Pt. Munshi Ram And Associates (P) ... vs Rites Ltd. And Anr.
2006 Latest Caselaw 2038 Del

JUDGMENT

Pradeep Nandrajog, J.

1. Respondent's objection to the award dated 30.03.97 published by Sh. G.S. Rao, the sole arbitrator appointed to decide the claims of the petitioner are the subject matter of consideration by me.

2. Respondent (RITES) had awarded work pertaining to construction of 28 Type II and 24 Type III quarters to the petitioner in its proposed colony at I.N.A., New Delhi. Letter of intent was issued on 27.03.89. Contract required the works to be completed within 12 months. Admittedly, there was delay. Work was completed beyond 12 months.

3. After works were completed, there was a dispute pertaining to the bill finalized by RITES as payable to the contractor. RITES finalized the bill and held that Rs. 1,17,62,877/- was payable. Contractor disputed the said finalization of the bill and claimed that amount payable was Rs. 1,22,47,679/-.

In fact, when parties proceeded to arbitration, contractor enhanced the differential claim to Rs. 7 lacs.

4. Besides claiming said sum for work done, on account of work being prolonged, contractor claimed Rs. 7 lacs alleging that rates of material consumed for effecting civil works had increased. Rs. 10 lacs was claimed on account of increase in cost of cement and steel. Besides, contractor claimed Rs. 16,30,797/- under Clause 10 CC of the contract. Pre suit interest, pendente lite interest was claimed. There were minor claims on account of rebates etc.

5. Claims of the contractor were referred to the learned arbitrator. Summary of the 17 claims raised by the contractor are as under:

1. Rs. 7 lacs as balance due for work done.

2. Rs. 7 lacs due to rise in rates of building materials.

3. Rs. 10 lacs for increase in cost of cement and steel.

4. Rs. 51,200/- towards rebate at 1% stated to be wrongly deducted from the running bills.

5. Rs. 51,200/- for payment under final bill. Contractor disputed entitlement of RITES to recover 1% as rebate.

6. Rs. 1,03,475/- on account of bonus being @ 1%.

7. Rs. 22,177/- towards amounts wrongly withheld from running bills.

8. Rs. 16,30,796/- towards escalation as per Clause 10 CC.

9. Rs. 3,22,674/- as interest @ 24% per annum. Occasion due to delay in sanctioning extra and substituted works.

10. Rs. 4,63,904/- towards interest @ 24% on the amounts payable.

11. Rs. 5,54,030/- towards loss of profitability.

12. Rs. 8 lacs as difference in market rates and agreement rates during the extended period of the contract.

13. Rs. 18 lacs due to idle machinery and shuttering during extended period of contract.

14. Rs. 2.5 lacs towards idle stall.

15. Rs. 11,30,606/- on account of loss suffered due to idle labour and T and P during contract extended period.

16. Claim being pre-suit and pendente lite as also future interest @ 24%.

17. Rs. 50,000/- as cost of arbitration proceedings.

6. Learned arbitrator has awarded Rs. 4.65 lacs against claim No. 1. Claim No. 2 and 3 have been declined holding that for increase in prices, contractor was to be recompensed under claim No. 8. Claim No. 4 and 5 have been allowed. Claim No. 6 has been declined. Claim No. 7 has been noted as withdrawn by the contractor. Claim No. 8 has been allowed in toto. Claim No. 9 has been denied. Under claim No. 10, learned arbitrator has held that contractor was entitled to interest @18% for the reason, on the sums allowed, learned arbitrator has held the contractor entitled to interest. Holding that Rs. 9,09,918/- was payable, learned arbitrator has restricted claim No. 10 to Rs. 4,63,904/-. He has noted that the remaining sum was being allowed under Claim No. 16.

7. Claim No. 11 and 12 have been declined. Claim No. 13 has been allowed in sum of Rs. 6 lacs. Claim No. 14 has been allowed in sum of Rs. 60,000/-. Claim No. 15 has been allowed in sum of Rs. 3 lacs.

8. Learned Counsel for the parties agreed at the hearing that learned arbitrator was obliged to give reasons in support of the award. Thus, counsel made respective submissions as per settled law pertaining to a challenge to a reasoned award.

9. Pertaining to claim No. 1, learned arbitrator has noted that the basic dispute between the parties was the extent of work done. Needless to state, finalization of claim No. 1 required the learned arbitrator to finalize the final bill.

10. Whereas, according to RITES, as per work reflected in the measurement books, total amount payable was Rs. 1,17,62,877/- which was already paid and accepted by the contractor vide his letter dated 16.03.95, contractor alleged that the said acceptance was obtained under duress. Second contention urged by the contractor was that sum of Rs. 1,17,62,877/- as finally worked out was incorrect because RITES has not given benefit of Clause 12 A of the contract.

The said clause stipulated that where deviation limit of 25% was crossed, contractor was entitled to rates worked out under Clause 12 A i.e. applying Clause 12. Clause 12 stated that for substituted works or where deviation limit of 25% was exceeded, fresh rate would be determined, to be derived firstly from rates of similar class of work specified in the contract, failing which by applying rates notified by CPWD as per DSR 1985, failing which by applying market rates. Thus, according to the contractor, even as per works noted in the measurement books, applying Clause 12A, amount payable came to Rs. 1,22,47,679/-.

11. Learned arbitrator has awarded Rs. 4.65 lacs. While so awarding, learned arbitrator has apparently treated the measurements adopted by RITES as correct.

12. Learned arbitrator has given no reasons as to where from he was awarding Rs. 4.65 lacs. As noted above, according to the contractor applying Clause 12A, amount payable for works as shown recorded in the measurement book was Rs. 1,22,47,679/-. According to RITES, the amount payable was Rs. 1,17,62,877/-. The differential comes to Rs. 4,84,802/-.

13. Learned Counsel for the contractor stated that in view of R-62, a document filed by RITES, Rs. 22,000/- towards recovery of defective works was denied by the arbitrator to the contractor and further, in respect of cupboards, as noted by the learned arbitrator were not extra works, some amount is stated to have adjusted.

14. The contention cannot be accepted for the reason, learned arbitrator has awarded Rs. 4.65 lacs under Claim No. 1 and if I deduct Rs. 22,000/- from Rs. 4,84,802/-, (the differential as noted above of Rs. 1,22,47,679/- less Rs. 1,17,62,877/-), I do not get the figure of Rs. 4.65 lacs. Besides, the computation relied upon by the contractor to show additional sum payable under Clause 12 A hits at the very root of the award.

15. The award proceeds on the measurements recorded in the bill finalized by RITES in respect of the work as recorded as completed by RITES in the measurement book and in respect whereof, RITES has determined the final bill in sum of Rs. 1,17,62,877/- by applying benefit of Clause 12 A. This means that the work as recorded by RITES while finalizing the bill had to be adopted.

16. In respect of an item of work namely 'Snowsem', I note that as per the schedule of quantities notified in the tender 7090 sq.mtr. of surface area required application of snowsem. Agreed rate as per quoted price was Rs. 8.5 per sq.mtr. Quantity shown in the measurement book and as noted by RITES while preparing the final bill is 6,885.89 sq. mtr. As per documents filed by the contractor, claim raised was for 8862.5 sq. mtr. area on which snowsem was applied @ Rs. 8.5 per sq. mtr. and for 4,342.90 sq. mtr. area @ 13.45 per sq.mtr.

17. Thus, according to RITES, amount payable for this item of work (Item No. 9.04), Rs. 56,806/- was payable and according to the contractor, Rs. 1,33,743/- was payable.

18. The differential of the two comes to Rs. 75,937/-.

19. It is obvious that the contractor had taken an excess area on which snowsem was applied.

20. Learned arbitrator has proceeded on the basis that quantities as reflected in the measurement book are correct. The item of snowsem itself shows that the differential amount pertaining to extra and substituted items makes no logic in awarding Rs. 4.65 lacs.

21. It is unfortunate that the learned arbitrator has not recorded the process of reasoning leading to the sum awarded. I cannot, therefore, disect any further. As I understand, where reasons cease, the award ceases. Reasons would mean acceptable reasons. A reasoned decision would be where a rational, a justification and sufficient grounds exist to arrive at the the conclusions arrived at.

22. I, therefore, have no option but to hold that the award suffers from a serious infirmity in so far it has dealt with claim No. 1. Reasons are not forthcoming as to how Rs. 4.65 lacs has been arrived at. Indeed, the award gives no reasons. Justification projected by the contractor, as noted above, is flawed with serious infirmities.

23. Claims 2 and 3 as noted above have been declined. Contractor has filed no objection. Issue has attained finality.

24. On claim No. 4 and 5, admitted case of the parties is that if timely payments were made pursuant to the running bills, 1% rebate could have been availed of by the department under the running bills and similarly, if final bill was cleared and money paid within the stipulated time, 1% rebate was to be availed of at the final stage. Holding that the running bills were not paid in time and even final bill was not paid in time, Rs. 51,200/- under Claim No. 4 and 5 each have been allowed.

25. Objection raised by RITES is that the contractor never raised any running bills. On its own, department measured the works each month and paid, on account payments to the contractor.

26. Sh. A.K.Singla learned senior counsel for the contractor conceded at the hearing that the contractor did not raise any running bills. However, counsel urged that this did not relieve RITES from its obligations to make timely payments.

27. I fail to understand the logic of the argument advanced by counsel for the contractor. Sine qua non for a timely payment is a specific date by which payment had to be made. In the instant case, this date was referable to the date when running bills were submitted. Indeed, if the contractor would have submitted running bills, he would have listed the works done. Job of the department would be restricted to verify the veracity of the bills. It was not the obligation of the department to make any suo moto payments. Learned arbitrator has totally ignored the aforesaid facet.

28. Pertaining to the final bill, learned arbitrator has ignored that parties were at variance on the finalization of the final bill. Contractor was not ready to accept the bill as finalized by the department.

29. Be that as it may, award pertaining to the final bill certified for payment by the learned arbitrator has been set aside by me. Thus, even in respect of the final bill, it cannot be said that the department was at fault in delaying payment.

30. Award pertaining to claim No. 4 and 5 has also to be set aside.

31. As noted above, claims No. 6 and 7 were rejected. Contractor has laid no challenge to the same. Award has attained finality.

32. Claim No. 8 was on account of contractor's claim under Clause 10 CC of the contract. Clause 10 CC stipulated that where the stipulated period of completion is 12 months or less, benefit of Clause 10 CC shall not be granted. Contract stipulated period was 12 months. However, work continued beyond the stipulated period. Thus, Clause 10 CC benefit was to be granted to the contractor, but not as allowed by the learned arbitrator who has given benefit of Clause 10 CC for the entire work done.

33. Learned arbitrator was obliged to determine the work executed after 12 months. Only qua said work, benefit of Clause 10 CC could be granted.

34. The award pertaining to claim No. 8 has therefore to be set aside.

35. As regards claim No. 9, 10 and 16, I find that the learned arbitrator has mumbled jumbled claims towards interest. It would be difficult to reflect the confusion created by learned arbitrator and therefore, I note the award pertaining to claim No. 9, 10 and 16 by quoting the same. The same reads as under:

Claim No. 9: Claim for Rs. 3,22,674/- as interest of 24% on the R/A bills and delay in sanction of extra and substituted items.

AWARD: The claim is not justified.

Reasons: No interest is paid due to delay in payment of R/A bills as the Contractor's claim under claim No. 4 has been admitted. He has also withdrawn his claim under claim No. 7 and hence interest is not allowed.

Claim No. 10: Claim of Rs. 4,63,904/- as interest at 24% as there has been breach of contract act by the respondent.

AWARD: I award 18% simple interest per annum on the escalation amount as pendentilite interest.

Reasons: The Claimant himself has reduced the demand from 24% p.a. to 18% p.a. During the currency of the contract no such amount is payable as interest. So the interest is payable from the date the Arbitrator has been appointed to the date of award, i.e. Rs. 9,09,918/-. The amount of the award is however, limited to Rs. 4,63,904/- as per contractor's original claim. The balance is being awarded under claim No. 16.

Claim No. 16: Claim for interest pre-suit and pendentilite and future interest.

AWARD: The question of pendentilite interest has been covered against claims 9 and 10. I award Rs. 4,46,014/- as the interest in favor of the claimant. The future interest is covered under the next paragraph (last paragraph of this award).

Reason: The reason is same as above.?

36. I do not find any comprehensible logic and reasons pertaining to claim No. 10 and 16.

37. Be that as it may, since award pertaining to claim No. 1 and claim No. 8 as being set aside by me and as matter requires to be remitted for fresh adjudication, I refrain from expressing myself on claim No. 9, 10 and 16 save and except to hold that at the remanded stage, learned arbitrator would deal with pre-suit, pendente lite and future interest with clarity. As of now, award pertaining to claim No. 10 and claim No. 16 requires to be set aside.

38. As noted above, claims 11 and 12 were rejected. Contractor has raised no objections. Issue has attained finality.

39. On claims No. 13 to 15, learned arbitrator has recorded as under:

Claim No. 13: Claim for Rs. 18.00 lakhs due to idleness of machinery and shuttering during the overrun period.

Claim No. 14: Claim for Rs. 2.50 lakhs due to idle staff.

AWARD: I award Rs. 6.60 lakhs.

Reasons: The Contractor's claim for turnover and profitability has not been accepted and as such he is entitled to claim increase in overheads of Rs. 6.00 lakhs. The claim for Chowkidars due to delay in handing over is being accepted for Rs. 60,000/-.

Claim No. 15: Claim for Rs. 11,30,606/- on account of loss suffered due to idle labour, and T and P during the contract period.

AWARD: The claims is partly justified and I award Rs. 3.00 lakhs.

Reasons: The work was apparently held up between 20-11-91 and 18- 12-91 i.e. for 29 days during which his T and P and shuttering was remaining idle. The Claimant has not given full details of the rate per day for T and P and shuttering. He has also made a claim for labour wasted in the process of taking out and relaying reinforcement of the sump. He has also claimed in this for his site staff. The rate for T and P has been claimed at Rs. 23,777/- and the rate for shuttering at Rs. 3,892/- per day. These figures are very high. I award Rs. 3.00 lakhs to cover his machinery and shuttering remaining idle.

40. No reasons are forthcoming on record as to how Rs. 6 lacs have been determined as payable due to idleness of machinery and shuttering during the over run period. Besides, I find it difficult to understand what the learned arbitrator means while dealing with claim No. 13 and 14 that claim for turn over and profitability not been accepted, contractor is entitled to increase in over heads.

41. In any case, claim No. 13 was on account of idle machinery and shuttering and not over heads. Claim No. 14 was on account of idle staff.

42. Besides, no particulars or details of machinery or shuttering lying at site in an idle condition have been noted. Further, in respect of chowkidars stated to have been sanctioned, no reference has been made by the learned arbitrator to any documentary record. Similarly, in respect of claim No. 15 which once again included a claim towards idle labour and T and P, I note that no reasons are forthcoming as to how sum computed is Rs. 3 lacs.

43. No details of idle labour or idle T and P have been noted. I may additionally note that claim No. 13 in sum of Rs. 8 lacs was due to idle machines and shuttering and claim No. 14 was due to idle staff. Prima facie, claim No. 15 duplicates the heads of claims already raised under claim No. 13 and 14.

44. Award pertaining to claims 13 to 15 is completely unintelligible. It is required to be set aside.

45. Large number of authorities were cited by the respective counsel. Counsel for the contractor cited:

1. Manalal Prabhudayal v. Oriental Insurance Co Ltd. 2006 (3) Arb LR 364 (SC)

2. Government of Karnataka v. Shetty Constructions Company Pvt. Ltd. 2006 (3) Arb LR 328 (Karnataka) (DB)

3. Mcdermott International Inc v. Burn Standard Co Ltd. and Ors. 2006 (2) Arb LR 498 (SC)

4. Bengal Traders v. West Bengal State Electricity Board 2006 (Supp) Arb LR 7 (SC)

Counsel for RITES cite the following authorities:

1. Associated Engineering Co. v. Government of AP and Anr.

2. Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C.Roy,

3. Union of India v. Jain Associates and Anr. (1994) 4 SCC 665

4. M/s Ramaiah and Company v. Chairman and Managing Director, National Thermal Power Corporation?(1994) Supp (3) SCC 126

5. Nathani Steels Ltd. v. Associated Constructions 1995 Supp (3) SCC 324

6. DCM Ltd. v. MCD and Anr.

7. New India Civil Erectors (P) Ltd. v. Oil and Natural Gas Corporation

8. Union of India v. Popular Builders, Calcutta

9. Ramachandra Reddy And Co. v. State of AP And Ors.

10. State of Orissa v. Sudhakar Das,

11. State of UP v. M/s Ram Nath International Construction Pvt. Ltd.,

12. Indian Aluminum Cables Ltd. v. Haryana State Electricity Board and Ors. 1996 (5) SCALE

13. Municipal Corporation of Delhi v. Rakesh Brothers 2005 (2) Arb. LR 257 (Delhi)

14. CL Gupta v. Delhi Development Authority 2006 (1) Arb LR 576 (Delhi).

46. I propose not to deal with the authorities for the reason, it would be an exercise in futility to say that such and such authority says this and such and such authority says that. On the facts and circumstances as noted by me, I need not deal with any authority inasmuch as it is settled law that where an arbitrator has to give reasons for the award, reasons would mean that there is a justification and rational in the face of the award which shows the logic of the conclusions arrived at. Further, where an arbitrator acts on surmises and conjectures or on no evidence or ignores material evidence or where there are self-inflicted wounds in the award, such an award cannot be accepted for being made a rule of the court.

47. Objections succeed. IA. No. 4200/1998 is allowed. I set aside the award dated 30.03.97 published by Sh. G.S. Rao, the learned sole arbitrator.

48. I hereby appoint Justice R.C. Chopra (Retd.) a former Judge of this Court, N-113, Greater Kailash-I, New Delhi-110048 (Mobile-9818097777, land line- 32554242) as the sole arbitrator who would redecide the claim of the contractor and while so doing would publish a reasoned award.

49. Registry is directed to transmit the record of arbitration filed by Sh. G.S.Rao to Justice R.C.Chopra (Retd.), to he handed over to his authorized representative who would file an authority letter to this effect.

50. CS(OS) No. 785-A/1997 stands disposed of with the directions aforenoted.

51. No costs.