Delhi High Court
Delhi Development Authority vs J.S.Chaudhary on 30 November, 2011
Author: Pradeep Nandrajog
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved On: 14th November, 2011
Judgment Pronounced On: 30th November, 2011
+ RFA(OS) 55/2011
DELHI DEVELOPMENT AUTHORITY ...Appellant
Through: Mr.P.K.Mittal, Advocate
versus
J.S.CHAUDHARY ...Respondent
Through: Mr.Dinesh Monga, Advocate for
Mr.M.S.Vinaik, Advocate
RFA(OS) 65/2011
J.S.CHAUDHARY ...Appellant
Through: Mr.Dinesh Monga, Advocate for
Mr.M.S.Vinaik, Advocate
versus
VICE CHAIRMAN DDA & ANR. ...Respondents
Through: Mr.P.K.Mittal, Advocate
CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MR. JUSTICE S.P.GARG
PRADEEP NANDRAJOG, J.
1. J.S.Chaudhary carrying on construction business as
the sole proprietor of M/s. J.S.Construction had filed a suit
praying that a decree in sum of `1,24,99,474.30 (Rupees One
Crore Twenty Four Lakhs Ninety Nine Thousand Four Hundred
Seventy Four and Paisa Thirty only) be passed in his favour
and against DDA. He pleaded that in response to a notice
inviting tender published by DDA inviting offers to construct
448 MIG Flats at Pocket-C, Phase-II Jhilmil, in the name of his
sole proprietary firm he had submitted an offer which was
accepted on 09.09.1991 and pursuant thereto a written
contract Ex.PW-1/2 was executed on 16.09.1991 at the rates
specified item wise as per the tender documents. 15 months
was the period prescribed for the execution of the works and
the same had to reckon with effect from 16.09.1991. Alleging
delay in execution of the works attributable to DDA, it was
pleaded that the work was eventually completed by
12.12.1994 and certificate of completion was issued by DDA
on 06.07.1995. The claim in sum of `1,24,99,474.30 was split
into two parts. Part 1 was `81,54,667.50 (Rupees Eighty One
Lakhs Fifty Four Thousand Six Hundred Sixty Seven and Paisa
Fifty only) claimed as tabulated by us in the succeeding
paragraph, and Part 2 was pre-suit interest in sum of
`43,44,806.80 (Rupees Forty Three Lakhs Forty Four Thousand
Eight Hundred Six and Paisa Eighty only). Thus, our focus has
to be on the sum of `81,54,667.50.
2. The sum total of Part 1 of the claim was divided, as
per the pleadings in the plaint, in various sub-heads as under:-
(i) Balance due as per contractual rates for `5,23,195/-
work billed for in the final bill.
(ii) Amount due under bank guarantee `3,00,000/-
furnished to DDA
(iii) Incidental expenses incurred for `50,000/-
revalidation of bank guarantee beyond
stipulated date of completion of work
(iv) Loss incurred by contractor due to `34,43,818/-
prolongation of work on account of increase in
price of materials and cost of labour for work
executed beyond contract stipulated date
calculated at 30% of the value of the work
done beyond contract stipulated date; value of
work done as per final bill being `1,98,58,648/-
and work done up to contract stipulated date
being of the value `83,79,253/-: value of the
balance work being `1,14,79,395/-, 30%
thereof being:
(v) Amount illegally withheld from the running `20,000/-
bills
(vi) Sum deducted in excess for supply of SCI `8,025/-
pipes to the plaintiff for use in the works by
applying a wrong formula for deduction
(vii) Amount due for 17 extra item of works
executed, being:
(a) Cost of centering and shuttering `7,559/-
(b) Cost of bitumen used to execute item `4,726/-
No.2.6 of the works
(c) Cost of extra operations involved to `38,119/-
execute item 6.1 of the works
(d) Cost of extra operations involved to `47,290/-
execute item No.7.6 of the works
(e) Cost of extra operations involved to
execute item No.9.7 of the works `31,042/-
(f) Cost of extra operations involved to execute
items No.11.5 to 11.12 of the works `31,781/-
(g) Cost of extra operations involved to
execute items No.12.1 and 12.2 of the works `37,480/-
(h) Extra cost to provide groove at junction of
roof and wall `34,351/-
(i) Extra cost of plaster done above 10 meter
height `22,871/-
(j) Cost of centering and shuttering for laying `2,635/-
of cement concrete in pavements
(k) Cost of welding to fabricate M.S.Grill
`95,652/-
(l) Cost of cement concrete blocks used for
fixing M.S.Railing `7,143/-
(m) Cost of extra thickness of brick masonry
and allied items for constructing open surface `69,647/-
drain
`1,00,000/-
(n) Cost incurred for dewatering sever line
`1,17,065/-
(o) Cost incurred to dispose of malba left by
other agencies
(p) Cost incurred to provide extra thick base `17,487/-
plaster for work as per item No.7.7
(q) Plastering of exposed surface of R.C.C. `18,382.40
Shelves for work as per item No.3.2 of the
contract
(viii) On account of work pertaining to item `2,81,217/-
No.9.6 being short measured
(ix) Amount illegally deducted for work `1,78,760/-
executed pertaining to item No.3.9
(x) Less compensation paid while `18,28,690.50
implementing clause 10CC of the contract
(xi) Extra cost incurred for deploying staff, `6,03,000/-
engineers and machinery beyond stipulated
date of contract
(xii) Loss of profit on account of delay in `2,68,468/-
completion of work calculated at 15% being
the profit for work done after completion in
value of `96,43,265/- i.e. `14,91,490/- and loss
being 18% thereof
3. A word needs to be spoken here. We have twice
totaled the aforesaid amounts and have reached the figure:
`81,88,403.90 (Rupees Eighty One Lakhs Eighty Eight
Thousand Four Hundred Three and Paisa Ninety only) and not
`81,54,667.50, captioned as the amount allegedly payable as
pleaded in the plaint, in para 6 where it is stated that the sum
due and as claimed is `81,54,667.50; followed by the break-up
of the various sub-heads constituting the claim.
4. Vide impugned judgment and decree dated
31.01.2011, the learned Single Judge has allowed the claims as
under, pertaining to the works.
(i) Balance due as per contractual rates for work `5,23,195/-
billed for in the final bill.
(v) Amount illegally withheld from the running `20,000/-
bills
(vii) (b) Cost of bitumen used to execute item `4,726/-
No.2.6 of the works
(vii) (c) Cost of extra operations involved to `9,028/-
execute item 6.1 of the works. (As against
claim in sum of `38,119/-)
(vii) (e) Cost of extra operations involved to `31,042/-
execute item No.9.7 of the works
(vii) (g) Cost of extra operations involved to `3,748/-
execute items No.12.1 and 12.2 of the works. (It
be noted that the claim as per plaint is in sum of
`37,480/- but inadvertently while noting the
figure pertaining to the claim in para 40 the
figure typed is `3,748/- which has been allowed
and hence the sum allowed has been shown to
be `3,748/-)
(vii) (h) Extra cost to provide groove at junction `34,351/-
of roof and wall
(vii) (i) Extra cost of plaster done above 10 `22,871/-
meter height
(vii) (m) Cost of extra thickness of brick `69,647/-
masonry and allied items for constructing open
surface drain
(vii) (p) Cost incurred to provide extra thick base `17,487/-
plaster for work as per item No.7.7
5. Claims towards all other items of work tabulated
under clauses (a) to (q) at serial No.(vii) as per table in para 2
above have been rejected. Holding that the bank guarantee
was discharged, claims as per serial No.(ii) and (iii) in the table
drawn in para 2 above were rejected. Holding that it was not
proved that any excess deduction was made pertaining to the
claim as per serial No.(vi) in the table drawn in para 2 above,
the same was rejected.
6. Claim at serial No.(xi) under the caption: Cost of
Deployment of Staff, Engineering and Machinery beyond the
stipulated date of completion not originally contemplated
amounting to `6,03,000/- has been discussed by the learned
Single Judge in paragraphs 54 to 59 of the impugned judgment
and the claim has been rejected holding that the claim is
covered under the compensation already paid as per clause
10CC of the contract.
7. Thereafter the learned Single Judge has discussed
claims Nos.(iv) and (xii) as noted in the table reproduced in
para 2 above and on the reasoning contained in para 68 of the
impugned decision, the learned Single Judge has allowed a
sum of `6,28,443.97. The reasoning, in para 68 of the
decision, is that the contractor would be entitled to be
recompensed 7.5% of the value of the work done upto contract
stipulated date. Since value of work done upto contract
stipulated date was in sum of `83,79,253/-; 7.5% thereof works
out to `6,28,443.97, which has been allowed.
8. Thus, decree passed in favour of the plaintiff and
against the defendant is in sum of `13,58,924.97 (Rupees
Thirteen Lakhs Fifty Eight Thousand Nine Hundred Twenty Four
and Paisa Ninety Seven only) i.e. `7,30,451/- (Rupees Seven
Lakhs Thirty Thousand Four Hundred and Fifty One only) +
`6,28,443.97 (Rupees Six Lakhs Twenty Eight Thousand Four
Hundred Forty Three and Paisa Ninety Seven only).
9. We find a typographic error in the judgment. Apart
from the sum of `6,28,443.97 recompensed to the contractor
by way of compensation for the work being prolonged, for the
remainder, the sum total of the various sums allowed by the
learned Single Judge has been determined as `7,30,451/-. But,
if we total the same, it comes to `7,36,095/-. As noted
hereinabove, the sum claimed towards cost for extra
operations involved to execute items No.12.1 and 12.2 of the
works which has been allowed by the learned Single Judge in
sum of `3,748/- is by wrongly noting the sum claimed as
`3,748/-. As a matter of fact the sum claimed was `37,480/-.
Correcting as aforesaid, the sum decreed should be
`7,69,827/- + `6,28,443.97 i.e. `13,98,270.97 as against
`13,58,924.97 decreed by the learned Single Judge.
10. Two cross appeals have to be decided by us. We
note that in RFA(OS) 55/2011 DDA has not challenged the
decree passed in favour of the plaintiff in its entirety. Only two
amounts held payable have been questioned. The first
challenge is to `6,28,443.97 held payable as per reasoning in
para 68 of the impugned decision to recompense the
contractor for delay in execution of the works held attributable
to DDA. The second challenge is to the sum of `69,647/- held
payable in respect of the work noted by us at serial No.(vii) (m)
of the table in para 2 above.
11. As regards RFA(OS) 65/2011 filed by the plaintiff,
we find that challenge is to the claims which have not been
allowed.
12. Pertaining to the appeal filed by DDA laying a
challenge to the sum of `69,647/- determined payable as per
the impugned decree towards cost of extra thickness of brick
masonry and allied items for constructing open surface drain,
the reasoning of the learned Single Judge qua said item of
work, is in paragraph 45 of the impugned decision and we note
the same. It reads as under:-
"45. The next claim under Para 6(vii) (m) is for
`69,647/- towards extra thickness of brick masonry
and other allied items for construction of open
surface drain. It is submitted that DDA wanted full
brick masonry on either side, which was provided
for the plaintiff. It is stated that this resulted in
extra concrete and extra plaster in bed. The total
length of the drain, it is submitted was 608 meters.
DDA denies extra work, on this count, but does not
point to any condition in the contract; it admits that
if such item is admissible, the amount payable
would be `26,571/-. The DDA, in this instance, has
only baldly and generally denied its liability, without
saying what was the extent of the work actually
done. In the circumstances, the plaintiff‟s claim is
entitled to succeed; it is entitled to an amount of
`69,647/-."
13. Challenging said sum allowed, the only ground
urged in the memorandum of appeal filed by DDA is as under:-
"(G) BECAUSE the judgment and decree passed by
the learned Single Judge is legally incorrect
inasmuch as there have been absolutely no
evidence on record for the alleged work of extra
thickness of masonry work to have been done by
the Respondent and, therefore, the learned Single
Judge has wrongly allowed a sum of `69,647/- to
the Respondent as against the Appellant/DDA and,
therefore, to that extent, the impugned judgment is
perverse."
14. We highlight that the notice inviting tender had
required item rates to be quoted and pertaining to the works
qua sewage, drainage etc., under the caption „STORM WATER
DRAINS AND CULVETS‟ various item of works have been listed.
It has clearly been listed, as claimed by the contractor, that
the surface drains were required to be completed with half
brick thick masonry work on either side. The contractor has
alleged that DDA desired full brick masonry work on either
side, which was provided, and thus he was entitled to the said
extra item of work; the said pleadings are in para 6 (vii) (m) of
the plaint. The response is that no extra work was required to
be executed.
15. Ex.DW-1/2 is the photocopy of the measurement
book filed by DDA and proved through the testimony of
Sh.N.Kishore DW-1, Executive Engineer DDA. We have
perused the same. The said extra item of work has been duly
recorded in the measurement book. We further find that in his
affidavit by way of examination-in-chief, Sh.J.S.Chaudhary has
deposed on oath that he executed said extra works. We have
perused the cross examination of Sh.J.S.Chaudhary and we
find that not even a suggestion has been given to him that the
said extra item of work was not executed by him.
16. Thus, in addition to the reasons given by the
learned Single Judge, our additional reasons to uphold said
claim raised by the contractor are a description of the work in
the tender document and the actual works recorded as having
been executed in the measurement book and no challenge
during cross examination made to the statement on oath by
Sh.J.S.Chaudhary that he had executed the said work.
17. We shall be dealing with the second challenge
raised by DDA to `6,28,443.97 directed to be paid by way of
recompense to the contractor with respect to the delay in
execution of the works at the end of our decision as the
discussion on said subject would consume a considerable
number of pages.
18. We thus deal with RFA(OS) 65/2011 where the
challenge is to the claims rejected by the learned Single Judge.
19. As we have noted qua the ground of challenge
pleaded by DDA with respect to `69,647/- held payable for
extra work pertaining to the item of work at serial No.4.3 of
the tender documents; a vague and a general plea; similar is
the position with respect to the grounds urged in the
memorandum of appeal to the claims disallowed.
20. In virtually 99 out of 100 appeals filed against
judgment and decrees passed by learned Single Judges of this
Court, we find vague grounds of challenge; without dealing
with the reasoning of the learned Single Judge and highlighting
as to in what manner the conclusion arrived at is wrong.
21. Let us illustrate by way of highlighting one claim.
22. The contractor had claimed a sum of `8,025/- on
the plea that said amount was deducted in excess with respect
to SCI pipes supplied by DDA to the contractor for executing
the works by wrongly measuring the pipes. The reasoning of
the learned Single Judge while denying the said claim, in para
34 of the impugned decision reads as under:-
"The amount of `8,025/- claimed by the plaintiff is
in respect of deductions made by DDA from the
running bills, for SCI (Sand cast Iron) Pipes. The
plaintiff faults the deduction, saying that the
method adopted was erroneous. It is contended
that the DDA deducted the amount on the basis of
measurement of individual pipes, which is
erroneous. Here, the court is of opinion that
individual measurement, as opposed to bulk
measurement, favoured by the plaintiff, is a choice
of the mode that could have been adopted. As long
as the optional choice is not demonstrated to be
palpably unreasonable, or unconscionable, the
Court cannot hold that adopting the mode of
measuring pipes individually was wrong, or illegal.
The plaintiff, is therefore, not entitled to the sum of
`8,025/-."
23. The ground raised in the memorandum of appeals
pertaining to said amount being disallowed may now be noted.
It is ground „L‟ and it reads as under:-
"L. Because the learned Single Judge, while
declining the appellant‟s claim for refund of
payment in respect of issue of SCI pipes amounting
to `8,025/- (Rupees Eight thousand and twenty five
only), failed to realize that the respondent was
actually required to measure the cost of SCI pipes
according to the quantity used, and not the size of
the individual pipes, because the quantity used for
the work was in fact at par with the quantity
issued."
24. Where is the challenge to the reasoning of the
learned Single Judge? Where is the challenge to the reasoning
that where there were two options, adoption of one could not
be said to be wrong?
25. We would simply highlight that a ground of
challenge in a memorandum of appeal must be specific by
drawing attention of the Appellate Court, if it relates to a
finding of fact, to the manner in which the finding of fact
arrived at is sought to be challenged and if it relates to a
reasoning of law, the reason why the reasoning of the law
culled out by the learned Single Judge is incorrect. It is useless
to raise grounds by parroting „Because the learned Single
Judge has not correctly appreciated the issue etc. etc.‟
26. As a matter of fact we find, pertaining to the item of
work in question, that neither party correctly focused on what
was the subject matter of dispute. The subject matter of
dispute arose from the fact that as per the contract, SCI Pipes
had to be supplied by DDA and the contractor had to consume
the same while executing the works. The cost of pipes
supplied had to be deducted by DDA. SCI Pipes are commonly
seen by each one of us. They are embedded in the „Gully
Trap‟ where affluent from a building first falls before it flows
into the internal sewer line. They are black coloured pipes
having thick coating of tar-coal. They move upward and rise
about 2-3 feet above the roof of the building. They are
installed so that noxious gases which form in the sewer line
are discharged in the air at a height of about 2-3 feet above
the roof of the building so that the foul smell does not create
nuisance for the inhabitants or the visitors of a building. He
who has observed the SCI Pipes being laid or when laid would
know that one end of the pipe is pushed into the end of the
other pipe and thus the total length segment of two individual
pipes would be more than the length segment when two pipes
are joined. Thus, the executed work would obviously have a
length less than the individual length of the pipes, inasmuch as
a small segment of one pipe, while joining the second, having
an interface would result in coupling. The grievance of the
contractor was that in this way a 7 cm length for each pipe got
overcharged. If the parties had projected before the learned
Single Judge as above, the answer would have been simple.
The measurement of the executed work has to be as per the
measurement formula prescribed under the contract.
Deduction for material supplied by DDA had to be on the basis
of the actual quantity of material supplied, unless the contract
provided for a different mode of measurement. We may
explain a little better for the benefit of the reader of this
judgment. For RCC works, most of the contracts provide for
steel reinforcement bars (popularly called „saria‟) being
supplied to the contractor who has to cut the standard size
steel reinforcement bars to the specified length segments
required for the structural reinforcement of the RCC works.
While cutting, wastage ensues. Further, the length of the steel
reinforcement bars supplied may be of a standard size i.e. say
six feet in length and structural reinforcement may require
some bars to be cut into size two feet and eleven inches.
There is bound to be a wastage of two inch length segment. If
the contract provides that vis-à-vis the quantity supplied and
quantity consumed, benefit of wastage would be given, the
same would have to be given effect to. But if the contract does
not provide for benefit of wastage to be given, it would not lie
in the mouth of the contractor to urge that while effecting
deductions for the price of steel reinforcement bars supplied
the same should have a co-relation to the quantity actually
consumed. While submitting the tender, the contractor would
be expected to read the terms of the contract and if he feels
that he needs to be recompensed for the wastage, in the item
rate which he quotes for, the same must be factored in.
27. Since we find, pertaining to the works executed,
loose, laconic and mechanical grounds of challenge to the
reasoning of the learned Single Judge, we do not trouble
ourselves to keep on repeating the reasoning of the learned
Single Judge and would repel each and every ground of
challenge by affirming the reasoning of the learned Single
Judge, which we find is a reflection of the pleading and the
claim with respect to the tender documents. We highlight that
the learned Single Judge has painstakingly dealt with each and
every item of claim and has given good reasons wherever the
same had to be allowed and good reasons wherever the same
had to fail. Nothing was shown to us which requires a
reflection on the reasoning of the learned Single Judge and we
would simply highlight that except for saying that such claims
which were rejected were wrongly rejected, learned counsel
for Sh.J.S.Chaudhary could take the argument no further.
28. We now deal with the challenge to the impugned
decision relating to three items of claim i.e. `34,43,818/-,
`6,03,000/- and `2,68,468/-, in respect whereof the contractor
had a grievance and so does DDA. We have already noted
hereinabove that DDA‟s grievance relates to `6,28,443.97
allowed as per reasoning in para 68 of the decision and the
grievance of the contractor is to the three claims being
disallowed as laid, but a sum of `6,28,443.97 being allowed on
a totally newly created head of claim, on the reasoning
contained in para 68 of the impugned decision.
29. We note the pleadings in the plaint pertaining to
the said three sums claimed i.e. `34,43,818/-; `6,03,000/- and
`2,68,468/-. The same are in sub-paras (iv), (xi) and (xii) of
para 6 of the plaint. They read as under:-
"(iv) Cost of work done beyond the stipulated date
of completion @30% extra amount to
Rs.34,43,818.00
Immediately on acceptance of the tender, the
plaintiff expressed his willingness to
commence the work in performance of the
contract. However, the work could not be
completed within the stipulated period on
account of the following defaults of the
defendant:
a) Delay in handing over of site for work;
b) Delay in issue of stipulated material;
c) Delay in release of payments for work done;
d) Delay in laying of electrical conduits by the
agency appointed by the defendant;
e) Delay in conveying of decisions to the plaintiff
from time to time during/relating to the
execution of work.
Due to the aforesaid defaults on the part of the
defendant, the work could be completed only on
12.12.94 i.e. in a period of 39 months as against
the stipulated period of 15 months contained in
the agreement between the parties. During the
delayed period, the price of material and labour
increased in the market. It became impractical
and un-economical for the plaintiff to execute the
work within the accepted/quoted rates. It is
pertinent to note here that the rates quoted by
the plaintiff were in the month of May 1991. But
the plaintiff was made to complete the work at
the same rates even in the year 1994. The
defendant is liable to make good the loss incurred
by the plaintiff on this account before the
completion of the work and after the originally
stipulated date of completion. The plaintiff
indicated to the defendant, by a notice duly
served upon it, that he would continue the work
provided he is paid 30% over and above the
contractual rates despite the escalation clause
provided in the agreement. The defendant duly
accepted the said condition of the plaintiff as no
objection was raised by the defendant and
continued to get the work executed from him.
The following payment is thus due and payable to
the plaintiff by the defendant on account of
labour and material due to the delay in execution
of work.
Cost of work done as per final : `1,98,58,648.00
bill
Less: cost of work done up to
18.12.92 which is the original
stipulated date of completion : `83,79,253.00
as per agreement
Cost of work done after the : `1,14,79,395.00
stipulated date of completion
30% of the above : `34,43,818.00
Thus the defendant is liable to pay
`34,43,818/- to the plaintiff on account of escalation
of work.
xxx xxx xxx
(xi) Cost of deployment of staff, engineer and
machinery beyond the stipulated date of
completion not originally contemplated
amounting to `6,03,000.00
The plaintiff, on account of delay in
execution, had incurred extra expenditure for
deployment of staff, engineer and machinery
beyond the period of 15 months stipulated for
completion of work in terms of the agreement.
The defendant is liable to make good the loss
incurred on this account. The amount works
out to be `6,03,000.00 as under:-
a) Graduate engineer 1 no. `5000.00
@`5000/- p.m.
b) Diploma engineer 1 no. `3000.00
@`3000/- p.m.
c) Head Mistry 1 no. @`2500/- `2500.00
p.m.
d) Supervisor 4 nos. @`1250 `5000.00
p.m. each
e) Chowkidar 6 nos. @`1000/- `6000.00
p.m. each
f) Clerk 2 nos. `1500/- p.m. `3000.00
each
g) Accountant 1 nos. @`2500/- `2500.00
p.m.
T&P and other equipment `3000.00
`2.5 lacs @18% p.m.
-------------
`30,000.00
This expenditure of `30,000/- p.m. for the work
of the magnitude is fully justified as it is hardly
2.5% of expected monthly out turn of
`1221501.00 keeping into consideration the
tendered cost of `18322518.00 to be completed
in 15 months stipulated in the agreement. The
plaintiff has thus suffered a loss of:
i) Under initialization
30000 x 15 x 54/100 : `2,43,000.00
ii) For extended period 30000 x 24 : `720000.00
Applying the principal of mitigation of loss to the
extent of 50% on `720000.00, the total loss comes to
`603000.00.
(xii) Loss of profitability due to delay in completion of
the contract amount to `2,68,468.00
The plaintiff estimate was for a sum of
`18322518.00. The loss in profit incurred by the
plaintiff on account of delay in completion of the
work which is solely and wholly attributable to the
defendant. The defendant is thus liable to pay a
sum of `2,68,468.00 on account, the details of
which are as follows:
Work done after the stipulated
date of completion `96,43,265.00
Profit @15% `14,91,490.00
Loss @18% on the delayed
completion of work
1491490 x 18 x 24 x 1 = `2,68,468.00"
100 x 12 x 2
30. Since for our discussion, clause 10CC of the
contract has to be reflected upon, we note the same. It reads
as under:-
""Clause 10(cc) . If the prices of materials (not being
materials supplied or services rendered at fixed
prices by the department in accordance with Clauses
10 & 34 hereof) and/or wages of labour required for
execution of the work increase, the contractor shall
be compensated for such increase as per provisions
detailed below and the amount of the contract shall
accordingly be varied, subject at the condition that
such compensation for escalation in prices shall be
available only for the work done during the stipulated
period of the contract including such period for which
the contract is validity extended under the provisions
of clause 5 of the contract without any action under
clause 2 and also subject to the condition that no
such compensation shall be payable for a work for
which the stipulated period of completion is 6
months or less. Such compensation for escalation in
the prices of materials and labour, when due, shall
be worked out based on the following provisions:
1. The base date for working out such escalation shall
be the last date on which tenders were stipulated to
be received.
2. The cost of work on which escalation will be payable
shall be reckoned as 85% of the cost of work as per
the bills, running or final, and from this amount the
value of materials supplied under clause 10 of this
contract or services rendered at fixed charges as per
clause 34 of this contract, and proposed to be
recovered in the particular bill, shall be deducted
before the amount of compensation for escalation is
worked out. In the case of materials brought to site
for which any secured advance is included in the bill,
the full value of such materials as assessed by the
Engineer-in-Charge (and not the reduced amount for
which secured advance has been paid) shall be
included in the cost of work done for operation of this
clause. Similarly when such materials are
incorporated in the work and secured advance is
deducted from the bill, the full assessed value of the
materials originally considered for operation of this
clause should be deducted from the cost of work
shown in the bill, running or final. Further, the cost of
work shall not include any work for which payment is
made under clause 12 or 12(a) at prevailing market
rates.
3. The components of materials, labour, P.O.L., etc.
shall be pre-determined for every work and
incorporated in the conditions of contract attached to
the tender papers and the decision of the Engineer-
in-Charge in working out such percentages shall be
binding on the contractor.
4. The compensation for escalation for materials and
P.O.L. shall be marked out as per the formula given
below:-
(i) VM = W x X x (MI-MIo)
----- ----------
100 MIo
VM = Variation in material cost i.e. increase
or decrease in the amount in rupees to
be paid or recovered
W = Cost of work done worked out as
indicated in sub-para 2 above.
X = Component of materials expressed
as percent of the total value of work.
MI & MIo = All India whole sale index for all
commodities for the period under
reckoning as published by the Economic
Advisor to Government of India, Ministry of
Industry and Commerce, for the period
under consideration and that valid at the
time of receipt of tenders, respectively.
(ii) VF = Wx Z x (FI -FIo)
------ ---------
100 FIo
VF = Variation in cost of fuel, oil and
lubricants, increase or decrease in
rupees to be paid or received.
W = Value of work done, worked out as
indicated in sub-para 2 above.
Z = Component of P.O.L. expressed as a
percent of total value of work is
indicated under the special
conditions of contract.
FI & FIo = Average index number of wholesale
price for groups (fuel, power, light &
lubricants) as published weekly by
the Economic Adviser to Govt. of
India Ministry of Industry for the
period under reckoning that valid at
the time of receipt of tenders,
respectively.
The following principles shall be followed while
working out the indices mentioned in sub-para 4
above.
(a) The compensation for escalation shall be
worked out at quarterly intervals and shall be with
respect to the cost of work done during the three
calendar months of the said quarter. The first
such payment shall be made at the end of three
months after the month (excluding) in which the
tender was accepted and thereafter at three
months‟ interval. At the time of completion of the
work, the last period for payment might become
less than three months, depending on the actual
date for completion.
(b) The index (MI/FI etc.) relevant to any
quarter for which such compensation is paid shall
be the arithmetical average of the indices relevant
to the three calendar months. If the period up to
date of completion after the quarter covered by
the last such installment of payment, is less than
three months, the index MI and FI shall be average
of the indices for the months falling within that
period.
(c) The base index, MIo FIo etc. shall be the one
relating to the month in which the tender was
stipulated to be received.
6. The compensation for escalation for labour shall
be worked out as per the formula give below:-
i) VL = Wx Y x LIo
------ ---------
100 LIo
VL = Variation in labour cost i.e. amount of
increase or decrease in Rupees to be paid
or recovered.
W = Value of work done, worked out as
indicated in Sub-para 2 above.
Y = Component of labour expressed as a
percentage of the total value of the work.
LIo = Minimum daily wage in Rupees of an
unskilled adult male mazdoor, as fixed
under any law, statutory rule or order as on
the last date on which tenders for the work
were to be received.
LI = Minimum wage in rupees of an unskilled
adult male mazdoor, as fixed under any
law, statutory rule or order as applicable on
the last day of the quarter previous to the
one during which the escalation is being
paid.
7. The following principles will be followed while
working out the compensation as per sub para 6
above.
a) The minimum wage of an unskilled male
mazdoor mentioned in Sub-para 6 above shall be
the higher of the following two figures: namely,
those notified by Government of India, Ministry of
Labour and those notified by the local
administration, both relevant to the place on work
and the period of reckoning.
b) The escalation for labour also shall be paid at
the same quarterly intervals when escalation due
to increase in cost of materials and/or P.O.L. is
paid under this clause. If such revision of
minimum wages takes place during any such
quarterly intervals, the escalation compensation
shall be payable for work done in all quarters
subsequent to the quarter in which the revision of
minimum wages takes place.
c) Irrespective of variations in minimum wages of
any category of labour, for the purpose of this
clause, the variation in the rates for an unskilled
adult male mazdoor alone shall form the basis for
working out the escalation compensation payable
on the labour component.
8. In the event the price of materials and/or wages
of labour required for execution of the work
decrease/s, there shall be downward adjustment of
the cost of work so that such price of materials
and/or wages of labour shall deductable from the
cost of work under this contract and in this regard
the formula herein stated under this clause 10 (cc)
shall mutatis mutandis apply, provided that:-
(i) No such adjustment for the decrease in
the price of materials and/or wages of labour
aforementioned would be made in case of
contracts in which the stipulated period of
completion of the work is six months or less.
(ii) The Engineer-in-Charge shall otherwise be
entitled to lay down the principles on which the
provision of this sub-clause shall be implemented
from time to time and the decision of the
Engineer-in-Charge in this behalf shall be final
and binding.
Provided always that the provision of the proceeding
clause 10(c) shall not be applicable for contracts
where provisions of this clause are applicable but in
cases where provisions of this clause are not
applicable, the provisions of clause 10 (c) will
become applicable."
31. As already noted hereinabove, the learned Single
Judge had rejected the claim No.(xi) towards alleged costs
incurred by the contractor for deploying engineers, supervisory
and other staff and machinery during the extended period of
contract on the ground that the said expenses are subsumed
under clause 10CC of the contract as per reasoning in paras 54
to 59 of the impugned decision. Considering together claims
No.(iv) and (xii) the learned Judge has decreed `6,28,443.97
on the reasoning that claim No.(iv) raised by the contractor for
escalation in prices of materials and labour subsumed under
clause 10CC of the contract does not grant benefit of „notional
loss of opportunity faced by the contractor, towards the time
expended and the likely amount or income he could have
gained, during the period, if the contract had been allowed to
be performed in time.‟ In other words, it has been held by the
learned Single Judge that the amounts claimed by the
contractor vide claim No.(iv) are not covered under clause
10CC of the contract as the same relate to loss of profits of the
contractor due to delay in performance of the contract on
account of fault of DDA and recompense has to follow for the
same. The reasoning of the learned Single Judge may be
reproduced by noting the relevant paragraphs, being
paragraph No.60, 62, 64, 65, 66, 67 and 68 as under:-
"60. The plaintiff claims loss of profitability due to
delay in completion of contract @ Rs.2,68,468/-. It is
alleged that the delay and prolongation of contract,
prevented him from carrying out other works, and he
should accordingly be compensated towards loss of
profit which he would have otherwise earned. This
claim is denied by DDA. He also claims the sum of
Rs.34.43,818/- towards work performed during the
extended period of the contract stating his
entitlement to 30% extra on the total value of
contract, for such extended period. There is no proof
of these claims.....
....
62. The Court notes that while the parties had
indeed agreed for compensation towards increased
costs and expenses contemplated under Clause 10-
CC, that was towards certain heads. In an earlier part
of the judgment, the plaintiff‟s claim towards salary
paid to certain employees and staff members was
rejected, on the ground that he could not claim
anything more than the agreed formula. However, as
far as the two claim heads under consideration are
concerned, the courts notes that these are made on
account of a notional loss of opportunity faced by the
contractor, towards the time expended and the likely
amount or income he could have gained, during the
period, if the contract had been allowed to be
performed in time.
....
64. The position when, in a works contract, the
employer defaults or delays performance, or rescinds
the contract without cause, can the contractor claim
damages on account of loss of profit was first
examined by the Supreme Court in A.T. Brij Paul
Singh v State of Gujarat (1984) 4 SCC 59). The court
ruled that where, in the works contract, the party
entrusting the work commits breach of contract, the
contractor is entitled to claim the damages for loss of
profit which he expected to earn by undertaking the
works contract and that claim of expected profits is
legally admissible on proof of the breach of contract
by the erring party. It was observed:
....
The above reasoning had earlier been indicated in
Mohd. Salamatullah v Govt. of A.P. (1977) 3 SCC 590.
While approving award of damages in case of breach
of contract, the court held that the appellate court
was not justified in interfering with the finding of fact
given by the trial court regarding quantification of
damages if it was based on guesswork.....
....
The Supreme Court, in Dwarka Das v State of MP
(1999) 3 SCC 500, applied the rationale in the above
two judgments, and held that:
....
65. The logic and reasoning why award of damages
for loss of profit can be granted has been followed by
two successive Division Benches of this court. In the
judgment reported as Delhi Development Authority,
Appellant V. Anand and Associates 2008 (1) Arb LR
490, the award of amounts towards loss of profit, in a
DDA contract, like in the present case, was upheld.....
66. In Delhi Development Authority v Wee Aar
Constructive Builders And Anr 2004 (3) Arb LR 291, a
Division Bench had upheld the grant of amounts
towards loss of profit, and observed as follows:
.....
67. Two amounts claimed by the plaintiff, i.e.
Rs.2,68,468/- towards delay and prolongation of
contract, on the ground that prevented him from
carrying out other works, and he should accordingly
be compensated towards loss of profit which he
would have otherwise earned. This claim is denied by
DDA. He also claims the sum of Rs.34,43,818/-
towards work performed during extended period of
the contract stating his entitlement to 30% extra on
the total value of the contract, for such extended
period. There is clearly an over-lap in these claims.
Further, the court has noted earlier that the plaintiff
has not led evidence in this regard. At the same
time, the DDA‟s role in contributing to the delay,
occasioned in the performance of the contract has
been found by the court. The question therefore, is
whether the court should grant any amount.
68. The sum of Rs.34,43,818/- is derived as 30% of
cost of work done up to 18.12.92 (which is the
original stipulated date of completion as per
agreement), which is Rs.83,79,253/-. The DDA does
not dispute the latter figure of Rs.83,79,253/-, but
objects in principle to the grant of damages on other
grounds, as noticed above. Although the plaintiff has
not led evidence in this regard, the court is of the
opinion that the effect of delay on account of various
factors, such as increased expenses commitment to
the contract for a longer period, the effect it may
have upon the contractor who would be unable to
commit (or enter into) other commercial transactions
cannot be altogether lost sight of. In an expanding
economy, where wage levels and availability of
materials are dynamic factors, the possibility of
businessman to earn reasonable profits would
depend on the time taken in the performance of
contracts. If a contract performance is delayed on
someone else‟s fault, he ought to be compensated,
for the loss of profit, at least notionally. The Supreme
Court authorities from A.T. Brij Paul onwards have
consistently ruled that granting 15% of the contract
value, towards loss of profit, is a reasonable
standard. Those were in cases where the contractor
led some evidence. Here, however, the plaintiff has
not led any evidence, and has claimed Rs.37 lakhs
approximately. Having regard to the totality of
circumstances, the court is of the view that a
reasonable standard of damages in this case should
be 7.5% of the value of the work done till the date
originally agreed. This figure works out to
Rs.6,28,443.97." (Emphasis Supplied)
32. We find that the learned Single Judge has reached a
somewhat correct destination, but on a faulty process of
reasoning. On the one hand, the learned Single Judge has
categorically negated the claim for deploying staff, engineers
and machinery beyond stipulated date of contract as per
findings in paragraphs 54 to 59 and has noted, in paragraph
67, that the claim in sum of `2,68,468/- towards loss of profit
vide serial No.(xii) has an overlap with the claim in sum of
`34,43,818/- i.e. claim vide serial No.(iv), but has allowed
recompense towards damages on account of the contractor
not being able to utilize his resources and earn money
elsewhere. Recompense has been granted by awarding 7.5%
of the value of the work done during contract stipulated
period.
33. We have noted hereinabove clause 10CC which
provides for escalation in the prices of materials and labour in
relation to the work executed by the contractor during the
original as also the extended period of contract. However, it
assumes importance that the clause requires escalation to be
granted only on 85% of the value of the work, which
percentage has then been divided, 75% towards material and
25% towards labour and T&P. Thus, the contract treats 15% of
the contract value as to be apportioned towards overhead
expenses and loss of profits.
34. The issue is no longer res integra. The distinction
between recompense for escalation and damages on account
of prolongation of work for idle tools, plant and machinery as
also labour was recognized by a Division Bench of this Court in
the judgment reported as Delhi Development Authority v M/s
S.S. Jetley 2001 (1) Arb LR 289 (Delhi) wherein it was observed
as under:-
"Claim no. 17 is in respect of damages for
prolongation of the contract. Respondent/Contractor
had claimed a sum of Rs. 1017727 on this account.
Learned Arbitrator awarded a sum of Rs. 2,20,000/-
in favor of the respondent. The basic contention
advanced in challenging the award of claim is that no
such claim could have been awarded inasmuch as if
there was any delay on the part of the appellant, the
respondent was entitled to the amounts as per
Clause 10CC of the Agreement......... The respondent
had preferred separate claim namely, claim no.19
under Clause 10CC of the Agreement and there is no
dispute that the said claim was entertained and
adjudicated upon, keeping in view the provision 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 @
Rs. 5000/- 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."
35. Reference by the learned Single Judge to the
decision of the Supreme Court in A.T.Brij Paul Singh‟s case
(supra) to grant damages on account of loss of profits needs a
clarification for the reason said decision is an authority on the
point that where a contract is illegally terminated before it is
completed, for the unexecuted works, the contractor would be
entitled to loss of profits. The judgment is not an authority on
the point that loss of profits have to be awarded for the works
which are completed but beyond the contract stipulated date.
Further, the decision is not an authority on the point that in
each and every case 15% of the unexecuted work would be a
measure of loss of profit. Said decision would reveal that the
contractor was awarded two identical works to lay down roads
and the period of the contracts were the same. Both contracts
were terminated before the works could be fully executed.
Termination was found to be unjustified. In one proceeding
evidence was led through the account books of the contractor
that 15% of the contract value was the profit. This finding was
sought to be relied upon in the second dispute and the
challenge was that the contractor had not led primary
evidence to show the profits. It was in this peculiar
circumstance that the Supreme Court held that the measure of
loss of profit proved through primary evidence in the first
arbitration would hold good even for the second.
36. Loss of a contractor‟s profit as a head of damage in
a terminated contract requires to be distinguished from a quite
different claim which contractors may be able to establish in
cases where an owner‟s breach can be shown to have had the
effect of delaying completion by the contractor. In a delayed
contract the basis of the contractor‟s loss is the postponement
of the time when the contractor‟s organization, viewed as a
profit-earning entity, is free to move on and earn elsewhere in
the market, the combined profit and necessary contribution to
fixed overheads of which it is reasonably capable. A
construction contractor‟s enterprise as a whole will incur a
range of off-site expenditure which by its nature will not vary
or be affected by the delay in performance of an individual
contract, or the degree to which that contract may have been
delayed, as a result of owner‟s breach of contract. This class of
expenditure is commonly referred as „fixed overhead‟
expenses. A contractor pricing an individual project, therefore,
after providing for the estimated total „prime-cost‟ of all kinds
which will be required to carry out the contract itself must then
additionally estimate for a combined operating margin which
will not only produce his required net or „pure‟ profit, but will
also serve to make an appropriate contribution, together with
that from his other projects, to the fixed overheads of the
enterprise as a whole. In case of a delayed contract, where the
concern is to ascertain the „profit‟ which the contractor might
have expected to earn elsewhere in the market on other
contracts, it is this necessary combined operating margin of
profit and fixed overhead, which in appropriate market
conditions, the contractor‟s enterprise will have lost as a
consequence of the period of owner-caused delay on the
individual project, and to which he will be entitled as damages.
However, in this regards, a distinction needs to be drawn, on
the one hand, small contractors having few (and indeed
sometimes no) overheads other than those of the „jobsite‟
itself, and on the other, large contractors with centralized
offices, transport systems, yards and depots; and while again
some main contractors may operate as little more than
employers of sub-contractors, with virtually no overheads of
their own. (See Articles 8-176-79, pages 1072-74, Hudson‟s
Building and Engineering Contracts, XIth Edition).
37. Delay in performance of contract due to owner‟s
breach may also, of course, increase the contractor‟s prime
costs or his site overhead costs. The contractor‟s various items
of prime-cost for a project will themselves break down into
some or all of the four prime-cost components of materials,
plant, labor and salaries (including supervisory and other staff)
and sub-contracts. Some items of cost will be obviously
referable to individual parts of the constructed cost, such as
the prime-cost elements of plant, labor and materials or sub-
contracts for constructed concrete or brickwork, and so
relatively easily applied to any additional permanent work
directly necessitated by a breach of contract. Others, however,
usually referred to as „site overheads‟, may not be
conveniently referable to any particular part of the permanent
work (for example, supervision, access roads, site huts or
tower cranes etc), but will themselves contain some or all of
the four elements. (See Articles 8-180 and 8-190, pages 1074-
76 and 1080-81, Hudson‟s Building and Engineering Contracts,
XIth Edition).
38. From the aforesaid, it is clear that in case of a
delayed contract caused due to owner‟s breach the contractor
can claim damages under following heads: - (i) loss of profits;
(ii) contribution to fixed overheads; (iii) increase in prime cost
which includes components of materials, plant, labor and
salaries and sub-contracts and (iv) increase in off-site and on-
site overheads caused due to delay in performance of
contract.
39. In the instant case the matter can also be looked at
from another angle. As already discussed herein above,
clause 10CC prescribes that the cost of the work on which the
escalation is to be paid is to be reckoned as 85% of the cost of
work as per the bills. Thus, if clause 10CC applies and cost of
work as per bills is 100, the cost of escalation for materials and
labor would be 85. The fact that only 85% of the cost of work
as per bills is to be reckoned towards costs of escalation for
materials and labor shows that the contract itself presupposes
that 85% of the final bill submitted by the contractor is
towards cost of work and remaining 15% of the bill is towards
profits of the contractor and on-site and off-site overhead
expenses incurred by the contractor due to delay in
performance of contract.
40. Thus, not on the reasoning of the learned Single
Judge, but on the reasoning afore-noted, the contractor would
be entitled to a fair recompense.
41. But before working out the same we need to
highlight that with reference to the evidence led the learned
Single Judge has found delay attributable to DDA and the
various letters on the subject have been noted by the learned
Single Judge in para 30 of the impugned decision. Indeed, the
letters relied upon by the learned Single Judge establish that
the entire delay was attributable to DDA.
42. The learned Single Judge has granted compensation
at 7.5% of the value of the work done during contract
stipulated period and suffice would it be to state that the same
is faulty for the reason the recompense had to be on the work
done beyond the contract stipulated date.
43. Notwithstanding the learned Single Judge having
considered the claims for idle staff and machinery and loss of
profits separately; for the law noted on the subject and as
extracted from „Hudson‟s Law of Buildings and Contracts‟, we
are of the opinion that the contractor needs to be
recompensed a fair amount on account of the contract being
prolonged and during this period the supervision staff (ignoring
labour for which compensation has already been paid under
clause 10CC) as also some tools, plant and machinery
remaining at site, which could have been used for some other
works. Noting further that the contract has apportioned 15%
of the price breakup as overheads and profits, the contractor
should be entitled to at least 7.5% of the value of the work
executed beyond contract stipulated period in the instant case
on account of insufficiency of evidence led entitling him to full
recompense. In other words, we clarify that claim No.(iv) in
sum of `34,43,818/- cannot be allowed as claimed, for the
reason clause 10CC of the contract subsumes the same, but
some recompense has to flow on account of the 15% of the
value of the work executed which is not subsumed in clause
10CC and has been specifically excluded. Similarly, the
contractor would also be entitled to a recompense under claim
No.(xi) and (xii). Unfortunately the manner in which the claim
was drafted has led the learned Single Judge into an error, but
what is relevant in law is that if the three are taken together
and what is subsumed under clause 10CC is removed, and
then the law on the subject is focused on the remainder, the
contractor would be entitled to a fair recompense on the value
of the work executed beyond contract stipulated date which
we find is again projected most erroneously by the contractor.
Somewhere the figure disclosed is `1,14,79,395/- and
somewhere it is `96,43,265/-, but we find with respect to the
final bill as ultimately worked out that the value of the work
would be `1,14,79,395/- and 7.5% thereof comes to
`8,60,954.62.
44. RFA(OS) No.55/2011 filed by DDA is dismissed
leaving the parties to bear their own costs.
45. RFA(OS) No.65/2011 is partially allowed. Suit filed
by J.S.Chaudhary is decreed, as per clarification noted in para
8 above, and our finding in para 43 above in sum of
`7,69,827.00 + `8,60,954.62 = `16,30,781.62. The decree
passed by the learned Single Judge is in sum of `13,58,924.97
and thus noting the same we further direct that J.S.Chaudhary
would be entitled to proportionate costs: proportion being in
relation to the sum enhanced.
46. We find that pursuant to order dated 06.05.2011 passed
in RFA(OS) 55/2011 DDA was directed to deposit the entire
decretal amount as a condition for stay of execution. The
amount has been deposited and has been invested in a fixed
deposit. Since RFA(OS) 55/2011 has been dismissed and cross
appeal filed by Sh.J.S.Chaudhary has been partially allowed
and sum decreed has been enhanced, we direct that the
decretal amount deposited by DDA be paid over to
Sh.J.S.Chaudhary with the interest which has accrued thereon.
We further clarify that on such sum which has been deposited
by DDA, since benefit of interest accrued thereon shall flow to
Sh.J.S.Chaudhary, DDA would not be burdened with any further
interest on the said sum i.e. interest would stop accruing to
the account of DDA on said sum from the date the same was
deposited.
(PRADEEP NANDRAJOG)
JUDGE
(S.P. GARG)
JUDGE
November 30, 2011
mm/dk
