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Villayati Ram Mittal Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit No. 290A of 1983
Judge
Reported in1986(1)ARBLR328(Delhi); 1985(8)DRJ316
ActsArbitration Act, 1940 - Sections 14
AppellantVillayati Ram Mittal
RespondentUnion of India and ors.
Advocates: P.N. Kumar,; Anil Sapra and; R.M. Bagai, Advs
Cases ReferredSalwan Construction Co. v. Union of India
Excerpt:
.....of india to discharge its reciprocal obligations constituted breach of the contract. as union of india claimed that the contract was not completed by the contractor the arbitrator brought in the principle of quantum meruit but at the same lime the arbitrator was of the view that it was union of india which had failed to discharge its obligations under the contract resulting in delay of nearly 15 months which in turn compelled the contractor to do the work beyond stipulated period. in the reply the union of india wanted particulars of the claim and in rejoinder the contractor stated that in his letter to the union of india which is dated 17-9-1979 (ex c-6) he had clearly stated that there was rise in the cost of building material in consequence of 1979-80 budget estimates and the..........according to the contractor the work was completed on 30th november, 1980 whereas the union of india claim that the same has completed only on 31-7-82 it was claimed by union of india that since a number of major and minor items of work were not completed by the contractor the union of india rescinded the contract after giving a show cause notice to the contractor and the balance of the items of the contract were got done on the risk and cost of the contractor. in the show- cause notice to the cont actor, the union of india reserved its right to take action against the contractor under the terms of the contract for any losses that union of india might suffer. basing his claim on clause 10(c) the contractor claimed a sum of rs 15.000.00 on account of increase of labour rates (claim.....
Judgment:

D.P. Wadhwa, J.

(1) The petitioner, a contractor, filed this petition under Sections 14 & 17 of the Arbitration Act praying that respondent No. 2 who was the Arbitrator, be directed to file his award dated 15-1-1983 and the arbitration proceedings in the court. On notice being issued the Arbitrator filed his award and the proceedings. Notice of the filing of the award was given to the parties. Union of India-respondent No. 1 filed objections and these were registered as is No. 3002/83. These were filed under Sections' 30 and 33 of the Arbitration Act.

(2) On pleadings of the parties the following issues were framed :

1.Is the award liable to be set aside for the reasons stated in the objection petition 2. Relief. Evidence was directed to be lead by affidavits.

(3) It is a speaking award. There was a contract which was awarded to the petitioner-contractor for the work of construction of Load dispatch Centre for N.R.E.B. at Katwaria Sarai. The agreement bears No. CE(2)/EE D.O.I, of 1977-78. Disputes and differences having arisen, these 'were referred to the sole arbitration of Shri G.V.S.Krishnamurthy, respondent No. 2. As noted above, he gave his award on 15-l-1983. He accepted various claims of the petitioner contractor. Union of India raised objections to only 3 of the claims and these are :-

(I)Claim No. 3-under which the contractor claimed a sum of Rs. 4,00,000.00 under clause 10(C) of the agreement on account of alleged enhancement of cost of building material. This was allowed for Rs. 3,48.840.00 . (ii) , Claim No. 5-und:er which the contractor claimed a sum of Rs. 10,000.00 towards difference in cost of alleged use of white cement instead of ordinary cement. His claim was allowed for Rs. 7.23-4.00 . (iii) Claim No. 8- Under which the contractor claimed a sum of Rs. 70,000.00 towards interest at the rate of 12% per annum w.e.f. 1-1-1980 up to ..31-12-1980 on a sum of Rs. 5,76,000.00 pendente lite. Under this, the contractor was awarded interest pendente lite at the rate of 12% per annum on the total sum of the award. from 10-11-1981 to the date of the award. The contractor was further awarded interest at this rate on the total sum .of the award from the date of the award to the date of the decree or payment, whichever, was earlier.

I will deal with claims No. 5 & 8 first. In Union of India v. Bungo Steel Furniture Private Ltd., : [1967]1SCR324 it was held that though Section 34 of the Code of Civil Procedure did not apply to arbitration proceedings but that Section could be applied by the Arbitrator for awarding interest in cases where court in suit having jurisdiction of the subject matter covered by Section 34 of the Code. could grant; a decree for interest. It was held that the Arbitrator had authority to grant interest from the date of the award to the date of decree. The section of interest in the present case was referred to the Arbitrator who awarded interest. It can not be said that there is any error in the award of interest by the Arbitrator. The objection of the Union of India to claim No. 8 is, thereforee, rejected.

(4) In the contract documents it is mentioned that white glazed tiles. are to be affixed with white cement slurry. Under the contract cement is one of the items to be supplied by the Union of India. Though it is mentioned that 1800 cement bags would be supplied and even the rate of Rs. 400.00 per M.T. is mentioned, it can not be denied that white cement was, . in fact, used. Mr. Bagai, learned counsel for Union of India submitted that the cement in the contract referred to only grey cement. But then Arbitrator has returned a finding that white cement was, in fact, used and that was at The instance of the Union of India and that no distinction was made between the white cement and ordinary cement in the contract. The Arbitrator was, thereforee, of the view that non-supply of white cement by the respondent Union of India was a failure at their hand. There is, thus, no error apparent in the reasoning of the Arbitrator and the objection of the Union of India to the claim No. 5 is also rejected

(5) Then the learned counsel for Union of India raised serious objection to the award of Rs. 3,48,840.00 in respect of claim No. 3. He stated that on this account the award was absolutely illegal. Before I deal with the contentions of Union of India it will be appropriate to refer to the background of the claim.

(6) In this respect clause 10(C) of the terms of contract is relevant. Under this clause, if during the course of the works the price of any material incorporated in the works and/or wages of labour increased as the direct result of the coming into force of any fresh law or statutory rule or order and such increase exceeded 10% of the price and/or wages prevalent at the time of the receipt of the tender for the work and the contractor pays in respect of that material such increased price and/or in respect of labour such increased wages then the amount of contract stands accordingly varied. It is subject to the condition that the increase which is paid, is not attributable to delay in the execution of the contract within the control of the contractor. There is another condition to the applicability of this clause that no reimbursement shall be made if the increase is not more than 10% of the said price/ wages and if so the reimbursement is only on the cost over 10% and there is yet another proviso that such increase shall not be payable if it has become operative after the contract or the extended date of the completion of the work in question. To claim the increase the contractor is also to maintain books of accounts and other documents to show the amount of any increased claim and the contractor is also required to give notice of such increase within a reasonable time. In the present case, the work was to start on 6-5-78 and the stipulated date of completion was 5-7-79. Thus the contract was to be performed within 14 months. According to the contractor the work was completed on 30th November, 1980 whereas the Union of India claim that the same has completed only on 31-7-82 It was claimed by Union of India that since a number of major and minor items of work were not completed by the contractor the Union of India rescinded the contract after giving a show cause notice to the contractor and the balance of the items of the contract were got done on the risk and cost of the contractor. In the show- cause notice to the Cont actor, the Union of India reserved its right to take action against the contractor under the terms of the contract for any losses that Union of India might suffer. Basing his claim on clause 10(C) the contractor claimed a sum of Rs 15.000.00 on account of increase of labour rates (claim No. 1) and further claimed a sum of Rs. 16,000.00 for increase in the rates of bricks and brick-tiles (claim No. 2). These two claims were allowed for Rs. 11,602.35 and Rs. 16,000.00 respectively by the learned Arbitrator. Union of India has not objected to the award of these amounts to the contractor. Under claim No. 3, as noted above, the contractor had claimed Rs. 4,00,000.00 basing again his claim under clause 10(C) of the contract on account of enhancement of the cost of other building materials. To this Mr. Bagai objects. Clause 10(C) is certainly not applicable in respect of claim No. 3. There was no statutory increase of any of the building materials forming subject matter of this claim and it is admitted case that conditions of clause 10(0 are not fulfillled. Yet the Arbitrator awarded a sum of Rs. 3,48,840.00 to the contractor under this claim. The arbitrator held that the delay in execution of the work was entirely due to the fault of the Union of India. The contractor had attributed this part of delay on account of non-furnishing of details of kitchen; not expediting the progress of electrical works; on account of late supply of drawings and designs, steel, tiles etc. The Arbitrator accepted the version of the contractor. As a matter of fact, if reference is made to a letter dated 28-8-80 of the Union of India to the contractor (Ex. R. 1) it is mentioned that electrical contractor had completed his work on the second floor more than two weeks back and that the contractor had not taken up the work of final finishing as yet. This shows that even after the stipulated date of the completion of the contract which was 5-7-79, the electrical contractor had not finished his work till August, 1980. In fact, it was not necessary for me to go into the merits of the case but both the counsel had referred to the record of the Arbitrator in detail. The Arbitrator noted that no extension of the time was granted to the contractor by Union of India and further that failure on the part of the Union of India to discharge its reciprocal obligations constituted breach of the contract. The Arbitrator also held that the rescission of the contract by Union of India was not justified in the facts and circumstances of the case. The Arbitrator then held that time was no longer the essence of the contract, as there was no extension of the time for completion of the contract. As Union of India claimed that the contract was not completed by the contractor the Arbitrator brought in the principle of quantum meruit but at the same lime the arbitrator was of the view that it was Union of India which had failed to discharge its obligations under the contract resulting in delay of nearly 15 months which in turn compelled the contractor to do the work beyond stipulated period. He, thereforee, held that Union of India was liable to pay to the contractor the losses suffered by him as he had to purchase the material at an extraordinary higher rate. The Arbitrator calculated the damages, at Rs. 3,48,840.00 . Mr. Bagai submitted that once it was held that the claim did not fall under clause 10(C), it had to be rejected and the Arbitrator could not award damages on general principles or on the principle of quantum meruit. He referred to a decision of the Supreme Court in Alopi Pershad and Sons Ltd. v. Union of India, 196C(2) Scr 793 where the court held that the award which ignored the express terms of the contract prescribing the remuneration payable could not be justified as proceeding on the basis of quantum meruit and that compensation quantum meruit might be awarded for work done or services rendered only when the price thereof was not fixed by a contract and for work done and services rendered pursuant to the terms of contract compensation quantum meruit could not be awarded where the contract provided for the consideration payable in that behalf. Perhaps the concept of quantum meruit was not strictly applicable in the present case but then I do not find that the Arbitrator went wrong in awarding the amount Under this claim on the basis of the general principles of law. Mr. Bagai also referred to another decision of the Supreme Court in Orissa Mining Corporation Ltd. v. Mis. Pran Nath Vishwa Nath Rawlley : [1978]1SCR285 where the court held that where the Arbitration was through intervention of the Court, the Arbitrator could not enlarge scope of the reference and that the Arbitrator entertaining fresh claim put before him would be exceeding his jurisdiction. I am, afraid this judgment is not applicable in the present case before me. In the claim before the Arbitrator the contractor claimed the amount of Rs. 4,00,000.00 on account of 'increase in the cost of material Us per clause 10(C)' and, thereafter the claim was calculated on the basis of difference between the rates prescribed by Delhi Schedule of rates of 1974 and 1977 and also on the basis of the difference of rates between 1977 and that accepted by the Department in other contracts. In the reply the Union of India wanted particulars of the claim and in rejoinder the contractor stated that in his letter to the Union of India which is dated 17-9-1979 (Ex C-6) he had clearly stated that there was rise in the cost of building material in consequence of 1979-80 budget estimates and the increase in the price of various items including tiles and brick tiles. He also referred to two contracts awarded by the Union of India during the relevant period, one of which was awarded at a price which was 31,47% above 1977 Delhi schedule of rates and the other at 29.75% above the 1977 Delhi Schedule of rates. The contractor had clearly set up the case that though' clause 10(C) in terms did not apply he should be given compensation due to increase in the cost of building material in the work executed by him beyond the scheduled date Of completion. Mr. Kuumar, learned counsel for the petitioner, also referred to the summary of proceedings before the Arbitrator. This would also show that the parties were never in doubt about the scope of the claim put forward by the contractor under claim No. 3. Mere labelling a claim under clause 10(C) would 'not defeat that claim. 'I Can not take too technical a view of the miter to upset the award:

(7) In the reply, Mr. Kumar submitted that the award was not erroneous in anyway and that I was not sitting as a court of appeal to reappraise the evidence led before the Arbitrator. He .said the jurisdiction' of the court is : extremely limited irrespective of the fact that the award in question was a speaking award He said that ihe right to claim damages suffered by the contractor in the fault committed by the Union of India could not be denied to him and that his claim was sustainable both in law and facts of the case. Mr. Kumar referred to a Division Bench decision of this court in M/s. Metro Electric Co. v. Delhi Development Authority AIR 1980 Del 266 .In this case the work was to be completed by a particular date, but the contractor could complete only a small part of the work by that date on account of the fact that it was because the building was not available to the Contractor for carrying out the work which was electrical. The contractor, thereforee, claimed damages due to increase in price of the items during the period when the contract was to be completed as originally fixed and when actually completed. It may be noted that the provision of Clause 10(C) were sought to be brought into operation by the Delhi Development Authority. The award of damages by the Arbitrator was upheld by the court. It was held that Clause 10(C) presumed that the contract was completed during the agreed period of the contract and was applicable only during the course of the work within that period. This judgment is quite opt in the present case. Then Mr.: Kumar referred to a decision of Avadh Behari, J. in Suit No. 222-A/74 in M/s. Salwan Construction Co. v. Union of India decided on 10th May, 1977. In this case, it was a non-speaking award of damages to the contractor on his claim that though the time for completion of the contract had expired the work could not be completed, by the stipulated date because of breach of contractual obligations on the part of the Union of India. The contractor said that since the time had expired the work could not be continued except on increased rates as per the price prevalent in the market. The delay was held to be on the part of the Government in giving possession of the site to the contractor and in the supply of drawing and for some time the work also remained suspended by reason of some acts and omissions of the Government. On the question of award of damages the learned Judge said that the normal rule for computing damages for breach of contract was the difference between the contract price and the market price of the goods at the time when the contract was broken. The learned Judge further observed; 'Builder's claim was that the Government was in breach of the contract. They were entitled to stop the work. Instead they went on with the work and did not treat it as repudiation of the contract. The measure of damages is the loss of profitability or added expenditure of the work carried out and completed by the Builders'. The claim of the contractor to recover damages for delay caused by the department was upheld. This judgment fully applies to the facts of the present case before me and I am quoting with advantage the following paragraphs from this judgment :--

'NOW to sum up. Compensation is given for loss suffered owing to a breach of contract. The principle is that the injured party should be put as nearly as possible in the same position, so far as money can do it, as if he had not been injured. The test by which the amount of damages is ascertained is called the measure of damages. Take this very case. The claim before the Arbitrator was for compensation. It was founded on the ground that the builders 'had to bear the burden of additional cost of execution'. This what the reference by the Chief Engineer says. If there is an increase of expense in the performance of Works because of the breach of contract on the part of contract-breaker the measure of damages will be the compensation to cover up the increase of expense or additional cost of execution. This is the loss suffered by the builders. The Arbitrator thought that they are entitled to compensation. He awarded a lumpsum which in his judgment and discretion he thought to be right. This, in short, is the whole case '

I may also note that this judgment of Avadh Behari, J. was upheld in Appeal in F.A O. (OS) No. 29/77 decided on 20th March, 1981.

(8) I would, thereforee, reject the objections of Union of India to this claim No. 3 as well.

(9) In the result the award dated 15-1-1983 is made rule of the court and a decree in terms thereof is passed. The Union of India is granted two month's time to make payment of the decretal amount. If the payment is made within this period no interest will be payable to the petitioner by the Union of India. In case the payment is not made within two months then the petitioner will be entitled to interest @ 12% per annum on the amount of the decree from the date of the decree till realisation. The petitioner will also be entitled to costs of this petition. Counsel's fee Rs. 500.00.


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