Punjab National Bank vs M/S Bijlee Construction
2012 Latest Caselaw 2331 Del

       IN THE HIGH COURT OF DELHI AT NEW DELHI

                            O.M.P. 75/2006

                                          Reserved on: 22nd March 2012
                                          Decision on: 11th April 2012

       PUNJAB NATIONAL BANK                            ..... Petitioner
                    Through: Mr. A.P.S. Ahluwalia, Senior Advocate
                            with Mr. S.S. Ahluwalia, Advocate.

                                 Versus

       M/S BIJLEE CONSTRUCTION                   ..... Respondent
                     Through: Mr. Joy Basu and
                              Mr. Sanjoy Bhaumik, Advocates.

       CORAM: JUSTICE S. MURALIDHAR

                                JUDGMENT

11.04.2012

1. The Punjab National Bank ('PNB'), by this petition under Section 34 of

the Arbitration and Conciliation Act 1996 ('Act'), challenges an Award

dated 28th November 2005 passed by the sole Arbitration in the disputes

between PNB and the Respondent M/s Bijlee Construction arising out of the

award of the electrical work for the construction of RTC Building at Gomti

Nagar, Lucknow (U.P.) by PNB in favour of the Respondent by a letter

dated 10th February 1997.

2. Pursuant to the award of the above work, a formal contract was entered

into between the parties on 3rd March 1997. The sole Arbitrator, to whom the

disputes were referred for arbitration, passed the impugned Award dated 28th

November 2005 allowing the Respondent's Claim Nos.1, 2, 4, 5, 8 and

partly allowing Claim No.17 relating to interest. The learned Arbitrator

granted the Respondent simple interest at 12% per annum on the amounts

awarded under Claim Nos.1, 5 & 8 from 1st January 2003 up to the date of

the Award and post-award simple interest at 12% per annum from the date

of the Award till the date of payment.

3. This Court has heard the submissions of Mr. A.P.S. Ahluwalia, learned

Senior counsel for the Petitioner PNB, and Mr. Joy Basu, learned counsel for

the Respondent.

4. The work was awarded to the Respondent by PNB's letter dated 10th

February 1997 for the tendered amount of Rs.91,92,853.31. The scheduled

date of start of the work was 24th February 1997 and the scheduled date of

completion was 23rd May 1998. The actual date of completion was extended

till 16th July 2001. Extension of time was granted by the PNB for the

completion of the work up to 21st April 2001 without levy of compensation

and up to 16th July 2001 with Rs.50,000/- as token Liquidated Damages

('LD').

5. Claim No.1 was for a sum of Rs.3,21,324/- being the amount due on

account of recovering for the work of conduit pipes laid by civil contractor

M/s M.G. Contractors, but illegally recovered from the Respondent. The

case of the Respondent was that prior to the award of the electrical work,

certain laying of conduit work was got executed by PNB through a civil

contractor, M/s M.G. Contractors. When the Respondent reached the site, it

found the said conduit work was improper. Despite several requests, PNB

did not furnish the Respondent with the drawings showing the laying of the

conduit pipes. Consequently, the Respondent had to chip and cut plaster at

various places to clear the choked conduits and also to replace the damaged

conduits. According to the Respondent, the route taken by the erstwhile civil

contractor for laying the conduit pipes was longer. The details of the work

done by the Respondent on the laying of the conduit pipes, was forwarded to

the PNB even during the currency of the work. It was included in the final

bill dated 22nd/24th December 2001.

6. The learned Arbitrator relied upon the evidence produced by the

Respondent in the form of correspondence as well as the affidavit of Shri.

Raj Kumar, who was not cross-examined by the counsel for PNB. The

Arbitrator further found that neither the Respondent nor the PNB was aware

of the poor quality of the work done by the previous contractor. Both of

them were under a mistake of fact regarding the quality of work involved in

the laying of conduit pipes by the previous contractor M/s M.G. Contractors.

Consequently although PNB had made payment to the earlier civil

contractor, the Respondent had a genuine case and therefore was entitled to

seek reimbursement of the amount wrongly recovered from its bills by the

PNB. The learned Arbitrator awarded the Respondent a sum of

Rs.2,75,000/- in respect of the Claim No.1.

7. Referring to Clause Nos. 2.3 and 2.4 of the contract, it was submitted on

behalf of PNB that the responsibility of getting acquainted of the site was

that of the Respondent. No charges or claims based upon any lack of

information, knowledge or understanding on the part of the Respondent

would be entertained or payable by the PNB. Under Clause 2.4, it was open

to the Respondent to seek clarification from the PNB. However, it did not do

so. It is submitted that the finding of the learned Arbitrator that both PNB

and the Respondent were under a mistake of fact was not based on any

evidence and contrary to the terms of the agreement.

8. On behalf of the Respondent, it is submitted that the work executed by

the earlier civil contractor was not visible to the naked eye during the

inspection of site by the Respondent. The removal of the defective work and

replacement of damaged conduit pipes by the Respondent was beyond the

scope of the original work and was not included in the specification or the

original drawing. Clause 5.31 which deals with the variation and deviation

of work was referred to. Reference was also made to the correspondence

between the parties which showed that the Respondent had sought

permission of the PNB before proceeding with the extra work.

9. The learned Arbitrator has, in discussing the above claim, referred to the

correspondence between the parties. He has also referred to Section 70 of the

Contract Act, 1872.

10. The correspondence between the parties, in particular the letter dated

14th March 1998 (Ex. C-17), the letter dated 25th April 1998 (Ex. C-28), the

letter dated 10th March 1998 (Ex. R-11), the letter dated 18th April 1998 (Ex.

R-16) and the letter dated 5th November 1997 (Ex. R-4) do indicate that the

work undertaken by the Respondent of the conduit pipes, that had been

improperly done by the earlier contractor, was with the knowledge of PNB.

There is merit in the contention of the Respondent, based on the decisions in

State of U.P. v. Chandra Gupta & Co. AIR 1977 Allahabad 28 and Sports

Development Authority of Tamil Nadu v. Tarapore & Co. (2007) 1 R.A.J.

51 (Mad), that since the work done by the Respondent was to the benefit of

PNB, the Respondent was required to be compensated under Section 70 of

the Contract Act. The view taken by the learned Arbitrator was a plausible

one based on the relevant clauses of the contract and the evidence in the

form of correspondence between the parties. The Respondent also filed an

affidavit by way of evidence but the deponent was not cross-examined by

the PNB in the arbitral proceedings. The Court is unable to find any

illegality in the learned Arbitrator awarding Rs.2,75,000/- in favour of the

Respondent under Claim No.1.

11. Claim No.2 was for a sum of Rs.20,49,433/- towards loss of

turnover/loss of profitability. Claim No.4 was for a sum of Rs.14 lakhs

towards loss and damages on account of non-utilization/partial utilization of

men.

12. The above claims of the Respondent were premised on the difficulty

faced by it in the execution of the electrical work which resulted in delays

that were not attributable to it. It is submitted that Clauses 5.12, 5.13.2 and

5.38 of the contract dealt with the extension of time with LD. This is in no

way prevented the Respondent from claiming loss and damages. Reference

was made to Sections 55 and 73 of the Contract Act and the decision of the

Supreme Court in General Manager, Northern Railways v. Sarvesh

Chopra (2002) 1 Arb. LR 506 (SC). Reliance was also placed on the

decisions in Wee Aar Constructive Builders v. Delhi Development

Authority (2001) 2 Arb. LR 71 (Delhi) and DDA v. Narain Das R. Israni

(2008) 1 Arb. LR 58 (Delhi) (DB).

13. The learned Arbitrator held that the delay up to 21st April 2001 was

attributable to the PNB. Even in its counter statement, PNB admitted the

delay upto this period was not attributable to the Respondent. As far as the

quantum was concerned, reference was made to the Certificate of Chartered

Accountant, produced by the Respondent, which depicted the gross profit for

the financial years 1991-92, 2000-2001. Applying the Hudson Formula, the

learned Arbitrator awarded profit and overhead at 15%.

14. It was argued on behalf of the PNB that there is no justification for this

claim particularly since escalation had already been awarded. It was

submitted that once the Respondent had accepted the extension with LD

unconditionally, it was estopped in law from claiming further damages. It

was further submitted that under Clause 5.38, no claim of idle labour was to

be entertained by the PNB under any circumstances. Under Clause 5.12 the

tendered rates were inclusive of everything and nothing extra was to be

allowed for incidental or contingent work, labour and/or materials. It is also

pointed out that by the letters dated 13th October 1998, 8th May 1999 and 15th

March 2001, it was made clear to the Respondent that extension of time was

being granted only subject to price variation adjustment ('PVA') and no

claim for damages would be entertained. This was accepted by the

Respondent without protest and therefore it should be deemed to have

waived any right to claim damages. Moreover, the Respondent failed to file

documentary evidence as proof of the alleged loss suffered. It was

accordingly submitted that the decision in this respect of the learned

Arbitrator was not only contrary to the provisions of the contract but also

beyond the scope of the submissions and materials placed on record.

15. The above submissions have been considered. There is a distinction to

be drawn between the loss of profit which can be claimed by the contractor

and the right to claim escalation on account of price variation. The Hudson

formula has been applied by the Supreme Court for awarding damages

resulting from delays not attributable to the contractor. In para 15 of the

decision in General Manager, Northern Railways v. Sarvesh Chopra the

rationale was explained as under:

"15. In our country question of delay in performance of contract is governed by Section 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in prices of material and labour, it may frustrate the contract and then the innocent party need not perform the contract. So also, if time is of the essence of the contract, failure of the employer to perform a mutual obligation would enable the contractor to avoid the contract as the contract becomes voidable at his option. Where time is "of the essence" of an obligation, Chitty on Contracts (Twenty-Eighth edition, 1999, at p. 1106, para 222-015) states "a failure to perform by the stipulated time will entitle the innocent party to (a) terminate performance of the contract and thereby put an end to all the primary obligations of both parties remaining unperformed; and (b) claim damages from the contract-breaker on the basis that he has committed a fundamental breach of the contract ("a breach going to the root of the contract") depriving the innocent party of the benefit of the contract ("damages for loss of the whole transaction")". If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, the innocent party, i.e. the contractor, cannot claim compensation for any loss occasioned by the non-performance of the reciprocal promise by the employer at the time agreed,

"unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so". Thus, it appears that under the Indian law, in spite of there being a contract between the parties whereunder the contractor has undertaken nor to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so under Section 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms."

16. The decision of the Division Bench of this Court in DDA v. Narain Das

R. Israni is also to the same effect.

17. The Award of the learned Arbitrator is based purely on appreciation of

the evidence on record. Applying the Hudson formula, the learned Arbitrator

awarded only a part of the claim made which worked out to around 12.4% of

the profit. This was a matter within the discretion of the learned Arbitrator.

PNB has been unable to point out, if any, of the delay in the execution of the

work was at all attributable to the Respondent. The clauses of the contract

cannot possibly foreclose a claim by the contractor for damages as a result of

delay not attributable to the contractor. This was further explained by this

Court in its order dated 2nd February 2009 in FAO (OS) No. 143 of 2006

titled DDA v. P.C. Sharma & Co. The view taken by the learned Arbitrator

was a plausible one. The computation of the damages was also based on the

audited accounts of the Respondent and cannot be said to be arbitrary. The

Award in regard to Claim Nos. 2 & 4 is, therefore, upheld.

18. Claim No.5 was for a sum of Rs.53,000/- on account of charges paid to

the civil contractor towards electricity and water consumption for the

extended period of the contract. Again, reliance was placed by the PNB on

Clause 5.12 to contend that no such claim was entertainable. The extension

of time was granted by PNB and the delay could not be attributed to the

Respondent. Further, the Respondent was able to produce evidence to prove

the payment of the extra charges for water and electricity. In the

circumstances, this claim was justified and, therefore, rightly allowed by the

learned Arbitrator. The Award in respect of Claim No.5 is, therefore, upheld.

19. Claim No.8 was for a sum of Rs.87,238/- towards insurance charges

during the extended period. Again, PNB relied on Clauses 5.12, 5.25 and

5.26 of the contract to contend that the tender rates were to be inclusive of

everything necessary to complete the work and no extra was admissible.

20. As regards the above claim, once it was held by the learned Arbitrator

that the delay up to 21st April 2001 was attributable to PNB, then the

corresponding increase in the insurance charges for the extended period had

to necessarily be borne by the PNB. There is no illegality in the learned

Arbitrator allowing Claim No.8 to the extent of Rs.36,703/-.

21. The award of simple interest, under Claim No.17, at 12% per annum,

cannot be said to be excessive or arbitrary.

22. For the aforementioned reasons, this Court finds no grounds having

been made out by the Petitioner under Section 34 of the Act for interference

with the impugned Award. The objections of the Petitioner PNB are hereby

rejected. The petition is dismissed with costs of Rs.10,000/- which will be

paid by the Petitioner PNB to the Respondent within a period of four weeks

from today.

S. MURALIDHAR, J.

APRIL 11, 2012 bs