Delhi District Court
New Delhi Municipal Council vs M/S Krishan Murari Sharma And Sons on 30 July, 2025
IN THE COURT OF MR. SATYABRATA PANDA, DJ-04,
PATIALA HOUSE COURTS, NEW DELHI
Arbtn No. 7630/17
CNR. No. DLND01-014975-2017
DLND010149752017
IN THE MATTER OF:
NEW DELHI MUNICIPAL COUNCIL
THROUGH THE EXECUTIVE ENGINEER (BM-III)
PALIKA PARKING, CONNAUGHT PLACE,
NEW DELHI-110001
...Petitioner
Vs.
M/s KRISHAN MURARI SHARMA & SONS
THROUGH ITS PARTNER SH. RAJ KUMAR SHARMA,
A-2/144 JANAKPURI, NEW DELHI-110058
...Respondent
Date of Institution: 17.11.2017
Date of Arguments: 10.07.2025
Date of Judgment: 30.07.2025
JUDGMENT
1. The petitioner has filed the present petition u/s. 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter
referred to as the ‘A&C Act’) for setting aside the arbitral
award dated 21.08.2017 passed by the Ld. Sole Arbitrator,
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Mr. S.K. Sarvaria, District & Sessions Judge (Retd.),
Delhi.
2. The brief facts of the case are that the petitioner had issued
a tender for the work of “Improvement to Palika Niwas
Housing Complex, Lodhi Colony” which was awarded to
the respondent/contractor on 14.10.2009. The work was to
commence on 20.11.2009 and was to be completed within
15 months i.e. by 19.02.2011. However, there was delay in
completion, and the work was actually completed on
09.11.2011, and the final payment was made on
29.08.2013. Due to the prolongation of the contract period,
disputes arose between the parties. The
respondent/contractor raised its claims and the matter was
referred to arbitration in terms of the arbitration agreement
between the parties. Vide order dated 22.08.2016 in Arb.
Petition No. 398/2015, the Ld. Sole Arbitrator was
appointed by the Hon’ble High Court of Delhi, and the
arbitration proceedings were conducted under the aegis of
the Delhi International Arbitration Centre. The
respondent/claimant filed various claims before the Ld.
Arbitrator, and, vide the impugned arbitral award dated
21.08.2017, some claims were allowed, some were partly
allowed, and some were rejected.
3. The details of the claims raised in the arbitration
proceedings and the eventual amounts awarded by way of
the impugned award are as under:
S.No. Claim No. & Amount Amount
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Description Claimed Awarded
1. Claim No.1 Rs.20,00,000/- Rs.3,29,479/-
A sum of Rs.20,00,000/-
on account of balance
payment for the work
executed under the
contract including
additional work, extra
work and extra
involvements etc. But
not paid/short paid in
quantities/rates and also
made
reduction/deduction/dele
tion in the alleged final
bill for the
quantities/rates already
paid.
Claim 1.1 Rs.9,450/-
Illegal recoveries
Claim 1.2 Rs.29,570/-
For not conducting
quality tests
Claim 1.3 Rejected
Hacking of stone
Claim 1.4 Rs.2,90,459
Unjustified reduction in
prices
Claim 1.5 Rejected
Kota stone
Claim 1.6 Rejected
Extra work of mortar
Claim no.1.7
Mortar Work Rejected
2. Claim No.2 Rs.35,10,252/- Rs.35,10,252/-
A sum of Rs.36,00,000/-
towards payments due
under Clause 10-c of the
agreement but not paid.
3. Claim No.3 Rs.80,000/- Rs.80,000/-
A sum of Rs.80,000/- on
account of illegally, un-
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contractually and
arbitrary reduced the
quoted rates.
4. Claim no.4 Rs.20,000/- Rejected
A sum of Rs.20,000/-
towards balance
payment of testing
charges.
5. Claim No.5. Rs.14,14,430/- Rs.14,14,430/-
A sum of Rs.15,00,000/-
on account of
damages/compensation/l
osses on account of staff
establishment, overhead,
centring/shuttering and
T&P machineries due to
breach of Contract
committed by the
department.
6. Claim No.6 Rs.20,00,000/- Rs.7,91,000/-
A sum of Rs.20,00,000/-
towards escalation in
construction cost due to
market inflcation for the
work executed beyond
the stipulated period of
contract on account of
breach of contract
committed by the
department.
7. Claim No.7 Declaratory Rejected
The liability of the Award
service tax under the
aforesaid contract, if
any, demanded (later on)
by authority concern
should be reimbursed as
per the provision of
contract.
8. Claim No.8 Rs.2,12,894/- Rs.2,12,894/-
Compensation by the interest @
way of interest @ 18% 18%
p.a on account of
delayed payment of the
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final bill/security
deposit/withheld
amounts from the due
date(s) till the date of
realisation.
9. Claim No.9 Interest @ Rs.24,24,306/-
Claim to interest @ 18% 18% p.a
p.a for the amounts due
for pre-reference
pendentilite and future.
4. Being aggrieved by the impugned arbitral award, the
petitioner has filed the present objection petition.
PETITIONER’S SUBMISSIONS
5. During the course of submissions, Ld. counsel for the
petitioner has confined his arguments only on the
challenge to the arbitral award in respect of award of the
following claims only:
i. firstly, in respect of the Claim No.2 which was
awarded towards payments under clause 10(C) of
the contract due to increase in the statutory
minimum wages;
ii. secondly, in respect of the Claim no.5 which
was awarded towards damages and compensation
for the delay;
iii. thirdly, in respect of the Claim no.6 which was
awarded towards price escalation during the
extended period;
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iv. fourthly, in respect of the award of interest.
6. It is submitted that the approach of the Ld. Arbitrator in
awarding these claims was not only unjust, arbitrary and
capricious, but was also in conflict with the public policy.
7. Ld. counsel for the petitioner has made his submissions as
well as has filed the written arguments summarising the
oral submissions made. The submissions of the ld. Counsel
for the petitioner in respect of the award of Claim No.2
under Clause 10C of the contract, as summarised in the
written arguments, are extracted hereunder:
“4. Unjust and unreasonable treatment of the
object and purpose of prescribing Clause 10C, to
ensure (actual) payment of the increased statutory
wages to the labourers:
a) The Claimant-Respondent had raised the
claim under the aforesaid head as Claim no.2 in its
Claim Petition, there-under claiming an amount of
Rs.35,10,252 (~ Rs.36 Lacs), which has been
accepted and awarded by the Ld. Arbitrator in its
entirety.
b) In this regard, it is submitted the said
provision is a labour-welfare provision and is not
meant for the unjust enrichment of the contractor(s).
Therefore, in all fairness, to be eligible to be
reimbursed such increased labour-wage, the
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contractor mustn’t merely establish that there was an
increase in such statutory-wages at the relevant time,
but should also establish that the benefit of such
increased wage was actually passed on to the
labourer(s).
c) The relevant statutory documents which
record the (actual) payment of such increased wages
to the labourers, i.e. the labour register, muster-roll
and certificate to that effect issued by the Labour
Department of the Government of NCT of Delhi etc.
were called for by the Executive Engineer of the
Petitioner in terms of his communication dated
05.09.2014 [Annexure P-8 @ Pg.222 of the paper-
book] addressed to the Respondent-Contractor;
however, it failed to produce the said documents.
Instead, the Respondent has relied on the various
Fortnightly Labour Reports (or ‘FLRs’) [Annexure
P-7 @ Pg.208-221] to substantiate its said claim.
d) A perusal of the said FLRs would show that
(these are general pre-printed stationary/ forms)
which merely record the number of labourers
deployed in a given period to facilitate the release of
Running-Account (or ‘R/A’) payments on an ad-hoc
basis to ensure availability of adequate funds with
the contractor to complete the project, subject to
final reconciliation; and, also to have an indication
of the pace of work and the balance work remaining.
It neither has the break-up of the categories of labour
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deployed, nor does it carry the name, details etc. of
the purported beneficiaries. Thus, the presence or
absence of the local A.E./ J.E. would have no
consequence vis-à-vis the proof of payment of
enhanced wages to the labourers.
e) However, notwithstanding the vehement
opposition in this regard, the Ld. Arbitrator has
arbitrarily returned the finding qua the said FLRs
-instead of the requisite labour register, muster-roll
and certificate by the Labour Department- being
sufficient to establish payment of such increased
wages to the labourers. [To refer to the said
discussion/finding rendered in the impugned award,
see Pg. 135-138 of the paper-book].
f) The Ld. Arbitrator failed to appreciate that the
Fortnightly Labour Register is signed by the
concerned A.E/J.E. merely in acknowledgement of
the number of labours deployed at the site
fortnightly for keeping pace of the work and is not
certification of the payment made by the Contractor
to such labour, which is made on daily basis. The
A.E./J.E. neither supervise nor certify the actual/any
enhanced payment made by the contractor to the
labour. There is no deemed fiction in respect of the
payment of such increased wages to the labourers
since such payments may not actually be made for
various reasons, such as labour contract between the
Respondent-contractor and the labour-contractor
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being a fixed-wage contract; for the reasons of the
labour being under the monthly-employment
contract; or due to their not being literate enough to
know their rights, that too within days or months of
its issuance of such enhancement order, in which
case the benefit of enhancement of such minimum
wages does not actually get passed-on to the
labourers. It is for this reason that the employment-
registers/muster rolls and certificate of payment of
increased wages being issued by the Labour
Department, GNCTD, are the requisite documents to
put any dispute to rest. The Respondent, admittedly,
neither has in its possession, nor has it produced the
afore-said documents.
g) The requisite documents, admittedly, neither
being available with the Respondent, nor being filed
by it, the Respondent could not have arbitrarily held
to be eligible for the award by the Ld. Arbitrator.”
8. The submissions of the ld. Counsel for the petitioner in
respect of the award of damages and compensation under
Claim No. 5 and the award of escalation under Claim
No.6, as summarised in the written arguments, are
extracted hereunder:
“5. Arbitrary and unjust award of damages/
compensation/escalation in cost to the Respondent,
contrary to the legal precedents:
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a) The Claimant-Respondent had raised the
claim under the aforesaid head as Claim nos.5 and 6
in its Claim Petition, there-under claiming an
amount of Rs.34,14,430 (Rs.35 Lacs), i.e.
Rs.14,14,430 and Rs.20,00,000, respectively; which
has been partially accepted by the Ld. Arbitrator,
against which anamount of Rs.22,05,430 (being
Rs.14,14,430 and Rs.7,91,000, respectively), stands
awarded under the impugned contract.
b) In this regard, it is submitted that the Ld.
Arbitrator failed to appreciate that the contract was
escalation-proof as such it did not provide for any
damages on account of staff & establishment or on
account of escalation in cost.
c) Moreover, it is a matter of record that being
unable to complete the contracted work within the
stipulated time-period, the claimant sought extension
of time (EOT) under clause 5 of the agreement
[Annexure P-9 @ Pg.223] as it had failed to
complete the contracted work by the due date. In
support of his request, the claimant also filed an
undertaking dated 26.09.2013 [Annexure P-10 @
Pg.225] to the effect that, if the EOT is granted
without any penalty or levy, it shall not claim any
compensation or damages whatsoever on account of
such extension of time, cost escalation etc.Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 10 of 76
d) Consequently, in view of such request &
undertaking, the competent authority of the
respondent granted extension of time to the claimant
for completion of the contracted work without levy
of penalty, otherwise payable under clause 2 of the
agreement.
e) As such, the said undertaking executed by the
claimant acts as an estoppel against it and the
claimant stands precluded from raising any claim in
this regard, like escalation, establishment charges
during extended period etc. Moreover, in terms of
the Doctrine of Election, the Respondent-Claimant
having taken the corresponding advantage by avoid
penalty/ levy under Clause 5, it cannot insist on
sustaining its corresponding claim. In the
circumstances, the claimant’s right(s), if any, stands
waived & acquiesced in terms of such an
undertaking. Thus, no cause of action arises in
favour of the claimant to stake the present claim. As
such, the claim petition was liable to be rejected.
In this regard, reliance is placed on the decision of
the Hon’ble Supreme Court in the case of Cauvery
Coffee Traders vs. Hornor Resources, reported in
(2011) 10 SCC 420 [Para 33 to 35].
f) The Ld. Arbitrator has brushed aside the
argument of the Ld. Counsel for the Petitioner by
relying on the purported economic duress/ coercion
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under which the undertaking may have been
furnished [Relevant portion of award @ Pg.141-
149], thereby completely ignoring the aforesaid
Doctrine of Election, which is an exception. to such
claim of economic duress/ coercion, even while it is
a matter of record that the Respondent had
voluntarily ELECTED to the take corresponding
advantage, to the detriment of the Petitioner. Having
done so, the claimant cannot now deny the
corresponding advantage to the Petitioner.
g) Even otherwise, no books of account or bills
regarding the claimant/contractor having paid such
enhanced amount for purchase of the material has
been placed on record, yet the Ld. Arbitrator has
accepted the contention of the claimant-contractor
on its face value. Moreover, the Ld. Arbitrator has
considered the amount of work done by the claimant
during the extended period at Rs. 1 Crore and
accordingly granted Rs.7.91 Lacs @ 7.91% increase
in material cost. However, as per record the claimant
had actually undertaken work for Rs.52,54,122 only
during the extended period. [Refer: Annexure P-11
@ Pg.227]
h) The brushing aside of the well-settled doctrine
of election and the adoption of the aforesaid
imaginative figure of Rs.1 Crore, both, without any
rational or basis renders the impugned award to be
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an arbitrary and capricious exercise of power by the
Ld. Arbitrator.”
9. The Ld. Counsel for the petitioner has also filed additional
written submissions, in which it is contended that the
Claim no. 2 towards increased wages and the Claim No.5
towards damages/compensation/losses overlapped with the
Claim no. 6 towards escalation in construction cost due to
alleged market inflation for the work carried out beyond
the stipulated period of agreement.
10. It is further submitted that even otherwise Claim no. 5
towards damages/compensation/losses was liable to be
rejected in the absence of material to prove the said claim
or to indicate that the contractor would have earned profit
on the value/work. It is submitted that no material had
been placed on record to show that if the contract had not
been delayed, the respondent/claimant would have been
gainfully employed in any other profitable contract. In this
regard, reliance is placed on the decision dated 20.11.2014
of the Hon’ble High Court of Delhi in FAO (Comm.) No.
169/2023 entitled as MCD v. Sh. Satya Pal Gupta.
11. The submissions of the ld. Counsel for the petitioner in
respect of the award of interest, as summarised in the
written arguments, are extracted hereunder:
“6. Arbitrary and unjust award of interest @18%,
contrary to the statutory provision:
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a) The Claimant-Respondent had raised the
claim under the aforesaid head as Claim nos.8 and 9
in its Claim Petition, claiming award of interest
@18% for the period of delay in payment, as well as
pre-reference, pendentlite and future interests, which
has been accepted and awarded by the Ld. Arbitrator
in its entirety.
b) In this regard, it is submitted that in his
impugned award, the Ld. Arbitrator has awarded rate
of interest as high as 18% for the delay, as well as
for pre-reference, pendentilite and future interests,
which is excessive, especially considering the
provision prescribed under section 31(7)(b) of the
Act, as well as the fact that the Petitioner herein is
not a commercial entity involved in commercial
transactions for-profit, but, a statutory municipal
body funded by the public exchequer.
c) It is further submitted that Section 31(7)(b) of
the Arbitration and Conciliation Act, 1996 (as
amended), prescribes interest … two per cent higher
than the current rate of interest prevalent…. to be
awarded (even in commercial contracts), which is
not the case at-hand.
d) Therefore, the award of interest @18% vide the
impugned award being without any rational or basis
is arbitrary and highly unjust.”
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12. Ld. counsel for the petitioner has further submitted that the
award of interest was against the provisions of the
contract. It is submitted that despite there being Clause no.
29 of the Agreement specifically stipulating that no
interest will be payable upon earnest money and security
deposit or amounts payable to the respondent/claimant, the
Ld. Arbitrator erred in allowing the claim towards interest.
It is submitted that the Ld. Arbitrator failed to appreciate
that when the agreement between the parties barring
interest on amounts from cause of action to the date of
award, the Tribunal was bound by it and could not have
awarded interest. In this regard, reliance is place on the
decision of the Hon’ble Supreme Court in UOI Vs. Bright
Power Projects (India) Private Ltd. (2015) 9 SCC 695.
RESPONDENT’S SUBMISSIONS
13. On the other hand, Ld. Counsel for the respondent has
supported the impugned award and has submitted that the
Ld. Arbitrator has passed a reasoned award after carefully
considering the evidence and material on record, and that
the impugned award does not call for any interference. It is
submitted that it is well settled that the scope of
jurisdiction u/s. 34 of the A&C Act is rather limited, and
that in the jurisdiction u/s. 34 of the A&C Act, the Court is
not sitting in appeal. It is submitted that even if the
decision of the arbitrator was only a possible view, then
the award could not be interfered with. It is submitted that
the arbitrator was the sole judge of the quality as well as
the quantity of evidence as well as was the master of the
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facts, the evidence and the law. It is submitted that the
objections raised in the present petition do not fall under
the ground of patent illegality u/s. 34 of the Act. On this
basis, it is submitted that the petitioner is liable to be
dismissed.
14. Ld. counsel for the respondent has also filed the written
arguments.
15. I have considered the submissions of the ld. Counsels for
the parties and I have perused the record.
DISCUSSION & FINDINGS
RE: AWARD OF CLAIM NO.2 TOWARDS PAYMENTS
UNDER CLAUSE 10-C OF THE CONTRACT
16. First, coming to the award by the Ld. Arbitrator of the
Claim No.2 towards payments under Clause 10-C of the
contract towards escalation in the wages.
17. It would be appropriate to extract the relevant portion of
the award awarding the Claim No.2, as under:
“Issues No. 3
In claim No.2 the claimant has claimed
the difference between statutory increase in
minimum wages of workers after submission of
Tender.
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The contention on behalf of the claimant is that this
claim emerges from Clause. 10C of the agreement
executed between the parties. It is argued that the
Tender was submitted on 13/8/2009 and the work
was to be completed on 19/2/2011but was completed
on 9/11/2011 for which the delay was condoned by
respondent. Reliance is placed upon fortnightly
report authenticated by the concerned Engineer of
respondent and it is pointed out that the payment of
wages were made more than minimum rates
prescribed by the Government, but the claim here is
at the rate of the prescribed minimum wages.
Therefore, it is argued that the claimant is entitled to
the amount of Rs. 36,00,000/- claimed here.
The claim No. 2 raised in statement of
claim is disputed by the respondent on the ground
that the claimant had not placed on record any
documentary proof of the payment of the enhanced
wages of labour. It is stated that as per Clause. 10C,
the claimant was required to prove all registers,
muster rolls, documents and certificate issued by the
Labor Department. Therefore, this claim according
to respondent is not maintainable. The argument on
behalf of respondent is that fortnightly reports relied
upon by claimant to show that increased minimum
wages were paid to the workers with the signature of
the engineer of respondent but these fortnightly
reports cannot be taken to establish authenticity of
payment of minimum wages to the workers. TheArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 17 of 76
claimant has failed to prove documentary evidence.
Therefore, labour charges were paid by respondent
in the final bill, at the minimum wages rates
prevailing at the time the contract was executed
between the parties. Reliance is placed upon M/S.
Hindustan Construction Corporation versus Delhi
Development Authority and Others FAO/(OS) No.
215/2002, decided on 17/4/2009 by Hon’ble
Division Bench of Delhi High Court.
I have carefully gone through the
respective contentions from both sides, pleadings
and documents placed on record and the authority
cited on behalf of respondent. In Hindustan
Construction Corporation‘s case (supra) relied on
behalf of respondent, the Clause 10C of the
agreement was in issue and it was held that it was
essential for the contractor not only to establish that
there was a statutory increase as a result of coming
into force of any fresh law or statutory rules or
orders which exceeds 10% of the wages prevailing
at the time of receipt of tenders for the work, but
also to establish that the contractor “thereupon,
necessarily and properly pays in respect of labour
engaged in the execution of the work such increased
wages”. It was also observed that documentary proof
of payment of increased wages is also essential to
sustain the claim under Clause. 10C. Therefore, the
decision of Ho’ble Single Bench was confirmed by
Ho’ble Division Bench of Ho’ble Delhi High Court.
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In the present case the Order No.F.12.
(140)/02/MW/Lab/5573, dated 3/3/2010, raising
within contract period the minimum wages under
Scheduled Employment under the Minimum Wages
Act, 1948 with effect from 1/2/2000 is placed on
page 77 of the undisputed documents of the
claimant. Even otherwise, in the present case the
minimum wages claimed to have been increased by
the claimant are not disputed by respondent, in
pleadings, evidence or arguments.
What is disputed by respondent is that
the claimant has failed to prove by documentary
evidence that minimum wages were actually paid by
claimant to the workers/labourers. Here, the
claimant has proved the fortnightly labour reports
(FLR) for relevant period submitted to the
respondent as Exhibit C-3 to Exhibit, C-33. The
documents Exhibit C-34, Exhibit C-35 and Exhibit
C-37 are the request letters of the claimant to the
respondent for payment of escalation amount under
Clause 10C of the agreement. It is also stressed on
behalf of claimant that the payments indicated in
Exhibit C-3 to Exhibit, C-33 were made under the
supervision of the respondent’s engineers as per
Clause 19, of the agreement. The documents Exhibit
C-3 to Exhibit, C-33 are the fortnightly reports of
the claimant submitted to the respondent which will
not only show the number of skilled and unskilled
workers employed by the complainant during the
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relevant period, but also the wages paid to them.
These fortnightly reports are not only signed b.
complainant/contractor, but also by junior engineer
assistant engineer of the respondent. The
authentication by Junior Engineer and Assistant
Engineer, who were present at the spot during
construction work, of these fortnightly reports, in my
view, gives great authenticity and genuineness to
these fortnightly reports Exhibit C-3 to Exhibit,
C-33. So, even if the wages register or record from
Labor Department are not produced, these
fortnightly reports, in my view, sufficiently prove
the wages paid by claimant to the workers during the
relevant period. In Hindustan Construction
Corporation‘s case (supra) there was no documentary
evidence produced by the contractor to show the
wages paid to the workers which is not so here. So
Hindustan Construction Corporation‘s case (supra)
does not help the claimant.
In view of the above discussion, I hold
that the claimant is entitled to the difference in the
wages of workers at the time of acceptance of tender
and the minimum wages increased by the
Government Of National Capital Territory during
contract period. Although the claimant has claimed
the sum amounting to Rs.36,00,000/- as per Clause.
10C of the agreement executed between the parties
but the document Exhibit C-37, dated 10/7/2014 of
the claimant along with the details of the breakup of
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this amount given at page 72 of the admitted
documents of the claimant show that the claimant
has demanded a sum of Rs. 35,10,252/- from the
respondent on this count. Therefore Issue No. 2 is
decided in favour of claimant to the effect that the
claimant is entitled to the sum of Rs. 35,10,252/-
from the respondent.”
(Emphasis supplied by me)
18. As seen from the award, there was no dispute between the
parties that the minimum wages had increased during the
currency of the contract and the quantum thereof was also
not in dispute. There was also no dispute that the
differential between the increased amount of minimum
wages and the amount of minimum wages at the time of
the tender was payable to the respondent/contractor by the
petitioner under Clause 10-C of the agreement. The only
dispute between the parties was with respect to whether
the claimant had proved through the documentary
evidence that the increased minimum wages were actually
paid by the respondent/claimant to the workers and the
labourers.
19. The Ld. Arbitrator has in the award referred to the relevant
documentary evidence led by the claimant being the
fortnightly labour reports Exhibit C-3 to Ex. C-33 for the
relevant period to hold that the claimant had proved that
the claimant had made payment of the wages to the
workers. The argument made on behalf of the petitioner
that these fortnightly labour reports could not have been
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relied upon to award the claim for escalation under Clause
10-C is wholly outside the scope of jurisdiction u/s. 34 of
the A&C Act, since this argument would essentially entail
re-appreciating the evidence. It is well settled that the
Court cannot in exercising jurisdiction u/s. 34 of the A&C
Act re-appreciate the evidence. The Ld. Arbitrator has
relied upon the fortnightly labour reports to conclude that
the claimant had been able to prove the payment of the
wages. The appreciation of the evidence was within the
jurisdiction of the ld. Arbitrator and there is also nothing
perverse in this finding of the ld. Arbitrator. Hence, the
award of the claim towards escalation of wages under
Clause 10-C does not call for any interference.
20. In this regard, it would also be appropriate to refer to the
decision of the Hon’ble High Court of Delhi in MCD v.
Satya Pal Gupta (supra), which has been cited by the
petitioner itself albeit with regard to the challenge to the
award of claim of damages. In MCD v. Satya Pal Gupta
(supra) also, there had been award of claim of escalation
based on increase in minimum wages based on a similar
Clause 10-C of the GCC. In the said case also, there was
no dispute that the minimum wages had increased and
there was also no dispute to the computation. In these
circumstances, the Hon’ble High Court upheld the
decision of the Ld. Commercial Court dismissing the
challenge u/s. 34 of the A&C Act on the ground that the
contractor had failed to produce any material to establish
that the enhanced wages had in fact been paid. The
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relevant portion of decision in MCD v. Satya Pal Gupta
(supra), in this regard, is extracted hereunder:
“22. The next question to be examined is the
consequence of the said delay. The Contractor had
claimed a sum of ₹10,21,016/- on account of
escalation resulting from the statutory wage
revisions. The Contractor had referred to certain
notifications issued by the Government of NCT of
Delhi to establish that there was revision in the
minimum wages in scheduled employment under
the Minimum Wages Act, 1948. The Arbitral
Tribunal had taken the said documents on record.
The Contractor had claimed that he was compelled
to pay the higher wages for execution of the work,
which was inordinately delayed for reasons
attributable to the MCD. He had also furnished a
statement of computation (Ex.CW1/78) quantifying
the said amount. The learned counsel for the MCD
did not dispute that the computation as provided by
the Contractor was in accordance with the formula
specified in Clause 10C of the GCC as applicable to
the Agreement. He however contended that the
Contractor had not produced any material to
establish that he had in fact paid the enhanced wages
to the extent of the aforesaid amount. He submitted
that the Arbitral Tribunal had awarded the said claim
without the necessary evidence.
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23. We are unable to concur with the said
contention. Concededly, the Contractor had placed
on record the material to establish that there was an
increase in the minimum wage rate in terms of the
various notifications issued under the Minimum
Wages Act, 1948.
24. The impugned award records that the Contractor
had produced the details of the gross amount, labour
component and the percentage increase, which were
worked out and shown as part of the extra expenses
incurred against each of the running bills. The
Arbitral Tribunal also noted that there was nothing
on record to contradict the said conclusion. The
MCD has not filed the documents that were placed
before the Arbitral Tribunal. It has also not filed the
copy of the relevant clauses of the GCC. However,
the learned counsel appearing for the MCD did not
dispute that Clause 10C of the GCC, as applicable to
the Contract in question required the escalation to be
computed on the assumption that 25% of the value
of the work would constitute the labour component.
It is also not disputed that calculating of escalation
under Clause 10C of the GCC was required to be
computed on the basis of the prescribed formula, on
normative basis. It was also not disputed by the
MCD that the said formula has been correctly
applied. However, it was contended on behalf of the
MCD that the Contractor has not produced books ofArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 24 of 76
accounts to prove that the increase in wages was
paid.
25. It is material to note that the learned counsel for
the MCD did not dispute the correctness of
observations of the Arbitral Tribunal that the MCD
had not controverted the calculation of the
computation of escalation under Clause 10C of the
GCC as filed by the Contractor. In view of the
above, since it is not disputed that the escalation was
required to be worked out on the labour component
of the work done and that the computation produced
by the Contractor before the Arbitral Tribunal was
not disputed, we are unable to accept that the
impugned award in regard to the award of escalation
is required to be interfered with. The learned
Commercial Court had rightly noted the limited
scope of examination under Section 34 of the A&C
Act. In the given circumstances, we are unable to
accept that the view of the Arbitral Tribunal can be
faulted on the ground that the same is perverse or is
an improbable one. In view of the above, the MCD’s
challenge to the award of escalation under Section
10C of the GCC is rejected.”
(Emphasis supplied by me)
21. In the present case, the only dispute was whether the
respondent/contractor had actually paid the increased
minimum wages to the workers. In this regard, the Ld.
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Arbitrator has come to the finding that the
respondent/contractor had been able to prove the payment
to the workers through the documentary evidence, i.e. the
fortnightly labour reports. A perusal of these fortnightly
reports shows that the same record the number of
workmen and the total payments made to them for the
relevant period. These fortnightly reports are also
countersigned by the engineers/representatives of the
petitioner. Thus, there is no perversity in the award of the
Claim No.2 towards the escalation in the wages. The
question of proof and the appreciation of evidence was
within the domain of the Ld. Arbitrator and if he has found
the fortnightly reports to be sufficient evidence to prove
that the payments were indeed made to the workers by the
claimant, then that is the end of the matter and there is no
scope for interference in exercise of jurisdiction u/s. 34 of
the A&C Act.
22. In view of the above discussion, the challenge to the award
of the Claim No.2 towards escalation of wages under
Clause 10-C is rejected.
RE: AWARD OF CLAIM NO.5 TOWARDS
DAMAGES/COMPENSATION FOR PROLONGATION
OF CONTRACT PERIOD.
23. Now, coming to the award by the Ld. Arbitrator of the
Claim No.5 towards damages/compensation/losses on
account of prolongation of the contract period.
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24. It would be appropriate to extract the relevant portion of
the award awarding the Claim No.5, as under:
“Issues No. 6
In Claim No. 5 the
damages/compensation/losses on account of
Respondent, leading to prolongation of the contract
period forcing the claimant to keep maintenance
staff, establishment, overheads, T and P machineries
with minimum required for performance of. The
undertaking dated 26/9/2013 given by the claimant
was given under economic and commercial duress
due to dominant position enjoyed by the respondent,
which was later withdrawn by the claimant, by letter
dated 2/1/2015 and also said undertakirg according
to claimant is not valid in the eyes of law as per
judicial decisions. The claimant has also relied upon
the following
Hudson Formula:
O.H. & Profit 100 X Contract Sum/Contract Period
X Period of delay = 7.5 /14,14,430/-100 X
Rs.3,14,31,790/- X 9 month = Rs. 15 month
It is argued on behalf of claimant that
the construction work, which was to be completed
within 15 months could only be completed in 24
months on account of delay arising due to
respondent’s fault. Although the delay was condoned
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by the respondent an undertaking under duress was
given by the claimant but the claimant is entitled to
expenses incurred by claimant for this nine-month
duration as per Hudson Formula given above.
Reliance is placed upon Macdormott international
Inc. Vs Burn Standard Co. Ltd. 2006(2) Arb.Law
498 S.C. ONGC Vs. Saw Pipe Ltd. 2003 IV AD
(SC) 254 and K.N.Sathyapalan (dead) by Lrs. Vs.
State of Kerala and Anr. 2006(4) Arb.LR 275 (SC).
It is also argued that the undertaking, dated
26/9/2013 was given under economic duress by the
claimant and this undertaking was withdrawn later,
by letter dated 2/1/2015 Exhibit C 40 by the
claimant.
Regarding Claim Nos.5, the case of the
respondent is that being unable to complete the
construction work within the stipulated time period,
the claimant sought extension of time under Clause
5 of the agreement. The claimant also filed an
undertaking, dated 26/9/2013 to the effect that it
shall not claim any compensation or damages
whatsoever on account of such extension of time.
The said undertakings executed by the claimant acts
as an estoppel against it and claimant stands
precluded from raising any claim in this regard, like
escalation, establishment charges during extended
period, et cetera. Reliance is placed upon Cauvery
Coffee Traders, Mangalore Vs Hornor Resources
(International) Company Limited (2011) 10- SCC
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420. It is also argued that this and the other claims
were not raised by the claimant when the contract
was alive, so these cannot be raised or adjudicated at
such belated stage. Therefore, it is argued that the
Claim No. 5 is not maintainable. Reliance is placed
upon MTNL VS.S.P.S.Rana OMP No. 654/2007
decided by Ho’ble High Court Of Delhi on 15th,
May, 2009.
I first take up the two technical issues
raised on behalf of respondent, i.e., (1). The claimant
did not raise the claim within the currency of the
contract and (2) the claimant has given undertakings
that he would not claim any amount from the
respondent. On the question of not raising this claim
and other claims by the claimant during currency of
the contract much reliance is placed upon MTNL’s
case (supra) wherein dispute was between lessee and
lessor. The lessee wanted to hand over possession of
the leased property to the lessor, who avoided it on
one pretext or the other. So Ho’ble Delhi High Court
held that the scope of the claim/dispute cannot be
enlarged to an extent that the disputes which were
never there during the currency of the contract,
suddenly are raked up as disputes. These
observations of Ho’ble Delhi High Court, in my
view, are applicable to be facts of that particular case
In the present case, it is not a dispute between lessor
and lessee regarding any possession of premises or
payment of rent. Here, the dispute is between the
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 29 of 76
claimant contractor and statutory body, NDMC.
Therefore, MTNL’s case (supra), in my view, is
distinguishable on facts and does not help the
respondent.
No statutory provision of law is shown
in support of this argument on behalf of respondent.
The disputes between a contractor and the
person/Authority getting the construction work done
through hira, in my view can be raised validly before
appropriate Forum within the statutory limitation
period from the date of accrual of cause of action, in
accordance with law. The raising of serious disputes
during contract period before the court of law or the
arbitrator during the currency of contract would not
be in the interest of either of the parties for the
simple reason that it may lead to stopping of the
construction work in the midway, thereby hampering
in midway the completion of the project. In a
commercial contract like this, the business acumen
and practical experience of parties should also play
the appropriate role. From the point of view of
claimant raising of serious dispute during currency
of the contract may lead to not clearing of, or with
holding of final and interim bills by respondent
besides stopping of the construction work midway.
From the point of view of the respondent raising of
the present disputes would have hampered the
project, leading to stoppage of construction in
midway. Therefore, it was not in the interest of
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parties for raising the present claims during the
currency of contract executed between the parties.
Hence, the claimant, in my view, cannot be
nonsuited on the ground that it has not raised this or
the other claims made in the statement of claim
during currency of the contract period.
The second technical question is
regarding undertaking/ affidavit given by the
claimant on 26/9/2013 to the effect that it shall not
claim any compensation or damages whatsoever on
account of such extension of time. In Cauvery
Coffee Traders (supra) relied on behalf of the
respondent a large quantity of ore had been supplied
to the respondents in China against part payment.
The dispute regarding quality was raised by
respondents and balance payment at reduced price
was offered, which was accepted by the petitioner in
that case. On these facts, it was held by Honourable
Supreme Court:
“In view of the above, law on the issue
stands crystallised to the effect that, in case, final
settlement has been reached amicably between the
parties even by making certain adjustments and
without any misrepresentation or fraud or coercion,
then, acceptance of money as full and final
settlement/issuance of receipt or vouchers etc. would
conclude the controversy and it is not open to either
of the parties to lay any claim/demand against the
other party.”
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 31 of 76
The above observations in Cauvery
Coffee Traders (supra) show that if the final
settlement has been the amicably between the
parties. It should be acted upon, provided the
settlement is without any misrepresentation or fraud
or coercion. Therefore, the element of
misrepresentation, undue influence, economic
duress, fraud or coercion should be ruled out before
the settlement/undertaking/affidavit of no claim of
further dues of the claimant is taken as full and final
settlement debarring it from raising any claim
against the respondent. Here, certain facts and
circumstances of vital importance which need close
scrutiny.
In the present case, it is not disputed
that the contract period was for 15 months, and
stipulated date of commencement of contract was
20/11/2009 and stipulated date of completion of
contract was 19/2/2011, but actual date of
completion of contract was 9/11/2011. Part
payments were made during the currency of contract
by respondent to the claimant and final bill,
admittedly, was prepared on 29/8/2013. The affidavit
of claimant Exhibit, RW 1/1 undertaking not to
claim any dues for extension of time of contract is
attested on 29/9/2013, i.e., after the completion of
contract and after preparation of the final bill. Had
this affidavit been given by the claimant before
expiry of stipulated date of completion of contract,
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 32 of 76
i.e. 19/2/2011 of soon after that, but before actual
date of completion of contract on 9/11/2011, it
would have been of significant value to arrive at the
conclusion that there was settlement between the
parties that no further dues would be claimed by the
claimant. But since this affidavit is given not only
after expiry of initial contract period of 15 months,
but also extended period of nine months the
inevitable conclusion is that claimant was subjected
to economic duress or was misrepresented facts to
give this affidavit Exhibit, RW 1/1 after preparation
of the final bill. Therefore, in my view, the
respondent has failed to establish that the fair
amicable settlement has been arrived at between the
parties, by virtue of the affidavit/undertaking
Exhibit, RW 1/1 given by the claimant undertaking
not to claim any dues for the extended period of
contract. Cauvery Coffee Traders case (supra), in my
view, does not help the respondent. Therefore, the
said affidavit/undertaking Exhibit, RW 1/1, in my
view, does not help the respondent on this issue or
the other issues.
Now the question arises whether the
claimant is entitled to any compensation or damages
from the respondent on account of staff
establishment, overhead, centering/shuttering and T
& P machineries due to breach of contract allegedly
committed by respondent and if so, to what amount?
The claimant has specifically alleged in the
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pleadings in the statement of claim that there were
various hindrances in the work caused solely by the
respondent, which led to prolongation of the
contract, and the claimant was forced to maintain
staff establishment, overheads, T & P machineries et
cetera. In the reply to the Claim No. 5 in statement
of claim the respondent has not specifically denied
the delay and hindrances on its part. The
performance report dated 9/5/2014, with regard to
contract Exhibit C- 36 issued by Executive Engineer
Mr. VK Nimesh shows overall performance of the
contractor as very good with regard to
renovation/upgradation of the housing complex in
question. Regarding quality of work material used
was indicated as very good and structural work,
finish and speed of execution as satisfactory. This
performance reports Exhibit C-36 supports the plea
of the claimant that it was due to the latches and
delay on the part of respondent, which led to
prolongation of the contract period for which
extension was granted by the respondent without
levy of compensation In K.N.Sathyapalan’s case
(supra) relied on behalf of claimant the question
which Ho’ble Supreme Court was called upon to
answer in the appeal before it was whether in the
absence of any price escalation clause in the
Original Agreement and a specific prohibition to the
contrary in the Supplemental Agreement, the
appellant could have made any claim on account of
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escalation of costs and whether the Arbitrator
exceeded his jurisdiction in allowing such claims as
had been found by the High Court. It was held 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 a 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. Therefore, the
claimant is entitled to any compensation or damages
from the respondent on account of staff
establishment, overhead, centering/shuttering and T
& P machineries due to breach of contract
committed by respondent leading to prolongation of
contract period.
The next logical question is what
amount of damages/compensation could be awarded
to the claimant against the respondent in the given
facts and circumstances of the case. The claimant
wants calculation of damages on the basis of Hudson
formula, referred before. In Macdormott’s case
(supra) relied upon by learned counsel for the
claimant. The Hon’ble Supreme Court examined the
question of method of computation of damages and
explained Hudson Formula, Emden Formula and
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Eichleay Formula and has made the following
observations.
“A court of law or an arbitrator may
insist on some proof of actual damages, and may not
allow the parties to take recourse to one formula or
the other. In a given case, the court of law or an
arbitrator may even prefer one formula as against
another. But, only because the learned arbitrator in
the facts and circumstances of the case has allowed
MIl to prove its claim relying on or on the basis of
Emden Formula, the same by itself, in our opinion,
would not lead to the conclusion that it was in
breach of Sections 55 or Section 73 of the Contract
Act.
Therefore, the court or arbitrator may
take recourse to either of the formula for calculation
of damages. The claimant has insisted for
computation of damages by taking recourse to
Hudson Formula which, according to Apex Court in
Macdormott’s case (supra) adopts the head office
overhead percentage from the contract as effective
for completing the costs and has received judicial
support in many cases. I do not find anything on the
record of this case, which may justify non-
application of Hudson Formula for calculation of
damages. The claimant has made the following
calculations on the basis of this Formula:
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O.H. & Profit /100 X Contract Sum Contract Period
X Period of delay =
7.5 14,14,430/-100 X Rs.3.14,31,790/- X 9 month =
Rs 15 monthNeither Hudson Formula, nor the above
apparently correct calculations made in the
statement of claim are disputed by the respondent.
Only technical objection regarding
settlements/undertaking/affidavit of claimant about
not claiming anything for extended period of
contract and also technical objection of not raising
the dispute during currency of the contract period
are made on behalf of respondent, which were not
found in the light of the above discussion. Therefore,
the claimant in my view is entitled to the sum of Rs.
14,14,430/-from respondent towards maintainance
staff, establishment, overheads, Tard P machineries
with minimum required for performance of contract
during extended period of nine months. The issue is
accordingly decided in favour of the claimant
against the respondent.”
(Emphasis supplied by me)
25. A perusal of the award shows that the Ld. Arbitrator has
examined the material on record and has come to the
following two findings- i) firstly, that the undertaking
which was given by the claimant to not claim
compensation for the extension of time was based on
economic duress and was not an amicable settlement
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 37 of 76
between the parties, and, ii) secondly, that the prolongation
of the contract period was due to delay on the part of the
petitioner herein. Both these findings are essentially
findings of fact, which are based on the examination of the
material on record by the Ld. Arbitrator. The appreciation
of the evidence and material on record was within the
domain of the Ld. Arbitrator and the Ld. Arbitrator was
fully competent to arrive at the findings of fact based on
the material on record. Furthermore, these findings were
certainly plausible in nature, even if a different view could
also have been taken. There is no perversity in these
findings. Hence, these findings of fact are beyond the
scope of any interference u/s. 34 of the A&C Act.
26. However, even if the aforesaid findings are not liable to
any interference, the consequent approach of the Ld.
Arbitrator in straight away awarding damages and
compensation to the respondent merely based on the
Hudson’s Formula is highly problematic. The Hudson’s
Formula is a tool to calculate the damages on account of
overheads and profit loss in case of delayed projects.
However, it is well settled that the same cannot operate in
vaccum, and the contractor is also bound to prove through
evidence and material that the contractor had actually
suffered loss on account of overheads and loss of profits
due to the delay in the project. A perusal of the award in
the present case, however, shows that the Ld. Arbitrator
has simply taken the statement of claim in respect of the
Claim No.5 at its face value and has awarded this claim
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simply by applying the Hudson’s formula without any
discussion regarding any evidence or material on record
showing that the respondent/contractor had actually
suffered any loss on account of overheads or loss of
profits.
27. In this regard, it would be appropriate to refer to the
decision of the Hon’ble Bombay High Court in Essar
Procurement Services Ltd. v. Paramount Constructions,
2016 SCC OnLine Bom 9697, in which it was held as
under:
“100. A perusal of the arbitral award indicates that
the arbitral tribunal recorded the fact that the
respondent had not produced the books of account
for perusal of the arbitral tribunal and also did not
lead any oral evidence in support of any of the
claims made before the arbitral tribunal. The arbitral
tribunal also did not consider and deal with the
submissions of the petitioner that the claim for
overhead and loss of profit was not proved or that
the same was based on no evidence. The arbitral
tribunal also did not consider and deal with the
objection that the claim for overhead and loss of
profit was overlapping.
101. The question that arises for
consideration of this court is whether the respondent
who had made claim for overhead on the basis that
the respondent had considered 10% towardsArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 39 of 76
overhead for the work in question at the time of
finalization of the contract and had incurred such
amount during the contractual period ought to have
proved the said claim by leading evidence including
oral evidence or could have simplicitor rely upon the
Hudson formula and whether in absence of any
evidence of the actual expenditure incurred by the
respondent, the arbitral tribunal could have allowed
the claim for overhead by considering the claim on
rough and ready basis by applying Hudson formula
by dispensing with the proof of the overhead
expenditure or not.
102. Learned counsel for both the parties
have heavily placed reliance on the judgment of
Supreme Court in case of McDermott International
INC. (supra). A perusal of the judgment of the
Supreme Court in case of McDermott International
INC. (supra) indicates that in that matter, the
contractor had examined a witnesses to prove the
claim for compensation who had calculated the
increased overhead and loss of profit on the basis of
the formula laid down in a manual published by the
Mechanical Contractors Association of America
entitled “Change Orders, Overtime, Productivity”
commonly known as the Emden Formula. The said
witness had brought out the additional project
management cost at US$ 1,109,500. The Supreme
Court adverted to an earlier judgment in case
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of M.N. Gangappa v. Atmakur Nagabhushanam
Shetty, (1973) 3 SCC 406 in which it was held that
the method used for computation of damages will
depend upon the facts and circumstances of each
case. Supreme Court also noticed different formulas
such as Hudson Formula, Emden Formula and
Eichleay Formula in the said judgment.
103. It is held that the different formulae can
be applied in different circumstances and the
question as to whether damages should be computed
by taking recourse to one or the other formula,
having regard to the facts and circumstances of a
particular case, would eminently fall within the
domain of the arbitrator. Supreme Court noticed that
the witness examined by the contractor had applied
the Emden Formula while calculating the amount of
damages having regard to the books of account and
other documents maintained by the contractor. The
learned arbitrator did not insist that sufferance of
actual damages must be proved by bringing on
record books of account and other relevant
documents. In these circumstances, Supreme Court
held that if the learned arbitrator applied the Emden
Formula in assessing the amount of damages, he
could not be said to have committed an error
warranting interference by this Court. The learned
arbitrator had also referred to other formulae but
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opined that the Emden Formula was widely accepted
one.
104. Supreme Court also observed that in the
Hudson Formula, the head office overhead
percentage is taken from the contract. It is observed
that although the Hudson formula has received
judicial support in many cases, it has been criticized
principally because it adopts the head office
overhead percentage from the contract as the factor
for calculating the costs, and this may bear little or
no relation to the actual head office costs of the
contractor. Admittedly, in this case though the
respondent made a claim on the premise that the
respondent had considered 10% overhead while
finalization of bid and had incurred overhead
expenditure at that rate, the respondent did not
produce any books of account or any other evidence
in support of such claim. The judgment of Supreme
Court in case of McDermott International
INC. (supra) is thus clearly distinguishable in the
facts of this case and would not assist the case of the
respondent.
105. Division Bench of this court in case
of Edifice Developers and Project Engineers
Ltd. (supra) after adverting to the judgment of
Supreme Court in case of McDermott International
INC. (supra) and in case of A.T. Brij Paul Singh and
Bros. v. State of Gujarat, AIR 1984 SC 1703 which
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judgments were relied upon by the arbitral tribunal
has held that the appellant in that case had produced
no evidence in support of the claim for loss of
overhead and profit and award of claim was on the
misconceived basis that Hudson Formula must be
applied despite there being no evidence. The
Division Bench also held that no material was
produced before the arbitral tribunal on the nature of
the practice in the trade and claim for loss of profits
was based on pure conjecture and in the absence of
any evidence and was thus rightly set aside by the
learned Single Judge. The Division Bench upheld
the conclusion drawn by the learned Single Judge
that the award of arbitrator proceeded on the
manifestly misconceived notion that a contractor is
entitled to claim overhead losses even in the absence
of evidence on the basis of Hudson’s Formula.
106. In my view the impugned award
rendered by the arbitral tribunal allowing the claim
for overhead merely on the basis of the Hudson
Formula and not based on any evidence is contrary
to the principles of law laid down by this court in
case of Edifice Developers and Project Engineers
Ltd. (supra) and shows patent illegality and is in
conflict with public policy.
107. Supreme Court in case of Kailash Nath
Associates (supra) has laid down the principles to be
followed by the court or by the arbitrator while
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 43 of 76
considering the claim for compensation under
sections 73 and 74 of the Contract Act, 1872. It is
held that where it is possible to prove actual damage
or loss, such proof is not dispensed with. It is held
that compensation can only be given for damage or
loss suffered. If damage or loss is not suffered, the
law does not provide for a windfall.
108. This court in case of Ajay Singh (Sunny
Deol) (supra) has after adverting to the judgment of
Supreme Court in case of Kailash Nath
Associates (supra), judgment of this court in case
of Maharashtra State Electricity Board v. Sterlite
Industries (India) Ltd., 2000 (3) Bom.C.R. 347,
judgment of Division Bench of this court in case
of Edifice Developers and Project Engineers
Ltd. (supra) has held that if a party has not suffered
any losses, even if the respondent has committed
breaches, such party cannot be awarded any
compensation under section 73 of the Contract Act.
When loss in terms of money is prayed, the party
claiming compensation has to prove such loss or
damages suffered by him. It is held that unless and
until the damages or loss was actually suffered,
damages cannot be awarded, otherwise section 73 of
the Contract Act would become nugatory and the
party would be penalised though the other party
suffered no loss. In my view the party who has not
suffered any loss or damages cannot be awarded any
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 44 of 76
compensation or damages, otherwise it would
amount to unjust enrichment in favour of such party.
109. In my view, the principles laid down by
the Supreme Court in case of McDermott
International INC. (supra), in case of Kailash Nath
Associates (supra) and judgment of this court in case
of Ajay Singh (Sunny Deol) (supra) squarely applies
to the facts of this case. The impugned award
rendered by the arbitral tribunal is contrary to and in
violation of the principles of law laid down by the
Supreme Court and this court and thus deserves to
be set aside on that ground alone.
110. Insofar as judgment of this court in case
of Associate Builders (supra) relied upon by Mr.
Cooper, learned senior counsel for the respondent is
concerned, a perusal of the said judgment clearly
indicates that in the said matter also the contractor
had produced evidence before the arbitrator and had
setout the establishment expenses in great detail
before the learned arbitrator and it was only on that
evidence, the learned arbitrator ultimately had
awarded those claims. In my view the judgment of
Supreme Court in case of Associate Builders (supra)
thus does not assist the case of the respondent and is
clearly distinguishable in the facts of this case.
111. Insofar as submission of the learned
senior counsel for the respondent that the respondent
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 45 of 76
had though not led oral evidence to prove the claim
for damages, had led documentary evidence and thus
award of claim for loss of profit could not be
challenged on the ground that the award was based
on no evidence is concerned, a perusal of the arbitral
award indicates that the arbitral tribunal has not
allowed the claim for overhead and loss of profit by
relying upon any documentary evidence placed on
record by the respondent. In my view the respondent
thus cannot be allowed to rely upon any such alleged
documentary evidence with a view to supplement
the reasons recorded by the arbitral tribunal in the
impugned award at this stage in this petition under
section 34 of the Arbitration Act.
112. In my view, the arbitral award itself
shall indicate the evidence referred to, relied upon
by the arbitral tribunal while allowing or rejecting
the claims made by the parties. This court cannot
probe into the mind of the arbitral tribunal and come
to the conclusion by considering the evidence
produced by the parties which were though on
record before the arbitral tribunal but were not
referred to and considered by the arbitral tribunal by
drawing an inference that such evidence must have
been considered by the arbitral tribunal while
allowing or rejecting the claim while deciding
petition under section 34 of the Arbitration Act. This
view is supported by the judgment of this court in
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 46 of 76
case of Bombay Intelligence Security (India)
Ltd. v. Oil & Natural Gas Corporation
Limited delivered on 21st August, 2015 in
Arbitration Petition No. 822 of 2012 which is
adverted by this court in case of Oil and Natural Gas
Corporation Ltd. v. Essar Oil Limited (supra) relied
upon by the learned senior counsel for the
respondent.
113. The principles laid down by the
Supreme Court and this court in the judgments
referred to aforesaid while dealing with the claim for
loss of overhead would also apply to the claim for
loss of profit. A perusal of the impugned award
indicates that the claim for loss of profit is also
allowed by the arbitral tribunal simplicitor based on
the Hudson Formula and not based on any evidence
and thus the same also deserves to be set aside.”
(Emphasis supplied by me)
28. Similarly, the Hon’ble High Court of Delhi has held in
Indo Nabin Projects Ltd. v. Powergrid Corporation of
India Ltd., 2018 SCC OnLine Del 8405, as under:
“10. Admittedly, the petitioner had not
furnished any evidence or material to establish that it
had incurred additional expenditure on account of
overheads during the extended period. The petitioner
had also not produced any material to establish theArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 47 of 76
quantum of profit that it expected to earn during the
said period. The Arbitral Tribunal had not accepted
the aforesaid claim on account of charges and loss of
profits solely on the ground that the petitioner had
not produced any material and evidence to establish
the same. The contention that such damages could
be awarded on the basis of standard formulae was
also not accepted by the Arbitral Tribunal. The
relevant extract of the impugned award is set out
below:–
“(8). It is our view that in order to make any
claim under Section 55 read with Section 73
towards the overhead expenses during the
extended period, the claimants should have
led some evidence by oral or documentary to
prove that certain expenses were actually
required and made in order to keep the site
establishment running throughout the
extended period. It is other matter for the
arbitrators to either adopt Hudson or any other
formula as may be considered appropriate by
them.
(9). The claimants further state that they had
actually submitted the audited Balance Sheets
for eight years to support their claim for
overheads. It is to be noted that the above was
sought by the Arbitration Tribunal to
understand the computation and adoption of
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 48 of 76
rate of 10% for the overheads and 5% for
computing the loss and was submitted by way
of proof of their incurring the overhead
expenses. Even otherwise the evidence
required to prove overhead costs would have
to be related to the project under question and
not the overall company particulars.
(10). Hence we are of the opinion that the
claimants are not entitled to any compensation
for loss on account of additional overheads
incurred in keeping their establishment up and
running during the extended period and hence
the claim for Rs. 1,50,13,698 towards site and
head office overheads is rejected.”
11. Similarly, the petitioner’s claim for loss
of profits was also rejected on the ground that the
petitioner had been unable to produce any material
to establish the same. In arriving at its conclusion,
the Arbitral Tribunal noticed the decision of the
Bombay High Court in Essar Procurement
Services Ltd. v. Paramount Constructions, wherein
the Bombay High Court had after referring to
various decisions, observed that a claim based on
Hudson formulae and not based on any evidence
deserves to be set aside. The Arbitral Tribunal also
referred to the decision of the Bombay High Court
in Edifice Developers and Project Engineers
Ltd. v. Essar Projects (India) Ltd.: Appeal No. 11 of
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 49 of 76
2012, decided on 03.01.2013 and the decision of this
Court in Ahluwalia Contracts (India) Ltd. v. The
Union of India, Ministry of Health & Family
Welfare: O.M.P. (COMM) 283/2016, decided on
08.05.2017, wherein courts had rejected the
challenge to an arbitral award whereby the claim of
loss of profits based on standard formulae had been
rejected by the arbitral tribunal.
12. Standard formulae adopted for computing loss of
profits or overheads are essentially tools used for
computing the extent of overheads in profits.
Undoubtedly, in a given set of facts, the said formula
may be effectively used for computing the amounts
of overheads/profits. However, that cannot lead to
the conclusion that in all cases, the Arbitral Tribunal
would be bound to accept computation of
overheads/loss of profits based on standard formulae
and the claimant is absolved from producing any
other material to establish its claims of loss on
account of overheads/loss of profits. Whether it is
apposite to use the standard formulae in a given case
is also required to be established by the contractor.
This would necessarily require the claimant to
produce some material to justify norms as adopted in
the standard formula relied upon by him. A claimant
is also required to establish as a matter of fact that it
had incurred expenditure on overheads attributable
to the works executed during the extended period.”
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 50 of 76
(Emphasis supplied by me)
29. The Hon’ble High Court of Delhi has held in MCD v.
Satya Pal Gupta, 2024 SCC OnLine Del 8131, as under:
“26. The next question to be considered is in
regard to the Arbitral Tribunal’s decision to award
loss of profit on account of prolongation of the
Contract. The Contractor had claimed a sum of Rs.
47,14,167.30 on account of damages for
prolongation of the Contract. The Contractor had
claimed that the execution of the work had been
prolonged due to the reasons attributable to the
MCD and therefore he was entitled to claim
compensation for the same. The claim of Rs.
47,14,167.30 as articulated by the Contractor in his
Statement of Claims is set out below:
“36. That so far as claim No. 5 is concerned,
the claimant claims prolongation of contract
for the period of date of completion to actual
date of completion. The work was awarded by
the respondent on 10-06-05. The claimant is
bound to complete the work within 18 months
as per agreement which comes to an end on
18-12-06 and the work was actually
completed on 20-12-11. The claimant is
entitled for damages of the amount which he
was forced to lose/spend due to prolongation
of contract which is 60 months. The totalArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 51 of 76
contractual amount of total work Rs.
1,41,42,502/- (+) 18 months i.e. contractual
period (=) Rs. 7,85,694.56/-. The claimant
earned profit 10% on Rs. 7,85,694.56/- per
month which comes to Rs. 78,569.46/- (x) the
prolong period of 60 months comes to Rs.
47,14,167/-. Hence the claimant is entitled for
this amount.”
27. A plain reading of the claims indicates
that the Contractor had based its computation on the
assumption that his profit margin was 10% of the
value of the Contract. He, accordingly, worked out
the quantum of profit that he would have earned per
month by dividing the value of the work over the
term of the Contract. He then multiplied the
hypothetical figure of monthly profit with the period
of delay in completion of the Contract. According to
the Contractor, the delay was for a period of sixty
months. Therefore, he claimed that he was entitled to
the quantum of monthly profit as worked out above
multiplied by the period of sixty months. It is at once
clear that the computation of quantum of damages as
calculated is flawed. First of all, there is no evidence
or material to indicate that the Contractor would
have earned 10% profit on the value of the work.
Secondly, there is no material to indicate that if the
Contract had not been prolonged, the Contractor
would have been gainfully employed in another
profitable contract. In Bharat Coking Coal
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 52 of 76
Ltd. v. L.K. Ahuja, (2004) 5 SCC 109, the Supreme
Court had held as under:
“23. Claim 8 has been rejected by the
arbitrator. Now we proceed to consider Claim
9 for loss arising out of turnover due to
prolongation of work. The claim made under
this head is in a sum of Rs. 10 lakhs. The
arbitrator rightly held that on account of
escalation in wage and prices of materials
compensation was obtained and, therefore,
there is not much justification in asking for
compensation for loss of profits on account of
prolongation of works. However, he came to
the conclusion that a sum of Rs. 6,00,000
would be appropriate compensation in a
matter of this nature being 15% of the total
profit over the amount that has been agreed to
be paid. While a sum of Rs. 12,00,000 would
be the appropriate entitlement, he held that a
sum of Rs. 6,00,000 would be appropriate. He
also awarded interest on the amounts payable
at 15% per annum.
24. Here when claim for escalation of wage
bills and price for materials compensation has
been paid and compensation for delay in the
payment of the amount payable under the
contract or for other extra works is to be paid
with interest thereon, it is rather difficult forArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 53 of 76
us to accept the proposition that in addition
15% of the total profit should be computed
under the heading “Loss or Profit”. It is not
unusual for the contractors to claim loss of
profit arising out of diminution in turnover on
account of delay in the matter of completion
of the work. What he should establish in such
a situation is that had he received the amount
due under the contract, he could have utilised
the same for some other business in which he
could have earned profit. Unless such a plea is
raised and established, claim for loss of profits
could not have been granted. In this case, no
such material is available on record. In the
absence of any evidence, the arbitrator could
not have awarded the same. This aspect was
very well settled in Sunley (B) & Co.
Ltd. v. Cunard White Star Ltd. [[1940] 1 K.B.
740 : [1940] 2 All ER 97 (CA)] by the Court
of Appeal in England. Therefore, we have no
hesitation in deleting a sum of Rs. 6,00,000
awarded to the claimant.”
28. It is apparent from the above that the
Arbitral Tribunal has awarded claim for loss of
profit for the period the Contract was prolonged
without any evidence or material to support the
claim. Thus, the impugned award is vitiated by
patent illegality. In view of the above, the impugned
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 54 of 76
award to the extent that the Arbitral Tribunal has
awarded the Contractor’s Claim No. 5 is set aside.”
(Emphasis supplied by me)
30. A perusal of the award of the Claim No.5 shows that the
Ld. Arbitrator has merely taken the statement of claim of
the respondent/claimant at its face value and has accepted
the version of the respondent that the “Overheads &
Profits” was 7.5% of the contract sum, and has on this
basis simply applied the Hudson’s formula and calculated
the overheads and profits for the extended period and
awarded the same to the respondent/claimant. A perusal of
the award shows that in awarding the Claim No.5 based on
the Hudson’s formula, there is absolutely no discussion or
reference to any material or evidence on record to show
that the respondent/contractor had actually incurred
expenditure towards overheads in respect of the concerned
project. There is also no reference to any material or
evidence from the contractor’s side to show that the
contractor would actually have earned profit during the
extended period of the contract. In the absence of any
material on record to show that the contractor had actually
incurred loss on account of overheads and loss of profits
during the extended period, it was not permissible for the
Ld. Arbitrator to award the Claim No.5 for damages
merely by relying upon the Hudson’s formula in respect of
overheads and profits.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 55 of 76
31. Accordingly, the award of the Claim No.5 towards
damages and compensation for prolongation of the
contract is hereby set aside.
RE: AWARD OF CLAIM NO.6 TOWARDS
ESCALATION IN CONSTRUCTION COST DURING
PROLONGED PERIOD OF CONTRACT
32. Now, coming to the award by the Ld. Arbitrator of the
Claim No.6 towards escalation in construction cost on
account of prolongation of the contract period.
33. It would be appropriate to extract the relevant portion of
the award awarding the Claim No.6, as under:
“Issues No. 7
The claimant has claimed a sum of Rs
20.00.000/- towards escalation in construction cost
due to market inflation for the works executed
beyond the stipulated period of contract on account
of breach of contract committed by the respondent.
The contention on behalf of claimant is that it is well
settled legal position that for a breach of contract,
the aggrieved party is to be placed in the same
position. The compensation for such losses can only
be in the shape of money which the claimant had
incurred during the various lapses on the part of
respondent and the same should not be remote in
nature and covered by Section-55 and Section-73 of
the Indian Contract Act. It is argued that on page No.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 56 of 76
28 to 30 of the statement of claim the details of
calculation of compensation/damages is made by
taking base on the building cost indices for Delhi
with reference to the plinth area rates during
1/4/2009 to 1/10/2011 as per the six monthly indices
of market inflation as declared by the Government
of India through CPWD from time to time. On the
basis of these indices the average percentage
increase is calculated during every six months and
then averaged out, which indicates average
percentage increase as 20.05% during the relevant
period from 20/11/2009 the stipulated date of start of
contract and actual date of completion of work on
9/11/2011. For gross value of the work amounting to
Rs. 1, 00, 00, 000/- approximately. The escalation at
the average rate of 20.05% comes to approximately
Rs. 20,00, 000/- so this amount of damages on
account of escalation in prizes during the extended
period of construction on the basis of market
inflation as declared by CPWD should be granted to
the claimant against the respondent. Reliance is
placed upon P.M. Paul v. Union of India, 1989(2)
ArbiLR 215: 1989 AIR (SC) 1034: 1989(1) JT 299:
1989 (Sup1) SCC 368: 1989(1) SCR 115: 1989(1)
Scale 221: 1989(1) CurCC 433 (SC) and Deo Kumar
Saraf v. Union of India :1989(2) ArbiLR 88: 1988(2)
CalLJ 325: 1989(1) CurCC 641 (Calcutta).
The argument on behalf of respondent
is the same as in Claim No. 5 dealt with in IssueArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 57 of 76
No.6 above, and it is argued by respondent that
being unable to complete the construction work
within the stipulated time period. the claimant
sought extension of time under Clause 5 of the
agreement. The claimant also filed an undertaking,
dated 26/9/2013 to the effect that it shall not claim
any compensation or damages whatsoever on
account of such extension of time. The said
undertaking executed by the claimant acts as an
estoppel against it and claimant stands precluded
from raising any claim in this regard, like escalation,
establishment charges during extended period, et
cetera. Reliance is placed upon Cauvery Coffee
Traders, Mangalore Vs Hornor Resources
(International) Company Limited (2011) 10- SCC
420. It is also argued that this and the other claims
were not raised by the claimant when the contract
was alive, so these cannot be raised or adjudicated at
such belated stage. Therefore, it is argued that the
Claim No. 5 is not maintainable. Reliance is placed
upon MTNL VS.S.P.S.Rana OMP No. 654/2007
decided by Hon’ble High Court Of Delhi on 15th,
May, 2009.
The two technical objections of the
respondent along with authorities cited have been
discussed in detail, while deciding Issue No. 6 and
on account of the same reasoning both objections are
discarded here also.
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 58 of 76
The question now arises whether the
claimant is entitled to damages/compensation on
account of inflation as declared by the indices
emerging from CPWD on behalf of Government of
India, if so, what should be amount of damages to
which the claimant is entitled from respondent for
the extended period of contract. As already
discussed, while deciding Issue No. 5 a good
performance certificate is given by respondent to its
executive engineer to the claimant with regard to the
contract work done efficiently and good quality
building material used by claimant and the extended
period of nine months or delay completion of the
work was found to be on account of the respondent
so claimant is entitled to the compensation/ damages
towards escalation in construction cost due to market
inflation for the works executed beyond the
stipulated period of contract on account of breach of
contract committed by the respondent, leading to
prolongation of the contract. More so when CPWD
after every six months, is announcing cost index,
taking into account inflation during the intervening
period. In P.M. Paul‘s case (supra) relied on behalf of
claimant, the Hon’ble Supreme Court has made the
following observations:
“In the instant case, it is asserted that
the extension of time was granted and the arbitrator
has granted 20% of the escalation cost. Escalation is
a normal incident arising out of gap of time in thisArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 59 of 76
inflationary age in performing any contract. The
arbitrator has held that there was delay, and he has
further referred to this aspect in his award. The
arbitrator has noted that claim related to the losses
caused due to increase in prices of materials and cost
of labour and transport during the extended period of
contract from 9-5-1980 for the work under phase I
and from 9-11-89 for the work under phase II. The
total amount shown was Rs. 5,47,618.50. After
discussing the evidence and the submissions the
arbitrator found that it was evident that there was
escalation and, therefore, he came to the conclusion
that it was reasonable to allow 20% of the
compensation under Claim I, he has accordingly
allowed the same. This was a matter which was
within the jurisdiction of the arbitrator and, hence,
the arbitrator had not misconducted himself in
awarding the amount as he has done.”
In Deo Kumar Saraf‘s case (supra),
Honourable Delhi High Court has held:
“The ratio of the two decisions reported
in AIR 1963 Calcutta 163 and AIR 1984 Supreme
Court 1703 is that once the Court has held that there
is a breach of works contract the contractor would be
entitled to damages by way of loss of profit and the
measure of damages if proved, the damage would be
awarded on that basis. But if the damage is not
satisfactorily proved, still the contractor would beArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 60 of 76
accorded the benefit of ever reasonable presumption
as to loss of damages. The Court’s jurisdiction to
award damages cannot be confined to the evidence
on records only. The Court is entitled to allow
damages on any other reasonable basis, even on the
basis of mere guess work. In the present case, the
petitioner had claimed 11% profit. The arbitrator, if
he has not satisfied as to the rate claimed, certainly
had the jurisdiction to reduce the rate on the basis of
pure guess work or on the basis of average rate of
profit allowed to the contractor by the respondent in
respect of works contracts. As the arbitrator was
satisfied regarding the wrongful termination of the
contract by the respondent, it was his duty to find
out the average rate of profit allowed by the
respondent in respect of works contracts to accord
all reasonable benefit to the petitioner for loss of
profit for compensating the contractor for glaring
breach of contract committed by the respondent in
the present case. In view of the law as laid down by
the aforesaid two cases the finding of the arbitrator
that in spite or termination of contract being
wrongful, the damage could not be awarded due to
unsatisfactory evidence on record, is a clear error of
law apparent on the face of the record, as the
arbitrator was bound to compensate the loss of profit
even on the basis of his pure guess work. The
arbitrator also legally misconducted himself and the
proceeding by his failure to exercise his jurisdictionArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 61 of 76
to award damages on the facts of this case resulting
in miscarriage of justice. “
P.M. Paul‘s case (supra) still holds the
field and is followed across the length and breadth of
the country. Both P.M. Paul‘s case (supra) and Deo
Kumar Saraf‘s case (supra) support the fact that the
claimant is entitled to claim damages/compensation
on account of inflation as claimed in this issue.
Now the question of quantum of
damages is to be decided. It is argued on behalf of
claimant that on page No. 28 to 30 of the statement
of claim the details of calculation of
compensation/damages is made by taking base on
the building cost indices for Delhi with reference to
the plinth area rates from 1/4/2009 to 1/10/2011 as
per the six monthly indices of market inflation as
declared by the Government of India through CPWD
from time to time. And on the basis of these indices
the average percentage increase is calculated during
every six months and then averaged out, which
indicates average percentage increase as 20.05%
during the relevant period from 20/11/2009 the
stipulated date of start of contract and actual date of
completion of work on 9/11/2011. For gross value of
the works out amounting to Rs. 1, 00, 00, 000/-
approximately, the escalation at the average rate of
20.0 5% comes to approximately Rs. 20, 00, 000/-so
this amount is claimed damages on account of
escalation in prizes. during the extended period of
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 62 of 76
construction on the basis of market inflation indices
as declared by CPWD should be granted to the
claimant against the respondent but I only partially
agree with this argument raised on behalf of the
claimant. The reason is not far to seek owing to the
fact that the claim of claimant here is only for the
extended about nine months period of contract and
not for initial contract period also.
Admittedly, stipulated date of start of
contract period was 20/11/2009. The stipulated date
of completion of contract was 19/2/2011. The
contract actually completed on 9/11/2011. Had the
contract been completed on or before 19/2/2011
there was no question of payment of escalation of
construction cost due to market inflation for the
extended period of contract. Therefore, the crucial
date from which escalation costs due to market
inflation should be reckoned and increase in
construction cost should be taken in to account is
19/2/2011 and the relevant period for giving benefit
of inflation to the claimant is from 19/2/2011 to
9/11/2011. The Building Cost Index at Delhi with
reference to Plinth area rates 1/10/2007 (as based
100) had been approved for six months by Director
General CPWD as 139 on 1/10/2010 as indicated in
C-52. (It remained so on 19/2/2011 also), 149 as on
1/4/2011 as indicated in Exhibit C-rate of increase of
cost index from 19/2/2011 to 1/4/2011 comes to
7.19%) and 151 as on 1/10/2011 as indicated in
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 63 of 76
Exhibit C-54. ((rate of increase of cost index from
1/4/2011 to 1/10/2011 comes to 8.63%). The average
rate of increase of cost index during the extended
period of contract from 19/2/2011 to 12 9/11/2011 is
7.91% (7.19% +8.63% divided by 2). The claim of
the claimant that in the extended contract period
gross value of work of approximately Rs.
100,00,000/- is not disputed in the pleadings and
evidence by the respondent so is required to be taken
as true being undisputed fact. The average increase
in the cost indices during the extended period of
contract being 7.91% the claimant is entitled to the
sum of Rs.7,91, 000/- from the respondent. The
Issued No. 6 is accordingly partially decided in
favour of the claimant and against the respondent.”
34. The Ld. Arbitrator has awarded the claim for escalation for
the prolonged period based on the average increase in the
Building Cost Index at Delhi with reference to Plinth area
rates as published by the CPWD during the extended
period. Although, ordinarily, an award towards escalation
could not be faulted with since escalation of prices would
be an incident of prolongation of the contract, however, in
the present case, there is one crucial factor which has been
overlooked by the Ld. Arbitrator which would render the
award unsustainable.
35. As already mentioned, the Ld. Arbitrator had already
awarded the Claim No.2 being claim towards increase in
the statutory wages to the claimant/respondent. This award
Arbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 64 of 76
of the Claim No.2 covered the escalation in the wages
during the entire period from the date of increase in wages
till the actual completion of the works, and, importantly,
also included the extended period of contract. This much is
clear from the letter dated 10.07.2014 from the respondent
to the petitioner (Ex.C-37) in which the respondent was
seeking amount of Rs. 35,10,262/- towards escalation in
the wages. The statement of escalation of wages annexed
to this letter dated 10.07.2014 shows that the petitioner
had claimed the escalation through six bills, the first bill
being dated 31.03.2010 till the sixth bill dated 09.11.2011.
As per the contract, the stipulated date of completion was
19.02.2011, whereas the works were actually completed on
09.11.2011. The fourth, fifth and sixth bills mentioned in
the statement of escalation of wages annexed to the letter
dated 10.07.2014 (Ex.C-37) are during the extended
period, showing that the respondent/contractor had already
claimed the escalation in wages during the extended period
through its bills and the letter dated 10.07.2014. The claim
for escalation of wages was raised in the Claim No.2, and,
ultimately, the respondent/contractor was also awarded the
Claim No.2 in the award for the sum of Rs. 35,10,252/-.
As already discussed in the foregoing paragraphs of the
present order, the award of the Claim No.2 has not been
interfered with in the present proceedings and the same has
been upheld.
36. The Building Cost Indices of the CPWD which were relied
upon by the Ld. Arbitrator in granting the Claim No. 6
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towards escalation would include both the crucial
components in construction, i.e. the material component as
well as the labour wage component. Hence, in awarding
the Claim No.6 towards escalation by referring to the
Building Cost Indices, the respondent was awarded the
claim towards escalation in wages in duplicate since the
respondent had already received the Claim No.2 in respect
of wage escalation. Such duplicate award in respect of the
escalation of wages is clearly perverse and amounts to a
patent illegality on the face of the award. The award of the
Claim No.6 towards cost escalation by the Ld. Arbitrator
does not bifurcate between the escalation towards the
material component and escalation towards the labour
wage component, and, rather, the same is a composite
award. Thus, there is no scope of severance of the award
for cost escalation to bifurcate the material component and
the labour wage component. Thus, unfortunately for the
respondent/contractor, the award of the Claim No.6
towards cost escalation would have to be set aside in toto.
37. Accordingly, the award of the Claim No.6 towards
escalation is hereby set aside.
RE: AWARD OF INTEREST
38. By way of the impugned award, the respondent/contractor
has been awarded the Claim No.8 of sum of Rs. 2,12,894/-
towards interest @ 18% p.a. for the period of delay in
payment of the final bill. The respondent/contractor has
also been awarded the Claim No.9 towards interest @ 18%
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p.a. on the total sum of the award for the three periods of
pre-reference, pendente lite and post award.
39. In awarding the claim for interest, the Ld. Arbitrator has
brushed aside the contention of the petitioner herein that
interest was not payable on account of Clause 29 of the
contract on the ground that Clause 29 was not applicable
to the present case.
40. The relevant portion of the award in this regard is
extracted hereunder:
“Reliance of respondent. on Clause 29 of the
agreement is misplaced for the simple reason
that this Clause 29, pertains to the sum due
from contractor to respondent, while the final
bill was due from respondent to the
claimant/contractor. It is only when any sum is
due from contractor to the respondent that
amount can be withheld by the respondent by
taking recourse to Clause 29. Therefore, Clause
29 of the agreement does not help the
respondent on this Issue, No. 8.”
41. A perusal of the aforesaid reasoning in the award shows
that the Ld. Arbitrator has opined that Clause 29 of the
contract would apply only in case of sums due to from the
contractor to the petitioner herein, and not to the sums due
to the contractor from the petitioner herein.
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42. It would be appropriate to extract the Clause 29, as under:
“CLAUSE 29
Withholding and lien in respect of sums due from
contractor.
(1) Whenever any claim or claims for payment
of a sum of money arises out of or under the
contract or against the contractor, the Engineer-
in-charge or the NDMC shall be entitled to
withhold and also have a lien to retain such sum
or sums in whole or in part from the security, if
any deposited by the contractor and for the
purpose aforesaid, the Engineer-in-charge or the
N.D.M C, shall be entitled to withhold the
security deposit, if any, furnished as the case may
be and also have a lien over the same pending
finalization or adjudication of any such claim. In
the event of the security being insufficient to
cover the claimed amount or amounts or if no
security has been taken from the contractor, the
Engineer-in-charge or the NDM C shall be
entitled to withhold and have a lien to retain to
the extent of such claimed amount or amounts
referred to above, from any sum or sums found
payable or which may at any time thereafter
become payable to the contractor under the same
contract or any other contract with the Engineer-
in-charge or the N.D.M.C. or any contracting
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person through the Engineer-in-charge pending
finalization or adjudication of any such claim.
It is an agreed term of the contract that the sum
of money or moneys so withheld or retained
under the lien referred to above by the Engineer-
in-charge or N.D.M.C will be kept withheld or
retained as such by the Engineer-in-charge or
N.D.M.C till the claim arising out of or under the
contract is determined by the arbitrator (if the
contract is governed by the arbitration clause) or
by the competent court, as the case may be and
that the contractor will have no claim for interest
or damages whatsoever on any account in respect
of such withholding or retention under the lien
referred, to above and duly notified as such to the
contractor. For the purpose of this clause. where
the contractor is a partnership form or a limited
company, the Engineer-in-charge of the N.D.M.C
shall be entitled to withhold and also have a lien
to retain towards such claimed amount or
amounts in whole or in part from any sum found
payable to any partner/limited company as the
case may be, whether in his individual capacity
or otherwise.
(2) The N.D.M.C shall have the right to cause an
audit and technical examination of the works and
final bill of the contractor, including all
supporting vouchers, abstract etc., to be made
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after payment of the final bill and if as a result of
such audit and technical examination any sum is
found to have been overpaid in respect of any
work done by the contractor under the contract or
any work claimed to have been done by him
under the contract and found not to have been
executed, the contractor shall be liable to refund
the amount of overpayment and it shall be lawful
for the N.D.M.C to recover the same from him in
the manner prescribed in sub-clause (1) of this
clause or in any other manner legally
permissible, and if it is found that the contractor
was paid less than what was due to him under the
contract in respect of any work executed by him
under it the amount of such under payment shall
be duly paid by the N.D.MC to the contractor,
without any interest thereon whatsoever.
Provided that the NDMC shall not be entitled to
recover any sum overpaid, nor the contractor
shall be entitled to payment of any sum paid
short where such payment has been agreed upon
between the Chief Engineer or Engineer-in-
Charge on the one hand and the contractor on the
other under any term of the contract permitting
payment for work after assessment by the Chief
Engineer or the Engineer-in-Charge.”
43. Although the interpretation of any provision of the contract
is well within the domain of the arbitrator, and, ordinarily,
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the Court in exercise of jurisdiction u/s. 24 of the A&C Act
would not interfere with the interpretation given by the
arbitrator to the contract, however, it is equally well settled
that interference is permitted when the construction of the
contract is so irrational that no reasonable person could
have arrived at the same.
44. I have carefully perused Clause 29 of the contract, and I
find that the construction which the Ld. Arbitrator has put
to Clause 29 to the effect that the this Clause pertains only
to the sums due from the contractor to the petitioner herein
and not to sums due to the contractor from the petitioner
herein is so irrational that no reasonable person could have
arrived at the same.
45. Be that as it may, even if the construction of the Ld.
Arbitrator of Clause 29 of the contract is not accepted,
still, even upon a reasonable construction of Clause 29, it
is clear that even otherwise, Clause 29 would not apply.
Hence, in any case, the contention of the petitioner
challenging the award of interest based on the Clause 29
would fail.
46. Clause 29(1) of the contract deals with the withholding and
retention of money due to the petitioner herein from the
respondent/contractor and has no relevance to the question
of interest.
47. In so far as Clause 29(2) is concerned, the second part of
Clause 29(2) provides that “… if it is found that the
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contractor was paid less than what was due to him under
the contract in respect of any work executed by him undre
it the amount of such undre payment shall be duly paid by
the NDMC to the contractor without any interest thereon
whatsover”. The petitioner herein has emphasised on this
part of Clause 29(2) to challenge the award of interest to
the respondent. Although, at first blush, this argument of
the petitioner to deny interest to the respondent/contractor
appears attractive, however, on closer scrutiny, this
argument fails.
48. The tender document in the present case is a tender in
standard form which originates from the petitioner only,
and as such, the exclusionary clause in the form of Clause
29(2) barring the payment of interest to the contractor
would be interpreted strictly and contra proferentum
against the petitioner. Applying this principle, and reading
Clause 29(2)as a whole, it would only be reasonable to
construe Clause 29(2) as a provision which would apply
only in cases where the petitioner i.e. NDMC had caused
an audit and technical examination of the works and the
final bill, and “if as a result of such audit and technical
examination”, it is found that the contractor was paid less
than what was due to him under the contract. Thus, Clause
29(2) could bar the payment of interest to the contractor
only when there petitioner had caused an audit and
technical examination of the works and final bill, and as a
result it is found that the contractor was paid less than
what was due to him. Clause 29(2) would have no
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application when the amounts are awarded to the
respondent/contractor upon adjudication in the arbitration
proceedings.
49. It is not the case of the petitioner that the petitioner had
conducted any audit and technical examination of the
works due to the result of which it was found that amounts
were due to the contractor. Rather, the petitioner had
denied the claims of the respondent/contractor. It is only
by way of the adjudication by way of the arbitral award
that the respondent has been found entitled to the amounts
as awarded. Clause 29(2) would have no application in
such case.
50. Thus, the argument of the petitioner that Clause 29(2) of
the contract prohibited grant of interest stands rejected.
There being no provision in the contract prohibiting grant
of interest for the pre-reference, pendente lite or post
award period, it was well within the domain of the Ld.
Arbitrator to grant the interest u/s. 31(7) of the A&C Act.
51. This now leaves only the question of the rate of interest.
By way of the impugned award, the respondent/contractor
has been granted interest @ 18% p.a. in respect of the
Claim Nos. 8 and 9.
52. With respect to the grant of interest by the arbitrator, the
Hon’ble Supreme Court has held in Vedanta Ltd. v.
Shenzhen Shandong Nuclear Power Construction Co. Ltd.,
(2019) 11 SCC 465, as under:
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“9. The discretion of the arbitrator to award
interest must be exercised reasonably. An Arbitral
Tribunal while making an award for interest must
take into consideration a host of factors, such as: (i)
the “loss of use” of the principal sum; (ii) the types
of sums to which the interest must apply; (iii) the
time period over which interest should be awarded;
(iv) the internationally prevailing rates of interest;
(v) whether simple or compound rate of interest is to
be applied; (vi) whether the rate of interest awarded
is commercially prudent from an economic
standpoint; (vii) the rates of inflation; (viii)
proportionality of the count awarded as interest to
the principal sums awarded.
10. On the one hand, the rate of interest must be
compensatory as it is a form of reparation granted to
the award-holder; while on the other it must not be
punitive, unconscionable or usurious in nature.
11. Courts may reduce the interest rate awarded
by an Arbitral Tribunal where such interest rate does
not reflect the prevailing economic conditions
[Indian Oil Corpn. Ltd. v. Lloyds Steel Industries
Ltd., 2007 SCC OnLine Del 1169 : (2007) 4 Arb LR
84 at p. 103] or where it is not found reasonable
[Manalal Prabhudayal v. Oriental Insurance Co.
Ltd., (2009) 17 SCC 296 : (2011) 2 SCC (Civ) 376] ,
or promotes the interests of justice [Food
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Corporation of India v. A.M. Ahmed & Co., (2006)
13 SCC 779 : AIR 2007 SC 829] .”
(Emphasis supplied by me)
53. In the present case, the Ld. Arbitrator has awarded interest
under Claim No.8 for delay in payment of the final bill as
well as the interest under Claim No.9 on the total sum
awarded for the pre-reference, pendente lite as well as the
post-award period @ 18% p.a. However, this rate of
interest seems excessive and exorbitant, and is not
reasonable. There is also no reasoning given in the award
as to why such a high rate of interest has been awarded.
Thus, the grant of interest @ 18% p.a. is arbitrary and
unreasonable. In the facts and circumstances of the case, it
would rather be reasonable to the grant the
respondent/contractor interest @ 10% p.a. in respect of the
Claim No. 8 as well as in respect of the Claim No.9.
54. Accordingly, in so far as the Claims Nos. 8 and 9 are
concerned, the interest rate in these claims is reduced from
18% p.a. to 10% p.a. The Claims Nos. 8 and 9 shall be
read accordingly.
DECISION
55. In the result, the petition is partly allowed, in the following
terms:
55.1. The award in respect of the Claim No.5 for sum of
Rs. 14,14,430/- towards damages/compensation for
prolongation of the contract is set aside; andArbtn. No. 7630/17 NDMC Vs. M/s. Krishan Murari Sharma & Sons. Page No. 75 of 76
55.2. The award in respect of the Claim No. 6 for sum of
Rs. 7,91,000/- towards cost escalation during the
extended period is also set aside;
55.3. In respect of the Claims No. 8 and 9, the rate of
interest is reduced from 18% p.a. to 10% p.a.;
55.4. The rest of the award is severable from the aforesaid
claims which have been interfered with, and,
resultantly, the rest of the award merits no
interference.
56. The petition is disposed of, accordingly.
57. In the facts and circumstances of the case, parties to bear
own costs.
58. File be consigned to record room after the due
compliances.
Digitally signed
by SATYABRATA
SATYABRATA PANDA
PANDA Date: 2025.07.30
17:19:39 +0530
(SATYABRATA PANDA)
District Judge-04
Judge Code- DL01057
PHC/New Delhi/30.07.2025
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