D.S.A. Engineers (Bombay) vs Housing And Urban Development ...
2004 Latest Caselaw 404 Del

JUDGMENT

Dr. Mukundakam Sharma, J.

1. The petitioner herein was awarded a work contract for external services (plumbing) under agreement dated 10th June, 1992. Disputes arose between the parties out of and in connection with the aforesaid agreement which also contained an arbitration clause. In terms of the aforesaid arbitration clause, disputes arising between the parties were referred to the arbitrators, namely, Sh. H.S. Sobti and Sh. P. Krishnan. The said arbitrators entered into the reference, received evidence adduced by the parties and they passed a unanimous award and published the same on 30th June, 2001.

2. The respondent has now challenged the aforesaid award under Section 34 of the Arbitration and Conciliation Act, 1996 contending, inter alia, that the said arbitral tribunal ignored the terms and conditions of the agreement duly signed and executed between the parties and, therefore, the said award passed in favor of the petitioner cannot be upheld and is liable to be set aside. However, it is to be noted that out of the total claim of approximately Rs. Two crores only an approximate amount of Rs. 34 lakhs was awarded by the learned arbitral tribunal to the petitioner. During the course of arguments the counsel appearing for the objector restricted his arguments and objections relating to claim Nos.1, 1-E, 2-A, 5 & 6. However, the counsel submitted written synopsis of his arguments wherein arguments were shown to have been advanced also in respect of Claim Nos.1-H, 1-H (C), 2-F also, in addition to the aforesaid claims. In the light of the submissions of the counsel appearing for the parties and after close scrutiny of the records I proceed to give my reasoned decision on the objection filed by the respondent.

3. The first objection, which was argued, was in respect of the award given by the learned tribunal in respect of Claim No. 1-E, which is a claim of the petitioner in respect of extra items. An amount of Rs. 20,66,110.88 was claimed in respect of the aforesaid claim whereas the tribunal has awarded an amount of Rs. 1,73,208/- towards the aforesaid extra items. While giving its reasons for awarding the aforesaid amount as against the aforesaid items, the learned arbitral tribunal has referred to conditions in the contract and also to the various evidence that is adduced by the parties. The learned arbitral tribunal after considering the conditions in the contract and the evidence adduced, partly allowed the said claim to the aforesaid extent by giving its reasoned decision. It was the contention before the learned Tribunal by the petitioner that of the number of extra items ordered and executed by them only rate of 8 items were determined by the Engineer for approval of the competent authority and they were asked for acceptance of the same. The petitioners conveyed to the respondents that the rates were not acceptable to them. There are other claims also made by the petitioner for some more extra items for which there was neither any approval nor rejection. Considering the entire facts and circumstances of the case the arbitral tribunal came to the conclusion that there was nothing on record regarding why items were disallowed and/ or deleted from the bills of the petitioner and also for what reason and that there was no communication to the petitioners saying so. It was also held by the tribunal that for the 8 items for which rates were finalised by the Engineer in charge for acceptance by the petitioner but not so accepted by the petitioner. It was also held that the decision of the competent authority, namely, the Executive Director in terms of Clause 64.6 of the contract, to consider these rates as final is not placed on record and, there-fore, the said claims were considered on merit. It was contended on behalf of the respondent that the aforesaid award of the learned tribunal is hit" by Clauses 64.3, 64.4., 64.5 and also 64.6. In support of the said contention, the counsel also referred to the decision of the Supreme Court in State of J & K v. Dev Dutt Pandit, wherein it was held that to allow a claim on account of deviation/alteration, previous permission in writing of the authority is necessary and in the absence of such written permission, such claim cannot be awarded. It was also submitted that the 8 items for which the claim was partly allowed by the tribunal, the decision given by the Executive Director was final and binding and, therefore, it was an excepted matter and the same could not have been made a subject matter of the award.

4. I have considered the said submission and the aforesaid decision of the Supreme Court. There is no denial of the fact that the aforesaid extra items were carried out by the petitioner. Clause 66.2, on which reliance was also placed, provides for payment for carrying out extra work or expenses. However, the only requirement that was envisaged was that the contractor is to notify and send every month an account giving particulars for extra or additional work to the Executive Director, under Clause 66.1. It is not urged in the objection that the petitioner did not notify the claims in the manner as provided for under Clause 66,1. Besides, the appreciation which is made by the arbitral tribunal and their conclusion on the basis of such appreciation of records clearly prove that they are entitled for such payment. It is a clear finding on fact and this court cannot re-appreciate the evidence to come to a contrary finding. It was also held by the learned tribunal that the decision of the competent authority in terms of Clause 64.6 of the contract to consider the rates as final, was not on record. Therefore, it cannot be held that any decision was rendered by the Executive Director so as to construe the said decision to be final and binding and, therefore, not arbitrable. In my considered opinion, the ratio of the aforesaid decision of the Supreme Court is not applicable to the facts and circumstances of the present case. Neither it is urged that no document is placed on record to prove and establish that previous permission of the competent authority in writing was not obtained. This court cannot reappreciate and examine the entire evidence on record to find out and ascertain as to whether or not such previous permission in writing of the competent authority was taken or not. Therefore, the aforesaid decision of the Supreme Court is not applicable to the facts and circumstances of the present case. The award in respect of the aforesaid claim is, therefore, upheld.

5. Objection is raised, as against the award passed in respect of Claim No. 1-H, which is an award given for maintenance of watch and ward charges from 21st December, 1995 to 31st August, 1997. The claim under the said head was made for payment of an amount of Rs. 87,822,57/-. The learned tribunal, however, awarded to the respondent towards the aforesaid claim for the period 21st December, 1995 to 15th June, 1996 for three chowkidars at Rs. 2500/- per chowkidar per month i.e Rs. 43,911/-. Therefore, the aforesaid claim is allowed only partly. The learned tribunal while coming to the aforesaid conclusion and allowing the claim partly has examined the entire records as also the contentions of both the parties. The learned tribunal found that the stores were moved to another store on the instructions of the respondent on or around 15th June, 1996 and the petitioner did not have any guard for the same. On scrutiny of the said award, I find no error apparent on the face of the record and, therefore, the aforesaid objection raised is found to be without any merit and is rejected.

6. Objection was also raised by- the counsel appearing for the respondent as against the award of Rs. 10,000/- made by the learned tribunal as against claim of Rs. 50,000/- towards cleaning of manholes, which is Claim No. 1.H (C). This objection was taken in the objection petition but was not argued seriously. However, in the synopsis of arguments, the same is also made part of the objection and, therefore, I proceed to deal with the same. The claim of the petitioner was for payment of an amount of Rs. 50,000/-for cleaning of manholes from time to time. Claim was made by the petitioner with the contention that they had cleared the system before completion i.e. 21st December, 1995 and thereafter they were made to clear the system after seven months when Habitat Centre was in the process of taking over. The respondent did not deny the aforesaid fact and rather, in fact, they accepted the aforesaid position that some cleaning was required to be done in a portion due to ongoing construction work of parking plaza. During a visit on 7th February, 1995 some manholes near cluster-A were seen buried under construction material for which clearance was required to be made and, therefore, considering the fact that the system was to be cleaned once more, an amount of Rs. 10,000/-was paid by the respondent which, in my considered opinion, cannot be said to be unjustified. Nor is there any error apparent on the face of the record. The said objection is, therefore, rejected.

7. The next objection that is raised by the counsel appearing for the respondent is in respect of the award passed by the arbitral tribunal in respect of the claim No. 2-A which is towards loss of overheads. Total claim of the petitioner on the aforesaid head was for an amount of Rs. 84,01,234/- as against which the learned tribunal has awarded an amount of Rs. 18,83,392/-. The aforesaid award passed by the learned tribunal is challenged by the respondent on the ground that no such award could have been passed by the learned tribunal as provided for under prohibitory exemption clauses, namely, 55, 57 and 66 of the agreement. In support of the said contention the counsel also relied upon the decision of the Supreme Court in Steel Authority of India Ltd. v. J.C. Budhiraja, wherein the Supreme Court has held that the arbitrator derives the authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be an arbitrary one. It was also held in the said decision that his existence depends upon the agreement and his function is to act within the limits of the said agreement and that even if arbitrator has jurisdiction to entertain the claim, he may be prohibited by the terms of the contract to pass award on specific item and in such case award passed on that item ignoring the prohibition would amount to jurisdiction error. In O.N.G.C. Limited v. Saw Pipes Limited, it was held by the Supreme Court that under Section 34 of the Act the Court is empowered to set aside the award if the arbitral procedure was not in accordance with the agreement of the parties or falling such agreement was not in accordance with Part -I of the Act or if the award was in contravention of the provisions of the Act or any other substantive law governing the parties or was against the terms of the contract. Reference could also be made to the decision of the Supreme Court in Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises, 1999 (6) SCALE 92 that if an award is passed by the arbitrator, which is against the stipulations and prohibitions contained under the contract between the parties, the said award is not in accordance with law and is required to be set aside. Since reference was made to the provisions of Clauses 55,57 and 66 of the agreement, it would be necessary to extract the said clauses:-

"55.0 Possession of Site

55.1. The owner will make available to the Contractor the Site or the respective work fronts to enable the Contractor to commence and proceed with the execution of Works in accordance with the agreed programme. If there is delay in making available any area of work, the owner shall on the recommendations of the Architect and the Consultant grant reasonable extension of time for the completion of work. The Contractor shall not be entitled to claim any compensation, whatsoever on this account.

55.2. The portion of the Site to be occupied by the Contractor shall be indicated by the Engineer at Site. The Contractor shall on no account be allowed to extend his operations beyond these areas.

57. Extension of Time:-

57.1. If the works are delayed by force majure, suspension of work by the owner, serious loss or damage by fire, ordering of altered, additional or substituted work or other special circumstances other than through the default of the contractor, as would fairly entitle the contractor to an extension of time and which in the discretion of the owner is beyond the control of Architects and the Contractor, then upon the happening of any such even causing delay, the contractor shall within 10 days of the happening of even give notice thereof in writing to the Engineer, stating the cause, and the anticipated period of delay, then in any such event, Managing Director on the recommendations of the Architect and the Consultant may give a fair and reasonable extension of time for completion of work.

57.2. Such extension shall be communicated to the Contractor by the Engineer in writing. The Contractor shall not be entitled to claim any compensation or over run charges whatsoever for any extension granted.

66.0 CLAIMS:-

66.1 The Contractor shall send to the Executive Director (E & T)/Consultant/Engineer/Architect once every month an account giving particulars, as full and detailed as possible of all claims for any additional payment to which the Contractor may consider him-self entitled and of all extra or additional work ordered in writing and which he has executed during the preceding month.

66.2 No claim for payment for any extra work or expense will be considered which has not been included in such particulars. The owner may consider payment for any such work or expense where admissible under the terms of the Contract. If the Contractor has at the earliest, practicable opportunity notified the employer in writing that he intends to make a claim for such work and expense and it is certified by the Consultant in consultation with the Architects that such payment was due.

66.3 Any claim which is not notified in two consecutive monthly statements for two consecutive months shall be deemed to have been waived and extinguished.

8. A conjoint reading of the aforesaid provision makes it clear that even if there is any delay in making available/ of any area of work, extension of time could be granted for completion of the said work, which is reasonable. But it is categorically asserted in the said provision that the contractor would not be entitled to claim any compensation whatsoever for the delay in making available the area of the work. Similarly, if the works are delayed by force majure, suspension of work by the owner, serious loss or damage by fire, ordering of altered, additional or substituted work or other special circumstances other than through the default of the Contractor, fair and reasonable extension of time for completion of the work can be given by the owner, which shall be in writing and communicated to the contractor by the Engineer in writing but it is categorically provided that the contractor could not be entitled to compensation or over-run charges whatsoever for any extension granted. Clause 66.2 provides that no claim for payment for any extra work or expense will be considered which has not been included in particulars sent by the contractor. The arbitral tribunal considered all the aforesaid clauses and the evidence on record and after considering the same the learned tribunal allowed compensation to be paid to the petitioner towards extra overheads for an amount of Rs. 18,83,392/-. The learned arbitral tribunal held that it would be fair and just to take expenses of overhead as 5% of the tender amount but since it is a normal practice in engineering contracts that the contractor can cut down his overhead expenses as the work progresses, therefore, the contractor's overhead expense's would have decreased to 2.5% by the time about 50% work was completed and to 1% by the time about 80% work was completed and in terms of the said conclusion the award was given by the learned tribunal. The aforesaid award was given for loss of overheads during the prolonged period of contract i.e. up to 21st December, 1995 which is the virtual date of completion. It was also held that it was due to non-fulfilment of the obligation on the part of the respondent that the work was prolonged and compensation became payable to the petitioner.

9. I have given my careful consideration to the aforesaid contention. The aforesaid clauses which are extracted hereinabove clearly provide that no compensation whatsoever either for delay in making available any area of work or for any altered, additional or substituted work or for any other such circumstances would be allowed. It is clearly and unambiguously laid down that no compensation or over run charges are payable to the contractor and that the contractor was not entitled to claim any compensation or over run charges whatsoever for any extension granted. The aforesaid clause definitely is a prohibitory clause and no such amount for over run charges could have been directed to be paid by the learned tribunal in view of the settled position of law as laid down by the Supreme Court, to which reference is already made.

10. It was submitted by the counsel appearing for the petitioner that according to the aforesaid clauses no compensation was payable only if the delay was for a reasonable period but if the said period overruns more than 15 to 25% of the contract period, then the aforesaid clauses cannot be said to be operative. I am, however, unable to accept the aforesaid contention, for under the aforesaid clauses owners have been given the liberty to give extension for completion of the contract for a reasonable period but no extra amount is payable as compensation when such extension are granted. In the aforesaid clauses, there was an absolute bar for payment of any amount towards extra and overhead charges and the said clauses cannot be said to be qualified by the words "reasonable period". The aforesaid award passed by the learned arbitral tribunal is found to be beyond its powers and jurisdiction and, therefore, the said award is set aside

11. Objection was also raised with regard to the award passed by the learned arbitral tribunal in respect of Claim No. 2-F, which is a claim made for additional cost towards insurance and bank guarantee for which an amount of Rs. 3,41,527/- was claimed. As against the aforesaid claim the learned tribunal has awarded an amount of Rs. 14,110/- per year w.e.f 1.1.1997 till release of bank guarantee and Rs. 1,63,8377- towards insurance cost. During the course of arguments this claim was not pressed. It is submitted that the said award is against the aforesaid prohibitory clause. I am, however, unable to accept the aforesaid contention in view of the fact that the petitioner had to incur the aforesaid cost towards insurance and bank guarantee, which the petitioner is entitled to be compensated. The same is not by way of compensation but is a reimbursement of the expenses incurred by the petitioner and, therefore, the aforesaid award is found to be legal and justified.

12. No argument was also advanced during the course of his submissions by the learned counsel appearing for the respondent as against Claim No. 3, which was a claim for re-structure of rate. The award given under the aforesaid head is for an amount of Rs. 9,65,466.11 as escalation charges as against the claim of Rs. 33,36,081.44. The contention raised is that the learned tribunal acted beyond reference by awarding escalation against restructure of rate claimed. The learned tribunal has given its detailed reasons for coming to the said conclusion and for awarding the aforesaid amount in favor of the petitioner. It is the categorical finding of the learned tribunal that escalation clause was made applicable after the project got extended and extension of time was granted by the respondent. It is also the finding of the learned tribunal that the respondent agreed to pay escalation as per terms of the agreement. The learned tribunal further held that although there is no provision for revision of rate but the petitioner should have been paid / compensated for escalation as per terms of the agreement, particularly as per Clause 8.1. which provides for escalation in prices for the work done during the stipulated period of the contract including such period for which the contract is validly extended. In view of the aforesaid interpretation given by the learned tribunal to the clauses of the contract and the evidence on record for coming to the conclusion for awarding the aforesaid claim in part, I find no error apparent on record to disturb the said finding and the conclusions. The objection stands rejected being without any merit.

13. An amount of Rs. 25,000/- has been awarded by the learned tribunal towards Claim No. 6, for which an amount of Rs. 2,27,724.34 was claimed by the petitioner. The learned tribunal has given its reasoned decision for awarding the aforesaid amount and I find no reason to interfere with the said award of the learned tribunal which is only for payment of Rs. 25,000/- as against the total claim, which was made. The aforesaid amount awarded itself indicates that the learned tribunal exercised its judicial mind and appreciated the documents on record in proper perspective. The said objection is also found to be without any merit.

14. The next objection i.e raised is against Claim No. 5, which is a claim for payment of interest. The petitioner claimed interest on the awarded amount at a rate of 24% p.a. The arbitral tribunal has awarded pendente lite interest at the rate of 15% p.a on the amount awarded as against all the claims except Claim No. 2 (f) and future interest at the rate of 15% p.a payable till the date of decree of payment whichever is earlier. The contention of the counsel for the respondent/objector is that the aforesaid award is hit by the provisions of Clause-20, which according to the counsel is a prohibitory clause for payment of interest. The said clause provides as follows:-

"Clause 20.1:- No interest shall be payable on any money due to the contractor against earnest money, security deposit, interim or final bills or any other payments due under this contract".

The aforesaid plea was made a part of the objection petition being Ground-F thereof and sought to be supported by a decision of the Supreme Court in Secretary Irrigation Department, Govt. of NCT of Orissa v. G.C. Roy, (1991) Supp. 3 SCR 417 and in State of Orissa v. B.N. Ag-garwala, . In the case of G.C. Roy (supra) the Supreme Court has held that where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute along with claim for principal amount or independently is referred to the arbitrator, he shall have power to award interest pendente lite. In B.N. Aggarwala's case (supra), the Supreme Court has held that there can be no doubt that if the terms of the contract expressly stipulate that no interest would be payable then, notwithstanding the provisions of the Interest Act, 1978, an arbitrator would not get the jurisdiction to award interest. In the present case, I have extracted the provisions of Clause 20.1 which categorically prohibits payment of interest on any amount due to the contractor against earnest money, security deposit, interim or final bills or any other payments due under the contract. Therefore, the said clause prohibits payment of interest on any amount which is found due and payable under the aforesaid contract. Whatever interest is levied by the learned tribunal is the amount which according to it was due and payable to the contractor. Therefore, on the aforesaid sum found due and payable, no interest could have been awarded by the arbitral tribunal in view of Clause 20.1 and in the light of ratio of the aforesaid decisions of the Supreme Court. There exists between the parties an agreement which prohibits grant of interest. The Supreme Court has also clearly held that if the terms of the contract expressly stipulate that no interest would be payable, then the arbitrator would not get the jurisdiction or right to award interest even notwithstanding the provisions of the Interest Act. Power to grant interest by the arbitrator emanates from the statutory provisions but the same is always subject to the agreement between the parties as laid down by the Supreme Court in the aforesaid decisions. In that view of the matter the award passed by the learned tribunal awarding interest at the aforesaid rate to the petitioner is found to be in violation of the agreed terms and conditions. The aforesaid prohibitory clause applies in full force and, therefore, in view of the ratio of the aforesaid decisions of the Supreme Court the award in respect of the aforesaid claim towards payment of interest also stands set aside.

15. In terms of the aforesaid discussion and observations, the objection petition stands disposed of by upholding the award as against the claims of the petitioner. But the award passed as against Claim Nos. 2-A and 5 are set aside. Petition stands disposed of in terms of the aforesaid order.