Delhi High Court
Asf Infrastructure Private ... vs Jyoti Rath Associates Private ... on 23 March, 2018
$~36
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 26/2017
ASF INFRASTRUCTURE PRIVATE
LIMITED ..... Petitioner
Through: Mr Amit Sibal, Senior
Advocate with Mr Tejas Karia,
Mr Surjendu Sankar Das, Mr
Niranjan Behra and Ms Amee
Rana, Advocates.
versus
JYOTI RATH ASSOCIATES PRIVATE
LIMITED ..... Respondent
Through: Mr Amit Bhagat and Mr V.
Akshay, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 23.03.2018
VIBHU BAKHRU, J
1. The petitioner has filed the present petition under Section 34 of
the Arbitration and Conciliation Act, 1996 (hereafter the „the Act‟)
impugning the arbitral award dated 26.08.2016 (hereafter „the
impugned award‟) delivered by the Arbitral Tribunal constituted by a
Sole Arbitrator, Justice B. A. Khan, former Judge of this Court
(hereafter „the Arbitral Tribunal‟). The impugned award was rendered
in the context of disputes that had arisen between the parties in respect
of the „Service Agreement‟ dated 30.03.2006 (hereafter „the
Agreement‟), which was entered into between the parties, whereby the
respondent was appointed to render architectural and other allied
services.
2. The petitioner alleged that there was deficiency in the services
and the respondent had failed to submit complete drawings and design
in respect of various components. The petitioner also alleged that the
respondent had abandoned the work and consequently, the petitioner
was constrained to avail services of another consultant for execution
of the balance work. The petitioner also submitted that the drawings
furnished by the respondent were defective and the roof constructed
based on the said drawings had sagged. Consequently, the petitioner
also claimed damages on that count. The respondent also raised
counter claims aggregating `6,36,95,517/-. The said counter claims
included a claim of `1 crore for non declaration of the respondent as
the official architect of the project in question; `25,49,634/- as the
balance contractual fee; and interest of `7,45,536/- thereon.
3. The Arbitral Tribunal rejected the claims made by the petitioner
and also most of the counter claims made by the respondent.
However, the Arbitral Tribunal directed that the respondent be
declared as an official architect of the project and further awarded a
sum of `7,66,000/- in favour of the respondent as balance fee due
under the Agreement. In addition, the Arbitral Tribunal also awarded
interests at the rate of 9% on the aforesaid fee from the date of
termination of the Agreement (that is, 08.03.2007) till the date of
actual payment.
4. Although, Mr Sibal, the learned Senior Counsel appearing for
the petitioner had initially advanced arguments with respect to the
rejection of certain claims made by the petitioner; however,
subsequently, he restricted the challenge to the impugned award only
in respect of two aspects, namely: (i) the Arbitral Tribunal‟s direction
to declare the respondent as an official architect of the project; and (ii)
the award of `7,66,000/- in favour of the respondent along with
interest thereon.
5. Briefly stated, the relevant facts necessary to address the
aforesaid controversy are as under:-
5.1 The petitioner (then known as Canton Marketing Private
Limited) in terms of the Lease Agreement dated 14.04.2006 took on
lease two bare shell buildings (Block A & B) comprising of a
basement and ground to 6th floor on a piece of land measuring 2.5
acres from Haryana Industrial Development Corporation (HIDC). The
object was to develop a Software Development Centre (SDC), which
was to be leased to Tata Consultancy Services Limited (TCSL).
5.2 The petitioner, thereafter, appointed the respondent for
rendering services relating to the internal fitment, designing and
supervision of the project. A Letter of Intent (LOI) dated 04.01.2016
was issued by the petitioner to the respondent. Thereafter, on
30.03.2006, the parties entered into the Agreement (Service
Agreement).
5.3 It was agreed between the parties that the petitioner will be paid
professional fee of `69,50,000/-, in stages, for rendering the services
as agreed under the Agreement.
5.4 The scope of the work was enhanced and the petitioner agreed
to pay a further fee of `9 lakhs in respect of such enhanced work.
Although, there is no dispute that the petitioner had agreed to pay the
said enhanced fee, there is some controversy as to the manner in
which the same was to be paid.
5.5 The petitioner terminated the Agreement on 08.03.2007 alleging
failure on the part of the respondent to comply with its obligations
under the Agreement.
5.6 Thereafter, the petitioner sent a notice dated 16.04.2007
claiming a sum of `9,01,27,000/- on account of breach of the
Agreement alleged to have been committed by the respondent. The
petitioner also proposed the name of the Sole Arbitrator to be
appointed to resolve the disputes.
5.7 The respondent responded by a letter dated 28.04.2007
disputing the allegations made by the petitioner and further raised the
counter claims aggregating `6,36,95,517.72/-. The breakup of the
counter claims is set out below:-
"(a) ₹2 crores for the loss due termination of the Contract,
(b) ₹1 crore for non declaration as the official Architect
of the Project,
(c) ₹2.35 Crores for loss of business opportunity,
(d) ₹42 lacs for loss caused due to delays of Claimant,
(e) ₹25,49,634/- and for balance contractual fee and
₹7,45,536/- as interest."
5.8 Since the parties would not agree on appointment of a Sole
Arbitrator, this Court by an order dated 18.09.2007 appointed the sole
arbitrator to adjudicate the disputes between the parties.
5.9 The Arbitral Tribunal framed the following issues for
consideration:-
"i) Was Respondent wholly and solely
responsible for the overall supervision and
completion of the project and had he failed
in this?
ii) Had Respondent committed breach of any
terms of the service agreement dated
30.03.2006 by delaying the submissions of
designs/drawings or by their non-
submission?
iii) Was Respondent‟s contract validly
terminated and was appointment of new
Architect justified?
iv) Had Respondent supplied any deficient and
wrong drawings/designs resulting in the
sagging of the 7th Floor or Tower B, which
had to be rectified at the cost of Rs.45 lacs?
v) Had Claimant suffered any loss/damages of
Rs. 9,01,27,000/- due to Respondent‟s non-
performance of the contract?
vi) In Respondent entitled to Counter Claim of
Rs.6,36,95,517.72?"
6. The Arbitral Tribunal held that it was difficult to hold that the
respondent had delayed the delivery of drawings or had committed
any breach of the terms of the Agreement resulting in any loss or
damage to the petitioner. The Arbitral Tribunal also held that the
respondent was not solely responsible for the completion of the project
and rejected the plea that the respondent had failed to exercise due
control or supervision to coordinate the work with other agencies.
Accordingly, the first three issues framed by the Arbitral Tribunal
were decided against the petitioner. The Arbitral Tribunal also found
that the termination of the Agreement by the petitioner was wrongful
and illegal and in contravention of the Agreement.
7. The Arbitral Tribunal also rejected the petitioner‟s claim that
there was any deficiency or defect in the drawings and accordingly,
rejected the petitioner‟s claim for the amount spent on rectification of
the defects. Consequently, the fourth and fifth issues were also
decided in favour of the respondent and against the petitioner.
8. With regard to the counter claims made by the respondent (the
sixth issue), the Arbitral Tribunal rejected the claim for damages on
account of loss due to the termination of the contract; loss of business
opportunity and loss caused due to delays of the petitioner.
9. Insofar as the respondent‟s claim for a sum of `1 crore as
damages for not being declared the official architect of the project, is
concerned, the Arbitral Tribunal declined to award any damages in
favour of the respondent on this ground but directed the petitioner to
declare the respondent as the official architect of the project. The
relevant extract of the impugned order reads as under:-
"Respondent also claims a compensation of ₹1 crore for
not being declared the official architect of the project. I
find some merit in his demand for his declaration as
official architect in a different context, notwithstanding
that there is no provision in this regard in the Service
Agreement. In my view the Respondent is the author of the
project, which is his creation and brainchild. No other
architect or creator has contributed to the final shape it has
taken. Therefore, his creativity needs to be respected and
recognized ignoring the dispute between him and the
Claimant. I accordingly deem it appropriate to direct the
Claimant to declare him as the official architect of the
project by satisfying necessary requirements, which may
be attached to such declaration. His monetary claim for
this is rejected."
10. Mr Sibal contended that there is no provision under the
Agreement for declaring the respondent to be an official architect and,
therefore, the aforesaid direction was outside the terms of the
Agreement. This Court finds the said contention merited as the
learned counsel appearing for the respondent has not been able to
point out any provision under the Agreement which entitled the
respondent to be declared as an official architect of the project. Thus,
the Arbitral Tribunal‟s directions in this regard cannot be sustained.
11. The next question to be addressed is with regard to the award of
`7,66,000/- as the balance fee payable to the respondent. In this
regard, the Arbitral Tribunal accepted that the payments were to be
made on pro rata basis commensurate with the work implemented.
Whereas, the respondent claimed that it had completed 93% of the
work. The petitioner claimed that only 72% of the work had been
executed. The Arbitral Tribunal proceeded to award the balance fee
on the petitioner‟s admission that 72% of the work was completed.
The relevant extract of the impugned award reads as under:-
"What is certified is 72% of the work by Claimant as per
claimant and 74.8% (certified as per Respondent). I take
72% as authentic because this is the Claimant‟s figure and
the Claimant is the certifying authority. Working out the
entitlement of Respondent on this admitted percentage of
72% fee dues come to Rs.56,16,000/- out of which he has
received only Rs.48,50,000/- leaving a balance of
Rs.7,66,000/-."
12. Mr Sibal further contended that there are three patent errors in
the above decision of the Arbitral Tribunal. First is that the Arbitral
Tribunal had awarded a claim based on the quantum of work executed
and had overlooked the terms of the payment as agreed between the
parties. He referred to the terms of payment under the Agreement,
which provided that the fee would be paid in nine progressive stages.
Respondent would be entitled to 40% of the fee till the fifth stage and
40% of the fee on the basis of pro rata work at the sixth stage. The
balance 20% of the fee was to be paid in three stages (from seventh to
ninth), which had not been reached. He contended that therefore, the
respondent would be entitled to 40% (from stage 1 to 5) and 72% of
40% of the fee due at the sixth stage. He submitted that the Arbitral
Tribunal had erred in concluding that 72% of the fee was payable.
13. According to Mr Sibal, the second error is that the payment
received by the respondent was ₹48,65,000/- and not ₹48,50,000/- as
noted by the Arbitral Tribunal.
14. Lastly, he stated that the Arbitrator had erred in proceeding on
the basis that the fee payable to the petitioner was `78,50,000/-. He
submitted that the agreed fee was `69,50,000/- and the Arbitral
Tribunal had erred in including further `9,00,000/- on account of
additional fee. He stated that the said fee was not payable along with
the fee payable at the last two stages and, thus, the stage for payment
of such fee had not been achieved. He further stated that the enhanced
work for which such additional fee was agreed had not been
performed and, thus, the respondent was not entitled to such fees.
15. Mr Amit Bhagat, the learned counsel appearing for the
respondent countered the aforesaid contention. He relied on an email
dated 04.12.2006, whereby the petitioner had agreed to the increase in
the fee by a sum of `9,00,000/-
16. There is much merit in Mr Sibal‟s contention that there are ex
facie errors in the reasoning and conclusion of the Arbitral Tribunal
with regard to the award of `7,66,000/-. First of all, there is no
dispute that the respondent was to be paid in stages. The terms of
payment as included in the Agreement are set out below:
"TERMS OF PAYMENT
1.1 Canton shall pay the Contract Price to the Architect as
follows:
S.No. Percentage Conditions to be satisfied by the
of Architect
Contract
Price
1. 5% On signing of the Letter of Intent
2. 5% On signing of the Agreement
3. 10% On approval and upon compliance
of obligations upto the said stage of
schematic drawings by Owner
4. 10% On approval of designs, material,
specifications, finishes, estimate
and issue of tenders and upon
compliance of obligations upto the
said stage.
5. 10% On issue of working drawings at
work commencement stage and
upon compliance of obligations
upto the said stage.
6. 40% To be paid in installments
consistent with the value of works
implemented at site, payable pro-
rata upon certification of bills for
such works.
7. 10% On virtual completion of the
relevant Project works and
handover by respective contractors
and upon compliance of obligations
upto the said stage.
8. 7.50% On Project Closure and upon
compliance of obligations upto the
said stage.
9. 2.50% On expiry of the Defect Liability
Period
17. In the written submissions filed on behalf of the petitioner
before the Arbitral Tribunal, the petitioner had accepted that at the
time of termination of the Agreement, less than 72% of the work was
complete and the respondent was paid 30% fee at that stage; that is,
75% of 40% fee due at that stage (the sixth stage)
18. The petitioner had also claimed that 78.4% of the work had
been certified. Thus, there is no dispute that at the Sixth stage, the
respondent would be entitled to claim 30% of the fee (being 75% of
40%). Taking into account that the respondent was entitled to 40% of
the fee during the first five stages (stages 1 to 5), the respondent would
be entitled to 70% of the total fee and not 72% as held by the Arbitral
Tribunal. Although, the difference between the percentage of fee
awarded and that as contended on behalf of the petitioner is only 2%,
nonetheless, it cannot be disputed that the Arbitral Tribunal has erred
in proceeding on the basis that 72% of the total fee due to the
respondent was required to be paid by the petitioner. There is also no
dispute that the respondent had received a sum of `48,65,000/- and not
`48,50,000/- as noted by the Arbitral Tribunal.
19. The Arbitral Tribunal had proceeded on the basis that the total
fee payable by the respondent was `78,50,000/-. The Arbitral Tribunal
completely ignored the disputes as to whether the enhanced fee of
`9,00,000/- was required to be included in the fee payable at the sixth
stage. In its statement of claims, the petitioner had averred that the
petitioner had agreed to pay a sum of `9,00,000/- over and above the
contract price to avoid further delays and the same was payable in two
equal installments alongwith the last two installments of the contract
price. The email dated 04.12.2006, which was relied upon by the
learned counsel for the respondent, also indicates that the additional
fee would be payable along with the last two installments.
Admittedly, the stage for making the payment of last two installments
had not been achieved.
20. The learned counsel appearing for the respondent had
contended that while calculating the percentage of the work done, the
petitioner had taken into account the value of the additional work and
thus, it is not open for the petitioner now to contend that the additional
fee be excluded from the computation of the amount payable to the
respondent. It also contended that the examination of various
communications between the parties clearly establish that the
respondent was entitled to the additional fee as agreed between the
parties.
21. It is not necessary for this Court to examine the disputes
whether the additional fee was payable to the respondent or not as it is
clear that this is a contentious issue and this controversy has not been
addressed by the Arbitral Tribunal. The Arbitral Tribunal has simply
proceeded on the basis that the total fee payable to the respondent was
₹78,50,000/- without adjudicating the disputes in regard to the
additional fee. In this view, the impugned award to the extent that it
awards a sum of `7,66,000/- cannot be sustained as the disputes
relating to whether the respondent was entitled to additional fee
remains un-adjudicated. Consequently, the award of interest on the
sum of `7,66,000/- in favour of the respondent also cannot be
sustained. It will always be open for the parties to resolve these
disputes through arbitration.
22. In view of the above, the impugned award to the extent it directs
the petitioner to declare the respondent as an official architect of the
project and to the extent it awards a sum of `7,66,000/- along with
interest in favour of the respondent, is set aside.
23. The petition is disposed of in the above terms.
VIBHU BAKHRU, J
MARCH 23, 2018
MK
