M/S Bhagwana Ram Choudhary & Co vs The Executive Engineer ...
2010 Latest Caselaw 3178 Del

11
*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+                     Date of Decision: 09.07.2010

%                             O.M.P. 345/2010

      M/S BHAGWANA RAM CHOUDHARY & CO           ..... Petitioner
                    Through: Mr. Pankaj Chaudhry, Advocate

                     versus

      THE EXECUTIVE ENGINEER BFD-V,CPWD
      BARMER (RAJASTHAN)                               ..... Respondent
                     Through:

      CORAM:
      HON'BLE MR. JUSTICE VIPIN SANGHI

      1. Whether the Reporters of local papers may           No
         be allowed to see the judgment?

      2. To be referred to Reporter or not?                  No

      3. Whether the judgment should be reported             No
         in the Digest?

VIPIN SANGHI, J. (Oral)

IA 7981/2010 (Exemption) Allowed, subject to all just exceptions.

O.M.P. 345/2010

1. The petitioner has filed the present petition under Section 34 of

the Arbitration and Conciliation Act ("the Act") to seek for setting aside

of the award dated 03.02.2010 made by Sh. Divakar Garg, the sole

arbitrator in Case No.ARB/DG/389.

2. The learned Arbitrator has rejected all the claims made by the

petitioner/contractor and has upheld the action of the respondent in

rescinding the contract and in forfeiting the Earnest Money Deposit

(EMD) and in encashing the performance bank guarantee furnished by

the petitioner, by holding that the petitioner had failed to perform the

works under the contract.

3. The petitioner/contractor was awarded the contract involving the

work of maintenance of roads, embankment and culverts on Indo-Pak

Border from BP 921 to BP 951 in Gujarat Sector (Sub Head: Repair to

damaged road) vide agreement No.01/EE/BFD-V/BMR/2007-08. The

tendered amount was Rs.94,91,242/- as against the estimated cost of

Rs.54,13,319/-. The date of start of work was 13.04.2007 and the

stipulated date of completion was Rs.12.08.2007. However, the work

was prematurely rescinded by the respondent on 25.06.2007. This led

to disputes arising between the parties, which were referred to

arbitration of the learned Arbitrator.

4. The petitioner/claimant's claim No.1 was for Rs.18 lakhs towards

work already done but which remained unpaid. The petitioner also

claimed refund of the forfeited EMD of Rs.1,10,000/- (Claim No.2); the

refund of forfeited security deposit of Rs.4,75,000/- (Claim No.3); and,

the refund of forfeited performance guarantee of Rs.4,75,000/- (Claim

No.4). Loss of profit of Rs.7,50,000/- was claimed under Claim No.5.

Interest was claimed under Claim No.6 and arbitration/litigation

charges of Rs.50,000/- was claimed under Claim No.7. The

petitioner/claimant, however, gave up claim no.3 as, in fact, neither

any security deposit had been deposited by the petitioner nor the

same was forfeited by the respondent.

5. It appears that after the date of start of the work, i.e.

13.04.2007, on account of failure of the petitioner to start the work,

the respondent initially sent a communication dated 28.04.2007

complaining about the delay in start of work. The petitioner did not

submit the progress chart for each milestone and did not get it

approved from the department as envisaged in clauses (5.1) and 10 of

the agreement. The petitioner also did not obtain a valid labour

license under clause 19 of the contract, nor submitted any labour

report as envisaged under clause 19-D of the contract. All this showed

that the petitioner was not ready for the performance of the contract.

6. A further notice was issued to the petitioner by the respondent

on 22.05.2007 under clauses 3(a), 3(b) and 3(c) and he was called

upon to show cause as to why action be not taken against him for

breach of contract. There was no response to this notice by the

petitioner.

7. Another show cause notice dated 08.06.2007 was issued to the

petitioner. He responded to this show cause notice vide letter dated

13.06.2007, wherein he cited hindrances like rains on few days. The

petitioner informed that they had started collection of GSB material

and stone aggregate and had also asked for stoppage of traffic on the

road to start the laying and compacting of stone aggregate for road

work. The claimant vide communication dated 16.06.2007 stated that

it was aware that the road in question is an important border road and

that it could not be closed for any time. The petitioner also assured

that they would complete the work by 12.08.2007, i.e. the stipulated

date of completion.

8. The respondent, after considering the ground reality that even

after lapse of 50% of the time (two months) upto 13.06.2007, the work

had not even started, rescinded the contract vide communication

dated 25.06.2007. Thereafter, joint measurements of the material

brought by the claimant was fixed for 18.07.2007 and the material

brought by the petitioner at site was recorded. Respondent found out

that the materials brought by the claimant were not as per CPWD

specifications. This was communicated to the claimant vide letters

dated 20.08.2007 & 31.08.2007 and he was also requested to remove

the rejected material from the site immediately.

9. Before the learned Arbitrator, the petitioner/claimant pleaded

that he had mobilized the required labour and material at site, but the

progress of work was slow on account of obstruction by BSF authorities

at site, non availability of space for stacking the material, heavy and

frequent traffic on the narrow road at the site, continuous rain in the

area, non availability of approval from BSF for stoppage of traffic on

the road, non payment of work already done and non availability of AE

due to frequent transfer.

10. On the other hand, the respondent relied on the contractual

terms. The petitioner was required to acquaint himself with the site

conditions before tendering. The petitioner was also advised that some

restriction may be imposed by the BSF, and under special condition

no.3 the claimant was advised that vehicular traffic cannot be stopped

and if required, such traffic may be diverted on the diversion road to

be provided by the petitioner at his own costs.

11. The learned Arbitrator relied on the communication of the

petitioner dated 13.06.2007 and two communications dated

15.06.2007 and 16.06.2007 (C-3 & C-4), which showed that the

petitioner started collecting materials as late as around 13.06.2007.

He also gave importance to the fact that the hindrances were pointed

out by the petitioner only after the receipt of the show cause notice

dated 08.06.2007. The stand taken by the petitioner in its

communication dated 13.06.2007 and 15.06.2007 (C-3) that the work

could not be done without stopping the vehicular traffic was held to be

contrary to the contractual terms, as the petitioner was informed that

the traffic could not be stopped on the said road, and it was the

obligation of the petitioner to provide for a diversion road to carry out

the contractual work.

12. The non submission of the time and progress chart and also the

failure of the petitioner to examine the tender conditions was also

considered by the learned Arbitrator to be a reason enough to reject

his claims. As per Schedule F of the tender document, the petitioner

was supposed to complete upto 1/8th work within 1/8th of the total time

and upto 3/8th of work within 1/2 of the total time allowed. However,

since no work had begun despite half of the period having expired, the

learned Arbitrator held that the rescission of the contract could not be

said to be arbitrary or illegal. Consequently, he held that the

respondent was entitled to forfeit the EMD and the performance

guarantee under the contract. He, therefore, rejected the claim nos.2

and 4. As aforesaid, claim no.3 had already been withdrawn by the

petitioner.

13. So far as claim no.1 was concerned, the learned Arbitrator

referred to the joint measurements taken on 18.07.2007, which

showed that only some substandard materials like stone aggregate

and GSB (which was not even contracted for) were collected by the

petitioner at the site. The respondent had directed the petitioner to

remove such materials from the work site vide letter dated

31.08.2007. Since the petitioner failed to establish that it had

executed any part of the contracted work, the learned Arbitrator

rejected claim no.1. Claim no.5 towards loss of profit was rejected, as

the learned Arbitrator held that the determination of the contract was

legal and contractually valid. Consequently, claim no.6 towards

interest and claim no.7 towards litigation/arbitration expenses were

also rejected.

14. The submission of the learned counsel for the petitioner is that

the contract could not have been rescinded merely on account of the

late start of the work. In support of his submission, he relies on M/s

Hind Construction Contractors by its sole proprietor

Bhikamchand Mulchand Jain (Dead) by LR's v. State of

Maharashtra, AIR 1979 SC 720 to submit that the contract could

not have been rescinded as time was not of the essence of the

contract. In my view, this decision is not applicable in the facts of the

present case. It appears that the petitioner did not even raise the

issue as to whether the time was of the essence of the contract or not

before the learned Arbitrator. This issue cannot be raised at this stage

of the proceedings. The petitioner has not even referred to the terms

of the contract to substantiate his contention that time was not of the

essence of the contract.

15. The facts of this case do suggest that, in fact, time was of the

essence of the contract. A perusal of the award shows that the period

during which the work was to be completed was only four months.

Moreover, the petitioner was required to give the timetable of

milestones as per Schedule F of the tender document, which provided,

inter alia, that upto 1/8th work had to be completed within 1/8th of the

total time and upto 3/8th of the work had to be completed within 1/2 of

total time allowed. The parties were, therefore, conscious of the fact

that strict punctuality had to be maintained by the petitioner with

regard to the execution of the work and it was not open to the

petitioner to claim that they could complete the work in the remaining

half tenure, when, in the first half of the contract term, the petitioner

had not done any work at all.

16. The next submission of the learned counsel for the petitioner is

that the respondent was not entitled to forfeit the EMD or encash the

performance guarantee furnished by the petitioner, as no loss had

been caused to the respondent. In support of his submission, the

petitioner relies on a Supreme Court decision in Union of India v.

Rampur Distillery & Chemical Co. Ltd., AIR 1973 SC 1098. In my

view, this decision is of no avail to the petitioner. In the facts of that

case, the Supreme Court had observed that the contractor had

supplied the stipulated quantity of rum at the contractual rate, though

belatedly. In this light, the Supreme Court held that no loss has been

caused to the appellant, Union of India and no attempt had been made

by Union of India to establish that they had suffered any loss or

damage on account of the breach committed by the

respondent/contractor.

17. In the facts of this case, the contract having been rescinded,

there was no question of the petitioner performing the work at all. On

account of the failure of the petitioner to perform the contract under

the contractual terms, the respondent was entitled to encash the

performance guarantee and forfeit the EMD.

18. The last submission of the learned counsel for the petitioner is

that the petitioner has been wrongfully denied the claim towards loss

of profit. He places reliance on the Supreme Court decision in M/s

A.T. Brij Paul Singh & Ors. v. State of Gujarat, AIR 1984 SC

1703. This decision is of no avail to the petitioner. Herein the breach

of the contract was committed by petitioner himself, as held by the

learned Arbitrator. The arbitrator held that a party who is in breach

cannot certainly claim damages towards loss of profit, the petitioner

cannot be given any relief.

19. The petitioner has made no other submission. The award

appears to be well reasoned and no part of the same appears to be in

conflict with the public policy of India. None of the findings of the

learned arbitrator can be said to be founded on an erroneous

understanding of the law. For the aforesaid reasons, I find no merit in

this petition and the same is accordingly dismissed.

VIPIN SANGHI, J.

JULY 09, 2010 sr