M/S. Inca Builders vs Housing & Urban Development ...
2012 Latest Caselaw 1182 Del

         IN THE HIGH COURT OF DELHI AT NEW DELHI

                                 CS (OS) 1575A of 2001

                                           Reserved on: December 21, 2011
                                           Decision on: February 22, 2012

         M/S. INCA BUILDERS                             ..... Plaintiff
                        Through: Mr. Sanjeev Sachdeva, Senior
                                 Advocate with Mr. Preet Pal Singh
                                 and Ms. Priyam Mehta, Advocates.

                        versus

         HOUSING & URBAN DEVELOPMENT
         CORPORATION                           ..... Respondent
                      Through: Mr. Anurag Kumar, Advocate.


         CORAM: JUSTICE S. MURALIDHAR

                                    JUDGMENT

22.02.2012 IA No. 12018 of 2007 (u/Sections 30 and 33 of the Arbitration Act, 1940)

1. These are objections under Sections 30 and 33 of the Arbitration Act, 1940 ('Act') to the Award dated 28th April 1999 of the learned sole Arbitrator adjudicating the disputes between the Plaintiff/Claimant M/s. INCA Builders and the Respondent, Housing & Urban Development Corporation ('HUDCO'), arising out of the contract dated June 1982 for construction of 875 General Pool Residential Quarters at Mehrauli Badarpur Road (Sector VII), Groups 1, 2, 3 and 4, Site No. 1 at New Delhi.

Background Facts

2. Initially the above work was awarded by HUDCO to M/s. R.S. Builders. After the said firm abandoned the work, HUDCO invited fresh

tenders for the balance work. According to the Plaintiff, the reasons for M/s. R.S. Builders abandoning the work were not disclosed by HUDCO. While inviting the tenders, HUDCO divided the entire work in seven groups, each consisting of 25 blocks, and each block of five quarters.

3. The Plaintiff submitted its tender for groups 1 to 4, i.e., for 100 blocks for 500 general pool quarters. The tender was accepted by HUDCO by its letter of acceptance dated 23rd June 1982. The Plaintiff states that apart from engaging the Plaintiff for construction of these 500 quarters, HUDCO had also engaged several other agencies for various items of work connected with the said construction of the quarters. HUDCO had also undertaken to supply various items/materials required for execution of the contract to the Plaintiff. These items were cement, steel, bricks, sand of different qualities and grades, stone grit, doors and window frames, shutters, etc. HUDCO had to coordinate the work of as many as eight agencies to execute the said work.

4. The Plaintiff states that it started the work in the month of July 1982 but it realized that HUDCO was unable to undertake the works. It is alleged that the instructions and directions given by HUDCO, for which this was only the second project of such magnitude, were "misleading, out of context and wrong". Further, the Plaintiff states that the previous work already done by M/s R.S. Builders was not measured by HUDCO in the presence of the Plaintiff. According to the Plaintiff, the work was not only sub-standard but had also been damaged and rendered useless when the Plaintiff took over the site from HUDCO as the time lag between the termination of the contract in favour of M/s R.S. Builders and entrusting the said work to the Plaintiff was about one and a half years. During this period, there had been three monsoon seasons. The site being a low lying

area resulted in the quarters being flooded and damaged. There were no proper security arrangements and much of the work executed by M/s R.S. Builders had been damaged. These difficulties were to be first removed to enable the Plaintiff to carry out the remaining work. The Plaintiff claimed that notwithstanding the various obstructions and difficulties, which include failure of HUDCO to supply raw materials, the Plaintiff completed more than 85% of the work entrusted to it. The work could not be completed because HUDCO was not in a position to supply the essential materials although the Plaintiff claimed that they were ready and willing to complete the work.

5. With HUDCO not being prepared to have the disputes that arose between the parties referred for arbitration, the Plaintiff filed CS (OS) No. 1392-A of 1984 in this Court under Section 20 of the Act wherein the Court directed the Respondents to join in the reference of the disputes to arbitration.

The impugned Award

6. Pursuant to the order made by this Court, an Arbitrator was appointed. However, it appears from the impugned Award that a number of arbitrators who were appointed resigned, and ultimately by a letter dated 14/17th October 1996 the Chairman-cum-Managing Director ('CMD'), HUDCO appointed Mr. W.D. Dandage as the sole Arbitrator. In the impugned Award it is stated that Mr. Dandage entered on reference on 2nd April 1997 and the time for making and publishing the Award had been enlarged to 14th July 1999, with the consent of both the parties. The impugned Award recorded that the Plaintiff as well as HUDCO were represented and thirty-two hearings were held, the last one being on 21st April 1999.

7. The impugned Award runs into eleven pages. At the beginning of the operative portion of the impugned Award, the learned Arbitrator has at page 2 stated as under:

"After scrutinizing the contract between the parties, going through in detail, the pleadings and written submissions filed by them, after patiently listening the arguments advanced by them during the hearings, and after applying my mind, I have decided the disputes referred to me and hereby make my award."

8. Thereafter, the learned Arbitrator dealt with the preliminary objection raised by the Plaintiff that the counter claims filed by HUDCO were time barred. The learned Arbitrator referred to the written statement filed by the HUDCO on 18th September 1984 in CS (OS) 1392-A of 1984 in which ten counter claims were indicated. Consequently, the learned Arbitrator concluded that the said claims were not time barred. Further, he pointed out that by a letter dated 17th October 1996 the CMD, HUDCO had required him to decide both the claims and counter claims. Consequently, the preliminary objection of the Plaintiff to the applicability of counter claims of HUDCO was rejected.

9. The learned Arbitrator then proceeded to 'eliminate' those items of claims of the Plaintiff as set out in the statement of facts ('SOF'), which did not form part of the items of claims referred to in the suit under Section 20 of the Act (hereafter "Suit Claims'). It was observed that in the SOF in some instances more than one item forming part of the Suit Claims were dealt with together. Accordingly, the learned Arbitrator "attempted clubbing/splitting of various claims of same and/or similar nature before deciding the same." In a note to the Award those counter claims of HUDCO "which were strictly not coming under the precise scope of the counter claims as mentioned in the written statement" filed

by HUDCO in the petition under Section 20 of the Act were 'ignored' while deciding the counter claims. The learned Arbitrator then set out in a tabular form such of those Suit Claims "which were not pursued" by the Plaintiff in its SOF before the learned Arbitrator. This will be referred to in detail subsequently. As regards these items the learned Arbitrator passed a Nil Award.

10. Claims (i), (xviii) and (xxvi) and the Award in respect thereof read as under:

"(i) Amount of work done but not paid - Rs. 9,88,000/-

(xviii) Amount of extra items, and (xxvi) incorrect measurements of work - Rs. 1.00 lakh

AWARD The respondent shall pay Rs.1,23,720/- to the claimant."

11. Each of the other items of claim were rejected and a Nil Award was passed in respect thereof.

12. The counter claims and the Award in respect thereof read as under:

"Counter claim 1: Extra cost involved in completion of balance work - Rs. 1.50 lakhs

Award: The claimant shall pay Rs. 1,40,000/- to the Respondent.

Counter claim 2: Value of material not returned by the claimant - Rs. 25 lakhs.

Award: The Respondent is entitled to receive Rs. 5,40,505/- from the claimant.

Counter claim 3: Forfeiture of security deposit - Rs. 82,000/-.

Award: The Respondent is entitled to forfeit Rs. 81,963/-.

Counter Claim 4: Compensation for occupation of quarters at Rs. 30,000/- p.m. with effect from 1.7.1982 till the quarters are vacated.

Award: The claimant shall pay Rs. 1,10,000/- to the Respondent.

Counter Claim 5: For non-employment of Engineer from 1.7.1982 to 31.12.1983 - Rs. 27,000/-.

Award: The Respondent is entitled to receive Rs. 18,000/- from the claimant."

13. In respect of Counter Claims 6, 7 and 8, a Nil Award was passed. As regards Counter Claim No. 9, HUDCO was held entitled to receive simple interest @ 12% per annum for ten years on the amount of Award against Counter Claims 1 to 8 up to the date of the Award. As regards Counter Claim No. 10 seeking arbitration costs in the sum of Rs.55,000, HUDCO was awarded Rs. 45,000.

Submissions of counsel

14. Mr. Sanjeev Sachdeva, learned Senior counsel appearing for the Plaintiff submitted that although the learned Arbitrator was not obliged to pass a 'speaking award', this was not entirely a non-speaking award. While dealing with the preliminary objection, the learned Arbitrator did give reasons. However, while allowing some of the claims in part, the learned Arbitrator gave no reasons whatsoever for the conclusions or the quantum. Mr. Sachdeva pointed out that although the learned Arbitrator purported to eliminate some of the claims in the SOF on the ground that they were not part of the Suit Claims, he also did not entertain those Suit Claims which were not part of the SOF. Further, although the learned Arbitrator purported to strike off some claims on the above grounds, Claims (ix) (a) and (b) of the Suit Claims were in fact dealt with and a Nil Award passed. It is submitted that the basis of arriving at the Award of Rs. 1,23,720/- in all, as against Claims (i), (xviii) and (xxvi) was not

indicated. Even the basis or computation of the sums awarded against the counter claims was not discernible from the impugned Award. As regards interest, Mr. Sachdeva pointed out that while in respect of the Plaintiff's claim a lump sum of Rs. 36,000 was awarded without indicating the basis thereof, as regards the counter claims, HUDCO was awarded simple interest @ 12% per annum as pendente lite interest.

15. Referring to the proceedings of the arbitration hearings it is pointed out that HUDCO was referred to in some of them as the 'innocent party' thus reflecting the bias of the learned Arbitrator. The proceedings of the 29th, 30th and 31st sitting held on 8th April 1999, 10th April 1999 and 12th April 1999 were without the participation of the Plaintiff. The reasonable request of the counsel for the Plaintiff for adjournment on these dates was not acceded to thus further pointing to the biased approach of the learned Arbitrator. Mr. Sachdeva also placed reliance on the decision of the Supreme Court in Union of India v. Jain Associates (1994) 4 SCC 655 as regards the interpretation of the word 'misconduct' in Section 30 (a) of the Act.

16. Mr. Anurag Kumar, learned counsel appearing for HUDCO submitted that the objections filed by the Plaintiff were entirely without basis. The learned Arbitrator was a retired Director General of the Central Public Works Department ('CPWD') who was conversant with the law and technical aspects of the dispute. The learned Arbitrator afforded adequate opportunity to the parties. Thirty two hearings were conducted and the Award was rendered claim-wise. Relying on the decision in Raipur Development Authority v. Chokhamal Contractors (1981) 2 SCC 721 it is submitted that the Award cannot be set aside only on the ground that it does not contain reasons except where the agreement itself requires the

giving of reasons. Reliance was also placed on the decisions in M.K. Shah Engineers & Contractors v. State of Madhya Pradesh (1999) 2 SCC 594 and M/s. Sudarsan Trading Co. v. Government of Kerala AIR 1989 SC 890 to urge that when no reasons have been given in an Award it is not open to the Court to probe the mental process of the arbitrator and speculate as to what impelled the Arbitrator to arrive at the conclusions. Also, an award need not formally express the decision of the arbitrator on each matter of difference. Mr. Anurag Kumar relied on the decisions of this Court in Jagdish Chander v. Hindustan Vegetable Oils Corporation AIR 1990 Delhi 204, Indcon Projects & Equipments (P) Limited v. Dezurik (India) Limited 2010 (114) DRJ 277, Maritak Charam Sodhan Cooperative Industrial Society Limited v. Municipal Corporation of Delhi 2007 IX AD (Delhi) 775 and National India Constructor v. National Buildings Construction Corporation Limited 88 (2000) DLT

818.

Approach of the learned Arbitrator

17. In order to examine the tenability of the allegations of bias of the learned Arbitrator, the proceedings recorded by the learned Arbitrator at each arbitral hearing were perused. It does appear that the learned Arbitrator gave sufficient opportunities over thirty-two hearings to the parties to make their submissions and produce documents in support of their claims and counter claims. At the 24th sitting on 21st January 1999, the learned Arbitrator passed an order rejecting the application dated 15th December 1998 made by the Plaintiff praying that the learned Arbitrator should cease to act as such. The said order gives cogent reasons for rejecting the said application. A perusal of the proceedings of the last three sittings of the learned Arbitrator, i.e. the 29th, 30th and 31st sitting show that the Plaintiff did not participate. The decision of the learned

Arbitrator to set the Plaintiff ex parte cannot be said to be unreasonable. There is nothing to indicate that the learned Arbitrator's orders were vitiated by bias. The submission of the Plaintiff in this regard is rejected.

Validity of the impugned Award

18. As regards the substantive objection to the impugned Award it must be observed at first that it cannot be strictly construed as a 'non-speaking' Award. In the first para, while dealing with the Plaintiff's objection to the maintainability of HUDCO's counter claims, the learned Arbitrator has given reasons. He has also explained the reasons for passing the Nil Award in respect of those Suit Claims which were omitted in the SOF. The learned Arbitrator compared the SOF claims with the Suit Claims and eliminated those SOF claims that did not figure in the latter. Even here the learned Arbitrator did not follow a consistent approach. He in fact dealt with Suit Claims ix (a) and (b) (in part), x, xix (a), (c) and (d) (in part), xx, xxi and xxvii (in part). There appears to be some overlapping between the Suit Claims and those in the SOF. For instance, the learned Arbitrator appears to have again dealt with items ix (a) and (b) concerning 'non- payment for cleaning of quarters at the beginning of the work'. The impugned Award offers no explanation for the classification and categorization of the claims. For instance, Claim No. xxi for a sum of Rs. 10,98,075/- on account of works done but not paid by HUDCO, could be said to correspond to Claim No. (i) of the Suit Claims to the extent of Rs. 9,88,000/-. The claim numbers referred to in the impugned Award correspond to the Suit Claims and not the SOF claims filed before the learned Arbitrator. It appears that the learned Arbitrator disallowed some of the SOF claims only because they were not part of the Suit Claims. At the same time, he also disallowed some of the Suit Claims only because they were not part of the SOF claims. This was not the appropriate

manner of dealing with those claims. The learned Arbitrator was expected to go by the claim numbers in the SOF.

19. The impugned ward also offers no clue why certain claims were clubbed together. For instance, Claim Nos. (i), (xviii) and (xxvi) were clubbed. Claim No. (i) was in the sum of Rs. 9,88,000/- (amount of work done but not paid), Claim No. (xviii) for Rs. 1 lakh (amount of extra items) and Claim No. (xxvi) for incorrect measurements of work. The Award simply states that HUDCO would pay to the claimant, against the aforementioned three claims, a sum of Rs. 1,23,720. There ought to have been some calculation preceding the computation of the said figure. There is however no means of discerning this. The Respondent is also unable to explain the basis of arriving at this figure. While it is correct that the parties could not have insisted upon a reasoned award, and that this being an Award under the 1940 Act the Court cannot go into the mind of the learned Arbitrator to examine the reasons, the Award should after all be comprehensible. In this context, the observations of the Supreme Court in Union of India v. Jain Associates as regards the scope of the word 'misconduct' in terms of Section 30 (a) of the Act are instructive. This was a decision rendered after the decision in Raipur Development Authority v. Chokhamal Contractors. It was pointed out in the decision in Union of India v. Jain Associates as under:

"It is, therefore, clear that the word 'misconduct' in Section 30(a) does not necessarily comprehend or include misconduct of fraudulent or improper conduct or moral lapse but does comprehend and include actions on the part of the arbitrator, which on the face of the award, are opposed to all rational and reasonable principles resulting in excessive award or unjust result or the like circumstances which tend to show non- application of the mind to the material facts placed before the arbitrator or umpire. In truth it points to fact that the arbitrator or umpire had not applied his mind and not adjudicated upon the matter, although the award

professes to determine them. Such situation would amount to misconduct. In other words, if the arbitrator or umpire is found to have not applied his mind to the matters in controversy and yet, has adjudicated upon those matters in law, there can be no adjudication made on them. The arbitrator/umpire may not be guilty of any act which can possibly be construed as indicative of partiality or unfairness. Misconduct is often used, in a technical sense denoting irregularity and not guilt of any moral turpitude, that is, in the sense of non- application of the mind to the relevant aspects of the dispute in its adjudication."

20. In the present case, the total claims of the Plaintiff were in excess of Rs. 47,152,150/- and the counter claims of HUDCO were also for a substantial sum. When perused in light of the principle of 'misconduct', as explained in the decision in Union of India v. Jain Associates, the impugned Award does not inspire confidence.

21. Three claims aggregating to over Rs. 10 lakhs were disposed of with a one line Award of Rs. 1,23,720/-. Surely some calculation which indicates how this figure was arrived at needs to be indicated. Merely because the learned Arbitrator is not required to give reasons does not mean that he does not give even the computation on the basis of which he arrived at the sum of Rs. 1,23,720/-.

22. The impugned Award is no better as regards the counter claims. Against Counter Claim No. 2 for Rs. 25 lakhs the learned Arbitrator decided that HUDCO is "entitled to receive Rs. 5,40,505/- from the claimant". Counter Claim No. 3 was for Rs. 82,000/- for forfeiture of security deposit. The learned Arbitrator decided that HUDCO is entitled to forfeit Rs. 81,963/-. How these precise figures have been arrived at is a mystery. The said figures cannot be deduced even from any of the documents on record. Both parties appear to have filed numerous

documents in support of their claims and counter claims. Yet there is no indication that the learned Arbitrator applied his mind to any of them.

23. In deciding the claim for interest under Claim No. (xxv), the learned Arbitrator held: "the claimant shall get Rs. 36,000/- only, from the Respondent". How the learned Arbitrator arrived at the figure of Rs. 36,000/- is not indicated. In relation to HUDCO's counter claim for interest, however, 12% simple interest per annum was awarded. Why a different approach was adopted for deciding HUDCO's claim for interest is not indicated.

24. For the above reasons, it is held that the impugned Award does not meet the requirements of law. It is accordingly set aside.

Consequential directions

25. This Court is conscious that the dispute between the parties has been pending for a number of years. Also it is not clear whether the same learned Arbitrator would be able to take up the matter on remand. Nevertheless, in the first place the learned Arbitrator should be asked whether he would be willing to take up the matter once again.

26. Consequently, it is directed that within ten days from today, learned counsel for the parties will contact Mr. Dandage, the learned Arbitrator, both in writing as well as by phone, and ascertain his willingness to take up the arbitration proceedings on remand. If he is willing then they will inform the Registry immediately so that the entire arbitral record along with a certified copy of this order can be sent to him by an approved courier with the costs being shared by both parties. Mr. Dandage will, soon after receiving the record, fix a date of hearing. He is requested to

complete the entire arbitration proceedings in accordance with law and pass a fresh Award within a period of six months thereafter. The parties will cooperate with Mr. Dandage and not seek unnecessary adjournments. Mr. Dandage will indicate to the parties his terms and conditions as to fees and expenses.

27. In the event that Mr. Dandage expresses his unwillingness or does not respond within four weeks of his being contacted or if for some reason is unable to be contacted for more than four weeks after this order, then the Registry will, upon being so informed by the learned counsel for the parties, send the entire records along with a certified copy of this order to the Delhi High Court Arbitration Centre ('DHCAC'). The DHCAC will send notices to counsel for the parties along with the names of arbitrators, preferably retired senior personnel, well versed in issues concerning engineering and building construction, of the CPWD and other similar bodies, to enable the parties to choose one person from the panel through consensus to act as the sole arbitrator. If no consensus can be arrived at between the parties as regards the name of the arbitrator then the DHCAC will proceed in accordance with its Rules to appoint one among the panel as sole Arbitrator. This exercise be completed by the DHCAC within four weeks of the receipt of the arbitral records.

28. Thereafter the Arbitrator so appointed will proceed on the basis of the existing record which contains the pleadings and evidence. The arbitration will take place under the aegis of the DHCAC and in accordance with its Rules. The fees of the learned Arbitrator will be in terms of the Delhi High Court Arbitration Centre (Arbitrators' Fees) Rules. The learned Arbitrator will pass a fresh Award within six months of the commencement of hearings. The parties shall cooperate with the learned

Arbitrator and not seek unnecessary adjournments.

29. The application and the suit are disposed of in the above terms. A copy of this order be sent to Mr. Dandage at his present address which will be conveyed to the Registry within one week by learned counsel for the parties, as well as to the Secretary, DHCAC.

S. MURALIDHAR, J FEBRUARY 22, 2012 rk