Delhi High Court
M/S. Centre For Development Of ... vs Ansal Properties & ... on 16 March, 2009
Author: Vipin Sanghi
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 12.02.2009
% Judgment delivered on: 16.03.2009
+ EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 &
FAO(OS) 107 OF 2008
M/s. Centre for Development of
Telematics (C-DOT) ..... Appellant
Through: Mr. P. P. Malhotra, Additional
Solicitor General with Mr. J. C. Seth,
Advocate
versus
Ansal Properties & Infrastructure Ltd.(APIL) ....Respondent
Through: Mr. Gaurav Sarin, Advocate with
MS. Charul Sarin and MS. Supriya
Juneja, Advocates.
CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE VIPIN SANGHI
1. Whether the Reporters of local papers may No
be allowed to see the judgment?
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
VIPIN SANGHI, J.
1. The present appeals arises out of a common judgment delivered
by the Learned Single Judge in three different proceedings initiated by
the respondent viz:
(i) EFA(OS) No.9/2008 arises out of Execution Petition No.
126/2005 (filed by the respondent to execute interim award dated
19.02.2003 made by the Arbitrator in favour of the respondent for an
amount of Rs. 1,32,27,137/- along with interest at the rate of 9% per
annum in respect of which the petition preferred by the appellant
under Section 34 of the Act were dismissed by a Ld. Single Judge of
this Court on 18.05.2005 in OMP No. 228/2003).
(ii) FA(OS) No.107/2008 arises out of OMP. No.309/2005 (U/s. 9
of the Arbitration & Conciliation Act (hereinafter called "The Act") to
seek an injunction against the appellants to restrain them from en-
cashing the Bank Guarantees furnished at the behest of the
respondent in terms of their communication dated 23.08.2005);
(iii) FAO(OS) No.106/2008 arises out of Arbitration Petition No.
112/2007 (U/s. 11 of The Act seeking appointment of an Arbitrator for
reference of the dispute pertaining to levy liquidated damages for
delay in execution of the work, levied by the appellant, as
communicated to the respondent vide communication dated
23.08.2005), and;
2. All the aforesaid proceedings arose out of disputes between
the parties in respect of a contract awarded by the appellant to the
respondent for construction of its main R&D building at Chhatarpur
Mehrauli, Mandi Gaon Road, New Delhi. The contract was awarded on
18.02.1999. The work had to be completed by the respondent within
30 months i.e. by 10.08.2001. However, the work was provisionally
certified as having been completed by the respondent only on
31.03.2005. The contract provided for extension of time in Clauses
44.1 to 44.3. The same read as follows:
"44.1 Extension of Time for Completion
The work shall throughout the stipulated period of
the Contract be proceeded with due diligence. If
the works be delayed by:
i) force majure, or
ii) abnormally bad weather, or
iii) serious loss or damage by fire, or
iv) civil commotion, local commotion of
workmen, strike or lockout affecting any of the
trades employed on the Work, or
v) delay on the part of other contractors or
tradesmen engaged by the C-DOT in executing
work not forming part of the Contract, or
vi) non-availability of stores, which are the
responsibility of C-DOT to supply, if any, or
vii) non-availability or break down of tools and
plant to be supplied or supplied by the C-DOT, if
any, or
viii) any other cause which, in the absolute
discretion of the C-DOT is beyond the Contractor‟s
control
then upon the happening of any such event
causing delay, the Contractor shall immediately
give notice thereof in writing to the Engineer, but
shall nevertheless use constantly his best
endeavors to prevent or make good the delay and
shall do all that may be reasonably required to the
satisfaction of the Engineer to proceed with the
work.
44.3 Grant of Extension of Time
In any such case the C-DOT may give a fair and
reasonable extension of time for completion of the
Work. Such extension shall be communicated to
the Contractor by the Engineer in writing, within 3
months of the date of receipt of such request.
Non application by the Contractor for extension of
time shall not be a bar for giving a fair and
reasonable extension by the C-DOT and this shall
be binding on the Contractor."
3. The contract also provided for compensation for delay in
execution of the contract by the Contractor / respondent in Clause 47.1
which reads as follows:
"47.1 Compensation for Delay
If the Contractor fails to maintain required
progress in terms of the Contract or to
complete the Work and fails to clear the Site on
or before the stipulated or extended date of
completion, he shall, without prejudice to any
other right or remedy of the C-DOT on account of
such breach be liable to pay agreed
compensation of an amount equal to ½ %
(Half percent) of the Contract Sum/Price or
such smaller amount as the C-DOT may
decide, for every week the progress remain
below the agreed progress schedule or that
the Work/phase remains incomplete. The
decision of the C-DOT in writing shall be
final and binding on the Contractor.
Provided always that the total amount of
compensation for delay to be paid under this
clause shall not exceed 10% (Ten Percent) of the
Contract Sum of the Work or of the Contract
Sum/Price of the item or group of items of work,
as shown in the letter of acceptance, for which a
separate period of completion is originally given.
The amount of compensation may be adjusted or
set off against any sum payable to the Contractor
under this or any other contract with the C-DOT."
(emphasis supplied)
4. The contract contained an arbitration agreement in Clause
67.1 which reads as follows:
"67.1 Settlement of Disputes and
Arbitration
Except where otherwise provided in the
Contract all questions and disputes relating to
the meaning of the specifications, design,
drawings and instructions herein before
mentioned and as to the quality of workmanship
or materials used on the Work or as to any other
question, claim, right, matter or thing whatsoever
in any way arising out of or relating to the
Contract, designs, drawings, specifications,
estimates, instructions, orders or these conditions
or otherwise concerning the Work or the
execution or failure to execute the same whether
arising during the progress of the Work or after
the cancellation, termination, completion or
abandonment thereof shall be dealt with as
mentioned hereinafter:-
i) If the Contractor considers that he is
entitled to any extra payment or compensation in
respect of the works over and above the amounts
admitted as payable by the C-DOT or in case the
Contractor wants to dispute the validity of any
deduction or recoveries made or proposed to be
made from the Contract, the Contractor shall
forthwith give notice in writing of his claim, in this
behalf to the Engineer within 30 days from the
date of disallowance thereto for which the
Contractor claims such additional payment or
compensation or disputes the validity of any
deduction or recovery. The said notice shall give
full particulars of the claim, grounds on which it is
based and detailed calculations of the amount
claimed and the Contractor shall not be entitled to
raise any claim nor shall the C-DOT be in any way
liable in respect of any claim by the Contractor
unless notice of such claim shall have been given
by the Contractor to the Engineer in the manner
within the time as aforesaid. The Contractor shall
be deemed to have waived and extinguished all
his rights in respect of any claims not notified to
the Engineer in writing in the manner and within
the time aforesaid.
ii) The Engineer shall give his decision in
writing on the claims notified by the Contractor
within 30 days of the receipt of the notice thereof.
If the Contractor is not satisfied with the decision
of the Engineer, the Contractor may within 15
days of the receipt of the decision of the Engineer
submit his claims to the ED C-DOT for conciliation
along with all details and copies of
correspondence exchanged between him and the
Engineer. The ED C-DOT shall appoint the
Conciliator.
iii) If the conciliation proceedings are
terminated without a settlement of the disputes,
the Contractor shall, within a period of 30 days of
termination thereof shall give a notice in the form
prescribed by the C-DOT, to the ED C-DOT for
appointment of an Arbitrator to adjudicate the
notified claims, failing which the claims of the
Contractor shall be deemed to have been
considered absolutely bared and waived.
iv) Except where the decisions have
become final, binding and conclusive in
terms of the Contract, all disputes or
differences arising out of the notified claims of the
Contractor as aforesaid and all claims of the C-
DOT shall be referred for adjudication through the
arbitration by the Sole Arbitrator appointed by the
ED C-DOT. If the Arbitrator so appointed is unable
or unwilling to act or resigns his appointment or
vacates his office due to any reason whatsoever,
another Sole Arbitrator shall be appointed in the
manner aforesaid by the ED C-DOT. Such person
be entitled to proceed with the reference from the
stage at which it was left by the predecessor.
It is a term of the Contract that the party invoking
arbitration shall give a list of the disputes with
amounts claimed in respect of each dispute along
with the notice for appointment of arbitrator.
It is also a term of the Contract that no person
other than a person appointed by the ED C-DOT
as aforesaid should act as an Arbitrator and if for
any reason that is not possible, the matter shall
not be referred to arbitration at all.
It is also a term of the Contract that the Arbitrator
shall adjudicate on only such disputes as are
referred to him by the ED C-DOT and give
separate award against each dispute and claim
referred to him. The Arbitrator shall give reasons
for the award.
It is also a term of the Contract that if any fees are
payable to the Arbitrator, these shall be paid
equally by both the parties.
The Conciliation and Arbitration shall be
conducted in accordance with the provision of the
Arbitration and Conciliation Act 1996 or any
statutory modifications re-enactment thereof and
the rules made there under for the time being in
force shall apply to the arbitration proceeding
under this clause." (emphasis supplied)
5. The respondent applied for extension of time on various
occasions. The appellant extended the time up to 31.12.2003
provisionally. (We find that the learned Single Judge erroneously
recorded that extension of time had been granted upto 31.12.2003
without levy of any damages or compensation for delay in execution of
the work on the part of the contractor. In fact a perusal of the
extension letters placed as Annexure-6 to Annexure-10 in FAO(OS)
107/2008 shows that on each occasion when the time was extended, it
was stated by the appellant that the same was being extended without
prejudice to the rights of C-DOT to recover compensation for delay in
accordance with the provisions of Clause 47.1 of the agreement. From
the correspondence and the averments on record it is clear that the
extension of time upto 31.12.2003 granted by the appellant was only
provisional). The decision on the request of the respondent for further
extension of time beyond 31.12.2003 was kept pending by the
appellant till the time the respondent completed the work under the
contract.
6. During the currency of the work certain disputes arose
between the parties. On the request of the respondent/contractor,
these disputes were referred to arbitration in terms of the aforesaid
arbitration agreement. The Arbitrator gave his award of Rs.
1,32,27,137/- with interest at the rate of 9% per annum in favour of the
respondent on 19.02.2003. As aforesaid, petition to challenge the said
award at the behest of the appellant, under Section 34 of the Act was
dismissed by this Court on 18.05.2005 in OMP No. 228/2003. The
appellant did not prefer any further appeal and consequently the
award dated 19.02.2003 became executable. The respondent filed Ex.
P. No.126/2005 to seek execution of the interim award. In the
meantime, it appears that the work under the contract was certified to
be provisionally completed by the respondent on 31.03.2005 vide
certificate issued on 24.05.2008. The undated "provisional completion
certificate" issued by the appellant on 24.05.2005, inter alia, stated:
"5. Actual date of completion:
5.1 Site clearance - 09.08.1999
5.2 Basement completion - 30.06.2000
5.3 Entire structure - 15.12.2004
5.4 Balance work - 31.03.2005
6. Contract Value: Rs.36,78,90,630.00
7. Completion Cost: Final Bill under Process
8. Status of Defect Liability Period: Defect
liability period is up to 30.03.2006, Copies of
provisional defect lists forwarded to APIL is enclosed
and are being attended by APIL (folio no.1 to 45).
The integrated complete fire fighting system has to
be demonstrated by APIL to C-DOT, the
demonstration is to be given as per mutual
agreement between C-DOT, APIL & BMS contractor.
9. Liquidated damages (if any): Extension of
Time case under process
10. Performance of Contractor: Good"
7. The appellant communicated its decision in writing to the
respondent on 23.08.2005 to levy liquidated damages of
Rs.3,67,89,063/- (i.e. 10 % of the contract value) in terms of Clause
47.1 of the contract. It was further communicated that the appellant
had decided to adjust the amount of interim award in favour of the
respondent amounting to Rs.1,53,10,807/- (i.e. Rs. 1,32,27,137/- along
with accrued interest thereon), and an amount of Rs. 42 lacs due to the
respondent towards escalation, over and above the payment for
escalation already made for the period up to 20.07.2003 as per Clause
70.1 of the General Conditions of Contract. After adjusting the
aforesaid amounts, the respondent was called upon to make payment
of the balance amount of Rs. 1,72,78,256/- failing which, the
respondent was informed that the amount shall be recovered by en-
cashing the Bank Guarantees furnished by the respondent.
8. Consequently, the respondent preferred the aforesaid OMP
No.309/2005 under Section 9 of the Act to seek an injunction against
the appellants to restrain them from encashing the bank guarantees,
furnished by the respondent, in terms of their communication dated
23.08.2005. In April, 2007 the respondent also filed the aforesaid
arbitration petition No.112/2007 under Section 11 of the Act to seek
appointment of an arbitrator to refer the dispute pertaining to levy of
liquidated damages for delay in execution of the work levied by the
appellant (as communicated vide communication dated 23.08.2005) to
arbitration.
9. The learned Single Judge, as aforesaid, has dealt with all
these proceedings by the common impugned judgment. The learned
Single Judge observed that the focal point which arose for
consideration before him in all these cases was whether the issue of
levy of liquidated damages, as communicated vide communication
dated 23.08.2005, is final and binding on the respondent and whether
the same falls in the category of "excepted matters" and is, therefore,
not arbitrable. The learned Single Judge observed:
"In case it is found that the levy of liquidated
damages by the respondent falls under the category
of 'Excepted Matters' and is thereby final and binding
on the petitioner (Contractor), then in that event the
respondent will be entitled to adjust the said amount
by way of adjustment against the amount it is liable
to pay to the petitioner in terms of interim award
dated 19.2.2003. However, if it is found that the
demand of the respondent for alleged liquidated
damages does not fall in the category of 'Excepted
Matters' then in that event the petitioner would be
entitled for execution of the interim award dated
19.2.2003 and the petitioner would further be
entitled to an injunction order against the respondent
restraining it from encashing the bank guarantees till
the claim of the respondent for liquidated damages is
decided by the Arbitrator under the contract."
10. The learned Single Judge further observed that the question
whether the issue of levy of liquidated damages falls under the
category of "excepted matters" or not, has to be decided by reference
to the terms of agreement between the parties. He proceeded to hold
that the dispute pertaining to levy of liquidated damages did not
constitute an "excepted matter" and, on that basis proceeded to pass
the impugned order, thereby: (i) restraining the encashment of the
Performance Bank Guarantee furnished by the respondent; (ii)
referring the dispute with regard to levy of liquidated damages to
arbitration, and; (iii) directed the appellant to make payment of the
amount covered by the decree arising out of the interim award dated
19.02.2003 to the respondent within four weeks.
11. The submission of learned counsel for the appellant is that
the learned Single Judge wrongly concluded that the determination of
liquidated damages under Clause 47.1 is not an "excepted matter" and
is arbitrable under the arbitration agreement contained in Clause 67.1
of the agreement between the parties. He submits that learned Single
Judge gravely erred in construing the aforesaid clauses of the
agreement by taking into account the fact that the work under the
contract was provisionally completed on 31.03.2005; the provisional
completion certificate was issued by the appellant on 24.05.2005
assessing the performance of the respondent as "good" and; the fact
that the liquidated damages were imposed by the appellant only on
23.08.2005 i.e. after the dismissal of the objections preferred by the
appellant against the interim award on 18.05.2005 in OMP
No.228/2003.
12. On the other hand, learned counsel for the respondent
supports the judgment of the learned Single Judge by submitting that
the levy of liquidated damages was a patently calculated move to
defeat and delay the execution of the interim award made by the
arbitrator in favour of the respondent, against which the objections had
also been dismissed by this Court and which had attained finality. He
submits that there was no reason for the appellant to have kept the
decision with regard to grant of extension of time pending till after the
completion of the work on 31.03.2005, and the timing of the levy of
the so-called liquidated damages clearly demonstrates the malafides of
the appellant.
13. Having heard learned counsel for the parties and having
perused the decision of the learned Single Judge, the record of the
case including the record before the learned single Judge in the
aforesaid proceedings, we are of the opinion that the view taken by the
learned Single Judge with regard to the interpretation of the aforesaid
clauses of the agreement is unsustainable and the same cannot be
upheld.
14. As noticed hereinabove, the respondent applied for extension
of time on various occasions since the work was not completed by the
contractually fixed date i.e. by 10.08.2001. Time was provisionally
extended upto 31.12.2003. The decision on the request of the
respondent for further extension of time beyond 31.12.2003 was kept
pending by the appellants till the works under the contracts were
completed. According to the appellant, this course of action was
mutually decided by the parties in a meeting held on 18.02.2004. The
appellant refers to the minutes of this meeting contained in a letter
dated 19.2.2004. In this communication, the appellant, inter alia,
recorded:
"Shri Ansal requested for sanction of extension of
time, release of payments of escalation and early
payment of bills. C-DOT clarified that due to the
failure of all the previous targets committed
before the C-DOT Board by M/s. APIL on various
occasions, M/s. APIL were already informed
that the case of extension of time would be
decided only after the completion of the work.
The same was accepted by M/s. APIL."(emphasis
supplied).
15. These averments of the appellant, and the communication
dated 19.2.2004 of the appellant have remained uncontroverted. The
appellant, in its I.A. No. 7373/2005 (under Order XXXIX Rule 4 CPC),
filed in OMP No.309/2005 for vacation of the ex-parte stay granted on
01.09.2005, had specifically referred to the aforesaid communication
dated 19.2.2004 to say that it had been agreed between the parties
that the application for extension of time beyond 31.12.2003 shall be
considered only after final completion of the work. In reply to the
corresponding para 5(ii) of the said application, the respondent did not
deny the factum of the said agreement having been arrived at in the
meeting held on 18.2.2004, and did not deny the appellant‟s letter
dated 19.2.2004. Pertinently, the respondent did not put the appellant
to notice, that on account of the request for extension of time for
completion of work not being decided in terms of Clause 44.3, the
appellant would not be entitled to levy liquidated damages for the
period beyond 31.12.2003.
16. In the light of the aforesaid uncontroverted correspondence,
the requirement that the extension of time application made by the
contractor has to be decided within three months of the same being
made, as stipulated in clause 44.3 of the agreement, could not be said
to be a mandatory requirement, the breach whereof would relieve the
respondent contractor of its obligation to pay liquidated damages for
the delayed period, if the contractor was found to be responsible for
the said delay and the appellant C-DOT suffered some damage. The
learned single Judge has not even dealt with the stand of the appellant
as aforesaid, and his conclusion is conditioned on the premise that the
extension of time application was decided only after the provisional
completion of the work.
17. The issue whether the levy of liquidated damages under
Clause 47.1 constituted an "excepted matter" or not, in our view had
to be determined on a plain reading of the agreement itself, and the
approach adopted by the learned Single Judge in seeking to construe
the meaning of the clauses of the agreement in the light of the fact
that liquidated damages were sought to be levied after provisional
date of completion of the contract cannot be appreciated. In our view,
the fact that the application for extension of time was decided after the
provisional completion of the works under the contract had no bearing
on the interpretation of the relevant clauses.
18. A perusal of Clause 47.1 would show that the same does not
require that the decision on the respondent‟s application for extension
of time and on the issue of liquidated damages for delay in completion
of the work has to be decided upon and communicated to the
contractor before actual date of completion of the work. To us it
appears natural that only after the works under the contract are
completed the employer, after taking into consideration the relevant
facts and circumstances, makes a determination on the aspect as to
who is responsible for the delay i.e. whether it is the contractor or the
employer, and to what extent. The question of levy of liquidated
damages could be considered either simultaneously or soon after the
decision on the said issue. This is what has been done in the facts of
the present case by the appellant. Admittedly the contractual date of
completion was 10.08.2001. The respondent had been granted
provisional extension upto 31.12.2003. It was the categorical case of
the appellant before the learned single Judge that the respondent
applied for extension of time on 7.6.2005, i.e. after the provisional
completion of the work on 31.03.2005. This request was considered by
the Board of Directors of C-DOT on 2.8.2005, who decided to grant
extension of time, on the advice of the consultants M/s. RITES Ltd. upto
20.07.2003 without compensation, and to levy liquidated damages @
10% of the contract price for the period of delay from 21.07.2003 to
31.3.2005. The appellant also sought to justify levy of liquidated
damages by stating that it had incurred rental charges of Rs.
3,57,93,450/- for the premises taken on rent due to the building in
question not being complete.
19. We find that in compliance of the order dated 26.9.2005
passed in OMP No.309/2005, the appellant had placed on record the
notings on the file leading upto the decision of the Board of Directors
held on 2.8.2005. From these notings it appears that on the
application of the respondent dated 07.06.2005 seeking extension of
time, the GM(Campus) made the following notings on 22.6.2005:
"In view of the letter dated 7th June, 2005 from M/s. APIL
for extension of time and the recommendations
thereupon, dated 21st June, 2005 from M/s. RITES, the
following are the facts:
i. The work of M/s. APIL has been declared to be
provisionally completed on 31st March, 2005. The minor
repair works are going on. A certificate to this effect has
been issued to them on 24th May, 2005.
ii. They should be given extension of time upto 31st
March, 2005 since a provisional certificate that the work
has been provisionally completed on that date has been
issued to them.
iii. According to the conditions of the contract, this
decision has to be taken at a different level. My
recommendations are to levy 10% (ten percent) (of the
agreement amount) compensation because C-DOT had
to pay a huge amount on account of house rent due to
the delay of M/s. APIL for which the details are available
with Finance wing."
20. The Executive Director made the next noting on the file on
02.08.2005, which recorded that the Directors discussed the
application of the respondent dated 07.06.2005, and desired to know
the impact of Clause 2 as noted in the noting by GM(Campus) quoted
above. The G.M.(Campus) responded on the same day stating that
except for the effect mentioned in his noting, there would be no
additional impact on escalation on account of extension of time upto
31.3.2005. On 2.8.2005 itself the Directors, namely, Director (TD-2),
Director(TD-1) and the Executive Director made the following notings:
"The recommendations of GM(Campus) in respect of
the prayers of M/s. APIL regarding the following
issues:
(a) Extension of time
(b) Cost escalation
(c) Compensation for delay
is accepted by C-DOT Board. The total dues of M/s.
APIL, in light of the decision of the Board, may be
decided.
SD/- SD/- SD/-
Director(TD-2) Director(TD-1) Executive Director
02.08.2005 02.08.2005 02.08.2005"
21. From the above it is seen that C-DOT first considered the
aspect of grant of extension of time and granted the same upto
20.7.2003 without levy of compensation. The C-DOT had, on its
record, the computation of rents paid for the premises taken on rent
because of non-completion of the building in question by the
respondent, and on that basis proceeded to decide the aspect of levy
of liquidated damages of 10% of the contract price.
22. We also find on record, a letter dated 4.8.2005
contemporaneously issued by the appellant to the Consultant, M/s.
RITES Ltd on the subject of "Extension of time/Escalation Case and
Arbitration Award of M/s APIL". The appellant, in this communication
stated :
"1. This is regarding extension of time case and
consequent escalation to be paid/ compensation for
delay to be levied upon M/s APIL regarding the work
of construction of Main R & D Building at C-DOT
Campus, New Delhi. You may kindly refer to be
meeting held today with Shri Gopal Ansal of M/s APIL.
Also you may kindly refer to the subsequent meeting
between C-DOT & M/s RITES held today.
2. The competent authority has accepted the
opinion of M/s RITES to grant extension of time to M/s
APIL upto 20thJuly, 2003 without any compensation
for delay. You may kindly indicate the amount to be
paid to the contractor for escalation for this period.
3. It has also been decided to grant extension of
time upto 31st March 2005 with levy of maximum
compensation as per the relevant clause for the
period between 21st July, 2003 to 31st March, 2005,
both dates included. You may kindly suggest the
modalities to recover the above stated amount
towards the compensation for delay.
4. It has been further decided by the competent
authority to accept the verdict of the Hon'ble High
Court regarding payment of WCT & transplantation
as per the Hon'ble Arbitrator's award. You may
kindly suggest whether this amount could be
adjusted against the compensation for delay.
5. Meanwhile, you may kindly put up draft
letter(s) to be sent to M/s APIL conveying the above
stated decisions."
23. The appellant has also filed before the learned single Judge,
an inter departmental memo dated 4.8.2005 from the General
Manager (Campus)/CE(Electrical) to the Executive Director of the
appellant, which records the factum of the decision of C-DOT to levy
compensation being communicated to the respondent on the same
day, and the other developments that had taken place. The relevant
extract of this memo reads as under:-
"1. Shri Gopal Ansal, MD, M/s APIL along with his
team met me, CE(E) and Shri Y.K. Sharma, AGM (CP),
Shri P. Raghu, AGM (E) and Shri S.K.Kapoor, JGM (C),
M/s RITES on 4th August, 2005 to discuss the details
about reimbursement of WCT and other matters.
2.He was apprised with the decisions regarding WCT,
Extension of Time case. Escalation due to them, the
position of latest running bill and the compensation
for delay to be levied upon M/s APIL.
3.Shri Gopal Ansal and his team immediately
indicated that they would move for conciliation/
arbitration on receipt of formal communication on
above stated matters.
4. Subsequently, a meeting was held with the
officers of M/s RITES and C-DOT to discuss the course
of action to be taken by C-DOT, in case M/s APIL
moved for conciliation/ arbitration. It was felt that lot
of ground work shall have to be done by Campus
Group and M/s RITES to fight this case effectively.
Shri S.K. Jha & Shri U. M. Sinha from Campus Group
have been directed to take up the necessary steps
immediately."
24. It is, therefore, clear that the Board of Directors of the
appellant decided to grant conditional extension of time from
21.7.2003 upto 31.03.2005 i.e. upon levy of 10% of the contract price
as compensation. All these pertinent aspects/documents have not
even been noticed by the learned single Judge while passing the
impugned order.
25. Even from the letter dated 23.08.2005 it is seen that further
escalation was admitted to be due to the respondent under Clause
70.1 of the GCC upto 20.07.2003. It is, therefore, clear that for the
period after 20.07.2003, the appellant considered the delay as
attributable to the respondent. As per Clause 47.1 for each week‟s
delay attributable to the respondent contractor, the appellant was
entitled to levy upto half percent (½%) of the contract sum/price
towards liquidated damages, subject to the same not exceeding 10%
of the contract sum/price. As the delay is well beyond 20 weeks if
computed from 21.07.2003 onwards upto 31.03.2005, it cannot be said
that the determination of liquidated damages in terms of Clause 47.1
at 10% of the contract price could not have been arrived at by the
appellant.
26. Clause 47.1 leaves no manner of doubt that the decision of C-
DOT to levy liquidated damages/compensation is stipulated to be "final
and binding on the contractor". The clause further provides that the
amount of compensation, which cannot exceed 10% of the contract
sum, "may be adjusted or set off against any sum payable to the
contractor under this or any other contract that the C-DOT". Clause
67.1, which is the arbitration agreement, in sub-Clause (iv) explicitly
provides that "except where the decisions have become final, binding
and conclusive in terms of the contract, all disputes and differences
arising out of the notified claims of the contractor as aforesaid and all
claims of the C-DOT shall be referred for adjudication through the
arbitration by the sole arbitrator appointed by the ED C-DOT". The
reasoning of the learned Single Judge that the decision of C-DOT to
levy liquidated damages cannot be said to have become final, since
Clause 47.1 has not been specifically mentioned in Clause 67.1(iv) of
the agreement is patently incorrect. As aforesaid, Clause 47.1 in terms
says that "The decision of the C-DOT in writing shall be final and
binding on the contractor". Clause 67.1(iv) generally excludes from
the scope of arbitration, disputes "where to decisions have become
final, binding and conclusive in terms of the contract". It was not
necessary, therefore, to specifically make a mention of the decision of
C-DOT under Clause 47.1, in Clause 67.1(iv). It is not that Clause
67.1(iv) makes a mention of any other and particular clause of the
agreement, which is outside the scope of arbitration. There was no
basis for the learned Single Judge to have concluded that since Clause
47.1 is not specifically dealt with in Clause 67.1 (iv), the decision in
terms of Clause 47.1 is arbitrable.
27. In our view, the finding of the learned Single Judge that no
decision was taken by the appellant on the application of the
respondent to seek extension of time before 23.08.2005 is
unacceptable in the light of the documents/record discussed above,
which have not been dealt with by the learned Single Judge in the
impugned judgment. That decision was taken by the appellant C-DOT
on 2.8.2003 and communicated to the respondent on 4.8.2003. That
decision was based on the recommendation of the Consultants M/s.
RITES Ltd. The learned Single Judge has failed to appreciate that the
said communication dated 23.08.2005 not only conveyed the decision
of C-DOT to levy compensation in terms of Clause 47.1, it also
indicated that the appellant had decided to consider the delay up to
20.07.2003 as justifiable, as up to that date it had granted further
escalation to the respondent.
28. We may also take note of the fact that the recommendation to
grant extension of time without levy of compensation upto 20.7.2003
was recommended by the GM(Campus) as early as on 24.12.2004. Of
the two recommendations recorded by the G.M.(Campus) in his noting
dated 24.12.2004, the first read:
"Recommendations:-
1. M/s. APIL may be granted extension of time
from 11th August, 2001 till 20th July, 2003
(approximately 2 years) for which period the
escalation in respect of Labour & POL is also due to
them. This balance amount would be Rs. 42.00 lakhs
approximately. Only M/s. APIL are responsible
for the delay from 21st July, 2003 till date. For
the period, proper compensation shall have to
be levied upon."(emphasis supplied)
29. Therefore, it appears, that the aspect of grant of extension of
time upto 20.7.2003 without levy of compensation, and for levy of
compensation for the period of delay thereafter did not crop up for the
first time after the dismissal of the objections to the interim award
dated 19.2.2003, on 18.5.2005. The same was raised and recorded
even earlier to the said interim award becoming executable. This
takes the wind out of the sails of the respondent‟s argument that the
levy of liquidated damages by the appellant was mala fide, and timed
so as to defeat the realization of the amount covered by the interim
award dated 19.2.2003.
30. It appears that during the pendency of the aforesaid petitions
before the learned Single Judge, on 07.07.2006 a meeting was held
between the parties. In this meeting a mutual understanding was
reached. The relevant extract from the minutes of the meeting held on
07.07.2006 reads as follow: -
"Point no.1: Issuance of Completion Certificate:
It was pointed out by C-DOT that various defect lists
submitted by M/s. C-DOT had been pending since
2005 and have not been attended to, therefore, final,
completion certificate cannot be issued. M/s APIL
assured that the listed defects shall be rectified in
the time bound manner and completed by third week
of August, 2006. It was agreed to issue Final
Completion Certificate once all the defects were
rectified. Thereafter, the defect liability period shall
be reckoned as per the terms of the contract.
...............................................
...............................................
Point 8 & 10: Conciliation
M/s APIL indicated that they wished to initiate the
process of conciliation in terms of the procedure laid
down in the contract so that all issues which have
arisen during the currency of contract or afterwards
whatsoever be its nature, between C-DOT and M/s
APIL, could be referred to the conciliator and
thereafter for arbitration or adjudication in case of
failure of conciliation process.
Point 11: Confirmation of Time Extension
M/s. APIL requested to issue confirmation of time
extension from 01.01.04 to 31.03.2005. C-DOT
assured that the requisite confirmation shall be
covered in the Final Certificate of Completion."
31. The minutes were communicated by the respondent to the
appellant. The appellant responded to the recording of the minutes on
25.08.2006. In its response the appellant referred to the following
categorical commitments made by the respondent:
"(i) M/s APIL assured that the listed defects in the
Building shall be rectified in the time bound manner
and completed by 3rd Week of August, 2006.
(ii) M/s APIL shall submit unconditional Bank
Guarantees for a total sum of Rs.3.67 crores to C-
DOT.
(iii) M/s APIL was to submit the part measurement of
Final Bill for necessary checking."
32. The appellant stated that neither of these commitments
have been fulfilled by the respondent with regard to the completion of
the building upon rectification of defects. It was stated that majority of
the works were still lying incomplete in the building. The specific
works, which according to the appellant were incomplete, were also
enumerated. The list of 56 pending items that were not complete
according to the appellant was apparently enclosed with this
communication. With regard to the furnishing of unconditional bank
guarantees for a total amount of Rs.3.67 Crores to C-DOT, the
appellant remarked that as per the current state of work the defect
liability period would be at least till the end of 2007. However, most of
the bank guarantees were expiring on 05.11.2006 and one was
expiring on 07.02.2007. They also did not add up to the amount of
Rs.3.67 Crores and covered only Rs.3.50 Crores. On the issue of
conciliation and confirmation of time extension the appellant stated as
follows: -
"(a) Conciliation: M/s APIL had intimated that
they may wish to initiate the process of
conciliation and arbitration in terms of the
procedure laid in the Contract for all issues, which
have arisen during the currency of the Contract.
The same is already provided in Clause 67 of GCC.
Please note that it is requirement of sub-
clause(iv) of Clause 67(1) of GCC that no
arbitration is envisaged on such matters in
which final and conclusive decisions have
been taken by the competent authority e.g.
the matter of EOT and the compensation for
delay. It is also a requirement of this sub-clause
that a party invoking the arbitration shall give a
„list of disputes‟ with amounts claimed in respect
of each claim along with its notice seeking for
appointment of the arbitrator. So far M/s APIL
have not made any invocation, as per said sub-
clause.
(b) Confirmation of Time Extension: As has
already explained during the aforesaid meeting,
the details of Extension of Time can only be
finalized after the work is actually completed.
The confirmation as to Extension of time,
with or without levy of Liquidated Damages,
will be contained in the prescribed proforma
prescribed for grant of Extension of Time.
Hence the required confirmation of Extension of
Time will be part of the Final Completion
Certificate, which is to await actual completion of
the work.
From the above it is evident that M/s APIL have
miserably failed to comply with the assurances
given by it to C-DOT in the „Minutes‟. As a
consequence the matter continues to remain
unresolved."(emphasis supplied)
33. Not only do we find that the learned Single Judge has factually
erred in understanding the minutes of the meeting held on 07.07.2006,
we also find that the response sent by the appellant dated 25.08.2006
has also not been correctly appreciated by him. While it is recorded in
the impugned judgment that the appellant had assured the respondent
in the meeting held on 07.07.2006 that the required confirmation
pertaining to extension of time for the period 01.01.2004 to
31.02.2005 would be sent to the respondent shortly, the minutes as
quoted above show that the assurance given by C-DOT was that the
requisite confirmation shall be covered in the final certificate of
completion. The final completion certificate itself was to be issued
once all the defects were rectified. Therefore, the confirmation of time
extension from 01.01.2004 to 31.03.2005 was conditional upon the
removal of the defects by the respondent by third week of August,
2006. From the communication dated 25.08.2006 of the appellant it
appears that the defects were not removed even as on the date of
issuance of the said communication. We also find that the learned
Single Judge has wrongly construed the stand of the appellant as
contained in its letter dated 25.08.2006 to mean that "the respondent
even on 25.08.2006 had informed the petitioner that the details of
extension of time could be finalized only after the work was completed.
All this clearly shows that the respondent had not taken any decision
on the request of the petitioner regarding extension of time till the
project work was completed on 31.03.2005".
34. To us it is amply clear that the appellant had already taken
the decision to grant extension of time after 20.07.2003 subject to levy
of liquidated damages to the extent of 10% of the contract price on
2.8.2005. The meeting dated 07.07.2006 was held during the
pendency of the litigation, and it appears that the parties sought to
negotiate a settlement. There were reciprocal promises made by the
parties. As aforesaid, the respondent made promises to rectify the
defects in a time bound manner and complete the same by 3 rd week of
August, 2006; to submit unconditional bank guarantees for a total sum
of Rs.3.67 Crores to C-DOT and; to submit the part measurement of
final bill for necessary checking. In response the appellant also made
certain promises including that the confirmation of extension of time
shall be covered in the final certificate of completion. The minutes do
not, in terms, say that C-DOT agreed to grant extension of time upto
31.3.2005 without levy of compensation. In any event, since the
respondent did not fulfill its assurances given to C-DOT, as contained in
the minutes, C-DOT treated the matter as unresolved and categorically
stated so while issuing the communication dated 25.08.2006. From
the highlighted portion of the communication dated 25.8.2006 it is
seen that the stand of C-DOT was that the aspect of levy of liquidated
damages for grant of extension of time upto 31.3.2005 was not given
up by C-DOT and the C-DOT retained the right to pursue its claim for
liquidated damages after the work is actually completed.
35. It also shows that even the respondent did not consider the
aspect of time extension and liquidated damages as resolved in its
favour, since the respondent desired to raise the said aspects in
arbitration. It also shows that the appellant was vigilant enough to
state that these aspects are beyond the scope of arbitration under
clause 67.1 of the agreement. Merely because the appellant C-DOT
may have agreed, as a measure of settlement, that it may reconsider
the aspect of extension of time, which also impacted the levy of
liquidated damages, it does not mean that the appellant can be bound
down to that assurance while ignoring the fact that the corresponding
obligations as contained in the minutes dated 07.07.2006, to be
performed by the respondent remained unfulfilled. The learned Single
Judge, we find, has not only failed to appreciate this aspect of the
matter but and has also misconstrued the obligations undertaken to be
performed by the appellant in terms of the minutes dated 07.07.2006
while overlooking the stand of the appellant that the respondent had
failed to discharge its corresponding obligations. Pertinently, the
learned Single Judge does not even record that the respondent had
fulfilled its obligations as undertaken in the meeting of 07.07.2006.
We, therefore, do not agree with the finding arrived at by the learned
Single Judge that the aspect of extension of time had remained
undecided one way or another. The aforesaid finding of the learned
single Judge is also in the teeth of the decision of the Board of
Directors of the C-DOT dated 02.08.2005 which was also placed on the
record by the appellant under the directions of the Court.
36. We also find a disconnect in the reasoning of the learned
Single Judge. He concludes, as aforesaid, that the respondent‟s
request for extension of time remained undecided till the completion of
work on 31.03.2005 and that if the same had been decided earlier, one
way or another, the respondent could have exhausted his remedies
provided under Clause 67.1 of the contract. Immediately thereafter,
he proceeds to conclude that the claim of the appellant for liquidated
damages does not fall within the category of "excepted matters" as
provided in Clause 67.1(iv) of the contract. We cannot appreciate how
the learned Single Judge has arrived at the aforesaid conclusion, even
if the request of the petitioner for extension of time had not been
decided till the completion of the work on 31.03.2005. We may hasten
to add that we have already held that the application for extension of
time could have been decided upon even after the completion of work
under the contract, particularly in the light of the minutes of the
meeting dated 18.2.2004 and that as a matter of fact, it had been
decided on 02.08.2005 and communicated to the respondent vide
communication dated 23.08.2005. The observation of the learned
Single Judge that if the decision on the extension of time application of
the respondent had been decided earlier, the respondent could have
proceeded to exhaust its remedy under Clause 67.1 of the contract is
also incorrect. This observation of the Ld. Single Judge pre-supposes
that the aspect of extension of time subject to levy of liquidated
damages under Clause 47.1 is an arbitrable dispute.
37. The observation of the learned Single Judge that because
there is a dispute raised as to whether the delay in completion of the
project beyond 20.07.2003 was attributable to one or the other party,
the same has to be decided by the arbitrator, as the parties had
agreed to refer their disputes to arbitration, is unsustainable. It is well
settled that an arbitral tribunal derives its authority and jurisdiction
from the arbitration agreement of the parties. If the parties have
expressly agreed to exclude certain kinds of disputes from the scope of
arbitration, it is not for the Court to thrust an arbitration upon the
parties in respect of such excluded disputes i.e. "excepted matters"
merely because such disputes would eventually have to be resolved by
a judicial forum.
38. The impugned decision of the learned Single Judge completely
ignores the express language used in Clauses 47.1 and 67.1(iv) of the
agreement. Various decisions as recorded by the learned Single Judge
were cited before him by the appellant to contend that the dispute
with regard to the levy of liquidated damages under Clause 47.1 was
not an arbitrable dispute as it was an "excepted matter". The learned
Single Judge has, however failed to deal with any of those decisions.
We may refer to only Vishwanath Sood v. Union of India and
Another (1989) 1 SCC 657. While construing a similar clause
(contained in clause 2 of the agreement before the Supreme Court),
pertaining to levy of liquidated damages by the employer for delay on
the part of the contractor beyond stipulated date of completion, where
the clause also provided that the decision of the employer in writing
shall be final and a similar arbitration agreement which stated "except
where otherwise provided in the contract, all questions and
disputes............shall be referred to the sole arbitration of the person
appointed by the Chief Engineer, Himachal Pradesh Public Works
Department.............", the Supreme Court held as follows:
"8. ........................ Clause 2 of the contract
makes the time specified for the performance of
the contract a matter of essence and emphasizes
the need on the part of the contractor to
scrupulously adhere to the time schedule
approved by the Engineer-in-charge. With a view
to compel the contractor to adhere to this time
schedule, this clause provides a kind of penalty in
the form of a compensation to the Department for
default in adhering to the time schedule. The
clause envisages an amount of compensation
calculated as a percentage of the estimated cost
of the whole work on the basis of the number of
days for which the work remains uncommenced or
unfinished to the prescribed extent on the
relevant dates. We do not agree with the counsel
for the respondent that this is in the nature of an
automatic levy to be made by the Engineer-in-
charge based on the number of days of delay and
the estimated amount of work. Firstly, the
reference in the clause to the requirement that
the work shall throughout the stipulated period of
the contract be proceeded with due diligence and
the reference in the latter part of the clause that
the compensation has to be paid "in the event of
the contractor failing to comply with" the
prescribed time schedule make it clear that the
levy of compensation is conditioned on some
default or negligence on the part of the
contractor. Secondly, while the clause fixes the
rate of compensation at 1 per cent for every day
of default it takes care to prescribe the maximum
compensation of 10 per cent on this ground and it
also provides for a discretion to the
Superintending Engineer to reduce the rate of
penalty from 1 per cent. Though the clause does
not specifically say so, it is clear that any
moderation that may be done by the
Superintending Engineer would depend upon the
circumstances, the nature and periods of default
and the degree of negligence or default that could
be attributed to the contractor. This means that
the Superintending Engineer, in determining the
rate of compensation chargeable, will have to go
into all the aspects and determine whether there
is any negligence on the part of the contractor or
not. Where there has been no negligence on the
part of the contractor or where on account of
various extraneous circumstances referred to by
the Division Bench such as vis major or default on
the part of the Government or some other
unexpected circumstance which does not justify
penalising the contractor, the Superintending
Engineer will be entitled and bound to reduce or
even waive the compensation. It is true that the
clause does not in terms provide for any notice to
the contractor by the Superintending Engineer.
But it will be appreciated that in practice the
amount of compensation will be initially levied by
the Engineer-in-charge and the Superintending
Engineer comes into the picture only as some sort
of revisional or appellate authority to whom the
contractor appeals for redress. As we see it,
Clause 2 contains a complete machinery for
determination of the compensation which
can be claimed by the Government on the
ground of delay on the part of the
contractor in completing the contract as per
the time schedule agreed between the
parties. The decision of the Superintending
Engineer, it seems to us, is in the nature of
a considered decision which he has to arrive
at after considering the various mitigating
circumstances that may be pleaded by the
contractor or his plea that he is not liable to
pay compensation at all under this clause. In
our opinion the question regarding the
amount of compensation leviable under
Clause 2 has to be decided only by the
Superintending Engineer and no one else."
(emphasis supplied)
39. A Division Bench of this Court in DDA v. Sudhir
Brothers 57 (1995) DLT 474 (DB) was dealing with a case
where the arbitrator had entertained a claim founded upon
Clause 2 of the contract, which provided for imposition of
liquidated damages upon the contractor, by the employer and
also provided that the decision of the employer is final and
binding. The arbitration agreement stated that unless
otherwise as provided, the disputes between the authorities
were referable to arbitration. Even though the employer had
reqested the arbitrator to formally include the amount of
liquidated damages imposed by it as a part of the award, and
on that basis the arbitrator has considered and rejected the
claim of liquidated damages of the employer DDA, by relying
upon Vishwanath Sood (supra) the Division Bench of this
Court held that the arbitrator has no jurisdiction to deal with
such a claim. The Court further held:
"6. It will, therefore, be for the D.D.A. to seek to
recover the said amount of Rs.5,69,743/- in
whatever manner it is open to it and in case any
such proceedings are taken, it will be open to the
contractor to raise all defenses that may be open
to him in law to contend that the levy is bad. In
case, the D.D.A. seeks to recover the said amount
of compensation from the contractor it will be
open to the contractor to file a suit and raise all
such contentions as he may deem it. We make it
clear that the question of limitation will not be
raised by either of the parties, in view of the
above unfortunate procedure adopted by both
parties."
40. Both the aforesaid decisions are squarely applicable in the facts
of this case and the learned Single Judge was fully bound by them.
The clause relating to levy of liquidated damages by the employer for
delay in completion of the work beyond the stipulated date of
completion, which also provides that the said decision should be final
and binding, as also the arbitration clause between the parties in the
present case are materially the same as those construed by the
Supreme Court in Vishwanath Sood(supra) and followed by Division
Bench of this Court in Sudhir Brothers (supra). The appellant, as
required by the Supreme Court in Vishwanath Sood (supra) even
gave a notice to the respondent on 05th December, 2003, requiring the
respondent to explain as to why compensation under Clause 47.1
should not be levied upon the respondent. The notice was issued by
the General Manager (Campus) and the decision to levy compensation
was taken by the Directors.
41. In view of the aforesaid discussion, we are of the opinion that
the impugned judgment of the learned Single Judge cannot be
sustained. We accordingly set aside the same. We hold that the issue
of levy liquidated damages under Clause 47.1 of the agreement
between the parties was an "excepted matter" and, therefore, can not
be arbitrated upon by the arbitrator. Since OMP No.309/2005 was filed
by the respondent under Section 9 of the Act to seek a restraint
against the invocation of bank guarantees on account of levy of
liquidated damages by the appellant, in our view, as the said dispute
itself was not referable to arbitration, the OMP under Section 9 of the
Act was not maintainable. In any event, considering the fact that the
agreement between the parties itself provides that the liquidated
damages levied by the appellant could be adjusted or set off of against
any sum payable to the contractor, there was no justification for grant
of an injunction against the encashment of the bank guarantees
furnished at the behest of the respondent. It is well settled that
documentary credits, such as letters of credit and bank guarantees
constitute independent contracts between the banker and the
beneficiary, and should not lightly be interdicted at the behest of the
party at whose instance the guarantee is issued. Since no case of
fraud of an egregious nature, which can be said to have vitiated the
underlying transaction between the parties, and of which the issuing
banks have notice, appears to have been committed by the appellant,
and it cannot be said that the respondent would suffer irretrievable
injustice, if the bank guarantees are encashed by the appellant to
realize liquidated damages, in our view, the injunction could not and
should not have been granted against the encashment of the bank
guarantees. (See U.P Cooperative Federation Ltd v. Singh
Consultants and Engineers (P) Ltd., (1988) 1 SCC 174 and BSES
Ltd v. Fenner India Ltd, and Another, (2006) 2 SCC 728) For the
same reason, the application under Section 11 of the Act to seek
reference of the dispute with regard to the levy of liquidated damages
was also not maintainable as the said dispute could not have been
referred to arbitration, it being an "excepted matter". The direction
issued by the learned Single Judge to the appellant to the effect that
the appellant should make payment of the amount in terms of the
interim award dated 19.02.2003 cannot be sustained for the same
reason.
42. In view of the decision in Sudhir Brothers (supra), since the
appellant has chosen to recover and adjust the amount of liquidated
damages from out of the amounts payable to the respondent under the
interim award aforesaid, and the amount of escalation of Rs.42 Lacs
payable to the respondent, and also to invoke the bank guarantees
furnished by the respondent, it shall be open to the respondent to
take appropriate civil proceedings, if it so chooses, to impugn the levy
of liquidated damages under Clause 47.1 of the agreement by the
appellant, provided the same is filed within the period of limitation.
We, accordingly allow this appeal with costs quantified at Rs.20,000/-
in each of the appeals payable within four weeks from today.
(VIPIN SANGHI)
JUDGE
(MUKUL MUDGAL)
JUDGE
March 16, 2009
as/rsk/dp
