* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 15th February, 2024
% Pronounced on: 28th June, 2024
+ O.M.P. (COMM) 45/2019
UNION OF INDIA THROUGH EXECUTIVE ENGINEER
Lucknow Central Division No. 2,
st
CPWD, 1 Floor, Kendriya Bhawan,
Section-H Aliganj, Lucknow, U.P. ..... Petitioner
Through: Mr. Ruchir Mishra, Mr. Mukesh Kr.
Tiwari & Ms. Reba Jena Mishra,
Advocates.
versus
ANS CONSTRUCTION LTD
E-2/Block, B-1 Extension,
Mohan Cooperative Industrial Estate,
Mathura Road, New Delhi-110044 ..... Respondent
Through: Mr. Sushil Aggarwal, Advocate.
CORAM:
HON'BLE MS. JUSTICE NEENA BANSAL KRISHNA
J U D G M E N T
NEENA BANSAL KRISHNA, J.
1. The present Petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the ) has been
“Act, 1996”
filed on behalf of the petitioner for setting aside the impugned Award dated
20.08.2018 as corrected/clarified on 18.09.2018.
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2. The petitioner/CPWD has sought to challenge the impugned Award
dated 20.08.2018 as corrected/clarified on 18.09.2018 on the ground that it
has been passed by ignoring the contractual provisions and applying the
extraneous provisions/conditions that were not part of the Agreement
between the parties.
3. The facts in brief are that the respondent/Claimant, a Private Limited
Company, was awarded Tender work for construction of various buildings at
th
20 Bn. Hqs. Balrampur.
4. An Agreement bearing No. 48/EE/LCD-II/2010-11 (hereinafter
referred to as the ) was entered into between the parties for the
“Agreement”
work construction of Mahila Barrack, including internal electrical
installation to be constructed for Mahila Jawans of SSB Bn. Hqrs.,
Balrampur deployed for the national security along Indo-Nepal Border. As
per the terms of the Agreement, the date of start and date of completion of
work was stipulated as 06.03.2011 and 05.11.2011 respectively, but it got
completed on 07.10.2013, i.e. after about two years of stipulated date.
5. The disputes arose inter se the parties after completion of work and a
list of 11 Claims was submitted by the /Claimant respondent to EE/LCD-II
vide Letter dated 05.12.2015. All the Claims were, after examination, held to
be not admissible and were rejected by the Executive Engineer vide Letter
dated 10.02.2016. The respondent filed an Appeal vide Letter dated
11.01.2016 under Clause 25(i) of the Agreement before SE/LCC. The SE
also after examining the same, came to the same conclusion that the Claims
were not permissible and rejected them all by his Letter dated 11.02.2016.
6. Aggrieved by such rejection, the respondent filed an Appeal under
Section 25(i) of the Agreement before CE (NZ-II) along with the list of 11
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Claims on 17.02.2016. However, this Appeal also met the same fate of
rejection of all the Claims by CE (NZ-II) on 23.02.2016.
7. The respondent then gave a Notice of Invocation of Arbitration on
19.02.2016. The Arbitrator was appointed who eventually passed the
impugned Award dated 20.08.2018 as corrected/clarified on 18.09.2018.
8. All the Claims were decided, but the petitioner is aggrieved by the
Claims No. 3, 5, 8 & 11 which are as under:
S. No. Claim Claim Amount Awarded
Number
1. Claim 3. 10CC (Price Escalation) Rs. 6,57,848
Claim for Civil materials
component, Labour
Component & Oil and
Lubes component
2. Claim 5. Claim on account of Rs. 11,31,239
Idling of Resources
3. Claim 8. Claim for extra cement Rs. 1,86,140
consumed in the project
as recommended in the
Design Mix and above
the minimum
requirements
4. Claim 11. Claim for grant of 9% per annum Simple
pendente lite and future interest on the award
interest awarded against Claim
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No. 3, 4, 5, 6, 8 and 10
and 11% per annum
simple interest on the
amount of the Award.
9. The petitioner aggrieved by the allowing of the Claims as mentioned
above, in favour of the respondent/ Claimant, has filed the present Petition
under Section 34 of the Act, 1996.
10. The petitioner has submitted that there was a total delay of 702 days
in completion of the work. The Ld. Arbitrator attributed the delay of 109
days to the respondent and has accordingly imposed penalty, which has not
been challenged by the respondent. However, it has wrongly been observed
that the remaining 593 days of delay were attributable to the petitioner. It is
asserted that this understanding of the Arbitrator is incorrect because in
these 593 days of delay, the Arbitrator has included 337 days during which
the work could not progress due to the rain and the work site was inundated
with water.
11. It is claimed that while awarding the Claim Nos. 3 and 5, the
Arbitrator has applied different yardstick to calculate the period of delay
attributable to the petitioner and the respondent respectively. While
observing that the Contractor cannot be held responsible for the delay in
completion of Work during the period of the rains, but this rain inundated
period of 337 days has been added to the account of the
petitioner/Department.
12. Further, the petitioner has submitted that the Contractor/respondent in
one of its Letter dated 27.06.2013 seeking extension of time, had stated in its
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own handwriting that he had not suffered any loss due to the delay in work
and that an extension be granted to complete the work for which it would
not raise any claim. Though this Letter was referred and relied upon by the
petitioner before the Ld. Arbitrator, but still compensation has been granted
on account of delay. The respondent/Claimant has taken a stand contrary to
its Letter in its Claim before the Arbitrator that it had suffered losses due to
delay in completion of work. This makes it evident that the Claims of the
respondent/Contractor are an afterthought and the same were liable to be
rejected in view of its own Undertaking in the Letter.
13. The petitioner has stated that the Claim No. 3 for escalation for civil
material component, labour component and oil lubes component, has been
allowed by the Ld. Arbitrator who has granted a sum of Rs. 6,57,848/- to the
respondent on the basis of Clause 10CC Formula, without appreciating that
this Clause which deals with price escalation and is not applicable to the
Agreement in question between the parties. The Arbitrator has ignored the
internal page 18 of the Contract wherein it was agreed by the parties that
Clause 10CC shall not apply to the present Contract as the stipulated period
of completion of work was less than 18 months under the Contract.
Therefore, the Award under Claim Nos. 3 for escalation and increase in
overhead expenses, by attributing a delay of 593 days to the petitioner, is
perverse and contrary to the material on record.
14. It is further asserted that the judgments of M/s Nandsons Construction
Company vs. MP State Tourism Development and Another, 2013 SCC
OnLine MP 5294 and State of Orissa vs. Sudhakar Das (Dead) by LRs
(2000) 3 SCC have not been considered by the Arbitrator.
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15. In regard to Claim No. 5 which pertained to overhead expenses/ idling
of resources due to alleged prolongation of Contract, it is submitted that the
Ld. Arbitrator has ignored the contractual provisions and Undertaking of
the Contractor that he had not suffered any losses on account of delay in
completion of work and that he would not be making any Claim against the
petitioner-Department if the extension is granted. The respondent took
advantage of their Undertaking to get the extension but subsequently, it
reneged and raised a Claim against the petitioner on the ground of delay.
16. It is further submitted that over calculation of overhead losses has
been done on the basis of Tender cost of Rs. 1,23,75,942/- instead of taking
actual completion cost of the work, which was Rs. 1,05,99,337/-.
17. The Arbitrator has calculated overhead expenses on account of idling
of resources by reducing them to the extent of 50% on the ground that the
workforce must have been deployed by the Contractor to do other work that
he had in the same premises/work site. Once the Ld. Arbitrator found it
reasonable to hold that the workforce of the Contractor was not sitting idle,
it was unreasonable and not justiciable for the Arbitrator to award even 50%
increase in overhead expenses, when there is a categorical finding of there
being no idling of resources of the respondent.
18. Moreover, while attributing the delay of 593 days to the petitioner, the
Ld. Arbitrator has even included the period during which the workers were
not available during Diwali and Durga Puja and also the period during
which they were on strike because of their disputes with the
respondent/Contractor. The days during which the workforce was not
available, have been erroneously included in 593 days which is a patent
illegality in the Award as the petitioner could not have been held liable to
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compensate the Contractor for delay on account of non-availability of
workforce, for the various reasons as mentioned above.
19. The petitioner has further submitted that under Claim No. 8 a sum of
Rs. 1,86,140/- on account of extra cement consumed in the Project as
recommended in Design Mix over and above the minimum requirements,
has been erroneously awarded to the respondent. It is claimed that the
Arbitrator had gone beyond his jurisdiction as there was an express
provision in the Agreement under Paragraph 8.8(iii) that the
minimum/maximum cement content for Design Mix concrete shall be
maintained as per the quantity detailed therein even in case where the
quantity of cement required was higher than the minimum specified above,
to achieve the desired strength based on approved Mix Design and nothing
extra was to be paid. The Arbitrator has misinterpreted this express
provision and has allowed the Claim considering the order of preference
given in Paragraph 8.1 of General Condition of the Contract (GCC). It is
asserted that the Ld. Arbitrator has failed to appreciate that there was no
contradiction in the description of the item and condition mentioned under
Paragraph 8.8 (iii) of the Agreement.
20. It is further contended that the party claiming compensation for any
loss of money has to prove such loss or damage suffered by him. In the
present case, the respondent miserably failed to provide any documentary
evidence as has also been observed by the ld. Arbitrator in Paragraph 45.0(i)
of the impugned Award. The Arbitrator has failed to appreciate that if a
party has not suffered any losses even if the breaches have been committed,
such party cannot be awarded any compensation under Section 73 & 74 of
the Indian Contract Act, 1872. By awarding the losses and damages, Section
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73 of the Indian Contract Act, 1872 has been rendered negatory and the
petitioner has been penalised despite there being no loss suffered by the
respondent.
21. In the end, it is contended in respect of Claim No. 11 that an
exorbitant rate of interest @9% has been awarded which is untenable as the
Contractor/respondent got extension of time on the ground that he had
suffered no loss due to delay of work. No interest therefore, should have
been awarded to the respondent.
22. It is, therefore, submitted that the impugned Award dated 20.08.2018
as corrected/clarified on 18.09.2018, suffers from patent illegality and is
contrary to the express terms of the Contract. It is thus, liable to be set
aside.
23. The respondent in its Reply to the Petition under Section 34 of the
Act, 1996 has denied all the grounds of challenge as agitated by the
petitioner in its present petition.
24. While the facts are not in dispute, but it has been asserted that the
delay of 593 days has been rightly attributed to the petitioner. It is explained
that the respondent in its Letter dated 23.07.2013 seeking grant of extension
of time had nowhere stated that it has not suffered any losses on account of
delay or that it shall not claim any additional payment for the extension of
time. The respondent has further explained that it had filed its Claim No. 3
on account of price escalation on account of Delay which was based on
Clause 10CC as a tool for calculation or price escalation. The Arbitrator has
clearly observed that even though Clause 10CC was not applicable, it cannot
be denied that the P
roject was delayed primarily due to the petitioner‟s fault
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and failure to fulfil its reciprocal obligations. The respondent, therefore,
cannot be denied the legitimate compensation arising out of escalation in
price.
25. Furthermore, the Arbitrator has observed that since the petitioner had
knowledge of serious probability and real danger of heavy rainfall and flood
at the Project site, still it did not warn the respondent which made it liable on
the doctrine of reasonable foreseeability. Reliance has been placed on the
decisions in Food Corporation of India vs. Am Ahmed & Co. and Ans., 13
SCC 779 and K.N. Sathyapalam vs. State of Kerala & Ans.¸ (2007) 13 SCC
43.
26. The respondent has further submitted that it has accepted the delay of
109 days as attributed to it and the consequent penalty imposed upon it by
the Competent Authority. However, the balance delay of 593 days is not
attributable to the respondent. The work remained completely suspended as
the approved structural drawings were not provided by the petitioner and
further there were discrepancies in the drawings even on 05.03.2012 i.e.,
after one year of the day on which the Contract was awarded to the
respondent. The structural drawings for the first floor columns and slab,
including staircase and detailed drawings of toilets, doors and window
joinery were awaited on 05.03.2012. The Arbitrator while examining Claim
No. 3, has rightly imposed the penalty of Rs. 6,57,848/-, on the petitioner
and the challenge to it by the petitioner, is arbitrary.
27. The Arbitrator has rightly held that the petitioner has no moral basis
for insisting on documentary evidence of damages from the respondent.
Considering the principle of equity, fair play and justice, when the petitioner
had levied the penalty of Rs. 6,74,489/- as compensation for the alleged
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delay of 109 days on the part of the respondent, then the petitioner should
also correspondingly pay the damages suffered by the respondent for a
justified period of 593 days.
28. It is explained by the respondent that in case the formula of the
Petitioner is made applicable for
the levy of compensation for 593 days‟
delay on the part of the petitioner, the respondent is entitled for Rs.
36,69,468/- (6,74,489 ÷ 109 days x 593 days) while the respondent has
merely been awarded Rs. 6,74,489/- as compensation. Hence, the Award is
fully justified and completely well-reasoned. The petition is liable to be
dismissed.
29. In regard to Claim No. 5 which pertains to the Idling of resources, the
Ld. Arbitrator has calculated the element of overhead expenses for delayed
period which had been reduced by 50% for the reasons that the respondent
was having other works on the same site. The delay was purely attributable
to the petitioner because of which there was idling of machinery, etc. and the
amount of Rs. 11,31,239/- has been rightly awarded to the respondent.
30. It is submitted that the Arbitrator has given a well-reasoned Award
which does not merit any interference.
31. Learned Counsels for both the parties addressed their arguments in
detail and also submitted the Written Submissions.
32. Submissions heard and the record perused.
33. At the outset it is pertinent to examine the scope of interference by
the Court in a Petition filed under Section 34 of the Act, 1996.
34. The scope of a challenge under Section 34 of the Arbitration and
Conciliation Act, 1996 is limited to the grounds stipulated in Section 34 as
held in MMTC Limited v. Vedanta Ltd, (2019) 4 SCC 163. Comprehensive
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judicial literature on the scope of interference on the ground of Public Policy
under Section 34 was postulated in Associate Builders v. DDA, (2015) 3
SCC 49. The Apex Court placed reliance on the judgment of ONGC v. Saw
Pipes, (2003) 5 SCC 705 to determine the contours of Public Policy wherein
an Award can be set aside if it is The fundamental policy of
violative of „
Justice or morality
Indian law‟, „The interest of India‟, „ ‟ or leads to a
Patent Illegality .
„ ‟
35. The fundamental policy of Indian
For an Award to be in line with the „
, the Tribunal should adopt a judicial approach which implies that the
law‟
Award must be fair reasonable and objective and in accordance with the law
of the land. The ground of patent illegality is applied when there is a
„ ‟
contravention of the substantive law of India, the Act, 1996 or the Rules
applicable to the substance of the dispute.
36. In Hindustan Zinc Limited v. Friends Coal Carbonisation, (2006) 4
SCC 445, the Apex Court referred to the principles laid down in Saw
Pipes (supra) and clarified that it is open to the court to consider whether an
Award is against the specific terms of the contract, and if so, it amounts to
patent illegality and is opposed to the Public Policy of India.
37. The Apex Court in the case of Ssangyong Engineering &
Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, has exhaustively dealt
with the expression patent illegality and which acts of the Arbitral
“ ”
Tribunal would come within the purview of patent illegality. The only
correct interpretation of a Contract would be if no reasonable person could
have arrived at a different conclusion while interpreting the relevant Clauses
of the Contract and that any other interpretation would be irrational and in
defiance of all logic. The findings would suffer from the vice of irrationality
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and perversity if the Arbitrator arrived at his findings by taking irrelevant
factors into account and by ignoring vital Clauses of the Contract. Hence,
the Apex Court held that the Court could intervene and review the merits of
an award if it is found to be on wrong interpretation of the Contract and
thus, .
„patently illegal‟
Analysis and Findings:
38. Against this background, the question which arises for the
consideration of this Court is: Whether the Award of the learned Arbitrator
warrants judicial interference on the grounds as narrated above?
Delay in Completion of the Project:
39. The foundational basis for the Claims No. 3 & 5 of the respondent,
was the delay in completion of the contract. Admittedly, the date of
commencement and completion of the work, as per the Agreement dated
25.02.2011 was 06.03.2011 and 05.11.2011 respectively. It is further not in
dispute that the Contract got completed on 07.10.2013 i.e. after a delay of
702 days. The respondent had submitted its Claims essentially claiming the
increased amounts on account of delay in completion of the Project. The
petitioner had attributed the delay of 109 days to the respondent, which was
not challenged by the respondent. The Ld. Arbitrator also held delay of 337
days attributable to the petitioner while the remaining balance days of 256
was attributed to the rain and the work site being inundated with water. The
Ld. Arbitrator however, included the period of 256 days of rains in the delay
attributable to the Petitioner by observing as under:
44. In this case I also find from the Extension of Time (EOT) case
“
Annexure R-30 of CSF prepared the Respondent (Executive
Engineer vide letter dated 28.02.2014) itself states that the
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stipulated date of start of the work and completion were 06.03.2011
& 05.11.2011 respectively. In the beginning of the work itself there
was a delay of 148 days i.e. from 06.03.2011 to 01.08.2011 due to
non-issue of good for construction structural drawings. Therefore it
would be seen that there was a clear delay of 5 months out of total
period of 8 months on account of non-issue of Good for
Construction structural drawings. After 01.08.2011 the work could
not be started due to inundation of entire work area on account of
rain water (cascading effect) and this delay continued upto
24.10.2011. Therefore there was an initial delay of more than 7
months out of total stipulated period of 8 months for which
Claimant was not responsible. This is a clear case that the
Respondent committed fundamental breach of contract by not
providing the site to the Claimant for execution of work due to non-
issue of structural drawings & inundation of the site during rainy
season initially for 7 months out of total 8 months period. No
breach of contract on the part of Claimant could be established by
the Respondent because according to Respondent itself the
Claimant was responsible for a delay of 109 days out of total delay
of 702 days which took place in completion of work. Therefore the
Respondent is responsible to compensate for loss of damage to the
Claimant caused by breach of contract under section 73 of the
Indian Contract Act 1872.
”
40. The learned Arbitrator in detail thus, considered the rival contentions
of the parties and referred to the Extension of Time (EOT) Letter dated
28.02.2014 prepared by the Executive Engineer/petitioner which stated that
in the beginning of the work itself, there was a delay of 148 days i.e. from
06.03.2011 to 01.08.2011 due to non-issue of good for construction
structural drawings. The learned Arbitrator while referring to this Letter
dated 28.02.2014 of the Executive Engineer, concluded that there was a
clear delay of 5 months out of the total period of 8 months of the Contract
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since 06.03.2011, on account of non-issue of the construction structural
drawings. Thereafter from 01.08.2011, the work could not be started due to
inundation of entire work area because of rain water. This delay in providing
the structural drawings had a cascading effect as the delay continued upto
24.10.2011, only when the work could be started.
41. It was, therefore, held that the respondent could not be held
responsible for this delay of 7 months out of the stipulated period of 8
months. It was the petitioner who was held to have committed fundamental
breach of contract by non-issue of structural drawings, which led to further
delay on account of inundation of the site during the rainy season.
42. This finding of the learned Arbitrator is challenged by the petitioner,
on the ground that the structural drawings were made available after 256
days, but the work could not be started in the following period apparently on
account of rains, for which the petitioner cannot be held responsible.
43. It may be observed that the contract was for a period of 8 months and
it was well within the knowledge of both the parties that the latter part of the
Contract falls within the rainy season and the structural drawings ought to be
supplied in time for structural work to be completed before the onset of rains
and the structural work ought to be completed before the rains while the
other completion work would not have been hampered by rains. Since the
drawings were not supplied in time, the structural work could not be
commenced during the rainy season leading to further delay. It has been
rightly observed by the learned Arbitrator that the delay in providing the
structural drawings had a cascading effect as the work could not be started
on account of rains. Had the structural drawings had been provided in time,
the work would not have been stalled from being commenced because of
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the rainy season, which led to a further delay in commencement of work on
account of rains leading to a delay of total period of 593 days, attributable
solely to the petitioner.
44. The learned Arbitrator has given reasons why the delay on account of
the rainy season though not the fault of the petitioner, but had to be
attributed to him because his initial delay further prevented the
commencement of work in time on account of the rains. The learned
Arbitrator has rightly attributed the delay of 593 days to the petitioner.
There is no illegality in this finding and it does not merit any interference.
Findings on Claim No 3: Price escalation on account of the prolongation
of the Contract:
45. Having concluded that the Ld. Arbitrator has rightly attributed the
delay of 593 days to the petitioner, the Claim No. 3 has to be considered
whereby the respondent has been allowed price escalation on account of the
prolongation of the contract.
46. The moot question before the Ld. Arbitrator was to ascertain the
principle for grant of the amount on account of prolongation of the Contract
due to delay. The learned Arbitrator accepted the plea of the petitioner that
Clause 10CC to determine the price escalation on account of prolongation of
the Contract, was not applicable to the present Case as the tenure of the
Project was less than 18 months. While acknowledging the non-applicability
of Clause 10CC, reference was made to the Case of Food Corporation of
India, (supra), wherein the Supreme Court had observed that
“Escalation, in
our view, is normal and routine incident arising out of gap of time in this
inflationary age in performing any contract of any type. In this case, the
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arbitrator has found that there was escalation by way of statutory wage
revision and, therefore, he came to the conclusion that it was reasonable
allow escalation under the claim. Once it was found that the arbitration had
jurisdiction to find that there was delay in execution of the contract due to
the conduct of FCI, the corporation was liable for the consequences of the
delay, namely increase in statutory wages. Therefore, the arbitrator, in our
opinion had jurisdiction to go into this question. He has gone into that
question and has awarded as he did. The arbitrator by awarding wage
revision has not misconducted himself. The award was, therefore, made rule
of the high court, rightly so in our opinion.”
47. Reliance has also been placed on K.N. Sathyapalam (supra) wherein
the Supreme Court considered the question of grant of Claim on account of
escalation of cost in the absence of a price escalation clause. It was
observed that
“Ordinarily, the parties would be bound by the terms agreed
upon in the contract, but in the event one of the parties to the contract is
unable to fulfil its obligations under the contract which has direct bearing
on the work to be executed by the other party, the arbitrator is vested with
the authority to compensate the second party for the extra costs incurred by
him as a result of the failure of the first party to live up to its obligations.
That is the distinguishing feature of cases of this nature and Alopi Parshad
case and also Patel Engg. case
.”
48. This principle was reiterated by the Apex Court in the Case of T.P.
George v. State of Kerala (2001) 2 SCC 758.
49. The principles laid down in K.N. Sathyapalan (supra) were upheld by
the three Judge Bench of the Supreme Court of India in the Case of Assam
State Electricity Board & Ors. vs. Buildworth Private Ltd., (2017) 8 SCC
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146, wherein it was observed that
“even though price escalation Clause in
the Agreement applied only to the specified period in the contract but it was
held to be applicable to the extended period because the parties through
their conduct permitted the belated performance of their reciprocal
obligations - Price escalation in performing any contract is a normal
incident
in this age of inflation.”
50. After referring to the aforesaid judgments, the learned Arbitrator has
concluded that though Clause 10CC was not applicable in the facts of the
present case, but considering that the respondent/claimant was entitled to
price escalation on account of delayed performance of the Agreement, the
formula as provided in 10CC, can be adopted for ascertaining the price
escalation to which the respondent/claimant could be held entitled.
51. It is quite evident that the learned Arbitrator has not held that Clause
10CC was applicable to the facts of the present case; rather it has been held
that the Clause 10CC was not applicable. Only the formula given in Clause
10CC, was adopted since it is an established and widely
by observing that “
accepted engineering method of working out the increase in the cost of work
due to delay in completion of work, as has also been held in the case of K.N.
Sathyapalan (supra) and also in the case of Food Corporation of India
(supra) and A.M. Ahmed Company (supra).
”
52. It had been observed that though Clause 10CC may not be applicable
but the
“assistance of this Clause, can be taken by the Tribunal, in working
The
out the increase in the cost of work due to various unavoidable delay.”
learned Arbitrator, therefore, has rightly invoked the principle/method as
contained in Clause 10CC for working out the price escalation due to
delayed completion of the Project.
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53. The learned Arbitrator had also referred to the Judgment of M/s
Nandsons Construction Company (supra), wherein the Supreme Court
relying upon the case of State of Orissa (supra), had held that
“in the
absence of any escalation clause, an Arbitrator cannot assume any
In this case, the part
jurisdiction to award any amount toward escalation.”
of the Award granting escalation charges, was held to be not sustainable as it
suffered from the patent illegality.
54. This Judgment also observed that the fundamental principle of law is
that in the absence of Escalation Clause, no escalation charges can be
provided. The same principle has also been reiterated by the learned
Arbitrator who also has not held that Clause 10CC was applicable or
invoked Clause 10CC to grant the escalation cost, but has merely taken the
guidance of this Clause 10CC, to objectively ascertain the quantum of
compensation.. Therefore, this judgement also does not help the Petitioner in
any manner.
55. Fundamentally, the finding of the learned Arbitrator is that because
there was a delay of 593 days attributable to the respondent, they are liable
to pay the escalation charges, which has been calculated on the basis of the
Formula contained in Clause 10CC only as an objective method of
calculation of the escalation charges.
56. This finding on Claim 3 is in accordance with law and does not
warrant any challenge.
Findings on Claim No.5: on account of idling of resources.
57. The petitioner has also challenged the grant of the sum of
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Rs.11,31,239/- in Claim No.5 on account of idling of resources, to the
respondent.
58. The learned Arbitrator while referring to the delay of 593 days
attributable to the respondent, also made a reference to the Letter of
Extension dated 23.07.2013, wherein while seeking Extension of Time, the
respondent had itself stated that it has not suffered any losses due to delay in
work. However, the learned Arbitrator granted the amount of Rs.
11,31,239/-, while observing that when the penalty of Rs. 6,74,489/- has
been levied by the petitioner, on the respondent on account of delay of 109
days, the petitioner is also liable to pay the compensation in the same ratio
for being responsible for delay of 593 days. Consequently, the levy of
compensation on the petitioner, has been calculated on the prevalent
Engineering practices and in terms of the Agreement for calculating the
Contractors Profit (CP) and Overhead (OH).
59. It has observed by the Ld. Arbitrator in paragraph 44 (ii) of the Award
the date of calculation of the compensation as under: -
44(ii). It is widely accepted that also as per agreement that the
“
CP & OH) is 15% of
element of overheads & contractor’s profit (
the cost of the project. Out of 15%, 7.5% is the element of
contractor’s profit and 7.5%, the element of overhead expenses.
The work was awarded to the Claimant by the Respondent vide
letter dated 25.02.2011 (Exh. R-1 of CSF) for an amount of
Rs.23,75,942/- and 8 months period was given for completion of
work. According to established principles of engineering practice
7.5% of the tendered cost i.e. Rs.9,28,196/- was the element of OH
(over heads) expenses which was included in the work. In other
words, the Claimant would have spent Rs.9,28,196/- on overhead
expenses if the work would have been completed by the Claimant
in 8 months. According to Respondent itself there was a delay of
593 days (19.5 months) for which the Claimant was not
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responsible. Therefore, based on the above analogy the element
of overhead (OH) expenses in 19.5 months period work out to
Rs.22,62,478/- as (Rs.9,28,196/- X 19.5 divided by 8). As the
claimant was having few other works in the Campus therefor the
overhead expenses will reduce. Considering this reduction in
overhead cost I reduce the overhead expenses by 50%. Therefore,
the net amount of damages suffered by the Claimant due to
overhead expenses works out to Rs.11,31,239/-. I find that this
amount of Rs.11,31,239/- is reasonable & justified and the
Claimant deserves to be compensated for alleged damages at least
up to this amount. I accordingly consider, decide & award
Rs.11,31,239/- (Rs. Eleven lakhs thirty one thousand two hundred
thirty nine only) in favour
of Claimant against this claim.”
60. The law for grant of compensation is well settled that where a party is
unable to fulfil its reciprocal obligations as per the Contract, the claimant is
entitled to compensation due to damages/losses suffered as a consequence of
breach in terms of Sections 73 and 74 of the Indian Contract Act, 1872.
61. In McDermott International Inc. vs. Burn Standard Company Ltd. &
Ors., (2006) 11 SCC 181, the Apex Court had observed that Sections 55 and
73 of the Indian Contract Act,1872 does not lay down the mode and manner
as to how and in what manner, the computation of damages or compensation
has to be made. As computation depends on circumstances and the methods
to compute damage how the quantum, therefore, should be determined, is a
matter which falls within the decision of the learned Arbitrator.
62. The Apex Court in the Case of M/S Kailash Nath Associates v. DDA
and Anr. 2015 AIR SCW 759, held that if the party has not suffered any
losses even if the breaches have been committed by a party, such party
cannot be awarded any compensation under Section 73 of the Indian
Contract Act, 1872. The party claiming compensation, has to prove such
loss or damages as suffered by him. Until and unless, the damages or losses
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have actually been suffered, the same cannot be awarded under Section 73
of the Act. A party cannot be penalised even though the other party has
suffered no losses.
63. Coming to the facts of the present case, the respondent had claimed
damages suffered by it because of idling of resources in the extended period.
However, not only in his Letter of Extension dated 27.06.2013, has the
respondent stated that no losses shall be incurred due to delay in work and
would not seek any extra payments if the extension is granted, but it has also
been noted by the learned Arbitrator that there were five other Works of the
respondent which were on going on the same site at the given time. The
respondent admittedly has not led any evidence whatsoever to show the
losses that were suffered by it on account of idling of resources. In fact, the
observation of the learned Arbitrator that there were other Projects of the
respondent that were on going on the site further enures to the benefit of the
petitioner in so much as the circumstances do not justify any inference that
the losses on account of idling of machines, may have been suffered by the
respondent.
64. It was the respondent who was claiming the compensation on account
of idling of resources. The onus was also on the respondent to prove by
some evidence about there being losses or extra charges suffered by the
respondent, on this account because of prolongation of the Contract. In the
case of Govt. of NCT of Delhi v. DSC Limited (2024 SCC OnLine Del 4147)
it was observed in Para 47 of the said judgment that in order to seek
compensation, it is required under Section 74 of the Contract Act to prove
that there is loss suffered. It reads as under:
47. In the end, it may be observed that the learned Arbitrator has
“
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rightly observed that the question of quantification of liquidated
damages would have arisen if it was established by the petitioner
that they had suffered some losses as is the requirement under
Section 55 and Section 74 of the Contract Act. There is not a
whisper about any losses having been suffered by the petitioner
during the intervening period of September 2010 till November
2011, which is a condition precedent for imposition of any
liquidated damages.
”
65. In the present case, no evidence whatsoever has been produced by the
respondent; rather its own Letter speaks to the contrary. When there is no
evidence whatsoever led by the respondent of there being any loss, then it
cannot be held entitled to any compensation in terms of Sections 73 and 74
of the Contract Act. Such has also been observed in the case of M/S Kailash
Nath Associates (supra), which is relied in the case of Edifice Developers
Project Engineers Ltd. v. Essar Projects (India) Ltd. (2013) 2 AIR Bom R
244 and also referred to in the case of Ajay Singh (Sunny Deol) v. Suneel
Darshan, 2015 SCC OnLine Bom 1412.
66. It is, therefore, held that the grant of compensation on account
of idling of resources, is not only arbitrary but is also contrary to law and not
based on any evidence and is perverse. It suffers from patent illegality and
is, therefore, liable to be set-aside. The Apex Court in the case of Ssangyong
Engineering and Construction Company Limited v. National Highways
Authority of India (NHAI), AIR OnLine 2019 SC 329 in its Para 41 held
that a finding based on no evidence at all or an award which ignores vital
“
evidence in arriving at its decision would be perverse and liable to be set
aside on the ground of patent illegality and therefore, would also have to
…
be characterised as perverse.
”
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67. Hence, if any finding is given without any evidence, it is perverse and
suffers from patent illegality. Therefore, the finding on Claim No.5
granting Compensation in the sum of Rs. 11,31,239 is held to be patently
illegal and is hereby set aside.
Claim No. 8 for usage of extra cement:
The petitioner has challenged the Claim No. 8, wherein the
respondent/claimant had made a Claim for extra cement consumed in the
Project as recommended in Design Mix over and above the minimum
requirement in the sum of Rs. 3,61,121/-. It is asserted that Clause 8.1 of the
conditions of Contract, clearly stated that in the case of discrepancy between
the schedule of Quantities, the Specifications and/or the Drawings, the
following order of preference shall be observed: -
“i). Description of Schedule of Quantities.
ii). Particular Specifications and Special Conditions, if any.
iii). Drawings.
iv). CPWD Specifications.
v). Indian Standard Specifications of B.I.S.”
68. As per the terms of Contract, the cement content was to be used in
RCC Grade M-25 was 380 kgs, as per the Schedule of Quantities Item No.
3.4, however, Design Mix provided for consuming 450 kgs of cement per
cum of RCC. The petitioner had asserted that in view of Clause 8.1 of
conditions of Contract, even though 450 kgs of cement per cum of RCC,
was used by the respondent but by virtue of Clause 8.1, it was entitled to
payment only @380 kgs of cement as minimum content.
69. The Ld. Arbitrator observed as under: -
(ii) According to the agreement when there is a
“55.0
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contradiction in the two clauses of the agreement then in that case
the issue is required to be decided according to order of
preference given in para 8.1 of conditions of contract contained in
General Condition of Contract for Central PWD Works on page
10 (Printed book) where it is specified that in the case of
discrepancy between the schedule of quantities, the specifications
&/or drawings the following order of preference shall be
observed:-
i). Description of Schedule of Quantities.
ii). Particular Specifications and Special Conditions, if any.
iii). Drawings.
iv). CPWD Specifications.
v). Indian Standard Specifications of B.I.S.
From the above para it is evident that nomenclature of item no.
3.4 of Bill of quantities will prevail over the clause 8.3 (iii) of the
„Additional Condition for RCC Work‟. Therefore as per this
clarification the Claimant is entitled to get the payment of extra
cement consumed in M-25 mix of RCC. According to item no. 3.4
of Bill of quantities 380 kg of cement per cum of RCC was to be
considered while quoting the rate of RCC but as per Job Mix
Formula 450 kg of cement per cum of RCC has actually been
consumed. This is the admitted position of the Respondent also
that in M-25 grade of concrete the cement content @450 kg/per
cum of concrete has been actually used in the work. Therefore the
Claimant is entitled to get the payment of the cost of extra cement
i.e. 70 kg (450 kg 380 kg) consumed in excess in M-25 grade
–
RCC as compared to the quantity specified in agreement item no.
3.4 of Bill of quantities. The Claimant has provided the details in
Annexure 8 (pages 97, 98 & 99) attached with the Statement of
Facts (SoF). According to Annexure 8 (pages 97, 98 & 99)
attached with Statement of Facts (SoF) total quantity of RCC (M-
25 grade) used in the work is 537.2 cum (281.81 cum in
foundations and 255.39 in super structure) Rs.4,950/- per M.T. Is
the recovery rate of cement (PPC) specified in schedule „F‟ in the
table made for recovery Rates for the quantities beyond
permissible variation.”
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70. The learned Arbitrator further observed that according to the
Agreement between the parties, when there was a contradiction in the two
Clauses of the Agreement, then the issue was required to be decided
according to the order of preference given in Paragraph 8.1 of Conditions of
Contract contained in General Conditions of Contract for Central PWD
Works. It was concluded that the nomenclature of Item No. 3.4 of Bill of
quantities, shall prevail over Clause 8.3(3) of the additional condition for
RCC Work. Therefore, the respondent was held entitled to payment of extra
cement consumed in M-25 mix of RCC. It was the cost of excess cement and
was assessed at Rs.1,86,140/- in favour of the claimant.
71. From the aforesaid discussion, it is held that the findings given by the
learned Arbitrator for grant of the Claim for excess cement consumed in the
Project, is based on logic and reason. The findings do not suffer from any
patent illegality and do not call for any interference.
Claim No. 11: for grant of pendente lite and future interest.
72. The petitioner has also challenged the Claim No. 11 whereby
pendente lite interest @ 9% p.a. and simple interest @11% p.a. from the
date of award till the date of payment, has been awarded. The petitioner has
contended that the interest imposed is exorbitant.
73. The pendente lite and future interest as granted to the respondent on
the Award amount is in fact, much less than the interest rate on the
Commercial transaction. There is no basis for asserting that the interest rate
is exorbitant. This contention of the petitioner to challenge Claim No. 11 is
hereby rejected as not tenable.
Partial Setting aside of the Award/ Claim:
74. The conundrum which now arises is whether there can be partial
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setting aside of the Award or would it amount to modification of Award and
has to be necessarily set aside in toto leaving the parties for a fresh round of
arbitration, if so advised.
75. The said question had been engaging attention of the Courts and
divergent views have been taken by the Courts. The question came up for
consideration before Full Bench of Bombay High Court in the case of R.S.
Jiwani (M/S.) v. Ircon International Ltd., 2009 SCC OnLine Bom
2021 wherein some claims were allowed while some were rejected. The
Bench observed as under:
to a party
“36 …Could there be a greater perversity of justice
which has succeeded before the Arbitral Tribunal as well as in the
court of law but still does not get a relief. Is that what is
contemplated and was the purpose of introduction of the Act of
1996. An Act which was to provide expeditious effective resolution
of disputes free of court interference would merely become
ineffective statute. Would not the canon of civil jurisprudence with
the very object of the Arbitration Act, 1996 stand undermined by
such an approach. The effective and expeditious disposal by
recourse to the provisions of the 1996 Act would stand completely
frustrated if submissions of the respondent are accepted. Partial
challenge to an award is permissible then why not partial setting
aside of an award. In a given case, a party may be satisfied with
major part of the award but is still entitled to challenge a limited
part of the award. It is obligatory on the court to deal with such a
petition under section 34(1)(2) of the Act. We may further take an
example where the Arbitral Tribunal has allowed more than one
claim in favour of the claimant and one of such claim is barred by
time while all others are within time and can be lawfully allowed in
favour of the claimant. The court while examining the challenge to
the award could easily severe the time barred claim which is hit by
law of limitation. To say that it is mandatory for the court without
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exception to set aside an award as a whole and to restart the
arbitral proceeding all over again would be unjust, unfair,
inequitable and would not in any way meet the ends of justice.
”
76. It was further observed that such an interpretation that the Award has
to be set aside in its entirety is bound to cause greater hardship,
inconvenience and even injustice to some extent to the parties. To compel
the parties, particularly a party who had succeeded to undergo the arbitral
process all over again does not appear to be in conformity with the scheme
of the Act. The provisions of Section 34 are quite pari materia to the
provisions of Article 34 of the Model Law except that the proviso and
explanation have been added to Section 34(2)(iv). The attempt under the
Model Law and the Indian Law appears to circumscribe the jurisdiction of
the court to set aside an award. There is nothing in the provisions of the Act
and for that matter absolutely nothing in the Model Law which can debar the
court from applying the principle of severability provided it is otherwise
called for in the facts and circumstances of the case and in accordance with
law. The courts will not get into the merits of the dispute. Thus, the
interpretation which should be accepted by the court should be the one
which will tilt in favour of the Model Laws, scheme of the Act and the
objects sought to be achieved by the Act of 1996.
77. In the case of R.S. Jiwani (supra), it was held that it is difficult to
prescribe legal panacea which, with regard to the applicability of the
principle of severability, can be applied uniformly to all cases. The judicial
discretion vested in the court in terms of the provisions of Section 34 of
the A&C Act, 1996 was held to take within its ambit, power to set aside an
award partly or wholly depending on the facts and circumstances of the
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given case and it was held that the same is not intended to be whittled down
or to divest the court of competent jurisdiction to apply the principle of
severability to the award of the Arbitral Tribunal, legality of which is
questioned before the court. Moreso, the proviso to Section 34(2)(a)(iv) has
to be read ejusdem generis to the main Section, as in cases falling in that
category, there would be an absolute duty on the court to invoke the
principle of severability where the matter submitted to arbitration can clearly
be separated from the matters not referred to arbitration and decision
thereupon by the Arbitral Tribunal.
78. In the case of R.S. Jiwani (M/S.) (supra) a reference was made to the
decision of the Apex Court of India in the case of NHAI v. M.
Hakeem, (2021) 9 SCC 1 wherein it was observed that
“Quite obviously if
one were to include the power to modify an award in Section 34, one would
be crossing the Lakshman Rekha and doing what according to the justice of
a case, ought to be done. In interpreting a statutory provision, a Judge must
put himself in the shoes of Parliament and then ask whether Parliament
intended this result. Parliament very clearly intended that no power of
modification of an award exists in Section 34 of the Arbitration Act, 1996. It
is only for Parliament to amend the aforesaid provision in the light of the
experience of the courts in the working of the Arbitration Act, 1996, and
bring it in line with other legislations the world over.”
79. However, in R.S. Jiwani (M/S.) (supra) it was observed that the
observations were in regard to modification and not to the partial setting
aside of the Award. It was thus, concluded that the Court while exercising
power under Section 34 of the A&C Act, 1996, can set aside an Award
partly, depending upon the facts and circumstances of the case.
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80. In this context, reference was made to the judgment of the Supreme
Court in the case of J.G. Engineers Pvt. Ltd. v. Union of India, (2011) 5
SCC 758, wherein the doctrine of severability was invoked and it was held
that when the Award deals with several claims that can be said to be
separate and distinct, the Court can segregate the Award on items that do not
suffer from any infirmity and uphold the Award to that extent.
81. The Bombay High Court in the recent judgment of National Highway
Authority of India v. The Additional Commissioner, Nagpur, 2022 SCC
OnLine Bom 1688 noted the aspect of grave inconvenience highlighted in
the aforesaid Full Bench judgment of Bombay High Court in the case of R.S.
Jiwani (M/S.) (supra) and observed that if parties are required to go for
arbitration afresh in its entirety on every occasion, even when the arbitral
award is only partly set aside, that the arbitral award is found liable to be set
aside on some issues, it would lead to multiple rounds of litigation, going
against the very purpose of alternative dispute redressal mechanisms like
arbitration. The claimants would be forced to pursue numerous rounds of
proceedings before the arbitrator and Courts, which cannot be countenanced,
thereby indicating that the contention raised in this regard on behalf of the
appellants is unsustainable. Thus, following the principle of severability of
claims it was held that the Award may be set aside partially.
82. It is evident from the Claims 3, 5, 8 and 11 under challenge, that they
were all independent of each other and such part of the Award in respect of
Claim No. 5 which is independent, is liable to be set aside.
Conclusion:
83. The Petition under Section 34 Arbitration & Conciliation Act, 1996 is
therefore, partly allowed and the Award to the extent of Claim No. 5 in
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regard to the grant of compensation in the sum of Rs.11,31,239/-, on
account of idling of resources, is hereby set aside.
84. The Petition under Section 34 is partly allowed.
(NEENA BANSAL KRISHNA)
JUDGE
JUNE 28, 2024
S.Sharma/RS
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