Delhi High Court
M/S. Jyoti Sarup Mittal vs M/S. Abhiyan Cooperative Group ... on 4 July, 2012
Author: Anil Kumar
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 04.07.2012
+ OMP No.46/2001
M/s. Jyoti Sarup Mittal ... Petitioner
versus
M/s. Abhiyan Cooperative Group ... Respondents
Housing Society Ltd. & Anr.
Advocates who appeared in this case:
For the Petitioner : Mr. Harish Malhotra Sr. Advocate with Mr.Rajender
Aggarwal, Advocate
For Respondents : Mr.Bishwajit Bhattacharya, Sr.Advocate with
Mr.Chandrachur Bhattacharya, Advocate
CORAM:
HON'BLE MR. JUSTICE ANIL KUMAR
ANIL KUMAR, J.
1. This order will dispose of the objections filed by the petitioner
M/s.Jyoti Sarup Mittal under Section 34 read with Section 16 of the
Arbitration & Conciliation Act, 1996 to the award dated 3rd January,
2001 made and published by Sh.S.C.Kapoor, the arbitrator, respondent
No.2.
2. Relevant facts for the adjudication of the objections are that the
petitioner is a registered partnership, registered with the CPWD as
Class-I Contractors and also registered with the Registrar of Firms vide
Registration No. 579/93. Respondent No.1 is a Society that had
awarded the work of construction of Group Housing project on plot
No.15, Sector 12, Dwarka, Phase-I, Delhi on 19th March, 1996 for an
amount of Rs.5,70,26,721/- pursuant to an agreement dated 28th June,
1996 entered between the petitioner and respondent No.1.
3. The agreement entered between the parties contemplated that the
work of the construction of Group Housing will be completed by the
contractor/ petitioner within 24 months commencing from 19th March,
1996. The letter dated 19th March, 1996 awarding the construction of
Group Housing also contemplated that the estimated value of the
contract will be subject to the measurement of actual work done and
shall be subject to the conditions of the said contract. As per the terms
of the agreement dated 19th March, 1996 it was also agreed that in
addition to the tendered documents, the following letters/documents
and clarification would also form a part of the agreement which are as
under:-
(i) Your quoted rates for alternative items in respective
scheduled for quantities and those submitted vide letter
No.JSM/12/95/60P/5093 dated 18.12.1995.
(ii) Architects letter No.AAPL/95/ NIL dated 12.12.1995
alongwith tender documents and tender drawings.
(iii) Your letter No.JSM/12/95/60P/5093 dated
18.12.1995.
(iv) Your amended commercial and technical conditions
contained in letter No.JSM/12/95/60P/5120 dated
28.12.1995.
(v) Your letter No.JSM/01/96/60T/46 dated 22.01.1996
offering 1% additional rebate after negotiations and last
letter No.JSM/01/96/60T/51 dated 23.01.1996 offering a
special 0.25% rebate.
(vi) This office letter No.JSM/96/001 dated 19.3.1996.
(i) The Contractor shall furnish within a period of 15
days from the date of issue of this letter a bank guarantee
bond on a Nationalised Bank for a sum of Rs.5.0 Lacs
(Rupees Five Lacs) only as performance guarantee as per
proforma Annexure.
(ii) The validity of the bank guarantee should cover the
entire contract period plus twelve months for defects
liability period.
(iii) The retention money shall be deducted @ 5% of gross
value of work done from each bill subject to maximum of
Rupees Ten Lacs only.
(iv) Escalation and Variation shall be paid as per tender.
(v) You shall arrange insurance cover at your expenses
within a period of one month from the date of issue of this
letter as per clause 3.7 of the tender documents."
4. The petitioner was required to submit a detailed work programme
within a fortnight showing weekly, fortnightly and monthly programme.
The letter categorically stipulated that the time will be the essence of
the contract. The parties also agreed that for compensation for delay
(liquidated damages) referred under Clause 8.2 at page 51 of the
contract at serial No.k of the appendix would form part of the contract.
Clause 8.2 of the agreement is as under:-
8.2 Compensation for Delay/Liquidated Damages
8.2.1 The time allowed for carrying out the work is entered
in the contract shall be strictly observed by the Contractor
and shall be deemed to be the essence of the contract. The
work shall throughout the stipulated period of the contract
be proceeded with all due diligence. The Architect shall
monitor the progress of the work as per Bar Chart/CPM
Chart. The contractor is bound to complete in terms of
value of work actually executing not less than 1/8th of the
total value of work before 1/4th of total time allowed for
completion of the entire work, not less than 3/8th of total
value of work before ½ of the total time allowed for
completion of the entire work, not less than 3/4th of total
value of work before 3/4th of the total time allowed for
completion of the entire work.
8.2.2 For failure on the part of the Contractor to ensure
adequate progress of the work during its execution as
stipulated herein and above and/or to complete the entire
work within the stipulated period notwithstanding any
other remedies available to the employer under this
contract, the contractor shall be liable to pay to the
Employer as compensation for delay, an amount equal to ½
% (half percent) of the contract value or (such amount as
the Architect may decide) for every week or part thereof of
the delay in completion of the proportionate work as
stipulated hereinabove in the completion of the entire work,
subject to a maximum of 5.0% (five percent) of the contract
value. The non-levy of the compensation of any particular
stage and/or on any particular occasion of failure of the
contract to adhere to the time schedule stipulated
hereinabove, shall not be a waiver. The compensation
leviable under this clause shall be recoverable at any
subsequent date and/or any subsequent failure of the
contractor.
The total compensation for delay shall further be
subject to an overall maximum of 10% of the contract
amount as awarded. In case the liquidated damages in
accordance with the above provision accurate to a
maximum amount of 10% of the contract amount the
owner shall be at liberty to rescind the contract and to get it
completed by any agency it decides to appoint. All extra
expenses incurred shall be recoverable from any money due
to the Contractor or laying to his credit with the owner."
5. The petitioner asserted that in order to complete the entire work
within the time agreed with respondent No.1, he had allegedly made all
the necessary and adequate arrangements of labor, materials,
machinery and establishment including supervisory and technical staff.
6. The petitioner further asserted that though he performed his part
of the agreement, however, right from the beginning, the progress of the
work suffered due to many breaches on the part of the respondent no.1
which included the non issuance of the Architectural and structural
drawings in time; delay in award of electrical work; non issuance of
cement and steel; non-payment of monthly bills; indecisions regarding
many items including Champ Wood etc. which led to a delay in the
completion of work which according to petitioner was finally completed
on 30th March, 2000.
7. According to the petitioner he suffered huge financial losses on
account of the delay in work which were also intimated to respondent
No.1 repeatedly. The petitioner also intimated the reasons for the delay
and financial loss by letter dated 29th April, 1998.
8. The petitioner alleged that in order to negate their liability for
delay, respondent No.1 started claiming damages and by letter dated
18th June, 1998 referred various issues to the architect. The issues
which were referred to the architect for his decision were whether
respondent No.1 has delayed the payment; whether the petitioner had
employed the engineers or not; whether refusal of extension by
respondent No.1 was right or wrong; whether labor and machinery
deployed by the petitioner were adequate; whether there was breakdown
of machinery; who had to issue steel and cement and whether the
decision regarding Champ wood was delayed by respondent No.1 or not.
9. Though under the agreement certain disputes had to be referred
to the architect, however, according to the petitioner since the architect
himself was responsible for delaying the decisions in respect of the
execution of the work, the petitioner refused to participate in
adjudication of the disputes by the architect. The petitioner alleged that
he did not participate before the architect as it was known to the
petitioner before hand as to what type and kind of decision the architect
would have given on the issues referred to him.
10. The petitioner has also alleged that the issues referred to the
architect were not under clause 9.01 of the agreement between the
parties. Clause 9.01 of the agreement between the parties is as under:-
9.01 All dispute/s and differences of any kind whatsoever
arising out of or in connection with the contract or in
carrying out of the works (whether during the progress of
the works or after their completion and whether before or
after the determination, abandonment and whether before
or after the determination abandonment or breach of the
contract shall be referred to and settled by the Architect
who shall state his decision in writing. The decision of the
Architect with any of the excepted matters shall be final
and without any appeal as stated in the separate clause.
But if either the employer or the contractor, is dissatisfied
with the decision of the Architect on any matter, question
on dispute any kind related to the contract (except any of
the excepted matters) or as to the withholding by the
Architect of any certificate to which the contract claim to be
mentioned then such matters shall be dealt with as
mentioned herein under:-
(i) It is a term of this contract that all questions and
disputes shall be referred to the sole arbitration of the
person appointed by the Employer. The arbitrator so
appointed by the Employer shall be Fellow of Indian
Institute of Architects or Fellow of Indian Institute of
Engineer and non-member of the Abhiyan Cooperative
Group Housing Society Ltd. The arbitrator had to deal with
the matters to which the contract relates. The arbitrator to
whom the matter/s is originally referred being transferred
or vacating his office or being unable to act for any reason,
the Employer at the time of such transfer, vacation of office
or inability to act, shall appoint another person to act as
arbitrator in accordance with the terms of the contract
such person shall be entitled to proceed with the reference
from the stage at which it was left by his predecessor. The
decision of the Arbitrator shall be final and binding on both
the parties.
(ii) The either party (the employer or contractor) may
within 30 days after receiving notice of such decision of the
Architect, give written notice to other party requiring such
matters in dispute be arbitrated upon. It is a term of this
contract that party invoking arbitration shall give a list of
disputes with amounts claimed in respect of each such
disputes along with the notice for appointment of arbitrator
giving reference to the rejection by the Architect.
(iii) It is also term of Contract that if the Contractor does
not make any demand for appointment of Arbitrator in
respect of any claims in writing as aforesaid within 90 days
of receiving the intimation from the Architect that the final
bill is ready for payment, the claim of the contractor shall
be deemed to have been waived and absolutely barred and
the liabilities under the contract in these claims.
(iv) The Arbitration shall be conducted in accordance
with the provision of the Indian Arbitration Act, 1940 or
any statutory modifications or re-enactment thereof and the
rules made shall apply to the arbitration proceedings under
this clause. The arbitrator may from time to time with the
consent of the parties enlarge the time for making and
publishing the award.
(v) It is also a term of this contract that the arbitrator
shall adjudicate on only such disputes as are referred to
him by appointing authority and give separate award
against each disputes and claim referred to him and in all
cases where the total amount of claims by any party
exceeds Rs.1,00,000/- the arbitrator shall give reasons for
the award.
(vi) It is also a term of this contract that if any fee is
payable to the arbitrator this shall be paid equally by both
the parties. The fee charged by the Arbitrator shall not be
more than the fee prescribed in rules of Indian Council of
Arbitration.
(vii) It is also a term of the contract that the arbitrator
shall be deemed to have entered on the reference on the
date of issues to both the parties calling them to submit
their statement of claims and counter statement of claims.
The venue of the arbitrator shall be such places as may be
fixed by the Arbitrator in his sole discretion."
11. According to the petitioner the issues which were referred to the
architect were not financial claims/disputes but were infect a ploy by
the respondent No.1 to pre-empt the claims of the petitioner. The
petitioner No.1 alleged that he, however, agreed for the adjudication of
the issues raised before the architect by some independent arbitrator.
12. The issues referred to before the architect by respondent No.1
Society were decided on 17th October, 1998. The petitioner alleged that
all the issues were decided in favour of respondent No.1 except for the
delay of two months on account of delayed decision regarding Ghana
Teakwood which was attributed to respondent no.1. The petitioner
contended that the delay in deciding about the Ghana Teakwood was
actually not 2 months but was 4 months and 5 days which was
established from architect‟s letter dated 30th April, 1998.
13. Thereafter, respondent no.1 appointed Sh.S.C.Kapoor as the sole
arbitrator and referred claims to him without informing the petitioner
about the claims. The petitioner therefore, contended that respondent
No.1 was required to give a notice to the petitioner about the claims
referred to the arbitrator, Sh.S.C.Kapoor.
14. Pursuant to the appointment of Sh.S.C.Kapoor as an arbitrator
and the respondent No.1 referring his claims on 31st August, 1999, the
arbitrator entered upon reference only on 18th September, 1999. The
petitioner alleged that he too filed his counter claims on 23rd October,
1999. To the counter claims filed by the petitioner the respondent No.1
Society filed a reply on 21st November, 1999.
15. According to the petitioner before the arbitrator he raised the
objection in terms of clause 9.01 of the agreement that the arbitrator
could not enter upon the reference without adjudication of the dispute
by an architect in terms of the said clause. The petitioner submitted
that as the disputes were not referred in the first instance to the
architect, therefore, the arbitrator had no jurisdiction to enter upon the
reference. According to the petitioner it was incumbent upon the
arbitrator to decide the question of jurisdiction in terms of Section 16 of
the Arbitration & Conciliation Act, 1996 before proceeding further with
the disputes.
16. Regarding the delay in the completion of the contract awarded to
the petitioner, it is asserted that the time was not the essence of the
contract, since after the expiry of the original period, no formal
extension was granted by respondent No.1. According to the petitioner
this had resulted in setting the time at large and, therefore, since
respondent no.1 had not decided the fresh date for completion, it is
contended that the time was not the essence of the contract. It is also
urged that on account of allowing the time to lapse because of faults on
the part of respondent No.1 and attributable to him, respondent No.1 is
not entitled to claim liquidated damages. The petitioner also alleged that
the liquidated damages as claimed by respondent No.1 were otherwise
in the nature of penal provision and thus, it could not be claimed by
respondent No.1 nor could it be granted by the Arbitrator.
17. The petitioner has further alleged that the arbitrator has given
contradictory findings as he has inferred that the time was not made
the essence of the contract after stipulated date of completion, however,
the arbitrator has still awarded liquidated damages in the nature of
penalty against the petitioner. The petitioner contended that the
arbitrator held that the respondent No.1 was responsible for delay of 1
year 10 days and that the petitioner was responsible for the delay of the
remaining period. The finding of the arbitrator regarding the delay is as
under:-
"Considering all the above facts it is clear that the contractor M/s
Jyoti Sarup Mittal have delayed the project at least for twelve
months during the period of its contract time i.e. from 19th
March, 1996 to 18th March, 1998 out of which two months
maximum may be considered which took to finalize and confirm
the alternative item of Ghana Teak wood in place of champ wood
for door, window frames. Thus the net delay of ten months in
completion of the construction of Group Housing Project for
Abhiyan Co-operative Group Housing Society Limited, works out
on the part of Contractors M/s Jyoti Sarup Mittal."
18. The petitioner has challenged the remaining delay attributed to
him by the Arbitrator, as according to him the remaining delay was also
on account of non fulfillment of other requirements by respondent no.1,
such as preparation of the bill in quadripulate, as was required under
the agreement; delay in release of payment of bills which was also
attributable to respondent No.1. The petitioner claimed that the delay in
the release of payments should also have been added for the purpose of
considering the aspect of extension without levy of compensation. The
petitioner asserted that the factum that the payments were delayed was
even admitted by the arbitrator himself and, therefore, the time lost in
releasing of the payments which was essential for the contract, should
have been considered by the arbitrator in favour of petitioner and thus
the arbitrator has conveniently ignored a very relevant issue which is an
error apparent on the face of the record.
19. The petitioner has also challenged the award on the ground that
delay was caused due to non award of electrical work. According to the
petitioner since the delay was admitted, the same ought to have been
attributed to respondent No.1 and not to the petitioner. According to the
petitioner the finding of the arbitrator in this aspect is also apparently
perverse.
20. The petitioner has further challenged the award of sum of
Rs.4,11,840/- in favour of respondent No.1 on account of the delay in
procurement of Champ wood, on account of which petitioner had to
incur extra expenditure in the use of Ghana Teakwood, against the
claim of Rs. 13, 72,800/- made by respondent No.1.
21. The petitioner has also objected to the said award on the ground
that the non availability of Champ wood was pursuant to the order of
the Supreme Court, as a consequence of which Champ wood had
disappeared from the market, since felling of timber in Assam was
completely banned. Since procurement of Champ wood also, in the facts
and circumstances was not possible. Respondent No.1 had approved
the rate of Ghana Teakwood at the rate of Rs.43,700 cubic meter. After
agreeing for the said rate respondent No.1 could not have disputed the
same. According to the petitioner this was contrary to Clause 5.13.1
and 5.13.2 of the contract which are as under:-
5.13.1 No alterations, omission or variation shall
vitiate this contract but in case the Employer/Architect
think proper at any time during the progress of the works
to make any alterations in or omission from the works or
any alteration in the kind of quality of the materials to be
used therein and shall depending upon the feasibility, give
notice thereof in writing well in advance under his hand to
the Contractor, the contractor shall alter, add to or omit
from, as the case may require, in accordance with such
notice. The value of such extra alterations, additions or
omissions shall in all cases be determined by the Architect
and in accordance with the provisions of the clause-5.13.1
thereof and the same shall be added to or deducted from
the contract amount accordingly, subject to the condition
that the contract sum will not thereby vary on the whole by
more than25%. Additions or omissions of any work or item
by the contractor without the approval of the Employer
shall not carry any weightage and shall be treated as void.
5.13.2 The Contractor shall within seven days from
date of receipt of order to carry out above work or within 7
days of having carried out the above work submit the rates
he proposes to claim for such item supported by rate
analysis and vouchers to the Architect. After scrutinizing,
the Architect shall obtain approval from the owner which
the Architect shall inform the Contractor the rates
admissible/acceptable for such item. If the Contractor
considers any assigned work outside the scope of contract
he shall immediately bring it to the notice of Architect with
financial implications thereof. He shall proceed with the
work after obtaining change order approved,. Any claim for
compensation for any cause whatsoever for which there is
no provision in the contract shall be made in writing to
Architect within two weeks of occurrence of the event due
to which compensation is claimed. Any claim not made
within the above period shall not be entertained."
22. The petitioner has also contended that no wood could have been
procured unless the sample flat was ready in terms of clause 5.3.1 at
page 77 of the contract and the sample flat was completed in all respect
only in the first week of December, 1996 and the payment of the same
was made on 7th January, 1997. However, since the approval was made
much later, and unless and until it was approved by respondent No.1,
the petitioner could not have procured the wood and, therefore, the
delay could not be attributed to the petitioner.
23. The petitioner has also objected to the award on the ground that
the architect had not determined the issues in the present matter,
therefore, the award of the arbitrator is totally against the provisions of
the contract. According to the petitioner the liquidated damages
computed by the arbitrator in terms of clause 8.2.2 are penal in nature
and such penal provisions could not be enforced and thus the arbitrator
has misconducted himself as for awarding the liquidated damages the
respondent No.1 was liable to prove the loss suffered by respondent
No.1. Since there is no evidence about any loss suffered by respondent
No.1, the amount as awarded by the arbitrator in terms of clause 8.2.2
is not sustainable and thus the award is liable to be set aside.
24. The learned counsel for the petitioner has also relied on State of
Orissa & ors v. Calcutta Company Ltd, AIR 1981 Orissa 206; Nagpur
Nagarik Shahakari Bank Ltd & Anr v. Union of India & Anr., AIR 1981
Andhra Pradesh 153; Fateh Chand v. Balkishan Dass, AIR 1963 SC
1405 and Maula Bux v. Union of India, AIR 1970 SC 1955. The
following claims were raised by respondent No.1 against which the
amounts specified in the table below had been awarded by the
arbitrator:-
Claim Claim of Respondent Amount Amount
No. No.1 claimed (in awarded (in Rs.)
Rs.)
1. Respondent No.1 13,72,000.00 4.11.840.00
claims on account of
which the respondents
had to incur extra
expenditure in use of
Ghana Teak Wood.
2. Respondent No.1 Nil Clubbed with
claims on account of claim No.4
losses suffered by the
members of the society
due to delay in
completion of flats by
petitioner(Contractor)
3. Respondent No.1 4,32,430.00 Nil
claims on account of
employment of two
engineers and C.M.C.
after 1.4.99 due to
delay in completion of
project on petitioner
(Contractor):
4. Respondent No.1 57.0 Lakhs i) 57,02,672.00
claims liquidated ii) No other
damage of date of damages.
delay.
5. Respondent No.1 Nil Nil
claims salary of two
engineers not
employed by the
petitioner (contract) as
per contract.
6. Respondent No.1 60,000.00 Nil
claims on account of
cost of facilities to be
provided to them by
the petitioner as per
contractor but were
not provided
7. Respondent No.1 79,92,34.00 Respondent
claims on account of No.1 to be paid
interest @ 18% from future interest
petitioner. on
Rs.(61,14,512.0
0-19,39,940.00)
=
Rs.41,74,572.00
@ 18% per
annum with
effect from
3.1.2001
8. Respondent No.1 Nil Nil
claims the cost of
arbitration from the
petitioners
9. Respondent No.1 Nil Nil
claims costs in
electrical works, work
of installation of lifts
by the other agencies
due to delay by the
petitioners.
10. Respondent No.1 Nil Respondent
claims enforcement of No.1 is entitled
performance to retain
guarantee. performance
Guarantee
without paying
interest.
25. The counter claims raised by the petitioner before the arbitrator
and the amounts awarded by the arbitrator to the petitioner against the
respondent no.1 are as under:-
Claim Claim of the Contractor Amount Amount
No. claimed (in awarded (in
Rs.) Rs.)
1. The petitioner‟s claim on 23,95,464.00 3,59,320.00
account of profit on the
amount incurred for
purchasing cement and
steel.
2. The petitioner‟s claim on 3,46,600.00 90,412.00
account of interest at 24%
on delayed due payments
3. The petitioner‟s claim on 34,84,647.00 6,09,508.00
account of escalation on
the cost of work executed
after the stipulated date of
completion i.e. 18.3.1998.
4. The petitioner‟s claim on 71,28,340.00 NIL
account of loss of profit.
5. The petitioner's claim on 7,54,000.00 3,77,000.00
account of extra for the
carrying out item of Grit
wash in completed
geometrical patterns.
6. The petitioner‟s claim on 2,17,257.00 1,08,700.00
account of spent to
insurance cover/policy
beyond stipulated date of
completion.
7. The petitioner‟s claim on 27,60,000.00 3,95,000.00
account of damages.
8. The petitioner‟s claim on NIL NIL
account of 24% interest
on all the due amounts
from the due date of
payment.
9. The petitioner‟s claim on 2,00,000.00 NIL
account of against the
cost of arbitrator
proceedings.
26. The pleas and contentions of the petitioner have been refuted by
Respondent No.1 by contending inter alia that clause 8.2.1 of the
contract stipulated that the architect shall monitor progress of the work
as per the CPM Chart/bar chart. Clause 8.2.2 further enjoined that on
failure on the part of the contractor to adhere to the progress, the
petitioner shall be liable to pay to the respondent No.1 compensation for
delay and the amount equal to half percent of the contract value per
week subject to a maximum of 5% of the overall contract value.
According to respondent no.1 since the petitioner refused to get the
disputes adjudicated before the Architect, the disputes were referred to
the arbitrator and the petitioner cannot object to the same. According to
respondent no.1 the arbitrator has awarded liquidated damages subject
to 10% of the overall contract value of approximately Rs. 5.7 crores and
this cannot be faulted by the petitioner as has been alleged by him.
According to the respondent no.1 there is ample evidence in respect of
the loss suffered by the respondent no.1 on account of delay in
completion of project of construction of flats by the petitioner.
27. Regarding the objection of the petitioner, that the arbitrator had
not awarded the liquidated damages but the penalty, respondent No.1
contended that the arbitrator in fact has dealt only with liquidated
damages as per Clause 8.2.2 of the contract. The fact that the arbitrator
has not awarded the penalty but the liquidated damages is also
apparent from the methodology, the procedure and the formulae used
by the arbitrator which is contemplated under Clause 8.2.2 of the
agreement stipulating award of liquidated damages. The respondent
no.1 asserted that though the petitioner had caused a delay of 61 weeks
yet as per clause 8.2.2 the liquidated damages where limited for 20
weeks only by the arbitrator. The respondent No.1 emphasized that the
use of the word „penalty‟ at one place in the award will not change the
nature of the liquidated damages awarded by the arbitrator to the
petitioner, to that of penalty.
28. The respondent No.1 also contended that the petitioner himself
has used the terms "penalty" and "liquidated damages" synonymously
and, therefore since the liquidated damages were awarded in terms of
Clause 8.2.2 which only contemplates award of liquidated damages and
not penalty, the amount awarded by the arbitrator to the respondent
no.1 will not become penalty. Reliance was also placed on behalf of
respondent no.1 on ONGC v. Saw Pipes, JT 2003(4) SC 171 to contend
that if the illegality is of a trivial nature, it cannot be held that the
award is against public policy. In the circumstances it is contended that
use of the word „penalty‟ at one place will not convert the liquidated
damages awarded to the respondent No.1 to that of penalty and thus,
the award of such liquidated damages cannot be termed as unclear,
unreasonable and such that will shock the conscience of the Court.
Respondent No.1 also contended that a part of the delay on the part of
the contractor, petitioner has been condoned by the arbitrator though
respondent No.1 had refused to extend the performance of the contract
which is also evidenced by letter dated 28th July, 1998 addressed to the
petitioner. According to respondent No.1 even if the respondent no.1
had extended the time, still it is entitled to recover liquidated damages
for delay and the arbitrator has therefore rightly awarded the liquidated
damages to the respondent No.1 in the facts and circumstances.
29. The learned counsel for the respondent No.1 has also relied on
Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405; M/s.Bharat Heavy
Electricals Ltd v. M/s.Globe Hi-Fabs Ltd, 113(2004) DLT 205; M/s.Wee
Aar Constructive Builders v. Delhi Jal Board, 112(2004) DLT 613 and
M/s.M.K.Shah Engineers and Contractors v. State of Madhya Pradesh,
AIR 1999 SC 950.
30. This Court has heard the learned counsel for the parties and has
also perused the arbitration proceedings and the award. The plea of the
petitioner that the arbitrator has committed a jurisdictional error, as he
has not decided about his jurisdiction in view of clause 9.01 of the
contract is contrary to the record. The arbitrator has considered the
objection raised by the petitioner at pages 8 & 9 of his award which is
as under:-
"SUBMISSION BY THE CLAIMANTS:
The claimants made similar submission and stated
that there should not only have been a dispute in the
course of the execution of the contract but that dispute
should have been referred to the dispute resolution
machinery stipulated in the contract in the first instance,
before the Arbitrator could be troubled with it, vide Hotel
Corporation of India v. Motwani 1990.
(i) Bombay CR 357, copy of which has already
been placed before the Arbitrator. The respondents failed to
refer the point now raised either before the Society or before
the Architects to whom a reference is specifically required
under clause 9.01. It is also important to note that
"Interpretation of drawings" and "Interpretation of
specifications" do not qualify for arbitration and it is held
that the plea of "variation" or "extra work" calls for an
interpretation of the relevant drawings or specifications, the
so-called counter claim cannot be the subject matter of
arbitration under sub-clauses (b) and (c) of clause 9.02 on
page 58-59 of the contract.
DECISION BY THE ARBITRATION:
The respondents were first to raise preliminary
objection as pointed out above. But if they were keen to
follow the condition/clause 9.01 of the contract agreement
they should have raised their objection with the Architects
to whom the claimants had referred the issues raised by
the respondents in the letter No.JSM/04/98/48/284 dated
29.4.1998. The respondents did not cooperate with the
Architects and the Claimants society in constructive
manner. Instead they doubted the impartiality of the
Architects stating that the Architect is a party to the
disputes and under the circumstances they would not
accept the appointment of Architects as arbitrator. This was
a clear violation of sub clause 9.01 of the agreement. The
claimants had written to the respondents vide their letter
dated 16.7.98 that as per clause 9.01 of the contract
agreement, the Architect should in the first instance be
asked to resolve all the disputes between the Society and
the Contractors and issue suitable decisions. The
respondents wanted the disputes to be referred to
Arbitration.
After having raised a preliminary objection on the
claims of the Claimants Society the respondents themselves
raised counter claims most of which were not raised at any
stage with the claimants society or the Architect. This gives
an impression to me that the respondents are having
double talk to create problems rather than solve them in
the interest of completion of the project or in speedy
resolution of disputes. The respondents had requested for
extension of time till 31.10.1998 and had pressed for the
appointment of a suitable arbitrator to settle their disputes
Ex.C-22.
The claimants also had not formally raised the claims
to the Architects, but informally the issues pertaining to
delay, non provision by the respondents the facilities,
appointment of regular qualified Engineers, inadequacy of
labour etc.
It was the claimants who had raised claims which
were not referred to the Architect, and the respondents
followed suit. Both the parties did not follow the procedure.
Since, the respondent expressed a view that they had
no faith in the impartiality of the Architect, I am, therefore,
of view that reference to Arbitration of all the claims
pertaining to disputes was the right action legally
particularly when both parties, claimants and respondents
allowed the hearing and written submission to be presented
before me in the face of legal objection. Moreover, all the
disputes/claims raised by the claimants and the
respondents were before the Architect who expressed his
view during hearing clearly which may not have suited the
respondents.
I, therefore, in the interest of equity and justice have
entered into these claims and counter claims in order to
resolve the disputes and give my award."
31. The petitioner has relied on Lalit Kala Akademi v. M/s.Svapan
Construction AE+, 121(2005) DLT 495, in support of his contention that
since the arbitrator did not decide about its jurisdiction in the first
instance, before deciding the claims of the petitioner and the
respondent No.1, therefore, the award is liable to be set aside. In the
case cited by the petitioner the plea of the Lalit Kala Akademi was that
there was no agreement whatsoever executed by the Akademi with
M/s.Svapan Construction and thus, clause 45 of the tender document
would not, in any way, bind Akademi and, therefore, the arbitration
proceedings would not lie in view of the passing of the takeover Act by
the Central Government. Reliance was placed on provision 3(3) of the
agreement entered by the earlier management of the Akademi which
stood automatically terminated. M/s.Svapan Construction had not
challenged the said Act or the termination. It was held that it would not
be open to the contractor to enforce only one clause that is clause 45 of
its agreement by referring to arbitration. This plea that the arbitrator
had no jurisdiction was raised at the beginning of the arbitration
proceedings, as Akademi had sent a communication to the arbitrator
objecting to the jurisdiction to enter upon reference and to hold the
arbitral proceedings. The arbitrator, however, overlooked the basic
objection which could be said to be an objection within the meaning of
Section 16 of the Arbitration & Conciliation Act, 1996. The arbitrator
failed to discharge the obligation in this regard and chose to proceed
with the matter without answering the objection raised about the
jurisdiction. In these circumstances, it was held that the arbitral
Tribunal ought to have considered and answered the same in the first
instance before proceeding to decide the claims of the contractor.
Consequently the award of the sole arbitrator was set aside. In contra
distinction in the present case the arbitrator has decided the objection
of the petitioner which has been reproduced hereinabove. The arbitrator
categorically noted that the petitioner did not cooperate with the
architects of respondent no1, the society in a constructive manner and
rather they doubted the impartiality of the architect by contending that
the architect is a party to the dispute and under the circumstances the
petitioner would not accept the appointment of the architect as
arbitrator which was in clear violation of sub clause 9.01 of the
agreement. There is no provision in the agreement for appointment of
any other Architect other than the one which was appointed by the
respondent no.1 society for resolution of disputes. Respondent no. 1
had also written a letter dated 16th July, 1998 invoking clause 9.01 of
the contract and seeking resolution between the society and the
contractor by the architect. However, the contractor/petitioner wanted
the disputes to be referred to arbitration. Not only did the petitioner not
agree to the methodology prescribed in terms of clause 9.01 for
resolution of dispute, by an architect, but the contractor/petitioner
himself raised counter claims, most of which were not raised by him at
any stage with respondent No.1 or the architect. The
petitioner/contractor had rather requested for extension of time till 31st
October, 1998 and had pressed for appointment of a suitable arbitrator
to settle their disputes which letter was specifically noted by the
arbitrator as exhibit C-22. In the circumstances, the case relied on by
the petitioner/contractor is apparently distinguishable.
32. In M.K.Shah Engineers and Contractors (supra) relied on by
respondent No.1 it was held that the plea of bar, if any, created by the
earlier part of the arbitration clause cannot be permitted to be set up by
a party which itself has been responsible for frustrating the operation
thereof. The Supreme Court had held that it will be a travesty of justice,
if the claimant is denied the right to have recourse to the remedy of
arbitration on account of default of another party. In the precedent
relied on by the respondent No.1 the reference to arbitration was
required to be preceded by a decision of the Superintending Engineer
and the procedure also contemplated a challenge to such decision
within 28 days by a party not agreeing therewith. It was held that the
steps preceding the coming into operation of the arbitration clause
though essential are capable of being waived and if one party has by its
own conduct or the conduct of its officials disabled such preceding
steps being taken, it will be deemed that the procedural pre-requisites
were waived. In the present case respondent No.1 had referred its
disputes to the architect as per Clause 9.01 of the contract, even
though the exact amounts were not quantified. However, the
petitioner/contractor had refused to participate in the resolution of
disputes raised before the architect on the ground that the architect
himself is a party for delay and therefore, he would not adjudicate the
issues raised before him fairly and impartially. The
petitioner/contractor in the circumstances being at fault cannot be
permitted to set up the bar of non performance of pre-requisite
obligation so as to exclude the applicability and operation of the
arbitration clause. The petitioner/contractor rather himself without
referring the dispute to the architect referred the disputes/counter
claims to the arbitrator and in the circumstances the petitioner cannot
be allowed to contend that the disputes in the first instance ought to
have been referred to the architect. In M/s.Bharat Heavy Electricals Ltd
(supra), another precedent relied on by the respondent No.1, the Bharat
Heavy Electricals Ltd (BHEL) had primarily attacked the award on the
ground that the arbitration proceedings initiated by Globe Hi-Fabs
(GHF) were premature and against the terms of the contract as GHF
had failed to refer their claims/dispute to the engineer and obtain his
decision in terms of clause 43(i) of GCC. The Court noticed that BHEL
rather had not designated, appointed or notified any of its engineers to
be the „Engineer‟ in terms of the relevant clause. If there was no
designated, appointed or notified `engineer', the BHEL could not insist
upon the GHF to have made a reference to the `engineer' for obtaining
his final decision in the matter, before invoking arbitration. The Court
rather observed that as per order dated 23rd August, 1996, the
appointment of the arbitrator to decide and make the award regarding
the claims/dispute raised by the GHF was made without any
reservations and the GHF was not intimated at any stage that their
request for invoking arbitration and appointment of an arbitrator was
premature as the disputes/differences sought to be referred to
arbitration, had not been referred to and decided by the „Engineer‟ as
envisaged by clause 43 of GCC. In the circumstances, the plea of BHEL
that the arbitration proceedings initiated by GHF were premature and
against the terms of the contract, because GHF had failed to refer the
claim/disputes to the „Engineer‟ and obtain its decision in terms of
clause 43(i) of GCC was repelled.
33. In the present case as well, respondent No.1/claimant had raised
the disputes before the architect in terms of Clause 9.01 of the
agreement, however, the contractor/petitioner refused to accept the
adjudication by the architect adjudication by the arbitration, on the
premise that the architect himself is a party and therefore, will be
biased. The petitioner has himself raised counter claims before the
Arbitrator without referring those disputes to the Architect. If the claim
of the respondent no.1 could not be decided by the Arbitrator without
their adjudication by the Architect, the counter claims should not have
been pressed by the Petitioner before the Arbitrator without getting
them adjudicated from the Architect. These aspects have been
categorically dealt with by the arbitrator and in the circumstances the
plea of the petitioner/contractor that the arbitrator did not decide about
its jurisdiction cannot be sustained. The learned counsel for the
respondent No.1 also relied on M/s. Wee Aar Construction Builders
(supra) by holding that where it was held that if the contractor also
submits to the jurisdiction of the arbitrator by filing the counter claim
then the principle of waiver and acquiescence shall be applicable. In the
present case also the petitioner is deemed to have waived his objection
by submitting to the jurisdiction of the Arbitrator by referring a number
of counter claims to the Arbitrator and his objection that the disputes
ought to have been decided at the first instance by the Architect cannot
be sustained in the facts and circumstances.
34. The plea of the petitioner that the arbitrator mis-conducted in
not deciding about his jurisdiction first, before dealing with the claims
of both the parties is not sustainable in the facts and circumstances
and is contrary to the record. The disputes were referred by the
respondent No.1 to the architect, however, the petitioner on its own
decided that the architect is biased and refused to participate in the
adjudication and resolution of the disputes which were referred to the
architect in the first instance, in compliance with Clause 9.01 of the
agreement. In case the petitioner had any apprehension about the
architect being biased, the remedy with the petitioner was to take
appropriate legal recourse and the petitioner could not have refused to
participate before the architect, for the adjudication of the disputes,
which were referred to the architect in compliance with the term of the
agreement between the parties. In any case since the petitioner himself
refused to participate in the adjudication of the disputes by the
architect, the petitioner cannot invoke the bar of clause 9 for
adjudication of disputes by the arbitrator. The objection of the
petitioner in this regard is, therefore, not sustainable and is repelled. It
cannot be held in the circumstances that the arbitrator had committed
misconduct, as has been alleged by the petitioner. In any case the
petitioner himself referred the counter claim to the arbitrator without
raising those claims before the architect. In the circumstances, if the
arbitrator has adjudicated the claims of the petitioner and respondent
No.1, he cannot be faulted on this account.
35. The next plea of the petitioner/contractor is that the respondent
No.1 is not entitled for liquidated damages as the damages awarded
against him are in the nature of penalty. According to the
petitioner/contractor the entire delay was attributable to the
respondent No.1 and not just the delay of one year and ten days as has
been held by the arbitrator. The petitioner has contended that against
the claim of Rs. 57 lakhs the arbitrator has awarded a sum of
Rs.57,02,672/- while taking recourse to clause 8.2.2 of the agreement.
According to the petitioner the said clause clearly shows that
compensation damages could be awarded by only the architect and not
the arbitrator. According to the petitioner since the amount has not
been awarded by the architect, therefore, award of the arbitrator is in
complete dereliction of the provisions of the contract. It is also
contended that the liquidated damages awarded by the arbitrator in
terms of clause 8.2.2 is otherwise penal in nature and thus could not be
enforced. It is further contended that if it is to be taken as a case of
liquidated damages then the respondent No.1 was required to prove
such loss, which was alleged to have been suffered by respondent No.1,
which according to the petitioner has not been established. According to
the petitioner, there is no evidence for sufferance of such loss and,
therefore, no amount could be awarded to the respondent No.1 against
the petitioner. The pleas raised by the petitioner in its written synopsis
dated 10th February, 2009 regarding the said claims are as under:-
"18. Claim No.2,3 and 4 - Respondent No.1 claimed
compensation for the loses suffered on account of delay in
completion of the project and under claim no.4 the
respondent no.1 claimed liquidated damages of Rs.57 lacs
due to delay. It is submitted that despite the fact that the
arbitrator had agreed that 1 year 10 days delay was on the
part of respondent no.1, the arbitrator has awarded a sum
of Rs.57,02,672/- as against the claim amount of Rs.57
lacs to respondent No.1 while taking recourse to clause
8.2.2 of the contract agreement. The reference to clause
8.2.2 clearly shows that compensation so provided is to be
determined by the architect and not by the arbitrator.
19. That it is submitted that it was an admitted case that
the architect in the present case has not determined any
compensation, therefore, the award of the arbitrator is
totally against the provisions of the contract. Even
otherwise, the amount mentioned in claim no.4 is on
account of liquidated damages in terms of clause 8.2.2
which is otherwise penal in nature and the penal provisions
are not liable to be enforced in law. Moreover, even if it is
taken to be a case of liquidated damages then the
respondent no.1 was bound to prove such loss having been
suffered by respondent no.1 which admittedly respondent
no.1 has deliberately failed to prove to have suffered. There
was no evidence for sufferance of said loss, therefore there
was no question of awarding any amount under this claim.
The arbitrator has acted totally mechanically simply
following the method adopted in clause 8.2.2 and without
looking into the fact that respondent no.1 has miserably
failed to prove any loss on the said amount. Moreover, since
time was not set at large by respondent no.1 alone,
therefore there was absolutely no reason to award any
amount to the petitioner under this claim."
36. The arbitrator in his award has categorically noted that clause
5.1 laid down that within the period of 24 months the project was
required to be completed i.e. from 19th March, 1996 to 18th March,
1998. Sub clause 5.14 categorically stipulates that time is the essence
of the contract within the period of completion, whereas, sub clause
5.14.2 requires the contractor to apply within 7 days for extension of
time to the respondent No.1 through the architect. It further stipulates
that if the Contractor fails to get the time extension in writing within the
time contemplated from respondent no1/architect, then clause 5.14 for
compensation for delay would automatically become operative.
37. This has not been disputed by the petitioner that he did not apply
for extension of time, even though the conclusion of the project was
delayed beyond 24 months up to 52 months, though the respondent
No.1 and the architect have contended that even after 52 months, the
work was incomplete. On behalf of respondent No.1 it had been
contended that as the contractor/petitioner had failed to get the time
extended, he became liable to pay the compensation/liquidated
damages and the relevant clause of 5.14 of the contract became
operative automatically. The respondent No.1 had also contended that
the agreement specifically provided for the continuance of the
agreement, till its completion, subject to the payment of the appropriate
compensation after the expiry of 24 months from its commencement.
38. The arbitrator had also categorically noted that the
petitioner/contractor never made any application seeking extension of
any specific period with reference to any particular circumstance/
development calling for such an extension. The arbitrator categorically
referred to the program for completion given by the
petitioner/contractor by letter dated 18th December, 1997 (Exhibit C-
112) which was revised in March, 1997 promising completion by 5th
February, 1998 (Exhibit C-107) and thereafter, despite repeated
warnings about very unsatisfactory pace at which the work was
executed, the respondent No.1 had written a letter dated 14th October,
1997 (Exhibit C-70). Though a fresh bar chart was given on 20th
October, 1997 reaffirming the completion of the project by 30th March,
1998 (Exhibit C 69) but the bar chart was very inadequate. It was also
noted that while the bar chart was given it had been pointed out that
the respondent No.1 could invoke clause 8.2.1 and 8.2.2 of the
agreement for compensation/liquidated damages. The respondent No.1
had informed the petitioner/contractor through the architect on 7th
April, 1998 (Exhibit C-52) about his dissatisfaction and which was
stated as under:-
"We must in the first place, record our dissatisfaction at
this inordinate delay which has subjected us to
considerable inconvenience, avoidable costs and mental
tension. We reserve our right to compensation and
liquidated damage for the delay and the consequent
inconvenience and losses suffered by us, in terms of clause
8.2 of a contract (page 51) we need hardly emphasize that
all additions to or escalation of costs during the period of
delay in the completion of the project shall have to be borne
by the contractors in terms of the contract."
39. The petitioner contractor had, however, attributed the delay of the
construction project to respondent No.1 on account of delay in issue of
architectural and structural drawings; non issue of stipulated materials
like cement and steel; delay in payment of running bills; delay in
approving Champ Wood substitute; delay in award of electrical works;
delay in issue of grit wash drawing and approval of samples; delay on
account of making changes in drawings and specifications in items at a
very belated stage; enlargement of scope by introducing belatedly and
un-authorizedly provision of basement in Block B; delay in arranging
additional quantity of earth to be filled under floors; change in design of
electric sub-station.
40. The arbitrator has dealt with the pleas and contentions of the
petitioner/contractor as well as the respondent No.1 and even the
representations made by the architects in this regard. Regarding delay
in issue of architectural and structural drawings the arbitrator
concluded by noting the fact that not even a single letter or any oral
representation was made by the petitioner/contractor in the regular
meetings of the building committee at site, to the effect that any
drawings had not been issued or that the work at the site had been held
up for non issue of any drawing till 20th October, 1997. The arbitrator
has noted at page 86 of the award in para 9 as under:-
"9. The following facts are noteworthy in this connection:
(i) There are not one letter from them, nor was there any
oral representation made by them in the regular meetings
of the Building Committee at site, to the effect that any
drawings had not been issued, much less to the effect that
work at the site was held up for non-issue of any drawings,
till the 20th October, 1997. On that day, a letter (Exhibit C-
69) was addressed by the respondents to the President of
the Society, enclosing a revised programme of work,
promising completion to the contract by the 31st March,
1998, subject to the conditions that the Running Account
payments were made promptly and that "pending
decisions" (which were not set out) were conveyed
immediately. The letter has the following as its last
paragraph, indicating that they had decided to add the
Architects also as yet‟s another scapegoat for their delays:
"It may not be out the way to point out designs and details
of compound wall are still awaited and the work on
development activities will be started after the receipt of
drawings." The drawings were issued in November, 1997
but the boundary wall was not completed till the end of
November, 1999."
41. Considering the various evidence and the facts in the present
matter the arbitrator, therefore, held that there was no delay in issue of
drawings and details which rendered the preparation of program and
advance planning of the work by the petitioner ineffective. It was further
held that if the petitioner/contractor suffered financial losses due to
loss of productivity and the work force employed by it is because of lack
of planning by him, then it is the petitioner/contractor who has to bear
the consequences, thereof, and the respondent No.1 and his architect
are not responsible for delay in issuing the drawings if any and,
therefore, the petitioner/contractor could not claim any extra time for
completing the work.
42. Regarding the plea of the petitioner/contractor about delay due to
non issue of cement and steel, the arbitrator/respondent No.2 inferred
that the cement and steel were never in short supply which is inferable
from the stock of cement and steel. Relying on the provision of the
agreement also it was held that respondent No.1 could not be held
responsible for any delays even if, those materials were not available
with the factory/stockiest/supplier or on account of required transport,
etc. Thus the arbitrator concluded that in view of Clause 12.1.2.5
respondent No.1 is not responsible for the delay of project due to non
supply of steel and cement and, therefore, no extra time could be
allowed to the petitioner/contractor.
43. The next plea for delay in conclusion of the project on behalf of
the petitioner/contractor was about delay in payment of bills by the
respondent No.1 society. The arbitrator considered all the pleas and
contentions of both the parties and the documents produced and
proved on the record and the terms of the agreement. The arbitrator
ultimately held that in terms of Clause 5.9.1 respondent No.1 could
withhold payment on the ground of inordinate delay in the execution of
the project, however, the society refrained from doing so. The arbitrator
has further inferred that the petitioner/contractor has not been able to
explain as to how a delay of few days in payment of any bill had
resulted in dislocation of the execution of the project. The arbitrator
noted in detail and analyzed the 20 bills presented by the
petitioner/contractor during the contractual period of 24 months up to
18th March, 1998 showing that there was no complaint in respect of 11
cheques issued by the society for an amount of Rs.1,00,89,854/-. The
complaint of the petitioner/contractor was only in respect of few out of
10 bills which fact was intimated in the letter D-46. The arbitrator also
noted that the petitioner/contractor‟s grievances are imaginary and
they were rather red herrings. The observation and findings of the
arbitrator in this regard are as under:-
"The separate bill-wise clarifications provided in the
appended notes would make it clear that the Respondents‟
grievances are imaginary-that they are really red herrings
meant to distract attention from their failure to complete
the project in 21 months as they have promised or even in
24 months as the contract required. They could do only
work which amounted in financial terms to 40 per cent of
the contractual value during the two years ended
18.3.1998."
44. The arbitrator has noted that though the contract does not
provide for payment of any interest in case of delay in payments of bill
and the question of interest liability was dropped by the petitioner
contractor in his letter to the society dated 23rd January, 1996, as the
payments were not held up for any period nor it was because the
respondent No.1 had any difficulty in payment of amounts of the bills to
the petitioner. The arbitrator also inferred that substantial payment had
already been made well before the time stipulated by the petitioner/
contractor. It was further noted that if the loss of the interest, if any,
the petitioner/contractor suffered as a result of the payment of his bills
before the expiry of 20 days by respondent No.1, the amount would far
exceed the interest which the petitioner might have earned on account
of early payment of many bills by the respondent no.1 to the petitioner.
Taking all the facts into consideration, the arbitrator had held that
delay in making payment of running account bills, therefore, could not
be ascribed to the respondent No.1. In any case the question of
payment of interest of the delayed payment has been considered by the
arbitrator under counter claim 2 of the petitioner. The petitioner
contractor had claimed an amount of Rs.3,46,600/- as interest at the
rate of 24% per annum on delayed payment and the arbitrator has
awarded an amount of Rs.90,412/- as interest which has not been
challenged by the respondent No.1. The finding of the arbitrator
regarding the plea of the petitioner contractor for delayed payment is as
under:-
"I have also examined other bills where the delay has been
claimed by the respondents. I am of the view that the
respondents should have examined their own failings or
should have controverted the reasons for delay as put
forward by the claimant society. They have not done so bill
by bill. Considering all the facts aspects put forth by the
claimant society and the Respondents, in the interest of
equity and justice I am of the view that the delay has been
on account of non compliance by the Respondents of the
requirements as laid down in the contract agreement, and
the should, therefore, not be considered as the reason for
delay in the completion of the project. The Respondents
should have exercised care and precaution in preparing the
bills and taken timely action to get the payment in time.
They are, therefore, to bear the consequences flowing out of
this. In my view, the Claimants are not responsible for the
delay in payment of R.A.Bills."
45. The petitioner contractor also claimed delay in approving Champ
Wood substitute. The arbitrator has noted that the first bar chart
submitted by the petitioner contractor indicated start of wood work in
the month of July, 1996 and completion of wood work in October, 1997
i.e. within 16 months, whereas, the ban of cutting of trees in Assam
was imposed by the Supreme Court in April, 1997 as per letter dated
29th April, 1997 of the petitioner/contractor. The petitioner had
informed the society/respondent no.1 about the non availability of the
Champ Wood and after considering all the aspects the petitioner/
contractor was intimated to substitute Champ Wood, with Ghana
Teakwood. Considering the various factors and the facts established on
record, the arbitrator held that though the petitioner contractor has not
been able to establish that he took timely action to procure Champ
Wood and construct a sample house as required by the provisions of
the contract, however, the arbitrator still took a liberal view and
concluded that the delay of four months was acceptable on behalf of the
petitioner, in view of the facts and circumstances of the present matter.
The findings of the arbitrator in this regard are as under:-
"The Respondents have not been able to
establish/substantiate that they took timely action to
procure champ wood and construct a sample house as per
provision/requirements in the contract agreement or even
as per the bar chart submitted by them to the claimants
after the agreement was signed. It is only after the Hon‟ble
Supreme Court of India issued a judgment regarding bean
on felling of champ wood in Assam that they raised the
issue of shortage/non-availability of champ wood in the
market. I agree with the views of the claimants in this
regard. The plea of the Respondents, to my mind, that they
could not procure the champ wood much in advance of
making the sample flat and the approval thereof by the
Claimants Society and Architect, is not tenable. It indicates
their reluctance to procure champ wood. They did not even
respond positively when the Claimants Society organized a
meeting with a supplier of champ wood. They only pointed
out that substitute Ghana teak wood or other
steel/Aluminum be used in frames. This naturally had
extra cost implication which the Claimants Society had to
examine. The respondents there raised the delay in the
completion of the project due to delay/late decision of wood
substitute. The total delay in the project cannot be justified
on account of this reason. Even if a more liberal view is
taken of the initial delay caused by the Respondents of 12
months as stated by the Architect, a delay of about four
months could be accepted in the completion of the project
beyond the date of completion i.e 2.4.1998, due to delay in
decision of substituting champ wood by Ghana teak wood
after the Hon‟ble Supreme Court banned felling of champ
wood in Assam.
Considering the submission made by the
Respondents and Claimants, in my view and be the interest
of equity and justice, a delay of four months only could be
assigned to this reason."
46. Regarding delay caused as has been alleged by the petitioner due
to non award of electrical works, it was held that the
petitioner/contractor has not produced any evidence and document in
support of his contention and, therefore, the petitioner was not entitled
for any delay on this ground. However, on account of coordination
problem between the petitioner/contractor and the electrical contractor
and since four months time had already been awarded to the
petitioner/contractor for wood substitution which was a parallel
activity, it was concluded that no further time could be awarded to the
petitioner in this regard, justifying delay on his part.
47. The petitioner had next claimed delay on account of the issue of
grit wash drawing and approval of samples. The arbitrator noted in
detail the facts and circumstances and submissions and counter
submissions and held that the delay of work on account of grit wash
was the responsibility of the petitioner/contractor and that the same
could not be attributed to the respondent No.1 or the architect. It was
also categorically observed that the petitioner was responsible for the
delay in the work due to slow progress of grit wask work. Thus, no extra
time was allowed to the petitioner contractor for delay on the said
ground.
48. The next claim for the delay by the petitioner contractor was on
account of making changes in the drawings and specifications of the
items at a very belated stage. Regarding this the arbitrator after detailed
consideration of the facts and circumstances, permitted three months
and 17 days delay as justifiable on the part of the petitioner/contractor.
49. The petitioner contractor has also attempted to justify delay on
account of arranging additional II quantity of earth contract provision.
After detailed analysis of the facts, it was held that there was no delay
due to the delayed decision by respondent No.1. Therefore, no delay on
this ground was held to be justifiable on the part of the petitioner.
50. The petitioner/contractor also sought justification of delay on
account of change in the design of electric sub-station. After
considering the facts in detail, the arbitrator ultimately held that the
extension of time upto 12th April, 1999 would be justifiable on behalf of
the petitioner/contractor and therefore he would not be liable for
liquidated damages as had been agreed upon between the parties for
the said period.
51. Regarding the architect‟s letter for delay, after analyzing all the
facts and circumstances in detail the arbitrator held that the
petitioner/contractor had delayed the project for 10 months after
deducting 2 months from the delay of 12 months during the period of
19th March, 1996 to 18th March, 1998. The arbitrator in this regard held
as under:-
" Considering all the above facts it is clear that the contractor
M/s Jyoti Sarup Mittal have delayed the project at least for twelve
months during the period of its contract time i.e. from 19th
March, 1996 to 18th March, 1998 out of which two months
maximum may be considered which took to finalize and confirm
the alternative item of Ghana Teak wood in place of champ wood
for door, window frames. Thus the net delay of ten months in
completion of the construction of Group Housing Project for
Abhiyan Co-operative Group Housing Society Limited, works out
on part of Contractors M/s Jyoti Sarup Mittal."
52. Taking into consideration all these factors and analyzing the
various reasons for delays the arbitrator held as under:-
" Summary of Views of Arbitrator:-Analysis of the
reasons of delays as submitted by the Respondents;
indicates that the total delay in completion of main tower
blocks should not be more than four months i.e
02.08.1998. This is due to provision of basement of in
tower „B‟. My views are different from that of the Architect.
But considering that the construction of sub-station
building is a part of this contract agreement and was got
executed by the Claimants Society and Architect after
12.02.1999 with estimated time of completion not
exceeding two months, the date of completion of the total
project including construction of sub-station could not go
beyond 12.04.1999. Having examined in detail all the
reasons for delay as enumerated by the respondents and
after careful consideration of the submissions by both the
parties and the Architect in the interest of equity and
justice to both, Claimants and Respondents, I decide that
twelve months and ten days extra time be allowed beyond
the date of completion specified in the agreement to the
Respondents. Beyond that period the Respondents are
responsible and the legal aspect of liquidated damages and
compensation would come into play for reason indicated by
me in my decision on Legal aspects."
53. The arbitrator, therefore, considered the counter claims of the
petitioner and allowed an amount of Rs.3,59,320/- on account of
purchase of cement and steel; Rs.90,412/- on account of interest on
delayed payment; Rs.6,09,508/- on account of escalation on the cost of
work executed after the stipulated date of completion that is 18th
March, 1998; an amount of Rs.3,77,000/- on account of carrying out
item of grit wash in completed geometrical patterns and Rs.1,08,700/-
as the amount spent for insurance cover/policy beyond stipulated date
of completion and finally Rs.3,95,000/- as damages, i.e a total amount
of Rs. 19,39,940. The respondent No.1 has not filed objections to the
counter claims of the petitioner allowed by the arbitrator. Regarding the
claims of respondent No.1/society the arbitrator has awarded an
amount of Rs.4,11,840/- towards the extra expenditure in use of Ghana
Teakwood in place of Champ wood. Regarding the losses suffered by the
members of the society/respondent no.1, the arbitrator awarded Rs.
57,02,672/- as liquidated damage in terms of clause 8.2.2.
54. Regarding the compensation claimed by respondent No.1, the
arbitrator noted that the members of respondent No.1 society have been
subjected to considerable inconvenience, tension and expenditure as a
result of avoidable delay in the completion of the contract works beyond
the end of March, 1998. The arbitrator also took note of the funds
locked up of the members in the incomplete housing project without
yielding any income or other benefits and also the fact that some of
them had been compelled to pay rent for their present residential
accommodation at rates which are spiraling from year to year without
being able to occupy the apartments under construction in the society
or to get any rent income from them by letting them out to tenants.
While considering the basis for liquidated damages, the arbitrator also
took into consideration the part of the principal amount borrowed by
them for investment in the project as well as interest at high rates paid
by them to their own employers or banks or LIC or Housing finance
institutions like the Delhi Cooperative Housing Finance Corporation
Ltd. and Housing Development Finance Corporation. In computing the
damages the arbitrator has taken into consideration not only the
financial loss to the members of the respondent No.1 society but also
the inconvenience and tension suffered by them.
55. The arbitrator awarded the liquidated damages in terms of clause
8.2.2 on the basis of the justification which is reproduced as follows:-
"i) The Respondents had been paid Rs.2,49,45,266.00
up to 31.3.1998 against their first twenty bills (C-175).
Interest at 18 per cent on the funds so locked up without
benefit to the members of the Society, because of the
respondents revision and breach of contract, would work
out to Rs.45,90,146.00 per year or Rs.91,80,292 for a delay
of two years. If interest is similarly calculated on the further
aggregate sum of Rs.2,20,32,141.00 paid against bills from
month to month between 1.4.1998 to 22.1.2000, the loss of
the Society upto date would be much larger.
It cannot be dispute that if the Society had kept the
amounts paid to the contractor in long-term or fixed
deposits with any Cooperative Bank it would have earned
interest substantially exceeding the ceiling fixed for the
liquidated damages in the contract during the 27 months of
delay in the completion of project. The rate of interest on
long-term deposits on banks is more than 10 per cent
annum.
ii) The members of the Society have had to pay
Rs.10,20,000.00 each, since that is the cost of a flat. Some
of them, who joined the society in the later stages of the
project have had to pay equalization charges with reference
to the subscriptions actually made by the older members
from time to time. The total cost of the project was thus
over Rs.9 crores. Even if the society, or individually the
members, had invested the funds sunk in the project in a
saving (as distinct from a long-term deposit) account in a
bank, they would have been entitled to receive altogether
Rs.36 lakhs per year or over Rs.72 lakhs during the period
of delay of two years, at the rate of 4 per cent per annum
currently paid by banks on savings accounts. (The rate
used to be 5 percent in the past.)
iii) Many of the members have had to avail of loans from
the Delhi Cooperative Housing Finance Corporation
Limited, (a State Government controlled bank) or the HDFC
Ltd or LIC or their respective employers. The DCHFC,
HDFC and LIC charge over 14 per cent interest, in effect,
though the rate of interest charged by some of the
employers may be lower. A copy of the statement of interest
payable by members to DCHFC received from that
Corporation is annexed. Since the members have been
unable to occupy the flats which are yet to be allotted and
handed over to them, their investment has turned out to be
sterile till now. If the apartments had been made over to
them before 31.3.1998, contracted, they would have used
them for the own residential purposes or let them out of
rent. It is believed that the rental value of each flat could
not conceivably even less than Rs.4000 per month or
Rs.48000 per year. The total rental value would accordingly
have worked out to Rs.43,20,000 per year. The members
aggregate loss would, on this basis, be Rs.86,40,000.00
during the period of two years delay. The loss would be
greater by way of interest payment on loans/loss of rent, if
the actual period of delay is taken into account for
purposes of calculation of the damages. It the rent
currently being paid by the members for the houses which
they are occupying is also considered, the loss to the
members would be enormous. Some of the members pay
rent ranging from Rs.5000 to Rs.7000 per month for their
rental private accommodation.
It may be pointed out, in this context, that the
respondents have been claiming interest at 24 per cent per
annum for alleged delays of a few days in the payment of
their "bills on account" by the Society for the work done by
them. The Society cannot bring itself to make such claims,
which are "beyond the dreams of avarice".
It has also been pointed out that all the office-
bearers of the society are professionals either in practice or
in service and they have spent their valuable time in
fruitless efforts to make the contractors complete the works
properly. It has been a heart - breaking job for them. If the
value of the time wasted by them in this frustrating exercise
is also taken into account in terms of fees that any outside
professional engaged in similar service would have been
entitled to, the compensation demanded by the society
would appear disproportionately low. The compensation
has to be based not merely on the losses incurred in any
manner directly or indirectly by the members of the Society
either individually or collectively but also on the calls on
their time and energies made by the impugned delay on the
part of the respondents. A cooperative society is just a
bundle or association of members and when liquidated
damages are worked out the individual losses/"losses of
income or profits of the members will necessarily be as
much a component in the calculation of the damages as the
direct losses of the society as a legal entity. Otherwise
contractors will get away with flagrant breaches of contract,
particularly in projects for construction of residential
houses at the cost and to the detriment of the public."
56. This being the basis for the arbitrator‟s award of liquidated
damages, even though inadvertently he termed the same as penalty at
one place, on the basis of 0.5% of the contract amount per week, the
delay from 12th April, 1999 to 14th June, 2000 i.e. for 61 weeks was
taken into consideration. For 61 weeks the liquidated damages at the
rate of 0.5% of the contract amount was further restricted in view of the
stipulation of maximum of 10% of the liquidated damages and,
therefore, the amount of Rs.57,02,672/- was awarded to respondent
No.1.
57. In the State of Orissa & Ors v. Calcutta company Ltd. (supra),
relied on by the petitioner, it was held that the use of the term penalty
or liquidated damages by itself is not decisive, as even what is described
as liquidated damages could turn out to be penalty on the facts of a
given case. It was held by the Division Bench of the Orissa High Court
that essence of a penalty was payment of money stipulated as in
terrorem while the essence of liquidated damages is genuine covenanted
pre-estimate of damages. Liquidated damages must be the result of a
genuine pre-estimate of damages and they do not include a sum fixed in
terrorem. In the said case, there was no evidence at all that any
damages had been caused, as the Calcutta Company had made certain
supplies and it had demanded for specifying the space for stacking. The
correspondence had shown that the departmental officer had taken
steps to demarcate the site. According to the Calcutta Company, the
material could not be supplied because of lack of stacking, however, the
State of Orissa forfeited the security furnished by the Calcutta
Company and penalty was also levied against the Company on account
of plea of breach of contract. A suit was filed by the Calcutta Company
for quashing the order of penalty and forfeiture of security amount by
the State of Orissa. The case was defended by the State of Orissa and
other defendants contending that penalty and forfeiture were in
accordance with the terms of the contract and they also established
their obligation to provide the road. The trial court decreed the suit
which was challenged in appeal. The appeal was dismissed by a Single
Judge against which a Letters Patent Appeal was filed. It was contended
that the contract contemplated liquidated damages to the tune of
Rs.96,405/- and that the amount forfeited was not really a penalty. The
question for determination before the Court was whether demand for
Rs.96,405/- was for liquidated damages under Clause 2 of the Contract
or penalty under the provisions thereof. The Division Bench had held
that the Calcutta Company had made certain supplies and had
demanded space for stacking which the defendants had failed to provide
to demarcate and in the circumstances it could not be held that the
Calcutta Company had committed any breach of the Contract, and
therefore, the appeal was dismissed and the decree passed by the Single
Judge was upheld.
58. In Nagpur Nagrik Sahakari Bank Ltd (supra), relied on by the
petitioner the Court had held that it is not in a position to assess the
compensation in the event of a breach of contract, the sum named by
the parties, if it be regarded as a genuine pre-estimate may be taken
into consideration as the measure of reasonable compensation, but not
if the sum named is in the nature of penalty. It was held that the
parties suffering loss from breach must prove it. In the instant case, the
bank had appointed a sole advertising agent to procure the
advertisement in the telephone directory and an agreement was entered
into between the company and the sole advertising agent. The sole
advertising agent in terms of clause 4 of the agreement, gave a bank
guarantee for due performance of the terms of the agreement. The Bank
which gave guarantee was liable for a sum not exceeding Rs.47,325-
75/- on failure of sole advertising agent to perform his part of the
contract. The sole advertising agent did not compile the accounts as
was required under the agreement and even the other bank which had
given the bank guarantee on behalf of the sole advertising agent
disowned its liability entailing filing of a suit by Nagpur Nagrik Sahkari
Bank Ltd. In the suit, the question that had arisen for determination
was whether it was mandatory on the part of the plaintiff bank to prove
the loss sustained so as to be made good by the first defendant relying
on Clause-I of the bank guarantee. It was contended that it was
incumbent upon the plaintiff bank to prove the loss. The Division Bench
of Andhra Pradesh High Court had held that where the Court is unable
to assess compensation, the sum named by the parties, if it be regarded
as a genuine pre-estimate may be taken into consideration as the
measure of reasonable compensation, but not if the sum named is in
the nature of penalty. It was further held that where the loss in terms of
money can be determined, the party claiming compensation must prove
the loss suffered by him.
59. In Fateh Chand (supra), relied on by the petitioner, it was held by
the Supreme Court that the Court is not bound to award compensation
when no legal injury has resulted. Referring to Section 74 of the
Contract Act, 1872 it was held that the measure of damages in the case
of breach of a stipulation by way of penalty is reasonable compensation
not exceeding the penalty stipulated for. It was further held that in
assessing the damages the Court has, subject to the limit of the penalty
stipulated, jurisdiction to award such compensation as it deems
reasonable having regard to all the circumstances of the case.
Jurisdiction of the Court to award the compensation in case of breach
of contract is unqualified except as to the maximum stipulated; but
compensation has to be reasonable and that imposes upon the Court
the duty to award compensation according to settled principles. In the
instant case, in a contract for sale of certain land and buildings, there
was a covenant that if the vendee failed to get a sale deed registered by
the date stipulated, the amount of Rs.25,000/- (Rs.1,000/- paid as
earnest money and Rs.24,000/- paid out of the price on delivery of
possession) shall stand forfeited and the agreement shall be deemed
cancelled. The covenant for forfeiture of Rs.24,000/- was a stipulation
by way of penalty. On failure of the vendee to get the sale deed
registered, it was held that in the absence of any proof of damage
arising from the breach of the contract, the amount of Rs.1,000/-
(earnest money) could be forfeit, however, there was no principle on
which compensation equal to 10% of the agreed price could be awarded
to the plaintiff, since he had failed to prove any loss suffered by him on
account of the breach of contract.
60. In Maula Bux (supra), the Supreme Court repelled the contention
that quantified amounts spelt out in a contract for supply of potatoes to
the Central Government, were, in the circumstances of the case,
genuine pre-determination of what the damages were likely to be
suffered as a result of breach of contract and held that such conditions
were unenforceable penalties. The Court also noticed that that the
Central Government did not make any effort to establish the quantum
of damage suffered by it. It approved the previous ruling in Fateh
Chand and applied the ratio, holding that:
" Counsel for the Union, however, urged that in the
present case Rs. 10,000 in respect of the potato contract
and Rs. 8500 in respect of the poultry contract were
genuine pre-estimates of damages which the Union was
likely to suffer as a result of breach of contract, and the
plaintiff was not entitled to any relief against forfeiture.
Reliance in support of this contention was placed upon the
expression (used in Section 74 of the Contract Act), "the
party complaining of the breach is entitled, whether or not
actual damage or loss is proved to have been caused
thereby, to receive from the party who has broken the
contract reasonable compensation". It is true that in every
case of breach of contract the person aggrieved by the
breach is not required to prove actual loss or damage
suffered by him before he can claim a decree, and the Court
is competent to award reasonable compensation in case of
breach even if no actual damage is proved to have been
suffered in consequence of the breach of contract. But the
expression "whether or not actual damage or loss is proved
to have been caused thereby" is intended to cover different
classes of contracts which come before the Courts. In case
of breach of some contracts it may be impossible for the
Court to assess compensation arising from breach, while in
other cases compensation can be calculated in accordance
with established rules. Where the Court is unable to assess
the compensation, the sum named by the parties if it be
regarded as a genuine pre-estimate may be taken into
consideration as the measure of reasonable compensation,
but not if the sum named is in the nature of a penalty.
Where loss in terms of money can be determined, the party
claiming compensation must prove the loss suffered by
him...."
Similarly, the ratio of M.L. Devendra Singh v. Syed Khaja, 1973
(2) SCC 515 was affirmed in P. D'Souza v. Shondrilo Naidu, (2004) 6
SCC 649. The Court accepted the same approach and further
emphasized that mere stipulation of some amount would only be a piece
of evidence, but inconclusive by its very nature.
61. The fact that the parties themselves have provided a sum to be
paid by the party breaking the contract does not, by itself, removes the
strong presumption contemplated by the use of the words 'unless and
until the contrary is proved'. The sufficiency or insufficiency of any
evidence to remove such a presumption is a matter of evidence. The fact
that the parties themselves specified a sum of money to be paid in the
event of its breach is, no doubt, a piece of evidence to be considered in
deciding whether the presumption has been repelled or not. But, in my
opinion, it is nothing more than a piece of evidence. It is not conclusive
or decisive.
62. It would be necessary to extract Section 73 and 74 of the Indian
Contract Act, 1872. They are as follow:
73. Compensation for loss or damage caused by breach of
contract-
When a contract has been broken, the party who suffers by
such breach is entitled to receive, from the party who has
broken the contract, compensation for any loss or damage
caused to him thereby, which naturally arose in the usual
course of things from such breach, or which the parties
knew, when they made the contract, to be likely to result
from the breach of it.
Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling
those created by contract - When an obligation resembling
those created by contract has been incurred and has not
been discharged, any person injured by the failure to
discharge it is entitled to receive the same compensation
from the party in default, as if such person had contracted
to discharge it and had broken his contract.
Explanation - In estimating the loss or damage arising from
a breach of contract, the means which existed of remedying
the inconvenience caused by the non-performance of the
contract must be taken into account.
74. Compensation for breach of contract where penalty
stipulated for-
When a contract has been broken, if a sum is named in the
contract as the amount to be paid in case of such breach,
or if the contract contains any other stipulation by way of
penalty, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have been
caused thereby, to receive from the party who has broken
the contract reasonable compensation not exceeding the
amount so named or, as the case may be, the penalty
stipulated for.
Explanation.- A stipulation for increased interest from the
date of default may be a stipulation by way of penalty.
Exception.- When any person enters into any bail-bond,
recognizance or other instrument of the same nature, or,
under the provisions of any law, or under the orders of the
1*[Central Government] or of any State Government, gives
any bond for the performance of any public duty or act in
which the public are interested, he shall be liable, upon
breach of the condition of any such instrument, to pay the
whole sum mentioned therein.
Explanation. - A person who enters into a contract with
Government does not necessarily thereby undertake any
public duty, or promise to do an act in which the public are
interested.
63. The above provisions enact principles upon which damages are to
be awarded by the Courts in India for breach of contracts. There are
obvious differences between the two provisions. Section 73 outlines the
general principles for the award of damages, which is the difference
between the price or cost of the goods or services contracted for as on
the date of breach, which the injured party would be entitled to. In such
an instance, the injured party would have to prove the breach (of
contract); the value, cost or price of the goods or services contracted for
on the date of breach and the measures taken by it towards mitigation
of the damages. Section 74, on the other hand, dispenses with the
requirement of proving actual damage once breach of contract is
established, the Court is entitled to award the "reasonable
compensation" not exceeding the amount specified in the contract or
the amounts which can be arrived at on application of the formulae or
method prescribed in the contract.
64. The Supreme Court, in Fateh Chand (supra) called Section 74 as
the provision cutting through the maze of rules evolved by English
Courts over a period of time to distinguish between what is considered a
genuine pre-determination of damages and what is penalty and,
therefore, not enforceable. The Court held as follows:
"10. Section 74 of the Indian Contract Act deals with the
measure of damages in two classes of cases (i) where the
contract names a sum to be paid in case of breach and (ii)
where the contract contains any other stipulation by way of
penalty. We are in the present case not concerned to decide
whether a contract containing a covenant of forfeiture of
deposit for due performance of a contract falls within the
first class. The measure of damages in the case of breach of
a stipulation by way of penalty is by Section 74 reasonable
compensation not exceeding the penalty stipulated for. In
assessing damages the Court has, subject to the limit of the
penalty stipulated, jurisdiction to award such compensation
as it deems reasonable having regard to all the
circumstances of the case. Jurisdiction of the Court to
award compensation in case of breach of contract is
unqualified except as to the maximum stipulated; but
compensation has to be reasonable, and that imposes upon
the Court duty to award compensation according to settled
principles. The Section undoubtedly says that the aggrieved
party is entitled to receive compensation from the party who
has broken the contract, whether or not actual damage or
loss is proved to have been caused by the breach. Thereby it
merely dispenses with proof of "actual loss or damage"; it
does not justify the award of compensation when in
consequence of the breach no legal injury at all has
resulted, because compensation for breach of contract can
be awarded to make good loss or damage which naturally
arose in the usual course of things, or which the parties
knew when they made the contract, to be likely to result
from the breach.
xxxxx xxxxx xxxxx xxxxx
15. Section 74 declares the law as to liability upon breach
of contract where compensation is by agreement of the
parties pre-determined, or where there is a stipulation by
way of penalty. But the application of the enactment is not
restricted to cases where the aggrieved party claims relief as
a plaintiff. The Section does not confer a special benefit
upon any party; it merely declares the law that
notwithstanding any term in the contract predetermining
damages or providing for forfeiture of any property by way
of penalty, the court will award to the party aggrieved only
reasonable compensation not exceeding the amount named
or penalty stipulated. The jurisdiction of the court is not
determined by the accidental circumstance of the party in
default being a plaintiff or a defendant in a suit. Use of the
expression "to receive from the party who has broken the
contract" does not predicate that the jurisdiction of the
court to adjust amounts which have been paid by the party
in default cannot be exercised in dealing with the claim of
the party complaining of breach of contract. The court has
to adjudge in every case reasonable compensation to which
the plaintiff is entitled from the defendant on breach of the
contract. Such compensation has to be ascertained having
regard to the conditions existing on the date of the breach.
65. In Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd AIR
2003 SC 2629, the Court summarized the legal position as follows:
68. From the aforesaid discussions, it can be held that:
(1) Terms of the contract are required to be taken into
consideration before arriving at the conclusion whether the
party claiming damages is entitled to the same.
(2) If the terms are clear and unambiguous stipulating the
liquidated damages in case of the breach of the contract
unless it is held that such estimate of
damages/compensation is unreasonable or is by way of
penalty, party who has committed the breach is required to
pay such compensation and that is what is provided in
Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and,
therefore, in every case of breach of contract, the person
aggrieved by the breach is not required to prove actual loss
or damage suffered by him before he can claim a decree.
The court is competent to award reasonable compensation
in case of breach even if no actual damage is proved to have
been suffered in consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the court
to assess the compensation arising from breach and if the
compensation contemplated is not by way of penalty or
unreasonable, the court can award the same if it is genuine
pre-estimate by the parties as the measure of reasonable
compensation.
66. There is pre-estimate of damages on account of considerable
inconvenience, tension and expenditure as a result of avoidable delay in
completion of the contract work beyond the end of March, 1988, the
time agreed by the petitioner for completion of Construction of Group
housing flats. The pre-estimate of damage is based on the funds locked
up of the members in the incomplete housing project without yielding
any income or other benefits; compulsion of some of them to pay rent
for their residential accommodation at rates which are spiraling from
year to year without occupying the apartment under construction; to
get any rent income from their apartments under construction by
letting them out to tenants; principal borrowed for investment in the
project as well as interest at high rates paid to the respective employers
by the members of banks or LIC or Housing Finance institution like
Delhi Co-operative Housing Finance Corporation Ltd or Housing
Development Finance Corporation. In assessing damages the Court has,
subject to the limit stipulated, jurisdiction to award such compensation
as it deems reasonable having regard to all the circumstances of the
case. Jurisdiction of the Court to award compensation in case of breach
of contract is unqualified except as to the maximum stipulated; but
compensation has to be reasonable, and that imposes upon the Court
duty to award compensation according to settled principles. Aggrieved
party is entitled to receive compensation from the party who has broken
the contract, whether or not actual damage or loss is proved to have
been caused by the breach. Pre-estimate of damages merely dispenses
with proof of "actual loss or damage"; it does not justify the award of
compensation when in consequence of the breach no legal injury at all
has resulted, because compensation for breach of contract can be
awarded to make good loss or damage which naturally arose in the
usual course of things, or which the parties knew when they made the
contract, to be likely to result from the breach. In the facts and
circumstances of the respondent no.1 society it cannot be held that no
legal injury at all has resulted or the loss caused to the respondent no.1
society is not to be compensated. On reading of Section 74 along with
section 73 of the Contract Act the Court is competent to award
reasonable compensation in case of breach even if no actual damages is
proved to have been suffered in consequence of breach of Contract.
67. Now turning to the pleas and contentions raised by the
petitioner/contractor, the following observations of the Apex Court in
Union of India v. A.L. Rallia Ram, AIR 1963 SC 1685 will also be
relevant which have not been varied and still hold the field, despite the
passage of many years, and numerous subsequent judgments on the
subject.
"14. ..........An award being a decision of an arbitrator
whether a lawyer or a layman chosen by the parties, and
entrusted with power to decide a dispute submitted to him
is ordinarily not liable to be challenged on the ground that
it is erroneous. In order to make arbitration effective and
the awards enforceable, machinery is devised for lending
the assistance of the ordinary Courts. The Court is also
entrusted with power to modify or correct the award on the
ground of imperfect form or clerical errors, or decision on
questions not referred, which are severable from those
referred. The Court has also power to remit the award when
it has left some matters referred undetermined, or when the
award is indefinite, or where the objection to the legality of
the award is apparent on the face of the award. The Court
may also set aside an award on the ground of corruption or
misconduct of the arbitrator, or that a party has been guilty
of fraudulent concealment or willful deception. But the
Court cannot interfere with the award if otherwise proper
on the ground that the decision appears to it to be
erroneous. The award of the arbitrator is ordinarily final
and conclusive, unless a contrary intention is disclosed by
the agreement. The award is the decision of a domestic
tribunal chosen by the parties, and the Civil Courts which
are entrusted with the power to facilitate arbitration and to
effectuate the awards, cannot exercise appellate powers
over the decision. Wrong or right the decision is binding if it
be reached fairly after giving adequate opportunity to the
parties to place their grievances in the manner provided by
the arbitration agreement. But it is now firmly established
that an award is bad on the ground of error of law on the
face of it, when in the award itself or in a document
actually incorporated in it, there is found some legal
proposition which is the basis of the award and which is
erroneous."
68. Acknowledging that the Arbitrator is the final judge of facts, the
Apex Court in State of Orissa and Anr. v. Kalinga Construction Co. (P)
Ltd. (1970) 2 SCC 861 held that the High Court erred in considering the
matter as a court of appeal and in re-evaluating the evidence and that it
further erred in recording a finding in reversal of the conclusions of the
arbitrator. In Hindustan Iron Co. v. K. Shashikant & Co. & Anr. AIR
1987 SC 81 the Court held that the award of the Arbitrator ought not to
be set aside for the reason that, in the opinion of the Court, the
Arbitrator had reached wrong conclusions or failed to appreciate the
facts.
69. In Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar
and Anr. AIR 1987 SC 2316 the Court held that if the reasons appear
per se to be not unreasonable and irrational the Court ought not to
reappreciate the evidence. It approved the observations made in
Mediterranean & Eastern Export Co. Ltd. v. Fortress Fabrics Limited
(1948) 2 ALL ER 186, which are as follows: -
"A man in the trade who is selected for his experience
would be likely to know and indeed to be expected to know
the fluctuations of the market and would have plenty of
means of informing himself or refreshing his memory on
any point on which he might find it necessary so to do. In
this case according to the affidavit of sellers they did take
the point before the Arbitrator that the Southern African
market has slumped. Whether the buyers contested that
statement does not appear but an experienced Arbitrator
would know or have the means of knowing whether that
was so or not and to what extent and I see no reason why
in principle he should be required to have evidence on this
point any more than on any other question relating to a
particular trade. It must be taken I think that in fixing the
amount that he has, he has acted on his own knowledge
and experience. The day has long gone by when the Courts
looked with jealousy on the jurisdiction of the Arbitrators.
The modern tendency is in my opinion more especially in
commercial arbitrations, to endeavor to uphold awards of
the skilled persons that the parties themselves have
selected to decide the questions at issue between them. If
an arbitrator has acted within the terms of his submission
and has not violated any rules of what is so often called
natural justice the Courts should be slow indeed to set
aside his award."
That this well settled proposition of law was reiterated in the
decision of the Apex Court in Coimbatore District Podu Thozillar
Sangam v. Balasubramania Foundary and Ors. AIR 1987 SC 2045. It
was opined that it is only an error of law and not a mistake of fact,
committed by the arbitrator, which is justifiable in the
Application/Objection before the Court. If no erroneous legal
proposition emerges from a perusal of either the Award or any
document annexed with the Award, and the alleged mistakes or alleged
errors, are only mistakes of fact, and if the Award is made after giving
adequate opportunity to the parties to place their grievances in the
manner provided by the arbitration agreement, the Award is not
amenable to the correction of the Court. Similar views were again
expressed in Indian Oil Corporation Ltd. v. Indian Carbon Ltd.(1988) 3
SCC 36; Jawahar Lal Wadhwa and Anr. v. Haripada Chakroberty (1989)
1 SCC 76; Puri Construction Pvt. Ltd. v. Union of India (1989) 1 SCC
411; Sudarsan Trading Co. v. Government of Kerala and Anr. (1989) 2
SCC 30; Food Corporation of India v. Joginderpal Mohinderpal and Anr.
AIR 1989 SC 1263 where even a plausible view taken by the Arbitrator
was held not to be open to Court interference, if the latter preferred a
contrary or alternate view.
70. In U.P. Hotels & Ors. v. U.P. State Electricity Board, AIR 1989 SC
268 the decision of the Umpire had been challenged in respect of his
interpretation of Section 49 of the Electricity (Supply) Act. Even on this
aspect, which quite palpably takes on the characteristics of a point of
law in contradiction to point a fact, the Apex Court did not favor jural
intervention. It was observed as follows:
"28. We, are, therefore, of the opinion that the view taken
by the Umpire on Section 49 was a possible view in the
light of the decision of this Court in Indian Aluminium's
case. In the premises, a question of law arose certainly
during the course of the proceedings. Such a question has
been decided by the Umpire on a view which is a possible
one to take. Even if there was no specific reference of a
question of law referred to the Umpire, there was a question
of law involved. Even on the assumption that such a view is
not right, the award is not amenable to interference or
correction by the courts of law as there is no proposition of
law which could be said to be the basis of the award of the
Umpire, and which is erroneous."
71. In Hind Builders v. Union of India, AIR 1990 SC 1340 the Court
cautioned that where two opinions were possible it could not be
predicated that there was an error apparent on the face of the Award. In
Bijendra Nath Srivastava v. Mayank Srivastava and Ors., AIR 1994 SC
2562 the view was expressed that the reasonableness of reasons given
by the arbitrator were not open to challenge and that the proper
approach would be for the Court to support the Award. Similarly, in
Hindustan Construction Co. Ltd. v. Governor of Orissa and Ors., AIR
1995 SC 2189 it was repeated that the Court cannot reappreciate the
material on the record. In Trustees of the Port of Madras v. Engineering
Constructions Corporation Ltd., (1995) 5 SC 531 the decision of a
Division Bench of the High Court of Madras, which reversed the Award
on a question of fact and not a question of law, was set aside by the
Supreme Court. After considering its previous decisions, the Apex Court
in B.V. Radha Krishna v. Sponge Iron India Ltd., (1997) 4 SCC 693
again held that the Court could not substitute its own view in place of
that of the Arbitrator. In Army Welfare Housing Organisation v. Gautam
Construction & Fisheries Ltd., (1998) 7 SCC 290 the Court declined to
vary an award for the reason that without reappreciating evidence it
would not be possible to fault the quantum awarded towards
anticipated expenses.
72. On perusal of the judgments of the Apex Court spanning several
decades, what emerges is that jural interventions with Awards is
proscribed, rather than prescribed. The role of the Appellate Court is
logically minuscule, and would be restricted to errors of law or
jurisdiction of immense import. The Arbitrator has considered the
factual matrix of these claims, has perused the grounds set-out in the
Objections, and after giving due consideration to the law laid down in
various cases which have been dealt with in the Award itself found that
the claim of the Society/Respondent no.1 for liquidated damages has
merit and it also has sufficient evidence for the same. The arbitrator
has considered the facts and evidence in respect of considerable
inconvenience, tension and expenditure as a result of avoidable delay in
completion of the contract work beyond the end of March, 1988, the
time agreed by the petitioner for completion of Construction of Group
housing flats. The facts and evidence regarding the funds locked up of
the members in the incomplete housing project without yielding any
income or other benefits; compulsion of some of them to pay rent for
their residential accommodation at rates which had spiraled as they
were not able to occupy the apartment under construction; they did not
get any rent income from their apartments under construction by
letting them out to tenants; principal borrowed for investment in the
project as well as interest at high rates paid to the respective employers
by the members of banks or LIC or Housing Finance institution like
Delhi Co-operative Housing Finance Corporation Ltd or Housing
Development Finance Corporation. The respondent no.1 society had
demanded damages in terms of term 8.2.2. and in the circumstances,
arbitrator awarding 57,02,672.00 in place of Rs.57 lakhs claimed by the
respondent no.1 is not such an error which will vitiate the award
entirely as has been claimed by the petitioner. In the circumstances,
there is no error of law or any other error apparent on the face of the
record as has been alleged by the petitioner.
73. No other objections had been raised by the counsel for the
petitioner except those which have been considered and dealt by this
Court hereinabove though the Arbitrator has allowed other claims of
respondent no.1. The respondent no.1 has not raised any objections to
the counter claims of the petitioner/contractor allowed by the
respondent no.2/Arbitrator either.
74. In the facts and circumstances and for the foregoing reasons the
objections raised by the petitioner against the award dated 3rd January,
2001 made and published by Sh.S.C.Kapoor, arbitrator, respondent
No.2 are without any legal basis and have no merit and are therefore
dismissed. The parties shall be entitled for the amounts as has been
awarded by the Arbitrator. The petitioner shall also be liable to pay a
cost of Rs.30,000/- to the respondent no.1 society in the facts and
circumstances.
JULY 04, 2012 ANIL KUMAR, J
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