Delhi High Court
Executive Engineer vs M/S Nav Nirman Construction Co. on 23 December, 2009
Author: Shiv Narayan Dhingra
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Reserve: 15th September, 2009
Date of Order: 23rd December, 2009
OMP No. 451/2006
% 23.12.2009
Executive Engineer ... Petitioner
Through: Mr. Rohit Madan, Advocate
Versus
M/s Nav Nirman Construction Co. ... Respondent
Through: Mr. G.K.Sharma, Advocate
JUSTICE SHIV NARAYAN DHINGRA
1. Whether reporters of local papers may be allowed to see the judgment? Yes.
2. To be referred to the reporter or not? Yes.
3. Whether judgment should be reported in Digest? Yes.
JUDGMENT
By this Order I shall dispose of objections filed by the petitioner
under Section 34 of the Arbitration & Conciliation Act, 1996 against an award
dated 19.4.2006 passed by the Arbitrator. By this award the learned Arbitrator
had allowed following amounts in favour of the respondent:
Amount (in Rupees)
Claim No.1 - 1,00,000/-
Claim No.2 - 98,000/-
Claim No.3 - 25,000/-
Claim No.4 - 38,656/-
Claim No.5 - 1,31,652/-
Claim No.6 - 1,25,000/-
Claim No.12 - 6,00,000/-
Claim No.14 - 50,000/-
Claim No.16 - 20,000/-
Claim No.20 - 63,641.75
Claims No. 27-46 - 1,46,777/-
Total = Rs.13,98726.75/-
2. Brief facts relevant for the purpose of considering this petition are
that the respondent was awarded a contract of construction of inlet/outflow
structure of 'DDA Storm Water drain' at R.D.12940M(R/B) of Supplementary
Drain. The respondent had given a bid for this work at Rs.20,23,116/-. The
tender/bid of the respondent was accepted by petitioner vide letter dated
11.5.1992. The stipulated date of start of work was 18th May, 1992 and date of
completion of work was 17th October, 1992 i.e. the work was to be completed
within five months of opening of tender. However, the contractor had not
completed the work within this period for several reasons and the time period was
extended from time to time. The work was ultimately completed on 30th October,
1997 i.e. almost five years after the stipulated date of completion. The
contractor's submitted final bill after completion of work. The contractor raised a
dispute after submission of final bill that he was entitled for additional payments
and invoked arbitration clause on 14th August, 2000. The petitioner did not
appoint the Arbitrator and the respondent then moved an application under
Section 11(6) of the Arbitration & Conciliation Act, 1996 and vide order dated 21st
April, 2003 in AA no. 45/2003, the present Arbitrator was appointed and gave the
aforesaid award which is under challenge.
3. The award is challenged by the petitioner on the ground that the
award was contrary to agreement and contrary to substantiate provisions of the
contract between the parties and even contrary to provisions of law and patently
illegal. It was contrary to public policy.
4. It is submitted that the Arbitrator gave award contrary to facts and
law, without assigning any reasons and contrary to clause 25 of the Contract
which specifically provided that the Arbitrator was to give reasons. The Arbitrator
allowed claims of the respondent merely on the presumptions and approximation
and blindly accepted the claims of the respondent without any evidence in proof.
The Arbitrator also did not consider that the respondent had entered several
remarks in the site order book wrongfully and illegally to substantiate his
assertions and claims. It is stated that the Arbitrator ignored and violated
conditions of the contract/agreement and the award made by the Arbitrator in
respect of different claims was beyond the scope of contract and the agreement.
It is stated that the Arbitrator acted without jurisdiction. It is also submitted that
the Arbitrator wrongfully allowed 12% interest.
5. It is settled law that while considering objections under Section 34
of the Arbitration & Conciliation act, the Court cannot sit in appeal and consider
the award on merits. The award can be set aside only if the award falls within the
mischief of Section 34 of the Arbitration & Conciliation Act.
6. Clause 7 of the contract entered into between the parties
specifically provided that the contractor has to raise running bills from time to time
on the basis of measurements of the work done and the payments made from
time to time shall be treated as advance payments. If there is any dispute about
any items of the work then the undisputed item or items only shall be paid within
the period of three months, if the amount of contract and that of additional items
was upto Rs.2 lac and in six months if amount exceeded Rs.2 lac, as the case
may be and the contractor had to submit a list of disputed items within 30 days
from the disallowance thereof and if he failed to do so, his claim shall be deemed
to have been fully waived.
7. It is well known that in civil contracts, as the work progresses the
measurement of the work done has to be taken from time to time and recorded in
measurement book and running bills are to be raised at different stages in
accordance with the measurements as recorded in measurement book duly
signed by the Engineer Incharge/Supervisor of the department. Even the
disputed items are to be recorded in measurement books. If any substituted or
any extra item is executed by the contractor the same has to be recorded in the
measurement book. Measurement book is the record of the work done. In case
the payment is not made to the contractor in respect of a recorded work, the
contractor can raise a dispute validly as provided under this clause. After various
running bills are over then the final bill is prepared. The final bill is the stage
where the payment of the contractor is to be settled finally.
8. Clause 8 provides that a bill has to be submitted by contractor
each month on or before the date fixed by the Engineer Incharge and all works
executed in the previous month, duly measured, should be included in such
monthly bills and these measurements are to be verified by the Engineer
Incharge. In case of failure of contractor to submit the bills, the Engineer Incharge
can depute somebody for measuring the work. Clause 8A provides that before
taking measurement of the work done, the Engineer Incharge or Subordinate
deputed by him, shall give a reasonable notice to the contractor. Clause 9
provides that Contractor shall submit all bills in printed forms mentioning the rates
specified in tender and in case of extra work ordered in pursuance of the
conditions, the rates for such work shall also be provided. Thus, it is clear from
the contract that the contractor has to record the measurement of the work done
from time to time in measurement book and raise bill and in case of disputed
items submit his bill to the Engineer Incharge for his consideration after every
running bill. There is no provision in the entire contract that the contractor can
make claim in respect of an item for which there is no measurement in the
measurement book. What I find from the award that the learned Arbitrator has
not at all referred to the contract, not at all referred to the measurement book and
has allowed claims of the contractor on the basis of assertions made by the
contractor that he had done additional work because of an act of the petitioner of
flooding the drain with storm water from other area.
9. Clause 12 of the contract provides that in case there are any
substituted or additional items which the contractor is asked to do and which are
not provided in the contract the contractor has to work out the rates for such
additional or substituted item derived from the rates for a similar class of work.
Clause 16 provides that the contractor shall give not less than 7 days' notice in
writing to the Engineer Incharge or his authorized subordinate in charge of the
work before covering up or otherwise placing beyond the reach of measurement
in work in order that the same be measured and correct dimension thereof be
taken before the same is so covered up and placed beyond the reach of
measurement.
10. Above clauses of contract make it abundantly clear that only those
claims could have been raised by the contractor which were recorded in the
measurement book but were not paid to him and he had raised a dispute during
currency of the contract. A contractor is not at liberty to seek payment in respect
of those items by way of arbitration for which he did not raise a claim during
currency of the contract whether they were substituted items or extra items. He
can raise dispute in respect of execution of work regarding extra items or
substituted items up to his concluding the contractual work and he can raise
dispute before the Arbitrator only of those items which he executed as per
measurement book but were not paid to him either due to disputed measurement
or due to disputed rates. He is not at liberty to raise claim before the Arbitrator in
respect of those works which are not recorded anywhere in the measurement
book or in respect of those extra/substituted items for which no order was placed.
The learned Arbitrator however, in this case entertained all those claims which
were not covered by the contract and for which no dispute was raised by the
claimant during raising of monthly bills or final bill. These claims were raised by
the claimant first time after the final bill was prepared. The Supreme Court in
State of J&K v. Dev Dutt Pandit AIR 1999 SC 3196 held as under:
15. The Contractor has to be paid on the basis of
measurement of the work done by him. Local
Commissioner measured the work done by the contractor
in presence of both the parties and thereafter he submitted
his report. On the basis of measurement so recorded by
the Local Commissioner the contractor prepared the final
bill of claim for Rs.14,32,436/- and after taking out the
amount already paid to him, made claim for the balance. It
is difficult to see how claims made under items 13 and 14
could be said to be either new claims or outside the terms
of the contract. Under clause 5 of the contract, the
contractor is to be paid for the work executed by him under
the contract at the rates specified therein.
16. Under clause 17 of the contract it is the contractor,
who is responsible for any damage or loss to the work or
part thereof caused due to any reason whatsoever and be
at his own cost is required to repair and to make good of
loss or damage. Contractor, therefore, could not claim any
loss done to him on account of early onset of monsoon or
otherwise. Similarly, under the terms of the contract he
cannot claim any amounts towards idle labour. As a
matter of fact under clause 69 these claims are not
entertainable at all. Mr. Thakur for the contractor said that
"idle employees" as mentioned in clause 69 of the contract
is not the same thing as "idle labour". According to him, the
term "idle employees" would mean regular employees on
the roll of the contractor like Engineers etc. We do not
think such a restricted construction can be put on the term
"idle employees" as not included idle labour as well. Read
as whole skilled and unskilled labour are all employees of
the contractor under the contract.
11. Pleas taken by the respondent and accepted by the Arbitrator for
delays in completion of work are amusing. The total work was to be completed
within a period of five months. The tender document made it very clear.
According to respondent there was delay in furnishing of drawing. Though the
tender document itself had a drawing but this drawing was not an execution
drawing and as per contractor, the execution drawing was supplied i.e. on 10th
October, 1992 just one week before the scheduled date of completion.
Considering that there was a delay in supplying of the drawing, although
petitioner's contention has been that the structural drawing was supplied to the
contractor just by the time the contractor had reached the stage of laying the
RCC, there can be no explanation of taking five years more in doing a work
which was to be done within five months. The only ground given by the
contractor in his claim is that the work could not be completed due to rainy
season and storage of water in the drain for which hindrance has been recorded
in the hindrance register. The record filed by the contractor shows that the rainy
season was already over and last rain of the season had taken place on 15th
September, 1992. Whatever had been the hindrance due to rainy season, this
was known to the contractor that he was going to construct storm water drain and
the contract was awarded to him in May i.e. just before the start of rainy season
and the contract was to come to an end on 17th October, 1992 i.e. about a month
after the end of rainy season. Rainy season in Delhi starts from 29th June and
major rains are over by August. Rain after August takes place only on few
occasions and Delhi had since long ceased to have heavy rains. Despite all this,
the work took five years instead of five month and the learned Arbitrator has
rewarded the contractor by awarding a sum of Rs.13 lac odd amount against a
total contract of Rs.20,23,116/-. Why would not any contractor delay the work
and get rewarded?
12. The arbitration clause in this case was a peculiar clause which
provided that it would be a term of the contract that no persons other than a
person appointed by the such DG of works/Chief Engineer or Administrative
Head of CPWD(DA) Zone as aforesaid should act as Arbitrator and if for any
reason that is not possible the matter is not to be referred to the arbitration at all.
A similar provision had come for consideration before this Court in case of M/s
Arvind Construction Company Pvt. Ltd. v. Union of India & Ors. Arb. Petition No.
219/2008 decided on 2nd March, 2009, wherein this Court observed as under:
6. I consider that in the present case Court has to
keep in view of the peculiar Arbitration Clause between the
parties. The Arbitration Clause reads as under:
"(a) In the event of any question, dispute or difference
arising under these conditions or any special conditions of
contract, or in connection with this contract (except as to
any mattes the decision of which is specially provided for
by these or by the Special conditions) the same shall be
referred to the sole arbitration of a Gazetted Railway
Officer appointed to be the arbitrator, by the General
Manger in the case of contracts entered into by the Zonal
Railways and Production Units; by any Member of the
Railway Board, in the case of contacts entered into by the
railway Board and by the head of the Organization in
respect of contract entered into by the other Organizations
under the Ministry of Railways. The Gazetted Railway
Officer to be appointed as arbitrator however will not be
one of those who had an opportunity to deal with the
matters to which the contract relates or who in the course
of their duties as railway servant have expressed views on
all or any of the matters under dispute or difference. The
award of the arbitrator shall be final and binding on the
parties to this contract.
(b) In the event of the arbitrator dying, neglecting or
refusing to act or resigning or being unable to act for any
reason, or his award being set aside by the court for any
reason, it shall be lawful for the authority appointing the
arbitrator to appoint another arbitrator in place of the
outgoing arbitrator in the manner aforesaid.
(c) It is further a term of this contract that no person
other than the person appointed by the authority as
aforesaid should act as arbitrator and that if for any reason
that is not possible, the matter is not to be referred to
arbitration at all. (emphasis added)
(d) .....................
(e) .........................
(f) ...........................
(g) ................................
(h) .............................."
7. From a bare perusal of the Arbitration Clauses, it is
obvious that the parties had agreed that the matter would
either be referred to the Arbitrator appointed by the
respondent in accordance with clause 2900 (a) or there
shall be no arbitration at all in view of clause 2900 (c) of
the contract.
8. It is settled law that parties are bound by the
contract entered into between them including the
arbitration clause. If the Arbitration Clause provides that
the arbitration proceedings shall be conducted only by a
particular arbitrator otherwise there shall be no arbitration
and the matter can be taken up under ordinary civil law,
the petitioner does not have a right to get other arbitrator
appointed through the Court under Section 11(6) of the
said Act. The petitioner entered into this Arbitration Clause
knowing fully well the implication of the Arbitration Clause.
The petitioner is bound by the entire arbitration clause and
not only a part thereof. Since no Arbitrator had been
appointed by the respondent, the petitioner was at liberty
to approach the civil court. The petitioner has asked for
appointment of an arbitrator through this Court. In view of
the judgment of the Supreme Court in Patel Engineering
(supra) considering that emphasis of the Court has to be
on the terms of the agreement being adhered to and given
effect as closely as possible, I consider the Court cannot
write new terms of the agreement between the parties and
appoint an arbitrator outside the agreement.
13. This Court again considered the same point in judgment rendered
in Arb. Petition No. 451/2008 Engineering Development Corporation v. Municipal
Corporation of Delhi & Anr. decided on 22.9.2009 and held as under:
6. A perusal of letter dated 23rd April 2006 written by
petitioner to respondent shows that the petitioner told
respondent to close the contract and refund the earnest
money and release the bank guarantee given for
performance of the contract. The petitioner had not raised a
dispute in respect of losses suffered by the petitioner. It is
apparent that the petitioner did not comply with the terms of
the arbitration clause relied upon by the petitioner which
specifically provides that every notice of arbitration shall
specify the quantum of amount claimed and specify the list
of disputes that the amount claimed in respect of each
dispute. Moreover, the arbitration clause provides that if for
any reason appointment of an arbitrator was not done by
MCD, the matter shall not be referred to arbitration at all.
This clause had come for consideration of this Court in
Arbitration Petition 219 of 2008 M/s Arvind Construction
Company Pvt. Ltd. Versus Union of India & Ors and this
Court observed that the parties are bound by the contract
entered into between them, including the arbitration clause
and if the clause provides that the arbitration proceedings
shall be conducted only by a particular arbitrator failing
which there shall not be no arbitration, the dispute can be
taken up before ordinary civil Court and the petitioner does
not have a right to get the an arbitrator appointed through
the Court under Section 11 of the Act. The Supreme Court
in Indian Oil Corporation Limited and others v Raja
Transport Private Limited (2009) 11 Scale 672 held as
under:
"It is quite common for governments, statutory corporation
and PSUs' while entering into contracts, to provide for
settlement of disputes by arbitration and further provide that
the Arbitrator will be one of its senior officers. If a party, with
open eyes and full knowledge and comprehension of the
said provision enters into a contract with a Govt./statutory
corporation/PSU containing an arbitration agreement
providing that one of its Secretaries/ Directors shall be
arbitrator, he cannot subsequently turn around and contend
that he is agreeable for settlement of disputes by arbitration,
but not by the named arbitrator who is an employee of the
other party. No party can say he will be bound by only one
part of the agreement and not the other part, unless such
other part is impossible of performance or is void being
contrary to the provisions of the Act.
A party to the contract cannot claim the benefit of arbitration
under the arbitration clause, but ignore the appointment
produces relating to the named arbitrator contained in the
Arbitration clause."
14. I consider that appointment of Arbitrator in this case was contrary
to the contract. At the time this Court appointed Arbitrator, attention of the Court
was not drawn to the special arbitration clause which provided that no other
person could act as Arbitrator except as provided in the clause and failing which
the arbitration clause itself goes. The Arbitrator therefore acted without
jurisdiction and the award itself is without jurisdiction and is liable to be set aside
on this ground alone. I, therefore, allow the objections of the petitioner and the
award dated 19.4.2006 passed by the Arbitrator is hereby set aside.
December 23, 2009 SHIV NARAYAN DHINGRA, J.
vn
OMP No. 451/2006 Executive Engineer v. M/s Nav Nirman Construction Co. Page 10 of
