Housing & Urban Development ... vs M/S Ahluwalia Contracts (I) Ltd.
2011 Latest Caselaw 3519 Del

R-3

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                        Date of Decision: 25.07.2011


%                           CS(OS) 2019A/1996


       CS(OS) 2019A/1996

       HOUSING & URBAN DEVELOPMENT CORPN.      ..... Plaintiff
                     Through: Mr. Anurag Kumar, Advocate

                     versus

       M/S AHLUWALIA CONTRACTS (I) LTD.                     ..... Defendant
                      Through:


       CORAM:
       HON'BLE MR. JUSTICE VIPIN SANGHI

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

       2. To be referred to Reporter or not?            :

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


VIPIN SANGHI, J. (Oral)

I.A. No. 76/1998

1. These are objections under Sections 30 & 33 of the Arbitration

Act, 1940 preferred by the plaintiff M/s Housing & Urban Development

Corporation Limited (HUDCO) to the award dated 21.07.1996 made

and published by Sh. W.D. Dandage, Sole Arbitrator, in relation to the

disputes which arose between the parties under the agreement dated

23.05.1992 and supplementary agreement dated 25.11.1993. Under

these agreements, HUDCO had engaged the defendant-contractor to

carry out civil construction works.

2. The learned Arbitrator has partially awarded some of the claims

made by the defendant-Contractor. The counter-claims preferred by

the plaintiff were rejected.

3. The limited objections raised by the plaintiff-HUDCO are in

relation to the Claims No. 1 & 13 on the one hand, and Claims No. 3 &

10 on the other hand. The primary submission of the learned counsel

for the plaintiff is that these claims have been allowed contrary to the

contractual terms.

4. Claims No. 1 & 13 had been made by the defendant-contractor to

claim compensation due to delayed payment of bills for

Rs.1,03,00,080/- and towards pendente lite interest respectively. The

learned Arbitrator awarded Claim No. 1 for Rs.3,61,418/- and under

Claim No. 13 awarded pendente lite interest @ 16% per annum from

30.11.1993 till the date of the award. The learned Arbitrator has also

awarded simple interest @ 18% per annum on the awarded amount till

the date of decree or of payment, whichever is earlier.

5. The submission of the learned counsel for the plaintiff is that the

payment of interest is completely prohibited under the contractual

terms. Specific reference has been made to Clause 20.1 of the

contract which specifically provides "no interest shall be payable on

any money due to the contractor against earnest money, security

deposit, interim or final bills or any other payments due under the

contract".

6. Learned counsel for the plaintiff has referred to the impugned

award. In the impugned award, the learned Arbitrator has specifically

taken note of the aforesaid clause; extracted the same, and; has

disregarded the clause by observing "if the interpretation of the

provision in the contract is to be taken to mean that no interest is to be

paid irrespective of when such amounts are paid to the contractor,

then the provisions laying down the time limits in the contract for

paying or refunding become redundant and hence, the provision in the

contract is not to be construed that way."

7. Learned counsel places reliance on the decision of this court in

D.S.A. Engineers (Bombay) Vs. Housing & Urban Development

Corporation (HUDCO), 2004 (74) DRJ 331, decided by a learned

Single-Judge of this court, wherein the same clause came up for

consideration before this court and the court, by relying upon, inter

alia, the decision of the Supreme Court in Secretary, Irrigation

Department, Government of Orissa Vs. G.C. Roy, (1991) Suppl. 3

SCR 417; and State of Orissa Vs.B.N. Aggarwala, JT 1997 (2) SC

51, held that the Arbitrator could not have disregarded Clause 20.1

and awarded interest contrary to the said contractual term.

8. Even though the matter has been shown on board on various

dates, there is no appearance on behalf of the defendant. Accordingly,

I proceed to decide these objections.

9. I find merit in the aforesaid submission of the learned counsel for

the plaintiff. Clause 20.1 relied upon by the plaintiff is clear and

categorical and covers all payments and monies due to the contractor

from the plaintiff. It clearly states that no interest would be payable

"on any money due to the contractor". It goes on to enlist a few heads

under which the monies could be due, such as, earnest money,

security deposit, interim or final bills and again states in general term

"or any other payments due under this contract". The Arbitrator, who

is a creature of the contract between the parties, cannot travel beyond

the contractual terms. If he does so, he acts without jurisdiction. He is

bound to adhere to and implement the contractual terms. It is not for

him to judge the reasonableness of the contractual terms between the

parties.

10. In the D.S.A. Engineers (Bombay) (supra), this court

considered the very same clause and held as follows:

"14. The next objection i.e raised is against Claim No. 5, which is a claim for payment of interest. The petitioner claimed interest on the awarded amount at a rate of 24% p.a. The arbitral tribunal has awarded pendente lite interest at the rate of 15% p.a on the amount awarded as against all the claims except Claim No. 2 (f) and future interest at the rate of 15% p.a payable till the date of

decree of payment whichever is earlier. The contention of the counsel for the respondent/objector is that the aforesaid award is hit by the provisions of Clause-20, which according to the counsel is a prohibitory clause for payment of interest. The said clause provides as follows:-

"Clause 20.1:- No interest shall be payable on any money due to the contractor against earnest money, security deposit, interim or final bills or any other payments due under this contract".

The aforesaid plea was made a part of the objection petition being Ground-F thereof and sought to be supported by a decision of the Supreme Court in Secretary Irrigation Department, Govt. of NCT of Orissa v. G.C. Roy, (1991) Supp. 3 SCR 417 and in State of Orissa v. B.N. Ag- garwala, . In the case of G.C. Roy (supra) the Supreme Court has held that where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute along with claim for principal amount or independently is referred to the arbitrator, he shall have power to award interest pendente lite. In B.N. Aggarwala's case (supra), the Supreme Court has held that there can be no doubt that if the terms of the contract expressly stipulate that no interest would be payable then, notwithstanding the provisions of the Interest Act, 1978, an arbitrator would not get the jurisdiction to award interest. In the present case, I have extracted the provisions of Clause 20.1 which categorically prohibits payment of interest on any amount due to the contractor against earnest money, security deposit, interim or final bills or any other payments due under the contract. Therefore, the said clause prohibits payment of interest on any amount which is found due and payable under the aforesaid contract. Whatever interest is levied by the learned tribunal is the amount which according to it was

due and payable to the contractor. Therefore, on the aforesaid sum found due and payable, no interest could have been awarded by the arbitral tribunal in view of Clause 20.1 and in the light of ratio of the aforesaid decisions of the Supreme Court. There exists between the parties an agreement which prohibits grant of interest. The Supreme Court has also clearly held that if the terms of the contract expressly stipulate that no interest would be payable, then the arbitrator would not get the jurisdiction or right to award interest even notwithstanding the provisions of the Interest Act. Power to grant interest by the arbitrator emanates from the statutory provisions but the same is always subject to the agreement between the parties as laid down by the Supreme Court in the aforesaid decisions. In that view of the matter the award passed by the learned tribunal awarding interest at the aforesaid rate to the petitioner is found to be in violation of the agreed terms and conditions. The aforesaid prohibitory clause applies in full force and, therefore, in view of the ratio of the aforesaid decisions of the Supreme Court the award in respect of the aforesaid claim towards payment of interest also stands set aside."

11. The Supreme Court in a recent decision in Union of India Vs.

Krafters Engineering and Leasing P. (Ltd.), Civil Appeal No. 2005

of 2007 decided on 12.07.2011, has also taken the same view.

12. Claim No. 1 had been made to claim compensation, i.e., interest

on account of delayed payment of the contractor's bills. Such a claim

was clearly hit by Clause 20.1. Similarly, the claim for interest

pendente lite on the amounts found due to the contractor was also hit

by Clause 20.1. The award made on Claim No. 1 and 13 cannot be

sustained and has to be set aside. It is, accordingly, set aside.

13. Claim No 3 had been made by the defendant-contractor to claim

loss of overheads, due to prolongation of contract and Claim No. 10

had been made to claim additional cost of insurance, renewal of bank

guarantees during the extended period. Whereas Claim No. 3 was

made for Rs.248.34 Lakhs, and awarded to the extent of Rs.5.58

Lakhs, Claim No. 10 was made for Rs.12 Lakhs and was awarded to the

extent of Rs.33,675/-.

14. The challenge to the award made on Claim Nos. 3 & 10 is

founded on Clauses 55, 57 & 66, which read as follows:

"Clause 55.0: Possession of Site

The owner shall make available to the Contractor the Site or the respective work fronts to enable the Contractor to commence and proceed with the execution of works in accordance with the agreed programme. If there is delay in making available any area of work, the owner shall on the recommendations of the Architect and the Consultant grant reasonable extension of time for completion of work. The Contractor shall not be entitled to claim any compensation, whatsoever on this account.

The portion of the site to be occupied by the Contractor shall be indicated by the Engineer at Site. The Contractor shall on no account be allowed to extend his operations beyond these areas.

Clause 57.0: Extension of Time

If the works are delayed by force majeure, suspension of work by the owner, serious loss or damage by fire, ordering of altered, additional or substituted work or other special circumstances other than through the default of the Contractor, as would fairly entitle the Contractor to an extension of time and which in the discretion of the Owner is beyond the control of Architects and the Contractor, then

upon the happening of any such event causing delay, the Contractor shall within 10 days of the happening of event give notice thereof in writing to the Engineer, stating the cause and the anticipated period of delay, then in any such event, Managing Director on the recommendations of the Architect and the consultant may give a fair and reasonable extension of time for the completion of work.

Such extension shall be communicated to the Contractor shall not be entitled to claim any cooperation or over-run charges whatsoever for any extension granted.

Clause 66.0: Claims

The Contractor shall send to the Chief Special Projects/Consultant/Engineer/Architect once every month an account giving particulars, as full and detailed as possible of all claims for any additional payment to which the Contractor may consider himself entitled and of all extra or additional work ordered in writing and which he has executed during the preceding month.

No claim for payment for any extra work or expense will be considered which has not been included in such particulars. The Owner may consider payment for any such work or expense, where admissible under the terms of the Contract, if the Contractor has at the earliest practicable opportunity notified the Employer in writing that he intends to make a claim for such work and expense and it is certified by the Consultant in consultation with the Architects that such payment was due.

Any claim which is not notified in two consecutive monthly statements for two consecutive months shall be deemed to have been waived and extinguished."

15. It is submitted by the petitioner that the said claims are not

maintainable in the light of the aforesaid terms & conditions.

16. Clause 55 deals with the aspect of delivery of possession of site

to the contractor. The contractor is not entitled to claim anything on

account of delay in delivery of the possession of the site.

17. A perusal of the impugned award shows that neither Claim No. 3

nor Claim No. 10 had been made on the ground that there was delay

on the part of the plaintiff in delivery of the possession of the site.

Therefore, clause 55 has no application whatsoever in the facts of the

present case.

18. Clause 57 states that if the work is delayed by force majeure,

suspension of work by the owner, serious loss or damage by fire,

ordering of altered, additional or substituted work or other special

circumstances other than through the default of the contractor, the

same would entitle the contractor to extension of time on a fair basis.

In the present case, it was not even the plaintiff's contention that the

delay was on account of force majeure; or that the plaintiff had

suspended the work; or that there was serious loss or damage by fire;

or that the delay was on account of ordering of altered, additional or

substituted work. The plaintiff did not plead or prove the existence of

any other special circumstances.

19. A perusal of the impugned award shows that the learned

Arbitrator has taken note of the progress of the work and has

meticulously dealt with various aspects such as the delay in making

payments; the delay in grant of drawings, steel & material, etc. and

the delay in planning. The issues dealt with are largely issues of fact

which do not call for interference by this court at this stage. He has

also specifically dealt with the submission of the plaintiff founded upon

Clause 57 of the contract reproduced above. Reliance placed on

Clause 57 is, therefore, misplaced and rejected.

20. Reliance placed on Clause 66 is also misplaced. It is settled law

that an agreement which curtails, or prescribe a shorter period of

limitation than that prescribed by law would be void as violating

Section 28 of the Contract Act. Reference may be made to M/s

Chander Kant & Co. Vs. The Vice Chairman DDA, Arb.P. No.

246/2005 decided on 26.05.2009 (DB).

21. In view of the aforesaid position, I find no merit in the

submissions of the learned counsel for the plaintiff insofar as the same

pertain to the objections made to the award made on Claims No. 3 &

10.

22. With the aforesaid modifications, the award is made a Rule of the

Court and a decree is passed in terms thereof. In case, the decretal

amount is paid within two months, the amount shall not carry any

interest. However, in case, the decretal amount is not paid within two

months from today, the decretal amount shall carry interest @ 9% per

annum from the date hereof till payment or realization.

I.A. No. 78/1998

The matter has been shown on board for the last few days and

there is no appearance on behalf of the objector-contractor. Today I

have heard detailed submissions in I.A. No. 76/1998 and disposed it of

by the aforesaid order dictated in court. Even during the said hearing,

there is no appearance on behalf of the objector-contractor.

In view of the aforesaid, this application is dismissed in default.

VIPIN SANGHI J

JULY 25, 2011 'BSR'