MANU/DE/1002/2016

IN THE HIGH COURT OF DELHI

Arb. P. 78/2016
Decided On: 28.04.2016
Appellants: Winner Constructions Private Limited
Vs.
Respondent: Union of India
Hon'ble Judges/Coram:
V. Kameswar Rao, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Renuka Arora, Adv.
For Respondents/Defendant: Jaswinder Singh, Adv.
JUDGMENT
V. Kameswar Rao, J.
1. This petition has been filed under Section 11 of the Arbitration and Conciliation Act,
1996 to refer additional Claim No. 1, additional claim No. 1A, Claim No. 1, Claim No. 2,
Claim No. 10 and Claim No. 15 to learned Arbitrator Mr. V.K. Malik appointed by the
respondent.
2. It is suffice to state during the course of the submissions, the learned counsel for the
petitioner has stated that the relief is only confined to additional claim No. 1, which is
reproduced as under:
"Whether the respondent is in breach of contract? If yes, whether the action of
the respondent in levying the L.D/compensation is illegal and arbitrary.
Contractor claims declaratory award declaring the action taken under clause 2
of the agreement as illegal and uncontractual."
3. Some of the facts relevant for deciding the present petition are that pursuant to NIT
for "Construction of Residential Quarters for staff and officers of Lok Sabha Secretariat
etc. at R.K. Puram, New Delhi including internal and external water supply and sanitary
installation, development work and internal electrical installations, the Petitioner
submitted its bid and was awarded the contract on 15.06.2011.
4 . The petitioner submitted the earnest money amounting to Rs. 53,92,792/- and
Performance Bank Guarantee for an amount of Rs. 2,40,25,063/-.
5. It is the case of the petitioner that the work was completed on 10.12.2014, but the
respondent gave the completion certificate only on 24.04.2015 w.e.f the said date.
6 . It is averred by the petitioner that the respondent has withheld the amount of Rs.
2,34,02,878/- towards Civil Work & Rs. 4,66,940/- towards Electrical Works (totalling
to Rs. 2,38,69,818/-) on account of alleged milestones not having been adhered to by
the Petitioner.

11-03-2023 (Page 1 of 10) www.manupatra.com SANDEEP SHARMA

7. Vide letter dated 03.07.2015, respondent levied the compensation under clause 2 of
the agreement for an amount of Rs. 4,80,50,126/-. The plea of the petitioner for
personal hearing was rejected. On 30.07.2015, respondent directed the petitioner to
deposit the aforesaid amount of Rs. 4,80,50,126/- towards levy of compensation under
Clause 2 of the agreement imposed by the Superintending Engineer within 15 days. The
petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996,
being OMP. No. 352/2015, which was disposed of by this Court vide order dated
17.07.2015 observing that in case the respondent admits that certain amounts are
admittedly payable/retained to the petitioner under the subject contract and such
amounts are in excess of the claim of the respondent, then, in such a case only the
respondent will not withhold the amounts from any other contracts in which the
petitioner has to receive the payments.
8 . The petitioner filed another petition under Section 9 of the Arbitration and
Conciliation Act, 1996 being OMP No. 452/2015, wherein this Court stayed the
encashment of the bank guarantees.
9 . On 14.09.2015, the petitioner invoked the arbitration clause and requested for
appointment of an Arbitrator. On 23.12.2015, after some correspondence, the Chief
Engineer (NDZ)-VII, CPWD, appointed Mr. V.K. Malik as a sole Arbitrator to adjudicate
the disputes between the parties.
10. It appears that while invoking the arbitration, the petitioner had raised 20 claims,
whereas while referring the disputes to the arbitration vide letter dated 23.12.2015, the
Chief Engineer, Chief Engineer (NDZ)-VII, CPWD had referred only 18 claims of the
petitioner. He did not refer amongst other claims, additional claim No. 1, which has
already been reproduced above.
1 1 . The petitioner vide its letter dated 31.12.2015 brought to the notice of the
respondent that the Chief Engineer was only an appointing authority to refer the
disputes to arbitration and therefore all the disputes were to be referred to arbitration
and in that regard, petitioner relied upon a circular dated 22.01.2007. That apart, it is
also the submission of the petitioner that the amounts of certain claims have been
reduced. The petitioner relied upon clause 25 of the settlement of disputes and
arbitration to contend that all disputes need to be referred.
12. When the matter was listed on 05.02.2016, Mr. Jaswinder Singh, learned counsel
appeared for the respondent accepted the notice. Liberty to file the reply was granted.
But no reply has been forthcoming and Mr. Jaswinder Singh argued the matter without
any reply.
1 3 . Learned Counsel for the petitioner apart from reiterating the stand taken in the
petition would submit that Clause-25 of the contract being very clear and all disputes
need to be referred to arbitration. She also states that additional claim No. 1 of which
reference is sought in the present application does not flow from Clause-2 on which
reliance has been placed by the counsel for the respondent. She states that the issue is
not with regard to the quantification made by the Superintending Engineer but the issue
is whether the petitioner or the respondent were in breach of contract. Determination of
such an issue precedes the determination of the damages by the superintending
charges. She would rely upon the judgment of the Supreme Court in the case reported
as MANU/SC/0527/2011 : 2011 5 SCC 758 J.G. Engineering Pvt. Ltd. v. Union of India
and Anr. in support of her contention.
14. Mr. Jaswinder Singh, learned counsel for the respondent would submit that even

11-03-2023 (Page 2 of 10) www.manupatra.com SANDEEP SHARMA

though Clause-2 of the contract which refers to compensation for delay has not been
filed on record, a reference to the same has been made in the judgment of the Supreme
Court in Vishwanath Sood v. Union of India AIR 1989 SCC 1952 on which he has placed
reliance to contend that determination of the Superintending Engineer with regard to
liquidated damages being final, such a dispute is not arbitrable. He would draw my
attention to Para 8 and 10 of the judgment.
15. As noted above, the only issue which arises for determination is whether Claim No.
1 need to be referred to by the Arbitrator.
16. In substance, the stand of the respondent is that such a claim is not arbitrable.
1 7 . Before I deal with the issue, as pointed out by Mr. Jaswinder Singh from the
judgment of Vishwanath Sood (supra), clause 2 and 25 of the Contract reads as under:-
-
"Clause 2: Compensation for delay: 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 the contractor and shall
be reckoned from the fifteenth day after the date on which the order to
commence the work is issued to the 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 per cent, or such
smaller amount as the Superintending Engineer (whose decision in writing shall
be final) may decide on the amount of the estimated cost of the whole work as
shown in the tender for every day that the work remains uncommenced, or
unfinished, after proper dates. And further, to ensure good progress during the
execution of the work, the contractor shall be bound in all cases in which the
time allowed for any work exceeds, one month (save for special jobs to
complete one-eighth of the whole of the work before one-fourth of the whole
time allowed under the contract has elapsed; three-eighth of the work, before
one-half of such time has elapsed, and three fourth of the work, before three-
fourth of such time has elapsed. However, for special jobs 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 con- tractor failing to comply with this condition, he shall be
liable to pay as compensation an amount equal to one per cent or such smaller
amount as the Superintending Engineer (whose decision in writing shall be
final) may decide on the said estimated cost of the whole work for every day
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, on the estimated cost of the work as shown in the
tender."
"CLAUSE 25:--
Except where otherwise provided in the contract, all questions and disputes
relating to the meaning of the specifications, design, drawings and instructions
here-in before mentioned and as to the quality of workmanship or materials
used on the work or as to any other question, claim, right, matter or thing
whatsoever in any way arising out of or relating to the contract, designs,
drawings, specifications, estimates, instructions, orders or these conditions or
otherwise concerning the works or the execution or failure to execute the same

11-03-2023 (Page 3 of 10) www.manupatra.com SANDEEP SHARMA

whether arising during the progress of the work or after the cancellation,
termination, completion or abandonment thereof shall be dealt with as
mentioned hereinafter:
(i) If the contractor considers any work demanded of him to be outside
the requirements of the contract, or disputes any drawings. record or
decision given in writing by the Engineer In-Charge on any matter in
connection with or arising out of the contract or carrying out of the
work, to be unacceptable, he shall promptly within 15 days request the
Superintending Engineer in writing for written instruction or decision.
Thereupon, the Superintending Engineer shall give his written
instructions or decision within a period of one month from the receipt
of the contractor's letter.
If the Superintending Engineer fails to give his instructions or decision
in writing within the aforesaid period or if the contractor is dissatisfied
with the instructions or decision of the Superintending Engineer, the
contractor may, within 15 days of the receipt of Superintending
Engineer's decision, appeal to the Chief Engineer who shall afford an
opportunity to the contractor to be heard, if the latter so desires, and to
offer evidence in support of his appeal. The Chief Engineer shall give
his decision within 30 days of receipt of contractor's appeal. If the
contractor is dissatisfied with this decision, the contractor shall within a
period of 30 days from receipt of the decision, give notice to the Chief
Engineer for appointment of arbitrator on prescribed proforma as per
Appendix XV, failing which the said decision shall be final binding and
conclusive and not referable to adjudication by the arbitrator.
(ii) Except where the decision has become final, binding and conclusive
in terms of Sub Para(i) above, disputes or difference shall be referred
for adjudication through arbitration by a sole arbitrator appointed by
the Chief Engineer, CPWD, in charge of the work or if there be no Chief
Engineer, the Additional Director General of the concerned region of
CPWD or if there be no Additional Director General, the Director
General of Works, CPWD. If the arbitrator so appointed is unable or
unwilling to act or resigns his appointment or vacates his office due to
any reason whatsoever, another sole arbitrator shall be appointed in
the manner aforesaid. Such person shall be entitled to proceed with the
reference from the stage at which it was left by his predecessor.
It is a term, of this Contract that the party invoking arbitration shall
give a list of disputes with amounts claimed in respect of each such
dispute alongwith the notice for appointment of arbitrator and giving
reference to the rejection by the Chief Engineer of the Appeal.
It is also a term of this Contract that no person, other than a person
appointed by such Chief Engineer CPWP, or Additional Director General
or Director General of Works, CPWD, as aforesaid, should act as
Arbitrator and if for any reason that is not possible, the matter shall not
be referred to arbitration at all.
It is also a term of this contract that if the contractor does not make
any demand for appointment of arbitrator in respect of any claims in

11-03-2023 (Page 4 of 10) www.manupatra.com SANDEEP SHARMA

 writing as aforesaid within 120 days of receiving the intimation from
the Engineer-in-charge that the final bill is ready for payment, the
claim of the contractor shall be deemed to have been waived and
absolutely barred and the Government shall be discharged and released
of all liabilities under the contract in respect of these claims.
The arbitration shall be conducted in accordance with the provisions of
the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory
modifications or re-enactment thereof and the rules made thereunder
and for the time being in force shall apply to the arbitration proceeding
under this clause.
It is also a term of this contract that the arbitrator shall adjudicate on
only such disputes as are referred to him by the appointing authority
and give separate award against each dispute and claim referred to him
and in all cases where the total amount of the claims by any party
exceeds Rs. 1,00,000/-, the arbitrator shall give reasons for the a ward.
It is also a term of the contract that if any fees are payable to the
arbitrator, these shall be paid equally by both the parties.
It is also a term of the contract that the arbitrator shall be deemed to
have entered on the reference on the date he issues notice to both the
parties calling them to submit their statement of claims and counter
statement of claims. The venue of the arbitration shall be such place as
may be fixed by the arbitrator in his sole discretion. The fees, if any of
the arbitrator shall
XXXX XXXX XXXX"
18. At the first instance, I would refer to the judgment relied upon by the Mr. Jaswinder
Singh in Vishwanath Sood (Supra). In the said case, facts were that appellant
Vishwanath Sood undertook the construction of a Farmers' Community Centre Building
at Thanedhar by an agreement entered into with the Union of India and the State of
Himachal Pradesh dated 20.6.1968. Certain disputes arose between the parties to the
agreement and in terms of clause 25 of the agreement, they were referred to a sole
Arbitrator. The appellant submitted a claim of Rs. 1,28,000/- while the respondents also
submitted a counter-claim. By an award dated 20.3.1972, the arbitrator awarded an
amount of Rs. 31,932/- to the appellant and a sum of Rs. 21,504/- to the respondents.
The award was filed in the court. The appellant filed an application in the court for
modification or correction of the award in respect of three items of his claim (1, 8 and
9) and item No. 1 of the respondent's counter claim. The respondent also filed its
objections to the award and prayed that a sum of Rs. 8,080.29/- should be awarded in
favour of the Department or the award remitted to arbitrator. The learned single Judge
dismissed the objections of the respondents. So far as the appellant's prayers were
concerned, he allowed the same only in respect of item No. 1 of the respondent's
counter claim. He held that the arbitrator was not justified in granting to the
Government a sum of Rs. 20,000/- against a claim of 10% compensation on the
tendered amount for not executing the work in accordance with the terms and
conditions of the agreement, having regard to clause 2 of the contract read with clause
25 it was clear that any compensation under clause 2 could be adjudicated upon only by
the superintending Engineer or the Development Commissioner and that it was not open
to the arbitrator to have entered upon a reference in regard to this claim at all. Both the

11-03-2023 (Page 5 of 10) www.manupatra.com SANDEEP SHARMA

appellant and the respondents preferred appeals to the Division Bench. The Bench
reversed the order of the learned single Judge. It set aside the order of the learned
single Judge in so far as the sum of Rs. 20,000/- was deleted thereby from the award of
the arbitrator. It pointed out that, while in the ordinary course, the rate of compensation
payable by the contractor is one per cent of the amount of the estimated cost of the
whole work, under clause 2, the Superintending Engineer is authorised to depart from
this figure and determine the compensation at a smaller amount if there are any
extenuating circumstances in favour of the appellant. The question however was
whether the compensation determined under clause 2 is excluded from the scope of
arbitration under clause 25. The Division Bench answered this question in the negative.
It pointed out that the sine qua non of clause 2 was that the contractor should have
been guilty of delay in commencing the work or in completing it but the clause did not
specify either the authority or the procedure for determining whether the contractor is
responsible for the default. Observing that there can be a serious dispute in a particular
case as to the person who is responsible for the delay, the Bench took the view that the
determination of this dispute cannot be excluded from the scope of clause 25. The
Bench observed that inasmuch as a bona fide dispute can be raised by the contractor in
regard to his liability to compensation under clause 2 and no machinery is provided in
clause 2 for the resolution of that dispute, there is ample justification for holding that
resort can be had to arbitration under clause 25. The statement in clause 2 that the
decision of the Superintendent Engineer is final, according to the Bench, merely
constituted a declaration that no officer in the department could disturb his
quantification. But this finality cannot be construed as extending to exclude the
jurisdiction of the Arbitrator under clause 25. On this view of the matter, the Division
Bench found itself unable to agree with the learned Single Judge that the Arbitrator had
travelled outside his jurisdiction in awarding a sum of Rs. 20,000/- as compensation to
the Government against the appellant for the delay in executing the work. The award
was restored to its original terms and the appellant was held entitled to interest at 6 per
cent on the award amount found due to him after adjusting the sum awarded by the
arbitrator in favour of the Government against the sum awarded in favour of the
appellant.
19. Before the Supreme Court the appellant (contractor) pressed his three claims which
were rejected by the Arbitrator. Suffice to state, the Supreme Court also did not find
any illegality in the rejection of those claims. Insofar as, the award of counter claim of
the respondents is concerned, the Supreme Court, in para 10 of the judgment has held
as under:--
"10. We may confess that we had some hesitation in coming to this conclusion.
As pointed out by the Division Bench, the question of any negligence or default
on the part of the contractor has many facets and to say that such an important
aspect of the contract cannot be settled by arbitration but should be left to one
of the contracting parties might appear to have far reaching effects. In fact,
although the contractor in this case might object to the process of arbitration
because it has gone against him, contractors generally might very well prefer to
have the question of such compensation decided by the arbitrator rather than
by the Superintending Engineer. But we should like to make it clear that our
decision regarding non arbitrability is only on the question of any compensation
which the Government might claim in terms of clause 2 of the contract
(emphasis supplied). We have already pointed out that this is a penalty clause
introduced under the contract to ensure that the time schedule is strictly
adhered to. It is something which the Engineer- incharge enforces from time to
time when he finds that the contractor is being recalcitrant, in order to ensure

11-03-2023 (Page 6 of 10) www.manupatra.com SANDEEP SHARMA

 speedy and proper observance of the terms of the contract. This is not an
undefined power. The amount of compensation is strictly limited to a maximum
of 10% and with a wide margin of discretion to the Superintending Engineer,
who might not only reduce the percentage but who, we think, can even reduce
it to nil, if the circumstances so warrant. It is this power that is kept outside the
scope of arbitration. We would like to clarify that this decision of ours will not
have any application to the claims, if any, for loss or damage which it may be
open to the Government to lay against the contractor, not in terms of clause 2
but under the general law or under the Contract Act. As we have pointed out at
the very outset so far as this case is concerned the claim of the Government has
obviously proceeded in terms of clause 2 and that is the way in which both the
learned single Judge as well as the Division Bench have also approached the
question. Reading clauses 2 and 25 together we think that the conclusion is
irresistible that the amount of compensation chargeable under clause 2 is a
matter which has to be adjudicated in accordance with that clause and which
cannot be referred to arbitration under clause 25."
20. From the reading of the aforesaid paragraph of the judgment, it is clear that the
Supreme Court has clearly held, the issue of non arbitrability is only on the question of
any compensation, which the Government might claim in terms of clause 2 of the
Contract. In other words, the issue whether the contractor had delayed the project
would still be arbitrable.
21. The judgment of the Supreme Court, on which the learned counsel for the petitioner
relied J.G. Engineers Pvt. Ltd. (supra), is also on similar lines. The Supreme Court in
paras 17, 18 and 19 has held as under:--
"17. Clauses (2) and (3) of the contract relied upon by the respondents, no
doubt make certain decisions by the Superintending Engineer and Engineer-in-
Charge final/final and binding/final and conclusive, in regard to certain matters.
But the question is whether clauses (2) and (3) of the agreement stipulate that
the decision of any authority is final in regard to the responsibility for the delay
in execution and consequential breach and therefore exclude those issues from
being the subject matter of arbitration. We will refer to and analyse each of the
'excepted matters' in clauses (2) and (3) of the agreement to find their true
scope and ambit:
(i) Clause (2) provides that if the work remains uncommenced or
unfinished after proper dates, the contractor shall pay as compensation
for everyday's delay an amount equal to 1% or such small amount as
the Superintending Engineer (whose decision in writing shall be final)
may decide on the estimated cost of the whole work as shown in the
tender. What is made final is only the decision of the Superintending
Engineer in regard to the percentage of compensation payable by the
contractor for everyday's delay that is whether it should be 1% or
lesser. His decision is not made final in regard to the question as to
why the work was not commenced on the due date or remained
unfinished by the due date of completion and who was responsible for
such delay.
(ii) Clause (2) also provides that if the contractor fails to ensure
progress as per the time schedule submitted by the contractor, he shall
be liable to pay as compensation an amount equal to 1% or such

11-03-2023 (Page 7 of 10) www.manupatra.com SANDEEP SHARMA

smaller amount as the Superintending Engineer (whose decision in
writing shall be final) may decide on the estimated cost of the whole
work for everyday the due quantity of the work remains incomplete,
subject to a ceiling of ten percent. This provision makes the decision of
the Superintending Engineer final only in regard to the percentage of
compensation (that is, the quantum) to be levied and not on the
question as to whether the contractor had failed to complete the work
or the portion of the work within the agreed time schedule, whether the
contractor was prevented by any reasons beyond its control or by the
acts or omissions of the respondents, and who is responsible for the
delay.
(iii) The first part of clause (3) provides that if the contractor delays or
suspends the execution of the work so that either in the judgment of
the Engineer-in-Charge (which shall be final and binding), he will be
unable to secure the completion of the work by the date of completion
or he has already failed to complete the work by that date, certain
consequences as stated therein, will follow. What is made final by this
provision is the decision of the Engineer-in-Charge as to whether the
contractor will be able to secure the completion of the work by the due
date of completion, which could lead to the termination of the contract
or other consequences. The question whether such failure to complete
the work was due to reasons for which the contractor was responsible
or the department was responsible, or the question whether the
contractor was justified in suspending the execution of the work, are
not matters in regard to which the decision of Engineer-in-Charge is
made final.
(iv) The second part of clause (3) of the agreement provides that where
the contractor had made himself liable for action as stated in the first
part of that clause, the Engineer-in-Charge shall have powers to
determine or rescind the contract and the notice in writing to the
contractor under the hand of the Engineer-in-Charge shall be
conclusive evidence of such termination or rescission. This does not
make the decision of the Engineer- in-Charge as to the validity of
determination or rescission, valid or final. In fact it does not make any
decision of Engineer-in-Charge final at all. It only provides that if a
notice of termination or rescission is issued by the Engineer-in-Charge
under his signature, it shall be conclusive evidence of the fact that the
contract has been rescinded or determined.
(v) After determination or rescission of the contract, if the Engineer-in-
Charge entrusts the unexecuted part of the work to another contractor,
for completion, and any expense is incurred in excess of the sum which
would have been paid to the original contractor if the whole work had
been executed by him, the decision in writing of the Engineer-in-
Charge in regard to such excess shall be final and conclusive, shall be
borne and paid by the original contractor. What is made final is the
actual calculation of the difference or the excess, that is if the value of
the unexecuted work as per the contract with the original contractor
was Rs. 1 lakh and the cost of getting it executed by an alternative
contractor was Rs. 1,50,000/- what is made final is the certificate in
writing issued by the Engineer-in-Charge that Rs. 50,000 is the excess

11-03-2023 (Page 8 of 10) www.manupatra.com SANDEEP SHARMA

 cost. The question whether the determination or rescission of the
contractor by the Engineer-in-Charge is valid and legal and whether it
was due to any breach on the part of the contractor, or whether the
contractor could be made liable to pay such excess, are not issues on
which the decision of Engineer-in-Charge is made final.
1 8 . Thus what is made final and conclusive by clauses (2) and (3) of the
agreement, is not the decision of any authority on the issue whether the
contractor was responsible for the delay or the department was responsible for
the delay or on the question whether termination/rescission is valid or illegal.
What is made final, is the decisions on consequential issues relating to
quantification, if there is no dispute as to who committed breach. That is, if the
contractor admits that he is in breach, or if the Arbitrator finds that the
contractor is in breach by being responsible for the delay, the decision of the
Superintending Engineer will be final in regard to two issues. The first is the
percentage (whether it should be 1% or less) of the value of the work that is to
be levied as liquidated damages per day. The second is the determination of the
actual excess cost in getting the work completed through an alternative agency.
The decision as to who is responsible for the delay in execution and who
committed breach is not made subject to any decision of the respondents or its
officers, nor excepted from arbitration under any provision of the contract.
19. In fact the question whether the other party committed breach cannot be
decided by the party alleging breach. A contract cannot provide that one party
will be the arbiter to decide whether he committed breach or the other party
committed breach. That question can only be decided by only an adjudicatory
forum, that is, a court or an Arbitral Tribunal."
22. In para 21, the Supreme Court has also, by relying upon its judgment in BSNL v.
Motorola India Pvt. Ltd. (2009) 2 SSC 337 held as under:--
"21. The question whether the issue of breach and liability are excluded from
arbitration, when quantification of liquidated damages are excluded from
arbitration was considered by this Court in Bharat Sanchar Nigam Ltd. v.
Motorola India Ltd. (MANU/SC/4021/2008 : 2009 (2) SCC 337). This court held:
"23. The question to be decided in this case is whether the liability of
the respondent to pay liquidated damages and the entitlement of the
appellant, to collect the same from the respondent is an excepted
matter for the purpose of Clause 20.1 of the General Conditions of
contract. The High Court has pointed out correctly that the authority of
the purchaser (BSNL) to quantify the liquidated damages payable by the
supplier Motorola arises once it is found that the supplier is liable to pay
the damages claimed. The decision contemplated under Clause 16.2 of
the agreement is the decision regarding the quantification of the
liquidated damages and not any decision regarding the fixing of the
liability of the supplier. It is necessary as a condition precedent to find
that there has been a delay on the part of the supplier in discharging his
obligation for delivery under the agreement.
24. It is clear from the reading of Clause 15.2 that the supplier is to be
held liable for payment of liquidated damages to the purchaser under
the said clause and not under Clause 16.2. The High Court in this regard

11-03-2023 (Page 9 of 10) www.manupatra.com SANDEEP SHARMA

 correctly observed that it was not stated anywhere in Clause 15 that the
question as to whether the supplier had caused any delay in the matter
of delivery will be decided either by the appellant/BSNL or by anybody
who has been authorized on the terms of the agreement. Reading
Clause 15 and 16 together, it is apparent that Clause 16.2 will come into
operation only after a finding is entered in terms of Clause 15 that the
supplier is liable for payment of liquidated damages on account of delay
on his part in the matter of making delivery. Therefore, Clause 16.2 is
attracted only after the supplier's liability is fixed under Clause 15.2. It
has been correctly pointed out by the High Court that the question of
holding a person liable for Liquidated Damages and the question of
quantifying the amount to be paid by way of Liquidated Damages are
entirely different. Fixing of liability is primary, while the quantification,
which is provided for under Clause 16.2, is secondary to it.
***
26. Quantification of liquidated damages may be an excepted matter as
argued by the appellant, under Clause 16.2, but for the levy of
liquidated damages, there has to be a delay in the first place. In the
present case, there is a clear dispute as to the fact that whether there
was any delay on the part of the respondent. For this reason, it cannot
be accepted that the appointment of the arbitrator by the High Court
was unwarranted in this case. Even if the quantification was excepted as
argued by the appellant under Clause 16.2, this will only have effect
when the dispute as to the delay is ascertained. Clause 16.2 cannot be
treated as an excepted matter because of the fact that it does not
provide for any adjudicatory process for decision on a question, dispute
or difference, which is the condition precedent to lead to the stage of
quantification of damages."
(emphasis supplied).
2 3 . In view of the limited submissions made by the counsel for the parties on the
interpretation of clauses 2 and 25, the claim made by the petitioner herein primarily
relating to the fact that the respondent was responsible for the delay, it must be held
that the claim is arbitrable and should have been referred to by the competent authority.
Accordingly, the present petition needs to be allowed. The limited prayer of referring
the additional claim No. (I) to the arbitration is allowed. The petition is disposed of. No
costs.
© Manupatra Information Solutions Pvt. Ltd.

11-03-2023 (Page 10 of 10) www.manupatra.com SANDEEP SHARMA