Delhi High Court

Kunj Bihari Construction Co. Pvt. ... vs Nidhi Builders Pvt. Ltd. & Anr. on 20 March, 2009

Author: Manmohan Singh

*          HIGH COURT OF DELHI : NEW DELHI

+    OMP No. 692/2008, IA No.622/09 and CCP No15/2009

                      Judgment reserved on:    6th February, 2009

%                     Judgment decided on :      20th March, 2009

Kunj Bihari Construction Co. Pvt. Ltd.               ......Plaintiff
                     Through : Mr. S.D. Singh, Adv. with Mr. Rahul K.
                                  Singh and Mr. Bharti Tyagi, Advs.

                      Versus

Nidhi Builders Pvt. Ltd. & Anr.                   .....Defendant
                      Through: Mr. Rajeev Mehra Adv. with Mr. Arvind
                                Sharma, Adv.
Coram:

HON'BLE MR. JUSTICE MANMOHAN SINGH

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

2. To be referred to Reporter or not?                               Yes

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

MANMOHAN SINGH, J.

1. This petition under Section 9 of the Arbitration and

Conciliation Act, 1996 (for short „the Act‟) has been filed by the

petitioner before this Court which was listed on 19th December, 2008

and on the said date, the following interim orders were passed:-

"In the meanwhile the respondents shall maintain status quo with regard to the material and the work at the construction site of Provision of Married Accommodation Project for Major (32 DUs) and Captain (10 DUs) including external allied services at R.R. Hospital, New Delhi."

2. The controversy in the matter arises out of a contract

whereby the respondents were awarded the contract by Director

General, Marketing Accounts Project (hereinafter referred to as

„employer‟) vide work order dated 14th May, 2005 with respect to

construction of Married Accommodation Project including external

allied services of R.R. Hospital, New Delhi commonly known as R.R.

Hospital Project. The value of the contract was Rs.7,75,66,300/-. The

project was to be completed by Respondents till 30th November, 2006

who were unable to execute the works. Admittedly, the respondents had

completed and executed the 85% work to the value of Rs.6,45,84,900/-

but due to the ill health of respondent No.2, the work got adversely

affected and on the request of employer to make alternate arrangements,

the Respondents decided to give the remaining work to the petitioner

pertaining to R.R. Hospital.

3. The work order in this respect dated 28 th November, 2007

was issued to the petitioner for balance/left out work. The value of the

work assigned to the petitioner by respondents was of the value of

Rs.1,30,00,000/-. Clause F(b) of the contract contemplates the mode of

payment of the contract between the petitioner and respondents which

was back to back in nature. Clause F(b)(vi) provides that :

"(vi) Rs.10 lacs (Ten Lac only) shall be paid only lum sum against all defects/all rectification all repairs etc. only confirmation of client letter. And complete works of R.R. Hospital only."

4. A formal agreement dated 25th January, 2008 was entered

into between the parties. Most of the clauses in the formal agreement

were the same except the arbitration clause No.9 which provides as

under :-

"In case of dispute between the First and Second Party in connection with the interpretation and application of any term, condition or otherwise, first the matter shall be resolved by mutual consultation and discussion and in case it is not possible then through arbitration to be appointed by the First Party from the panel of CPWD arbitrators."

5. The value of the material lying on the site at the time of

handing over the site to the petitioner was assessed at Rs.10 lakhs. The

said amount was to be adjusted later on.

6. As per agreement, it was the petitioner‟s obligation to seek

extension of time from the employer. However, it is not in dispute that

respondents had been obtaining extension of time from the employer.

7. The petitioner has not disputed the fact that approximately

85% of the work was already completed by respondents on the date of

the contract. The petitioner was to complete the remaining work left out

by respondents.

8. Admittedly the 18th running bill of the Project was raised by

respondents prior to 28th November, 2007 i.e. on 27th August, 2007.

The cumulative value of the 18th running bill of work done by

respondents was Rs.6,37,53,000/- which was passed by DG (MAP) for

Rs.38,43,000/-.

9. Against the 19th RA bill raised by the petitioner on 3rd July,

2008, he has admitted having received a sum of Rs. 16,38,909/- plus

TDS deducted arising out of the work by cheque dated 23 rd August,

2008.

10. According to the counsel for the petitioner, the petitioner

started the work in full force from day one of the work order and the

extension of time was granted by employer till 14th August, 2008 for

completion of the Project. The contention of the petitioner is that there

has been delay on the part of the respondents on various counts viz

opening of Escrow Account as well as obtaining the extension of time

for work to be executed from the employer.

11. It is not in dispute between the parties that the petitioner was

at the site till 15th November, 2008 and on that date according to the

petitioner, the value of the material and work executed by the petitioner

at site would be Rs.95,64,072.50 summary wherein is provided in

Annexure P-12 of the petition as under :

"Summary

" R.R. Hospital Amount (Rs.) (1) Bill due against work done 54,87,471.00 (2) Balance stock/material at site 16,28,601.50 (3) Infrastructure/machinery installed 6,98,000.00 Lying at site (4) Difference in % age of yardstick as per 17,50,000.00 Stage of payment and current market Price

TOTAL 95,64,072.50"

12. According to the petitioner, the petitioner has only received a

sum of Rs. 16,38,909/- plus TDS deducted and other taxes from the

respondents. As per the petitioner, the petitioner is entitled to receive

the balance amount of Rs.1,13,61,091/- from the respondents as against

the total contract of Rs.1,30,00,000/- towards the work already executed

during the said period. In order to justify his claim, learned counsel for

the petitioner has contended that the respondents has also sent the final

21st running bill dated 18th December, 2008 to the employer DG (MAP).

13. Learned counsel for the petitioner has submitted that in view

of the above said facts and circumstances, the respondents may deduct

some reasonable amount for the work if done by the respondents after

leaving the site by the petitioner on 15th November, 2008.

14. In support of his contention, the petitioner has relied upon

the letter dated 16th June, 2008 written by respondents to the employer

wherein an admission was made by respondents that infrastructure lying

at the work site was not less than Rs.3 crores and manpower at site was

more than 250 workers and the petitioner‟s work was stated to be

satisfactory at the site. It was also stated in this letter by respondents

that there was no possibility of the petitioner/contractor running away

without completion of the work. The contention of the petitioner is that

in view of the admission made by respondents to the employer, in the

abovesaid letter, it is apparent that when there exists material costing

such a huge amount, it must have been used by the petitioner in the

Project. Hence, the petitioner is entitled to the said amount.

15. On the other hand, the Respondents have denied that the

petitioner has performed any work at the site. It is submitted that if any

work was performed by the petitioner it was negligible, as appeared

from the various complaints of no work/slow work by the employer to

respondents. As regards the letter dated 16 th June, 2008 by the

petitioner, the respondents have stated that the said letter was written by

respondents to the employer only at the instance of the petitioner to seek

extension of time from the employer. During that time, there were

cordial relations between the petitioner and Respondents, therefore, in

order to present a good picture of the petitioner, the said letter was

written. According to Respondents, the statement made in the said

letter is not an admission.

16. The respondents further stated that the alleged final bill dated

15th November, 2008 raised by the petitioner was not received by

respondents as it was purportedly sent by petitioner only by UPC on 2 nd

December, 2008. The respondents submit that earlier running bills

were sent by the petitioner directly to employer but the alleged final bill

dated 15th November, 2008 has been raised upon Respondents.

Therefore, it creates doubt about the service of letter by the petitioners

as one day earlier i.e. on 14th November, 2008 the petitioner had sent a

letter to the respondents wherein the petitioner had, inter-alia, made the

following statement:-

"We are indeed indebted to you, Sir, for helping us and our company M/s. Kunj Behari Construction Co. Pvt. Ltd. from financial and liquidity crunch although your firm had been very helpful to us in order to enable us to complete the work entrusted to our company but due to financial constraints and financial mismanagement of our company we could not complete the work within the stipulated time of two months. Our intention is to complete the work earlier but not later than 10th December, 2008. and we also hereby give an irrevocable undertaking that the said work shall be completed by 10 th December, 2008. In case we fail to complete the said work by the said date the agreement for the work as well as for the work of Kabul Line work will stand automatically terminated without any further reference to us and we shall be liable to pay damages as per the terms and conditions of the agreement and all decisions taken by you in he matter shall be final

and binding on us."

17. On the same day i.e. on 14th November, 2008, another

handwritten letter was issued by Mr. Dinesh Sharma, Managing Director

of the petitioner company to the respondent No.2 to the following

effect:-

"I Dinesh Sharma, Managing Director, Kunj Behari Construction Co. Pvt. Ltd. by passing a resolution has terminated Mr. Navin Kumar Jain and his wife Ms. Shikha Jain from their services of monitoring the R.R. Hospital Project and Kabul Line works on behalf of our company and I shall submit a copy of resolution to this effect of our company within 4 or 5 days."

18. Learned counsel for the respondents states that after the

receipt of the notice from the employer from time to time, the petitioner

were informed in this regard. The managing director of the petitioner

company vide his letter dated 14.11.2008 again gave irrevocable

undertaking to complete the entire balance work by 10.12.2008.

19. On 15th November, 2008 the respondents wrote a letter to

the petitioner acknowledging the letter dated 14 th November, 2008

accepting the proposal to make payment for the material procured if any

after 15th November, 2008 in order to complete the work and clearly

indicated to the petitioner that in case the work is not completed by the

petitioner by 10th December, 2008 as promised in its letter, the

agreement of both the works i.e. R.R. Hospital and Kabul Line Project

dated 25th January, 2008 will stand automatically terminated without

making any further reference.

20. The respondents further submit that the entire payment

against the work done by the petitioner has already been made. The

material, equipment and machine lying at the site belong to the

respondents. The respondents have stated that a sum of Rs.23,15,043/-

were paid by the respondent by way of cheque and Rs.8,70,127/- were

paid by cash to different suppliers, labourers and other expenses spent

by the respondents. The respondents in support of his submission has

filed evidence as annexure R-27 along with the reply.

21. It is also contended by the respondents in para 10 of the reply

that the entire balance work has almost been completed by the

respondents as it is established from the fact that the respondent has

submitted its 21st and final bill for the balance work on 18 th December,

2008.

22. The respondents have specifically denied that the petitioner

has executed any work worth Rs.54,87,475/- and have further denied

that the petitioner has purchased any material worth Rs.16,28,601/- and

infrastructure, machinery etc. as depicted in the bill sent by the

petitioner to the respondents on 15th November 2008.

23. Further, the contention of respondents is that the petitioner

has concealed various material facts and documents from this Court

while filing the present petition. The details of the same are given as

under:-

i) The petitioner has made a wrong statement in the petition that the Escrow account was not opened by respondents.

ii) The petitioner has not filed the letter dated 27 th June, 2008 and undertaking dated 1st July, 2008 to complete the work by 14th August, 2008 and further

did not plead the letter dated 14 th October, 2008 and similarly not pleaded his two letters dated 14 th November, 2008 as well as letter dated 15 th November, 2008 and various incorrect statements have been made in the petition.

(iii) Correct copy of the agreement dated 25.1.2008 has also not been filed by the petitioner.

24. In view of concealment of facts, the learned counsel for the

respondents contends that the petition filed by the petitioner is liable to

be dismissed as the petitioner has not come before this court with clean

hands. Various decisions have been referred by the learned counsel for

the respondents on this point. He argues that the entire issue is as to

whether the petitioner is entitled to any amount for the work done by

him during the period mentioned earlier which has to be decided by the

arbitrator and in case the petitioner succeeds, he can be compensated in

terms of damages as per settled law. As the petitioner has to establish

his case before the arbitrator about the work done by him, granting of

any relief at this stage would amount to granting the relief to the

petitioner without the matter being considered on merit.

25. It is not in dispute that the agreement between the parties has

been terminated. The parties are also disputing about the material,

equipment and machinery lying at the site. During the hearing of this

petition on 27th January, 2009, this Court, with the consent of the

parties, appointed a Local Commissioner to verify the latest position

about the construction of the project in question and execution of the

work done at the site. The learned Local commissioner in paras 7 to 10

of his report gave full details about the present state of construction and

execution of the work done at the site after 19th December, 2008 and the

details of the equipment and worth of material lying at the site.

26. The petitioner has filed contempt petition being CCP

No.15/2009 on the ground that the respondents have disobeyed the

interim orders of this Court granted on 19th December, 2008 as appears

from the documents filed by the respondents themselves. Learned

counsel for the petitioner has referred the report of local commissioner

in support of his submissions.

27. I have heard learned counsel for the parties for considerable

time and perused the pleadings and documents of the parties.

Considering the rival contentions of the learned counsels for both

parties, I am of the view that the sole dispute is as to whether the

termination of sub contract agreement by the respondents was justified

or not and whether the said action of termination was taken by the

respondents as per the sub contract agreement amongst the parties

validly or not. Such a dispute has to be adjudicated by the arbitrator in

terms and conditions of the said agreement. This court, therefore, is of

the opinion that it is not prudent to decide this question at this stage as,

it may prejudice either of the parties in view of the allegations and

counter allegations raised by them.

28. Thus, the only question left for consideration of this court is

as to whether it is a fit case where the interim order granted by this court

on 19th December, 2008 is to continue or not and whether the petitioner

is entitled to any other relief in order to secure the interest of the

petitioner at this stage, as the main dispute which has arisen is yet to be

adjudicated upon by the arbitrator.

29. There is no consensus between the parties as far as

appointment of arbitrator is concerned. The petitioner has relied upon

the arbitration clause (16) mentioned in the Work Order dated 28th

November, 2007. On the other hand, the respondents by letter dated 30th

December, 2008 have already invoked the arbitration under clause 9 of

the formal agreement dated 25th January, 2008. As per statement made

by the parties, so far none of the party has filed an application under

Section 11 of the Act. At this stage, the question arises as to what relief

can be granted to the petitioner in its application under section 9 of the

Arbitration & Conciliation Act, 1996.

30. The law relating to grant of injunction in exercise of power

under Section 9 of the Act in the commercial contract has been

discussed by this Court in the case of Techno Construction and Anr.

Vs. Kunj Vihar Co-operative Group Housing Society Ltd., 2005 (81)

DRJ 233 wherein it was held as under:

"9. Law with regard to grant of interim injunction while exercising jurisdiction under section 9 of the Arbitration and Conciliation Act, 1996 is well settled. The protection under this section can be granted only when prima facie case, balance of conveniences and irreparable loss and injury is made out. The first question requiring consideration is, whether the contract for construction of building can be ordered to be specifically enforced? Section 14(1)(a) of the Specific Relief Act, 1963 provides hat a contract for non-performance, of which compensation in money is adequate relief, cannot be specifically enforced. In a suit for enforcement of contract for construction of a building, the party seeking specific performance of the contract has to satisfy three conditions, contained in proviso to clause (c) of sub-section (3) of Section 14. These are

(i) the building or other work is described in the contract in sufficiently precise terms to enable the

court to determine the exact nature of the building or work. (ii) the plaintiff has a substantial interest in the performance of the contract and the interest is of such a nature that compensation in money for non- performance of the contact is not an adequate relief; and (iii) the defendant has , in pursuance of the contract, obtained possession of the whole or any part of the land on which the building is to be constructed or other work is to be executed. In short, before a construction contract can be ordered to be enforced, it has to be held that compensation in money is not the adequate relief. It cannot be disputed that where a contract which cannot be enforced by a decree for specific performance, the same cannot be negatively enforced by issue of an injunction."

31. In the case of B.S.M. Contractors Pvt. Ltd. vs. Rajasthan

State Bridge & Construction Corpn. Ltd. & Anr., AIR1999 Delhi

117 it was held as under :

"9. On a consideration of the facts and circumstances of the case, I am of the opinion that a building contract of the instant nature cannot be specifically enforced by granting interim relief under Section 9 of the Act. If there is a breach of such a contract, the appropriate remedy is to compensate the party damnified in damages. That apart, the granting of an injunction in favour of the petitioner will further delay the construction work considered very urgent by the respondent No.3. Thus, the balance of convenience also swings against the grant of injunction sought by the petitioner."

32. From the above discussion, it becomes clear that where

contract is not specifically enforceable as per the clauses stipulated

under Section 14 of the Specific Relief Act, 1963, the interim order in

the form of injunction qua contract cannot be passed enforcing

negatively. In the present case also, the contract being the construction

contract relates to disputes between the parties about the payment of

amount, material lying at the site, machinery and equipment. The same

can be enforced and compensated in terms of monetary relief as at this

stage there are allegations made by the parties against each other and

some of them are of serious nature.

33. Any order or interim relief in the form of status quo or

injunction granted cannot be continued as it will further delay the

completion of the project in question causing irreparable harm to the

employer who is not concerned with the present controversy between

the parties.

34. Taking into account the overall situation and circumstances

of the present case, the status quo order dated 19 th December 2008

about the work of construction and material is vacated on the condition

that the defendants shall furnish a security in the sum of Rs.40 lakhs by

way of bank draft within three weeks from today. The said sum be

deposited with the Registrar General of this court. The said deposit

shall be kept in a fixed Deposit initially for a period of one year subject

to the renewal of the same from time to time. This condition is imposed

as an interim measure without any prejudice to the rights and

contentions of the parties. This amount has been determined by this

court in order to secure the interest of the petitioner considering the fact

that in case the petitioner ultimately succeeds before the Arbitral

Tribunal and any amount is found due, the same may be paid to the

petitioner from the said security amount deposited by the respondents.

The reasons for arriving at this figure fixed by this court are given as

under:-

a) The total value of the work assigned to the petitioner by the

respondents was Rs.1,30,00,000/- plus Rs.10 lakhs paid by the

respondent as lumpsum amount against the

defects/rectifications/repairs of the work of R.R. Hospital as per

the work order dated 28th November 2007. Admittedly the

petitioner has only received Rs.16,32,909/- plus TDS arising out

of the work and other taxes. The said payment was received by

the petitioner by cheque dated 23rd August 2008.

b) It is the admitted case of the parties that the petitioner was at the

site of R.R. Hospital till 15th November 2008 and he had sent

summary details/bill due against the work done and balance

stock/material at site which are more than seventy lac according

to the petitioner although the respondent has specifically denied

the same.

c) The respondents have contended in Para 9 of the reply that

subsequent to 15th November 2008 they have paid an amount of

Rs.23,15,043/- by way of cheque and Rs.8,70,127/- by cash to the

different suppliers and labourers of the petitioner.

d) As per Para 10 of the reply, the respondents have admitted that

the work was almost complete and the respondents had sent 21 st

running bill on 18th December, 2008 to the employer and as per

statement amount due to the contractor comes to Rs.1,47,20,192/-.

35. Nevertheless, both the parties are entitled to raise their

respective claims/adjustment of the pending bills and other issues

related to the matter before the Arbitrator at the appropriate stage.

36. On deposit of the said amount, the respondents are free to

execute the remaining work, if any, still to be completed by themselves

or through any contractor. A separate statement of account in this

regard shall be maintained by the respondents and shall be produced

before the learned arbitrator when he is appointed by this court.

37. The application for vacation of ex parte orders is accordingly

disposed of. As regards the contempt petition is concerned, the same is

disposed of without going into the merits of the case. The arbitrator

when appointed shall be within his rights and powers to go into the