Delhi High Court
Dsiidc vs Hr Builders on 11 August, 2021
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 11.08.2021
+ O.M.P. (COMM) 312/2018 and IA Nos. 9696/2018 &
8035/2021
DSIIDC ..... Petitioner
versus
M/S. H.R. BUILDERS ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Ms Firdouse Qutb Wani, Advocate
with Mr Gajender Sharma and
Mr Satish Chandra, ARs for DSIIDC.
For the Respondent : Mr Avinash Kumar Trivedi, Advocate
with Mr Ayush P. Shah, Advocates.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J.
1. The petitioner (hereinafter „DSIIDC‟) has filed the present
petition under Section 34 of the Arbitration and Conciliation Act,
1996 (hereafter the „A&C Act‟) impugning an arbitral award dated
13.04.2018 (hereafter the „impugned award‟) rendered by an Arbitral
Tribunal comprising of a Sole Arbitrator.
2. The impugned award was rendered in the context of disputes
that have arisen between the parties in connection with a contract
awarded to HRB for refurbishment and upgradation of twenty-five
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government schools. The Arbitral Tribunal has rendered a net award
of ₹3,04,91,623/- along with interest, in favour of HRB.
3. Briefly stated, the relevant facts that are necessary to address
the controversy are as under:
4. The Government of NCT of Delhi launched a project for
refurbishment and upgradation of 198 schools run by the Government
of NCT of Delhi. The respondent (hereinafter „DSIIDC‟) was
entrusted with implementation of a part of the project covering
twenty-five schools.
5. On 08.07.2009, DSIIDC invited tenders for entire works (both
civil and electrical) to be executed in respect of twenty-five schools
being a part of the project entrusted to DSIIDC. HRB submitted its bid
for executing the aforesaid works. After negotiations, DSIIDC
accepted HRB‟s offer to execute the said works for a total
consideration of ₹35,46,00,174/-. On 18.08.2009, DSIIDC issued a
Letter of Acceptance (LoA) awarding the work of "Integrated
Infrastructure Development of Delhi Govt. Schools" under the sub-
head "Improvement and Upgradation of 25 Government Schools
Buildings in North West „A‟ District (Composite Work)".
6. The work was to commence on 28.09.2009 and it was stipulated
that the work would be completed on or before 27.09.2010.
7. Thereafter, on 30.09.2009, the parties entered into a formal
agreement (hereinafter „the Agreement‟) for execution of the works.
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8. DSIIDC did not handover the work of twenty-five schools as
agreed to under the Agreement but handed over work pertaining to
only twenty-three schools. There were considerable delays in
completion of the works contracted to HRB and, the same were finally
completed on 18.01.2012; that is, after a delay of 478 days.
9. DSIIDC withheld part payments of the Final Bill and also made
certain recoveries from the amount payable to HRB. According to
DSIIDC, HRB had defaulted in performance of its obligations under
the Agreement within the stipulated time. HRB disputed the same.
According to HRB, the delay in execution of the works was due to
various reasons attributable to DSIIDC and it was not responsible for
any delay.
10. DSIIDC also claimed that the works executed were faulty and
sought to recover damages from HRB. HRB, on the other hand,
claimed that it was not only entitled to the payments withheld by
DSIIDC but was also entitled to compensation on account of
escalation and prolongation of works as well as profits for the works
reduced from the scope of the Agreement (work relating to two
schools which were not handed over to HRB).
11. In view of the aforesaid disputes, HRB invoked the Arbitration
Clause to refer the disputes to arbitration and requested that the
Arbitral Tribunal be constituted to adjudicate the disputes. On
24.10.2016, the Chief Engineer of DSIIDC appointed Sh. O.P. Bhatia,
Former Additional DG (Works Special), CPWD as the Sole Arbitrator
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to adjudicate the subject disputes.
12. HRB filed its Statement of Claims before the Arbitral Tribunal.
DSIIDC filed its Statement of Defence as well as counter claims
amounting to ₹20,05,00,000/-. One of the claims (Claim No.1)
preferred by HRB was greater in value than as indicated by HRB in its
request for arbitration, which was subsequently referred by Chief
Engineer of DSIIDC to the Arbitral Tribunal. In its request for
arbitration, HRB had, inter alia, claimed ₹53,90,498/- as payment due
under the Final Bill. However, in its Statement of Claims, HRB made
a claim of ₹1,40,94,470/- as due and payable under the Final Bill.
13. In addition, HRB also claimed ₹5,00,000/- as costs of
arbitration (Claim No.9). The said claim was also not included in the
claims that were initially made by HRB in its request for arbitration
before the concerned authorities of DSIIDC. Consequently, this claim
was also not included in the disputes referred by the Chief Engineer,
DSIIDC to the Arbitral Tribunal.
14. In view of the above, on 29.03.2017, HRB sent a letter to the
Chief Engineer, DSIIDC requesting it to modify the amount of Claim
No.1 from ₹53,90,498/- to ₹1,40,94,470/- and, to also refer the claim
relating to costs of the arbitral proceedings quantified at ₹5,00,000/-,
to the Arbitral Tribunal.
15. In response to the aforesaid request, the Chief Engineer,
DSIIDC sent a letter dated 27.06.2017 to the Arbitral Tribunal
forwarding HRB‟s communication requesting that its claim for the
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enhanced value and its claim for costs be referred to the Arbitral
Tribunal and, requested the Arbitral Tribunal to peruse the same and
give its „decision/observations‟.
16. The Arbitral Tribunal responded to the said communication
vide an e-mail dated 28.06.2017 confirming that the arbitral award
would not exceed the amount of claims referred.
17. In view of the above, on 26.08.2017, HRB filed an application
under Section 23(3) of the A&C Act praying that it may be permitted
to amend Claim No.1 and also claim costs for the arbitration
proceedings. On 05.09.2017, DSIIDC filed a reply to the said
application opposing the same.
18. The said application was disposed of by the Arbitral Tribunal
by an order dated 27.09.2017 allowing HRB to pursue its claim for
costs but denying its prayer for considering its Claim No.1 at the
enhanced value.
19. Aggrieved by the same, HRB preferred a petition before this
Court under Article 227 of the Constitution of India [being CM(M)
No.1458/2017 captioned „M/s HR Builders vs. DSIIDC‟]. While the
said petition was pending, the Arbitral Tribunal rendered the
impugned award. Consequently, on 10.07.2018, HRB withdrew its
said petition [CM(M) No.1458/2017] with liberty to agitate its
grievance by this petition under Section 34 of the A&C Act.
20. Thereafter, HRB filed a petition under section 34 of the A&C
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Act [OMP (COMM) 324/2018]. The said petition was heard along
with the present petition and has been disposed by a separate order
rendered today.
21. Before proceeding further, it is relevant to refer to the impugned
award. The tabular statement indicating the award made against the
respective claims/counter-claims as summarized by the Arbitral
Tribunal in the impugned award, is re-produced below:
Claim Claim in Amount Amount as Amount Re
No. brief referred by per S.O.C. awarded mar
the C.E. ks
1. Payment 53,90,498 1,40,94,470 42,87,422
of F/bill
2. Release 1,28,71,710 1,27,96,042 1,12,37,900
of
withheld
amounts
and
amount
of illegal
recoverie
s
3. On a/c of 3,69,490 3,69,490 2,77,117
D.VAT
(W.C.T.)
and labor
cess
4. On a/c of 5,10,02,733 3,04,86,958 91,38,560
escalatio
ns in the
extended
period of
contract
5. Damages 3,32,43,766 3,32,43,766 48,45,700
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due to
keeping
staff,
estt; and
machiner
y in the
extended
period
6. Loss of 67,02,683 67,02,683 NIL
profit
due to
reduction
in scope
of work
7. Revalida 7,97,850 7,97,850 NIL
tion
charges
of B.G.s
due to
prolonga
tion of
contract.
8. Interest Amount not Intt. On (i) Intt. On
on specified withheld delayed
delayed amounts payment of
payment Rs.1,61,94, RA
s of RA 821 + intt. bills=2,27,42
& On other 4
F/bills, claims @ (ii) Intt. @
withheld 15% 8.5% p.a. on
amounts amounts
as well awarded
as above under claim
amounts nos.1,2&3 as
per details
9. Cost of 5,00,000+A 2,00,000+2,
arbitratio .T.‟s fee 77,500
n (under
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section 38(2)
of the A&C
Act-1996)
Total 11,03,78,73 11,51,86,08 Rs.3,04,91,6
0 + Intt. 0 + intt. 23 + intt. On
amounts
awarded
under claim
nos.1,2,&3
as per details
Counter Claims:
1. Loss of 20,00,00,000/- 20,00,00,000/- NIL
name,
reputatio
n of
DSIIDC
and loss
of work
of the
DSIIDC
2. Cost of 5,00,000/- + 5,00,000/- + NIL
arbitratio fee and fee
n expenses
Total 20,05,00,000/- 20,05,00,000/- NIL
Submissions
22. Ms Firdouse Qutub Wani, learned counsel appearing for
DSIIDC, has assailed the impugned award to the extent that the
Arbitral Tribunal has allowed HRB‟s Claim nos. 2, 3, 4 and 5 and has
rejected DSIIDC‟s counter claims.
23. The Arbitral Tribunal has partly accepted HRB‟s Claim no. 2
and awarded a sum of ₹1,12,37,900/- against certain recoveries made
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by DSIIDC. Ms Wani submitted that DSIIDC had withheld a sum of
₹1,04,60,700/- on account of levy of compensation on account of
delay on the part of HRB in executing the Works under the Agreement
and the same has been awarded in favour of HRB. She contended that
the award of the said claim is beyond the jurisdiction of the Arbitral
Tribunal. She referred to Clause 2 of the Agreement and submitted
that the decision of the Project Director in respect of such
compensation was final and binding, and therefore, an „excepted‟
matter. The dispute regarding levy of compensation was not arbitrable,
and therefore, the impugned award is liable to be set aside to that
extent. Ms Wani referred to the decision of the Supreme Court in
Mitra Guha Builders (India) Company vs. Oil and Natural Gas
Corporation Limited: 2020 (3) SCC 222, in support of her contention.
24. Next, she submitted that the award of labour cess at 1% and
DVAT at 3% of the quantum of the work done (quantified at
₹2,77,117/-) in favour of the HRB was also patently erroneous. She
submitted that although the Arbitral Tribunal had accepted that
CPWD‟s Manual requires that labour cess and DVAT be included as a
part of the analysis of rates, yet the Arbitral Tribunal had awarded the
said claim beyond the rates approved by the concerned Authority.
25. Next, she contended that the award of escalation (Claim No.4)
in favour of HRB was erroneous as the Arbitral Tribunal had
computed the escalation on the costs indices as approved by DG,
CPWD for building works in Delhi and had not used cost indices for
commodities published by the Economic Bureau for computing the
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said amount. She submitted that the Agreement provided for
computation of escalation on the basis of costs indices of
commodities, and therefore, the Arbitral Tribunal‟s decision was
contrary to Clause 10CC of the Agreement. She stated that the
escalation for labour and material component of the works executed
was required to be included in the bills submitted by HRB and since it
had not done so, it is deemed that HRB had waived its claim in this
regard.
26. Next, she submitted that the amount of compensation of
₹48,45,700/- awarded by the Arbitral Tribunal on account of
prolongation of works is patently erroneous. Overheads were agreed to
constitute 15% of the labour and material component as set out in
Schedule F of the Agreement. She submitted that the Arbitral Tribunal
having awarded escalation on the labour and material component of
the works could award overheads at the rate of 15% of the incremental
value but could not award any amount in excess of 15% of the labour
and material component as finally determined.
27. Lastly, Ms Wani submitted that the decision of the Arbitral
Tribunal to deny DSIIDC‟s counter-claim is patently erroneous as
there could be no doubt that DSIIDC has suffered damages on account
of loss of work. The Govt. of NCT of Delhi had withdrawn the work
of development of site and construction of twenty school buildings
from DSIIDC and transferred the same to PWD by its letter dated
07.05.2012. She submitted that DSIIDC was entitled to charge 5% on
the value of the said works, the costs of which were estimated at ₹400
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crores (twenty schools at the cost of ₹20 Crores each). She stated that
DSIIDC, was thus, entitled to claim such damages from HRB.
28. Mr Trivedi, learned counsel appearing for the HRB countered
the aforesaid submissions. He submitted that the Arbitral Tribunal had
found that DSIIDC was responsible for the delays in execution of the
works. He also referred to the extract of the hindrances sheet, which
indicated the nature of hindrances and the resultant delays. He pointed
out that in respect of the school at Jahangir Puri, E-Block, the effective
delay was quantified at 510 days, which was not attributable to HRB.
Similarly, in respect of the school situated at Bhalsawa Dairy, the
delay was of 475 days. There were similar delays in respect of other
schools as well. He submitted that DSIIDC had also accepted that the
delay of 419 days on account of hindrance, was justified.
29. According to DSIIDC, the delay of 59 days out of the 478 days
was not justified and therefore, it had imposed penalty at the rate of
1.5% per month on the tendereded amount. However, the Arbitral
Tribunal had examined the material and evidence on record and,
concluded that DSIIDC, was is in breach of the Agreement, and
therefore, there is no question of DSIIDC recovering any damages
from HRB.
30. He submitted that it was not DSIIDC‟s case before the Arbitral
Tribunal that the dispute regarding Claim No.2 (recoveries made by
DSIIDC including on account of compensation for delay) was beyond
the jurisdiction of the Arbitral Tribunal or was an excepted matter. He
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stated that there are no pleadings to the said effect either in the
Statement of Defence filed before the Arbitral Tribunal or in the
present petition preferred for setting aside the impugned award.
31. He submitted that in any event, the question whether HRB or
DSIIDC had breached the Agreement, is not an „excepted‟ matter. The
question of quantum of compensation in case it was established that
the contractor had breached the agreement, is a matter of a final
determination by the specified authorities, however, the Project
Director is not the final adjudicator of the question whether the
Agreement had been breached or whether there was any failure on the
part of either party in performance of their obligations. He referred to
the decision of the Supreme Court in J.G. Engineers Pvt. Ltd. vs.
Union of India (UOI) &Anr.: (2011) 5 SCC 758, in support of his
contentions.
Reasons and Conclusion
32. The first and foremost question to be examined is whether the
impugned award, inasmuch as the Arbitral Tribunal has allowed Claim
No.2 of HRB, is without jurisdiction. DSIIDC had withheld/deducted
certain sums aggregating ₹1,27,96,042/- from the amounts payable to
HRB. This included a sum of ₹15,54,400/- on account of the amount
allegedly paid to PWD for certain works and ₹1,04,60,700/- as
compensation for delay in completion of the works. The Arbitral
Tribunal found that a sum of ₹15,54,400/- was withheld to rectify
certain defects. According to DSIIDC, it had paid the said amount to
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PWD for rectifying the defects. The Arbitral Tribunal found that, in
fact, DSIIDC had incurred a liability of only 50% of the amount
withheld for rectification of the said defects. Accordingly, the Arbitral
Tribunal directed that the balance 50% of the said amount, that is, a
sum of ₹7,77,200/- be paid to HRB as the same was in excess of the
liability to cure the defects.
33. Ms Wani has not contested the Arbitral Tribunal‟s decision to
award the amount of ₹7,77,200/- in favour of HRB. She confined her
challenge to the award of an amount of ₹1,04,60,700/-, which was
levied as compensation under Clause 2 of the Agreement on account
of delay in completion of the works. According to DSIIDC, there was
a delay of 478 days in completion of the works out of which HRB was
responsible for a delay of 59 days. The Project Director had,
accordingly, assessed the compensation at the rate of 1.5% per month
of the tendered amount for a period of 59 days. The principal question
to be addressed is whether Arbitral Tribunal‟s decision to award
refund of the said amount in favour of HRB is beyond its jurisdiction.
34. The relevant extract of Clause 2 of the Agreement reads as
under:
"If the contractor fails to maintain the required progress
in terms of clause 5 or to complete the work and clear
the site on or before the contract extended date of
completion, he shall; without prejudice to any right or
remedy available under the law to the Government on
account of such breach, pay as agreed compensation the
amount calculated at the rates stipulated below as the
authority specified in schedule 'F' (whose decision in
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writing shall be final and binding) may decide on the
amount of tendered value of the work for every
completed day/month (as applicable) that the progress
remains below that specified in Clause 5 or that the
work remains incomplete.
This will also apply to items or group of items for which
a separate period of completion has been specified:-
(i) Compensation @1.5% per month of delay
for delay of work to be computed on per day basis
Provided always that the total amount of compensation
for delay to be paid under this Condition shall not
exceed 10% of the Tendered Value of work or of the
Tendered Value of the item or group of items of work for
which a separate period of completion is originally
given.""
35. It is not disputed that the authority as specified under Schedule
„F‟ of the Agreement is empowered to calculate the compensation
payable if the contractor fails to complete the work and clear the site
as agreed. The decision of the specified authority in regard to the
computation of compensation is final and binding on the parties. Such
decision is excluded from the scope of the Arbitration Clause.
However, in the present case, the principal dispute between the parties
is whether HRB is responsible for the delay in maintaining the
required progress and completion of the works within the stipulated
period. According to HRB, DSIIDC is responsible for the delay in
execution of the works, which included delay in providing the sites
and providing necessary drawings. HRB had relied extensively on the
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hindrance register as well as produced other material to establish that
there was no delay on its part in completion of the works in question.
36. HRB had also pointed out that in respect of one of the schools,
the assessed hindrance extended to 510 days. DSIIDC has contested
HRB‟s claim by contending that the delay has to be calculated on an
overall basis and not with respect to individual items or schools.
DSIIDC conceded that the delay of 419 days was not attributable to
HRB but claimed that HRB was accountable for the balance 59 days
delay. The Arbitral Tribunal accepted DSIIDC‟s contention that the
delay had to be viewed on an overall basis as milestones were also
fixed in relation to financial terms and no specified period had been
stipulated for separate schools or separate items. However, the
Arbitral Tribunal found that there was no justification for levy of
compensation as the hindrances in respect of certain schools were
removed barely a fortnight before the date of actual completion. The
Arbitral Tribunal noted that the last of hindrances in four schools were
removed on 04.01.2012, 10.01.2012, 10.01.2012 and 16.01.2012
respectively. The hinderances in question were on account of delay in
handing of the sites; yet the work was completed on 18.01.2012. In
view of the above, the Arbitral Tribunal found that the levy of
compensation was unjustified. In addition to the above, the Arbitral
Tribunal also noted that the compensation levied was not assessed
with reference to any alleged damage. The actual damage or loss
allegedly suffered was also not proved.
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37. It is apparent from the impugned award that the Arbitral
Tribunal did not engage in any exercise of assessing the quantum of
compensation payable in terms of Clause 2 of the Agreement. The
Arbitral Tribunal restricted itself to examining whether there was any
delay on the basis of which any compensation could be paid.
38. In J.G. Engineers Pvt. Ltd. vs. Union of India (UOI) & Anr.:
(supra), the Supreme Court had examined the questions whether an
arbitrator was precluded from adjudicating the issue, whether there
was any delay on the part of the contractor or the department in view
of clauses (2) and (3) of the agreement that was before the Supreme
Court in those proceedings. The said clauses are somewhat similar to
the relevant clauses in the Agreement. The Court had analyzed the
import of those clauses and concluded that, the decision of the
specified authority on the question whether the contractor is
responsible for the delay is not final and binding. However, the
decision of the specified authority on the consequential issues of
quantification of compensation is final. The relevant extract of the said
decision is set out below:
"17. Clauses (2) and (3) of the contract relied upon by
the respondents no doubt make certain decisions by the
Superintending Engineer and Engineer-in-charge
final/final and binding/final and conclusive, in regard to
certain matters. But the question is whether Clauses (2)
and (3) of the agreement stipulate that the decision of
any authority is final in regard to the responsibility for
the delay in execution and consequential breach and
therefore exclude those issues from being the subject-
matter of arbitration. We will refer to and analyse each
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of the "excepted matters" in Clauses (2) and (3) of the
agreement to find their true scope and ambit:
(i) Clause (2) provides that if the work
remains uncommenced or unfinished after
proper dates, the contractor shall pay as
compensation for every day's delay an amount
equal to 1% or such small amount as the
Superintending Engineer (whose decision in
writing shall be final) may decide on the
estimated cost of the whole work as shown in
the tender. What is made final is only the
decision of the Superintending Engineer in
regard to the percentage of compensation
payable by the contractor for every day's delay,
that is, whether it should be 1% or lesser. His
decision is not made final in regard to the
question as to why the work was not
commenced on the due date or remained
unfinished by the due date of completion and
who was responsible for such delay.
(ii) Clause (2) also provides that if the
contractor fails to ensure progress as per the
time schedule submitted by the contractor, he
shall be liable to pay as compensation an
amount equal to 1% or such smaller amount as
the Superintending Engineer (whose decision in
writing shall be final) may decide on the
estimated cost of the whole work for every day
the due quantity of the work remains
incomplete, subject to a ceiling of ten per
cent. This provision makes the decision of the
Superintending Engineer final only in regard to
the percentage of compensation (that is, the
quantum) to be levied and not on the question
as to whether the contractor had failed to
complete the work or the portion of the work
within the agreed time schedule, whether the
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contractor was prevented by any reasons
beyond its control or by the acts or omissions of
the respondents, and who is responsible for the
delay.
(iii) The first part of Clause (3) provides that
if the contractor delays or suspends the
execution of the work so that either in the
judgment of the Engineer-in-charge (which
shall be final and binding), he will be unable to
secure the completion of the work by the date of
completion or he has already failed to complete
the work by that date, certain consequences as
stated therein, will follow. What is made final
by this provision is the decision of the
Engineer-in-charge as to whether the
contractor will be able to secure the completion
of the work by the due date of completion,
which could lead to the termination of the
contract or other consequences. The question
whether such failure to complete the work was
due to reasons for which the contractor was
responsible or the Department was responsible,
or the question whether the contractor was
justified in suspending the execution of the
work, are not matters in regard to which the
decision of the Engineer-in-charge is made
final.
(iv) The second part of Clause (3) of the
agreement provides that where the contractor
had made himself liable for action as stated in
the first part of that clause, the Engineer-in-
charge shall have powers to determine or
rescind the contract and the notice in writing to
the contractor under the hand of the Engineer-
in-charge shall be conclusive evidence of such
termination or rescission. This does not make
the decision of the Engineer-in-charge as to the
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validity of determination or rescission, valid or
final. In fact it does not make any decision of
the Engineer-in-charge final at all. It only
provides that if a notice of termination or
rescission is issued by the Engineer-in-charge
under his signature, it shall be conclusive
evidence of the fact that the contract has been
rescinded or determined.
(v) After determination or rescission of the
contract, if the Engineer-in-charge entrusts the
unexecuted part of the work to another
contractor, for completion, and any expense is
incurred in excess of the sum which would have
been paid to the original contractor if the whole
work had been executed by him, the decision in
writing of the Engineer-in-charge in regard to
such excess shall be final and conclusive, shall
be borne and paid by the original
contractor. What is made final is the actual
calculation of the difference or the excess, that
is, if the value of the unexecuted work as per the
contract with the original contractor was Rs. 1
lakh and the cost of getting it executed by an
alternative contractor was Rs. 1,50,000 what is
made final is the certificate in writing issued by
the Engineer-in-charge that Rs. 50,000 is the
excess cost. The question whether the
determination or rescission of the contractor by
the Engineer-in-charge is valid and legal and
whether it was due to any breach on the part of
the contractor, or whether the contractor could
be made liable to pay such excess, are not
issues on which the decision of Engineer-in-
charge is made final.
18. Thus what is made final and conclusive by
Clauses (2) and (3) of the agreement, is not the decision
of any authority on the issue whether the contractor was
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responsible for the delay or the Department was
responsible for the delay or on the question whether
termination/rescission is valid or illegal. What is made
final, is the decisions on consequential issues relating to
quantification, if there is no dispute as to who committed
breach. That is, if the contractor admits that he is in
breach, or if the arbitrator finds that the contractor is in
breach by being responsible for the delay, the decision of
the Superintending Engineer will be final in regard to
two issues. The first is the percentage (whether it should
be 1% or less) of the value of the work that is to be
levied as liquidated damages per day. The second is the
determination of the actual excess cost in getting the
work completed through an alternative agency. The
decision as to who is responsible for the delay in
execution and who committed breach is not made
subject to any decision of the respondents or its officers,
nor excepted from arbitration under any provision of the
contract.
19. In fact the question whether the other party
committed breach cannot be decided by the party
alleging breach. A contract cannot provide that one party
will be the arbiter to decide whether he committed
breach or the other party committed breach. That
question can only be decided by only an adjudicatory
forum, that is, a court or an Arbitral Tribunal."
39. Further, the Supreme Court had also referred to its earlier
decision in State of Karnataka v. Shree Rameshwara Rice Mills,
Thirthahalli: (1987) 2 SCC 160, wherein the Court had observed as
under:
"7. ... Even assuming for argument‟s sake that the
terms of Clause 12 afford scope for being construed as
empowering the officer of the State to decide upon the
question of breach as well as assess the quantum of
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damages, we do not think that adjudication by the officer
regarding the breach of the contract can be sustained
under law because a party to the agreement cannot be an
arbiter in his own cause. Interests of justice and equity
require that where a party to a contract disputes the
committing of any breach of conditions the adjudication
should be by an independent person or body and not by
the other party to the contract. The position will,
however, be different where there is no dispute or there
is consensus between the contracting parties regarding
the breach of conditions. In such a case the officer of the
State, even though a party to the contract will be well
within his rights in assessing the damages occasioned by
the breach in view of the specific terms of Clause 12.
8. We are, therefore, in agreement with the view of
the Full Bench that the powers of the State under an
agreement entered into by it with a private person
providing for assessment of damages for breach of
conditions and recovery of the damages will stand
confined only to those cases where the breach of
conditions is admitted or it is not disputed."
40. The decision of the Supreme Court in M/s. Mitra Guha
Builders (India) Company v. Oil and Natural Gas Corporation
Limited: (supra) was rendered in the context of a clause, which
empowered the Superintending Engineer to decide on the contract
value for the whole week where the work remained un-commenced
and unfinished. It also provided milestones of the work to be followed
and provided the proportion of the work to be completed in case the
time allowed for completing the work exceeded one month. In the
context of the said clause in that question, the Supreme Court found
that it provided a complete mechanism for determination of liability as
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well as its quantum and therefore, held that the same was beyond the
scope of the arbitration clause in that case.
41. As noticed above, Clause 2 of the Agreement in this case is
somewhat similar to the clause as considered by the Supreme Court in
J.G. Engineers Pvt. Ltd. v. Union of India (UOI) & Anr. (supra).
42. Having stated the above, it is also important to note that before
the Arbitral Tribunal, DSIIDC did not raise any question regarding the
jurisdiction of the Arbitral Tribunal to entertain Claim No.2. The said
claim was specifically referred to the Arbitral Tribunal without any
reservation by the CE, DSIIDC. This Court has also examined the
Statement of Defence filed by DSIIDC and there is no averment to the
effect that the determination of liability under Clause 2 of the
Agreement is an excepted matter. On the contrary, DSIIDC had
joined the controversy as to whether the compensation as recovered
was leviable. Even before this Court, DSIIDC has not made any
averment in the present petition to challenge the decision of the
Arbitral Tribunal allowing HRB‟s Claim No.2 as being without
jurisdiction or on the ground that the said claim was not arbitrable.
There is no averment to the effect that the said dispute (claim)
adjudicated by the Arbitral Tribunal falls is an „excepted‟ matter. The
contention advanced by Ms Wani is clearly an afterthought and, not
supported by pleadings. In this view as well, it would not be apposite
to permit DSIIDC to question the jurisdiction of the Arbitral Tribunal
at this stage.
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43. Considering the above, this Court is unable to accept that the
Arbitral Tribunal‟s decision to award a sum of ₹1,04,60,700/-
recovered by DSIIDC on account of delay in execution of the works,
warrants any interference in these proceedings.
44. The next question to be examined is whether the Arbitral
Tribunal‟s decision to allow HRB‟s claim for labour cess at the rate of
1% and DVAT at the rate of 3% of the amount of work done, is
patently illegal.
45. Ms Wani contended that the said amounts were included in the
rates quoted and the Arbitral Tribunal has committed an error in
awarding the same over and above the said rates. She submitted that
awarding the said amount has effectively subverted the tendering
process as there may have been bidders, who would have included
labour cess and DVAT in the price bid by them for executing the
works in question. The said contention is misconceived. HRB‟s claim
was restricted to recovery of labour cess and DVAT on deviated items.
Obviously, these were items, which were not part of the bid as
submitted by HRB. HRB had submitted its analysis of rates for
payment of deviated items. DSIIDC made payments for these deviated
items on the basis of the analysis of rates as approved. However, it
also recovered labour cess at the rate of 1% and DVAT at the rate of
3% from such payments. HRB raised a claim regarding the said levies
as it claimed that the same did not form a part of the rates approved
for the deviated items.
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46. The Arbitral Tribunal had examined the material on record and
had found that labour cess and DVAT were required to be included in
the analysis of rates. The Arbitral Tribunal drew support from the fact
that the CPWD Manual also requires such levies to be included in the
rates. The Arbitral Tribunal accepted that the same did not form a part
of the approved rates and therefore, allowed HRB‟s claim in this
regard. Clearly, the said decision warrants no interference in these
proceedings. The decision of the Arbitral Tribunal is well reasoned. It
is based on material placed on record and the same cannot be faulted.
In any view of the matter, the said decision cannot be considered as
either patently illegal or violative of the fundamental policy of Indian
law.
47. The contention that the escalation awarded in favour of HRB
(HRB‟s Claim No.4) is patently illegal, is also unpersuasive. It was
contended by Ms Wani that the escalation award is contrary to Clause
10CC of the Agreement. However, it is seen that it was DSIIDC‟s case
before the Arbitral Tribunal that Clause 10CC is not applicable to the
contract in question since the works were to be completed within 12
months. The Arbitral Tribunal had also noted DSIIDC‟s contention to
the effect that Clause 10CC does not form a part of the Agreement.
48. Before the Arbitral Tribunal, it was contended on behalf of
DSIIDC that Clauses 10C and 10CA of the Agreement were
applicable and the escalation was to be paid under the said clauses but
HRB has not raised bills under the said clauses. The Arbitral Tribunal
found that HRB had raised one bill under Clause 10CA for a sum of
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₹16,03,271/-, but that too was not paid. It had sent letters regarding
escalation. However, DSIIDC did not call upon HRB to raise claims
under the said clauses.
49. The Arbitral Tribunal further reasoned that the time allowed for
the completion of the works was twelve months but there was an
inordinate delay of 478 days. The Arbitral Tribunal observed that in
the competitive bidding system, no contractor could cushion his
quoted rates to cater to such extended period. The Arbitral Tribunal
also held that since major part of the delays resulting in prolongation
were attributable to DSIIDC, HRB was entitled to escalation.
50. This Court finds no fault in the aforesaid reasoning. The
contention that the Arbitral Tribunal has erred in applying cost indices
by CPWD instead of cost indices for commodities issued by the
Economic Bureau, is also unsubstantial. Clause 10CA of the
Agreement, contemplates that increase and decrease in prices would
be determined on the basis of the All India Wholesale Price Indices of
Materials as published by the Economic Advisor to the Government of
India, Ministry of Commerce and Industry. However, it is pointed out
that escalation calculated on the basis of such indices would be higher
than that allowed by the Arbitral Tribunal. The Arbitral Tribunal had
considered the indices adopted by DG, CPWD to be more appropriate
and accordingly, moderated the amount claimed by HRB.
Considering that time for completion of the works had far acceded the
initial period as contemplated under the Agreement, the Arbitral
Tribunal‟s decision to award escalation on the basis of indices
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published by DG, CPWD cannot be held to be perverse or
unreasonable. This Court is unable to accept that the same is patently
illegal and warrants interference in these proceedings.
51. The contention that the Arbitral Tribunal had committed a
patent error in awarding ₹48,45,700/- as overheads on account of
prolongation of works, is unmerited. The Arbitral Tribunal had
awarded the said amount to compensate HRB for its overheads
expenses by using the widely accepted Hudson Formula. The Arbitral
Tribunal found that HRB was required to be compensated for the
prolongation of works on account of overheads incurred by it during
the extended period. Although HRB had claimed a sum of
₹3,32,43,766/- on account of prolongation of works, the Arbitral
Tribunal had moderated it significantly by applying the Hudson
Formula. The view taken by the Arbitral Tribunal is a plausible view.
This Court finds no patent illegality in the said award and thus, finds
no reason to interfere with the same.
52. Ms Wani had also contended that the award of interest and costs
is exorbitant. The said contention is bereft of any merit. There is no
prohibition for grant of interest and the interest rate of 8.5% per
annum cannot be stated to be exorbitant or patently illegal.
53. Ms Wani had also sought to assail the Arbitral Tribunal‟s
decision to reject DSIIDC‟s counter claim of ₹20 crores on account of
loss of name, reputation and loss of work. However, this Court finds
no infirmity with the decision of the Arbitral Tribunal to do so. The
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Arbitral Tribunal had noted that DSIIDC had not raised any such
claim at the material time nor had it asserted that it had incurred any
loss. The Arbitral Tribunal, accordingly, observed that the counter
claim was raised as a counterblast to the arbitration invoked by HRB.
There was no evidence of DSIIDC suffering any direct loss and the
calculation submitted by it was hypothetical.
54. This Court finds that there is no material to establish that
DSIIDC had suffered any loss attributable to HRB.
55. In view of the above, the petition is dismissed. All pending
applications are also disposed of.
VIBHU BAKHRU, J
AUGUST 11, 2021
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