M/S Bharat Industrial Works vs National Thermal Power ...
2010 Latest Caselaw 705 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          CS(OS) No. 1000A/2001
                                                    8th February, 2010

M/S BHARAT INDUSTRIAL WORKS                       ...Petitioner
                 Through: Mr. J.P.Sengh, Sr. Advocate and
                          Mr. Maish K.Jha, Advocate
         VERSUS

NATIONAL THERMAL POWER CORPORATIOIN                              ....Respondent.


                           Through:     Mr. S.K.Taneja, Sr. Advocate with Mr.
                                        Tanuj Bhusan and Mr. Asgar Ali,
                                        Advocates
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

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

     2. To be referred to the Reporter or not?

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

    %                            JUDGMENT (ORAL)

VALMIKI J.MEHTA, J

I.A No. 11177/01 in CS(OS) No. 1000A/2001

1.      These objections have been filed under Section 30 and 33 of the

Arbitration Act, 1940 challenging the Award dated 16.4.2001 passed by the

Arbitral Tribunal. Mr. Taneja, learned senior counsel for the objector has very

fairly pressed only his objections to Claim A, B, L, Counter-Claim 2 and the

rate of interest awarded at 15% per annum.




CSOS-1000-2001                                                             Page 1
 2.         Claim-A was the claim of the petitioner/non-objector for escalation on

account of higher wages paid to labour on account of statutory notifications.

The Arbitrator allowed these amounts on an interpretation of Clause-5 of

Special Conditions of Contract (SCC) read with Clause 53-A of the General

Conditions of Contract (GCC) that actual increase need not be proved and the

fixed increase of 25% can be granted to the petitioner/contractor, once

notification, showing increase has been filed.              Mr. Taneja, by referring to

Clause 53-A contended that unless actual proof is filed to show payment to

labour at enhanced rate, there does not arise issue of reimbursement because the

Clauses in question are Clauses of reimbursement if there is an actual higher

payment to the labour. He contended that there cannot not be unjust enrichment

in that, even if no actual increase to labour is paid yet the contractor will be

entitled to the benefit of Clause 53 A read with Clause 5 of the SCC.

           The relevant portion of Clause 53(A) of the Contract reads as under:-

                "REIMBURSEMENT/REFUND ON VARIATION IN PRICE
            (TO BE INCORPORATED IN THOSE CONTRACTS ONLY IN
            WHICH TRANSPORT IS A SIGNIFICANT FACTOR)."
........

(b) LABOUR: For the purpose of this Contract the minimum wages of unskilled labour and of skilled and semi-skilled labour on the date of submission of the tender shall be taken as shown in Schedule D. If on account of any legislation, notification, labour award, the minimum wages of unskilled labour and of skilled and semi-skilled labour are increased at any time or times after the date of submission of the tender and the contractor has to pay increased wages then the Corporation shall reimburse to the Contractor the increase in the cost of labour not exceeding the increase permitted under the legislation, notification, labour award or duly approved binding agreement as aforesaid, subject as hereinafter provided."

Clause 5 of the SCC reads as given below:

"Reimbursement/Refund on variation in Prices:

CSOS-1000-2001 Page 2 For the purpose of calculation of reimbursement/refund on variation in prices, if there by any (plus or minus) the basis of calculation shall be as under:

S.no               Component          Percentage         Basis                 Basic/Price
                                                                               Index

a                  Labour                25%             Minimum wages         As on 30 days
                   component of all                      payable          to   prior to the date
                   categories                            unskilled worker      of opening of
                                                         as per Payment of     tender
                                                         Minimum Wages
                                                         Act applicable to
                                                         the project site in
                                                         Bilaspur     Distt.
                                                         (M.P)
     b.            Materials

     c.            Light Diesel oil



     d.            Fixed components

3. In my opinion, the contention of Mr. Taneja is sound and must succeed. I

do not think that it is at all a valid and reasonable legal interpretation of Clause

5 of the SCC that although, no actual increase is proved to be paid to the labour

even then, by virtue of Clause 5 of the SCC, a fixed enhancement of 25% can be

granted simply by filing notification showing that statutory wages of labour

have increased. A harmonious construction of the clauses, and that the principle

of harmonious construction has to be applied is admitted by the arbitrators also,

shows that language of Clause 53A of requiring actual proof, payment cannot

be dispensed with. And this interpretation is logical because for example, if the

statutory notification increase the wage only by 5%, then, in my opinion, it

cannot be contended that automatically still instead of the 5% statutory increase,

CSOS-1000-2001 Page 3 an increase of 25% can be granted merely because that figure is specified in

column 3 of the SCC. If there is any doubt of whatsoever, then one can refer to

the last para of Clause 5 of the SCC, which makes it more than abundantly clear

that the price variation of the different components of Clause 5 including the

component -A pertaining to labour, "shall be subjected to ceilings" as stipulated

under Clause 53A. This expression cannot have any meaning if the ceiling was

an automatic fixed ceiling and not variable upon an actual increase. Once,

therefore, there is a variable element and not a fixed percentage, which the

Arbitrators have wrongly held, Clause 53A will necessarily come into play

requiring that actual increase paid to the labour should only be granted. In my

opinion, this interpretation is in fact equitable and just because, as stated by me

above, this is a clause of reimbursement because of actual higher labour charges

paid and not a profit element of the contractor.

4. An Award which is perverse and based on an interpretation which no

reasonable man can accept cannot stand the test on Section 30 and 33 of the

Arbitration Act, 1940. A perverse interpretation, as a result of which there takes

place an unjust enrichment, whereas the spirit of the Clause is of

reimbursement, in my opinion, cannot and should not be countenanced by

courts. In such a case clearly the Arbitrators misconducted themselves and the

proceedings by giving an unreasonable interpretation of the applicable clauses.

I accept therefore this objection and set aside the Award under Claim-A.

CSOS-1000-2001 Page 4

5. I may at this stage simultaneously deal with Counter-Claim No.2, because

Mr. Taneja states that this Counter-Claim is co-related with the increased cost

of labour. This Counter-Claim was dismissed by the Arbitrator. I do not find

anything illegal or unreasonable about dismissing of the Counter-Claim of the

objector because no proof at all was filed by the objector of actual deployment

of lesser labour so as to reduce the payment claimed by the non-objector

towards the number of labour employed. I may of course hasten to add that the

number of labour employed is different than the higher rate to be given for

labour on account of statutory increased, and which was not the issue with

respect to Counter-Claim No.1.

Accordingly, objections to the dismissal of the Counter-Claim are

dismissed and the dismissal of the said Counter-claim by the Arbitrators is

sustained.

6. Claim No.B pertained to increased cost of tonnage beyond the deviation

limit for steel which was used in the works. The contract in question envisaged

usage of 6200 MT of steel in fabrication. Permissible deviation brings this

figure to 7440 MT. Work actually done is 8908 MT of steel. The Arbitrator

therefore for this difference has awarded rate as fixed by the contract plus a sum

of Rs.400 per MT. While dismissing this claim, the Arbitrator has considered

the respective evidences of both the parties and has preferred the evidence as

relied upon by the non-objector in preference to the other evidence as relied

upon by the objector. The Arbitrators have relied on the evidence which

CSOS-1000-2001 Page 5 pertains to a contract of the objector itself with the present petitioner in another

case and has discarded evidence of a contract of the objector with a third

person. Once two views are possible, it is not possible for this court to interfere

with the findings arrived at by the Arbitrator. I may note that the enhanced

work done was of a period after about 1 ½ -2 years of the original stipulated

date of completion, and therefore, to some extent, a reasonable increase would

be permissible to the contractor for additional tonnage for the work done.

Accordingly, I do not find any merit in the objections with regard to setting

aside of this Claim B. Objection to this claim is therefore dismissed.

7. Claim No. L pertained to the claim for overrun charges i.e. the alleged

losses in the extended period during which work was done. The Arbitrator has

allowed this claim. In my opinion, the Arbitrator has clearly acted illegally and

in a perverse manner while allowing this claim. No finding has at all been

given, as to who is guilty of delay in performing the contract and yet a cost

overrun has been granted to the petitioner. The only finding with respect to

delay is as under:-

"The Claimant was to complete 6200 MT in 25 months, therefore, for 8908 MT he can be allowed 36 months. Since the actual period was 52 months, the Claimant needs to be compensated by overrun charges for 16 months and not 27 months as claimed."

Not only that, before a person seeks enhanced cost, it is necessary that a

notice under Section 55 of the Contract Act, 1872 is sent to the guilty party

putting him to notice that on account of the delay caused, enhanced

CSOS-1000-2001 Page 6 charges/escalation/enhanced cost would become payable. The counsel for the

non-objector has not been able to point out any notice given under Section 55 of

the Contract Act putting the objector to notice that enhanced cost would be

claimed on account of the alleged delays. Not only this, in my opinion, the

present claim is more in the nature of alleged unnecessary expenditure which

the contractor claims to have incurred. By unnecessary expenditure what I

mean is that while performing the work, certain expenditure is required and for

which the contractor is compensated for when he receives the price for the work

performed then the same is necessary expenditure and that expenditure which

could have been avoided and has been incurred only on account of delays

caused can be said to be unnecessary expenditure. Thus so far as cost overrun

can be allowed under this head, only if what is the claimed is the additional cost

which the contractor has to incur because of delays on the part of the guilty

party. A reference to the claim as discussed, shows that there is absolutely no

basis and proof and discussion that how additional cost has at all been incurred

by the non-objector. Once there is no proof and no pleading in fact as to how

was the work done, for which payment is otherwise made, additional cost has

already been incurred, I do not think additional cost which is in the realm of

Section 55 of the Contract Act can at all be allowed. The objection therefore to

this claim is accepted and Award under this head being perverse is set aside.

8. That leaves me with the issue with regard to the rate of interest. The

Supreme Court in the recent chain of judgments reported as Rajendra

CSOS-1000-2001 Page 7 Construction Co. Vs. Maharashtra Housing & Area Development Authority

& ors.2005 (6) 678, McDermott International Inc. Vs. Burn Standard Co.

Ltd.& ors 2006 (11) SCC 181, Rajasthan State Road Transport Corpn. Vs.

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

Vs. G.Harischandra, 2007 (2) SCC 720 and State of Rajasthan vs. Ferro

Concrete Construction Pvt. Ltd (2009) 3 Arb. LR 140(SC) has held that courts

must reduce the higher rate of interest granted by the Award. The Supreme

Court in the aforesaid judgments has mandated the courts to take notice of the

changed economic scenario and the consistent fall in the rates of interest. This

court has been therefore consistently awarding interest at 9% per annum. In fact,

the Supreme Court in the recent judgment reported U.P.Coop. Federation Vs.

Three Circles, 2009 10 SCC 374granted interest only at 7 ½ % per annum,

however, I find in the facts and circumstances of the case interest ought to be

awarded at 9% per annum. I am not changing the period for which interest has

been granted under the Award.

9. With the aforesaid observations, the objection petition is partly allowed

and the Award will stand modified in that Claim No. A and Claim L shall stand

dismissed and consequently the Award amount will be reduced by the figures

awarded under such claims. The Award will also further be amended to alter

the rate of interest granted at 9% per annum simple.

CSOS-1000-2001 Page 8

10. With the aforesaid modifications, the Award is made rule of the Court.

The objection petition and the suit stand disposed of. Decree be accordingly

drawn up.

                                                VALMIKI J.MEHTA, J


February 08, 2010
ib




CSOS-1000-2001                                                        Page 9