Anant Raj Agencies vs Delhi Development Authority
2008 Latest Caselaw 1411 Del

7
*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     CS(OS) 1760A/1995 & IA No.3974/1996

ANANT RAJ AGENCIES                                        ..... Plaintiff

                   Through : Mr. Harish Malhotra, Sr. Advocate with Ms.Namita
                   Chaudhary, Advocte

                  versus


DELHI DEVELOPMENT AUTHORITY                               ..... Defendant

                  Through : Ms. Anusuya Salwan with Ms. Monica Sharma
                            and Ms. Renuka, Advocates
CORAM:

Mr. Justice S. Ravindra Bhat

1.

Whether reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in the Digest? Yes

Mr. Justice S. Ravindra Bhat (Oral)

IA No.3974/1996

1. In this proceeding the defendant/Delhi Development Authority (DDA)

challenges the legality and correctness of an award dated 20th July, 1995,

published by the sole arbitrator, appointed by the parties.

2. The brief facts, essential for deciding this case are that the claimant-

plaintiff (hereinafter referred to as the Contractor) was awarded civil works i.e

development of land at Rohini, Phase I, SH : providing and lying water supply

distribution lines in Sectors IV and V. According to the agreement the work was

to be completed on 26th March, 1983. However, it is an undisputed fact that

for varied reasons the time period was not adhered to. The DDA apparently

granted extension of time without levying compensation though it had the

power to do so. The work was completed on 01.10.1985. The contractor

raised several claims and ultimately the matter was referred to arbitration by

the DDA. The arbitrator entered upon the reference on 13.03.1992. The

parties to the proceedings lead evidence and on 20.07.1995 and the impugned

award was made and published. The contractor had raised nine heads of

claims with two heads of additional claims in arbitration. The DDA had initially

contended in the arbitral proceedings that the disputes were "excepted"

matter and that the claims were time barred. The arbitrator over-ruled both

the objections and published his award on the merits.

3. The DDA, through its counsel contends that the findings with regard to

claim No.2 are without foundation. It was contended by Ms.Anusuya Salwan,

counsel for DDA, while relying on Clause 7, the award of Rs.47,306.28 was not

justified in the facts and circumstances. It was contended that the claims of

the contractor in the final bill were barred by limitation and that the arbitrator

ignored Clause 7 which enjoined him (the contractor) to submit the bill within

one month of the date fixed for completion of the work or of the date of the

certificate furnished by the Engineer In-charge.

4. Learned counsel next contended that the award for the sum of

Rs.1,97,130/- under the head claim No.3 was untenable. She relied upon the

Additional condition No.1 which stipulated that the contractor should have

been acquainted with the proposed site of the works and studied specifications

and conditions before submitting the tender. It was submitted that the amount

awarded to the contractor, are in the nature of damages which cannot be

sustained having regard to the various decisions of the Court.

5. Learned counsel next contended that the findings and the award in

respect of claim No.4 are unsustainable in law as the arbitrator had termed it

"infructuous expenses". The amount of Rs.1,20,000/- was awarded against the

DDA. Counsel submitted that this finding is unsupported by any evidence. It

was urged that even assuming that the contractor had a legitimate claim, the

existence of such claim did not absolve him from leading evidence in support

of it. Thus in the absence of evidence and any reasoning in support, the

arbitrator should not have awarded a sum of Rs.1,20,000/- in favour of the

contractor for so called infructuous expenses.

6. Learned counsel submitted that uniform interest @ 18% per annum with

quarterly rests under claim Nos. 5, 8 and 9 was completely unjustified. It was

submitted that the contractor had preferred separate heads of claim in arbitral

proceedings towards pre-suit, pendent lite and future interest; instead of

applying his mind and awarding reasonable interest (assuming the contractor

was entitled to any amount) the arbitrator awarded a uniform rate of interest

which works in excess of 20% p.a., based on the formula adopted. Learned

counsel relied upon recent judgments to say that upholding of such award of

higher rate of interest under the present circumstances is unfeasible.

7. Learned counsel submitted that the award of Rs.3,01,143.51 in favour of

the contractor towards first additional claim is also not tenable in law. The

contractor had urged that the extension of contract resulted in deprivation of

opportunity to make reasonable profit. Counsel contended that adoption of

hypothetical mathematical formula to arrive at a figure of Rs.3,01,143.51

which was ultimately awarded on this head, was not correct. She relied upon

judgment of this Court reported in Delhi Jal Board Vs. Subhash Pipes Ltd., 2005

(2) Arb. Law Reports 213 and Avtar Singh Chadha Vs. Municipal Corporation of

Delhi, OMP 296/2006 decided on 21st May, 2007. Learned counsel further

relied upon the judgment of the Supreme Court reported in Bharat Coking Coal

Ltd. Vs.L.K. Ahuja, 2004 (5) SCC 109.

8. Ms. Salwan, lastly submitted that the award of 8% interest from

01.04.1986 till the date of payment on the sum of Rs.1,00,000/-, was

unjustified. The arbitrator had allowed this claim on the ground that the

contractor had to maintain a fixed deposit for a sum of Rs.1,00,000/- to comply

with the stipulation for keeping alive a bank guarantee. The DDA contends

here that the bank guarantee had in fact lapsed and that in any case the fixed

deposit itself earned interest.

9. Mr. Harish Malhotra, learned senior counsel for the contractor resisted

the opposition to the award. He submitted that having regard to the limited

jurisdiction of the Court, the findings in the award cannot be interfered.

Learned counsel submitted that the approach of the arbitrator cannot be

faulted as unreasonable and that the findings were supported by the evidence

as well as materials on record.

10. Learned counsel pointed out that the findings of the arbitrator regarding

the culpability of the DDA in regard to the various delays which led to

extension being granted without levy of compensation has not been impugned.

The arbitrator found that even according to the records of the DDA there was

delay of 920 days on its part. The counsel submitted that the discussion in

this regard is elaborated in the findings concerning claim No.3. It was

submitted in these circumstances, the award for the sum of Rs.47,306.28, can

hardly be characterized as arbitrary; in any event the DDA's objections in this

regard are without basis. Counsel submitted that as far as findings on claim

No.3 for the award of Rs.1,97,130/- is concerned, the reasoning is sound. It

was submitted that the contract entered into by the parties stipulated for

compensation only as regards as escalation in labour cost by way of Clause 10

(C). In the circumstances the arbitrator was justified in awarding the sum of

Rs.1,97,130/- as against the claim for Rs.12,98,100/-.

11. It was further submitted that the formula adopted, in the absence of any

compensatory stipulation to the contrary, is valid and legal. Learned counsel

relied upon the previous judgments of this Court in Metro Electricals

Corporation Vs. Delhi Development Authority, New Delhi, AIR 1980 Del 266,

and also the judgment in Delhi Development Authority Vs. S.S. Jaitley (2001

(1) Arb. LR 289 (Del). Counsel also submitted that the entire issue was

considered in Delhi Development Authority Vs. U.Kashyap, 1998 VII AD (Delhi)

300, where it was ruled that decision in Metro Electricals Corporation's case

(supra) and subsequent judgments, where the arbitrator had awarded

amounts in the backdrop of Clause 10 (C) but in the absence of any other

stipulation, permitting award of compensation for other items, was justified.

The said decision upheld the previous judgments in that regard even while

ruling that in contracts where subsequent stipulations i.e. Clause 10 (CC) had

been added, the aggrieved contractor could not claim on the basis of a formula

alien to such a stipulation.

12. Learned counsel submitted that the objection to claim No.4 is also not

tenable. It was urged that the arbitrator's basis for awarding Rs.1,20,000/- was

factually the determination of 30 months delay. The award relied upon the

Hudson in Building and Engineering Contracts, Xth edition in support of the

award of Rs.1,20,000/-. Counsel contended that the reasoning cannot be

characterized as arbitrary. He also relied upon the Division Bench ruling of this

Court in Delhi Development Authority Vs. S. S. Jaitley case (Supra) in this

regard.

13. So far as the objections to claim Nos. 5, 8 and 9 i.e. interest for different

periods are concerned Shri Malhotra contended that at the time when the

contract was being performed the prime lending rates were high and the award

in this regard cannot be considered excessive or illegal.

14. Learned counsel submitted that the award concerning additional claim

was fully justified. He relied upon the judgment reported as Dwarka Das Vs.

State of Madhya Pradesh, AIR 1999 SC 1031 and a previous judgment of the

Supreme Court in M/s A.T. Brij Paul Singh & Bros Vs. State of Gujarat, AIR

1984 SC 1703. It was submitted that in these judgments the Supreme Court

upheld awards where 15.damages had been granted on the head of loss of

profitability.

The above factual matrix shows that there is practically no dispute on the

facts. The admitted facts are that there was delay of almost of about 30

months in the performance of the contract. However, this delay was found to

be due to inaction and omissions of the DDA, by the arbitrator. The arbitrator

also ruled that the DDA records established that the admitted delay was 960

days. On the basis of this material and also the circumstance that extension of

time for performance was granted to the contractor without levy of

compensation, arbitrator concluded that the DDA's conduct was not free from

blame which has formed the basis of the findings of claim No.2 which relate to

various heads concerning preparation of final bill. The claimant/contractor had

demanded for release of no less than 13 heads terms as extra items for which

the DDA had withheld amounts from it. Though the contractor claimed a sum

of Rs.36,54,080/- on account of final bill, what was finally awarded was

Rs.47,306.28. The arbitrator has adduced reasons as against each head of

claim allowed in favour of the contractor. The DDA has not been able to point

out any infirmity in this reasoning or establish through material that such

findings were unsupported by evidence. In these circumstances, neither the

award nor the approach of the arbitrator as regards this head of claim can be

faulted.

16. The DDA attacks the award of Rs.1,93,130/-, in claim No.3 found in

favour of the contractor. The contractor had claimed Rs.12,98,100/- on account

of damages for the work done during the extended period of the contract. In

view of the finding that the actual delay is of 920 days, the arbitrator reasoned

that the claimant was justified in demanding the damages. He then went on to

apply the prevalent cost index to the value of work done on the basis of the

IIIrd Running Account bill (RA Bill) and also took into account the final bills.

After applying the formula, he awarded a sum of Rs.1,97,130/-.

17. The contract with the DDA stipulated only grant of escalated labour

charges in clause 10 (C). Numerous previous decisions of this Court starting

from Metro Electricals Corporation Vs. Delhi Development Authority, New Delhi

to DDA Vs. U.Kashyap (supra) hence spoken of the legality of such damages,

since the escalation clause in the contract (as existing during those days) only

neutralized higher labour costs, but nothing else. Therefore, the award cannot

be characterized as illegal or amounting to legal misconduct under the

Arbitration Act, 1940. Learned counsel for the DDA could not dispute that this

proposition is far too well settled by now. In these circumstances, it is held

that the objections to the award of Claim no.3 are unfounded.

17. The next ground of challenge relates to claim no.4 where the arbitrator

had awarded Rs.1,20,000/-. DDA's argument here cannot be accepted for

more than one reason. The Arbitrator in the opinion of the Court indicated

sufficient reasons in support of the award, on this head of claim. He reasoned

that the contractor was entitled to reckon 30 months delay. All that the

arbitrator did, as far as this claim is concerned was to award Rs.4,000/- per

month for 30 months, on account of manager's salary ( apparently a

presumptive one which cannot by any means can be called unreasonable

under the circumstance) for each of those 30 months. The second ground why

this objection is untenable is that the similar awards have been upheld

previously by this Court. Undoubtedly in view of the judgment in S.S. Jaitely

case (supra), the objections to the award under claim No.4 are without any

foundation.

18. The objections of the DDA to claim nos. 5, 8 and 9, in the opinion of the

Court are substantial and worthy of acceptance. The arbitrator has applied

18% interest per annum with quarterly rests for all the three purposes i.e. pre-

suit, pendent lite as well as future interest, though there might have been

some justification at some point of time when the prime lending rates were

high, the arbitrator was not justified in awarding such a uniform rate which

cannot but result in hardship, when the award was published in 1995. The

Supreme Court too has in recent past held that award of high rates of interest

is not warranted. In the circumstances, this Court hereby modifies the award

to the extent of rate of interest; in respect of all the three periods indicated

which shall stand substituted to 12% p.a. (but without quarterly rests).

19. The arbitrator had awarded a sum of Rs.3,01,143.51 towards the loss of

profitability (Additional Claim No.1) on application of a hypothetical formula.

This pre-supposed that during the extended period, the contractor was

deprived of legitimate profit. The grant of such amount presumes that the

contractor would have been prevented from carrying out other works. The

grant of such presumptive damages in the opinion of this Court in such

circumstance is without justification. The Supreme Court in its judgment

reported as Bharat Coking Coal Ltd. Vs.L.K. Ahuja case (supra) held as follows :

"24. Here when claim for escalation of wage bills and price for materials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that "Loss or Profit". It is not unusual for the contractors to claim loss of profit arising out of diminuation in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilized the same for some other business in which he could have earned profit. Unless such a plea is raised and established, a claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co. Ltd. Vs. Cunard White Star Ltd, 5 (1940) 1 KB 740, by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs.6,00,000 awarded to the claimant."

20. Aside from the above decision, it would be also important to recollect

that the grievances of a contracting party about wrong doing by the other

party, amounts to a complaint of breach. The principles for awarding damages

are embodied in Sections 73 and 74 of the Contract Act. In such a case, the

aggrieved party would have to establish through some evidence the loss in

monetary terms which has been suffered by it. It would not be open for it to

claim a certain amount and co-relate it with abstract formula not sanctioned by

law. The decisions of the Supreme Court relied upon by the contractor namely

Dwarka Das Vs State of Madhya Pradesh & Another and M/s A.T. Brij Paul Singh

& Bros Vs. State of Gujarat (supra) were rendered in circumstances where the

contract was rescinded. However, here the Court is dealing with the case

where the contract was extended with mutual consent. Due to this important

distinction, the Court is of the opinion that the rationale supported in these two

judgments of the Supreme Court cannot apply in the present case. Besides

this Court is also fortified in its finding by the previous judgments of this Court

in Delhi Jal Board and Avtar Singh Vs. MCD (Supra) referred to above.

21. Another reason why such formula may not be acceptable is that unlike

Section 74 - which supported parties reasonable pre-estimate of damage,

Section 73 prescribes the statutorily mandated formula, i.e. the difference

between the contracted price, and the price on date of breach. The claimant in

cases falling under Section 73 would have to prove the amount, by some

evidence. Though adoption of formulas as was done in this case is a

convenient method of arriving at some figure, the danger of accepting it would

be to universalize an approach, which does not have statutory basis. Besides,

there would be fluidity in standards, leaving each arbitrator to chart his own

course.

22. As far as the last challenge to the additional claim no.2 is concerned,

here the objections made by DDA in the opinion of the Court are merited. The

arbitrator did not take into consideration the fact that the contractor kept the

amount of Rs.1,00,000/- in the fixed deposit which undeniably earned him

some interest. In the circumstances the award of further interest for almost a

20 year period was unjustified.

23. In view of the above conclusions, the objections of the DDA have to be

partly allowed. The award in so far as it pertains to additional claim Nos. 1 and

2 are hereby set aside. The award of interest is modified from 18% with

quarterly rests (claim nos. 5,8 and 9); it shall, however, be substituted with

direction to pay 12% interest per annum for the said periods.

IA No.3974/1996 is allowed in the above terms.

CS (OS) No.1760A/1995

The award is made rule of the Court subject to modifications indicated in

the order in IA No.3974/1996.

A decree shall be drawn in the above terms.

S. RAVINDRA BHAT, J.

AUGUST 21, 2008 mb