2017 (2) TMI 1546 - HC - Indian Laws

Granting payment of revised rates to take care of escalated cost of work executed by the claimant and the work executed beyond the originally stipulated time - whether the quantification of the escalation costs/damages by the arbitrator is arbitrary and contrary to the evidence? - HELD THAT - Waiting for handing over of site to construct the residential quarters not putting up with the excavation of work to lay down the foundation for the office building also resulted in delay of completion of the work. Hence the department cannot be accused for the delay caused. Allowing the claim of escalation of cost sans the satisfactory material evidence placed on record by the claimant is perverse and contrary to the public policy. No cogent evidence was placed before the Arbitrator to justify the claim for damages to the extent of 100%. Awarding of 70% on the balance work of Rs. 5.69 lakhs executed by the claimant beyond the original stipulated time by the Arbitrator is not supported by any material evidence. It is based only on the guess work. Though a stray observation was made by the Arbitrator that schedule of rates of PWD during the year 1992-94 was considered no material was referred to arrive at a conclusion. The Arbitrator s finding that the delay caused was only due to the default on the part of the Department in not complying with the terms and conditions of the work order cannot be countenanced. Quantification of damages is unreasonable. It would be a case of misconduct on the part of the Arbitrator amenable to Section 34 of the Act. The Arbitrator after having held that there has been a short increase in prices of materials the Department cannot compel the contractor to carry out the work on the same rates on which he had agreed to the same within the stipulated period cannot evaluate the short increase equal to that of tender amount. Escalation cannot be granted on assumptions and presumptions. Awarding escalation charges/damages of Rs. 14, 68, 239/- equal to tender amount is not fit to be sustained. If the entire award is satisfied the respondents 1 and 2 would have to pay a huge sum of money by way of interest. Considering the totality of the circumstances of the case interest awarded by the Arbitrator at 18% per annum is excessive awarding of interest by the court below at 9% per annum on the 25% of tender amount i.e. Rs. 3, 71, 564/- determined towards the damages is justifiable. No infirmity or irregularity is found in the impugned Judgment and order. Appeal dismissed.

Summary

Issues Involved:
1. Delay in completion of construction work.
2. Responsibility for delay and damages.
3. Arbitration Award and its modification.
4. Quantification of escalation costs and damages.
5. Interest rates on awarded amounts.

Issue-wise Detailed Analysis:

1. Delay in completion of construction work:
The appellant, a Civil Engineer/Contractor, was entrusted with the construction of an Office of Conservator of Forest and quarters at Sirsi in 1989. The contract stipulated completion by 6.5.1992. The contractor failed to complete the work within the period, leading to the rescission of the contract by the respondents.

2. Responsibility for delay and damages:
The contractor attributed the delay to the Department, citing reasons such as change of site, modification of plans, and lack of water facilities. The Department refuted these claims, arguing that the delay was due to the contractor's failure to commence work on time. The Department contended that the change of site was minor and did not justify the delay.

3. Arbitration Award and its modification:
An Arbitrator awarded Rs. 14,68,239/- with 18% interest p.a. from 9.3.1994 till the date of payment, along with arbitration costs of Rs. 50,000/-. The respondents challenged this award under section 34 of the Arbitration & Conciliation Act, 1996. The Senior Civil Judge, Sirsi, modified the award to Rs. 3,71,564/- with 9% interest p.a. and reduced arbitration costs to Rs. 10,000/-. The contractor appealed against this modification.

4. Quantification of escalation costs and damages:
The Arbitrator awarded amounts for various claims, including losses due to idle labor and machinery, extra expenses, and revised rates beyond the stipulated period. The main dispute centered on claim No.7, which involved payment for escalated costs of work executed beyond the original time frame. The court found the Arbitrator's quantification of damages to be arbitrary and unsupported by material evidence, deeming it contrary to public policy. The court held that the delay was not exclusively due to the Department's default and that the contractor could have proceeded with the office building construction despite the site change for residential quarters.

5. Interest rates on awarded amounts:
The Arbitrator's interest rate of 18% p.a. was deemed excessive. The court referenced the Supreme Court's decision in 'MUKAND LTD. vs. HINDUSTAN PETROLEUM CORPORATION LIMITED,' which reduced post-decree interest rates. The court found the 9% interest rate awarded by the lower court to be reasonable, considering the long lapse of time and the totality of circumstances.

Conclusion:
The appeal was dismissed, upholding the lower court's modification of the Arbitration Award. The court found no infirmity or irregularity in the impugned judgment, concluding that the determination of damages and interest rates by the lower court was justifiable and supported by the available material evidence.