Dda vs M/S.Jagat Ram Trehan & Sons
2012 Latest Caselaw 435 Del

$~
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                              Date of Decision : January 23, 2012

+                              FAO(OS) 137/2006

       DDA                                          ..... Appellant
              Through:         Mr.Ajay Verma, Advocate and
                               Mr.Mukesh Kumar, Advocate.

                                     versus


       M/S.JAGAT RAM TREHAN & SONS        ....Respondents
            Through: Mr.Harish Malhotra, Senior Advocate
                     with Mr.R.K.Mosi, Advocate.


                               FAO(OS) 463/2006

       DDA                                          ..... Appellant
              Through:         Ms.Geeta Mehrotra, Advocate

                                     versus


       M/S.JAGAT RAM TREHAN & SONS        ....Respondents
            Through: Mr.Harish Malhotra, Senior Advocate
                     with Mr.R.K.Mosi, Advocate.

         CORAM:
         HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
         HON'BLE MS. JUSTICE PRATIBHA RANI

PRADEEP NANDRAJOG, J. (Oral)

1. Since a common question arises for consideration, above captioned appeals are being disposed of by a common order.

2. Pertaining to FAO(OS) No.137/2006 the relevant facts are that DDA awarded the work of constructing 400 SFS

Flats to the respondent at Rohini and admittedly there was a delay of 19 months in executing the works, which delay has been held by the learned Arbitrator to be attributable to DDA.

3. The contractor sought disputes to be referred to an Arbitrator and with respect to the award, when challenged by DDA, the contractor made a concession before the learned Single Judge which is recorded in the impugned order dated December 01, 2005.

4. The only dispute which survives pertains to the sum of `12,11,622/- awarded to the contractor by way of damages due to contract being prolonged. It may be noted that another sum of `10,12,721/- awarded to the contractor on account of increase in the price of raw material consumed has been set aside by the learned Single Judge on a concession made by the contractor for the reason, vide clause 10CC of the contract, a formula was prescribed as per which the contractor had to be recompensed for increase in price of material and applying the said formula DDA had paid the requisite escalation to the contractor. The sum of `12,11,622/- has been awarded to the contractor under Claim No.30 for the delay caused and as pleaded, the contractor had claimed recompense for overhead charges during prolonged period as per accepted principles contained in Hudson‟s Book on Building Contracts.

5. Highlighting that the value of the contract was `2,25,00,000/- (Rupees Two crore and twenty five lakhs) approximately, we highlight that the sum awarded for 19 months delay is about 5% of the value of the contract.

6. Learned counsel for DDA urges that having denied awarding `17,76,531/- for idle plant and machinery, nothing

was payable under the head of claim for said reason alone and secondly that condition No.1 of the Special Conditions of the Contract clearly stated that for delay in handing site the contractor would not be entitled to any recompense and also for construction delays.

7. In a recent decision pronounced on November 30, 2011, RFA (OS) 55/2011 „DDA vs. J.S.Chaudhary‟, discussing damages payable with reference to Hudson‟s formula, a Division Bench of this Court had opined as under:-

"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."

8. It is thus apparent that under the head of claim pertaining to delayed completion of work, damages can be claimed under the four heads, as identified in para 38 of the afore-noted decision and thus we hold on the strength of the ratio of law declared therein, that if claim for increase in prime cost pertaining to plant i.e. idle machinery, tools and plant at site is negated, it would not mean that for said reason alone, claim under the other three heads has to be negated.

9. In the instant case, in the absence of satisfactory evidence of the tools, plant and machinery stationed at site, claim under said sub-head has been denied. It has not been denied on account of the learned Arbitrator finding that the delay is not attributable to DDA. On the contrary, delay has been found attributable to DDA.

10. With respect to condition No.1 relied upon by DDA, we prefer to note the same. It reads as under:-

"The Contractor shall get acquainted with the proposed site of work and study specifications and conditions carefully before tendering. If, part of the site is not available or there is some unavoidable delay in the supply of stipulated materials the programme of construction shall be modified accordingly and the contractor shall have no claim for any compensation on that account."

11. The learned Arbitrator has held delay attributable to DDA on various counts, only one of which is delay in giving possession of the complete site. On other counts delay has been held to the count of DDA for not taking timely decisions with respect to the drawings, earthwork, cable routes and supply of such materials which DDA had to supply. The clause in question relieves DDA from liability pertaining to delay in handing over full site and for delay in supply of materials provided the programme of construction is suitably modified accordingly. There is no evidence that notwithstanding DDA supplying material late, it modified the programme of construction suitably. Thus, pertaining to DDA in supplying material, DDA cannot predicate a defence with reference to Condition No.1.

12. Having perused the correspondence, we find that the delay in commencement of the work pertaining to a clean site i.e. a site in a workable condition not being made available, delay was of about three months. This would not impact the application of the Hudson‟s formula on which recompense has been awarded. We note that as per Hudson‟s formula a maximum of 15% of the contract price becomes payable under the four heads (listed in para 38 of the decision in RFA(OS) No.55/2011) and in the instant case out of a claim of `40,00,000/-, `12,11,622/- has been awarded which is about 5% of the contract value, we dismiss FAO(OS) No.137/2006 and while simultaneously so doing would direct that the amount deposited by the appellant pursuant to the ex-parte order dated March 20, 2006 which has been invested in a fixed deposit in terms of the order dated December 17, 2007 be

paid to the respondent together with interest which has accrued thereon by endorsing the FDR in the name of the respondent and needful be done within a week from today.

13. Pertaining to FAO(OS) No.463/2006, the only issue argued by learned counsel for DDA is that the learned Arbitrator was not justified in awarding `32,56,400/- under Claim No.25 for the delay in execution of the work.

14. Claim No.25 in sum of `46,00,000/- (Rupees Forty Six lakhs) was for damage and loss due to prolongation of the work including increase in cost of raw material.

15. We highlight that pertaining to the contract which is the subject matter of FAO(OS) No.463/2006, clause 10CC or a clause akin thereto is not a part of the contract and thus we concur with the view taken by the learned Single Judge that pertaining to said award, the contractor was entitled to increase in price of raw material, a position conceded to by learned counsel for DDA.

16. The award would show that as in the earlier case the learned Arbitrator has denied to award any sum on account of machinery, tools and plant at site on account of no satisfactory evidence and the argument of learned counsel for DDA to question the remainder is the same as is advanced in the earlier appeal; and for our reasons rejecting the stand of DDA in the earlier appeal, we reject the same even in the instant appeal.

17. Noting that in FAO(OS) No.463/2006 no order was passed directing DDA to deposit any money and hence none has been deposited, we leave the respondent to execute the award as modified by the learned Single Judge.

18. Expressly recording that no other contention has been advanced, both appeals are dismissed and we leave the parties to bear their own costs in the appeal.

(PRADEEP NANDRAJOG) JUDGE

(PRATIBHA RANI) JUDGE JANUARY 23, 2012 dk