Verma Construction Co. vs DDA

Shiv Narayan Dhingra, J.—DDA has filed objections u/s 30 and 33 of the Arbitration Act, 1940 against the award dated 9th November

1992 whereby the learned arbitrator allowed certain claims of the petitioner and passed an award in favour of petitioner. The objections have been

filed claim-wise and response thereto has been given by claimant (petitioner herein), so they are being dealt with claim-wise.

Claim No. 1 was made by petitioner for a sum of Rs. 10,000/- on account of amount withheld from bill by DDA (respondent herein) because of

quality control. The learned arbitrator allowed this amount observing that out of 57 observations of quality control, 49 paragraphs of observations

had already been dropped by quality control organization. DDA had also not filed reduction items statement along with analysis despite

opportunity being given by the arbitrator, he, therefore, allowed this claim of Rs. 10,000/-. Respondent DDA had objected to this claim on the

ground that the learned Arbitrator ignored the fact that the amount was withheld on account of quality control and the observations given therein

and, therefore, committed misconduct. I consider that the objection raised by respondent DDA is not tenable. The learned arbitrator had taken

into consideration the facts as stated before him and gave a reasoned award on this claim.

Claim No. 2 consisted of four sub-claims namely 2(a), 2(b), 2(c) and 2(d). DDA had deducted some amount from the bills claiming rebate as

per the contract. Claimant had claimed that these rebates were wrongfully claimed by DDA despite the fact that the bills were not paid in

accordance with the terms of the contract entitling DDA to claim rebate. The learned arbitrator after considering the dates of payment of bills

allowed the claim in respect of sub-claims 2(b), 2(c) and 2(d) in full and in respect of 2(a) partly.

Awarding of this amount has been assailed by DDA on the ground that the learned Arbitrator has not given reasons or justification for allowing

the refund of rebate and thus committed misconduct. I consider that this challenge does not stand in view of the fact that the learned arbitrator

considered the dates of passing of bills which was the only factor to be considered for availing rebates and allowed claims since the rebate was

claimed by DDA contrary to contract.

Claim No. 3 was made by claimant claiming a sum of Rs. 1,41,400/- on account of damages due to unproductive rendering of salary of staff

during prolonged period of the contract. Claim No. 5 was made by the claimant for a sum of Rs. 45,000/- on account of payment payable under

Clause 10(c) of the agreement and claim No. 8 was made by the claimant for a sum of Rs. 5 lac on account of execution of work beyond the

stipulated date of completion. All these three claims were, therefore, interconnected since they were made by the claimant on account of delay in

completion of work as provided under the contract. Against claim of Rs. 1,04,000/- on account of damages due to unproductive rendering of

salary of staff, the learned arbitrator allowed Rs. 40,500/- holding that the work got prolonged for the period of twelve months for which the

claimant had to maintain the establishment. The extension of time was granted by DDA without levy of compensation, therefore, it was established

that while performing this contract breaches caused were partial in nature, so claimant was entitled to compensation of Rs. 40,500/-. The learned

Arbitrator did not disclose as to how he had arrived at this figure. Against claim No. 5, he allowed the entire amount of Rs. 45,000/-holding that

because of prolongation of contract by twelve months, there was increase in labour wages. The prolonged period of the contract was accepted by

respondent (DDA) without levy of compensation and there was no labour complaint received during this period, so claimant was entitled to

payment under provisions of Clause 10C of contract and he allowed the entire claim. Under claim No. 8, learned Arbitrator again held that

claimant had to perform the contract during extended period for which extension of time was granted by respondent DDA without levy of

compensation, so the claimant was entitled for compensation. He allowed increase of 28% over the work done after the expiry of initial period of

contract and awarded a sum of Rs. 2,69,600/- to the claimant.

Against awarding of amount under above three claims, objections raised by DDA is that the award on these claims was contrary to the

conditions set out in the agreement entered into between the parties. The learned arbitrator totally ignored the conditions as set out in the contract

and award being contrary to the conditions was liable to be set aside.

The petitioner in his response to these objections stated that objections raised by DDA were baseless. The conditions relied upon by DDA

were considered by the learned Arbitrator. The DDA was misinterpreting these conditions. There was a clause in the notice inviting tenders that the

site would be available. The subsequent conditions as appearing in the specifications regarding non-availability of site provided that there must be

some reasons for non-availability of site and the leaned arbitrator considered this and then awarded the claim. Similarly, regarding claim No. 5, it is

stated by the petitioner that this claim was allowed in accordance with Clause 10C of the agreement. The contention of DDA that the work was

delayed by claimant was considered by learned Arbitrator and found not tenable since there were provisions in the agreement for payment of

enhancement under Clause 10C, the learned arbitrator rightly allowed this claim. Similarly, awarding of amount under claim No. 8 in favour of

claimant/petitioner was justified as the work was delayed by DDA.

Clause 10(c) of the agreement reads as under:

Clause 10C. If during the progress of the works, the price of any material incorporated in the works, (not being a material supplied from the

Engineer-in-Charge''s stores in accordance with Clause 10 hereof) and/or wages of labour increases as a direct result of the coming into force of

any fresh law, or statutory rule or order (but not due to any changes in sales tax) and such increase exceed ten percent of the price and/or wages

prevailing at the time of receipt of the tender for the work, and contractor thereupon necessarily and properly pays in respect of the material

(incorporated in the work) such increased price and/or in respect of labour engaged on the execution of the work such increased wags, then the

amount of the contact shall accordingly be varied provided always that any increase so payable is not, in the opinion of the Superintending Engineer

(whose decision shall be final and binding) attributable to delay in the execution of the contract within the control of the contactor. Provided,

however, no reimbursements shall be made if the increase is not more than 10% of the said prices/ wages and if so the reimbursements shall be

made only on the excess over 10% of the said prices/wages and if so the reimbursements shall be made only on the excess over 10% and

provided further that any such increase shall not be payable if such increased has become operative after the contact or extended date of

completion of the work in question.

If during the progress of the works, the price of any material incorporated in the works [not being a material supplied from the Engineer-in-

Charge''s stores in accordance with Clause 10 hereof] and/or wages of labour is decreased as a direct result of the coming into force of any fresh

law or statutory rule or order [but not due to any changes in sales tax] and such decrease exceeds ten percent of the prices and/or wages

prevailing at the time of receipt of the tender for the works. Delhi Development Authority shall in respect of materials incorporated in the work [not

being materials supplied from the Engineer-in-in charge''s stores in accordance with Clause 10 hereof] and/or labour engaged on the execution of

the work after the date of coming into force of such law statutory rule or order be entitled to deduct from the dues of the contractor such amount

as shall be equivalent of difference between the prices of materials and/or wags as they prevailed at the time of receipt of tender for the work minus

ten percent thereof and the prices of materials and/or wages of labour on the coming into force of such law, statutory rule or order.

The contractor shall for the purpose of this condition keep such books of account and other documents as are necessary to show the amount of

any increase claimed or reduction available and shall allow inspection of the same by a duly authorized representative of Delhi Development

Authority and further shall, at the request of the Engineer-in-Charge furnish, verified in such a manner as the Engineer-in-charge may require any

document to kept and such other information as Engineer-in-charge may require.

The contractor shall, within a reasonable time of his becoming aware of any alteration in the prices of any such materials and/or wages of labour,

give notice thereof to the Engineer-in-Charge, stating that the same is given in pursuant to this condition together with all information relating thereto

which he may be in a position to supply.

A perusal of Clause 10(c) makes it abundantly clear that claim under Clause 10(c) lies only if during the progress of work, price of any material

(not being a material supplied from the Engineer-in-charge store) or wages of labour increases because of coming into force of any fresh law,

statutory rule or order and such increase exceeds 10% of the price /wages prevailing at the time of the receipt of tender. The contractor can claim

reimbursement of the increase in price and labour wages only if it is more than 10% and only to the extent it was in excess of 10% and he serves a

notice on DDA during progress of work. Such reimbursement of the increased prices/labour is to be made only if it is approved by the

Superintending Engineering. A similar provision is there in Clause 10C in respect of reduction in price and reduction in wages. Clause 10(c) also

provides that in order to claim any increase beyond 10%, the contractor will have to keep books of accounts showing payment of increased wages

to labour and increased price for goods. Thus, an enhancement under Clause 10(c) can be allowed only if the conditions, as set out in Clause

10(c), are satisfied. The learned arbitrator was not at liberty to award any arbitrary amount under Clause 10(c). Only that amount could be

awarded under Clause 10(c) as permitted under it and for which books of accounts had been maintained by the contractor and it is shown that

there was statutory increase either in the labour rates or in the rate of materials. No presumption could be drawn by the learned Arbitrator that

because of the contract overrunning, there was necessarily going to be a price rise and necessarily going to be a wage rise. Any such award where

a departure from the contractual clauses is made, is liable to be set aside on this ground. A departure from the contract amounts to manifest

disregard of the authority by the arbitrator. The arbitrator, being the prisoner of the contract, is bound to remain within the four corners of the

contract.

Learned Arbitrator in this case had not awarded the amount in accordance with the provisions as contained in Clause 10C. It is also clear that

the learned arbitrator had not considered whether the increase in labour rate was more than 10%, if it was so, what was the amount exceeding

10%. It apparent that no books of account or record were produced before the learned arbitrator about payment of higher rates or wages to the

labour. There is no presumption in favour of claimant that he must have been maintaining the record and must have paid the wages and such

payment was in excess of 10%. Moreover, Clause 10C also provides that as and when a claim under this clause is made, it has to be submitted to

Suptd. Engineer for his opinion and his decision is to be final and binding. I, therefore, came to conclusion that the award under claim 5 has been

awarded contrary to the contract and, therefore, is liable to be set aside.

It is now settled law that where in a contract it is provided that the period of contract can be increased conditionally or unconditionally, the time

is not the essence of the contract and the period so increased is to be considered as the period of contract. It is recorded by the arbitrator that the

period of the contract was increased in this case without levying of compensation. Non-levy of compensation does not signify that the period of

contract was increased with any condition of awarding additional amount to the claimant. It is born out from the record that the period for

performance of the contract was enhanced at the request of claimant though without levying of compensation. The claimant was at liberty to walk

out of the contract at the expiry of the period of the contract. The fact that the claimant asked for enhancement of the period of contract for

performance of contract and did not put any condition only shows that the contract between the parties remained intact. The only change in the

contract was the period of performance and there was no change in any other conditions in the contract. Once the contractor had accepted the

prolonged period of performance without any demur and continued with the work, the contractor cannot claim additional amount because of the

prolongation of the contract, unless and until the same is provided in the terms and conditions of the contract.

It is settled law that not only the parties but the arbitrator is also bound by the terms and conditions of the contract and the arbitrator cannot

pass an award beyond the contract or contrary to the contract. The arbitrator is not the judge in equity but is the judge of the contractual rights. He

cannot assess the damages suffered by a party because of extension of time of the contract unless it is specifically provided in the contract that if

period of contract is extended, the party shall be entitled for additional amount. It is also not understood how the learned arbitrator could have

awarded this additional amount once on account of wages of persons of the establishment of the contractor and secondly on account of

prolongation of the contract.

It is worthwhile to note that delay in this case was due to some stay orders obtained against the site of construction from the Court and due to

site having bushes etc and required leveling and dressing before the work could be started. No doubt para 2(a) of NIT states that, ""The site for

work is available"" but this does not show that the site is absolutely ready for work and there is no hindrance. It is for this reason that the tender

document under ""Specification & Conditions"" itself provides as under:

The contractor must get acquainted with the proposed site for the works and study specifications and conditions carefully before tendering. The

work shall be executed as per programme approved by the Engineer-in-Charge. If part of site is not available for any reason or there is some un-

avoidable delay in supply of materials stipulated by the Department, the programme of construction shall be modified accordingly and the

contractor shall have no claim for any extras or compensation on this account.

The plea of claimant is that words ""If part of site is not available for any reason"" imply that there must be justifiable reasons. The reading of this

clause only shows that for any reason means for any reasons whatsoever and not that there must be some justifiable reasons. It is clear from above

clause that in case the work got prolonged due to non-availability of site or due to any other reason the work of construction was to be re-

programmed modified (by extension of time for completing the work) No claim for any extra amount or compensation could be made by the

contractor under such circumstances unless contract provided that in case of extension of time, the contractor would be entitled for additional

amounts. I, therefore, consider that claim No. 3 and 8, as allowed by the arbitrator, are contrary to the contract. It is settled law that the arbitrator

cannot allow a claim which is either contrary to the contract or for which there is no provision in the contract.

In view of above discussion, the award in respect of claims No. 3, 5and 8 is hereby set aside.

The claimant under Claim No. 4 claimed a sum of Rs. 22,231.83 on account of non-payment of rates on extra items in accordance with

agreed terms and conditions. The extra items were given in Statement No. 2 being Items No. 2,5,6,12,13,16,17 and 18 and Items 12 and 13 in

Statement No. 6. The learned arbitrator observed that since the rates were agreed upon between the parties in respect of extra items these rates

could not be reduced later on. Learned arbitrator therefore allowed Rs. 12,729.24 against this claim since this was the amount according to the

arbitrator as ''short paid'' as per the claims.

Respondent DDA pleaded that learned Arbitrator gave no reasons to allow this claim and the award of this claim was contrary to Clause 7 of

the contract. The learned arbitrator ignored Clause 7 of the agreement under which all running payments were to be treated as advance payment to

the petitioner and rates worked out in respect of extra item were to be provisional rates to be finally approved by the competent authority at the

time of final bill. It is stated that whenever the provisional rates were given, thereafter the rates were analyzed and approved by the competent

authority. The rates so approved were given to contractor and the deductions of extra amount was made The petitioner in response to this

objection submitted that clause 7 is misinterpreted by DDA. This clause nowhere states that rates paid would be provisionally rates.

Clause 7 reads as under:

Clause 7.

No payment shall be made for a work estimated to cost rupees five thousand or less till after the whole of the work shall have been completed and

certificate of completion given. But in the case of work estimated to cost more than Rs. five thousand, the contractor shall, on submitting the bill be

entitled to receive a monthly payment proportionate to the part thereof then executed to the satisfaction of the Engineer-in-Charge, whose

certificate of the sum so payable shall be final and conclusive against the contractor. But all such intermediate payments shall be regarded as

payment by way of advance against the final payment only and not as payments for work actually done and completed, and shall not preclude the

requiring of bad, unsound and imperfect or unskilled work to be remove and take away and reconstructed, or re-erected or be considered as an

admission of the due performance of the contract, or any part thereof, in any respect or the accruing of any claims, nor shall it conclude, determine,

or affect in any way the powers of the Engineer-in-Charge under these conditions or any of them as to the final settlement and adjustment of the

accounts or otherwise or in any other way vary or affect the contract. The final bill shall be submitted by the contractor within one month of the

date fixed for completion of the work or of the date of the certificate of completion furnished by the Engineer-in-Charge and Payment shall be

made within three months if the amount of the contract plus that of additional items is up to Rs. 2 Lakhs and in 6 months if the same exceeds Rs. 2

lakhs of the submission of such bill. If there shall be any dispute about any items of the work then the undisputed item or items only shall be paid

within the said period of three months or six month or as the case maybe. The contractor shall submit a list of the disputed items within thirty days

form the disallowance thereof and if he fails to do this, his claim shall be deemed to have been fully waived and absolutely extinguished.

Wherever there is likely to be delay in recording detailed measurements for making payment in the case of residential building, advance, payments

without detailed measurements for works done (other than foundations and finishing items) upto (a) lintel level (including sun shade etc.) and (b)

slab level, for each floor ,worked out at 75% of the tendered rates may be made in running account bills of certificate from the Assistant Engineer

to the effect that the work has been completed up to the level in question.

The advance payments so allowed shall be adjusted in the subsequent running bill by taking detailed measurements thereof. Final payment shall be

made only on the basis of detailed measurement.

A perusal of Clause 7 would show that this clause does not deal with extra item at all. Neither there is any condition that contractor would be paid

provisional rates and rates would be subsequently finalized by the competent authority. I therefore consider that the objection raised by DDA is not

tenable.

The learned Arbitrator awarded 15% interest per annum on the amount allowed in favour of claimant with effect from 1st July 1989 upto the

date of payment or decree of the Court, whichever was earlier. Considering the present interest regime prevalent for last more than 12 years and

the fact that interest rates had fallen considerably during last 12 years and the banks do not give an interest of more than 7.5% even on the long

term deposit, I consider that 8% interest per annum would be a reasonable and justified rate of interest.

In the result, the objection filed by DDA in respect of claim No. 3, 5 and 8 are upheld and award in respect of claims No. 3, 5 and 8 is hereby

set aside. The award passed in respect of rest of the claims is made a rule of the Court. Claimant/petitioner would be entitled to interest on the

awarded amount from 1st July 1989 till payment @ 8% per annum.