Delhi High Court
M/S.Hans Construction Company vs Delhi Development Authority & ... on 18 July, 2008
Author: Ajit Prakash Shah
* HIGH COURT OF DELHI AT NEW DELHI
+ FAO(OS) 426/1996
M/S.HANS CONSTRUCTION COMPANY ..... Appellant
Through Mr.P.N.Kumar, Mr.Anurag Kumar,
Advocates
versus
DELHI DEVELOPMENT AUTHORITY & ORS. ... Respondents
Through Ms.Anusuya Salwan, Adv.
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE DR. JUSTICE S.MURALIDHAR
1. Whether reporters of the local papers be allowed to see the
judgment ?n
2. To be referred to the Reporter or not ?n
3. Whether the judgment should be reported in the Digest ?n
% JUDGMENT
18.07.2008
1. This appeal is directed against the order of the learned
single Judge dated 30th July, 1996, dismissing the petition filed
by the appellant under Section 20 of the Indian Arbitration Act,
1940. The appellant in paragraph 13 of the said petition has
raised two disputes, which are as follows:
"(A) Whether the respondent/Delhi Development Authority
is entitled to levy compensation under Clause 2 of the
Agreement having rescinded the contract under clause 3
prior to the invocation of Clause 2?
The Arbitrator is to determine the dispute in question.
Justified or not, if so, to what extent ?
(B) Whether the respondents are justified in levying of
Rs.5,89,034/- by way of compensation under clause 2
when having not reserved any right, and having not
following the requisite ingredients of the said clause when
there being no breach of contract by the petitioner firm ?"
2. It is seen that the aforesaid two disputes as raised by the
appellant are matters connected with clause 2 of the contract.
Clause 2 of the contract clearly stipulates that the time allotted
for carrying out the work by the Contractor is to be strictly
observed. Time is made essence of the contract and is required
to be reckoned from the tenth day after the date on which the
order to commence the work was issued to the contractor.
Further, the clause requires the contractor to proceed with the
work throughout the period with all due diligence and in the
event of failure, the contractor is made liable to pay
compensation to be determined by the Superintending Engineer,
whose decision in writing has been made final. In the matter of
determining the question whether the contractor delayed
execution of the work and if so what amount of compensation
should be levied falls within the jurisdiction of the
Superintending Engineer and his decision cannot be tested by
the arbitrator appointed under clause 25 of the agreement.
Clause 25 which is the arbitration clause starts with the opening
phrase "Except where otherwise provided in the contract",
excluding certain matters and disputes from the arbitration and
these are matters and disputes in respect of which provision has
been made elsewhere or otherwise in the contract. The
implication is that all the questions and disputes excepting the
ones mentioned in the opening words are to be referred to the
sole arbitration of the person appointed by the Chief Engineer.
3. The Supreme Court in Vishwanath Sood v. Union of
India & Another 1989 (1) SCR 288 had occasion to examine
clauses similar to the aforesaid clauses 2 and 25. In this regard
the Court held as follows:
"We have gone through the judgment of the Division
Bench of the High Court and we have also considered
the arguments advanced on both sides. With great
respect, we find ourselves unable to agree with the
interpretation placed by the Division Bench on the terms
of the contract. Clause 2 of the contract makes the time
specified for the performance of the contract a matter of
essence and emphasises the need on the part of the
contractor to scrupulously adhere to the time schedule
approved by the Engineer-in-charge. With a view to
compel the contractor to adhere to this time schedule,
this clause provides a kind of penalty in the form of a
compensation to the Department for default in adhering
to the time schedule. The clause envisages an amount of
compensation calculated as a percentage of the
estimated cost of the whole work on the basis of the
number of days for which the work remains
uncommenced or unfinished to the prescribed extent on
the relevant dates. We do not agree with the counsel for
the respondent that this is in the nature of an automatic
levy to be made by the Engineer-in-charge based on the
number of days of delay and the estimated amount of
work. Firstly, the reference in the clause to the
requirement that the work shall throughout the
stipulated period of the contract be proceeded with due
diligence and the reference in the latter part of the
clause that the compensation has to be paid "in the
event of the contractor failing to comply with" the
prescribed time schedule make it clear that the levy of
compensation is conditioned to some default or
negligence on the part of the contractor. Secondly, while
the clause fixes the rate of compensation at 1 per cent
for every day of default it takes care to prescribe the
maximum compensation of 10 per cent on this ground
and it also provides for a discretion to the
Superintending Engineer to reduce the rate of penalty
from 1 per cent. Though the clause does not specifically
say so, it is clear that any moderation that may be done
by the Superintending Engineer would depend upon the
circumstances, the nature and period of default and the
degree of negligence or default that could be attributed
to the contractor. This means that the Superintending
Engineer, in determining the rate of compensation
chargeable, will have to go into all the aspects and
determine whether there is any negligence on the part
of the contractor or not. Where there has been no
negligence on the part of the contractor or where on
account of various extraneous circumstances referred to
by the Division Bench such as vis major or default on the
part of the Government or some other unexpected
circumstances which does not justify penalising the
contractor, the Superintending Engineer will be entitled
and bound to reduce or even waive the compensation. It
is true that the clause does not in terms provide for any
notice to the contractor by the Superintending Engineer.
But it will be appreciated that in practice the amount of
compensation will be initially levied by the Engineer-in-
charge and the Superintending Engineer comes into the
picture only as some sort of revisional or appellate
authority to whom the contractor appeals for redress. As
we see it, Clause 2 contains a complete machinery for
determination of the compensation which can be
claimed by the Government on the ground of delay on
the part of the contractor in completing the contract as
per the time schedule agreed between the parties. The
decision of the Superintending Engineer, it seems to us,
is in the nature of a considered decision which he has to
arrive at after considering the various mitigating
circumstances that may be pleaded by the contractor or
his plea that he is not liable to pay compensation at all
under this clause. In our opinion the question regarding
the amount of compensation leviable under Clause 2 has
to be decided only by the Superintending Engineer and
no one else.
..................Clause 25 which is the arbitration clause
starts with an opening phrase excluding certain matters
and disputes from arbitration and these are matters or
disputes in respect of which provision has been made
elsewhere or otherwise in the contract. These words in
our opinion can have reference only to provisions such
as the one in parenthesis in Clause 2 by which certain
types of determinations are left to the administrative
authorities concerned. If that be not so, the words
"except where otherwise provided in the contract" would
become meaningless. We are therefore inclined to hold
that the opening part of Clause 25 clearly excludes
matters like those mentioned in Clause 2 in respect of
which any dispute is left to be decided by a higher
official of the Department. Our conclusion, therefore, is
that the question of awarding compensation under
Clause 2 is outside the purview of the arbitrator and that
the compensation, determined under Clause 2 either by
the Engineer-in-charge or on further reference by the
Superintending Engineer will not be capable of being
called in question before the arbitrator.
The learned single Judge following the decision in Vishwanath
Sood's case (supra) held that the disputes as raised by the appellant
cannot be referred for arbitration.
4. In the present case the appellant could not complete the work
during the stipulated time and applied for extension of time. The
concerned Executive Engineer extended the time subject however to
the right of the respondent to levy compensation on the appellant
under clause 2 of the contract. Ultimately, the contract was rescinded
by the respondent under clause 3 of the agreement. The
Superintending Engineer in exercise of power under clause 2 of the
agreement held that the appellant is liable to pay a sum of
Rs.5,89,034/- by way of compensation for the delay in execution of
the work.
5. Learned counsel appearing for the appellant contended that the
Superintending Engineer has not followed the procedure while taking
action under clause 2 of the agreement. He also contended that the
order of the Superintending Engineer is completely unfair and biased,
requiring intervention of the arbitrator in resolving the disputes. Even
assuming for the sake of argument that the Superintending Engineer's
order is illegal or improper, it cannot be tested in the arbitration
proceedings under clause 25 of the contract as clause 25 of the
contract falls in the category of excepted matters. We therefore do
not see any reason to interfere with the order of the learned single
Judge. The appeal is dismissed with no order as to costs.
CHIEF JUSTICE
S.MURALIDHAR
JULY 18, 2008 JUDGE
"v"
