Open iDraf
Ms. Shanti Devi And Ors v. Delhi Development Authority And Ors

Ms. Shanti Devi And Ors
v.
Delhi Development Authority And Ors

(High Court Of Delhi)

Ist App. Fr. Order OS No. 331/1998 | 14-12-2006


Swatanter Kumar, J.

1. The appellants are the legal heirs of Late Shri O.P. Sharma who had entered into a contract with the Delhi Development Authority for execution of the work i.e. construction of 900 SFS Houses at Sarita Vihar, Blocks F and G. The construction was to be executed as per specifications and in terms of the agreement bearing No. 27/EE/CPD-II/DDA 85-86. In terms of the agreement, 18 blocks were to be constructed but after the award of the work, a letter was issued by the Delhi Development Authority (for short DDA) on 29.9.1987 stating that as the site for remaining 4 blocks would be handed over to O.P. Sharma as and when the same is available. However, in August 1988 another letter was written by the DDA stating that the scope of the work for the remaining 4 blocks had been curtailed due to a stay order in respect of the land in question and the work would be restricted to 14 blocks only. The relevant portion of the said letter reads as under:

Therefore, I, G.R. Jain, E.E./S.E.D.-1 for and on behalf of the DDA by way of this notice inform you under the Clause-13 of the Agreement ibid, that the scope of the work stands curtailed to 14 blocks completed. You shall, however, not be entitled for any claim or compensation on account of any profit or advantage which you might have derived from the execution of the work in full.

2. The above letter was replied to by the petitioner on 29.8.1988 , which reads as follows:

In this regard, we would draw your kind attention to the fact that the aforesaid work was awarded to us vide your letter dated 26.4.85 with stipulated date of commencement 6.5.85 and stipulated date of completion being 5.8.1986. I had been executing the work with co-operative attitude inspire of the fact that there had been failure on the part of the Department in fulfilling its basis obligations. I had been assured all through that the site for the remaining 4 blocks will be handed over to me as soon as the same is handed over to the Division by Land Department/DDA. The last such confirmation/assurance in writing was conveyed to me vide Letter No. F3 (156) 87/SED.1/DDA/3471-73 dated 29.9.1987.

Now as the position stands on date, there is no stay order on the land and so, reference to the same is without any meaning or substance. As regards Clause 13 of the Agreement referred by you, the same is applicable under the circumstances when further execution of work beyond the particular stage is not required by the Department and is to be deleted altogether. To no stretch of imagination, Clause 13 can be applied in the manner as is being sought to be applied at you end and in not getting the work done from the agency to whom the contract has been awarded, though land/site is available with the Department. I, on my part, is agreeable to execute further work at the rates permissible in terms of the contract. The department is making an attempt to mis-apply the provisions of Clause 13 with a view to deprive me of my legitimate right which has accrued in terms of the contract. I believe, the Department shall appreciate the factual position and allow me to execute further work on the land where piling job is to be taken up by the Department recently.

Summing up, I would state that the manner in which Clause 13 is being applied, is not justified and is uncontractual, as well. If the department chooses to mis-apply the same and proceed further as stated in the letter, I may make it clear that the Department shall make itself liable of consequences arising out of it.

I believe, the Department shall consider the complete factual position in its true perspective and withdraw the aforesaid letter allowing me to execute further work on the rates as permissible in terms of the contract.

This is without prejudice to any other right or remedy.

3. In the month of January 1989, the respondents had issued a notice inviting tenders bearing No. NIT 26/EE/SCD-1/88-89/DDA for the remaining 4 blocks of the work in question to which the petitioner had also objected and had written a letter on 31.1.1989. As already informed to the DDA, the petitioner stated that he was willing to complete the work at the same rates. Despite this, the work of the petitioner was curtailed and the work was allotted to a third party. In the meantime, amongst the above, other disputes also arose between Mr. O.P. Sharma, the Contractor, and the DDA and the contractor thus, invoked the arbitration clause of the agreement executed between the parties. In reference to the notice served, the respondent No. 2 had appointed an Arbitrator vide letter dated 3.1.1991. During the pendency of the arbitration proceedings, Sh. O.P. Sharma expired on 6.2.1991 and his legal representatives were brought on record. The Arbitrator entered upon the reference and the appellants raised three claims in their petition. The Arbitrator after completing his proceedings in accordance with law made and published his award dated 15.11.1991, a copy of which was served upon the appellant on 17.11.1991, who filed a petition under Section 14 to 17 of the Arbitration Act, 1940 (hereinafter referred to as the) read with Section 3 of the Interest Act stating, that the award be made Rule of the Court. The respondents also filed objections under Section 30 and 33 of the Arbitration Act. Claim No. 1 was decided in favor of the appellants and they were allowed a sum of Rs. 1,89,600/- by the Arbitrator on account of damages as the curtailment of work was found to be unjustified by the Arbitrator. The learned Single Judge vide his judgment and decree dated 24.11.1998 rejected all the claims of the claimant primarily expressing the view that in terms of Clause 13, the appellants were not entitled to any damages or compensation on account of curtailment of the work and the remaining claims primarily relating to award of interest on the said sum could also not be granted to the appellants. The appellants being aggrieved from the judgment of the learned Single Judge has filed the present appeal which is contested by the respondents.

4. Learned Arbitrator while dealing with the claim No. 1 relating to deprivation of profits because of the unjustified action on the part of the respondents in curtailment of scope of work recorded a finding that the curtailment was totally unjustified and was an outcome of illegal action of the respondents in misusing the terms of the contract. The following finding of the Arbitrator could usefully be referred at this stage:

The fact on record had established a case that further execution of work, the respondents did not require the whole work there or as specified in the tender and thereafter in the contract. While the claimant was still executing the work under the contract, the respondents in fact entered into another contract for execution of work relating to four blocks, unjustifiably withdrawn.

Accordingly, the action of the respondents was an outcome of misapplying the provisions of Clause 13 of the contract. By execution of contract, both the parties are bound by the rights & liabilities as envisaged. On a/c of unjustified action on the respondents, the claimant was deprived off his right to earn profit to which he was legally entitled. The element of profit out of the aforesaid work/contract is found justified to the extent of 8% if value of the work. Accordingly, I allow a sum of Rs. 1,89,600/- in favor of the claimant on a/c of damages.

5. The above finding of the Arbitrator was set aside by the learned Single Judge of this Court while interpreting Clause 13 of the Contract. The said clause on the interpretation of which the entire controversy in the present case revolves, reads as under:

CLAUSE 13

If at any time after the commencement of the work the Authority shall for any reason whatsoever not require the whole thereof as specified in the tender to be carried out, the Engineer-in-Charge shall give notice in writing of the fact to the contractor who shall have no claim to any payment of compensation whatsoever on account of any profit or advantage which he might have derived from the execution of the work in full, but he did not derive in consequence of the full amount of the work not having been carried out, neither shall he have any claim for compensation by reason of any alterations having been made in the original specifications, drawings, designs and instructions which shall involve any curtailment of the work as originally contemplated.

Provided that the contractor shall be paid the charges on the cartage only of materials actually and bona fide brought to the site of the work by the contractors and rendered surplus as a result of the abandonment or curtailment of the work or any portion thereof and then taken back by the contractor provided however, that the Engineer-in-Charge shall have in all such cases the option of taking over all or any such materials, at their purchase price or at local current rates whichever may be less. In the case of such stores having been issued from D.D.A. Stores and returned by Contractor to D.D.A. Stores, credit shall be given to him by the Engineer-in-Charge at rates not exceeding those at which they were originally issued to him, after taking into consideration and deduction for claims on account of any deterioration or damage while in custody of the contractor and in this respect the decision of the Engineer-in-Charge shall be final.

6. The learned Single Judge while relying upon the judgments of the Supreme Court in the case of New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corporation : [1997]2SCR86 and Sudershan Trading Company v. Government of Kerala : [1989]1SCR665 held that as per the ratio of the judgments of the Supreme Court, the Arbitrator was bound by the terms and conditions of the Contract including that no compensation could be payable to the Contractor for curtailment or withdrawal of the work. The Arbitrator had exceeded his jurisdiction and had acted contrary to the terms of the contract in awarding the claim of compensation for loss of profit on account of curtailment of work.

7. The learned Counsel appearing for the petitioner while relying upon the judgments of this Court in the case of Madhok Construction Co. Ltd. v. Union of India : 71(1998)DLT599 , Ultra Builders v. Municipal Corporation of Delhi 2002 I AD (Delhi) 90 and Sita Constructions Col. v. Union of India : 69(1997)DLT697 argued that the findings recorded by the Arbitrator after looking into evidence and on basic principle of fairness would not be disturbed by the Court, as this Court is not a Court of appeal and awarding of claim relating to loss of profit on the estimated cost of construction in terms of Section 73 of the Contract Act was a finding recorded in consonance with the terms of the contract and did not call for any interference.

8. While on the other hand, the learned Counsel appearing for the respondents in addition to the two judgments relied upon by the learned Single Judge, also relied upon Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises and Anr. : AIR1999SC3627 to argue that any award in violation of the terms of the contract would tantamount to exceeding of jurisdiction by the Arbitrator and thus, would be liable to be interfered with.

9. We can hardly find fault in the submissions of the respondents that an Arbitrator would commit an error of jurisdiction if he awards a claim prohibited under the terms of the Agreement. The Arbitrator is bound, like the parties, to act in terms of the agreement as the very reference to the Arbitrator arises from the contract. This preposition of law needs no discussion as it has been settled by various judgments of the Supreme Court including the afore noticed judgments and thus, is no more rest integra. But the real question to be determined in the present case is whether the respondents have invoked and/or taken recourse to clause 13 in terms of the spirit of the clause and the law relating thereto. The Arbitrator in his award had taken the view that the action of the respondents was an outcome of misapplying of the provisions of Clause 13 of the Contract and the claim of the claimants, thus, was maintainable. In other words, the prohibition of the bar contained in Clause 13 would become operative only if recourse to the said clause is bonafide, proper and is not arbitrary. However, the learned Single Judge while dealing with this controversy formed an opinion that in face of the bar contained in the said Clause the Arbitrator exceeded his jurisdiction in allowing the claim of the claimants.

10. Having heard the learned Counsel appearing for the parties at some length, we are of the considered view that the real controversy in the present case relates to the justification or otherwise for invoking Clause 13, and not to the question whether awarding of the compensation/damages in face of Clause 13 was permissible or not. It cannot be disputed that the bare language of Clause 13 clearly shows that the claim for damages or compensation on account of curtailment of work was not permissible. If the curtailment of work itself is arbitrary and contrary to the law, the terms of the contract and the law of contract, in that event the effect of the bar of prohibition contained in the said clause would lose its impact.

11. In view of the fine distinction noticed by us, it is necessary to discuss the language of Clause 13 in some elucidation. Clause 13 comes into operation after the work has been commenced. Thereafter, if the authority for any reason, whatsoever, is of the opinion that the work to be performed is not required to be completed or performed, then the authority after giving a notice could curtail the scope of the work and in that circumstances the claimant would not be entitled to claim loss or damages from the authority. Thus, the intention of the parties to the contract has to be construed from the words not required and no claim to any payment of compensation whatsoever on account of any profit or advantage which he might have derived from the execution of the work in full. Despite such curtailment of work in accordance with Clause 13, the Contractor still would be entitled to be paid the charges on cartage of materials, bonafidely brought by him to the site. The formation of an opinion by the Authorities that the work is not required to be completed and the curtailment of work as per specifications, in terms of the tender was required to be bonafide and reasonable. It is a settled principle that the parties to a contract have to and are expected to act bonafidely and not take undue advantage under the terms of the contract particularly for their own fault. In the case of Madhok Constructions (supra) in somewhat similar circumstances and while relying to the same clause, the Court held as under:

13. The contention that Clause 13 will bar the award in favor of the petitioner claimant is equally without force as the reading of this clause which has already been enumerated hereinabove will establish that it will only be applicable "if at any time after the commencement of the work the President of India shall for any reason whatsoever not require the whole or all as specified in the tender to be carried out the Engineer-in-charge shall give notice in writing of the fact to the contractor who shall have no claim to payment of any compensation whatsoever." The assessment of this clause by the learned Arbitrator that this will have application only in situation where the work is restricted and the same is not to be carried out at all at a later date through any other agency cannot be faulted as there cannot be any other interpretation which will be just, reasonable and harmonious. The assessment of loss of profit to the extent of Rs. 1,85,000/- as granted by the learned Arbitrator seems just, fair and reasonable though no reasons have been assigned for arriving at this figure. The petitioner claimant had claimed a sum of Rs. 15,66,239.60 as loss of profit on the basis of 20% of a sum of Rs. 78,31,198.18 as value of contract allotted to another agency after withholding the work from the claimant. The Supreme Court in A.T. Brij Paul Singh and Bros. v. State of Gujarat : AIR1984SC1703 has accepted the mode of assessing the amount under this head in the following manner:

What would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. In this case we have the additional reason for rejecting the contention that for the same type of work, the work site being in the vicinity of each other and for identical type of work between the same parties, a Division Bench of the same High Court has accepted 15% of the value of the balance of the works contract would not be an unreasonable measure of damages for loss of profit. We are Therefore, of the opinion that the High Court was in error in wholly rejecting the claim under this head.

14. Therefore, in view of the above no infirmity can be found in respect of this claim as well.

12. From the facts of the present case, it is clear that the work originally allotted to the Contractor was for construction of 18 blocks and vide their letter dated 29.9.1987, the DDA had written a letter to the contractor stating that the site for 4 blocks would be handed over to the Contractor as soon as the same is handed over to them by the Land Department. On 10.8.1988, another letter was written invoking Clause 13, and stating that the work is likely to be curtailed for 14 blocks as there was a stay in respect of the lands required for remaining blocks. The contractor had replied to the said letter on 29.8.1988 stating that he is willing to perform the work as and when the site is available and at the same cost and thus there was no occasion for invocation of Clause 13. However, the DDA had curtailed the work at a point of time when there was no stay in force. Further, the act of the DDA appears to be more arbitrary, as in January89 immediately after curtailing the work of the petitioner to 14 blocks, they invited tenders for the 4 blocks vide notice inviting tender bearing NIT No. 26/EE/SED-1/88-89/DDA. Even thereafter, the appellant had protested and had shown definite interest in completing the work at the same rates and specifications as contained in the tender awarded to the petitioner. It was in these circumstances that the petitioner raised a claim for deprivation of profit not on account of curtailment per se but primarily for the reason that the invocation of the Clause 13 was arbitrary and unjustified. This plea of the petitioner was accepted by the Arbitrator based on records, evidence and contentions of the parties. Thus, the acceptance of the claim by the Arbitrator cannot be termed as without jurisdiction, as the concept of requirement as contemplated under the terms of the agreement is on reasonable and bonafide basis. The authorities cannot take advantage of their own wrong to the disadvantage of the appellants. Firstly, different reasons and different time was given for curtailment of work of 4 blocks, secondly, admittedly the stay order was not in operation when the Authorities passed an order for curtailment of work and finally, they asked for fresh tenders despite a specific request of the Contractor that he would perform the work as per the original rates. It is not even the case pleaded before us that some public interest was served and the rates received by them in the subsequent tenders were cheaper or were to the advantage of the DDA in comparison to the rates given by the Contractor. In these circumstances, we are of the considered view that the invocation of Clause 13 by the respondents lacks bonafides.

13. In view of the above discussion, we set aside the order of the learned Single Judge and allow the claim of the claimants in terms of the award of the Arbitrator. However, in the facts and circumstances of the case, we leave the parties to bear their own costs.

Advocates List

For Petitioner : Ravi Gupta, Adv For Respondent : Anil Sapra, Adv.

For Petitioner
  • Shekhar Naphade
  • Mahesh Agrawal
  • Tarun Dua
For Respondent
  • S. Vani
  • B. Sunita Rao
  • Sushil Kumar Pathak

Bench List

HON'BLE JUSTICE SWATANTER KUMAR

HON'BLE JUSTICE J.M. MALIK

JJ.

Eq Citation

2007 (93) DRJ 772

LQ/DelHC/2006/2774

HeadNote

- Interpretation of Clause 13 of the Contract - Arbitrator held that curtailment of work by DDA was unjustified and a result of misapplication of Clause 13 - Single Judge set aside the Arbitrator's award, relying on Supreme Court judgments. - Legality of Arbitrator's Award - Whether Arbitrator exceeded jurisdiction in awarding compensation for loss of profit despite the bar in Clause 13 - Court held that Arbitrator's award is valid if curtailment of work is arbitrary and contrary to law and contract. - Invocation of Clause 13 - Requirements for valid invocation - Authorities must act bona fide and reasonably - They cannot take advantage of their own wrong to the disadvantage of the contractor. - Facts of the Case - DDA initially allotted work for 18 blocks but later curtailed it to 14 blocks, citing a stay order - Stay order was not in operation when the curtailment order was passed - DDA invited fresh tenders for the remaining 4 blocks despite the contractor's willingness to complete the work at the same rates. - Conclusion - Court set aside the Single Judge's order and allowed the contractor's claim as per the Arbitrator's award - Parties to bear their own costs.