Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 74/2017
DELHI INTEGRATED MULTI MODAL TRANSIT
SYSTEM LTD (DIMTS) ..... Petitioner
Through: Mr Sumit Bansal, Mr Prateek
Kohli, Mr Ankit Banati, Advocates.
versus
M/S R. S. SHARMA CONTRACTORS
PVT LTD .....Respondent
Through: Mr Virender Kumar Sharma,
Advocate.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
O R D E R
% 24.05.2018
VIBHU BAKHRU, J
1. The petitioner (hereafter „DIMTS‟) has filed the present petition
under Section 34 of the Arbitration and Conciliation Act, 1996
(hereafter „the Act‟) impugning the arbitral award dated 31.10.2016
(hereafter „the impugned award‟) delivered by the Arbitral Tribunal
constituted by a sole arbitrator, namely, Sh H.S. Dogra, a former
Director General, CPWD (hereafter „the Arbitral Tribunal‟). The
impugned award was rendered in the context of the disputes that had
arisen between the parties in relation to the agreement dated
26.10.2009 (hereafter „the Agreement‟).
2. By the impugned award, the Arbitral Tribunal has awarded an
O.M.P. (COMM) 74/2017 Page 1 of 23
aggregate sum of ₹1,18,86,326/- in favour of the respondent. The said
amount comprises of (i) ₹70,77,079/- on account of loss of profit
(Claim No.1) and ₹48,09,247/- on account of the work done (Claim
No.2).
Factual Background
3. New Delhi Municipal Corporation (NDMC) entrusted DIMTS
with the responsibility of developing an underpass and subway at
Mandir Marg for New Delhi and on 13.10.2008, DIMTS and NDMC
entered into a Contract for the said work.
4. On 18.08.2009, DIMTS on behalf of NDMC invited tenders for
“ construction of Pedestrian Subway at Mandir Marg, New Delhi in
NDMC area on Design and Build basis ” (hereafter „the project‟).
5. On 15.09.2009, the respondent submitted its bid pursuant to the
aforesaid invitation. Thereafter, on 01.10.2009, DIMTS accepted the
respondent‟s bid and issued a Letter of Acceptance (LOA) for
execution of the project directing the respondent to submit a
Performance Security of ₹30,21,414/-.
6. On 26.10.2009, the project was awarded to the respondent and
DIMTS and the respondent entered into the Agreement for execution
of the project for a contract price of ₹6,04,28,269/-. The period
stipulated for completion of the project was eleven months from
commencement of the project – that is, eleven months from
08.10.2009.
O.M.P. (COMM) 74/2017 Page 2 of 23
7. It is stated that traffic diversion plans were submitted for
obtaining the clearance of the traffic police but the same were not
forthcoming, therefore, on 26.03.2010, the respondent was asked to
demobilize its resources from the site and the project was to be taken
up after the completion of the Commonwealth Games, 2010.
Accordingly, the respondent demobilized its resources from the site.
8. Thereafter, in May, 2012, the Traffic Police furnished the
clearance (NOC) for the traffic diversion plan and DIMTS once again
called upon the respondent to mobilize its resources for restarting the
project. The traffic diversion plan was also published in the
newspapers on 17.08.2012. However, the respondent claimed that on
31.08.2012, it was telephonically informed that DIMTS/NDMC had
finally decided not to implement the project of construction of the
subway at Mandir Marg.
9. By a letter dated 11.09.2012, the respondent was advised to
demobilize from the site immediately, as the project was not to be
implemented. The respondent was also asked to submit the financial
implications for foreclosing the Agreement within a period of ten
days from the date of the said letter. Admittedly, a certain amount due
for the work done was released after adjusting the security deposit of
₹1,76,376/-.
10. Thereafter, the respondent sent a letter dated 21.12.2012
requesting for the release of its performance security as well as the
security deposit of ₹1,76,376/- adjusted by DIMTS. Admittedly,
O.M.P. (COMM) 74/2017 Page 3 of 23
certain meetings and discussions were held between the parties for
resolving the disputes between the parties and to ascertain the amount
payable to the respondent.
11. On 21.12.2012, the respondent sent a letter referring to a mutual
agreement for finalizing its claims at ₹66,38,288/- and payment of
₹12,66,897/- against the final bill as full and final settlement. The
respondent also asked DIMTS to adjust the mobilization advance and
to release the bank guarantee submitted for securing the same.
12. On 29.05.2013, DIMTS sent a letter confirming that subsequent
to the respondent accepting the full and final settlement by its letter
dated 21.12.2012, the project accounts had been finalized and after
adjustment of mobilization advance, TDS, VAT and other statutory
deductions for an amount of ₹19,324/- was to be paid by the
respondent in full and final settlement of the account. Accordingly, the
respondent was requested to pay the aforesaid amount within a period
of seven days.
13. Admittedly, the respondent remitted the aforesaid amount by a
banker‟s cheque dated 05.06.2013 under the cover of its letter dated
07.06.2013 and the bank guarantees furnished by the petitioner were
released. Thereafter, on 23.08.2013, the respondent sent another letter
enclosing therewith a letter dated 06.06.2013, inter alia , claiming that
it had submitted the letter dated 21.12.2012 at the insistence of
DIMTS and in order to avoid encashment of the bank guarantees. The
respondent claimed that the said letter was “obtained under force and
O.M.P. (COMM) 74/2017 Page 4 of 23
coercion”. DIMTS disputes that the letter dated 06.06.2013 was
received by it at the material time. It is further contended that the said
letter is ante dated, as the reference number on the letter dated
07.06.2013 under the cover of which the respondent had remitted the
banker‟s cheque for closure of the project account and release of the
bank guarantees, bears a lower number.
14. Thereafter, the respondent invoked the arbitration clause and the
Arbitral Tribunal was constituted to adjudicate the claims and counter
claims of the parties in relation to the Agreement.
15. The respondent filed its statement of claims before the Arbitral
Tribunal claiming, (i) ₹71,40,674.97/- as loss of profit on account of
pre-commitments towards the subject work; (ii) ₹48,15,028/- as
payment due against the final bill along with interest; (iii) Refund of
interest of ₹17,93,425/- on mobilization advance deducted by DIMTS;
(iv) Pre-suit, pendente lite and post award interest at the rate of 18%
per annum; and (v) Cost of arbitration proceedings quantified at ₹10
lakhs.
16. The arbitral proceedings culminated in the impugned award.
17. The Arbitral Tribunal awarded a sum of ₹70,77,079/- against
loss of profits computed at 15% of the unexecuted work and
₹48,09,247/- for the work executed. However, the Arbitral Tribunal
rejected the remaining claims.
18. Aggrieved by the impugned award DIMTS has filed the above
O.M.P. (COMM) 74/2017 Page 5 of 23
captioned petition.
19. The petition was listed before this Court for the first time on
17.02.2017 and a limited notice was issued on two issues raised on
behalf of DIMTS: (i) that the loss of profits computed at 15% on the
basis of rates published by CPWD was erroneous as in terms of the
clarification issued by CPWD, the consolidated rate of 15% included
profits at the rate 7.5% and overheads at the rate 7.5%; and (ii) that the
Arbitral Tribunal had awarded the amount for 475 meters of
barricading, even though the respondent had claimed the amount for
only 400 meters and, therefore, the impugned award was beyond the
claim made.
20. The petition was taken up for hearing on 24.04.2017 and on that
date, the learned counsel for the parties agreed that the petition should
be adjourned to enable DIMTS to approach the Arbitral Tribunal for
re-examination of the question as to the quantum of loss of profits
awarded in view of the circular issued by CPWD and to further
examine respondent‟s claim of barricading. Accordingly, the petition
was adjourned with liberty to DIMTS to approach the Arbitral
Tribunal.
21. Thereafter, DIMTS approached the Arbitral Tribunal and after
hearing the parties, the Arbitral Tribunal issued a clarification dated
31.10.2016, inter alia, clarifying that the loss of profits on the
unexecuted value of work was computed at the rate of 15% in line
with the decisions of the Supreme Court referred to in the impugned
O.M.P. (COMM) 74/2017 Page 6 of 23
award. The Arbitral Tribunal further clarified that the CPWD Circular
as relied upon by DIMTS was never placed before the Arbitral
Tribunal. The reference to the CPWD rate in the impugned award was
only to “ re-enforce the rate of 15% as reasonable compensation ” and
such award had nothing to do with the instructions or the circular of
the CPWD. With regard to the issue of barricading, the Arbitral
Tribunal had clarified that the claim made by the respondent for 400
meters of barricading was an obvious error. The Measurement Book
(MB) recorded the barricading length of 475 meters. He, further,
clarified that the principal issue between the parties was whether the
length of barricading done at the time of first mobilization at site
should be deducted from the length of barricading done during the
second mobilization for the purposes of determining the payment due
to the respondent. DIMTS had deducted 225 meters of barricading
installed during the first mobilization, which was paid under the first
RA Bill. This was held to be unjustified as the respondent had to again
set up the barricading on mobilizing the site for the second time.
22. Although, a limited notice had been issued as noticed above, the
learned counsel for the parties have also been heard on the question
whether the Agreement had been discharged by accord and
satisfaction.
Submissions
23. Mr Sumit Bansal, the learned counsel appearing on behalf of
DIMTS had assailed the impugned award on three fronts. First, he
O.M.P. (COMM) 74/2017 Page 7 of 23
submitted that the parties had finally settled the amounts due for
closing the Agreement. He submitted that after discussions, the
respondent had submitted a letter dated 21.12.2012 accepting the
terms of settlement, which was subsequently implemented. Thus, the
Agreement had been discharged by accord and satisfaction. He further
contended that the letter dated 06.06.2013 was fabricated and ante
dated. The said letter was forwarded to DIMTS for the first time under
the cover of the letter dated 23.08.2013. He further pointed out that the
reference number on the letter dated 06.06.2013 was
RSSCPL/DIMTS/MM/13-14/72; however, another letter dated
07.06.2013, which was admittedly received by DIMTS bore the
reference number RSSCPL/DIMTS/MM/13-14/71. He submitted that
the letters were serially numbered and a letter issued on 06.06.2013
could not have a higher reference number (72) than the reference
number (71) on the letter issued on 07.06.2013.
24. He also submitted that the respondent had not produced any
evidence to substantiate its claim that it was coerced into accepting a
full and final settlement.
25. Next, Mr Bansal submitted that the respondent had not
produced any evidence to substantiate its claim for loss of profits and
such claim could not be awarded without any evidence at all. Mr
Bansal also sought to contend that the impugned award, insofar as the
amount due for barricading is concerned, was in excess of the amount
claimed. However, he could not dispute that the reference to 400
meters of barricading was an obvious error.
O.M.P. (COMM) 74/2017 Page 8 of 23
26. Mr Virender Kumar Sharma, the learned counsel appearing for
the respondent countered the submissions made on behalf of DIMTS.
He submitted that the Arbitral Tribunal had accepted the respondent‟s
contention that it was coerced into submitting a letter accepting the
full and final settlement and such finding could not be disturbed under
Section 34 of the Act. Next, he contended that the Arbitral Tribunal
had computed the claim for loss of profits at 15% of the unexecuted
work of the contract in line with various decisions of the Supreme
Court and, therefore, the award was well reasoned and could not be
assailed under Section 34 of the Act.
Reasons and Conclusions
27. The first and foremost question to be addressed is whether the
decision of the Arbitral Tribunal to reject the contention of DIMTS
that the respondent had accepted the payments “in full and final
settlement” in terms of the letter dated 21.12.2012, is sustainable.
28. Before proceeding further, it would be relevant to refer to the
respondent‟s letter dated 21.12.2012. The said letter is set out below:-
“Ref. No. …………….. Dated. 21.12.2012
The General Manager (Projects)
Delhi Integrated Multi Modal Transit System Ltd.
th
5 Floor, ISBT,
Kashmere Gate,
New Delhi
Sub: Construction of Pedestrian Subway at Mandir
O.M.P. (COMM) 74/2017 Page 9 of 23
Marg, New Delhi in NDMC Area on Design &
Build Basis - Certificate of
Acceptance/Undertaking
Sir,
The subject work was foreclosed by NDMC on
11.09.2012 following which we were asked to submit our
compensatory claims on account of foreclosure of the
subject work.
Accordingly, we submitted our claims for
nd
Rs.1,44,75,941/- and Rs.60,81,925/- against 2 & final bill
against work done at site. Consequently, in various.
meetings, deliberations and discussions held with the
department, it is mutually agreed upon that the due payment
against our claims works out to be Rs.66,38,288/- and the
due payment against work done in final bill works out to be
Rs.12,66,897/- as full & final settlement.
We hereby undertake that the above stated amounts
as agreed above are acceptable to us and we shall not claim
& demand anything extra above & beyond the same.
We further give our consent to the Department to
kindly adjust the mobilization advance of Rs.60,00,000/-
and the interest charges on mobilization advance against
these compensatory Claims and release the bank guarantees
submitted by us for release of mobilization advance.
Further, the department may adjust the statutory
recoveries, as required, before reimbursing the
compensatory claims to us.
In case the recoveries to be affected become more
than the dues payable to us, the amount/payment to be
credited may please be advised to us which will be
deposited by us within 7 days of such intimation.
O.M.P. (COMM) 74/2017 Page 10 of 23
Thanking you.
for M/s R S Sharma contractors Pvt. Ltd.
(Kunal Sharma)
Director”
29. Admittedly, the respondent had taken no steps to retract from
the said letter at the material time. Thereafter, on 29.05.2013, DIMTS
sent a letter informing the respondent that pursuant to its acceptance of
full and final settlement, the project accounts had been finalized and
an amount of ₹19,324/- was to be paid by the respondent. The said
letter is set out below:-
“No. DIMTS/VPE/NDMC/40/MM/2013 29.05.2013
M/s R.S.Sharma Contractors Pvt. Ltd.
C-3/60, Janak Puri,
New Delhi-110058
Sub: Construction of Pedestrian Subway at Mandir
Marg in NDMC Area on design & build basis -
Closure of Project Account.
Sir,
Please refer to your two letter Nos. Nil both dated
09.11.2012, submitting your second & final bill for the
work done and other claims due to foreclosure of the
project by NDMC. It is to inform that subsequent to your
acceptance of the final settlement vide undertaking dated
21.12.2012, the project accounts have been finalized and
after adjustment of mobilization advance, TDS, VAT &
other statutory deductions, it has been found that an
amount of Rs. 19,324/-(Rupees Nineteen Thousand Three
Hundred & Twenty Four Only) is to be paid by you for
O.M.P. (COMM) 74/2017 Page 11 of 23
final settlement of project account.
You are requested to deposit an amount of
Rs.19,324/- (Rupees Nineteen Thousand Three Hundred
& Twenty Four only) vide Pay Order/Banker's Cheque
(payable at N. Delhi) of the same amount issued in favour
of “DIMTS Ltd.” within 7 days of the issue this letter for
final settlement of project account and return of bank
guarantees submitted by you.
Thanking you,
Yours faithfully
(Deepak Rai)
Gen. Manager/Projects”
30. Admittedly, on receipt of the said letter, the respondent had
sent a banker‟s cheque for a sum of ₹19,324/- under cover of its letter
dated 07.06.2013.
31. The respondent has relied upon the letter dated 06.06.2013 in
support of its contention that it had been coerced into submitting the
letter dated 21.12.2012. There is a serious controversy as to the receipt
of the said letter. There is no evidence or material to establish that the
said letter was delivered to DIMTS. Curiously, on 07.06.2013, the
respondent had forwarded the banker‟s cheque in response to the letter
dated 29.05.2013 of DIMTS without raising any protest or referring to
the letter dated 06.06.2013 claimed to have been sent earlier. DIMTS
admits receiving the letter dated 06.06.2013 as an enclosure that the
letter dated 23.08.2013, which was received by the petitioner on
23.09.2013, as is evident from the date of receipt stamped by the
O.M.P. (COMM) 74/2017 Page 12 of 23
petitioner on receiving the letter.
32. The Arbitral Tribunal had noted the respondent‟s contention
that the letter dated 21.12.2012 was obtained under duress and after
referring to the decision of the Supreme Court in R.L. Kalathia & Co.
v. State of Gujarat : (2011) 2 SCC 400 had held that in view of the
legal position, DIMTS‟s contention that the amounts due were settled
could not be accepted.
33. Concededly, the respondent had not produced any evidence or
material to establish that it had been coerced or forced to furnish the
letter dated 21.12.2012. The only case set up by the respondent was
that DIMTS had informed the respondent that unless a letter was given
by the respondent, DIMTS would not settle the account or release the
bank guarantees, and in the circumstances, the respondent had no
option but to give the letter dated 21.12.2012. The relevant extract of
the Statement of Claim is set out below:-
“21. The Claimant was called upon to submit its claims
due to foreclosure of the work, which were accordingly
submitted by the Claimant. The Claimant was prevailed
st
upon to write a letter dated 21 December, 2012 on the
dictates of the Respondent virtually on dotted lines
otherwise the lawful dues of the Claimant would not
have been paid at all.”
34. The respondent had also referred to its letter dated 06.06.2013.
Although, the said letter is disputed, nonetheless, it would be relevant
to refer to the same to understand the case sought to be projected by
O.M.P. (COMM) 74/2017 Page 13 of 23
the respondent. The relevant extract of the said letter is set out below:-
“23. As department told us flatly that unless the
letter, as directed in the language of the
department is given by us, neither our account
will be settled nor the bank guarantees will be
released. In such circumstances we had no
option but to give the letter dated 21.12.2012 in
the language of the department in order to save
ourselves from the en-cashing of the bank
guarantees of Rs.90.21 lacs and blockage of
the said amount of Rs.225.00 lacs against
expenditure incurred by us on account of idle
labor/man power, other expenditures incurred
by us on account of the project, loss of profit
due to non execution of project, payment of
work done as per terms and condition of the
agreement, etc.
xxxx xxxx xxxx xxxx
25. From the facts stated hereinabove it is evident
that by taking the shelter of our letter dated
21.12.2012 obtained under force and coercion,
the department unilaterally, without any basis
and justification, despite the amounts of the bill
payable to us, reduced the same at their whims
and fancies. This is not acceptable to us and
letter dated 2l.12.2012 taken from us under the
aforesaid circumstances is also hereby
withdrawn.”
35. It is apparent from the above that apart from stating that it had
submitted the letter dated 21.12.2012 on the dictates of DIMTS, there
is no other material to substantiate the claim that the respondent had
been coerced or was under any duress. There is no evidence to even
remotely suggest that the financial condition of the respondent was
O.M.P. (COMM) 74/2017 Page 14 of 23
such that it could not sustain the invocation of the bank guarantees and
due to economic compulsions, the respondent was effectively
precluded from raising a dispute at that stage.
36. The reliance placed on the decision of the case of R.L. Kalathia
& Co. ( supra ) is misplaced. The Supreme Court in several decisions
has held that a bald plea of coercion and undue influence is not
enough and a person who sets up such a plea must establish the same
by sufficient material.
37. In New India Assurance Co. Ltd. v. Genus Power
Infrastructure Ltd.: (2015) 2 SCC 424 , the Supreme Court had
declined to appoint an arbitrator in the case where the petitioner had
issued a certificate confirming that it had received payments in full
and final settlement of all dues. Although, in that case, the petitioner
had also sought to urge that the said certificate was not issued by free
consent, the Supreme Court had rejected the same and held as under:-
“ 10. In our considered view, the plea raised by the
respondent is bereft of any details and particulars, and
cannot be anything but a bald assertion. Given the fact
that there was no protest or demur raised around the time
or soon after the letter of subrogation was signed, that
the notice dated 31-3-2011 itself was nearly after three
weeks and that the financial condition of the respondent
was not so precarious that it was left with no alternative
but to accept the terms as suggested, we are of the firm
view that the discharge in the present case and signing of
letter of subrogation were not because of exercise of any
undue influence. Such discharge and signing of letter of
subrogation was voluntary and free from any coercion or
undue influence. In the circumstances, we hold that upon
O.M.P. (COMM) 74/2017 Page 15 of 23
execution of the letter of subrogation, there was full and
final settlement of the claim. Since our answer to the
question, whether there was really accord and
satisfaction, is in the affirmative, in our view no
arbitrable dispute existed so as to exercise power under
Section 11 of the Act. The High Court was not therefore
justified in exercising power under Section 11 of the
Act.”
38. In Union of India and Others v. Master Construction Co.:
(2011) 12 SCC 349 , the Supreme Court had observed as under:-
“18. In our opinion, there is no rule of the absolute kind.
In a case where the claimant contends that a discharge
voucher or no-claim certificate has been obtained by
fraud, coercion, duress or undue influence and the other
side contests the correctness thereof, the Chief
Justice/his designate must look into this aspect to find
out at least, prima facie, whether or not the dispute is
bona fide and genuine. Where the dispute raised by the
claimant with regard to validity of the discharge voucher
or no-claim certificate or settlement agreement, prima
facie, appears to be lacking in credibility, there may not
be a necessity to refer the dispute for arbitration at all.
19. It cannot be overlooked that the cost of arbitration is
quite huge − most of the time, it runs into six and seven
figures. It may not be proper to burden a party, who
contends that the dispute is not arbitrable on account of
discharge of contract, with huge cost of arbitration
merely because plea of fraud, coercion, duress or undue
influence has been taken by the claimant. A bald plea of
fraud, coercion, duress or undue influence is not enough
and the party who sets up such a plea must prima facie
establish the same by placing material before the Chief
Justice/his designate. If the Chief Justice/his designate
finds some merit in the allegation of fraud, coercion,
duress or undue influence, he may decide the same or
O.M.P. (COMM) 74/2017 Page 16 of 23
leave it to be decided by the Arbitral Tribunal. On the
other hand, if such plea is found to be an afterthought,
make-believe or lacking in credibility, the matter must
be set at rest then and there.”
39. The aforesaid decisions were also followed by the Supreme
Court in a later decision in M/s ONGC Mangalore Petrochemicals
Ltd. v. M/s ANS Constructions Ltd. & Anr. : (2018) 3 SCC 373
wherein the Court had observed as under:-
“30. From the materials on record, we find that the
contractee company had issued the “no dues/no claim
certificate” on 21-09-2012, it had received the full
amount of the final bill being Rs. 20.34 crores on
10-10-2012 and after 12 days thereafter i.e., only on
24-10-2012, the contractee company withdrew letter
dated 21-09-2012 issuing “no dues/no claim certificate”.
Apart from it, we also find that the final bill has been
mutually signed by both the parties to the contract
accepting the quantum of work done, conducting final
measurements as per the contract, arriving at final value
of work, the payments made and the final payment that
was required to be made. The contractee company
accepted the final payment in full and final satisfaction
of all its claims. We are of the considered opinion that in
the presents facts and circumstances, the raising of the
final bill and mutual agreement of the parties in that
regard, all claims, rights and obligation of the parties
merge with the final bill and nothing further remains to
be done. Further, the appellant contractor issued the
completion certificate dated 19-06-2013 pursuant to
which the appellant contractor has been discharged of all
the liabilities. With regard to the issue that the “no-dues
certificate” had been given under duress and coercion,
we are of the opinion that there is nothing on record to
prove that the said certificate had been given under
duress or coercion and as the certificate itself provided a
O.M.P. (COMM) 74/2017 Page 17 of 23
clearance of no dues, the contractee could not now turn
around and say that any further payment was still due on
account of the losses incurred during the execution of
the contract. The story about duress was an afterthought
in the background that the losses incurred during the
execution of the contract were not visualised earlier by
the contractee. As to financial duress or coercion,
nothing of this kind is established prima facie. Mere
allegation that no-claim certificates have been obtained
under financial duress and coercion, without there being
anything more to suggest that, does not lead to an
arbitrable dispute. The conduct of the contractee clearly
shows that “no-claim certificate” was given by it
voluntarily; the contractee accepted the amount
voluntarily and the contract was discharged voluntarily.”
40. In view of the above settled law, the decision of the Arbitral
Tribunal to accept the respondent‟s bald plea of duress and coercion,
is not sustainable. Concededly, no material had been placed by the
respondent to substantiate its claim that the letter dated 21.12.2012
was submitted under coercion.
41. It is also relevant to note that the respondent had agreed to full
and final settlement of dues by its letter dated 21.12.2012 and had,
admittedly, taken no steps to withdraw the same at the material time. It
is only by the letter dated 06.06.2013 that DIMTS seeks to raise the
issue of coercion. Apparently, this letter surfaces for the first time as
an enclosure to the letter dated 23.08.2013, which is received by
DIMTS on 23.09.2013. The learned counsel for the respondent also
offered no explanation as to why the said letter reflected a reference
number greater than the number reflected on the letter dated
07.06.2013. Be that as it may, it is undisputable that the conclusion of
O.M.P. (COMM) 74/2017 Page 18 of 23
the Arbitral Tribunal to reject DIMTS‟s plea of full and final
settlement was not founded on any evidence. The Arbitral Tribunal
had merely noted the rival contention and had accepted the
respondent‟s plea relying solely on the decision of the Supreme court
in R.L. Kalathia & Co. (supra). The said decision must be read in the
context of the facts placed before that Court.
42. In view of the above, the impugned award is liable to be set
aside and it is not necessary to examine whether the Arbitral Tribunal
had erred in awarding the claim of loss of profits in favour of the
respondent. However, for the sake of completeness, this Court
considers it apposite to examine the contentions in that regard as well.
The Arbitral Tribunal had awarded the claim for loss of profits for the
unexecuted works and had computed the same at 15% of the
unexecuted value of the contract. Concededly, the respondent had
produced no evidence or material to establish that the loss of profits or
that 15% was a reasonable measure of the same. The Arbitral Tribunal
has awarded the loss of profits solely on the basis of the decision of
the Supreme Court in Mohd. Salamatullah & Ors v. Government of
Andhra Pradesh : AIR 1977 SC 1481 . This was also amply clarified
by the Arbitral Tribunal in the clarification issued on 31.10.2016.
43. None of the decisions relied upon by the Arbitral Tribunal are
authority for the proposition that compensation for loss of profits can
be awarded on mere assumptions and without any evidence at all. The
Division Bench of this Court in Ahluwalia Contract (India) Limited
v. The Union of India: 244 (2017) DLT 360 had clarified the above
O.M.P. (COMM) 74/2017 Page 19 of 23
in the following words:-
“9. Bharat Coking (supra) and Brijpaul (supra), no doubt,
are authorities for the proposition that the Court even in
arbitration cases should be conscious of and ordinarily
should not refuse claims towards loss of profits. At the
same time, the reference to Section 73 – which finds
express mention in Brijpaul (supra) clarifies that damages
claimed cannot be granted as a matter of course; some
material evidence is necessary. In this case, the
extensions led to claims for payments on various
accounts and heads during the extended period. The
cumulative effect of the award and the impugned
judgment is such that the majority of such heads of claim
for extra expenditure, increased salary and other
overheads for the additional period have been granted.
They are based upon certain formulae under the contract.
However, in the case of the claim of general loss of
profits, having nexus with the value of the contract, the
Court finds that there is no worthwhile evidence – apart
from the line of questioning adopted by the claimants.”
44. In Edifice Developers and Project Engineers Ltd. v. M/s. Essar
Projects (India) Ltd. : MANU/MH/0020/2013, the Division Bench of
the Bombay High Court had referred to the decision of the Supreme
Court in M/s. A.T. Brij Paul Singh and Bros. v. State of Gujarat
(supra,) and observed as under :
“………Section 28(3) requires the Arbitral Tribunal to
decide in accordance with the terms of the contract and
take into account the usages of the trade applicable to the
transaction. The Arbitral Tribunal under Section 28(2)
can act as amiable compositeur and can decide ex aequo
et bono only if parties have expressly authorized it to do
so. In the present case, the Learned Single Judge was
correct in coming to the conclusion that the award of the
O.M.P. (COMM) 74/2017 Page 20 of 23
Arbitrator proceeds on the manifestly misconceived
notion that a contractor is entitled to claim overhead
losses even in the absence of evidence on the basis of
Hudson's Formula. Similarly, the Arbitral Tribunal
proceeded on a misconceived premise that this formula is
invariably adopted for quantification of claims for
overhead losses in India. In the present case the Appellant
produced no evidence in support of its claim; this has
been so stated in the Award. The award of the claim is on
the misconceived basis that the Hudson's Formula must
be applied despite the absence of evidence. Since the
fundamental basis that has permeated the award is
contrary to law, the judgment of the Single Judge cannot
be faulted in setting aside the arbitral award on that
aspect. The Arbitrator, as noted earlier, also awarded
claims in respect of loss of profit, for under utilized plant
and equipment and for reimbursement of infrastructure
expenses. In respect of loss of profits, the Arbitrator
merely held that a measure of 10% on the value of the
remaining part of the works contract cannot be said to be
unreasonable. The Arbitrator observed that a percentage
representing 10% of the rate of profit is invariably
accepted in the construction industry. Evidently save and
except for an priori assumption, no evidence………. No
material was produced before the Arbitrator on the nature
of the practice in the trade. During the course of the
hearing no basis has been indicated to the Court from the
record to suggest that any practice of that nature in the
construction industry was brought to the notice of the
Arbitral Tribunal. In the circumstances, the arbitral award
to the extent that it allows the claim for loss of profits is
based on pure conjecture and in the absence of any
evidence whatsoever was correctly set aside.”
45. The Arbitral Tribunal has also referred to the decision of the
Supreme Court in MSK Projects India (JV) Limited v. State of
Rajasthan and Another: (2011) 10 SCC 573 . In that case, the
O.M.P. (COMM) 74/2017 Page 21 of 23
Supreme Court had referred to its earlier decision in M/s. A.T. Brij
Paul Singh and Bros. v. State of Gujarat ( supra ) and had observed
that a contractor would be entitled to damages where it is proved that
the Government had committed a breach by improperly rescinding the
contract and for estimating the amount of damages, the court should
make a broad evaluation instead of going into minute details.
However, that decision cannot be mislead to mean that the measure of
damages could be based on mere assumptions and without any
material or evidence to establish the same.
46. In view of the above, this Court is unable to concur with the
view of the Arbitral Tribunal. The loss of profits relating to the
unexecuted works could be estimated at 10% solely on the basis of the
decision rendered by the Apex Court and without any other evidence
or material to establish the same. DIMTS had pointed out that the
contract is based on CPWD rates and this fact was also referred by the
Arbitral Tribunal. However, the Arbitral Tribunal has computed the
loss of profits at the rate which is twice the rates as computed by
CPWD. The relevant circular of CPWD was produced before the
Arbitral Tribunal after this Court had adjourned the matter to enable
DIMTS to approach the Arbitral Tribunal in this regard. The Arbitral
Tribunal had clarified that it had not followed the CPWD but had
merely relied on the decisions rendered by the Apex Court. Thus,
there was no material on record to sustain an assumption that the
respondent would earn a profit of 15% on the unexecuted pattern of
the works. Plainly, the award based on unsubstantiated assumptions
O.M.P. (COMM) 74/2017 Page 22 of 23
cannot be sustained.
47. Insofar as the computation for the award against barricading
work is concerned, this Court finds no ground to interfere with the
same.
48. In view of the above, the petition is allowed. The impugned
award is set aside. The parties are left to bear their own costs.
VIBHU BAKHRU, J
MAY 24, 2018
pkv/MK
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