Jeewan Builders vs Delhi Development Authority

Valmiki J Mehta, J.

I.A.9113/1994 in CS(OS) No. 1689A/1994

These are objections of the respondent under Sections 30 and 33 of the Arbitration Act, 1940 against the Award dated 19.7.1994 of the Sole Arbitrator. The Award has been passed deciding the disputes which arose between the parties with regard to the work of construction of Asian Games Village complex, Sri Fort, New Delhi-S.H. construction of 126 dwelling units, Phase-III awarded to the petitioner by the respondent. The counsel for the objector has pressed only Claim Nos. 7, 11 and 13 as decided by the Award.

Claim No. 7 pertained to the wrongful recoveries made by the objector on account of alleged defective works. The Arbitrator has allowed this claim and directed the refund of the illegal recoveries made by the objector. Mr. Narula counsel for the objector contended that the Arbitrator was not competent to award this amount because the dispute was an excepted matter. For this purpose, Mr. Narula has referred the Clause 25B of the Contract.

I am afraid I am unable to accept the contention as raised by the counsel for the objector. Firstly, there is a finding of fact in the present case that there was no Clause 25B inasmuch as the original contract showed that such a slip containing Clause 25B was torn off. Even assuming that this slip containing Clause 25B was there, even then, the pre-condition for the applicability of Clause 25B is that there should be a decision of the Chief Project Engineer. Mr. Narula has not been able to point out to me any decision of Chief Project Engineer with regard to the defective works. Accordingly, once there is no decision of the Chief Project Engineer, there does not arise any question of the same being an excepted matter. In fact, a reading of this portion of the Award shows that the Arbitrator has referred to the fact that the completion certificate issued by the respondent mentioned about certain defective works and did not mention about any other defective works. So far as the defective works as mentioned in the completion certificate are concerned, the Arbitrator has not granted any payment to the contractor but so far as those defective works which are not found mentioned in the completion certificate, the Arbitrator has awarded the payment to the petitioner/contractor/non-objector. By taking the above approach, I do not find that the Arbitrator has in any manner mis-conducted himself or the proceedings. Objection to this claim is therefore dismissed.

Claim No. 11 was the claim of the petitioner/contractor/non-objector for loss of profits and damages during the extended period of work. The Arbitrator has found as a matter of fact that the work was delayed on account of faults of the objector and which finding of fact could not be challenged before me, however, Mr. Narula contended that the consequences of the delay being the loss of profits and escalation in the price of materials, could not have been awarded by the Arbitrator because so far as loss of profits are concerned, the contractor failed to prove the same and so far as the escalation in material is concerned, the contractor instead of claiming a general increase ought to have made the necessary claim under Clause 10C which provides for entitlement on account of increase of the cost of material.

In my opinion, the argument of Mr. Narula is well founded and must be accepted, except as regards an amount of Rs. 29,000/- awarded for the Engineer employed.

The Arbitrator admittedly has given a finding that the contractor has failed to lead any evidence with regard to any loss of profits that the contractor allegedly sustained. The Arbitrator has further held that the claim of loss of profits is based only on the element of assumption that the contractor would have got another work of a similar magnitude as the subject work. The Arbitrator has then held that hypothetical losses based on such assumptions cannot be accepted. The Arbitrator has further held that the contractor has not put any material on record to prove his case and therefore, he has concluded that in the absence of any supporting material, it is not possible to accept the petitioner''s/claimant''s/contractor''s calculation in this regard. However, after giving all these findings, the Arbitrator has in volte-face still awarded interest on the assumed profit which the contractor would have earned in the extended period. This reasoning of the Arbitrator is something which cannot be countenanced. Once there is no proof on record, it is not understood as to how loss of profit can be awarded. Mr. Narula, in my opinion, has rightly relied upon Bharat Coking Coal Ltd. Vs. L.K. Ahuja, , in which case, the Supreme Court in paragraph 24 has held that the contractor must raise the plea and establish the claim for loss of profits on account of the fact that the contractor could have utilized the money, if paid in time under the subject contract, in another contract. As already stated the Arbitrator in the present case, has given a finding that the contractor has not put any material on record to prove his case and only hypothetical losses based on the assumptions have been claimed and which the Arbitrator has held cannot be accepted. In my opinion, therefore, the Award of Rs. 1,41,602/- as awarded by the Arbitrator is therefore wholly unjustified. So far as the reimbursement of wages of Rs. 29,000/- is concerned, the counsel for the objector could not, with any conviction, challenge the same because there is a finding of fact that the objector was guilty of delays in performance of its obligations. Once this is so, the consequential additional cost to the contractor had to be compensated and which has been so done. As regards the aspect that the Arbitrator has awarded an increased cost of material to the contractor, I find that this increase of 9.3% is directly against the relevant provision of Clause 10C of the contract. As per Clause 10C, any escalation in the cost of material during the original period of contract or the extended period, can be compensated only in terms of the formula stated in the said Clause. The claim of the contractor therefore had necessarily to be under Clause 10C and not for a general increase of escalation. It is settled law that the Arbitrator cannot act against the contractual provisions. In the present case, the relevant contractual provision is Clause 10C, and any Award in the face of Clause 10C is clearly violative of the contractual provisions whereby the Arbitrator has mis conducted himself and the proceedings.

Accordingly, I accept the objections of the DDA so far as the Award of Claim No. 11 as awarded by the Arbitrator. The said Award of Claim 11 is set aside except the amount of Rs. 29,000/- towards payment to the Engineer in the extended period of the contract.

The final objection of the objector is with regard to the rate of interest which was granted by the Arbitrator. The Arbitrator has awarded interest at the rate of 15% per annum. The Supreme Court in the recent catena of judgments reported as Rajendra Construction Company Vs. Maharashtra Housing and Area Development Authority and Others, , McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, , Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd., & Krishna Bhagya Jala Nigam Ltd. Vs. G. Harischandra Reddy and Another, and State of Rajasthan v. Ferro Concrete Construction Pvt. Ltd. (2009)3 Arb. LR 140 (SC) has held that the courts should take note of the consistent fall in the rates of interest and should reduce the high rates of interest as granted by the Award. In terms of the aforesaid Supreme Court judgments, this Court has been consistently awarding interest at 9% per annum simple. In the facts and circumstances of this case, I, therefore, reduce the rate of interest from 15% per annum as granted by the Award to 9% per annum simple. I am however not changing the period for which the interest has been granted. I however clarify that the interest which has to be calculated will be on the principal amount awarded and not the amount which will become due as on the date of the Award. I am supported in this conclusion by a recent Supreme Court judgment reported as State of Haryana and Others Vs. S.L. Arora and Company, in which the Supreme Court has clarified that interest which is awarded is not on the amount due as on the date of the Award but on the principal amount due. The interest therefore awarded of 9% per annum simple will therefore run on the principal amount and the same will not be payable on the consolidated amount due as on the date of the Award.

Mr. Narula on behalf of the DDA states that the objector has already paid substantial sums of money under the subject Award. Mr. Narula then contends that in view of today''s judgment of this Court, in fact, amounts will be repayable to the DDA/objector by the petitioner. I am not going into this aspect as to what is the net effect of today''s judgment and that whether amount is payable to the petitioner or the objector will be entitled to repayment because this issue is best left to the Executing court to decide. In case, however, excess payments are lying with the petitioner, on account of the today''s judgment, such excess payment will be refunded to the objector with simple interest at 9% per annum and for which purpose the objector inter alia can initiate execution proceedings for recovery.

With the aforesaid observations, the Award dated 19.7.1994 is made rule of the Court by deleting from the Award, the Award with respect to Claim No. 11 except the amount of Rs. 29,000/- which would be allowed towards Engineer''s wages. The other modification to the Award is with regard to the interest being reduced to 9% per annum simple. A decree be drawn in terms of the Award as amended by the present judgment. Parties are left to bear their own costs.