Mere Delay By Employer Would Not Entitle The Contractor To Damages Unless The Loss Is Pleaded And Proved: Delhi High Court

The bench of Justices Vibhu Bakhru and Tara Vitasta Ganju held that a procedural order passed by the earlier arbitrator, not being a final decision on the merits, does not preclude the substitute arbitrator from deciding the claims on their merits. It held that an order cannot be treated as an interim award when the issue was left to be decided on the merits at a later stage.

Facts

The parties entered into an agreement for the repair of quarters dated 15.12.2012. The works were to be completed within six months but were finished after a delay of 458 days.

The appellant claimed compensation for the delay and for a sum wrongly withheld by the respondent. Accordingly, the appellant invoked the arbitration clause and requested the respondent to mutually appoint an arbitrator. Upon the failure of the parties to reach a consensus, the Court directed DIAC to appoint the arbitrator.

The tribunal, vide an order dated, had framed an issue regarding lack of cause of action in the statement of claim and directed the parties to lead their respective evidence in regard to the said issue along with other issues.

Before the evidence was complete for the parties, an application was moved by the respondent under Section 13 of the A&C Act seeking termination of the mandate of the arbitrator. In response thereto, the tribunal made observations that there is sufficient cause of action for appellant's claims.

However, the arbitrator was substituted under Section 29A and the substituted arbitrator continued the arbitral proceedings and dismissed majority of appellant's claims on ground of failure to plead and prove loss of profit.

Aggrieved thereby, the appellant challenged it before the commercial court, however, the challenge was dismissed leading to an appeal under Section 37 of the Act.

Contention of the Parties

The appellant challenged the award on the following grounds:

• That the impugned award is contrary to an earlier order by the First Arbitrator on the issue of cause of action wherein the arbitrator has expressly observed that there is sufficient cause of action for the appellant's claims.
• That the substituted arbitrator is bound to continue the proceedings from the stage where the earlier arbitrator left and is bound by the decision/findings made by the earlier arbitrator. It cannot take any contrary view in terms of Section 29A(6) of the Act.

The respondent made the following counter-submissions:

• That the order relied upon by the appellant was procedural and did not constitute a final decision on the merits.

Analysis by the Court

The Court observed that the issue regarding 'cause of action' was to be decided only after the evidence was complete by both the parties. It observed that the order relied upon by the appellant was passed before the evidence was complete and the observations made therein were not on the merits but mere prima facie observations.

The Court that observations made in a procedural order passed by the earlier arbitrator, not being a final decision on the merits, does not preclude the substitute arbitrator from deciding the claims on their merits. It held that an order cannot be treated as an interim award when the issue was left to be decided on the merits at a later stage.

On merits, the Court found that both the tribunal have held that the respondent is responsible for the delay, however, the claims are dismissed on the ground of appellant's failure to plead and prove the loss suffered by it due to such delays.

The Court that merely because the delay in the execution of the work is attributable to the employer, the same would not entitle the contractor to claim damages unless it pleads and proves that such delay resulted in loss to it.

Accordingly, the Court dismissed the application on the ground that no ground for interference under Section 34 was made out.

Case Title: Dharamvir & Company v. DDA

Citation: 2024 LiveLaw (Del) 362

Date: 19.03.2024

Counsel for the Petitioner: Mr. G.L.Verma, Adv

Counsel for the Respondent: Ms. Aakanksha Kaul & Mr. Aman Sahai, Advs. for DDA. Mr. Yoginder Handoo, Mr. Raghvendra Upadhyay & Mr. Vaibhav Tripathi, Advs. for NDMC

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