Precaution to be taken while using Hudson’s formula while 𝐂𝐨𝐦𝐩𝐮𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐂𝐥𝐚𝐢𝐦𝐬 𝐨𝐟 𝐋𝐨𝐬𝐬 𝐨𝐟 𝐎𝐯𝐞𝐫𝐡𝐞𝐚𝐝𝐬 𝐚𝐧𝐝 𝐏𝐫𝐨𝐟𝐢𝐭𝐬

The usage of formulae such as Hudson's, Emden's, or Eichleay's formulae to ascertain the loss of overheads and profits has been judicially approved in the English cases of Peak Construction (Liverpool) Ltd. v. McKinney Foundations Limited (1970) 1 BLR 114, Whittal Builders v. Chesterle-Street District Council (1987) 40 BLR 82, and JF Finnegan Ltd. v. Sheffield City Council (1988) 43 BLR 124 and in the Canadian case of Ellis- Don v. Parking Authority of Toronto (1978) 28 BLR 98. The three formulae deal with theoretical mathematical equations, but are based on factual assumptions, and therefore can produce three different and unrelated compensation/damages. Therefore, while applying a particular equation or method, the assumptions should be examined, and the satisfaction of the assumption(s) ascertained in the facts and circumstances. {Para 21}

22. The formula suggested by Hudson in his 10th edition of the book Building and Engineering Contracts for the computation of damages takes the head office and profit percentage as a proportion of the contract value. The formula assumes that the profit judged by the builder/contractor is in fact capable of being earned by her/him elsewhere had the builder/contractor been free to leave the contract at the proper time. The formula is couched on three assumptions. First, that the contractor is not habitually or otherwise underestimating the cost when pricing; secondly the profit element was realistic at that time; and lastly, there was no fluctuation in the market conditions and the work of the same general level of profitability would be available to her/him at the end of the contract period. Satisfaction of these assumptions should be ascertained when we apply Hudson's formula for computing the damages. Material should be furnished by the claimant to justify and assure that the assumptions for applying Hudson's formula are met.

23. Ordinarily, when the completion of a contract is delayed and the contractor claims that s/he has suffered a loss arising from depletion of her/his income from the job and hence turnover of her/his business, and also for the overheads in the form of workforce expenses which could have been deployed in other contracts, the claims to bear any persuasion before the arbitrator or a court of law, the builder/contractor has to prove that there was other work available that he would have secured if not for the delay, by producing invitations to tender which was declined due to insufficient capacity to undertake other work. The same may also be proven from the books of accounts to demonstrate a drop in turnover and establish that this result is from the particular delay rather than from extraneous causes. If loss of turnover resulting from delay is not established, it is merely a delay in receipt of money, and as such, the builder/ contractor is only entitled to interest on the capital employed and not the profit, which should be paid. The High Court of Justice Queen's Bench Division in the case of Property and Land Contractors Ltd. v. Alfred McAlpine Homes North Ltd. (1995) 76 BLR 59 succinctly points the in-exactitude of Hudson's formulae, by observing:

Furthermore the Emden formula, in common with the Hudson formula (see Hudson on Building Contracts, (11th edn, 1995) paras 8-182 et seq) and with its American counterpart the Eichleay formula, is dependent on various assumptions which are not always present and which, if not present, will not justify the use of a formula. For example the Hudson formula makes it clear that an element of constraint is required (see Hudson para 8.185) ie in relation to profit, that there was profit capable of being earned elsewhere and there was no change in the market thereafter affecting profitability of the work. It must also be established that the contractor was unable to deploy resources elsewhere and had no possibility of recovering cost of the overheads from other sources, eg from an increased volume of the work.

Thus such formulae are likely only to be of value if the event causing delay is (or has the characteristics of) a breach of contract.

24. As mentioned in McDermott International Inc., Hudson's 11th Edition has referred to Eichleay formula, which gives the resultant figures with greater precision and accuracy. This formula, which emerged in 1960s12, is far more nuanced and rigorous, as it requires the builder/contractor to itemise and quantify the total fixed overheads during the contract period. It takes into consideration all the contracts of the contractor/builder during the contract period with those of the individually delayed contract to determine the proportionate faction of the total fixed overheads. However, in both Hudson's and Eichleay's formulae, the amount to be recovered is determined weekly or monthly, which the delay in the contract completion is expected to earn.

25. Hudson's formula might result in double recovery as the profit being added to the profit is already subsumed within the 'contract sum'. To avert this double-recovery, it has been suggested that the formula should be modified to 'contract sum less overhead and profit'13. Any increase in the value of the final account for extra works such as variations contain their own element of overheads and profits. Therefore, Hudson's formula like other formulae, which are only rough approximations of the cost impact of unabsorbed overhead, should be applied with great care and caution to ensure fair and just computation.14

26. Hudson in his 14th Edition refers to claim for management or overheads during the period of delay. The author has referred to Hudson's formula as well as Eichleay's formula, and observes that recently limitations of Hudson's approach have received greater emphasis as the English courts have become more generous in their approach and assessment of claims for time management. The authors accept what has been highlighted above, and the need to take care in delay cases to avoid any double recovery, overlap with other claims, or when payments are obtained by the contractor on account of variation(s), or any damages for breach have to be concluded by using contract price. "Thickening", by adding unreasonable expenses, should not be accepted. It is observed that in the total cost method, there is difficulty in linking cause and effect convincingly, albeit is more precise and factually accurate. Thus, Hudson's method should be taken as the basis for computation with caution and as a last resort, where no other way to compute damages is feasible or mathematically accurate. Inaccuracies in Hudson's computation should not be overlooked, and should be accounted and neutralized. Hudson's formula when applied should be with full care and caution not to over-award the damages.

Ratio: The Supreme Court, while deciding the matter pointed out various errors of patent illegality in the award. While doing so, the Supreme Court also made some key findings on award of loss of profits & overheads in such cases. Certain key issues highlighted by Court were as under:

1.    It is true that the method of computation of damages falls within the domain & decision of the arbitrator, but the same should not be whimsical & absurd resulting in a windfall bounty for one party at the expense of the other. The computation should not be disingenuous.

2.    The principle is that the sum of money awarded to the party who has suffered injury, should be commensurate as to what s/he would have earned if s/he had not sustained the wrong complained of.

3.    Where the breach by the employer is not fundamental, & does not entitle the contractor to cease work/repudiate the contract, then in such cases the compensation or damages is the loss of profit arising from reduced profitability or added expense of work carried out.

4.    The usage of formulae such as Hudson’s, Emden’s or Eichleay’s to ascertain loss of overheads or profits is certainly judicially approved, but these are based on certain factual assumptions. Therefore while applying them, the assumptions need to be examined.

5.    The Hudson’s formulae for instance, assumes that FIRST: the contractor is not habitually or otherwise underestimating cost when pricing, SECOND: the profit element was realistic at that time, LASTLY: there was no fluctuation in the market conditions & the work of the same general level of profitability would be available to him/her at the end of contract period. Therefore satisfaction of these assumptions needs to be ascertained when applying the Hudson’s formula.

6.    The contractor has to prove these assumptions by showing for instance, that there was other work available which he would have secured, but for the delay (produce NITs etc). This can also be proven from books of accounts demonstrating a dip in turnover.

 IN THE SUPREME COURT OF INDIA

Civil Appeal No. 1968 of 2012

Decided On: 21.09.2023

Batliboi Environmental Engineers Limited Vs. Hindustan Petroleum Corporation Limited and Ors.

Hon'ble Judges/Coram:

Sanjiv Khanna and M.M. Sundresh, JJ.

Author: Sanjiv Khanna, J.

Citation:  MANU/SC/1043/2023,2023INSC850.

Print Page

The Finer Nuances of Debt Funding. (Real Properties).

 Submitted by:

A.M. Ibrahim. B. Arch, MIBC, FIV, FICA, FIE (I), MCIT, MBIM (U.K).

https://drive.google.com/file/d/1vtpmtGFVUUs72SDtT6Gy9MTsFLAhprlP/view?usp=sharing

Print Page

Latest Development control Rules for Municipal Corporation in Maharashtra State

UNIFIED DEVELOPMENT CONTROL AND PROMOTION REGULATIONS FOR MAHARASHTRA STATE.  (As updated upto 30 th January, 2022)

 https://drive.google.com/file/d/1rBti5d661C9zH-FfGP5XVZAEpHAgm0Jr/view?usp=sharing

Print Page

Article on Valuation under Land Acquisition Act 2013

Submitted by:

A. Mohammed Ibrahim. B.Arch, MIBC, FIV, FICA.

Kadayanallur-Tamil Nadu.

 https://drive.google.com/file/d/1NwbikGl5KaNYuBhUaIC0wF6ADOuT0iRs/view?usp=sharing

Print Page

Good article on Real Estate Developer’s Budget in a Joint Venture Development

Submitted by:

A. Mohammed Ibrahim. FICA. MCIT (UK), MBIM (UK).

Registered Architect and Registered Valuer.

https://drive.google.com/file/d/1a-j9LCIS1ZsIy-FLgomuFxkJ7SobxTvt/view?usp=sharing

Print Page

Good article on Compounding and Discounting Valuation Tables

Compounding and Discounting Valuation Tables. It will be useful to valuers, financial and legal professional interested in property valuation.

Submitted by:

A. Mohammed Ibrahim. FIV, FICA

 https://drive.google.com/file/d/1DzIplODWyhEh7GC9rK041oOmG8-u77Ig/view?usp=sharing

Print Page

Whether the court can grant specific performance of construction contract?

 24.3. In order to determine the exact nature of the agreement

signed between the parties, the intent of the parties has to be

construed by reading the agreement as a whole in order to

determine whether it is an agreement simpliciter for

construction or an agreement that also creates an interest for

the builder in the property. Where under a development

agreement, the developer has an interest in land, it would be

difficult to hold that such an agreement is not capable of

being specifically enforced.”

(Italics and underscoring supplied)

22.7.2 Where, therefore, as in the present case, the agreement is not merely for development or construction on the property, but also envisages valuable rights enuring, in favour of the developer, in the constructed edifice, the Supreme Court itself holds, unequivocally, that it would be difficult to treat the agreement as incapable of specific performance.

22.8 The requirement of precision, in the construction contract, as a pre-condition for its enforceability, is relatable to the erstwhile Section 14(3)(c)(iii) of the Specific Relief Act. That requirement no longer figures on the statute book, after the amendment of Section 14 by the 2018 Amendment Act. In my prima facie opinion, lack of precision in the construction agreement can no longer be regarded, by itself, as a sufficient disqualification to its enforceability by specific performance. Else, it would be re-introducing, by a side wind, the consideration in the erstwhile Section 14(3)(c)(iii), which the legislature has consciously removed from the statute. Such anexercise is necessarily to be eschewed, as it would militate against the legislative intent.

22.9 The sequitur would, therefore, be that a construction contract can no longer be regarded as incapable of specific performance merely because its terms are imprecise or vague. If, however, owing to such imprecision or vagueness, any direction for specific performance would require continuous supervision by the Court, that would, even now, render the agreement incapable of specific performance by virtue of Section 14(b). For that, however, the Court would have to arrive at a finding that, owing to the imprecision of the agreement, or for any other reason, any direction for specific performance would require continuous supervision by the Court. In the scenario of Section 14 as it exists today, and without the support of the erstwhile Section 14(3)(c) and its various clauses, this would, in almost every case, be arguable at the very least.

22.10 Prima facie, in view of the above legal position, I am unable to convince myself to hold, prima facie, that the defendant has been able to make out a case of the PDA being incapable of specific performance, by operation of Section 14(b) of the Specific Relief Act, as would justify vacation of the interim direction to maintain status quo in respect of the suit property.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

Pronounced on: 22nd October, 2021

IAs 6433/2020 & IA 7643/2020 in

CS(COMM) INFRA 1/2020

M/S GROVY INDIA LTD Vs BALBIR SINGH

Print Page

Whether court can enforce old contract if new contract is nullity?(Doctrine of Novation)

 Nearly a century and a quarter ago, one finds this clear exposition of the principle of novation, in the judgement of the Court of the Judicial Commissioner at Nagpur in Ganpat v. Mahadeo  1925 Nag 26 :

“Where the question is whether one party is set free by the

action of the other, the matter for consideration is whether the

acts or conduct of the one do or do not amount to an

intimation of an intention to abandon and altogether to refuse

performance of the contract. The true question is whether the

acts and conduct of the party evince any intention no longer

to be bound by the contract: Mersay Steel and Iron

Company v. Naglir Benzon & Co. 9 A.C. 434 General Bill

Posting Co v. Atkinson (13). The Court requires as clear

evidence of the waiver as of the existence of the contract

itself and will not act upon less: Carolan v. Brabazon (1900)

A.C. 118 = 78 L.J.; C.H. 77=99 L.T. 913 = 25 T.L.R. 173.

What is then required is that an abandonment of the old

agreement, must be clearly made out. There must be clear

and precise evidence of a mutual intention to determine and

abandon the contract: Mathura Mohan Saha v. Ram

Kumar Saha [1946] 43 Cal. 700=23 C.L.J. 26 = 30 I.C.

305: 20 C.W.N. 370. Where the intention to substitute a new

contract is frustrated by the fact that the new contract is a

nullity, the original contract may be enforceable: see Har

Chandi Lal v. Sheoraj Singh 3 J & L 200 = 9 Ir. & E. 121.

Much more so, where the agreement itself is a contravention

of the statute and does not ripen into a contract in the legal

sense of the term.”

(Emphasis supplied)

A coordinate Bench of this Court has held, recently in Knowledge

Podium Systems Pvt Ltd v. S.M. Professional Services Pvt Ltd26,

that “a novation takes place only when there is a complete substitution of a new contract in place of the old”.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

Pronounced on: 22nd October, 2021

IAs 6433/2020 & IA 7643/2020 in

CS(COMM) INFRA 1/2020

M/S GROVY INDIA LTD Vs BALBIR SINGH

CORAM:

HON'BLE MR. JUSTICE C. HARI SHANKAR

Dated: 22.10.2021

Print Page

Should the court set aside an arbitral award if the arbitral tribunal has failed to consider relevant rival contentions?

 However, the issue is not limited to interpretation of Clause 18.1 of the Concession Agreement, solely on which the impugned award, essentially, rests. The interpretation of Clause 18.4 of the Concession Agreement is also vital to the controversy in the present case. The petitioner had relied on Clause 18.4 of the Concession Agreement and had contended that in terms of the said clause, any additional civil works were specifically excluded from the purview of Article XVIII of the Concession Agreement. Undisputedly, construction of additional lanes and toll booths entailed civil works and Clause 18.4 of the Concession Agreement expressly provided that “maintenance shall not include the extension of any existing pavement, bridges, structures and other civil works unless part of the project”. Clause 18.4 of the Concession Agreement, thus, clarified that extension of any structure or other civil works would not be included as part of maintenance. The written submissions filed by the petitioner before the Arbitral Tribunal indicates that the petitioner had canvassed the said clause and specifically clarified that the construction of additional lanes over and above as specified under the Concession Agreement, is excluded from the scope of maintenance. A plain reading of the impugned award indicates that the Arbitral Tribunal had not considered Clause 18.4 of the Concession Agreement while interpreting the question whether construction of the additional lanes fall within the scope of Operation and Maintenance obligations of the petitioner. {Para 49}

50. Mr. Chandra had submitted that Clause 18.4 of the Concession Agreement would not exclude construction of additional lanes as Clause 18.1 of the Concession Agreement has an overriding effect to include the same within the scope of the project. This contention is not persuasive. However, more importantly, it is clear that the Arbitral Tribunal has not considered this contention even though it was urged before the Arbitral Tribunal. Undeniably, Clause 18.1 of the Concession Agreement could not have been interpreted in isolation. It was also required to be examined in the context of the other clauses of the Concession Agreement - including Clause 18.4 of Concession Agreement, Clause 2.1 of the Concession Agreement, which defined the scope of the contract and Clause 2 of Schedule C of the Concession Agreement, which described the specifications of a toll plaza, were also required to be interpreted.

51. In view of the above, there is merit in the petitioner's contention that since one of the principal contentions advanced by the petitioner regarding interpretation of Article XVIII of the Concession Agreement has not been considered and the impugned award rests substantially on the interpretation of a sub-clause of Article XVIII of the Concession Agreement; the award must be construed to be unreasoned.

52. Section 31(3) of the A&C Act requires that an arbitral award must state reasons upon which it has been based. The said requirement must be read in a meaningful manner. In an adversarial system of litigation, the reasons for a decision must necessarily take into account the relevant rival contentions. Thus, the question whether construction of additional lanes and toll booths fall within the scope of the Concession Agreement was required to be addressed in the light of the contentions advanced by both parties. However, the Arbitral Tribunal has completely ignored the petitioner's contention regarding the interpretation of Clause 18.4 of the Concession Agreement.

53. Justice (Retired) Devinder Gupta has, in his opinion, considered all the relevant clauses of the Concession Agreement including Clause 18.4 of the Concession Agreement and concluded that the scope of work under the Concession Agreement did not include construction of additional lanes at the toll plazas. This Court concurs with the said view.

54. In the aforesaid context, this Court is of the view that the impugned award is contrary to the expressed terms of the contract as it ignores Clause 18.4 of the Concession Agreement, which expressly provides that extension of pavements or ‘other civil works’ would not be included as a part of maintenance unless such construction is a part of the project. There is no clause in the Concession Agreement, which specified construction of additional toll lanes as a part of the project.

55. In view of the above, the impugned award is set aside. The petitioner is at liberty to seek a reference of the disputes to arbitration.

In the High Court of Delhi at New Delhi

(Before Vibhu Bakhru, J.)

GVK Jaipur Expressway Private Limited  Vs National Highway Authority of India 

O.M.P. (COMM) 377/2020

Decided on October 29, 2021

Citation: 2021 SCC OnLine Del 4851

Print Page

Can the court refuse to grant specific performance of construction contract after Specific relief amendment Act 2018 if the contract is not precise?

Re. Section 14(1)(b) of Specific Relief Act

55. Though, in the written submissions tendered by the defendant as encapsulating the submissions advanced at the Bar, this contention has not been raised, it was, in fact, argued, and I proceed, therefore, to deal with it.

56. Section 14(1)(b) of the Specific Relief Act completely bars grant of interlocutory relief as sought by the plaintiff, contends Mr. Garg. The provision, as it stands today, reads thus:

“14. Contracts not specifically enforceable. - The following contracts cannot be specifically enforced, namely:—

*****

(b) a contract, the performance of which involves the performance of a continuous duty which the court cannot supervise;”

57. This, however, is the amended avatar of Section 14. Prior to its amendment by Section 5 of the Specific Relief (Amendment) Act, 2018, Section 14 (to the extent relevant) read as under:

“14. Contracts not specifically enforceable.-

(1) The following contracts cannot be specifically enforced, namely:—

(d) a contract the performance of which involves the performance of a continuous duty which the court cannot supervise.

*****

(3) Notwithstanding anything contained in clause (a) or clause (c) or clause (d) of sub-section (1), the court may enforce specific performance in the following cases:—

*****

(c) where the suit is for the enforcement of a contract for the construction of any building or the execution of any other work on land:

Provided that the following conditions are fulfilled, namely:—

(i) the building or other work is described in the contract in terms sufficiently precise to enable the court to determine the exact nature of the building or work;

(ii) the plaintiff has a substantial interest in the performance of the contract and the interest is of such nature that compensation in money for non-performance of the contract is not an adequate relief; and

(iii) the defendant has, in pursuance of the contract, obtained possession of the whole or any part of the land on which the building is to be constructed or other work is to be executed.”

58. Prior to its amendment, therefore, Section 14 required, for specific performance of a contract for the construction of a building, the contract to describe the building “in terms sufficiently precise to enable the courts to determine the exact nature of the building or work”. That requirement is now done away with. Decisions, which have held a contract for construction of a building or other work not to be capable of being enforced by way of specific performance on the ground that the contract is imprecise or vague, relating to causes of action arising during the currency of the pre-amended Section 14 of the Specific Relief Act cannot, therefore, prima facie, constitute valuable precedents, to guide cases arising after Section 14 was amended.

59. Having said that, “a contract, the performance of which involves the performance of a continuous duty which the court cannot supervise” still remains impervious to enforcement by way of specific performance.

24.3. In order to determine the exact nature of the agreement signed between the parties, the intent of the parties has to be construed by reading the agreement as a whole in order to determine whether it is an agreement simpliciter for construction or an agreement that also creates an interest for the builder in the property. Where under a development agreement, the developer has an interest in land, it would be difficult to hold that such an agreement is not capable of being specifically enforced.”

(Italics and underscoring supplied)

73. Where, therefore, as in the present case, the agreement is not merely for development or construction on the property, but also envisages valuable rights enuring, in favour of the developer, in the constructed edifice, the Supreme Court itself holds, unequivocally, that it would be difficult to treat the agreement as incapable of specific performance.

74. The requirement of precision, in the construction contract, as a pre-condition for its enforceability, is relatable to the erstwhile Section 14(3)(c)(iii) of the Specific Relief Act. That requirement no longer figures on the statute book, after the amendment of Section 14 by the 2018 Amendment Act. In my prima facie opinion, lack of precision in the construction agreement can no longer be regarded, by itself, as a sufficient disqualification to its enforceability by specific performance. Else, it would be re-introducing, by a side wind, the consideration in the erstwhile Section 14(3)(c)(iii), which the legislature has consciously removed from the statute. Such an exercise is necessarily to be eschewed, as it would militate against the legislative intent.

75. The sequitur would, therefore, be that a construction contract can no longer be regarded as incapable of specific performance merely because its terms are imprecise or vague. If, however, owing to such imprecision or vagueness, any direction for specific performance would require continuous supervision by the Court, that would, even now, render the agreement incapable of specific performance by virtue of Section 14(b). For that, however, the Court would have to arrive at a finding that, owing to the imprecision of the agreement, or for any other reason, any direction for specific performance would require continuous supervision by the Court. In the scenario of Section 14 as it exists today, and without the support of the erstwhile Section 14(3)(c) and its various clauses, this would, in almost every case, be arguable at the very least.

76. Prima facie, in view of the above legal position, I am unable to convince myself to hold, prima facie, that the defendant has been able to make out a case of the PDA being incapable of specific performance, by operation of Section 14(b) of the Specific Relief Act, as would justify vacation of the interim direction to maintain status quo in respect of the suit property.

In the High Court of Delhi at New Delhi

(Before C. Hari Shankar, J.)

Grovy India Ltd. Vs Balbir Singh

IAs 6433/2020, IA 7643/2020 and CS(COMM) INFRA 1/2020

Decided on October 22, 2021

Citation: 2021 SCC OnLine Del 4783

Print Page

Can Municipal corporations include a term in the works contract that they will make payments to the contractor as and when funds in a particular budget head are available?

  As per Himani Alloys Ltd. v. Tata Steel Ltd. (2011) 15 SCC 273 cited by the Corporation, the test for the invoking of Order XII Rule 6 of the CPC being that the admission so made must clear and unequivocal, on the face of which it is impossible for the party making it to succeed. In the light of the stand in the written statement, there is a clear admission as to the final bill amount as also that the Contractor has to wait in a queue. Thus the Trial Court has rightly invoked the provisions of Order XII Rule 6.{Para 55}

Conclusions and Findings

56. The General Conditions of Contract i.e., clauses 7 and 9 which are admittedly part of the work orders issued by both the NrDMC and the EDMC are being tested in these batch of cases. A contract which stipulates that the consideration would be paid in an unforeseen time in the future based on certain factors which are indeterminable, would in effect be a contract without consideration. Even if the contract is held to be a valid contract, then the concept of `reasonableness' has to be read into the same. Section 46 of the Contract Act and the explanation thereto is clear that “what is a reasonable time is a question of fact in each case.” A Corporation which gets works executed cannot therefore include terms in the contract which are per se unconscionable and unreasonable as -

a) There is no fixed time period as to when the funds would be available;

b) There is also no fixed mechanism to determine as to when and in what manner the head of account is to be determined and as to how the Contractor would acquire knowledge of these two facts;

c) There is also no certainty as to how many persons are in the queue prior to the Contractor and for what amounts;

d) There is enormous ambiguity in the receipt under the particular heads of accounts.

57. These clauses in effect say that the Contractor is left with no remedy if the Corporation does not pay for the work that has been executed. Such a Clause would be illegal and contrary to law. Such clauses, even in commercial contracts, would be contrary to Section 25 read with Section 46 of the Contract Act.

58. The clauses do not specify an outer time limit for payment. The expression reasonable time has to be `a time'. The concept of time itself is ensconced with specificity and precision. Clause 9 is the opposite of being precise. It is as vague and ambiguous as it could be because it depends on factors which are totally extraneous to the contract, namely -

 Allotment of funds to the Corporation by the Government;

 Allotment of funds in a particular head;

 Allotment of funds for payments who are in queue prior to the contractor;

59. Thus, these factors, which are beyond the control of the Contractor and which would govern the payment of consideration, make the said clauses of the contract completely unreasonable. The clauses have to thus, be read or interpreted in a manner so as to instill reasonableness in them.

60. By applying the above said principles, in respect of final bills raised by Contractors for works executed, that have been approved by the Engineer-in-Charge, the Clauses have to be read in the following manner:

a) Reasonable time for making of payments of final bills in respect of work orders up to Rs.5 lakhs shall be 6 months and work orders exceeding Rs.5 lakhs shall be 9 months from the date when the bill is passed by the Engineer-in-Charge.

b) The queue basis can be applicable for the payments to be made in chronology. However, the outer limit of 6 months and 9 months cannot be exceeded, while applying the queue system.

c) The payments are held to become due and payable immediately upon the expiry of 6 months and 9 months and any non-payment would attract payment of interest for the delayed periods.

d) A conjoint reading of Clauses 7 & 9 along with the amendment dated 19th May, 2006, clearly shows that for the payment of bills, the contractors have to follow the queue basis and as and when the amount is available under the particular head of account, the amount would be payable. The amendment does not, however, have a condition that no interest is payable for delayed payment. Such a condition exists only in Clause 7. Clause 9, therefore, when read with the amendment has to mean that the Corporation itself considers 6 months and 9 months to be the reasonable periods for which the payments of the final bills can be held back.

e) To the extent that queue basis is applied only for clearing of payments which do not extend beyond the period of 6 months and 9 months period, it is reasonable. However, if the queue basis is applied in order to make Contractors wait for indefinite periods for receiving payments, then the same would be unreasonable and would have to therefore be read down.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

 RFA 160/2017 & CM APPL. 5807/2017 (Stay)

NORTH DELHI MUNICIPAL CORPORATION  Vs VIPIN GUPTA 

Print Page

Guidelines of Delhi high court for avoidance of delay in payment of contractual amount to contractor in government contract

 The present guidelines are being issued in all the appeals. The Court has had the opportunity of perusing the trial court records in all these 43 appeals. A perusal of the records reveals the following:-

1. In most cases, the Contractors who are awarded the work orders do not submit the interim or final bills to the Engineer-in-Charge for approval;

2. The final measurement recordal is done by the Engineer-in-Charge;

3. The final bill is also prepared and passed by the Engineer-in-Charge on his own accord and the Contractor then accepts it;

4. The procedure for obtaining labour clearance certificate from the Labour Officer is not followed;

5. Once the bills are passed, Contractors are made to wait endlessly for their payments on the ground of non-availability of funds;

6. Even for refunds of Security Deposit and Earnest money deposits, the Contractor is made to wait till the final payment is made;

7. The measurement books and the photographs of work, actually carried out, are not produced in evidence.

The above process is contrary to the General Conditions of Contract. It is therefore, necessary and important that all the steps of the Contract are followed by the Contractors and the Corporations. The following guidelines are being passed:

1. Along with the work order, all the Clauses of the General Conditions of Contract should be attached;

2. On the award of the Work order, periodic inspections of the work being carried out should be done by the Engineer-in-Charge;

3. If possible, photographs of the works at different stages should be taken and maintained on the record;

4. Interim bills should be submitted by the Contractor – duly certifying the work which has been carried out;

5. Final bills should be submitted by the Contractor – duly certifying the work carried out along with photographs;

6. The Bill should be scrutinised by the Engineer-in-Charge, works should be recorded in the measurement book and thereafter, the bill should be passed;

7. Once the Bill is passed, the payment schedule of 6 months and 9 months should be adhered to. Delay in payments would result in Interest being levied;

8. For refunds of Security deposit and Earnest Money deposit, the Contractor should unscrupulously comply with the conditions in Clauses 17 and 45. For refunds to be made, payment of final bill need not be awaited. Once the conditions of Clauses 17 and 45 are complied with and the final bill is passed, refunds ought to be made;

9. In suits relating to recovery of Contractor’s dues, all the evidence including the NIT, General Conditions of Contract, periodic inspection reports, Final bill as submitted, Final bill as passed, Measurements carried out, Photographs etc., should be produced and duly exhibited.

10. IT infrastructure ought to be created to maintain records of the work orders, inspection reports, final bills, photographs etc., digitally, as it is noticed that the trial court record does not contain all the relevant documents and in several cases, different versions of clauses are relied upon by both sides, bills are not properly understandable and there is no evidence of actual inspections or measurements having been taken. Maintenance of digital records will make it more transparent and easily accessible for the officials and for production in the Court in case of future litigation.

Adherence to the above shall ensure that the works are duly carried out as per the quality standards prescribed and there is proper record of work being done. Once the work is carried out payments ought not to be delayed, inasmuch as delay in payments compromises on availability of quality civil work for the Corporations, who take care of basic amenities for citizens such as roads, pavements, civil works, sewerage lines etc.

These guidelines shall be read along with the judgments pronounced today in these appeals.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

 RFA 160/2017 & CM APPL. 5807/2017 (Stay)

NORTH DELHI MUNICIPAL CORPORATION  Vs VIPIN GUPTA 

CORAM:

JUSTICE PRATHIBA M. SINGH

Date of decision :22nd March, 2018

Print Page

Can an arbitrator award interest on delayed payment of the contractual amount in a government contract?

  In the case of Bright Power Projects (supra), it has been opined by this Court that unless otherwise agreed by the parties, the Arbitral Tribunal can award interest at reasonable rate for a period commencing from that date when the cause of action arises till the date of the award. In the dispute which forms the subject ­matter of this appeal, being the agreement, there was no specific exclusion of payment of interest on delayed payment in relation to the local currency component.

12. On the other hand, the specific term of the agreement entered into by and between the parties provided for payment of interest on delayed payment as terms of the contract. What was not specifically agreed upon was the rate at which such interest would be paid. The blank space in the “appendix to the bid”, in our opinion, cannot be construed as cancellation of the clause providing for payment of interest of delayed release of funds. We do not think the Appellate Court or the Arbitration Court was right in adopting the approach that by not specifying the blank space provided for filling in the interest rate. We are of the view that to come to such an inference, active exclusion of payment of interest under that head was necessary to have been incorporated in the agreement. Though the case of G.C. Roy (supra) was delivered in a dispute to which the 1940 Act was applicable, the Constitution Bench of this Court has laid down certain general proposition or principle on the aspect of grant of interest. This general proposition was referred to by the Tribunal. It has been held in paragraph 43.1 of the Report (in the case of G.C. Roy):­
“43. The question still remains whether arbitrator has the power to award interest pendent lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.....”

13. The underlying principle guiding award of interest is that interest payment is essentially compensatory in nature. But as we have already observed, in the case before us, interest on delayed payment formed part of the contract itself. The agreement did not contain any express exclusion clause on payment of interest on delayed payment whether on component of payment in foreign currency or local currency. We accept the reasoning of the Tribunal on the basis of which it rejected the respondents’ plea of waiver. 

Supreme Court

JUSTICE SURYA KANT JUSTICE ANIRUDDHA BOSE

M/s. Oriental Structural Engineers Pvt. Ltd. Vs. State of Kerala

CIVIL APPEAL NO. 3454 OF 2011

22nd April 2021

Author: ANIRUDDHA BOSE, J.

Citation: 2021 ALL SCR (ONLINE) 242

Print Page

Whether the court can deny payment to the contractor for additional work if he has not intimated to the employer in the mode provided in the contract?

  In any event, a contractual clause such as condition no. 9 in the present case, which stipulates the time and manner within which the contractor has to intimate the employer about extra or additional work, has never been considered as a statutory limitation or bar for a claim for extra/additional work. The purpose of such stipulation is to ensure that extra/additional work has actually been done; once it is established that the work has indeed been done, payment for it cannot be denied on a technical ground such as non-intimation according to the stipulation. (See, Chandigarh Construction Company Pvt. Ltd. v. State of Punjab1.) On the basis of this law and the evidence produced before the court, and which is noted above, the Plaintiff has clearly made out its case for payment of both extra works amounting to Rs. 9,31,535. {Para 9}

In the High Court of Bombay

(Before S.C. Gupte, J.)

Ajay Deep Construction Pvt. Ltd Vs Maharashtra State Police Housing & Welfare Corporation Ltd. 

Suit No. 1418 of 2003

Decided on June 28, 2021

Citation: 2021 SCC OnLine Bom 952

Print Page

Whether high court can entertain a writ petition on the disputed questions of fact in respect of contractual matters?

 Therefore, the dispute could not be raised by way of a writ petition on the disputed questions of fact. Though, the jurisdiction of the High Court is wide but in respect of pure contractual matters in the field of private law, having no statutory flavour, are better adjudicated upon by the forum agreed to by the parties. The dispute as to whether the amount is payable or not and/or how much amount is payable are disputed questions of facts. There is no admission on the part of the appellants to infer that the amount stands crystallized. Therefore, in the absence of any acceptance of

Joint Survey Report by the competent authority, no right would

accrue to the writ petitioner only because measurements cannot

be undertaken after passage of time. Maybe, the resurvey cannot

take place but the measurement books of the work executed from

time to time would form a reasonable basis for assessing the

amount due and payable to the writ petitioner, but such process

could be undertaken only by the agreed forum i.e., arbitration and not by the Writ Court as it does not have the expertise in respect of  measurements or construction of roads.

 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4981 OF 2021

UNION OF INDIA & ORS.  Vs  M/S PUNA HINDA 

Author: HEMANT GUPTA, J.

Dated: SEPTEMBER 6, 2021.

Print Page

Good legal article on Hotel Valuation Techniques

 

Submitted by:

A. Mohammed Ibrahim. B. Arch, FICA.

https://drive.google.com/file/d/1sVbcBo2U4gdeWmevcFJ1YRrXig7eYLb8/view?usp=sharing

Print Page

Whether the court can refer a dispute to arbitration in the absence of an arbitration clause in construction agreement relying on Government policy?

A full Bench of the Kerala High Court in Southern Structurals Ltd. Vs. Kerala State Electricity Board declared that a decision of the Division Bench in Koshy Varghese V. Hindustan Paper Corporation Ltd. MANU/KE/0510/2000 : 2000(2) KLT 329 wherein the Division Bench held that a Court sitting under Article 226 of the Constitution can direct the parties to go for arbitration under the ACA even in the absence of an arbitration agreement between the parties, did not lay down the correct law. It was held that the Court cannot compel a party to agree for arbitration.

58. The parties cannot be forced to arbitrate by issuance of a writ of this Court as this also would not only be contrary to the entire concept of what is conceived as an arbitration agreement as defined under Section 7 of the ACA but also as noted above it would be in the teeth of Section 10 of the Indian Contract Act which requires free consent of the parties to have a legal and valid contract. It cannot be overlooked that lack of valid arbitration agreement is one of the basic grounds available to the parties for setting aside an arbitral award. Thus to foist an arbitration agreement on a party is nothing short of imposing an illegality.

59. Even otherwise, as to whether a public law remedy, would be available to the petitioners when the nature of the contract between the MSRDC and the petitioners is non statutory, the position in law is no more res integra. In Bareli Development Authority vs. Ajay Pal Singh, the Supreme Court has recognized as a settled position in law that when a contract entered into between the State and the persons aggrieved is non-statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India.A full Bench of the Kerala High Court in Southern Structurals Ltd. Vs. Kerala State Electricity Board declared that a decision of the Division Bench in Koshy Varghese V. Hindustan Paper Corporation Ltd. MANU/KE/0510/2000 : 2000(2) KLT 329 wherein the Division Bench held that a Court sitting under Article 226 of the Constitution can direct the parties to go for arbitration under the ACA even in the absence of an arbitration agreement between the parties, did not lay down the correct law. It was held that the Court cannot compel a party to agree for arbitration.

 IN THE HIGH COURT OF BOMBAY

Writ Petition Nos. 1699 and 2337 of 2019

Decided On: 06.11.2020

MEP RGSL Toll Bridge Pvt. Ltd. and Ors. Vs. Maharashtra State Road Development Corporation Ltd. and Ors.

Hon'ble Judges/Coram:

Dipankar Datta, C.J. and G.S. Kulkarni, J.

Author: G.S. Kulkarni, J.

Citation: MANU/MH/1871/2020

Print Page