J.G. Engineers (P) Ltd vs National Building Construction ...
2008 Latest Caselaw 2222 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                     CS(OS) 2604A/1999

%11.12.2008                    Date of decision: 11.12.2008

J.G. ENGINEERS (P) LTD                            ....... Petitioner.
                               Through: Mr. P.K. Mullick, Advocate

                      Versus
NATIONAL BUILDING CONSTRUCTION ....... Respondent
CORPN LTD
                                 Through: Mr Yogesh Malhotra, Advocate

CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

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
RAJIV SAHAI ENDLAW, J.

1. The arbitral award dated 28th August, 1999 was filed in this

court and notice of filing whereof was issued on 30th November,

1999. Notice was accepted on behalf of the counsel for the

petitioner herein on the same date. The petitioner has not filed any

objections to the award. The respondent filed IA.No.2119/2000

under Sections 30 and 33 of the Arbitration Act, 1940 objecting to

the award. An affidavit in opposition thereto was filed by the

petitioner and a rejoinder thereto filed by the respondent. The

counsels have been heard.

2. The admitted position is that an agreement dated 14th August,

1978 was executed between the parties whereunder the respondent

engaged the petitioner as a Piece Rate Worker (PRW) for executing

the work of construction of 100 houses in Libya. The time for

completion of the said 100 houses was fixed at 18 months from 1st

September, 1978. Additional work of 28 houses was also awarded by

the respondent to the petitioner. The agreement, aforesaid,

provided for arbitration by the Project Director of the respondent or

some other officer not directly connected with the subject work.

Disputes and differences having arisen between the parties, and by

then the appointing authority having been changed from the Project

Director to the Chairman cum Managing Director of the respondent,

on 13th November, 1985 an arbitrator was appointed. However, the

said appointed arbitrator was unable to proceed further and

ultimately vide order dated 22nd March, 1991 of this court the

arbitrator who has rendered the award was appointed as the sole

arbitrator. The petitioner herein made claims under 15 heads before

the arbitrator. The respondent made claims under 8 heads. The

award has allowed only claims No. 3 to 6, 9 and 13, that too partly of

the petitioner. The remaining claims of the petitioner and all the

claims of the respondent have been disallowed. Neither any

objection has been preferred by the petitioner to its claims

disallowed nor has the respondent objected to its claims which were

disallowed (though in writing it was merely stated that they have

been wrongly rejected). The respondent has only objected to the

claims as aforesaid of the petitioner which have been allowed. The

said objections will hereinafter be discussed claim-wise.

Re: Claim No.3

3. This claim for Libyan Dinar (LD) 230,781.900 was for payment

of items of works executed by the petitioner and not paid by the

respondent. The petitioner made this claim as extra and over and

above the rates quoted by them. The respondent refused extra

payment and rejected the claim for the reason that all the items

claimed by the petitioner as extra were covered within the rates

quoted by the petitioner for the relevant items and covered in the

technical specifications part 1 and 2 forming part of the agreement.

The petitioner contended that only technical specification part 2

formed part of the agreement and technical specification part 1 did

not form part of the agreement and maintained that extra payment

was due to it. The arbitrator found that there was no document

bearing the title "technical specification part 1 applicable to the

agreement between the parties" but held that under the technical

specification part 2 and the general specifications forming part of

the contract the work was to be executed in a workman like manner

and held certain specifications which were being treated by the

petitioner as extra items to be impliedly covered in the contract. The

arbitrator awarded LD 74690 to the petitioner under the said head.

4. The main argument of the counsel for the respondent was that

payment for extra items was prohibited under the contract and thus

the award under this head is contrary to the terms of the agreement

and thus liable to be set aside. Reliance in this regard is placed on

clause 5A in the contract and which is as under:

"5A Extra items

The said PRW shall have to execute any extra substituted items arising during the progress as per the written directions of the corporation engineer. The rates of such extra/substituted items shall be settled mutually between the PRW and the corporation."

5. Relying on Bhagat Ram Sahani v DSIDC 132 (2006) DLT 427

(DB) and State of J&K v Dev Dutt Pandit AIR 1999 SC 3196 it is

contended that where it was the term of the contract that directions

for extra work had to be in writing, allowing a claim for extra work

without any such direction in writing to carry out the same was a

jurisdictional error and which could be corrected by the court. It was

argued that the arbitrator being a creature of the contract between

the parties, if ignores the specific terms of the contract, exceeds his

jurisdiction calling for interference of the award by the court. It was

emphasized that an arbitrator acts beyond his jurisdiction if he

travels beyond the contract and the same constitutes an error

apparent on the face of the record justifying the setting aside of the

award. The contention was that in view of specific provisions

contained in Clause 5A (supra) of the agreement between the

parties, the amounts claimed by the petitioner under claim No.3

towards extra items were beyond the scope of arbitration.

6. The counsel for the petitioner has not refuted the aforesaid as

a pure proposition of law. He has, however, argued with reference

to the arbitral record that it was nowhere the plea of the respondent

before the arbitrator that the claim No. 3 being for extra item could

not be allowed in view of clause 5A of the contract. On the contrary,

it was the case of the respondent before the arbitrator that the works

claimed by the petitioner as extra items were included in the ordered

quantity and the rates fixed therefor and thus the petitioner was not

entitled separately to claim for the same; this contention of the

respondent has been found to be incorrect by the arbitrator. It was

further contended that in Bhagat Ram Sahani (supra) immediately

upon claim for extra work being made, DSIDC had denied that the

said works had been entrusted to the contractor or had been

executed by the contractor; similarly in Dev Dutt Pandit (supra)

also it was the admitted position that there was no direction in

writing for carrying out the works. On the contrary, in the present

case it was not in dispute that the works claimed as extra had been

executed by the respondent. It was argued that thus the provisions

of Section 70 of the Contract Act were attracted in the present case.

Reliance was also placed on judgments of Single Judges of this court

in Hindustan Construction Corporation v DDA 98(2002) DLT

519, Architects Bureau v Delhi Agricultural Marketing Board

2002 III AD (Delhi) 32 and Civil Engineers (India) v DDA 60

(1995) DLT 26 in which such claims were allowed.

7. In my opinion in view of the judgments in Bhagat Ram

Sahani & Dev Dutt Pandit (supra), the reference to the judgments

of the Single Judges of this court is of no avail. I do not find clause

5A in the instant case to be any different from para materia clause

in Bhagat Ram sahani (supra). However, a peculiar feature of the

present case is that no such plea was taken before the arbitrator. In

the objections filed before this court also the respondent has

objected to the finding of the arbitrator of the works claimed as extra

items under claim No.3 being covered by the contract. However, no

argument in that respect has been addressed. It is only in the

alternative that in the objections for the first time reliance was

placed on clause 5A (supra) and which objection alone was

vehemently pressed during the course of hearing.

8. What has to be considered is whether, when a plea which is

factual in nature is not set up before the arbitrator, can objections in

that respect be set up before the court at the first instance. An

award could be set aside under the 1940 Act when there was an

error apparent on the face of the record or when the arbitrator is

found to have misconducted himself. In the absence of an

objection/plea being taken before the arbitrator and which plea was

not such which could be considered without pleadings or proof, it

can neither be said that there was an error apparent on the face of

the record nor that the arbitrator has misconducted himself. It is

always open to a party to a litigation and is commonly known to

happen, to give up a defence which may have been available to it. In

the absence of the defence or the plea, the arbitrator who is to

decide in an adversorial fashion, as the court is also to decide,

cannot be expected to render decision/award on such matter. If no

decision/award could have been rendered by the arbitrator without

the plea, no fault can be found with the award on such ground. The

award cannot be said to be invalid on this ground. A point not raised

before the Arbitral Tribunal cannot be permitted to be raised for the

first time before the court unless from the award itself the error of

law becomes apparent.

9. I have been persuaded to take the aforesaid view also for the

reason that I find a basic folly in objection being pressed against an

award without the same being pressed before the arbitrator. As the

record reveals, the matter remained pending in arbitration from

1985 till 1999 and since then is pending before this court. The

alternative dispute redressal machinery in the form of arbitration has

not been as successful as it ought to have been for the reason of the

same being not much more expeditious than the courts. This has led

to a vicious cycle. If such objections not taken before the arbitrator

and which are diametrically opposite to the pleas taken before the

arbitrator are to be entertained, the same would totally nullify the

purpose and intent of arbitration. As aforesaid, even a plea given up

in court of first instance is ordinarily not permitted to be taken in

appeal. There is no reason to entertain an objection to the award

contrary to the said principle.

10. Not only was there no plea as aforesaid and qua which

objection has been raised before this court for the first time but I

find that the defence raised by the respondent before the arbitrator

to claim No.3 also negates and estoppes the respondent from setting

up the said objection in a petition under Sections 30/33 of the Act.

When the respondent contended before the arbitrator that the works

claimed as extra by the petitioner were included in the ordered

quantity, the respondent admitted that there was a direction in

writing to the petitioner to carry out the said works. In a given case

it may be permissible to, in the alternative, set up a plea that if the

same were not found to be included in the ordered quantity, the

claim was, in any case, not maintainable because of no direction to

carry out the said works being contained in any writing. However, as

aforesaid, no such alternative plea was setup before the arbitrator.

The respondent persisted with the plea of the works being included

in the ordered quantity, in the objections under Sections 30/33 of the

Act before this court also. Merely because the said defence of the

respondent has not been found to be correct, it cannot be said that if

ipso facto follows that the claims are to be disallowed as extra items

also. The contract does not give any specific form of writing in

which directions for extra work is to be issued/given. It is also not

the requirement of the contract that the direction in writing has to

be prospective or in advance in the course of operation of the

contract. The contract did provide for the petitioner to remain in

continuous contact with the respondent; several documents may

have been exchanged between the parties. Once the stand of the

respondent is that the respondent treated the said works to be a part

of the ordered or included in the ordered quantity, it is not difficult

to envisage that in the writings, correspondence, documents, bills

which may have been exchanged between the parties, the consent of

the respondent to the petitioner carrying out the said works would

be contained and which would satisfy the requirement of clause 5A

(supra). However, the occasion for the petitioner to lead evidence to

the said effect before the arbitrator did not arise owing to the

respondent having not taken the said defence inspite of the

petitioner expressly in its claim petition stating that there was no

specific rate in the contract for the same and at places also calling

the said works as extra items of work. The only conclusion which is

possible in these circumstances is that there was writing from the

respondent to the petitioner for carrying out the said works.

11. The use of the expression jurisdictional error in Bhagat Ram

Sahani (supra) had made me wonder whether allowing the claim

No.3 was such which struck at the very jurisdiction of the arbitrator.

However, I find that the same becomes a jurisdictional issue only

when it is either admitted or in evidence that there was no writing

for the extra items. However, it is not a jurisdictional issue in the

facts of the present case and does not strike at the root of the

matter.

12. The counsel for the respondent had also feebly contended that

the award does not give any reason for allowing the amounts allowed

under claim No.3 and does not give any basis for the same and is bad

for this reason. I, however, find that the arbitrator has given

norms/guidelines broadly followed by him and even though the basis

/ calculation for individual items allowed under claim No.3 has not

been stated, I again do not find the same to be a reason for setting

aside of the award. The arbitrator has the final word in such factual

matters and the court is not to sit in appeal over the award.

13. I, therefore, do not find any merit in the objection to claim

No.3 awarded and dismiss the same.

14. Re Claims 4, 5 and 6

The said claims of the petitioner for LDs 234439.368,

219082.590 and 12915.816 respectively were for damages due to

undue and unjustified prolongation of the contract. It was the

contention of the petitioner that though the houses were to be

completed by 29th February, 1980 the work was actually completed

and taken over by the respondent on 1st December, 1982. It was

further the case that extension of time was granted upto 30 th

December, 1982. It was contended that the prolongation of the

contract period was caused on account of latches and breaches of

the respondent and, therefore, the respondent was liable to

compensate the petitioner for the extra expenses incurred by the

petitioner owing to such delay. The arbitrator found delay on the

part of the respondent in complying with some of its obligations. The

arbitrator further found that the amounts claimed by the petitioner

were highly exaggerated and not on a sound rationale basis. The

arbitrator in spite of noticing the contract between the parties as

under:

"Rates to be finalized

The rates accepted by the PRW shall be firm and shall include all his expenses for execution and handing over the works to the corporation as well as for maintenance during the maintenance period according to the terms of the contract. The PRW shall have no right to claim any increase in the agreed contract rates because of increase in the price of living or increase in price of oil or any other increase whatsoever."

awarded some LDs 5000 under claim No.4, LD 25,800 under claim

NO.5 and LD 1400 under claim No.6.

15. The counsel for the respondent besides submitting that the

allowing of the aforesaid claims inspite of noticing the aforesaid

clause in the contract and finding himself to be bound by the same is

an error apparent on the face of the record has also argued that the

award of the a foresaid amounts is again arbitrary without any basis

and the principle of 8% increase followed was not applicable in the

instant case.

16. The counsel for the respondent placed reliance on State of

Orissa v Sudhakar Das JT 2000(2) SC 465 and Ram Chandra

Reddy v State of AP 2001(4) SCC 241 to contend that in the

absence of any escalation clause an arbitrator cannot assume any

jurisdiction to award any amount towards escalation and the award

which grants escalation suffers from a patent error and is liable to be

set aside. It was further contended that mere extension of time

would not entitle the contractor to claim extra payment for increase

in rates of labour and material. Per contra, the counsel for the

petitioner has in this regard relied upon Kidar Nath Sharma v

Union of India 2002 (III) AD (Delhi) 601, Bengal Traders v West

Bengal State Electricity Board 2001 (Suppl) Arbitration Law

Reporter 7 (SC) to contend that a claim for escalation is different

from a claim for damages due to prolongation of work. A single

Judge of this court in Kidar Nath Sharma (supra) notwithstanding

the judgment of the Apex Court in Sudhakar Das (supra) held the

amount awarded to be not towards escalation charges but on

account of compensation for delay. Similarly, the Apex Court in

Bengal Traders (supra) held that what was prohibited in the

contract was escalation of unit rates and the same did not apply to

the claim for damages on account of delay.

17. The counsel for the respondent in rejoinder contended that the

clause in the contract in the present case set out above was extended

beyond the contractual period also and the award finds the delay

attributable to the petitioner as well and thus no damages could be

awarded in favour of the petitioner.

18. At the outset I may state that I find inconsistencies in the

award on claims No. 4 to 6. Para 4.2 of the award notices that the

respondent had protected itself against the claim for compensation

by including a clause in the contract as aforesaid and further holds

that the clause, though found to be onerous and unconscionable, was

nevertheless to be honoured by the arbitrator. Notwithstanding the

same the arbitrator in para 4.3 of the award proceeds to award as

aforesaid under the claims No. 4, 5 and 6 without stating as to how,

if the aforesaid clause of the contract was to be honoured, the award

even if for much less than the claimed amount was sustainable. It is

the settled legal position that an award which is found to be

inconsistent is liable to be set aside. It was held in K.P. Poulose v

State of Kerala AIR 1975 SC 1259 the Apex Court held that if the

arbitrator arrives at inconsistent conclusions it amounted to

misconduct within the meaning of Section 30 of the 1940 Act. Again

in UOI v Pundari Kakshudu & Sons AIR 2003 SC 3209 it was held

that award was liable to be set aside when on the one hand there

was award of damages, suggesting that party to be guilty of breach

and a finding to the contrary, the award was liable to be set aside for

inconsistencies. This court recently in UOI v Sanghu Chakra

Hotels Pvt Ltd 2008 (3) Arb. LR 255 (Delhi) held a mutually

contradictory award to be contrary to public policy within the

meaning of Section 34 of the 1996 Act.

19. As far as the distinction made out by the counsel for the

petitioner is concerned, I find that the language of the contract in

the present case to be absolutely barring any claim for such

compensation also. Clause 6 of the General Terms and Conditions

provides that the respondent shall not be responsible for any

variation at any stage and no claims at any stage shall be entertained

as a consequence of variations, if any, except otherwise provided in

terms & conditions. The expression, "or any other increase

whatsoever" used in the contract indicates that the parties had

agreed that no claims of the petitioner for the reason of any delay

shall be entertainable. This being the position of the contract, the

principle in Bhagat Ram Sahani (supra) aforesaid would become

applicable and the award under the said claims is found contrary to

the contract and thus found to be suffering from a jurisdictional

error. The objection to claims No.4, 5 and 6 thus succeeds and the

award to that extent is set aside.

Re: Claim No.9.

20. The petitioner claimed LD 36877.050 for enhancement of rates

on contractual items from start of work till 29th February, 1980 due

to increase in minimum wages and payment of desert allowances.

The respondent contested the said claim contending that under the

contract it was the liability of the petitioner to pay the minimum

wages and there was no provision in the contract permitting the

petitioner to claim enhancement on account of increase in minimum

wages. The arbitrator awarded LD 18151 against this claim.

21. The counsel for the petitioner has sought to justify the said

award by contending on the basis of Tarapore and Company v

State of MP (1994) 3 SCC 521 (para 26 thereof) and Pride

Construction Company v DDA (1990) 1 Arbitration Law Reporter

16 that since minimum wages were statutorily payable, even in the

absence of a contractual term, such increase is reimbursable by the

respondent. However, I may notice that in Tarapore (supra) the

Apex Court has held that "insofar as the increased payment on

account of rise in the rates of minimum wages is concerned the

parties were not in any sort of agreement - express or implied to

reimburse the same" and thus allowed the said claim. Similarly in

Pride Construction Company also there was a clause permitting

increase on account of increase in wages. On the contrary, in the

present case the contract as aforesaid expressly provides that the

respondent shall not be liable to pay increased amounts for any

reason whatsoever. Under the contract, the petitioner alone is

responsible for the manpower brought from India to Libya. Thus, the

judgments relied upon by the petitioner are not applicable and there

is merit in the objections of the respondent to claim No.9 and which

is allowed and the award thereunder is set aside.

Re : Claim No.13

22. The said claim for interest at 18% per annum for LD 18073.356

for delay in payment of 38th running account bill, LD 8795.154 for

delay in payment of final bill and LD 25194.375 for delay in release

of amount of security deposit has been allowed to the extent of

interest at 8% per annum in the sum of LD 5666.37 for 38th running

bill, LD 3517 for the final bill and LD 11686.03 for security deposit.

The only objection to the said award is on account of rate of interest.

Relying upon a passage from MCGregor on damages and

Miliangos v George Frank Textiles Limited 1977 1 QB 489 it was

argued by the counsel for the respondent that interest ought to have

been granted not as per the rates prevalent in India but as per the

rates applicable to interest on LD, since under the contract payment

was to be made in LD. I, however, find the said argument to be

misconceived. Though payment was to be made in LD but it is the

admitted position that the profits of the petitioner from the said

contract could not be kept by the petitioner in LD but had to be

repatriated and kept in Indian rupees only. The citations of the

respondent also are to the effect that in award of interest the rates

prevalent of the country where the petitioner is based are to be

relied upon and not of the country in whose currency the payment is

to be made. Thus, the petitioner is entitled to interest as prevalent

here and no challenge has been made to the award of interest at 8%

per annum in the Indian conditions. The objection to claim 13 is thus

dismissed.

23. Lastly, the counsel for the respondent has objected to the

apportionment of cost of arbitration in the ratio of 40/60 between the

petitioner and the respondent. It was argued that since the

arbitrator has found the petitioner to have made exaggerated claims,

following the Dev Dutt Pandit (para 232) (supra), the entire costs of

arbitration ought to have been borne by the petitioner. The

arbitrator has in award as to costs held the parties liable for the

costs incurred by themselves and apportioned the costs aforesaid

towards the fee of the arbitrator, travel and stay of arbitrator to

Libya as aforesaid.

24. The observation as to costs came to be made by the Apex Court

in Dev Dutt (supra) owing to the contractor therein having carried

out less than 50% of the work and having been paid more than 50%

of the total contract value and having made a claim totally

disproportionate to the contract value. In these circumstances, the

Apex Court set aside the award of costs in favour of the contractor.

However, in the facts of the present case it cannot be said that the

claims were farfetched. The claims which have been disallowed and

the claims allowed and objections where against have been upheld

has also been done for the reason of the law as evolved since. It was

not the case of the respondent also before the arbitrator that the

claims were contrary to law. In the circumstances, I do not find any

ground to set aside the award as to costs. The discretion in the

award of costs of arbitration ought not to be interfered with by the

court unless is contrary to the award.

25. The arbitrator has also awarded interest at 8% per annum on

the awarded amount from the date of the reference till the date of

the payment. NO arguments have been addressed on the same. I

find the rate of interest of 8% to be reasonable and the award to that

extent shall stand.

26. Thus, the award allowing claims 4, 5, 6 and 9 is set aside. The

award on claims 3 and 13 is made rule of the court and decree is

passed in terms thereof.

RAJIV SAHAI ENDLAW (JUDGE) December 11, 2008 M