The Union Of India & Anr. vs M/S. Raj Construction Company
2009 Latest Caselaw 3109 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI


+                 OMP No.573/2008


%                       Date of decision: 11th August, 2009


The Union of India & Anr.                           ....Petitioners
                        Through: Mr. Ambar Qamaruddin, Advocate



                               Versus



M/s. Raj Construction Company                      .... Respondent


                        Through: Ms. Deepika Jain, Advocate


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

1.    Whether reporters of Local papers may           No
      be allowed to see the judgment?

2.    To be referred to the reporter or not?          No

3.    Whether the judgment should be reported         No
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1 The petitioner Union of India has preferred this petition under

Section 34 of the Arbitration Act, 1996 with respect to the arbitral

award dated 5th July, 2008. Notice of the petition was issued and

reply has been filed by the respondent. Though the arbitral award

has not been requisitioned and is not before this court but the

counsel for the petitioner has submitted that the arbitral record is

not necessary for adjudication of this petition and the points urged in

this petition are limited and the petition can be taken up for hearing.

The counsels for the parties have been heard.

2 The respondent was awarded the work for construction of

Model Station Building at Ambala Cantt. vide letter dated 17th

October, 2001 of the petitioner; the value of the contract was

Rs.21,36,103/- and the work was required to be completed by 16th

April, 2002. A formal contract was executed on 9th January, 2002.

The admitted position is that only 50% of the site was provided by

the petitioner to the respondent on 15th January, 2002. Upon the

respondent digging the earth for foundation pits, sub soil water

starting oozing and accumulated in the pits. The Engineer Incharge

of the petitioner could not suggest any solution and first an attempt

was made to bail out the water which had accumulated but the sub

soil water continued oozing out. The petitioner then approached

experts at Regional Engineering College, Kurukshetra who

suggested pile foundation design to be opted in lieu of the design

earlier opted by the petitioner. The petitioner then floated two

separate pile foundation contracts which also came to be allotted to

the respondent. The work of pile foundation under the subsequent

contracts could be completed only on 15th November, 2002 and

during which period the work under the original contract aforesaid

remained suspended.

3 After the petitioner had made payments to the respondent

under the original contract also and had refunded the security

deposit of the respondent, the respondent made the claims on

account of prolongation of work under the original contract, owing to

increase in rates of material, labour, steel etc. in the interregnum

and which delay the respondent claimed was not attributable to it.

Upon the petitioner not accepting the said claims and also not

appointing the arbitrator as demanded by the respondent, the

respondent filed an Arbitration Application No.308/2005 in this court

under Section 11(6) of the Act and which came to be allowed on 4th

May, 2006 and a retired Judge of this court appointed as the

arbitrator.

4 The respondent had made a claim of Rs.29,33,967/-. The

arbitrator,

(i) negated the plea of the petitioner of applicability Section

80 of the CPC holding the same to be not applicable to

arbitration;

(ii) also negated the plea of the petitioner of the respondent

being not entitled to prefer the claim for the reason of

having received the payments under the contract in full

and final settlement and having given a no claim

certificate - the arbitrator held that the question whether

the no claim certificate was signed voluntarily or not was

arbitrable as held in Union of India Vs. L.K. Ahuja and

Company AIR 1988 Supreme Court 1172; found that the

no claim certificate in this case was on a printed form

required to be submitted for receiving the final payment;

that it was signed mechanically and in fact contained

several blanks; that the petitioner had admitted that as

per its practice before final bill for payment is processed,

the contractor is required to sign the said certificates.

The arbitrator thus inter alia held that no claim

certificate in the present case to have been not signed

voluntarily and held the respondent entitled to maintain

the claim;

(iii) negated the plea of the petitioner of the respondent

being not entitled to the claim for the reason of allied

contracts of pile foundation having also been awarded to

it; the arbitrator held that those contracts were separate

from the contract whereunder the claim had been made;

(iv) held that the petitioner has extended the time under the

original contract without imposing any condition that the

respondent would not be entitled for losses he may suffer

on account of escalation;

(v) held that the delay was attributable to the petitioner in

the circumstances aforesaid and the respondent was not

required to test for the sub soil water before accepting

the contract and the same was to be done by the

petitioner;

(vi) applied the Hudson's Formula for calculating the losses

suffered by the respondent owing to the delay;

(vii) negated the plea of the petitioner of the respondent

being required to prove actual loss, on the basis of the

dicta of the Supreme Court in McDermott

International Inc. Vs. Burn Standard Co. Ltd. 2006

(11) SCC 181 and the provisions of Sections 55 and 73 of

the Contract Act;

(viii) Applying the said formula the arbitrator found the

entitlement of the respondent to damages in the sum of

Rs.10,26,975/- only;

(ix) besides the aforesaid award, the arbitrator also allowed

Rs.60,000/- in lump sum to the respondent for pumping

out the water which had accumulated.

All the other claims of the respondent were disallowed. The

arbitrator has also awarded interest to the respondent at 12% per

annum from the date of the award till realization, besides costs of

arbitration of Rs.4.50 lacs.

5 The counsel for the petitioner/objector has raised only two

contentions. Firstly it is contended that the award upholding the

claims inspite of the no claim certificate is contrary to contract.

Secondly, the applicability of the Hudson's Formula is controverted.

It is urged that the respondent had in its pleadings not made the

claim on the basis of said formula and thus the arbitrator was not

entitled to invoke the same in the award.

6 Per contra the counsel for the respondent has contended that

the petitioner having not disputed its liability for damages, cannot

object on the ground of applicability of the Hudson's Formula by the

arbitrator in the award; it is argued that the arbitrator had to apply

some basis for assessing damages, once liability had been

determined and is not disputed in this court also. It is further the

contention that this court is not exercising the appellate jurisdiction

and cannot interfere with the formula applied by the arbitrator. It is

also urged that the respondent had in its written submissions before

the arbitrator relied on the Hudson's Formula and in fact the

petitioner had during the hearing before the arbitrator agreed to the

same since the damages assessed thereunder were less than the

damages claimed by the respondent. It is also argued that the

arbitration being of a retired Judge of this court the petitioner ought

not to be permitted to indulge in such dilatory tactics.

7 As far as the first submission of the petitioner regarding no

claim certificate is concerned, the Supreme Court recently in

National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd. AIR

2009 Supreme Court 170 has reiterated that the said dispute is

arbitrable and that if the party who has executed the discharge

agreement or discharge voucher establishes that the same was

executed on account of fraud, coercion, undue influence practiced by

the other party, the same is not binding on that party and does not

come in the way of that party making a claim.

8 In the present case the arbitrator has returned a finding of fact

that the "no claim certificate" was executed by the respondent to be

able to receive the payments which according to the petitioner were

admittedly due to the respondent and which would not have been

released by the petitioner to the respondent without signing such

certificate. This finding of fact by the arbitrator is non-interferable

under Section 34 of the Act and specially when as in this case it is

based on cogent reasoning. The counsel for the respondent has in

this regard relied upon R.S. Gupta Vs. Executive Engineer, DDA

2001 (Suppl.) Arb. LR 10 (Delhi), M/s. Hindustan Tea Co. Vs. M/s.

K.Sashikant & Co. AIR 1987 Supreme Court 81, MCD Vs. M/s.

Jagan Nath Ashok Kumar AIR 1987 Supreme Court 2316 and Puri

Construction Pvt. Ltd. Vs. Union of India AIR 1989 Supreme

Court 777.

9 As far as the other contention of the petitioner is concerned,

there also I find the award to have correctly relied upon McDermott

International Inc. (Supra). The arbitral award in that case upheld

by the Supreme Court held that once it was established that the

party was entitled to an amount on account of increased overhead

and loss of profit and additional project management cost, the

construction law recognizes that construction contractor incurs two

general jobs of costs in the course of its operation; i.e. the operating

costs that are attributable to a particular project and costs such as

overhead that are expended for the performance of the business as a

whole including the particular project. It was further the award in

that case that construction law recognizes that owner caused delay

entitled the contractor to recover from the owner the increase in

overhead and loss of profit as part of damages. Reference therein

was also made to the various formulas in that regard including the

Hudson's Formula. The Supreme Court relying upon M.N.

Gangappa Vs. Atmakur Nagabhushanam Setty and Co. Manu /

SC/0019/ 1972 held that the method used for computation of

damages will depend upon the facts and circumstances of each case.

The Supreme Court further held that the court could not interfere in

the formula applied by the arbitrator and held the award to be not

contrary to the Indian law for this reason.

10 In the present case also though the petitioner has contended

that the arbitrator ought not to have applied the Hudson's Formula,

nothing has been placed before the court to show that if instead of

the said formula any other accepted formula, as noticed by the

Supreme Court in McDermott International Inc. (Supra) had been

applied, the liability of the petitioner would have been less. In the

absence of any averment to the said effect, no ground is found to

interfere in the award on this ground also. The plea that the

Hudson's Formula was not pleaded also has no merit in the absence

of an averment that it was the case of the petitioner before the

arbitrator that some other formula should be applied.

11 No ground under Section 34 having been made out, the

petition is dismissed. However since the petitioner has cooperated

in early disposal of the petition, no order as to costs.

RAJIV SAHAI ENDLAW (JUDGE)

August 11th, 2009 J