Delhi High Court
Union Of India vs M/S Jia Lall Kishori Lall Pvt.Ltd on 29 January, 2018
$~OS-36
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 29.01.2018
+ O.M.P. (COMM) 222/2017
UNION OF INDIA ..... Petitioner
Through Mr.Saurabh Chaddha, Adv.
versus
M/S JIA LALL KISHORI LALL PVT.LTD..... Respondent
Through Mr.Arvind Sharma, Adv.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J. (ORAL)
1. Present petition is filed under section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as 'The Act') seeking to set
aside the Award of the Sole Arbitrator dated 5.12.2016 and the corrected
Award dated 6.12.2016, 18.12.2016, 19.12.2016 and 9.1.2017. The
respondent is a contractor engaged by the Public Works Department for
construction activities. The petitioner called bids to carry out construction of
the bridge and widening of the roads at four lane bridge over Bara Pula Nala
at Ring Road near Sarai Kale Khan, New Delhi. Pursuant to the bidding the
contract was awarded to the respondent. An Agreement dated 8.7.2005 (in
short 'the said Agreement') was executed. The stipulated date of start of
work was 30.7.2005. Seventeen months' time was allowed for execution of
the contract from the date of start. As per the said Agreement the date of
OMP (COMM.) 222/2017 Page 1
completion of the work was 29.12.2006. It is the case of the petitioner that
the respondent has executed the work in 34 months. It is also the case of the
petitioner that the respondent has failed to achieve the milestone within the
stipulated time as he had failed to properly mobilize the resources due to his
own defaults in payment to the Sub-Contractors. Since there was a delay in
execution of the work the petitioner issued a letter dated 1.1.2009 imposing a
penalty of Rs.64,70,049/- on account of delay in execution of the work. The
said letter was challenged by the respondent in a suit being Suit No.
250/2009 seeking a decree of declaration that the letter dated 01.01.2009 is
null and void before this court in Suit No.250/2009. The respondent sought
reference of the said dispute to the learned Arbitrator who had been
appointed as disputes had arisen between the parties. This court accepted the
plea of the respondent and referred the said dispute also to the already
constituted Arbitral Tribunal.
2. Before the learned Arbitrator several claims were made by the
respondent. The details of the claims made and the Award made in favour of
the respondent are as follows:-
Claim Claimed on a/c of Claim amount Award
No. (Rs.) Amount (Rs.)
1. Prolongation of contract 2,32,63,000 84,44,737
2. Price Escalation 85,00,000 35,84,498
3. Extra Work 1,11,24,510 78,07,018
4. Losses due to reduction in 59,59,566 8,59,693
scope of work
5. Cost of arbitration 5,00,000 NIL
6. Withheld amount 1,02,53,560 66,30,255
7. Physical, social and mental 1,45,00,000 NIL
agony.......
Addl. Illegal levy of 64,70,049 64,70,049
Claim compensation
TOTAL 8,01,70,685 3,37,96,250
OMP (COMM.) 222/2017 Page 2
3. I have heard learned counsel for the parties. Learned counsel for the
petitioner sought to impugn the Award on stated grounds.
He has firstly stated that the Award is liable to be set aside on account
of the bias of the learned Arbitrator. It has been urged that the Sole
Arbitrator has given large number of opportunities to the respondent for
filing details, documents, evidence and submissions of the respondent.
However, he became impatient on the very first hearing earmarked for the
petitioner. It is also claimed that he has sought to take revenge against the
petitioner on account of some old differences during his service tenure with
the department.
It was secondly submitted that the entire dispute hinges around as to
who was responsible for the delay in completion of the contract. It has been
urged that the findings recorded by the learned Arbitrator that the delay took
place on account of the petitioner are mischievous, erroneous and incorrect.
It is urged that the respondent took possession of the site in July, 2005. At no
stage did the respondent protest that there were hindrances at the site. This
plea was raised later on as an after thought and as an excuse to justify the
delay on the part of the respondent.
Thirdly, it is pointed out that the learned Arbitrator has ignored the
terms of the said Agreement between the parties. Clause 2.3.1 (xviii) clearly
provides that services like water supply lines, sewer lines, electric and
telephone cables etc. if any, falling in the alignment of the work which are
required to be shifted would be shifted by the petitioner but time taken for
the same shall be accounted for towards extension of time if hindrance was
caused but no monetary claim for delay due to the above reasons would be
entertained. Reliance was also placed on clause 7.16 and 7.41 of Special
OMP (COMM.) 222/2017 Page 3
Condition to make the same submissions. It is urged that despite noticing
these clause and also other such clauses the learned Arbitrator has given a go
bye to the same. Relying on section 73 of the Contract Act the learned
Arbitrator has wrongly and illegally awarded claims in favour of the
respondent.
4. I will now deal with the submissions of learned counsel for the
petitioner. I will first take up the second and third pleas raised together. On
account of delay in completion of the work the learned Arbitrator has
awarded for prolongation of contract a sum of Rs.84,44,737/-. The learned
Arbitrator notes that a site does not mean just a piece of land or place where
work is executed. It would envisage giving possession of land whereby it is
feasible for the contractor to commence execution of the work. It is pointed
out that the admitted fact is that overhead electrical lines were existing for
which the petitioner took time to shift. These are said to have been shifted on
9.4.2006, namely, more than eight months after the stipulated date of start. It
is only thereafter that the piling work could be started. Hence, the learned
Arbitrator concludes that the petitioner miserably failed to live up to its
obligation in regard to making available hindrance free site.
The award further records that the nature of work demanded that the
petitioner be issued all the working drawing immediately as no
comprehensive and meaningful planning could be done for deployment of
resources and execution of work involving construction of a bridge without
the drawings. It is pointed out that it is only on 30.1.2006 that the Chief
Engineer decided that only one single bridge with all the four lanes will be
constructed on the downstream side of the existing bridge. Accordingly
GAD (General Arrangement Drawing) was issued on 30.1.2006. Various
OMP (COMM.) 222/2017 Page 4
such other instances have been noted in the Award. Hence, the learned
Arbitrator concluded that the required drawings were not issued by the
petitioner within a reasonable time. In fact the petitioner failed to issue the
complete drawings even as the period for the contract expired on 29.12.2006.
Issue of drawings is said to have continued till 10.1.2009 that is more than
two years after the stipulated date of completion. Hence, the Award
concludes that there was monumental delay on the part of the petitioner in
making available the drawings which was the most fundamental obligation.
The Award also notes that the petitioner issued notices to the respondent for
determination of the contract on the ground of slow progress four times over
two years, namely, on 02.11.2006, 19.7.2007, 19.5.2008 and 18.11.2008 but
never took any action.
5. Some of the conclusions noted by the learned Arbitrator of the
conduct of the petitioner are as follows:-
"24.3.14 The sum and substance is that not only the drawings as
required were not issued by the respondent just as the work was
awarded or even within reasonable time thereafter, the
respondent failed to issue the complete drawings even as
stipulated contract period expired on 29.12.2006. In fact, issue
of drawings continued up to 10.01.2009, that is, up to more than
two years after the stipulated date of completion. Therefore,
there could be no two opinions that there was monumental delay
on the part of the respondent in making available the drawings
which was one of its most fundamental obligations.
......
24.3.16 I have perused all the relevant provisions of the
agreement and rival submissions of the parties and I have no
hesitation to say that it is a case of massive delays and defaults
OMP (COMM.) 222/2017 Page 5
on the part of the respondent in regard to its most fundamental
obligations. In fact, it is more than obvious that the respondent
called tender without doing its proper home work because of
which not only there was monumental delay in making available
hindrance free site and working drawings and deciding the
GAD, there also arose necessity of subsequent changes, such as,
change from originally proposed cast-in-situ RCC girders to pre-
cast girders, shifting of location of abutment 'A2' and
consequent reduction in the length of end span on Sarai Kale
Khan side and change from originally proposed girder &slab to
only solid stab in the end span on Sarai Kale Khan side. The
poor planning by the respondent also gave rise to deviation
items which caused further delay.
.......
24.4 Decision:
Based on my finding above, it is held that the respondent
committed a serious breach which is of the most fundamental
nature and which goes to the very root of the contract and that
the respondent is entirely responsible for the delay in completion
of the work."
6. The above are the findings of fact recorded by the learned arbitrator
which cannot be challenged in the present proceedings. Reference in this
context may be had to the judgment of the Supreme Court in the case
Associate Builders vs. DDA, AIR 2015 SC 620, where the Supreme Court as
follows:-
"31. The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person would
have arrived at the same is important and requires some
degree of explanation. It is settled law that where-
OMP (COMM.) 222/2017 Page 6
1. a finding is based on no evidence, or
2. an arbitral tribunal takes into account something
irrelevant to the decision which it arrives at; or
3. ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
.............
33. It must clearly be understood that when a court is applying
the "public policy" test to an arbitration award, it does not act
as a court of appeal and consequently errors of fact cannot be
corrected. A possible view by the arbitrator on facts has
necessarily to pass muster as the arbitrator is the ultimate
master of the quantity and quality of evidence to be relied upon
when he delivers his arbitral award. Thus an award based on
little evidence or on evidence which does not measure up in
quality to a trained legal mind would not be held to be invalid
on this score. Once it is found that the arbitrators approach is
not arbitrary or capricious, then he is the last word on facts. In
P.R.Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities
(P) Ltd.(2012) 1 SCC 594, this Court held:
21. A court does not sit in appeal over the award of
an Arbitral Tribunal by reassessing or re-
appreciating the evidence. An award can be
challenged only under the grounds mentioned in
Section 34(2) of the Act. The Arbitral Tribunal has
examined the facts and held that both the second
respondent and the appellant are liable. The case as
put forward by the first respondent has been
accepted. Even the minority view was that the
second respondent was liable as claimed by the
first respondent, but the appellant was not liable
only on the ground that the arbitrators appointed
by the Stock Exchange under Bye-law 248, in a
OMP (COMM.) 222/2017 Page 7
claim against a non-member, had no jurisdiction to
decide a claim against another member. The
finding of the majority is that the appellant did the
transaction in the name of the second respondent
and is therefore, liable along with the second
respondent. Therefore, in the absence of any
ground under Section 34(2) of the Act, it is not
possible to re-examine the facts to find out whether
a different decision can be arrived at.
................"
7. Keeping in view the finding of the facts recorded by the learned
Arbitrator and the above legal position, it is manifest that there is no merit in
the plea of the learned counsel for the petitioner stating that the learned
Arbitrator has wrongly concluded that delay took place on account of the
acts of the petitioner.
8. As far as the other plea of learned counsel for the petitioner is
concerned, learned counsel has relied upon various clauses of the said
Agreement to contend that no payment of damages could have been given on
account of the delay caused therein by the petitioner. The learned Arbitrator
has wrongly and illegally awarded damages to the respondent for the alleged
delay caused by the petitioner.
9. Reliance is placed on clause 2.3.1 (XVIII) of the said Agreement,
Special Condition Number 7.16 and Special Condition Number 7.41. The
relevant clauses read as follows:-
"(B) CLAUSES 2.3.1 (xviii) AT PAGE 21 OF THE
AGREEMENT
"Services like water supply lines, sewer lines, storm water
drains, electricity lines, over head and underground
OMP (COMM.) 222/2017 Page 8
cables/structures, if any falling in the alignment of the work
(which are required to be removed or shifted in the opinion of
the Engineer-in Charge shall be removed/shifted by the
Department if found necessary by the Engineer-in Charge.
Time taken for its shifting, removal, diversion shall be
accounted for towards according extension of time if it
actually causes hindrance in execution as per the discretion of
the Engineer-in Charge. No claim for delay or otherwise due to
above reasons shall be entertained on this account.
......
(E) SPECIAL CONDITION No.7.16 AT PAGE-79 OF
THE AGREEMENT
"The contractor will not have any claim in case of any delay by
the Engineer-in-Charge in removal of trees or shifting, raising,
removing of telegraph, telephone or electric lines (overhead or
underground), water and sewer lines and other structures etc., if
any, which may come in the way of the work."
(F) SPECIAL CONDITION No.7.41 AT PAGE-84 OF THE
AGREEMENT
"The drawings listed in the tender documents placed In
Volume-II of the tender documents are indicative. The
execution drawings may undergo changes. The drawings
enclosed with the tender documents explain the concept and the
complexity involved in the project. It is made clear that changes
made in the execution drawings due to technical reasons in the
opinion of the Engineer-in Charge shall be incorporated in the
work within the quoted rate and nothing extra shall be payable
for such changes."
10. A perusal of the Award would show that the learned Arbitrator has
noted the above clauses. The award, however, concludes that the intention of
these terms was not to deny to the contractor payment, if same is due under
section 73 of the Contract Act. It is not possible the award conclude to hold
OMP (COMM.) 222/2017 Page 9
that if the said agreement is prolonged for any length of time due to reasons
attributable to the petitioner, no amount would be payable to the respondent.
The award also concludes that statutory damages which would flow from
Section 73 of the Contract Act cannot be ousted from the said agreement by
the consent of parties. He also relies upon section 28 of the Arbitration Act
to note that as per the Arbitration Act the Arbitrator is to decide in
accordance with substantive law in force in India. Hence, the learned
Arbitrator concludes that the respondent is entitled to damages on account of
prolongation of the contract.
11. I may note that the learned Arbitrator concludes that the petitioner has
committed serious breach which is of a fundamental nature and which goes
to the very root of the contract and the petitioner is entirely responsible for
the delay in completion of the work
12. The clauses relied upon by the learned counsel for the petitioner
would show that the said clauses provide that where services like water
supply lines, sewer lines, storm water drains, electricity lines, over head and
underground cables/structures, if any falling in the alignment of the work
which are required to be removed or shifted shall be accounted for towards
according extension of time, but no claim due to delay caused will be
entertained. The special condition No.7.16 the same conditions regarding
removal of trees or shifting, raising, removing of telegraph, telephone or
electric lines (overhead or underground), water and sewer lines and other
structures etc. The condition No.7.41 states that changes made in the
drawings shall be incorporated in the work within the quoted rate and
nothing shall be payable for extra work.
OMP (COMM.) 222/2017 Page 10
13. I may note that the learned Arbitrator has taken the view that the
parties cannot contract out the provisions of Section 73 of the Contract Act.
Having recorded a finding of fact that the petitioner was guilty of breach of
the most fundamental nature which goes to the root of the contract, the
learned Arbitrator has awarded the above claims in favour of the respondent
for the delay caused by the petitioner.
14. A single bench of this court in Simplex Concrete Piles (India) Ltd.
vs. Union of India, ILR (2010) II Delhi 699 had also accepted such a
proposition. This court held as follows:-
"15. The issue therefore boils down to whether rights which
are created by Section 73 and 55 of the Contract Act can or
cannot be contractually waived. If there is a public policy or
public interest element in these Sections, then the rights
under these sections cannot be waived. Let us examine the
matter. If we look at that portion of the Contract Act, 1872
till Section 73 it broadly comprises of three parts. The First
part is the formation and the requirements for the formation
of a legal agreement/contract. The second part deals with
the performance thereof. The third part deals with the effect
of breach of the contract.
Provisions pertaining to the effect of breach of contract, two
of which provisions are Sections 73 and 55, in my opinion,
are the very heart, foundation and the basis for existence of
the Contract Act. This is because a contract which can be
broken at will, will destroy the very edifice of the Contract
Act. After all, why enter into a contract in the first place
when such contracts can be broken by breaches of the other
party without any consequential effect upon the guilty
party? It therefore is a matter of public policy that the
sanctity of the contracts and the bindingness thereof should
be given precedence over the entitlement to breach the same
by virtue of contractual clauses with no remedy to the
aggrieved party. Contracts are entered into because they are
OMP (COMM.) 222/2017 Page 11
sacrosanct. If Sections 73 and 55 are not allowed to prevail,
then, in my opinion, parties would in fact not even enter into
contracts because commercial contracts are entered into for
the purpose of profits and benefits and which elements will
be non-existent if deliberate breaches without any
consequences on the guilty party are permitted. If there has
to be no benefit and commercial gain out of a contract,
because, the same can be broken at will without any
consequences on the guilty party, the entire sub-stratum of
contractual relations will stand imploded and exploded. It is
inconceivable that in contracts performance is at the will of
a person without any threat or fear of any consequences of a
breach of contract. Putting it differently, the entire
commercial world will be in complete turmoil if the effect
of Sections 55 and 73 of the Contract Act are taken away.
......
16. Provisions of the contract which will set at naught the
legislative intendment of the Contract Act, I would hold the
same to be void being against public interest and public
policy. Such clauses are also void because it would defeat
the provisions of law which is surely not in public interest to
ensure smooth operation of commercial relations. I therefore
hold that the contractual clauses such as Clauses 11A to
11C, on their interpretation to disentitle the aggrieved party
to the benefits of Sections 55 and 73, would be void being
violative of Section 23 of the Contract Act. The
interpretation given by the Supreme Court in the Ram Nath
International case is a literal and strict interpretation of
clauses whereby the expression "reason beyond the control
of the contractor" has been so strictly and literally
interpreted to include even those cases which are on account
of the defaults of the employer itself and but for the said
judgment I would have preferred to interpret the clauses in
the manner which the Arbitrator has done and not strike
them down by applying Section 23 of the Contract Act. I
have also reproduced above the reasoning given in the
OMP (COMM.) 222/2017 Page 12
Award which in my opinion, would otherwise have been
enough to dispose of this case, however, the said findings in
the award being totally against a direct opposite
interpretation given to such clauses by the Supreme Court,
would therefore have to give way."
15. However in my opinion even on a reading of the said clauses, they
would have no application here. I may note that the learned Arbitrator has
noted various facts which have led to monumental delay on the part of the
petitioners. Some of the facts noted by the learned Arbitrator include making
available hindrance free site by the petitioner, making available working
drawings, deciding on GAD etc. The clauses relied upon by learned counsel
for the petitioner, namely, Clause 2.3.1 (xviii), Clause Special Condition
No.7.16 and special condition No.7.41 do not necessarily deal with these
grounds. None of these clauses stipulate that in case the supply of drawings
is delayed, the respondent shall not be entitled to claim damages for the
same. The said clauses do not also deal with damages arising due to delay
caused due to repeated changes in the required construction, poor planning,
etc. In fact the extent of delay is monumental. The learned Arbitrator notes
that as per the Agreement the work was to be completed within 17 months.
The work was to conclude on 29.12.2006. However, the issue of drawings
by the petitioner continued even after this period of 29.12.2006 and has
continued till 10.01.2009 that is more than two years after the stipulated date
of completion of the contract. In the light of these glaring delays found by
the learned Arbitrator, the learned Arbitrator has awarded the necessary
damages. This is a plausible interpretation of the terms of the contract.
OMP (COMM.) 222/2017 Page 13
16. Interpretation of an agreement is within the domain of the arbitrator.
Reference may be had to the judgment of the Supreme Court in the case of
McDermott International Inc. vs. Burn Standard Co. Ltd. and Ors., (2006)
11 SCC 181, wherein the court held as follows:
"112. It is trite that the terms of the contract can be express or
implied. The conduct of the parties would also be a relevant
factor in the matter of construction of a contract. The
construction of the contract agreement, is within the jurisdiction
of the arbitrators having regard to the wide nature, scope and
ambit of the arbitration agreement and they cannot, be said to
have misdirected themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to be
taken into consideration for the purpose of construction of a
contract. Interpretation of a contract is a matter for the arbitrator
to determine, even if it gives rise to determination of a question
of law. [See Pure Helium India (P) Ltd. v. Oil & Natural Gas
Commission: AIR 2003 SC 4519 and D.D. Sharma v. Union of
India: (2004) 5 SCC 325].
113. Once, thus, it is held that the arbitrator had the jurisdiction,
no further question shall be raised and the court will not exercise
its jurisdiction unless it is found that there exists any bar on the
face of the award."
Hence, there is no merit in the afore-noted plea of the petitioner.
17. As far as the plea of the petitioner of bias of the Arbitrator is
concerned, it may be noted that the Arbitrator is the nominee of the
petitioner. The contention is that on account of the some old differences
while in service the Arbitrator has made the Award against the petitioner.
OMP (COMM.) 222/2017 Page 14
18. Reference in this context may be had to the judgment of the Supreme
Court in the case of Government of T.N. vs. Munuswamy Mudaliar and
Anr., 1988 (Supp) SCC 651. The court held as follows:
"12. Reasonable apprehension of bias in the mind of a
reasonable man can be a ground for removal of the arbitrator.
A predisposition to decide for or against one party, without
proper regard to the true merits of the dispute is bias. There
must be reasonable apprehension of that predisposition. The
reasonable apprehension must be based on cogent materials.
See the observations of Mustill and Boyd, Commercial
Arbitration, 1982 Edition, page 214. Halsbury's Laws of
England, Fourth Edition, Volume 2, para 551, page 282
describe that the test for bias is whether a reasonable intelligent
man, fully appraised of all the circumstances, would feel a
serious apprehension of bias.
13. This Court in International Authority of lndia v. K.D.
Bali and Anr., held that there must be reasonable evidence to
satisfy that there was a real likelihood of bias. Vague
suspicions of whimsical, capricious and unreasonable people
should not be made the standard to regulate normal human
conduct. In this country in numerous contracts with the
Government, clauses requiring the Superintending Engineer or
some official of the Govt. to be the arbitrator are there. It
cannot be said that the Superintending Engineer, as such
cannot be entrusted with the work of arbitration and that an
apprehension, simpliciter in the mind of the contractor without
any tangible ground, would be a justification for removal. No
other ground for the alleged apprehension was indicated in the
pleadings before the learned Judge or the decision of the
learned Judge. There was, in our opinion, no ground for
removal of the arbitrator. Mere imagination of a ground cannot
be an excuse for apprehending bias in the mind of the chosen
arbitrator."
OMP (COMM.) 222/2017 Page 15
19. Clearly, the allegations made against the learned Arbitrator are vague
and whimsical and need not be dealt with any further.
20. It is clear that what has been recorded by the learned Arbitrator are
essentially findings of fact. Other than making a vague and unsubstantiated
plea about bias on the part of the learned Arbitrator nothing else has been
argued before this court.
21. Hence, none of the submissions made by the learned counsel for the
petitioner have any merits. There are no reasons for this court to interfere
with the award passed by the learned arbitrator. There is no merit in the
present petition. Same is dismissed.
(JAYANT NATH)
JUDGE
JANUARY 29, 2018/n
Signed and corrected on 15.02.2018.
OMP (COMM.) 222/2017 Page 16
