N.C.T. Of Delhi vs R.K. Construction Company
2002 Latest Caselaw 2134 Del

JUDGMENT

C.K. Mahajan, J.

1. These are the objections under Section 34 of the Arbitration & Conciliation Act, 1996 for setting aside the arbitral award passed by Shri G.G. Shivdasani, Arbitrator on 19.10.2001 against the petitioner.

2. Briefly the facts are, the respondent was awarded the work of construction of Community Centre and Vyayamshala at Village Ujwa in NG Block as per letter No. F(72)/94-95/AS/SDD-V/6005 dated 21.3.1995 for a sum of Rs. 32,66,106/-. Disputes and differences having arisen between the parties, the contract was rescinded by the petitioner on 23.12.1996 and the disputes were referred to the sole arbitration of Mr. G.S. Shivdasani who has since made his award on 19.10.2001.

3. It is stated that the main claim of the respondent before the arbitrator was that the petitioner did not supply the requisite drawings and therefore the work could not be completed. On the other hand the contract could not be fulfillled because of the respondent's lackluster approach to contractual obligations. The petitioner inspected the site and brought to the notice of the respondent that the work was not satisfactory or in accordance with the terms of agreement but the respondent did not finish the work and made lame excuses. The time for completion of the work was extended up to 31.7.1996.

4. It is alleged that the arbitrator has failed to give a reasoned award. The arbitrator has misconducted in passing the award without deciding the issue of limitation. The arbitrator had no authority to declare the rescission of contract as illegal and wrongful. The arbitrator has misconducted in terming the action taken by the petitioner under Clause 3 of the agreement as illegal and wrongful. The arbitrator had gone beyond his powers. The action taken under Clauses 2, 3, 5 and 12 are final and therefore cannot be set aside or declared as illegal and wrongful as per Section 36.1 of CPWD Manual Vol. II. Therefore, the award for refund of the security deposit of Rs. 99,418/- has been passed in haste and without application of mind.

5. The arbitrator awarded Rs. 4,399/- in respect of claim No. 2 without bearing in mind that no work was executed by the respondent after the last running bill was paid to him.

6. In respect of claim No. 3, the arbitrator has awarded an amount of Rs. 2,12,000/- on account of extra expenditure incurred due to rise in prices of material and labour which was not provided in the contract. Clause 10-C of the agreement provides for reimbursing the rise in price of material and wages of labour increased by direct result of coming into force of any fresh law or statutory rules or order but not due to any changes in sales tax.

7. It is also alleged that the arbitrator has erred in passing the award to the tune of Rs. 96,000/- towards maintaining establishment inasmuch as the arbitrator did not see the proper vouchers, muster roll and bill. The Arbitrator has also awarded Rs. 25,000/- towards cost of construction of godown/office. It is alleged that the construction of godown, office, hutment etc. for the execution of the work are constructed by the contractor executing any work involving cement etc. irrespective of the cost of the work and nothing extra is payable on this account as per the agreement.

8. It is also alleged that while awarding Rs. 2,04,700/- towards claim No. 7 for loss of contemplated profits, the arbitrator has gone beyond his jurisdiction to declare rescinding of the contract as unjustified. Furthermore, while allowing interest @ 18% per annum the arbitrator has misconducted inasmuch as the arbitral award is not based on facts, figures and technical specifications.

9. The Arbitrator has failed to appreciate the counter claim filed by the petitioner. The arbitrator has failed to appreciate Clause 3(a) of the agreement. The arbitrator has also failed to appreciate that once a contract is rescinded by the petitioner under Clause 3, it is beyond the purview of the arbitrators as per Section 36.1 of the CPWD Manual Vol. II. While disallowing claim No. 2, the arbitrator misconducted himself and simply relied upon the version of the respondent. It is also alleged that clearance of malba from the site was to be done by the respondent. But the arbitrator has rejected this counter-claim on the basis of mere denial of the claimant.

10. It is also alleged that while disallowing counter-claim No. 6 of the petitioner, the arbitrator failed to appreciate that as per Clause 2 of the Agreement, the decision of the Superintending Engineer in writing is final and the arbitrator has got no jurisdiction to change the quantum of levy of compensation as per Section 36.1 of the CPWD Manual Vol. II.

11. The objections are opposed by the respondent. It is contended that the respondent made all arrangements for execution of the work. The architectural and structural drawings for the Community Centre and Vyayam Shala were not issued. Whatever work could be commenced, the same was stopped by the petitioner. The revised layout plan was also not approved by the competent authority and the petitioner failed to fulfill their obligations. All other allegations raised in the petition have been denied by the respondent.

12. During arguments, learned counsel for the petitioner only pressed its objections against counter claim No. 6 and gave up the rest of its objections against the other claims.

13. Learned counsel for the petitioner contended, though half-heartedly, that the arbitrator ought not to have gone into this question because it would come under the excepted matters. As per Clause 2 of the agreement, the decision of the Superintending Engineer was final and was beyond the scope of arbitration as per Section 36.1 of the CPWD Manual Vol. II. The arbitrator had no jurisdiction to change the quantum of levy of compensation.

14. The counsel for the respondent defended the contention of the petitioner and relied on a judgment of this Court in Suit No. 1485/94 wherein in similar circumstances, the objections were dismissed and the award was made a rule of the Court.

15. I have heard learned counsel for the parties and also perused the documents on record.

16. The learned Arbitrator while disallowing counter claim No. 6 observed that completion of work within the contract time was prevented by the default of the petitioner by failure to supply drawings required by the respondent and the work was inordinately delayed due to various acts of omission and commission on the part of the petitioner. The recession of the contract by the petitioner was wrong and illegal.

17. The stipulated date of completion of the work was 27.9.1995. The period was provisionally extended up to 31.8.1996. The petitioner rescinded the contract on 23.12.1996. The petitioner invoked Clause 2 of the agreement vide his letter dated 8.6.2001, i.e., after a period of four years and 9 months after the contract ceased to be operative and after the arbitration proceedings had started.

18. The leaned Arbitrator observed that the purpose of inserting Clause 2 is only to ensure that the contractor would execute the work with due diligence and in a workmanlike manner and within the stipulated time. Recourse to imposition of liquidated damages is taken only in extreme cases and should not be imposed to provide revenue to the employer. It was also observed that the claim raised after a period of four years and nine months after the contract ceased to be operative is an after-thought and therefore the same is not maintainable being barred by the general law of limitation.

19. Learned counsel for the petitioner has placed reliance on a judgment of Bombay High Court in Hindustan Petroleum Corporation Ltd. v. Batliboi Environmental Engineers Ltd. and Anr. (2001) 2 Comp L.J. 79 (Bombay) wherein it was, inter alia, held as under:-

"The objects and reasons clause to the Act of 1996 nowhere reflects that the object of the Act is to restrict the challenges to an award. On the contrary, the objects clause would indicate that aim was to ensure that the arbitral procedure would be fair, efficient and capable of meeting the needs of the specific arbitration, to provide that the arbitral tribunal gives reasons for its arbitral award and to ensure that the arbitral tribunal remains within the limits of its jurisdiction and further to minimise the supervisory role of courts, in the arbitral process. While considering the challenges, under the Act of 1940, the Courts have held that the award would be interfered with if the arbitrator misconducted himself or the proceedings, the award discloses error apparent on the fact of the record, the award was without jurisdiction and the award was beyond the scope of the arbitration itself as also if the award was a non-speaking award where a reasons had to be given. An examination of the provisions of the Act of 1996 and, more specifically Sections 12, 13, 14, 16, 18, 19, 23, 24, 25, 28 and 31 would indicate that all those challenges are available. Some of them can be decided at the interim stage against which an appeal is provided under Section 37. Once those challenges are decided under Section 37 which are accepted. However, if the challenge is rejected and in respect of the other challenges they could only be challenged while challenging the award under Section 34(1). If they do not fall within the ambit of Section 34(2)(a), then the only ground available would be Section 34(b)(ii). It is, therefore, clear that the Act of 1996 insofar as the challenges to the award are concerned has not restricted the challenge to an award. The object achieved by the Act of 1996 as has been set out in the objects and reasons clause itself is to ensure that the awards are passed at the earliest without interference by courts at stages where intervention is not provided for and the parties themselves agree that no reasons need be given. Therefore, Act of 1996 has not in any way limited the challenges which were earlier available under the Act of 1940. It is true that Courts in India even under the Act of 1940 have refused to interfere with wrong findings or conclusions of act and law unless the award discloses error apparent on the fact of the record or the like. This was to ensure that the enforcement of arbitral awards without undue delay as the parties themselves had voluntarily sought arbitration, by naming the arbitrator or moving the arbitrator provided for under the contract or arbitrator appointed jointly by the parties or appointment made by the court."

20. In Vishwanath Sood v. Union of India and Anr. , while dealing with the similar case, the Supreme Court held as under:-

"The levy of compensation under the clause cannot be said to be in the nature of an automatic levy to be made by the Engineer-in-Charge based on the number of days of delay and the estimated amount of work. Firstly, the reference in the clause to the requirement that the work shall throughout the stipulated period of the contract be proceeded with due diligence and the reference in the latter part of the clause that the compensation has to be paid 'in the event of the contractor failing to comply with' the prescribed time schedule make it clear that the levy of compensation is conditioned on some default or negligence on the part of the contractor. Secondly, while the clause fixes the rate of compensation at 1 per cent for every day of default, it takes care to prescribe the maximum compensation of 10 per cent on this ground and it also provides for a discretion to the Superintending Engineer to reduce the rate of penalty from 1 per cent. Though the clause does not specifically so, it is clear that any moderation that may be done by the Superintending Engineer would depend upon the circumstances, the nature and period of default and the degree of negligence or default that could be attributed to the contractor. In practice the amount of compensation will be initially levied by the Engineer-in charge and the Superintending Engineer comes into the picture only as some sort of revisional or appellate authority to whom the contractor appeals for redress. The compensation clause contains a complete machinery for determination of the compensation which can be claimed by the 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 decision of the Superintending Engineer, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. The question regarding the amount of compensation leviable has therefore to be decided only by the Superintending Engineer and no one else."

21. While reversing the judgment of the Himachal Pradesh High Court, it was further held that the opening words of the arbitration clause viz. "except where otherwise provided in the contract" placed the question of awarding compensation outside the purview of the Arbitrator. The compensation, determined either by the Engineer-in-Charge or on further reference by the Superintending Engineer was not capable of being called in question before the arbitrator.

22. However, in the present case, the arbitrator has held that the work was delayed due to lapses on the part of the petitioner. The petitioner issued the letter of levy of compensation on 8.6.2001, i.e., after a period of four years and nine months after the contract ceased to be operative. The petitioner did not issue any notice under Clause 2 during the contract period nor any explanation has been given for the same.

23. In Bhartiya Construction Co. v. D.D.A. 1997 (2) Arb.L.R. 369, the scope of Clause 2 of the contract was examined in detail. It was held that compensation could be levied only as per the parameters laid down in Clause 2. Since the petitioner was responsible for prolongation in the completion of the work, time was not the essence of the contract. Moreover, before levying the compensation, no show cause notice was given to the respondent. The appeal against the order of the Single Judge of this Court was dismissed by a Division Bench of this Court vide order dated 22.1.1998 in FAO (OS) 233/97 and the special leave petition was also dismissed by the Supreme Court vide order dated 3.8.1998 in SLP (Civil) No. 9269/98.

24. The arbitrator has given a reasoned award on the basis of the pleadings of the parties, arguments and evidence on record before him. The court cannot go into the sufficiency of reasons or reappreciate the evidence. The Award can only be set aside if it falls within the ambit of Section 30 of the Arbitration Act. I am supported in my view by the observations of a Division Bench of this Court in College of Vocational Studies v. S.S. Jaitley AIR 1987 Delhi 134. It is held in the said decision that the courts do not exercise appellate jurisdiction over the verdict of an arbitrator and as such cannot go into the merits of the case nor can the courts reappraise and re-examine the evidence led before the Arbitrator. The Courts also cannot look into the insufficiency of the evidence led before the Arbitrator. It is not for the courts to see the reasonableness of the reasons given by the arbitrator or sufficiency of the reasons. However, whatever reasons are required, it depends upon the facts of each case. To the same effect are the decisions of other Division Bench of this court as reported in Delhi Development Authority v. Uppal Engineering Construction Co. New Delhi , and Hindustan Tea Co. v. K. Shashikant & Co. and Anr., . The learned arbitrator while deciding the claims and counter claims had given out the reasons for arriving at his conclusions. He has referred to several documents relied upon by the parties. Thus the learned counsel for the petitioner is not justified in saying that the arbitrator has not given the reasons while making certain deductions and awarding the claims. There is no error apparent on the face of the award and the proceedings. The Award is just and proper in the circumstances of the present case.

25. In these circumstances and after having considered the decisions relied upon by the learned counsel for the petitioner, I do not find any merit in the objections raised by the petitioner. The same are rejected. The Award is made a rule of the Court.

26. A decree is passed in terms of the award.

No order as to costs.