EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 1 of 36 * IN THE HIGH COURT OF DELHI AT NEW DELHI Judgment reserved on: 12.02.2009 % Judgment delivered on: 16.03.2009 + EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 M/s. Centre for Development of Telematics (C-DOT) ..... Appellant Through: Mr. P. P. Malhotra, Additional Solicitor General with Mr. J. C. Seth, Advocate versus Ansal Properties & Infrastructure Ltd.(APIL) ….Respondent Through: Mr. Gaurav Sarin, Advocate with MS. Charul Sarin and MS. Supriya Juneja, Advocates. CORAM: HON’BLE MR. JUSTICE MUKUL MUDGAL HON’BLE MR. JUSTICE VIPIN SANGHI 1. Whether the Reporters of local papers may No be allowed to see the judgment? 2. To be referred to Reporter or not? Yes 3. Whether the judgment should be reported Yes in the Digest? VIPIN SANGHI, J. 1. The present appeals arises out of a common judgment delivered by the Learned Single Judge in three different proceedings initiated by the respondent viz: (i) EFA(OS) No.9/2008 arises out of Execution Petition No. 126/2005 (filed by the respondent to execute interim award dated EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 2 of 36 19.02.2003 made by the Arbitrator in favour of the respondent for an amount of Rs. 1,32,27,137/- along with interest at the rate of 9% per annum in respect of which the petition preferred by the appellant under Section 34 of the Act were dismissed by a Ld. Single Judge of this Court on 18.05.2005 in OMP No. 228/2003). (ii) FA(OS) No.107/2008 arises out of OMP. No.309/2005 (U/s. 9 of the Arbitration & Conciliation Act (hereinafter called “The Act”) to seek an injunction against the appellants to restrain them from en- cashing the Bank Guarantees furnished at the behest of the respondent in terms of their communication dated 23.08.2005); (iii) FAO(OS) No.106/2008 arises out of Arbitration Petition No. 112/2007 (U/s. 11 of The Act seeking appointment of an Arbitrator for reference of the dispute pertaining to levy liquidated damages for delay in execution of the work, levied by the appellant, as communicated to the respondent vide communication dated 23.08.2005), and; 2. All the aforesaid proceedings arose out of disputes between the parties in respect of a contract awarded by the appellant to the respondent for construction of its main R&D building at Chhatarpur Mehrauli, Mandi Gaon Road, New Delhi. The contract was awarded on 18.02.1999. The work had to be completed by the respondent within 30 months i.e. by 10.08.2001. However, the work was provisionally certified as having been completed by the respondent only on EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 3 of 36 31.03.2005. The contract provided for extension of time in Clauses 44.1 to 44.3. The same read as follows: “44.1 Extension of Time for Completion The work shall throughout the stipulated period of the Contract be proceeded with due diligence. If the works be delayed by: i) force majure, or ii) abnormally bad weather, or iii) serious loss or damage by fire, or iv) civil commotion, local commotion of workmen, strike or lockout affecting any of the trades employed on the Work, or v) delay on the part of other contractors or tradesmen engaged by the C-DOT in executing work not forming part of the Contract, or vi) non-availability of stores, which are the responsibility of C-DOT to supply, if any, or vii) non-availability or break down of tools and plant to be supplied or supplied by the C-DOT, if any, or viii) any other cause which, in the absolute discretion of the C-DOT is beyond the Contractor‟s control then upon the happening of any such event causing delay, the Contractor shall immediately give notice thereof in writing to the Engineer, but shall nevertheless use constantly his best endeavors to prevent or make good the delay and shall do all that may be reasonably required to the satisfaction of the Engineer to proceed with the work. 44.3 Grant of Extension of Time In any such case the C-DOT may give a fair and reasonable extension of time for completion of the Work. Such extension shall be communicated to the Contractor by the Engineer in writing, within 3 months of the date of receipt of such request. Non application by the Contractor for extension of time shall not be a bar for giving a fair and reasonable extension by the C-DOT and this shall be binding on the Contractor.” EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 4 of 36 3. The contract also provided for compensation for delay in execution of the contract by the Contractor / respondent in Clause 47.1 which reads as follows: “47.1 Compensation for Delay If the Contractor fails to maintain required progress in terms of the Contract or to complete the Work and fails to clear the Site on or before the stipulated or extended date of completion, he shall, without prejudice to any other right or remedy of the C-DOT on account of such breach be liable to pay agreed compensation of an amount equal to ½ % (Half percent) of the Contract Sum/Price or such smaller amount as the C-DOT may decide, for every week the progress remain below the agreed progress schedule or that the Work/phase remains incomplete. The decision of the C-DOT in writing shall be final and binding on the Contractor. Provided always that the total amount of compensation for delay to be paid under this clause shall not exceed 10% (Ten Percent) of the Contract Sum of the Work or of the Contract Sum/Price of the item or group of items of work, as shown in the letter of acceptance, for which a separate period of completion is originally given. The amount of compensation may be adjusted or set off against any sum payable to the Contractor under this or any other contract with the C-DOT.” (emphasis supplied) 4. The contract contained an arbitration agreement in Clause 67.1 which reads as follows: “67.1 Settlement of Disputes and Arbitration Except where otherwise provided in the Contract all questions and disputes relating to EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 5 of 36 the meaning of the specifications, design, drawings and instructions herein before mentioned and as to the quality of workmanship or materials 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 Work 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 that he is entitled to any extra payment or compensation in respect of the works over and above the amounts admitted as payable by the C-DOT or in case the Contractor wants to dispute the validity of any deduction or recoveries made or proposed to be made from the Contract, the Contractor shall forthwith give notice in writing of his claim, in this behalf to the Engineer within 30 days from the date of disallowance thereto for which the Contractor claims such additional payment or compensation or disputes the validity of any deduction or recovery. The said notice shall give full particulars of the claim, grounds on which it is based and detailed calculations of the amount claimed and the Contractor shall not be entitled to raise any claim nor shall the C-DOT be in any way liable in respect of any claim by the Contractor unless notice of such claim shall have been given by the Contractor to the Engineer in the manner within the time as aforesaid. The Contractor shall be deemed to have waived and extinguished all his rights in respect of any claims not notified to the Engineer in writing in the manner and within the time aforesaid. ii) The Engineer shall give his decision in writing on the claims notified by the Contractor within 30 days of the receipt of the notice thereof. If the Contractor is not satisfied with the decision of the Engineer, the Contractor may within 15 days of the receipt of the decision of the Engineer submit his claims to the ED C-DOT for conciliation along with all details and copies of correspondence exchanged between him and the EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 6 of 36 Engineer. The ED C-DOT shall appoint the Conciliator. iii) If the conciliation proceedings are terminated without a settlement of the disputes, the Contractor shall, within a period of 30 days of termination thereof shall give a notice in the form prescribed by the C-DOT, to the ED C-DOT for appointment of an Arbitrator to adjudicate the notified claims, failing which the claims of the Contractor shall be deemed to have been considered absolutely bared and waived. iv) Except where the decisions have become final, binding and conclusive in terms of the Contract, all disputes or differences arising out of the notified claims of the Contractor as aforesaid and all claims of the C- DOT shall be referred for adjudication through the arbitration by the Sole Arbitrator appointed by the ED C-DOT. If the Arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever, another Sole Arbitrator shall be appointed in the manner aforesaid by the ED C-DOT. Such person be entitled to proceed with the reference from the stage at which it was left by the predecessor. It is a term of the Contract that the party invoking arbitration shall give a list of the disputes with amounts claimed in respect of each dispute along with the notice for appointment of arbitrator. It is also a term of the Contract that no person other than a person appointed by the ED C-DOT as aforesaid should act as an Arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitration at all. It is also a term of the Contract that the Arbitrator shall adjudicate on only such disputes as are referred to him by the ED C-DOT and give separate award against each dispute and claim referred to him. The Arbitrator shall give reasons for the award. It is also a term of the Contract that if any fees are payable to the Arbitrator, these shall be paid equally by both the parties. EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 7 of 36 The Conciliation and Arbitration shall be conducted in accordance with the provision of the Arbitration and Conciliation Act 1996 or any statutory modifications re-enactment thereof and the rules made there under for the time being in force shall apply to the arbitration proceeding under this clause.” (emphasis supplied) 5. The respondent applied for extension of time on various occasions. The appellant extended the time up to 31.12.2003 provisionally. (We find that the learned Single Judge erroneously recorded that extension of time had been granted upto 31.12.2003 without levy of any damages or compensation for delay in execution of the work on the part of the contractor. In fact a perusal of the extension letters placed as Annexure-6 to Annexure-10 in FAO(OS) 107/2008 shows that on each occasion when the time was extended, it was stated by the appellant that the same was being extended without prejudice to the rights of C-DOT to recover compensation for delay in accordance with the provisions of Clause 47.1 of the agreement. From the correspondence and the averments on record it is clear that the extension of time upto 31.12.2003 granted by the appellant was only provisional). The decision on the request of the respondent for further extension of time beyond 31.12.2003 was kept pending by the appellant till the time the respondent completed the work under the contract. 6. During the currency of the work certain disputes arose between the parties. On the request of the respondent/contractor, these disputes were referred to arbitration in terms of the aforesaid EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 8 of 36 arbitration agreement. The Arbitrator gave his award of Rs. 1,32,27,137/- with interest at the rate of 9% per annum in favour of the respondent on 19.02.2003. As aforesaid, petition to challenge the said award at the behest of the appellant, under Section 34 of the Act was dismissed by this Court on 18.05.2005 in OMP No. 228/2003. The appellant did not prefer any further appeal and consequently the award dated 19.02.2003 became executable. The respondent filed Ex. P. No.126/2005 to seek execution of the interim award. In the meantime, it appears that the work under the contract was certified to be provisionally completed by the respondent on 31.03.2005 vide certificate issued on 24.05.2008. The undated “provisional completion certificate” issued by the appellant on 24.05.2005, inter alia, stated: “5. Actual date of completion: 5.1 Site clearance – 09.08.1999 5.2 Basement completion – 30.06.2000 5.3 Entire structure – 15.12.2004 5.4 Balance work – 31.03.2005 6. Contract Value: Rs.36,78,90,630.00 7. Completion Cost: Final Bill under Process 8. Status of Defect Liability Period: Defect liability period is up to 30.03.2006, Copies of provisional defect lists forwarded to APIL is enclosed and are being attended by APIL (folio no.1 to 45). The integrated complete fire fighting system has to be demonstrated by APIL to C-DOT, the demonstration is to be given as per mutual agreement between C-DOT, APIL & BMS contractor. 9. Liquidated damages (if any): Extension of Time case under process 10. Performance of Contractor: Good” EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 9 of 36 7. The appellant communicated its decision in writing to the respondent on 23.08.2005 to levy liquidated damages of Rs.3,67,89,063/- (i.e. 10 % of the contract value) in terms of Clause 47.1 of the contract. It was further communicated that the appellant had decided to adjust the amount of interim award in favour of the respondent amounting to Rs.1,53,10,807/- (i.e. Rs. 1,32,27,137/- along with accrued interest thereon), and an amount of Rs. 42 lacs due to the respondent towards escalation, over and above the payment for escalation already made for the period up to 20.07.2003 as per Clause 70.1 of the General Conditions of Contract. After adjusting the aforesaid amounts, the respondent was called upon to make payment of the balance amount of Rs. 1,72,78,256/- failing which, the respondent was informed that the amount shall be recovered by en- cashing the Bank Guarantees furnished by the respondent. 8. Consequently, the respondent preferred the aforesaid OMP No.309/2005 under Section 9 of the Act to seek an injunction against the appellants to restrain them from encashing the bank guarantees, furnished by the respondent, in terms of their communication dated 23.08.2005. In April, 2007 the respondent also filed the aforesaid arbitration petition No.112/2007 under Section 11 of the Act to seek appointment of an arbitrator to refer the dispute pertaining to levy of liquidated damages for delay in execution of the work levied by the appellant (as communicated vide communication dated 23.08.2005) to arbitration. EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 10 of 36 9. The learned Single Judge, as aforesaid, has dealt with all these proceedings by the common impugned judgment. The learned Single Judge observed that the focal point which arose for consideration before him in all these cases was whether the issue of levy of liquidated damages, as communicated vide communication dated 23.08.2005, is final and binding on the respondent and whether the same falls in the category of “excepted matters” and is, therefore, not arbitrable. The learned Single Judge observed: “In case it is found that the levy of liquidated damages by the respondent falls under the category of 'Excepted Matters' and is thereby final and binding on the petitioner (Contractor), then in that event the respondent will be entitled to adjust the said amount by way of adjustment against the amount it is liable to pay to the petitioner in terms of interim award dated 19.2.2003. However, if it is found that the demand of the respondent for alleged liquidated damages does not fall in the category of 'Excepted Matters' then in that event the petitioner would be entitled for execution of the interim award dated 19.2.2003 and the petitioner would further be entitled to an injunction order against the respondent restraining it from encashing the bank guarantees till the claim of the respondent for liquidated damages is decided by the Arbitrator under the contract.” 10. The learned Single Judge further observed that the question whether the issue of levy of liquidated damages falls under the category of “excepted matters” or not, has to be decided by reference to the terms of agreement between the parties. He proceeded to hold that the dispute pertaining to levy of liquidated damages did not constitute an “excepted matter” and, on that basis proceeded to pass the impugned order, thereby: (i) restraining the encashment of the EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 11 of 36 Performance Bank Guarantee furnished by the respondent; (ii) referring the dispute with regard to levy of liquidated damages to arbitration, and; (iii) directed the appellant to make payment of the amount covered by the decree arising out of the interim award dated 19.02.2003 to the respondent within four weeks. 11. The submission of learned counsel for the appellant is that the learned Single Judge wrongly concluded that the determination of liquidated damages under Clause 47.1 is not an “excepted matter” and is arbitrable under the arbitration agreement contained in Clause 67.1 of the agreement between the parties. He submits that learned Single Judge gravely erred in construing the aforesaid clauses of the agreement by taking into account the fact that the work under the contract was provisionally completed on 31.03.2005; the provisional completion certificate was issued by the appellant on 24.05.2005 assessing the performance of the respondent as “good” and; the fact that the liquidated damages were imposed by the appellant only on 23.08.2005 i.e. after the dismissal of the objections preferred by the appellant against the interim award on 18.05.2005 in OMP No.228/2003. 12. On the other hand, learned counsel for the respondent supports the judgment of the learned Single Judge by submitting that the levy of liquidated damages was a patently calculated move to defeat and delay the execution of the interim award made by the arbitrator in favour of the respondent, against which the objections had EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 12 of 36 also been dismissed by this Court and which had attained finality. He submits that there was no reason for the appellant to have kept the decision with regard to grant of extension of time pending till after the completion of the work on 31.03.2005, and the timing of the levy of the so-called liquidated damages clearly demonstrates the malafides of the appellant. 13. Having heard learned counsel for the parties and having perused the decision of the learned Single Judge, the record of the case including the record before the learned single Judge in the aforesaid proceedings, we are of the opinion that the view taken by the learned Single Judge with regard to the interpretation of the aforesaid clauses of the agreement is unsustainable and the same cannot be upheld. 14. As noticed hereinabove, the respondent applied for extension of time on various occasions since the work was not completed by the contractually fixed date i.e. by 10.08.2001. Time was provisionally extended upto 31.12.2003. The decision on the request of the respondent for further extension of time beyond 31.12.2003 was kept pending by the appellants till the works under the contracts were completed. According to the appellant, this course of action was mutually decided by the parties in a meeting held on 18.02.2004. The appellant refers to the minutes of this meeting contained in a letter dated 19.2.2004. In this communication, the appellant, inter alia, recorded: EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 13 of 36 “Shri Ansal requested for sanction of extension of time, release of payments of escalation and early payment of bills. C-DOT clarified that due to the failure of all the previous targets committed before the C-DOT Board by M/s. APIL on various occasions, M/s. APIL were already informed that the case of extension of time would be decided only after the completion of the work. The same was accepted by M/s. APIL.”(emphasis supplied). 15. These averments of the appellant, and the communication dated 19.2.2004 of the appellant have remained uncontroverted. The appellant, in its I.A. No. 7373/2005 (under Order XXXIX Rule 4 CPC), filed in OMP No.309/2005 for vacation of the ex-parte stay granted on 01.09.2005, had specifically referred to the aforesaid communication dated 19.2.2004 to say that it had been agreed between the parties that the application for extension of time beyond 31.12.2003 shall be considered only after final completion of the work. In reply to the corresponding para 5(ii) of the said application, the respondent did not deny the factum of the said agreement having been arrived at in the meeting held on 18.2.2004, and did not deny the appellant‟s letter dated 19.2.2004. Pertinently, the respondent did not put the appellant to notice, that on account of the request for extension of time for completion of work not being decided in terms of Clause 44.3, the appellant would not be entitled to levy liquidated damages for the period beyond 31.12.2003. 16. In the light of the aforesaid uncontroverted correspondence, the requirement that the extension of time application made by the contractor has to be decided within three months of the same being EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 14 of 36 made, as stipulated in clause 44.3 of the agreement, could not be said to be a mandatory requirement, the breach whereof would relieve the respondent contractor of its obligation to pay liquidated damages for the delayed period, if the contractor was found to be responsible for the said delay and the appellant C-DOT suffered some damage. The learned single Judge has not even dealt with the stand of the appellant as aforesaid, and his conclusion is conditioned on the premise that the extension of time application was decided only after the provisional completion of the work. 17. The issue whether the levy of liquidated damages under Clause 47.1 constituted an “excepted matter” or not, in our view had to be determined on a plain reading of the agreement itself, and the approach adopted by the learned Single Judge in seeking to construe the meaning of the clauses of the agreement in the light of the fact that liquidated damages were sought to be levied after provisional date of completion of the contract cannot be appreciated. In our view, the fact that the application for extension of time was decided after the provisional completion of the works under the contract had no bearing on the interpretation of the relevant clauses. 18. A perusal of Clause 47.1 would show that the same does not require that the decision on the respondent‟s application for extension of time and on the issue of liquidated damages for delay in completion of the work has to be decided upon and communicated to the contractor before actual date of completion of the work. To us it EFA(OS)No.9 OF 2008, FAO(OS) 106 OF 2008 & FAO(OS) 107 OF 2008 Page 15 of 36 appears natural that only after the works under the contract are completed the employer, after taking into consideration the relevant facts