Delhi High Court
Gammon India Ltd & Anr. vs Delhi Development Authority on 18 April, 2017
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP 6/2009
Reserved on: March 14, 2017
Date of decision: April 18, 2017
GAMMON INDIA LTD & ANR. ..... Petitioners
Through: Mr. P.H. Parekh, Senior Advocate
with Mr. Sumit Goel and Ms. Raveena Rai,
Advocates.
Versus
DELHI DEVELOPMENT AUTHORITY ..... Respondent
Through: Mr. Rajesh Manchanda with Mr.
Rajat Manchanda, Mr Rahul Rai, Mr. Mohit
Gupta, and Mr. Rameez Raju, Advocates.
AND
+ OMP 674/2008
DELHI DEVELOPMENT AUTHORITY ..... Petitioner
Through: Mr. Rajesh Manchanda with Mr.
Rajat Manchanda, Mr Rahul Rai, Mr. Mohit
Gupta, and Mr. Rameez Raju, Advocates.
versus
GAMMON INDIA LTD & ANR ..... Respondents
Through: Mr. P.H. Parekh, Senior Advocate
with Mr. Sumit Goel and Ms. Raveena Rai,
Advocates.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
% 18.04.2017
1. These are two petitions under Section 34 of the Arbitration and
Conciliation Act, 1996 („Act‟) challenging the impugned Award dated
11th September 2008 passed by the learned sole Arbitrator in the disputes
between the Delhi Development Authority („DDA‟) and Gammon India
Limited („GIL‟). OMP No. 6 of 2009 filed by GIL challenges the
impugned Award to the extent that it has allowed Claim No. 1 (b) only
in part and disallowed Claim Nos. 1(a), 1 (c), 1(d), 1(e) and Claim Nos.
2 (2), (3) and (4) and Claim No. 4. OMP No. 674 of 2008 is by the DDA
to the extent that the learned sole Arbitrator has allowed the claims of
GIL granting interest @ 18% per annum.
2. Background facts are that by a letter dated 7th January 1999, the
following work of construction of flyover/grade separate in Delhi at four
junctions was awarded by DDA to GIL:
(i) Mathura Road NH-2 - Road No. 13A
(ii) NH-24 - Noida Road
3. A formal agreement was signed by both the parties on 9th January
1999. The stipulated date of start of the construction work was 22 nd
January 1999 with a construction period of 18 months. The actual date of
completion of work for all the flyovers mentioned above were 21st
February 2001, 30th November 2003, 25th July 2002 and 26th May 2003
respectively.
4. Both the parties state that the various delays occurred from time to
time and extension of time („EoT‟) for completion of work was allowed
by the DDA to GIL.
5. It is pointed out on behalf of the GIL that DDA granted EoT till the
actual date of completion without levying compensation liquidated
damages („LD‟) for all the flyovers except for the flyover/grade
separator at the junction of Noida Road. It is pointed out that initially by
the letter dated 4th March 2003 DDA granted EoT for this purpose upto
30th September 2003. However, later by a letter dated 4 th March 2004 the
Engineer-in-Charge („EIC‟) granted EoT for completion of the work at
Noida upto 12th September 2003 without levy of compensation and for
the period from 13th September 2003 to 30th November 2003 with
compensation of Rs. 65,000.
6. As already noticed hereinbefore, there were four major claims by GIL.
DDA also preferred its counter-claims. By the impugned Award dated
11th September 2008 the learned sole Arbitrator allowed only Claim 1
(b) which was for reimbursement of additional supervision charges in the
sum of Rs. 35,10,000 as against Rs. 3,96,71,904 that was claimed by
GIL. Further, the learned Arbitrator allowed Claim 2 (5) towards the
amount receivable on satisfaction of quality quarries in the sum of
Rs.3,50,000. The learned Arbitrator allowed Claim No. 3 towards
interest @ 18% per annum on the aforementioned sums from 14th
December 2004 to 11th September 2008. All the other claims were
rejected. As regards DDA‟s counter-claims 'on account of waviness and
poor finishing of road work on the flyover', a sum of Rs.14,87,500 was
awarded.
7. This Court has heard the submissions of Mr. P.H. Parekh, learned
Senior counsel appearing for GIL and Mr. Rajesh Manchanda, learned
counsel appearing for DDA.
8. Claim No. 1 (a) by GIL is for refund of additional rent recovered from
it by the DDA due to prolongation of contract period beyond the
stipulated period of 18 months. The amount claimed by GIL was Rs.
52,05,000. This claim was rejected by the learned Arbitrator on the
ground that DDA had provided land to GIL on leave and licence basis
and recovered rent for the actual period for which land was utilized by
the GIL.
9. Clause 4 of Letter of Award („LoA‟) dated 7th January 1999 stipulated
the terms on which the land would be allotted. In terms of Clause 10, the
LoA formed part of the contract. Thus, the leave and licence agreement
was linked with the contract. The relevant portion of the Clause 4 of the
LoA reads as under:
"4. Land will be allotted for the purpose of the setting up of the
batching plant/central yard etc., and shall be governed by the terms
and conditions as given in the contract of M/s. Labh Construction
and Industries Ltd., for the work of "C/o.2016 EWS DU's in Sector
4, Rohini Phase-I". Extract of the terms and conditions is
reproduced below:
"Upto 4 acres of land will be made available within project
areas on leave and licence basis on monthly rental of Rs. 1
lakh per month payable in advance for installation of plant,
machinery, for casting of various pre-fabricated components
required for bonafide use in the work. In case the monthly
rent is not due to contractor the monthly rent shall be
deposited by the contractor to DDA in advance. The
contractor will have to vacate the land within six weeks of
completion of the project."
10. As rightly pointed out by GIL, if the work was not delayed GIL
would have paid rent only for 18 months. With this DDA having granted
licence for all the sections without compensation (except one specific
period for Noida flyover where it levied compensation), the inevitable
conclusion was that the delay was not attributable to GIL. At the time of
bidding, GIL had considered the land rent for the period of contract. The
excess rent payable for the period beyond the stipulated period was,
therefore, liable to be refunded to GIL. This aspect of the matter seems to
be completely overlooked by the learned Arbitrator. The recovery made
from GIL was, therefore, clearly excessive. GIL was right in its
contention that EoT is not a substitute for the right to cost compensation.
This was explained by this Court in M.S.J. (Engineers) & Company
Private Limited v. Union of India 60 (1995) DLT 705 wherein a
reference was made to Hudson's Building and Engineering Contracts
(9th Edition, p.492) which set out the principles as follows:
"Where the clause of delay is due to breach of contract by the
Employer, and there is also an applicable power to extend the time,
the exercise of that power will not, in the absence of the clearest
possible language, deprive the contractor of his right to damages
for the breach."
11. In Rawla Constructions Co. v. Union of India ILR 1982 Del 44 this
Court explained as under:
"(6) The fact that the engineer has under the building contract, a
power to extend for any reason the date for completion of the
contract, and has so extended it, does not operate to free the
employer from damages for breach of contract (i.e. for delay by the
employer) unless the contractor, on his side also, has accepted this
extension as full satisfaction in respect of the delay. In Trollope
and Sons v. Singar (1913) HBC (4th Ed) 849 (2), during a contract
for carrying out alterations and additions, to a dwelling house the
contractor was delayed by (inter alia) the non-supply of drawings
and details and essential information, and he claimed damages on
these counts. The time for completion had been extended by the
architect, and was further extended by the arbitrator, in an
arbitration which ensued, to the date when the work was in fact
completed. It was held that this extension of time did not affect the
damages claimed by the contractor against the employer for breach
of contract, by not affording possession of the site, and by
interference with the execution of the work".
12. The Court, therefore, finds merit in the contention of Mr. Parekh,
learned Senior counsel on behalf of GIL, that the reasons for the learned
Arbitrator to reject Claim 1 (a) are contrary to the provisions of the Act
as well as the legal position. The impugned Award insofar as it rejects
Claim 1 (a) of GIL is opposed to the fundamental policy of Indian law
and cannot be sustained.
13. Claim 1 (b) was for reimbursement of additional supervision charges
incurred by GIL due to prolongation of contract period beyond the
stipulated period of 18 months. The learned Arbitrator restricted the
claim and awarded a sum of only Rs.35,10,000 by observing that justice
would be done if the salary of one Senior Engineer and 4 chowkidars for
each of the three projects, i.e., Sarita Vihar Flyover, Vikas Marg and
Wazirabad was allowed. For flyover at Noida Injunction, no
reimbursement was allowed by the learned Arbitrator.
14. Admittedly, the work was delayed for the well beyond the period of
18 months in fact it was delayed upto 40 months. GIL was bound to
employ minimum staff and to pay salary of such staff. There is no
reasonable basis to explain the impugned Award to the extent it has
restricted the reimbursement to the salaries of only one Senior Engineer
and four chowkidars. This appears to be arbitrary and whimsical. It is
also contrary to Clause 36 which mandates the deployment of technical
staff and employees. The relevant portion of Clause 36 reads as under:
"i) The contractor shall provide all the necessary superintendence
during the execution of work and as along thereafter as may be
necessary for the fulfilling of the obligations under the contract.
ii) The contractor shall provide and employ on the site only such
technical assistance as are skilled and experienced in the respective
fields and such foreman and supervisory staff as are competent to
give proper supervision to the work .
The contractor shall provide and employ skilled, semi skilled and
unskilled labour as is necessary for proper and timely execution of
the work............"
15. In fact in the impugned Award the learned Arbitrator notes that the
work was delayed for 40 months and that DDA admitted that GIL was
"bound to employ the minimum staff and to pay salary to such staff...."
The conclusion in the impugned Award on this claim however is contrary
to the law explained by the Supreme Court in McDermott International
v. Burn Standard Co. Limited (2006) 11 SCC 181 and K.N. Sathyapalan
(Dead) by LRs v. State of Kerala (2007) 13 SCC 43. The reason,
therefore, for restricting the claim to only Rs.35,10,000 has no legal or
factual basis. The Award to the extent it rejects Claim 1 (b) beyond
Rs.35,10,000 is accordingly set aside.
16. Claim 1 (c) was for refund of additional interest recovered from GIL
due to prolongation of contract period beyond stipulated period of 18
months. The background to this claim was that in terms of Clause 10B of
the contract, DDA had provided mobilization advance to GIL which
carried interest @ 18% per annum. If the contract had been completed
within the stipulated period, mobilization advance would have been
recovered in its entirety by the time 80% of the contract was completed
i.e., by the 15th month which is April 2000. However, since the work was
delayed for reasons not attributable to GIL, the mobilization advance
could not be recovered in its entirety by the 15th month. This made the
interest on the mobilization advance for the period beyond 15 th month by
which time it was fully recovered. This excess amount of interest was
worked out at Rs.56,45,671.
17. The reasons for the learned Arbitrator to reject the claim was that
there was 'no dispute' with regard to interest but only 'for the period of
recovery'. As rightly pointed out by GIL, the entire dispute was only with
regard to interest on the mobilization advance for the period beyond the
period of contract. This is evidenced from Clause 10 B of the agreement
which provided for mobilization advance. This part of the Award, i.e.
rejection of Claim 1 (c) is unsustainable in law and liable to be set aside.
18. Turning to Claim 1 (d) which was for reimbursement of various other
overheads/expenditure incurred by GIL due to prolongation of contract
period beyond the stipulated period of 18 months, GIL was able to
demonstrate that on account of delay in completion of the contract, for
reasons not attributable to GIL, it incurred extra expenditure of
Rs.93,45,611towards bank charges, insurance premium, office running
expenses etc. The learned Arbitrator rejected the claim on the ground that
GIL was supposed to bear and maintain all such expenditure as per the
clause of the contract. Clause 7.4 of the Special Conditions of Contract
(SCC) provided that in the case the completion of work was extended
then the performance bank guarantees (PBGs) would be accordingly get
extended/ validated. Consequently, the expenditure on this score for the
period beyond the stipulated period of 18 months was obviously liable to
be reimbursed to GIL. Likewise it is also required to keep the insurance
cover alive and other facilities like office, watch and ward etc. for the
extended period. GIL was expected to maintain and bear such
expenditure for its own use as long as the contract shall stood cancelled
on the period of contract. In view of the finding that EoT was granted to
GIL without levy of compensation, the logical conclusion was that the
expenditure incurred by GIL for the extended period was liable to be
reimbursed. The rejection by the learned Arbitrator of Claim 1 (d) is
unsustainable in law and is contrary to the provisions of the contract.
19. Claim No. 1 (e) was for reimbursement of additional plant, hire
charges due to prolongation of contract period beyond stipulated period
of 18 months. Clause 10 CC of the contract provided for payment of
expenditure incurred by GIL for prolongation of the contract. The above
clause provides for payment due to increase in prices of material etc. It is
an escalation clause. It does not cover the compensation payable to the
contractor for plant and hire charges and other prolongation costs. In
Krishna Construction Co. v. Delhi Development Authority 2002 (3) Arb
LR 208 (Del) the Court explained the position as follows:
"33. There is no doubt that the claim of the petitioner by way of
claim No. 1 was not on account of escalation. If the cause for delay
is entirely that of the respondent, the load of blame cannot be
shifted to the contractor. For such a delay the contractor is entitled
for compensation. Clause 1OCC takes care of only compensation
on account of escalation of prices of material and wages for the
employees and other staffs whereas compensation on account of
delay either in giving site or issuing material etc. is distinct. In the
instant case the contractor has to be compensated for keeping its
entire establishment ready for the execution of the contract. The
delay on the part of any of the parties amounts to breach of the
contract. It is more so where time is essence of the contract."
20. Consequently, the Court has no hesitation in holding that rejection by
the learned sole Arbitrator of Claim 1 (e) was contrary to the settled legal
position and is opposed to the fundamental policy of Indian law. This part
of the impugned Award is accordingly unsustainable in law.
21. Claim 2 (2) was for difference in the amount payable on the
escalation. This was rejected on the ground that GIL should have objected
to the amount of escalation and its method of calculation at the time of
acceptance of the bills paid to GIL.
22. It is pointed out by GIL that while applying the formula for
computing escalation in terms of Clause 10 CC, DDA used an old index
on the plea that the latest indices were yet to be made available. However,
later on when they were available, the calculations were not revised.
Clause 10 CC (i) of the contract inter alia provided that "the base date for
working out such escalation shall be the last stipulated date of receipt of
tender including extension, if any."
23. In the present case the base date has to be from the last quarter of
1998 since the bid was submitted on 24th November 1998. This explained
the difference in the argument formula applied by DDA and that claimed
by the GIL. The explanation given by GIL that the difference in the case
of Noida Flyover, which was to the extent of Rs. 86 lakhs was due to the
following three reasons:
"1) Wrong index number being adopted as above.
2) Due to the implication of the perception of DDA that they had
granted extension of time upto 12th September 2003 only, whereas
extension of time was granted upto 30th September 2003.
3) Even for work done upto the date upto which extension was
granted, DDA has not made escalation payments.
24. GIL drew the attention of the learned Arbitrator to the above factors
by its letter dated 6th April 2008. However, there is no mention of this in
the impugned Award.
25. As against escalation claim for the Noida Flyover in the total amount
of Rs. 1287 lakhs, DDA paid escalation only to the extent of Rs. 884
lakhs. Further the work done during the last two months on the Noida
flyover, i.e., October and November 2003 was only asphaltic work.
Several documents have been submitted to the learned Arbitrator. The
quantum of bituminous work translated in to money worked out to Rs.
49.91 lakhs only. In other words it is submitted that escalation could have
been denied only on the ground that this part of the work was during the
period when no extension was granted, i.e., after 30 th September 2003.
The Court finds that the above factors were not taken into account by the
learned Arbitrator while rejecting Claim 2 (2). The rejection of Claim 2
(2) is accordingly set aside.
26. Claim No. 2 (3) was for difference in the amount of reimbursable
sales tax. GIL pointed out that it had been paying sales tax on the contract
on composition basis at 4% of the bill value. The tax deducted at source
was 4%. Therefore, the difference between the amount of tax deducted
and the amount reimbursed represented the balance amount due to GIL
from the DDA. The further amount of tax payable on the awarded amount
was claimed by GIL. This claim was rejected on the ground that GIL had
not submitted any details of the amount to be reimbursed. A reference
made by GIL to Clause 37 (i) of the contract which reads thus:
"Sales tax or any other tax on materials in respect of this contract
shall be payable by the Contractor and Government shall not
entertain any claim whatsoever in this regard."
27. GIL states that GIL had submitted a statement showing the balance
amount due towards reimbursement of sales tax which was part of the
final bill. If indeed, the further details were necessary the learned
Arbitrator could have asked GIL for the same. The Court finds that the
basis of rejection of claim is not convincing at all. If indeed, the GIL was
in a position to furnish details, it should have been called for by the
learned Arbitrator. There is no justification for rejection of the claim only
on the ground that the details have not been submitted by GIL. This part
of the impugned Award is, therefore, hereby set aside.
28. Clause 2 (4) was for entitlement of labour welfare cess. Under the
Delhi Labour Cess Rules, 2002 GIL was required to deposit the amount
of cess with DDA as per Section 3 of the Building and Other
Construction Workers Welfare Cess Act, 1996. Since this liability arose
on account of the above statute which became law after the submission of
bid by GIL, the GIL was entitled to reimbursement in terms of Clause 38
of the Agreement.
29. The reasons given by the learned Arbitrator for rejecting the claim
GIL did not refute the DDA‟s submission to the effect that the entire
amount deducted on account of Cess had been reimbursed to GIL. Since
the liability arose subsequent to the submission of the bid it could not
have been considered or acted on by the GIL. The impugned award
appears to be contrary to the records. The final bill submitted by the GIL
clearly showed that there was a difference between the amount claimed
by GIL as reimbursement of the labour welfare cess and the amount
actually reimbursed by DDA. The rejection of Claim 2 (4) has therefore
no basis on the evidence on record and is also contrary to the terms of the
contract and cannot be sustained in law.
30. Turning now to the counter-claims by DDA for a sum of
Rs.14,87,500 on account of waviness and poor finishing of road work on
the flyover, it is pointed out by GIL that at no point in time was any
notice given to GIL about the defects in the Noida More Flyover. There is
merit in the contention that these differences have been properly detected
beyond the defect period of liability. It is pointed out that in terms of
Clause 7.4 and 7.5.3 of the contract, the maintenance period of 36 months
was only with respect to items of bearing, expansion joints and re-
enforced earth.
31. The defects pointed out by the DDA in the counter-claims were
beyond the maintenance period of 36 months. There was also no proof
placed on record by DDA about having suffered loss to the tune of
Rs.14,87,500 on account of poor and bad work. There was no proof to
show that DDA had carried out the rectification work. The award of
Rs.14,87,500 in favour of DDA for allowing its counter-claims appears to
be based on no evidence and therefore, is unsustainable in law.
32. For the aforementioned reasons, the Court first hereby set aside the
impugned award to the extent that it had rejected the Claim 1 (b) of GIL
for amount beyond Rs.35,10,000 and to the extent it has rejected in toto
Claims 1 (c) and 1 (e) and Claims 2 (2) (3) and (4) and the entire Claim
4.The impugned award to the extent it has allowed the counter claim of
DDA to the extent of Rs.14,87,500 is hereby set aside.
33. It will be open to GIL to commence the arbitration denovo in respect
of the above claims which have been wrongly disallowed by the learned
Arbitrator. For this purpose GIL can seek the benefit of Section 34 (4) of
the Act, if so permissible.
34. The Court does not consider that the award of interest at 18% per
annum on the limited claims of GIL which have been allowed by the
learned Arbitrator is excessive or unreasonable. The challenge by DDA
that portion of the impugned Award is hereby rejected.
35. OMP No. 6 of 2009 is allowed in the aforementioned terms, OMP
No. 674 of 2008 is dismissed. There shall be no orders as to costs.
S. MURALIDHAR, J
APRIL 18, 2017
Rm
