Delhi High Court
Central Warehousing Corporation vs M/S Vardhaman Precision Profiles ... on 19 February, 2019
$~24
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. 760/2012
Date of Decision : 19th February, 2019
CENTRAL WAREHOUSING CORPORATION
..... Petitioner
Through: Mr.K.K. Tyagi & Mr.Iftekhar
Ahmad, Advs.
versus
M/S VARDHAMAN PRECISION PROFILES AND TUBES
PVT LTD ..... Respondent
Through: Mr.Sunil K. Jain, Mr.Punya
Garg & Mr.Abhishek Jain,
Advs.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
NAVIN CHAWLA, J. (Oral)
1. This petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the „Act‟) has been
filed by the petitioner challenging the Arbitral Award dated
29.07.2009 passed by the Sole Arbitrator adjudicating the disputes that
have arisen between the parties in relation to Letter of Intent/Work
Order dated 06.08.2004 issued by the petitioner in favour of
respondent for the construction work of 8580 sq.mts. covered
warehouse (design, supplying and erecting pre-fabricated and pre-
engineered warehouse) at 30 Ha. Plot, Sector 10, D'Node, Navi
Mumbai.
O.M.P. 760/2012 Page 1
2. The challenge of the petitioner is confined only to the Award
under Claim no. 1 and Claim No. 2 awarded in favour of the
respondent.
3. Claim No. 1 of the respondent was towards payment of
withheld amount towards liquidated damages / penalty amounting to
Rs. 23,48,346/-. The learned counsel for the petitioner submits that in
terms of Clause 2 read with Clause 25 of the Agreement, decision of
the Chief Engineer/Superintendent Engineer/Executive Engineer on
the question of delay and consequential compensation in form of
liquidated damages is an „excepted matter‟ and cannot be made
subject matter of an arbitration proceeding. He has placed reliance on
the Judgments of the Supreme Court in Vishwanath Sood v. Union of
India and Another, (1989) 1 SCC 657; General Manager, Northern
Railway and Another v. Sarvesh Chopra, (2002) 4 SCC 45 and Food
Corporation of India v. Surendra, Devendra & Mahendra Transport
Co., (2003) 4 SCC 80, as well as of this Court in Union of India v.
M/s J.N. Constructions, 107 (2003) DLT 772 (DB), to contend that
the Courts have interpreted pari materia clauses in the Agreement to
hold that such disputes are not arbitrable, being "excepted matter".
4. On the other hand, the learned counsel for the respondent
submits that the dispute was arbitrable inasmuch as the petitioner had
not placed on record any notice or decision of the Chief
Engineer/Superintendent Engineer/Executive Engineer in accordance
with Clause 2 of the Agreement. He submits that even the Arbitrator,
in the Impugned Award, has therefore, held that the decision to levy
O.M.P. 760/2012 Page 2
liquidated damages by the petitioner is not an „excepted matter‟ under
Clause 25 of the Agreement.
5. I have considered the submissions made by the learned counsel
for the parties. Clause 2 and Clause 25 of the Agreement are
reproduced hereinbelow:-
"Clause 2- The time allowed for carrying out the work as
entered in the tender shall be strictly observed by the contractor
and shall be deemed to be the essence of the contract on the
part of the contractor and shall be reckoned from the tenth and
after the date on which the order to commence the work is
issued to the contractor. The work shall throughout the
stipulated period of the contract be proceeded with all due
diligence and the contractors shall pay as compensation
calculated as the Chief Engineer/Supdt. Engineer/Executive
Engineer as the case may be (whose decision in writing shall be
final) may decide on the amount of tendered value of the work
for every complete day/week (applicable) that the work remains
uncommence, or unfinished after the proper dates.
This will also apply to items or group of item for which a
separate period of compensation has been specified.
xxxxxx
Clause - 25 - Except where otherwise provided in the contract
all questions and disputes relating to the meaning of the
specifications, designs, drawings and instructions herein above
mentioned and as to the quality of workmanship of materials
used on the work or as to any other questions, claims, right
matter or thing whatsoever, in any way, arising out of or
relating to the contract, designs, drawings, specifications,
estimates, instructions orders or these conditions or otherwise
concerning the work, or the execution or failure to execute the
same whether arising during the progress of the work or after
the completion or abandonment thereof shall be referred to the
O.M.P. 760/2012 Page 3
sole arbitrator of the person appointed by the Managing
Director, Central Warehouse Corporation................."
6. In Vishwanath Sood (Supra), the Supreme Court was
interpreting almost identical Clauses as Clause 2 and 25 of the present
Agreement in question. The Supreme held that reading Clause 25 with
Clause 2 of the Agreement, it was not open to the Arbitrator to have
entered upon reference with regard to the Claim of liquidated
damages. I may only quote from the judgment as under:-
"8. We have gone through the judgment of the Division Bench
of the High Court and we have also considered the arguments
advanced on both sides. With great respect, we find ourselves
unable to agree with the interpretation placed by the Division
Bench on the terms of the contract. Clause 2 of the contract
makes the time specified for the performance of the contract a
matter of essence and emphasises the need on the part of the
contractor to scrupulously adhere to the time schedule
approved by the Engineer-in-charge. With a view to compel the
contractor to adhere to this time schedule, this clause provides
a kind of penalty in the form of a compensation to the
Department for default in adhering to the time schedule. The
clause envisages an amount of compensation calculated as a
percentage of the estimated cost of the whole work on the basis
of the number of days for which the work remains
uncommenced or unfinished to the prescribed extent on the
relevant dates. We do not agree with the counsel for the
respondent that this is in the nature of an automatic levy to be
made by the Engineer-in-charge based on the number of days of
delay and the estimated amount of work. Firstly, the reference
in clause to the requirement that the work shall throughout the
stipulated period of the contract be proceeded with due
diligence and the reference in the latter part of the clause that
the compensation has to be paid "in the event of the
O.M.P. 760/2012 Page 4
contractor failing to comply with" the prescribed time schedule
make it clear that the levy of compensation is conditioned on
some default or negligence on the part of the contractor.
Secondly, while the clause fixes the rate of compensation at one
per cent for every day of default it takes care to prescribe the
maximum compensation of 10 per cent on this ground and it
also provides for a discretion to the Superintending Engineer to
reduce the rate of penalty from one per cent. Though the clause
does not specifically say so, it is clear that any moderation that
may be done by the Superintending Engineer would depend
upon the circumstances, the nature and periods of default and
the degree of negligence or default that could be attributed to
the contractor. This means that the Superintending Engineer, in
determining the rate of compensation chargeable, will have to
go into all the aspects and determine whether there is any
negligence on the part of the contractor or not. Where there has
been no negligence on the part of the contractor or where on
account of various extraneous circumstances referred to by the
Division Bench such as vis major or default on the part of the
Government or some other unexpected circumstance which does
not justify penalising the contractor, the Superintending
Engineer will be entitled and bound to reduce or even waive the
compensation. It is true that the clause does not in terms
provide for any notice to the contractor by the Superintending
Engineer. But it will be appreciated that in practice the amount
of compensation will be initially levied by the Engineer-in-
charge and the Superintending Engineer comes into the picture
only as some sort of revisional or appellate authority to whom
the contractor appeals for redress. As we see it, clause 2
contains a complete machinery for determination of the
compensation which can be claimed by the Government on the
ground of delay on the part of the contractor in completing the
contract as per the time schedule agreed to between the parties.
The decision of the Superintending Engineer, it seems to us, is
in the nature of a considered decision which he has to arrive at
after considering the various mitigating circumstances that may
be pleaded by the contractor or his plea that he is not liable to
pay compensation at all under this clause. In our opinion the
O.M.P. 760/2012 Page 5
question regarding the amount of compensation leviable under
clause 2 has to be decided only by the Superintending Engineer
and no one else.
9. The Division Bench has construed the expression in Clause 2
in parenthesis that "the Superintending Engineer's decision
shall be final" as referring only to a finality qua the
department; in other words, that it only constitutes a
declaration that no officer in the department can determine the
quantification and that the quantum of compensation levied by
the Superintending Engineer shall not be changed without the
approval of the Government. After referring to certain judicial
decisions regarding the meaning of the word "final" in various
statutes, the Division Bench concluded that the finality cannot
be construed as excluding the jurisdiction of the arbitrator
under Clause 25. We are unable to accept this view. Clause 25
which is the arbitration clause starts with an opening phrase
excluding certain matters and disputes from arbitration and
these are matters or disputes in respect of which provision has
been made elsewhere or otherwise in the contract. These words
in our opinion can have reference only to provisions such as the
one in parenthesis in clause 2 by which certain types of
determinations are left to the administrative authorities
concerned. If that be not so, the words "except where otherwise
provided in the contract" would become meaningless. We are
therefore inclined to hold that the opening part of clause 25
clearly excludes matters like those mentioned in clause 2 in
respect of which any dispute is left to be decided by a higher
official of the Department. Our conclusion, therefore, is that the
question of awarding compensation under clause 2 is outside
the purview of the arbitrator and that the compensation,
determined under clause 2 either by the Engineer-in-charge or
on further reference by the Superintending Engineer will not be
capable of being called in question before the arbitrator."
7. In Sarvesh Chopra (Supra), the Supreme Court summed up the
law with respect to „excepted matter‟ in the following words:-
O.M.P. 760/2012 Page 6
"17. To sum up, our conclusions are: (i) while deciding a
petition under Section 20 of the Arbitration Act, 1940, the court
is obliged to examine whether a difference which is sought to be
referred to arbitration is one to which the arbitration agreement
applies. If is is a matter excepted from the arbitration
agreement, the court shall be justified in withholding the
reference, (ii) to be an excepted matter it is not necessary that a
departmental or an "in-house" remedy for settlement of claim
must be provided by the contract. Merely for the absence of
provision, for in-house settlement of the claim, the claim does
not cease to be an excepted matter, and (iii) an issue as to
arbitrability of claim is available for determination at all the
three stages- while making reference to arbitration, in the
course of arbitral proceedings and while making the award a
rule of the court."
8. In Food Corporation of India (Supra), the Supreme Court
again, held as under:-
"6. Aggrieved against the order of the High Court the present
appeal has been filed. Counsel appearing for the Corporation
relying upon the judgment of this Court in Rajasthan State
Mines & Minerals Ltd. v. Eastern Engg. Enterprises contended
that the arbitrator acted in excess of his jurisdiction in entering
upon a dispute and making an award of a claim which was not
permitted to be referred to the arbitrator under the contract.
According to him, the claim made and given by the arbitrator
under Issues 3 and 5 regarding transit loss and demurrage and
wharfage charges could not be made as the same had been
specifically excluded under clause (XX) read with clause (XII)
of the agreement. We find substance in this submission.
Arbitration clause (XX) provided that all disputes and
differences arising out of or in any way touching or concerning
the agreement whatsoever could be referred to the sole
arbitration of a person appointed by the Managing Director
except "as to any matter the decision of which is expressly
provided for in the contract". Clause (XII) of the agreement
provided that the contractor would be liable for all costs,
O.M.P. 760/2012 Page 7
damages, demurrage, wharfage charges and expenses etc. or
transit loss suffered by the Corporation and the Senior Regional
Manager shall be the sole authority to determine the said
failures on the part of the contractors or the loss caused
thereby, thus excluding the reference to the arbitrator for the
decision of these disputes. This Court in Rajasthan State Mines
& Minerals Ltd. case has held: (SCC p. 310, para 44)
"44. (f) To find out whether the arbitrator has travelled
beyond his jurisdiction, it would be necessary to consider
the agreement between the parties containing the
arbitration clause. The arbitrator acting beyond his
jurisdiction is a different ground from the error apparent
on the face of the award.
(g) In order to determine whether the arbitrator has acted
in excess of his jurisdiction what has to be seen is
whether the claimant could raise a particular claim
before the arbitrator. If there is a specific term in the
contract or the law which does not permit or give the
arbitrator the power to decide the dispute raised by the
claimant or there is a specific bar in the contract to the
raising of the particular claim then the award passed by
the arbitrator in respect thereof would be in excess of
jurisdiction."
7. The High Court issued a direction by an order dated 16-6-
1988 referring the disputes for arbitration in terms of clause
(XX). The matters which were excluded from the reference to
the arbitrator therefore could not be referred to or decided by
the arbitrator. Entrance of reference by the arbitrator on
disputes which were excluded from reference and the
adjudication thereupon would amount to exceeding in the
exercise of the jurisdiction as held by this Court in Rajasthan
State Mines & Minerals Ltd. case. Since there was a specific
bar to the raising of a claim regarding transit, demurrage and
wharfage charges, the award made by the arbitrator in respect
thereof would be in excess of the jurisdiction."
O.M.P. 760/2012 Page 8
9. This Court also in its Judgment in M/s J.N. Constructions
(Supra), held Clauses similar to Clause 2 and 25 herein and
constituting an „excepted matter‟ are not referable to arbitration.
10. The Arbitrator has placed reliance on the Judgment of Bharat
Sanchar Nigam Limited and Another v. Motorola India Private
Limited, (2009) 2 SCC 337 to hold that in spite of Clause 2 and 25 of
the Agreement the dispute whether a delay was caused and by whom
would be a matter to be determined by the Arbitrator. I am unable to
agree with the said finding of the Arbitrator. In the said Judgment, the
Clause in question left the decision of quantum of liquidated damages
to the Purchaser. The Court held that while the quantum of liquidated
damages under Clause 16.2 may be final, the same has to be based on
a finding of delay under Clause 15.2 of the Agreement therein, which
was not stated to be final and binding. In view of the presence of
Clause 15.2 it was held that such dispute would therefore be
arbitrable. The Court also distinguished the Judgment of Sarvesh
Chopra (Supra) and Vishwanath Sood (Supra) in Bharat Sanchar
Nigam Limited and Another (Supra) and held as under:-
"29. The learned Senior Counsel for the appellants relied on
the decisions of this Court in Vishwanath Sood v. Union of
India and Northern Railway v. Sarvesh Chopra. These cases,
we are afraid, will not be of any help to the appellants being
distinguishable on facts and having different contractual
clauses. We may note that Clause 16.2 cannot be treated as an
excepted matter. This is because admittedly, it does not provide
for any adjudicatory process for decision on a question, dispute
or difference, which is the condition precedent to lead to the
O.M.P. 760/2012 Page 9
stage of quantification of damages nor is it a no-claim or no-
liability clause.
30. In Vishwanath Sood case it was held by this Court that a
particular claim of the Government was excluded because the
Superintendent Engineer acted as the revisional authority to
decide disputes between the two parties by an adjudicatory
process, there being a complete machinery for settlement of the
disputes in the relevant clause and most importantly, the
Superintendent Engineer had the discretion on consideration of
the facts and circumstances including mitigating facts, held no
damages was payable."
31. Again in Sarvesh Chopra this Court had held that the claims
covered by the no-claims clause i.e. where the contractor had
given up the right to make a claim for breach on the part of the
Government was not arbitrable in terms of the arbitration
clause contained therein and Clause 63 of the general
conditions of the contract which provided for exclusion because
no-claim clause was excepted as such claims were simply not
entertainable."
11. The above Judgment, therefore, was not applicable to the facts
of the present case.
12. A submission has been made by the learned counsel for the
respondent that there was no notice issued to the respondent before
imposing liquidated damages, neither was the order/decision in terms
of Clause 2 of the Agreement placed on record by the petitioner.
13. In my view, this would have no effect inasmuch as it has not
been denied that liquidated damages would have been levied pursuant
to an order passed by the Chief Engineer/Superintendent
Engineer/Executive Engineer under Clause 2 of the Agreement.
Further, before the Arbitrator there was no plea raised by the
O.M.P. 760/2012 Page 10
respondent that the petitioner is not entitled to such liquidated
damages as no order/decision has been passed/taken by the concerned
authority under Clause 2 of the Agreement. This submission of the
respondent, therefore has no merit.
14. Claim no. 2 of the respondent was for the refund of the Service
Tax paid by it to the Authorities. The respondent claims that the
Service Tax had been introduced only by the Finance Act, 2004 with
effect from 10.09.2004. In the present case, the Letter of Intent had
been issued on 06.08.2004 and therefore, it was a case of subsequent
Tax Legislation not contemplated by the parties at the time of the
Agreement and was, therefore, reimbursable by the petitioner.
15. The learned counsel for the petitioner submits that the
Arbitrator has erred in holding that this was the case of a subsequent
Tax Legislation inasmuch as the Service Tax on building activities
was already in existence at the time of entering into the Agreement. In
fact, the respondent in its letter dated 20.07.2004, while refusing to
reduce the price during negotiation, had specifically made reference to
the Service Tax stated as under:-
"3. Service tax @10% has been levied on the service
provided for building construction. Even we presume the
cost of [email protected]%, service tax will be 1%."
16. He submits that, therefore, the Arbitrator has erred in granting
above claim in favour of the respondent.
17. I have considered the submission made by the counsel for the
petitioner. It may first be noted that before the Arbitrator there was no
O.M.P. 760/2012 Page 11
dispute raised with regard to the Service Tax being imposed only with
effect from 10.09.2004, that is after the issuance of Letter of Intent.
The only dispute that was raised was with respect to the effect of letter
dated 20.07.2004 of the respondent. The Arbitrator had dealt with this
contention and held as under:-
"22. I accept the contentions of the claimant. The claimant's
letter dated 06.07.2004 (which was after the submission of bids
and prior to the imposition of service tax on the job of erection)
does not take into consideration of service tax and the same was
not taken into account at all as there was no service tax till
those dates on the services of „erection‟. Therefore,
Respondent-Corporation is liable to reimburse the amount
claimed by the claimant with regard to the new statutory levy
(tax) brought into effect subsequent to the date of issue tender
and issue of Letter of Intent. The relevant date has to be the
date of submission of quotation which was 07.04.2004 and
there was no service tax on that date in the statute book and
the levy of the service tax was brought on 19.09.2004 on the
contract work of erection of steel structure. I award Rs.
9,39,339/- in favour of the claimant."
18. Having not raised such objection before the Arbitrator, the
petitioner cannot be allowed to assail the Award on this ground.
19. The learned counsel for the petitioner has further placed
reliance on Clause 4.20 of the Tender Documents which reads as
under:-
"4.20Any other taxes/levies as applicable shall be paid by
contractor directly. No claim whatsoever in this regard
shall be entertained."
O.M.P. 760/2012 Page 12
20. He submits that in view of the above Clause, all taxes, be it in
existence at the time of tender or not, were to be borne by the
respondent.
21. I am unable to agree with the said submission of the learned
counsel for the petitioner. The taxes being referred to in Clause 4.20
can only be those which are leviable at the time of the tender. A party
cannot be held to have taken the burden of taxes which would be
levied after the issuance of the tender/Letter of Intent unless such
intent is evident from the contractual terms, which I find absent in the
present case. Therefore, I find no merit in the objection raised by the
counsel for the petitioner as far as Award of claim no. 2 is concerned.
22. In view of the above, the award of claim No. 1 and award of
consequential interest thereon in Claim no. 8 is set-aside. The petition
is partly allowed. The parties shall bear their own cost.
NAVIN CHAWLA, J
FEBRUARY 19, 2019/rv
O.M.P. 760/2012 Page 13
