Full Judgment Text
NEUTRAL CITATION NO. 2023:DHC:2813
* IN THE HIGH COURT OF DELHI AT NEW DELHI
th
% Date of order : 11 April, 2023
+ ARB. A. (COMM.) 42/2022
M/S SATISH CHAND RAJESH KUMAR PVT. LTD
..... Appellant
Through: Mr. Avinash K. Trivedi and Mr.
Anurag Kaushik, Advocates
versus
NEW DELHI MUNICIPAL COUNCIL & ANR...... Respondents
Through: Mr. Jitendra Kumar Tripathi and
Mr. Tushar Sannu, Advocates for
NDMC along with Mr. Sanjay
Verma, Asst. Engineer
CORAM:
HON'BLE MR. JUSTICE CHANDRA DHARI SINGH
O R D E R
CHANDRA DHARI SINGH, J (Oral)
1. The instant appeal under Section 37(2) of the Arbitration and
Conciliation Act, 1996 (hereinafter “the Act, 1996”) read with Section
151 of the Code of Civil Procedure, 1908 has been filed on behalf of the
appellant seeking the following reliefs:
“It is therefore most humbly and respectfully prayed that the
Hon'ble Court may please admit the appeal and set aside the
order dated 03.06.2022 and further hold that grant of
provisional Extension of time, unilaterally to keep the
contract alive that too reserving the right to recover
compensation under clause 2 of an agreement is no
Extension of time in the Eyes of Law.
It is further prayed that the Hon'ble Court may please set
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aside the order dated 03.06.2022 and further allow the
appellant to lift the balance material such as reinforcement
after adjusting the balance secured advance, other material,
such stores, bricks, tin sheets, angles and others as available
at site in addition to the material allowed by ld. Arbitrator.
Any other order or prayer which this Hon'ble Court may
deems fit and proper in the facts and circumstances of the
case.”
FACTUAL MATRIX
2. The appellant is a company registered under the Companies Act
and engaged in the business of civil contractors registered and having its
office at Shop No.18, DDA Market, First Floor, Deepali Enclave, Pitam
Pura Delhi -110034.
3. The respondent is the Municipal Council of New Delhi having its
registered office at J6H8+766, Palika Kendra Parliament Street, New
Delhi, 110001.
4. The respondents had called a tender for the work of
Redevelopment of Bapu Samaj Sewa Kendra, Panchkuian Road, New
Delhi. The appellant being the lowest bidder had got the contract awarded
in his favour from the Respondent.
5. The work was awarded to the appellants vide acceptance letter
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dated 7 February 2018 with stipulated dates of start and completion as
nd st
22 February 2018 and 21 August 2019, respectively, as the time
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stipulated to complete the work was 18 months to be reckoned from 15
day of the issue of letter of acceptance.
6. The value of work awarded was INR 24,66,00,633 and the
performance guarantee at 5% of the tendered value for an amount of INR
st
1,23,30,032 valid up to 31 August 2019 was deposited in the shape of a
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bank guarantee for the value of INR 1,23,30,032 from Punjab National
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Bank valid up to 8 November 2019 vide letter dated 13 February 2018.
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7. However, vide letter dated 12 March 2018, the respondent
informed the appellant that the value of the work has been modified to
INR 24,54,00,633 and accordingly the performance guarantee was also
reduced to INR 1,22,70,032 which was again submitted vide bank
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guarantee no. 0197OBG19000451 dated 7 January 2019 valid up to 2nd
January 2020 from Kotak Mahindra Bank, Rohini Sector-8, New Delhi,
110085.
8. The appellant had approached the site to commence the work, but
the site was occupied by a dispensary on one floor of the building and the
dismantling work had to be paused till it was vacated, as the public
parked their vehicles in the vicinity of the site. The NDMC staff resided
in the building that had to be dismantled before the work commenced and
such hindrances were hidden by the respondents while awarding the work
to the appellants and the respondents had not gotten the site vacated.
9. The trees in the vicinity had to be removed before the work could
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commence and after the appellant raised this issue vide letter dated 29
March 2019 addressed to the respondents, the respondents subsequently
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removed the trees on 5 October 2018.
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10. The respondents were supposed to provide drawings before 22
February 2018, without which the work could not be started.
11. After several barriers and hindrances as alleged by the appellant,
the appellant submitted the bill of INR 6,71,83,639 along with
st
measurements on 21 September 2019.
12. Accordingly, the appellant invoked the Arbitration Clause 25 of the
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st
Agreement on 21 November 2019 and asked the Chief Engineer to
appoint an Arbitrator to which the respondent‟s executive engineer
admitted that the appointment of an Arbitrator is under examination.
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13. The appellant filed an Arbitration Petition on or about 17 March
2020 for the appointment of an Arbitrator which was allowed and vide
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Order dated 10 February 2022 by this Court.
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14. The appellant also filed Writ Petition assailing the Order dated 4
August 2020 taken by the NDMC debarring the appellant for three years
from participating in the tenders of several departments of the
Government of NCT of Delhi in which the Court passed the Order dated
th nd
29 April 2022 against which the appellant filed an appeal on 2 May
2022.
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15. Further, against the Judgment dated 29 April 2022, the appellant
filed an application under Section 17 of Arbitration and Conciliation,
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1996 before the Learned Arbitrator on 12 May 2022 which was
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dismissed by the Learned Arbitrator vide Order dated 3 June 2022.
16. Hence, the present Appeal.
RELEVANT CLAUSES OF THE AGREEEMNT
CLAUSE 2
“Compensation for Delay
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 or extended date of completion, he
shall, without prejudice to any other 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 writing shall be
final and binding) may decide on the amount of tendered
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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. The amount of
compensation may be adjusted or set-off against any sum
payable to the Contractor under this or any other contract
with the Government. In case, the contractor does not
achieve a particular milestone mentioned in schedule F, or
the re-scheduled milestone(s) in terms of Clause 5.4, the
amount shown against that milestone shall be withheld, to be
adjusted against the compensation levied at the final grant of
Extension of Time. With-holding of this amount on failure to
achieve a milestone, shall be automatic without any notice to
the contractor. However, if the contractor catches up with
the progress of work on the subsequent milestone(s), the
withheld amount shall be released. In case the contractor
fails to make up for the delay in subsequent milestone(s),
amount mentioned against each milestone missed
subsequently also shall be withheld. However, no interest,
whatsoever, shall be payable on such withheld amount.”
CLAUSE 3A
“In case, the work cannot be started due to reasons not
within the control of the contractor within 1/8th of the
stipulated time for completion of work or one month
whichever is higher, either party may close the contract. In
case contractor wants to close the contract, he shall give
notice to the department stating the failure on the part of
department. In such eventuality, the Performance Guarantee
of the contractor shall be refunded within following time
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limits:
(i) If the Tendered value of work is up to Rs. 45 lacs: 15
days.
(ii) If the Tendered value of work is more than Rs. 45 lac and
up to Rs. 2.5 Crore: 21 days.
(iii) If the Tendered value of work exceeds Rs. 2.5 Crore: 30
days. If Performance Guarantee is not released within
prescribed time limit, then a simple interest @ 0.25% per
month shall be payable on Performance Guarantee amount
to the contractor from the date of expiry of prescribed time
limit. A compensation for such eventuality, on account of
damages etc. shall be payable @ 0.25% of tendered amount
subject to maximum limit of Rs. 10 lacs.”
CLAUSE 5
Time and Extension for Delay
“The time allowed for execution of the Works as specified in
the Schedule 'F' or the extended time in accordance with
these conditions shall be the essence of the Contract. The
execution of the works shall commence from such time
period as mentioned in schedule 'F' or from the date of
handing over of the site whichever is later. If the Contractor
commits default in commencing the execution of the work as
aforesaid, Government shall without prejudice to any other
right or remedy available in law, be at liberty to forfeit the
performance guarantee absolutely.
5.1 As soon as possible after the Contract is concluded, the
Contractor shall submit a Time and Progress Chart for each
mile stone and get it approved by the Department. The Chart
shall be prepared in direct relation to the time stated in the
Contract documents for completion of items of the works. It
shall indicate the forecast of the dates of commencement and
completion of various trades of sections of the work and may
be amended as necessary by agreement between the
Engineer-in-Charge and the Contractor within the
limitations of time imposed in the Contract documents, and
further to ensure good progress during the execution of the
work, the contractor shall in all cases in which the time
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allowed for any work, exceeds one month (save for special
jobs for which a separate programme has been agreed upon)
complete the work as per mile stones given in Schedule 'F'.
(a) Project Management shall be done by using project
management software for works costing more than Rs. 5
Crore.
(b) The project management shall be done using M.S.
Project software for works costing more than Rs. 5 Crore
and up to Rs. 20 Crore. For works costing more than Rs. 20
Crore, project management shall be done using Primavera
Software.
PROGRAMME CHART
(i) The Contractor shall prepare an integrated programme
chart in MS Project/Primavera software for the execution of
work, showing clearly all activities from the start of work to
completion, with details of manpower, equipment and
machinery required for the fulfilment of the programme
within the stipulated period or earlier and submit the same
for approval to the Engineer-in- Charge within ten days of
award of the contract. A recovery of Rs. 25001- (for works
costing up to Rs. 20 Crores) / Rs. 50001- (for works costing
more than Rs. 20 Crores) shall be made on per day basis in
case of delay in submission of the above programme.
(ii) The programme chart should include the following:
(a) Descriptive note explaining sequence of the various
activities.
(b) Network (PERT I CPM I BAR CHART).
(c) Programme for procurement of materials by the
contractor. Programme of procurement of machinery /
equipment's having adequate capacity, commensurate with
the quantum of work to be done within the stipulated period,
by the contractor. In addition to above, to achieve the
progress of Work as per programme, the contractor must
bring at site adequate shuttering material required for
cement concrete and R.C.C. works etc. for three floors
within one month from the date of start of work till the
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completion of RCC work as per requirement of work. The
contractor shall submit shuttering schedule adequate to
complete structure work within laid down physical
milestone.
(iii) If at any time, it appears to the Engineer-in-Charge that
the actual progress of work does not conform to the
approved programme referred above or after rescheduling
of milestones, the contractor shall produce a revised
programme within 7 (seven) days, showing the modifications
to the approved programme to ensure timely completion of
the work. The modified schedule of programme shall be
approved by the Engineer in Charge. A recovery of Rs.
25001- (for works costing up to Rs. 20 Crores) / Rs. 50001-
(for works costing more than Rs. 20 Crores) shall be made
on per day basis in case of delay in submission of the
modified programme.
(iv) The submission for approval by the Engineer-in-Charge
of such programme or such particulars shall not relieve the
contractor of any of the duties or responsibilities under the
contract. This is without prejudice to the right of Engineer-
in-Charge to take action against the contractor as per terms
and conditions of the agreement.
(v) The contractor shall submit the progress report using MS
Project/Primavira software with base line programme
referred above for the work done during previous month to
the Engineer-in-charge on or before 5th day of each month
failing which a recovery Rs. 25001- (for works costing up to
Rs. 20 Crores) / Rs. 50001- (for works costing more than Rs.
20 Crores) shall be made on per day basis in case of delay in
submission of the monthly progress report.
5.2 If the work( s) be delayed by: -
(i) force majeure, or
(ii) abnormally bad weather, or
(iii) serious loss or damage by fire, or
(iv) civil commotion, local commotion of workmen, strike or
lockout, affecting any of the trades employed on the work, or
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(v) delay on the part of other contractors or tradesmen
engaged by Engineer-in- Charge in executing work not
forming part of the Contract, or
(vi) non-availability of stores, which are the responsibility of
Government to supply or
(vii) non-availability or break down of tools and Plant to be
supplied or supplied by Government or
(viii) any other cause which, in the absolute discretion of the
Engineer-in-Charge is beyond the Contractor's control. then
upon the happening of any such event causing delay, the
Contractor shall immediately give notice thereof in writing
to the authority as indicated in Schedule 'F' but shall
nevertheless use constantly his best endeavours to prevent or
make good the delay and shall do all that may be reasonably
required to the satisfaction of the Engineer-in-Charge to
proceed with the works.
5.3 Request for rescheduling of Mile stones and extension
of time, to be eligible for consideration, shall be made by
the Contractor in writing within fourteen days of the
happening of the event causing delay on the prescribed
form to the authority as indicated in Schedule 'F'. The
Contractor may also, if practicable, indicate in such a
request the period for which extension is desired.
5.4 In any such case the authority as indicated in Schedule
'F' may give a fair and reasonable extension of time and
reschedule the mile stones for completion of work. Such
extension or rescheduling of the milestones shall be
communicated to the Contractor by the authority as
indicated in Schedule 'F' in writing, within 3 months or 4
weeks of the date of receipt of such request respectively.
Non application by the contractor for extension of time/
rescheduling of the milestones shall not be a bar for giving
a fair and reasonable extension/ rescheduling of the
milestones by the authority as indicated in Schedule 'F'
and this shall be binding on the contractor.”
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SUBMISSIONS
(On Behalf of The Appellant)
17. Learned counsel appearing on behalf of the appellant submitted
that the learned Arbitrator had failed to appreciate that agreement
between the parties provided for a fair and reasonable extension of time
and rescheduling of milestones for completion of work, however, the
respondents had neither rescheduled the milestones nor had granted an
extension of time till date of termination of contract agreement, despite
admitting the delay on their part in the hindrance register maintained by
them unilaterally.
18. It is submitted that the learned Arbitrator had further failed to
appreciate the contents of aforementioned Clause 2, 3A, and 5 of the
agreement, which provided that the time allowed for the execution of
work as specified in the schedule F or the extended time in accordance
with these conditions shall be the essence of the contract. In the present
case, no such extension was granted by the respondents.
19. It is further submitted that the learned Arbitrator had failed to
appreciate that the respondent had not granted a fair and just and
reasonable extension of time as required under the aforementioned clause
5.4. The respondent had only extended the agreement granting a
provisional extension of time with the only intention to keep the contract
alive, and further reserve their right to levy compensation under clause 2
of an agreement while granting such provisional extension of time.
20. Further, the learned Arbitrator had failed to appreciate that there
was no provision in the contract agreement which provides for the
provisional extension of time and that too reserves the right to levy
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liquidated damages unilaterally beyond the conditions prescribed in
clause 5 of the agreement.
21. Further, learned Arbitrator had failed to appreciate that the
contract is bilateral and the time should be extended with the consent of
both the parties and not unilaterally.
22. It is submitted that the learned Arbitrator had failed to appreciate
that schedule F provides for Rescheduling the milestones however the
respondent had not rescheduled the milestones despite the request from
the appellant but had withheld an amount of INR 24,54,006/- towards
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milestone from the 07 R/A bill of the appellant.
23. Further, the learned Arbitrator had failed to appreciate that the
respondent had failed to fulfill their own reciprocal promises in as per the
agreement such as to provide the peaceful and vacant site, which
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admittedly had been vacated on 17 March 2018 as against the date of
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start of work 21 February 2018.
24. It is further submitted that the learned Arbitrator had failed to
appreciate that the drawings which were required to be provided on the
date of start of work, were revised several times.
25. It is also submitted that the learned Arbitrator had wrongly
appreciated the hindrances as the only hindrances on record in the
hindrance register, and had failed to appreciate the hindrances as
submitted by the Appellant during the execution of work and also
admitted by the Respondent in their letters on record.
26. Further, the learned Arbitrator had failed to appreciate that the
provisional extension of time is no extension in terms of agreement and
therefore has no value in the eyes of the Law. Moreover, the extension
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should be bilateral with the consent of both parties and not unilateral, and
that too after reserving the right to levy liquidated damages.
27. Also, the learned Arbitrator failed to appreciate the provision of
Section 53 to 55 of the Indian Contract Act, 1872, which provides that the
contract becomes voidable at the instance of the party who was prevented
from performing his part of the contract. It is admitted that the respondent
had failed to provide the site drawings, revised the drawings from time to
time, failed to remove the trees from the site, and thereby failed to fulfill
their own reciprocal promises in an agreement.
28. Learned counsel for the appellant submitted that the scope of work
was changed resulting in the revision of drawings, and an increase in
depth of excavation from 3.5m to 6.8m. It resulted in the prolongation of
the contract agreement, as the Raft drawings, plinth drawings, and
columns drawings beam drawings will automatically change due to the
additional depth of the foundation and basement floor.
29. Further, the Arbitrator had wrongly held in the impugned order
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dated 3 June 2022 "if the respondents levy Liquidated damages in
future, the appellant should have contested the same" , after completion of
work. The learned Arbitrator had failed to appreciate that the respondent
has to extend the contract considering fair, just, and reasonable
hindrances as apprised by the appellant from time to time, however, the
respondent had not extended the contract as per agreement.
30. Also, it was submitted that the learned Arbitrator had wrongly
taken the note that the value of reinforcement had increased manifold,
and therefore the appellant wanted to make money out of it, and hence
wrongly rejected the prayer for lifting the reinforcement, which actually
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belongs to the appellant in the agreement.
31. Therefore, it is submitted that the Court may set aside the order
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dated 3 June 2022.
(On Behalf of The Respondents)
32. Learned counsel appearing on behalf of the respondent-NDMC
submitted that the reply of the appeal has been filed vide Diary No.
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1396741/2022 dated 10 April 2023 but the same is lying under
objection.
33. During the arguments, learned counsel appearing on behalf of the
respondent-NDMC handed over the reply before this Court which has
been taken on record.
34. Learned counsel appearing on behalf of the respondent submitted
that the learned Arbitrator considered the circumstances, status of work,
and the capacity of the appellant while concluding that the hindrance was
not a reason to abandon the work entirely.
35. Learned counsel for the respondent submitted that the extension
was granted to the appellants well within the ambit of the Contractual
provisions and that the extension was fair and reasonable in nature.
Moreover, the respondent had only reserved their right to claim liquidated
damages.
36. Learned counsel for the respondent submitted that the contentions
raised by the appellants are contrary to Clause 5.4 of the Contract as it is
clearly mentioned in Clauses 5.3 and 5.4 that request for extension of
time should be in writing by the contractor and non-application by the
contractor shall not be a bar for giving a fair and reasonable extension of
the Contract and that would be binding upon the contractor.
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37. Learned counsel for the respondent submitted that the respondent is
entitled to claim compensation under Clause 2 of the Contract along with
the liberty to re-schedule the milestone/time of completion as per Clause
5.4 of the Contract.
38. Learned counsel for the respondent submitted that the site was
vacant for the appellant to conduct its work and the appellant failed to
mobilize its manpower and machinery in terms of the Contract despite
numerous reminders and several show cause notices and even suspended
the work and forced the respondent to determine the Contract under
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Clause 3 of the Agreement vide letter dated 15 November 2019 and
further informing the appellant that the security deposit and bank
guarantee stood forfeited.
39. Learned counsel for the respondent submitted that the Contract
empowers the Engineer-in-charge to change the scope of work and the
appellant was under an obligation to do the changed work.
40. Learned counsel for the respondent submitted that the respondent
has complied with reciprocal promises under the Contract and even
extended the time, considering the status of the work.
41. Learned counsel for the respondent submitted that the completed
site with all the drawings had been provided to the appellants and any
extra work was duly paid for by the respondent.
42. Learned counsel for the respondent submitted that nothing related
to the architect and letters alleged by the appellants are mentioned in the
Statement of Claim in the proceeding before the Learned Arbitrator and
hence new averments cannot be allowed in the present proceedings.
43. Learned counsel for the respondent submitted that the respondent
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made timely payments as and when asked by the appellants and it is
furthermore denied that the respondent has breached the agreement.
44. Learned counsel for the respondent submitted that the appellant has
been blacklisted by the appellant vide respondent council‟s decision dated
th
4 August 2020 as per Clause 15 of the Special Conditions of the
Contract.
45. Learned counsel for the respondent submitted that as per Clause 1
of the Contract, the performance guarantee was initially up to the
stipulated date of completion plus 60 days beyond that. In case of an
extension of the working period, the appellant was required to get the
bank guarantee extended.
46. Learned counsel for the respondent submitted that vide letter dated
th
15 March 2018, it was communicated to the appellant that all the
buildings were handed over to the appellants except the first floor of one
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building which was also handed over on 17 March 2018. Furthermore, it
is submitted that at present there is no hindrance from the trees.
47. Learned counsel for the respondent submitted that the respondent
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vide letter dated 11 September 2018 informed the appellant that no
excavation is held up due to the falling of the trees and that vide letters
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dated 15 March 2018 and 19 April 2018 duly asked the appellant to
continue with the work.
48. Learned counsel for the respondent submitted that no obstruction
with regard to the site was ever cited by the claimant at the time of
tendering and any hindrances that occurred were duly recorded in the
hindrance register and due benefits of the same were given to the
appellants while calculating the milestones to be achieved.
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49. Learned counsel for the respondent submitted that the Contract has
made it clear that the bidders should inspect the site before bidding for
the tender.
50. Learned counsel for the respondent submitted that the rates of extra
items had to be finalized as per Clause 12 of the Agreement and
quantities were to be paid as per the actual measurements. Furthermore, it
is submitted that the appellant has been duly paid for all the extra work
executed at the site from time to time, including the extra excavation.
51. Learned counsel for the respondent submitted that the structural
drawings were provided as and when required by the appellant
corresponding to the work to be carried out at the relevant stage.
52. Learned counsel for the respondent submitted that the respondent
has timely provided details to the design mix but due to the failure of a
sample, the second sample was sent to NCCBM. Furthermore, it is
submitted that as per the terms of the Contract, the appellant is required to
bear the cost of approval of the design mix.
53. Learned counsel for the respondent submitted that all the
reasonable and legitimate hindrances which were brought to the attention
of the respondent were noted and considered by the respondent while
determining the extension of the Contract. Furthermore, it is submitted
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that the hindrances claimed by the appellants vide letter dated 5 July
2019 were perverse in nature and repugnant to the Contract itself.
54. Learned counsel for the respondent submitted that the Claims of
the appellants are in contravention of the records and that due to virtue of
counter-claims filed by the respondent, the respondent has also occurred
huge losses due to the lapses by the appellant. Furthermore, it is
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submitted that amounts so claimed by the appellant first need to be
verified by the ongoing Arbitral proceedings and consequently need to be
adjusted against the counter-claims so raised by the respondent before the
Learned Arbitral Tribunal.
55. Learned counsel for the respondent submitted that the appellant
despite being granted multiple extensions for the completion of work was
continuously delaying the completion of the work and ultimately
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requested the respondent for closure of work vide letter dated 5
th
September 2019 and 9 September 2019 pursuant to which the Contract
was determined by respondent. Furthermore, it is submitted that the
th
appellant vide letter dated 16 September 2019, inter-alia, requested for
an extension of work of 15 months for completion of work without
levying any compensation.
56. Learned counsel for the respondent submitted that the appellant
was issued Show-Cause Notice under Clause 3(a) and (b) of the
Agreement and the appellant was also informed that action under the said
Clauses would be taken if the appellant failed to satisfy its reasons for the
suspension of work.
57. Learned counsel for the respondent submitted that the appellant
raised false and frivolous claims for the Learned Arbitrator and due to
various breaches and abandonment by the appellant, the appellant is
liable to pay the counter-claims and losses suffered by the respondent.
58. It is thus submitted by the learned counsel of the respondents that
the instant petition may be dismissed.
FINDINGS AND ANALYSIS
59. The first question to be considered in the light of these submissions
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is with regard to the scope of this Court‟s jurisdiction under Section 37(2)
of the Act. Before delving into the judicial decisions, it is pertinent to
reproduce the relevant portion of Section 37(2) of the Act, 1996:
37. Appealable orders.—
(2) An appeal shall also lie to a Court from an order
granting of the arbitral tribunal.—
(a) accepting the plea referred in sub-section (2) or sub-
section (3) of section 16; or
(b) granting or refusing to grant an interim measure under
section 17.
60. In Dinesh Gupta v. Anand Gupta , 2020 SCC OnLine Del 2099 ,
this Court considered the matter with reference to Section 5 of the Act
and the generally limited nature of the Court‟s power in arbitration
proceedings, to conclude as follows:
“60. In the opinion of this Court, another important, and
peculiar, feature of the 1996 Act, which must necessarily
inform the approach of the High Court, is that the 1996 Act
provides for an appeal against interlocutory orders, whereas
the final award is not amenable to any appeal, but only to
objections under Section 34. If the submission of Mr. Nayar,
as advanced, were to be accepted, it would imply that the
jurisdiction of the Court, over the interlocutory decision of
the arbitrator, would be much wider than the jurisdiction
against the final award. Though, jurisprudentially, perhaps,
such a position may not be objectionable, it does appear
incongruous, and opposed to the well settled principle that
the scope of interference with interim orders, is, ordinarily,
much more restricted than the scope of interference with the
final judgment.
61. Here, yet another peculiar dispensation, in the 1996 Act,
apropos the scope of interference with the decision of the
arbitrator, manifests itself. The proviso to Section 36(3)
ordains that the Court, while considering an application for
grant of stay of a final arbitral award for payment of money,
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shall “have due regard to the provisions for grant of stay of
a decree under the provisions of the Civil Procedure Code,
1908”. By reference, therefore, Order 41 Rule 5 of the CPC,
which deals with stay, by the appellate court, of original
decrees, stands incorporated into Section 36(3) of the 1996
Act. Though, therefore, the final arbitral award is not made
amenable to appeal, by the 1996 Act, any prayer for stay of
the arbitral award, that accompanies objections under
Section 34, is required to be examined in the light of the
provisions, in the CPC, governing stay of original decrees,
in exercise of appellate jurisdiction. Though, for the
purposes of this judgment, it is not necessary to
psychoanalyse the legislative intent in providing for such a
peculiar dispensation, the fact that applications for stay of
final arbitral awards, are required to be considered on the
basis of the principles governing stay, by appellate courts,
under Order 41 Rule 5 of the CPC, indicate, to an extent,
that the principles of Order 41 are also required to be borne
in mind, while exercising appellate jurisdiction, under
Section 37.
62. The 1996 Act is, preambularly, a fallout of the United
Nation's Commission on International Trade Law
(UNCITRAL), adopted in 1995 as the Model Law on
International Commercial Arbitration. The Statement of
Objects and Reasons, preceding the 1996 Act, stipulates, in
paras 2 to 5 thereof, as under, in this respect:
“2. The United Nations Commission on International
Trade Law (UNCITRAL) adopted in 1985 the Model Law
on International Commercial Arbitration. The General
Assembly of the United Nations has recommended that all
countries give due consideration to the said Model Law,
in view of the desirability of uniformity of the law of
arbitral procedures and the specific needs of
international commercial arbitration practise. The
UNCITRAL also adopted in 1980 a set of Conciliation
Rules. The General Assembly of the United Nations has
recommended the use of these Rules in cases where the
disputes arise in the context of international commercial
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relations and the parties seek amicable settlement of the
disputes by recourse to conciliation. An important feature
of the UNCITRAL Model Law and Rules is that they have
harmonized concepts on arbitration and conciliation of
different legal systems of the world and thus contains
provisions which are designed for universal applications.
3. Though the said UNCITRAL Model Law and Rules are
intended to deal with International Commercial
Arbitration and Conciliation, they could, with
appropriate modifications, serve as a model for
legislation on domestic arbitration and conciliation. The
present Bill seeks to consolidate and amend the law
relating to domestic arbitration, international
commercial arbitration, enforcement of foreign arbitral
awards and to define the law relating to conciliation,
taking into account the said UNCITRAL Model Law and
Rules.
4. The main objectives of the Bill are as under:—
a. to comprehensively cover international and
commercial arbitration and conciliation as also
domestic arbitration and conciliation;
b. to make provision for an arbitral procedure which is
fair, efficient and capable of meeting the needs of the
specific arbitration;
c. to provide that the arbitral tribunal gives reasons for
its arbitral award;
d. to ensure that the arbitral tribunal remains within the
limits of its jurisdiction;
e. to minimize the supervisory role of the courts in the
arbitral process;
f. to permit an arbitral tribunal to use mediation,
conciliation or other procedure during the arbitral
proceedings to encourage settlement of disputes;
g. to provide that every final arbitral award is enforced
in the same manner as if it were a decree of the court;
h. to provide a settlement agreement reached by the
parties as a result of conciliation proceedings will
have the same status and effect as an arbitral award
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on agreed terms on the substance of the dispute
rendered by an arbitral tribunal; and
i. to provide that, for purposes of enforcement of foreign
awards, every arbitral award made in a country to
which one of the two international Conventions
relating to foreign arbitral awards to which India is a
party applies, will be treated as a foreign awards.
5. The Bill seeks to achieve the above objects.”
63. The Supreme Court has, in Chloro Controls (I)
Ltd. v. Severn Trent Water Purification Inc., held that the
legislative intent and essence of the 1996 Act “is to bring
domestic as well as international commercial arbitration in
consonance with the UNCITRAL Model Rules, the New York
Convention and Geneva Convention”. The afore-extracted
passages, from the Statements of Object and Reasons of the
1996 Act has, necessarily, to guide the Court, while
interpreting the provisions thereof. While on the point, it
may be noted that, in Bharat Sewa Sansthan v. U.P.
Electronics Corporation Ltd., the Supreme Court has clearly
held the “main objective of the (1996) Act” as being “to
make provision for an arbitral procedure which is fair,
efficient and capable of meeting the needs of the specific
arbitration and to minimise the supervisory role of courts in
the arbitral process and to permit an arbitral Tribunal to use
mediation, the conciliation or other procedures during the
arbitral proceedings in settlement of disputes, etc.”
64. There can be no gainsaying the proposition, therefore,
that, while exercising any kind of jurisdiction, over arbitral
orders, or arbitral awards, whether interim or final, or with
the arbitral process itself, the Court is required to maintain
an extremely circumspect approach. It is always required to
be borne, in mind, that arbitration is intended to be an
avenue for “alternative dispute resolution”, and not a means
to multiply, or foster, further disputes. Where, therefore, the
arbitrator resolves the dispute, that resolution is entitled to
due respect and, save and except for the reasons explicitly
set out in the body of the 1996 Act, is, ordinarily, immune
from judicial interference.
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65. Interestingly, while examining, in Snehadeep Structures
(P) Ltd. v. Maharashtra Small Scale Industries Development
Corporation Ltd., the scope of the expression “appeal” as
employed in Section 7 of the Interest on Delayed Payments
to Small Scale and Ancillary Undertakings Act, 1993, the
Supreme Court held that, “if … the meaning of “appeal” is
ambiguous, the interpretation that advances the object and
purpose of the legislation, shall be accepted.” Purposive
interpretation, as has been noticed in Shailesh
Dhairyawan v. Mohan Balkrishna Lulla and Richa
Mishra v. State of Chhattisgarh, has, over time, replaced the
principle of “plain reading” as the golden rule, for
interpreting statutory instruments.
66. In my opinion, this principle has to guide, strongly, the
approach of this Court, while dealing with a challenge such
as the present, which is directed against an order which, at
an interlocutory stage, merely directing furnishing of
security, by one of the parties to the dispute. The power, of
the learned Sole Arbitrator, to direct furnishing of security,
is not under question; indeed, in view of sub-clause (b) of
Section 17(1)(ii) of the 1996 Act, it cannot. The arbitrator is,
under the said sub-clause, entirely within his jurisdiction in
securing the amount in dispute in the arbitration. Whether,
in exercising such jurisdiction, the arbitrator has acted in
accordance with law, or not, can, of course, always be
questioned. While examining such a challenge, however, the
Court has to be mindful of its limitations, in interfering with
the decision of the arbitrator, especially a decision taken at
the discretionary level, and at an interlocutory stage.”
61. An appeal can be filed under Section 37 of the Act, 1996 if the
Court refuses to set aside the impugned Award under Section 34. An
appeal shall also lie from an order passed by the Arbitral Tribunal under
Section 37(2). Nevertheless, the scope of Section 37 is very limited. The
Hon‟ble Supreme Court in Haryana Tourism Ltd. v. Kandhari
Beverages Ltd., (2022) 3 SCC 237, held that the High Court cannot enter
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into the merits of the claim in an appeal under Section 37 of the Act,
1996. The relevant paragraph is reproduced below:
“8. As per settled position of law laid down by this Court in
a catena of decisions, an award can be set aside only if the
award is against the public policy of India. The award can
be set aside under Sections 34/37 of the Arbitration Act, if
the award is found to be contrary to, (a) fundamental policy
of Indian Law; or (b) the interest of India; or (c) justice or
morality; or (d) if it is patently illegal. None of the aforesaid
exceptions shall be applicable to the facts of the case on
hand. The High Court has entered into the merits of the
claim and has decided the appeal under Section 37 of the
Arbitration Act as if the High Court was deciding the appeal
against the judgment and decree passed by the learned trial
Court. Thus, the High Court has exercised the jurisdiction
not vested in it under Section 37 of the Arbitration Act. The
impugned judgment and order passed by the High Court is
hence not sustainable.”
62. The law surrounding „patent illegality‟ and the „fundamental policy
of Indian Law‟ is no more res integra . There has been a catena of judicial
decisions that explained the scope and nature of patent illegality and
fundamental policy of Indian Law.
63. In Ssangyong Engineering & Construction Co. Ltd. v. NHAI,
(2019) 15 SCC 131 , the Hon‟ble Supreme Court while explaining the
scope of the expression „public policy of India‟ made the following
pertinent observations:
"23. What is clear, therefore, is that the expression ”public
policy of India”, whether contained in Section 34 or in
Section 48, would now mean the “fundamental policy of
Indian law” as explained in paragraphs 18 and 27 of
Associate Builders (supra), i.e., the fundamental policy of
Indian law would be relegated to the “Renusagar”
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understanding of this expression. This would necessarily
mean that the Western Geco (supra) expansion has been
done away with. In short, Western Geco (supra), as
explained in paragraphs 28 and 29 of Associate Builders
(supra), would no longer obtain, as under the guise of
interfering with an award on the ground that the arbitrator
has not adopted a judicial approach, the Court„s
intervention would be on the merits of the award, which
cannot be permitted post amendment. However, insofar as
principles of natural justice are concerned, as contained in
Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue
to be grounds of challenge of an award, as is contained in
paragraph 30 of Associate Builders (supra).
xxxxxx
25. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is contrary
to the fundamental policy of Indian law, as understood in
paragraphs 18 and 27 of Associate Builders (supra), or
secondly, that such award is against basic notions of justice
or morality as understood in paragraphs 36 to 39 of
Associate Builders (supra). Explanation 2 to Section
34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was
added by the Amendment Act only so that Western Geco
(supra), as understood in Associate Builders (supra), and
paragraphs 28 and 29 in particular, is now done away with.
26. Insofar as domestic awards made in India are
concerned, an additional ground is now available under sub-
section (2A), added by the Amendment Act, 2015, to Section
34. Here, there must be patent illegality appearing on the
face of the award, which refers to such illegality as goes to
the root of the matter but which does not amount to mere
erroneous application of the law. In short, what is not
subsumed within “the fundamental policy of Indian law”,
namely, the contravention of a statute not linked to public
policy or public interest, cannot be brought in by the
backdoor when it comes to setting aside an award on the
ground of patent illegality.
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27. Secondly, it is also made clear that re-appreciation of
evidence, which is what an appellate court is permitted to
do, cannot be permitted under the ground of patent illegality
appearing on the face of the award.
28. To elucidate, paragraph 42.1 of Associate Builders
(supra), namely, a mere contravention of the substantive law
of India, by itself, is no longer a ground available to set
aside an arbitral award. Paragraph 42.2 of Associate
Builders (supra), however, would remain, for if an arbitrator
gives no reasons for an award and contravenes Section
31(3) of the 1996 Act, that would certainly amount to a
patent illegality on the face of the award.
xxxxxx
30. What is important to note is that a decision which is
perverse, as understood in paragraphs 31 and 32 of
Associate Builders (supra), while no longer being a ground
for challenge under “public policy of India”, would
certainly amount to a patent illegality appearing on the face
of the award. Thus, a finding based on no evidence at all or
an award which ignores vital evidence in arriving at its
decision would be perverse and liable to be set aside on the
ground of patent illegality. Additionally, a finding based on
documents taken behind the back of the parties by the
arbitrator would also qualify as a decision based on no
evidence inasmuch as such decision is not based on evidence
led by the parties, and therefore, would also have to be
characterised as perverse."
64. In the case of Associate Builders vs. Delhi Development
Authority, (2015) 3 SCC 49, the Hon‟ble Supreme Court clarified the
meaning and scope of „fundamental policy of Indian Law‟ in the context
of Section 34 of the Arbitration Act in the following manner:
“28. In a recent judgment, ONGC Ltd. v. Western Geco
International Ltd., 2014 (9) SCC 263, this Court added
three other distinct and fundamental juristic principles
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which must be understood as a part and parcel of the
fundamental policy of Indian law. The Court held-
35. What then would constitute the “fundamental
policy of Indian law” is the question. The decision in
ONGC [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC
705] does not elaborate that aspect. Even so, the
expression must, in our opinion, include all such
fundamental principles as providing a basis for
administration of justice and enforcement of law in
this country. Without meaning to exhaustively
enumerate the purport of the expression “fundamental
policy of Indian law”, we may refer to three distinct
and fundamental juristic principles that must
necessarily be understood as a part and parcel of the
fundamental policy of Indian law. The first and
foremost is the principle that in every determination
whether by a court or other authority that affects the
rights of a citizen or leads to any civil consequences,
the court or authority concerned is bound to adopt
what is in legal parlance called a “judicial approach”
in the matter. The duty to adopt a judicial approach
arises from the very nature of the power exercised by
the court or the authority does not have to be
separately or additionally enjoined upon the for a
concerned. What must be remembered is that the
importance of a judicial approach in judicial and
quasi-judicial determination lies in the fact that so
long as the court, tribunal or the authority exercising
powers that affect the rights or obligations of the
parties before them shows fidelity to judicial
approach, they cannot act in an arbitrary, capricious
or whimsical manner. Judicial approach ensures that
the authority acts bona fide and deals with the subject
in a fair, reasonable and objective manner and that its
decision is not actuated by any extraneous
consideration. Judicial approach in that sense acts as
a check against flaws and faults that can render the
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decision of a court, tribunal or authority vulnerable to
challenge.
xxxxxx
38. Equally important and indeed fundamental to the
policy of Indian law is the principle that a court and
so also a quasi judicial authority must, while
determining the rights and obligations of parties
before it, do so in accordance with the principles of
natural justice. Besides the celebrated audi alteram
partem rule one of the facets of the principles of
natural justice is that the court/authority deciding the
matter must apply its mind to the attendant facts and
circumstances while taking a view one way or the
other. Non-application of mind is a defect that is fatal
to any adjudication. Application of mind is best
demonstrated by disclosure of the mind and disclosure
of mind is best done by recording reasons in support
of the decision which the court or authority is taking.
The requirement that an adjudicatory authority must
apply its mind is, in that view, so deeply embedded in
our jurisprudence that it can be described as a
fundamental policy of Indian law.
39. No less important is the principle now recognised
as a salutary juristic fundamental in administrative
law that a decision which is perverse or so irrational
that no reasonable person would have arrived at the
same will not be sustained in a court of law.
Perversity or irrationality of decisions is tested on the
touchstone of Wednesbury principle of
reasonableness. Decisions that fall short of the
standards of reasonableness are open to challenge in
a court of law often in writ jurisdiction of the superior
courts but no less in statutory processes wherever the
same are available. 40. It is neither necessary nor
proper for us to attempt an exhaustive enumeration of
what would constitute the fundamental policy of
Indian law nor is it possible to place the expression in
the straitjacket of a definition. What is important in
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the context of the case at hand is that if on facts
proved before them the arbitrators fail to draw an
inference which ought to have been drawn or if they
have drawn an inference which is on the face of it,
untenable resulting in miscarriage of justice, the
adjudication even when made by an Arbitral Tribunal
that enjoys considerable latitude and play at the joints
in making awards will be open to challenge and may
be cast away or modified depending upon whether the
offending part is or is not severable from the rest.”
xxxxxx
31. The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person would
have arrived at the same is important and requires some
degree of explanation. It is settled law that where:
1. a finding is based on no evidence, or
2. an arbitral tribunal takes into account something
irrelevant to the decision which it arrives at; or
3. ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
xxxxxx
33. It must clearly be understood that when a court is
applying the “public policy” test to an arbitration award, it
does not act as a court of appeal and consequently errors of
fact cannot be corrected. A possible view by the arbitrator
on facts has necessarily to pass muster as the arbitrator is
the ultimate master of the quantity and quality of evidence to
be relied upon when he delivers his arbitral award. Thus an
award based on little evidence or on evidence which does
not measure up in quality to a trained legal mind would not
be held to be invalid on this score . Once it is found that the
arbitrators approach is not arbitrary or capricious, then he
is the last word on facts......”
65. It is therefore clear that the decisive test is that first , the learned
arbitrator had to adopt a judicial approach; second , the principles of
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natural justice had to be upheld; third, the decision must not have been
egregious, or rather, perverse.
66. A relevant portion of the impugned order is reproduced herein to
examine whether the order is perverse in nature:
“39. My reasons therefor are as under.
A. The challenge to blacklisting, on 23 May 2022
pegged by the counsel for the claimant on non-
issuance of notice to show cause and non-grant of
opportunity of being heard, has no merits. Patel
Engineering Limited supra cited by the counsel for
the respondent applies on all fours to the matter in
hand. In the present case also, as in the matter before
the Supreme Court, the power of blacklisting was
exercised in accordance with the terms of the
agreement and not in exercise of any sovereign or
statutory powers. Supreme Court, in the said
judgment, distinguished between the two and held that
the failure in that case also to mention blacklisting to
be one of the probable actions that could be taken
against the delinquent bidder, did not by itself disable
the employer from blacklisting the delinquent bidder if
it was otherwise justified. It thus follows that non-
mentioning by the respondent in the notices dated 22
October 2019 of 15 November 2019 admittedly served
on the respondent, of blacklisting be one of the
probable actions that could be against the claimant
herein, cannot be a ground to interfere with the action
taken by the respondent of blacklisting the claimant.
Rather, I am of the view that once the respondent in
the notices aforesaid, after expressly referring to
clause 3 (a) and (b), also gave opportunity to the
claimant to show cause why action under any other
clause of the agreement should not be taken against
the claimant, the requirement of giving notice to show
cause and opportunity of being heard stood satisfied
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and no such ground for interference with the order of
blacklisting is made out.
B. I also find merit in the argument of the counsel for
the respondent that the claimant is not entitled to
interim relief of stay of the order of blacklisting, for
the reason of delay in seeking the said relief and for
which no explanation has been furnished. Prima facie
it appears, that the claimant has been dragging its
feet. Not only did the claimant, after learning in the
beginning of November 2020 of the order of its
blacklisting, delayed challenge to the same till
September 2021 when the writ petition was filed, but
in these proceedings also, though pending since
February 2022, filed the application seeking stay of
blacklisting only on 12 May 2022. It appears, that the
claimant was not prejudiced from the
blacklisting/debarment, till applied for enlisting to the
CPWD and where the blacklisting/debarment by the
respondent came in the way of the claimant. An
interim measure, by its very nature is urgent and if the
persons seeking the same has not shown any urgency
in seeking it, the delay in seeking the same can itself
be a ground for denying the same. In the facts of the
present case, the claimant has failed to explain the
delay on its part twice over as aforesaid and the same
alone dis-entitles the claimant from any interim relief.
C. I also do not find any prima facie case in favour of
the claimant. The counsel for the claimant himself
during the hearing contended that the dispute and
difference between the parties was that while the
claimant was seeking extension of time without levy of
liquidated damages for delay in execution of works,
the respondent though had granted extension of time
but had kept open the option of levying liquidated
damages. As observed by me during the hearing and
to which no response was given by the counsel for the
claimant, at least at this stage it appears that the said
difference was not reason enough for the claimant to
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stop the work without availing of the extension of time
for completion of work admittedly given by the
respondent. If the respondent, in future, had levy any
liquidated damages, the claimant should have
contested the same. The conduct of the claimant of
suspension of work and of removal of its machinery
and equipment and labour of the site without availing
of the extension of time granted by the respondent,
prima facie appears to be a case of abandonment of
work by the claimant and which justifies the action of
blacklisting of the claimant.”
67. It can be inferred from the impugned order that the learned
Arbitrator gave careful consideration to the provisions of the Contract and
the facts and circumstances of the instant case to decree such an order.
68. It can be inferred from the impugned order that the extension was
granted to the appellants well within the ambit of the Contractual
provisions and that the extension was fair and reasonable in nature, since
the order was well-reasoned. A relevant portion of the order is reproduced
below:
“G. The time for completion of work though under the
agreement till 21 August 2019, was admittedly extended till
May 2020. The claimant however even prior to May 2020,
on 6 September 2019 i.e., when 8 months were still
remaining, found to have removed its machinery equipment
and labour from the site. The same indeed prima facie shows
that the claimant did not even want to attempt to complete
the work in the remaining 8 months. Considering that the
total time for completion of the works was 18 months, the
remaining 8 months, in my prima facie view were sufficient
time for the claimant to attempt to complete the work. The
action of the claimant of removing its machinery equipment
and labour from the site indeed makes out a prima facie case
of abandonment of the work by the claimant.
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NEUTRAL CITATION NO. 2023:DHC:2813
H. It is not the case of the counsel for the claimant that any
of the hindrances faced by the claimant in execution of the
work were not entered in the hindrance register maintained
for that purpose or that the benefit of the hindrances entered
in the said register has not been correctly computed. In the
face thereof, the only inference at this stage can be that the
delays other than for the hindrances entered in the register,
were/are attributable to the claimant. The claimant has thus
failed to prima facie satisfy that the respondent was not
justified in keeping open its right to levy liquidated damages
for delay while granting extension of time for completion of
the works.”
69. The learned Arbitrator has taken the Contractual provisions into
account and considered the circumstances, status of work, and the
capacity of the appellant while concluding that hindrances were not a
reason to abandon the work entirely. Therefore, the learned Arbitrator has
observed that the appellant failed to prima facie make out a case in his
favour, thus justifying the levy of liquidated damages by the respondent.
70. In the light of the circumspect approach mandated by the aforesaid
judgments, this Court does not find any reason to interfere with the
decision of the Tribunal in the facts and circumstances of the present
case. The Tribunal‟s findings cannot be said to be arbitrary or perverse.
CONCLUSION
71. For the aforesaid reasons, the Court is of the view that the
impugned order is not liable to interference by this Court in the exercise
of jurisdiction under Section 37(2) of the Act. The instant appeal, along
with pending applications are, therefore, dismissed.
72. It is made clear that the observations in this judgment are only for
the purposes of disposal of this interlocutory appeal and will not
ARB. A. (COMM.) 42/2022 Page 32 of 33
Signature Not Verified
Digitally Signed
By:DAMINI YADAV
Signing Date:26.04.2023
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NEUTRAL CITATION NO. 2023:DHC:2813
prejudice the parties in the final adjudication of their respective
contentions before the Tribunal.
73. The order be uploaded on the website forthwith.
CHANDRA DHARI SINGH, J
APRIL 11, 2023
gs/as
Click here to check corrigendum, if any
ARB. A. (COMM.) 42/2022 Page 33 of 33
Signature Not Verified
Digitally Signed
By:DAMINI YADAV
Signing Date:26.04.2023
18:54:17