M/S Sudhir Brothers vs Delhi Development Authority
2008 Latest Caselaw 1038 Del

                      IN THE HIGH COURT OF DELHI AT NEW DELHI

                           CS(OS) 2312/2006 & IA 170/2008

                                                        RESERVED ON: July 3, 2008
                                                        DECIDED ON : July 16, 2008

M/s Sudhir Brothers                                   ...      Plaintiff
                                  THROUGH:      Mr. Harish Malhotra, Senior Advocate with
                                                Mr.Tanuj Khurana, Advocates.

                           VERSUS

Delhi Development Authority                 ...    Defendant
                                  THROUGH: Mr. Bhupesh Narula, Advocate


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


% 16.07.2008

Mr. Justice S. Ravindra Bhat:


1.           M/s Sudhir Brothers (hereafter called "the contractor") entered into a

building contract with the Delhi Development Authority (hereafter "DDA") for construction

of 720 Lower Income Group Dwelling Units/Flats ("LIG DU's") at Pitam Pura Pocket W

Poorvi i/c internal services SH c/o 324 LIG DU's at Pitam Pura Pocket W Poorvi. An

Agreement was entered into by the parties for the work for construction of 324 LIG DU's.



CS(OS) 2312/2006                                                           1 of 11
 The date of start of the work was 16-1-1981 and the work was to be completed within a

period of 1 year i.e. by stipulated date of completion of 15.1.1982. As against the tendered

amount of Rs.36,38,844/- the contractor's offer at 58.60% above the contract value at

Rs.57,71,206/- was accepted by the DDA.

2.    The work was rescinded by the DDA through order dated 27.7.1984 after giving

opportunities to the contractor. DDA adverts to several notices under clause 3 of the

contract, to the contractor claimant; a notice dated 7.6.1984 was written to the claimant.

The claimant raised disputes and approached the Engineer Member DDA, by letter dated

5.3.1983 for appointment of arbitrator to decide the matters in dispute between the parties

outlined in the said letter. The claimant filed Suit No. 125A/1984 under Section 20 of the

Arbitration Act and the claims raised were thorough letter dated 5.3.1983. The Court had

by order dated 23.5.1984 directed the Engineer Member to appoint an arbitrator. A sole

Arbitrator was therefore appointed.

3.           The arbitrator so appointed resigned on 1.6.1987.           This led to DDA

appointing another arbitrator, whose authority was challenged by the claimant , through

OMP 93/1988. An identical situation arose when the second arbitrator resigned and the

DDA appointed one Sh. Gangdevan.        Eventually, all these interlocutory disputes were

resolved and after considering the claims and counter claims, the Arbitrator made and

published his award dated 11.11.2006. Nine heads of claim including interest and an

additional claim were made and the DDA had counter claimed on seven heads. The award

substantially allowed six out of seven claims and directed payment of interest at 14% per

annum for the period 1985 to 18.2.2006 and thereafter at 12.% per annum.


CS(OS) 2312/2006                                                            2 of 11
 4.       The DDA has preferred objections to the award, under Sections 30 and 33 of the

Arbitration Act, 1940. These challenges are founded on three main grounds. The first

concerns the award of Rs.2,12,400/- on the head of illegal seizure of materials by the DDA.

The claimant had originally demanded Rs.1,46,000/- and later revised this claim, some

time in 1991 to Rs.4,46,000/-. As against this, the Arbitrator awarded Rs.2,12,400/-. The

DDA contends that this claim was inadmissible as it was not originally referred by the

Court when suit No. 125A/1984 was disposed of. The award is also attacked on the merits

by the DDA which contends that no material had in fact been seized from the concerned

site. The DDA also claims that there was no evidence or document in support of such a

claim.    It contends that certain letters i.e. dated 13.11.1982, 16.10.1989, 8.10.1982,

24.1.1983 and 15.4.1983 were written to the contractor. In another letter of 10.3.1983,

the DDA had drawn attention to the contractor about shortage of 13 M. Tons 10 M.M. Dia

Steel Tubes. It is contended on behalf of the DDA that findings about seizure of material

and loss caused to the contractor were therefore conjectural and not based on any

evidence.

5.       The Arbitrator had, under Claim No.7 awarded the sum of Rs.3,54,396/- towards

increase in construction costs for the extended period over and above the escalation

permitted under clause 10-C in respect of cost of labour and materials. The claimant had

demanded a sum equal to 35% of the original contract amount i.e. Rs.21,36,403/- on this

head. The Arbitrator, however, held that the claimant was entitled to rate revision on

14.17.84 at 25 per cent.     It is contended on behalf of DDA that the award of such an

amount was not justified as not being based on any evidence. It was contended that in the


CS(OS) 2312/2006                                                           3 of 11
 absence of proof of payment, or loss, the Arbitrator should not have calculated such

escalation or increased construction cost on some arbitrary method. Reliance was placed

upon a decision of this Court in Kocher Construction Vs. Union of India 1994 (1) Arb Law

Report ARB. LR as well as decision in Hindustan Construction Company                  Vs. Delhi

Development Authority 2002 (3) ARB LR 235.

6.     The award of interest at differential rates by the Arbitrator is also attacked as illegal.

The DDA contends that the claimants conduct in stalling the arbitration proceedings on at

least two occasions resulted in delay and it cannot be allowed to profit from its culpability.

Counsel also contended that award of such high interest, for 20 year period is even

otherwise not justified. He relied upon a judgment of Supreme Court reported as State of

Rajasthan Vs. Navbharat Construction Company AIR 2002 SC 258.

7.     Learned counsel lastly contended that the award is clearly in error of law since the

arbitrator rendered findings in respect of counter claim No.2 and held that the levy of

compensation was improper. This was beyond the scope of arbitration, being an excepted

matter. It was contended by learned Senior Counsel for the respondent/claimant that no

exception can be taken to the award as the arbitrator considered and rendered his findings

on the basis of materials. Learned counsel submitted that the court should not exercise its

supervisory jurisdiction under Section 30 and 33 of the Arbitration Act, 1940 as an

appellate court. He relied upon the rulings of the Supreme Court reported as Vishwanath

Sood -vs- Union of India 1989 (1) SCC 657.

8. Learned counsel submitted that the claimants had to construct the units

within fifteen months. The indifference of DDA led to prolongation of the contract. The

CS(OS) 2312/2006 4 of 11 DDA created hindrance in the performance of the job in spite of that the claimant continued

to work, accepted extension and agreed to work during the extended period unilaterally.

The DDA rescinded the contract on 27.7.1984. Almost a year later it sought to levy

compensation. Having regard to the materials adduced, the findings of the Arbitrator could

not be faulted as amounting to legal misconduct or unfounded on facts.

9. Learned counsel submitted that the DDA's objection as to claim No.5 is irrational

and unsustainable. He relied upon the letters addressed by the claimant to the DDA, which

are part of the record i.e. C-64, C-50, C-64, C-65 and Annexure-D of Book "B", all of which

were written at the time of termination of the contract. The DDA was even asked to verify

the details of materials seized, not returned to the claimant. In these circumstances the

findings on claim No.5 could not be termed illegal.

10. Learned counsel contended that the objection to findings on claim No.7 are

without any basis. He relied on Ex. P-1, P-8, C-25, C-46 and C-35, C-46. According to him

these establish that at the relevant time the claimant kept demanding escalation in costs of

construction. Counsel submitted that admittedly the time for completion had been

extended; as against the original date i.e. 15.1.1982, the parties mutually agreed to extend

the period. The Arbitrator, it was submitted, had noticed that DDA itself, during this

period, was awarding contracts at rates which were in excess of 45% of the claimant's

quoted rates. The Arbitration also took note of the continuous price rise and the CPWD

cost index, while awarding the sum of Rs.3,54,396/-. He further submitted that the

Arbitrator took note of other materials such as Ex. P-1, P-8, C-25, C-35, C-46, C-72 and C-74

in this regard.

CS(OS) 2312/2006 5 of 11

11. Counsel submitted that the award of interest cannot be challenged as excessive or

illegal in this case and was perfectly reasonable having regard to the facts. It was further

stated that the court should be slow in exercising its power to reduce the rate of interest.

12. The scope of a civil court's power interfere with an arbitration award, under the Act

is well settled. From a long line of decisions, starting with Union of India -vs- A.L. Ralia Ram

AIR 1963 SC 1685 down to the recent decision in Food Corporation of India -vs- Chandu

Construction 2007 (4) SCC 697, it has been consistently declared that misconduct does not

point to moral lapse or perversity in findings, in an award, but to something unreasonable

which would fall outside the jurisdiction of the arbitrator. It has also been held that the

standard to be applied is irrationality, caprice, arbitrariness or the adjudicator-arbitrator

acting beyond the terms of the agreement, while arriving at a finding that the award is

vitiated due to misconduct of the arbitrator (See Bhagwati Oxygen Ltd. -vs- Hindustan

Copper Ltd. 2005(6) SCC 462; Rajasthan State Mines and Minerals Ltd. v. Eastern

Engineering Enterprises and Another, (1999) 9 SCC 283). It has been further held (U.P. State

Electricity Board v. Searsole Chemcials Ltd. (2001) 3 SCC 397), that where the arbitrator had

applied his mind to the pleadings, considered the evidence adduced before him and passed

an award, the Court cannot interfere by reappraising the matter as if it were an appeal.

13. Another test indicated by the Supreme Court - Chandu Construction(supra) and

Bharat Coking Coal Ltd. v. M/s. Annapurna Construction, (2003) 8 SCC 154,) is that where

the arbitrator travels beyond the contract he acts in excess of jurisdiction in which case, the

award passed by him becomes vulnerable and can be questioned in an appropriate Court.

CS(OS) 2312/2006 6 of 11

14. From the preceding factual discussion it is evident that DDA is mainly objecting to

the award of amounts on four heads. The first is in respect of claim No.5, which pertains to

cost of materials seized by the DDA or not allowed to be taken away by the claimant.

Although serious exception was taken by the DDA to the reference itself, this court is

unpersuaded by the submission that the arbitrator lacked jurisdiction to examine the claim.

Clause 25 of the contract expressly stipulates that all disputes which are not excepted, and

arise out of the contract/agreement, have to be referred to the Arbitrator. In this case the

excepted matters have been spelt out in the preceding part of the agreement. A dispute

with regard to withholding of materials does not fall within any of the excepted matters.

Further the claim of the contractor was about unjustified and wrongful withholdings of its

material by the DDA, when the latter rescinded the contract. In these circumstances the

court is satisfied that the objection as to arbitrability of this head of dispute is without

basis.

15. As far as the merits of this claim are concerned, the Arbitrator examined

contemporaneous evidence in the form of a series of letters. These are C-50 (Telegram

dated 21.7.1984), C-64 (dated 22.10.1984) and C-65 (dated 3.12.1984). C-64 also encloses

a list of items set out by the claimant. The documents upon which DDA has relied upon in

this context, however, all pertain to a previous period when the contract was operative and

binding between the parties. The case so far as the claim No.5 is concerned is that after

rescinding the contract, DDA did not permit the contractor to take back sundry items from

the site.

16. Besides Ex. C-50, C-64 and C-65 which have been described above and have also

CS(OS) 2312/2006 7 of 11 been independently considered by the Court, the contractor also relied upon Annexure-D in

book "B" which set out the cost or value of these items. Nothing was shown to the court

during the hearing in this case disputing these documents. No contemporaneous letter by

the DDA or even any other document to the contrary or either oral or documentary

evidence was shown to the court. In the circumstances, the court can hardly take exception

to the findings rendered by the arbitrator which are purely factual. The DDA's objections

vis-à-vis the award on claim No. 5 are, therefore, held to be without foundation.

17. So far as Claim No.7 is concerned, the contractor had demanded 35% of the total

value of the original contract as escalated construction costs over and above the cost of

materials and labour admissible to it under clause 10-C. The Arbitrator relied upon a

decision of this court reported as Metro Industries Electrical Vs. DDA AIR 1980 Delhi 266.

The DDA's contentions, on the other hand, were that in the absence of any proper evidence

of higher cost of construction, the Arbitrator could not have followed or adopted same cost

analysis and awarded 25% escalation. It relies upon the Division Bench's judgment of this

court in Kochar Construction and a subsequent decision in Hindustan Construction

Corporation.

18. In Kocher Construction, the question was whether a claim for escalation of costs

allowed by the Arbitrator was justified. The Arbitrator had accepted a cost analysis

submitted to him by the claimant. The Court held that mere reliance on a cost analysis

would be insufficient to establish that such cost had in fact been incurred. The decision in

Hindustan Construction, on the other hand, turned upon on the tenability of the contractor's

claim for escalation of costs under clause 10-C.

CS(OS) 2312/2006 8 of 11

19. In the present case, no doubt the Contractor/claimant wrote certain letters

which have been adverted to in the previous part of this judgment. Yet , this court is of the

opinion that the findings of the arbitrator on this head cannot be sustained. What the

Contractor really claiming is a head of compensation or damages even though styling it as

escalation. One cannot be unmindful of the fact that the contract negotiated between the

parties factored the eventually of extension of contract and the consideration payable. If

the contractor had intended that extension was acceptable only on the condition of

payment of stipulated additional compensation, he should have made such reservation in

terms of Section 55 of the Contract Act. The second and more substantial aspect here is

that the contractor - claimant made no attempt to prove such damages and merely relied

upon letters addressed to the DDA. A mere demand cannot be justified for grant of

escalation particularly when the claim for such additional consideration is disputed. If the

Contractor wanted to establish its entitlement to such additional amounts, the mode of

proving it could not have been any different than in respect of other claims. Therefore, the

methodology and approach adopted by the arbitrator in awarding such 25% amount

working to Rs.3,54,396/- is unsustainable; it is also contrary to the Division Bench ruling in

Kochar Construction. This part of the award, therefore, cannot be sustained.

20. The last objection is to the counter claim. Here too the DDA's contention appears to

be well founded. Right from the decision of the Supreme Court in Vishwanath Sood Vs. UOI

AIR 1989 SC 952 to the judgment reported as General Manager Northern Railways Vs.

Sarvesh Chopra 2002 (4) SCC 45 and even in one of the judgments to which the

claimant/contractor itself was a party (Delhi Development Authority Vs. M/s Sudhir Brothers

CS(OS) 2312/2006 9 of 11 1995 57 DLT 474 DB) it has been consistently ruled that where the decision of an

executive authority is final, not arbitrable and not subject to reference, the Arbitrator

cannot assume jurisdiction over such matters. In this case too clause 25 opens with the

expression "save as otherwise providedt". Now the question of compensatioin payable and

levy, fell within the exclusive domain of the administrative authority specified in the

contract. The exclusivity was provided for by use of the expression "his decision shall be

final". In the circumstances the question as to whether the compensation was levied

correctly or otherwise could not have been subject matter of reference. On a proper

application of the law therefore it has to be held that adjudication of any claim beyond the

scope of reference and the award to that extent is, therefore, liable to be set aside.

21. On the issue of interest, this court is of the opinion that the mere circumstance that

arbitration was pending for 20 years should not have been the predominant or the sole

determining factor, in the award of 14 per cent interest. The court has considered the

materials on record. The petitioner had approached the court at no less than two

intervening occasions. It needs no imagination to discern that such interlocutory attempts

would inevitably stall adjudication in the arbitration proceedings. Therefore, the petitioner

had to share to a certain extent the blame for the delay in conclusion of such proceedings.

In these circumstances the award of interest at 14% for 21 year period was not justified.

22. For the above reasons this court is of the opinion that the award, cannot be

sustained so far as it relates to claim No.7 and counter claim No.2. The findings and the

award to the said extent are, therefore, set aside. In view of the preceding discussion on

interest, the direction to pay 14% interest is modified. Instead the DDA is directed to pay

CS(OS) 2312/2006 10 of 11 the interest in the following manner:-

     i.        For the period 1.1.1985 to 31.12.1993 @ 14% per annum;

     ii.       For the period 1.1.1994 to 17.2.2006 @ 10% per annum; and

     iii.      Interest for the post award, post decree period till realization on the above

               amounts shall be @ 10% per annum.

3. The award is made rule of the court subject to above modifications.

IA No. 170/2008 and suit No. 2312/2006 are decreed in the above terms.

July 16, 2008                                                      S. RAVINDRA BHAT
                                                                       (JUDGE)




CS(OS) 2312/2006                                                                  11 of 11