Municipal Corporation Of Delhi ... vs Naresh Kumar Gupta & Company Pvt. ...
2011 Latest Caselaw 1791 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI


+                      Date of Decision: 28.03.2011


%                              O.M.P. 623/2009



       MUNICIPAL CORPORATION OF DELHI (MCD)     ..... Petitioner
                      Through: Ms. Mini Pushkarna, Advocate

                      versus


       NARESH KUMAR GUPTA &
       COMPANY PVT. LTD.              B+                 ..... Respondent
                     Through:         Mr. S.C. Singhal, Advocate


       CORAM:
       HON'BLE MR. JUSTICE VIPIN SANGHI

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

       2. To be referred to Reporter or not?            :     YES

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


VIPIN SANGHI, J. (Oral)

1. The petitioner, MCD has filed this petition under section 34 of

the Arbitration and Conciliation Act to assail the arbitral award dated

16.06.2009 passed by Shri Prem Kumar, the learned arbitrator,

whereby he has allowed claims no.1 (for refund of earnest money),

claim no.2 (for compensation of account of loss of profit due to breach

of contract), claim no.4 (towards interest), and claim no.6 (towards the

arbitration costs), amounting to ` 34,24,384/-. The learned arbitrator

has also awarded the amount of stamp duty, i.e. ` 3424/-. He has

further granted interest on ` 34,27,808/- @ 9% p.a. from the date of

the award till realization.

2. The respondent/contractor was awarded the work for

construction of pucca school building of MC primary school at New

Ashok Nagar, in AC-37/67 in Shahdara South, Delhi vide letter dated

11.03.2004. While the estimated cost put to tender was

Rs.2,49,14,000/-, the amount tendered by the respondent contractor,

and accepted by the petitioner was Rs.2,25,92,552/-. The respondent

was called upon to start the work at once. It was stated that the time

allowed to carry out the work shall be reckoned from tenth day of issue

of the work order to commence the work.

3. In the Notice Inviting Tender (NIT) issued by the petitioner,

clause 3 provided that the time allowed will be 24 months from the

tenth day after the date of written orders to commence the work, or

from the first day of handing over of the site, whichever is later, in

accordance with the phasing, if any, indicated in the tender

documents. Clause 4 of the NIT provided that the site will be fully

made available at the time of the work order.

4. The "Clauses of Contract", inter alia, prescribed in clause 5

the "Time and Extension for Delay". The same reads as follows:

"Clause 5

Time and Extension for Delay

The time allowed for execution of the works as specified in the Schedule 'F' or the extended time in accordance with these conditions shall be the essence of the Contract. The execution of the works shall commence from the 15th day or such time period as mentioned in Letter of Award after the date on which the Engineer-in- Charge issues written orders to commence the work of (or) sic from the date of handing over of the site whichever is later. If the Contractor commits default in commencing the execution of the work as aforesaid, Government shall without prejudice to any other right or remedy available in law, be at liberty to forfeit the earnest money absolutely". (emphasis supplied)

5. Clause 10C and 10CC provided for payment on account of

increase in prices/wages due to statutory order, and payment due to

increase/decrease in prices/wages after receipt of tender for works.

6. The work involved dismantling of the existing structures and cost

of the salvage was put at ` 1,70,626/-, which the respondent was

required to deposit. Vide communication dated 16.04.2004, the

petitioner called upon the respondent to execute the agreement within

three days and also to deposit the amount of ` 1,70,626/- as shown in

Part B of the work order before dismantling the old structure.

7. Undisputedly, the respondent contractor did not carry out any

work under the contract. Neither the contract document was signed;

nor the demolition work was carried out. The cost of salvage was also

not deposited. According to the respondent, the said cost was not

required to be deposited, and the same had to be adjusted from the

bills as and when raised by the respondent. The petitioner issued

various communications to the respondent to execute the contract

document and commence the works. The stand of the respondent was

that the work site was not made available in full, and the drawings

were not given to him. Eventually, the petitioner issued an show cause

notice dated 11.01.2005 and rescinded the contract on 04.02.2005.

8. The case of the petitioner before the arbitral tribunal was that

the respondent did not take any steps whatsoever in pursuance of the

award of work to execute the work. Neither the contract was executed

nor the amount of ` 1,70,626/- was deposited towards the salvage cost

before taking up the demolition work, nor the construction work was

carried out. On the other hand, the case of the respondent was that

the site was not made available to the respondent as there was a

running school and classes were going on. The said school was also

designated as an election centre. The respondent also contended that

the working drawings were not made available by the petitioner.

9. The respondent raised its claims, as aforesaid, for ` 1 lakh on

account of refund of earnest money; ` 24,91,400/- on account of loss of

profit due to breach of contract by the petitioner being 10% of the

value of the estimated value of the work; ` 15 lacs due to staff

remaining idle, establishment from T and P, shuttering and also mental

agony and goodwill on account of breach of contract by the petitioner,

interest @ 18%; and ` 1 lakh as arbitration costs. The petitioner, MCD

also raised its counter claims, inter alia, towards the cost of work

carried out by calling fresh tenders at the risk and costs of the

respondent, interest, and cost of arbitration.

10. The learned arbitrator returned a finding that it was the duty of

the petitioner to provide the complete work site in one go to the

respondent, to start the work. On account of the inability of the

petitioner to provide the same for various reasons, the respondent

could not be faulted for not starting the work at the site. The learned

arbitrator held that the recession of the contract after issuance of show

cause notice dated 11.01.2005 was not competent, and so was the

recession of the contract vide letter dated 04.02.2005 incompetent.

Consequently, the learned arbitrator held that the petitioner could not

forfeit the respondents security deposit of ` 1 lakh. The learned

arbitrator, by placing reliance on the various decisions, including the

decision in M/s. A.T. Brij Paul Singh & Bros. v. State of Gujarat; AIR

1984 SC 1703, held that the respondent was entitled to 10% of the

estimated cost put to tender as compensation for loss of profit, and

consequently awarded an amount of ` 24,91,100/-.

11. Claim no.3 made by the respondent for ` 15 lacs, as aforesaid,

was however rejected on the ground that the respondent had failed to

adduce any relevant or cogent evidence in support of the said claim.

12. Under claim no.4, the learned arbitrator awarded interest @ 9%

p.a. The pendente lite interest from March 2006 upto June 2009 on the

amount of ` 25,91,400/- was quantified at ` 7,57,984/- and awarded in

favour of the respondent. He also awarded ` 75,000/- towards

arbitration fee in favour of the respondent. All the counter claims of

the petitioner were rejected on the ground that the petitioner was

responsible for breach of the contract.

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

though the work site was not made fully available to the respondent

initially, the same was made fully available in December 2004. She

places reliance on the letter dated 23.12.2004 issued by the MCD to

the respondent, which recorded that "Now, it is to inform you that full

site is available for start of work". The respondent was requested to

start the work within seven days from the issue of letter, failing which

action as deemed fit would be initiated.

14. The respondent responded to this letter vide letter dated

12.01.2005. The respondent did not deny the fact that that the full site

was then available. It was stated by the respondent "You have now

admitted and confirmed vide your letter under reference that part site

was available in Aug. 2004 and the full site is available now to start the

work. We have already clarified about the availability of part site and

the work could not be started as intimated through our various

references as referred to above". In this communication, the

respondent sought increase of the rates by 30% to carry out the work

by quoting rates of materials such as cement, steel and bricks at the

time of tendering in October 2003, and the rates prevalent in August

2004.

15. It is evident from the reading of the award, and it is not disputed

that these two vital communications have not even been considered by

the learned arbitrator while returning the finding that the complete

work site was never made available to the respondent/contractor. The

finding returned by the learned arbitrator with regard to the full site

being not made available is in the teeth of the aforesaid two

communications.

16. The Supreme Court, in State of Rajasthan v. Puri

Construction Co. Ltd. & Anr., (1994) 6 SCC 485 has held as follows:

"In recent times, error in law and fact in basing an award has not given the wide immunity as enjoyed earlier, by expanding the import and implication of legal misconduct' of an arbitrator so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decisions of the lis between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid. It is necessary, however, to put a not of caution that in the anxiety to render justice to the party to arbitration, the court should not reappraise the evidence intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible view points, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous and but for such erroneous application of legal principle, the award could have been

made, such award is liable to be aside by holding that there has been legal misconduct on the part of the arbitrator. In ultimate analysis, it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that however objectively the problem may be viewed, the subjective element inherent in the judge deciding the problem, is bound to creep in and influence the decision. By long training in the art of dispassionate analysis, such subjective element is, however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the subject."

17. Since the learned arbitrator has failed to consider the relevant

evidence brought before him, the finding of fact returned by him is

clearly vitiated and cannot be sustained. He has completely ignored

the categorical case of the petitioner that the site was available when

the letter dated 23.12.2004 was issued by it, and the response thereto

given by the respondent. This error in the finding of fact, which has

vital bearing on the determination of the issue: which of the parties

was in breach of the contract, is patent and demonstrated on the plain

reading of the award.

18. A perusal of the contractual terms, as extracted hereinabove,

shows that the time for execution of the work was to be reckoned from

the 15th day mentioned in the letter of award, on which the engineer in

charge issues written orders to commence the work, or from the date

of handing over of the site, whichever is later. Therefore, the time for

execution of the work, even if the site was available in December

2004, would continue to have remained for two years and would have

commenced only upon taking over of the site in December 2004 by the

respondent. The respondent did not dispute that the full site was

available in December 2004. The reason given by him for not carrying

out the work was escalation in the rates of materials. This claim of the

respondent is sufficiently taken care of by clause 10C and 10CC of the

contract. The increase in rates, therefore, could not have provided a

good justification for the respondent not to commence the work.

Consequently, the finding that the breach of the contract was on the

part of the petitioner, and not on the part of the respondent also

appears to be patently erroneous.

19. Similarly, it is pointed out by learned counsel for the petitioner

that the learned arbitrator has not considered the communication

dated 02.06.2004, wherein the petitioner called upon the respondent

to collect the necessary drawings from the office of the Executive

Engineer, XXXI or from the concerned JE/AE II. In the face of this

communication, the finding of the arbitrator that the drawings were

not made available to the respondent cannot be sustained, as this

communication has not at all been taken note of at all.

20. I may observe that the learned arbitrator has displayed a casual

and perfunctory approach in deciding the reference. Even though the

actual tendered cost of the work was Rs.2,25,92,552/-, he has

computed the compensation @ 10% on the estimated cost put to

tender. Even if the claim for damages on account of loss of profit were

allowable (which cannot be allowed in view of the above discussion),

the same could have been computed only by reference to the tendered

amount and not the estimated cost put to tender. Similarly, the award

of interest from the date of the award @ 9% p.a. has been made on the

entire amount of Rs.34,27,808/-, which includes the pendente lite

interest awarded of Rs.7,57,984/-. The learned arbitrator could not

have awarded interest on interest as done by him, in any event.

21. In the light of the aforesaid, the impugned award suffers from

patent illegalities as the learned arbitrator completely ignored the

evidence brought on record, and the same is accordingly set aside in

its entirety. The parties are left to bear their respective costs.

VIPIN SANGHI, J

MARCH 28, 2011 sr