UNION OF INDIA v. VARINDERA CONSTRUCTIONS LTD

ORDER 27H1.2012

1. The issues involved in both these petitions by the Union of India ('UOI') through Directorate General, Married Accommodation Project ('F^AP'), Engineer in Chiefs Branch, Integrated HQ of Ministry of Defence (Army) are common and are, therefore, being disposed of by this common order.

2. The Respondent in both the petitions, Varindera Constructions Ltd., was Signature Not Verified Digitally Signed By:AMULYA awarded two lump sum contracts. One was for the construction of married OMR Nos. 383 of 2011 & 534 of 2011 ' Page l ot 11 If accommodation for JCOs (100 dwelling units) and ORs (160 dwelling units) at Mahipalpaur, New Delhi. The other was for the provision of married accommodation for Majors (90 dwelling units), Captains (88 dwelling uiuts) and Lieutenants (12 dwelling units) and allied external services at Basantar Range, New Delhi.

3. In the disputes arising out of the two contracts, two separate Awards were I • . passed. As far as the Mahipalpur project was concerned, an Award Was made on 10^^ January 2011 as amended on 2""^ February 2011 by the learned sole Arbitrator in which he rejected 9 out of the 22 claims raised by the Respondent. In the disputes arising out of the Basantar Range project, the learned sole Arbitrator passed an Award on 8^^^ March 2011 in which he rejected 3 of the 18 claims raised by the Respondent.

4. OMP No. 383 of 2011 has been filed against the Award dated 10 January 2011 as amended on 2"^ February 2011 passed by the learned Arbitrator in the disputes arising out of the Mahipalpur project. OMP No.534 of 2011 has been filed against the Award dated 8^^ March 2011 passed by the learned Arbitrator in the disputes arising out of the Basantar Range project. OMP Nos. 383 of 2011 & 534 of 2011 Pape 2 of 11 T)

5. This Court has heard the submissions of Mr. Ajay Verma, learned counsel for the Petitioner and of Mr. Akhil Sibal, learned counsel for the Respondent.

6. One of the first contentions concerns the scope of Clause 60 of the contracts. It is contended that the said clause covers only those disputes for which no final, conclusive and binding decision may be taken by an authority. Under Clause 10(c), the Accepting Officer ('AO') was empowered to take a final, conclusive and binding decision on whether a certain item of work was a minor, extra or constructional detml and thus included in the lump sum quoted by the Respondent as stipulated in the contracts. Relying on the decisions in MSK Projects India (JV) LimMM v. State of Rajasthan (2011) 10 SCC 573 and Prabartak Commercial Q Corporation Ltd. v. Chief Administrator, Dandakaranya Project (1991) 1 see 498, it is contended that the learned Arbitrator could not deal with questions over which he had no jurisdiction. The other submission is that an Award which is passed on an erroneous interpretation of the clauses,^S^f the contract would be illegal. Reliance is placed on the decisions in Delhi Development Authority v. R.S. Sharma & Company (2008) 13 SCC 80 and Steel Authority of India Limited v. J.C. Budharaja, Government and OMP Nos. 383 of 2011 & 534 of 2011 ^ 1^ Mining Contractor (1999) 8 SCC 122. The last general submission is that Clause 45 of the General Conditions of Contract ('GCC') in both contracts states that the contract would be governed by the laws of India and, therefore, the Award to the extent that it is violative of any statutory law would also be illegal. Reliance is placed on the decisions in Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 and Hindustan Zinc Ltd. v. Friends Coal Carbonisation (2006) 4 SCC 445.

1. There can be no doubt about any of the above legal propositions. However, the Petitioner would have to persuade the Court that as far as the impugned Awards are concerned, they are vitiated on account of any of the above grounds.

8. Claim No.l in both the Awards was for payment for jungle clearance beyond the scope of the contracts. Clause 3.6 of the Standard Schedule of Rates ('SSR') specifications specifies how the work is to be executed. The rates for the work are covered by the Schedule of Rates Part-II. Clause 3.7 of the rates is restricted to cutting and not to areas where filling is required or where neither cutting nor filling is required. It is pointed out by Mr. Sibal, learned counsel for the Respondent, that the jungle clearance was essential OMPNos.383of2011&534of2011 PaaeA'^ll ^ ' or- for beginning the work. The excavation was carried out in two operations. First, through surface excavation/jungle clearance and in the second phase, by excavation over areas. The payment for excavation was not made from the original ground level but from the levels obtained after surface excavation/jungle clearance. Clause 3.1 relied upon by the Petitioner would come into operation at a later stage when the building site is identified but not at the stage of jungle clearance which was essential for commencing the activity of construction.

9. It was repeatedly contended for the Petitioner that under Note 5 of Schedule A and Section XI, it was incumbent on the Contractor to inspect the site and then submit a bid. In other words, having submitted the bid, the Respondent was precluded from raising any claim regarding inaccuracy with regard to site conditions and that the learned Arbitrator erred in entertaining such claim. The said clause cannot have any application in the factS'.i^^f the present case. It is not in dispute that the Respondent did have to undertake jungle clearance before commencing the activity of construction. The extent of work of jungle clearance could not have been anticipated at the time of submitting the tenders for the contracts. OMR Nos. 383 of 2011 & 534 of 2011 \s

10. Reliance is placed by the Petitioner on a letter dated lO^'' March 2008 of the AO disposing of several claims of the Respondent and stating that the decisions in the letter were final, conclusive and binding. A perusal of the said letter shows that it does not indicate any application of mind of the AO to the applicability of Clause 10 which refers to lump sum prices quoted for the building and construction related items. A joint reading of Clauses 10 (a) and (c) reflects that they related to minor details of work and constructional details. The AO does not appear to have made any reference to the nature of disputes covered under Clause 10 (c).

11. In another contract between the same parties, an arbitral Award rendered in the disputes arising therefrom was the subject matter of challenge by the Petitioner in OMP Nos.890-91 of 2011. A similar contention of the Petitioner was rejected by the Court by its order dated 16^^ March 2012. FAO (OS) No.238 of 2012 filed by the Petitioner against the said order was dismissed by the Division Bench ('DB') by an order dated 28^^ May 2012. It may also be mentioned that in yet another set of Awards, the challenge by the Petitioner in OMP Nos.864 of 2011 and 385 of 2012 was negatived by the Court by dismissal of the said OMPs by order dated 29^ May 2012. OMP Nos. 383 of 2011 St 534 of 2011 ^"3^ ®

12. Accordingly, the objection of the Petitioner with regard to the Awards in respect of Claim No.l is hereby rejected.

13. Claim No.2 was for reimbursement of payment for wrong pricing of DOs. The question pertained to measurement of the rock obtained as a result of excavation. Under Clause 3.2.2 (b) (iv) and Note 14 of Schedule A, the method of measurement was to be in terms of Clause 3.1.4 of SSR Part-II which reads as under: "3.1.4. Where soft disintegrated rock and hard rock are mixed, the measurement for the total quantity shall be made by methods described in paras 3.1.2 and/or 3.1.3 above. The hard rock excavated shall be stacked and measured in stack. The quantity of hard rock excavated shall be reduced by 50% to allow for voids "

14. The learned Arbitrator has in the impugned Award interpreted the said clause to hold that the method of measurement for the purposes of recovery of hard rock as well as for the purpose of payment for excavation is the same. The view taken by the learned Arbitrator was a plausible one to take.

15. It is then contended by learned counsel for the Petitioner that no recordings were available in the Measurement Book ('MB') for the work done. As rightly contended by learned counsel for the Respondent, the recording was not expected to be done by the Respondent and the Petitioner OMP Nos. 383 of 2011 & 534 of 2011 If having refused to make the entries could not seek advantage of such omission. In any event, the Respondent did supply the necessary calculations in support of its claim which were examined by the learned Arbitrator. This Court finds no merit in the objection with regard to the Award in respect of Claim No.2.

16. Claim No.3 was for reimbursement of underpayment in items of excavation and earth work. Claim No.4 in the Award in O.M.P. No.. 534 of 2011 was for reimbursement of underpayment for removal of earthen ranges. i- The Awards of the learned Arbitrators in this regard were based on a factual finding. The work carried out in the area was not objected to by the Petitioner. In fact, a completion certificate was also issued. Both the learned Arbitrators have given detailed reasons in their respective Awards in respect of both the claims. Consequently, this Court finds no merit in the objections as regards Claim Nos.3 and 4.

17. As regards the reimbursement for payment for cable route indicator under Claim No. 10 in the Award in O.M.P. No. 534 of 2011, reference is made to Clause 23.16.3 by learned counsel for the Petitioner to state that this was included in the lump sum contract. As rightly pointed out by learned counsel for the Respondent, Clause 23 is part of the external electrification OMP Nos. 383 of 2011 & 534 of 2011 1-) covered by Section IX of the contracts and which is excluded from the lump sum payment as per Note 4 the SSR of the contracts. Therefore, there is no merit in the objection as regards Claim No. 10.

18. In both the Awards, Claim No. 14 related to reimbursement of labour cess. Clause 23 of the GCC stipulates that all labour related charges (subsisting or future) were to be paid by the Respondent. Reliance is placed on Clause 25 of the GCC which states that if a change occurs after the last date of submission of tenders as a result of "any new ordinance imposed by the Central Government" then the same would be adjustable.

19. As far as the Building and Other Construction Workers' (Regulation of Employment and Conditions of Service) Act, 1996 ('BOCW Cess Act') is concerned, there can be no doubt that the said Act was notified in January

2002. The notification issued by the Government of National Capital Territory of Delhi ('GNCTD') on 16**^ August 2005 only clarifies that the Delhi Building and Other Construction Works Rules 2002 would have effect from January 2002. This was taken note of by the DB in Builders f Association of India v. Union of India 139 (2007) DLT 578 while upholding the constitutional validity of the BOCW Cess Act. OMP Nos. 383 of 2011 & 534 of 2011 ■2/^'

20. In the considered view of the Court, the Awards in both the cases on the aspect of reimbursement of labour cess overlook the aforementioned legal position whereby it was mandatory for the GNCTD to collect cess in respect of every construction contract. The cess component was to be deducted from the Contractors' bills from the effective date of implementation, i.e., 6^*^ January 2002. Irrespective of the clarificatory notification which came- to be issued in 2005 by the GNCTD, the construction workers' cess was recoverable from 2002 itself. Consequently, the impugned Awards of the learned Arbitrators under Claim No. 14 allowing reimbursement of labour cess are hereby set aside as being contrary to the mandatory provision of the BOCW Cess Act. .

21. Claim No. 15 in the Award in OMP No.534 of 2011 and Claim No. 17 in the Award in OMP No.383 of 2011 concerned delayed payment. Both the learned Arbitrators had extensive experience of the departmental working and were competent to decide the time permissible for clearing of the bills. The delay in lump sum payment was as large as 80 to 511 days. The Awards in regard to this claim in each matter do not call for interference.

22. Claim No. 18 in the Award in OMP No.534 of 2011 and Claim No.3 of Part B in the Award in OMP No.383 of 2011 pertained to reimbursement of OMR Nos. 383 of 2011 & 534 of 2011 % labour escalation. As rightly pointed out by the learned Arbitrators, the law explained by the Supreme Court in Food Corporation of India v. A.M. Ahmed & Co. (2006)13 SCC 779 and Union ofIndia v. Saras^at Trading agency (2009) 16 SCC 504 permits the entertainment of ciaim for labour escalation notwithstanding the contract being a lump sum one. The same issue was raised earlier in O.M.P. Nos.890-91 of 2011 which were dismissed by the Court on 16* March 2012.

23. For the aforementioned reasons, this Court upholds both the impugned Awards except to the extent of setting aside both Awards as far as the Respondent's claim for reimbursement of labour cess is concerned.

24. The petitions are disposed of in the above terms, but in the circumstances, with no order as to costs. NOVEMBER 27,2012 tP S. MURALIDHAR, J. OMP Nos. 383 of 2011 & 534 of 2011