Full Judgment Text
IN THE HIGH COURT OF DELHI AT NEW DELHI
CS(OS) 2312/2006 & IA 170/2008
RESERVED ON: July 3, 2008
DECIDED ON : July 16, 2008
M/s Sudhir Brothers … Plaintiff
THROUGH: Mr. Harish Malhotra, Senior Advocate with
Mr.Tanuj Khurana, Advocates.
VERSUS
Delhi Development Authority ... Defendant
THROUGH: Mr. Bhupesh Narula, Advocate
Coram : Mr. Justice S. Ravindra Bhat
1. Whether reporters of local papers may be
allowed to see the judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported
in the Digest? Yes
% 16.07.2008
Mr. Justice S. Ravindra Bhat:
1. M/s Sudhir Brothers (hereafter called “the contractor”) entered into a
building contract with the Delhi Development Authority (hereafter “DDA”) for construction
of 720 Lower Income Group Dwelling Units/Flats (“LIG DU’s”) at Pitam Pura Pocket W
Poorvi i/c internal services SH c/o 324 LIG DU’s at Pitam Pura Pocket W Poorvi. An
Agreement was entered into by the parties for the work for construction of 324 LIG DU’s.
CS(OS) 2312/2006 1 of 11
The date of start of the work was 16-1-1981 and the work was to be completed within a
period of 1 year i.e. by stipulated date of completion of 15.1.1982. As against the tendered
amount of Rs.36,38,844/- the contractor’s offer at 58.60% above the contract value at
Rs.57,71,206/- was accepted by the DDA.
2. The work was rescinded by the DDA through order dated 27.7.1984 after giving
opportunities to the contractor. DDA adverts to several notices under clause 3 of the
contract, to the contractor claimant; a notice dated 7.6.1984 was written to the claimant.
The claimant raised disputes and approached the Engineer Member DDA, by letter dated
5.3.1983 for appointment of arbitrator to decide the matters in dispute between the parties
outlined in the said letter. The claimant filed Suit No. 125A/1984 under Section 20 of the
Arbitration Act and the claims raised were thorough letter dated 5.3.1983. The Court had
by order dated 23.5.1984 directed the Engineer Member to appoint an arbitrator. A sole
Arbitrator was therefore appointed.
3. The arbitrator so appointed resigned on 1.6.1987. This led to DDA
appointing another arbitrator, whose authority was challenged by the claimant , through
OMP 93/1988. An identical situation arose when the second arbitrator resigned and the
DDA appointed one Sh. Gangdevan. Eventually, all these interlocutory disputes were
resolved and after considering the claims and counter claims, the Arbitrator made and
published his award dated 11.11.2006. Nine heads of claim including interest and an
additional claim were made and the DDA had counter claimed on seven heads. The award
substantially allowed six out of seven claims and directed payment of interest at 14% per
annum for the period 1985 to 18.2.2006 and thereafter at 12.% per annum.
CS(OS) 2312/2006 2 of 11
4. The DDA has preferred objections to the award, under Sections 30 and 33 of the
Arbitration Act, 1940. These challenges are founded on three main grounds. The first
concerns the award of Rs.2,12,400/- on the head of illegal seizure of materials by the DDA.
The claimant had originally demanded Rs.1,46,000/- and later revised this claim, some
time in 1991 to Rs.4,46,000/-. As against this, the Arbitrator awarded Rs.2,12,400/-. The
DDA contends that this claim was inadmissible as it was not originally referred by the
Court when suit No. 125A/1984 was disposed of. The award is also attacked on the merits
by the DDA which contends that no material had in fact been seized from the concerned
site. The DDA also claims that there was no evidence or document in support of such a
claim. It contends that certain letters i.e. dated 13.11.1982, 16.10.1989, 8.10.1982,
24.1.1983 and 15.4.1983 were written to the contractor. In another letter of 10.3.1983,
the DDA had drawn attention to the contractor about shortage of 13 M. Tons 10 M.M. Dia
Steel Tubes. It is contended on behalf of the DDA that findings about seizure of material
and loss caused to the contractor were therefore conjectural and not based on any
evidence.
5. The Arbitrator had, under Claim No.7 awarded the sum of Rs.3,54,396/- towards
increase in construction costs for the extended period over and above the escalation
permitted under clause 10-C in respect of cost of labour and materials. The claimant had
demanded a sum equal to 35% of the original contract amount i.e. Rs.21,36,403/- on this
head. The Arbitrator, however, held that the claimant was entitled to rate revision on
14.17.84 at 25 per cent. It is contended on behalf of DDA that the award of such an
amount was not justified as not being based on any evidence. It was contended that in the
CS(OS) 2312/2006 3 of 11
absence of proof of payment, or loss, the Arbitrator should not have calculated such
escalation or increased construction cost on some arbitrary method. Reliance was placed
upon a decision of this Court in Kocher Construction Vs. Union of India 1994 (1) Arb Law
Report ARB. LR as well as decision in Hindustan Construction Company Vs. Delhi
Development Authority 2002 (3) ARB LR 235 .
6. The award of interest at differential rates by the Arbitrator is also attacked as illegal.
The DDA contends that the claimants conduct in stalling the arbitration proceedings on at
least two occasions resulted in delay and it cannot be allowed to profit from its culpability.
Counsel also contended that award of such high interest, for 20 year period is even
otherwise not justified. He relied upon a judgment of Supreme Court reported as State of
Rajasthan Vs. Navbharat Construction Company AIR 2002 SC 258.
7. Learned counsel lastly contended that the award is clearly in error of law since the
arbitrator rendered findings in respect of counter claim No.2 and held that the levy of
compensation was improper. This was beyond the scope of arbitration, being an excepted
matter. It was contended by learned Senior Counsel for the respondent/claimant that no
exception can be taken to the award as the arbitrator considered and rendered his findings
on the basis of materials. Learned counsel submitted that the court should not exercise its
supervisory jurisdiction under Section 30 and 33 of the Arbitration Act, 1940 as an
appellate court. He relied upon the rulings of the Supreme Court reported as Vishwanath
Sood –vs- Union of India 1989 (1) SCC 657.
8. Learned counsel submitted that the claimants had to construct the units
within fifteen months. The indifference of DDA led to prolongation of the contract. The
CS(OS) 2312/2006 4 of 11
DDA created hindrance in the performance of the job in spite of that the claimant continued
to work, accepted extension and agreed to work during the extended period unilaterally.
The DDA rescinded the contract on 27.7.1984. Almost a year later it sought to levy
compensation. Having regard to the materials adduced, the findings of the Arbitrator could
not be faulted as amounting to legal misconduct or unfounded on facts.
9. Learned counsel submitted that the DDA’s objection as to claim No.5 is irrational
and unsustainable. He relied upon the letters addressed by the claimant to the DDA, which
are part of the record i.e. C-64, C-50, C-64, C-65 and Annexure-D of Book “B”, all of which
were written at the time of termination of the contract. The DDA was even asked to verify
the details of materials seized, not returned to the claimant. In these circumstances the
findings on claim No.5 could not be termed illegal.
10. Learned counsel contended that the objection to findings on claim No.7 are
without any basis. He relied on Ex. P-1, P-8, C-25, C-46 and C-35, C-46. According to him
these establish that at the relevant time the claimant kept demanding escalation in costs of
construction. Counsel submitted that admittedly the time for completion had been
extended; as against the original date i.e. 15.1.1982, the parties mutually agreed to extend
the period. The Arbitrator, it was submitted, had noticed that DDA itself, during this
period, was awarding contracts at rates which were in excess of 45% of the claimant’s
quoted rates. The Arbitration also took note of the continuous price rise and the CPWD
cost index, while awarding the sum of Rs.3,54,396/-. He further submitted that the
Arbitrator took note of other materials such as Ex. P-1, P-8, C-25, C-35, C-46, C-72 and C-74
in this regard.
CS(OS) 2312/2006 5 of 11
11. Counsel submitted that the award of interest cannot be challenged as excessive or
illegal in this case and was perfectly reasonable having regard to the facts. It was further
stated that the court should be slow in exercising its power to reduce the rate of interest.
12. The scope of a civil court’s power interfere with an arbitration award, under the Act
is well settled. From a long line of decisions, starting with Union of India –vs- A.L. Ralia Ram
AIR 1963 SC 1685 down to the recent decision in Food Corporation of India –vs- Chandu
Construction 2007 (4) SCC 697, it has been consistently declared that misconduct does not
point to moral lapse or perversity in findings, in an award, but to something unreasonable
which would fall outside the jurisdiction of the arbitrator. It has also been held that the
standard to be applied is irrationality, caprice, arbitrariness or the adjudicator-arbitrator
acting beyond the terms of the agreement, while arriving at a finding that the award is
vitiated due to misconduct of the arbitrator (See Bhagwati Oxygen Ltd. –vs- Hindustan
Copper Ltd . 2005(6) SCC 462; Rajasthan State Mines and Minerals Ltd. v. Eastern
Engineering Enterprises and Another, (1999) 9 SCC 283). It has been further held ( U.P. State
Electricity Board v. Searsole Chemcials Ltd. (2001) 3 SCC 397), that where the arbitrator had
applied his mind to the pleadings, considered the evidence adduced before him and passed
an award, the Court cannot interfere by reappraising the matter as if it were an appeal.
13. Another test indicated by the Supreme Court - Chandu Construction(supra) and
Bharat Coking Coal Ltd. v. M/s. Annapurna Construction, (2003) 8 SCC 154 , ) is that where
the arbitrator travels beyond the contract he acts in excess of jurisdiction in which case, the
award passed by him becomes vulnerable and can be questioned in an appropriate Court.
CS(OS) 2312/2006 6 of 11
14. From the preceding factual discussion it is evident that DDA is mainly objecting to
the award of amounts on four heads. The first is in respect of claim No.5, which pertains to
cost of materials seized by the DDA or not allowed to be taken away by the claimant.
Although serious exception was taken by the DDA to the reference itself, this court is
unpersuaded by the submission that the arbitrator lacked jurisdiction to examine the claim.
Clause 25 of the contract expressly stipulates that all disputes which are not excepted, and
arise out of the contract/agreement, have to be referred to the Arbitrator. In this case the
excepted matters have been spelt out in the preceding part of the agreement. A dispute
with regard to withholding of materials does not fall within any of the excepted matters.
Further the claim of the contractor was about unjustified and wrongful withholdings of its
material by the DDA, when the latter rescinded the contract. In these circumstances the
court is satisfied that the objection as to arbitrability of this head of dispute is without
basis.
15. As far as the merits of this claim are concerned, the Arbitrator examined
contemporaneous evidence in the form of a series of letters. These are C-50 (Telegram
dated 21.7.1984), C-64 (dated 22.10.1984) and C-65 (dated 3.12.1984). C-64 also encloses
a list of items set out by the claimant. The documents upon which DDA has relied upon in
this context, however, all pertain to a previous period when the contract was operative and
binding between the parties. The case so far as the claim No.5 is concerned is that after
rescinding the contract, DDA did not permit the contractor to take back sundry items from
the site.
16. Besides Ex. C-50, C-64 and C-65 which have been described above and have also
CS(OS) 2312/2006 7 of 11
been independently considered by the Court, the contractor also relied upon Annexure-D in
book “B” which set out the cost or value of these items. Nothing was shown to the court
during the hearing in this case disputing these documents. No contemporaneous letter by
the DDA or even any other document to the contrary or either oral or documentary
evidence was shown to the court. In the circumstances, the court can hardly take exception
to the findings rendered by the arbitrator which are purely factual. The DDA’s objections
vis-à-vis the award on claim No. 5 are, therefore, held to be without foundation.
17. So far as Claim No.7 is concerned, the contractor had demanded 35% of the total
value of the original contract as escalated construction costs over and above the cost of
materials and labour admissible to it under clause 10-C. The Arbitrator relied upon a
decision of this court reported as Metro Industries Electrical Vs. DDA AIR 1980 Delhi 266.
The DDA’s contentions, on the other hand, were that in the absence of any proper evidence
of higher cost of construction, the Arbitrator could not have followed or adopted same cost
analysis and awarded 25% escalation. It relies upon the Division Bench’s judgment of this
court in Kochar Construction and a subsequent decision in Hindustan Construction
Corporation.
18. In Kocher Construction, the question was whether a claim for escalation of costs
allowed by the Arbitrator was justified. The Arbitrator had accepted a cost analysis
submitted to him by the claimant. The Court held that mere reliance on a cost analysis
would be insufficient to establish that such cost had in fact been incurred. The decision in
Hindustan Construction, on the other hand, turned upon on the tenability of the contractor’s
claim for escalation of costs under clause 10-C.
CS(OS) 2312/2006 8 of 11
19. In the present case, no doubt the Contractor/claimant wrote certain letters
which have been adverted to in the previous part of this judgment. Yet , this court is of the
opinion that the findings of the arbitrator on this head cannot be sustained. What the
Contractor really claiming is a head of compensation or damages even though styling it as
escalation. One cannot be unmindful of the fact that the contract negotiated between the
parties factored the eventually of extension of contract and the consideration payable. If
the contractor had intended that extension was acceptable only on the condition of
payment of stipulated additional compensation, he should have made such reservation in
terms of Section 55 of the Contract Act. The second and more substantial aspect here is
that the contractor - claimant made no attempt to prove such damages and merely relied
upon letters addressed to the DDA. A mere demand cannot be justified for grant of
escalation particularly when the claim for such additional consideration is disputed. If the
Contractor wanted to establish its entitlement to such additional amounts, the mode of
proving it could not have been any different than in respect of other claims. Therefore, the
methodology and approach adopted by the arbitrator in awarding such 25% amount
working to Rs.3,54,396/- is unsustainable; it is also contrary to the Division Bench ruling in
Kochar Construction . This part of the award, therefore, cannot be sustained.
20. The last objection is to the counter claim. Here too the DDA’s contention appears to
be well founded. Right from the decision of the Supreme Court in Vishwanath Sood Vs. UOI
AIR 1989 SC 952 to the judgment reported as General Manager Northern Railways Vs.
Sarvesh Chopra 2002 (4) SCC 45 and even in one of the judgments to which the
claimant/contractor itself was a party ( Delhi Development Authority Vs. M/s Sudhir Brother s
CS(OS) 2312/2006 9 of 11
1995 57 DLT 474 DB) it has been consistently ruled that where the decision of an
executive authority is final, not arbitrable and not subject to reference, the Arbitrator
cannot assume jurisdiction over such matters. In this case too clause 25 opens with the
expression “save as otherwise providedt”. Now the question of compensatioin payable and
levy, fell within the exclusive domain of the administrative authority specified in the
contract. The exclusivity was provided for by use of the expression “his decision shall be
final”. In the circumstances the question as to whether the compensation was levied
correctly or otherwise could not have been subject matter of reference. On a proper
application of the law therefore it has to be held that adjudication of any claim beyond the
scope of reference and the award to that extent is, therefore, liable to be set aside.
21. On the issue of interest, this court is of the opinion that the mere circumstance that
arbitration was pending for 20 years should not have been the predominant or the sole
determining factor, in the award of 14 per cent interest. The court has considered the
materials on record. The petitioner had approached the court at no less than two
intervening occasions. It needs no imagination to discern that such interlocutory attempts
would inevitably stall adjudication in the arbitration proceedings. Therefore, the petitioner
had to share to a certain extent the blame for the delay in conclusion of such proceedings.
In these circumstances the award of interest at 14% for 21 year period was not justified.
22. For the above reasons this court is of the opinion that the award, cannot be
sustained so far as it relates to claim No.7 and counter claim No.2. The findings and the
award to the said extent are, therefore, set aside. In view of the preceding discussion on
interest, the direction to pay 14% interest is modified. Instead the DDA is directed to pay
CS(OS) 2312/2006 10 of 11
the interest in the following manner:-
i. For the period 1.1.1985 to 31.12.1993 @ 14% per annum;
ii. For the period 1.1.1994 to 17.2.2006 @ 10% per annum; and
iii. Interest for the post award, post decree period till realization on the above
amounts shall be @ 10% per annum.
3. The award is made rule of the court subject to above modifications.
IA No. 170/2008 and suit No. 2312/2006 are decreed in the above terms.
July 16, 2008 S. RAVINDRA BHAT
(JUDGE)
CS(OS) 2312/2006 11 of 11
CS(OS) 2312/2006 & IA 170/2008
RESERVED ON: July 3, 2008
DECIDED ON : July 16, 2008
M/s Sudhir Brothers … Plaintiff
THROUGH: Mr. Harish Malhotra, Senior Advocate with
Mr.Tanuj Khurana, Advocates.
VERSUS
Delhi Development Authority ... Defendant
THROUGH: Mr. Bhupesh Narula, Advocate
Coram : Mr. Justice S. Ravindra Bhat
1. Whether reporters of local papers may be
allowed to see the judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported
in the Digest? Yes
% 16.07.2008
Mr. Justice S. Ravindra Bhat:
1. M/s Sudhir Brothers (hereafter called “the contractor”) entered into a
building contract with the Delhi Development Authority (hereafter “DDA”) for construction
of 720 Lower Income Group Dwelling Units/Flats (“LIG DU’s”) at Pitam Pura Pocket W
Poorvi i/c internal services SH c/o 324 LIG DU’s at Pitam Pura Pocket W Poorvi. An
Agreement was entered into by the parties for the work for construction of 324 LIG DU’s.
CS(OS) 2312/2006 1 of 11
The date of start of the work was 16-1-1981 and the work was to be completed within a
period of 1 year i.e. by stipulated date of completion of 15.1.1982. As against the tendered
amount of Rs.36,38,844/- the contractor’s offer at 58.60% above the contract value at
Rs.57,71,206/- was accepted by the DDA.
2. The work was rescinded by the DDA through order dated 27.7.1984 after giving
opportunities to the contractor. DDA adverts to several notices under clause 3 of the
contract, to the contractor claimant; a notice dated 7.6.1984 was written to the claimant.
The claimant raised disputes and approached the Engineer Member DDA, by letter dated
5.3.1983 for appointment of arbitrator to decide the matters in dispute between the parties
outlined in the said letter. The claimant filed Suit No. 125A/1984 under Section 20 of the
Arbitration Act and the claims raised were thorough letter dated 5.3.1983. The Court had
by order dated 23.5.1984 directed the Engineer Member to appoint an arbitrator. A sole
Arbitrator was therefore appointed.
3. The arbitrator so appointed resigned on 1.6.1987. This led to DDA
appointing another arbitrator, whose authority was challenged by the claimant , through
OMP 93/1988. An identical situation arose when the second arbitrator resigned and the
DDA appointed one Sh. Gangdevan. Eventually, all these interlocutory disputes were
resolved and after considering the claims and counter claims, the Arbitrator made and
published his award dated 11.11.2006. Nine heads of claim including interest and an
additional claim were made and the DDA had counter claimed on seven heads. The award
substantially allowed six out of seven claims and directed payment of interest at 14% per
annum for the period 1985 to 18.2.2006 and thereafter at 12.% per annum.
CS(OS) 2312/2006 2 of 11
4. The DDA has preferred objections to the award, under Sections 30 and 33 of the
Arbitration Act, 1940. These challenges are founded on three main grounds. The first
concerns the award of Rs.2,12,400/- on the head of illegal seizure of materials by the DDA.
The claimant had originally demanded Rs.1,46,000/- and later revised this claim, some
time in 1991 to Rs.4,46,000/-. As against this, the Arbitrator awarded Rs.2,12,400/-. The
DDA contends that this claim was inadmissible as it was not originally referred by the
Court when suit No. 125A/1984 was disposed of. The award is also attacked on the merits
by the DDA which contends that no material had in fact been seized from the concerned
site. The DDA also claims that there was no evidence or document in support of such a
claim. It contends that certain letters i.e. dated 13.11.1982, 16.10.1989, 8.10.1982,
24.1.1983 and 15.4.1983 were written to the contractor. In another letter of 10.3.1983,
the DDA had drawn attention to the contractor about shortage of 13 M. Tons 10 M.M. Dia
Steel Tubes. It is contended on behalf of the DDA that findings about seizure of material
and loss caused to the contractor were therefore conjectural and not based on any
evidence.
5. The Arbitrator had, under Claim No.7 awarded the sum of Rs.3,54,396/- towards
increase in construction costs for the extended period over and above the escalation
permitted under clause 10-C in respect of cost of labour and materials. The claimant had
demanded a sum equal to 35% of the original contract amount i.e. Rs.21,36,403/- on this
head. The Arbitrator, however, held that the claimant was entitled to rate revision on
14.17.84 at 25 per cent. It is contended on behalf of DDA that the award of such an
amount was not justified as not being based on any evidence. It was contended that in the
CS(OS) 2312/2006 3 of 11
absence of proof of payment, or loss, the Arbitrator should not have calculated such
escalation or increased construction cost on some arbitrary method. Reliance was placed
upon a decision of this Court in Kocher Construction Vs. Union of India 1994 (1) Arb Law
Report ARB. LR as well as decision in Hindustan Construction Company Vs. Delhi
Development Authority 2002 (3) ARB LR 235 .
6. The award of interest at differential rates by the Arbitrator is also attacked as illegal.
The DDA contends that the claimants conduct in stalling the arbitration proceedings on at
least two occasions resulted in delay and it cannot be allowed to profit from its culpability.
Counsel also contended that award of such high interest, for 20 year period is even
otherwise not justified. He relied upon a judgment of Supreme Court reported as State of
Rajasthan Vs. Navbharat Construction Company AIR 2002 SC 258.
7. Learned counsel lastly contended that the award is clearly in error of law since the
arbitrator rendered findings in respect of counter claim No.2 and held that the levy of
compensation was improper. This was beyond the scope of arbitration, being an excepted
matter. It was contended by learned Senior Counsel for the respondent/claimant that no
exception can be taken to the award as the arbitrator considered and rendered his findings
on the basis of materials. Learned counsel submitted that the court should not exercise its
supervisory jurisdiction under Section 30 and 33 of the Arbitration Act, 1940 as an
appellate court. He relied upon the rulings of the Supreme Court reported as Vishwanath
Sood –vs- Union of India 1989 (1) SCC 657.
8. Learned counsel submitted that the claimants had to construct the units
within fifteen months. The indifference of DDA led to prolongation of the contract. The
CS(OS) 2312/2006 4 of 11
DDA created hindrance in the performance of the job in spite of that the claimant continued
to work, accepted extension and agreed to work during the extended period unilaterally.
The DDA rescinded the contract on 27.7.1984. Almost a year later it sought to levy
compensation. Having regard to the materials adduced, the findings of the Arbitrator could
not be faulted as amounting to legal misconduct or unfounded on facts.
9. Learned counsel submitted that the DDA’s objection as to claim No.5 is irrational
and unsustainable. He relied upon the letters addressed by the claimant to the DDA, which
are part of the record i.e. C-64, C-50, C-64, C-65 and Annexure-D of Book “B”, all of which
were written at the time of termination of the contract. The DDA was even asked to verify
the details of materials seized, not returned to the claimant. In these circumstances the
findings on claim No.5 could not be termed illegal.
10. Learned counsel contended that the objection to findings on claim No.7 are
without any basis. He relied on Ex. P-1, P-8, C-25, C-46 and C-35, C-46. According to him
these establish that at the relevant time the claimant kept demanding escalation in costs of
construction. Counsel submitted that admittedly the time for completion had been
extended; as against the original date i.e. 15.1.1982, the parties mutually agreed to extend
the period. The Arbitrator, it was submitted, had noticed that DDA itself, during this
period, was awarding contracts at rates which were in excess of 45% of the claimant’s
quoted rates. The Arbitration also took note of the continuous price rise and the CPWD
cost index, while awarding the sum of Rs.3,54,396/-. He further submitted that the
Arbitrator took note of other materials such as Ex. P-1, P-8, C-25, C-35, C-46, C-72 and C-74
in this regard.
CS(OS) 2312/2006 5 of 11
11. Counsel submitted that the award of interest cannot be challenged as excessive or
illegal in this case and was perfectly reasonable having regard to the facts. It was further
stated that the court should be slow in exercising its power to reduce the rate of interest.
12. The scope of a civil court’s power interfere with an arbitration award, under the Act
is well settled. From a long line of decisions, starting with Union of India –vs- A.L. Ralia Ram
AIR 1963 SC 1685 down to the recent decision in Food Corporation of India –vs- Chandu
Construction 2007 (4) SCC 697, it has been consistently declared that misconduct does not
point to moral lapse or perversity in findings, in an award, but to something unreasonable
which would fall outside the jurisdiction of the arbitrator. It has also been held that the
standard to be applied is irrationality, caprice, arbitrariness or the adjudicator-arbitrator
acting beyond the terms of the agreement, while arriving at a finding that the award is
vitiated due to misconduct of the arbitrator (See Bhagwati Oxygen Ltd. –vs- Hindustan
Copper Ltd . 2005(6) SCC 462; Rajasthan State Mines and Minerals Ltd. v. Eastern
Engineering Enterprises and Another, (1999) 9 SCC 283). It has been further held ( U.P. State
Electricity Board v. Searsole Chemcials Ltd. (2001) 3 SCC 397), that where the arbitrator had
applied his mind to the pleadings, considered the evidence adduced before him and passed
an award, the Court cannot interfere by reappraising the matter as if it were an appeal.
13. Another test indicated by the Supreme Court - Chandu Construction(supra) and
Bharat Coking Coal Ltd. v. M/s. Annapurna Construction, (2003) 8 SCC 154 , ) is that where
the arbitrator travels beyond the contract he acts in excess of jurisdiction in which case, the
award passed by him becomes vulnerable and can be questioned in an appropriate Court.
CS(OS) 2312/2006 6 of 11
14. From the preceding factual discussion it is evident that DDA is mainly objecting to
the award of amounts on four heads. The first is in respect of claim No.5, which pertains to
cost of materials seized by the DDA or not allowed to be taken away by the claimant.
Although serious exception was taken by the DDA to the reference itself, this court is
unpersuaded by the submission that the arbitrator lacked jurisdiction to examine the claim.
Clause 25 of the contract expressly stipulates that all disputes which are not excepted, and
arise out of the contract/agreement, have to be referred to the Arbitrator. In this case the
excepted matters have been spelt out in the preceding part of the agreement. A dispute
with regard to withholding of materials does not fall within any of the excepted matters.
Further the claim of the contractor was about unjustified and wrongful withholdings of its
material by the DDA, when the latter rescinded the contract. In these circumstances the
court is satisfied that the objection as to arbitrability of this head of dispute is without
basis.
15. As far as the merits of this claim are concerned, the Arbitrator examined
contemporaneous evidence in the form of a series of letters. These are C-50 (Telegram
dated 21.7.1984), C-64 (dated 22.10.1984) and C-65 (dated 3.12.1984). C-64 also encloses
a list of items set out by the claimant. The documents upon which DDA has relied upon in
this context, however, all pertain to a previous period when the contract was operative and
binding between the parties. The case so far as the claim No.5 is concerned is that after
rescinding the contract, DDA did not permit the contractor to take back sundry items from
the site.
16. Besides Ex. C-50, C-64 and C-65 which have been described above and have also
CS(OS) 2312/2006 7 of 11
been independently considered by the Court, the contractor also relied upon Annexure-D in
book “B” which set out the cost or value of these items. Nothing was shown to the court
during the hearing in this case disputing these documents. No contemporaneous letter by
the DDA or even any other document to the contrary or either oral or documentary
evidence was shown to the court. In the circumstances, the court can hardly take exception
to the findings rendered by the arbitrator which are purely factual. The DDA’s objections
vis-à-vis the award on claim No. 5 are, therefore, held to be without foundation.
17. So far as Claim No.7 is concerned, the contractor had demanded 35% of the total
value of the original contract as escalated construction costs over and above the cost of
materials and labour admissible to it under clause 10-C. The Arbitrator relied upon a
decision of this court reported as Metro Industries Electrical Vs. DDA AIR 1980 Delhi 266.
The DDA’s contentions, on the other hand, were that in the absence of any proper evidence
of higher cost of construction, the Arbitrator could not have followed or adopted same cost
analysis and awarded 25% escalation. It relies upon the Division Bench’s judgment of this
court in Kochar Construction and a subsequent decision in Hindustan Construction
Corporation.
18. In Kocher Construction, the question was whether a claim for escalation of costs
allowed by the Arbitrator was justified. The Arbitrator had accepted a cost analysis
submitted to him by the claimant. The Court held that mere reliance on a cost analysis
would be insufficient to establish that such cost had in fact been incurred. The decision in
Hindustan Construction, on the other hand, turned upon on the tenability of the contractor’s
claim for escalation of costs under clause 10-C.
CS(OS) 2312/2006 8 of 11
19. In the present case, no doubt the Contractor/claimant wrote certain letters
which have been adverted to in the previous part of this judgment. Yet , this court is of the
opinion that the findings of the arbitrator on this head cannot be sustained. What the
Contractor really claiming is a head of compensation or damages even though styling it as
escalation. One cannot be unmindful of the fact that the contract negotiated between the
parties factored the eventually of extension of contract and the consideration payable. If
the contractor had intended that extension was acceptable only on the condition of
payment of stipulated additional compensation, he should have made such reservation in
terms of Section 55 of the Contract Act. The second and more substantial aspect here is
that the contractor - claimant made no attempt to prove such damages and merely relied
upon letters addressed to the DDA. A mere demand cannot be justified for grant of
escalation particularly when the claim for such additional consideration is disputed. If the
Contractor wanted to establish its entitlement to such additional amounts, the mode of
proving it could not have been any different than in respect of other claims. Therefore, the
methodology and approach adopted by the arbitrator in awarding such 25% amount
working to Rs.3,54,396/- is unsustainable; it is also contrary to the Division Bench ruling in
Kochar Construction . This part of the award, therefore, cannot be sustained.
20. The last objection is to the counter claim. Here too the DDA’s contention appears to
be well founded. Right from the decision of the Supreme Court in Vishwanath Sood Vs. UOI
AIR 1989 SC 952 to the judgment reported as General Manager Northern Railways Vs.
Sarvesh Chopra 2002 (4) SCC 45 and even in one of the judgments to which the
claimant/contractor itself was a party ( Delhi Development Authority Vs. M/s Sudhir Brother s
CS(OS) 2312/2006 9 of 11
1995 57 DLT 474 DB) it has been consistently ruled that where the decision of an
executive authority is final, not arbitrable and not subject to reference, the Arbitrator
cannot assume jurisdiction over such matters. In this case too clause 25 opens with the
expression “save as otherwise providedt”. Now the question of compensatioin payable and
levy, fell within the exclusive domain of the administrative authority specified in the
contract. The exclusivity was provided for by use of the expression “his decision shall be
final”. In the circumstances the question as to whether the compensation was levied
correctly or otherwise could not have been subject matter of reference. On a proper
application of the law therefore it has to be held that adjudication of any claim beyond the
scope of reference and the award to that extent is, therefore, liable to be set aside.
21. On the issue of interest, this court is of the opinion that the mere circumstance that
arbitration was pending for 20 years should not have been the predominant or the sole
determining factor, in the award of 14 per cent interest. The court has considered the
materials on record. The petitioner had approached the court at no less than two
intervening occasions. It needs no imagination to discern that such interlocutory attempts
would inevitably stall adjudication in the arbitration proceedings. Therefore, the petitioner
had to share to a certain extent the blame for the delay in conclusion of such proceedings.
In these circumstances the award of interest at 14% for 21 year period was not justified.
22. For the above reasons this court is of the opinion that the award, cannot be
sustained so far as it relates to claim No.7 and counter claim No.2. The findings and the
award to the said extent are, therefore, set aside. In view of the preceding discussion on
interest, the direction to pay 14% interest is modified. Instead the DDA is directed to pay
CS(OS) 2312/2006 10 of 11
the interest in the following manner:-
i. For the period 1.1.1985 to 31.12.1993 @ 14% per annum;
ii. For the period 1.1.1994 to 17.2.2006 @ 10% per annum; and
iii. Interest for the post award, post decree period till realization on the above
amounts shall be @ 10% per annum.
3. The award is made rule of the court subject to above modifications.
IA No. 170/2008 and suit No. 2312/2006 are decreed in the above terms.
July 16, 2008 S. RAVINDRA BHAT
(JUDGE)
CS(OS) 2312/2006 11 of 11