M/S. Harcharan Dass Gupta Construction Pvt. Ltd vs MCD & Anr

Jayant Nath, J

This suit is filed by the plaintiff seeking a decree of declaration declaring the levy of compensation to the tune of Rs.20,61,637 by defendant No.2 as

communicated to the plaintiff vide letter dated 2.1.2003 in respect of the work “Construction of Pedestrian Sub Ways on Netaji Subhash Marg

Opp.Red Fot †as being illegal, void, unjust, improper and not binding on the plaintiff. A decree of permanent injunction is also sought to restrain the

defendants from withholding or making a recovery of the said sum of Rs.20,61,637/-.

The relevant facts are that the plaintiff is stated to be a company incorporated under the Companies Act and is engaged in the business of building

construction and is registered as a Class-I Contractor with MCD.

Tenders were invited for the construction of pedestrian sub way on Netaji Subhash Marg Delhi†by defendant No.1. Plaintiff submitted its bid and

was awarded the contract vide communication dated 16.4.1998. An agreement was executed on 21.4.1998. The stipulated date for start of work was

25.4.1998 and completion of time was one year. Accordingly, the work was to be completed on 24.4.1999.

It is pleaded that the work envisaged construction of two subways. Subway-1 being at Netaji Subhash Marg at Jain Mandir (Police Post) and

Subway 2 being opposite Lajpat Rai Market, Delhi. The case of the plaintiff is that on account of obstructions, delays and hindrances on the part of

the defendant the completion of work got delayed. The work was actually completed on 31.10.2001 i.e. after a delay of 2 years 6 months and 7 days.

It is the case of the plaintiff that the delay took place on account of various reasons including obstructions at site at Netaji Subhash Marg, Jain

Mandir.When the work started on the due date i.e. 25.4.1998, during excavation of foundation, underground water line and electric cables were

encountered which were a hindrance in the excavation. Repeated requests were made to have the hindrances removed. It is further pleaded that

there was delay in handing over of the designs and drawings. Further, payments of running bills for the work executed to maintain the flow of funds

was also delayed.

It is further pleaded that instead of removing the obstructions and obstacles which were being faced by the plaintiff for timely completion of the

work the Executive Engineer of the defendant on 4.1.1999 levied a penalty under clause 2 of the Agreement at 6% of the estimated cost of the work

as shown in the Agreement. The plaintiff immediately protested vide communication dated 5.3.1999 but there was no response.Â

It is further pleaded that correspondence continued with the defendant pointing out the various issues hampering progress in the work, namely,

non-availability of the second site, the impossibility of execution of work relating to excavation due to sub-soil water, delay in payment of running bills,

delay in submitting of the plans etc. It is pleaded that the defendants were guilty of the following:-

“A.There were hindrances at site which were not being removed well in time.

B. Payment of the running account bills were not being made regularly and in time, thus, adversely affecting the plaintiff financially.

C. Site for the work was not provided in time in accordance with the agreement and even till 24th of December, 1999 the complete site was hot

handed over.

D. Designs and drawings were not provided timely thereby delaying the execution of the work. The drawings with regard to the Police Post were

given only on 17th April, 2001.

E. Additional work worth about Rs. 20 lacs was required to be done by the plaintiff and in this behalf instructions were given to the plaintiff on 6th of

June, 2001 only.â€​

It is further pleaded that in addition to the above, it was also the liability of defendant No.1 to settle the final bill and to make the payment which

was more than Rs.20,00,000/-. However, it is pleaded that instead of taking care of the above issues, after completion of the work on 31.10.2001 on

2.1.2003 a letter was issued by defendant No.2 under Clause 2 of the Agreement again slapping a levy of Rs.20,61,637/- by way of compensation @

10% of the estimated cost for the delay in execution of the work till 31.10.2001. Hence, the present suit.

Defendants in the written statement have denied the allegations made in the plaint. It is pleaded that time was the essence of the work as per the

Agreement. It is further stated that in the event the Contractor/plaintiff failed to comply with the condition of working with due diligence and timely

completion of the contract he was liable to pay a compensation of such amount as the Engineer Incharge may decide on the estimated cost of the

whole work provided that the compensation will not exceed 10%. It is pleaded that in the present case there is a delay of 2 year 6 months and 7 days

on account of which the defendant had no alternative but to levy compensation by invoking clause 2 of the Agreement. Reliance is placed on

communications addressed to the plaintiff where it was stated that the issue of shifting of cables etc. was being looked into but there was ample scope

for carrying out the work within the existing framework. It is stated that the underground water line and electric cable did not come in the way of

excavation of the work by the plaintiff who had ample space for continuing the work. Reliance is placed on the communications written by the

defendant to the plaintiff on 22.5.1998, 29.5.1998, 2.6.1998 and 25.6.1998. A Show Cause Notice was also served on the plaintiff on 10.7.1998 for

slow progress of work. Existence of various hindrances has been denied. It is pleaded that the defendants have rightly levied 10% penalty totaling

Rs.20,61,637/-. The communications relied upon by the plaintiff are denied.

I may also note that arising out of the same contract between the parties dated 21.4.1998 the plaintiff had also initiated arbitration proceedings

against the defendant. On 9.3.2007 the learned Arbitrator passed an award in favour of the plaintiff herein and against the defendants herein. Claim

No.1 in the Award pertained to the 17th running bill for Rs.22 lacs payment of which had not been made by the defendants. The learned Arbitrator

noted that this claim is contested on the ground that the compensation of Rs.20,61,637/- has been levied against the claimant/plaintiff. The award also

notes that the matter regarding levy of compensation by defendant MCD is subjudice before this court and under clause 2 it is an “accepted

matter†and not arbitrable. Hence the learned Arbitrator refrained from adjudicating that issue. However, an award was passed in favour of the

plaintiff herein for Rs.20,61,637/- subject to decision of this court under claim No.1. The defendants have filed objections

under section 34 of the Arbitration Act against the said award being OMP 424/2007.

On 4.11.2015 while adjudicating OMP 424/2007 this court had noted about pendency of the present suit and the necessity of these matters being

heard together. I have heard arguments in OMP 424/2007 and this suit together. By a separate judgment today I have also decided the said objections

filed by MCD against the said Award of the learned Arbitrator dated 9.3.2007.

Coming back to the present suit on 20.8.2008 this court framed the following issues:-

“1.Whether the suit filed by the plaintiff is not tenable in view of the objection contained in para 5 of the Preliminary Objections ? OPD.

Whether the plaintiff has not come to this Hon'ble Court with clean hands or has suppressed material facts and terms and conditions of the

Agreement, as alleged in para 6 of the application ? If so, its effect ? OPD.

3 Whether the suit of the plaintiff is not maintainable in view of the objections contained in para 7 of the Preliminary objections ?OPD

Whether the plaintiff is entitled to a decree for declaration as prayed for in the plaint ? OPP.

Whether the plaintiff is entitled to a decree/or permanent injunction as prayed in the plaint ? OPP.

Relief.

Parties have led their evidence. Plaintiff has led the evidence of Shri D.R.Mittal/PW-1. Defendant has led the evidence of Shri Anil Tyagi,

Executive Engineer as DW-1.

I have heard learned counsel for the parties. Learned senior counsel for the plaintiff has submitted as follows:-

(i) He submits that as per clause 2 of the agreement the functionary who is authorized to levy damages on the plaintiff is the Executive Engineer. He

submits that a perusal of the communication dated 2.1.2003 would show that the same is not issued by the Executive Engineer but is issued by the

Superintendent Engineer (City Zone) who had no authority to execute any such communication. Reliance is placed on judgment of the Bombay High

Court in State of Bihar and Others vs. Hindustan Construction Company Ltd.& Anr., AIR 1998 Bombay 331 to support his contentions. Hence, it is

pleaded that the communication dated 2.1.2003 is null and void.

(ii) It is further pleaded that damages have been imposed on the plaintiff by the impugned communication dated 2.1.2003 in violation of principles of

natural justice. No show cause notice was issued to the plaintiff. No hearing was given to the plaintiff. Simply a communication dated 2.1.2003 was

issued demanding the said amount as damages. It is pleaded that the said communication being in violation of principles of natural justice is null and

void.

(iii) It is further pleaded that admittedly the work was completed on 31.10.2001. Extension of time was granted to the plaintiff upto 30.7.2001.

Thereafter for the alleged delay the impugned letter dated 2.1.2003 has been issued. It is pleaded that no such levy can be made retrospectively. Even

otherwise, the same is highly belated and cannot be sustained.

(iv) It is further pleaded that there was no delay on account of any facts attributable to the plaintiff. Reliance is placed on the evidence led by the

plaintiff to state that the plaintiff has proved the factum of obstructions in completion of the work and several factors on account of which the delay

took place which are wholly attributable to the defendants. He further submits that there is no meaningful cross-examination on this aspect of the

plaintiffâ€s witness PW-1 D.R.Mittal. Reliance is placed on judgments of this court in State Bank of India vs. S.S.Technocrats Private Limited,

2015(6) R.A.J. 300 (Del) and M.L.Mahajan vs. DDA & Anr., (2005) 1 Arb.LR 561 to plead that courts have held that in similar circumstances that

the question of imposition of damages would not arise.

The learned counsel for the defendants has denied the submissions of the plaintiff.

I will first deal with issues No.4 and 5, namely, as to whether the plaintiff is entitled to a decree for declaration and; whether the plaintiff is entitled

to a decree for permanent injunction, as prayed. I may first see the affidavit by way of evidence of PW-1 Shri D.R.Mittal. In his affidavit by way of

evidence he has pointed out that the work was hindered and delayed as during excavation of foundations, underground waterlines and electric and

telephone cables were encountered which despite information to the defendant were not removed timely. There was also non- payment of running

bills of the plaintiff by defendant No. 1. Further, the second site of the subway was not made available simultaneously with the first site. Further the

drawings/plans relating to the Police Post in the subway at Jain Mandir were made available only on 17.4.2001. Other such aspects are stated. It was

specifically pleaded that the causes for delay in completion of work were not attributable to the plaintiff company but attributable to defendant No.1.

Reliance was also placed on various letters written by the plaintiff pointing out the hindrances non-payment of bills etc. including communications

dated 6.7.1998, 11.8.1998 and 17.11.1999. Other numerous letters were also written. It is also stated that the originals of these letters were sought to

be produced from defendant No.1 vide notice dated 2.1.2004 (Ex.P3), However, defendants have failed to produce the originals.

I may have a look at some of these communications relied upon by the plaintiff. On 6.7.1998 (Ex. P-7) the plaintiff has written to the defendants

about electrical poles coming in the way, water lines and telephone cables causing obstruction on account of which excavation work cannot be taken

up further. Similarly, on 11.8.1998 (Ex P-9) a communication is written to the defendants regarding DVB cables. Another communication is written on

7.9.1998 (Ex. P-10) again, repeating the hindrances caused by water line and telephone cables which are yet to be removed. It is also stated that the

first running bill amounting to Rs.3,90,668/- had been sent for which payment is still pending. Similarly, on 14.12.2001(Ex-19) the plaintiff wrote to the

defendant stating that the work is complete and requested extension of time to be sanctioned and the bills be finalized. In the communicationÂ

again various hindrances are mentioned including the issues relating to encroachment of space, telephone cables, waterline being exposed, electrical

poles coming in the way, leakage of drinking water etc. It has also been pointed out that delays occurred due to rainy season, labour shortage due to

harvesting season and stoppage of work on account of Independence Day and Republic Day.

In the light of this evidence led by PW-1 in his affidavit by way of evidence, it was manifest that the defendant should have cross-examined the

said witness extensively about the stated grounds for delay as elaborated in his evidence. A perusal of the cross-examination of Mr.D.R.Mittal PW1

on 5.2.2009 shows that there is no relevant cross-examination on this aspect. Only one question was asked as to whether the plaintiff wrote any letter

to the defendant specifically mentioning the reasons for delay. The plaintiff has accepted the said suggestion. Relevant portion of cross-examination of

PW1 is as follows:

“Q. Did you mention causes of the delay and proposed time of completion of balance job in any letter written so to the defendant for grant of

extension of time?

A. I had mentioned the causes of delay in the letters such as drawing was not supplied to me and after considering the same, extension of time was

granted to me at every time.

Q. I put it to you that you did not write any letter to the defendant specifically mentioning therein causes of delay and proposed time to complete the

balance time. What have you to say?

A. It is incorrect.

Q. Please see letters dated 10.07.1998, 04.01.1999, 20.07.1998. 17.07.1998, 21.08.1998, 17.09.1998, 29.10.1998,

02.11.1998, 01.12.1998 and 25.06.1998 and tell whether these were received by you?

A. All these letters were received by us. Now these are marked as Ex.PW1/D1 to Ex.PW1/D10 Mark A.â€​

In contrast the defendants have led the evidence of Shri Anil Tyagi the Executive Engineer (DW1). He has filed his affidavit by way of evidence

and also an additional affidavit by way of evidence. There is no meaningful evidence led by him as to why delay took place in completing the work. In

this affidavit by way of evidence there is only reference to the penalty imposed on the defendant under clause 2 of the Agreement. He has also

tendered and exhibited the original file regarding extension of time to complete the work as Ex.DW1/14, a file which is running into 124 pages. In his

cross-examination DW-1 states that he is not deposing from personal knowledge but has deposed on the basis of official records.

A perusal of the file exhibited by DW1 i.e. DW1/14 shows that the first page is a note for time extension prepared by the Assistant Engineer

dated 05.04.2002. The note states as follows:

“As soon as the contractor took the work in hand and re-started the work the following cables etc were met;

a) Telephone cable

b) Electric poles

c) Unfiltered water line of C.P.W.D.

d) Water line of Delhi Jal Board

Although these services did not result in stoppage of work and the contractor always had ample scope of continuing the work. The department

approached various services Departments and got the services removed at the earliest possible. But it cannot be denied that the smooth running of the

work was hampered. The delay delay/hold up period on this account cannot be quantified, as the work remained continued as per the existing site

conditions.

There was some encroachment at the part of site of one subway opposite Old Lajpat Rai Market due to existing of Dhabas and depot of Delhi

Energy Development Agency, which was using it for parking of battery buses. Again here the contractor continued the work of construction of

subway beside this encroached area. But the smooth running of the work was hindered and the delay/hold up period on this account also cannot be

quantified. Since the site was located in the congested area, the work was to be taken in phases, which was a condition of the contract.

There was extreme delay in supplying the drawing of Police Post by the Police Department which is also a part of the Project. The structural work

of the subway where Police Post was to be constructed was completed on 24.07.2000 whereas Police Department supplied the drawing on

17.04.2001. Thereby the delay period between 24.07.2000 to 17.04.2001 is 8 months 24 days. Since there was another sufficient space/scope of work

so the work was not totally stopped during this period only 10% of the work can be taken to be held up. Hold Up Period: 27 days.

A very important aspect of hindrance to the work was encountered during the observation of Independence Day and Republic Day celebration

each year. For each event the areas adjourning Red Fort were cleared of all obstruction and the entire area was placed under the control of defence

services. And the material, machinery, labour were removed one week in advance of each event and the re-arranging of infrastructure by contractor

takes another week and thus each even account for hindrance of 14 days.

In all during execution period, seven such events occurred and as such 7x 14= 98 days i.e. 3 months 8 days is considered for extension.

Hold up period: 3 months 8 days.

The case of delayed payment is another aspect, which cannot be overlooked. As is pertinent to note that MCD is generally short of funds and is not

able to make timely payment and thus effects the overall progress of the work since no labour establishment can be maintained smoothly without

timely payment. Though no definite period is being included in the recommendation for extension, this fact cannot be brushed off.â€​

Hence, it is clear from the perusal of the said note that the defendants were fully aware that there were various problems being encountered while

work was being executed.

In my opinion, the evidence placed on record by the plaintiff pointing out the various obstructions faced by the plaintiff for timely completion of the

project has gone completely unchallenged and un-rebutted by the defendant. The evidence shows that despite requests of the plaintiff the defendant

failed to take steps to remove the obstructions. Further the defendants have failed to lead any evidence to show the causes of delay. It is manifest that

the only conclusion that can be arrived at is that the defendants have been guilty of being negligent in removing the obstructions and hindrances to

ensure timely completion of the work. As the defendants were themselves guilty of causing delay in completion of the contract, the defendants could

not levy damages on the plaintiff as was done vide letter dated 02.01.2003.

In the above context reference may be had to the judgment of this court relied upon by learned senior counsel for the plaintiff in the case of State

Bank of India vs. S.S.Technocrats Private Limited(supra). This court has held as follows:-

“30. The fact that there were two EOTs granted up to 15th August 2007 with PVA frozen as on 30th April 2007 was indicative of time no longer

being the essence of the contract. It was safe to proceed on the basis that the stipulated date of completion stood shifted to 15th August 2007. SBI

itself treated the actual date of completion of the work as 15th December 2007. SBI did not show how it had suffered any loss during the extended

period between 15th August and 15thDecember 2007. As held in J.G. Engineers v. Union of India (supra) once the Arbitrator found that it was SBI

which was responsible for delay, the claim for LD is unsustainable and the contractor is entitled to escalation. Secondly, the learned Arbitrator has

returned a factual finding that it was the Petitioner who was responsible for the delay. Thirdly, no show cause notice appears to have been issued by

SBI proposing imposition of LD at any point in time. The rejection of SBI's counter claim for LD cannot be faulted.â€​

This court hence held that the party responsible for the delay caused cannot impose damages.

I may also note another aspect of the functioning of the defendant. On 4.1.1999 even prior to the proposed date of completion which was

24.4.1999 the concerned Executive Engineer imposed a penalty of Rs.12,36,982/- by way of compensation @ 6% of the estimated cost. The work got

completed thereafter on 31.10.2001. After having levied the compensation in January 1999 four years down the line the Superintendent Engineer again

sent the communication on 2.1.2003 imposing damages now of 10% of the estimated cost. The said letter, which is the impugned letter, reads as

follows:-

“To,

M/s. Harcharan Dass Gupta, Constn.Pvt.Ltd.

103, Sai Bhawan, Ranjit Nagar,

Commercial Complex,

New Delhi-110008

Sub: Const. of Pedestrian subways on Netaji Subhash Marg Opp.Red.Fort

D/Sir,

The stipulated date of completion for the above mentioned work was 24.4.99 as per agreement No.D/EE(Pr.) CZ/98-99/1 dated 21.4.98. Extension of

time for completion of the above mentioned work was granted by the Engineer-in-Charge upto 30.7.2001 without prejudice to the right of the

Commissioner, MCD to recover liquidated damages in accordance with the provisions of clause-2 of the said agreement.

In exercise of power conferred on me under clause-2 of the agreement, I, R.K.Sabharwal, Suptdg.Engineer decide and determine that you are liable

to pay Rs.20,61,637/- as and by way of compensation as stipulated in clause-2 of the agreement. The said amount of compensation is hereby levied on

you for the period of delay in execution of the work till 31.10.2001 and at the rate of 10% as determined by me of the estimated cost of the work as

shown in the agreement and you are hereby called upon to pay the same to the Commissioner, MCD with in a period of 15 days from the issue of this

notice, failing which the said amount shall be recovered from your pending bills & security deposit lying with MCD.

Yours faithfully,

-sd-

(R.K.Sabharwal)

Suptdg.Engineer(City Zone)â€​

Clearly, the above document appears to be a mindless exercise. There is no reference to the earlier imposition of damages on 4.1.1999. There is

no reference or allegation that delay took place in completion of the work due to the acts/omission of the plaintiff. The functionary who has written the

letter simply states that there is delay in completion of the work and imposes a penalty of 10% which was the maximum possible under the

Agreement. The fact that four years ago a penalty of 6% had already been imposed is ignored. A reading of this communication alongwith the

background facts shows a complete non-application of mind and mechanical exercise of power. The defendants did not even bother to give a show

cause notice to the plaintiff before levying the damages. No opportunity was given to the plaintiff to explain its position. In my opinion, the said levy

cannot in any manner be upheld being imposed in a mechanical manner without following elementary principles of fair play and natural justice.

There is another submission made by learned senior counsel for the plaintiff to challenge this document, namely, that the document dated 2.1.2003

is signed by the Superintendent Engineer whereas as per clause 2 of the Agreement itself it is the Executive Engineer who alone can levy the

damages. Hence, it is pleaded that the damages have been imposed by a functionary who had no such power under the Agreement. In my opinion,

this argument is unfounded. The Municipal Corporation of Delhi is a hierarchical organization. The Executive Engineer would obviously act in

consonance with the policy and norms of MCD. A reading of clause 2 would show that merely because it mentions the post Executive Engineer

would not mean that a functionary higher than the post of Executive Engineer could also not impose levy of damages on the plaintiff. The plea is

unfounded.

Keeping in view the evidence led by the parties as noted above, in my opinion, the plaintiff has proved that the delay in completion of the work

took place due to the obstruction /omissions caused by the defendants. The plaintiff cannot be blamed for the same. Further the levy of damages by

the defendant is a mechanical exercise of power done in violation of fair play and the principles of natural justice. Hence, the levy of

compensation/damages for the alleged delay in completing the work is illegal and liable to be set aside. Issues No.4 and 5 are answered accordingly.

I may now deal with issue No.1 i.e. as to whether the suit filed by the plaintiff is not tenable in view of objections contained in paragraph 5 of the

preliminary objection. In para 5 of the preliminary objections in the written statement it is stated that there was a delay of 2 year 6 months and 7 days

for completion of the contract for which there is no explanation and therefore the suit filed by the plaintiff is not tenable in the eyes of law. No

submissions were made on this issue. It is clearly covered by my findings above on issues No.4 and 5 and is answered accordingly.

Regarding issue No.2 about the plaintiff not having come with clean hands the issue was not argued. There is no material on record to show that

the plaintiff has suppressed any material facts or terms and conditions. The issue is accordingly answered against the defendants.

Issue No.3 is whether the suit is maintainable in view of objections contained in paragraph 7 of the preliminary objections. Paragraph 7 merely

says that the suit is not maintainable as the same is not based on true facts and circumstances. It is manifest that this issue is also covered by the

findings on issues No.4 and 5.

Accordingly, a decree is passed in favour of the plaintiff and against the defendants declaring the levy of compensation of a sum of Rs.20,61,637

by defendant No.2 as communicated in letter dated 2.1.2003 as illegal and not binding on the plaintiff. A decree of permanent injunction is also passed

in favour of the plaintiff and against the defendant restraining the defendants from withholding or making a recovery of the said sum of Rs.20,61,637/-

or any part thereof from any amounts lying with defendant No.1 and payable to the plaintiff. Plaintiff shall also be entitled to costs. Suit stands

disposed of. All pending applications, if any, also stand disposed of.