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Delhi Development Authority v. Construction & Design Services Up Jal Nigam
Factual and Procedural Background
In 1995, the Delhi Development Authority (DDA) awarded a contract to the respondent for constructing a Sewage Pumping Station. The contract was formalized by a written agreement dated 04.10.1995. The work was to be completed within 15 months, by 07.01.1997. However, the respondent executed the work very slowly, completing only about 40% of the work by 17.09.1999, when the contract was rescinded. Various communications from the appellant to the respondent highlighted the slow progress. The appellant levied a penalty under clause-2 of the contract for the delay. The learned Single Judge held that in the absence of proof of loss suffered, the penalty could not be recovered. The appellant challenged this decision on appeal.
Legal Issues Presented
- Whether compensation for delay under clause-2 of the contract can be recovered without proof of actual loss or damage suffered?
- Whether the observations of the Supreme Court in ONGC v. Saw Pipes Ltd. regarding pre-estimated damages apply to this case?
Arguments of the Parties
Appellant's Arguments
- The respondent was significantly delayed in completing the work, completing only about 40% by the rescission date despite the stipulated 15-month period.
- Clause-2 of the contract allows for compensation as a pre-estimated damage for delay without requiring proof of actual loss.
- The Supreme Court's ruling in ONGC v. Saw Pipes Ltd. supports recovery of pre-estimated damages in cases of delayed construction where actual loss is difficult to prove.
- The project involved a public utility (Sewage Pumping Station), whose delay causes environmental harm and blocked capital, both constituting damages.
- The evidence led by the appellant remains unrebutted as the respondent did not appear in court.
Respondent's Arguments
The opinion does not contain a detailed account of the respondent’s legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| ONGC v. Saw Pipes Ltd., AIR 2003 SC 2629 | Pre-estimated damages for delay in construction contracts can be recovered without proof of actual loss where actual loss is difficult to establish. | The court applied the principle to hold that compensation under clause-2 of the contract is recoverable despite absence of proof of actual loss, as the delay causes environmental harm and blocked capital damages. |
Court's Reasoning and Analysis
The court analyzed the contract clause which stipulates compensation as a percentage of the estimated cost for each day of delay, capped at 10%. It noted the slow progress by the respondent and the unrebutted evidence presented by the appellant. The court referred to the Supreme Court’s decision in ONGC v. Saw Pipes Ltd., which held that in construction contracts involving public works, pre-estimated damages are payable even if actual loss is not proven, as actual loss is often difficult to quantify. The court recognized that a Sewage Pumping Station is a public utility whose delay causes environmental degradation and blocked capital, both constituting damages. The learned Single Judge’s requirement for proof of actual loss was therefore incorrect. Based on this analysis, the court allowed the appeal and set aside the impugned decree.
Holding and Implications
The appeal is allowed and the suit filed by the appellant is decreed in the sum of ₹20,86,446/-, with pendente lite and future interest at 9% per annum from the date of the suit till realization.
The decision directly affects the parties by allowing recovery of the penalty amount as per the contract terms. No new precedent beyond the application of existing Supreme Court authority was established.
1. With reference to Section 73 and 74 of the Indian Contract Act, in the absence of there being any proof of the loss suffered, the learned Single Judge has held that neither Ex.PW- 1/34 nor Ex.PW-1/35 evidence basis on which the Superintending Engineer levied penalty invoking clause-2 of the contract and thus held that claim of DDA to recover the penalty levied must fail.
2. Vide Ex.PW-1/2 dated 28.09.1995 DDA awarded work of constructing a Sewage Pumping Station to the respondent and vide Ex.PW-1/3 dated 04.10.1995 a written contract was executed. The work progressed very slowly and was ultimately rescinded vide Ex.PW-1/33 dated 17.09.1999 and even till then only around 40% of the work was completed.
3. Various exhibits referred to by the learned Single Judge in para 4 and 5 of the impugned judgment would highlight that the respondent was very slow in executing the work and various letters were written to it by the appellant. As against 15 months' time within which work had to be completed i.e. 07.01.1997 not more than 40% work could be completed till 17.09.1999.
4. Clause-2 of the contract reads as under:-
"The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be the essence of the contract on the part of contractor and shall be reckoned from the Tenth Day after the day on which the order to commence the work is issued to contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence and the contractor shall pay as Compensation an amount equal to one percent, or such smaller amount as the Superintending Engineer Delhi Development Authority (whose decision in writing shall be final) may decide on the amount of estimated cost of the whole work as shown in the tender, for every day that the work remains uncommenced or unfinished, after the proper dates. And further, to ensure good progress during the execution of the work, the contractor shall be bound in all cases in which time allowed for any work exceeds, one month (save the special jobs) to complete one-eight of the whole of the work before one-fourth of the whole time allowed under the contract has elapsed, three-eight of the work, before three-fourth of such time has elapsed. However, for special job if a time-schedule has been submitted by the Contractor and the same has been accepted by the Engineer-in-Charge, the contractor shall comply with the said time-schedule. In the event of the contractor failing to comply with this condition, he shall be liable to pay as compensation an amount equal to one percent or such smaller amount as the Superintending Engineer Delhi Development Authority (whose decision shall be final) may decide on the said estimated cost of the whole work for everyday that the due quantity of work remains incomplete; provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten percent of the estimated cost of work as shown in the tender.
The contractor shall be required to submit a detailed programme for completing of work with the stipulated period in the form of a Bar-Chart, covering all major activities, to the Engineer-in-Charge, within 10 days from the date of award of work, modification suggested by the Engineer-in-Charge shall be ensured by the contract or that the time schedule as laid down in the aforesaid Bar-Chart is adhered. To in case of any slip, the time lost will have to be made good by the contractor by speeding up the activities in such cases, he shall be bound to follow the Engineer-in- Charge."
5. The respondent had been proceeded against ex-parte at the trial and has chosen not to appear even before us. The evidence led by the appellant has remained unrebutted.
6. Suffice would it be to state that the observations of the Supreme Court in para 68 of the decision reported as AIR 2003 SC 2629 ONGC v. Saw Pipes Ltd. are squarely applicable in the instant case as per which delayed constructions such as completing construction of road or bridges within stipulated time would be difficult to be linked with actual losses suffered by the State and in such cases the pre-estimated damages envisaged in the contract have to be paid.
7. Now, a Sewage Pumping Station is not something from which Revenue would be generated by the State. It is a public utility service and has a role to play in maintaining or preserving clean environment. If Sewage Pumping Stations are not set up, sewage would stagnate as cess pools in low lying areas and would cause environmental degradation, both air and soil. That apart, in a delayed project, interest on blocked capital would obviously be a measure of damages.
8. The learned Single Judge has ignored as aforesaid and held that in the absence of proof of damages, compensation levied under clause-2 cannot be recovered. The learned Single Judge is incorrect in view of the law declared by the Supreme Court and thus we allow the appeal and set aside the impugned decree. Suit filed by the appellant is decreed in sum of `20,86,446/- with pendente lite and future interest @9% per annum from date of suit till realization and the suit filed by the appellant is disposed of accordingly with costs all throughout.
(PRADEEP NANDRAJOG) JUDGE (PRATIBHA RANI) JUDGE FEBRUARY 10, 2012 dk
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