ANALYSIS OF CLAUSE 10CC CPWD CONTRACTS

This clause is different from the clause 10 C. For the clauses i.e. 10 C and 10 CC are for reimbursement of the expenditure which was not anticipated by the contractor at the time of offering his bid but he was compelled to think as the same was the cost of material/labour or both. The other elements of profit, overheads, damages, loss of profit and tools and plants etc. are not covered in the ambit of this clause. Moreover it is a mandate of clause 10 C that the reimbursement will be made to the contractor by the Department only for the reason due to statutory increase in price of material or labour but not for the general market increase. Meaning thereby the risk of rising general market is not taken by the Department but only the risk of extra expenditure due to statutory increase is taken by the Department. It is also necessary for operation of clause 10 C that the contractor must have necessarily incur the expenditure due to the statutory increase in price for which he had to maintain his accounts and the same can be inspected by the Department, if desired. In case there is a statutory increase in price but the contractor has not paid for the same, he will not be reimbursed for that.

On the contrary the clause 10 CC is different. This clause guarantees the contractor that in case there is any increase in material or fuel or labour the contractor is insured by the Department. As a matter of precaution and to avoid any misuse of ambiguity the Department has laid down a formula i.e. the increase shall be calculated on the basis of indexes irrespective of the actual expenditure incurred by the contractor due to increase in price. It is to underscore that the work done is reduced by 15% for computation of increase under this clause. Infact the 15% is the element of overhead and profit for which the contractor is not entitle for any reason whatsoever and therefore 85% amount of work done is considered. The language employed in this clause indicates that claims under this Clause would include not only these statutory increases mentioned in the clause 10 C, but also all other increases. The words an "increase as a direct result of the coming into force of any fresh law or statutory rule or order" found in the immediately preceding clause, is conspicuous by its absence. Quite obviously, claims predicated under the umbrella of 'statutory increases' would be placed under 10C and not under 10CC although they would be payable even under clause because 10 CC because of its generality.

It is also noteworthy that Clause 10CC applies to contracts stretching beyond six months. It is axiomatic that the longer the duration of a contract the greater is the possibility of uncertainty of escalations in prices. Whilst the Contractor may be in a position to anticipate or take into account any increase in prices in the short duration of six months into the future, expectedly he would not be able to foresee escalations beyond that period and take them into account with any precession.

On a conjoint reading of Clauses 10C and 10CC, while the statutory increase of price/wages can always be treated as having been factored into the contract, other increases would be claimable only if the contract period stretches beyond six months. On a reasonable understanding of these Clauses, they permit a claim on account of statutory increases/decreases at any time of the Contract, and permit claims under all heads, if the contract period spreads beyond six months. Non statutory claims are excluded where the contract duration is less than six months.

There is a minor difference in this clause and the claim of damages. This clause encompasses within its fold a part of increase in prices of certain materials and a part of increase in wages of labour. It excludes from consideration of Overheads both on site and off site; Loss of Profit during the extended period of contract; Idle machinery; Idle Centering and shuttering, scaffolding etc. and T & P.

In one of the cases the division bench of the High Court held that in case this clause is available in the agreement that in that case the arbitrator is not allowed to adopt any firm are different from the set out under this clause of the agreement for payment of escalation beyond the stipulated date of completion. In other words it was decided that the contractor is not entitle to charge market rate for the period beyond the agreed date of completion in existence of this clause or otherwise is not allowed to use any other index for any other formula to compute price escalation amount. This ratio was also followed in various other cases up to 2007.

This case was applicable in earlier agreements when it was submitted that this clause is operated within the extended date of completion as well as for the period for which the contract was validly extended under clause 5 without any action under clause 2 of the agreement but now the CPWD has made amendment in general clauses and it has been inserted that the escalation under this clause is payable only for the stipulated of the agreement and thereafter the clause is not payable whether the contract was validly extended under clause 5 or not.

Now the question is whether this provision is illegal in the eyes of law or not?

The main point of consideration is that earlier the escalation was payable for the extended period in case the time is extended validly under clause 5 without any action under clause 2 but thereafter a barrier had been imposed by the Department. It clearly means that either there was mistake in earlier times or there is a mistake at present. The law of natural Justice states that the Department is no justified to deny the escalation for the extended period if the work is delayed due to the reasons attributable to the Department. Such a stipulation by the Department was against the provision of law and unconscionable. No contractor has approached to the court of law against this stipulation and it is my strong belief that the Hon'ble court will decide against the Department. The similar circumstances were discussed by the Hon'ble Supreme Court of India in the case of Brijo Nath Ganguly that the court cannot take any action against such illegal acts by any party unless and until there are called upon to do so. If an aggrieved party approaches court of law that court must strike down an unfair and unreasonable contract or an unfair and unreasonable clause in the contract entered into between the parties who are not equal in bargaining powers. The true picture is in this case is that there is a big inequality of bargaining power and great disparity in the economic and of the contracting parties. The inequality is the result of circumstances whether of the creation of the parties are not. The weaker party in this case is dependent for the means of his livelihood only upon the terms imposed by the stronger party or go without them. In other words the weaker party has no choice but to give his consent to the contract in the prescribed or the standard form and to accept the set of rules and the part of contract drafted by the stronger party whether there is any unfair, unreasonable or unconsciously clause in the contract. But the high court has held in a case in 2010 that if it is written that it would not be applicable after SDOC then the Formula of 10CC cannot be used in for the purpose of computing escalation due to breach of contract on the part of the department and, thereafter, this illegal and unjustified provision has also been withdrawn by CPWD and at present this clause is applicable for the extended period also but with certain limitations.

After great thinking on the subject what we are able to see on the flip side of the coin also seems to be relevant. Let us go to the root of the concept of escalation. It says that a contractor while offering his bid can anticipate the rise in the market for a certain limited period say up to 6 months but not for any longer period due to various changes like environmental, political, economical, government policies and so on. The legislature are assumed that the element of profit at the rate of 15% is enough to meet the changes for a period up to 6 months but for more than six months of the Department assures that the contractor that Mr. Contractor, don't afraid, we are a stronger party and we are ready to take care of any unprecedentedly change in the economic scenario. The Department is also shrewd while interpreting such provision because the department know that in case the contractor is not secured then he would consider the element of profit considerably high and therefore it is better to providing assurance of safety. Now the question is why the Department has imposed a deadline that we will not pay anything beyond the stipulated date of completion. In my opinion this provision is in the benefit of the weaker party and more justified in the law is understood correctly. In case the work is delayed or prolonged after the stipulated date of completion the delay may be either attributable to the contractor or to the Department. In case the delay is attributable to the contractor and certainly he should not be allowed to take benefit of his own wrong which is the basic law. Secondly if the delay is attributable to the Department and the Department is not ready to pay the escalation amount than it means that the Department is taking benefit of their own wrong due to their better bargaining position and disparity in the economic distance between the parties. No. In fact the weaker party has two options firstly he can refuse to execute the work further and claim loss of profit/profitability under section 55, 73 and 74 of the Indian Contract Act-1872 or otherwise he may enter into a new contract meaning thereby the weaker party may demand for the prevailing market rate at the time of execution of work after the stipulated date of completion considering the judgment of U Kashyap in 1999. In our opinion the second option is much better because while offering his bid the contractor is offered their bid depending on the competition in the market provided that there is no illegal cartel formation, and in such case the percentage of profit is bound to be considered low to avail the contract. Now in this case when the delay is attributable to the Department the contractor is free to charge the prevailing market rates.

Now one more question arises what is the meaning of prevailing market rates. This is a great controversy in this terminology. In our opinion which shall be best suited and uncontroversial is that the Department prepares justification before award of tender taking the market rates for different elements to be used in the various items in the tender and that may be the true definition of market rate. Now the prevailing market rates should be computed in the similar fashion at the time of execution of the work. But in order to avoid any controversy or intricacy at a later date the weaker party is advised to come to the prevailing market rates of his own and intimate to the Department. Incase the Department give their consent (this is not believable in general) then you are safe, in case the Department for any negotiation then go for it. But as per practical observation the attitude of the officers in the government departments is so lackadaisical that they do not reply the letters and then you have won a lottery. But it should be kept in mind that the demand of prevailing market rates should be ethical and supported with open analyses of rates alongwith justifications of rates of the various elements whether with quotations or visit rate list circulated by the Department, if any. In the nutshell the meaning of the article is that the weaker party may be economically weaker than the Department but they are not supposed to be weaker in the knowledge of law.

Now we may cite the gist of various Cases on this clause as decided by various courts.

1. Formula of 10CC can be adopted for calculation of damages under Section 73.

2. Escalation under clause 10CC is payable even if compensation has been levied since the Department could not show any precedent where it was held once compensation levied, it ousted clause 10CC.

3. It is now settled law that where in a contract it is provided that the period of contract can be increased conditionally or unconditionally, the time is not the essence of the contract and the period so increased is to be considered as the period of contract.

4. In a very interesting case, the plea of the contractor was that the base index is to be on an average of indices of three months earlier to a month in which the tender was received whereas the plea of the Department was that the base index is an index for the month in which tender was received. The arbitrator was convinced with the plea of the contractor which was finally upheld by the High Court in 2012.

5. In yet another important case in 1996, the escalation of barred under agreement. The scope of work was increased and there were various villages on the part of the contract. It was held by the Supreme Court that it is wrong to say that the contractor is not entitled to higher rates under the terms of the agreement, only because the same has been barred under the agreement.

6. In yet another case, the arbitrator decided that the department was responsible for delay and allowed escalation which will be on view of the contract as per the Department. The Supreme Court rejected the argument of the Department on the ground that once the Arbitrator had the jurisdiction to find that there was delay in the execution of the contract due to the conduct of the Department, it was liable for the consequences of the delay, namely, increase in price. The award of Arbitrator was, thus, held to be valid.

7. In yet another case, the honorable court has observed that "The exclusion clause like clause 10(c) of the contract in question had come up for discussion in various judgments. In Chitley on Contract 24th Edition, paras 813 to 816 and the book "Building Contract" 4th Edition page 140 analyses the legal position with regard to importance of such exclusion clauses. It can be culled out from the observations made in these books that where there is a fundamental breach or a breach of a fundamental term which breach is accepted by the innocent party, the exclusion clause cannot be relied on in respect of the said breach occasioning the acceptance of the repudiation or in respect of breaches occurring thereafter. If the innocent party does not accept the breach so as to bring the contract to an end, but affirms the contract, it is a question of construction whether the clause can be relied on. It was held that normally the clause cannot be relied on if performance is totally different from that which the contract contemplates.”

8. In one more case, the similar clause of a contract came up for consideration before the court and a similar contention was raised on the basis of these clauses that it was not open to the arbitrator to award a general increase in price and that at best he could award damage if the builders were able to prove it to his satisfaction. There was a non-speaking award which came up for consideration in that case. The arbitrator had awarded compensation which was not in assonance compensation with the said exclusion clause of the contract. The grant of damages v/as upheld, in the said case also, the delay had occurred in completing the contract because possession of the site was not given in time and there had taken place delay in supply of drawings and some other reasons which was attributable to the employer and it was held that damages could be awarded in such a case. It was held that it there was increase in performance of the work because of the breach of the contract on the part of the contract breaker the measure of damages will be the compensation to cover up the increase of expense or additional cost of execution. This is the loss suffered by the builders.

9. In yet another case a contention was raised that in view of exclusion clause 9, 11 and 63 of the conditions of the contract, the contractor was not entitle to any compensation even if the delay in the execution of contract was caused for the reason of default on the part of the Government. This contention was negativated. It was held that such provision as attempt to deprive the contractor of the right to claim the damages will be strictly construed against the employer because such a clause will have calamitous consequences for the contractor and he will have no remedy anywhere, however outrageous the conduct or behavior of the employer may be, however interminable the delay. It was further laid down that most unusual circumstances which give rise to claim was delay in giving the possession of the site to the contractor or suspension of the work caused by some act or omission of the employer, and a consequent increase of expense in the performance of the works. It was held that the work contractor will be entitled for the delay caused notwithstanding that an extension of time for completion has been granted in respect of such delay. Reliance was placed for this view on observations appearing in Emden and Gill's Building Contracts and Practice, 7th edition page 272 and Halsbury Laws of England, 4th edition volume 4 para 1281 page 653.

10. In yet another case interpretation of exclusion clause 9 of the general conditions of the contract and clause 3.1 of the special conditions of the contract came up for consideration. The court held that question of construction of contract generally speaking is question of law and arbitrator is a domestic tribunal appointed by the parties, his decision, right or wrong, is binding on the parties and erroneous decision of arbitrator on a question of law does not vitiate the award unless the error appears on the face of the award.

11. In yet another case, a similar clause 10(c) appearing in this contract came up for consideration in. There also a delay had taken place in executing the contract which was attributable to Union of India. It was submitted before the Court that in view of clause 10(c), the arbitrator could not award damages on the general principles or on the principle of quantum meruit. The quantum meruit principle applies for awarding compensation for the work done or services rendered when no price is fixed in the contract in respect of the same. While holding it that the said concept of quantum meruit was not strictly applicable it was held that arbitrator was justified in granting the compensation on the basis of general principles of law of damages despite there being exclusion clause 10(c) appearing in the contract.

12. In yet another case it has been laid down that if the arbitrator acts in contravention of the clear, obvious terms of the main contract which deals with the rights and obligations of the parties, such action would be without jurisdiction.

13. In yet another case, it was observed that it is question of interpretation in this case as to whether the exclusion clause 10(c) of the contract could mean that even if there had occurred breaches of the contract on the part of the employer which resulted in delay in completion of the contract, even then the contractor would not be entitled to general damages due to price escalation occurring during this period. It is true that if a particular finding of the arbitrator is in total contradiction with the stipulated conditions of the contract, then it can be said that an error of law had occurred which is apparent on the face of the award which vitiates such finding in the award. But in the present case, it is a moot point whether clause 10(c) would totally debar the claim of the petitioner for damages on account of breach of contract taking place on the part of the Department and arbitrator, if had interpreted the said clause in a particular manner, it cannot be said that the said finding of the arbitrator is in contradiction with the clause in the contract so as to make his finding illegal on the face of it.

14. In yet another case, it was observed that for the prolonged period of the contract, where the contractor is not at fault, the Arbitrator can give escalation beyond what is provided in the contract. Once escalation beyond the formula provided in the contract is restricted to the original period of the contract, and does not prevent the contractor from claiming market rates, then similarly the fixed price remains fixed only for the original period of the contract and for the prolonged period escalation at actual can be awarded to the contractor.

15. A peculiar and very interesting case decided in 1996 is to be understood for this clause. In this case the time of execution or six months but due to certain extra items that time was extended to 7 months. The contractor claimed that the Department framed a defective estimate on lower side due to which the necessity of extra work which was compulsory the required within the scope of work but not anticipated at the time of framing of estimates. The plea of the contractor was that, had the Department rightly anticipated the work the estimate would have been far more amount and accordingly the stipulated time of completion of work would be more than six months on pro rata basis and in that case he would be entitled to claim the increase under this clause. The plea of the contractor was accepted by the court. But, other contractor in a different case was not allowed escalation by the arbitrator on the same grounds. In this case, the court again upheld the view of the arbitrator. The important point to be seen is that there seems to be contrary decisions by the same court, but it is not so. In fact, the view of the court is that if the view taken by the arbitrator is plausible, the court cannot substitute its own view. In other words, it is upon the arbitrator to allow or disallow the claim and court has no power to interfere in the decision made by the arbitrator rather in favour of the contractor or against the contractor. This observation implies that had the Arbitrator allowed this claim for payment of escalation under clause 10CC, the Court would not have found the fault with it.

16. In yet another case, the contention of the contractor was that with respect to certain works, DDA paid part rates and not the entire rates. The issue was whether escalation is to be granted as per the part rates or the complete rates as mentioned under the contract. Surely, part rate payments are only on account payments and actual escalation has to be on the contractual rate. This was so held by the Arbitrator and I do not find any fault with the reasoning of the Arbitrator. The challenge with respect to this claim accordingly fails.

17. In yet another case, the contention of department was that as per the contract, this clause will not apply because the original period of contract was for less than 12 months which was not rejected because, though originally the contract was for a period of 10 months, but it was not disputed that this contract was extended for a much longer period than the original contractual period. The Arbitrator has disallowed any escalation during the original period of the contract and has given escalation only for the extended period of the contract on account of the increased rates. This approach of the Arbitrator therefore, cannot be faulted with and consequently, the objection with regard to this claim was not found sustainable.

18. In yet another case it was observed that the Delhi Development Authority cannot be judge of its own case, and, in any case, mere act of granting extension of time, would not eliminate a claim which had to be looked into, adjudicated upon and decided as to whether any extra cost and expenditure have been incurred in terms of the contract.

19. In yet another case it was observed that once there is breach of the contract and there is no specific clause in the agreement delaying with such a situation, the provisions of Indian Contracts Act comes into play. The Court observed that Clause 10CC takes care of only compensation on account of escalation of prices of material and wages for the employees and other staff, whereas compensation on account of delay either in giving site or issuing material etc. is distinct. In the instant case, the contractor has to be compensated for keeping its entire establishment ready for the execution of the contract. It is more so where time is of the essence of the contract.

20. In yet another case it was observed that the statement of monthly allotments of flats were available before the Arbitrator and the respondent found that the petitioner has to spend some months in this process and is liable to be compensated for the same. The Court added that this portion of the award does not call for any interference.

21. In yet another case it was observed that ordinarily the parties would be bound by the terms agreed upon in the contract, but in the event of one of the party to the contract which has a great bearing on the work to be executed by the other party, the Arbitrator is vested with the Authority to compensate the second party for the extra cost incurred by him as a result of the failure of the first party to live upto its obligations. That is the distinguished feature of the case of this nature and M/s Alopi Prasad’s case and also Patel Engineering case. The said principle was recognized by this Court to fix responsibility of delay in construction of building and the repercussions of such delay. Based on the findings of the Learned Judge this court gave its approval to the excess amount awarded by the arbitrator on account of increase in price of materials and cost of labour and transport during the extended period of the contract even in absence of the escalation clause.

22. We also wish to refer to one more case in detail which is very interesting related to clause 10CC and the same is as under:

Escalation on account of less/under payment under Clause 10(cc) = Rs. 16,01,007.53

It is the case of the plaintiff that the formula should be worked in a manner where the gross work is to be multiplied by 85% to work out the escalation. To the same should be added the secured amount and thereafter 75% of the same should be taken as the pre-determined share of escalation of material. From this amount should be deducted the cost of the material supplied.

On the other hand, it is the contention of the learned Counsel for the defendants that the formula has to be worked as it is and if what the plaintiff claims is accepted, it would amount to altering the formula. It is stated that the methodology for working out the formula is that the gross work should be multiplied by 85% and thereafter secured amount added. From the total of this, material supplied should be deducted first and it is only thereafter 75% should be taken as the pre-determined escalation of material. Naturally the labour escalation would be 25%.

In the nutshell, the difference is that whereas the plaintiff seeks to substract the cost of material supplied after working out the pre-determined amount of 75% towards escalation of material, the defendants, on the other hand, seek to deduct the material supplied first before calculating 75% of the pre-determined escalation of the material cost. The two modes of calculations give rise to different results and that is the reason why the total is varying on the basis of the two different methodologies of calculations.

The bedrock of the submission of the learned Counsel for the plaintiff is that since the component of the cost of material supplied is related to the escalation in respect of material, it is only from that component of the escalation of material that the material supplied should be deducted as in the alternative it would imply that the deduction of material supplied would have an impact even on the 25% pre-determined escalation of labour and would even reduce the same.

The two modes of calculations are explained hereinafter as an illustration to explain the rival contentions:

Defendants' calculation

As per DDA, the rate of material and labour are as under:

               Assume the work done as            = 100

85% of work done = 100 x 85/100     = 85

Deduct cost of material (say)       = 30

[(85 - 30 = 55) is the work done for 10 c.c.)

Escalation for material = 55 x 75/100  = 41.25

Escalation for labour   = 55 x 25/100  = 13.75

                        ----------------------

                        TOTAL            55.00

                        ----------------------

Plaintiff's calculation

Assume the work done as       = 100

85% of work done = 100 x 85/100    =  85

work done for escalation of

material      = 85 x 75/100        = 63.75

Less cost of material              = 30.00

33.75

Work done for escalation

of labour = 85 x 25/100            = 21.25

------------------------------------------

TOTAL                                55.00

------------------------------------------

Note: Pre determined ratio for material and labour is 75% and 25% respectively as per agreement.

In the mode of calculation of the plaintiff, the escalation for labour works out more and since the revision of wages has been more, the net impact is more beneficial to the plaintiff.

Learned Counsel for the plaintiff contended that a contract must be worked out in its true letter and spirit. The work consisted of two components vis-a-vis material and labour. The percentage of these components were pre-determined by the defendants at 75% for material and 25% for labour. The 75% component fixed for material includes the cost of material issued by the defendants at fixed rates. No escalation is payable on this material and, therefore, the deduction of material supplied can be made only after bifurcating the component of material and labour from the total work done for escalation.

Learned Counsel for the plaintiff further submitted that the mode and manner of calculation suggested by the plaintiff is what was adopted by the arbitrator and approved by the Court in P.C. Sharma and Co. v. Delhi Development Authority MANU/DE/0413/1997 : AIR1997Delhi1786 . In para 12 of the judgment, the reasoning of the arbitrator, in what is really the case of the plaintiff herein, has been given in the following manner:

The claimant in support of their claim has submitted detailed calculations vide Annexure I, statements 1 to 18. A perusal of these calculations shows that the claimants have applied the pre-determined percentage of labour and material before subtracting the cost of material issued by the department from 85% of the value of work done. The respondents during oral hearings argued that as per provisions of Clause 10CC of the agreement, the cost of materials issued by the department at fixed rate has to be deducted from 85% value of the work done before applying the pre-determined percentages of material and labour in the work and that they had done their calculations accordingly.

The work consists of two components viz. material and labour. The percentages of these components as pre-determined by respondents are 75% for material and 25% for labour. The 75% component fixed for materials includes the cost of materials issued by respondents at fixed rates. No escalation is payable on this material. However, in handing and incorporating these materials in work, labour is engaged and utilised and escalation on this labour cost is to be paid. The calculations for escalation payments as ad opted by respondents result in denying this admissible escalation on labour. At the same time, escalation on materials gets accounted for on the higher side. This discrepancy is eliminated in the calculations submitted by claimants.

If the value of work done is considered as 'X' and the cost of material issued by respondents recoverable at fixed cost is taken as 'Y', the value of work done on which escalation is payable as per respondents calculations, works out to

(i) For materials Part = 0/6375 X - 0.75y

(ii) For labour part = 0.2125 X ? 0.25y

Clause 10CC lays stress that full cost of materials issued by department should be deducted from 85% value of work done. While as per (i) and (ii) above, through full cost of materials is getting deducted yet 75% is being deducted from materials part and 25% part = 0.2125X

In above (iii) above full value of material issued by the respondents at fixed cost (y) is getting deducted from the material element of work and no deduction for material issued is occurring in labour element.

It thus clear that in the spirit of Clause 10(cc), the calculations as submitted by claimants are more rational and to the point compared to respondents calculations. I consider the claim as just and fully established and award to claimants a sum of Rs. 2,28,082 for this claim as per details furnished by claimants in Annexure I to the statement of facts of the claimants.

The challenge to the aforesaid, as made by the DDA, has been rejected in the following terms “The Arbitrator, it could be seen, had only taken for calculation the formula in the Clause 10cc and he has only amplified the contents of the formula and has arrived at the figure. I do not find any substance in the argument of the learned Counsel for the DDA that the Arbitrator has gone beyond the formula in Clause 10(cc). therefore, I confirm the award on this claim.

Learned Counsel for the plaintiff has also referred to an award passed by Justice (Retd.) P.K. Bahri dated 13.12.1997 in P.C. Sharma and Co. v. DDA where a similar view has been taken.

Learned Counsel for the defendants, on the other hand, contended that once the escalation Clause incorporates a particular formula, the formula must be adhered to in strict sense since that is the agreed method for grant of escalation. Learned Counsel, thus, relied upon the observations made in Salwan Construction Co. v. Union of India MANU/DE/0062/1977 where it has been held that an escalator is an index and can be a convenient measure of damages. Such given escalator can be adopted by the court as a true measure of damages if it is available at hand.

Learned Counsel for the defendants emphasised by reference to the judgment of the Apex Court in Delhi Development Authority v. Durga Chand Kaushish MANU/SC/0329/1973 : [1974]1SCR535 that in construing the document one must have regard, not to the presumed intention of the parties, but to the meaning of the words they have used. It would be useful to extract the relevant paragraphs, being Nos. 19 and 20, which are as under:

Both sides have relied upon certain passages in Odgers' 'Construction of Deeds and Statutes' (5th ed. 1967). There (at pages 28-29), the First General Rule of Interpretation formulated is: ?The meaning of the document or of a particular part of it is thereforee to be sought for in the document itself.? That is, undoubtedly, the primary rule of construction to which Sections 90 to 94 of the Indian Evidence Act give statutory recognition and effect, with certain exceptions contained in Sections 95 to 98 of the Act. Of course, 'the document' means 'the document' read as a whole and not piecemeal.

The rule stated above follows logically from the Literal Rule of Construction which, unless its application produces absurd results, must be resorted to first. This is clear from the following passages cited in Odgers' short book under the First Rule of Interpretation set out above:

Lord Wensleydale, in Monypenny v. Monypenny (1861) 9 HLC 114 said:

the question is not hat the parties to a deed may have intended to do by entering into that deed, but what Is the meaning of the words used in that deed: a most important distinction in all cases of construction and the disregard of which often leads to erroneous conclusions.

Brett. LJ in Re Meredith ex. P. Chick (1879) 11 Ch. D. 731 observed:

I am disposed to follow the rule of construction which was laid down by Lord Denman and Baron Parke. They said that in construing instruments you must have regard, not to the presumed intention of the parties, but to the meaning of the words which they have used.

Learned Counsel for the defendants further contended that interestingly the plaint, as originally filed, did not contain what the plaintiff now claims. This claim is based on an amendment. The plaintiff amended only claim (i) and did not amend claims (h) and (j). Learned Counsel, thus, contended that merely because the component of the present claim would become high by reason of the mode and manner of calculation of the plaintiff, it would not give a right to the plaintiff to adopt the said methodology. Not only that, it was contended that the claim is also contrary to the legal notice sent by the plaintiff.

On the basis of the submissions of the learned Counsel for the parties, the plea put-forth by the plaintiff at first blush appears to have merit. This is so since the principle which underlines it is that the impact of any grant of escalation on the material supplied by the defendants should be deducted only from the escalation in respect of the material. This is so since the amount is being deducted on account of the fact that the escalation and material cost would not be to the debit of the plaintiff as it is the defendants who had supplied the material.

However, on giving a deeper thought to the matter, the aforesaid plea of the plaintiff cannot be accepted. It cannot be lost sight of the fact that Clause 10(cc) para 2 stipulates that the cost of the work on which escalation will be payable shall be reckoned as 85% of the cost of work as per the bills, running or final bill 'the value of material supplied under Clause 10 of this contract or service rendered at fixed charges as per Clause 34 of this contract' proposed to be recovered from the particular bill would be deducted before the amount of compensation for escalation is worked out. The basic concept, thus, is that where the material is supplied by the defendants or service rendered at fixed charges of labour, the plaintiff should naturally get the escalation. No doubt it was open to the defendants to have provided in the Clause that this amount should be separately deducted in the formulas. This is, however, not known how the formula has been worded. In the present case there is no fixed charged labour provided but that would not make a difference to the working of the formula. Para 4 of Clause 10(cc) states that the compensation of escalation 'shall be worked out as per formula given below.' The 'W' in the formula states that it is the cost of the work done worked out as indicated, in sub-para (ii) above. Thus, 'W' has to be worked out only as per sub-para (ii). On the other hand, if the contention of the plaintiff was to be accepted, then this 'W' would not be worked out in the manner as given in the formula. The 'W' is the same in the formula for escalation of material in para-4 and for the escalation of labour in para 6. In the methodology of the plaintiff, the 'W' would be different for the escalation in material cost as compared to the 'W' in the escalation for labour cost. So, this would be contrary to the stipulation in the contract where even in respect of the escalation of labour, 'W' is stated to be the value of work done worked out as indicated in sub-para (ii).

The parties in their wisdom have specified a formula where the methodology of working out of 'W' is same both for escalation of material as well as for escalation of labour. The 'W' has to be worked out strictly as per para 2 of Clause 10(cc). If this is done, the defendants have correctly worked out the amount payable to the plaintiff as escalation under Clause 10 (cc).

In support of this plea, one can but not refer to the words of Lord Wensleydale, in Monypenny v. Monypenny (supra) that the question is not of the parties intended to do by entering into the contract but what is the meaning of the words used in the contract. Any disregard to this principle would lead to erroneous conclusions. A liberal construction has to be applied in considering such instruments. We must have regard not to presume intent of the parties, but to the meaning of the words that have been used, as held by the Apex Court in Delhi Development Authority v. Durga Chand Kaushish (supra). In a different context where the question was whether the escalation should be given only as per Clause 10(cc) or some other methodology, it has been held in Bedi Construction Co. v. DDA and Anr. CS(OS) 2822/1994, decided on 10.11.2005 that once the formula of Clause 10(cc) forms part of the agreement and it is agreed upon, no other methodology will be adopted for the said purpose. These observations have been relied upon by this Court in Pt. Munshi Ram and Associates (P) Ltd. v. DDA MANU/DE/8062/2006 : 128(2006)DLT619 . The judgment in P.C. Sharma and Co. (supra) was only considering an award passed by an arbitrator. The learned single Judge did not deem it appropriate to take another view in view of the interpretation put-forth by the learned arbitrator. There is no discussion in the judgment in respect of the interpretation of the Clause and, thus, the said judgment can hardly be said to be of any binding nature.

In view of the aforesaid, there is no option but to reject the claim of the plaintiff in this behalf.

In the nutshell, it can be summarized that:

a. Cost index is not a true representation of building escalation

b. Escalation under clause 10CC is payable even if it is barred under the contract, but there must be breach has been committed by the Department.

c. Escalation under clause 10CC cannot be denied even if levy of compensation has been imposed.

d. The arbitrator has full powers to use any formula for allowing escalation due to breach of contract on the part of the Department, including the formula under clause 10 CC

e. Escalation beyond Stipulated Period cannot be denied even if it is banned but there must be breach of contract on the part of the Department.

f. Section 73 of the Indian contract act-1872 is the main weapon for claiming escalation for the prolonged period, and the arbitrator has full powers for the same. The court is also has difficulty to reverse the award of the arbitrator.

g. Fixed price contract (the contract without escalation clause) is applicable only for the fixed period and if there is a breach of contract on the part of the Department, the Department cannot deny escalation to the contractor. It may be specifically noted that 10C is only a reimbursement requested to be increased and it is not escalation payable due to breach of contract as per section 73 of the contract.

h. It may be clearly understood that the claim of all types of damages due to prolongation of contract are not covered under clause 10 CC at the different. Claim of damages are covered under section 73 and 74 Of Indian Contract Act-1872. The Section 55 of the Indian Contract Act-1872 is also very important for operations Of Section 73 and 74 of Indian Contract Act.

i. This clause does not either forbid the contractor from making a claim nor does the same provide for any formula or mechanism for determination of compensation on account of factors other than those that are specifically mentioned in the clause. This would necessarily mean that if in addition to increase in the prices of materials and stores and wages of labour required for execution of the work, the contractor suffers any damages on any other account as for instance on account of idle plants and machinery, scaffolding etc. or on account of blocked capital resulting in loss of profit or staff either posted on the work site or otherwise, he can make a suitable claim for payment on that account. Any such claim arising out of a breach of the agreement executed between the parties can be examined and awarded by the arbitrator depending on the evidence that the contractor may adduce to prove any such loss.

j. 10CC is also payable on claim of RIS made wrongly and the claim of work done but not paid.

k. 10CC is also payable on watch and ward charges under supplementary agreement.

l. Escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract

The relevant cases decided by various courts are:

DDA Vs SS Jailtley 2001(1) ALR 289,
Madhok Consttn. Vs. UOI 1998 ALR 280(1),
Kishan Chand Vs. UOI 1999(3) ALR 201,
Jagat Ram Trehan Vs DDA 2003(2) ALR 110,
NDR Israni Vs DDA 1989(2) ALR 249,
NDR Israni Vs DDA IA no. 3282/201 CS(OS) no. 2488/2000 decided on 28.10.2005
SS Jailtley Vs DDA ALR 2000(1)-660,
Kailash Nath & Associates vs NDMC 2002(3) ALR-631,
PC Sharma vs. DDA ALR 2006 p-403
Delhi development authority versus Hindustan construction Corp (2002 (1) ALR 98
Bharat Builders Vs. Respondent: Delhi Development Authority MANU/DE/3451/2009
Jagat Ram Trehan Vs. Delhi Development Authority MANU/DE/3080/2009
DDA v. Navbharat Construction 159 (2009) DLT 520
Nangia Construction Pvt. Ltd. Vs. Rail India Technical and Economic Services MANU/DE/3052/2009
Kanishka Builders Vs. Delhi Development Authority and Anr. MANU/DE/2958/2009
M.L. Mahajan v. Delhi Development Authority reported in MANU/DE/1267/2010
B.N. Kharbanda And Son vs Delhi Development Authority on 7/2/2006
M/s Bedi Construction V/s DDA & Another, decided on 10.11.2005.
P.C. Sharma & Co. V/s DDA
Krishna Construction Company vs. Delhi Development Authority.
Puran Chand Nangia vs. Delhi Development Authority MANU/DE/1001/2006
Vishal Engineer vs. Delhi Development Authority
Kailash Nath & Associates vs New Delhi Municipal Committee 2002 (3) ARBLR 631 Delhi.
K.R. Builders Private Limited Vs. Delhi Development Authority and Anr MANU/DE/8616/2007
K. N. Sathyapalan Vs. Vs. State of Kerala JT2006(10)SC 615
Food Corporation of India v. Joginderpal Mohinderpal and Anr. MANU/SC/0182/1989
N.P.C.C. Ltd. Vs. Jyoti Sarup Mittal Engineers, Contractors and Builders MANU/DE/0143/2007
P.C. Sharma & Co. Vs. DDA MANU/DE/0413/1997
Kamal Kumar Vs.: Airport Authority of India MANU/DE/0508/1998
DDA Vs. Naraindas R. Israni MANU/DE/9106/2007
DDA v. U. Kashyap 1991 (1) ALR 88
Associate Engineering v. Government of Andhra Pradesh and Anr. 1991 (2) ALR 180.
Sanyukt Nirmata Vs. Delhi Development Authority MANU/DE/0406/1997
Associate Builders vs Delhi Development Authority on 25 November, 2014 (Supreme Court)
M/S. Harcharan Dass Gupta vs Delhi Development Authority on 11 March, 2014
P.M Paul vs Union of India, AIR 1989 SC 1034
M/s Tarapore and Co., vs Cochin Shipyard Ltd, AIR 1984 SC 1072
Paragon Constructions (India) ... vs Union Of India (Uoi) And Anr. on 17 January, 2008,
Anurodh Constructions v. DDA
Union of India v. Shyama Charan Agarwala
K.R. Ravindran v. State of Kerala
Union Of India And Anr. vs Nangia Construction (India) Pvt. on 2 November, 2001
Express Engineering & ... vs Delhi Development Authority on 4 October, 1994
Heera Singh vs State Of Rajasthan And Ors. on 13 April, 2007

The last but not least is that Section 28(3) of Arbitration Act is very important and to be always kept in mind during entire arbitration proceedings, if required. This section says that “In all cases the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.”

Finally readers are informed that the above comments are purely based on study of various legal points and there is still huge scope for understanding this clause and the above information is very less for this clause and it needs much more. We have done huge and in depth study on this clause including the entitlement of market rates for prolonged period etc. which we shall try to mention in our future blogs. Readers are welcome for personal discussion in detail for further clarification, if they feel so.

With regards

From Icon of humanity team