Verma Construction Co. vs Dda
2009 Latest Caselaw 2788 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI


                                               Date of Reserve: July 07, 2009
                                                  Date of Order: July 23, 2009

+CS(OS) 4405A/1992
%                                                                   23.07.2009
     Verma Construction Co.                                  ...Plaintiff
     Through: Mr. B.M. Sehgal, Advocate

       Versus

       DDA                                                   ...Defendant
       Through: Ms. Anusuya Salwan, Advocate


       JUSTICE SHIV NARAYAN DHINGRA

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

2.     To be referred to the reporter or not?

3.     Whether judgment should be reported in Digest?


       JUDGMENT

1. DDA has filed objections under Section 30 and 33 of the Arbitration Act,

1940 against the award dated 9th November 1992 whereby the learned

arbitrator allowed certain claims of the petitioner and passed an award in

favour of petitioner. The objections have been filed claim-wise and response

thereto has been given by claimant (petitioner herein), so they are being

dealt with claim-wise.

2. Claim No.1 was made by petitioner for a sum of Rs.10,000/- on account

of amount withheld from bill by DDA (respondent herein) because of quality

control. The learned arbitrator allowed this amount observing that out of 57

observations of quality control, 49 paragraphs of observations had already

been dropped by quality control organization. DDA had also not filed

reduction items statement along with analysis despite opportunity being

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 1 Of 13 given by the arbitrator, he, therefore, allowed this claim of Rs.10,000/-.

Respondent DDA had objected to this claim on the ground that the learned

Arbitrator ignored the fact that the amount was withheld on account of

quality control and the observations given therein and, therefore, committed

misconduct. I consider that the objection raised by respondent DDA is not

tenable. The learned arbitrator had taken into consideration the facts as

stated before him and gave a reasoned award on this claim.

3. Claim No.2 consisted of four sub-claims namely 2(a), 2(b), 2(c) and

2(d). DDA had deducted some amount from the bills claiming rebate as per

the contract. Claimant had claimed that these rebates were wrongfully

claimed by DDA despite the fact that the bills were not paid in accordance

with the terms of the contract entitling DDA to claim rebate. The learned

arbitrator after considering the dates of payment of bills allowed the claim in

respect of sub-claims 2(b), 2(c) and 2(d) in full and in respect of 2(a) partly.

4. Awarding of this amount has been assailed by DDA on the ground that

the learned Arbitrator has not given reasons or justification for allowing the

refund of rebate and thus committed misconduct. I consider that this

challenge does not stand in view of the fact that the learned arbitrator

considered the dates of passing of bills which was the only factor to be

considered for availing rebates and allowed claims since the rebate was

claimed by DDA contrary to contract.

5. Claim No.3 was made by claimant claiming a sum of Rs.1,41,400/- on

account of damages due to unproductive rendering of salary of staff during

prolonged period of the contract. Claim No.5 was made by the claimant for a

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 2 Of 13 sum of Rs.45,000/- on account of payment payable under Clause 10(c) of the

agreement and claim No.8 was made by the claimant for a sum of Rs.5 lac on

account of execution of work beyond the stipulated date of completion. All

these three claims were, therefore, interconnected since they were made by

the claimant on account of delay in completion of work as provided under the

contract. Against claim of Rs.1,04,000/- on account of damages due to

unproductive rendering of salary of staff, the learned arbitrator allowed

Rs.40,500/- holding that the work got prolonged for the period of twelve

months for which the claimant had to maintain the establishment. The

extension of time was granted by DDA without levy of compensation,

therefore, it was established that while performing this contract breaches

caused were partial in nature, so claimant was entitled to compensation of

Rs.40,500/-. The learned Arbitrator did not disclose as to how he had arrived

at this figure. Against claim No.5, he allowed the entire amount of Rs.45,000/-

holding that because of prolongation of contract by twelve months, there was

increase in labour wages. The prolonged period of the contract was accepted

by respondent (DDA) without levy of compensation and there was no labour

complaint received during this period, so claimant was entitled to payment

under provisions of clause 10C of contract and he allowed the entire claim.

Under claim No.8, learned Arbitrator again held that claimant had to perform

the contract during extended period for which extension of time was granted

by respondent DDA without levy of compensation, so the claimant was

entitled for compensation. He allowed increase of 28% over the work done

after the expiry of initial period of contract and awarded a sum of

Rs.2,69,600/- to the claimant.

6. Against awarding of amount under above three claims, objections

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 3 Of 13 raised by DDA is that the award on these claims was contrary to the

conditions set out in the agreement entered into between the parties. The

learned arbitrator totally ignored the conditions as set out in the contract and

award being contrary to the conditions was liable to be set aside.

7. The petitioner in his response to these objections stated that objections

raised by DDA were baseless. The conditions relied upon by DDA were

considered by the learned Arbitrator. The DDA was misinterpreting these

conditions. There was a clause in the notice inviting tenders that the site

would be available. The subsequent conditions as appearing in the

specifications regarding non-availability of site provided that there must be

some reasons for non-availability of site and the leaned arbitrator considered

this and then awarded the claim. Similarly, regarding claim No.5, it is stated

by the petitioner that this claim was allowed in accordance with Clause 10C of

the agreement. The contention of DDA that the work was delayed by claimant

was considered by learned Arbitrator and found not tenable since there were

provisions in the agreement for payment of enhancement under Clause 10C,

the learned arbitrator rightly allowed this claim. Similarly, awarding of

amount under claim No.8 in favour of claimant/petitioner was justified as the

work was delayed by DDA.

8. Clause 10(c) of the agreement reads as under:

"Clause 10C.

If during the progress of the works, the price of any material incorporated in the works, (not being a material supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof) and/or wages of labour increases as a direct result of the coming into force of any

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 4 Of 13 fresh law, or statutory rule or order (but not due to any changes in sales tax) and such increase exceed ten percent of the price and/or wages prevailing at the time of receipt of the tender for the work, and contractor thereupon necessarily and properly pays in respect of the material (incorporated in the work) such increased price and/or in respect of labour engaged on the execution of the work such increased wags, then the amount of the contact shall accordingly be varied provided always that any increase so payable is not, in the opinion of the Superintending Engineer (whose decision shall be final and binding) attributable to delay in the execution of the contract within the control of the contactor.

Provided, however, no reimbursements shall be made if the increase is not more than 10% of the said prices/ wages and if so the reimbursements shall be made only on the excess over 10% of the said prices/ wages and if so the reimbursements shall be made only on the excess over 10% and provided further that any such increase shall not be payable if such increased has become operative after the contact or extended date of completion of the work in question.

If during the progress of the works, the price of any material incorporated in the works [not being a material supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof] and/or wages of labour is decreased as a direct result of the coming into force of any fresh law or statutory rule or order [but not due to any changes in sales tax] and such decrease exceeds ten percent of the prices and/or wages prevailing at the time of receipt of the tender for the works. Delhi Development Authority shall in respect of materials incorporated in the work [not being materials supplied from the Engineer-in-in charge's stores in accordance with Clause 10 hereof] and/or labour engaged on the execution of the work after

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 5 Of 13 the date of coming into force of such law statutory rule or order be entitled to deduct from the dues of the contractor such amount as shall be equivalent of difference between the prices of materials and/or wags as they prevailed at the time of receipt of tender for the work minus ten percent thereof and the prices of materials and /or wages of labour on the coming into force of such law, statutory rule or order.

                     The    contractor      shall   for     the    purpose    of    this
               condition    keep    such     books     of    account      and      other

documents as are necessary to show the amount of any increase claimed or reduction available and shall allow inspection of the same by a duly authorized representative of Delhi Development Authority and further shall, at the request of the Engineer-in-Charge furnish, verified in such a manner as the Engineer -in- charge may require any document to kept and such other information as Engineer-in-charge may require.

The contractor shall, within a reasonable time of his becoming aware of any alteration in the prices of any such materials and/or wages of labour, give notice thereof to the Engineer-in-Charge, stating that the same is given in pursuant to this condition together with all information relating thereto which he may be in a position to supply."

9. A perusal of clause 10(c) makes it abundantly clear that claim under

clause 10(c) lies only if during the progress of work, price of any material (not

being a material supplied from the Engineer-in-charge store) or wages of

labour increases because of coming into force of any fresh law, statutory rule

or order and such increase exceeds 10% of the price /wages prevailing at the

time of the receipt of tender. The contractor can claim reimbursement of the

increase in price and labour wages only if it is more than 10% and only to the

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 6 Of 13 extent it was in excess of 10% and he serves a notice on DDA during progress

of work. Such reimbursement of the increased prices/labour is to be made

only if it is approved by the Superintending Engineering. A similar provision is

there in Clause 10C in respect of reduction in price and reduction in wages.

Clause 10(c) also provides that in order to claim any increase beyond 10%,

the contractor will have to keep books of accounts showing payment of

increased wages to labour and increased price for goods. Thus, an

enhancement under Clause 10(c) can be allowed only if the conditions, as set

out in Clause 10(c), are satisfied. The learned arbitrator was not at liberty to

award any arbitrary amount under Clause 10(c). Only that amount could be

awarded under Clause 10(c) as permitted under it and for which books of

accounts had been maintained by the contractor and it is shown that there

was statutory increase either in the labour rates or in the rate of materials. No

presumption could be drawn by the learned Arbitrator that because of the

contract overrunning, there was necessarily going to be a price rise and

necessarily going to be a wage rise. Any such award where a departure from

the contractual clauses is made, is liable to be set aside on this ground. A

departure from the contract amounts to manifest disregard of the authority

by the arbitrator. The arbitrator, being the prisoner of the contract, is bound

to remain within the four corners of the contract.

10. Learned Arbitrator in this case had not awarded the amount in

accordance with the provisions as contained in clause 10C. It is also clear that

the learned arbitrator had not considered whether the increase in labour rate

was more than 10%, if it was so, what was the amount exceeding 10%. It

apparent that no books of account or record were produced before the

learned arbitrator about payment of higher rates or wages to the labour.

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 7 Of 13 There is no presumption in favolur of claimant that he must have been

maintaining the record and must have paid the wages and such payment was

in excess of 10%. Moreover, clause 10C also provides that as and when a

claim under this clause is made, it has to be submitted to Suptd. Engineer for

his opinion and his decision is to be final and binding. I, therefore, came to

conclusion that the award under claim 5 has been awarded contrary to the

contract and, therefore, is liable to be set aside.

11. It is now settled law that where in a contract it is provided that the

period of contract can be increased conditionally or unconditionally, the time

is not the essence of the contract and the period so increased is to be

considered as the period of contract. It is recorded by the arbitrator that the

period of the contract was increased in this case without levying of

compensation. Non-levy of compensation does not signify that the period of

contract was increased with any condition of awarding additional amount to

the claimant. It is born out from the record that the period for performance of

the contract was enhanced at the request of claimant though without levying

of compensation. The claimant was at liberty to walk out of the contract at

the expiry of the period of the contract. The fact that the claimant asked for

enhancement of the period of contract for performance of contract and did

not put any condition only shows that the contract between the parties

remained intact. The only change in the contract was the period of

performance and there was no change in any other conditions in the contract.

Once the contractor had accepted the prolonged period of performance

without any demur and continued with the work, the contractor cannot claim

additional amount because of the prolongation of the contract, unless and

until the same is provided in the terms and conditions of the contract.

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 8 Of 13

12. It is settled law that not only the parties but the arbitrator is also bound

by the terms and conditions of the contract and the arbitrator cannot pass an

award beyond the contract or contrary to the contract. The arbitrator is not

the judge in equity but is the judge of the contractual rights. He cannot

assess the damages suffered by a party because of extension of time of the

contract unless it is specifically provided in the contract that if period of

contract is extended, the party shall be entitled for additional amount. It is

also not understood how the learned arbitrator could have awarded this

additional amount once on account of wages of persons of the establishment

of the contractor and secondly on account of prolongation of the contract.

13. It is worthwhile to note that delay in this case was due to some stay

orders obtained against the site of construction from the Court and due to site

having bushes etc and required leveling and dressing before the work could

be started. No doubt para 2(a) of NIT states that, "The site for work is

available" but this does not show that the site is absolutely ready for work

and there is no hindrance. It is for this reason that the tender document

under "Specification & Conditions" itself provides as under:

"1. The contractor must get acquainted with the proposed site for the works and study specifications and conditions carefully before tendering. The work shall be executed as per programme approved by the Engineer-in-Charge. If part of site is not available for any reason or there is some un-avoidable delay in supply of materials stipulated by the Department, the programme of construction shall be modified accordingly and the contractor shall have no claim for any extras or compensation on this account. "

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 9 Of 13

14. The plea of claimant is that words "If part of site is not available for any

reason" imply that there must be justifiable reasons. The reading of this

clause only shows that for any reason means for any reasons whatsoever and

not that there must be some justifiable reasons. It is clear from above clause

that in case the work got prolonged due to non-availability of site or due to

any other reason the work of construction was to be re-programmed modified

(by extension of time for completing the work) No claim for any extra amount

or compensation could be made by the contractor under such circumstances

unless contract provided that in case of extension of time, the contractor

would be entitled for additional amounts. I, therefore, consider that claim

No.3 and 8, as allowed by the arbitrator, are contrary to the contract. It is

settled law that the arbitrator cannot allow a claim which is either contrary to

the contract or for which there is no provision in the contract.

15. In view of above discussion, the award in respect of claims No.3, 5and

8 is hereby set aside.

16. The claimant under Claim No.4 claimed a sum of Rs.22,231.83 on

account of non-payment of rates on extra items in accordance with agreed

terms and conditions. The extra items were given in Statement No.2 being

Items No.2,5,6,12,13,16,17 and 18 and Items 12 and 13 in Statement No.6.

The learned arbitrator observed that since the rates were agreed upon

between the parties in respect of extra items these rates could not be

reduced later on. Learned arbitrator therefore allowed Rs.12,729.24 against

this claim since this was the amount according to the arbitrator as „short paid‟

as per the claims.

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 10 Of 13

17. Respondent DDA pleaded that learned Arbitrator gave no reasons to

allow this claim and the award of this claim was contrary to Clause 7 of the

contract. The learned arbitrator ignored Clause 7 of the agreement under

which all running payments were to be treated as advance payment to the

petitioner and rates worked out in respect of extra item were to be

provisional rates to be finally approved by the competent authority at the

time of final bill. It is stated that whenever the provisional rates were given,

thereafter the rates were analyzed and approved by the competent authority.

The rates so approved were given to contractor and the deductions of extra

amount was made . The petitioner in response to this objection submitted

that clause 7 is misinterpreted by DDA. This clause nowhere states that rates

paid would be provisionally rates.

18. Clause 7 reads as under:-

"Clause 7.

No payment shall be made for a work estimated to cost rupees five thousand or less till after the whole of the work shall have been completed and certificate of completion given. But in the case of work estimated to cost more than Rs. five thousand, the contractor shall, on submitting the bill be entitled to receive a monthly payment proportionate to the part thereof then executed to the satisfaction of the Engineer-in-Charge, whose certificate of the sum so payable shall be final and conclusive against the contractor. But all such intermediate payments shall be regarded as payment by way of advance against the final payment only and not as payments for work actually done and completed, and shall not preclude the requiring of bad, unsound and imperfect or unskilled work to be remove and take away and reconstructed, or re-erected or be considered as an

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 11 Of 13 admission of the due performance of the contract, or any part thereof, in any respect or the accruing of any claims, nor shall it conclude, determine, or affect in any way the powers of the Engineer-in-Charge under these conditions or any of them as to the final settlement and adjustment of the accounts or otherwise or in any other way vary or affect the contract. The final bill shall be submitted by the contractor within one month of the date fixed for completion of the work or of the date of the certificate of completion furnished by the Engineer-in-Charge and Payment shall be made within three months if the amount of the contract plus that of additional items is up to Rs.2 Lakhs and in 6 months if the same exceeds Rs.2 lakhs of the submission of such bill. If there shall be any dispute about any items of the work then the undisputed item or items only shall be paid within the said period of three months or six month or as the case maybe. The contractor shall submit a list of the disputed items within thirty days form the disallowance thereof and if he fails to do this, his claim shall be deemed to have been fully waived and absolutely extinguished.

"Wherever there is likely to be delay in recording detailed measurements for making payment in the case of residential building, advance, payments without detailed measurements for works done (other than foundations and finishing items) upto (a) lintel level (including sun shade etc.) and (b) slab level, for each floor ,worked out at 75% of the tendered rates may be made in running account bills of certificate from the Assistant Engineer to the effect that the work has been completed up to the level in question.

The advance payments so allowed shall be adjusted in the subsequent running bill by taking detailed measurements thereof. Final payment shall be made only on the basis of detailed measurement."

CS(OS) 4405/1992 M/s Verma Construction Company v.DDA Page 12 Of 13 A perusal of Clause 7 would show that this clause does not deal with extra

item at all. Neither there is any condition that contractor would be paid

provisional rates and rates would be subsequently finalized by the competent

authority. I therefore consider that the objection raised by DDA is not

tenable.

19. The learned Arbitrator awarded 15% interest per annum on the amount

allowed in favour of claimant with effect from 1st July 1989 upto the date of

payment or decree of the Court, whichever was earlier. Considering the

present interest regime prevalent for last more than 12 years and the fact

that interest rates had fallen considerably during last 12 years and the banks

do not give an interest of more than 7.5% even on the long term deposit, I

consider that 8% interest per annum would be a reasonable and justified rate

of interest.

20. In the result, the objection filed by DDA in respect of claim No.3,5 and 8

are upheld and award in respect of claims No.3, 5 and 8 is hereby set aside.

The award passed in respect of rest of the claims is made a rule of the Court.

Claimant/petitioner would be entitled to interest on the awarded amount from

1st July 1989 till payment @ 8% per annum.

July 23, 2009                                    SHIV NARAYAN DHINGRA J.
rd




CS(OS) 4405/1992     M/s Verma Construction Company v.DDA         Page 13 Of 13