- Bookmark
- Share
- CaseIQ
G.D Rathi Steels Pvt Ltd v. Delhi Development Authority.
Factual and Procedural Background
Disputes arose between the parties concerning Agreement No. 38.EE/HD/III/82-83. These disputes were referred to arbitration by Shri G.R. Hingorani as per the arbitration clause, following a letter dated 25.11.1985 from the Engineer Member, DDA. The Arbitrator invited claims and after considering evidence, issued an award on 4.1.1988. The petitioner claimed payment for goods supplied, damages for breach of contract, refund of security deposit, and pendente lite interest. The DDA submitted counterclaims for amounts related to procuring goods at risk and cost, liquidated damages, and extra payments to a steel supplier. The Arbitrator awarded Rs 6,17,450 to the petitioner for goods supplied, allowed pendente lite interest, and rejected the other claims and counterclaims. The award was filed in court and the DDA objected under Sections 30 and 33 of the Arbitration Act, challenging the reasoned nature of the award and alleging misconduct by the Arbitrator.
Legal Issues Presented
- Whether the Arbitrator was obligated to provide a reasoned award and if the failure to do so constituted misconduct justifying setting aside the award.
- Whether the DDA's counterclaims, particularly the claim for liquidated damages under Clause 2 of the contract, were justified and properly rejected by the Arbitrator.
- Whether the amount awarded for refund of security deposit and pendente lite interest was lawful and consistent with the contract terms.
- Whether the findings of the Arbitrator on the facts and contract interpretation could be interfered with by the court.
Arguments of the Parties
DDA's Arguments
- The Arbitrator failed to provide a reasoned award as required by the terms of reference, amounting to misconduct.
- The Arbitrator ignored Clause 2 of the contract which imposed liquidated damages for delay; thus, the DDA's counterclaim for Rs 9,59,578/- was valid and should have been allowed.
- The Rs 20,000/- allowed by the Arbitrator for material testing was incorrectly awarded to the petitioner since testing costs should be borne by the petitioner.
- Relied on the Supreme Court decision in Vishwanath Sood v. Union of India, emphasizing that where time is of the essence and compensation for delay is stipulated, the Superintendent Engineer's decision on compensation is final.
Petitioner's Arguments
- Justified the Arbitrator’s findings and award through counter affidavits.
- Argued that the DDA did not levy liquidated damages or annul the contract within the stipulated time and accepted delayed supplies without reservation, thus waiving the right to claim liquidated damages later.
- Asserted that the Arbitrator correctly interpreted the contract clauses, including the rejection of DDA’s counterclaims.
- Maintained that the security deposit was rightly refundable and that testing costs were to be borne by the DDA as per contract terms.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Vishwanath Sood v. Union of India, AIR 1989 S.C 952 | Where time is the essence of the contract and compensation for delay is stipulated, the Superintendent Engineer's decision on compensation is final under the clause. | The Court acknowledged the principle but found the facts here different as the DDA accepted delayed supplies without levying damages timely, thus the Arbitrator correctly rejected DDA’s claim for liquidated damages. |
| Hindustan Tea Co. v. K. Sashiban, AIR 187 S.C 81 | The Arbitrator is the final judge to interpret and adjudicate terms of the contract; courts should not re-adjudicate facts and findings of the Arbitrator except where findings are without evidence or illegal. | The Court applied this principle to uphold the Arbitrator’s findings, holding there was no misconduct or illegality warranting interference. |
Court's Reasoning and Analysis
The Court analyzed the claims and counterclaims in light of the contract terms and arbitration award. It noted that the DDA did not timely levy liquidated damages or annul the contract despite delayed delivery by the petitioner, and continued to accept supplies without reservation. This conduct precluded the DDA from later claiming liquidated damages under Clause 2. The Arbitrator correctly interpreted this clause and rejected the DDA’s counterclaims accordingly.
The Court also held that the Rs 20,000/- allowance for material testing was consistent with the contract, which required the petitioner to supply ISI-certified materials, and allowed the DDA to test materials at their own cost. Thus, the deduction by the DDA was improper and rightly reversed by the Arbitrator.
The Court affirmed that the security deposit of Rs 1 lakh was refundable to the petitioner and that the Arbitrator’s award was reasoned sufficiently to meet contractual requirements. The Court emphasized the binding nature of the Arbitrator’s factual findings and legal interpretations, referencing Supreme Court authority that courts should not interfere unless findings lack evidence or are illegal.
Consequently, the Court found no merit in the DDA’s objections and dismissed them, making the award a rule of the court.
Holding and Implications
The objections filed by the DDA are dismissed, and the arbitration award is upheld and made a rule of the court.
The direct effect of this decision is that the petitioner’s claims as awarded by the Arbitrator stand confirmed, including payment for goods supplied, pendente lite interest, and refund of the security deposit. The DDA’s counterclaims, particularly for liquidated damages, are rejected. No new precedent was established; rather, the Court reaffirmed established principles limiting judicial interference in arbitration awards except in cases of misconduct or illegality.
S.C JAIN, J.— Disputes and differences, having been arisen between the parties with respect to agreement No. 38.EE/HD/III/82-83, were referred to the arbitration of Shri G.R Hingorani by the Engineer Member, DDA vide letter dated 25.11.85 as per the Arbitration clause.
The Arbitrator entered upon the reference and invited claims from the parties. After considering the respective claims and the documentary evidence the Arbitrator made and published his award on 4.1.1988 The petitioner claimant submitted its claim for goods supplied as claim No. 1. The Arbitrator awarded Rs 617450/- towards this claim.
The second claim submitted by the petitioner was for Rs 5,00,000/- towards damages suffered on account of breach of contract by the Department. The Arbitrator did not find that claim to be justified and rejected the same.
The claim No. 3 was to the extent of Rs. 20,000/- towards refund of security deposit which was disallowed by the Arbitrator as he had already allowed the security deposit of Rs 1 lakh lying with the Department under under clause No. 1. Claim No. 4 was for pendente lite interest which was allowed by the arbitrator at the rate of 18% simple interest from 22.9.84 upto the date of payment or decree whichever is earlier.
The D.D.A also submitted counter claim of Rs. 22,18,807/- for procuring the balance goods at the risk and cost of the petitioner. The Arbitrator did not find that claim to be justified and rejected the same.
The second counter claim was for Rs. 9,59,578/- on account of recovery of liquidated damages levied by Superintending Engineer under Clause 2. This claim was also found not justified and was rejected.
Counter claim No. 3 for Rs 6,04,758/- which was on account of extra amount payable to M/S Ambika Steel Rolling Mills for non supply of the goods intime by the petitioner. This claim was also found to be not justified and was rejected.
On the application of the petitioner, the Arbitrator filed the Award and the arbitration proceedings in the court. Notices for filing objections within the statutory period were sent to the parties.
The DDA filed objections (I.A 1201/88) under NNSections 30 and 33 of the Arbitration Act. pleading inter alia that the Arbitrator did not give a reasoned award, though he was bound to give the same under the terms of the reference. He is guilty of misconduct and the award is liable to be set aside. The findings of the Arbitrator were challenged on various grounds. Counter affidavit was filed by the petitioner company justifying the findings of the Arbitrator and the award.
During the course of arguments the main submission made by the learned counsel for the objector DDA was that the Arbitrator did not give any reason while allowing the claims of the petitioner and rejecting the counter claims of the DDA. The learned counsel for the DDA drew my attention to clause 2 of the general rules and Directions for completion of the contract which reads as under:
“CLAUSE 2:— The time allowed for carrying be strictly observed by the contractor and shall be deemed to be of the essence of the contract and the contractor shall deliver the materials on or before the dates mentioned in the tender. Should the contractor fail to deliver the materials on or before the stipulated dates, he shall pay as agreed liquidated damages and not by way of penalty, an amount equal to one percent or such smaller amount as the Supdtg Engineer DDA (whose decision in writing shall be final) may decide on the amount of the estimated cost of the whole work as known in the tender for every day that the contractor shall exceed the time of the delivery and the delivery of the materials may be in arrears, Provided always that the entire amount of liquidated damages shall not exceed 10% of the estimated cost of the work as shown in the tender.” According to the learned counsel by invoking the provision of Clause 2 as referred to kabove, the Supdtg Engineer Circle 9.DDA held that the petitioner was liable to pay Rs 9,59,578/- by way of liquidated damages as stipulated in Clause 2 of the Agreement. This amount of liquidated damage was levied on the petitioner for the period 5.4.84 at the rate of 10% as determined by him on the estimated cost which he worked out to Rs. 9,59,578/-.
According to the learned counsel, the Arbitrator ignored this aspect of the matter altogether and in view of this order passed by the Supdt Engineer as per clause 2 of the agreement, the DDA is entitled to claim this amount from the petitioner company. The award on this account is p=09 illegal as per se. The next point submitted by him is that amount of Rs 20,000/- allowed by the arbitrator for getting the material tested is wrong inasmuch as it was at the risk of the petitioner that (he materials were to be tested. The learned counsel for the DDA relied upon the decision of the Supreme Court in Vishwanath Sood v. Union of India -AIR 1989 S.C 952, wherein it has been held that the where the time is the essence of the contract and there is a clause of compensation for delay, the decision of the Supdtg Engineer on the amount of compensation should be final under the clause.
As far as legal proposition is concerned, there is no dispute about it that when time is made the essence of the contract and there is clause stipulating the levy of compensation, it is the Supdtg. Engineer who is to award compensation under the clause of the agreement but in this case the position is quite different. The petitioner was to supply 4140 M.T of CTD bars within a period of 8 months commencing from 17.1.83 but due to delay in getting the required licence from ISI the petitioner did not make delivery till 179.83 when the stipulated period of contract was over. However, the DDA did not take action to levy liquidated damages under clause 2 or to annul the contract under clause 3. The DDA continued to ask the contractor for the supply as per the contract. The Contractor i.e the petitioner commenced supply from 14.5.84 which was p=09 accepted by the DDA without reservation. The petitioner stopped further supplies on 10.7.84 as according to the petitioner by that time Rs 6 lakhs were outstanding and this amlount was not paid to him. As per the conditions mentioned in the contract regarding the payment of the goods received the DDA was to make the payment within seven days of the receipt of the material. No damage/compensation had been levied by the Supdtg Engineer till 26.4.85 as is evident from letter Ex R-15 on the file. The arbitrator has correctly interpreted clause 2 of the general rules and directions for completion of the contract while rejecting the claim of DDA objector on this account. Extending the time to the contractor to supply the goods from time to time and then imposing compensation by the Supdtg Engineer on 26.4.85 by invoking the provisions of clause i of the general rules and directions for completion of the contract, it cannot be said to be in accordance with the terms of the agreement. The Arbitrator has correctly rejected the counter claim of the DDA on this account.
Regarding the amount due to the petitioner it has been admitted by the respondent in their counter statement of facts that payment of Rs 4,92,562/- on account of supply of material and Rs 4498/- on account of cartage is pending with them but this amount has been withheld as the petitioner stopped the supply of the balance goods. The Arbitrator correctly held that DDA did not make the payment as per clause of the agreement and and hence further supplies were stopped. It being a matter of fact cannot be challenged before the court.
Regarding refund of Rs 1 lakh there is no dispute that Rs 1 lakh was lying with DDA as security deposit which is refundable. The plea of the counsel for the objector that Rs 20,000/- spent by the DDA for getting the material tested should have been paid by the petitioner is against the terms of the contract. As per clause 6 of the Agreement contained in letter dated 17.1.83, the petitioner confirmed that they were ISI licence holder for cold twisted steel bars conforming to ISI specification and the steel to be supplied would carry ISI certification mark (ISI tags) and they also undertook to furnish ISI tags for every log of steel supplied by them. In case the Department wanted to get the material tested, they could do so at their own. It is not the case of the DDA that the petitioner did not comply with the undertaking given by them. Testing of the material if at all was to be got done by the DDA at their own costs. The Arbitrator has correctly allowed Rs 20,000/- which was wrongly deducted by the DDA. The security deposit of Rs 1 lakh was also correctly held to be payable to the petitioner. The Award of the Arbitrator is legal and suffers from no lacuna.
It has been laid down by the Supreme Court in Hindustan Tea Co. v. K. Sashiban, AIR 187 S.C 81 that the Arbitrator is the final Judge to interpret and adjudicate the terms of the contract. No court can readjudicate the same. The Arbitrator is the last to decide the facts and that the courts are not supposed to interfere on the findings of facts. The findings of the Arbitrator can only be challenged if the same are without any evidence and illegal as per se. There is nothing on the record to show that the Arbitrator has misconducted himself or the proceedings. A perusal of the award shows his mind as to on which basis he has acted and it is sufficient to meet the requirement. When the terms of the agreement requires that the award should be reasoned one, it is obligatory on the part of the Arbitrator to state the reasons but it is not obligatory to give the detailed judgement.
There is no ground to interfere in the findings of the Arbitrator which are legal and justified. I find no merit in the objections of the DDA and the same are hereby dismissed. The award is made a rule of the court. Decree sheet be drawn accordingly. No order as costs.
Alert