G.D.Bhutani & Co. vs Dda & Ors.
2009 Latest Caselaw 3706 Del

         *           IN THE HIGH COURT OF DELHI AT NEW DELHI

                                 Date of Reserve: July 23, 2009
                               Date of Order: September 11, 2009

+ CS(OS) No.849/1992
%                                                             11.09.2009


       G.D. BHUTANI & CO.                                  .... Plaintiff
                       Through :         Mr. Raman Kapoor, Adv.

              Versus


       DDA & ORS.                                          .... Defendant
                           Through:      Mr. D.S.Mahendru with
                                         Ms. Alpana PAndey Advs.


       JUSTICE SHIV NARAYAN DHINGRA


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

2.     To be referred to the reporter or not?                        Yes.

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

       JUDGMENT

1. By this order I shall dispose of objections filed by the

respondent/DDA against the award under Section 30 & 33 of the Arbitration

and Conciliation Act, 1940. In the objection petition, the respondent has

stated that the respondent only assails the award in respect of claims no. 3, 5,

6 and 8 and the respondent/DDA is not objecting to award in respect of claims

no. 1, 2, 4 and 7.

Claim No.3

2. Claim no.3 was made by the claimant on account of recovery of

Rs.52,600/- because of consumption of the cement shown by the contractor

beyond the theoretical calculations with deviations. The contractor had stated

that this recovery for excess consumption at double the rate was illegal since

no notice as per provisions of the agreement was served. DDA before the

Arbitrator contended that the recovery was in terms of the clause 33 and 42 of

the agreement. The learned Arbitrator observed that no notice from the

respondent (DDA) was served upon the contractor nor there was any loss

sustained by DDA or evidence of the misuse of the cement except the case of

pilferage of one truck of cement dealt separately under claim no. 7. Therefore

recovery at twice the misuse of the stipulated rate was not justified.

3. It is argued by DDA that the award of this claim was contrary to

the terms and conditions of the contract. The Arbitrator mis-conducted by

exceeding his authority and travelled beyond the terms of contract. The

contractor on the other hand relied upon Salwan Construction Co. vs.

Union of India 474 DLT 1990.

4. It is settled law that an Arbitrator is not a judge in equity as he is

supposed to adjudicate the claim made by the parties in accordance with the

terms of the contract. The Arbitrator is as much bound by the terms of the

contract as the parties themselves. The Arbitrator cannot write a new contract

between the parties nor has authority to change the terms and conditions of

the contract nor has authority to hold that any clause of the contract was not

enforceable. Clause 42 of the contract is in respect of consumption of cement

and provides that cement used for the work had to be calculated on the basis

of statement showing theoretical consumption of the cement in the work.

Thus, the quantity of cement used in different items of work has to be

calculated as provided in Delhi Schedule of Rates, 1981 printed by CPWD

and over this theoretical quantity of cement a variation upto ± 3% is permitted

where the total cost is not more than Rs.5 lakhs and ± 2% is allowed where

the cost was more than Rs. 5 lakhs. Clause specifically provides that in the

event of difference in the quantity of cement issued and theoretical quantity

inclusive of variation the remaining cement shall be returned. In case of non-

return of this excess quantity of cement, DDA shall be authorized to charge

double the rate. When this clause was made a part of the contract, the

cement was a controlled item and was issued to the consumers only on the

basis of permit. There was no open market of the cement and the rate of

cement in black market was more than double the controlled rate and for this

reason this clause was provided in the contract so as to stop the pilferage and

misuse of the cement by the contractor. Theoretical quantities are provided in

Delhi Schedule of Rates on technically sound basis. The contractor, if was

not agreeable to the clause, had liberty not to sign the contract, but once the

contract is there with this specific provision, the Arbitrator‟s observation that

DDA had failed to establish the loss suffered by it, is contrary to the contract.

DDA was not supposed to establish the loss by any evidence. It is well

settled law that the parties can enter into a contract whereby damages are

provided for any particular item without actual proving of loss. The contractor

in this case had agreed to Clause 42 with open eyes. There was no

requirement of the contract or of law for DDA to show that DDA has suffered a

loss because of supply of cement to the contractor in excess than the

theoretical quantity. The loss was built in. The contractor was at liberty to

insist upon the clause based on actual use of cement instead of theoretical

quantities.

5. Even in normal practice it is not practically possible to measure

and check the actual quantity of the cement used that is the reason that this

clause no. 42 is provided in contracts of DDA to calculate the quantity of

cement used. The Arbitrator was not at liberty to write a new contract

between the parties and observe that the loss was required to be proved by

DDA. Also there is no requirement under Clause 42 for serving a notice by

the DDA on contractor. In fact it is only at the time of final bill that the

theoretical quantities and the actual quantities are calculated and in case of

excess cement than the theoretical quantity is found to have been supplied

and not returned, the penalty ensues. Had the cement been available in the

open market at the same rate, every contractor would have returned the

excess cement supplied, by purchasing it from the market. It is only because

the cement during those days was a black market item that this clause was

provided in order to prevent the pilferage.

6. It is surprising that despite the fact that in this case, the

contractor was caught red handed with one truck full of cement being pilfered

from the spot the learned Arbitrator still allowed this claim of the contractor.

Claim No. 7 under which the Arbitrator dealt with was a claim of the contractor

about recovery of double the cost of cement in respect of one truck load of

cement pilfered from the spot and caught red handed by the police from the

contractor. In view of this glaring evidence that the contractor did indulge in

pilferage of the cement there was no reason for the Arbitrator to record that

DDA failed to produce the evidence of pilferage. If theft of cement was shown

once, it was sufficient evidence of pilferage of cement got issued by contractor

in excess. The Arbitrator in this case gave an award contrary to terms of the

contract and exceeded his jurisdiction and mis-conducted himself. I consider

the award under claim no. 3 is liable to be set aside.

Claim No.5

7. Under this claim claimant has asked for an amount of

Rs.27,777/- on account of unlawful reduction/deduction for items of work from

the payment of final bill. The claimant had submitted before the Arbitrator that

this deduction was made arbitrarily in the rates in respect of certain items

without any notice as prescribed under Clause 14 of any defects or giving any

opportunity to the claimant for rectifying the defects. The respondent had

contended that reduction in rates was done due to work not having been done

or the same not having been done as per specifications and relied on letter

dated 27/11/1984 vide which DDA had pointed out the defects/items not

executed by the petitioner. The learned Arbitrator observed that as per

agreement maintenance period was 6 months and the contractor was bound

to rectify the defects pointed out during this period in terms of Clause 14. The

respondent did not act as per Clause 14. The letters dated 27/11/1984 and

13/2/1985 were written by the respondent much after the expiry of the

stipulated period of 6 months. Moreover, the letters were not issued by

Engineer-in-Charge. He therefore rejected the evidence of the respondent.

He also observed that none of the exhibits mentioned about the defects for

which the rates have been reduced rather the Superintendent Engineer after

inspecting the work had issued a completion certificate dated 30/3/1988 which

mentioned about the lines and levels, seepage, pealing of plaster etc. but

nothing about the defects on account of which deductions were made.

8. It is submitted by the objector (DDA) that the Arbitrator has not

gone into the question whether the deductions or recoveries made in the final

bill were correct or not. He simply referred to letters and awarded the amount.

The Arbitrator has also not taken into account the completion certificate, ex.R-

30 and passed the award contrary to the evidence. In fact, the claimant had

not raised a dispute at any stage regarding the defects mentioned in the

conditional completion certificate. The completion of the project could only be

considered when the defects in the work executed by the claimant were

rectified or removed. As the defects had not been rectified and unexecuted,

items had not been provided by the contractor, it could not be said that the

project was completed. It was specifically mentioned in ex.R-30 that the

completion was provisional subject to rectification of the defects and these

defects were to be removed by the contractor. Since he did not remove the

defects and did not execute the job, the amount was deducted from the bill for

those items. The deduction could be made only in final bill whether the final

bill is prepared within 6 months or after 6 months. The Arbitrator came to

conclusion that since the deduction was made after 6 years therefore they

were not valid deductions and contrary to the contract. Since the claimant

had never denied that they had not removed the defects and completion was

subject to condition, the Arbitrator could not have awarded this amount.

9. Challenge to this claim is made on merits. This Court cannot act

as a Court of appeal and reconsider the evidence. Even otherwise a perusal

of record would show that the deductions were made in respect of items

which did not form part of the defect list. I find no reason to interfere with the

award of the learned Arbitrator on this count.

Claim No.6

10. Under this claim, the claimant had claimed a sum of Rs.56,985/-

on account of recovery made by DDA due to work done at risk and cost of

contractor. Against this claim, the learned Arbitrator allowed a sum of

Rs.5,332/- in respect of recoveries made by DDA for not fixing brass valves in

RCC water tanks by contractor. The Arbitrator came to conclusion that this

item was not provided under the contract so the contractor was not obliged to

provide brass valves and no deduction could be made on this count.

11. The award is challenged by the petitioner on the ground that the

Arbitrator did not go into the fact that the DDA had wither to rectify the defects

itself or to pay for rectification of these defects and therefore DDA was entitled

to recover the amount. The objector has not addressed the issues of brass

valves not being a part of the contract. I consider that practically there is no

challenge to this claim. The objection in respect of this claim is therefore

turned down.

Claim No.8

12. Under claim no. 8 the contractor claimed a sum of Rs.1,20,000/-

on account of damages due to idle labour, T & P, establishment etc. Against

this claim, the learned Arbitrator has awarded an amount of Rs. 46,350/-.

Accepting the plea of the claimant that the delay in completion of work was

due to non-availability of site, cement, delay in supplying of drawings and

details, non-availability of shutters, delay in electrical work etc. The Arbitrator

came to conclusion that since the time for executing contract was extended

without levy of penalty, the claimant was justified in claiming the amount for

deployment of extended establishment, machinery, T & P remained unutilized

to the prolongation period.

13. The award is objected by DDA on the ground that the award

was contrary to contract and no damages or compensation could have been

awarded to the contractor because of delay in handing over of site or material

or drawings. The other ground taken by the petitioner is that the Arbitrator

has not stated as to how the amount of Rs.46,350/- was calculated by him. It

is stated that it was a condition of the agreement between the parties that

upon completion of contract, the contractor will have responsibility of

maintenance of the building for six months. The Arbitrator could not have

granted claim for the period when building was under maintenance of the

contractor. The petitioner also stated that the judgment of Justice P.K.Bahari

in Suit no.1389/89 titled as M.M. Associates vs. DDA was cited and proved

as R-39 and in this judgment the High Court has observed that the Arbitrator

should not be awarded any amount on account of losses/damages claimed by

him. The Arbitrator mis-conducted himself by ignoring the judgment.

14. In the tendered documents under "Specification and Conditions"

it was specifically provided:

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

15. The plea of claimant before the Arbitrator was that the site was

not available. There were jhuggis on the site. The above clause specifically

provides that the contractor has to inspect the site before filing tenders and it

also provides that if a part of the site was not available for any reasons or

there was some non-availability, delay in supply of material supplied by the

department, programme of construction has to be modified accordingly. The

clause provides that the contractor shall have no claim for any extras or

compensation on this account. The contract used words „for any reason‟

which only means „for any reason whatsoever‟. It is clear from the above

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

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

modified (by extension of time for completing the work) and no claim for any

extra amount or compensation could be made by the contractor. In the

present case, circumstances had been rather created by the contractor for

delay in material. The cement supplied by DDA was in fact pilfered from the

spot and a truck load (250 bags of cement) was apprehended by Food and

Supply Department being removed from the site by the contractor. Thus the

ground of delay in supply of cement could not have been entertained in view

of the fact that the contractor had pilfered the material from the site. However,

the learned Arbitrator without giving any reason as to how the contractor was

entitled to compensation despite his having indulged in pilferage of material

has allowed the claim of the contractor. This Court in Sunder Lal Kharti &

Sons vs. DDA in CS(OS) 2404A/1995 observed as under:

"19. A perusal of award in respect of claim no.7 would show that learned arbitrator observed that the general conditions and specifications as relied upon by the respondent DDA would not come to the rescue of DDA because it was not a case of non supply of material but the delay was on account of non supply of drawings and decision. However, this observation of the learned arbitrator is contradictory to the contentions in claim and the observations made by learned

arbitrator at page 13 of award. The claimant had contended before the arbitrator that there was delay due to non issuance of drawings, non supply of cement, non availability of site, delay in taking decisions and non-payment of dues in time. Non issuance of drawings and decision was only one of the factors enumerated. The other factors for delay as enumerated by the claimant/ contractor were non availability of site due to presence of barracks, non issuance of cement, non-payment of dues etc. The aforesaid clauses of the contract specifically take care of the non issuance of cement, steel and other material and non availability of site. It is specifically provided that in case of any delay in providing site or material, the programme of construction has to be re- scheduled and the contractor would not be entitled for any damages. The damages have been awarded to the contractor considering the idleness of his machinery, engineer, supervisor and deployment of labour, chowkidar etc on the presumption that the contractor was having no other work and he was having one sole contract at that time. It is never a case that one contractor does one work at a time and till the work is over, he does not engage his employees, labour, machinery, engineer, supervisor at other sites. Whenever a contractor claims loss on account of prolongation of contract on the ground that he has not been able to fruitfully utilized his machines and men, the arbitrator cannot presume that the contractor was having only one contract and he had no other site of work where he could deploy his engineer and labour. It is also a known fact that the civil contractors do not employ labour, chowkidars and other workforce as their permanent workforce. The workforce is employed by the civil contractors for a specific work and for specific period when the work is going on. It is for this reason that the contract provides for maintenance of wage register so that the record is there that the contractor had been employing the workforce all along for which the contractor makes claim. In absence of any wage register, no presumption can be drawn that the contractor had really paid wages to the workforce as claimed or this workforce was being employed at site. No claim could have been allowed by the arbitrator in absence of record of employment of engineer, supervisor, chowkidar, etc. record more so when the contract specifically provides that the contractor would not be entitled for any damages in case the contract gets prolonged due to non supply of material or non availability of site. The arbitrators allowing 25% or 50% of the claimed amount, without giving reason for arriving at such percentage amounts to arbitrariness. In Bharat Coking Coal Ltd. v L.K. Ahuja 2004(5) SCC 109, the Supreme Court observed as under:

"Para 23. Claim No. 8 has been rejected by the arbitrator. Now we proceed to consider claim No. 9 for

loss arising out of turnover due to prolongation of work. The claim made under this head is in a sum of Rs.10 lakhs. The arbitrator rightly held that on account of escalation in wage and prices of materials compensation was obtained and, therefore, there is not much justification in asking compensation for loss of profits on account of prolongation of works. However, he came to the conclusion that a sum of Rs.6,00,000/- would be appropriate compensation in a matter of this nature being 15% of the total profit over the amount that has been agreed to be paid. While a sum of Rs.12,00,000/- would be the appropriate entitlement, he held that a sum of Rs.6,00,000/- would be appropriate. He also awarded interest on the amounts payable at 15% per annum.

Para 24. Here when claim for escalation of wage bills and price for material s compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that in addition 15% of the total profit should be computed under the heading "Loss or Profit". It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilized the same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co. Ltd. v. Cunard White Star Ltd. (1940) 1 KB 740 by the Court of Appeal in England. Therefore, we have no hesitation in deleting sum of Rs.6,00,000/- awarded to the claimant."

16. I therefore hold that the award of this amount by the Arbitrator

was contrary to the contract and uphold the objections of the objection/DDA

on this count.

17. In view of my above discussion, the objections of the

respondent/DDA in respect of claims no.3 and 8 are upheld and the

objections in respect of claims no. 5 & 6 are dismissed. The award, except in

respect of claims no. 3 and 8, is made a rule of the Court.

September 11, 2009                         SHIV NARAYAN DHINGRA J.
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