M/S. Sikka Associates vs Airports Authority Of India
2008 Latest Caselaw 2077 Del

*        IN THE HIGH COURT OF DELHI AT NEW DELHI


+                      FAO(OS) NO.159/2004


                     Date of Decision : November 25, 2008


M/s. Sikka Associates                    .....Appellant
Through :   Mr. V.K. Makhija,
Sr.Advocate, with Mr. S.K. Chandwani, Advocate.


Versus


Airports Authority of India              .....Respondent
Through :   Mr. Advocates.


CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE MANMOHAN

    1.     Whether the Reporters of local papers may be allowed to
    see the judgment?                             No

    2.   To be referred to the Reporter or not? Yes
    3.   Whether the judgment should be reported in the Digest? Yes



                   JUDGMENT

MUKUL MUDGAL, J. (ORAL)

1. The present appeal has been filed by the appellant above-named being

aggrieved from the judgment of the learned judge of this Court passed in OMP

No.179 of 2000 whereby the arbitral award dated 12th June, 2000 awarding an

additional sum of Rs.12,25,575/- in favour of the appellant as fees @ 4.5% on the

cost of the project against the tender cost and also upon the amount of escalation charges payable to the architects and a further sum of Rs.40,000/- as interest on

the delayed payment of bill has been set aside.

2. Briefly, the facts of the present case are :

i) That the appellant had submitted its offer vide letter dated 5th January,

1989 relating to the work of 'providing consultancy services for the work of

construction of New International Block, Domestic Departure / Arrival Block and

associated work at Goa Airport'. It was accepted by the respondent vide letter

dated 22nd February, 1989 at the remuneration payable to the appellant for such

work at "4.5% of the executed cost of the project".

ii) That while accepting the said offer given by the appellant vide its letter

dated 5th January, 1989, the respondent vide its letter dated 22nd February, 1989

categorically stated that for the services to be rendered by the appellant, the

appellant would be paid 4.5% of the executed cost of the project and other terms

and conditions were also attached to the said letter accepting the said offer. The

relevant term is Clause 3 of the terms & conditions of Agreement which relates

with the 'Mode of Payment' and reads as follows :-

"3. MODE OF PAYMENT

For each of the services in the scope of the work the consultant shall be paid in the following stages consistent with the work done plus reimbursable expenses as agreed upon.

Payments made to the Consultants are on account and shall be adjusted against the final amount payable :

                PRELIMINARY STAGE

 Stage 1      On submitting conceptual 10% of the total fees
              designs and preliminary  payable based on cost
              estimates of costs       estimates as per Clause
                                       2.03
 Stage 2      On submitting the final     20% of the total fees
             preliminary                 payable less payment
             drawings/designs and        already made cost.
             model along with the
             modified estimates.
Stage 3      On submitting preliminary 25% of the total fees
             drawings for obtaining    payable less payments
             approval from statutory   already made.
             bodies.




               WORKING DRAWING STAGE

Stage 4      On preparation of basic     35% of the total fees
             working drawings and        payable less payments
             details sufficient for      already made.
             preparing item-wise
             estimates of costs.
Stage 5      On submitting detailed      55% of the total fees
             specifications, bill of     less payments already
             quantities detailed         made based on the cost
             architectural working       estimate as given in this
             drawings structural and     stage.
             services designs together
             with estimates of costs
             and to invite tenders.
Stage 6      On submission of            65% of the total fees
             complete set of working     payable less payments
             drawings and details.       already made.



               CONSTRUCTION STAGE

Stage 7      During the course of        Further 25% to be paid
             construction of work at     in instalments
             site.                       consistent with the
                                         value of work done.
Stage 8      On completion of            Balance payment


             (to be paid within six      10% making the total
             months of completion of     equivalent to 100% of
             the work)                   the fees payable based
                                         on the actual cost of the
                                         work.

3. That it is not disputed before us that the tender cost for the civil work was

Rs.5,31,09,985/-, while the actual cost when the work was completed came to Rs.6,58,35,000/-. The appellant was paid 4.5% on Rs.5, 31, 09,985/-, but was not

paid this amount on the actual cost upon completion of the work which became a

root cause of the disputes between the parties.

4. That accordingly, as provided under the agreement, the appellant invoked

the arbitration and Shri C.B. Rai, Engineer-in-Chief (Retd.) was appointed as an

arbitrator by the Chairman, Airports Authority of India, to act as a sole arbitrator.

5. That the main controversy between the parties before the arbitrator was

whether the appellant was entitled to his remuneration @ 4.5% on the tender cost

or on the actual cost worked out at the time of completion of the said project.

The appellant has been claiming his remuneration on the actual cost incurred for

completion of the said project, while the respondent has been saying that the

appellant is entitled to remuneration only on the tender cost. Thus, the arbitrator

was to decide as to on what amount the remuneration was to be paid to the

appellant.

6. That the arbitrator while giving reasons in his award made reference to the

letter of acceptance dated 22nd February, 1988 which stipulated the remuneration

payable at "4.5% of the executed cost of the project" and reference was also

made to clause 3 of the Agreement and more particularly Stage 8 of the Mode of

Payment wherein balance payment 10% making the total equivalent to 100% of

the fees payable based on the actual cost of the work. The arbitrator thus

returned the finding that the appellant was entitled to its fee @ 4.5% on the

actual cost of the work which is the executed cost inclusive of escalation and not

on the tender cost and accordingly awarded an amount of Rs.12,25,575/- to the appellant under Claim No.1 and Rs.40,000/- was awarded to the appellant under

Claim No.4 and the interest was granted @ 18% on the amount of award from the

date of its publication till the date of its payment.

7. That after the said award was published, the respondent has filed

objections under Section 34 of the Arbitration & Conciliation Act, 1996 which

became the subject matter of OMP No.179 of 2000 wherein the respondent raised

a contention that the arbitrator has mis-interpreted the provisions of the contract

and has wrongly awarded remuneration @ 4.5% on the executed cost / actual

cost, whereas he ought to have held that the appellant was entitled to 4.5% of the

tender cost only.

8. On the other hand, the appellant resisted the said objections and stated

that the arbitrator is the final arbiter in law and the provisions of the contract

were within the domain of the arbitrator to interpret. The arbitrator being the

Engineer-in-Chief (Retd.) was well conversant with the said services and has

interpreted the provisions of the contract rightly and, thus, the award of the

arbitrator in this regard is final and cannot be assailed in law. However, such a

contention of the appellant did not find favour with the learned judge of this Court

and by order dated 26th May, 2004 allowed the petition under Section 34 of the

Arbitration & Conciliation Act, 1996 and set aside the arbitral award dated 12th

June, 2000.

9. That aggrieved by the said judgment, the appellant has filed the present

appeal.

10. We have heard both the counsels in detail. The learned Senior Counsel for the appellant had contended that the only controversy between the parties before

the arbitrator was whether the appellant had to be paid remuneration @ 4.5% on

the tender cost or had to be paid upon executed / actual cost. The learned Senior

Counsel also referred to the definition of the word 'executed' given in Black's Law

Dictionary. The word 'executed' means "completed, carried into full effect" and

thus stated that the executed cost as mentioned in the letter of award means the

cost of the work upon completion. The learned Senior Counsel for the appellant

also contended that clause 3 of the Agreement deals with the stage by stage

payment also refer to the actual cost of the work would be the cost which has

been incurred by the department for completing the said work which also includes

in it the escalation paid to the contractor. It was also contended that the

arbitrator was well within its rights to interpret the terms and conditions of the

contract and the arbitrator had interpreted the said provisions and had held that

the appellant has to be paid remuneration on the actual cost of the work which is

the executed cost which also includes in it the escalation as well.

11. That according to the learned Senior Counsel for the appellant, the said

interpretation by the arbitrator is final and cannot be assailed in law and the

reference was made by the counsel to following judgments of Hon'ble Supreme

Court:

i)       Sudershan Trading Co. Vs. Govt. of Kerala
(AIR 1989 SC 890)
ii)      Food Corporation of India Vs. Joginder Pal Mahinder Pal
       (AIR 1989 SC 1263)
iii)     Hind Builders Vs. Union of India
       (AIR 1990 SC 1340)

12. That it was also contended by the learned Senior Counsel for the appellant

that even if any term and condition of the contract is capable of having two

plausible interpretation, then if the arbitrator has accepted one out of two, the

court cannot set aside the said interpretations by substituting its view that the

arbitrator should have accepted the other plausible view. Thus, it was contended

that the award could not have been assailed in law and the objections in this were

was beyond the scope of Section 34 of the Arbitration & Conciliation Act, 1996.

13. On the other hand the learned Senior Counsel for the respondent reiterated

the stand taken before the learned Single Judge that the arbitrator misconducted

the proceedings by mis-interpreting the provisions by granting remuneration on

the actual cost, whereas it ought to have been granted on the tender cost. The

learned Senior Counsel for the respondent without prejudice to their arguments

further contended that the rate of interest awarded by the arbitrator is on the

higher side and it ought not have been granted @ 18% p.a.

14. We have gone through the provisions of the contract and we feel that the

interpretation given by the arbitrator is absolutely reasonable and justified. The

word used in the letter of acceptance is the 'executed' cost while in the other

terms and conditions of the Agreement, it has used actual cost of the work. The

same cannot be the tendered cost. It is a matter of common practice that some

times during the execution of the work there are deviations in the work and

certain additional work as well which enhances the cost of the work, therefore, it

is the executed cost or the actual cost which assumes importance. Furthermore,

it is no where provided either in the letter of acceptance or in the terms and

conditions of the contract that remuneration has to be paid on the tender cost. Thus, the plea of the respondent that the remuneration has to be paid on the

tender cost/amount put to tender cannot be accepted. Escalation is also the part

of the executed cost, thus, if the arbitrator has taken a view that the appellant is

entitled to remuneration on the executed cost of Rs.6,58,35,000/- nothing wrong

can be found in the same so as to warrant interference in appeal.

15. That from the impugned judgment, we find that the learned Judge has

adopted its own interpretation by differing from the interpretation adopted by the

arbitrator which according to us could not have been taken in view of the law laid

down by the Hon'ble Supreme Court of India in the aforementioned judgments of

Sudershan Trading Co., Food Corporation of India and Hind Builders.

(supra) Accordingly, we do not agree with the said view expressed by the

learned Judge. So far as the contention of the respondent is concerned that

interest awarded is at the higher side, we feel the interest of justice would be met

if the interest @ 18% p.a. is reduced to 12% p.a.

16. We, therefore, set aside the impugned judgment and dismiss the petition

under Section 34 of the Arbitration & Conciliation Act, 1996 for setting aside the

arbitral award dated 12th June, 2000. However, we modify the said award, so far

as it awards interest @ 18% p.a. to 12% p.a. No orders as to costs.

(MUKUL MUDGAL) JUDGE (MANMOHAN) JUDGE November 25, 2008 Sk