Central Warehousing ... vs M/S. Power Maxx & Ano.
2009 Latest Caselaw 5123 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI


+                         O.M.P. No.353/1999

                                                          December 10, 2009.



CENTRAL WAREHOUSING CORPORATION.                                ...Petitioner


                          Through:     Mr. K.K.Tyagi, Advocate with Mr.
                                       Iftekhar Ahmad, Advocate.

                                VERSUS

M/S. POWER MAXX & ANO.                                     ....Respondents

                          Through:     Mr. Sunil Goel, Advocate with Mr.
                                       Sushil Bhartiya, Advocate.

CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

    1. Whether the Reporters of local papers may be allowed to see
       the judgment?

    2. To be referred to the Reporter or not?

    3. Whether the judgment should be reported in the Digest?

    %                     JUDGMENT(ORAL)

VALMIKI J. MEHTA, J.

1. This is a petition under Section 34 of the Arbitration and

Conciliation Act, 1996 whereby the petitioner has challenged the Award dated

22.9.1999 passed by the sole Arbitrator in the disputes which arose between the

OMP No.353/1999 Page 1 parties with respect to the contract awarded by the petitioner to the respondent

for the construction of a godown.

2. The counsel for the petitioner has very fairly at the outset confined

his objections to Claim Nos. 1,3 and 4 in the Award. I will take each of them in

seriatim.

3. Claim No.1 was the claim of the contractor/respondent for higher

cost of executing the work because of substitution of an item, namely, stone

gravel instead of stone aggregate. The Arbitrator in this regard has held as

under:

"After listening to arguments of both parties and written submissions and documents mentioned above, I am convinced that there was tremendous increase in rates of stone gravel at the time of construction after Nov.'92, due to ban on explosives on account lf law & order problems and closure of stone quarries, as a result. The decision of the department for substituting the stone aggregate with stone gravel for flooring and road work was therefore in order but delayed. Regarding the rates for substituted item of stone gravel, an agreement in principle during the visit of SE Calcutta to Assam was arrived at between to make payment for substituted item of gravel on the basis of Assam PWD schedule (85-86) plus contractor % age @ 47%. Accordingly the Ex.En. prepared the S/I statement and sent to SE & Chief Engineer on 30-08-97 vide Annexure 5. This statement shows the agreement rates based on CPWD schedule on one side for original item of stone aggregate and on the other side of statement, substituted rates for gravel stone based on relevant Assam PWD schedule as per the decision taken during the meetings with Ex.En. and duly recorded by Ex.En. & SE, as well as agreed by the

OMP No.353/1999 Page 2 contractor (Annexure 7). This has to be treated as a supplementary agreement, and due sanctity has to be given to the same, for payment of substituted item. In accordance with the same contractor collected gravel to the same, for payment of substituted item. In accordance with the same contractor collected gravel for a large quantity 1098.77 cubic meters as per statement given by respondent during the hearing on 05- 08-97. After collection of same, & completion of job in March'94, the denial of the same and on the other hands, asking for a recovery of about Rs.1,28,000/- is clearly after thought and cannot be agreed to. In fact at the face of it, the counter Claim of recovery raised after the start of arbitration in July'1997 when case was subjudice, appears to be quite illegal, and even time barred by limitation of 3 years after completion of work. As such, I am of the opinion that this issues goes in favour of the claimant for payment of substituted item of stone gravel as per Assam PWD schedule of rates 1985-

86(buildings) plus contractor's enhancement of 47% as this decision is also supported by contractual provisions under Cl.12(IV). The cost adjustment/recovery by dept. is not considered valid on basis of reasons given above, as well as on account of the fact that stone aggregate was not available in market at all at that time. Further, the market price of stone gravel provided by the contractor were much higher than even the rates of Assam PWD 85-86 plus contractor's enhancement, which are payable under contract clause 12, as admitted by Ex.En. in his letter A-5." (Emphasis added) It is, therefore, clear that the original material being the stone aggregate

was substituted for stone gravel and that the cost of stone gravel had gone up

manifold because there was a ban on explosives on account of law and order

problems and there was closure of stone quarries, as a result of the ban. The

Arbitrator has thereafter referred to the Assam PWD schedule and has thereafter

arrived at the rates of the stone gravel. While hearing objections under Section

OMP No.353/1999 Page 3 34, the jurisdiction of this Court is limited. It has to be shown that the

Arbitrator has committed an illegality or has gone against the provisions of the

contract or the Award is so perverse that it shocks the judicial conscience. I do

not find that so far as this claim is concerned, that there is any illegality or

perversity at all because the Arbitrator has arrived at a finding of fact, and

which he was entitled to, that the rate of stone gravel had gone up. A valid

basis for the increase in the rates have also been given by him by adopting the

Assam PWD schedule. Merely because two views are possible, it is not

possible for this Court to interfere with the Award on the ground that as per the

objector another view is possible. This Court while hearing objections does not

sit as an appellate Court and will not interfere with the view taken by the

Arbitrator as long as it is a plausible view. Objection to this claim is

accordingly rejected.

4. The next objection which has been raised is with respect to the

claim of interest as allowed by the Arbitrator for the security deposit amount

which was withheld by the petitioner by deduction from the bills of the

contractor. The counsel for the objector has canvassed that the security deposit

amount is not by way of deduction from the bills but it was a security deposit of

a fixed deposit receipt of a Bank and the respondent was therefore earning

interest on the FDR. I am unable to agree with this contention of the counsel

OMP No.353/1999 Page 4 for the objector because this plea that the fixed deposit receipt was given as a

security deposit is not found in the pleadings before the Arbitrator and in fact

the Arbitrator has come to a finding of fact that the security deposit was the

security deposit withheld by making deductions from the bills of the contractor.

This being the position, and nothing has been shown to me otherwise that there

was in fact a fixed deposit receipt because in spite of a Court query the counsel

for the objector failed to show any such FDR, I do not find any perversity or

illegality with respect to this part of Award under claim No.3 for interest on the

amount claimed for delay in refund of the security deposit.

5. The next claim which has been challenged by the objector is claim

No.4. This was a claim by the contractor for higher cost of doing work in the

extended period on account of the defaults and the breaches by the petitioner.

The Arbitrator has arrived at a finding of fact whereby he has held the petitioner

solely responsible for a delay of 15 months in performance of the contract.

Consequently, for this period of delay the additional cost incurred by the

contractor for site overheads and loss of productivity/restricted profits has been

considered by the Arbitrator. The Arbitrator, I note, in this regard has dealt

with the issue in detail and has applied the formula from HUDSON's Building

and Engineering Contracts, 10th edition, and has arrived at the loss under this

head at Rs. 2.598 lacs. However, the Arbitrator has given a lower figure of Rs.2

OMP No.353/1999 Page 5 lacs instead of computed amount of Rs. 2.598 lacs. I can do no better than

reproduce this reasoning and rationale of the Arbitrator which in my opinion is

not only pithy but elaborate. These observations are:

"As far as damages to either party are concerned the main criteria is who is the defaulting party to whom the delays can be attributed, and I have gone through the standard books & legal judgments on the subject of law relating to Building & Engineering contractors in India. During the course of arguments, the learned counsel of the claimant referred to the text book on the subject by G.T.Gajaria, (Chapter XII on damages) for Breach of contract, by the employer, constituting the delays in giving clear site, & to give timely decisions on account of employer's such defaults are indicated in Section 5&8 of this chapter. The losses payable by employer in such cases are as follows:-

(i) Losses due to Head Office (HO) overheads & Profit.

(ii) Losses due to site overheads.

(iii) Losses due to rise in cost of materials & labour.

(iv) Loss of productivity etc. Though increase in rise in prices of materials & labour, are covered under the escalation clause of contract, which the Deptt. Has claimed to have paid under clause 10CC of contract, the other important damages for which the contractor gets entitled due to delay in performance of their obligations by employer are in nature of loss of Head Office & site overheads & restricted profits. Normally the loss of overheads & profits is permissible in building contract each @ 10% of prime cost of work, i.e. upto 20% as per general Govt. instructions for preparation of project estimates. However, the minimum %age for profits & overheads is considered in CPWD schedule of rates @ 10%. The general formula for assessing the loss due to delay in completion of work, is stated by HUDSON one of the most renowned authority on the subject in his book "Building and Engineering Contracts" 10 th addition at page 599 as follows:

Loss due to overheads/Profit due to delay=

OMP No.353/1999 Page 6 HO/Profit %age X Contract sum X Period of delay 100 Contract period In this case, considering the minimum overheads/profit %age @ 10% for a contract amount of Rs.25.98 lacs in stipulated period of 15 months and with period of delay as 15 months on part of the respondent department, the damages due to loss of profits & overheads due to prolongation of contract work out to 10/100 X 25.98/15 X 15 = 2.598 lacs.

For further justification of adopting 10% for profits and overheads without any proof of actual losses, reference may also be made to the following comments as given at PP-68-69 of the "Supplement to Building & Engineering Contracts in India" by G.T. Gajaria. "However a conservative estimate of 10% has been recommended by the Government of India. At the same time the Supreme Court in Mohd. Salamatullah Vs.Government of Andhra Pradesh has held the award of 15% as estimated profit to be reasonable in case of breach of contract. If the execution of the work or its completion is delayed by the breach of the employer, the contractor, as already stated, would be entitled to claim for the loss of "over-heads" which have been put at a minimum of 10%. Therefore these percentages should be taken to be the established norms or standards for the purpose of considering losses under these two heads without actual proof about their quantum"

Thus, in my opinion, the damages to the extent of 2.598 lacs as worked out can be accepted without actual proof about their quantum under the standard HUDSON formula for loss of over-heads & profits due to delay on part of other party.

However, since the claimant himself had claimed the sum of Rs.2.00 lacs as per his original application for Aptt. of arbitrator this claim can be restricted to Rs.2.00 lacs only."

Accordingly, once the Arbitrator has given valid reasons, this

Court cannot go into the reasonableness of reasons more so because there is no

OMP No.353/1999 Page 7 perversity or illegality in the reasons as given aforesaid by the Arbitrator. The

objections with respect to this claim are accordingly rejected.

6. That leaves me finally with the issue of interest that is to be

awarded. The Arbitrator has awarded interest @12% and 18% per annum. The

Supreme Court in the recent catena of judgments reported as Rajendra

Construction Co. Vs. Maharashtra Housing & Area Development Authority

& ors.2005 (6) 678, McDermott International Inc. Vs. Burn Standard Co.

Ltd.& ors 2006 (11) SCC 181, Rajasthan State Road Transport Corpn. Vs.

Indag Rubber Ltd. (2006) 7 SCC 700 and Krishna Bhagya Jala Nigam Ltd.

Vs. G.Harischandra, 2007 (2) SCC 720 has held that the Courts in view of the

consistent fall in the rates of interest and the changed economic scenario should

reduce the high rates of interest which are granted in the arbitration

proceedings. In fact, the Supreme Court in case of State of Rajasthan Vs.

Ferro Concrete Construction Pvt. Ltd (2009) 3 Arb. LR 140 (SC) has even

interfered with the high rate of pre-reference interest. The Supreme Court has

further gone on to say that the Court should also consider the factor for reducing

the interest when there is a long pendency of the legal proceedings whether

before the Arbitrator or before the Court hearing objections. I may note that

the Award in this case is of the year 1999, i.e. more than 10 years back.

Accordingly, in terms of the mandate of the aforesaid Supreme Court

OMP No.353/1999 Page 8 judgments, I am of the opinion that in the facts and circumstances of the case,

interest @ 9% per annum simple ought to be awarded and which I so award

instead of rate of interest as granted by the Award. I may clarify that, however,

I am not changing the period for which the interest has been granted.

7. With the aforesaid observations, the objection petition is dismissed

subject to the modification as regard the rate of interest leaving the parties to

bear their own costs. In case payment under the Award and as modified by this

judgment is made within 90 days from today then rate of interest shall continue

to be @ 9% per annum. However, in case payment is made after a period of 90

days from the date of present judgment, then interest from the date of the

present judgment shall be @ 12 per annum simple till payment.

                                                       VALMIKI J.MEHTA, J


December 10, 2009
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OMP No.353/1999                                                            Page 9