Ayub Ali vs Union Of India & Ors.
2000 Latest Caselaw 709 Del

ORDER

Mukul Mudgal, J.

1. These are the objections to the award dated 28th August, 1995 delivered by the Arbitrator, Mr. I.V. Nainani, who had been appointed as sole arbitrator by the Chief Engineer PWD Zone-I, New Delhi on 27th January, 1994. Sixteen claims, 2 additional claims and one counter claim were referred to the Arbitrator for adjudication. The petitioner's claim is that every claim was set out by the Arbitrator but he completely omitted to even refer to or adjudicate claim No. 10. It is also stated by the petitioner/objector that in contrast there are several claims such as claim No. 5, claim No. 6, claim No.8 and claim No.12 which have been discussed and rejected by the arbitrator by giving a nil award qua these claims. He submits that thus the award has failed to even notice claim No.10 entitling him to seek the setting aside of the award at least qua claim No.10 and remission thereof for redetermination.

2. The learned counsel for the respondent has submitted that in view of the law laid down by this Court in M/s Prag Distilled Water & Ice Factory Vs. Municipal Corporation of Delhi and another reported as AIR 1988 Delhi 37 the omission to mention a claim amounts to its rejection. This judgment has been sought to be distinguished by the learned counsel for the petitioner by submitting that this view of the law laid down would not apply in case where other claims which have been rejected have been mentioned and in such facts the omission would obviously amount to a failure to take note and/or cognizance of claim No.10. The law laid down by this Court in paragraph 4 of the aforesaid judgment in Prag Distilled Water' case reads as follows:-

"It is clear from a reading of the disputes formulated in para 6 that in sum and substance, they related to fixation of fuel adjustment charges and their demand from time in accordance with the Tariff for the year in question. This dispute has been squarely determined by the arbitrator in his award. Some additional differences are mentioned in para 6. They are not referred or included as contentions in the written arguments before the arbitrator. The arbitrator has not dealt with them in his award. We, therefore, agree with the learned single Judge that the other points of disputes were either given up or not pressed before the arbitrator during the proceedings. If an award is silent on a particular item of dispute then the law is that the claim in respect of such item should be taken as rejected by the arbitrator."

3. The aforesaid judgment is mainly based on the premise that the additional differences as mentioned in para 6 were not referred to or included in the written arguments before the arbitrator. In these circumstances the Division Bench of this Court held that since the award is silent on the particular item of dispute then it is deemed to have been rejected by the arbitrator. In my view the submission of the petitioner has force. In the aforesaid judgment of the Division Bench of this Court relied upon by the learned counsel for the petitioner, insofar as non-consideration of a claim was concerned the facts were different as reflected in the preceding paragraph. In the aforesaid judgment the non-considered disputes were neither referred to nor included as contentions in the written arguments. However in the present case before me several other claims such as claim No.5,6,8 & 12 each of which led to a nil award were specifically mentioned and rejected. In these circumstances, in my view, the aforesaid judgment of this Court in Prag Distilled Water's case would not apply and consequently the petitioner is entitled to seek the remission of the award for re-consideration in so far as claim No.10 raised by the petitioner is concerned.

4. The second plea qua the award in respect of claim No. 3 is that the petitioner had claimed a sum of Rs.2,52,000/- as loss of profit @ 10% on the balance work which could not be executed due to the premature closure of the contract by the respondent. It is submitted that in view of the finding of the arbitrator in Paragraph IV of the Award that the respondent has closed the contract in a premature manner, the petitioner was entitled to claim loss of profits on the balance amount of the contract. It is submitted by the learned counsel for the petitioner that since on the day of the closure of the contract on 15th December, 1992, out of the total contracted amount of Rs. 30,80,550/-, the claimant had only done work to the tune of Rs.5,74,838/-. 10% profit of balance contract amount of Rs. 25,05,712/- works out Rs. 2,50,571/-. The plea of the claimant is that the quantum of 10% profit is allowed by all the Government Departments and in this case also 10% profit has been accepted for the items of the schedule attached with the contract and it is a part of the contract.

5. The learned counsel for the petitioner has also relied upon the judgment of the Hon'ble Supreme Court in M/s A.T. Brij Paul Singh and Bros. Vs. State of Gujarat where the Hon'ble Supreme Court in paragraph 9 has observed as follows:

"Where in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What must be the measure of profit and what proof should be tendered to sustain the claim are different matters. But the claim under this head is certainly admissible."

6. In the facts of the above case before the Hon'ble Supreme Court, the Court upheld the damages to the tune of 15%. In light of the fact that the contractor had claimed only damages at the rate of 10%, in the present case the said claim cannot be said to be excessive. The arbitrator's reasoning is thus unsustainable for reducing the damages to a figure less than 10% particularly when it recorded a finding that the work was abandoned and the contract was prematurely closed at the behest of the respondent only. In denying the claim of 10% as loss of profit claimed by the petitioner, the arbitrator has held that the loss could have been mitigated to some extent by scouting for alternative works. Furthermore the arbitrator has taken 4% of contract value of the balance contract to be the reckoning factor and has further reduced the figure to 25% of the said 4% in view of the other factors such as the claimant not being geared up to execute the contract nor having mitigated the loss by scouting for alternative works. The arbitrator thus awarded 25% of 4% of the profit at one lac i.e. Rs.25,000/- only. This in effect comes to about 1% of the balance contracted amount of Rs.2,50,571/- as on the date of closure i.e. 15th December, 1999. In my view, consequent to the above judgment of the Hon'ble Supreme Court, this finding on claim No.3 is not sustainable because no reason is given why a figure of 4% of contract value has been treated to be the reckoning factor for loss of profits. Secondly even assuming that a figure of 4% could be the reckoning factor it is not clear why the claimant was required to scout for alternative works for mitigation and in what manner was the claimant not geared up to execute the contract and how does such failure straight-away reduce the expected profits by 75%. This, in my view, cannot be a ground to reduce the profits claimed by the claimant to the above extent particularly when it has been held by the arbitrator that the claimant was entitled to be compensated for loss of expected profit due to the stoppage of the work and premature closure of the contract by the respondent.

7. In my view the petitioner has made out good grounds for setting aside the arbitrator's award in respect of the aforesaid two items relating to claim No.3 & 10. The petitioner has also raised the question of the rate and quantum of interest payable to the claimant/petitioner. This plea will be considered after the award is given pursuant to the finding by the arbitrator on claim No.3 & 10 after taking into account the amount already withdrawn by the petitioner pursuant to this Court's order dated 17th March, 1997 and the date of such withdrawal.

8. I am satisfied that barring the above two challenges the other challenges to the award being factual in nature are clearly covered by the judgment of this Court in S.K. Jain Vs. DDA & Anr. In fact these are the only two challenges apart from the plea as to interest which were urged before me. The award is thus remitted to the Arbitrator Shri I.V. Nainani on the aforesaid two claims i.e. claim No. 10 and claim No.3 for readjudication. The parties to appear before the arbitrator on 25th August, 2000. The arbitrator to decide the aforesaid two remitted claims within two months of the parties' appearance on the same terms and conditions governing the arbitration proceedings leading to the award dated 28th August, 1995. The interest due to the petitioner, if any, would be considered at the stage when the Award on the two remitted claims is before the Court for making the Award rule of the Court by taking into account the amount already withdrawn by the petitioner and the date of withdrawal of money deposited from this Court pursuant to the order of this Court dated 17th March, 1997. The registry is directed to transmit the record to the Arbitrator Shri I.V. Nainani.

9. There shall be no order as to costs.