M/S Bharat Builders vs Delhi Development Authority
2009 Latest Caselaw 5250 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                            CS(OS) No.1168/1994

                                                        16th December, 2009
M/S BHARAT BUILDERS                                          ...Petitioner

                                  Through:       Mr. Sandeep Sharma, Mr. Vikas
                                                 Sharma and Ms. Mugdha Pandey,
                                                 Advocates.
               VERSUS



DELHI DEVELOPMENT AUTHORITY                            ....Respondent.

                                  Through:       Mr. Ajay Verma, 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.

I.A.No.2336/1995 in CS(OS) No.1168/1994

1. This application contains the objections on behalf of the

respondent/applicant/DDA under Sections 30 and 33 of the Arbitration Act, 1940

against the Award dated 9.5.1994 of the sole Arbitrator. The Award has been

CS(OS) No.1168/1994 Page 1 passed with respect to the disputes which arose between the parties under the

contract awarded to the petitioner by the objector for the construction of Local

Shopping Centre at Block-J, Vikas Puri, New Delhi.

2. The counsel for the objector has only pressed the findings on the preliminary

objections as recorded by the Award and sub-claims Nos. 4,15,17 of Claim No.1,

Claim Nos.6 and 9 with relation to interest and counter-claim No.7.

3. Though at the outset, the counsel for the objector also sought to press

objections with respect to certain other minor claims and which were indeed of

insignificant amounts of Rs.6869/-, Rs.3461/-, Rs.1050/- etc, however, since the

same could not be effectively argued in view of the findings contained in the

Award, the said objections were not pressed.

4. I would now take each objection as raised by the objector and deal with the

same.

5. The first objection which was pressed was that the Arbitrator has

misconducted himself and the proceedings by giving a finding on preliminary

objection No.1 that the claims made by the contractor are not barred by Clause 25 as

per which the claims have to be made within 90 days of receiving the intimation of

preparation of the Final Bill. The factual position is that the measurements were

recorded in February 1991 and thereafter final bill in this case was paid in October,

1992, the Arbitration was already invoked on 30th March, 1991, and the reference is

CS(OS) No.1168/1994 Page 2 dated 3rd May, 1991. Accordingly, there is no scope for the applicability of Clause

25 as admittedly, in this case, the disputes have been raised much before the period

specified under Clause 25 viz on 30.3.1991 i.e even before the final bill has been

prepared after March, 1992 after the measurements were taken in February, 1991.

Accordingly, there is no substance in this objection which is rejected.

6. The next objection which was with respect to preliminary objection No.2, in

which it is recorded that measurements have been accepted by the

contractor/petitioner, however, according to the counsel for the objector while

dealing with sub claim no.4 of claim No.1, the Arbitrator has taken the

measurements as not final. I would deal with this aspect when I deal with the

objections to the sub-claim No.4 of Claim No.1.

7. The final preliminary objection which was decided by the Arbitrator against

the objector, was with regard to the issue of rescission. What the counsel for the

objector has contended is that in view of the decision of the Supreme Court in the

case of Vishwanath Sood Vs. UOI 1989 (1) SCC 657 since, there is a levy of

penalty on the contractor and which decision of the Superintending Engineer is

final, therefore, it is not permissible for the Arbitrator to enter into this dispute with

regard to whether the contractor or the objector is guilty of delay for the same

period. This contention is not correct because as rightly argued by the counsel for

the non-objector that this contention of the counsel for the objector is negated by a

CS(OS) No.1168/1994 Page 3 Division Bench judgment of this court in the case reported as DDA Vs. Bhagat

Construction Co. Pvt. Ltd. 2004 (3) Arb. LR 548 and in para 13 of which judgment,

a Division Bench of this court has considered the judgment of Supreme Court in

Vishwanath Sood's case (supra) and has laid down that what is final is only the

levy of penalty and it is not that the Arbitrator is prevented from going into the

aspect of who is responsible for delay in performance of the contract and its

consequences. Accordingly, in view of the aforesaid Division Bench Judgment, in

the case of Bhagat Construction Company (supra), I reject the objection of the

objector. I may only add that if the contractor had gone to the Civil Court on this

aspect of wrong imposition of damages he was surely entitled to challenge the

imposition of liquidated damaged i.e. decision of the imposition of levy of

liquidated damages is not final and which challenge would include challenge before

the Civil Court of wrongly holding the contractor liable for delay on the basis of

which damages have been awarded. What I am stressing is that what is final is only

the levy of liquidated damages and that the issue of delay is not barred for decision

on the ground of res judicata or issue estoppel, even in arbitration proceedings.

8. Before I take up each claim and the arguments with respect thereto, I must

deal with one basic issue which permeates the findings of the Arbitrator and which

is that the objector has been held guilty of wrongly rescinding the contract.

The detailed discussion on this aspect is found in as many as nine pages i.e

CS(OS) No.1168/1994 Page 4 from internal page 4 to 13 of the Award, and in these pages the Arbitrator after

discussing the various contentions and the issues has come to a finding that both the

objector and the present petitioner were guilty of breaches by delaying the

performance of the contract. On the one hand, the objector has been held guilty of

delay in supplying of the drawings, delay in issue of the cement, delay in making

the payments and so on, the petitioner has also been held responsible for certain

delays in performance of the contract. The Arbitrator has held that both the parties

are responsible for delay in the performance of the contract, though it is also clear

that major defaults were attributable to the objector. After giving such a finding the

Arbitrator then has held that time of performance was not the essence of the contract

and was in fact repeatedly extended. In view of the aforesaid findings that the time

of performance was not the essence of the contract, a final conclusion is given by

the Arbitrator at internal pages 12 and 13 of the Award and which runs as under:-

"Thirdly time for performance if not of essence or no longer of the essence because of election, rescission is only permitted after giving a notice requiring performance of the notice. In this case vide C-115 respondent asked claimants to complete work by 15/12/90 by a notice dated 28/11/90. Whereas as per press notice No.17 PWD6 No.22/92-93 for Rs. 68436/- work recoverable from M/s Bharat Builders 5 months is time allowed. This means time of 17 days allowed to claimant was totally unreasonable."

The aforesaid findings cannot be faulted with because this finding is based on

the judgment of the Supreme Court reported as Hind Construction Contractors Vs.

State of Maharashtra, AIR 1979 SC 720 and in which judgment the Supreme Court

CS(OS) No.1168/1994 Page 5 has laid down that where time of performance is not the essence of the contract, it is

necessary that before the same is made of the essence, a party must give a notice of

a reasonable time so as to make the time essence of the contract. In the present

case, time of performance was from the inception not of the essence of contract

because there was a clause of liquidated damages and which as per the judgment in

Hind Construction Contractors case (supra) makes time of performance not to be

of the essence even though it is specified to be of the essence of contract. There is a

finding of fact that no reasonable notice has been given for making time the essence

of the contract, and which is required in terms of the aforesaid judgment in Hind

Construction's case. This being a finding of fact, and not shown to me to be

perverse in any manner, as Arbitrator has held that notice though given was in fact

not a notice of a reasonable period and hence amounts to not giving the legally

required notice. For arriving at the conclusion of unreasonable period of the notice,

the Arbitrator notes that the date of the notice is 28.11.1990 and by which the work

was directed to be completed by 15.12.1990 i.e within a period of 17 days. This

period of 17 days, the Arbitrator has then compared with the time which was given

to the substitute contractor for completing the balance work in as many as 5 months.

In fact, this work of five months was also completed in 7 months by the substitute

contractor. Thus, the finding of the Arbitrator is wholly justified because once there

is a notice which requires fixing of the time as the essence of the contract such

CS(OS) No.1168/1994 Page 6 notice must necessarily fix a reasonable period of time. This is also in terms of

Section 46 of the Contract Act, 1872 which specifies that where no time is fixed for

performance, then performance must be within a reasonable period of time.

Therefore, in view of the above factual and legal position, I do not find any fault

whatsoever in this finding of the Arbitrator that the period fixed is not a reasonable

period. Even if, two views were possible from this situation, I do not think that the

view adopted by the Arbitrator can be said to be the view of an unreasonable man

which no person could have arrived at. Therefore, while hearing objections under

Sections 30 and 33, I would not venture to set aside the findings and the conclusions

of the Arbitrator merely because there is another possible view. In any case, I have

already held that the Arbitrator is justified in holding that the period fixed making

time the essence of the contract, was not a reasonable period. In view of the above,

there is no merit in the objection that the Arbitrator has wrongly held that the

contract was not properly rescinded by the objector.

9. Sub Claim No.4 of Claim No.1 pertains to the claim of the contractor for

short payment. The Arbitrator has awarded a total of Rs.27,641/- for the short

payment under this head. There were three sub heads of this claim, two of which

pertain to RCC work in the foundation. Mr. Verma contends that once the

Arbitrator has held at internal page 4 of the Award that the final measurements were

accepted by the claimant without any protest on 8.2.1992, then there cannot be a

CS(OS) No.1168/1994 Page 7 different conclusion adopted by the Arbitrator that fresh measurements can be

adverted to by the claimant for making claims for short payment due to incorrect

measurements. Mr. Verma is both right and wrong. He is right that measurements

were taken as final and he is wrong because the Arbitrator records that the

respondent/objector itself has made fresh measurements for the RCC work after the

final measurements were accepted. If, therefore a fresh measurement is made after

preparation of the final bill, then, surely there can come into effect additional

measurements for seeking payments on such basis. Once again, I feel that, even if

two views are possible, it cannot be said that the decision of the arbitrator is so

perverse that it can be held that he has misconducted himself or the proceedings.

These additional measurements were with respect to RCC work and therefore so far

as the two sub heads under this subject claim no. 4 is concerned, namely serial no.1

and 2 for RCC works are justified. However, so far as the brick work foundation is

concerned, there cannot be retraction with respect to the measurements already

recorded in the measurement books which have become final. Accordingly,

awarding of this claim is partially modified in that out of the amount of Rs.27,641/-

and amount of Rs.14,992.28 shall stand reduced.

10. The next dispute pertains to sub claim No.15 of Claim no.1. This claim

pertains to the cost of work done. The respondent admits that the amounts due for

the balance work is of Rs.1,54,528/-, however, what has been argued by Mr. Verma

CS(OS) No.1168/1994 Page 8 is that this amount in fact has been paid in the final bill and therefore there is no

question of the Arbitrator awarding this claim again which will amount to double

payment. Mr. Sharma on the other hand refutes this contention and states that this

amount has not been paid in the final bill. I therefore, need not to say anything

except the fact that since this amount of Rs.1,54,528/- is payable to the petitioner,

if the same has been paid under the final bill, the same shall stand deleted from the

awarded amount but if not paid shall be liable to be paid.

11. Sub claim no.16 pertains to the refund of the security deposit. I have already

held that the rescission of contract by the objector was not justified and the

Arbitrator is correct in holding that the rescission was illegal. The challenge to this

sub-claim therefore automatically falls because once the rescission is not justified,

the petitioner was entitled to refund of the security deposit.

12. The next claim in dispute is sub claim no.17 whereby the Arbitrator has

awarded escalation under Clause 10CC for the extended period of the contract. I

may note that the claim which was made by the petitioner was for a sum of Rs.8

lacs and this was thereafter reduced to Rs.6,42,466/-. In view of my finding with

respect to preliminary objection no.2 on the aspect of non applicability of the

judgment of the Supreme Court in Vishwanath Sood case (supra), while deciding

this sub-claim-17 it was open to the Arbitrator to proceed on the basis of the

findings of breaches of the objector due to delays so that escalation can be granted

CS(OS) No.1168/1994 Page 9 for delayed period. The escalation in this case is claimed after 1.10.1988. The

contractor has already got escalation for the period before May, 1987. In terms of

judgment of the Division Bench of this Court in Bhagat Construction Co.(supra),

the Arbitrator was well justified in arriving at a finding and which he has done by

holding that the objector was guilty of delay on account of various aspects such as

delay in issuance drawings, delay in issuance of cement or delay in making the

payments and so on. Mr. Verma has sought to contend that once it is held that both

the parties are responsible for delay, then, such a claim could not have been

awarded under Clause 10CC. I am afraid I cannot agree because under Clause

10CC once it is held that the respondent is liable to compensate for the increase in

prices towards material and labour in the extended period when there is a default or

delay in performance by the objector, I do not think that the Arbitrator is wholly

unjustified in awarding this claim. Of course, there is an issue of calculation when

both the parties are responsible for delay as to what should be the amount which the

Arbitrator could have awarded. The arbitrator in this case is a technical person

namely Sh. A.C Panchdhari who is a retired Director General (Works) of CPWD

and he is therefore possessed of necessary knowledge to arrive at a finding. It has

been repeatedly held by this court that some leeway is permissible when the

Arbitrator is a technical man who is well versed in knowledge of execution of the

construction works. I cannot probe into the mental process of the Arbitrator as to

CS(OS) No.1168/1994 Page 10 how this figure has been arrived at. It is settled law that once there are certain

materials available before the Arbitrator, the Arbitrator is competent to make an

honest guess work on the basis of such material available before him. This is so

held by the Supreme Court in the Case of Mohd. Salamatullah vs. State of A.P.,

AIR 1977 SC 1481 and M/s A.T Brij Paul Singh Vs. State of Gujrat, AIR1984 SC

1703.Therefore, even if on the first blush, the argument of Mr. Verma may appear

to be attractive however, while hearing objections to the Award, I do not find such

gross perversity for this court to hold that the Arbitrator has misconducted himself

and the proceedings. Objections to this claim are therefore not sustainable and

hence dismissed.

13. The next claim which was argued was Counter-claim no.7 whereby the

Arbitrator has dismissed the Counterclaim of the Objector on account certain

deficiency in the work of the contractor. The Arbitrator has in arriving at the

conclusion of dismissal of the Counterclaim by specifically referring to Contractual

Clause 14 which requires that notice has to be issued to the contractor giving the

details of various defects in the work and only thereafter can the objector make

deduction/claim for any defects in the work. The Arbitrator has arrived at a finding

of fact that no notice for deficiency/defective work was ever issued to the

petitioner/contractor. Mr. Verma has also not shown to me any notice which has

been issued specifically pointing out any specific deficiency in the work which is

CS(OS) No.1168/1994 Page 11 done by the contractor. Accordingly, this finding of fact is not in any manner

perverse for this court to hold that the Arbitrator has misconducted himself or the

proceedings. Objection to this claim is therefore is rejected.

14. The counter claim No.9 was on account of the claim of the objector because it

had to complete the work allegedly at the risk and cost of the contractor. This claim

for Rs.7,01,191/- has been rejected by the Arbitrator because he has held that the

rescission of contract was not justified. I have already dilated on this aspect while

considering the preliminary objection no.3 and the issue of rescission with respect

to other claims. No fault can therefore be raised against dismissal of this Counter

claim no.9.

15. The last issue which therefore remains is the rate of interest which ought to

be awarded and the rate of interest which the Arbitrator has awarded @ 12% . 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 should in view of the consistent fall in

the rates of interest take into account the changed ground realities and reduce the

higher rates of interest granted under the Award. The Supreme Court has further

CS(OS) No.1168/1994 Page 12 mandated that this becomes all the more necessary when a considerable period of

time elapses from the date of the Award till the disposal of the objections by the

court. I may note that the Award in this case is of the year 1994 and in which year

the objections were also filed. Today were are at the end of 2009. The Supreme

Court, in fact, in the case of State of Rajasthan Vs. Ferro Concrete Construction

Pvt. Ltd (2009) 3 Arb. LR 140 (SC) has also reduced the rate of interest for the pre-

reference period. Accordingly, wherever the Award has granted interest @ 12 %

per annum for pre-reference period or pendente lite period or thereafter till making

of the Award rule of the court, I reduce the rates of interest uniformally to 9% per

annum simple. In case, the payment is made under the present judgment within a

period of 90 days from today then rate of interest shall be continue to remain 9%

simple from the date of this judgment, however, in case the payment is not made

within the aforesaid period of 90 days, then interest from the date of this judgment

shall run at 11% per annum. I may lastly clarify that in case the payment of

Rs.1,54,528/- under sub claim no.15 of claim no.1 is, already received by the

petitioner, the petitioner will not be entitled to the same again in terms of the present

judgment, but, in case, however, this amount is not received by the petitioner in the

final bill, the petitioner will be entitled to such amount.

16. With the aforesaid observations, the Award dated 9.5.1994 is made a rule of

the court except with regard to the variation of the limited extent of sub head (4) of

CS(OS) No.1168/1994 Page 13 claim no.1 and the reduced rate of interest. Parties are left to bear their own costs.

December 16, 2009                                           VALMIKI J.MEHTA, J
Ne/ib




CS(OS) No.1168/1994                                                          Page 14