Delhi High Court
National Building Construction ... vs Kiri Associates Pvt. Ltd. on 20 November, 2014
$~R-5
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on : 20.11.2014
+ OMP 614/2009
NATIONAL BUILDING CONSTRUCTION
CORPORATION LTD. ..... Petitioner
versus
KIRI ASSOCIATES PVT. LTD. ..... Respondent
Advocates who appeared in this case
For the Petitioner : Manoj Kumar Dass, Advocate
For the respondent : Mr. Gaurav Puri, Mr. Nupur Pandey, Mr. Aashish
Gumber and Mr. Varun Bhardwaj, Advocates
CORAM
HON'BLE MR. JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J. (ORAL)
1. This is a petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (in short the Act) whereby challenge has been laid to
award dated 26.06.2009.
2. In this petition, briefly, the facts obtaining in the case are as follows :-
2.1 The petitioner herein, which is, National Building Construction
Corporation Ltd. (in short NBCC) called for tenders for construction of the
Boys Dormitory (referred in Arbitration Case No. 188) and Girls Dormitory
(Referred in Arbitration Case No. 189) of the school building at Jawahar
Navodaya Vidyalaya at Chattarpur, M.P.
2.2 The respondent, who had applied against the tender was declared
successful. The details of the award of contract to the respondent are as
follows:
Tender Amount Rs. 34,71,859.85/- Rs. 17,35,929.92/-
Date of Award 08.01.1993 20.03.1993
Date of Start 08.02.1993 20.04.1993
Stipulated Date of Completion 07.02.1994 19.04.1994
Actual Date of Completion 04.11.1996 04.11.1996
It is not in dispute that the work was completed beyond the period
stipulated, on 04.11.1996.
2.3 Since disputes arose between the parties, an arbitrator was appointed
which led to the passing of the award referred to above. The respondent
(i.e., the original claimant) preferred 17 claims before the learned arbitrator.
2.4 NBCC, on its part, not only defended the claims but also lodged
counter claims. The counter claims lodged by the respondent were eight (8)
in number. In so far as respondent's claims were concerned, claim nos.1,
2, 3, 8, 11, 14, and 16 were allowed. In so far as claim no.16 is concerned,
which pertains to interest, the learned arbitrator awarded interest at the rate
of 10% p.a. with effect from 04.11.1997 till the date of award/date of
payment.
2.5 As is obvious, claim nos.4 to 7 and 9, 10, 12, 13, 14, 15, 17 were
rejected.
2.6 A brief summary of the amount claimed and those awarded by the
arbitrator are set up in paragraph 7.14 of the petition. The figures and
particulars given therein are not disputed by the respondent. Accordingly,
for the sake of convenience, the same are extracted hereinbelow :-
Claims Nature of Amount claimed Amount Awarded
Claim (Rs.) (Rs.)
Clam No.1 Balance Case No. 188 - Rs. 15,74,133/-
payment under 25,05,701/-
final bill
Case No. 189 - Rs.
14,06,544
Claim No.2 Escalation Case No. 188 - Rs. 90,147
during 4,45,088/-
contractual
period Case No. 189 - Rs.
6,10,198
Claim No.3 Escalation Case No. 188 - Rs. 4,44,583
beyond the 4,44,583/-
contractual
period Case No. 189 - Rs. 71,538
71,538 5,16,122
Claim No.8 Additional Case No. 188 - Rs. 3,61,178/-
claim for brick 4,10,521/-
Kiln
Case No. 189 - Rs.
2,35,866
Claim No.11 Overheads for Case No. 188 - Rs. 1,66,448
prolongation of 10,49,978/-
contract
Case No. 189 - Rs.
4,92,543/-
Claim No.14 Security Case No. 188 - Rs. 2,11,015/-
deposit 2,11,015/-
Case No. 189 - Rs.
Nil
Claim No.16 Pre-suit Case No. 188 - @ 10% p.a. w.e.f.
pendente lite 24% p.a. 4.11.97 till
and future 19.02.2002 on
interest Case No. 189 - Claim no.1, 2, 8,
24% p.a. &14
Pendent elite and
future interest @
10% p.a. on total
amount of award
from 19.02.2002 to
the date of
award/date of
payment
Rs. 38.60 Lakhs
(approx)
TOTAL Rs.67.60 Lacs
CLAIMS (approx)
AWARDED
2.7 I may also note that the counter claims lodged by the NBCC were
rejected in entirety.
3. Before me, Mr. Dass, who appears for the NBCC has confined his
objections to claim nos.8, 11 and 16.
3.1 In so far as claim no.8 is concerned, it relates to amounts claimed by
the respondent towards difference in cost incurred by it in respect of use of
kiln bricks as against ordinary bricks of 35 kg./cm2 strength. As would be
evident from the table above, the sum claimed was Rs.6,46,386/-. The
learned arbitrator has awarded only a sum of Rs. 3,61,178/-/-.
3.2 Mr. Dass submitted that this claim has been wrongly awarded in view
of the fact that the respondent was not instructed to use kiln bricks. Mr.
Dass also submits that the respondent had made a grievance with respect to
the same for the first time only on 21.04.1995, which was when the contract
was nearing its end.
3.3 In so far as claim no.11 is concerned, it is Mr. Dass contends that the
same ought not to have been awarded for the reason no evidence was
produced by the respondent in respect of the claim made for overheads due
to prolongation of contract.
3.4 In so far as claim no.16 is concerned which, as indicated above,
relates to interest, Mr. Dass says that there is a prohibition under the contract
for grant of interest. For this purpose, he has referred to clause 29 of the
contract. In support of his submission, Mr. Dass has placed reliance on a
judgment of the Division Bench in the case of NBCC Vs. Esel Properties &
Industries, 2012 Lawsuit (Delhi) 853. It is Mr. Dass's contention that this
aspect of the matter is covered by the judgment of the Division Bench.
3.5 Furthermore, Mr. Dass has said that the learned arbitrator has directed
award of interest on interest by observing as follows :-
"..claimant be paid pendente lite interest at the rate of 10% on the
total amount of the award from 19.02.2002 to the date of award..."
3.6 It is Mr. Dass's contention that if this direction in the award was to
operate then interest would run on the total amount awarded, which
includes interest on various claims. Mr. Dass says that this direction
deserves to be set aside.
4. On the other hand, Mr. Puri, the learned counsel for the respondent
says that in so far as submissions of Mr. Dass in respect of claim no.8 and
11 are concerned, the same ought not to be interfered with. The learned
arbitrator has appreciated the evidence on record and returned a finding,
which is not perverse and therefore, no interference is called for.
4.1 As regards claim no.16, Mr. Puri says that in view of the position of
law with regard to the fetter placed on the arbitrator to grant interest in
respect of claims which arise from contract which prohibits payment of
interest, he possibly cannot contend to the contrary. The learned counsel
submits that position vis-a-vis compound interest would be no different.
5. Having heard the learned counsel for the parties, in my view, in so far
as claim no.8 is concerned, there is no dispute about the fact that the BOQ
item nos.23, 24, 26 and 27, required the respondent to use bricks of class 35
kg./cm2 strength. The arbitrator also noted that CPWD specifications
permitted use of bricks of class 75 kg./cm2 and 100 kg./cm2. Furthermore,
the award seems to clearly indicate that locally, bricks of the specifications
indicated by NBCC were not available, and therefore, the respondent used
kiln bricks. This fact was within the knowledge of the petitioner as is
evident upon perusal of letter dated 29.04.1992; an extract of which is culled
out in the award itself.
5.1 Having regard to the findings recorded by the learned arbitrator, in my
view, no interference is called for. The NBCC was clearly aware of the fact
that the respondent was using kiln bricks. This fact was known to the
NBCC, evidently, at least, since 21.03.1992. Therefore, Mr. Dass's
contention that this issue was raised for the first time on 21.04.1995 appears
to be without merit. The objections vis-a-vis claim no.8 are thus, rejected.
5.2 In so far as claim no.11 is concerned, the arbitrator has awarded a sum
of Rs.2,18,400/- qua overheads incurred by the respondent on account of
prolongation of the contract. The respondent had claimed under this head, a
sum of Rs.18,99,710.30. The learned arbitrator has partially awarded
moneys under this claim in view of his finding that the NBCC was mainly
responsible for the delay in the execution of the work. Findings to that
effect are recorded by the learned arbitrator while discussing claim no.6.
Based on this rationale, a part of the claim was allowed.
5.3 The only objection vis-a-vis this claim, which is pivoted on the
argument that no documentary evidence was placed on record, is untenable
for the following reasons.
5.4 Upon perusal of the finding of the learned arbitrator in respect of this
claim, it is noted that expenses which the respondent sought to claim
towards higher charges were rejected on the ground that there was no
documentary evidence.
5.5 In respect of claims for engaging the personnel, such as, Site
Engineers, Store Keeper and Chaukidars, an adhoc sum of Rs.8,000/- was
awarded which was reduced to 39% i.e., Rs.3120/-. Taking into account the
period of prolongation which was 32.83 months, a sum of Rs.1,02,430/- was
awarded.
5.6 In addition, a sum of Rs.64,185/- was also awarded towards running
expenditure qua the school building. The sum of Rs. 64,185/- was arrived at
by once again taking an adhoc figure of Rs.5,000/- p.m. which was reduced
by 39%; the net figure of Rs.1950/- p.m. was then multiplied by the period
involved, which is 32.63 months.
5.7 The submission of Mr. Dass that there is nothing placed on record
with regard to the said staff and Engineers being positioned at site, in my
view, in such like cases, the arbitrator has to go by his experience. The
arbitrator in this case is a qualified Civil engineer and is a retired Director
General of CPWD. The observation of the Supreme Court in the case of
Municipal Corporation of Delhi vs Jagan Nath Ashok Kumar & Anr.
(1987) 4 SCC 497 being apposite are extracted hereinafter :-
"....5. It is familiar learning but requires emphasis that section 1
of the Evidence Act, 1872 in its rigour is not intended to apply
to proceedings before an arbitrator. P.B. Mukharji, J. as the
learned Chief Justice then was, expressed the above view in
Haji Ebrahim Kassam Cochinwall v. Nothern Indian oil
Industries Ltd., A.I.R. 1951 Calcutta 230 and we are of the
opinion that this represents the correct statement of law on this
aspect. Lord Goddard, C.J. in Mediterranean & Eastern Export
Co. Ltd. v. Fortress Fabrics Ltd., [1948] 2 All E.R. 186
observed at pages 188/189 of the report 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 endeavour 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."
(emphasis is mine)
6. This in our opinion is an appropriate attitude...."
6. I find the amount awarded by the arbitrator neither excessive nor
unreasonable. Therefore, I do not intend to interfere with the same.
7. This leaves me with the last claim, which is claim no.16. In order to
appreciate the objection qua this claim, one would have to refer to relevant
extracts of the contract, which in the particular case is clause 29(1).
"..Clause 29(1). Without and Lien in respect of sums claimed
- Whenever any claim or claims for payment of a sum of
money arises out of or under the contract against the
contractor, the Engineer-in-Charge of the Corporation shall be
entitled to withhold and also have a lien to retain such sum or
sums in whole or in part from the security, if any deposited by
the contractor and for the purpose aforesaid, the Engineer-in-
Charge or the Corporation shall be entitled to withhold the
security deposit, if any, furnished as the case may be and also
have lien over the same pending finalisation or adjudication of
any such claim. In the event of the security being insufficient
to cover the claimed amount or amounts or if no security has
been taken from the contractor, the Engineer-in-Charge or the
Corporation shall be entitled to withhold and have a line to
retain to the extent of such claimed amount or amounts
referred to above, from any sum or sums found payable or
which at any time thereafter may become payable to the
Contractor under the same or any other contract, with the
Engineer-in-Charge or the Corporation or any contracting
person through the Engineer-in-Charge pending, finalisation or
adjudication of any such claim.
It is an agreed term of the contract the same money or
moneys so withheld or retained under the lien referred to
above, by Engineer-in-Charge or Corporation will be kept
withheld or retained as such by the Engineer-in-Charge or
Corporation till the claim arising out contract governed by as
such by the Engineer-in-Charge or Corporation till the claim
arising out of or under the contract is determined by the
arbitrator (in the contract governed by the arbitration clause)
by the competent court, as the case may be and that the
contractor will have no claim for interest or damages
whatsoever on any account in respect of such withholding or
retention under the lien referred to above and duly notified as
such to the contractor. For the purpose of this clause, where
the contractor is a partnership firm or a limited company. The
Engineer-in-Charge or Corporation shall be entitled to
withhold and also have lien to retain towards such claimed or
amounts in w hole or in part from any sum found payable to
any partner / limited company as the case may be, whether in
his individual capacity or otherwise..."
(emphasis is mine)
7.1 A perusal of the clause would show that there is a prohibition on
award of interest. This aspect of the matter is covered by the judgment in
NBCC's own case to which reference has been made hereinabove.
7.2 Furthermore, the Supreme Court in the case of Sayeed Ahmed and
Co. Vs. State of U.P., 2009 (12) SCC 26 and Sree Kamatchi Amman
Constructions Vs. Divisional Railway Manager (Works), Palghat and Ors.,
2010 (8) SCC 767 has enunciated the principle that where contracts prohibit
grant of interest, the arbitrator cannot grant interest in exercise of power
contained under Section 31 (7) (a) of the contract. A bare reading of the
Section would show that the arbitrator can award interest from the date of
cause of action till the date of the award, only if, parties do not agree to the
contrary. In this case, provisions of the contract show that the parties have
agreed to the contrary. Since there is a prohibition on grant of interest,
obviously no compound interest could have been granted. In any case, the
arbitrator has no power under Section 31(7) of the Act to grant compound
interest. If compounding of interest is to be ordered by the arbitrator such
power should be embedded in the contract. [See State of Haryana and Ors.
Vs. S.L. Arora & Company, (2010) 3 SCC 690].
8. For the reasons given above, the petition is allowed to the extent it
awards claim no.16 in favour of the respondent. Claim nos.8 and 11 are
rejected. The petition is accordingly disposed of.
8.1. Needless to say, the respondent will be entitled to interest at the rate
of 10% p.a. as awarded by the arbitrator from the date of the award till the
date of payment.
RAJIV SHAKDHER, J
NOVEMBER 20, 2014
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