FAO (COMM)/174/2025 of NEW DELHI MUNICIPAL COUNCIL Vs RAJ BUILDERS

CORAM:JUSTICE PRATHIBA M. SINGHJUSTICE RAJNEESH KUMAR GUPTA

Prathiba M. Singh, J.

JUDGMENT

1.This hearing has been done through hybrid mode.

2.The present appeal has been filed by the Appellant-New DelhiMunicipal Corporation (hereinafter ‘NDMC’) under Section 37(2)(b) of theArbitration and Conciliation Act, 1996 (hereinafter ‘the Act’) challenging theimpugned judgment dated 2[nd]April, 2025 by which the Appellant’s petitionunder Section 34 of the Act has been dismissed.

3.The brief background of this case is that the Appellant-NDMC hadawarded the contract to the Respondent-M/s Raj Builders for the constructionof 17 flats along with certain amenities at Palike Nilay R.K. Puram Marg SH.The contract was awarded vide letter No. (EE/BM-I)/1604-14/D and wasvalued at Rs. 34,51,081/-. Upon the Respondent’s failure to perform the workas per the terms of the contract and within the stipulated period, the Appellant

had levied liquidated damages. The same was not challenged, however,disputes arose at the time of payment to the Respondent, which led to thearbitration clause being invoked, and sole arbitrator was appointed.

4.Pursuant to the arbitration proceeding, the award dated 29[th]September,2019, was passed by the ld. Arbitrator in favour of the Respondent whilerejecting the Petitioner’s counter claim. Vide the said award dated 29[th]September, 2019 the ld. Arbitrator had granted the following relief in favourof the Respondent:-

“(i) Against Claim no.l of the respondent, The Ld. SoleArbitrator has allowed claim of Rs. 3,45,108/- withinterest @ 12% per annum from 22.12.2012 till the dateof payment.

(ii) Against claim no.3, Ld. Sole Arbitrator allowed theclaim to the extent ofRs. 2,04,000/- as damages onaccount of payment of salary to the Graduate Engineerduring the extended contractual period without interest.(iii) Against claim no.4, the Ld. Sole Arbitrator allowedthe claim of the respondent to the extent of Rs.1,27,700/- from 22.11.2012 with interest@ 12% perannum tillrealization as the profit due to the lossessuffered by the respondent in respect of work notallowed to be done by the respondent.

(iv) Against the claim no.6, the Ld. Sole Arbitratorallowed cost of Arbitration proceedings to the extent ofRs. 1,00,000/- in favour of the respondent.

(v) The Ld. Sole Arbitrator also rejected the Counterclaims of the petitioner in the impugned Award dated20.09.2019.”

5.One of the primary grounds on which the learned Arbitrator passed theaward was the failure of the Appellant-NDMC, to make the site available forexecution of the work, as per the terms of the contract. Aggrieved by the saidaward, the Appellant filed petition under Section 34 of the Arbitration and

Conciliation Act, 1996 (hereinafter ‘the Act’), before the learned DistrictJudge (Commercial-1), Patiala House Courts, New Delhi, in OMP (COMM)No. 242 of 2019.

6.Ld. District Judge, upon hearing the parties, vide the impugned orderdated 2[nd]April, 2025 held that the arbitral award does not warrant interferenceunder Section 34 of the Act on the grounds that the arbitral award was wellreasoned and there was nothing on record to show that said award was againstthe terms of the agreement or the public policy. The present appeal has beenfiled challenging the said order dated 2[nd]April, 2025.

7.Today, the only point which is being pressed in this appeal is whetherat the time of granting extension of time, the NDMC could have charged thecompensation/withheld the said compensation from the amounts payable tothe contractor, in terms of the contract.

8.No other issue is being pressed.

9.Insofar as the said issue of withholding of certain amounts is concerned,NDMC relies upon Clause 2 of the Agreement to argue that it is fullyempowered to demand compensation for extension of time. Clause 2 reads asunder:

“Clause 2

Compensation for delay

If the contractor fails to maintain the requiredprogress in terms of clause 5 or to complete the workand clear the site on or before the contract or extendeddate of completion, he shall, without prejudice to anyother right or remedy available under the law to theNDMC on account of such breach, pay as agreedcompensation the amount calculated at the ratesstipulated below as the Chief Engineer (whose decisionin writing shall be final and binding) may decide on

the amount of tendered value of the work for everycompleted day/month (as applicable) that the progressremains. below that specified in Clause 5 or that thework remains incomplete.

This will also apply to items or group of items for whicha separate period of completion has been specified.Compensation for delay of work @ 1.5% per month ofdelay to be computed on per day basis

Provided always that the total amount of compensationfor delay to be paid under this condition shall not exceed10% of the Tendered Value of work or to the TenderedValue of the item or group of items of work, which aseparate period of completion is originally given. Theamount of compensation may be adjusted or set-ofagainst any sum payable to the contractor under this orany other contract with the NDMC. In case, thecontractor does not achieve particular milestonementioned in schedule -A or the rescheduled milestone(s) in terms of clause 5.4, the amount shown against thatmilestone shall be withheld, to be adjusted against thecompensation levied at the final grant of extension oftime. Withholding of this amount on failure to achieve amilestone shall be automatic without any notice to thecontractor. However, if the contractor catches up withthe progress of work on the subsequent milestone (s), thewithheld amount shall be released. In case thecontractor fails to make up for the delay in subsequentmilestone(s), amount mentioned against each milestonemissed subsequently also shall be withheld. However.no interest, whatsoever, shall be payable on suchwithheld amount.”

10.A perusal of the above clause would reveal that there can be no doubtthat the NDMC is fully empowered under the contract to demandcompensation or retain amounts, when extension is granted. The discretion togrant an extension is vested with the Chief Engineer, NDMC. However, in the

present case, as set-out in the impugned judgment itself, the Arbitrator cameto the conclusion that the levying of compensation was not justified as thedelay was due to the late handing over of the site by the NDMC, and not dueto the Contractor’s fault. This issue is completely factual issue and does notin any manner impinge, in general, upon the power of the NDMC to levycompensation. The observation of the ld. Single Judge, as captured inParagraph 30 of the impugned judgment, reads as under:

“30.In this regard, Ld. Sole Arbitrator observed thatClause 2 of the Contract speaks about the essence of thetime line as mentioned in the contract or in the extendedtime and as per Clause 2 of the Contract, if thecontractor fails to maintain the required progress interms of clause 5 or to complete the work in the extendedtime, the NDMC would be entitled for compensation forsuch breach. The Ld. Sole Arbitrator has also notedthat the main cause of delay as recorded by the officials-of the petitioner in Ex. C4A, is non availability of thesite to the contractor to complete the work and thepetitioner allowed the contractor to continue with thejob even after the expiry of the stipulated period and itwas done without raising any objection and observedthat under the circumstances, it cannot be said that therespondent was at fault for not completing the work inthe extended time and therefore, it was not justified onthe part of the petitioner to levy compensation whilegranting EOT.Though the petitioner has averred thatthe respondent did not submit the request for EOT inprescribed performa in spite of the request made for thatpurpose however, as has been noted by the Ld. SoleArbitrator that the respondent has placed on record theletter dated 15.12.2011 addressed to E.E. with therequest to issue EOT performa and noting below thesaid letter confirms that the department of the petitionerhad issued the performa on 16.12.2011 and found thatEOT was sanctioned by the petitioner but there was no

mention that filled in perform was not submitted by thecontractor and it caused the levy of compensation andwith or without the filled in performa, the petitioner hasallowed EOT and thus, there was no occasion for thepetitioner to levy the compensation while permittingEOT after more than two and half year of the recordingof completion of the contractual work and found thatlevy of compensation of Rs. 3,45,108/- is not justified.”

11.A perusal of the above would reveal that the ld. Arbitrator came to theconclusion primarily based on the fact that there was delay in handing overthe site, and it was only in view thereof that the contractor was allowed tocontinue with the job after expiry of the stipulated period. Under suchcircumstances, the withholding of the amount of Rs. 3,45,108/- was held tobe not justified.

12.That being said, the Supreme Court, vide number of decisions, hasrepeatedly reiterated the need for minimal interference in Arbitral awards,especially in an appeal under Section 37 of the Act. The Supreme Court inLarsen Air Conditioning and Refrigeration Company vs Union of India(Civil Appeal No(s). 3798 of 2023)

The limited and extremely circumscribed jurisdiction ofthe court under Section 34 of the Act, permits the courtto interfere with an award, sans the grounds of patentillegality i.e. that “illegality must go to the root of thematter and cannot be of trivial nature”; and that theTribunal “must decide in accordance with the terms ofthe contract, but if an arbitrator construes term of thecontract in reasonable manner, it will not mean thatthe award can be set aside on this ground” The otherground would be denial of natural justice. In appeal,Section 37 of the Act grants narrower scope to theappellate court to review the findings in an award, if it

has been upheld, or substantially upheld under Section34.”

13.Similarly, the Supreme Court in the case of Konkan RailwayCorporation Limited vs Chenab Bridge Project Undertaking [2023 INSC742] also reiterated the principle that merit-based review of an arbitral awardinvolving reappraisal of factual findings is impermissible. The relevantportion of the said judgment is extracted below:

“14. ............ At the outset, we may state that thejurisdiction of the Court under Section 37 of the Act, asclarified by this Court in MMTC Ltd. Vs. Vedanta Ltd.,is akin to the jurisdiction of the Court under Section 34 ofthe Act. Scope of interference by court in an appealunder Section 37 of the Act, in examining an order,setting aside or refusing to set aside an award, isrestricted and subject to the same grounds as thechallenge under Section 34 of the Act.

15. Therefore, the scope of jurisdiction under Section 34and Section 37 of the Act is not akin to normal appellatejurisdiction. It is well-settled that courts ought not tointerfere with the arbitral award in casual and cavaliermanner. The mere possibility of an alternative view onfacts or interpretation of the contract does not entitlecourts to reverse the findings of the Arbitral Tribunal. InDynaTechnologiesPrivateLimitedv.CromptonGreaves Limited (2019) 20 SCC 1, this Court held:

"24. There is no dispute that Section 34 of theArbitration Act limits challenge to an award only onthe grounds provided therein or as interpreted byvarious courts.We need to be cognizant of the factthat arbitral awards should not be interfered with ina casual and cavalier manner, unless the court comesto conclusion that the perversity of the award goesto the root of the matter without there being apossibility of alternative interpretation which maysustain the arbitral award. Section 34 is different in

its approach and cannot be equated with normalappellate jurisdiction. The mandate under Section 34is to respect the finality of the arbitral award and theparty autonomy to get their dispute adjudicated by analternative forum as provided under the law. If thecourts were to interfere with the arbitral award in theusual course on factual aspects, then the commercialwisdom behind opting for alternate dispute resolutionwould stand frustrated.

25. Moreover, umpteen number of judgments of thisCourt have categorically held that the courts shouldnot interfere with an award merely because analternative view on facts and interpretation of contractexists. The courts need to be cautious and should deferto the view taken by the Arbitral Tribunal even if thereasoning provided in the award is implied unless suchawardportraysperversityunpardonableunderSection 34 of the Arbitration Act."

14.In view of the above decisions and the fact that the challenge in thepresent appeal relates to factual question, the Court is of the opinion that theimpugned award or the impugned judgment does not warrant interference.15.In this view of the matter, the appeal and pending applications aredismissed and disposed of.

PRATHIBA M. SINGHJUDGE

JULY 14, 2025/MR/Ar.

RAJNEESH KUMAR GUPTAJUDGE