Arunodaya Co-Opeartive Group ... vs R.G. Desai And Associates Pvt. ...
2006 Latest Caselaw 1872 Del

JUDGMENT

Pradeep Nandrajog, J.

1. Disputes and differences between the petitioner (herein after referred to as the owner) and the respondent (herein after referred to as the contractor) were referred to the arbitration of Sh. Swami Dial and Sh. O.P. Jain. Sh. Swamy Dial is a retired Chief Engineer (CPWD). Sh. O.P. Jain is a retired professor in Structural Engineering from I.I.T. Delhi and is a well known personality in the field of structures.

2. I am noting the qualifications of the learned arbitrators as they are experts in the field of civil engineering and this fact has a material bearing on the objections raised.

3. The two arbitrators entered upon reference in December 1989 and held over 30 sittings till award was published on 14.02.98.

4. I may note that delay was occasioned in publishing the award because at one stage of the proceedings, contractor refused to extend time for the arbitrators to publish the award. owner had to file a petition under Section 28 of the Arbitration Act 1940 seeking extension of time from this Court. The said petition was allowed and thereafter, learned arbitrators could proceed ahead.

5. Petition under Section 14 read with Section 17 of the Arbitration Act 1940 filed by the owner has been registered as Suit No. 861A/98. Prayer made is to direct the arbitrators to file the award in this Court and proceedings be initiated as per law.

6. Arbitrators were directed to file the award in this Court. They did the needful. Notice of filing of the award was served upon the parties. Contractor has filed objections under Section 30 of the Arbitration Act 1940 which have been registered as IA No. 1204/2000.

7. The operative part of the award reads as under:

The steel, cement and bricks were to be supplied by the second party at the fixed rate as provided in the agreement and the price of these materials were to be recovered from the bills of the first party. As per clause 16 of the agreement earth filling in the plot was to be done by the second party.

The work was started by the first party and the same continued till first week of May, 1988 as the first party on 6.5.88 wrote the letter to the second party detailing therein the various amounts payable by the second party. The second party wrote a letter dated 31.5.88 disputing the quality of the work done and further advising the first party not to execute the work further till so directed by the second party. After some correspondence, the second party vide letter dated 26.5.89 terminated the contract thereby not requiring the first party to do the work. The second party also approached the High Court regarding the appointment of their nominee arbitrator and also appointment of local commissioner and also inspecting the nature of the work with reference to defects etc. After our appointment as the arbitrators we also visited the site of work and found the cracks in the construction, particularly, in C-block where several cracks and defects found at various points and in structure. Further extensive rectification of structure of the building particularly load bearing walls was also required. Stair cases specially attached to block-C gone out of plum showing a tilt. Cracks were noticed in the junction of landing slabs and supporting walls. The roof of one of the floor was found sagging. Though the defects were also noticed in other blocks also but particularly maximum were noticed in block-C. The submission of first party was that the second party was under legal and contractual obligations to ask the first party to rectify the defects if any and only on failure of first party, the second party was competent to rectify such defects. In view of this second party is not entitled to any payment. Otherwise also such huge expenses cannot be claimed by way of so called rectifications of the work.

We have considered the submissions made by the parties, the pleadings including the written submissions of the parties, the documents and are of the view that defects particularly in block-C existed. In view of this we allow a sum ofRs. 25,00,000/- in full and final settlement of all the claims of the second party. The claims of first party are rejected. The first party is also not entitled for return of any materials, machinery, the details of which were given in Annexure annexed with the statement of claims.

The parties are left to bear their respective costs.

In view of the award of the aforesaid amount ofRs. 25,00,000/- (Rs. Twenty Five lacs only) to the second party, the first party is given 3 months time to make the payment failing which the first party shall be liable for payment of interest @10% per annum commencing after the expiry of 3 months from the date of award till the date of payment.

8. Various objections have been raised in the application, but at the hearing held on 17.10.2006, Sh. Sandeep Sharma learned Counsel for the contractor urged that the award suffered from a serious jurisdictional error which amounts to a legal misconduct. Counsel urged that there were various claims of the contractor. There were various claims of the owner. None have been discussed individually. First claim of the owner for damages on account of defective work as also for balance un-executed work is the only claim, partly allowed. Counsel submitted that the learned arbitrators ought to have separately dealt with individual claims.

9. Additionally, counsel urged that though not incumbent upon the arbitrators to frame issues, but in the present case as many as 11 issues were framed vide the order dated 23.08.91, therefore, learned arbitrators were obliged to render a decision on all issues. Counsel relies upon 1996 (II) Andhra W.R. 284 Korilamudi Nagabhushanam v. Kovelamudi Simhadn.

10. Record of the arbitrators being bulky, I reserved the matter for judgment to peruse the record, not with the intention of re-appreciating the evidence, but to satisfy my judicial conscience for the reason, two views have been taken by court. Some judgments have held that a lump sum award pertaining to various claims creates a difficulty for the court to appreciate the award for the reason, if challenge to a particular claims succeeds before the court, it becomes impossible for the court to severe the effect thereof for the reason the award is a lump sum award. Some decisions have held that a lump sum award, per se, is not invalid. It all depends on the facts and circumstances of each case.

11. Law otherwise is well settled. Awards of expert arbitrators ought not to be lightly interfered with, of course, where patent and palpable illegality is shown on the face of the record, judicial interference has to be resorted to.

12. In the report published as AIR 1963 SCC (1677) Smt. Santa Sila Devi v. Dhirendra Nath Singh, Hon'ble Supreme Court held:

Before dealing with this point it is necessary to emphasise certain basic positions. The first of them is that a court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal (See Selby v. Whitbread and Co. (1917) 1 KB 736 at p. 748). Besides it is obvious that unless the reference to arbitration specifically so requires the arbitrator is not bound to deal with each claim or matter separately, but can deliver a consolidated award. The legal position is clear that unless so specifically required an award need not formally express the decision of the arbitrator on each matter of difference. (Vide Re. Brown and the Croydon Canal Co. (1839) 9 Ad and Ell 522 : 112 ER 1309 and Jewell v. Christie (1867) 2 CP 296. Further as Parke, B himself put it during the course of arguments in (1853) 138 ER 1254.

Unless the contrary appears the court will presume that the award disposes finally of all the matters in difference.

and to repeat a sentence from the extract quoted earlier:

Where an award is made de praemissis, the presumption is, that the arbitrator intended to dispose finally of all the matters in difference; and his award will be held final, if by any intendment it can be made so.

13. As observed in AIR 1970 SC 753 UOI v. Jai Narain Misra, the arbitrator is not bound to give an award on each point and may award one sum generally in respect of all money claims submitted to him, unless the submission requires him to separately award on some one or more of them.

14. I have therefore considered the record of the learned arbitrators to find out whether pertaining to claim of the owner for damages, has anything been shown to me where from, in relation to various sub heads constituting the claim, any sub head falls, thereby clouding sum ofRs. 25 lacs determined as compensation payable on account of damages to the owner.

15. Indeed, Sh. Sandeep Sharma learned Counsel for the contractor could not show any material documents where from a particular sub head of claim of the owner for damages could be found as a non-sustainable claim.

16. I have perused the order sheet of the various hearing conducted by the learned arbitrators.

17. The picture which has emerged is that on 23.08.91, following 11 issues were framed:

1. Whether Shri RG.Desai, Managing Director of the 1st Party (Claimant Company) is authorised to sign and verify the pleadings on behalf of the First Party and the Claimant Co. is incorporated under the provisions of the Companies Act?

2. Could the work of Architect planning and construction be taken by same party?

3. Whether the work executed by First Party is as per Specifications given in the contract and if not to what extent it is defective?

4. Which of parties to the contract had failed to fulfill their obligation prior to and after the commencement of the work and has committed breaches of contract?

5. Whether the contract was obtained by the first party by misrepresentation of facts?

6. Whether the payments made to the first party were in respect of the work done according to the contract and specifications and as per sound engineering/architectural practice?

7A. Whether the action of the first party was justified in stopping the work?

7B. Whether the work was abandoned by the First Party (in accordance with the terms of contact) and was it justified?

8. Whether the first party is entitled for any sum? If so, to what extent?

9. Whether the second party is entitled for any? Is so to what extent?

10. Relief?.

18. Pleadings of the parties show that during execution of the work by the contractor, it was noticed that some buildings had developed cracks. These cracks had occurred when structural work was completed. Sanitary and electrical works had yet to begin. Not only cracks had developed, a block numbered as 'C' developed a tilt. Magnitude of the problem can be visually seen in the photographs filed by the owner before the learned arbitrator being Ex. SP XIX collectively. These photographs are at pages 218 to 242 of Volume 2 of the record of the arbitrator.

19. Conscious of the fact that the problem could be occasioned due to defects in the structural drawings or could be due to defective work executed by the contractor during foundation, at the hearing held on 04.10.91, learned arbitrators directed as under:

Parties will be ready with necessary architectural/structural drawings at the proper time when needed.

20. Thereafter, at the hearing held on 2.11.91, as minuted in the order of even date, issues 2,5,4,7A and 7B were discussed. At the hearing held on 15.2.91, issues 1 and 5 were discussed. At the hearing held on 14.07.1992, issue pertaining to work executed, incomplete work, material left behind at the site by the contractor and sub standard works were discussed. The discussions have been minuted in the order dated 14.07.92.

21. Thereafter, issues discussed on 14.07.92 were discussed on various dates. Finally, on 14.10.92, learned arbitrators noted that joint measurements pertaining to the lofts were taken by the parties. Rates of various items of work were discussed. Learned arbitrators noted that the contractor had not agreed to the defects which were pointed out by a local commissioner who was appointed to visit the site and list the defects. Learned arbitrators granted time to the contractor to submit its comments on the report of the local commissioner.

22. At the hearing held on 24.11.92, learned arbitrators noted that the contractor had submitted his comments to the reports of the local commissioner and that the owner had submitted its response thereto. Learned arbitrators noted that the contractor made his submissions regarding depth of foundation, bearing capacity of soil and RCC design.

23. Various hearings were held thereafter. Record of the hearings show that the only issue which was being discussed pertained to the cause why large deflections in the slabs and stair case had occurred and what were the reasons for the cracks in the walls.

24. Order dated 27.01.93 is important. It records that parties made detailed submissions on the cause of the structural defects. Pertaining to the contractor, learned arbitrators have noted as under:

However, they agreed that in cases where there was large deflections in slabs/stair cases or if there were wide cracks then they agreed that such structures were unsafe and have either to be strengthened or rebuilt.

25. Issue was thereafter discussed in a few more meetings. Relevant would it be to note that at the hearing held on 17.05.93, learned arbitrators recorded the following order:

After discussing this particular issue, it was decided that the 2nd party should submit a detailed note giving specific defects, the technical specifications to remove the defect, the quantity of material to remove the defect along with the cost incurred. To justify the cost it will be better if a comparative statement of quotation invited for the job item-wise is also furnished.

The 2nd part of the above is to complete the construction left over by the first party. The 2nd party is required to submit a bill of quantities or such items based on structural drawings furnished by the 1st party. They should also give the item rate supported by the comparative statement of quotation to justify the overall cost incurred. These statements should be furnished by 30th June, 1993 and the 1st party will reply to this by 15th July, 1993.

26. Thereafter, issue was discussed as to what amount would be required for strengthening the foundations. On 21.11.93, learned arbitrators noted that the contractor had made detailed submissions on the amount required for strengthening the foundations and rectifications of the cracks in the walls as also deflections.

27. Order sheet shows that at each hearing held thereafter, only issue which was discussed between the parties pertained to the amount required to be spent on strengthening the foundations of the existing buildings and rectification of the defects.

28. In the meanwhile, the owner had awarded balance work as also rectification works to a new contractor. On 23.05.94, learned arbitrators directed that the owner would supply to the contractor a copy of the new contract entered into with the new contractor. This was done. On 02.06.94, learned arbitrators recorded that the contractor had been furnished a copy of the new contract. Directions were issued to the contractor to prepare and submit his version on the expenditure to be incurred for rectification of the works. Matter was adjourned from time to time to enable the contractor to submit his calculations pertaining to the expenditure likely to be incurred for rectification of the defects.

29. Learned arbitrators adjourned the matter from time to time. On 1.11.95, learned arbitrators recorded as under:

The 2nd party presented two submissions to the Arbitrators, dated 4.1.94 and 6.1.95.

The expenditure incurred by the Society on the repair of defective building work was presented to Party No. 1. The party No. 1 felt that the expenditure seems to be abnormally high and they fear that lot of improvement and additional work besides the actual repair work seems to have appeared to be included in the expenditure mentioned by the Society.

In view of the above, the Arbitrators gave the following directions:

1. It is necessary that the technical experts of both the parties meet at site and jointly examine each and every item of work whose cost has been included in the so called removal of defect.

2. They jointly agree to those items of work which are really by way of removal of defects and also indicate the expenditure on these items.

3. They list out separately those items of expenditure on which they have difference of opinion whether these are removal of defects or improvement sans additions. The cost of these items should be worked out separately item-wise so that the Arbitrators can take a view of the same, on the correctness or otherwise of these items.

4. The above exercise should be completed within three weeks from the issue of this letter and joint report submitted to the Arbitrators within four weeks.

30. Next few orders record that the parties had not submitted the necessary information as per order dated 1.11.95.

31. Unfortunately, the contractor played it dirty. He refused to extend time for the arbitrators to publish the award. As noted above, owner had to obtain this Court under Section 28 of the Arbitration Act 1940 praying that time be extended for publishing the award. Time being extended by this Court, learned arbitrators recommenced hearing and on 1.10.96 recorded that due to non- compliance of order dated 1.11.95, both parties should give their respective statements pertaining to the defective works. It was specifically recorded that failing which, the arbitrators will have no option but to make their own assessment of the actual expenditure incurred on the repair of the defective items.

32. Contractor failed to do the needful. Obviously, learned arbitrators were left with no option but to make their own assessment.

33. What flows out from the aforenoted facts is that post November 1992, only issue discussed between the parties pertained to the defects and the amount likely to be incurred for rectification.

34. Order sheets reveal that parties abandoned all other claims. Trend of the proceedings, as revealed from the order sheets shows that parties debated before the arbitrators only on the issue of defective works.

35. I am therefore of the opinion that learned arbitrators were therefore justified in not publishing an award dealing with the issues framed. On the issue of the defects and quantification of the amount required to rectify the same, two things flow out from the order sheets. The first is that the contractor admitted the defects as also that structures had to be either rebuilt or strengthened (Refer para 24 above). The second is that full opportunity was granted to the parties to establish their respective stands pertaining to the defects. Order sheet dated 17.05.93 (refer para 25 above) shows that both parties were required to give comparative statements with reference to specifications showing amount likely to be spent in rectifying the defects. On 23.05.94, learned arbitrators directed owner to supply to the contractor a copy of the fresh contract awarded so that amount to be paid for rectification under the new contract could be commented upon by the contractor. On 1.11.95, learned arbitrators noted that according to the contractor the re-tendered work was at a very high price. Learned arbitrators directed both parties to jointly examine every item of work to be executed to remove the defects. Order dated 1.10.96 shows that the learned arbitrators recorded that since order dated 1.11.95 was not complied with, they had no option but to make their own assessments.

36. In the report published as 1995 (2) ALR 1 State of Rajasthan v. Puri Construction Co., in para 16 following arguments was noted:

16. The award of damages without quantifying the same in accordance with any rational principle has been assailed by contending that quantification of damages must be based on some principle and cannot be by adopting a rule of the thumb.

37. Repelling the argument, in para 31 of the judgment, it was held as under:

Considering the magnitude of work involving costly machinery and materials, if the two arbitrators in their wide experience have quantified the total damage and has given the award ofRs. 1 crore in favor of the respondent, it cannot be held that such an award is so patently unjust and irrational and shocking to the conscious of the court, that the same should be interfered with.

38. In the report published as MCD v. Jagan Nath Ashok Kumar and Anr., the under noted passage from the report published as (1948) 2 ALL ER 186 Mediterranean and Eastern Export Co. Ltd. v. Fortress Fabrics Ltd. was cited with approval:

A man in the trade who is selected for his experience would be likely to know and indeed to be expected to know the fluctuations of the market and would have plenty of means of informing himself or refreshing his memory on any point on which he might find it necessary so to do. In this case according to the affidavit of sellers they did take the point before the Arbitrator that the Southern African market has slumped. Whether the buyers contested that statement does not appear but an experienced Arbitrator would know or have the means of knowing whether that was so or not and to what extent and I see no reason why in principle he should be required to have evidence on this point any more than on any other question relating to a particular trade. It must be taken I think that in fixing the amount that he has, he has acted on his own knowledge and experience. The day has long gone by when the Courts looked with jealousy on the jurisdiction of the Arbitrators. The modern tendency is in my opinion more especially in commercial arbitrations, to endeavor to uphold awards of the skilled persons that the parties themselves have selected to decide the questions at issue between them. If an arbitrator has acted within the terms of his submission and has not violated any rules of what is so often called natural justice the courts should be slow indeed to set aside his award.

39. Decisions cited by Sh. Sandeep Sharma, learned Counsel for the contractor in Kovilamudi Nagabhushanam's case (supra) holds that an arbitrator must conduct proceedings which best serve the interest of justice. The decision holds no further.

40. Indeed, arbitrators function akin to quasi-judicial forums and therefore the enquiry conducted by the arbitrators should not be a farce. Notwithstanding that the Evidence Act and the Code of Civil Procedure does not apply in arbitration proceedings, arbitrators must give a fair hearing to the parties to lead evidence, if required, and should follow the fundamentals of principles of natural justice.

41. The arbitrators have clearly rejected all claims of either party except claim of the owner for damages due to defective work. On the quantification of the sum awarded, needless to state full opportunity was granted to the parties to justify their respective stands. Noting non- cooperation from the contractor, learned arbitrators recorded that they have no option but to assess the damage as per their personal knowledge. One arbitrator is a retired Chief Engineer from CPWD. The other is a professor in IIT Delhi and is a well known person in the field of structural engineering. Their qualifications are assurance enough that they were capable of quantifying the loss.

42. That apart, photographs filed before the arbitrator have been perused by me. Cracks in the slabs and walls showing that the building has been tilted is evident to the naked eye. Deflection in the slabs and in the RCC structure in block C is an admitted position. Sum awarded towards compensation to rectify the defects is fair and reasonable.

43. I.A. No. 1204/2000 is accordingly dismissed. CS (OS) No. 861A/98

1. Since IA No. 1204/2000 is dismissed, award dated 14.02.98 published by Sh. Swami Dial and Sh. O.P.Jain is made a rule of the court. Post decreetal interest from date of decree till date of realisation is awarded @ 8% per annum. Decree be prepared.

2. No costs.