MANU/DE/0844/2008

Equivalent Citation: (2008)2C ompLJ245(Del)

IN THE HIGH COURT OF DELHI

OMP Nos. 48 and 56 of 2008
Decided On: 23.01.2008
Appellants: Municipal Corporation of Delhi
Vs.
Respondent: D. Pal and Company
[Alongwith OMP Nos. 50, 51, 52, 54, 55 and 57 of 2008]
Hon'ble Judges/Coram:
Badar Durrez Ahmed, J.
Counsels:
For Appellant/Petitioner/plaintiff: Amita Gupta, Adv
For Respondents/Defendant: Ansuya Salwan and Renuka Arora, Advs.
JUDGMENT
Badar Durrez Ahmed, J.
1 . The learned Counsel for the respondents in each of these matters has entered
appearance after noting the same in the cause list. She states that she is ready to
argue the matter on the papers already filed.
2 . These eight petitions have been filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the said Act) challenging separate
awards but all dated 31.10.2006 passed by the same sole arbitrator, Mr R.S. Jindal.
The objections taken in respect of the awards (which are more or less identical) are
the same and it is for this reason that this batch of petitions is being disposed of by
this common order.
3. These cases have had a chequered history and, Therefore, it would be necessary to
set out some facts. Certain disputes had arisen between the parties. Notices were
issued by the respondents to the petitioner invoking the arbitration clause (Clause
25) and seeking the appointment of a sole arbitrator in terms thereof. No response
was received by the respondents and consequently the Respondents filed petitions
under Section 11 of the said Act for appointment of arbitrators. These petitions came
up before the learned civil judge who disposed of the same by an order dated
30.07.2003. The learned Single Judge was of the view that the respondents had
accepted payments made by the petitioner after the issuance of the final bill and,
Therefore, there remained no arbitral dispute. The learned civil judge had also
considered the arbitration clause which stipulated that if no claim is made within 90
days of the bill being ready for payment then the contractor would be deemed to
have waived his claims and would be absolutely barred from raising any such claim
and the petitioner would be discharged and released of all liabilities under the
contract. According to the learned civil judge, since the respondent had not made the
claim within the said stipulated period, no dispute survived and, Therefore, there was
no question of invoking the arbitration clause. Consequently, the learned civil judge

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dismissed the petitions filed on behalf of the respondents for appointment of an
arbitrator. Being aggrieved, the respondents herein filed several writ petitions before
this court. Those writ petitions were disposed of by a common order dated 7.2.2005
passed in WP(C) No. 6209/2003 and other connected matters. The division bench
was of the view that the learned civil judge, being a designated authority under
Section 11(6) of the said Act, exercises administrative powers and not judicial
powers. This statement of law was obviously based on the understanding as was then
current in view of the decision of the Supreme Court in the case of Konkan Railway
Corporation Ltd. and Anr. v. Rani Construction (P) Ltd. MANU/SC/0053/2002 :
[2002]1SCR728 .
4 . The division bench also concluded that the learned civil judge had assumed
jurisdiction which was not vested in him inasmuch as he had given a decision on
merits and had also decided the issue on the question of limitation! Consequently,
the division bench set aside the order dated 30.07.2003 passed by] the learned civil
judge and appointed Mr R.S. Jindal, retired Chief Engineer of DDA, as the sole
arbitrator to decide the disputes between the parties. The; petitioner herein, being
aggrieved of the said decision of the Division Bench, filed; special leave petitions
before the Supreme Court. During the pendency of the said special leave petitions,
the arbitrator proceeded with the arbitration and concluded the same by making the
impugned awards dated 31.10.2006. On 5.1.2007, the special leave petitions came
up for consideration before the Supreme Court whereupon the Supreme Court granted
leave and, in view of the decision rendered by the Constitution Bench in SBP and Co.
v. Patel Engineering Ltd and Anr. (2006) 2 Comp L J 7 : MANU/SC/1787/2005 :
(2005) 8 SCC 618, set aside the order of the division bench dated 7.2.2005 and
remitted the matter to the High Court for a fresh decision in the light of the judgment
of the Constitution Bench. It would be relevant to note that when the Supreme Court
passed the order dated 5.1.2007, the Supreme Court was apparently not informed of
the making of the awards in the meanwhile.
5. When the writ petitions were again taken up before the division bench, on remand
from the Supreme Court, various issues were examined. Ultimately, the division
bench disposed of the writ petitions by a common judgment and order dated
20.9.2007. The division bench, by virtue of its order dated 20.9.2007, considered the
stipulation with regard to the claim being made within 90 days as contained in the
arbitration clause between the parties. After considering several decisions of the
Supreme Court as well as the provisions of Section 28 of the Contract Act, 1872, the
division bench observed as under:
Considering the facts and circumstances of the case and in view of Section
28 of the Contract Act, we are of the considered opinion that it could not be
appropriate to hold that the right of the petitioners to demand arbitration in
respect of claims raised stands extinguished and the respondent-Municipal
Corporation of Delhi is discharged and released from all its liabilities as the
said claims were not made within the period of 90 days from the date of
intimation about the final bill. The clause relied upon by the respondent-MCD
is void and hit by Section 28 of the Contract Act. No other contention or
ground was raised to support the contention that the application under
Section 11 of the Act is barred by limitation.
6. The net result being that the division bench was of the view that the finding of the
learned civil judge with regard to the stipulation of 90 days coming in the way of the
respondents was not the correct position in law.

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7 . The division bench thereafter disposed of the writ petitions by permitting the
petitioner herein to file objections to the awards under Section 34 of the said Act. It
is in these circumstances that the present petitions have been filed.
8 . The learned Counsel appearing on behalf of the petitioner submitted, first of all,
that de hors the question of limitation with regard to the said clause containing the
stipulation of 90 days, which issue had been decided by the division bench, the
petitioner still had the preliminary objections that there could not be any reference to
arbitration in terms of clause 25 inasmuch as the procedure prescribed for invoking
the said arbitration had not been followed by the respondents. To appreciate this
submission, it would be necessary to examine Clause 25. The same reads as under:
Statement of Disputes and Arbitration
Except where otherwise provided in the contract all questions and disputes
relating to the meaning of the specifications, design, drawings and
instructions here-in-before mentioned and as to the quality of workmanship
or materials as used on the work or as to any other question, claim, right,
matter or thing whatsoever in any way arising out of or relating to the
contract, designs, drawings, specifications, estimates, instructions, orders or
these conditions or otherwise concerning the works or the execution or
failure to execute the same whether arising during the progress of the work
or after the cancellation, termination, completion or abandonment thereof
shall be dealt with as mentioned hereinafter:
(i) if the contractor considers any work demanded of him to be
outside the requirements of the contract, or disputes any drawings,
record or design given in writing by the Engineer-in-charge on any
matter in connection with or arising out of the contract of carrying
out of the work, to be unacceptable, he shall promptly within 15
days requested the superintending Engineer in writing for written
instruction or decision. Thereupon, the Superintending Engineer shall
give his written instructions or decision within a period of one month
from the receipt of the contractor's letter.
If the Superintending Engineer fails to give his instructions or
decision in writing within the aforesaid period or if the contractor is
dissatisfied with the instructions of decision of the Superintending
Engineer, the contractor may, within 15 days of the receipt' of
Superintending Engineer's decision, appeal to the Chief Engineer
who shall afford an opportunity to the contractor to be heard, if the
latter so desires, and to offer evidence in support of his appeal. The
Chief Engineer shall give his decision within 30 days of receipt of
contractors appeal. If the contractor is dissatisfied with the decision
the contractor shall within a period of 30 days from receipt of the
decision, give notice to the Commissioner MCD for appointment of
arbitrator failing which the said decision shall be final binding and
conclusive and not referable to adjudication by the arbitrator.
(ii) Except where the decision has become final binding and
conclusive in terms of sub-paragraph (i) above disputes or difference
shall be referred for adjudication through arbitration and sole
arbitrator appointed by the Commissioner MCD. If the arbitrator so

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 appointed is unable or unwilling to act or resigns his appointment or
vacate his office due to any reason whatsoever another sole
arbitrator shall be appointed in the manner aforesaid. Such person
shall be entitled to proceed with the reference from the stage at
which it was left by his predecessor.
It is a term of this contract that the party invoking arbitration shall give a list
of disputes with amounts claimed in respect of each such dispute along with
the notice for appointment of arbitrator and giving reference to the rejection
by the Chief Engineer of the appeal.
It is also a term of this contract that no person other than a person appointed
by such Commissioner MCD as aforesaid should act as arbitrator and if for
any reason that is no possible, the matter shall not be referred to arbitration
at all.
It is also a term of this contract that if the contractor does not make any
demand for appointment of arbitrator in respect of any claims in writing as
aforesaid within 120 days of receiving the intimation from the Engineer-in-
charge that the final bill is ready for payment, the claim of the contractor
shall be deemed to have been waived and absolutely barred and the MCD
shall be discharged and released of all liabilities under the contract in respect
of these claims.
9 . It is the contention of the learned Counsel for the petitioner that the
superintending engineer is required to be requested for written instructions within 15
days of any dispute arising under the contract. Thereafter, The superintending
engineer is required to give his written instructions or decision within the period of
one month from the receipt of the contractor's letter. The clause speaks of further
steps to be taken and an appeal to the Chief Engineer is also provided for. It is only
after following the said procedure that, if the contractor is dissatisfied with the
decision of the Chief Engineer, a notice can be given to the Commissioner MCD for
appointment of the arbitrator.
10. The learned Counsel for the petitioner submitted that since this procedure was
admittedly not followed, Therefore, the question of appointment of an arbitrator and
going in for arbitration did not at all arise and the entire proceeding, including the
impugned awards, are liable to be set aside on this ground alone. This issue was
raised before the learned arbitrator who, inter alia, held:
Even otherwise also the claims made by the claimant are outside the preview
of the said procedure. As per the said procedure only those disputes/claims
wherein works demanded of the claimant were outside the requirements of
the contract or which disputed the drawings, records or decision given in
writing by the engineer-in-charge were required to be referred to the
superintending engineer by the claimant for decision and were ultimately
arbitrable if the claimant was not satisfied with the decisions of the
superintending engineer/chief engineer. However, the claims raised by the
claimant in the present case pertain to compensation/damages on account of
the idle establishment, tools and plants, pre-suit, pendente lite and future
interest and cost of arbitration proceedings which apparently do not fall in
the category of disputes required to be referred to the superintending
engineer for decision.

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11. I agree with the conclusion arrived at by the learned arbitrator. The procedure for
requesting the superintending engineer etc is applicable only when the contractor
considers any work demanded of him to be outside the requirements of the contract
or where the contractor disputes any drawings, record or design given in writing by
the engineer-in-charge on any matter in connection with or arising out of the contract
or carrying out of the work to be unacceptable. The dispute in the present case does
not fall within these parameters. Consequently, the same would have to be construed
as a dispute falling within sub paragraph (ii) of Clause 25 of the agreement and the
dispute would be straightaway referable for adjudication through arbitration by a sole
arbitrator to be appointed by the Commissioner, MCD. This is exactly what the
respondents had sought to be done by issuing the invocation letters to the petitioner
which had gone un-responded. Left with no alternative, the respondents had
approached the court under Section 11 for appointment of arbitrators. The
appointments were made and ultimately the awards have been passed. Therefore, this
preliminary objection raised by the learned Counsel for the petitioner is not tenable.
12. All the impugned awards relate to the grant of interest on delayed payments after
raising of the final bills in terms of the final bills themselves. In some of the awards,
impugned herein, the respondents had made claims towards idle establishment but
all such claims have been rejected by the learned arbitrator. The learned arbitrator
has only awarded interest on the delayed payments of the final bill amounts as well
as interest on the delayed payments of security deposits. The learned arbitrator had
also awarded costs of Rs. 15,000 in each of the cases in favor of the respondents and
against the petitioner.
1 3 . Insofar as the findings of the learned arbitrator qua rejection of the claims
towards idle establishment are concerned, the same are accepted by both the
petitioner and the respondents. The only dispute that is sought to be raised by the
petitioner is with regard to the award on interest and the costs. According to the
learned Counsel for the petitioner, the rate of interest of 12% per annum is exorbitant
and the rate of interest ought to have been around 6% per annum. The second
contention is that the learned arbitrator had awarded interest on interest which is not
permissible. It is also contended that the learned arbitrator has awarded interest on
the security deposit amounts when there was no such: stipulation in the contract.
Finally, it is contended that the costs of Rs 15,000 awarded in each of the matters is
exorbitant. With regard to the rate of interest, the learned Counsel for the petitioner
had contended that the contractors are aware of the practice of delayed payments
and, Therefore, keeping that fact in mind they quoted their rates in the tender.
Consequently, the interest rate of 12% was exorbitant keeping in view this reality.
14. As regards the rate of interest, it must be pointed out that the respondents had
claimed 18% per annum. The learned Counsel for the respondents submitted that that
is the rate which is also prescribed under Section 31(7) of the said Act which would
be operative in case there is no agreement to the contrary. In any, event, the learned
arbitrator did not grant 18% per annum interest but granted the lower rate of 12%
per annum on the ground that the commercial rate of simple interest as charged by
the nationalised banks has not been less than 12%, per annum. It is on this basis
that the learned arbitrator awarded simple interest © 12% per annum after
considering it to be a reasonable rate in respect of the present case. Nothing contrary
was pointed out before the learned arbitrator or before this court. Consequently, I do
not see any reason to interfere with this finding and conclusion of the learned
arbitrator.

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1 5 . The next issue is with regard to the question of interest being charged on
interest. As an illustration, the facts in OMP 48/2008 are being taken. The arbitrator
has, in that case, awarded interest as indicated below:
So the total amount of interest under this claim, as payable by the
respondent to the claimant till the date of this award (31 October, 2006),
comes to:

So a total amount of Rs. 81,076 is awarded to the claimant as interest on

delayed payments and as pre-suit and pendente lite interest up to the date of
this award.
16. The computation given above shows that interest is being given on Rs 1,15,647
being the principal amount due under the final bill. The interest has been calculated
for the period from 25.03.2000 to 17.11.2003. The date of 25.03.2000 has been
taken because it is one month subsequent to the issuance of the final bill or in other
words the date on which the bill ought to have been paid. The date of 17.11.2003
has been taken because it is on that date that a sum of Rs. 1,15,647 was paid by the
petitioner to the respondents. The interest for this duration has been computed on
Rs. 1,15,647. The second calculation is with regard to the interest on the sum of Rs.
50,556 from 18.11.2003 to 31.10.2006 (i.e. the date of the award). The learned
Counsel for the petitioner contended that the interest amount of Rs. 17,903 on the
amount of Rs. 50,556 cannot be awarded as that would amount to granting interest
on interest. I am unable to agree with this contention of the learned Counsel for the
petitioner. This is so because on 17.11.2003 an amount of Rs. 1,66,203 had become
due towards principal (Rs 1,15,647) and interest (Rs. 50,556). The payment of Rs.
1,15,647 on 17.11.2003 would first be appropriated towards interest due and the
balance would have to be appropriated from the principal. Since, the interest due was
less than the payment made, a part of the payment made would also be appropriated
against the principal amount due. Therefore, the payment of Rs. 1,15,647 on
17.11.2003, completely exhausted the interest due as on that date as also part of the
principal which was due. The balance amount of Rs. 50,556 cannot be regarded as
interest but as portion of the principal which was initially due. Therefore, the
petitioner's contention that interest being charged on this amount of Rs. 50,556
would be interest on interest is not tenable. The same reasoning would apply for the
computation of interest of Rs. 1,758 in respect of the security deposit amount.
17. As aforesaid, the learned Counsel for the petitioner had also raised the issue of
interest on the refund of the security deposit. According to her, there is no provision
in the contract for providing any interest on the said amount. The learned Counsel for
the respondents submitted that security deposits were refundable within the period of
six months and no interest was being charged for that duration of six months.
However, as the security deposit amounts were refunded beyond the period of six
months, Therefore, the same were subject to payment of interest. It is clear that
there is no provision for interest being paid on the security deposit amounts.
However, there is also no provision prohibiting any such payment. When the contract

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stipulates that the security deposit is to be refunded within six months of the
completion of work then the petitioner ought to have refunded the same within the
stipulated period. If the petitioner retained the same beyond the period of six months
then the petitioner would in normal circumstances be liable to pay interest thereon
for the retention of the said amount beyond the period of the contract. I see no
infirmity in the award insofar as the interest is being paid on the retention of the
security deposits beyond the period of six months till the date of payment.
Consequently, this contention of the learned Counsel for the petitioner is also not
acceptable.
18. As regards costs, there is no material before me to take a view either way as to
whether the costs are exorbitant or they are not. The arbitrator has awarded a sum of
Rs. 15,000 by way of costs in each of the cases.
1 9 . I she no reason to interfere with this finding. As a result of the foregoing
discussion, these petitions are dismissed.

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