Union Of India Thru. Chief ... vs M/S Trg Industries Pvt. Ltd.
2009 Latest Caselaw 4340 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     FAO(OS) NO. 27/2007 and CM No. 1244/2007 (stay)

                                       Date of Decision : October 27, 2009

UNION OF INDIA THRU DY. CHIEF ENGINEER
NORTHERN RAILWAYS                                 .....Appellant
                       Through : Ms. Geetanjali Mohan,
                                 Advocate.
           versus

M/S. TRG INDUSTRIES PVT. LTD.                   .....Respondent
                        Through : Mr.Vivekanand, Advocate.
CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MS. JUSTICE REVA KHETRAPAL

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 (ORAL)
                                  27-10-2009
MUKUL MUDGAL,J.

1. This appeal challenges the judgment of the learned Single Judge dated

28th July, 2006 in so far as it relates to the upholding of the Claims no.1,2,3,5

and 7 by the Arbitrator by his award dated 4th March, 2002.

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

The respondent-TRG Industries (P) Ltd. was awarded a contract

regarding "Balance work of design and construction of single track B.G.

Railway Project across river Sardan in connection with the construction of

Jammu Tawi-Udhampur Rail Link including construction of foundation, sub-

structures, super-structures and various protection works between Km.13.220

and Km.13.900 on Jammu-Udhampur Rail Link Project" by the Northern

Railways (appellant herein). Disputes and differences arose between the

parties in execution of the contract and the matter was referred to arbitration

as per the arbitration clause in the contract. The following claims were

raised by the respondent before the Arbitrator: -

Claim No.1 : Waiver of interest charges on mobilization advance recovered

by the department for the period of suspension of work.

Claim No.2 : Idle charges for labour and staff for the suspension period.

Claim No.3 : Idle charges for machinery brought to site including

depreciation.

Claim No.4 : Loss of mandated output and consequent expenditure on

overheads (output of Rs.13.50 crores was mandated as per Contract over a 24

months period i.e. Rs.56.25 lacs per month) @ 25% for 3 months 14 days on

account of disruption of work.

Claim No.5 :       PRCC filling in viaduct portion.

Claim No.6 :       Drilling and soiling investigation work.

Claim No.7 : Interest @ 24% from due date of payment to actual date of

payment.

3. The Arbitral Tribunal after hearing the parties passed the award on 4th

March, 2002 allowed the claims of the respondent to the extent of

Rs.29,59,543/- along with interest @ 24% per annum from due date of

payment to actual payment i.e. Rs.17,75628/-.

4. Aggrieved by the aforesaid award the appellant-Union of India

preferred an appeal before the learned Single Judge. The main submission

before the learned Single Judge and indeed before this court in appeal has

been that the claims no.1,2,3,5 and 7 could not be considered by the Arbitral

Tribunal as they were 'excepted matters'. Reliance was placed on clause 63

of the General Conditions of Contract (in short the „GCC‟) which reads as

follows: -

"Matters finally determined by the Railway-All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the contractor to the Railway and the Railway shall within a reasonable time after receipt of the Contractor's representation make and notify decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in clause 18, 22(5), 39, 45(a), 55, 55-A(5), 61(2) and 62(1) (XII)(B)(e)(b) of the General Conditions of Contract or in any clause of the special conditions of the contract shall be deemed as excepted matters and decisions thereon shall be final and binding on the contractor provided further that excepted matters shall stand specifically excluded from the purview

of the arbitration clause and not be referred to arbitration."

5. Reliance was also placed on clauses 36(1)(c), 17(3) of the GCC and

clauses 17(3) and 21.5 of the Special Conditions of Contract (in short the

„SCC‟) which read as under:

"Clause No. 36(1)(c) of GCC:

Necessary for the safety of the works or any part thereof, the contractor shall not be entitled to the extra costs (if any) incurred by him during the period of suspension of the work, but in the event of suspension ordered by the engineer for reason other than afore-mentioned and when each such period of suspension exceeds 14 days the Contractor shall be entitled to such extension of time for completion of the works as the Engineer may consider proper having regard to the period or periods of such suspensions and to such compensation as the Engineer may consider reasonable in respect of salaries or wages paid by the Contractor to his employees during the periods of each suspension."

"Clause No. 17(3) of the GCC:

In the event of any failure of delay by the Railway to hand over to the contractor possession of the land necessary for the execution of the works or to give the necessary notice to commence the works or to provide necessary drawings or instructions; or any other delay caused by the Railway due to delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the contractor to damages or compensation therefore but in any such case, the Railway may grant such extension or extensions of the completion date as may be considered reasonable."

"Clause No. 37.1 of the SCC:

The advance carries an interest rate of 10% per annum. The advance to other with interest accrued thereon will be recovered through an account of bills in installments, the

recovery commencing when quantum of work executed and paid for reaches 15% of the contract value and shall be completed when the value of the work executed reached 85% of the contract value. The installment of recovery from each 'on account' bill will be on pro-rate basis."

"Clause No. 21.5:

No claim for idle labour and or idle machinery etc. on any account will be entertained. Similarly, no claim shall be entertained for business loss or any such loss."

6. In so far as Claim no.1 is concerned, the learned Single Judge applied

the principles of law laid down by the Hon‟ble Supreme Court in G.M.

Northern Railways vs. Sarvesh Chopra (2002) 4 SCC 45 to hold that

clause 63 comprised of the following two categories of claims which are just

not leviable or entertainable: -

a. The first category of claims are those wherein the special conditions provide that they cannot be raised at all, that is, these are „no claim‟, „no damage‟ or „no liability‟ clauses.

b. The second category of claims are those where the dispute itself has to be determined by an authority of Railways as provided under the relevant clause.

Claim no.1 preferred by the respondent was for waiver of interest

charges on mobilization advance recovered by the Department for the period

of suspension of work, that is, for the period 31st October, 1995 upto 13th

February, 1996. The plea of the appellant before the learned Single Judge

was that the claim no.1 fell within the SCC and was thus an 'excepted

matter'. The learned Single Judge had analyzed clause 36(1)(c) of the GCC

and clause 37.1 of the SCC to conclude that in so far as claim no.1 is

concerned, i.e. claim for the waiver of interest on mobilization advance

during the period of suspension of work, clause 36(1)(c) did not bar such a

claim, namely, waiver of interest. It was also rightly held that clause 37.1 of

the SCC did not deal with the issue at all. The learned Single Judge had held

that clause 36(1)(c) only deals with extension of time granted to the

contractor in the event of suspension of work ordered by the Engineer if it

exceeds a period of 14 days. The Engineer is also permitted to grant such

compensation as considered reasonable in respect of salaries or wages paid

by the contractor to his employees.

7. The learned Single Judge, in our view, has rightly concluded that

clause 36(1)(c) deals with extension of time to be granted to the contractor.

It does not bar payment of salaries or wages during the period of suspension.

In fact, the learned Single Judge has held that clause 36(1)(c) does not

contemplate a situation of a claim for waiver of interest, and even the

Engineer can order the payment of such wages or salaries which may be paid

by the contractor to his employees.

Similarly, the learned Single Judge has rightly excluded clauses 37.1

of the SCC which only enables the appellants to charge interest on

mobilization advance during the course of execution or progress of work and

does not cover a situation where the work was halted because of the

employer, i.e. the appellant itself.

8. The learned Single Judge has also rightly held that as far as clause

17.3 of the GCC is concerned, this was not pleaded before the Arbitrator and

the appellant cannot be allowed to resort to this clause before the Court. For

this purpose, the learned Single Judge has relied upon the judgments of the

Hon'ble Supreme Court in J.G. Engineers Pvt. Ltd. vs. Calcutta

Improvement Trust AIR 2002 SC 766 and Narayan Prasad Lohia vs.

Nikunj Kumar Lohia 2002 (1) Arb. Law Reporter 493(SC). We entirely

concur with the above view of the learned Single Judge which follows the

binding position of law settled in the above decisions to the effect that pleas

not taken before the arbitrator cannot be raised in a challenge to the award.

9. Even otherwise, the learned Single Judge came to the conclusion and

in our view rightly so, that clause 17.3 of the SCC has no application as that

only deals with a situation where there is failure or delay by the Railways to

hand over to the contractor possession of the amount necessary for the

execution of the work and the extension of time for completion of such

works. The interest on mobilization amount was rightly held by the learned

Single Judge, not to be an issue covered by this clause. Accordingly, we are

fully satisfied with the reasoning of the learned Single Judge and indeed

affirm the same in so far as the claim no.1 is concerned.

10. In so far as the claims no.2 and 3 are concerned, the plea of the

appellant was that this is covered by clause 21.5 of the SCC i.e. no claim for

idle labour and or idle machinery etc. on any account will be entertained.

The learned Single Judge has referred to clause 36(1)(c) of the GCC which

specifically deals with the eventualities where the work is ordered to be

suspended and the said clause clearly stipulates that the engineer may

consider grant of such compensation as is found to be reasonable in respect

of the salaries and wages paid by the contractor to the employees during the

period of suspension. In our view the learned Single Judge has rightly

analysed that clause 36(1)(c) of the GCC is in the nature of a proviso to

Clause 21.5 of the SCC and has gone on to hold that if a claim is made in the

eventuality of suspension of work, for the period when the work was

suspended, such a claim will be considered and granted. The learned Single

Judge has also taken into account the fact that when this claim was raised

and demanded by the respondent, the appellant had processed the claim.

11. Mr. Vivekanand, the learned counsel for the respondent submitted that

in fact, the payment had been made on the basis of the amount computed by

the Engineer himself as is evident from the Arbitrator's award. The learned

counsel for the appellant, however, contended that the respondents were

asked by the appellants to produce evidence. Having gone through the

Arbitrator's record, we notice that the Arbitrator has only relied on the record

of the Railways, which is duly signed by the respondent. The plea of the

learned counsel for the appellant, therefore, that the respondent did not

furnish the record is not totally right because the Arbitrator while dealing

with claim no.2 had clearly expressed that the claim is only based on the

Railways records.

12. The learned Single Judge has further analyzed the counter statement of

the appellant where it has been clearly stated that the respondent did not

process the claim nor responded efficiently to the appellant's initiative. In

the light of the above, the learned Single Judge was right in concluding that

the claim regarding idle labour would be governed by clause 36(1)(c) of the

GCC and not clause 21.5 of the SCC. Accordingly, accepting the analysis of

the learned Single Judge, we are satisfied that the learned Single Judge was

justified in sustaining the award in respect of claims no.2 and 3.

13. In so far as objections to the sustenance of claim no.5 is concerned, it

is not disputed that such a plea that it falls within the category of 'excepted

matters' was not taken before the Arbitrator and therefore could not be

entertained. Such a plea is also not sustainable in view of the judgment of

the Supreme Court in J.G. Engineers Pvt. Ltd. vs. Calcutta Improvement

Trust (supra) and Narayan Prasad Lohia vs. Nikunj Kumar Lohia (supra),

wherein applying the principle of waiver it was held by the Hon'ble Supreme

Court that the respondent not having taken the objection with regard to the

non-arbitrability of the claim before the Arbitrator or any objection that the

said claims were „excepted matters‟ and having contested the claims on

merits, is estopped from raising such an objection after having suffered the

award.

14. In so far as claim no.7 is concerned, the said claim relates to the

interest of 12% awarded by the Arbitrator and upheld by the learned Single

Judge. In our view, the current position of law regarding interest has been

laid down by a Division Bench of this Court in the case of India Furnishers

vs. Punjab National Bank, being FAO(OS) 261/2001 decided on 22nd April,

2009, wherein while referring to the judgments of the Hon'ble Supreme

Court in Rajendra Construction Co. v. Maharashtra Housing & Area

Development Authority and others, 2005(6) SCC 678, McDermott

International Inc. v. Burn Standard Co. Ltd. and others, 2006(11) SCC

181, Rajasthan State Road Transport Corporation v. Indag Rubber Ltd.,

(2006) 7 SCC 700 and Krishna Bhagya Jala Nigam Ltd. v.

G.Harischandra, 2007(2) SCC 720, it was held as under:-

"The interest of justice would be sufficiently met if the award is sustained, but, interest granted by the Award is reduced to 12% per annum and further in case the respondents makes the payments within four weeks from today then the interest would be at stand reduced to 9% per annum."

15. In view of the above, we are satisfied that the order of the learned

Single Judge does not suffer from any infirmity and the appeal is dismissed,

however, with the modification that the interest awarded by the learned

Arbitrator and upheld by the learned Single Judge will stand reduced from

12% to 9% in view of the above position of law laid down by the Hon'ble

Supreme Court.

16. The appeal stands dismissed with the above modification and is

disposed of accordingly. All the pending applications also stand disposed of.

(MUKUL MUDGAL) JUDGE

(REVA KHETRAPAL) JUDGE October 27, 2009 sk