit is brought it is dismissed as pre-mature.

23. As per the terms of Clause as I have referred earlier, it is the person aggrieved by the certificate that can go for arbitration and when the plaintiff satisfied with the certificate issued by the Architect, the defendant cannot expect the plaintiff to go for arbitration. The condition precedent mentioned Clause 37 would apply only against the defendant because it was the defendant, who was dissatisfied with the certificate issued by the Architect and therefore under this clause the defendant cannot proceed against the plaintiff in view of the arbitration having been made a condition precedent for a right of action.

24. The House of Lords in England had a occasion to consider the impact of such clauses in the contract and had to consider the claim of one of the parties against the decision of the Architect, in Sutclifee v. Thackrah and Ors, All England Law Reports (1974) 1. There the Architect appointed by the owner of the site who wanted to build a house and the Architect gave certificates in favour of the builder. On the basis of the certificate issued by the Architect, at per the terms of the contract the owner of the site had made payments to the builder. Subsequently the owner found out the defects in the construction and proceeded against the Architect for the certificate issued by him negligently The House of Lords held that the owner could proceed against the Archites and, therefore, the clause in the contract in this case is very clear and the defendants could only proceed against the Architect and cannot challenge the certificate in this case. The argument was advanced on behalf of the defendant that the witness examined on behalf of the Architect said that the Architect did not check up the details furnished by the plaintiff and, therefore, the Archites was negligent in giving the certificate and therefore, the plaintiff cannot see to recover any amount on the basis of such a certificate. The clause is very clean that if the defendant feel aggrieved by the conduct of the Architect it was open to the defendant to take proceedings under that very clause. That was not done, Therefore, as pointed out by the House of Lords the parties are bound by the terms of the contract. Just for the completion of the narration above the principle laid down in the above case was followed by the House of Lords given ir. Arenson v. Casson Beckman Rutley & Co. 1975 (3) All ER 901. Hence I hold that

the suit as laid by the plaintiff is competent and the defendant cannot dispute the claim of the plaintiff relating to the labour charges and increase in the building material as certified by the Architect.

25. Accordingly, the issue framed on 23.7.90 is answered against the defendant and in favour of the plaintiff.

26. On Issue No. 1 as framed on 10.12.84 "whether the Architect was within its authority in issuing the certificate dated 22.10.80 for Rs. 49,740/- and for Rs.

2,25,970.50 P.", I find that under the clause the Architect was competent to issue the certificate. Therefore, this issue is answered in favour of the plaintiff and against the defendant.

27. On Issue No. 3 as framed on that date, I find that the defendant is bound by the certificate issued by the Architect. It is open to the defendant to take such action as necessary against the Architect if it is so advised.

28. On issue No. 1 framed on 11.7.84, no argument was advanced and I find that the plaintiff is a Public Limited Company duly incorporated.

 (i)     On issue No. 2 Mr. A.K. Banerjee is competent to institute the suit.
 Therefore, this issue is answered in favour of the plaintiff and
against the defendant. 
 

 (ii)    On issue No. 3 the plaintiff was entitled to claim escalation charges
in respect of labour and material. This Court framed this issue on
 10.12.84. 
 

 (iii)   Issue No. 4, on the claim of interest by the defendant does not arise
 and that has become final, therefore, the plaintiff cannot claim any
interest. 
 

  (iv) On Issue No. 5, I find that the plaintiff was well within its right in
raising the bill after submitting the final bill on 30.6,79 because
Clause 37 is very clear on this aspect.  
 

 29. Accordingly, there shall be a decree directing the defendant :  
   

 (a)     to pay to the plaintiff sum of Rs. 4,35,333.66; 
 

  (d)    to pay to the plaintiff interest @ 10% on the sum of Rs. 4,35,333.66
                     from the date of the plaint till the date of realisation; 
 

 (c)     directing the parties to bear their own costs.