Surinder Nayyar & Ors. vs South Delhi Municipal ...
2016 Latest Caselaw 7322 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI
%                   Date of judgment : 08.12.2016.

+      W.P.(C) 10491/2015 & C.M. No.26442/2015
       SURINDER NAYYAR & ORS.
                                                           ..... Petitioners
                          Through      Ms. Anusuya Salwan and Mr. Kunal
                                       Kohli, Advs.

                          versus

       SOUTH DELHI MUNICIPAL CORPORATION
                                                           ..... Respondent
                          Through      Mr. Mukesh Gupta, Adv.

CORAM:
HON'BLE MS. JUSTICE INDERMEET KAUR

INDERMEET KAUR, J. (Oral)

1 There are five petitioners before this Court. They are aggrieved by the

act of the respondent-Corporation vide which the respondent had issued a

circular dated 31.07.2015. In terms of this circular, reimbursement made to

third party on account of quality assurance charges were directed to be

recovered under intimation to the Quality Control Cell. This is the grievance

of the petitioners.

2 The petitioners are Class-I contractors working with the South Delhi

Municipal Corporation (SDMC). On 25.10.2006, a circular had been issued

by the Superintendent Engineer, Quality Control Cell of the respondent

Corporation giving information to the effect that Mayor has in anticipation

accorded an approval that for third party quality assurance/audit and testing

of material of different works of the Engineering Department, the third party

quality testing will be carried out by the laboratories mentioned in the

aforementioned circular i.e. CRRI, IIT, Delhi and NCCB, Ballabhgarh. This

would be incorporated in all the NITs issued for different works in the

Engineering Department. The designated labs were Sri Ram Institute for

Industrial Research, RTC, Okhla and National Test House, Ghaziabad.

3 In continuation of this Circular dated 25.10.2006 (Annexure P-1),

another circular dated 20.02.2007 (Annexure P-2) was circulated by the

Superintending Engineer, Quality Control of the respondent Corporation. It

specified the third party quality assurance/audit to be carried by the selected

organizations; the names were given; the details of the consultancy fee for

works up to Rs.150 lacs and works over and above Rs.150 lacs was detailed;

para 4 of the Circular has been highlighted. This states that the charges for

quality testing from an independent laboratory would be borne by the

contractor for which due weightage would be considered while arriving at

the justification of rates and the same would be reflected in the NIT

accordingly.

4 On the same date, another circular (Annexure P-3) was issued by the

Department detailing the modalities which would be followed by the

independent laboratories; the testing charges which had to be borne by the

contractor were to be given a weightage of 1% which was to be added while

working out the justification of rates.

5 Certain changes were made in the CPWD Manual (Annexure P-4).

The overhead of the contractor's profit was increased from 2.5% to 7.5% on

various factors which at item No. 4 included the cost of quality assurance set

up for enhancing the test laboratories. Learned counsel for the petitioners

submits that this quality assurance and testing of the articles in the laboratory

was an in-house feature which would be a laboratory to be set up by the

contractor at the site and thus these overhead charges were not in any manner

connected with the independent testing of the items for the purposes of

quality control from independent laboratories mentioned in the earlier

circular.

6 On 03.03.2011 (Annexure P-5) followed by another communication

dated 12.07.2012 (Annexure P-6) as also a subsequent letter dated

27.09.2013 (Annexure P-7), was written by the Superintending Engineer of

the SDMC seeking a clarification from the Central Public Works Department

qua the aforenoted enhancement in the overhead charges which had been

increased from 2.5% to 7.5%; the clarification sought for was as to whether

these overhead charges would include the third party quality assurance and

external laboratory' charges and whether the same would be covered in these

overhead charges or not.

7 The CPWD vide letter dated 09.10.2013 (Annexure P-8) clarified that

the overhead charges would not include the expenditure for engaging third

party quality assurance.

8 Learned counsel for the petitioners vehemently argues that these

circulars are in her favour; they clearly stipulate that third party quality

assurance laboratory charges would be borne by the contractor but he would

be compensated either in the NIT itself or by a separate payment.

9 This Court notes the two later circulars dated 08.05.2014 which were

thereafter issued by the Department. Both these circulars were issued on the

same date.

10 Circular No. 3 (Annexure P-4) dated 08.05.2014 reads herein as under:-

"SOUTH DELHI MUNICIPAL CORPORATION OFFICER OF THE ENGINEER-IN-CHIEF 20TH FLOOR, DR. S.P.M. CIVIC CENTRE J.L.N MARG, NEW DELHI-11002 No.03/EE(P)-I/SDMC/2014-15 Dated:08.5.2014 CIRCULAR Subject:- Third Party Quality Assurance/Audit-Weightage In partial modification to earlier instructions/orders regarding addition of weightage in justification on account of Third Party Quality Assurance/Audit of works in South Delhi Municipal Corporation, following weightage shall be added while working out justification of rates as under:

a) For works costing below Rs.25,00 lacs 1% on composite value of work

b) For works costing more than Rs.25,00 lacs 1.5% + Service Tax @12% + 3% cess Total = 1.6854% on composite value of work.

Note :

1.The above percentage may be added for working out the justification of rates departmentally irrespective of Actual Third Party Testing Charges.

2. This circular is strictly for internal circulation of the department and not be made part of NIT/tender documents. This issues with the approval of Competent Authority.

sd Engineer-in-Chief Distribution: All CEs/SEs/EEs:

Copy to:

1.Commissioner/SDMC for kind information;

2.Addl.Commissioner-II for kind information;

3.CA cum FA/SDMC"

11 Circular No. 4 (Annexure R-1 annexured with the counter affidavit of

the respondent) of the same date reads herein as under:-

"SOUTH DELHI MUNICIPAL CORPORATION OFFICER OF THE ENGINEER-IN-CHIEF 20TH FLOOR, DR. S.P.M. CIVIC CENTRE J.L.N MARG, NEW DELHI-11002

No.04/EE(P)-I/SDMC/2014-15 Dated:08.5.2014

CIRCULAR

Subject:- Third Party Quality Assurance/Audit

In partial modification to all previous circulars/orders regarding Third Party Quality Assurance/Audit of works in Engineering Department of South Delhi Municipal Corporation, the following condition shall be incorporated in all the NITs/tender documents being issued for different works.

"The Third Party Quality Assurance/Auditing of works shall be carried out for all works in Engineering Department of SDMC as below:

Contractual Cost of Mandatory Sampling Third Party Quality Work Audit

More than Rs.25.00 lacs As specified in 1.I.I.T. Delhi CPWD/IRC specification by the 2.CRRI Delhi concerned division. 3.NCCB Balabh Garh Testing of samples will be in the Municipal 4.EIL Lab.

                                                      5.RITES
                                                      Testing of samples will





                                                     be in the designated lab
                                                    or in house lab of the
                                                    party          conducting
                                                    quality audit.


Above Rs.5.00 lacs & As      specified      in      a) 75% of the works by
upto Rs.25.0 Lacs    CPWD/IRC                       Quality Control Cell.
                     specification by the
                     concerned       division.      Testing of samples will
                     Testing of samples will        be in the assigned lab*
                     be in the Municipal            b) 25% of the works by
                     Lab.                           the concerned Chief-
                                                    Engineer.
                                                    Testing of samples will
                                                    be in the designated
                                                    lab.


Above Rs.2.0 lacs & As       specified      in      25% of works by the
upto Rs.5.0 lacs    CPWD/IRC                        concerned S.E.
                    specification by the
                    concerned        division.      Testing of samples will
                    Testing of samples will         be in the designed lab.
                    be in the Municipal lab.
*Designated Labs:

1. Sri Ram Institute for Industrial Research.

2. R.T.C. Okhla.

3. National Test House, Ghaziabad All the charges for Third Party Assurance/Auditing/Sample testing charges shall be borne by the contract and no claim whatsoever on this account shall be entertained by the Engineer-in-Charge.

This issues with the approval of Competent Authority.

sd Engineer-in-Chief"

12 A reading of the aforenoted circulars shows that the circular No. 3 was

strictly for the purpose of internal circulation. It stated that regarding

weightage in justification on account of third party quality assurance, the

percentage may be added for working out the justification of rates

departmentally irrespective of actual third party testing charges. This

circular was strictly for internal circulation for the Department and was not

to be made a part of NIT/tender document.

13 Circular No.4 of a later date as is indicative from its seial number

stated that all the charges for third party quality assurance testing would be

borne by the contractor and no claim irrespective on this count shall be

entertained by the Engineer-in Chief. The respondent has relied upon this

circular to substantiate his submission that this circular which was in

modification of all previous circulars/orders regarding third party quality

assurance/audit work in the Engineering Department clearly specified that

for a third party quality assurance charges would be borne by the contractor

for which he would not be entitled to be reimbursed.

14 Per contra, learned counsel for the petitioner submits that reading of

the aforenoted two circulars i.e. Circular No.3 and Circular No. 4 which have

to be read in conjunction with one another; not being disjunctive; and a

reading of these circulars show that the contractors were to be reimbursed for

the quality testing to be carried out by them and this weightage was to be

considered at the time of justification of rates and this would be irrespective

of actual third party testing charges. Learned counsel for the petitioner has

also relied upon the internal notings which had been made by the

Department inter-se which are of the year 2015 i.e. after the aforenoted

circulars of 08.05.2014. Attention has been drawn to page 183 of the paper

book. It is pointed out that even after the issuance of this circular in May,

2014, the Department was still considering payment of charges for third

party quality testing which was initially to be borne by the contractors but

thereafter he would be reimbursed. Attention has been drawn to this note

which starts from page 183 up to page 185. The relevant extract of this note

which has been highlighted is extracted herein and reads as under:-

"The clarification to the audit observation is as under: It is submitted that as per clarification received from CPWD letter No.CSQ/CM/18(2)2012/1311 dated 09.10.2013 and forwarded by the Planning Deptt/SDMC, it is quite evident that the overhead charges doesn't include expenditure for engaging third party quality assurance and the contents of the letter No.CSQ/CM/18(2)/2012/1311 dated 9.10.2013. It is further submitted that the charges of Third

Party Quality Assurance and External Laboratories charges does not include in the 7.5% overhead charges."

15 This note is dated July, 2015. This note has been signed by the DCA,

Engineering Department and has been forwarded to the Engineer-in-Chief.

The Engineer-in-Chief has clearly while appending his signatures to this note

noted that the audit para be dealt with as per Circular No.F.I/E-in-

C/SDMC/16/151 dated 31.07.2015. This has been typed as also hand-

written by the Engineer-in-Chief himself.

16 The circular dated 31.07.2015 had been circulated by the Engineer-in-

Chief wherein it was strictly noted that all divisions who had made

reimbursements on third party quality assurance charges to contractors were

directed to be recovered immediately under intimation to the Quality Control

Department.

17 It would be useful to extract this Circular dated 31.07.2015. It reads

herein as under:-

"SOUTH DELHI MUNICIPAL CORPORATION OFFICER OF THE ENGINEER-IN-CHIEF 20TH FLOOR, DR. S.P.M. CIVIC CENTRE J.L.N MARG, NEW DELHI-11002

No.F.1/E-IN-C/SDMC/2016/15 Dated:31.07.2015 CIRCULAR rd SUB: 3 Party Quality Assurance charges for works above Rs.25.00 lacs It has come to the notice of undersigned that some divisions have reimbursed the 3rd party quality assurance charges which was paid by the contractor to the external checking agency for works above Rs.15.00 lacs. This has been objected to by the audit and has been terms as irregular.

As such, all divisions who have made the reimbursement of 3 rd party quality assurance charges to be the contractors are directed to recover the same immediately under intimation to the Quality Control Cell.

sd Engineer-in-Chief"

18 It is this circular (dated 31.07.2015) which has been impugned.

19 This Court notes the submission of the petitioners. The submission

vehemently being argued that the two circulars dated 08.05.2014 are actually

in favour of the petitioners/contractors; they are entitled to be reimbursed for

third party quality assurance charges; rates have in fact specified in circular

No. 3; a reading of this Circular in conjunction with Circular No. 4 shows

that the petitioners could either be compensated in the NIT itself directly or

they could be reimbursed later upon; the internal notings of April, 2015

having also been highlighted.

20 This Court is however not in agreement with this submission of the

learned counsel for the petitioners. This Court notes that the two circulars

dated 08.05.2014 bearing circular No. 3 and circular No. 4 are disjunctive;

they cannot be read in conjunction with one another. Circular No. 4 which is

later in point of time (clear from the serial number itself) notes that in partial

modification of all other circulars operating on the issue of third party

quality assurance charges to be paid to the contractors; it specified that these

charges for third party quality testing are to be borne by the contractors for

which they shall not be reimbursed. This circular read with circular No. 3 in

fact persuades this Court to hold that circular No. 3 was for the purpose of an

internal circulation; it specifically noted that the conditions contained in this

circular would not be a part of the NIT conditions; meaning thereby that the

tenderer/contractor who would tender would not be aware of any such

reimbursement to be made to him. This was only for an internal

consumption. This internal noting was superseded on the same date by

circular No. 4 which specified that the contractor had to bear all charges for

third party quality testing for which he would not be reimbursed. The

notings relied upon by the learned counsel for the petitioners (as pointed out

by the learned counsel for the respondent) were only by a junior member of

the Account Department and which had not been approved by the Engineer-

in-Chief who in his note (pages 183 to 185) specified that the circular of

31.07.2015 has to be abided by. The circular dated 31.07.2015 had specified

that all payments already made to the contractors under the head of third

party quality assurance charges were to be recovered back.

21 This Court is thus of the view that the prayer made in the petition

seeking a stay on the recovery sought to be made from the aforenoed

contractors on this count is a prayer which cannot be acceded to. The

submission of the learned counsel for the respondent that this is even

otherwise a disputed question of fact and a writ petition on this count would

not be maintainable may not be necessarily to be gone into in view of the

findings arrived at by this Court which in the view of this Court appear to be

based on the clear and unambiguous record and policy decision of the

Department.

22 Petition is without any merit. Dismissed.

INDERMEET KAUR, J DECEMBER 08, 2016 A