M.L. Mahajan, Contractor vs Delhi Development Authority & ...
2010 Latest Caselaw 2163 Del

*             HIGH COURT OF DELHI: NEW DELHI

+             FAO (OS) No. 112/2005

                             Judgment reserved on: 8th April, 2010
%                            Judgment delivered on: 26th April, 2010


M.L. MAHAJAN, CONTRACTOR                ..... Appellant
                 Through: Appellant in person.

                        Versus

DELHI DEVELOPMENT AUTHORITY
& ANR.                                              ..... Respondents

                             Through:   Ms. Anusuya Salwan, Adv.
                                        with Ms. Renuka Arora, Adv.

                             AND

              FAO (OS) No. 419/2005

D.D.A.                                                 ..... Appellant

                             Through:   Ms. Anusuya Salwan, Adv.
                                        with Ms. Renuka Arora, Adv.
                        Versus

M.L. MAHAJAN & ANR.                                 ..... Respondents

                             Through:   Respondent in person.

       Coram:

       HON'BLE MR. JUSTICE VIKRAMAJIT SEN
       HON'BLE MR. JUSTICE A.K. PATHAK

       1. Whether the Reporters of local papers may
          be allowed to see the judgment?     Not Necessary

       2. To be referred to Reporter or not?        Not Necessary

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


FAO (OS) No. 112/2005                                                    Page 1 of 19
 A.K. PATHAK, J.

1. Both the above appeals are directed against the order

dated 4th April, 2005, passed by the learned Single Judge,

whereby objections under Section 30 of the Arbitration Act,

1940 filed by the Delhi Development Authority (hereinafter

referred to as "DDA") against the award dated 22nd May, 1992

published by Mr. M.S. Telang, sole Arbitrator, have been

disposed of; claim Nos. 1 to 5, 7 and 8 and counter claims 1 to 4

have been made a Rule of the Court whereas claim No. 6 has

been set aside.

2. In brief, relevant facts are that Mr. M.L. Mahajan

(hereinafter referred to as the contractor) was awarded a work

for the construction of 926 janta category flats at Ghazipur by

the DDA. As per the contract, the construction work was to

commence on 12th August, 1982 and was to be completed within

a period of one year i.e. by 11th August, 1983. The work could

not be completed in time by the contractor; accordingly,

Superintending Engineer, DDA levied compensation on the

contractor in terms of clause II of the contract alleging failure

on the part of the contractor to complete the work.

Consequently, disputes arose between the parties and were

referred to the Arbitrator, in terms of the arbitration clause as

contained in the agreement.

3. Contractor raised eight claims besides the cost of

arbitration. DDA also raised four counter claims. Claim No. 1

for Rs.2,85,792/- was towards the final bill which included

payments under Clause 10 (c) of the contract, regarding

statutory increase in the price of bricks and wages of labour.

The Arbitrator awarded Rs.1,72,349.64 against this claim.

Claim No. 2 in the sum of Rs.1,00,000/- was towards the refund

of security deposit. Claim No. 3 for Rs. 5,635/- was regarding

refund of rebate wrongly deducted by the DDA. Both these

amounts were allowed by the Arbitrator in toto. Claim No. 4 in

the sum of Rs.73,000/- was in respect of fixation of PVC pipes of

a larger diameter than the one provided under the agreement.

Against this claim, Arbitrator awarded a sum of Rs.66,815.89.

Claim No. 6 for Rs.7,23,000/- was towards escalation of work

done beyond the stipulated date of completion; Arbitrator had

awarded Rs.2,89,586.79 against this claim. Claim No. 7 for

Rs.2,85,000/- was towards overheads on account of site office

and watch and ward during the prolonged period of the

contract. The Arbitrator awarded Rs.1,96,200/- against this

claim. Claim No. 8 was towards pendente lite interest which

was allowed for the period as mentioned in the award @ 12 %

simple interest per annum. Counter claims of Rs.53,352/- and

Rs.1,88,363/- towards levy of compensation and damages

respectively on account of execution of balance work and

rectification of defective works were negated. Counter claim

No. 3 for Rs.1,69,769/- on account of reduction in items was

allowed to the extent of Rs.72,979.32 but nil award was

awarded as this amount was given an adjustment while

determining claim No. 1. Similarly, counter claim No. 4 for

Rs.1,62,791/- was allowed to the extent of Rs.12,124/- on

account of recovery of materials issued but having remained

unaccounted for, beyond the permissible limit, a nil award was

awarded as this amount was also given an adjustment in claim

No. 1.

4. Claims had arisen on account of delay alleged by the

contractor on the part of the DDA, therefore, the Arbitrator had

gone into this aspect and on the basis of the evidence adduced

before him, he returned a categorical finding that the delay was

attributable to the DDA. It was held that the site remained

encumbered, as a consequence whereof, the contractor was

prevented from completing the work within time. DDA had

failed to remove obstructions from the site and had breached

the obligations in this regard. It was also noted that a road was

passing through the site which had to be removed and until it

was done, no work could proceed at the site; electric poles were

obstructing the site where flats were proposed to be

constructed and this also contributed to the delay, inasmuch as,

the DDA caused delay in issuing some of the drawings which, in

fact, were issued after the stipulated date of completion. Work

was substantially completed by the contractor by February,

1986. However, on that date five minor works with regard to

fixing of fittings pertaining to sanitary and water supply and

final white wash remained to be completed. These works were

kept pending, awaiting the allotment of flats, as there was a fear

of the fittings being stolen, on there being a time gap between

their fixation and the allotment of the flats. In spite of the

works having been substantially completed, DDA did not issue

the provisional completion certificate; it was made subject to

contractor attending the minor works. Much after the defect

liability period was over, compensation under Clause II was

levied as late as on 15th December, 1988 by which time the

maintenance period had expired i.e. in August, 1986. Since

DDA failed to take the possession of the site, the contractor was

justified in withdrawing the watch and ward from 12th

September, 1986 after issuing a proper notice. Since delay was

attributable to the DDA, the Arbitrator awarded different

amounts, as aforesaid, under each claim.

5. Learned Single Judge on the basis of material placed

before him found justification in the reasoning returned by the

Arbitrator with regard to the claims/counter claims raised by

the parties except with regard to claim No. 6. Consequently,

the award was upheld and made a Rule of the Court with regard

to all the claims/counter claims except claim No. 6 which was

set aside.

6. Aggrieved by the dismissal of their objections with regard

to claims No. 1 to 5, 7 and 8 and the counter claims, DDA has

preferred FAO (OS) No. 419/2005, inter alia, on the ground that

the claims under these heads were awarded by the learned

Arbitrator without being supported by sufficient material,

inasmuch as, the award was bereft of reasons. Contractor was

also aggrieved by rejection of claim No. 6 by the learned Single

Judge and has preferred FAO (OS) 112/2005.

7. We shall first deal with the appeal filed by the DDA.

Learned Single Judge has held that the findings of fact returned

by an Arbitrator can be challenged only on the ground that such

a finding is perverse, in that, there is no evidence to sustain the

same or no reasonable person would arrive at the finding on the

given evidence or that a material document has been ignored.

Save and except the three categories mentioned hereinabove,

findings of fact returned by the Arbitrator cannot be challenged

by requiring this Court to sit as a Court of Appeal or to re-

appreciate the evidence. Reasoning of the learned Arbitrator

and the salient features noted on the issue of delay was well

supported with evidence; to put it negatively, it cannot be said

to be a finding which no reasonable person would arrive at or a

finding which is based on no evidence. Learned Single Judge

examined each claim independently on the basis of the arbitral

proceedings and concluded that the Award under each of the

claims except claim No. 6 was supported by material evidence

and the findings arrived at were not perverse. We do not find

any reason to take a different view than what has been taken by

the learned Single Judge. We concur with the learned Single

Judge that the findings of fact recorded by the Arbitrator cannot

be challenged by the court as if it is hearing an appeal. Even

before us the learned counsel for the DDA has failed to point out

that the findings returned by the Arbitrator were based on no

evidence or were perverse.

8. A Division Bench of this Court in M.L. Mahajan vs. Delhi

Development Authority, reported in 2002(63) DRJ 57 (DB),

had held that intervention in post award proceedings may be

warranted if there is an error apparent on the face of the record

either in law or in fact and has consequently resulted in a grave

miscarriage of justice. Court has not to substitute its own view

with the view taken by the Arbitrator. If the view taken by the

Arbitrator is a plausible one the Court would refrain from

interfering. In this case it was inter alia held as under :-

"........These are findings of fact which would normally not be interfered with by the Court. Objections covering such points are not justifiable. Intervention in post-Award proceedings may be warranted if the error of law or fact is perverse and apparent on the face of the Award, and results in a monumental miscarriage of justice. Having chosen their own forum of adjudication, the parties are left to reap the harvest of the seeds that they have sown. [Unless an error in the interpretation of a term in the contract between the parties is manifest merely by looking at that documents, jural interference is uncalled for. In no case is it permissible for the Court to substitute its own view, however compelling, for that preferred by the Arbitrator, even if it is only a plausible one. It is within this very restricted arena that the Court must consider and decide the Objections filed against an Award.]"

9. In Delhi Development Authority vs. Madhur Krishna

reported in 2009 VI AD (Delhi) 760, a Division Bench of this

Court had held that reasons given by the Arbitrator should

reflect his thought process, whereby it can be ascertained as to

how he has arrived at a particular conclusion. Thus, we are of

the view that it is not mandatory for an Arbitrator to give a

detailed judgment; he has to give reasons precisely so as to

indicate his thought process for arriving at a particular finding

returned by him and the basis on which a particular sum has

been awarded. If the Award is capable of indicating the mind of

Arbitrator as to how he has arrived at a particular conclusion

the requirement of stating the reasons is suitably met.

10. We have perused the Award rendered by the learned

Arbitrator and find that sufficient reasons have been given by

him in arriving at a conclusion that delay was attributable to the

DDA as also for determining the particular sums under each

head. A perusal of the Award itself shows that it is not bereft of

reasons, inasmuch as, the reasons in the same have been

mentioned for arriving at the particular amount awarded under

each count.

11. Accordingly, we are of the view that the appeal of the DDA

is devoid of merits and the same is dismissed.

12. Now, we shall advert to the appeal of the contractor

whereby it has been contended that learned Single Judge was

not justified in setting aside the Award in respect of claim No. 6

of Rs.2,89,586.79 on the ground that the contractor was suitably

compensated under Section 10(c) of the contract being a part of

claim No. 1. As per the learned Single Judge, the statutory

increase in the labour wages and material stood adequately

compensation under Clause 10(c), thus, the contractor was not

entitled to any amount towards escalation of price for work done

beyond the stipulated date of completion due to breaches

committed by the DDA and non-fulfilment of its contractual

obligations.

13. Arbitrator has dealt with claim No. 6 in the following

manner :-

"Claim 6 - Claimants claim Rs.7,23,000/- towards escalation in prices for work done beyond stipulated date of completion due to beaches committed by department and non- fulfilling contractual obligations.

: As stated in the „Findings and Reasons‟ above, the Respondents were in breach of the contractual obligations, as a result of which, there was delay in the completion of the work. The Claimants gave notice to the Respondents, at the relevant time about their intention to claim market rates for the work to be executed in the extended period. I hold that the Claimants are entitled to receive reasonable compensation towards the increase in the market prices of the materials of construction, and for the increased labour wages during that period. The claimants sought to justify their claim of 15% over the contract rates, for which they had given the Respondents notice at the relevant time, on the basis of the cost-indices published by the Central Public Works Department, from time- to-time, for works to be executed in Delhi. The cost indices are based on some of the important ingredients of the construction activities, such as prices of Bricks, Sand, Cement, Aggregate, Timber, Steel, and the wages of labour like Mason, Carpenter, and

un-skilled beldar, from time-to-time. In the instant case, I find that the Respondents have supplied to the Claimants construction materials like Cement, Steel, SCI pipes, Timber-shutters, PVC pipes, etc. at fixed rates, for the entire period of contract. The Claimants also stand reasonably compensated for the statutory increase in the labour wages (beyond initial 10%), as per their claim agitated in Claim No. 1 above. Thereby part of the increase in labour wages stands neutralised. In these Circumstances, the basis of computing the compensation on the cost-indices published from time-to-time, would lead to erroneous results. Therefore I hold that the Claim as made out is partly justified. I award Rs.2,89,586.79p, against this claim to be paid by the Respondents to the Claimants."

14. Admittedly the project was delayed. Arbitrator returned a

categorical finding that the breach of the contractual obligations

was on the part of the DDA. Delay was attributable to the DDA.

In terms of the agreement, construction work was to be

completed by 11th August, 1983. Work was substantially

completed by the contractor by February, 1986. DDA vide its

letter asked the contractor to attend certain works which were

five in number. Two items related to the fixing of sanitary and

water supply fittings; others included the final coat of white

wash. This clearly shows that the work was almost complete

except for the aforementioned minor items. The Arbitrator

accepted the plea of the contractor that these items had been

kept pending due to fear of theft as the time gap in the

completion of the construction and the allotment could be fairly

long. The Arbitrator has further categorically held that the

contractor was entitled to a "provisional completion certificate"

in February, 1986 subject to his attending to these minor items

of work. Be that as it may, it is evident that the work was almost

complete by February, 1986 i.e. after a period of about two and

a half years from the stipulated completion date. Work was

however continued by the contractor even after the stipulated

completion date i.e. till February, 1986 and during this period

substantial construction work was done.

15. At this stage it would be relevant to extract clause 10 and

Clause 10(c) which read as under :-

"Clause 10 - Stores supplied by Delhi Development Authority. If the specifications or schedule or items provided for the use of any special materials to be supplied from Engineer-in-Charge's stores or it is required that the contractor shall use certain stores to be provided by the Engineer-in-Charge as shown in the schedule of materials hereto annexed the contractor shall be bound to procure and shall be supplied such materials and stores as are from time to time required to be used by him for the purposes of the contractor only, and the value of the full quantity of material and stores so supplied at the rates specified in the said schedule of materials may be set off or deducted from any sums then due, or thereafter to become due to the contractor under the contract, or

otherwise or against or from the security deposit or the proceeds or sale thereof if the same is held in Government securities. the same or a sufficient portion thereof being in this case sold for the purpose. All materials so supplied to the contractor shall remain the absolute property of Delhi Development Authority and shall not be removed on any account from site of the work, all shall be at all times open to inspection by the Engineer- in-Charge. Any such materials remaining unshed and in perfectly good condition at the time of the completion or termination of the contract as shall be returned to the Engineer- in-Charge at a place directed by him, by a notice in writing under his hand, if he shall so require but the contractor shall not be entitled to return any such materials unless with such consent, and shall have no claim for compensation on account of any such materials so supplied to him as aforesaid not being used by him or for any wastage in or damage to any such materials. Provided that the contractor shall in no case be entitled to any compensation or damages on account of any delay in supply or non supply thereof all or any such materials and stores. Provided further that the contractor shall be bound to execute the entire work if the materials are supplied by the Delhi Development Authority within the scheduled time for completion of the work plus 50 percent thereof (scheduled time plus 6 months if the time of completion of the work exceeds 12 months) 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 with the materials and stores supplied in the aforesaid period. 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-in-Charge whose decision in this regard shall be final."

Clause 10C - If during the progress of the works, the price of any material incorporated in the works, (not being a material supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof) and/or wages of labour increases as direct result of the coming into force of any fresh law, or statutory rule or order (but not due to any changes in sales tax) and such increase exceed ten per cent of the price and/or wages prevailing at the time of receipt of the tender for the work, and contractor thereupon necessarily and properly pays in respect of the material (incorporated in the work) such increased price and/or in respect of labour engaged on the execution of the work such increased wages, then the amount of the contract shall accordingly be varied provided always that any increase so payable is not, in the opinion of the Superintending Engineer (whose decision shall be final and binding) attributable to delay in the execution of the contract within the control of the contractor. Provided, however, no reimbursements shall be made if the increase is not more than 10% of the said prices/wages and if so the reimbursements shall be made only on the excess over 10% and provided further that any such increase shall not be payable if such increase has become operative after the contract or extended date of completion of the work in question.

If during the progress of the works, the price of any material incorporated in the works (not being a material supplied from the Engineer- in-Charge's stores in accordance with Clause 10 hereof) and/or wages of labour is decreased as a direct result of the coming into force of any fresh law or statutory rule or order (but not due to any changes in sales tax) and such decrease exceeds ten per cent of the prices and/or wages prevailing at the time of receipt of the tender for the work, Delhi Development Authority shall in respect of materials incorporated in the work (not

being materials supplied from the Engineer- in-Charge's stores in accordance with Clause 10 hereof) and/or labour engaged on the execution of the work after the date of coming into force of such law statutory rule or order be entitled to deduct from the dues of the contractor such amount as shall be equivalent of difference between the prices of materials and/or wages as they prevailed at the time of receipt of tender for the work minus ten per cent thereof and the prices of materials and/or wages of labour on the coming into force of such law, statutory rule or order. The contractor shall for the purpose of this condition keep such books of account and other documents as are necessary to show the amount of any increase claimed or reduction available and shall allow inspection of the same by a duly authorised representative of Delhi Development Authority and further shall, at the request of the Engineer-in- Charge furnish, verified in such a manner as the Engineer-in-Charge may require. Any document, so kept and such other information as the Engineer-in-Charge may require.

The contractor shall, within a reasonable time of his becoming aware of any alteration in the prices of any such materials and/or wages of labour give notice thereof to the Engineer-in- Charge stating that the same is given in pursuance to the condition together with all information relating thereto which he may be in a position to supply.

16. Aforesaid clauses were expounded and scrutinized in the

M.L. Mahajan‟s case (supra) and it was observed as under :-

"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 phrase "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 which 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 of 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."

17. In the back drop of above settled legal position it is clear

that clause 10(c) of the contract takes within its sweep the

statutory increase in the wages of labour and/or material within

the maximum stipulated period of completion of work. This

clause, in our view, does not in any manner exclude or prohibit

the claim for increase in market prices of material or wages of

labour after the stipulated period of completion of the work.

Clause 10(c) encompasses the statutory increase but does not

take into account the rise in market prices as per the price

index beyond the „stipulated period‟. Thus clause 10(c) is not a

bar on the claims set up by the contractor towards market

increase in the prices of material and the wages of labour

during the delayed period of completion. In M.L. Mahajan‟s

case (supra) it was held that contractor would be entitled to be

compensated for his claim towards a rise in the market price of

material and increase in the wages of labour beyond the

stipulated date of completion notwithstanding clause 10(c).

18. Similarly, in Delhi Development Authority vs. S.S.

Jetley reported in 2001(1) Arb. LR 289, a Division Bench of

this Court held that the claim of damages on account of

prolongation of contract, inasmuch as, the respondent was made

to incur unnecessary expenditure due to the fault of the DDA in

prolonging the contract, was a claim maintainable even as per

Sections 73 and 74 of the Contract Act, 1872. It had been held

as under :-

"In fact as noticed above, Claim No. 17 is not based on Clause 10(c) of the agreement. The respondent had preferred separate claim namely, Claim No. 19 under Clause 10CC of the agreement and there is not dispute that the said claim was entertained and adjudicated upon, keeping in view the provisions of Clause 10CC of the agreement between the parties. The Claim No. 17 is in fact founded on different premise altogether. It was the case of the respondent that because of prolongation of the Contract due to the fault on the part of the appellant, the respondent was made to incur the expenditure on idle labour, staff, machinery centering, shuttering and other ancillary requirements like electricity, water, petroleum, etc. It was the case of the respondent that it was necessary for the respondent to keep regular establishment including graduate engineer at site till the work is completed as required under Clause 36 of the agreement. The Arbitrator found that the respondent had in fact incurred expenditure on the aforesaid grounds and awarded the claim @ 5,000 per month for the period of delay which was 44 months and on this basis a sum of Rs.2,20,000 was awarded. It was clear, therefore, that Claim No. 17 was

for damages on account of prolongation of Contract inasmuch as respondent was made to incur unnecessary expenditure due to the fault of the appellant in prolonging the Contract. This claim is, therefore, maintainable as per Sections 73 and 74 of the Contract Act which gave entitlement to the respondent to claim damages/loss suffered due to breach of contract by the appellant. The award of Claim No. 17 was, therefore, justified and we see no merit in the aforesaid contention raised by the appellant. "

19. In view of afore-stated legal position, we are of the view

that the learned Single Judge was not right in rejecting claim

No. 6. Appeal of the contractor M.L. Mahajan is accordingly

allowed and claim No. 6 is also made a Rule of the Court.

Interest as awarded by the learned Single Judge shall be

payable on claim No. 6 as well.

A.K. PATHAK, J.

VIKRAMAJIT SEN, J.

April 26, 2010 ga