Kamal Construction Company vs Delhi Development Authority and Another

Shiv Narayan Dhingra, J.—By this petition under Sections 14, 17 and 29 of the Arbitration Act, 1940 (hereinafter referred as ''the Act''),

the objector/respondent (DDA) has filed objections under Sections 30 and 33 of the Act against Award dated 30th December, 1993 given by the

Sole Arbitrator, Sh. R.C. Malhotra (respondent No. 2 herein).

The brief facts relevant for the purpose of deciding this petition are that the petitioner entered into a contract with DDA for construction of

houses under S.F.S. Scheme at Tughlakabad opposite Hamdard Nagar on Mehrauli Badarpur Road vide an agreement No. 17/EE/HD-

XXXV/85-86. In terms of this agreement, 108 dwelling units and 72 car garages with internal development were to be constructed. The dwelling

units included 36 Category II and 72 Category III units. However, due to some reasons, there was delay in making the site for construction

available to the contractor. The contractor vide letter dated 4th November, 1986 asked DDA to allot it an alternate site for the construction of the

dwelling units. In this letter, he assured DDA that he would not claim any loss or damage, etc., in respect of the work previously allotted to him.

After this request of the contractor, the DDA awarded a new contract vide a letter of award dated 10th February, 1987 to the contractor for

construction of same number of dwelling units at Sai-Dul-Jaib opposite Saket. The work was covered under the new agreement No. 16/EE/UVD-

I/DDA/86-87. The work under this agreement was completed by the contractor on 20th February, 1989 against stipulated date of completion of

19th May, 1988. The contractor had raised 18 running bills during the continuation of the work and 19th bill was the final bill raised by him and

paid to him by the DDA. The bill was accepted as full and final. However, after acceptance of the bill as full and final, the contractor invoked

arbitration vide his letter dated 19th September, 1989 and on his invoking arbitration, the Persona Designate appointed an Arbitrator to go into the

claims of the contractor. The learned Arbitrator entered into reference on 26th July, 1990 and gave the impugned Award allowing various claims

raised by the contractor and rejecting some of the claims raised by the contractor. The DDA assailed the Award on the ground that the Award

passed by the Arbitrator was not based on any evidence as no evidence was produced in support of the claims by the petitioner. The Award was

also not justified being contrary to terms and conditions of agreement and the claims raised by the contractor were barred by period of limitation.

The claims were also not covered under the agreement. The DDA has raised claim-wise objections, apart from making general objections. The

claim-wise objections are being dealt with here under.

Claim No. 2, allowed by the Arbitrator is for Rs. 713.99 on account of penal rate recovery of steel and other materials. A perusal of claim

made by the contractor would show that contractor has not given any detail as to how the claim was justified. Similarly, perusal of Award shows

that the Arbitrator has not stated how the consumption of steel was within permissible variations. The only observation made by the Arbitrator is

that no notice under Clause 42 for return of the surplus material was made. A perusal of Clause 42 of the contract would show that there is no

provision for giving a notice by DDA to the contractor. What is provided is that the contractor has to draw only required quantities of material

from DDA and return the unused quantities at a place to be told by the DDA. The consumption of the material has to be calculated on the basis of

theoretical formula as applicable for civil constructions on the basis of CPWD statement of quantities or on the basis of Delhi Schedule of Rates,

1981 with variations as provided under the contract.

This Court had time and again emphasized that where the reasons are to be given by the Arbitrator, the Arbitrator has not only to give his

conclusion, but the verdict given by the Arbitrator must have a rational nexus between the amount awarded and the evidence placed on record. In

the case of College of Vocational Studies v. S.S. Jaitley AIR 1987 Delhi 134, a Division Bench of this Court deprecated the habit of giving mere

conclusions and the verdict, without giving any reasons and observed that reasons are the links on the material documentary or oral evidence

adduced before the Arbitrator, on which certain inferences are drawn and calculations are made. The Arbitrator may not set out every process of

reasoning or may not deal with every point raised but must, when he is called upon to give reasons, tell the reasons why he came to a particular

conclusion.

In the present case, the Arbitrator while awarding this amount has just given his conclusion without showing how the quantity was within

permissible variations when the agreement specifically provided what were the variations available at the theoretical quantities. I, therefore,

consider that the Award against claim No. 2 was not tenable being contrary to arbitration clause wherein it is provided that the Arbitrator is

supposed to give reasons. The total Award in this case has gone in lacs but the Arbitrator has not adhered to this Clause of giving reasons.

Claim No. 3 is allowed by the Arbitrator for a sum of Rs. 67,281.21. This amount was deducted by the DDA on account of sub-standard work

against certain items done by the contractor. The plea taken by the Arbitrator is that the completion certificate recorded by the Engineer in-charge,

after the work had been completed, does not indicate the defects on account of which rates were reduced. Surprisingly, the Arbitrator has become

oblivious to the fact that deductions were not made just before grant of completion certificate but these deductions were made because of sub-

standard work done by the contractor during the progress of the work while approving the running bills. In case of civil constructions, the work

done at different stages gets concealed because of the subsequent work which is required to be done. When foundation is dug and laid, the

foundation is inspected and running bill for foundation up to DPC level is raised and is required to be approved. The Engineer In-charge or the

Superintendent Engineer has to consider the defects in the foundation at that time or if any sub-standard material had been used and deductions are

made at that time. Once the work starts above foundation, the foundation gets covered from both the sides by soil and from top by walls and

pillars which are erected over the foundation and all defects of sub-standard material of the foundation get concealed. Similarly, when walls are

erected and say bricks or other materials of sub-standard quality is used, the Superintendent Engineer or Engineer In-charge can deduct the

amount from running bill on account of sub-standard material used. Once the walls are covered by plaster, nobody can find out whether the bricks

used on the wall were of sub-standard or requisite quality. Similarly, in case where bill for plaster is to be raised whether the workmanship of the

plaster is of the requisite quality, the thickness of plaster was the same as required under the agreement can be checked at the stage when plaster is

just over by scratching the plaster from different places and measuring the depth of the plaster and looking at the quantity. However, once the

plaster is complete and the wall is covered with distemper, POP and other inner finishes, nobody can find out from looks whether the plaster was

of requisite depth and was of proper finish and equal depth at all places. It is for this reason that Clause 25 (B) of the agreement provides that ''the

decision of superintending Engineer regarding the quantum of reduction as well as justification thereof in respect of rates for sub-standard work

which may be decided is to be accepted as final and would not be open to arbitration?. Despite Clause 25 (B) being there in the contract regarding

reductions, learned Arbitrator entered into the area which was not within his jurisdiction and for which he had no means to find out whether the

reduction was made rightly or wrongly.

I, therefore, consider that Award of the learned Arbitrator in respect of Claim No. 3 awarding amount of the reductions made for sub-standard

work is unjustifiable, without jurisdiction and liable to be set aside. A completion certificate is not supposed to contain those defects which were

found by the Superintendent Engineer during progress of the work. A completion certificate only specifies the final stage of completion and the

deficiencies to be made up by the contractor at the final stage. The deficiencies which existed at different stages of construction are to be taken

care of at those stages only and all deductions made by Superintendent Engineer out of the running bills regarding substandard workmanship or

sub-standard material cannot be assailed after the final bill or at final stage. A contractor may very well raise objection against the deductions

immediately with the Superintendent Engineer when deduction is made. The Superintendent Engineer being the final authority has to decide if the

deduction was justifiably made or not. The Arbitrator cannot enter into this area. I, therefore, consider that Award of the Arbitrator regarding

Claim No. 3 for Rs. 57,043.09 is liable to be set aside on this ground.

Claim No. 14 of the claimant as made by the contractor was for Rs. 9,300/- on account of render/plastering RCC in shelves. The claim has

been allowed by the Arbitrator on the ground that respondent did not produce records to ascertain the admissibility of the claim. It is very

surprising that a claim can be allowed in such a manner. A claimant, who files the claims, has not only to give reasons for the claim but produce

evidence in proof of it. The only reason given by the claimant in the statement of claim is ""contractor claims a sum of Rs. 9,300/- on account of

render/plastering RCC in shelves. No justification is given and no measurement of RCC shelves plaster is given. No calculation giving the quantity

of plaster and the rate of plaster is given as to how this claim arises. Similarly, learned Arbitrator also gives no reasons why he was allowing Rs.

7,136/- as to what was the quantity of plaster, how many under shelves were there, what was the rate of plaster and how he arrived at this figure.

No evidence whatsoever is on record.

Claim No. 15 is in respect of cutting chase in masonry. The Arbitrator has found that 108 meters of chase was admissible and awarded Rs.

318.60 considering the rate of chase. Cutting chase for laying RCC shelves is part of the process for laying RCC shelves and cannot be

considered a separate item. Chase is cut so that steel reinforcement has a grip in the wall and to give support to RCC shelves. Cutting chase

cannot be treated as a separate item. The Award is liable to be set aside.

Claim No. 16 was made by the claimant for Rs. 4,288.17 on account of under payment of quantity against laying wearing coarse. While the

claim was only for Rs. 4,288/-, the Arbitrator awarded a sum of Rs. 9,564/-. The Arbitrator had given no reason except that the payment for the

item has not been made correctly. I consider that a contractor is most careful and knows much better about payment made and due. However, the

contractor asked for additional claim of Rs. 4,288/- on the ground of under payment and he got almost double the amount without any reason

given by the Arbitrator and without evidence. The Arbitrator is not supposed to give his conclusions but is supposed to give reasons. The

Arbitrator in this case has not given what was the payment already received, what was the payment due in terms of the agreement and how the

payment already received was short. I, therefore, find that Award of this claim is without evidence or reasons and also beyond the claim and is

liable to be set aside.

Claim No. 19: The claimant had claimed Rs. 38,86,227/- on account of infructuous expenditure and damages sustained by the claimant due to

various breaches. The claim of damages was made by the claimant/contractor in respect of original agreement dated 25th January, 1986 as well as

in respect of the subsequent agreement dated 10th February, 1987. The plea taken before the Arbitrator was that the letter written by the

contractor to DDA, that contractor shall not claim any loss or damages if an alternate site is allotted, was written under coercion and, therefore,

this letter was of no value and effect and the contractor was entitled for damages because the site under the earlier contract was not allotted to the

contractor within time. The learned Arbitrator observed that it was hard to believe that anyone would give such a undertaking of foregoing a claim

of loss, which was on account of serious breach of contract on the part of DDA. He concluded that he was fully convinced that undertaking was

given under coercion and undue influence and claim of claimant cannot be set aside on the basis of arguments advanced by the DDA that no

damages can be allowed in respect of previous contract.

It is apparent that the learned Arbitrator grossly misconducted himself in arriving at this conclusion. The earlier contract between the parties

had come to an end, the moment a new contract was issued by the DDA in favour of the contractor for construction of the same number of houses

at a new site. This new contract was awarded to the contractor since DDA was, for whatever reasons, not able to offer the earlier site for

construction. The contractor had allegedly made arrangements for working at the earlier site. When he found that earlier site was not likely to be

available soon, he wrote a letter to the DDA that he should be given alternate site with the same amount of work and he would not raise any claim

for damages. The letter dated 4th November, 1986 written by DDA makes it abundantly clear that this letter was written by the contractor not

after any negotiations with DDA or after any pressure from DDA but the letter was written by the contractor after making it known to DDA that

DDA had not been able to give site to him to undertake the work despite exchange of correspondence between the parties and despite contractor

raising claims of damages against DDA. The contractor made it clear to DDA that since he was class I registered contractor, he was ready to

work on the alternate site if it is given to him by 5th December, 1986 and shall not claim from DDA any loss or damages incurred by him such as

for setting up office, stores, stacking of material, labour huts, water tanks or making any arrangement/commitment in this connection. He

specifically wrote that the correspondence exchanged between the parties upto that date shall stand superseded automatically in case DDA gives

an alternate site. He further made it clear that the offer was unilateral without any reservations.

The statement of law regarding coercion has been given in following terms in Halsbury''s Laws of England:

By duress is meant the compulsion under which a person acts through fear of personal suffering as from injury to the body or from confinement,

actual or threatened. A threat of a criminal prosecution for which there is sufficient ground is not such duress as will vitiate a contract made in

consequence thereof, provided that there is valuable consideration for the contract, and that there is no agreement to stifle the prosecution. There is

no duress simply because a party has to enter into a contract by reason of statutory compulsion, or the fact that the other party is a monopoly

supplier. Moreover, as a general rule, a threat of civil proceedings or bankruptcy proceedings does not amount to duress, whether there is good

foundation for the proceedings or not; but it may do so if it is intended and calculated, having retard to the circumstances, to cause terror in the

particular case. The question whether imprisonment or threatened imprisonment does or does not constitute duress depends upon whether the

imprisonment is lawful or unlawful.

A contract obtained by means of duress exercised by one party over the other is at very least voidable, and may perhaps be void, but if it is

voluntarily acted upon by the party entitled to avoid, it will become binding on him. The duress must be actually existing at the time of the making of

the contract, and the personal suffering may be that of the husband or wife or near relative of the contracting party, but that of a stranger or a

master is not sufficient.

The above legal position regarding coercion has been held by various courts and by this Court in Democratic Builders v. Union of India

reported in 1996 I AD (Delhi) 1061. I consider that in view of the above legal position, the conclusion arrived at by the learned Arbitrator that

there was a coercion exercised on the claimant in writing the letter to DDA is farfetched and a biased conclusion. It is not that the contractor has

filed this arbitration claim for the first time against DDA. This contractor being first class contractor had filed numerous arbitration claims against

DDA prior to that letter and after that letter. Filing claim for damages is a routine matter for contractors. Almost in every contract where even full

and final payment is received, an arbitration claim is raised by the contractors as a gamble and whatever they get through arbitration Award is

considered additional profit. Most of the time, the Arbitrators give Award closing their eyes to the terms of the contract. They even do not tend to

look into other details of the contract and pass an Award merely on the basis of presumptions.

The learned Arbitrator in this case awarded a sum of Rs. 2,75,685/- in respect of the contract No. 17/EE/HD-XXXV/85-86 which was

superseded by the subsequent contract and for which the contractor had given a specific undertaking that he will not make any claim. Against the

second part of the claim related to the contract for construction of houses at Sai-Dul-Jaib, the Arbitrator had awarded a sum of Rs. 3,16,000/-In

the entire Award for claims on infructuous expenditure, which is a term invented by the contractors, the Arbitrator has comfortably become

oblivious to the fact that DDA had already paid an amount of Rs. 8,46,412/- to the contractor under Clause 10CC which was a specific clause

under the contract to compensate a contractor for delay occurred in execution of the work. The extension of time was granted by DDA without

any levy of compensation and that is the reason that DDA also paid additional amount to the contractor under Clause 10CC. After payment of

these additional amounts by the DDA to the contractor under Clause 10CC, there could have been no justification for awarding any further amount

to the contractor in the name of infructuous expenditure as claimed. The contract in its entirety takes care of the increase in prices during

subsistence of the contract or during extended period. It also takes care of the extra items and extra expenditure to be incurred by the contractor.

Moreover, while considering any claim for loss or damages in respect of idle labour or other expenditure, the Arbitrator is supposed to look

into the evidence. The contractor cannot be allowed to get himself enriched in the name of workmen to whom he might not have paid even a single

paisa. If any claim is made by a contractor regarding idle labour, idle machinery or deployment of his engineers and supervisors during idle period,

he is supposed to prove the same by way of evidence as to how much work force was employed by him during that period and he is also

supposed to prove that he actually paid salaries to that work force and the work force was o0n monthly salary and not on daily payment basis.

The contractor has to prove that he has been forwarding account of work force employed from time to time to the DDA in accordance with the

terms of the agreement. In absence of compliance of the terms of agreement regarding maintenance of labour attendance, forwarding this

attendance to the DDA and in absence of any evidence regarding loss suffered, no court or Arbitrator can grant any amount on account of

damages or losses suffered. The damages are required to be proved and not only asserted. There is no formula provided under the agreement for

calculation of damages neither Arbitrator could have resorted to any formula for calculation of the damages. Since damages were claimed by the

petitioner on account of certain heads; payments made by the contractor to the workmen, to the Engineer, Supervisor, their attendance and hire

charges if paid by the contractor were required to be proved.

The Arbitrator has granted these damages without evidence on the basis of presumption. The claim No. 19 allowed by the Arbitrator is not

sustainable and is contrary to the law. The Award passed by the Arbitrator is hereby set aside for the reasons stated above.

The petition stands disposed of accordingly.