Delhi High Court
Uoi vs M/S Rama Construction Company on 25 February, 2026
Author: Jasmeet Singh
Bench: Jasmeet Singh
$~J
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 01.11.2025
Judgment pronounced on: 25.02.2026
+ O.M.P. (COMM) 312/2020
UNION OF INDIA .....Petitioner
Through: Ms. Pratima N Lakra, CGSC, Ms.
Kanchan Shakya, Mr. Shailendra
Kumar Mishra, Mr. Shivansh
Bansal, Advs.
versus
M/S RAMA CONSTRUCTIONS COMPANY .....Respondent
Through: Mr. Avinash Trivedi, Ms. Ritika
Trivedi, Mr. Anurag Kaushik, Mr.
Rahul Aggarwal, Advs.
CORAM:
HON'BLE MR. JUSTICE JASMEET SINGH
JUDGMENT
1. This is a petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (“the Act”) seeking to challenge the Arbitral
Award dated 16.07.2014 (“Award”) passed by the learned Sole
Arbitrator, to the extent of claims awarded in respect of claim Nos. 1,
2, 4, 6, 8, 10, 11 and 12.
FACTUAL MATRIX AS PER THE PETITIONER
2. The petitioner i.e. Union of India, floated a tender dated 22.02.2008
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for execution of civil and electrical works with respect to one
Hostel/Media accommodation block in Jawaharlal Nehru Stadium
Complex, New Delhi. The cost of tender was stated to be Rs.
9,04,12,196/- inclusive of (Civil) Rs. 7,87,88,437/- and (Electrical)
Rs. 1,16,23,759/-, respectively, the assigned tender amount being Rs.
10,15,48,230/-.
3. The respondent, namely M/s Rama Constructions Company applied
for the said tender and was awarded the same. Pursuant thereto, a
letter of acceptance was signed on 05.04.2008. As per the Contract
Agreement (“CA”), the respondent was to complete the entire project
within a time frame of 9 months with stipulated dates for
commencement and completion of the project being 27.04.2008 and
26.01.2009, respectively.
4. For the sake of intelligibility it is clarified that the petitioner herein
was the respondent before the Arbitrator and the respondent herein
was the claimant before the Arbitrator. The respondent is referred as
the “contractor”, hereinafter.
5. The assigned work actually got completed on 26.09.2009 and the
requisite completion certificate was issued on 30.06.2010. However,
there are disputes with regards to the actual date of completion, which
according to the contractor is 12.08.2009.
6. Disputes arose between parties concerning the payment of rates of the
items for work executed by the contractor in excess of the work. The
petitioner made payment of Rs. 12,90,13,250/- for the composite work
done despite several deficiencies in the work but the contractor
proceeded to invoke the arbitration agreement contained in Clause No.
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25 of the CA to seek claim under 9 distinct heads of compensation in
respect of the additional work done on the ground that the petitioner
has arbitrarily changed the rates without informing the contractor,
amongst others.
IMPUGNED AWARD
7. Shri. Rajeev Kumar was appointed as the Sole Arbitrator but he
resigned on 05.12.2011. The chief engineer then appointed Shr. V.K.
Malik as the Sole Arbitrator, who has passed the impugned arbitral
Award to the extent of claim Nos. 1, 2, 4, 6, 8, 10, 11 and 12.
8. The Arbitrator granted Rs. 80,05,774/- along with interest on 5 claims
out of total 9 claims and also rejected the petitioners counter claims.
Hence, the present petition is filed.
SUBMISSIONS ON BEHALF OF THE PETITIONER
GENERAL CONTENTIONS
9. Ms. Lakra, learned CGSC, on behalf of the petitioner submits that the
Award is unjust, patently illegal and suffers from perversity, as the
Arbitrator has acted beyond his jurisdiction. The Award is contrary to
the provision contained in the Clause No. 2 of the CA which is related
to the meaning of the expression “work” or “works”.
10. The provision contained in Clause No. 18 of the notice inviting tender
has not been considered by the Arbitrator, the said clause clearly states
the tender to be a “Composite tender” i.e. inclusive of all civil,
electrical and mechanical works. The Arbitrator proceeded to Award
bonus to the contractor as per Clause No. 2A of the CA without
application of mind as the actual completion date was much beyond
the stipulated one. The Arbitrator was unjustified in holding that the
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contractor is entitled to bonus under Clause No. 2A as he failed to
consider that the petitioner granted extension of time vide letter dated
17.01.2011 to the contractor in accordance with his request upto
26.09.2009.
11. The Award is totally perverse and illegal inasmuch as it gave an unfair
advantage to the contractor in ignorance of contractual terms and is
based on incorrect interpretation of the Clause No. 9, which provided
that no further claim shall be made by the contractor after submission
of final bill and all such claims will be deemed to have been waived.
12. The Arbitrator has failed to take into consideration the material placed
on record and also the admitted facts on part of the contractor vide
letters dated 18.07.2009 and 28.07.2009, that the finishing work was
pending in addition to firefighting and electrical works.
13. It is also submitted that contractor has not tendered any proof or
evidence of actual loss suffered during execution of work. The
contractor also not issued any notice as contemplated under section 55
of the Indian Contract Act, 1872 (“the Contract Act“) specifying that
it had suffered any loss.
14. Ms. Lakra, further states that the Arbitrator being a creation of the
contract is bound by the four corners of the contract but the Award has
been passed in total ignorance of the terms of the CA, material placed
on record and submissions made by the petitioner. Thus, the Arbitrator
has exceeded his jurisdiction. In this regard reliance is placed on Steel
Authority of India Ltd. v. J.C. Budharaja, Government and Mining
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Contractor1, W.B. State Warehousing Corporation and Anr, v. Sushil
Kumar Kayan and Ors.2, Bharat Coking Coal Ltd. v. Annapurna
Construction3, Food Corporation of India v. Chandu Constructions4.
15. She also contends that the Arbitrator has acted in an arbitrary manner
in accepting the illegal and unjustified claims of the Contractor on
their face value without venturing into the genuineness of such claims
in terms of the contract and the material on record.
16. The Award deals with disputes not falling within the terms of
submission to arbitration and contains matter beyond its scope. The
same is liable to be set aside in accordance with Section 34(2)(a)(iv)
of the act and the same is also against public policy under Section
34(2)(b)(ii).
SPECIFIC CONTENTIONS CONCERNING INDIVIDUAL
CLAIMS
CLAIM NO. 1
17. The Claim No. 1 wherein an amount of Rs. 22,51,135/- is awarded to
the contractor is contended to be arbitrary, perverse and against the
agreement between the parties.
18. With regards to Claim 1.1.1., it is contended by the petitioner that the
process of calculation of market rate adopted by the Arbitrator was in
contravention of Clause No. 12 of the CA, which stipulated a
procedure to be adopted in order to determine the market prevalent
rates of extra items at the time of actual execution. The Arbitrator has
1
(1999) 8 SCC 122.
2
(2002) 5 SCC 679.
3
(2003) 8 SCC 154.
4
(2007) 4 SCC 697.
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overlooked the fact that the department had provided the contractor an
opportunity to substantiate and to provide the purchase vouchers to
verify the prevailing market rates. In the absence of the contractor
providing any supporting documents, the department had verified the
market rate and the same was approved and also accepted by the
contractor. Pursuant thereto, the final bill on sanctioned market rates
of Rs. 11,07,17,918/- has already been paid, and the contractor in his
composite final bill signed with a remark that the “bill and
measurement accepted up full and final settlement.”
19. It is submitted with regards to Claim No. 1.1.3(a) of about Rs.
72,738/- that the Arbitrator has allowed 2% VAT in ignorance of
details of the actual liability, as the market rates of materials adopted
in preparation of extra items already included VAT. This component
should have been settled by the Sales Tax Department. The petitioner
has not paid the VAT to the contractor in the extra items as the same
was not applicable in the work agreement. The additional VAT
became applicable on extra items only after Office memorandum
dated 20.08.2009, issued by Director General of Works, Central
Public Works Department (“CPWD”).
20. It is also submitted that the Award is baseless and perverse in respect
of Claim 1.2.1 of Rs. 68,338. The Arbitrator allowed payment for
quantities beyond the deviation limit of 30%. The Arbitrator has
wrongly calculated the amount.
21. The learned counsel has also challenged the Claim no.
1.1.3(b.2.2)(ix): E.I. 2/18: (a) & (b), on the ground of inconsistency in
the reasoning of the Arbitrator, wherein the Arbitrator rightly rejected
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the higher rate claimed by the contractor but erroneously accepted the
higher labour component.
22. Claim Nos. 1.1.3(b.2.3)(ii), 1.1.3(b.2.3)(iv) and 1.1.3 (b.2.3)(v), are
also challenged on two grounds; firstly, that there is no analysis of
rates filed for these items and secondly, the items are already paid
under separate agreement items.
CLAIM NO. 2
23. At the outset, it is contended by the learned counsel that the
withholding of the amounts by the petitioner were justified and were
in consonance with the terms of the agreement.
24. As regards the Claim No. 2.1 and 2.2 it is contended that the amount
was withheld for non-submission of requisite drawings and plans.
25. The contention raised qua the Claim No. 2.2.3 by the petitioner is that
the defects arose during the maintenance period leading to
withholding of the amount as despite the contractor being informed of
the defects, the contractor did not rectify the same.
26. Further, concerning the Claim No. 2.2.4 it is stated that the same was
withheld because the contractor failed to comply with the environment
management action plans regarding noise and dust pollution to be
checked during execution. The Claim No. 2.4 was also withheld on
the ground of deficiency in the minor repair and painting work.
CLAIM NO. 4
27. The learned counsel for the petitioner states that the Arbitrator has
erroneously awarded the claim for the watch and ward of the premises
after the completion of the project i.e. from 27.09.2009 to 29.11.2009.
The said project was completed on 26.09.2009 and thereafter, no
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watch and ward facility of the building and premises was provided by
the contractor and the petitioner never requested for the same.
CLAIM NO. 6
28. The Award of the bonus in Claim No. 6.1 under Clause No. 2A of the
CA is contended to be without application of mind by the Arbitrator as
the Clause No. 2A contemplated bonus in a situation where the work
is completed before the scheduled completion time. In the present
factual scenario, the work was completed in the extended period.
Additionally the contractor agreed while getting extension of time that
it would not claim any extra due to this delay. Further in the Award of
Claim No. 6.2, the Arbitrator has failed to appreciate the fact that the
contractor has already been paid for contractor profit and overheads
and with regards to this claim the contractor has not proved any actual
damage or loss suffered, which is required under Section 73 of the
Contract Act.
29. The Claim No. 6.4 is also challenged on the ground that it was the
responsibility of the contractor to extend the bank guarantee until all
contractual commitments are fulfilled by them and the same were not
fulfilled before 09.03.2011.
CLAIM NO. 8
30. It is contended by the learned counsel for the petitioner that there has
been no delay on their part to pay the requisite bills raised by the
contractor after they were duly corrected. The bills dated 26.10.2009
and February 2011 were based on inflated rates for the deviated
quantities and extra/substituted items. The said bills were withdrawn
and then the corrected running bills were immediately paid.
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31. The other interest components awarded by the Arbitrator are also
assailed on the ground that the claims are wrongfully awarded and
hence, the interest also deserves to be set aside.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
32. Mr. Trivedi, learned counsel for the respondent, challenges the
maintainability of the petition and states that the same is barred
because a detailed Award has been passed the Arbitrator after
appreciation of all the facts put forth before him. The same cannot be
challenged under Section 34 of the Act as the scope of interference is
very limited and the principles for testing an arbitral Award as laid
down in a catena of judgments are not met. Reliance is placed on
Associate Builders v. Delhi Development Authority5, Ssangyong
Engineering & Construction Co. Ltd. v. National Highways Authority
of India (NHAI)6.
33. He states that, the petition is in the nature of the replacing the
interpretation of the Arbitrator with that of the petitioner. It is the
exclusive domain of the Arbitrator to interpret the terms and
conditions of the Contact and a mere erroneous interpretation of
documents/evidence should not be interfered by Courts under Section
34. Reliance is placed on State Trading Corporation Ltd. v. Toepfer
International Asia PTE Ltd.7.
34. The Award is based on cogent reasons and detailed explanation, and
the Arbitrator has even referred to Delhi Schedule of Rates (“DSR”)
to hold that the lesser rate out of the claimed or DSR have been
5
(2015) 3 SCC 49.
6
(2019) 15 SCC 131.
7
2014 SCC Online Del 3426.
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allowed to the contractor. Additionally, the rates already paid higher
than the DSR have not been disturbed i.e. once the rate of item is
allowed in RA bills, the same has not been reduced later on. Since, as
per Clause No. 12, the Engineer-in-charge was the approving
authority for the purpose of rates of extra/substituted items and once
the rate is approved by him, it attained finality. Reliance is placed on
Union of India v. Rama Constructions8, affirmed by Union of India v.
Rama Constructions9.
35. Mr. Trivedi further states that the Arbitrator with regards to Claim No.
1.1.3 has conducted a detailed appreciation of the terms of contract
and notification issued by the CPWD to determine the rate of extra
items and the substituted items by relying on DSR rates. The
Arbitrator has held that the petitioner has failed to decide the
extra/substituted items at the execution of work and never informed
the contractor about the payable rates. However, at the time of
payment the petitioner decided its own rates, which were found to be
incorrect.
36. With regards to the Claim No. 2, the learned counsel submits that the
Arbitrator on appreciation of evidence placed before him,
categorically held that the action of the petitioner deducting and
withholding the amount from the bill payable to the contractor is
illegal and unjust.
37. It is also submitted that the Arbitrator in respect of Claim No. 4 has
clearly held that the contractor provided the requisite security to the
8
O.M.P. NO. 175/2015, decided on 15.02.2019.
9
FAO(OS) No. 72/2019, decided on 09.04.2019.
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building and premises and that three watchmen were sufficient to
provide the required security for the said period of 27.09.2009 to
29.11.2009.
38. Apropos the Claim No. 6.1, it is reiterated by the counsel for the
contractor that the said challenge as raised by the petitioner is seeking
reappreciation of a fact based finding, and interference with the same
is not amenable to Section 34 jurisdiction. The contention of the
petitioner raised before the Arbitrator that the claim is not in
accordance with Clause No. 2A of the CA as the work was not
completed within stipulated time, the same was declined by the
Arbitrator by a reasoned finding. Reliance is placed on Union of India
v. NN Buildcon Pvt. Ltd.10, Union of India v. Rama Constructions
(Supra), Union of India v. Rama Constructions (Supra).
39. Further, with regards to Claim Nos. 6.2 and 6.4 the Arbitrator awarded
damages and loss of bank charges for renewing the bank guarantees in
the extended period on the ground that the delay in completion of
work was attributable to the petitioner. This being a finding of fact
needs no interference.
40. The counsel further submits that as regards the Claim No. 8, the
Arbitrator has exercised his power and awarded interest on the
awarded amount at the rate of 10% per annum. There was no negative
covenant barring the grant of interest. In this regard the Arbitrator has
relied on M/s Hyder Consulting UK Ltd. v. Governor of Orissa11.
ANALYSIS AND FINDINGS
10
FAO(OS) No. 438/2015 decided on 01.09.2015.
11
AIR 2015 SC 856.
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41. I have heard the learned counsels for the parties and perused the
material and documents placed on record.
SCOPE OF INTERFERENCE UNDER SECTION 34 OF THE
ACT
42. The scope of interference under section 34 of the Act is by now well
settled and delineated. The Court is not required to sit in appeal as an
appellate court over the Award, it cannot venture an inquiry into the
Award by reappreciation of evidence or reinterpretation of the terms of
the contractual agreement merely because another view may be
possible. Judicial intervention is permitted only on limited and specific
grounds, as enumerated under Section 34 of the Act. These instances
warranting interference include incapacity of a party, invalidity of the
arbitration agreement, procedural irregularities, denial of a fair hearing,
and the Award being in conflict with the public policy of India. The
Court is not required/empowered to reappreciate evidence or substitute
its own view for that of the Arbitral Tribunal. As constantly reiterated,
Section 34 of the Act, embodies the principle of minimal judicial
interference, thereby preserving the foundational precept of the Act, the
finality and efficacy of arbitral awards. In this regard, reliance is placed
on the judgments of the Hon„ble Supreme Court in Associate Builders
(Supra) and Delhi Airport Metro Express (P) Ltd. v. Delhi Metro Rail
Corporation Limited12.
43. One of these grounds enumerated under Section 34(2)(b)(ii) of the Act
relates to public policy of India, which is delineated by the Hon‟ble
Apex Court in the case of OPG Power Generation (P) Ltd. v. Enexio
12
(2022) 1 SCC 131.
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Power Cooling Solutions (India) (P) Ltd.13, this phrase “public policy
of India” is explained with its contours in both the pre-amendment and
the post-amendment position. The phrase must be accorded a
restricted meaning post the 2015 amendments and a mere
contravention of law is not sufficient. The fundamental principles
which form the very basis of administration of justice and law fall
within the scope of “Fundamental Policy of Indian Law”. The relevant
paragraphs read as under:
“39. Following the expansive view of the concept “contrary
to public policy”, in DDA v. R.S. Sharma &
Co. [DDA v. R.S. Sharma & Co., (2008) 13 SCC 80] , which
related to a matter arising from a proceeding under Section
34, as it stood prior to the 2015 Amendment, a two-Judge
Bench of this Court, on the scope of the power to set aside
an arbitral award, summarised the general principles as
follows : (SCC pp. 91-92, para 21)
“21. … (a) An award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and Conciliation Act,
1996; or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under Section 34(2) of
the Act.
13
(2025) 2 SCC 417.
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(b) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The award could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court.
(d) It is open to the court to consider whether the award is
against the specific terms of contract and if so, interfere
with it on the ground that it is patently illegal and opposed
to public policy of India.”
…
55. The legal position which emerges from the aforesaid
discussion is that after “the 2015 Amendments” in Section
34(2)(b)(ii) and Section 48(2)(b) of the 1996 Act, the phrase
“in conflict with the public policy of India” must be
accorded a restricted meaning in terms of Explanation 1.
The expression “in contravention with the fundamental
policy of Indian law” by use of the word “fundamental”
before the phrase “policy of Indian law” makes the
expression narrower in its application than the phrase “in
contravention with the policy of Indian law”, which means
mere contravention of law is not enough to make an award
vulnerable. To bring the contravention within the fold of
fundamental policy of Indian law, the award must
contravene all or any of such fundamental principles that
provide a basis for administration of justice and
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enforcement of law in this country.
56. Without intending to exhaustively enumerate instances
of such contravention, by way of illustration, it could be
said that:
(a) violation of the principles of natural justice;
(b) disregarding orders of superior courts in India or the
binding effect of the judgment of a superior court; and
(c) violating law of India linked to public good or public
interest, are considered contravention of the fundamental
policy of Indian law.
However, while assessing whether there has been a
contravention of the fundamental policy of Indian law, the
extent of judicial scrutiny must not exceed the limit as set
out in Explanation 2 to Section 34(2)(b)(ii).
63. As we have already noticed, the object of
inserting Explanations 1 and 2 in place of earlier
explanation to Section 34(2)(b)(ii) was to limit the scope of
interference with an arbitral award, therefore the
amendment consciously qualified the term “justice” with
“most basic notions” of it. In such circumstances, giving a
broad dimension to this category [In conflict with most
basic notions of morality or justice.] would be deviating
from the legislative intent. In our view, therefore,
considering that the concept of justice is open-textured, and
notions of justice could evolve with changing needs of the
society, it would not be prudent to cull out “the most basic
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notions of justice”. Suffice it to observe, they [ Most basic
notions of justice.] ought to be such elementary principles of
justice that their violation could be figured out by a prudent
member of the public who may, or may not, be judicially
trained, which means, that their violation would shock the
conscience of a legally trained mind. In other words, this
ground would be available to set aside an arbitral award, if
the award conflicts with such elementary/fundamental
principles of justice that it shocks the conscience of the
Court.”
44. Perversity as a ground for setting aside an Arbitral Award is to be
generally examined on the touchstone of the principle of
reasonableness. An Award which is founded on reasons and evidence,
however limited or compendious they might be, cannot be categorised
as perverse. When the view adopted by the Arbitrator is a plausible
view, the same must be upheld.
45. Further, Section 34(2)(a)(iv) of the Act provides for setting aside of
the arbitral Award, when it is proved that the same is concerning
disputes not contemplated under the terms of the submissions to
arbitration by the parties to the arbitration agreement. Even when the
decisions are beyond the scope of arbitration then also the Award can
be set aside. The proviso to the Section 34(2)(a)(iv), also stipulates the
concept of “severability of awards”, wherein the Award can also be
set aside partially if it is severable from the other part of Award and
the other part still survives.
46. At the outset, the learned counsel for the contractor challenges the
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maintainability of the present petition on the ground that the instant
petition is sans merit because the impugned Award is a detailed and
reasoned award, passed by the Arbitrator after due appreciation of
evidence. The same cannot be challenged under Section 34 of the Act
because the scope of interference is very limited and the petitioners
are trying to substitute their interpretation with that of the Arbitrator.
47. With the scope of Section 34 of the Act in mind, I shall now deal with
the rival contentions.
CLAIM NO. 1:
48. The petitioner has challenged the Claim No. 1.1.1 and 1.1.3 to be
perverse and contrary to the agreement. The aforesaid claims relate to
rates of items paid less than the agreement rates and the rates for the
extra and substituted items, respectively.
49. The Claim No. 1.1.1, is related to the issue that the rates of agreement
items applicable to quantities executed in excess of deviation limit
have been reduced by the petitioner without any prior notice as
contemplated under Clause No. 12.3 of the CA. It is the contention of
the petitioner that the process of calculation of market rates adopted
by the Arbitrator is in contravention of Clause No. 12 of the CA which
according to the petitioner provides that the payment of extra items
should be based on market rates and the engineer-in-charge should
determine the sanctioned market rates after due analysis of rates
submitted by the contractor. The contractor was given ample
opportunity to substantiate his case by furnishing the purchase
vouchers for verification, but the contractor did not avail the same.
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The petitioner also relied on Cash Voucher No. 131 dated 10.06.2011
to contend that the verified market rates were also accepted by the
contractor.
50. It is pertinent to see Clause No. 12 of the CA at this stage and it
reads as under:
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51. The Arbitrator has undertaken a detailed analysis of the provisions of
the Clause No. 12 of the CA and has made a categorical finding that
the provisions of Clause Nos. 12.2 and 12.3 contemplates that the
contractor and engineer-in-charge are bound and obligated to execute
the items upto the deviation limit, but for cases beyond the deviation
limit, the contractor is under no obligation to execute the items and it
is entitled to claim revision. Further, if the engineer-in-charge wants
the contractor to execute works in excess of the deviation limit with
lower revised rates then the rates should be prior informed to the
contractor, thereby, affording an opportunity to refuse. Summarily, the
case is that the contractor is entitled to claim revision of rates, the
engineer-in-charge is also entitled to revise the rates to a lower rate
but only after informing the contractor first and the contractor can still
execute if he agrees with the revised rate. In case, when no party
revises the rates applicable, the fixed agreement rate is payable. The
relevant portions of the Award read as under:
“1.1.1 Rates paid less than agreement rates- Rs. 413235/-
Details of claim have been filed by claimant through
Annexure-A attached with letter dated 19.09.2013 (CD-12).
It was submitted by claimant that rates of various
agreement items applicable to quantities executed in excess
of deviation limit have been reduced by respondents without
any notice under Clause 12.3 of contract. Respondents
could not cite any Exhibit that they have issued any notice
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contractor less than agreement rate for the quantities of
various items (listed in Annexure-A) to be executed in excess
of deviation limit and no revised rate less than agreement
rate was offered to contractor.
In case of deviation of agreement quantity of an item to be
executed in excess of deviation limit both the parties to
contact have certain obligation to be fulfilled, if, either
party intends to seek revision in agreement rates applicable
to quantities to be executed in excess of deviation limit.
Under the provisions of clause 12.2, the contractor has to
claim revision of rates if he intends to claim increase in the
agreement rate and under clause 12.3, it is obligation on
part of Engineer-in-Charge to notify the contractor the rate
to be paid if he has Intension to pay rates lesser than
agreement rates.
Provisions of clause 12.2 and 12.3 are very important and
cannot be disregarded Up to deviation limit applicable on
each item of agreement, contractor is bound to execute
quantity of an agreement item at agreement rate and
Engineer-in-Charge is also under obligation to pay
agreement rate. But after deviation limit contractor is under
no obligation to execute an agreement item in excess of
deviation limit and, if he wishes to continue execution of
such item in excess of deviation limit, he can claim upward
revision in agreement rate. Under such situation, it is quite
obvious that such increased rate to be claimed byDigitally Signed
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contractor must be known to Engineer-in-Charge so as to
take a final view on reasonability of rate claimed. In case
rate claimed by contractor is not acceptable, the Engineer-
in-Charge is at liberty to get such excess quantity executed
through other means. Similarly, if Engineer-in-Charge feels
that agreement rate is higher and he wants contractor to
continue execution of an item in excess of deviation, limit
but at lesser rate than agreement rate, then contractor
should know the rate to be paid for such quantities going to
be executed in excess of deviation limit. In case downward
revision in agreement rate offered by Engineer-in-Charge is
not acceptable to him, he is at liberty to refuse further
execution of such item.
Thus, after deviation limit, either party to contract is at
liberty to offer new rate to other party and it is left to other
party to accept or reject the rate offered or to settle rate by
negotiation. Like every financial transaction, new rate
applicable to quantity of an item going to be executed in
excess of deviation: limit must be known to either party
before exceeding deviation limit.
In other words, there can only be three rates applicable to
quantities executed in excess of deviation limit le. Increased
rate as claimed by contractor or decreased rate as offered
by department or agreement rate. If either party has not
demanded revision of rates then agreement rate is the only
option left to both the parties as there cannot be any fourthDigitally Signed
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rate. As such after completion of work, contractor is not
entitled to claim higher rate than agreement rate and
Engineer-In-Charge has no right to reduce agreement rate,
applicable to quantity executed in excess of deviation limit.
Thus under such situation agreement rate is the only rate
payable to contractor for the quantity of the item executed
in excess of deviation limit.
It is observed that no such notice has boon served on
claimant by respondent under clause 12.3 showing their
intention to reduce agreement rates. Therefore, claimant is
only entitled to be paid at agreement rate and respondent
have no right to reduce agreement rate. However,
respondent is at liberty to pay higher rates than agreement
rates even after completion of work and even not demanded
by contractor.
As such, I award Rs. 413235/- to the claimant.”
52. I am in full agreement with the view of the Arbitrator that once no
rates have been specified/negotiated for items executed beyond the
deviation limit, the agreement rate would have to be paid for the same.
The petitioner cannot reduce the agreement rates unilaterally and
without notice as contemplated under the terms of the contract. The
Arbitrator has awarded the agreement rates in consonance with the
calculations filed by the contractor, which reads as:
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53. I am of the view, that the contention of the petitioner that the said
claim was adjudicated by the Arbitrator in contravention of the CA
and is consequently perverse, cuts no ice. The Arbitrator has carefully
undertaken a fact grounded appreciation of the entire claim and
material placed on record. The view taken by the Arbitrator is not only
a plausible view but also is legally defensible in terms of Clause No.
12 of the CA. Be that as it may, in proceedings under Section 34 of
the Act, such a fact based and evidence driven determination is
entitled to be upheld. The approach adopted by the Arbitrator squarely
meets this standard.
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54. The Claim No. 1.1.3(a) concerning the issue of VAT on extra items,
were also raised before the Arbitrator vide letters dated 27.09.2013
and 20.12.2013. The Arbitrator has made a reasoned finding that VAT
has been deducted by the petitioner herein at the rate of 3% on gross
amount of bill including cost of extra and substituted items. He has
given a categorical finding that the submission of the petitioner that
the labour cess and VAT became applicable in new contracts entered
into after the date of issue of circular dated 20.08.2009, is
misconceived. He held that it is not the case that prior to 20.08.2009,
VAT and labour cess were not applicable, and it‟s just that the same
was not considered by the “field units”. This office order containing
necessary direction by the DG, CPWD was only clarificatory in nature
and not substantive containing new directions. These findings of the
Arbitrator are based on careful analysis and cogent reasons, the same
needs no interference. The relevant paragraphs of the Award read as
under:
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55. The dispute in Claim No. 1.1.3(b.2.2)(ix) is with regards to the
analysis of rates for the installation of 8 x 75mm and 12 x 100mm
anchors, and the appropriate labour coefficients. The specific case of
the petitioner pertaining to Claim no. 1.1.3(b.2.2) (ix): E.I. 2/18: (a) &
(b), is that the Arbitrator has erroneously presumed the higher labour
coefficient than contemplated by the CA. The petitioner contends that
the calculation based on Item No. 8.8.1.3 of DAR Vol-1, which is
their own calculation is the correct standard. Furthermore, the
petitioner also asserts an internal inconsistency in the award, arguing
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that since the Arbitrator correctly rejected the contractor‟s inflated
material claim of Rs. 175 + VAT, it follows that the contractor‟s
demand for a higher labour component is equally baseless and
excessive. The Arbitrator while deciding the question of rates for the
material has rationally held that the contractor had sought to accord a
flat price for two different types of anchors, i.e. 8 x 75 mm and 12 x
100 mm, which substantially vary in size. Thus, the rate for both of
them is bound to be different. This was verified through
contemporaneous hilti vouchers and 2014 market quotations. It was
for this reason that the flat rate of Rs. 175 was rejected. However, the
specific claim concerning labour coefficient of the contractor was
accepted by the Arbitrator on the ground that the labour cost should be
worked out on the basis of the standard rate of analysis of DSR 2012
item 10.27, as relied upon by the contractor. The Arbitrator has
correctly rejected the contention of the petitioner regarding the labour
cost worked out by the petitioners using the yardstick that 1 fitter and
1 beldar can fix 120 anchors of both sizes.
56. The claim of the contractor was in consonance with the standard rate
of analysis of DSR 2012, whereby the contractor adopted a calculation
that 1 fitter and 1 beldar can fix 30 Nos. of 8 x 75 mm anchors and 20
Nos. of 12 x 100 mm anchors respectively. The Arbitrator‟s view is
one based on plausibility, rationality and evidence. The decision to
reject the flat material rate while at the same instance awarding the
higher labour component is not contradictory, but it rather
demonstrates an approach of evidence driven balanced adjudication.
By replacing the petitioner‟s insufficient labour estimates with a
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verified industry benchmark, the Arbitrator ensured the Award was
technically sound and consistent with standard engineering practices.
The Arbitrator correctly noted that different anchor sizes must carry
different prices and verified this through contemporaneous hilti
vouchers and market quotations. Thus, the Arbitrator has not
committed any error in rejecting one part of the claim concerning flat
rate and awarding the other part concerning labour coefficient. The
relevant paragraphs of the Award read as under:
“The cause of dispute is on account of lesser rate of
material and labour coefficient applied by respondents.
Rate of 8X75 mm anchor and 12X100 mm anchor has been
adopted by respondents @ Rs.50.46 and Rs.68.25 for 8X7
mm anchor and 12X100 mm anchor respectively and
contractor has claimed same rate of Rs.175 for 8X75 mm
anchor and 12X100 mm anchor. Second dispute is with
regard to less labour cost worked out by respondents.
Respondents have adopted same 1.0 No. fitter and 1 No.
beldar to fix 120 No. anchors of both sizes whereas
claimant has demanded 1.0 No. fitter and 1 No. beldar to fix
30 No. anchors of size 8X75 mm and has demanded 1.0 No.
fitter and 1 No. beldar to fix 20 No. anchors of size 12X100
mm.
Claimant has relied on standard analysis of rate of DSR
2012, item No. 10.27 pertaining to fixing of 10 no. 8X75 mm
anchors and 10 no. 10 mm X 120 mm anchors where labour
cost of 10 fasteners has been worked out by adopting labourDigitally Signed
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coefficient of 0.4 no. mason and 0.4 no. beldar and 0.5 no.
mason and 0.5 no. beldar respectively. I agree with the
submission made by claimant that labour cost should be
worked out on the basis of standard rate of analysis of DSR
2012 item No. 10.27. As such, 1 no. fitter and 1 no. beldar
should be considered to fix 25 no. 8X75 mm anchors and 20
no. 12X100 mm anchors respectively. The claimant has
adopted 1 no. fitter and 1 no. beldar to fix 30 no. 8X75 mm
anchors and 20 no. 12X100 mm anchors respectively which
is in the line of standard analysis of rate.
However, I do not agree with the claimant that rate of 8X75
mm anchor and 12X100 mm anchor should be same
because of difference in size the rate is bound to be
different. The respondents vide tribunal letter dt.10.07.14
were directed to procure one box each of HAS 8X75, HAS
12X100 and HSD 10X140 Hilti make anchors and to supply
copy of purchase voucher. Respondent vide letter
dt.11.07.2014 (RD-19) has supplied copy of quotation
dt.10.07.14 from Hilti informing rate of HAS 8X70, HAS
12X100 and HSD 10X140 anchors as Rs.39.96, Rs.73.9 and
Rs.51.46 each respectively. I find no reason to agree with
rate of 175 + VAT claimed by contractor four years before,
I, therefore, decide that rate of 8X75 and 12X100 anchors
adopted by respondent@ Rs.50.4 and Rs.68.25 respectively
in 2009 were not less than market rate prevailing in 2009.
The rate claimed by contractor is corrected as below:
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57. The petitioner‟s contention that the Arbitrator has without recording
reasons adopted incorrect rates for aluminium handle (Claim no.
1.1.3(b.2.2)(xii): E.I. 3/15), cement-based waterproofing treatment
(Claim no. 1.1.3(b.2.2)(xiii): E.I. 3/23) and deviated quantities of
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electric works (Claim No. 1.2.1) is also baseless as from a bare
perusal of the relevant portions of the award, it is clear that the
Arbitrator has relied upon the DSR to arrive at his respective findings
concerning the aforesaid impugned claims. Apropos these claims, no
substantial arguments have been addressed by the petitioner as to why
the rates for aluminium handle, cement-based waterproofing
treatment, and deviated quantities of electric works should be lower
than the standard DSR (as adopted by the Arbitrator).
58. The petitioner has also objected to the Claim No. 1.1.3 (b.2.3) (i), on
the ground that the Arbitrator has committed an error in recording a
fact in the contractor‟s argument that “the claim referred by the CE is
for work done and claimed as per the 15th and Final bill but not
paid”. The relevant portion of the Award reads as under:
59. The petitioners apropos the Claim No. 1.1.3 (b.2.3) (i), has failed to
raise any specific contention to show why the fact recorded by the
Arbitrator is incorrect and what is the error committed by the
Arbitrator. In absence of any such specific contention the Arbitrator
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has correctly exercised his power to interpret the scope of reference.
This Court under Section 34 of the Act is not sitting in appeal to
reappreciate the said fact regarding correctness of the statement.
60. Claim Nos. 1.1.3(b.2.3) (ii), 1.1.3(b.2.3) (iv) and 1.1.3 (b.2.3) (v), are
challenged by the petitioner on two grounds that the items under the
claims were allowed in absence of any Analysis of Rates filed by the
contractor and each of them were already covered and paid by the
petitioner under separate agreement items or extra items. A cursory
glance of the relevant portions of the impugned Award shows that the
Arbitrator adopted average rate as the specific assessment and
verification of rate was not possible and the Arbitrator has ensured
physical verification of site before affirming the claims and awarding
an average rate. The Arbitrator has also specifically relied on his own
experience of 30 years in the field of construction to award reasonable
rates.
61. To my mind, the said reasoning of the Arbitrator is in consonance
with the statutory recognition which is accorded to “trade usages” by
virtue of Section 28(3) of the Act, which states that”While deciding
and making an award, the arbitral tribunal shall, in all cases, take
into account the terms of the contract and trade usages applicable to
the transaction.” Henceforth, in absence of any evidence by the
petitioners that the items were actually covered and already paid, the
finding of the Arbitrator warrants no interference by this Court. The
Arbitrator has correctly applied his mind and allowed these claims
which were already paid but were again recovered by the petitioner in
the final bill. The relevant portions of the Award read as under:
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62. In view of the above, the findings of the Arbitrator are based on
careful analysis and cogent reasons, the same needs no interference.
The contentions raised by the petitioner herein are mere reiteration of
the contentions already adjudicated by the Arbitrator. Be that as it
may, this court is not required to reappreciate evidence or to venture a
detailed fact based inquiry into the findings made by the Arbitrator.
CLAIM NO. 2: Amount unduly deducted/withheld.
63. Claim No. 2 pertains to the amounts which were withheld or unduly
deducted by the petitioner, the Award of these claims is disputed by
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the petitioner on the ground that the award of the said claim is in
violation of the terms of the agreement.
64. The contentions raised by the petitioner in the present petition are
similar to contentions already adjudicated by the Arbitrator. As
regards the Claim No. 2.1, the petitioner states that the contractor
failed to submit the requisite drawings and plans (“as built drawings”)
for which the amount was recovered in order to make cost adjustment
for getting the drawings prepared and for non-submission of the
completion plan. The Arbitrator recorded a reasoned evidentiary
finding that the contractor was asked vide letter dated 01.08.2011 to
submit the “as built drawings” for water supply, sanitary works and
sewerage works and the contractor vide letter dated 05.03.2011,
already submitted the relevant built drawings to the AE in Charge.
65. Additionally, the petitioner relied upon Clause No. 21.1 of the
particular specifications which provides that in case contractor fails to
submit the completion plan for water supply and installations, the
security deposit will be withheld and these plans would be prepared at
his cost. Contrary to this statement of the petitioner, the contractor
relied upon the letter dated 01.05.2010, addressed by the EE to the
contractor to prove that the testing was in fact already done. The letter
dated 01.05.2010 indicated that the contractor was directed to carry
out the repair work and damage which was incurred during testing of
water supply lines. Also, the petitioners were not able to furnish any
evidence to show that the testing was later carried out at the cost of the
contractor. This indicates that either the testing was already done by
the contractor or it was not required. Further, with regards to the
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requisite drawings they were duly submitted by the contractor to the
AE as evident from the aforesaid letter, and even if the same were not
submitted the remedy was to get them prepared at the risk and cost of
contractor. However, no evidence has been brought out to show that
they were actually got prepared by the petitioner at the cost of
contractor. The relevant excerpts of the Award reads as under:
“Claimant submitted that a sum of Rs.200000/- was
withheld by respondent from 12th RA bill for want of testing
of sanitary and water supply lines. All the required testing
was carried out before completion of work and services
were put to use and no defect was pointed out by
respondents during defect liability period of one year. As
such, respondents have no right to withhold amount of
Rs.200000/- for no reason.
Respondents submitted that a sum of Rs.200000/- was
withheld from 12th RA bill on 22.06.2009 for want of testing
and commissioning of sanitary and water supply lines. After
completion of work, contractor was asked to submit as built
drawings of these services through EE letter dated
01.08.2011 (R-12/SoC) and as the contractor failed to
submit as built drawings, a sum of Rs.200000/-was
recovered for making cost adjustment towards expenditure
on preparation of as built drawings of services.
Claimant through rejoinder dt.31.10.2012 (CD-1) cited
their letter dt.04.01.2011 (C-42/SoC) and letter
dt.05.03.2011 (C-47/SoC) and submitted that as builtDigitally Signed
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drawings for water supply, sanitary works and sewerage
were handed over to AE in Charge.
It is observed that C-42 and C-47 have not been replied by
Engineer-in-Charge. Respondent cited provision of contract
under para 21.1 of Particular Specifications that in case
contractor fails to submit completion plan for water supply
and Installations, his security deposit shall not be released
and these shall be got prepared at his risk and cost. It is
also to note that a sum of Rs.200000/- was withheld in 12th
RA bill for want of testing of sanitary and water supply lines
and has been adjusted for other cause: During arbitration
proceedings held on 26.12.2012, respondent confirmed that
no testing of water supply and sanitary lines was carried at
the cost of contractor. Claimant referred EE letter dated
01.05.2010 (R-13/SoD) where contractor was directed to
carry out repair of brick work and glazed tiles, damaged
while testing of water supply lines which indicates that they
have carried out the required testing of water supply and
sanitary works.
Testing of water lines, sewer lines and drainage is to be
carried out before covering of lines laid. Respondent have
confirmed that no such testing has been carried later on at
the cost of contractor which only indicates that either such
testing was not required or has been carried out by the
contractor. Claimant vide letter C-42 has informed that as
built drawings were handed over to AE and if same are notDigitally Signed
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available now, they are ready to prepare and resubmit the
same and requested EE to supply one set of drawings.
Nothing has been brought out by respondents that another
set of architectural drawings was provided to contractor. If
contractor fails to submit completion plans, remedy has
been provided in the contract that these drawing shall be
got prepared at the risk and cost of contractor but no
evidence has been brought out by respondents that such
drawings were got prepared by them at the cost of
contractor and has not filed any evidence of incurring
expenditure on preparation of as built drawing of services.
Thus, the remedy available in the contract had not been
exercised by respondents. Respondents have submitted
analysis of rates of all extra/substituted items but no
document has been submitted by respondents that how such
amount of Rs.2 lac was assessed for not submitting as built
drawings of services. Therefore, such action of respondents
to deduct a sum of Rs.2 lac is arbitrary and illegal.
I Award Rs.200000/- to the claimant.”
66. The reasoning adopted by the Arbitrator is based on substantial
evidence, and the mere unsubstantiated assertions made by the
petitioner were rejected by the Arbitrator. Even if the requisite
drawings and plans were not submitted by the contractor, the
petitioner had the remedy to get them prepared at the contractor‟s cost
which was not so done. On the other hand, the contractor has placed
on record cogent proof that he has supplied the requisite drawings to
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the AE. In this view of the matter, the findings of the Arbitrator are
correct.
67. With respect to the Claim No. 2.2.2, the petitioner has argued that the
amount was withheld for non-submission of completion plan in terms
of Clause No. 8(B). The Arbitrator has made a finding that as per
Clause No. 8(B) on non-submission of the completion certificate, the
contractor became liable to pay a sum equivalent to 2.5% of the work
value subject to a limit of Rs. 15,000/- as may be imposed by the SE-
in-charge. However, in the instant case the Engineer-in-charge himself
admitted that no such decision of SE is available on record. The
Arbitrator by giving the aforesaid findings has ensured strict
compliance with the terms of the agreement, needless to state that
when a penalty is a creature of an agreement it can only be imposed
by the procedure as contemplated within the terms of the agreement
and not otherwise. Thus, the withholding of amount in absence of any
order of SE-in-charge imposing the said penalty was wrong and the
Arbitrator was correct in awarding the said claim in favour of the
contractor. The relevant portions of the Award read as under:
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68. In relation to the Claim No. 2.2.3, the petitioner has argued that the
contractor has ignored their letters seeking rectification of defects
within the maintenance period and consequently they withheld the an
amount of Rs. 20,000 for the repair works carried out. The Arbitrator
has specifically held that there is no clause in the CA allowing the
Engineer-in-charge to withhold amount for rectification work and
credit it to the revenue, without actually carrying out any rectification
at the cost of the contractor. The petitioners were unable to show the
details of expenses incurred by them to carry out the rectification
work. When any action taken by the parties is outside the bounds of
the contractual stipulation the said action cannot be justified especially
when it is not even supported by evidence. Henceforth, the Arbitrator
has rightly held that the withholding of amount without providing any
details of the quantities rectified and the amount spent on it, is in the
nature of crediting revenue and not for the sole purpose of
rectification. Even in the present petition the petitioner has not placed
any evidence before this Court to show that the required rectification
was actually carried out. In absence of the same, the contention of the
petitioner is a mere assertion having no evidentiary basis and the same
cannot be accepted. The relevant portions of the Award read as under:
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69. As regards the Claim No. 2.2.4, as per the petitioner the penalty was
imposed on non-compliance with the environment management action
plan under Clause No. 2.11 of the additional conditions of contract.
However, the Arbitrator held that in absence of any pre-determined
penalty there is no basis or justification for the assessment of the
amount of penalty of only Rs. 10,000/- and the same was imposed
without following the principles of natural justice. In this view of the
matter, in the absence of a contractual term the penalty imposed is out
of bounds of the agreement and the same could not have been
imposed. The petitioner has failed to show any legal basis
substantiating the said penalty even in this petition. Even if we
consider the penalty as valid, the basis of such assessment was not
provided and the principles of natural justice were also not complied
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with, rendering this penalty bad in law. The relevant portion reads as
under:
70. The petitioner has also challenged the Claim Nos. 2.3, 2.4 and 2.5 to
the extent that the balance amount of Rs. 14,539/- awarded by the
Arbitrator is already paid vide CV No. 208 dated 21.01.2012 and the
amount of Rs. 2000/- as awarded by the Arbitrator is also challenged
on the ground of violation of Clause No. 3.4 of the agreement, which
were withheld to undertake minor repair work not undertaken by the
contractor. The relevant portions of the Award read as under:
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71. The petitioner in this petition has made mere assertions in the present
petition without any evidence in its support. In case the said amount of
Rs. 14,539/- was already paid, the same should have been contended
before the Arbitrator which was not raised. In absence of such
contention and evidence, the Arbitrator cannot be presumed to know
the status of payment or refund. Thus, the view of the Arbitrator is
cogent and there is no need of interference. The same contention has
not been pleaded in the written submissions before the Arbitrator and
the contentions in the petition were not supported by evidence to
substantiate this claim.
72. Apropos the Claim No. 2.4, the Arbitrator has awarded Rs. 2000/- by
holding that the same was recovered without any proper notice and
without any details regarding the expenditure of this recovered
amount. The findings of the Arbitrator are in line with the principles
of natural justice and the same needs no interference by this Court.
73. The determination by the Arbitrator is not only based on the plausible
view but also is legally defensible, and is also supported by the
evidentiary records. The interpretation adopted by the Arbitrator
concerning Claim No. 2 warrants no interference by this Court as the
view taken is neither perverse nor contrary to the terms of the
agreement. The determination of the Arbitrator is not only based on
law but also supported by rationality.
Claim No. 4: Watch and ward of the premises after date of
completion on 12.08.2009 to date of handing over i.e. 29.11.2009.
74. The date of completion asserted by the contractor is 12.08.2009,
whereas it is contended by the petitioner to be wrong as the contract
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being a composite contract, was completed on 26.09.2009. The
petitioner also contends that there was no watch and ward of the
building premises after the competition date i.e. 26.09.2009 and the
petitioner had never requested the contractor for the same.
75. The Arbitrator has fairly and rightly accepted the petitioner‟s
contention on this point and proceeded on the basis that the
contractual works stood completed only on 26.09.2009 and not on
12.08.2009 as contended by the contractor. The relevant excerpts of
the Award read as under:
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76. However, the Arbitrator on appreciation of evidence recorded
categorical findings that there is no evidence placed on record to show
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was provided by the petitioner thereafter. In these circumstances, and
bearing in mind that the completed building could not reasonably be
left unattended and unsecured, the Arbitrator concluded that the
contractor was constrained to continue providing watch and ward
services from 27.09.2009 until the undisputed date of handing over on
29.11.2009.
77. Accordingly, the finding of the Arbitrator is based on several letters
written by the contractor including the one dated 08.09.2009
informing the petitioner that the work has been completed on
12.08.2009.There is no doubt that the nature of contract was
composite and it was completed on 26.09.2009, the Arbitrator has
rightly affirmed this date in favour of the petitioner. The contention
that the petitioner never requested for watch and ward of the building
holds no ground as even rationally the completed building cannot be
left unattended by the contractor until its possession is taken over by
the petitioner. Consequently, in holding that the contractor has
provided the requisite security from 27.09.2009 to 29.11.2009 is
correct and based on material and evidence placed on record. The
finding of the Arbitrator is plausible, based on reasonable basis and
needs no interference under Section 34 by this Court.
Claim No. 6: Losses/Damages sustained by the
respondent/contractor during the prolonged period of contract.
78. Apropos the claim concerning bonus i.e. the Claim No. 6.1, the Award
is challenged on the ground that the Clause No. 2A of the agreement
contemplates payment of bonus only when the contractor completes
the work ahead of the scheduled completion time. However, in the
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present case it was completed only in the extended period. Henceforth,
the contractor was not eligible for any bonus. The contractor while
seeking extension of time had also furnished an undertaking that it
will not claim any extra due to this delay. The relevant Clause No. 2A
reads as under:
“Clause 2A
Incentive for early completion
In case the contractor completes the work ahead of
scheduled completion time, a bonus @1%(one per cent) of
the tendered value per month computed on per day basis,
shall be payable to the contractor, subject to maximum limit
of 5%(five per cent) of the tendered value. The amount of
bonus, if payable, shall be paid along with final bill after
completion of work. Provided always that provision of the
Clause 2A shall be applicable only when so provided in
„Schedule F‟.”
79. The identical arguments were already considered by the Arbitrator,
who proceeded to undertake appreciation of each fact of individual
hindrances raised by the contractor to justify total hindrance of 452
days and delays caused thereby. The Arbitrator relied on the Clause
No. 12 of the CA and the judgment of M/s Paragon Construction
(India) Pvt. Ltd. v. Union of India14 to deduct the delay attributable to
the petitioner and then made a finding that the contractor would have
completed the work by 01.11.2008. The relevant findings of the
Arbitrator reads as under:
14
OMP. No. 385/2007, judgment pronounced on 17.01.2008.
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80. The said finding of the Arbitrator apropos the claim No. 6.1 is correct
as when the delay in performing reciprocal obligations itself is
attributable to the petitioner, the contractor cannot be held responsible
for the same and contractual benefits cannot be denied. In view of the
findings given by the Arbitrator it is clear that the last structural
drawings of platform for overhead water tank and drawings of mumty
and machine room were issued on 13.12.2008, and despite the same
the petitioner still claimed that the work was not completed within
time. The balance of negotiating power in absence of any contractual
stipulation cannot be shifted totally in favour of the petitioners to
allow them to unilaterally delay the performance of their reciprocal
promises and still claim the performance to be delayed by the
contractor. In this view of the matter, it is clear that the finding of the
Arbitrator awarding 3% bonus is in consonance with the Clause No.
2A of the CA and deserves to be upheld as the same is rooted in the
evidence placed on record. Additionally, the reliance on M/s Paragon
Construction (Supra) is also well placed and is reproduced as under:
“7….Despite such finding, the learned Arbitrator has
not awarded any sum to the petitioner by way of bonus
because, according to him, the work was not completed
before the stipulated date and, therefore, no bonus was
payable. I am unable to agree with this conclusion
because the learned Arbitrator had already held that
the delay was attributable to the respondent. What the
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and subtract it from the total period. If the result was a
period less than 24 months then the petitioner would be
entitled to bonus and the exact extent of the bonus
could also be easily calculated. Unfortunately, the
learned Arbitrator has not done this. Consequently, the
award is set aside in respect of the claim No.2 also.”
(Emphasis Supplied)
81. As for the Claim No. 6.2 qua the loss of overheads, plants and
machinery, barricading during the extended period, the petitioner has
contended that the claim is allowed by the Arbitrator without any
documentary evidence to prove any actual damages suffered by the
contractor. The same is contrary to the Section 73 of the Contract Act,
which reads as under:
“73.Compensation for loss or damage caused by breach
of contract.–When a contract has been broken, the party
who suffers by such breach is entitled to receive, from the
party who has broken the contract, compensation for any
loss or damage caused to him thereby, which naturally
arose in the usual course of things from such breach, or
which the parties knew, when they made the contract, to
be likely to result from the breach of it.
Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the
breach.
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Compensation for failure to discharge obligation
resembling those created by contract.–When an
obligation resembling those created by contract has been
incurred and has not been discharged, any person injured
by the failure to discharge it is entitled to receive the
same compensation from the party in default, as if such
person had contracted to discharge it and had broken his
contract.
Explanation.–In estimating the loss or damage arising
from a breach of contract, the means which existed of
remedying the inconvenience caused by the non-
performance of the contract must be taken into
account…”
82. This court in its earlier judgment titled as Construcciones Y Auxiliar
De Ferrocarriles & Anr. v. Delhi Airport Metro Express Private
Limited (India)15, has made the following observations:
“48. A perusal of the aforesaid text indicates that the
words „loss‟ or „damage‟, would necessarily indicate that
the party who complains of breach must have really
suffered some loss or damage apart from being faced
with the mere act of breach of contract. That is because
every breach of every contract need not necessarily result
in actual loss or damage. Compensation payable under
section 73 and 74 is only for loss or damage caused by15
O.M.P.(EFA)(COMM.) 15/2019 & O.M.P.(I) (COMM.) 375/2020, judgment pronounced on 28.03.2025.
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the breach and not on account of the mere act of breach.
If in any case the breach has not resulted in or caused
any loss or damage to a party, it cannot claim
compensation.”
83. The Arbitrator in the present case has made a detailed analysis of the
claims of actual loss raised by the contractor in view of Section 73 of
the Contract Act and then proceeded to Award reasonable damages
considering the quantum of the work, only on account of loss of
overheads for 5 months. The relevant portions of the findings of the
Arbitrator read as under:
“iii) I have already decided above that work was delayed
because of various breaches on part of respondents and
their failure to fulfill reciprocal obligations under the
contract. At the time of submission of tender, contractor
takes into account overhead expenditure during stipulated
period of completion and as the time is enlarged, contractor
has to incur further overhead expenditure during extended
period and under Section 73 of Contract Act, contractor is
entitled for losses suffered by them. Claimant has submitted
that all structural work was completed by them on
19.12.2008 which is one month ahead of scheduled date of
completion and, therefore, I find no justification of overhead
expenditure on RMC plant, mobile crane, concrete pumps
and transit mixers after end of December, 2008. Similarly,
contractor has claimed overhead expenditure of Rs.98000/-
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per month on barricading whereas contractor has been paid
for Rs.881476/- towards cost of barricading under item
No.18.5 of the contract. As such, the only loss suffered is
delay in receipt of salvage value of the materials received
from dismantling of barricading. As the barricading was
provided with galvanized sheets and angle iron posts, at
least 50% salvage value would have been recovered:
Accordingly, contractor had suffered some loss which can
be compensated by paying interest on delayed receipt of
salvage value and such interest @ 10% per annum on
Rs.440000/-comes at Rs.3667/- say Rs.3700/- per month.
During course of hearing, claimant has agreed expenditure
of Rs.5000/- per month on office assistants engaged for
running site office and also agreed for expenditure of
Rs.3000/-per month towards mobile phones provided to
department. As such, total expenditure per month works out
to Rs.212700/- (865000-550000-98000-10000 6000+ 3700
+ 5000+3000). Such overhead expenditure of Rs.1701600/-
for 8 months works out to 2.4% on value of work of
Rs.71128845/- executed after 07.01.2009 which, in my view,
is quite reasonable for such quantum of work. The work was
delayed by 8 months and time period of 3 months has been
allowed on account of extra work done. No additional work
in excess of contract value is possible without overhead
expenditure and, therefore, contractor is not entitled for any
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claimant on account of loss of overheads for 5 moths works
out to Rs. 1063500/-.
I award Rs. 1063500/- to the claimant.”
84. I am of the view, the overhead expenditure for the extended period
could not have been contemplated by the contractor when the time
was extended, thus, the Arbitrator correctly proceeded to apply the
Section 73 of the Contract act to reject the contractors inflated
overhead demands and adjudicated upon the specific claims by
systematically deducting expenses for heavy machinery (RMC plants,
cranes, etc.) that were no longer necessary after structural completion
on 19.12.2008, and by preventing “double recovery” for items like
barricading that were already paid for under the contract. The resulting
overhead Award of 2.4% is reasonable as it is grounded in verified
ongoing costs, such as site staff and interest on delayed salvage
values, rather than arbitrary lump sums. The Arbitrator in this instant
case has proceeded to calculate each claim for damage in detail with
proper application of mind. Therefore, the same lies exclusively
within the discretion of the Arbitrator, based on a reasonable view and
in a section 34 petition the challenge cannot sustain.
85. With respect to Claim No. 6.4, the petitioner has contended that the
Arbitrator has ignored the fact that it was the responsibility of the
contractor to extend the bank guarantee until all the contractual
commitments are fulfilled and the same were fulfilled by 09.03.2011.
It was only because of the request of the contractor regarding rates to
be adopted for extra and deviated quantities, the account of work
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could not be finalised. These contentions were categorically dealt with
by the Arbitrator while holding that the delay in work is attributable to
the petitioner only and the contractor cannot be held responsible for
the delay in sanction of the last item. The relevant portions of the
findings read as under:
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86. In this view of the matter, though it was the contractor‟s responsibility
to keep the bank guarantee valid, but in essence this is in nature of a
reciprocal promise. To my mind, the arbitrator has correctly stated that
the petitioner is also required to finalize the work and make payment
expeditiously and within the stipulated time. The petitioner cannot be
permitted to benefit from its own delays for which there is already a
categorical finding. Thus to keep the bank guarantee alive (which was
due the delays of the petitioner), no fault can be found in the reasoning
of the Arbitrator. The delay is already specifically attributed to the
petitioners as the last item was sanctioned 17 months after completion.
It was only because of the delay in sanctioning deviation, the extra
costs were incurred. Thus, the aforementioned findings of the
Arbitrator are clear and cogent. The Court is not required to
reappreciate the facts when the same have already been decided by the
Arbitrator.
Claim No. 8: Interest.
87. The petitioner has raised certain contentions qua the interest imposed
by the Arbitrator, by stating that the bills were paid immediately by
the petitioner after submission of the running bills. The petitioner
seeks to set aside the interest awarded on three specific amounts of
about Rs. 5,58,658/-, Rs. 2,09,355/- and Rs.4,47,983/-. The petitioner
argues that the contractor initially submitted false and inflated bills
with incorrect rates. As soon as the contractor submitted the corrected
and legitimate bills, the petitioner paid them immediately. Therefore,
the petitioner‟s claim there was no delay in payment that would justify
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an interest penalty. The interest therefore deserves to be set aside as
there was no delay in release of payment after submission of the
corrected bills.
88. Further, it is also stated that the amount apropos the Claim No. 2, were
withheld on justifiable grounds and hence no interest can be payable
on this claim. The petitioner is also contesting the interest awarded on
a sum of Rs. 67,51,052/- from the date of invocation of arbitration i.e.
22.06.2011 till the date of payment. The petitioner asserts that since
they were not responsible for any delays in the process, awarding
interest is arbitrary and unjust. The petitioner has also challenged the
interest of Rs. 37,726/- awarded on the security deposit on the ground
that the security deposit could only be released after the contractor
submitted Clearance/NOC from their electrical associates. The
petitioner claims the contractor failed to provide these documents
despite requests. Therefore, the Petitioner correctly withheld the said
amount.
89. It is pertinent to note that Section 31(7)(a) of the Act empowers an
Arbitral Tribunal, unless otherwise agreed by the parties, to Award
interest at such rate as it deems reasonable, on the whole or any part of
the money, for the whole or any part of the period between the date on
which the cause of action arose and the date of the Award. Section
31(7)(b) then provides that, unless the Award otherwise directs, the
sum directed to be paid by the Award shall carry interest from the date
of the Award to the date of payment. Relevant portions of Section 37
of the Act read as under:
“(7) (a) Unless otherwise agreed by the parties, where and
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in so far as an arbitral award is for the payment of money,
the arbitral tribunal may include in the sum for which the
award is made interest, at such rate as it deems reasonable,
on the whole or any part of the money, for the whole or any
part of the period between the date on which the cause of
action arose and the date on which the award is made.
[(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at the rate
of two per cent. higher than the current rate of interest
prevalent on the date of award, from the date of award to
the date of payment.
Explanation.–The expression “current rate of interest”
shall have the same meaning as assigned to it under clause
(b) of section 2 of the Interest Act, 1978 (14 of 1978).]”
90. The decision in UHL Power Company Ltd. v. State of Himachal
Pradesh16 reinforces the breadth of arbitral discretion on interest and
the limited scope for judicial interference. The Arbitral Tribunal in the
aforesaid case had granted pre-claim compound interest at 9% per
annum and future interest at 18% per annum on the awarded amount,
which the Division Bench of the High Court reduced relying on State
of Haryana v. S.L. Arora & Co.17, referring to Hyder Consulting
(Supra), the Supreme Court held that the High Court‟s approach was
erroneous, and restored the Arbitrator‟s Award on interest. The Court
also emphasised, by relying on cases such as MMTC Ltd. v. Vedanta
16
(2022) 4 SCC 116.
17
(2010) 3 SCC 690.
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Ltd.18, and Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.19,
that a Court cannot substitute its own view with that of the Arbitrator,
so long as the Arbitrator‟s view is a plausible one, anchored in the
contract and consistent with the statute. Also, The Hon‟ble Supreme
Court in the case of Ferro Concrete Construction (India) (P) Ltd. v.
State of Rajasthan20, traced down the changes in the power of the
Arbitrator to Award interest from the 1940 act and went on to
summarise the current position of this power in the following words:
“13. From the above extracted paragraphs, the decision of
the 3-judge bench in the First Ambica case (supra) can be
stated as follows. The Arbitrator’s power to grant interest
would depend on the contractual clause in each case, and
whether it expressly takes away the Arbitrator’s power to
grant pendente lite interest. This would have to be
determined based on the phraseology of the agreement,
clauses conferring powers relating to arbitration, the nature
of claim and dispute referred to the Arbitrator, and on what
items the power to award interest is contractually barred
and for which period. Further, a bar on award of interest
for delayed payment would not be readily inferred as an
express bar to the award of pendente lite interest by the
Arbitrator.
18
(2019) 4 SCC 163.
19
(2019) 20 SCC 1.
20
2025 SCC OnLine SC 708.
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14. We find that the position of law laid down in paragraph
24 of Reliance Cellulose (supra) is in line with the position
of law laid down in the First Ambica case. Both decisions
emphasise the need for an express contractual bar on the
payment of pendente lite interest to create a bar on the
Arbitrator from awarding interest. They also emphasise that
a bar on the Arbitrator’s power would depend on the
phraseology of the contractual clause in that case….”
91. The petitioner‟s contention that the amount were paid forthwith after
the correct claims were filed and that the claim No. 2 was withheld on
justifiable grounds is based on wrong assertion. The claims and
findings above make it clear that the delay in sanctioning items was
attributable to the petitioner only and also the amounts were wrongfully
withheld. The petitioner challenged the interest of Rs. 37,726/- on the
ground that the requisite NOC was not submitted on time, However the
Arbitrator has made a categorical finding that even after the receipt of
the requisite NOC from the sub-contractor there has been a delay in
refund of the deposit, which has been accordingly worked out by the
Arbitrator from the due date to the date of payment to the actual date of
payment at the rate of 10%. The operative portion is reproduced as
under:
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92. The petitioner cannot be allowed to take benefit of its own delay in
refunding the security amount. In this view of the matter, the Arbitrator
has applied Section 31(7) of the Act to a commercial construction
dispute, has found on the facts that the contractor was kept out of
money legitimately due under Claim No. 8, and has awarded interest at
a rate of 10% per annum in the absence of any contractual prohibition.
Such an exercise of discretion accorded with the statutory framework
and the Hon‟ble Supreme Court‟s guidance on arbitral interest, and
therefore falls outside the narrow grounds for interference.
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93. I am of the view that in the absence of any contractual cap or contrary
stipulation, the rate cannot be described as excessive or
unconscionable. Under Section 31(7), the rate is a matter of arbitral
discretion, and courts will interfere only if it is shockingly high or
plainly contrary to an express contractual limitation.
94. To my mind, the Award of interest by the Arbitrator is well reasoned
and is within the domain of the power of the Arbitrator. Be that as it
may, the interpretation adopted by the Arbitrator cannot be allowed to
be replaced by the petitioner under the guise of a Section 34
challenge.
CONCLUSION
95. For all the aforesaid reasons, and having found no ground within the
confines of Section 34 of the Act to set aside the reasoned findings of
the Arbitrator, this Court holds that the impugned Award does not
suffer from perversity, patent illegality or any other recognised vice
warranting interference.
96. Therefore, the petition is dismissed in the aforesaid terms.
JASMEET SINGH, J
FEBRUARY 25, 2026/(SS)
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