Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP(COMM) 369/2017
th
Reserved on: 10 November, 2017
nd
Date of decision: 22 November, 2017
NEW DELHI MUNICIPAL COUNCIL ..... Petitioner
Through: Mr.Vipul Ganda, Mr.Raghav,
Mr.Mohit Domman, Advs.
versus
V3S INFRATECH LIMITED ..... Respondent
Through: Mr.Praveen Kumar Singh,
Mr.Utkarsh Singh, Md.Ziauddin
Ahmad, Mr.Avi Batra, Advs.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
1. This petition under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as the ‘Act’) has been filed by the
petitioner New Delhi Municipal Council challenging the Arbitral Award
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dated 16 June, 2017 passed by the Sole Arbitrator. The petitioner
confines challenge only to issue no. 11 and 15 decided by the Sole
Arbitrator.
2. The disputes between the parties arise out of the work contract
awarded by the petitioner in favor of the respondent for the upgradation
and re-modeling of Palika Bazar, New Delhi vide Agreement No. 19/EE
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(Bm-II) 2009-10 dated 22 December, 2009.
3. The tendered amount was Rs. 23,02,03,333/- (Twenty Three Crore
Two Lakh Three Thousand Three Hundred and Thirty Three). The
OMP (COMM) No.369/2017 Page 1
stipulated period for completion of work was ten months from the tenth
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day of issue of work award letter dated 12 November, 2009 and was
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accordingly to be completed by 28 September, 2010. The work was
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eventually completed on 23 August, 2011. In the meantime, the
respondent/claimant, claiming that the work had been completed raised
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its final bill for an amount of Rs. 27,86,85,775/- on 31 March, 2011.
4. Clause 9 of the agreement provides that where the tendered value
of the work exceeds Rs. 15 lacs, as far as possible, payment of the final
bill shall be made within a period of six months from the date of receipt
of the bill by the Engineer in Chief. As an amount of Rs. 16,96,48,797/-
had already been received by the respondent against the Running
Account bills submitted by the respondent from time to time, the
respondent claimed that it was entitled to the balance payment of
Rs.10,90,36,978/- by September, 2011 whereas the balance payment was
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received by it only on 24 December, 2014.
5. Issue no. 11 framed by the Sole Arbitrator is as under:-
ISSUE N0.11
Whether the claimant are entitled for the release/payment of
Retention Money amounting to Rs.38,75,971/-(Rupees Thirty
Eight Lacs Seventy Five Thousand Nine Hundred Seventy One
only) retained/withheld by the Respondent/Opposite party out of
various RA Bills submitted by the Claimants?
6. The arbitrator has held the respondent to be entitled to receive its
security money and has held that the same was being illegally and
unauthorizedly invariably retained by the petitioner NDMC. The
OMP (COMM) No.369/2017 Page 2
arbitrator has also allowed interest on the amount of Rs.38,75,971/- from
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18 December, 2012 till realization at the rate of 12 percent per annum.
7. The learned counsel for the petitioner, relying upon clause 29 of
the agreement, submits that the petitioner had a right to retain the security
deposit. He further submits that on such security amount being retained,
the respondent would have no claim for interest till the same is
adjudicated by the arbitrator. He, therefore, relying upon the judgment of
Supreme Court in Sayeed Ahmed & Company vs. State of UP (2009)
12 SCC 26 submits that award of interest in favor of the respondent is
liable to be set aside, the same being contrary to the provisions of the
agreement.
8. On the other hand, it is submitted by the counsel for the respondent
that clause 29 of the agreement pre-supposes and is applicable only when
the Engineer-in-Charge or the NDMC decides to withhold or exercise its
lien to retain the security deposit for payment of any claim or claims
arising out of or under the contract. Therefore, the retention of the
amount has to be shown against a specific claim. Mere non-payment of
the security deposit, without any justified cause would not attract the
provisions of clause 29 and equally grant protection to the petitioner from
payment of interest for the amount so illegally withheld. He submits that
in the present case, there was no order of the petitioner deciding to
withhold the security deposit against any claim made by it. He further
submits that in the present case, the only dispute that was sought to be
raised by the petitioner was with respect to Chiller No. 2 for which the
petitioner had separately stopped the payment of Rs.1,35,56,026/-. He
OMP (COMM) No.369/2017 Page 3
therefore, submits that clause 29 of the agreement and the judgment of
the Supreme Court in Sayeed Ahmed (supra) would not be applicable to
the facts of the present case.
9. The arbitrator has allowed the claim of the petitioner relying upon
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the letters dated 19 March, 2013 and 19 May, 2016. The finding of the
learned arbitrator is quoted herein below:-
“Both these documents have been admitted by the
Respondent. If we read carefully the letter dated
19.05.2016 from Carrier Air-Conditioning &
Refrigeration Company to Executive Engineer(E) BM-I,
NDMC, it speaks volume of things. In this letter, there
are references of various letters dated 24.04.2014,
09.11.2015 and 28.12.2015 in which it has been clearly
stated that after subsequent repair of Chiller and startup
of Chiller at site, as on date Chiller run for more than
1000 hrs.. By mentioning this fact and after considering
the running condition of the Chiller, the said Carrier
Air-conditioning & Refrigeration Company proposed to
undertook this Chiller i.e. Chiller No.2 under annual
maintenance contract which stood due for renewal on
25.08.2015 and further proposed to undertook this
Chiller under annual maintenance contract with same
scope of work and other terms & conditions as that in
previous annual maintenance contract order vide
Ref.No.EE(E)BM-I/D/1415, Dated 22.8/2014.
If we read the statement of Shri A.K.Joshi, Chief
Engineer(E) and the above letter of Carrier Air-
conditioning & Refrigeration Company, both are
contradictory. Chief Engineer(E) in his statement has
nowhere mentioned about the said letter dated
19.05.2016 of the Carrier Air-conditioning &
Refrigeration Company which has been admitted by them
during the admission and denial of the documents. It is
an admitted position that annual maintenance contract
OMP (COMM) No.369/2017 Page 4
can be given only when the Chiller is functional,
otherwise what for and why the annual maintenance
contract will be given. It cannot be presumed that the
Respondent's Engineers can give annual maintenance
contract for defective Chiller. Annual maintenance
contract can be executed only in reference to a functional
machinery/equipment. It cannot be presumed that an
annual maintenance contract will be executed by the
officials of the Respondent for non-functional machinery
or equipment. More so when there is a reference in the
letter itself that the Chiller has run for more than 1000
hrs.
From the above statement of the witness and the letter
dated 19.05.2016, I decide the above issue in favour of
the Claimant and against the Respondent and it is hereby
declared that the Claimant is entitled to receive its
security money which has been illegally and
unauthorisedly retained by the Respondent NDMC. Since
the Respondent withhold the amount due for Chiller No.2
as well as the security deposit of Rs.38,75,971/- on the
ground of defective Chiller, the Respondent should have
paid this security money to the Claimant since they have
stopped the payment of Chiller No.2 of amount Rs.1
,35,56,026/-. And as such I allow interest also on the said
amount from 18.12.2012 till realization @ 12 °/o per
annum. From the above discussion, Issue No.11 is
decided against the Respondent and in favour of the
Claimant to the extent as indicated above. The Claimant
shall be entitled the interest @ 12% per annum.”
10. Clause 29(1) of the Contract is reproduced herein below:
“(1) Whenever any claim or claims for payment of a
sum of money arises out of or under the contract or
against the contract, the Engineer-in-Charge or the
NDMC shall be entitled to withhold and also have a lien
to retain such sum or sums in whole or in part from the
OMP (COMM) No.369/2017 Page 5
security, if any deposited by the contractor and for the
purpose aforesaid, the Engineer-in-Charge or the
N.D.M.C., shall be entitled to withhold the security
deposit, if any, furnished as the case may be and also
have a lien over the same pending finalization or
adjudication of any such claim. In the event of the
security being insufficient to cover the claimed amount or
amounts or if no security has been taken from the
contractor, the Engineer-in-Charge or the N.D.M.C.
shall be entitled to withhold and have a lien to retain to
the extent of such claimed amount or amounts referred
to above, from any sum or sums found payable or which
may at any time thereafter become payable to the
contractor under the same contract or any other contract
with the Engineer-in-Charge or the N.D.M.C. or any
contracting person through the Engineer-in-Charge
pending finalization or adjudication of any such claim.
It is an agreed term of the contract that the sum of
money or moneys so withheld or retained under the lien
referred to above by the Engineer-in-Charge or N.D.M.C
will be kept withheld or retained as such by the
Engineer-in-Charge NDMC till the claim arising out of
or under the contract is determined by the arbitrator (if
the contract is governed by the arbitration clause) or by
the competent court, as the case may be and that the
contractor will have no claim for interest or damages
whatsoever or any account in respect of such withholding
or retention under the lien referred to above and duly
notified as such to the contractor. For the purpose of this
clause, where the contractor is a partnership firm or a
limited company, the Engineer-in-Charge or the
N.D.M.C. shall be entitled to withhold and also have a
lien to retain towards such claimed amount or amounts
in whole or in part from any sum found payable to any
partner/limited company as the case may be whether in
his individual capacity or otherwise.”
OMP (COMM) No.369/2017 Page 6
11. For application of Clause 29(1) of the Contract it must be shown
that there is a claim of a sum of money against the contractor, and the
Engineer-in-Charge or the NDMC has decided to withhold or retain such
sum in whole or in part from the security deposited by the contractor till
finalization or adjudication of such claim. It is only when this right is
exercised by the Engineer-in-Charge or NDMC, no interest shall be
payable on the amount so withheld till the claim is determined by the
arbitrator.
12. The counsel for the petitioner has been unable to show any order
passed by the petitioner retaining the security deposit against any of its
claim. In absence thereof, it is clear that the petitioner never exercised its
rights under clause 29(1) of the contract while retaining the security
deposit. Therefore, the petitioner would not be eligible for protection
against payment of interest under sub para 2 of clause 29(1) of the
agreement. As there was no claim of the petitioner to be adjudicated by
the arbitrator or the Court, sub para 2 of clause 29(1) would not become
applicable.
13. As has been held by the Supreme Court in its judgment dated
03.08.2017 in Civil Appeal No.2099/2017, Union of India v. M/s
Pradeep Vinod Construction Company, the capacity of the arbitrator to
award interest would depend on the contractual agreement. In Union of
India v. Ambica Construction , (2016) 6 SCC 36, it has been held as:
“22. In our opinion, it would depend upon the nature of
the ouster clause in each case. In case there is express
stipulation which debars pendent lite interest, obviously,
it cannot be granted by the arbitrator. The award of
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pendent lite interest inter alia must depend upon the
overall intention of the agreement and what is expressly
excluded.”
14. It was further held :-
“33. The decision in Madnani Construction
Corporation (supra) has followed decision in Engineers-
De-Space-Age (supra). The same is also required to be
diluted to the extent that express stipulation under
contract may debar the Arbitrator from awarding interest
pendent lite. Grant of pendent lite interest may depend
upon several factors such as phraseology used in the
agreement, clauses conferring power relating to
arbitration, nature of claim and dispute referred to
Arbitrator and on what items power to award interest has
been taken away and for which period.
34. Thus, our answer to the reference is that if the
contract expressly bars the award of interest pendent lite,
the same cannot be awarded by the Arbitrator. We also
make it clear that the bar to award interest on delayed
payment by itself will not be readily inferred as express
bar to award interest pendent lite by the Arbitral
Tribunal, as ouster of power of the Arbitrator has to be
considered on various relevant aspects referred to in the
decisions of this Court, it would be for the Division Bench
to consider the case on merits.”
15. The judgment of the Supreme Court in Sayeed Ahmad &
Company (Supra) would also not be applicable to the facts of the present
case. In Sayeed Ahmad & Company (Supra) Supreme Court was dealing
with the Clause G-1.09 which prohibited grant of interest with respect to
any money or balance which may lie with the Government. The Supreme
Court interpreted that clause and held that the same prohibited grant of
OMP (COMM) No.369/2017 Page 8
interest in respect of any money that may become due owing to any
dispute/differences or misunderstanding between Engineer-In-Charge and
contractor or with respect to any delay on part of the Engineer-In-Chief
in making periodical or final payment or in respect of any other respect
whatsoever. In fact, the Supreme Court distinguished the case of State
of U.P. v. Hari Chandra & Company , (1999) 1 SCC 63, wherein the
clause was differently worded. As held above, it always depends upon
the wording of the clause of the agreement to determine whether or not
grant of interest on a particular claim is prohibited.
16. On interpretation of Clause 29(1), I find that it has no application
to the facts of the present case. I therefore find no merit in the objection
against grant of interest under claim No.11 in favour of the respondent
and accordingly the objection filed against the same by the petitioner is
rejected.
17. Issue No.15 as framed by the Arbitrator is as under:
ISSUE N0.15
Whether the claim of the claimant that the payments due
against the final bill were not made in accordance with
the Clause 9 of the Agreement is justified, and if so,
whether the claimant are entitled for interest on delay in
admitted payment of Rs.10,90,36,978/- (Rupees Ten
Crores Ninety Lacs Thirty Six Thousand Nine Hundred
Seventy Eight only) @ 18°/o P.A. amounting to
Rs.6,96,21, 159/-(Rupees Six Crore Ninety Six Lacs
Twenty One, Thousand One Hundred and Fifty Nine
Only)?
OMP (COMM) No.369/2017 Page 9
18. The Arbitrator has allowed the said claim. The challenge is
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confined to the award of interest @ 12% p.a. from 18 December, 2012
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to 24 December, 2014.
19. Learned counsel for the petitioner has submitted that the delay in
release of the amount in favour of the respondent was due to an inquiry
initiated by the Central Vigilance Commission (CVC) into the contract.
The Vigilance inquiry was completed only in July 2014 and the payment
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was made on 24 December, 2014. Relying upon Clause 29(2) of the
agreement which grants the petitioner right to cause an audit and
technical examination of the work and further states that in pursuant to
such audit if any amount is found due and payable to the contractor, such
amount shall be paid by the petitioner without any interest therein, the
petitioner submits that the Arbitrator has acted in violation of terms of the
agreement and Section 31(7)(A) of the Act. Reliance is again being
placed on the judgment of Supreme Court in Sayeed Ahmad &
Company (Supra).
20. Learned counsel for the respondent, on the other hand, submits that
in this case no audit was ordered to be conducted by the petitioner. This
was a case of vigilance inquiry which was not initiated at the behest of
the petitioner and therefore, reliance of Clause 29(2) of the agreement is
ill-founded. It is further submitted that no document with respect to such
vigilance inquiry was placed by the petitioner before the Arbitrator and in
fact, from the statement made by its witness it was clear that the
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Vigilance Commission had submitted its report on 18 December, 2012.
OMP (COMM) No.369/2017 Page 10
It is therefore submitted that the Arbitrator has rightly granted interest
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with effect from 18 December, 2012 on this claim.
21. Clause 29(2) of the agreement is reproduced herein below:
“(2) The N.D.M.C. shall have the right to cause an audit
and technical examination of the works and final bill of
the contractor including all supporting vouchers, abstract
etc., to be made after payment of the final bill and if as a
result of such audit and technical examination any sum is
found to have been overpaid in respect of any work done
by the contractor under the contract or any work claimed
to have been done by him under the contract and found
not to have been executed, the contractor shall be liable
to refund the amount of overpayment and it shall be
lawful for the N.D.M.C. to recover the same from him in
the manner prescribed in sub-clause (1) of this clause or
in any other manner legally permissible; and if it is found
that the contractor was paid less than what was due to
him under the contract in respect of any work executed by
him under it, the amount of such under payment shall be
duly paid by the N.D.M.C. to the contractor, without any
interest thereon whatsoever. Provided that the NDMC
shall not be entitled to recover any sum overpaid, nor the
contractor shall be entitled to payment of any sum paid
short where such payment has been agreed upon between
the Chief Engineer or Engineer-in-Charge on the one
hand and the contractor on the other under any term of
the contract pertaining payment for work after assessment
by the Chief Engineer or the Engineer-in-Charge.”
22. A reading of the above Clause would show that the petitioner has a
right to cause an audit and technical examination of the work and final
bill of the contractor, after payment of the final bill. As a result of such
audit if any amount is found to be overpaid, the petitioner would be
entitled to recover the same in the manner prescribed in Sub-Clause 1 of
OMP (COMM) No.369/2017 Page 11
Clause 29 i.e. from the security deposit or other money withheld or in any
manner legally permissible. At the same time if, as a result of audit, any
amount is found payable by the petitioner to the contractor/respondent,
the same shall be paid to the respondent/contractor without any interest.
The pre-requisite of the Clause is:
a. The petitioner must order an audit; and
b. The audit has to be after payment of final bill.
23. It is only when the above pre-requisite are met and as a result of
audit certain additional amount is found due to the Contractor, the
payment to the respondent/ contractor of the said amount would not carry
interest.
24. In the present case, it is not the case of the petitioner that the
petitioner had ordered any audit in exercise of its power under Clause
29(2) of the agreement. It was CVC which had started some investigation
into the contract. The petitioner has not placed on record any document
to show that there was any embargo on the petitioner making any
payment to the respondent during the pendency of this investigation. As
noted above, even for this amount no order has been passed by the
petitioner in exercise of its power under Clause 29(1) of the agreement to
withhold the same pending such investigation. In fact, as recorded by the
arbitrator and not disputed before me, the Petitioner placed no document
relating to the CVC inquiry before the Arbitrator, including its reports.
In my view, therefore, Clause 29(2) of the agreement cannot come to the
aid of the petitioner as the same was not applicable at all.
25. The Arbitrator has discussed the merit of the claim as under:
OMP (COMM) No.369/2017 Page 12
“On perusal of all communications between the Claimant and
Respondent, the following admitted position emerges:
(a) The Claimant submitted their bills well in
time i.e. on 31.03.2011 for Rs.27,86,85,775/-
.
(b) Chief Technical Examiner of Chief
Vigilance Commission came into picture on
19.10.2011 as per statement of Shri A.
K.Joshi, Chief Engineer(E) and their
observations were received by NDMC on
18.12.2012.
(c) The Respondent got the said bills on
31.03.2011 and from 31.03.2011, it was the
duty of the Respondent to process the bills
as per contract agreement and consider the
payment within six months i.e. by
01.10.2011.
From the above admitted position, the payment of Rs.1
0,90,36,978/- should have been done by the Respondent
to the Claimant latest by 18.12.2012 i.e. when the
observations of Chief Technical Examiner of Chief
Vigilance Commission received by the Respondent
though such observations and letters has not been
produced by the Respondent before the Tribunal and only
in statement of Shri A.K.Joshi, Chief Engineer(E), he has
stated so. The completion certificate was given w.e.f.
23.08.2011 and as such from 23.08.2011 till 19.10.2011,
the Respondent got time to process the bills before
indulgence of Chief Technical Examiner. Even after
18.12.2012, when the observation of Chief Technical
Examiner were received, the Respondent did not clear
the bills for payment and it was paid only in the month of
December, 2014. From the above discussion, I am of the
opinion that the Claimant is entitled to receive interest
from the Respondent at least from 18.12.12 till 24.12.14.
Now what should be the rate of interest to be granted to
OMP (COMM) No.369/2017 Page 13
the Claimant. We have decided the levy of compensation
of Rs.5, 75,570/- to the Respondent and: against the
Claimant @ 1.5% per month i.e. 18% per annum. The
doctrine of equity, demands that justice should be done
with all. In the instant case since I have allowed 1.5%
per month compensation to the Respondent against the
late completion of work and compensation was awarded
at 18% per annum to the Respondent, why I should not
allow 18% per annum interest to the Claimant. On
careful examination of the record and judgment cited by
the Ld. Counsel for the Claimant, we deem it proper and
in the interest of justice though by going on the principle
of equity, Claimant should be awarded 18% per annum
interest on the delayed payment. But since the
Respondent is a public body, we deem it just and proper
to grant 12% per annum interest on delayed payment
from 18.12.2012 to 24.12.2014. And accordingly, this
issue is decided in favour of Claimant.”
26. The above would show that the Arbitrator has discussed the
evidence led before him and has arrived at a conclusion which cannot be
said to be perverse in any manner. I therefore find no merits in the
objection raised by the petitioner to the grant of claim of interest in
favour of the respondent under issue no.15. The said objection is
accordingly rejected.
27. In view of the above, I find no merits in the present objection
petition and same is accordingly dismissed with no order as to cost.
NAVIN CHAWLA, J
NOVEMBER 22, 2017/ NK/vp
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