Delhi High Court

M.L. Mahajan vs Union Of India on 19 May, 2009

Author: Mukul Mudgal

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+            FAO(OS) NO. 298/1998

                             Reserved on      : May 19, 2009
                             Date of Decision : May 25, 2009

Sh. M.L Mahajan                                  .....Appellant
                       Through :   In person

             Versus

Delhi Development Authority and Anr. .....Respondents
                Through : Ms. Anusuya Salwan, Advocate.

CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE VALMIKI J. MEHTA

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

2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be reported in the Digest? Yes.


                            JUDGMENT

: MUKUL MUDGAL,J.

1. This appeal by the petitioner in person challenges the

judgment dated 23rd September, 1998 by which the objections of

the respondent-Delhi Development Authority (for short „DDA‟) in

respect of claim no.4 was allowed and the claim awarded by the

Arbitrator in the sum of Rs.2,64,688/- was set aside. The dispute

between the parties arose from the construction of 60 Janata

Houses at Dilshad Garden, Delhi. The disputes between the

parties the same were referred to the Arbitrator by the Engineer

Member (respondent no.1) of the respondent-DDA.

2. The facts of the case are as follows: -

a. The date of start of the contract for the above work was 20 th

November, 1981 and the period of completion was 9 months.

b. The date of the completion was thus 19th August, 1982.

c. The contract was further prolonged for a period of 17

months and was completed on 11th January, 1984 when the

completion certification was recorded, as noted in the Award.

3. Clause 10 of the Contract reads as under: -

""all materials so supplied to the contractor shall remain the absolute property of DDA and shall not be removed on any account from the site of the work ..... ..... ..... provided that the contractor shall in no case be entitled to any compensation or damages on account of any delay in supply or on supply thereof all or any such materials and stores. Provided further that the contractor shall be bound to execute the entire work if the material supplied by the DDA within the schedule time for completion of the work plus 50% thereof ... .... For the completion of the rest of the work the contractor shall be entitled to such extension of time as may be determined by the engineer Incharge whose decision in this regard shall be final and binding."

4. The learned Single Judge in holding against the appellant

has reasoned that in terms of clause 10 of the Contract, no

compensation has to be awarded even though there was delay in

completion of work on account of the non-supply of materials or

stores by the department i.e. though there was prolongation of

work because of the DDA. The learned Single Judge was,

therefore, of the view that since the clause 10 of the contract

stipulated that no compensation was to be awarded even though

there was delay in completion of work on account of non-supply

of materials or stores, the Arbitrator erred in doing so.

5. Before us, the appellant appearing in person has urged that

a Division Bench of this Court in the case of M.L. Mahajan vs.

Delhi Development Authority FAO(OS) No. 179/1990 decided

on 4th April, 2002 reported as 2002 (63) DRJ 57 has taken a view

in respect of Clause 10C that in case the delay is inordinate, then it

is open to the Arbitrator to award damages and in particular has

relied upon the reasoning of the Division Bench contained in

paragraph 9 of the aforesaid judgment which reads as follows: -

"9. A perusal of the paragraph will show that Clause 10C is not an absolute bar on the claims put forward by the Constructer. As this Clause does not contain the peremptory prohibition expressed in Clause 3.3.15 or 2.16 and 2.4 of the contract in Continental Construction's case (supra), interference by the learned Single Judge was not called for. In this analysis the decisions of this Court in afore-mentioned cases of M/s. Metro Electric Co., Rawla Construction Co., etc. would support the impugned Award. A conjoint reading of these two Clauses 10 and 10C is necessary in order to appreciate their true import and intent. Clause 10 deals only with 'Stores supplied by Delhi Development Authority' as is evident from the caption itself. It empowers the DDA to insist upon the use of a particular material to be supplied by it. The Clause then envisages that there are eventualities which may result from the delayed supply by the DDA of such material. Broadly stated what is laid down is that the material must be used as and when supplied. The Contractor is not entitled to insist that the entire supply must be completed by the DDA before commencing its obligations under the Contract. It also clarifies that material supplied by the DDA will always remain its property. What is of great significance is the second proviso inasmuch as it states that the Contractor shall be bound to execute the entire work if the materials are supplied by the DDA within the scheduled time for completion of the work plus 50% thereof; but if a part only of the materials has been supplied within the aforesaid period, then the contractor shall be bound to do so much of the work as may be possible. The understanding between the parties therefore was limited to the period indicated above, and where the maximum period has elapsed, the obligations under this Clause would not remain operative. This factor is of obvious relevance while construing Clause 10C, and in particular the opening c- "if during the progress of the works....." Thereafter, Clause 10C clarifies that it shall

have no applicability on any increase in the price of materials to be supplied by the DDA, which clearly stands to reason, It further stipulates that increases in the price of any material, sourced and paid for by the Contractor, and increases in wages of labour as a direct result coming into force of fresh law which have been actually borne by the Contractor, would be reimbursed. Of course, the increase must be in excess of 10%. The Clause does not exclude or prohibit claims for increase in prices of material and wages of labour after the stipulated period within the work is to be completed. If this is not to be so, the opening words would be rendered wholly otiose. It is, therefore, plainly obvious that where a contract stretches beyond the stipulated period i.e., the schedule time plus 50% thereof, the claim for escalation in prices is not excluded or barred under Clause 10C. We make this observation not so as to lay down the only interpretation that can be given to these Clauses, but rather to outline these possible understanding by the Arbitrator. In consonance with the ratio of Sudersan Trading Co. And Associated Engineering (supra) if any other plausible meaning is preferred by the Arbitrator, he would be free to implement it. In no way therefore, can it be predicated that the Award is legally flawed on the contention that the Arbitrator has misconstrued Clause 10C. The judgments of this Court in which Clause 10C was directly in consideration ought to have been followed by the learned Single Judge. In the Continental Construction's case (supra) the relevant Clauses had a totally distinct intent.

10. What remains to be considered is whether the general legal principles have in any manner precluded the grant of Claim No. 20. It has been universally recognised that standard-form agreement must be strictly construed against the party responsible for drafting it. This is also for the reason that in the preponderance of such compacts a monopoly can be found to exist.

Due to an imbalance in the stature and strength of the parties, they are not in pari delicto. In this very appeal it has been submitted on behalf of the Appellant/Contractor that even though the Contractor wanted to put an end to the contract because of the inordinate and extraordinary delay of the DDA, he was prevented from doing so for fear of having his security deposit forfeited. The possibility of such pressures cannot be ignored. It is further contended on behalf of the Contractor that although he did not terminate the contract, he had specifically cautioned the DDA that an extension of the contract would be conditional on his claim for damages. In this context attention has been drawn to the Contractor's letter dated January 16, 1978 in which at the very start "the absolute fiasco on the part of the DDA" was mentioned. It had further been underscored by the Contractor that "the work is in a deplorable state and at present the execution is standing at approximately 25% of the allotted quantum although the period of contract is more than 50% over. In view of the above we reserve our right to claim revision of rates and damages.....". In this last sentence of this letter it has been stated that "in case of failure of the department by the target dates, we should be reimbursed for the extra damages." Thereafter, in his Letter dated 1.8.1978 the Contractor had again spelt out in detail the causes for the delay, all of which were attributable to the DDA. In this sequence of events it cannot be predicated that a simplicities extension of time had been granted, precluding any claim for damages due to delay. All that can possibly be argued is that the Contractor had not conclusively proved damages. A decision on this point however lies exclusively within the domain of the Arbitrator. His conclusion is a plausible one and is therefore beyond the pale of judicial review. Since an adjudication on this issue does not stand excluded by virtue of Clause 10C including Clause 11 of the Conditions of Contract of M.E.S. Department (Union of

India) or any other covenant of the agreement between the parties, the Award cannot be interfered with; the Arbitrator could not be held to have exceeded his jurisdiction. The Contractor had ensured that his case was in consonance with Chapter IV of the Contract Act." (emphasis supplied)

6. We were also informed that the aforesaid judgment of the

Division Bench in FAO(OS) NO. 179/1990 was challenged before

the Hon‟ble Supreme Court by way of Special Leave Petition

(Civil) NO. 16468/2002 and the said Special Leave Petition was

dismissed by the order dated 16th September, 2002. The Division

Bench in the aforesaid paragraph 9 in FAO(OS) No. 179/1990 has

clearly taken a view that the bar on compensation claimed under

clause 10 should be restricted to the period indicated in the second

proviso, as the Contractor was bound to execute the entire work if

the material or stores was supplied by the DDA in the scheduled

time. Since there was inordinate delay beyond the said period

inclusive of 50% more period than stipulated, the Division Bench

chose not to interfere with the Award of the Arbitrator in granting

compensation.

7. The learned counsel for the respondent, Ms. Anusuya

Salwan, relied upon a judgment of the Supreme Court in the case

of Rajasthan State Mines and Minerals Ltd. vs. Eastern

Engineering Enterprises and another 1999(3) Arb. LR 350

(S.C.). The relevant conclusions in the above judgment read as

under: -

"From the resume of the aforesaid decisions, it can be stated that:

.......(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction--Is a different ground from the error apparent on the face of the award.

(g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.

(h) The award made by the Arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and

the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co. Ltd. (supra) by relying upon the following passage from M/s. Alopi Parshad v. Union of India [1960] 2 SCR 703 which is to the following effect:

There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of event which they did not at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous.

(i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action."

8. No doubt a court is entitled to interfere if the contractual

clause is not followed by the arbitrator, but where the clause is

such that two interpretations are possible then the arbitrator is

entitled to adopt one of the possible interpretations and this is

what the arbitrator did in the facts of this case by interpreting a

clause and holding that where there is inordinate prolongation of a

contract then for all times and for even inordinate delays the

increase of compensation cannot be restricted only to clause 10

and which interpretation was a possible interpretation, which

interpretation the learned Single Judge ought not have substituted

with his own interpretation of the clause. In our view, while we

are fully bound by the law laid down by the Hon‟ble Supreme