Delhi Development Authority vs Sukumar Chand Jain
2012 Latest Caselaw 3909 Del

        IN THE HIGH COURT OF DELHI AT NEW DELHI

                        O.M.P. 399 of 2007

                                           Reserved on: 14th May 2012
                                           Decision on: 5th July 2012

        DELHI DEVELOPMENT AUTHORITY                ..... Petitioner
                     Through: Mr. Bhupesh Narula, Advocate.

                              Versus

        SUKUMAR CHAND JAIN                             ..... Respondent
                    Through:        Mr. Sandeep Sharma and
                                    Ms. Kanika Singh, Advocates.

        CORAM: JUSTICE S. MURALIDHAR

                             JUDGMENT

05.07.2012

1. The Delhi Development Authority ('DDA') has challenged an Award dated 15th December 2006 passed by the learned Arbitrator in the disputes between it and the Respondent Contractor arising out of the award of the work of construction of 8314 houses in Sector-XV, Rohini, Delhi, SH. Construction of 252 LIG houses in Pocket Nos.6 & 7, Block-G, Sector-XV, Rohini, Delhi to the Respondent by the DDA.

2. The work was awarded by a letter dated 16th December 1985 and an agreement was executed between the parties in terms of which the date of commencement of work was 26th December 1985 and the date of completion was 26th December 1986. The work was actually completed on 30th August 1991 and the DDA extended the time till then without levy of compensation.

3. The tender cost was Rs.91,71,359 and the Respondent offered rebates at various rates: if the running bill was paid on monthly basis provided the gross amount of the work done in a month exceeded Rs.25,000 the rebate would be 1%; if the final bill was paid within six months of the date of completion, 0.5%; if the security was released within one month after the expiry of the maintenance period, 0.5% and if the extra item ('EI') and substituted item ('SI') were sanctioned within three months from the date of their occurrence, 0.2%.

4. The case of the Respondent Contractor is that the work could not commence till 17th January 1986 (Scheme No.31) and 20th January 1986 (Scheme No.35A). Further the layout plan, foundation and other drawings were not received prior to the aforementioned dates. The cement and steel were also not made available by the DDA within time. Time was extended on 30th June 1989 by the Superintending Engineer ('SE') on recommendation of the Executive Engineer ('EE') up to 30th June 1989.

5. The Respondent invoked the arbitration clause by a letter dated 26th June 1993 and a sole Arbitrator was appointed by the DDA. The Respondent filed statement of claims and documents before him. However, when the arbitration could not proceed, the Respondent filed a petition in this Court and a learned retired Judge was appointed as an Arbitrator. The said learned Arbitrator resigned and thereafter by an order dated 22nd October 2003, this Court appointed Mr. Justice J.K. Mehra (retired) as Arbitrator. Written submissions were filed before the learned Arbitrator but after the rejoinder submissions were filed by the Respondent, the DDA took the plea that the arbitral proceedings were not maintainable.

6. The challenge to the jurisdiction was negatived by the learned Arbitrator in the impugned Award after noting that there were arbitrable disputes and that the arbitration before the previous Arbitrators had remained inconclusive.

7. It was then contended by the DDA that while applying for extension of time up to 30th August 1991, the date on which the work was completed, the Respondent had given in writing that they would not claim any liquidated damages if extension was granted without levy of compensation. The learned Arbitrator observed that in the letters dated 29th June 1989 and 30th June 1989 there was nothing to show that the DDA had agreed to extend the time because of the above undertaking of the Respondent. The EE of the DDA recommended the extension under Clause 10 of the agreement to keep Clause 10-CC alive. Reference was made to the judgment of this Court in Bedi Construction Co. v. Delhi Development Authority 1996 (1) Arb.LR 575 in which it was held that the undertaking of the contractor was obtained under pressure and without consent.

8. Based on this basic finding, the learned Arbitrator proceeded to award either in full or in part Claim Nos. 1,2,4,8,9,14,15,17 B to H and 19. For instance, in respect of Claim No. 14-for Rs 12,68,360 on account of extra expenditure due to overheads etc. for prolonged period of execution on account of delays and breaches of DDA, the learned Arbitrator held that the Respondent was entitled to expenses claimed for the extended period of 56 months. The amount claimed for shuttering, scaffolding and T&P were not allowed. The work of more than 69 lakhs executed during extended period and for that the minimum staff was considered and 4 lakhs were awarded under this claim. The DDA challenges the impugned Award in respect of

all of the above claims.

9. DDA's principal objection is that it had categorically stated before the learned Arbitrator that when the Respondent was granted extension of time, an undertaking was given by the Respondent that he shall not claim any liquidated or unliquidated damages if the extension of time was granted without levy of compensation. DDA had also raised the point in its counter statement of facts that the Respondent had accepted the final bill in full and final settlement of his claim and therefore, the claimant was estopped from raising any claim for damages especially with respect to prolongation of work. It is submitted that the learned Arbitrator's finding that the claimant had given the undertaking under coercion and without free will was based on no evidence. It is submitted that there is no documentary evidence to show that the Respondent has expressed any kind of dissatisfaction on this account. Further, under Clause 7 of the agreement the Respondent had to raise a dispute with the department within 30 days of its being disallowed and submit a list of disputed items. If he failed to do so, his claim would be deemed to have been waived and absolutely extinguished. It is submitted that the learned Arbitrator committed a patent illegality by ignoring Clause 7 of the agreement and holding that the arbitration was invoked on 26th June 1993 when the final bill was settled on 5th June 1993. Compliance with Clause 7 was a precondition to invoking arbitration under Clause 25. The Respondent directly approached the learned Arbitrator when he should have first approached the DDA under Clause 7 and invoked arbitration only if DDA had rejected his claims.

10. DDA's substantive objection to the Award in respect of Claim No.14 is that in terms of the agreement between the parties the Respondent had

already been made payment under Clause 10 (CC) of the agreement. Therefore the formula for calculation of escalation due to prolongation of work had already been provided under the terms of the agreement which were binding on the parties as well as the Arbitrator. The Award should not have been in derogation of Clause 10(CC). Reference is made to the decision in Anant Raj Agencies v Delhi Development Authority (2005) 1 Arb.LR 590 where this court held that when a contract provided a formula as per which escalation has to be worked out, the arbitrator being bound by the contract between the parties could not adopt a different methodology. It is submitted that the impugned Award is contrary to the terms of the contract and is therefore, patently illegal and against the public policy of India.

11. According to the Respondent, the above contentions of the DDA have been dealt with and rejected by the learned Arbitrator. The findings of fact were not amenable to challenge under Section 34 of the Act. It is further submitted that admittedly, the final bill was settled on 5th June 1993 and the Respondent invoked arbitration on 26th June 1993, i.e. within 30 days. It is contended that a clause prescribing limitation contrary to the statutory period is hit by Section 28 of the Indian Contract Act, 1872 as held in Biba Sethi v Dyna Securities Limited 2009 (3) Arb.LR 494. Further at the time of appointment of the Arbitrator, the point that Clause 7 was a pre- condition was never raised and thus, the said objection stood waived.

12. As regards the substantive objection to the Award in respect of Claim No.14 it is submitted by the Respondent that this as well as the case law cited by DDA were duly considered and rejected by the learned Arbitrator. It is submitted that the issue is no longer res integra and has been settled by

two Division Bench decisions of this court in M/s. M.L. Mahajan v Delhi Development Authority 2002 (3) Arb.LR 376 where Clause 10C was held to not exclude claim for escalation in the price of material and labour after the stipulated period within which the work was to be concluded, when the prolongation of work was due to DDA's fault and Delhi Development Authority v Naraindas R. Israni 2008 (1) Arb.LR 58 where it was held that escalation of prices of inputs during the extended period entitled the aggrieved party to claim damages for losses suffered due to breach of contract of the opposite party and that these factors were independent of the factors that go into consideration under Clause 10CC.

13. As regards the first contention of the DDA concerning the undertaking given by the Respondent the learned Arbitrator has in para 15 of the impugned Award held that the facts in Bedi Construction Co. v. Delhi Development Authority and the present case "are same". Thereafter the learned Arbitrator has observed:

"After considering the contentions and the pleadings of the parties including the submissions made in writing, the oral submissions and the case law it is clear that such recording by respondent on the performa of the extension of time up to 31.8.1991 is not with free consent and on this basis the claim of the claimant because of prolongation of the contract period cannot be disallowed."

14. It is not understood on what basis the learned Arbitrator concluded that the Respondent contractor had given the undertaking without his "free consent". This could not have been a matter of conjecture or surmise but had to be based on evidence. The learned Arbitrator makes no reference to any such evidence placed on record by the Respondent to substantiate the plea.

15. As regards the plea of the DDA that the Respondent had accepted payment against the final bill without protest, the learned Arbitrator noted the submission and held in Para 17 as under:

"The plea of respondent that final bill was accepted by the claimant in full and final settlement of all the claims is not accepted. The respondent in the final bill made the payment only of undisputed items. Clause 7 of the agreement provides that if there be any disputes about any items of the work, then the undisputed items or item only, should be paid within the time provided in the agreement. The full payment having not been made and only the payment of undisputed items made by the respondent on 5.6.1993, the claimant demanded the amounts in respect of disputed items etc. invoked the arbitration vide letter dated 26.6.1993. Thus reliance by the respondent on clause 7 is misplaced."

16. The above rejection is again without any reason. If as held by the learned Arbitrator, the final bill only dealt with undisputed items, there is no reason why the Respondent did not record this in the final bill while accepting payment. It is in the above context that the ground urged by the DDA about the Respondent not complying with the requirements of Clause 7 of the contract assumes significance. The fact remains that the Respondent failed to show that he had, in fact, raised a dispute in terms of Clause 7 about the disputed items within 30 days of their disallowance. The invocation of the arbitration, under Clause 25, would arise only if the dispute had been raised under Clause 7 and referred to the DDA. This was a mandatory procedure and could not have been simply sidestepped by the learned Arbitrator by holding that the reliance by the DDA on Clause 7 is 'misplaced'.

17. The decision of the Supreme Court in National Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267 is relevant

in this context. The Court was considering possible scenarios in which a plea of full accord and satisfaction could be considered as a valid defence to a prayer for reference of a dispute to arbitration. The illustrative scenarios highlighted in para 52 of the judgment were as under (SCC, p.295):

"52. Some illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject are:

(i) ....

(ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no-claim certificate/full and final receipt. After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter.

(iii) A contractor executes the work and claims payment of say rupees ten lakhs as due in terms of the contract. The employer admits the claim only for rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of rupees six lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard- pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in

discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.

(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The "accord" is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration.

(v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration."

18. What is significant is that the above circumstances had to be shown to exist by leading evidence and not simply on the averments of one party that the undertaking not to raise claims was obtained by the other party under coercion or duress. This is evident from the following observations in para 50 of the same judgment:

"50. Let us consider what a civil court would have done in a case where the defendant puts forth the defence of accord and satisfaction

on the basis of a full and final discharge voucher issued by the plaintiff, and the plaintiff alleges that it was obtained by fraud/coercion/undue influence and therefore not valid. It would consider the evidence as to whether there was any fraud, coercion or undue influence. If it found that there was none, it will accept the voucher as being in discharge of the contract and reject the claim without examining the claim on merits. On the other hand, if it found that the discharge voucher had been obtained by fraud/undue influence/coercion, it will ignore the same, examine whether the plaintiff had made out the claim on merits and decide the matter accordingly. The position will be the same even when there is a provision for arbitration."

19. In the present case, the learned Arbitrator has made no effort to discuss the evidence on the basis of which he concludes that the undertaking given by the Respondent was under coercion or without his consent. Learned counsel for the Respondent attempted to show that there was some statement to that effect in the correspondence between the Respondent and the DDA. In the first place, the learned Arbitrator refers to no such correspondence. Secondly, a mere averment will not settle the issue. There has to be some credible evidence on record to prove coercion and duress. It was then submitted by the Respondent that the above plea was not specifically raised in the petition. This is incorrect. Para 4 as well as ground 'C' in the petition specifically raised this plea. The burden was on the Respondent to show that the undertaking about not claiming damages was given under duress or coercion and he failed to do so. The rejection of the plea of the DDA regarding the Respondent's acceptance of the final bill without protest is also without any satisfactory reason and cannot be sustained in law.

20. As regards Claim No.14 under which the learned Arbitrator awarded Rs.4 lakh as damages, on account of extra expenditure due to overheads etc.

for prolongation period of execution on account of delay and breaches by the DDA, it was urged by the DDA that the Respondent had already been compensated under Clause 10CC of the contract and further that in view of the undertaking of the Respondent on the proforma for grant of extension of time, the claim could not have been entertained. This was again brushed aside by the learned Arbitrator on the same reasoning that the undertaking was without the Respondent's free will and consent. For the reason already explained, and in terms of the law laid down by the Supreme Court in National Insurance Company Limited v. Boghara Polyfab Private Limited, it was incumbent on the Respondent to show that the undertaking given by him was without his free will and consent. The Respondent failed to do so. The awarding of Claim No.14 in favour of the Respondent was therefore erroneous in law and in fact.

21. As regards the other claims, although detailed submissions have been made on each of them by the parties, the Court does not consider it necessary to discuss them in detail since it is of the view that in view of the Respondent accepting the final bill without protest, the said claims ought not to have been entertained in the first place. There is no satisfactory explanation offered by the Respondent other than relying on the impugned Award which suffers from obvious errors. The decisions relied upon by the Respondent are distinguishable on facts and do not answer the central issue. Therefore, apart from Claim No.14 none of the other claims, the Award in respect of which has been challenged by the DDA, could have been allowed either wholly or in part. The Court is satisfied that the impugned Award suffers from patent illegality and cannot be sustained in law.

22. The impugned Award dated 15th December 2006 in respect of Claim

Nos. 1,2,4,8,9,14,15,17 B to H and 19 is accordingly set aside. The petition is allowed but in the circumstances with no orders as to costs.

S. MURALIDHAR, J JULY 5, 2012 bs/s.pal