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Municipal Corporation of Delhi Vs. R.N. Ghanerkar - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 27 of 1972
Judge
Reported in17(1980)DLT482
ActsContract Act, 1872 - Sections 74; Arbitration Act, 1940 - Sections 16
AppellantMunicipal Corporation of Delhi
RespondentR.N. Ghanerkar
Advocates: B.P. Bansal,; B.R. Sabharwal and; C.M. Oberoi, Advs
Cases Referred(See Union of India v. Roman Iron Foundry
Excerpt:
.....penalty for late payment and the rate of damages provided was excessive amount to penalty and not liquidated damages - it was held that the arbitrator or the court must apply its mind ascertaining the reasonable compensation to be awarded to the claimant. - - (4) the corporation, however, took objections to the award and went to the court where the matter remained pending till there was a consent order and the award was made a rule of court on 24.7.1963. it would appear that as per increases which were given by the arbitrator, payment both for work which had already been done earlier and also that which was done subsequent to october 1962 were made some time in june 1963. the final bill was submitted on 4.10.1963 and the payment was made on 30.9.64. the contractor, however, not being..........account of the claim for late payment calculated @ 1 /o per day. it is true that the award of the learned arbitrator is a non-speaking one. but as he has referred to the documents of the claims filed by the respondent and on that account has awarded an amount of rs. 87,177.00 there is no manner of doubt that the reason for award of that amount is the acceptance of a claim for payment calculated at the rate of 1 /o per day for each day of delay. this error is obviously one on the face of it because it cannot now be disputed that simply because an amount is mentioned as a liquidated damages the party is automatically entitled to the said amount. the award of damages at the rate of 365 per cent on the late payment is unsustainable and that for an arbitrator to have awarded it is without.....
Judgment:

Rajindar Sachar, J.

(1) This is an appeal against the order of the learned Single Judge by which he rejected the objections of the Municipal Corporation and made the award a rule of Court and directed that a decree be passed in accordance with the Award. The respondent entered into a contract with the. appellant for carrying out the work of laying pipes, sewers between Barapur Nala and Cornwallis Road) New Delhi by acceptance of tender dated 31.12.1959. After having worked for some time disputes arose between the parties and a supplementary agreement dated 26.4.1962 was executed between the parties. By one of the clauses of agreement it was agreed that the rates for the remaining unfinished work shall be increased from the rates mentioned in the contract as shall be determined by the arbitrator to be appointed by the parties. Clause 2 provided that the Corporation shall pay to the contractors increases in the rates as may be allowed by the Arbitrator and all such payments in respect of the increase in the rates shall be made within one month from the date of award.

(2) Clause 6 of the supplementary agreement on which most of the agreements were made reads as under : Clause 6:

'THECorporation shall make payment to the contractors for the unfinished work which the contractors shall execute within fifteen days after the measurements thereof, are taken and that such measurements shall be taken at intervals of not more than a month and if such payments are withheld beyond the said period of 15 days the Corporation shall pay to the contractors as and by way of liquidated damages a sum equal to the one per cent per day of the amount of such bills due for each day of such delay and the contractors shall be at liberty to stop work in case the Corporation shall commit a default in observance and performance of any of the terms and conditions of these presents and that the contractors shall not be responsible to the Corporation in any way for such stoppage of work by the contractors.'

(3) M.C.P. Malik, a retired Chief Engineer, was appointed an arbitrator to give an award and on 26.10.1962 he gave an award determining 23% as increase over the old rates.

(4) The Corporation, however, took objections to the award and went to the Court where the matter remained pending till there was a consent order and the award was made a rule of Court on 24.7.1963. It would appear that as per increases which were given by the arbitrator, payment both for work which had already been done earlier and also that which was done subsequent to October 1962 were made some time in June 1963. The final bill was submitted on 4.10.1963 and the payment was made on 30.9.64. The contractor, however, not being satisfied that he had received full dues filed an application under Section 20 of the Arbitration Act and this Court by its order of 9.8.1967 referred the disputes between the parties to Mr. A.N.Kirpal, a Senior Advocate of this Court. Before the arbitrator the respondent claimed various amounts. The only item which now concerns us is the claim on account of having executed some extra work, more important was the claim for liquidated damages payable under the terms of the contract on account of the delay in making the payment. Claim No. 3 dealing with this aspect gave the details which was specified in annexure 'E' to the claim. The arbitrator by his award dated 29.4.1970 allowed to the respondent amount of Rs. 21,800.00 for its claim under the head of extra work and also directed the payment of the liquidated damages in the amount of Rs. 87,177.00 and further directed the appellant to pay the outstanding security deposit of Rs. 2,382.00 . The Corporation raised of objections to the award and filed an application under Section 30 of the Arbitration Act. The learned Single Judge rejected the objections and made award a rule of court and Corporation has now come up in appeal.

(5) The first contention raised by Mr. Bansal, the learned counsel for the appellant, is that payment on account of extra work allowed by the arbitrator is without any evidence and though he concedes that extra work was done but says that the payment had already been made. This is an argument asking us to look into evidence and make our own assessment which it is not open in law for us to do. That matter was within the jurisdiction of the arbitrator and we cannot sit over it as a court of appeal. The mere formidable objection seriously passed before the learned Single Judge and also before us relates to the payment of liquidated damages in the amount of Rs. 87,177.00 . The first objection made to this amount is stated to be that this amount included the damages for delay in payment of increased rate prior to the giving of award by Mr. Malik on 26.10.1962. The learned Single Judge negatived this and in our opinion rightly. He referred to the details of the Claims given in annexure 'B' of the application. Out of this a claim of Rs. 2,33,395.62 was made to be on account of the delay of 210 days in payment of the increased amount awarded by Mr. Malik. The amount claimed is prior to the award of Mr. Malik, and work had been completed earlier to the appointment of an arbitrator. There was another item of Rs. 2,12,125.00 claimed on account of the delay in the return of the security deposit. Another 5 items totalling Rs. 87,177 for which damages were claimed were on account of the delay in the payment of increased rate for the work done by the contractor after the award had been give by Mr. Malik. The details given in annexure 'E' to the claim application of this amount of Rs. 87,177.00 show that the due dates of payment are all mentioned at subsequent to December 1962 by which time the award of Mr. Malik giving the increased rate had been given. Payments were made on 26.4.1963 when the Corporation withdrew its objections to the award of Mr. Malik. Now the arbitrator has only awarded a sum of Rs. 87,177.00 as damages, out of a total claim of damages of Rs. 5,23,698.00 . The complete identification of claim of Rs. 87,177.00 unmistakably shows that damages have been awarded only on account of delay in payment beyond December 1962. The calculation has been done in terms of Clause 6 which required measurements to be done once a month and payments to be made within 15 days failing which liquidated damages at a sum equal to I /o per day of the amount of such bills due for each day of the delay has to be paid by the Corporation. It is not disputed by Mr. Oberoi, the learned counsel for the respondent that the calculation for the payment of Rs. 87,177.00 has been made taking 'this rate of 1/o per day on the delay of payment of the bills beyond 15 days after the measurement was taken. Mr. Bansal has raised the objection that the liquidated damages for the delayed payment works out an interest rate of 365% per day on the due amount and is deafly in the nature of penalty and there was thus an error on the face of the award and the learned Single Judge acted illegally in not giving relief on this point. The learned Judge before whom this point was raised however brushed it aside summarily by observing that in the award of liquidated damages, proof of any special damages suffered is not necessary to be established, as a matter of law. Apparently the learned Judge seems to have proceeded on the view of the law that if the contract .mentions a particular amount of liquidated damages then the courts have no option but to award that very amount even if it is in the nature of penalty and is even excessive to the point of being unconscionable. In this view, the learned Judge, we say so with respect fell in serious error of law in ignoring the clear provisions of Section 74 of the Contract Act. It is by now well settled that even if there is a stipulation by way of liquidated damages which is in the nature of a penalty a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him) the stipulated amount being merely the out side limit (See Union of India v. Roman Iron Foundry : [1974]3SCR556 . It is also well settled that the sum named is not conclusive i.e., if there be evidence or circumstances showing that it is excessive the court will not consider itself fooi nd by it. The Court has to adjudge in such a case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach. If there be an agreement to pay a sum of money by a particular date with a condition that if the money is not paid on that date, a larger sum shall be paid, that condition is in the nature of a penalty against which a court will grant relief and award to the plaintiff such damages as he has suffered by the non-performance of the contract. It is also by now not open to doubt that the award of an arbitratrator can be set aside on the ground of an error on the face thereof when the extent of the jurisdiction of the court to set aside an award on the ground of an error in making the award is well-defined. The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous. If, however, a specific question is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award had on its face so as to permit of its being set aside. The arbitrator in his award has specifically referred to the claim for various items made by the claimant and has made a specific reference to the claim as well as to the documents filed along with it. It is thereforee permissible for the court to make a reference to annexure 'E' which shows that the amount of Rs. 87,177.00 was on account of the claim for late payment calculated @ 1 /o per day. It is true that the award of the learned arbitrator is a non-speaking one. But as he has referred to the documents of the claims filed by the respondent and on that account has awarded an amount of Rs. 87,177.00 there is no manner of doubt that the reason for award of that amount is the acceptance of a claim for payment calculated at the rate of 1 /o per day for each day of delay. This error is obviously one on the face of it because it cannot now be disputed that simply because an amount is mentioned as a liquidated damages the party is automatically entitled to the said amount. The award of damages at the rate of 365 per cent on the late payment is unsustainable and that for an arbitrator to have awarded it is without any doubt an error on the face of the award. The learned Single Judge before whom this point was raised however brushed it aside on the erroneous view of law that he cannot interefere with it because the liquidated damages was specified in it, unless as already mentioned above there was legal mistake.

(6) Mr. Oberoi had seriously sought to contend that the damages of Rs. 87,177.00 was not only on account of delay in payment of the increased rate subsequent to the award but was on over all basis on account of various amounts which had been claimed by the respondent. This, however, is contrary to record because the arbitrator has awarded the amount of Rs. 87,177.00 which is the exact amount of the 5 items for delayed payments at the rate of 1 /o per day. Now thereforee though the claimants was certainly entitled in terms of Clause 6 to the damages for late payments the amount stipulated therein that is @ I /o per day of the amount was unconscionable and was in the value of penalty and cannot be upheld. It is true that this agreement was entered into by the Municipal Corporation and the question of undue influence could hardly arise. It is also true that it is little odd that the Corporation should have agreed to enter into such an obvious and patent unsustainable rates of damages on the payment being delayed beyond 15 days. Be that as it may, the arbitrator has apparently proceeded on the footing that the liquidated damages proved by Clause 6 was stipulated and could not be reopened by him. In this he has committed a patent illegality. He has thus because of having taken this view of law not applied his mind to as to what amount of liquidated damages as reasonable compensation should have been awarded to the respondent. The learned Judge also fell into the same error. There has thus not been any mind applied by the arbitrator on the important aspect of what reasonable compensation should have been awarded to the respondent. The award of compensation at the rate fixed in the agreement was obviously so penal that the same cannot be sustained in law. We are, thereforee, satisfied that the award suffers from patent illegality on this aspect and we would, thereforee, allow the appeal; set aside the order of the learned single Judge and remit the award to the arbitrator. We would also direct that the arbitrator will submit his report to this Court within two months from the date the papers are received by him. The parties through their counsel are directed to appear before the Deputy Registrar on 21.3.1980 who would forward the papers to Mr. A.N. Kirpal, an Arbitrator who gave the original award. The fee of the arbitrator for this additional work is fixed at Rs. 500.00 . As the point was not squarely put before the arbitrator and the learned single Judge by the corporation it is only proper that this extra fee which is being allowed to the arbitrator should not be born by the appellant. The matter is thus remitted to the arbitrator only on the point mentioned above. All other objections to the Award fail.


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