National Small Industries ... vs Dual Structural & Industries Ltd
2009 Latest Caselaw 3305 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 OMP 648/2008

%                                 Date of decision:21.08.2009

NATIONAL SMALL INDUSTRIES
CORPORATION LTD                                 ....Petitioner
                        Through: Mr. A.K. Thakur & Mr. Rajiv Arora,
                                 Advocates

                               Versus

DUAL STRUCTURAL & INDUSTRIES LTD                  ... Respondent
                        Through: Mr. Jayant Nath, Sr. Advocate with Mr.
                                 Upendra Thakur & Mr. Amesh Tandon,
                                 Advocates.

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

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

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. This petition under Section 34 of the Arbitration Act, 1996 is

with respect to the arbitral award dated 30th August, 2008. The

proceeding has a chequred history. Disputes and differences

between the parties arose out of an agreement dated 9th October/2nd

November, 1998 for construction of Phase-I of the Software

Technology Park by the respondent for the petitioner at Chennai.

The arbitration clause in the said agreement enabled the Chairman-

cum-Managing Director of the petitioner to appoint the arbitrator.

Accordingly Mr P Krishnan, former Director General CPWD was

appointed as the sole arbitrator vide letters dated 26th September,

2002 and 8th October, 2002 of the Chairman-cum-Managing Director

of the petitioner, in the matter of the disputes between the petitioner

and the respondent relating to the aforesaid agreement.

2. The respondent made claims against the petitioner:

(i) for refund of Rs 40,23,524/- wrongly recovered by the

petitioner from the respondent as liquidated damages;

(ii) for interest @ 21% per annum on the above amount from 16 th

August, 2002 to 20th November, 2002;

(iii) Rs 20,40,287/- for recovery of overheads and establishment

costs during the contract period;

iv) for recovery of Rs 5,33,404/- towards additional site

establishment and overhead costs for the extended period of

contract beyond the originally stipulated period;

v) for recovery of Rs 8,38,222/- towards increase in the costs of

inputs for the work carried out after the originally stipulated

contract completion period;

vi) for recovery of Rs 3,49,519/- towards loss of interest on the

account of late release of running bill payments;

vii) for interest at 21% per annum, pre suit, pendente lite and post

award on the aforesaid amount and for costs.

3. The petitioner herein also made a counter claim against the

respondent for recovery of Rs 65,93,668/- on account of loss of

revenues due to undue delay in completion of the work by the

respondent. A sum of Rs 8,91,000/- was also claimed by the

petitioner on account of extra expenditure incurred on establishment

and contingency due to delay by the respondent in completion of

work.

4. The arbitrator published the award dated 25th September,

2004. Only the claim of the respondent for refund of Rs 40,23,524/-

recovered by the petitioner towards liquidated damages was allowed

and the petitioner was also directed to pay interest on the said

amount at 8% per annum from 16th August, 2002 to 2nd September,

2002, at 10% per annum from 3rd September, 2002 to 25th

September, 2004 and at 12% per annum from 26th September, 2004

till the date of payment. All the other claims of the respondent

against the petitioner as well of the petitioner against the

respondent were rejected.

5. The petitioner herein preferred OMP 5/2005 in this court

under Section 34 of the Act with respect to the said award. Notice

thereof was issued. The respondent did not prefer any petition

under Section 34 of the Act with respect to the award. OMP 5/2005

was disposed of vide order dated 10th May, 2006. This court set

aside the award directing refund of Rs 40,23,524/- by the petitioner

to the respondent and consequently the award for interest on the

said amount. The rest of the award was maintained. The arbitral

record was ordered to be sent back to the arbitrator.

6. Pursuant to the aforesaid order, the arbitration proceedings

were resumed before the same arbitrator who has now published the

award titled "Reconsidered award" dated 30th August, 2008 with

respect whereto the present petition has been preferred. The

arbitrator has reaffirmed his award for refund of Rs 40,23,524/- by

the petitioner to the respondent together with interest at the rate as

awarded in the earlier award.

7. For appreciating the contentions of the counsel for the

petitioner, it is appropriate to set down the relevant dates.

      S.No.    Date         Particulars
      1.       9.10.1998    Date of contract between the
               2.11.1998    parties

2. 21.10.1998 The petitioner added additional work of construction of one canteen and two additional rooms in the existing hostel

building

3. 21.10.1998 The petitioner handover the construction site to the respondent

4. 10.11.1999 Further additional work of phase-II of the building is added to the work already allotted by the petitioner to the respondent.

5. 02.02.2000 The respondent seeks extension of time for completion of works.

6. 20.02.2000 Stipulated date of completion of works including additional works according to the petitioner.

7. 09.06.2000 The petitioner by a letter of this date extended the time for completion of works till 31st August, 2000, reserving its right to levy liquidated damages (LD) on the respondent.

8. 29.09.2000 The respondent seeks extension of time for completion of works.

9. 17.11.2000 The petitioner vide letter of this date extended time till 31st December, 2000 reserving its right to levy LD.

10. 21.06.2001 Work completed.

8. The contract entitled the petitioner to levy LD for delay in

completion or works @ 1% of the contract value per week and

subject to maximum of 10%. The petitioner levied LD in the sum of

Rs 40,23,524/- aforesaid under the said provision of the contract and

deducted the same out of the monies admittedly payable to the

respondent. It was in these circumstances that the respondent in its

claim petition before the arbitrator sought refund of the said monies

disputing/controverting the levy of liquidated damages by the

petitioner.

9. The arbitrator in the first award dated 25th September, 2004

held that as per the contract of the work initially awarded by the

petitioner to the respondent the stipulated date of completion was

20th February, 2000; that when the additional works were awarded

to the respondent, neither any specific time frame was fixed by the

petitioner or was mutually agreed by the parties for those works nor

made essence of the contract; that the time till 20th February, 2000

for completion of the works initially awarded though of the essence,

upon the award of additional works ceased to be of the essence of

the agreement; that after 20th February, 2000 no new period of

completion was fixed and it is to be deemed that the time had been

set at large and no longer the essence of the agreement; the

contention of the counsel for the petitioner that levy of LD is

automatic upon failure of the respondent to complete the works

could not be accepted as the scope of the work had been

substantially enlarged without fixing specific additional time; that

there was initial delay on the part of the petitioner in handing over

the full site and in decision, issue of drawings, the last drawing

having been issued only on 13th November, 2000. The arbitrator

thus held the respondent not entitled to LD and axiomatically

allowed the claim of the respondent for refund of the amounts

deducted towards LD.

10. This court in order dated 10th May, 2006 in OMP 5/2005 and

which order has attained finality held that a conjoint reading of

clauses 9, 11 and 30 of the contract show that the time was of the

essence of the contract and in case of the respondent's failure to

complete the work within stipulated time provision for LD is made in

the contract; that as per clause 9, the petitioner was within its right

to award additional work to the respondent and such work had to be

executed by the respondent in the manner specified in the contract

and treating the same as part of the works as originally awarded;

that on award of additional work time for completion of the work was

to be extended in the proportion which the additional cost of the

additional work bears to the original contract sum plus 25% of the

time calculated in the said manner; and when the time is extended in

such manner, the extended time becomes the essence of the

contract. This court found that the arbitrator had not considered the

implication of clauses 9, 11 and 30 of the contract and had in

contravention thereof wrongly concluded that while awarding the

additional work no specific time frame was stipulated and time did

not remain the essence of the contract. This court noted that the

arbitrator had imputed some delay on the petitioner but held that the

arbitrator was mainly influenced by the fact of the time being not of

the essence after the award of substantial additional work. This

court thus set aside the award to the said extent. While doing so this

court noticed the submissions of the respondent also and held that it

would be for the arbitrator to decide the issue afresh after

considering submissions of both the parties and with reference to

legal position clarified in the said order.

11. The arbitrator has in the reconsidered award noticed that

under clause 9.2 of the contract, upon award of additional work, the

time for completion is to be extended as noticed above in the order

of the High Court or "such further additional time as may be

considered reasonable by the engineer-in-charge" (there is no

dispute as to the contract providing so). The arbitrator has further

held that it was necessary for the petitioner to assess extra time

required for the additional work before commencement of the same

and that the extended time could be the essence of the contract only

if time was so assessed and known to both parties when the

additional work was taken up. He has further held that only then LD

could be levied for non-completion of the works within the said time.

The arbitrator further found that the petitioner had not

communicated to the respondent the extended time available taking

into consideration the additional work and letter in this regard was

written for the first time on 9th June, 2000 only granting provisional

extension upto 31st August, 2000. The arbitrator has held that there

was no definite stipulated date for completion of work and

assessment of delay in terms of clause 30.1 and hence levy of LD was

not justified.

12. The arbitrator further found that the petitioner had computed

delay of 139 days on the part of the respondent. The arbitrator

found that the petitioner had in the hindrance register maintained by

it and produced before the arbitrator, arbitrarily arrived at the delay

on the part of the respondent of 139 days; that the last two columns

of the hindrance register which were to be worked out were blank

and the details of arriving at the period of 189 delays had not been

communicated by the petitioner to the respondent. The arbitrator

also found the reasons given by the petitioner for computation of net

hindrance period to be arbitrary and not supported by calculations.

It was thus held that the levy of LD was not justified. Accordingly,

the earlier award was reaffirmed.

13. Though the counsel for the petitioner had attempted to argue

that the clause regarding levy of LD in the present case was

identical/similar to that before the Supreme Court in ONGC Ltd Vs.

Saw Pipes Ltd. 2003 5 SCC 705, but in my view the said question

does not arise for adjudication in the present case. Though, the

arbitrator has in the reconsidered award noticed the contention of

the counsel for the respondent that no losses had been suffered by

the petitioner owing to the delay, even if any, and thus the petitioner

was not entitled to any LD which is in the nature of penalty, but the

arbitrator having found no delay on the part of the respondent for

which LD could be levied did not deal with the said aspect. The

reconsidered award turns only on the finding of the arbitrator of

there being no delay inviting levy of LD. The challenge by the

petitioner to the reconsidered award has to be thus confined to the

said finding only of the arbitrator.

14. Faced with the aforesaid the counsel for the petitioner

contended that the arbitrator has misconducted himself in not

treating the award dated 25th September, 2004 earlier published by

him to have been set aside by this court vide order dated 10 th May,

2006 (supra) and by merely giving another reason for support of the

finding in the earlier award. It is further contended that inspite of

the direction of this court the arbitrator has in the reconsidered

award not dealt with clause 9.2 of the contract. He has in the course

of the hearing also handed over copies of the letters dated 29th April,

2000 and 29th September, 2000 of the respondent to the petitioner

and contended that the respondent had therein admitted delay. He

has also drawn attention to the letter dated 15th June, 2001 copy

whereof is on the record and wherein the respondent had admitted

the delay for the reasons of its precarious financial conditions and

requested for waiver of LD or levy of token LD. It is contended that

the same is an admission by the respondent of its liability for LD and

which has not been considered by the arbitrator.

15. It is next argued that the only case set up by the respondent

before the arbitrator was of time not being of the essence and it is

argued that it was never the case of the respondent that there was

no delay.

16. The counsel for the petitioner qua the hindrance register first

contended that the arbitrator had after the order dated 10th May,

2006 (supra) of this court directed the petitioner to produce the

hindrance register; however, upon the senior counsel for the

respondent pointing out that the hindrance register had been filed by

the petitioner before the arbitrator as far back as in the year 2003,

the same was admitted to be the correct position by the counsel for

the petitioner also; it was however contended that the arbitrator

before the reconsidered award did not seek any clarifications from

the petitioner with respect to the hindrance register and that the

finding of the arbitrator with respect to the hindrance register are

factually incorrect.

17. Per contra the senior counsel for the respondent has

contended that the arbitrator had after the order dated 10 th May,

2006 of this court reached the conclusion that there was no delay.

He has drawn attention to clause 9.2 of the contract providing for

computation as aforesaid of time upon additional work being allotted

and has highlighted that the formula provided therein is only one of

the alternatives and the other alternative is "or such further

additional time as may be considered reasonable by the engineer-in-

charge". It is urged that it was thus incumbent upon the petitioner

to, after the award of additional work, communicate to the

respondent the time for completion in terms of the formula

prescribed in clause 9.2 or as considered reasonable by the

engineer-in-charge. It is argued that no such time was communicated

and thus the respondent was not in the know of the time within

which, after the award of additional work, the works were to be

completed. He has also drawn attention to the hindrance register

copies whereof have been filed on record and to the typed copy

thereof filed by the petitioner also containing the explanation

therefor. He has also drawn attention to the copies of the internal

notes submitted by the petitioner before the arbitrator under cover

of letter dated 19th December, 2003 wherein the petitioner has also

recorded that the major portion of the additional construction was

completed by 31st December, 2000 and only some minor external

works and rectification works could not be completed during the

extended period and also praising the respondent for the works; in

the said note it is also recorded that there were delays in getting the

electric connection and the building licenses for various other

reasons and owing to which inspite of the respondent completing the

works the same could not be occupied; the worldwide slowdown in IT

Sector due to the then recent development in USA was also cited as

a reason for non-occupation of the software technology park. The

senior counsel for the respondent has thus argued that even if there

was any delay, no loss has been suffered by the petitioner for which

penalty in the form of LD could be awarded. The senior counsel for

the respondent has also contended that the findings of the arbitrator

are factual in nature and non- interfereable under Section 34 of the

Act.

18. The counsel for the petitioner in rejoinder has contended that

the findings of the arbitrator with respect to the hindrance register

are contrary to the admission of liability as aforesaid by the

respondent.

19. This court had in the order dated 10th May, 2006 interpreted

clauses 9, 11 and 30 of the contract. The said interpretation was

binding on the arbitrator. Thus, the arbitrator was not required to

deal again with the said clauses and no flaw can be found with the

award on this ground.

20. As far as the contention of the counsel for the petitioner of the

arbitrator having misconducted himself is concerned, I do not find

that the arbitrator has in any manner shown any obstinacy or

insistence on sticking to his earlier award which had been set aside

by this court. The arbitrator is not a person steeped in law or

familiar with legal language. Thus by picking a word here and there

in the reconsidered award it cannot be argued that the arbitrator

inspite of earlier award having been set aside refused to budge from

the same. The arbitrator had in the first award negatived the claim

for LD holding time not to have been of the essence. Certain

observations were made in that first award also of delay being on the

part of the petitioner. However, as observed / held by this court in

the order dated 10th May, 2006, the said observations were in

passing in the first award and otherwise it turned on the reasoning

of time not being of the essence. The arbitrator has in the

reconsidered award, following the interpretation of the clauses

aforesaid of the agreement permitting/making time to be of the

essence even on award of additional work, held that the petitioner

did not compute the said time while awarding the additional work.

This finding of the arbitrator cannot be said to be inconsistent with

the order dated 10th May, 2006 of this court.

21. This court in the order dated 10th May, 2006 had not

adjudicated on the alternative provided in clause 9.2 of the contract

whereunder the engineer-in-charge is entitled to fix additional time

for completion after award of additional work. The arbitrator has

interpreted the said clause of the contract and held that such

additional time ought to have been fixed by the engineer-in-charge at

the time of award of additional work, for the respondent to know the

time of completion. The arbitrator has not and could not have

controverted the finding of this court of upon such time being fixed,

the same being of the essence of the agreement. The senior counsel

for the respondent has in this regard rightly relied upon the

judgment in McDermott International Inc. Vs. Burn Standard

Co. Ltd. (2006) 11 SCC 181 holding that interpretation of a contract

is a matter for arbitrator to determine and the court ought not to

interfere with such interpretation unless the same is not possible at

all on a reading of the contract. In the present case, I find the

interpretation by the arbitrator of clause 9.2 of the contract to be a

possible one and not such which could not have been arrived at by

any reasonable prudent person. Clause 9.2 provides a formula for

arriving at the extended time and in the alternative empowers the

engineer-in-charge to fix the extended time. It is not the case of the

petitioner also that the petitioner at the time of awarding the

additional work intimated to the respondent that the completion time

would be determined in accordance with the formula and would not

be fixed by the engineer-in-charge. Thus no fault can be found with

the reasoning of the arbitrator that the respondent did not know the

date of completion. The situation can be compared to that of in a

written examination hall. If the examination time is left to be

determined by a convoluted formula or to be determined by the

invigilator, the examinee would be unable to plan out the time to be

devoted to different questions and cannot be all of a sudden told that

the time is up. That is what appears to have prevailed with

arbitrator also.

22. As far as the letters of the respondent seeking extension of

time are concerned, the stipulated completion period for the work

originally awarded was 16 months. The said letters appear to have

been written with reference to the said date and which admittedly,

after the award of additional work was not the stipulated date of

completion. It thus cannot be said that merely because the letters

seeking extension were written by the respondent that the

respondent was aware of the date of completion or that the award is

inconsistent with the said conduct of the arbitrator. Similarly, no

weightage can be given to the contents of the said letter or to the

respondent having sought waiver of LD. The Supreme Court in

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

2009 SC 170 has though in a different context, taken note of the

practices prevailing in the government departments qua such

construction contracts i.e. of insisting upon the contractors

furnishing No Due Certificate before even admitted payments are

released to them. I consider the letters in this case to have been

written in the same fashion/circumstances.

23. Be that as it may, the finding of the arbitrator of there being no

delay whatsoever on the part of the respondent in completing the

works is factual in nature. It is not as if the stipulated date of

completion could be fixed even on the basis of the formula given in

clause 9.2. The petitioner itself admits that there were other

hindrances to completion of the works and benefit whereof has been

given to the respondent. The arbitrator on going through the said

hindrances register has come to the conclusion that the benefit of

some days only given by the petitioner to the respondent is

misplaced/arbitrary and the respondent is entitled to benefit of

additional days. The question which arises is, can this court in

exercise of jurisdiction under Section 34 of the Act, also say that

such finding of the arbitrator is contrary to public policy. The

answer can be in the negative only. Reference in this regard, can be

made to i) State of U.P. Vs. Allied Constructions (2003) 7 SCC

396 where the conclusion of the arbitrator as to force majeure was

held to be non-interferable u/S 30 of the 1940 Act; ii) NHAI Vs.

Afcons Infrastructure Ltd. 152 (2008) DLT 24 where this court

held that interpretation arrived at by the arbitral tribunal being not

palatable to petitioner is no ground for setting aside of the award; iii)

New Delhi Apartment Group Housing Society Vs. Jyoti

Swaroop Mittal 2008 (100) DRJ 439 (DB) holding that unless the

view taken by the arbitrator is grossly irrational or perverse, the

court cannot substitute its own view and iv) MMTC Ltd. Vs. Irano

Hind Shipping Co. 2008 III Ad (Delhi) 315 holding that

appraisement of evidence by the arbitrator is never a matter which

court questions, relied upon by the senior counsel for respondent in

this regard.

24. The contention of the counsel for the petitioner of the

arbitrator having not given any opportunity to the petitioner to

explain the hindrance register is also not found to be correct. A

perusal of the proceedings before the arbitrator shows that the

arbitrator had in the proceedings on different dates noted the

contentions of the parties with respect to the hindrance register.

The arbitrator had in fact also given an opportunity to the petitioner

to furnish its explanation for the various entries in the hindrance

register and it is thereafter that the typed copy of the hindrance

register with the remarks of the petitioner came to be filed. Thus,

the petitioner's version of the hindrance register was before the

arbitrator and has been rejected by the arbitrator. The argument of

the petitioner that it was not for consideration before the arbitrator

as to whether there was any delay or not is also incorrect. The

parties were aware that after the order dated 10th May, 2006 of this

court, the question to be gone into before the arbitrator was this

only. Though arguments were raised that the arbitrator ought to

have directed the parties to file fresh pleadings but on inquiry as to

whether the petitioner sought any such opportunity, the reply is in

the negative.

25. Though the arbitrator has not dealt with the contention of the

respondent qua the petitioner being not entitled to levy LD without

proving loss I may notice that in the present case also it is the

admitted position that no evidence of loss, if any, was produced

before the arbitrator. Though the counsel for the petitioner has

relied upon ONGC Ltd. Vs. Saw Pipes Ltd., AIR 2003 SC 2629 a

judgment of two judges of the Supreme Court, the fact remains that

a five Judge Bench of the Supreme Court in Fateh Chand Vs.

Balkishan Das AIR 1963 SC 1405 had held that proof of such loss is

necessary. Saw Pipes Ltd., (Supra) turned on its own facts.

Though the counsel for the petitioner has contended that the clause

in the contract in the present case is the same as that before the

Supreme Court in Saw Pipes Ltd., (Supra) the fact remains that

there was also before the arbitrator the admission of the petitioner

himself as aforesaid that in spite of completion of construction by the

respondent the same could not be occupied for other diverse

reasons. Thus, material existed before the arbitrator showing that

no loss had been suffered by the petitioner for the reason of the

construction having been completed after the date which according

to the petitioner was the date for completion. In these circumstances

and in the light of the judgment in Fateh Chand (Supra), again it

cannot be said that the award negativing the claim for LD was not a

possible award or is perverse or ought to shock the judicial

conscience.

26. Thus no ground under Section 34 of the Act is found to have

been made out. The petition is dismissed with costs of Rs.35,000/-

payable by the petitioner to the Prime Minister's Relief Fund.

RAJIV SAHAI ENDLAW (JUDGE) August 21st , 2009 M