Mechelciv Engineering Corporation vs Union of India (UOI)

Radhakrishnan. J.

This appeal arises out of common order in O.P. (Arb.) Nos 23 and 53 of 1992 of the Sub Court. Kozhikode.

O.P. No. 23 of 1992 was a petition filed by the claimant for passing a decree in terms of the award passed by the Arbitrator. O.P. No 53 of 1992 was a petition filed by the Department to set aside the award relating to claim No. 6 shown in the award. We are therefore primarily concerned with the award in respect of claim No. 6.

The work in question related to construction of Technical Block and Control Tower for Karipur Aerodrome at Civil Aerodrome. Calicut. As per the agreement work was to be completed by 30.11.1987. Extension of time was sought for and it was granted upto 31.12.1987. Later further extension of time was granted upto 31.3.1988 by the Department with levy of compensation of Rs. 100/- for the period from 1.1.1988 to 31.3.1988 as per Clause 2 of the agreement. Consequently the Superintending Engineer held that delay in execution of work upto 31.12.1987 only was justified and levied token compensation for the period beyond the said period. Claimant had made representation against the said order detailing the reasons for the delay in completing the work. The Superintending Engineer considered the said representation and informed the claimant that he was prepared to reconsider the case. However, no decision has been communicated. Due to the inaction on the part of the Department, claimant invoked Clause 25 of the agreement to resolve the disputes. One Claim No. 6 passed the following award:-

"Date of start of the work was 20.4.1986 and stipulated date of completion was 19.4.1987. The work was actually completed on 31.3.88 entailing a delay of about 11 1/2 months in completion.

During the stipulated period of contract and beyond there were delays attributable to the respondents due to non-availability of drawings, delay in providing electrical conduits etc. There were also delays beyond control of the claimant excavation and power cut and voltage drop in the current supplied by the electrical authorities. The respondents could provide external colour scheme only on 19.11.1987 (Clause 15), and finally internal colour scheme for the building on 25.11.87 (Clause 16). The claimant further contended that final decision for providing glazing of toughened and heat reflecting glass in steel windows was communicated by the respondent only by Clause 12 (7.9.87). After that they had to prepare templates and place orders for the glass on Atul glass who had to manufacture the same by processing imported reflecting glass. In this regard they evidenced the quotations of the manufacturer and orders placed on them. Keeping in view these belated decisions of colour schemes and type of glass to be used I am of the opinion that claimant cannot be held liable for any delay in completion of work. Thus completion of work in all respects on 31.3.88 by them was reasonable.

The S.E. of the respondent however under the provisions of Clause 2 of agreement held the delay in execution of work upto 31.12.87 only as justified and had levied token compensation for the period beyond (Clause-19 dt. 30.6.89). The claimant had however represented against the said order of the SE (Clause-17 dt 12.12.89) again detailing out the reasons for delay in completion of work. The SE had duly considered the said representation of the claimant and informed the claimant that he was prepared to reconsider the case (Clause-18 15-2-90). The claimant also formally applied for re-consideration by submitting EOT in revised form (Clause-20 dt 5.3.90). No decision on the same was however evidenced by noth the parties.

However, keeping in view my findings and also the observations of the SE (Clause-18) I hold that claimants are entitled to extension of time upto 31.3.88 without any penal action under clause 2 of agreement and resultantly they are entitled to escalations under Clause 10 (cc) for the entire quantum of work executed by them under the contract. The respondents have already paid for the escalations under Clause 10 (cc) of agreement for the work executed upto 31.12.87. For the balance period claimants have calculated escalation amount as Rs. 2,28.211.50. The respondents without prejudice to their contentions regarding admissibility of claim have confirmed that calculations submitted by the claimant are in order. Accordingly, I hold that claimant is entitled to the sum of Rs. 2,28,211.50 against this claim."

The award in respect of claim No. 6 was challenged by the Department before the court below and the court below interfered with the award holding that the claim is not arbitrable under Clause 25 of the agreement and set aside the award in respect of claim No. 6 legality of which is under challenge in this appeal.

Counsel appearing for the appellant submitted that the court below has misunderstood the scope of Clause 25, Clause 2, Clause 5, and Clause 10 (CC) of the agreement. Counsel also made reference to C.P.W. Manual Volume II- Revised Edition 1990-page 592 dealing with Clause 2. Counsel contended that justifiability of the levy of compensation is always arbitrable under Clause 25 of the agreement. Counsel also submitted thta time was not essence of the contract going through the various provisions of the agreement. Reference was also made to the decision of the apex court in Hind Construction Contractors by its Sole Proprietor Bhikamchand Mulchand Jain (Dead) by Lrs Vs. State of Maharashtra, . Counsel also made reference to the decision of the apex court in Viswanatha Sood v. Union of India ( AIR 1989 S.C. 952) dealing with identical provisions and contended that amount of compensation payable under Clause 2 may not be referred to arbitrator under Clause 25 but the justifiability of the levy of compensation is always arbitrable.

Counsel appearing for the Department on the other hand submitted that the court below was justified in interfering with the award holding that claim No.6 is not arbitrable under Clause 25. Counsel submitted that decision of the Superintending Engineer regarding the quantum of reduction as well as justification thereof in respect rates for sub standard work are to be treated as excepted matters and the decision of the Engineer is final and binding. Counsel for the claimant submitted that during the stipulated period of contract and beyond that there was delay attributable to the Department due to non availability of drawings, delay in providing electrical conduits etc. There was also delay beyond the control of the claimant due to rain, meeting of rock foundation, excavation and power cut and voltage drop in the power supply. Department also could provide external colour scheme only on 19.11.1987 and finally internal colour scheme for the building on 25.11.1987 and that final decision for providing glazing of toughened and heat reflecting glass in steel windows was communicated by the Department only on 7.9.1987. After that claimant had to prepare template and place orders for the glass on Atul Glass who had to manufacture the same by processing imported reflecting glass. The Superintending Engineer however under the provisions of Clause 2 of the agreement held that delay of execution of work upto 31.12.1987 only is justified and had levied token compensation for the period beyond 30.6.1989.

Claim No. 6 rests on Clause 10 (CC) of the agreement. We may extract the relevant portion of the said clause for easy reference.

10(CC)-If the prices of materials (not being materials supplied or services rendered at fixed 10 and 34 hereof) and/or wages of labour required for execution of the work increase, the contractor shall be compensated for such increase as per provisions detailed below and the amount of the contract shall accordingly be vary, subject to the condition that such compensation for escalation in prices shall be available only for work done during the stipulated period of the contract including such period for which the contract is validly extended under the provisions of Clause 5 of the contract without any action under Clause 2 and also subject to the condition that no such compensation shall be payable for a work for which the stipulated period of completion is 6 months or less. Such compensation for escalation in the prices of materials and labour when due, shall be worked out based on the following provisions:

The base date for working out such escalation shall be the last date on which tenders were stipulated to be received.

The cost of work on which escalation will be payable shall be reckoned as 85% of the cost of work as per the bills, running or final, and from this amount the value of materials supplied under Clause 10 of this contract or

The aforementioned Clause stipulates that prices of materials and/or wages of labour required for execution of the work increase, the contractor shall be compensated for such increase as per the provisions detailed therein and the amount of contract shall accordingly be varied subject to the condition that such compensation for escalation shall be available only for work done during the stipulated period of the contract including such period for which the contract is validly extended under the provisions of Clause 5 of the contract without any action under Clause 2 and also subject to the condition that no such compensation shall be payable for a work for which the stipulated period of completion is six months or less.

Award passed by the arbitrator on claim No. 6 was negatived by the court below on the ground that the Superintending Engineer had made a levy of compensation of Rs. 100/- for the period from 1.1.1988 to 31.3.1988 exercising powers under Clause 2 of the agreement. The court below took the view that having invoked Clause 2 and the Superintending Engineer had imposed compensation of Rs. 100/- during the extended period of contract, claimant is estopped from claiming escalation charges under Clause 10 (CC). The court below also found that time was the essence of the contract and claim No. 6 was relating to the extended period and that claim is not sustainable. We may in this connection refer to Clause 2 of the agreement by which Superintending Engineer had imposed levy of compensation during the non completion of work during the extended period. Clause 2 of the contract makes the time specified for the performance of the contract a matter of essence and emphasises the need on the part of the contractor to scrupulously adhere to the time schedule approved by the Engineer. Clause also authorises the Superintending Engineer to impose levy of compensation on such specified grounds. We may indicate since levy of compensation was imposed by the Superintending Engineer invoking Clause 2, same would debar the claim invoking Clause 10(CC). In this connection we may also refer to Clause 5 of the agreement which reads as follows:

"Clause 5. If the contractor shall desire an extension of time for completion of the work on the grounds of his having been unavoidably hindered in its execution or on any other ground he shall apply in writing to the Engineer-in-Charge within thirty days of the date of hinderance on account of which he desires such extension as aforesaid, and the Engineer-in-Charge shall if in his opinion (which shall be final) reasonable grounds be shown therefore authorise such extension of time if any as may in his opinion, be necessary or proper."

The court below proceeded on the basis that time is the essence of the contract and since claimant had failed to complete the work in time it is always open to the Superintending Engineer to invoke Clause 2. Consequently claimant is not entitled to raise claim under Clause 10(CC). Apex court had occasion to consider somewhat similar provision in Hind Construction Contractors by its Sole Proprietor Bhikamchand Mulchand Jain (Dead) by Lrs Vs. State of Maharashtra, . The court held as follows:

The question whether or not time was of the essence of the contract would essentially be a question of hte intention of the parties to be gathered from the terms of the contract. Even where the parties have expressly provided that time is of the essence of the contract such a stipulatiooon will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental; for instance, if the contract were to include Clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such Clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract."

After examining almost similar provision of clauses the apex court held as follows:

"Two aspects emerge very clearly from the aforesaid two clauses. In the first place under Clause 6 power was conferred upon the Executive Engineer to grant extension of time for completion of the work on reasonable grounds on an application being made by the contractor (appellant-plaintiff) in that behalf; in other words, in certain contingencies parties had contemplated that extension of time would be available to the contractor. Such a provision would clearly be inconsistent with parties intending to treat the stipulated period of 12 months in Clause 2 as fundamental. Similarly, in Clause 2 itself provision was made for levying and recovering penalty/compensation from the appellant-plaintiff at specified rates during the period the work shall remain unfinished after the expiry of the fixed date."

The principle laid down by the apex court in the above case would squarely apply to the facts of this case. The question as to whether time is the essence of the contract is to be gathered on the intention of the parties and the attendant circumstances. The clauses providing for extension of time on certain contingencies on payment of fine or penalty compensation etc.. time cannot be treated as an essence of the contract. We have examined the scope of Clauses 2, 5 and 10 (CC) and we are of the view in this case time was not the essence of the contract. We may now examine on the mere fact that Superintending Engineer had levied compensation of Rs. 100/- would defeat the right of the claimant for escalation of price under Clause 10 (CC) of the agreement. The apex considered the scope f identical provisions, viz. Clause 2, Clause 25 etc. in Vishwanath Sood Vs. Union of India (UOI) and Another, , wherein the apex court held that as far as determination of levy of compensation under clause 2 is concerned the decision of the Superintending Engineer is final. Such a determination would go beyond the scope of the Clause 25. While holding so, apex court held as follows:

"But we should like to make it clear that our decision regarding non arbitrability is only on the question of any compensation which the Government might claim in terms of Clause 2 of the contract ...... Reading Clauses 2 and 25 together we think that the conclusion is irresistible that the amount of compensation chargeable under Clause 2 is a matter which had to be adjudicated in accordance with that clause and which cannot be referred to arbitration under Clause 25."

We are however in this case concerned with the jutisfiabiltiy of the levy of compensation invoking Clause 2 so as to defeat the rights of the claimant under Clause 10 (CC) not on the quantum of levy of compensation. True with regard to the quantum of compensation is concerned, decision of the Superintending Engineer is final but its justifiability is always arbitrable. We quote with approval meaning given to Clause 2 in C.P.W.D. Manual II revised edition 1990 at page 592, which reads as follows:

Clause 2: As such after the quantum of compensation has been decided by the Department the contractor has to appeal to the S.E. for review. If on review the S.E. reduces or does not reduce the compensation, such a decision regarding the quantum of compensation is final and outside the purview of Arbitration Clause. However, the contractor is at liberty to go to arbitration on the question of justification of levy of compensation and not of its quantum.

Arbitrator after examining the matter held that the work could not be completed in time due to the default on the part of the Department and consequently time was extended. Under such circumstances arbitrator held there is no justifiability in the award of levy of compensation in exercise of powers under clause by the Superintending Engineer. Arbitrator therefore held that the claimant is entitled to escalation under Clause 10 (CC) for the entire quantum of work executed under the new contract. We find no good reason to interfere with the award passed by the arbitrator. In such circumstances the order of the court below is set aside and the award under claim No.6 is upheld.

Counsel appearing for the claimant submitted that the claimant is also entitled to get interest on the amount awarded. Counsel placed reliance on the decision of the Apex Court in M/s. Jagdish Rai and Brothers Vs. Union of India, . We are of the view the request made by the counsel is justified. consequently we award interest at 12% on the amount awarded from the date of decree viz. 25.11.1992 till payment. The appeal is allowed as above.